A2Z Smart Technologies (AZ) - 2024 Q4 - Annual Report

FORM 20-F Filing Information This section details the company's annual report filing, registrant identification, filing status, and accounting standards adherence Registrant Details This section identifies A2Z Cust2Mate Solutions Corp. (formerly A2Z Smart Technologies Corp.) as the registrant, incorporated in British Columbia, with its principal executive offices in Vancouver, Canada, and contact information for its CEO - Registrant: A2Z Cust2Mate Solutions Corp. (formerly A2Z Smart Technologies Corp.)[3] - Jurisdiction of incorporation: British Columbia, Canada[3] - Common Shares are traded on The Nasdaq Stock Market LLC under the symbol 'AZ'[3] Filing Status and Shares Outstanding The report is an Annual Report on Form 20-F for the fiscal year ended December 31, 2024, with the company classified as a non-accelerated filer and an emerging growth company - Filing Type: Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934[2] - Fiscal Year Ended: December 31, 2024[2] - Outstanding Common Shares as of December 31, 2024: 29,590,297[5] - Registrant Status: Not a well-known seasoned issuer, non-accelerated filer, and an emerging growth company[6][7] Accounting Standards and SOX Compliance Financial statements are prepared under IFRS, reflecting error corrections that did not necessitate a recovery analysis of incentive-based compensation - Financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board[8] - Financial statements reflect the correction of an error to previously issued financial statements[8] - No recovery analysis of incentive-based compensation was required due to error corrections[8] INTRODUCTION This section defines company references and specifies the basis for financial statement preparation, including currency and accounting standards Company References and Financial Statement Basis References to 'A2Z' and similar terms denote A2Z Cust2Mate Solutions Corp. and its subsidiaries, with financial statements published in US dollars under IFRS for 2022-2024 - Company references ('A2Z,' 'we,' 'our,' 'us') refer to A2Z Cust2Mate Solutions Corp. and its consolidated subsidiaries[12] - Consolidated financial statements are published in US dollars[12] - Financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB for fiscal years 2024, 2023, and 2022[13] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements based on current expectations, which are not guarantees of future performance and are subject to various risks Nature of Forward-Looking Statements The Annual Report includes forward-looking statements, identified by specific keywords, covering future business, financial condition, and growth strategies, but these are not guarantees of future performance - Report contains forward-looking statements under U.S. and Canadian securities laws, based on current beliefs, expectations, and assumptions[14] - Forward-looking statements are identified by words like 'anticipate,' 'believe,' 'expect,' 'plan,' 'will,' and cover topics such as results of operations, financial condition, business prospects, growth strategies, and industry trends[14] Key Risks Affecting Future Results Actual results may differ from forward-looking statements due to risks including significant losses, capital needs, geopolitical instability in Israel, sales challenges, supply chain issues, IT failures, and intellectual property protection - Risks include significant losses, need for additional capital, and potential dilution for shareholders[15] - Operations in Israel expose the company to political, economic, and military instability in the Middle East[15] - Operational risks include failure to expand sales/marketing, long and unpredictable sales cycles, inability to enhance brand, and challenges in developing new technology and products[15] - Dependence on strategic relationships with third parties and subcontractor/supplier performance poses risks[15] - Information technology system failures, security breaches, and intellectual property protection issues are significant concerns[18] PART I This section covers fundamental company information, including identity, offer statistics, key information, and a detailed overview of the business and its development ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This item is marked as 'Not applicable', indicating that specific information regarding the identity of directors, senior management, and advisers is not provided in this section - Item 1 is marked as 'Not applicable'[20] ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This item is marked as 'Not applicable', indicating that specific information regarding offer statistics and expected timetable is not provided in this section - Item 2 is marked as 'Not applicable'[21] ITEM 3. KEY INFORMATION This section provides critical information, including reserved items, capitalization, reasons for offer, and a comprehensive analysis of various risk factors affecting the company A. [Reserved] This sub-item is reserved and contains no specific information B. Capitalization and Indebtedness This sub-item is marked as 'Not applicable', indicating that specific information regarding capitalization and indebtedness is not provided in this section - Item 3.B. is marked as 'Not applicable'[22] C. Reasons for the Offer and Use of Proceeds This sub-item is marked as 'Not applicable', indicating that specific information regarding reasons for the offer and use of proceeds is not provided in this section - Item 3.C. is marked as 'Not applicable'[23] D. Risk Factors This section details various risks that could materially affect the company's business, financial condition, and results of operations, categorized into financial, operational, geopolitical, intellectual property, and common share-related risks Risks Related to the Company's Financial Position and Capital Requirements The company has incurred significant losses and an accumulated deficit of $100 million as of December 31, 2024, requiring additional capital that could dilute existing shareholders - The Company incurred comprehensive losses of approximately $18.5 million (2024), $17.8 million (2023), and $19.3 million (2022)[24] - Accumulated deficit as of December 31, 2024: $100 million[24] - Expects to incur substantial operating expenses and may experience negative cash flow for the foreseeable future[26] - Needs to raise additional capital, which could be highly dilutive to current shareholders and may not be available on acceptable terms[27][28] - Exchange rate fluctuations between NIS and USD may negatively affect earnings and operating cash flow[33] - Imposition of tariffs, sanctions, or other trade barriers could impact revenue and results of operations[34][35][36] Risks Related to the Company's Operations in Israel The company's significant operations in Israel expose it to substantial risks from regional political, economic, and military instability, potentially disrupting business, affecting financial performance, and impacting employee retention due to military service - Principal offices and a significant number of customers and employees are located in Israel, making the business vulnerable to political, economic, and military instability in the Middle East[37][38] - Ongoing conflict (e.g., war against Hamas, hostilities with Hezbollah) could adversely affect operations, financial results, and ability to raise capital[39][41][42][43] - Commercial insurance does not cover war and terrorism losses, and government coverage may not be sufficient[44] - Operations may be disrupted by obligations of management or key personnel to perform military service[47] - Difficulty in enforcing Canadian court judgments against the company or its Israeli officers/directors in Israel[48] Risks Related to the Company and the Company's Business The company faces risks in sales and marketing expansion, long sales cycles, brand awareness, technology development, reliance on a single major customer for smart carts, subcontractor performance, IT security breaches, intense competition, and dependence on key management - Failure to effectively develop and expand sales and marketing capabilities could harm business growth and market acceptance[50] - Sales cycles are long and unpredictable, making it difficult to project customer acquisition and revenue generation[51][52] - Dependency on one customer for a significant portion of smart-cart revenues (7% in 2024, 54% in 2023, 40% in 2022) poses a material adverse effect risk if this customer is lost[56] - Reliance on subcontractors and suppliers for components and services, with performance issues or financial instability posing risks[58][59][60] - Information technology system failures, network security breaches, and improper disclosure of sensitive data could interrupt operations and harm the business[61][63][64][65][66][67] - Intense competition from companies with greater resources and established market presence could hinder customer base development and revenue generation[73] - Loss of key members of the management team could significantly disrupt business operations and future development[74] - Products and services are complex and could have unknown defects or errors, leading to legal claims, brand damage, or diversion of resources[89][90][91] - Senior management has limited experience managing a U.S. public company, and regulatory compliance may divert attention[92] - Material weakness in internal accounting controls related to insufficient accounting resources and oversight, which could lead to material misstatements[95][96][97][98] Risks Related to our Intellectual Property The company's success depends on protecting its intellectual property, but faces risks including inability to obtain or enforce patents, challenges to existing rights, misappropriation, and potential infringement claims, which could be costly - Success depends on protecting intellectual property (patents, trademarks, copyrights, trade secrets), but most technology is not patented, and existing legal standards offer limited protection[112][113] - Patent applications may not be granted, or their scope of protection may be inadequate; no guarantee against infringing other patents[116] - Risk of claims from third parties for alleged infringement of their proprietary rights, which could be costly, time-consuming, and limit technology use[118][119][126][127] - Failure to comply with procedural requirements for patent agencies could lead to loss of patent rights[122][123] Risks Related to the Common Shares Investment in common shares is speculative, with risks including illiquid trading, price volatility, potential Nasdaq delisting, concentrated ownership influencing decisions, and dilution from future equity issuances - Investment in common shares is speculative, with risk of losing the entire investment[129] - A more active, liquid trading market for common shares may not develop, leading to significant price fluctuations[130][131] - Failure to comply with Nasdaq listing requirements could result in delisting of common shares[132] - Concentration of ownership (e.g., Chairman Bentsur Joseph beneficially owns 12.08%) may significantly influence matters requiring shareholder approval[133][134] - Exercise of outstanding warrants (4,620,543) and options (2,356,337) will have a dilutive effect on existing shareholders[136] ITEM 4. INFORMATION ON THE COMPANY This section provides comprehensive information on the company's history, business operations, organizational structure, and property, plants, and equipment A. History and Development of the Company A2Z Cust2Mate Solutions Corp., incorporated in 2018, has undergone name changes, strategic acquisitions (A2Z Advanced Solutions, Cust2Mate, Isramat), multiple capital raises, a reverse share split, and launched new smart carts, transitioning its market presence from TSXV to Nasdaq - Incorporated in British Columbia, Canada on January 15, 2018, as ECC Ventures 1 Corp., later changed to A2Z Smart Technologies Corp. and then A2Z Cust2Mate Solutions Corp. (August 12, 2024)[138] - Acquired A2Z Advanced Solutions Ltd. (parent of Advanced Military Solutions Ltd.) in 2019[141][142] - Acquired 77.51% of Cust2Mate Ltd. in November 2020, increasing to 96.58% by February 13, 2025, for an aggregate purchase price of $1.85 million[144][145][173] - Acquired Isramat Ltd., a precision metal parts manufacturer, on February 3, 2022, for approximately $2.989 million (NIS 9.3 million)[147] - Common shares commenced trading on Nasdaq Capital Market on January 5, 2022, and were voluntarily delisted from TSXV on February 28, 2024[146][158] - Completed multiple registered direct offerings and private placements in 2023 and 2024, raising significant capital (e.g., $5.8 million in June 2023, $3.2 million in Jan 2024, $3.3 million in April 2024, $2.4 million in Aug 2024, $4 million in Oct 2024, $1.8 million in Oct 2024, $12.5 million in Dec 2024)[153][154][155][157][159][160][165][167][171] - Effected a 1-for-2.5 reverse share split on October 8, 2024[166] - Launched next-generation 3.0 smart carts in January 2024, with deployment anticipated in Q3 2025, resulting in minimal smart cart revenues in 2024[156] B. Business Overview A2Z Cust2Mate Solutions Corp. is an innovative technology company with four business lines: smart cart solutions, precision metal parts manufacturing, maintenance services, and FTICS technology development, strategically focusing on global expansion of its AI-driven smart cart solutions Revenues by Segment (in thousands of $US) | Segment | 2024 | 2023 | 2022 | | :-------------------- | :--- | :--- | :--- | | Precision Metal Parts | $4,844 | $3,084 | $3,958 | | Advanced Engineering | $1,790 | $2,163 | $1,705 | | Smart Carts | $532 | $6,128 | $3,688 | | Total | $7,166 | $11,375 | $9,351 | - Smart cart revenues accounted for 7% of total revenues in 2024, down from 54% in 2023 and 40% in 2022, due to the rollout of a new generation smart cart[176][224] - Core business lines include: (i) retail 'smart cart' solutions (Cust2Mate), (ii) precision metal parts manufacturing, (iii) maintenance services in Israel, and (iv) Fuel Tank Inertia Capsule System (FTICS) technology development (currently on hold)[177][143] - Strategic focus is on Cust2Mate Products, aiming to be a leading mobile checkout system in the international market[178][221] - Cust2Mate smart carts offer mobile self-checkout, computer vision, security scales, real-time shopping information, digital services (ads, promotions), and payment options[180][181][182] - Key customers include Yochananof (Israel), HaStok Concept Ltd. (Israel), Morton Williams Supermarkets (U.S.), and partnerships for deployment in France (IR2S, Monoprix, Franprix), Mexico, Central America (Trixo), and the U.S. (Level 10, LLC)[186][187][188][189][190][192] - Business model evolves from outright purchase to a subscription-based model, with additional revenue streams from digital services (Smart Cart Marketplace) and AI-empowered big data analytics[197][198] - Competitive strengths include proven barcode scanning technology, comprehensive end-to-end solutions, multiple anti-fraud/theft capabilities, and development of AI-driven anomaly detection[201][205] - Marketing strategy involves direct sales to targeted customers and indirect sales through local partners in various countries (U.S., Thailand, Mexico, Central America, Australia, France, Chile, Romania)[203][204][206][207] - Strategic partnership with Nayax Ltd. to integrate mobile payment systems with smart carts, initially deployed in France[191][208] - Appointment of Alan Rootenberg as CFO and Gadi Graus as CEO of the Company, and formation of a Cust2Mate advisory board[163][212][213] C. Organizational Structure This section provides a chart listing the company's material subsidiaries, their jurisdictions of incorporation, and the company's direct and indirect ownership interest in each - The section includes a chart detailing material subsidiaries, their jurisdictions of incorporation, and ownership interests[214][215] D. Property, Plants and Equipment The company's corporate headquarters are in Vancouver, Canada, while its operational offices and factory spaces are leased by its Israeli subsidiaries with monthly payments ranging from $3.5 thousand to $17 thousand - Corporate headquarters located in Vancouver, British Columbia, Canada[216] - Israeli subsidiaries lease office space ($11 thousand/month, expiring March 2025), warehouse space ($3.5 thousand/month, expiring June 2025), and factory space ($17 thousand/month, expiring March 2027)[216] ITEM 4A. UNRESOLVED STAFF COMMENTS This item indicates that there are no unresolved staff comments from the SEC - No unresolved staff comments[217] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section provides an overview of the company's business, analyzes its financial performance, liquidity, capital resources, related party transactions, accounting policies, and current share data Overview and Business Description The company is an innovative technology firm with four business lines: smart cart solutions, precision metal parts manufacturing, maintenance services, and FTICS development, with a primary strategic focus on expanding its smart cart market share - Operates four business lines: smart cart solutions, precision metal parts manufacturing, maintenance services, and FTICS technology development[220] - Primary strategic focus is on developing and commercializing Cust2Mate smart carts for the retail industry[221] Results of Operations Total revenues decreased in 2024 due to a smart cart transition, while gross profit remained stable, operating losses persisted, and a significant loss on warrant revaluation contributed to consistent comprehensive losses Consolidated Statements of Comprehensive Loss (in thousands of US Dollars) | Metric | 2024 | 2023 | 2022 | | :------------------------------------- | :----- | :----- | :----- | | Revenues | $7,166 | $11,375 | $9,351 | | Cost of revenues | $5,180 | $9,382 | $7,517 | | Gross profit | $1,986 | $1,993 | $1,834 | | Research and development costs | $4,017 | $4,751 | $4,462 | | Sales and marketing costs | $1,216 | $1,377 | $475 | | General and administration expenses | $9,662 | $13,933 | $13,599 | | Loss on impairment | $1,727 | $1,027 | $- | | Operating loss | $(14,636) | $(19,095) | $(16,702) | | Loss (gain) on revaluation of warrant liability | $4,389 | $(1,255) | $254 | | Financial income | $(158) | $(85) | $- | | Financial expense | $396 | $302 | $1,391 | | Loss for the year | $(19,263) | $(18,057) | $(18,347) | | Total comprehensive loss for the year | $(18,482) | $(17,753) | $(19,273) | | Basic and diluted loss per share | $(0.80) | $(0.46) | $(0.60) | Revenues by Segment (in thousands of US Dollars) | Segment | 2024 | 2023 | 2022 | | :-------------------- | :----- | :----- | :----- | | Advanced Engineering | $1,790 | $2,163 | $1,705 | | Smart Carts | $532 | $6,128 | $3,688 | | Precision Metal Parts | $4,844 | $3,084 | $3,958 | | Total | $7,166 | $11,375 | $9,351 | - Total revenues decreased by $4,209 thousand (37%) from $11,375 thousand in 2023 to $7,166 thousand in 2024, primarily due to a decrease in smart cart segment revenues as the company rolls out its new generation smart cart[224] - Cost of revenues decreased by $4,202 thousand (45%) from $9,382 thousand in 2023 to $5,180 thousand in 2024, mainly due to lower smart cart segment costs[226] - Research and development expenses decreased by $734 thousand (15%) from $4,751 thousand in 2023 to $4,017 thousand in 2024, driven by replacing subcontractors with lower-cost employees[230] - General and administrative expenses decreased by $4,271 thousand (31%) from $13,933 thousand in 2023 to $9,662 thousand in 2024, mainly due to decreased share-based compensation and cost-cutting measures[232] - Loss on impairment increased from $1,027 thousand in 2023 (goodwill) to $1,727 thousand in 2024 (undeveloped patent)[233] - Loss on revaluation of warrant liability shifted from a $1,255 thousand gain in 2023 to a $4,389 thousand loss in 2024, primarily due to an increase in the company's share price[235] Quarterly Results (in thousands of US Dollars) | Metric | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 | | :---------------------- | :------ | :------ | :------ | :------ | :------ | :------ | :------ | :------ | | Total revenues | $1,857 | $2,074 | $1,538 | $1,697 | $1,349 | $2,558 | $2,860 | $4,608 | | Gross profit (loss) | $790 | $746 | $123 | $327 | $(34) | $368 | $638 | $1,021 | | Total comprehensive loss | $(10,739) | $(3,703) | $(2,952) | $(1,088) | $(4,041) | $(2,672) | $(6,394) | $(4,192) | | Basic and diluted loss per share | $(0.39) | $(0.15) | $(0.12) | $(0.01) | $(0.12) | $(0.07) | $(0.22) | $(0.12) | - Q4 2024 comprehensive loss increased significantly to $10,739 thousand from $3,703 thousand in Q3 2024, mainly due to a $4,048 thousand loss on revaluation of warrant liability[249] Liquidity and Capital Resources The company has historically incurred losses and negative operating cash flows, accumulating a $100 million deficit by December 31, 2024, but recent equity raises provide sufficient working capital for the next 12 months, significantly increasing cash and cash equivalents - Accumulated losses of $100,452 thousand and a net loss of $19,263 thousand for the year ended December 31, 2024[250] - As of December 31, 2024, working capital was $5,595 thousand, a significant improvement from a deficit of $(901) thousand in 2023[251] Cash Flow Summary (in thousands of US Dollars) | Metric | 2024 | 2023 | | :-------------------------------- | :----- | :----- | | Net cash used in operating activities | $(11,711) | $(11,387) | | Net cash used in investing activities | $(269) | $(320) | | Net cash provided from financing activities | $22,808 | $10,893 | | Increase (decrease) in cash | $10,828 | $(814) | - Cash and cash equivalents increased by $10,828 thousand in 2024, primarily driven by $24,435 thousand from issuance of shares and warrants[251][254] - Following equity raised in Q1 2025 (total gross proceeds of $30 million), the company has sufficient working capital for at least the next 12 months[250][265] - The company has no history of paying cash dividends and does not expect to in the foreseeable future[268] Off Balance Sheet Arrangements The company has no off-balance sheet arrangements - The Company is not committed to any off-balance sheet arrangements[272] Transactions with Related Parties Related party transactions primarily involve compensation to the Chairman, CEO, CFO, and other directors, totaling $1,761 thousand in 2024, a decrease from $1,951 thousand in 2023 Related Party Transactions (in thousands of US Dollars) | Category | 2024 Total | 2023 Total | 2022 Total | | :------------------------ | :--------- | :--------- | :--------- | | Chairman and former CEO | $730 | $1,235 | $1,224 | | Director and CEO | $792 | $0 | $0 | | Former CFO | $90 | $96 | $84 | | CFO and director | $67 | - | - | | Directors | $82 | $620 | $92 | | Grand Total | $1,761 | $1,951 | $1,560 | - Total compensation to related parties decreased from $1,951 thousand in 2023 to $1,761 thousand in 2024[275] - Chairman's consulting fees were reduced from NIS 150,000 to NIS 100,000 per month (approx. $26,500) effective July 1, 2024[305] - CEO's monthly fee was raised to $50,000 plus social benefits, and a one-time bonus of $150,000 was approved on November 8, 2024[312] Financial Instruments and Financial Risk Exposure The company is exposed to financial risks, primarily credit and currency risks, from its financing, operating, and investing activities, with risk management policies in place and fixed loan interest rates - Exposed to financial risks from financing, operating, and investing activities, with primary risks being credit risk and currency risk[277][278] - Risk management policies are in place to measure, monitor, and manage financial risk exposures[278] - The Cust2Mate smart cart platform is new and faces market competition, requiring rapid market penetration[280] Critical Accounting Policies and Estimates Key accounting estimates and judgments significantly impacting financial position include useful life of property and equipment, income tax, impairment of intangible assets, and fair value determination for warrant liabilities and share-based payments - Critical estimates and judgments include useful life of property and equipment, income tax, impairment of intangible assets (goodwill and patents), and fair value determination for warrant liabilities and share-based payments[281][282][283][284][285][286][287][288][289] Current Share Data As of the report date, the company had 34,886,955 common shares issued and outstanding, with detailed information on outstanding warrants and options, including their expiry dates and exercise prices - As of the date of the MD&A, 34,886,955 Common Shares were issued and outstanding[290] Outstanding Warrants and Options as of Report Date | Type | Number | Expiry Date | Exercise Price (USD) | | :------ | :---------- | :---------------- | :------------------- | | Warrants | 1,063,325 | November 10, 2025 | $4.90 | | Warrants | 546,653 | December 24, 2025 | $4.90 | | Warrants | 88,440 | April 18, 2026 | $19.90 | | Warrants | 433,825 | May 28, 2026 | $19.90 | | Warrants | 652,546 | November 6, 2025 | $3.67 | | Warrants | 791,250 | June 12, 2025 | $5.50 | | Warrants | 202,621 | December 13, 2025 | $3.75 | | Warrants | 591,062 | January 11, 2026 | $3.75 | | Warrants | 21,333 | October 2, 2026 | $1.88 | | Warrants | 229,688 | January 29, 2030 | $8.00 | | Options | 217,333 | August 20, 2025 | $2.61 | | Options | 13,333 | January 28, 2025 | $5.21 | | Options | 20,000 | June 3, 2026 | $14.60 | | Options | 6,671 | October 28, 2026 | $13.90 | | Options | 360,000 | August 2, 2032 | $6.19 | | Options | 120,000 | August 21, 2032 | $6.95 | | Options | 320,000 | January 4, 2033 | $2.87 | | Options | 40,000 | November 25, 2027 | $3.49 | | Options | 114,000 | April 18, 2033 | $2.78 | | Options | 18,000 | June 28, 2028 | $4.26 | | Options | 60,000 | September 20, 2033 | $3.82 | | Options | 462,000 | August 14, 2033 | $1.78 | | Options | 105,000 | January 15, 2035 | $6.40 | | Options | 500,000 | February 12, 2035 | $6.40 | Research and Development, Patents and Licenses etc. The company protects its intellectual property through patents, trademarks, copyrights, and trade secrets, with five patent applications pending as of December 31, 2024, while acknowledging the risk of infringement claims - Relies on patent, trademark, copyright laws, trade secret protection, and confidentiality agreements for intellectual property rights[291] - As of December 31, 2024, five patent applications were protected through pending applications[292] - Acknowledges the risk of patent infringement claims from competitors and third parties, which could lead to significant penalties or injunctions[294] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's directors, senior management, their compensation, board practices, employee count, and share ownership plans A. Directors and Senior Management This section lists the company's directors and executive officers, including Bentsur Joseph, Reeves Ambrecht, Alan Rootenberg, Yonatan de Jongh, Gadi Graus, and Adi Vazan, providing their professional backgrounds and current positions - Key directors and executive officers include Bentsur Joseph (Director, former CEO), Reeves Ambrecht (Director), Alan Rootenberg (CFO, Director), Yonatan de Jongh (Director), Gadi Graus (CEO, Director), and Adi Vazan (Director)[296][297][298][299][300][301][302] - Gadi Graus was appointed CEO on April 18, 2024, and Alan Rootenberg was appointed CFO on August 12, 2024[299][301] B. Compensation This section details Named Executive Officer compensation for 2024, including salary, share-based awards, and total compensation, along with service agreements and vested incentive plan awards Named Executive Officer Compensation (Year ended December 31, 2024, in US Dollars) | Name and Principal Position | Salary ($) | Share Option-based Awards ($) | Share-based Awards ($) | Total Compensation ($) | | :-------------------------- | :--------- | :---------------------------- | :--------------------- | :--------------------- | | Bentsur Joseph – Former CEO | 730,000 | - | - | 730,000 | | Alan Rootenberg – CFO | 24,000 | 14,200 | 20,000 | 58,200 | | Gadi Graus - CEO | 543,000 | 249,000 | - | 792,000 | | Gadi Levin – former CFO | 90,000 | - | - | 90,000 | - Bentsur Joseph's consulting fees were reduced to NIS 100,000 per month (approx. $26,500) effective July 1, 2024[305] - Gadi Graus's monthly salary was updated to $50,000 plus social benefits, and he received a one-time bonus of $150,000 on November 8, 2024[312] Value Vested or Earned During the Year ended December 31, 2024 (in US Dollars) | Name | Option-based awards – Value vested during the year ($) | Share-based awards – Value vested during the year ($) | Non-equity incentive plan compensation – Value earned during the year ($) | | :-------------- | :--------------------------------------------------- | :---------------------------------------------------- | :------------------------------------------------------------------------ | | Gadi Graus | $333,000 | $319,000 | $150,000 | | Alan Rootenberg | $5,000 | $14,200 | - | | Yonatan de Jongh | $4,000 | $7,100 | - | | Adi Vazan | $4,000 | $7,100 | - | | Reeves Ambrecht | $4,000 | $7,100 | - | Director Compensation (Year ended December 31, 2024, in US Dollars) | Name | Fees earned ($) | Share-based awards ($) | Option-based awards ($) | Total compensation ($) | | :-------------- | :-------------- | :--------------------- | :---------------------- | :--------------------- | | Yonatan de Jongh | 12,000 | 7,100 | 16,500 | 35,600 | | Reeves Ambrecht | Nil | 7,100 | 16,500 | 23,600 | | Adi Vazan | 12,000 | 7,100 | 16,500 | 35,600 | C. Board Practices The Board of Directors operates through independent Audit, Compensation, and Nominating Committees, overseeing financial reporting, executive compensation, and board nominations respectively - Board of Directors operates through an Audit Committee, Compensation Committee, and Nominating Committee[320] - Audit Committee members (Reeves Ambrecht, Adi Vazan, Yonatan de Jongh) are independent and financially literate, responsible for reviewing financial reports, disclosure controls, and internal control systems[321] - Compensation Committee (Reeves, Adi Vazan, de Jongh) assists the Board with compensation for directors and executive officers[323] - Nominating Committee (Reeves, Adi Vazan, de Jongh) assists the Board with director nominations[324] D. Employees As of the report date, the company had 89 employees, all located in Israel, with 29 in the Cust2Mate division and 44 in the Isramat subsidiary - Total employees: 89, all located in Israel[325] - Cust2Mate division has 29 employees (directly or through subcontractors)[325] - Isramat subsidiary has 44 employees[325] E. Share Ownership This section outlines the company's Stock Option Plan and Restricted Share Unit (RSU) Plan, designed to incentivize eligible persons by providing equity interests, with a maximum of 10% of outstanding shares for options and 3,094,533 shares for RSUs - Stock Option Plan aims to attract, retain, and motivate directors, officers, employees, and consultants by offering stock options[326] - Maximum number of common shares issuable under the Stock Option Plan is 10% of outstanding shares[326] - RSU Plan adopted on April 22, 2021, to provide incentives and align interests of eligible persons with shareholders[330] - Maximum aggregate number of common shares issuable under the RSU Plan is 3,094,533[331] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details major shareholders, including beneficial ownership percentages, and outlines related party transactions, such as private placement participations and director indemnity agreements A. Major Shareholders As of March 31, 2025, Bentsur Joseph is the largest beneficial owner with 12.11% of common shares, with no significant ownership changes over the past three fiscal years Beneficial Ownership of Common Shares (as of March 31, 2025) | Name of beneficial owner | Number of shares | Percentage of shares | | :----------------------- | :--------------- | :------------------- | | Bentsur Joseph | 4,175,636 | 12.11% | | Reeves Ambrecht | 18,094 | * (Less than 1%) | | Alan Rootenberg | 8,000 | * (Less than 1%) | | Yonatan de Jongh | - | - | | Gadi Graus | 571,428 | 1.65% | | Adi Vazan | - | - | - The percentage of voting shares beneficially owned is computed on the basis of 34,588,118 shares outstanding as of March 31, 2025[338] - No significant changes in ownership by major shareholders during the past three fiscal years[340] - As of March 31, 2025, there were 50 holders of record, with 4 in Canada and 31 in the United States[341] B. Related Party Transactions Related party transactions include participation by the Chairman and CEO in private placements, compensation to directors and executive officers, and an investment in Shelfie-Tech Ltd. where the Chairman serves as CEO, with director indemnity agreements also in place - Chairman Bentsur Joseph participated in private placements in November 2022 ($750 thousand) and August 2024 ($340 thousand)[343] - CEO Gadi Graus participated in private placements in April 2024 ($105 thousand) and August 2024 ($80 thousand)[344] Related Party Transactions (in thousands of US Dollars) | Category | 2024 Total | 2023 Total | 2022 Total | | :------------------------ | :--------- | :--------- | :--------- | | Chairman and former CEO | $730 | $1,235 | $1,224 | | Director and CEO | $792 | $0 | $0 | | Former CFO | $90 | $96 | $84 | | CFO and director | $67 | - | - | | Directors | $82 | $620 | $92 | | Grand Total | $1,761 | $1,951 | $1,560 | - The company invested $71 thousand in Shelfie-Tech Ltd. (1.2% ownership), where Chairman Bentsur Joseph serves as CEO[345][346] - Director indemnity agreements (DIAs) were entered into on March 17, 2025, to indemnify directors against losses, subject to BCBCA limitations[347][348] C. Interests of Experts and Counsel This sub-item is marked as 'Not applicable', indicating no specific information regarding the interests of experts and counsel is provided in this section - Item 7.C. is marked as 'Not applicable'[349] ITEM 8. FINANCIAL INFORMATION This section refers to the consolidated financial statements, legal proceedings, dividend policy, and significant changes since the fiscal year-end A. Consolidated Financial Statements and Other Financial Information This section refers to Item 18 for the consolidated financial statements - Refers to Item 18 for consolidated financial statements[350] A.7 Legal Proceedings As of the report date, the company is not aware of any material existing or contemplated legal proceedings - No awareness of any existing or contemplated material legal proceedings[351] A.8 Dividend Policy The company has never declared or paid cash dividends on its common shares and does not expect to do so in the foreseeable future, with future payments at the Board's discretion - Never declared or paid cash dividends on common shares[352] - Does not expect to pay dividends in the foreseeable future; future payments are at the Board's discretion based on earnings, capital, and growth needs[352] B. Significant Changes This section refers to Note 33 (Subsequent Events) in the consolidated financial statements for a discussion of significant events that have occurred since December 31, 2024 - Refers to Note 33 (Subsequent Events) for significant changes since December 31, 2024[353] ITEM 9. THE OFFER AND LISTING The company's common shares are traded on the Nasdaq Capital Market under the symbol 'AZ' and also listed on the Frankfurt Stock Exchange (FSE) under the symbol 'A23' - Common shares trade on the Nasdaq Capital Market under the symbol 'AZ'[354] - Common shares are also listed on the Frankfurt Stock Exchange (FSE) under the symbol 'A23'[354] ITEM 10. ADDITIONAL INFORMATION This section covers share capital, articles of association, material contracts, exchange controls, taxation, dividends, expert statements, and documents on display A. Share Capital This sub-item is marked as 'Not applicable', indicating no specific information regarding share capital is provided in this section - Item 10.A. is marked as 'Not applicable'[355] B. Notice of Articles and Articles of Association The company's articles do not limit business activities, require directors to disclose material interests, and specify remuneration and meeting quorum requirements, with no restrictions on share ownership or change of control - Articles do not contain stated objects or purposes and do not place limitations on business activities[357] - Directors with a material interest in a transaction must disclose it and are generally not entitled to vote on its approval, unless all directors have such an interest[358][359] - Directors' remuneration is determined by directors or shareholders; no share ownership is required for directors[360][361] - No change of control limitations in the articles regarding mergers, acquisitions, or corporate restructuring[363] - General meetings require at least 21 days' notice for public companies; quorum is two persons holding at least 5% of issued voting shares[364][365][366] - Qualified shareholders (1% of voting shares or >CAD$2,000 fair market value) can make proposals for annual general meetings[367] - No limitations on rights to own or exercise voting rights on securities by BCBCA or articles[368] - Articles require indemnification of directors and permit indemnification of other persons to the extent allowed by BCBCA[369] C. Material Contracts This section refers to Item 4 Section B for a discussion of the company's largest customer contracts - Refers to Item 4 Section B for discussion of largest customer contracts[370] D. Exchange Controls The company is unaware of Canadian governmental laws restricting capital export/import or dividend remittances to non-resident holders, though such remittances are subject to withholding tax - No awareness of Canadian governmental laws restricting capital export/import or remittance of dividends to non-resident holders[371] - Remittances of dividends to non-resident holders are subject to withholding tax[371] E. Taxation This section summarizes U.S. federal and Canadian federal income tax considerations for common share holders, covering tax treatment of distributions, dispositions, potential PFIC status for U.S. holders, and Canadian withholding tax and capital gains U.S. Federal Income Taxation For U.S. holders, distributions are generally taxable as ordinary dividend income, gains/losses on disposition are capital, and the company is not expected to be a PFIC for 2024, though PFIC status could have adverse tax consequences - Distributions on common shares are generally taxable to U.S. holders as ordinary dividend income[379] - Dividends from a 'qualified foreign corporation' (which the company is expected to be for 2024 due to Nasdaq listing) may be eligible for reduced tax rates for non-corporate U.S. holders[381] - Gain or loss on disposition of common shares is generally capital gain or loss, treated as U.S. source[385] - The company is not currently expected to be treated as a Passive Foreign Investment Company (PFIC) for 2024 or foreseeable future years, but this is a factual determination subject to change[387] - PFIC status could lead to adverse U.S. federal income tax consequences for U.S. holders[388] - Information reporting and backup withholding rules apply to payments to U.S. holders[390] Certain Material Canadian Federal Income Tax Considerations For U.S. resident holders, dividends are subject to Canadian withholding tax, generally reduced to 15% (or 5% for corporate holders with ≥10% ownership) under treaty, while disposition is not taxed unless it's 'taxable Canadian property' - Dividends to U.S. resident holders are subject to Canadian withholding tax at 25%, generally reduced to 15% (or 5% for corporate holders with ≥10% ownership) under the Canada-U.S. Tax Treaty[398] - U.S. resident holders are not subject to Canadian tax on disposition of common shares unless they are 'taxable Canadian property'[399] - For Canadian resident holders, dividends are included in income and subject to gross-up and dividend tax credit rules[402] - Canadian resident holders realize a capital gain or loss on disposition, with one-half of any capital gain ('taxable capital gain') included in income[403][404] F. Dividends and Payment Agents This sub-item is marked as 'Not applicable', indicating no specific information regarding dividends and payment agents is provided in this section - Item 10.F. is marked as 'Not applicable'[407] G. Statement by Experts This sub-item is marked as 'Not applicable', indicating no specific information regarding statements by experts is provided in this section - Item 10.G. is marked as 'Not applicable'[408] H. Documents on Display The company's Annual Report and other SEC filings are available on the SEC's EDGAR system and its investor relations website, with Canadian disclosure documents accessible on SEDAR+ - Annual Report and related exhibits can be requested from the company at no cost[410] - SEC filings are available on www.sec.gov (EDGAR system) and the company's investor relations website[411][412] - Canadian continuous disclosure documents are available on **SEDAR+ at www.SEDAR.com**[174](index=174&type=chunk)[410] I. Subsidiary Information This sub-item is marked as 'Not applicable', indicating no specific information regarding subsidiary information is provided in this section - Item 10.I. is marked as 'Not applicable'[413] ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's exposure to financial risks, including credit, market, liquidity, and interest rate risks, and outlines its capital management objectives and approach Financial Instruments and Financial Risk Exposure The company is exposed to financial risks from its financing, operating, and investing activities, primarily credit and currency risk, with financial instruments including cash, receivables, payables, and fixed-rate