A2Z Smart Technologies (AZ) - 2025 Q2 - Quarterly Report

Condensed Consolidated Interim Financial Statements This section presents A2Z Cust2Mate Solutions Corp.'s unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2025, including statements of financial position, loss, equity, cash flows, and detailed notes Condensed Consolidated Interim Statements of Financial Position The company's financial position as of June 30, 2025, shows a significant increase in total assets, primarily driven by a rise in cash and cash equivalents and short-term deposits, with total equity also seeing a substantial increase while total liabilities experienced a moderate rise Financial Position Summary (Thousands USD) | Metric | June 30, 2025 (Thousands USD) | December 31, 2024 (Thousands USD) | Change (Thousands USD) | % Change | | :-------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | :------- | | ASSETS | | | | | | Cash and cash equivalents | 28,451 | 13,526 | 14,925 | 110.34% | | Short-term deposits | 7,577 | 206 | 7,371 | 3578.16% | | Inventories | 3,392 | 796 | 2,596 | 326.13% | | Total current assets | 42,598 | 17,133 | 25,465 | 148.64% | | Total non-current assets | 3,500 | 1,745 | 1,755 | 100.57% | | Total Assets | 46,098 | 18,878 | 27,220 | 144.19% | | LIABILITIES | | | | | | Total current liabilities | 12,951 | 11,538 | 1,413 | 12.25% | | Total non-current liabilities | 1,617 | 496 | 1,121 | 226.01% | | Total liabilities | 14,568 | 12,034 | 2,534 | 21.06% | | SHAREHOLDERS' EQUITY | | | | | | Total equity (deficit) | 31,530 | 6,844 | 24,686 | 360.70% | Condensed Consolidated Interim Statements of Loss and Comprehensive Loss The company experienced a significant increase in net loss for both the three and six months ended June 30, 2025, compared to the prior year, driven by higher operating expenses and a substantial loss on warrant liability revaluation Key Financial Performance Indicators (Thousands USD) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | 1,160 | 1,144 | 2,707 | 2,384 | | Cost of revenues | 890 | 1,059 | 1,857 | 1,975 | | Gross profit | 270 | 85 | 850 | 409 | | Research and development costs | 3,919 | 957 | 5,230 | 2,088 | | Sales and marketing costs | 828 | 583 | 1,256 | 894 | | General and administration expenses | 2,320 | 1,658 | 7,736 | 3,857 | | Operating loss | (6,797) | (3,113) | (13,372) | (6,430) | | Loss (gain) on revaluation of warrant liability | 4,135 | (421) | 3,735 | (3,775) | | Net loss for the period | (12,591) | (3,174) | (19,345) | (3,570) | | Net loss attributable to controlling shareholders | (12,515) | (2,570) | (18,937) | (2,403) | | Basic and diluted loss per share from continuing operations | (0.31) | (0.16) | (0.48) | (0.08) | | Basic and diluted loss per share from discontinued operations | (0.04) | (0.03) | (0.07) | (0.05) | - Weighted average number of shares outstanding significantly increased to 35,304,220 for the three months ended June 30, 2025, from 20,692,538 in the prior year, and to 34,177,189 for the six months ended June 30, 2025, from 18,516,826 in the prior year, partly due to a 1-for-2.5 reverse stock split approved on September 24, 2024, which retroactively adjusted all share numbers[5][6] Condensed Consolidated Interim Statements of Changes in Shareholders' Equity (Deficit) Shareholders' equity significantly increased from $6,844 thousand at January 1, 2025, to $31,530 thousand by June 30, 2025, driven by share issuances and warrant exercises despite a net loss Changes in Shareholders' Equity (Deficit) for Six Months Ended June 30, 2025 (Thousands USD) | Item | Ordinary share capital (Number of shares) | Additional paid in capital | Warrant reserve | Accumulated Other Comprehensive Income | Transactions with non-controlling parties | Accumulated deficit | Non-controlling interest | Total Equity of shareholder of the Company (Deficit) | | :----------------------------------------- | :---------------------------------------- | :------------------------- | :-------------- | :------------------------------------- | :---------------------------------------- | :------------------ | :----------------------- | :--------------------------------------------------- | | Balance - January 1, 2025 | 29,590,297 | 83,120 | 30,863 | (549) | 927 | (100,452) | (7,065) | 6,844 | | Net loss for the period | - | - | - | - | - | (18,937) | (408) | (19,345) | | Adjustments from translating financial statements | - | - | - | 536 | - | - | - | 536 | | Issuance of shares in January 2025 private placement | 4,748,150 | 27,395 | - | - | - | - | - | 27,395 | | Transactions with non-controlling interests | - | (8,117) | - | - | - | - | 6,267 | (1,850) | | Exercise of RSUs | 20,000 | - | - | - | - | - | - | - | | Exercise of warrants | 1,407,787 | 11,764 | (1,269) | - | - | - | - | 10,495 | | Exercise of options | 145,999 | 337 | - | - | - | - | - | 337 | | Share based compensation | 5,000 | 7,117 | - | - | - | - | - | 7,117 | | Balance – June 30, 2025 | 35,917,233 | 121,617 | 29,594 | (13) | 927 | (119,389) | (1,206) | 31,530 | Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2025, the company saw net cash outflow from operations but significant inflow from financing, leading to a substantial increase in cash and cash equivalents Cash Flows for Six Months Ended June 30 (Thousands USD) | Activity | 2025 | 2024 | | :---------------------------------------- | :-------- | :-------- | | Net loss for the period | (19,345) | (3,570) | | Net cash provided by (used in) operating activities | (9,687) | (7,629) | | Net cash provided by (used in) investing activities | (8,128) | (33) | | Net cash provided by (used in) financing activities | 32,056 | 5,812 | | Decrease in cash and cash equivalents | 14,241 | (1,850) | | Cash and cash equivalents at beginning of period | 13,526 | 2,267 | | Cash and cash equivalents at end of period | 28,451 | 653 | - Key non-cash activities for the six months ended June 30, 2025, included the recognition of a lease liability and right-of-use asset of $1,892 thousand and a loss on divestment of a subsidiary of $1,009 thousand[12] Notes to the Condensed Consolidated Interim Financial Statements These notes provide detailed information supporting the interim financial statements, covering operations, accounting policies, financial instruments, revenue, commitments, discontinued operations, segments, and subsequent events NOTE 1 – NATURE AND CONTINUANCE OF OPERATIONS A2Z Cust2Mate Solutions Corp., incorporated in 2018 and listed on NASDAQ, focuses on retail automation via 'smart cart' technology, and despite recurring losses, management believes it has sufficient funds for the foreseeable future - The Company was incorporated on January 15, 2018, and is listed on the NASDAQ Stock Market LLC under the symbol 'AZ' since January 22, 2022[14][15] - The Company's primary product is the Cust2Mate system, which incorporates a 'smart cart' for retail automation solutions, automatically calculating purchases and offering features like product information, on-cart weighing, bar-code scanning, and on-board payment[21][22] - As of June 30, 2025, the Company had accumulated losses of $119,389 thousand and a net loss from continuing operations of $16,920 thousand for the six months ended June 30, 2025; despite recurring losses, management believes it has sufficient funds due to recent equity issuances[23] - The ongoing war in Israel, declared in October 2023, has had no material effect on the Company's financial situation or activities, and operations have been maintained[24][26] NOTE 2 – BASIS OF PREPARATION Interim financial statements are prepared in US dollars under IAS 34 and IFRS, with the functional currency being the New Israeli Shekel, and critical estimates for functional currency remain unchanged Significant accounting policy Unaudited condensed consolidated interim financial statements are prepared in US dollars, the Company's reporting currency, in accordance with IAS 34 and IFRS accounting standards effective January 1, 2025 - The financial statements are prepared in US dollars (reporting currency) in accordance with IAS 34 'Interim Financial Reporting' and IFRS accounting standards effective January 1, 2025[28][29] - The Company's functional currency is the New Israeli Shekel, and statements are prepared on a going concern and historical cost basis, with financial instruments measured at fair value[28][31] Critical Estimates and Assumptions Management makes estimates and assumptions affecting reported financial amounts, with the functional currency for each subsidiary determined as the New Israeli Shekel, a judgment that remains unchanged for the period - Management makes estimates and assumptions that affect reported asset and liability amounts and expenses, with actual outcomes potentially differing from these estimates[32] - The functional currency for each subsidiary is the New Israeli Shekel, a determination that involves judgment, and no changes occurred during the six months ended June 30, 2025[33] New Accounting Standards Amendments to IAS 21, 'Lack of Exchangeability,' effective January 1, 2025, introduce requirements for assessing currency exchangeability and estimating spot exchange rates, with no material effect on interim financial statements - New amendments to IAS 21, 'Lack of Exchangeability,' effective January 1, 2025, introduce requirements for assessing currency exchangeability and estimating spot exchange rates[34][35] - These amendments have had no material effect on the interim condensed consolidated financial statements[37] NOTE 3 – INVENTORY The company's inventory significantly increased from December 31, 2024, to June 30, 2025, primarily driven by a substantial rise in smart cart parts Inventory Breakdown (Thousands USD) | Item | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Smart cart parts | 2,919 | 342 | | Raw materials | 473 | 454 | | Total | 3,392 | 796 | NOTE 4 – WARRANT LIABILITY The company's warrant liabilities are revalued using the Black-Scholes model, resulting in significant revaluation losses for the six months ended June 30, 2025, and contributing to an overall increase in liability January 2024 Warrants January 2024 Warrants, with a $3.75 exercise price, incurred a $1,268 thousand revaluation loss for the six months ended June 30, 2025, increasing the liability to $3,425 thousand - The Company issued 561,260 January 2024 Warrants with an exercise price of $3.75, exercisable for 2 years[40] January 2024 Warrant Liability (Thousands USD) | Item | Amount | | :--------------------------------- | :----- | | Balance at December 31, 2024 | 2,006 | | Revaluation at March 31, 2025 | (24) | | Effect of changes in foreign exchange rates | 3 | | Balance at March 31, 2025 | 1,985 | | Warrant exercise | (20) | | Revaluation at June 30, 2025 | 1,292 | | Effect of changes in foreign exchange rates | 168 | | Balance at June 30, 2025 | 3,425 | - A loss on revaluation of $1,268 thousand was recorded for the six-month period ended June 30, 2025, compared to $894 thousand in the prior year[41] December 2023 Warrants December 2023 Warrants, with a CAD exercise price, resulted in a $428 thousand revaluation loss for the six months ended June 30, 2025 - The Company issued 259,156 December 2023 Warrants with an exercise price of CAD5.125, exercisable for 2 years[42] December 2023 Warrant Liability (Thousands USD) | Item | Amount | | :--------------------------------- | :----- | | Balance at December 31, 2024 | 1,029 | | Warrant exercises | (378) | | Revaluation at March 31, 2025 | (35) | | Effect of changes in foreign exchange rates | 1 | | Balance at March 31, 2025 | 617 | | Revaluation at June 30, 2025 | 463 | | Effect of changes in foreign exchange rates | 31 | - A loss on revaluation of $428 thousand was recorded for the six-month period ended June 30, 2025, compared to $461 thousand in the prior year[45] June 2023 Warrants June 2023 Warrants, with a CAD exercise price, resulted in a $552 thousand revaluation loss for the six months ended June 30, 2025, with the liability balance reaching zero by period end - The Company issued 763,654 June 2023 Warrants with an exercise price of CAD7.325, exercisable for 2 years[46] June 2023 Warrant Liability (Thousands USD) | Item | Amount | | :--------------------------------- | :----- | | Balance at December 31, 2024 | 1,668 | | Warrant exercises | (129) | | Revaluation at March 31, 2025 | (318) | | Effect of changes in foreign exchange rates | 6 | | Balance at March 31, 2025 | 1,227 | | Warrant exercises | (2,139)| | Revaluation at June 30, 2025 | 870 | | Effect of changes in foreign exchange rates | 42 | | Balance at June 30, 2025 | - | - A loss on revaluation of $552 thousand was recorded for the six-month period ended June 30, 2025, compared to $528 thousand in the prior year[47] March 2023 Warrants March 2023 Warrants, with a CAD exercise price, resulted in a $37 thousand revaluation loss for the six months ended June 30, 2025, with the liability balance reaching zero by March 31, 2025 - The Company issued 356,711 March 2023 Warrants with an exercise price of CAD5.875, exercisable for 2 years[48] March 2023 Warrant Liability (Thousands USD) | Item | Amount | | :--------------------------------- | :----- | | Balance at December 31, 2024 | 817 | | Warrant exercises | (844) | | Warrant expiry | (10) | | Revaluation at March 31, 2025 | 37 | | Effect of changes in foreign exchange rates | - | | Balance at March 31 and June 30, 2025 | - | - A loss on revaluation of $37 thousand was recorded for the six-month period ended June 30, 2025, compared to $1,004 thousand in the prior year[49] November 2022 Warrants November 2022 Warrants, with a CAD exercise price and extended expiry to November 6, 2025, incurred a $1,450 thousand revaluation loss for the six months ended June 30, 2025, increasing the liability to $3,845 thousand - The Company issued 595,666 November 2022 Warrants with an exercise price of CAD5.875, and their expiry date was extended by 1 year until November 6, 2025[50] November 2022 Warrant Liability (Thousands USD) | Item | Amount | | :--------------------------------- | :----- | | Revaluation at December 31, 2024 | 2,269 | | Effect of changes in foreign exchange rates | (52) | | Balance at December 31, 2024 | 2,225 | | Revaluation at March 31, 2025 | (60) | | Effect of changes in foreign exchange rates | (2) | | Balance at March 31, 2025 | 2,163 | | Revaluation at June 30, 2025 | 1,510 | | Effect of changes in foreign exchange rates | 172 | | Balance at June 30, 2025 | 3,845 | - A loss on revaluation of $1,450 thousand was recorded for the six-month period ended June 30, 2025, compared to $805 thousand in the prior year[52] NOTE 5 - SHAREHOLDERS EQUITY This note introduces detailed disclosures on warrants, options, and restricted share units, which collectively impact shareholders' equity NOTE 6 - WARRANTS AND OPTIONS This note details warrant, stock option, and RSU transactions and outstanding balances, highlighting new issuances, exercises, and significant share-based compensation expenses for the six months ended June 30, 2025 Warrants Warrant transactions for the six months ended June 30, 2025, included expiry, exercise of 1,407,787 warrants for $7,251 thousand, and issuance of 229,688 new warrants, with 3,738,724 outstanding Warrant Transactions (Six Months Ended June 30, 2025) | Item | Number of Warrants | | :----------------------------------------- | :----------------- | | Balance, January 1, 2024 | 4,386,234 | | Warrants issued in the January 2024 Registered Direct Offering | 651,062 | | Warrants issued in the July 2024 Private Placement | 1,200,000 | | Exercise of warrants | (1,330,300) | | Warrants issued in the October 2024 Private Placement | 21,333 | | Balance, December 31, 2024 | 4,928,329 | | Expiry of warrants | (11,506) | | Exercise of warrants | (1,407,787) | | Warrants issued in the January 2025 Registered Direct Offering | 229,688 | - During the six months ended June 30, 2025, 1,407,787 warrants were exercised, generating total proceeds of $7,251 thousand[56] Outstanding Warrants as at June 30, 2025 | Number | Expiry date | Exercise price (USD) | | :-------- | :----------------- | :------------------- | | 977,425 | November 10, 2025 | $5.29 | | 546,653 | December 24, 2025 | $5.29 | | 88,440 | April 18, 2026 | $21.52 | | 433,825 | May 28, 2026 | $21.52 | | 652,546 | November 6, 2025 | $3.67 | | 202,621 | December 12, 2025 | $3.75 | | 586,193 | January 4, 2026 | $3.75 | | 21,333 | October 2, 2026 | $1.875 | | 229,688 | January 29, 2030 | $8.00 | | Total: 3,738,724 | | | Stock Options Stock option activity for the six months ended June 30, 2025, included cancellations, exercises, and granting of 834,000 new options, resulting in $3,740 thousand in share-based compensation expense Stock Option Transactions (Six Months Ended June 30, 2025) | Item | Number of Options | | :------------------------ | :---------------- | | Balance January 1, 2024 | 1,411,170 | | Options granted | 552,000 | | Expiry of options | (206,500) | | Balance December 31, 2024 | 1,756,670 | | Options cancelled | (85,333) | | Options exercised | (145,999) | | Options granted | 834,000 | | Balance June 30, 2025 | 2,359,338 | - During the six months ended June 30, 2025, the Company granted 834,000 stock options, including 105,000 to an employee, 500,000 to the CEO, and 229,000 to other employees, with various exercise prices and vesting schedules[58] - Share-based compensation expense from stock options was $3,740 thousand for the six months ended June 30, 2025, a significant increase from $486 thousand in the prior year[60] RSUs RSU transactions for the six months ended June 30, 2025, included granting 545,000 RSUs, with 400,000 to the CEO vesting on a 10,000 smart cart supply agreement, resulting in $3,342 thousand in share-based compensation expense - During the six months ended June 30, 2025, the Company granted 545,000 RSUs, including 20,000 to an employee, 400,000 to the CEO (vesting upon securing a binding supply agreement for at least 10,000 smart carts), and 125,000 to an advisor[61][62][63] RSU Transactions (Six Months Ended June 30, 2025) | Item | Number | | :------------------------ | :----- | | Balance, January 1, 2024 | 588,834| | RSUs granted | 326,000| | Expiry of RSUs | (40,166)| | Exercise of RSUs | (764,001)| | Balance, December 31, 2024| 110,667| | RSUs granted | 545,000| | Expiry of RSUs | (6,000)| | Exercise of RSUs | (20,000)| | Balance, June 30, 2025 | 629,667| - Share-based compensation expense from RSUs was $3,342 thousand for the six months ended June 30, 2025, compared to $2,547 thousand in the prior year[65] NOTE 7 - REVENUES The company's revenues, primarily from precision metal parts and smart carts, increased for the six months ended June 30, 2025, driven by significant growth in smart cart project revenues Revenue Streams (Thousands USD) | Revenue Stream | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Precision metal parts | 979 | 1,047 | 2,332 | 2,231 | | Smart carts project | 181 | 97 | 375 | 153 | | Total Revenues | 1,160 | 1,144 | 2,707 | 2,384 | NOTE 8 – COMMITMENTS The company has lease commitments for Israeli office and factory spaces, and a pending agreement to sell its A2Z Isramat subsidiary had not closed as of June 30, 2025 - The Company has lease commitments for office space ($498 annually, expiring March 31, 2029) and factory space ($202 annually, expiring March 31, 2027) for its Israeli subsidiaries[67] - As of June 30, 2025, the sale of A2Z Isramat to Iron Dove Technologies Inc. for approximately $964 thousand had not yet closed, as not all conditions of the agreement were met[68] NOTE 9 – DISCONTINUED OPERATIONS On June 30, 2025, the company sold A2ZMS Advanced Military Solutions Ltd., classifying its operations as discontinued, resulting in a $1,009 thousand loss on disposal and a $2,425 thousand net loss from discontinued operations - On June 30, 2025, the Company sold its wholly-owned subsidiary A2ZMS Advanced Military Solutions Ltd. for 500,000 ILS (approximately $148 thousand), and its operations were classified as discontinued[69][70][72] Operating Results from Discontinued Operations (Thousands USD) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | 397 | 394 | 824 | 851 | | Gross profit | 11 | 38 | 57 | 41 | | Operating loss | (454) | (406) | (1,407) | (812) | | Loss on disposal of discontinued operations | (1,009) | - | (1,009) | - | | Net loss for the period from discontinued operations | (1,436) | (420) | (2,425) | (835) | Net Cash Flows from Discontinued Operations (Thousands USD) | Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | | From operating activities | 515 | 20 | | From investing activities | (44) | (4) | | From financing activities | (132) | (58) | | Total | 339 | (42) | NOTE 10 – OPERATING SEGMENTS The company operates in Precision Metal Parts and Smart Carts segments, both contributing revenue, with Smart Carts showing significant operational loss, and segment assets and liabilities reflecting resource allocation - The Company operates in two segments: Retail automation solutions (Smart Carts) and Manufacturing and selling of precision metal parts (Precision Metal Parts)[75] Operating Segment Performance (Six Months Ended June 30, 2025, Thousands USD) | Metric | Precision Metal Parts | Smart Carts | Total | | :---------------------- | :-------------------- | :---------- | :---- | | Revenues | 2,332 | 375 | 2,707 | | Cost of revenues | 1,847 | 10 | 1,857 | | Segment operational loss (gain) | 66 | 13,306 | 13,372| Operating Segment Assets and Liabilities (Thousands USD) | Metric | Precision Metal Parts | Smart Carts | Total | | :---------------- | :-------------------- | :---------- | :---- | | Segment assets (June 30, 2025) | 2,751 | 43,347 | 46,098| | Segment liabilities (June 30, 2025) | 1,376 | 13,192 | 14,568| NOTE 11 – SUBSEQUENT EVENTS Between July 1, 2025, and August 13, 2025, the company issued additional shares due to warrant exercises, subsequent to the reporting period - Between July 1, 2025, and August 13, 2025, the Company issued 38,000 shares from the exercise of 38,000 warrants, generating total proceeds of $139 thousand[78]