Foresight(US:FRSX)2021-03-29 16:00PART I ITEM 3. KEY INFORMATION This section outlines the principal risks associated with the company, covering its financial condition as a development-stage entity, business and industry challenges, intellectual property vulnerabilities, and risks related to share ownership and its operations in Israel Risk Factors The company identifies several key risk categories: its development-stage status with a history of significant losses ($64.8 million since its 2015 merger) and lack of revenue; business risks including potential product defects, competition, and COVID-19 disruptions; the need to protect its intellectual property; and risks tied to its Israeli operations, such as political instability and currency fluctuations - The company is a development-stage entity with a limited operating history and has incurred net losses of approximately $64.8 million since its merger in 2015 through December 31, 20204950 - The company has not yet commercialized any products or generated significant revenue, and its future profitability depends on successfully developing and launching its products52 - Business operations face potential disruption from the COVID-19 pandemic, which has led to travel restrictions and remote work arrangements, potentially delaying trials and demonstrations848586 - Principal shareholders, officers, and directors beneficially own over 13.53% of outstanding Ordinary Shares, allowing them to exert significant control over shareholder matters114 - Operations are based in Israel, exposing the company to risks from political, economic, and military instability in the region132 ITEM 4. INFORMATION ON THE COMPANY This section details the company's history, corporate structure, and primary business activities, including its QuadSight multi-spectral vision system, Eye-Net V2X solution, investment in Rail Vision, intellectual property, and R&D expenditures History and Development of the Company Incorporated in Israel in 1977 and public on TASE in 1987, the company shifted to vehicle safety technology via a 2015 merger with Foresight Automotive and spun out Eye-Net Mobile in 2019 - The company acquired 100% of Foresight Automotive's share capital from Magna on October 11, 2015, shifting its focus to vehicle safety technology148 - In January 2019, the company spun out its cellular-based V2X accident prevention solution to its wholly owned subsidiary, Eye-Net Mobile150 Capital Expenditures (2018-2020) | Year | Capital Expenditures (USD) | | :--- | :--- | | 2020 | $50,000 | | 2019 | $103,000 | | 2018 | $733,000 | Business Overview The company develops smart multi-spectral vision software (Foresight Automotive) and cellular-based V2X applications (Eye-Net Mobile), holding a 19.34% stake in Rail Vision and a growing IP portfolio - Foresight Automotive's QuadSight® is a quad-camera multi-spectral vision system designed for highly accurate obstacle detection in harsh weather and lighting conditions177178 - Eye-Net Mobile develops a cellular-based V2X solution, Eye-Net Protect, that provides real-time pre-collision alerts to drivers and vulnerable road users via smartphones222 - The company holds a 19.34% stake in Rail Vision Ltd., a company developing image-processing-based safety systems for the rail industry249 - The company has a growing intellectual property portfolio with two granted U.S. patents and multiple pending applications in the U.S., Israel, China, Europe, and Japan95258 Research and Development Expenses (2018-2020) | Year | R&D Expense (USD) | | :--- | :--- | | 2020 | $8,563,000 | | 2019 | $10,209,891 | | 2018 | $8,637,947 | Organizational Structure Foresight Autonomous Holdings Ltd. has two primary subsidiaries, Foresight Automotive and Eye-Net Mobile, with Magna B.S.P. Ltd. holding approximately 11.14% of its outstanding shares - The company's primary subsidiaries are Foresight Automotive Ltd. and Eye-Net Mobile Ltd., both private companies incorporated in Israel264 Property, Plants and Equipment The company leases approximately 11,000 square feet in Ness Ziona, Israel, for its principal offices and R&D facilities, with the current lease expiring in March 2024 - The company leases approximately 11,000 square feet in Ness Ziona, Israel, for its offices and R&D facility, with the current lease ending in March 2024265 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The company reported a $15.4 million net loss and $12.8 million operating loss in 2020, with liquidity significantly strengthened to $43.9 million in cash, expected to fund operations until December 2023 Operating Results In 2020, the operating loss decreased to $12.8 million from $15.0 million in 2019, primarily due to a 16.1% reduction in R&D expenses, while net loss remained stable at $15.4 million Results of Operations (2019 vs. 2020) | Metric (USD in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Research and development expenses, net | 8,563 | 10,210 | | Marketing and sales | 1,268 | 1,350 | | General and administrative | 3,005 | 3,469 | | Operating loss | 12,836 | 15,029 | | Equity in net loss of affiliated companies | 2,718 | 839 | | Financial income, net | (179) | (429) | | Net loss | 15,375 | 15,439 | - Research and development expenses decreased by 16.1% year-over-year to $8.6 million in 2020, mainly due to a $1.6 million decrease in subcontracted services and lower travel expenses, reflecting COVID-19 cost reductions281 - General and administrative expenses decreased by 13.4% year-over-year to $3.0 million in 2020, driven by lower payroll and professional services costs283 Liquidity and Capital Resources Liquidity significantly improved in 2020, with cash and equivalents reaching $43.9 million from $10.1 million in 2019, driven by $45.3 million from financing activities, expected to fund operations until December 2023 Cash Flow Summary (2019 vs. 2020) | Cash Flow Activity (USD in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | (11,495) | (11,861) | | Net cash provided by investing activities | 85 | 7,191 | | Net cash provided by financing activities | 45,280 | 6,521 | | Net increase in cash and cash equivalents | 33,945 | 1,669 | - As of December 31, 2020, the company had approximately $43.9 million in cash, cash equivalents, and short-term bank deposits300316 - In 2020, the company raised a total of approximately $48.4 million in gross proceeds through a series of registered direct offerings and a private placement307309310311312313 - Management believes that existing cash reserves will be sufficient to fund current operations until December 2023316 Tabular Disclosure of Contractual Obligations As of December 31, 2020, total contractual obligations amounted to approximately $2.22 million, primarily for facility leases, car rentals, and a development agreement with Magna, with most due within one to three years Contractual Obligations as of December 31, 2020 | Obligation (USD) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Facility Lease | 1,207,600 | 371,600 | 743,200 | 92,800 | -- | | Car Rental | 136,900 | 60,800 | 76,100 | -- | -- | | Development Agreement with Magna | 877,000 | 877,000 | -- | -- | -- | | Total | 2,221,500 | 1,309,400 | 819,300 | 92,800 | -- | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section covers leadership, compensation, board structure, and employee base, noting $2.0 million in total compensation for directors and senior management in 2020, a six-member board, and 64 employees Compensation In 2020, aggregate compensation for all 14 directors and senior managers totaled approximately $1.37 million in salary and benefits and $0.61 million in share-based compensation, with CEO Haim Siboni receiving $539,749 Aggregate Compensation for Directors and Senior Management (2020) | Compensation Type | Amount (USD) | | :--- | :--- | | Salary and Related Benefits | $1,366,911 | | Share Based Compensation | $606,774 | Compensation of 5 Most Highly Compensated Officers (2020) | Executive Officer | Total Compensation (USD) | | :--- | :--- | | Haim Siboni | $539,749 | | Oren Bar-on | $252,162 | | Eli Yoresh | $250,348 | | Doron Cohadier | $193,118 | | Dror Elbaz | $192,317 | Board Practices The Board of Directors comprises six members, including two external directors as required by Israeli law, with an Audit Committee overseeing financial reporting, internal controls, and related-party transactions - The Board of Directors is composed of six members, including two external directors, and five members are considered 'independent' under Nasdaq rules355 - The company is required by Israeli law to appoint at least two external directors who meet stringent independence standards365 - The Audit Committee is comprised of three independent directors and is responsible for overseeing financial reporting, internal controls, and related-party transactions392394395 Employees As of December 31, 2020, the company had 64 employees (59 full-time, 5 part-time) in Israel, a slight decrease from 70 in 2019, with no union representation Employee Headcount (Year-End) | Year | Full-time Employees | Part-time Employees | Total | | :--- | :--- | :--- | :--- | | 2020 | 59 | 5 | 64 | | 2019 | 61 | 9 | 70 | | 2018 | 47 | 3 | 50 | Share Ownership As of March 21, 2021, the 2016 Equity Incentive Plan reserved 36,903,634 Ordinary Shares, with options to purchase 25,092,765 shares outstanding - As of March 21, 2021, under the 2016 Equity Incentive Plan, options to purchase 25,092,765 Ordinary Shares were outstanding434 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details ownership, with CEO Haim Siboni holding 12.15% and all directors/executive officers holding 13.53% as of March 21, 2021, and outlines a services agreement with Magna for R&D support Major Shareholders As of March 21, 2021, Haim Siboni beneficially owned 12.15% of shares, while the group of directors and executive officers owned 13.53%, with Magna's ownership decreasing to 11.47% in 2020 due to dilution Beneficial Ownership as of March 21, 2021 | Holder | Percentage Owned | | :--- | :--- | | Haim Siboni (beneficial) | 12.15% | | All directors and executive officers as a group | 13.53% | - During 2020, the beneficial ownership of Magna B.S.P. Ltd. decreased from 23.2% to 11.47% due to dilution from the company's equity offerings445 Related Party Transactions The company maintains a services agreement with Magna B.S.P. Ltd., a significant shareholder, for R&D services with monthly payments not exceeding NIS 235,000 (approximately $73,000) - Foresight Automotive has a services agreement with Magna, a significant shareholder, for R&D services with monthly payments not to exceed NIS 235,000 (approx. $73,000)452 ITEM 8. FINANCIAL INFORMATION The company is not subject to material legal proceedings, has never declared cash dividends, and has no plans to do so, with no significant changes since the consolidated financial statements date - The company has never declared or paid cash dividends and does not anticipate paying any in the foreseeable future455 - The company is not currently subject to any material legal proceedings454 ITEM 10. ADDITIONAL INFORMATION This section covers material contracts, exchange controls, and Israeli and U.S. tax considerations, including a 23% Israeli corporate tax rate, R&D grants, and the potential risk of Passive Foreign Investment Company (PFIC) classification for U.S. tax purposes Taxation The company is subject to a 23% Israeli corporate tax rate, receives royalty-bearing R&D grants, and for U.S. Holders, faces potential adverse tax consequences if classified as a Passive Foreign Investment Company (PFIC) - The general corporate tax rate for Israeli companies is 23% as of January 1, 2018473 - The company's R&D efforts are partly financed by royalty-bearing grants from the Israel Innovation Authority (IIA), which may restrict the transfer of technology and manufacturing outside of Israel478479 - The company does not expect to be a Passive Foreign Investment Company (PFIC) for 2020, but notes that this determination is made annually and cannot be assured for the future, as PFIC status would result in negative tax consequences for U.S. taxpayers holding the company's shares123508 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is foreign currency exchange rate fluctuations between the New Israeli Shekel (NIS) and the U.S. dollar, as liquid assets are in NIS and expenses are in U.S. dollars, with no hedging currently employed - The company's main market risk is foreign currency exchange risk due to fluctuations between the NIS and the U.S. dollar, as most liquid assets are in NIS and a portion of expenses are in U.S. dollars531 PART II ITEM 15. CONTROLS AND PROCEDURES As of December 31, 2020, management concluded that disclosure controls and internal control over financial reporting were effective, with no auditor attestation report included due to the company's emerging growth company exemption - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures, as well as its internal control over financial reporting, were effective545546 - The annual report does not include an auditor's attestation report on internal control over financial reporting due to an exemption for emerging growth companies under the JOBS Act547 ITEM 16G. CORPORATE GOVERNANCE As a foreign private issuer, the company follows Israeli corporate governance practices, diverging from certain Nasdaq rules regarding periodic reports, quorum requirements, director nominations, and executive compensation approval - The company follows Israeli corporate governance practices instead of certain Nasdaq rules, as permitted for foreign private issuers558 - Key areas of divergence from Nasdaq rules include quorum requirements, director nominations (which are not required to be made by an independent committee), and the approval process for executive compensation560564 PART III ITEM 18. FINANCIAL STATEMENTS This section presents audited consolidated financial statements for 2020 and 2019, showing total assets grew to $49.9 million in 2020, a net loss of $15.4 million, and a basic and diluted loss per share of $0.07 Consolidated Balance Sheet Data (as of Dec 31) | Metric (USD in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | 49,923 | 19,334 | | Total Current Assets | 44,381 | 10,696 | | Total Non-Current Assets | 5,542 | 8,638 | | Total Liabilities | 2,878 | 3,046 | | Total Equity | 47,045 | 16,288 | Consolidated Comprehensive Loss Data (Year Ended Dec 31) | Metric (USD in thousands, except per share) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Operating Loss | 12,836 | 15,029 | 13,321 | | Net Loss | 15,375 | 15,439 | 14,657 | | Basic and Diluted Loss Per Share (USD) | (0.07) | (0.10) | (0.12) | Consolidated Cash Flow Data (Year Ended Dec 31) | Metric (USD in thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (11,495) | (11,861) | (11,473) | | Net Cash Provided by (Used in) Investing Activities | 85 | 7,191 | (6,135) | | Net Cash Provided by Financing Activities | 45,280 | 6,521 | 11,367 |