Maris(US:MTEK)2023-03-06 14:00Part I Key Information This section outlines significant risks including a history of operating losses, reliance on backlog, competition, and identified material weaknesses in internal financial controls Risk Factors The company faces substantial risks across business, operations, and financial condition, including supply chain impacts, economic uncertainty, a history of net losses, and identified material weaknesses in internal financial controls - The company has a history of operating at a loss since its inception50 Net Loss History (2020-2022) | Fiscal Year | Net Loss (USD) | | :--- | :--- | | 2022 | $3,688,346 | | 2021 | $824,224 | | 2020 | $640,343 | - The company's order backlog was approximately $1.9 million as of January 1, 2023, increasing to approximately $2.6 million by March 6, 2023, though not a guaranteed indicator of future revenues53 - Material weaknesses in internal control over financial reporting were identified as of December 31, 2022, relating to insufficient personnel with U.S. GAAP and SEC reporting expertise and inadequate segregation of duties93 - As of December 31, 2022, principal shareholders, officers, and directors beneficially owned approximately 40.87% of outstanding Ordinary Shares, granting them significant control over shareholder matters117 - The company received a Nasdaq non-compliance notice for minimum bid price on January 17, 2023, but regained compliance on March 3, 2023122 Information on the Company This section details Maris-Tech's history, B2B intelligent video transmission technology business, organizational structure, and leased property History and Development of the Company Maris-Tech Ltd., incorporated in Israel in 2008, closed its Nasdaq IPO in February 2022, raising approximately $17.8 million in gross proceeds and significantly increasing capital expenditures in 2022 - The company closed its IPO on February 4, 2022, issuing 4,244,048 Ordinary Shares and warrants, raising aggregate gross proceeds of approximately $17.8 million172 Capital Expenditures | Year Ended Dec 31 | Capital Expenditures (USD) | | :--- | :--- | | 2022 | $284,490 | | 2021 | $7,567 | Business Overview Maris-Tech is a B2B provider of miniature, AI-accelerated video and audio surveillance systems, strategically expanding into the U.S. and Asia-Pacific markets with continuous R&D investment and recent significant purchase orders - The company's strategic objective is to become a global market leader in video streaming and AI-accelerated edge computing systems, with a focus on penetrating the U.S. and Asia-Pacific markets194195196 - The company's intellectual property strategy relies on a combination of proprietary know-how, one pending patent application for enhanced forward error correction, and three Israeli trademarks197200204 - The company is developing new product families, including the Jupiter series (expected release in Q3 2023) and the Uranus-AI platform (expected launch in Q4 2023), which will support up to 8K video with advanced AI acceleration216220221 - The company received its largest purchase order to date in December 2022 for $1.1 million for a derivative of its new Jade product, based on the Jupiter AI platform240 - In January 2023, the company received a $660,000 purchase order from a new customer in Australia for its Onyx product, also based on the Jupiter AI platform241 Organizational Structure As of the report date, Maris-Tech Ltd. operates without any subsidiaries or affiliated companies - The company currently has no subsidiaries or affiliated companies247 Property, Plants and Equipment The company's main operations are conducted from a leased 566 square meter office space in Rehovot, Israel, considered sufficient for foreseeable needs - The company leases 566 square meters of office space in Rehovot, Israel, under a lease that expires in November 2024 with a three-year extension option248 Operating and Financial Review and Prospects This section analyzes the company's financial performance, highlighting a 21% revenue increase to $2.5 million in 2022, a widened net loss of $3.7 million, and significantly improved liquidity post-IPO Operating Results For the year ended December 31, 2022, revenues increased 21% to $2.5 million, but gross profit declined 19% and operating expenses surged, resulting in a net loss of $3.7 million Results of Operations (2022 vs. 2021) | Metric | 2022 (USD) | 2021 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $2,504,896 | $2,075,755 | 21% | | Gross Profit | $782,792 | $969,308 | -19% | | Loss from Operations | $(3,683,851) | $(572,901) | 543% | | Net Loss | $(3,688,346) | $(824,224) | 347% | - The 21% increase in revenue in 2022 was primarily due to increased sales to existing and new customers in the UK and US259 - The decrease in gross profit was attributed to a higher proportion of sales to a UK distributor with lower margins and an increase in the cost of critical components261 - The 377% increase in General and Administrative expenses was mainly due to costs associated with the IPO and listing on Nasdaq, as well as recruitment of senior personnel264 Liquidity and Capital Resources The company's liquidity substantially improved in 2022 due to its IPO, resulting in $9.3 million in cash and short-term deposits and a working capital of $10.4 million, with management expecting sufficient funds for the next twelve months Cash and Liquidity Position (as of Dec 31) | Metric | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $255,530 | $49,126 | | Short-term bank deposits | $9,084,082 | $0 | | Working Capital | $10,442,953 | $(994,850) | Summary of Cash Flows (Year Ended Dec 31) | Cash Flow Activity | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,857,027) | $(875,002) | | Net cash used in investing activities | $(9,304,593) | $(29,424) | | Net cash provided by financing activities | $14,368,024 | $899,181 | - The company repaid approximately $1.4 million in liabilities to banks and a shareholder in February and May 2022, releasing related personal guarantees and collateral292 Research and Development The company is obligated to pay royalties on sales of products developed with Israeli Innovation Authority grants, totaling approximately $396,575 as of December 2022, and received a new joint grant for AI/ML development in August 2022 - The company has a contingent liability to pay royalties on sales of products developed with IIA grants, with the total amount of such grants received as of Dec 31, 2022, being approximately $396,575295 Directors, Senior Management and Employees This section details the company's leadership, compensation practices, five-member board with a staggered structure, and employee base of 12 individuals plus 3 contractors as of March 2023 Compensation For fiscal year 2022, the total aggregate compensation for all directors and senior management was approximately $1.8 million, with the five most highly compensated officers receiving $1.34 million Aggregate Compensation for Directors and Senior Management (FY 2022) | Compensation Type | Amount (USD) | | :--- | :--- | | Salary, bonuses and Related Benefits | $1,374,028 | | Pension, Retirement and Other Similar Benefits | $356,043 | | Share Based Compensation | $56,979 | | Total | $1,787,050 | Compensation of 5 Most Highly Compensated Officers (FY 2022) | Executive Officer | Total Compensation (USD) | | :--- | :--- | | Israel Bar (CEO) | $352,315 | | Magenya Roshanski (CTO) | $344,642 | | Carmela Bastiker (COO) | $318,183 | | Nir Bussy (CFO) | $208,700 | | Joseph Weiss (Former Chairman) | $177,142 | Board Practices The five-member board, with a staggered three-class structure, follows Israeli corporate governance practices in lieu of certain Nasdaq rules, and maintains an audit and compensation committee - The company has elected to follow Israeli corporate governance practices in lieu of certain Nasdaq Listing Rules, including those related to director nominations, officer compensation approval, and shareholder approval for equity compensation plans335569 - The board is divided into three classes with staggered three-year terms337 - The company has a 2021 Share Option Plan with a pool of 308,500 Ordinary Shares, with 213,301 options granted and unexercised and 74,200 shares remaining available for future grants as of March 6, 2023400 Employees As of March 6, 2023, Maris-Tech employed 11 full-time and one part-time employee, along with 3 regular service providers, none of whom are unionized - As of March 6, 2023, the company has 11 full-time employees, 1 part-time employee, and 3 regular service providers410 - None of the company's employees are members of a union411 Major Shareholders and Related Party Transactions This section details the company's ownership structure, with CEO Israel Bar and Director Joseph Gottlieb as principal shareholders, and outlines significant related party transactions including formalized loans from these individuals Major Shareholders As of March 6, 2023, CEO Israel Bar and Director Joseph Gottlieb are the principal shareholders, beneficially owning 18.42% and 6.36% respectively, with all directors and executive officers collectively owning 24.8% Beneficial Ownership (as of March 6, 2023) | Holder | Percentage Owned | | :--- | :--- | | Israel Bar (CEO, Director) | 18.42% | | Joseph Gottlieb (Director) | 6.36% | | All directors and executive officers as a group (9 persons) | 24.8% | Related Party Transactions Key related party transactions include approximately $1.09 million in loans from CEO Israel Bar and Director Joseph Gottlieb, scheduled for repayment starting February 2024, and stock option grants to directors and officers - CEO Israel Bar and Director Joseph Gottlieb provided loans to the company, with an outstanding amount of approximately $1.09 million (NIS 3,480,305.88) due to be repaid in 24 equal monthly payments commencing on February 4, 2024431432433 - The company has granted stock options to directors and executive officers as part of their compensation, with vesting schedules tied to continued service426427428 - The company purchased electronic components from Colint Ltd., a company owned by director Joseph Gottlieb, in an aggregate amount of $267,551 over the last five years, with all liabilities repaid as of March 6, 2023434 Financial Information The report includes consolidated financial statements, confirms no material legal proceedings during the period, and states the company has never paid cash dividends nor intends to in the foreseeable future - The company has never declared or paid cash dividends and does not intend to do so in the foreseeable future, retaining earnings to finance operations437 - The company was not subject to any material legal proceedings during the period covered by the financial statements436 The Offer and Listing The company's Ordinary Shares and Warrants commenced trading on Nasdaq Capital Market on February 2, 2022, and the company regained compliance with Nasdaq's minimum bid price requirement on March 3, 2023 - The company's Ordinary Shares and Warrants are listed on the Nasdaq Capital Market under the symbols "MTEK" and "MTEKW" since February 2, 2022441 - The company received a notice of non-compliance with Nasdaq's minimum bid price rule on January 17, 2023, but regained compliance on March 3, 2023442 Additional Information This section covers material contracts, exchange controls, and taxation, including the March 2021 SPA, IPO advisory agreements, a loan facility agreement, and Israeli and U.S. tax considerations including PFIC risk Material Contracts Key material contracts include the March 2021 Share Purchase Agreement, an Advisory Services Agreement for the IPO, and a Loan Facility Agreement formalizing loans from principal shareholders - The March 2021 SPA resulted in aggregate gross proceeds of $1.5 million from the issuance of 489,812 Preferred Shares and associated warrants450 - A Loan Facility Agreement was established with CEO Israel Bar and Director Joseph Gottlieb, formalizing outstanding loans with repayment to commence two years after the IPO451 Taxation This subsection details Israeli corporate tax rates, potential reduced rates for 'Preferred Technological Enterprises', and U.S. federal income tax considerations for shareholders, including the risk of PFIC classification - The general corporate tax rate for Israeli companies is 23%458 - The company may be eligible for reduced tax rates under Israel's Law for the Encouragement of Capital Investments as a 'Preferred Technological Enterprise', potentially lowering the rate to 12% or 7.5%484 - There is a risk the company could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which would result in adverse tax consequences for U.S. Holders, though the company does not expect to be a PFIC for 2022 but makes no assurances for the future152507 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange rate fluctuations, particularly USD/NIS volatility, and interest rate changes, with no current hedging instruments in place - The company's main market risk is foreign currency exposure, as most revenues are in USD while a majority of expenses are in NIS530 - The annual rate of inflation in Israel was 5.3% in 2022 and 2.8% in 2021534 - The company does not currently hedge its foreign currency exchange risk532 Part II Use of Proceeds The net proceeds from the company's IPO are allocated for research and development, marketing and sales with a U.S. market focus, loan repayment, and general corporate purposes - The company plans to use the net proceeds from its IPO as follows: - Approximately $4.0 million for research and development - Approximately $4.0 million for marketing and sales, focusing on the U.S. market - Approximately $1.2 million for repayment of outstanding loans - The remainder for working capital and general corporate purposes548552 Controls and Procedures As of December 31, 2022, management concluded that internal control over financial reporting was ineffective due to insufficient financial reporting personnel and inadequate segregation of duties, with remediation efforts underway - Management concluded that as of December 31, 2022, the company's internal control over financial reporting was not effective549 - Material weaknesses were identified related to: 1. An insufficient number of financial reporting personnel with appropriate knowledge and training in U.S. GAAP and SEC rules 2. Inadequate segregation of duties consistent with control objectives54993 - Remediation efforts include hiring a CFO with U.S. GAAP and SEC experience and developing an accounting policy manual551553 Corporate Governance and Other Disclosures This section covers the audit committee financial expert, Code of Business Conduct, principal accountant fees totaling $179,440 in 2022, a $1 million share repurchase plan, and the company's adherence to Israeli governance practices Principal Accountant Fees and Services Total fees paid to Kesselman & Kesselman, the principal independent registered public accounting firm, were $179,440 in 2022, primarily for audit services Accountant Fees (USD) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $150,000 | $369,000 | | Audit-related fees | $0 | $0 | | Tax fees | $0 | $0 | | All other fees | $29,440 | $3,750 | | Total | $179,440 | $372,750 | Purchases of Equity Securities In June 2022, the board authorized a $1 million share repurchase plan, though no shares have been repurchased as of March 6, 2023 - In June 2022, the Board of Directors authorized a share repurchase plan of up to $1,000,000566 - As of March 6, 2023, no shares have been repurchased under the plan566 Financial Statements Balance Sheets The balance sheet as of December 31, 2022, shows significant improvement in financial position post-IPO, with total assets increasing to $13.4 million and shareholders' equity shifting to a positive $9.6 million Key Balance Sheet Figures (as of Dec 31) | Metric | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Total Current Assets | $12,253,858 | $966,624 | | Total Assets | $13,363,916 | $2,039,267 | | Total Current Liabilities | $1,810,905 | $1,961,474 | | Total Liabilities | $3,767,063 | $4,418,847 | | Total Shareholders' Equity | $9,596,853 | $(2,379,580) | Statements of Operations For the year ended December 31, 2022, revenues increased to $2.5 million, but a significant rise in cost of revenues and operating expenses led to a widened net loss of $3.7 million Statement of Operations Highlights (Year Ended Dec 31) | Metric | 2022 (USD) | 2021 (USD) | 2020 (USD) | | :--- | :--- | :--- | :--- | | Revenues | 2,504,896 | 2,075,755 | 987,883 | | Gross profit | 782,792 | 969,308 | 487,187 | | Total operating expenses | 4,466,643 | 1,542,209 | 878,138 | | Loss from operations | (3,683,851) | (572,901) | (390,951) | | Net loss | (3,688,346) | (824,224) | (640,343) | | Basic and diluted net loss per share | (0.49) | (0.24) | (0.26) | Statements of Cash Flows For the year ended December 31, 2022, net cash used in operating activities increased to $4.9 million, while net cash provided by financing activities was $14.4 million, primarily from the IPO Cash Flow Summary (Year Ended Dec 31) | Cash Flow Activity | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | (4,857,027) | (875,002) | | Net cash used in investing activities | (9,304,593) | (29,424) | | Net cash provided by financing activities | 14,368,024 | 899,180 | | Net increase (decrease) in cash | 206,404 | (5,245) | Notes to the Financial Statements These notes explain accounting policies, including revenue recognition, detail the post-IPO liquidity increase, revenue composition, warrant and stock option terms, income tax details, and related party transactions Note 10 - Revenues The company's revenue is disaggregated into sales of products and NRE/POC contracts, with Israel and the United Kingdom being the largest geographical markets in 2022 Revenues by Geographical Area (2022) | Region | Revenue (USD) | % of Total | | :--- | :--- | :--- | | Israel | $1,311,524 | 52.4% | | United Kingdom | $836,443 | 33.4% | | USA | $301,990 | 12.1% | | Rest of the world | $54,980 | 2.2% | - In 2022, the top customer (Customer A) accounted for 33.4% of total revenues716 Note 12 – Equity This note details equity changes, dominated by the February 2022 IPO which generated $15.1 million in net proceeds and involved the conversion of Preferred Shares and issuance of warrants - The February 2022 IPO generated gross proceeds of approximately $17.8 million and net proceeds of $15.1 million after deducting underwriting discounts and other offering costs720 - In connection with the IPO, 489,812 Preferred Shares were converted into Ordinary Shares, and warrants were issued to underwriters and advisors721 Note 15 - Income Taxes The standard Israeli corporate tax rate is 23%, and the company has recorded a full valuation allowance against its $5.2 million in net operating loss carry-forwards due to realization uncertainty - As of December 31, 2022, the company had operating loss carry-forwards of approximately $5.2 million, which can be carried forward indefinitely to offset future taxable income in Israel752 - A full valuation allowance of $1,907,486 has been recorded against the company's deferred tax assets due to the uncertainty of their realization752