PV Nano Cell (PVNNF) Risk Analysis
Risk Overview Q4, 2023
Source: the company's latest filing for the period ended Dec 31, 2023, filed May 09, 2024
Risk Change Over Time
- Accounting & Financial Operations - Risk 1Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of December 31, 2023. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures are designed to prevent fraud. Our management is required to assess the effectiveness of our internal controls and procedures and disclose changes in these controls on an annual basis. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us of our internal controls and procedures may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of December 31, 2023, and also concluded that our disclosure controls and procedures were not effective as of December 31, 2023, due to material weaknesses in our internal control over financial reporting, all as described in "Item 15 Controls and Procedures" of this annual report. As defined in Regulation 12b-2 under the Exchange Act, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected on a timely basis. The material weaknesses in internal control over financial reporting that were identified (among other things) were: (i) significant parts of entity level controls are missing, (ii) lack of segregation of duties, (iii) controls' effectiveness testing was predominantly not performed, among other things due to nonperformance of controls or absence of evidence for controls' performance, and (iv) non-remediation of material weaknesses identified in prior years. Based on such assessment, management has concluded that, as of December 31, 2023, our internal control over financial reporting is ineffective based on those criteria. We have made, and will continue to make, changes in these and other areas. In any event, the process of determining whether our existing internal controls are compliant with applicable requirements and sufficiently effective will require the investment of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this process and whether we will need to implement remedial actions in order to implement effective controls over financial reporting. The determination of whether or not our internal controls are sufficient and any remedial actions required could result in us incurring additional costs that we did not anticipate. We may also fail to complete our evaluation, testing and any required remediation needed to comply with applicable requirements in a timely fashion. Irrespective of compliance with applicable requirements, any additional failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting or results of operations. Furthermore, if we are unable to certify that our internal control over financial reporting is effective and in compliance with applicable requirements, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC, and we could lose investor confidence in the accuracy and completeness of our financial reports, which could hurt our business and our ability to access the capital markets.
- Debt & Financing - Risk 2We will need significant additional capital on an immediate basis, which we may be unable to obtain. Raising additional capital by issuing securities may cause dilution to existing shareholders.
As of December 31, 2023, we had cash balance of $629,957. We are in default in repayment of our convertible notes which, as of December 31, 2023, aggregated to approximately $1.5 million (including principal and interest). In addition, as of December 31, 2023, we had outstanding current liabilities towards the IIA, service providers and suppliers in the aggregate amount of approximately $3.5 million. The future payments of such liabilities may have a significant effect on our cash availability in future periods. As of the date of this annual report, we had sufficient cash to fund operations as presently maintained through July 2024. We will need to raise additional capital to continue our operations beyond such period and to pay existing and future liabilities. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are commercially acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financing through equity investments is likely to be dilutive to existing shareholders. Furthermore, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuance of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including finder fees, investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as our history of losses and capital market conditions, including inflation and rising interest rates across the global economy, which have resulted in, and may continue to result in, significant disruption of global financial markets and could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
- Corporate Activity and Growth - Risk 3Our ability to grow our business successfully depends, among other things, on our ability to expand our production and operating infrastructure in a way that would effectively support our growth in our target markets.
We manufacture our pastes and inks at our Migdal Ha'Emek facilities. We increased our facility's production capacity during 2023 to support current customer demand, and plan to further increase production capacity in accordance with future customer demand, subject to sufficient available capital. Our future success requires (among other things) that we have adequate capacity in our manufacturing facilities to manufacture the quantities of products to support our current sales level and the anticipated increased levels that may result from our growth. We believe that the capacity of our current manufacturing facilities is sufficient to meet anticipated demand for our products through the end of 2024. However, there can be no assurance as to the timing or our ability to achieve planned, needed, or desired manufacturing capacity levels. In the event that demand for our inks and (following completion of development) pastes outgrows our internal manufacturing capacity, we may engage third-party manufacturers to produce additional inks and pastes, in which case there can be no assurance that we will be able to enter into agreements with such manufacturers on terms acceptable to us, or at all, or that, once contracted, such manufacturers will perform as expected. If we are not successful in expanding our production capacity or entering into such agreements with third parties, our results of operation may be adversely affected.
Risk Highlights Q4, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 41
- Share Price & Shareholder Rights - Risk 1Provisions of Israeli law and our Amended and Restated Articles of Association ("Articles of Association"), may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.
Provisions of Israeli law and our Articles of Association could have the effect of delaying or preventing a change in control of our company; may make it more difficult for a third-party to acquire us; may make it more difficult for our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders; and may limit the price that investors may be willing to pay in the future for our ordinary shares. Among other things: - Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased;- any amendment of our Articles of Association generally requires a vote of the holders of a majority of our outstanding ordinary shares entitled to vote and present at a general meeting of shareholders; however, the amendment of a limited number of provisions related to the board of directors, proceedings of the board of directors, and business combinations require a vote of the holders of 60% of our outstanding ordinary shares entitled to vote and present at a general meeting (excluding abstentions);- our Articles of Association require a vote of the holders of 60% of our outstanding ordinary shares entitled to vote and present at a general meeting (excluding abstentions) for the removal of directors (who are not external directors) prior to the expiration of his or her term of office;- our Articles of Association provide that director vacancies may only be filled by our board of directors; and - our Articles of Association prevent a "business combination" with an "interested shareholder" (as such terms are defined in our Articles of Association) for a period of three years after the date of the transaction in which the person or entity became an interested shareholder, unless the business combination or the transaction which resulted in the shareholder becoming an interested shareholder is approved by the Board of Directors in accordance with our Articles of or other requirements specified in our Articles of Association are satisfied. Our Articles of Association provide for a board of directors consisting of no less than three and no more than seven directors, with all directors (other than the external directors, whose appointment is required under the Israeli Companies Law, 1999 (the "Companies Law"), as described below) divided into three classes with staggered three-year terms with each class of directors to consist, as nearly as possible, of one-third of the total number of directors other than the external directors. This provision may make it more difficult for our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, may limit the price that investors may be willing to pay in the future for our ordinary shares, and may make it more difficult for a potential acquiror to effect a change of control of our Company or may deter potential acquirors from seeking to effect a change of control. In addition, under our Articles of Association, as approved by our shareholders on November 29, 2018, GTRIMG Investments Ltd. ("GTRIMG"), our controlling shareholder, has the right, so long it holds at least 5% of our issued and outstanding share capital, conditioned upon a $2.0 million investment by GTRIMG following such date, to appoint a director to the Board who shall also serve as the chairman of the Board, provided that such nominee has the required qualifications under applicable laws, including the stock exchange rules then applicable. In April 2020, following completion of GTRIMG's $2.0 million investment, GTRIMG appointed Mr. Dov Farkash to serve as a member of our Board as Active Chairman. At the annual general meeting of shareholders held in December 2023, our shareholders approved the re-election of Mr. Farkash as a Class I director, to serve until our annual general meeting of shareholders to be held in 2026. Furthermore, under an agreement dated October 27, 2021, entered into in connection with a private placement of our securities, certain of the investors, including GTRIMG, Messrs. Leon and Lenny Recanati, Dan Vilenski and Teuza – A Fairchild Technology Venture Ltd. ("Teuza"), have the right to appoint three directors to our Board. Accordingly, Mr. Ofer Greenberger and Mr. David Boas were appointed to our Board as of May 19, 2022. Mr. Boas resigned from our Board as of January 1, 2023, and was replaced by Mr. Keinan Maman, who was appointed as a Class II director as of March 6, 2023. Mr. Ofer Greenberger resigned from our Board as of January 7, 2024. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of various conditions, including a holding period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
- Share Price & Shareholder Rights - Risk 2Our U.S. investors may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company ("PFIC"), for U.S. federal income tax purposes. We have not determined whether we have been a PFIC for 2023 or any previous year, or whether we will be a PFIC in any future year. Because PFIC status is determined annually based on our income, assets and activities for the entire taxable year, there can be no assurance that we will not be classified as a PFIC in any year. If we were to be characterized as a PFIC for U.S. federal income tax purposes in any taxable year during which a U.S. Investor owns ordinary shares, such U.S. Investor could face adverse U.S. federal income tax consequences, including having gains realized on the sale of our ordinary shares classified as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Investors, and having interest charges apply to distributions by us and the proceeds of share sales. A "qualified electing fund" election may alleviate some of the adverse consequences of PFIC status; however, we do not intend to provide the information necessary for U.S. Investors to make qualified electing fund elections if we are classified as a PFIC.
- Share Price & Shareholder Rights - Risk 3Your rights and responsibilities as a shareholder will be governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of our shareholders are governed by Israeli law and our Articles of Association. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at general meetings of shareholders on certain matters, such as an amendment to the company's articles of association, an increase of the company's authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders' vote or to appoint or prevent the appointment of an office holder in the company has a duty to act in fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
- Share Price & Shareholder Rights - Risk 4Our major shareholders, directors and officers as a group have significant voting power and may take actions that may not be in the best interest of shareholders.
Our major shareholders, GTRIMG, Messrs. Leon and Lenny Recanati or companies under their control and Teuza, and our directors and officers as a group beneficially owned approximately 84.90% of our outstanding ordinary shares as of May 9, 2024. As a result, they will have the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. Their interests may not be consistent with those of our other shareholders. In addition, due to their share ownership, our major shareholders, the directors appointed by them, our other directors and executive officers could dictate the management of our business and affairs. As of May 9, 2024, GTRIMG beneficially owned in the aggregate approximately 39.42% of our outstanding ordinary shares. This concentration of ownership may discourage third parties from seeking to acquire control of us and could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to you. This significant concentration of share ownership may also adversely affect the trading price for our ordinary shares, if a public market further develops for such securities, because investors may perceive disadvantages in owning stock in a company with controlling affiliated shareholders.
- Share Price & Shareholder Rights - Risk 5We are a "foreign private issuer" and have disclosure obligations that are different from those of U.S. domestic reporting companies.
We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports and proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although as an Israeli public company listed outside of Israel we are required to disclose the compensation of our five most highly compensated officer holders on an individual basis, this disclosure is not as extensive as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders are exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange Act. Also, as a "foreign private issuer," we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to U.S. domestic reporting companies.
- Share Price & Shareholder Rights - Risk 6Offers or availability for sale of a substantial number of our ordinary shares may cause the price of our ordinary shares to decline.
If our major shareholders sell substantial amounts of our ordinary shares in the public market (if one develops) or if there is a perception in the market that substantial sales may occur in the future upon the expiration of any statutory holding period, under Rule 144, or upon the exercise of outstanding options held by our directors and officers or warrants held by investors, the market price of our ordinary shares could fall. The occurrence of such substantial sales or the perception that substantial sales of our ordinary shares may occur in the future could put downward pressure on the market price of our ordinary shares and may make it more difficult for us to raise additional financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or appropriate. Furthermore, we issued a significant number of warrants to certain investors, which, if exercised, may have a material dilutive effect on our share capital. For more information see "Item 7 A. Major Shareholders and Related Party Transactions - Major Shareholders".
- Share Price & Shareholder Rights - Risk 7The market price of our ordinary shares may fluctuate significantly.
If a public trading market further develops for our ordinary shares, the market price of the ordinary shares may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: - the announcement of new products or product enhancements by us or our competitors;- developments concerning intellectual property rights and regulatory approvals;- variations in our and our competitors' results of operations;- changes in earnings estimates or recommendations by securities analysts, if the ordinary shares are covered by analysts;- developments in the nanotechnology and alternative energy industries;- the results of product liability or intellectual property lawsuits;- future issuances of ordinary shares or other securities;- the addition or departure of key personnel;- announcements by us or our competitors of acquisitions, investments or strategic alliances; and - general market conditions and other factors, including factors unrelated to our operating performance, such as natural disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections and votes, emergence or resurgence of a pandemic or other widespread health emergencies (including for example, a resurgence of the COVID-19 pandemic), boycotts, adoption or expansion of government trade restrictions, and other business restrictions. Further, in recent years, the stock market has experienced extreme price and volume fluctuations. Continued or renewed market fluctuations could result in extreme volatility in the price of our ordinary shares, which could cause a decline in the value of the ordinary shares. Price volatility of our ordinary shares might be significant if the trading volume of the ordinary shares is low, which often occurs with respect to securities quoted on the OTCQB or the OTC Pink.
- Share Price & Shareholder Rights - Risk 8Because our ordinary shares are traded as a "penny stock," it may be more difficult for investors to sell our ordinary shares, and the market price of our ordinary shares may be adversely affected.
Our ordinary shares are deemed a "penny stock" since, among other things, the stock price is currently trading below $5.0 per share. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser's written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back. The penny stock rules may make it difficult for investors to sell their ordinary shares. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of the ordinary shares may be adversely affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell their ordinary shares publicly at times and prices that they feel are appropriate.
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