WORLD HEALTH ENERGY HOLDINGS, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the fiscal years endedDecember 31, 2022 andDecember 31, 2021 and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year endedDecember 31, 2022 , as compared to the fiscal year endedDecember 31, 2021 . This discussion should be read in conjunction with our consolidated financial statements for the fiscal years endedDecember 31, 2022 andDecember 31, 2021 and related notes included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in "Item 1A. Risk Factors." Overview OnApril 27, 2020 , WHEN completed a reverse triangular merger pursuant to the Agreement and Plan of Merger (the "Merger Agreement") among the Company,R2GA, Inc. , aDelaware corporation and a wholly owned subsidiary of the Company ("Sub"),UCG, Inc. , aFlorida corporation ("Seller"), SG 77 Inc., aDelaware corporation and wholly-owned subsidiary of Seller ("SG"), andRNA Ltd. , an Israeli company and a wholly owned subsidiary of SG ("RNA"). Under the terms of the Merger Agreement, R2GA merged with and into SG, with SG remaining as the surviving corporation and a wholly-owned subsidiary of the Company (the "Merger"). The Merger became effective as ofApril 29, 2020 . Each ofGaya Rozensweig and George Baumeohl, directors of the Company, are also the sole shareholders and directors of UCG. RNA is primarily a research and development company that has been performing software design services in the field of cybersecurity. SG is primarily engaged in the marketing and distribution of cybersecurity related products. In anticipation of the transaction contemplated under the Merger Agreement, SG was formed and all of the cybersecurity rights and interests held by UCG, including the share ownership of RNA, were assigned to SG.
Following the closing, each of SG 77 and RNA became wholly-owned subsidiaries of the Company.
Acquisition of CrossMobile
As previously disclosed, WHEN completed the acquisition of a 26% equity interest in CrossMobile Sp. z o.o, a company formed under the laws ofPoland ("CrossMobile"). OnOctober 25, 2022 , the Company exercised the Additional Share Purchase Option to acquire such additional shares of CrossMobile and the Company now holds approximately 51% of CrossMobile's outstanding share capital on a fully diluted basis. In consideration for the exercise of the Additional Share Purchase Option, the Company issued to CrossMobile an additional 10,000,000 shares of the Company's common stock. We believe that the acquisition of CrossMobile provides an opportunity in our evolution and provides us with a strong foothold in the European market. CrossMobile is part of a limited group of licensed mobile virtual network operators (MVNO) in the EU. CrossMobile is planning to roll-out a comprehensive suite of value-added services for B2B and B2C customers in the telecom industry. The global telecom market was valued at$1.6 trillion in 2020 and is expected to grow at 5.4% Compound Annual Growth Rate (CAGR) through 20281. The global cybersecurity market was valued at$140 billion in 2021 and is expected to reach$376 billion by 20292. By combining the telecom focus with our existing cyber security product offering, our plan is to bring to market a new standard of service in value added telecom and security solutions for B2B and B2C customers alike. 1 Global Telecom Services Market Size Report, 2021-2028. (2022). Retrieved21 August 2022 , from https://www.grandviewresearch.com/industry-analysis/global-telecom-services-market
2 Insights, F. (2022). With 13.4% CAGR, Global Cyber Security Market Size to
Surpass
26
[[Image Removed]]
Acquisition of Instaview
On
Instaview is engaged in the field of image processing systems and thermal
cameras. Over the past 18 years, Instview has provided innovative security and
managing solutions in hundreds of projects in
We believe that there is synergy between Instaview and our activities and marks the beginning of the revolution of the home and enterprise security market.
Combined WHEN Product Offerings
Our product offerings are comprised of three complementary segments, namely
1. Cyber Care, which is the long standing and core business segment of WHEN
2. AI based image processing systems such as audio-video systems and security
cameras solutions being an off-line extension of the on-line Cyber Care
services entered through the acquisition of 26% shares in Instaview
3. Mobile telecom GSM which is a new business segment, linking the off and on
line business segments entered through the recent acquisition of CrossMobile
All three are targeting commercial enterprises (B2B) and individual users (B2C).
RESULTS OF OPERATIONS FOR THE YEARS ENDED
Results of Operations
Summary of Results of Operations
Year ended
December 31
2022 2021
Revenues $ 91,120 $ 140,177
Operating Expenses
Research and development expenses (1,390,545 ) (497,121 )
Selling and marketing expenses (15,656 ) -
General and administrative expenses (8,625,959 ) (4,168,689 ) Operating loss (9,941,040 ) (4,525,633 ) Financing income (expenses), net 15,529
(71,180 ) Loss before equity in net loss of CrossMobile Sp. z o. o.
(9,925,781 ) (4,596,813 )
Less: Equity losses prior to consolidation (20,594 ) -
Net loss (9,946,375 ) (4,596,813 ) Net loss attributable to non-controlling interests 3,977
-
Net loss attributable to the Company's stockholders (9,942,398 ) (4,596,813 )
27 Revenues
Our total revenue consists of sales of our products and services.
The following table discloses the breakdown of revenues and costs of revenues:
Year Ended December 31
2022 2021
Revenues 91,120 140,177
Operating Expenses
Our current operating expenses consist of three components - research and development expenses, selling and marketing expenses and general and administrative expenses.
Research and Development Expenses, net
We expect to continue incurring substantial expenses for the next several years as we continue to develop our product lines. We are unable, with any certainty, to estimate either the costs or the timelines in which those expenses will be incurred. The design and development activities will consume a large proportion of our current, as well as projected, resources.
Our research and development costs include costs are comprised of:
? internal recurring costs, such as personnel-related costs (salaries, employee benefits, equity compensation and other costs), materials and supplies, facilities and maintenance costs attributable to research and development functions; and
? fees paid to external parties
The following table discloses the breakdown of research and development
expenses:
Year Ended December 31
2022 2021
Salaries and related expenses $ 340,054 $ 375,469
Share-based compensation expenses 909,637 -
Subcontractors and other development costs 37,723 33,623 Depreciation and amortization
11,689 47,630
Rent and office maintenance 54,561 20,638
Other expenses 36,881 19,761
Total $ 1,390,545 $ 497,121 Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries and related expenses, professional services and other expenses.
The following table discloses the breakdown of selling and marketing expenses:
Year Ended December 31
2022 2021
Salaries and related expenses $ 322 $ -
Professional services 13,815 -
Other expenses 1,519 -
Total $ 15,656 $ -
28
We expect that our selling and marketing expenses will increase as we continue
to increase our selling and marketing efforts in 2023 following the acquisition
of Cross Mobile and our efforts to be in the air with standard packages of
Voice, SMS and Data in Poland and International Roaming and initiate cooperation
with existing or build new Telecom operators.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses, professional services, rent and office maintenance and other non-personnel related expenses.
The following table discloses the breakdown of general and administrative
expenses:
Year Ended December 31
2022 2021
Salaries and related expenses $ 259,587 $ 222,784
Share-based compensation expenses 7,969,940 3,485,830
Professional services 237,383 278,221
Rent and office maintenance 116,187 101,208
Other expenses 42,862 80,646
Total $ 8,625,959 $ 4,168,869
Revenues
Revenues for the years ended
Research and Development Expenses. Research and development expenses consist of salaries and related expenses, share-based compensation expenses, consulting fees, service providers' costs and overhead expenses. Research and development expenses increased from$497,121 for the year endedDecember 31, 2021 to$1,390,545 in 2022. The increase resulted primarily from increase in non-cash share-based compensation expenses and in rent and maintenance costs partially offset by decrease in salaries and related expenses and depreciation costs
associated with our development activities.
Selling and Marketing Expenses. Selling and marketing expenses consist primarily of professional fees. Selling and marketing expenses for the year endedDecember 31, 2022 amounted to$15,656 as compare to none for the year endedDecember 31, 2021 . The increase is primarily attributable to expenses incurred in connection with the purchase of 51% of CrossMobile, which we completed inNovember 2022 . General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related expenses, share-based compensation expenses and other non-personnel related expenses such as legal expenses. General and administrative expenses increased from$4,168,869 for the year endedDecember 31, 2021 to$8,625,959 in 2022. The increase is primarily attributed to the increase in non-cash share-based compensation expenses and in salaries and related expenses partially offset by decrease in professional services and other non-personnel related expenses.
Financing Expenses, Net. Financing expenses, net increased from financing
expenses of
Net Loss. Net loss for the year endedDecember 31, 2022 was$9,946,375 and is primarily attributable to increase in share based compensation expenses to our employees and services providers. 29
Financial Condition, Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. AtDecember 31, 2022 and 2021, we had current assets of$276,508 and$1,312,175 , respectively, and total assets of$10,223,018 and$1,588,375 respectively. The increase in total assets is mainly due to the increase in intangible assets attributable to the purchase of 51% of the issued and outstanding shares of CrossMobile partially offset by decrease in prepaid expenses resulted from issuance of Company's shares to service providers in 2021 as part of our CrossMobile transaction which were offset during 2022. We had current liabilities of$787,683 as compared to$764,203 as ofDecember 31, 2022 and 2021, respectively and total liabilities of$3,948,646 as compared to$3,107,629 as ofDecember 31, 2022 and 2021 , respectively. The increase is mainly attributed to the increase in deferred taxes attributable to the purchase of 51% of the issued and outstanding shares of CrossMobile in the transaction detailed above.
At
At
Financial Support InNovember 2022 , we entered into an investment agreement with George Baumeohl, our director, pursuant to which Mr. Baumeohl has agreed to support our operation by way of an equity investment of up to$3 million thorughAugust 2025 , as needed. The agreement provides for sales of our common stock go Mr. Baumeohl at per share purchase prices ranging between$0.0003 and$0.0005 . As of the date of this report, we have received an aggregate of$475,000 from Mr. Baumeohl to which he is entitled to an aggregate of 1,666,667 shares of our common stock at a share price of$0.003 . Management believes that funds on hand, as well as the subscription proceeds that we are to receive on a periodic basis under the committed subscription agreements with our director, will enable us to fund our operations and capital expenditure requirements through the next twelve months. Our requirements for additional capital during this period will depend on many factors. We may seek to raise any necessary additional capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights, future revenue streams, or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through private or public equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Critical Accounting Policies The consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP"). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and consolidated statements of operations. Actual results may differ significantly from those estimates. While our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. 30
Accounting for stock-based compensation:
We grant equity-based awards under share-based compensation plans. We estimate the fair value of share-based payment awards using the Black-Scholes option valuation model. This fair value is then amortized over the requisite service periods of the awards. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. Share-based compensation expense is based on awards ultimately expected to vest, and therefore is reduced by expected forfeitures. Changes in assumptions used under the Black-Scholes option valuation model could materially affect our net loss and net loss per share.
Accounting for CrossMobile business combination:
The Company reached a conclusion that the acquired set of assets held at CM does not meet the definition of a business as substantially all the fair value of the gross assets is concentrated in the license held by CM. CM is at it start up stages and has no substantial operations. The only significant asset is the license which constitute much more than 90% of the consideration paid. Based on that, the Company determined that the additional investment in CM constitute an asset acquisition in stages and resulted in obtaining control over all assets of CM and consolidating CM as ofOctober 25, 2022 .
The Company used the cost accumulation method to determine the cost of the acquisition. The Company used the carrying value of its 25% interest and did not recognize any gain or loss on the interest held at CM previously.
The consideration for the assets of CM was with shares of WHEN with fair value of$8M ($0.0004 per share) and was issued to CM and not the shareholders of CM. Hence, upon obtaining control over all the assets of CM, WHEN has gained control over it own shares held at CM. Based on the guidance in ASC 810-10-45-5 shares held by the subsidiary would not be considered outstanding and hence, 100% of the shares of WHEN held by CM are presented as treasury shares in the consolidated balance sheet, even though there are noncontrolling interests at CM.
The assets acquisition of CM resulted in 49% noncontrolling interests in CM. The Company analogized from ASC 805-30-30-1 and added the fair value of the noncontrolling interests to the consideration paid for the assets acquired.
As described above the entire consideration paid by WHEN was with its shares, issued to CM. Based on the guidance in ASC 810-10-45-5 the shares are not considered outstanding. The Company concluded that the fair value of the consideration paid to be based on the fair value of the noncontrolling interests.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements during 2021 and do not anticipate entering into any off-balance sheet arrangements during the next 12 months.
© Edgar Online, source
