Business context and reporting period
The filing is an annual Form 20-F for the fiscal year ended December 31, 2021, prepared under IFRS. Although the request identifies Alarum Technologies Ltd. and 2021 Q4, the supplied filing identifies the registrant as Safe-T Group Ltd., now operating as a global provider of cybersecurity and privacy solutions. The filing does not provide standalone fourth-quarter financial statements.
The company reports three segments: enterprise cybersecurity, enterprise privacy, and consumer cybersecurity and privacy. Its ADSs trade on Nasdaq under SFET, and its ordinary shares trade on the Tel Aviv Stock Exchange. The company had 30,260,339 ordinary shares outstanding at December 31, 2021, following a 1-for-40 reverse split and a change to a 1:1 ADS-to-ordinary-share ratio.
Key financial metrics
| U.S. dollars in thousands, except percentages and per-share data | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | 10,281 | 4,886 | +110% |
| Gross profit | 5,136 | 2,387 | +115% |
| Gross margin | 50% | 49% | +1 percentage point |
| Operating loss | (15,012) | (11,331) | Loss increased |
| Net loss | (13,125) | (7,845) | Loss increased 67% |
| Basic loss per share | (0.48) | (0.71) | Improved due to share issuance |
| Net cash used in operating activities | (9,208) | (6,612) | Use increased |
| Net cash used in investing activities | (9,796) | (1,189) | Use increased |
| Net cash provided by financing activities | 11,742 | 14,710 | Lower inflow |
Revenue consisted of SaaS revenue of $7.328 million, advertising services revenue of $2.325 million, software license revenue of $0.227 million, and software support revenue of $0.401 million. SaaS revenue increased 91% year over year, while advertising revenue was newly reported following the CyberKick acquisition.
Revenue by segment was $6.265 million for enterprise privacy, $3.389 million for consumer cybersecurity and privacy, and $0.627 million for enterprise cybersecurity. One customer represented 22% of 2021 revenue, or approximately $2.214 million.
Operating expenses increased materially: research and development was $4.771 million, selling and marketing was $8.348 million, and general and administrative expense was $7.013 million. General and administrative expense included increased legal fees associated with intellectual-property matters. The company also recorded $0.700 million of goodwill impairment and a $0.684 million gain from the remeasurement of contingent consideration.
The company reported non-IFRS net loss of $10.301 million in 2021 versus $6.153 million in 2020. This measure excludes amortization and impairment of intangible assets and goodwill, share-based compensation, issuance costs, and changes in fair value of finance liabilities. Share-based compensation was $2.356 million in 2021.
Liquidity, capital resources and debt
At December 31, 2021, cash and cash equivalents were $3.828 million and short-term investments were $5.887 million, for combined cash and short-term investments of approximately $9.715 million. As of March 23, 2022, management reported approximately $7.3 million of cash, cash equivalents and short-term investments and expected these resources to fund operations until at least December 31, 2022.
Current liabilities were $5.425 million and total liabilities were $6.467 million at year-end. These included $0.488 million of derivative financial instruments, $0.562 million of lease liabilities, $0.182 million owed to the Israeli Innovation Authority, and $4.058 million of accounts payable and accruals. The filing does not identify material conventional bank debt outstanding at year-end.
Financing inflows in 2021 primarily reflected a February 2021 registered direct offering and warrant exercises. The company received approximately $12.932 million from offerings and warrant exercises, partly offset by a $0.915 million contingent-consideration payment. The company continues to depend on equity or debt financing and has never paid cash dividends.
Material changes versus the prior comparable period
- Revenue more than doubled, primarily because of the July 2021 acquisition of CyberKick and higher enterprise privacy SaaS revenue from NetNut and NetNut Networks.
- CyberKick contributed approximately $3.389 million of revenue from the acquisition date through year-end and increased consolidated net loss by approximately $1.478 million.
- CyberKick was acquired for initial consideration of $9.3 million, consisting of $3.7 million in cash and 4,062,045 ordinary shares valued at $5.6 million. An earn-out of up to $3 million remains possible, and the company committed to provide up to $2.5 million of financing over 24 months.
- Enterprise cybersecurity revenue declined 40% to $0.627 million as the company reduced direct sales efforts and transferred sales, marketing, product development and support responsibilities to TerraZone Ltd. under a revenue-sharing arrangement beginning in November 2021.
- Operating cash use increased by $2.596 million, while investing cash use increased mainly because of the $3.7 million CyberKick cash acquisition payment and $5.844 million invested in short-term investments.
- Shareholders' equity increased to $24.187 million from $16.216 million, largely reflecting equity offerings, warrant exercises and shares issued for the CyberKick acquisition, partly offset by the annual net loss.
- The company recorded $0.700 million of goodwill impairment in 2021, compared with $2.759 million in 2020.
Guidance, outlook, risks and unusual items
Management expects continued investment in research and development, sales and marketing, consumer offerings and enterprise privacy capabilities. It also expects lower costs in the cybersecurity segment as a result of outsourcing activities to TerraZone. Management does not project near-term profitability in the supplied filing and states that additional substantial capital will likely be required.
The independent auditor included an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern. The financial statements assume continued operations and contain no adjustments for the possible outcome of this uncertainty.
- Nasdaq listing risk: On January 12, 2022, the company received notice that its ADS price did not meet Nasdaq's $1.00 minimum bid requirement. The initial compliance period ran through July 11, 2022, subject to possible extension.
- Litigation: A prior Bright Data action was dismissed without prejudice in December 2021 without monetary payment. A separate Bright Data patent and false-advertising action remained pending, and NetNut filed a patent-infringement action against Bright Data in March 2022. No amounts were accrued for the pending claim.
- Internal controls: Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2021 because of inadequate segregation of duties and ineffective period-end reporting controls. Remediation was ongoing.
- Customer concentration: One customer represented 22% of 2021 revenue, increasing exposure to customer loss or reduced purchasing.
- Operating and market risks: The company faces intense competition, rapidly changing cybersecurity threats, dependence on new customer acquisition and renewals, cyberattack and infrastructure risks, COVID-19 effects, foreign-exchange exposure, and risks associated with operations in Israel.
- Government-grant obligations: The company may owe future royalties on certain Israeli Innovation Authority-supported technologies and may require approval for certain transfers of related know-how outside Israel.
- Filing inconsistency: The MD&A text states 2021 net loss of $13.620 million in one passage, while the audited consolidated financial statements and reconciliation state $13.125 million. The audited financial statements should be verified against the filed version.
Most important facts for investors to verify
- Confirm that the filing and issuer correspond to the intended company: the supplied document is for Safe-T Group Ltd., not Alarum Technologies Ltd.
- Reconcile the reported 2021 net loss discrepancy between $13.125 million in the audited statements and $13.620 million in one MD&A passage.
- Assess cash burn, the $7.3 million liquidity estimate as of March 23, 2022, and the timing and terms of any required future financing.
- Review the going-concern qualification and whether subsequent financing or operating improvements removed or reduced that uncertainty.
- Evaluate CyberKick's post-acquisition revenue, profitability, earn-out exposure and the remaining $2.5 million funding commitment.
- Monitor the Bright Data litigation, potential intellectual-property restrictions or liabilities, and related legal spending.
- Confirm remediation of the material weaknesses in internal control over financial reporting.
- Track Nasdaq minimum-bid compliance and the potential dilution from outstanding warrants, options and other equity-linked securities.