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Otonomo Technologies Ltd. - 1842498 - 2023
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of August 2023
 
Commission file number: 001-40744
 
OTONOMO TECHNOLOGIES LTD.
(Translation of registrant’s name into English)
 
16 Abba Eban Blvd.
Herzliya Pituach 467256, Israel
+(972) 52-432-9955
(Address of principal executive offices)
_____________________
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F ☒ Form 40-F ☐
 
 
EXPLANATORY NOTE
 
This Report on Form 6-K (this “Report”) is being furnished to incorporate by reference the recast presentation of certain financial information and related disclosure of Otonomo Technologies Ltd. (the “Company”) to reflect the effect of the Company’s 1-for-15 reverse share split of its ordinary shares, no par value per share, that became effective on August 3, 2023. The following are furnished as exhibits to this Report:
 
Exhibit No.
Description
 
This Report (and Exhibits 99.1, 99.2 and 99.3) are hereby incorporated by reference into the Company’s Registration Statements on Form F-3 (File No. 333-264771) and Form S-8 (File No. 333-261641).
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Otonomo Technologies Ltd.
  
       
 
By:
/s/ Ben Volkow
  
   
Name: Ben Volkow
  
   
Title: Chief Executive Officer and Director
  
       
Date: August 25, 2023
 
 
 
Otonomo Technologies Ltd. - 1842498 - 2023
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Exhibit 99.1

 

Otonomo Technologies Ltd.
 
Consolidated Financial Statements
As of December 31, 2022
 
Otonomo Technologies Ltd.
 
Consolidated Financial Statements as of December 31, 2022
 
 
F - 2
https://cdn.kscope.io/eabc573e223fa57da5c8932a6173bf12-image00002.jpg
Somekh Chaikin
KPMG Millennium Tower
17 Ha’arba’a Street, PO Box 609
Tel Aviv 61006, Israel
+972 3 684 8000
 
Report of Independent Registered Public Accounting Firm
 
To the Shareholders and Board of Directors of Otonomo Technologies Ltd.
 
Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated balance sheets of Otonomo Technologies Ltd. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred shares and shareholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
 
Change in Accounting Principle
 
As discussed in Note 2P to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2022, due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02).
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
 

Somekh Chaikin

Member Firm of KPMG International
 
We have served as the Company’s auditor since 2015.

Tel-Aviv, Israel

March 31, 2023, except as to Note 1b, which is as of August 14, 2023

 

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 
F - 3
Otonomo Technologies Ltd.
 
Consolidated Balance Sheets
(in USD thousands, except share and per share data)
 
   
December 31
    
December 31
  
   
2022
    
2021
  
             
Assets
            
             
Current assets
            
Cash and cash equivalents
    
22,448
      
207,842
  
Short-term restricted cash
    
346
      
237
  
Short-term deposits
    
62,262
      
-
  
Marketable securities
    
55,587
      
-
  
Trade receivables, net
    
1,271
      
1,077
  
Other receivables and prepaid expenses
    
3,043
      
2,683
  
Total current assets
    
144,957
      
211,839
  
                 
Non-current assets
                
Other long-term assets
    
606
      
254
  
Property and equipment, net
    
1,043
      
725
  
Operating lease right-of-use assets, net
    
2,040
      
-
  
Intangible assets, net
    
-
      
9,621
  
Goodwill
    
-
      
37,000
  
Total non-current assets
    
3,689
      
47,600
  
                 
Total assets
    
148,646
      
259,439
  
                 
Liabilities and Shareholders' Equity
                
                 
Current liabilities
                
Account payables
    
1,020
      
312
  
Other payables and accrued expenses
    
10,958
      
8,405
  
Deferred revenue
    
216
      
35
  
Current portion of operating lease liabilities
    
729
      
-
  
Current portion of contingent consideration
    
165
      
-
  
Total current liabilities
    
13,088
      
8,752
  
                 
Non-Current liabilities
                
Warrants for ordinary shares
    
155
      
1,924
  
Operating lease liabilities, less current portion
    
1,225
      
-
  
Contingent consideration, less current portion
    
746
      
-
  
Other non-current liabilities
    
4
      
-
  
Total non-current liabilities
    
2,130
      
1,924
  
                 
Total liabilities
    
15,218
      
10,676
  
                 
Commitments and contingencies (Note 10)
            
                 
Shareholders’ equity:
                
Ordinary shares, no par value; 30,000,000 shares authorized as of
                
December 31, 2022, and 2021; 9,458,682 and 8,814,316 shares issued
                
and outstanding as of December 31, 2022 and 2021, respectively;
    
-
      
-
  
Additional paid-in capital
    
370,412
      
349,825
  
Accumulated other comprehensive loss
    
(4,850
)
    
-
  
Accumulated deficit
    
(232,134
)
    
(101,062
)
Total shareholders’ equity
    
133,428
      
248,763
  
                 
Total liabilities and Shareholders' Equity
    
148,646
      
259,439
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 4
Otonomo Technologies Ltd.
 
Consolidated Statements of Operations and Comprehensive Loss
(in USD thousands, except share and per share data)
 
   
Year ended
    
Year ended
    
Year ended
  
   
December 31
    
December 31
    
December 31
  
   
2022
    
2021
    
2020
  
                         
Revenues
    
6,992
      
1,723
      
394
  
                         
Costs and operating expenses:
                        
Cost of services
    
(3,367
)
    
(953
)
    
(336
)
Cloud infrastructure
    
(4,777
)
    
(2,814
)
    
(1,262
)
Research and development
    
(22,573
)
    
(12,077
)
    
(8,194
)
Sales and marketing
    
(21,761
)
    
(9,435
)
    
(5,168
)
General and administrative
    
(22,059
)
    
(11,904
)
    
(2,515
)
Depreciation and amortization
    
(2,749
)
    
(532
)
    
(147
)
Contingent consideration income
    
8,954
      
-
      
-
  
Impairment of goodwill
    
(49,686
)
    
-
      
-
  
Impairment of intangible assets
    
(22,355
)
    
-
      
-
  
Total costs and operating expenses
    
(140,373
)
    
(37,715
)
    
(17,622
)
                         
Operating loss
    
(133,381
)
    
(35,992
)
    
(17,228
)
                         
Financial income (expenses), net
    
2,455
      
5,280
      
(2,737
)
                         
Loss before income tax expense
    
(130,926
)
    
(30,712
)
    
(19,965
)
                         
Income tax expense
    
(146
)
    
(222
)
    
(76
)
                         
Net loss
    
(131,072
)
    
(30,934
)
    
(20,041
)
                         
Net loss per share attributable to ordinary shareholders, basic and diluted
    
(14.21
)
    
(6.70
)
    
(9.80
)
                         
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders, basic and diluted
    
9,224,186
      
4,614,860
      
2,044,951
  
                         
Other comprehensive loss, net of tax:
                        
Foreign currency translation adjustments
    
(4,791
)
    
-
      
-
  
Unrealized losses on available-for-sale marketable securities, net
    
(59
)
    
-
      
-
  
                         
Other comprehensive loss
    
(4,850
)
    
-
      
-
  
                         
Comprehensive loss
    
(135,922
)
    
(30,934
)
    
(20,041
)
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 5
Otonomo Technologies Ltd.
 
Consolidated Statements of Changes in Redeemable Convertible Preferred Shares and Shareholders’ equity (deficit)
(in USD thousands, except share and per share data)
 
 

 
Redeemable Convertible
 
preferred shares
    
Ordinary shares
    
Additional
 
paid-in capital
    
Accumulated
 
deficit
    
Accumulated
Other
Comprehensive Loss
    
Total
 
Equity
  
   
Number of
    
USD
    
Number of
    
USD
    
USD
    
USD
    
USD
    
USD
  
   
Shares
    
thousands
    
Shares
    
thousands
    
thousands
    
thousands
    
thousands
    
thousands
  
Balance as of January 1, 2020
    
3,880,573
      
62,195
      
1,997,008
      
-
      
8,784
      
(50,087
)
    
-
      
(41,303
)
                                                                 
Issuance of redeemable convertible preferred shares, net
    
314,521
      
15,507
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Issuance of shares in connection with stock-based compensation plans
    
-
      
-
      
102,253
      
-
      
133
      
-
      
-
      
133
  
                                                                 
Share based compensation
    
-
      
-
      
-
      
-
      
1,440
      
-
      
-
      
1,440
  
                                                                 
Comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(20,041
)
    
-
      
(20,041
)
                                                                 
Balance as of December 31, 2020
    
4,195,094
      
77,702
      
2,099,261
      
-
      
10,357
      
(70,128
)
    
-
      
(59,771
)
                                                                 
Exercise of warrants for redeemable convertible preferred shares
    
78,630
      
10,896
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Conversion of redeemable convertible preferred shares
    
(4,273,724
)
    
(88,598
)
    
4,273,724
      
-
      
88,598
      
-
      
-
      
88,598
  
                                                                 
Issuance of ordinary shares in connection with PIPE offering, net
    
-
      
-
      
950,000
      
-
      
124,560
      
-
      
-
      
124,560
  
                                                                 
Recapitalization, net
    
-
      
-
      
1,038,432
      
-
      
88,843
      
-
      
-
      
88,843
  
                                                                 
Shares issued related to the business acquisitions
    
-
      
-
      
437,332
      
-
      
33,816
      
-
      
-
      
33,816
  
                                                                 
Issuance of shares in connection with stock-based compensation plans
    
-
      
-
      
15,567
      
-
      
44
      
-
      
-
      
44
  
                                                                 
Share based compensation
    
-
      
-
      
-
      
-
      
3,607
      
-
      
-
      
3,607
  
                                                                 
Comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(30,934
)
    
-
      
(30,934
)
                                                                 
Balance as of December 31, 2021
    
-
      
-
      
8,814,316
      
-
      
349,825
      
(101,062
)
    
-
      
248,763
  
                                                                 
Shares issued related to the business acquisitions
    
-
      
-
      
430,806
      
-
      
10,691
      
-
      
-
      
10,691
  
                                                                 
Issuance of shares in connection with stock-based compensation plans
    
-
      
-
      
213,560
      
-
      
140
      
-
      
-
      
140
  
                                                                 
Share based compensation
    
-
      
-
      
-
      
-
      
9,756
      
-
      
-
      
9,756
  
                                                                 
Comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(131,072
)
    
(4,850
)
    
(135,922
)
                                                                 
Balance as of December 31, 2022
    
-
      
-
      
9,458,682
      
-
      
370,412
      
(232,134
)
    
(4,850
)
    
133,428
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 6
Otonomo Technologies Ltd
 
Consolidated Statements of Cash Flows
(in USD thousands, except share and per share data)
 
   
Year ended
    
Year ended
    
Year ended
  
   
December 31
    
December 31
    
December 31
  
   
2022
    
2021
    
2020
  
Cash flows from operating activities
                  
Net loss
    
(131,072
)
    
(30,934
)
    
(20,041
)
                         
Adjustments to reconcile net loss to net cash
                        
 used in operating activities:
                        
  Depreciation and amortization
    
2,749
      
532
      
147
  
  Share based compensation
    
9,756
      
3,607
      
1,440
  
  Revaluation of warrants
    
(1,769
)
    
(5,259
)
    
3,271
  
  Impairment of Goodwill
    
49,686
      
-
      
-
  
  Impairment of intangible assets
    
22,355
      
-
      
-
  
  Contingent consideration income
    
(8,954
)
    
-
      
-
  
  Deferred tax expense (benefit)
    
(31
)
    
(11
)
    
3
  
  Foreign currency translation loss
    
1,321
      
-
      
-
  
  Investments interest receivables, amortization, and accretion
    
(1,490
)
    
-
      
-
  
  Other
    
-
      
-
      
134
  
                         
Changes in operating assets and liabilities:
                        
  Trade receivables, net
    
639
      
(629
)
    
(85
)
  Other receivables and prepaid expenses
    
731
      
(2,059
)
    
574
  
  Other payables and accrued expenses
    
140
      
1,886
      
99
  
  Account payables
    
136
      
(252
)
    
63
  
  Deferred revenue
    
(167
)
    
(242
)
    
260
  
  Other assets and liabilities
    
(403
)
    
-
      
-
  
                         
Net cash used in operating activities
    
(56,373
)
    
(33,361
)
    
(14,135
)
                         
Cash flows from investing activities
                        
Purchases of property and equipment
    
(241
)
    
(188
)
    
(420
)
Proceeds from short-term bank deposits, net
    
(61,549
)
    
12,800
      
(1,393
)
Investment in marketable securities
    
(55,000
)
    
-
      
-
  
Other long-term assets, net
    
-
      
33
      
(19
)
Payments for business acquisitions, net of cash acquired
    
(11,018
)
    
(9,965
)
    
-
  
                         
Net cash provided by (used in) investing activities
    
(127,808
)
    
2,680
      
(1,832
)
                         
Cash flows from financing activities
                        
Proceeds from issuance of redeemable convertible preferred shares and warrants, net
    
-
      
-
      
19,967
  
Issuance of ordinary shares, net
    
-
      
223,732
      
-
  
Proceeds from exercise of share options
    
140
      
44
      
133
  
                         
Net cash provided by financing activities
    
140
      
223,776
      
20,100
  
                         
Foreign currency effect on cash and cash equivalents and short-term restricted cash
    
(1,244
)
    
-
      
-
  
                         
Net increase (decrease) in cash and cash equivalents and short-term restricted cash
    
(185,285
)
    
193,095
      
4,133
  
                         
Cash and cash equivalents and short-term restricted cash at
                        
the beginning of the year
    
208,079
      
14,984
      
10,851
  
                         
Cash and cash equivalents and short-term restricted cash
                        
at the end of the year
    
22,794
      
208,079
      
14,984
  
                   
Supplemental disclosures of cash flow information
                  
Cash paid for income taxes, net of tax refunds
    
243
      
104
      
69
  
                         
Non-cash investing activities:
                        
Contingent consideration
    
9,865
      
-
      
-
  
Shares issued related to the business acquisitions
    
10,691
      
33,816
          
                         
Non-cash financing activities:
                        
Conversion of warrants to redeemable convertible preferred shares
    
-
      
10,896
      
-
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 7

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 1 - General
 
A. Otonomo Technologies Ltd. (together with its subsidiaries, “Otonomo”, or the “Company”) was incorporated as an Israeli corporation in December 2015. The Company provides an automotive data service platform enabling car manufacturers, drivers, insurance carriers and service providers to be part of a connected ecosystem as well as mobility intelligence which transforms vast amounts of anonymized data and activity signals into actionable, impactful, and valuable insights.
 
On February 9, 2023, subsequent to the balance sheet date, the Company and Urgent.ly, Inc. (“Urgently”), a provider of digital roadside and mobility assistance technology and services, entered into a definitive agreement to merge and the Company will become a wholly owned subsidiary of Urgently. Upon closing of the transaction, holders of the Company’s ordinary shares will receive common stock of Urgently. The Company’s shareholders and other equity holders will own, in the aggregate, approximately 33% of the combined company on a fully diluted basis, subject to the determination of the final exchange ratio pursuant to the terms set forth in the definitive agreement. The transaction is expected to close in the third quarter of 2023, subject to the approval of the Company’s shareholders and the satisfaction of other customary closing conditions.
 
B. On August 3, 2023, the Company executed a 1-for-15 reverse share split of its ordinary shares, no par value per share (the “Ordinary Shares”). As a result of the reverse share split, every 15 issued and outstanding Ordinary Shares were automatically converted into one Ordinary Share. The reverse share split is intended to increase the per share trading price of the Ordinary Shares to enable the Company to regain compliance with the minimum bid price requirement in Nasdaq Listing Rule 5450(a)(1). The reverse share split will also affect the Company’s outstanding options, warrants and restricted share units. As a result, all ordinary share, convertible preferred shares and options for ordinary shares, exercise price per share and net loss per share amounts were adjusted retroactively for all periods presented in these financial statements. The number of Ordinary Shares underlying the warrants were adjusted retroactively for all periods presented in these financial statements as a result of the reverse share split. The number of options and restricted share units outstanding and the number of Ordinary Shares underlying the options and restricted share units were adjusted retroactively for all periods presented in these financial statements as a result of the reverse share split.

 

Note 2 - Summary of Significant Accounting Policies
 
  A.
Basis of Presentation
 
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of Otonomo Technologies Ltd. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
 
  B.
Recapitalization
 
On August 13, 2021, the Company merged with Software Acquisition Group Inc. II (“SWAG”), a special purpose acquisition company, that resulted in SWAG becoming a wholly-owned subsidiary of the Company. The transaction was accounted for as a recapitalization as pre-combination Otonomo was determined to be the accounting acquirer under Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). In connection with the recapitalization, all outstanding capital stock of the pre-combination Otonomo was converted into Company Ordinary Shares, representing a recapitalization, and the net assets of SWAG were acquired at historical cost, with no goodwill or intangible assets recorded.
 

F - 8

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)

 

  C.
Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may have a material impact on the Company’s financial statements. As applicable to these consolidated financial statements, the most significant estimates relate to purchase price allocation including contingent consideration, recoverability of goodwill and intangible assets and fair value of warrant liability.
 
A number of estimates have been and will continue to be affected by global events and other longer-term macroeconomic conditions, including rising inflation and increasing interest rates. As a result, the accounting estimates and assumptions may change over time. These consolidated financial statements reflect the financial statement effects based upon management’s estimates and assumptions utilizing the most currently available information.
 
  D.
Foreign Currency
 
The functional currency of the Company is the U.S. dollar. Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are re-measured into U.S. dollars in accordance with Accounting Standard Codification ("ASC") Topic 830 "Foreign Currency Matters." All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.
 
The functional currency of the Company's United Kingdom subsidiary is the British Pound. Accordingly, the translation to U.S. dollars takes the balance sheet date exchange rates for assets and liabilities, historical rates of exchange for equity, and average exchange rates in the period for revenues and expenses. The effects of foreign currency translation adjustments are included in shareholders’ equity (deficit) as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets.
 
  E.
Concentration of Credit Risk
 
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash equivalents, restricted cash, short-term deposits, investment in marketable securities and account receivables. Most of the Company’s cash and cash equivalents and bank deposits are invested with banks in the U.S., Israel and Europe. Management believes that the credit risk with respect to the financial institutions that hold the Company’s cash, cash equivalents and bank deposits is low.
 

F - 9

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)

 

  F.
Cash, Cash equivalents and restricted cash
 
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.
 
Restricted cash includes cash that is legally restricted as to withdrawal or usage.
 
  G.
Short-term deposits
 
Short-term deposits consist of bank deposits with an original maturity of greater than three months at the date of purchase. Short-term bank deposits are presented at their cost, including accrued interest.
 
  H.
Marketable securities
 
Marketable securities consist of commercial paper, corporate bonds, and U.S. government and agency. The Company considers all of its marketable securities as available for use in current operations, including those with maturity dates beyond one year, and therefore classifies these securities within current assets on the consolidated balance sheets. Securities are classified as available for sale and are carried at fair, with the change in unrealized gains and losses, net of tax, reported as a separate component on the consolidated statements of comprehensive loss until realized. Realized gains and losses on sales of marketable securities, are included in financial income (expenses), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income (expenses), net.
 
The Company's securities are reviewed for impairment in accordance with ASC Topic 320. If such assets are considered to be impaired, the impairment charge is recognized in earnings when a decline in the fair value of its investments below the cost basis is judged to be Other-Than-Temporary Impairment (OTTI). Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the Company's intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. Based on the above factors, the Company concluded that unrealized losses on its available-for-sale securities for the year ended 2022 were not OTTI.
 
  I.
Fair Value Measurements
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
 
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
     

F - 10

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)

 

  I.
Fair Value Measurements (cont'd)
     
   
Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data.
 
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
 
  J.
Accounts Receivables, net
 
Accounts receivables are recorded at the invoiced amount and amounts for which revenue has been recognized but not invoiced, net of allowance for doubtful accounts. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts.
 
As of December 31, 2022, and 2021, unbilled accounts receivables of $193 and $215 thousands, respectively, was included in account receivables, net, on the Company’s consolidated balance sheets. The allowance of doubtful accounts was not material for the periods presented.
 
  K.
Property and Equipment
 
Property and equipment are stated at cost net of accumulated depreciation. Maintenance and repair expenses are charged to operation as incurred. Depreciation is calculated on the straight-line method based on the estimated useful lives of the assets and commences once the assets are ready for their intended use.
 
Annual rates at depreciation are as follows:

 

 
%
Computers and software
33
Office furniture and equipment
7;15
Leasehold improvements
Shorter of remaining lease
term or estimated useful life

 

   
The Company evaluates the recoverability of property and equipment for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment is not recoverable, the carrying amount of such assets is reduced to fair value. There were no impairment charges to property and equipment during the years presented.
 
  L.
Capitalized Software Costs
 
Costs related to software acquired, developed, or modified solely to meet the Company’s internal requirements, with no substantive plans to market such software at the time of development are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. Maintenance costs are expensed as incurred. The amount of qualifying costs for capitalization incurred was immaterial for the years presented.
 

F - 11

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)

 

  M.
Business Combinations
 
The Company allocates the fair value of consideration transferred in a business combination to the assets acquired and liabilities assumed in the acquired business based on their fair values at the acquisition date. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. The excess of the fair value of the consideration transferred over the fair value of the assets acquired, liabilities assumed in the acquired business is recorded as goodwill. Key assumptions include, but are not limited to, future expected cash flows, discount rates and profit margin that management believes a market participant would use in pricing the asset or liability. These assumptions are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which may not be later than one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The fair value of the consideration transferred may include a combination of cash, equity securities and earn out payments. The Company includes the results of operations of the businesses that it has acquired in its consolidated results prospectively from the respective dates of acquisition.
 
The Company records obligations in connection with its business combinations at fair value on the acquisition date. Each reporting period thereafter, the Company revalues earn-out payments which are classified as contingent consideration liabilities and records the changes in their fair value in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the obligations in connection with its business combinations mainly result from the Company’s shares price and sales and profitability targets. These fair value measurements represent Level 3 measurements, as they are based on significant inputs not observable in the market.
 
  N.
Goodwill and Intangible Assets, net
 
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination and is allocated to reporting units expected to benefit from the business combination. Goodwill is not amortized but rather tested for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may not be recoverable. A qualitative assessment is performed to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount. If the reporting unit does not pass the qualitative assessment, the carrying amount of the reporting unit, including goodwill, is compared to fair value and goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. Any excess of the carrying value of the goodwill above its fair value is recognized as an impairment loss.
 
Intangible assets are amortized over the period of estimated benefit and estimated useful lives ranging from two to eight years. The Company reviews the carrying amounts for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
 
During 2022, as a result of the decline in the quoted share price of the Company, an impairment loss was recognized for the entire goodwill and intangible assets. For information on key assumptions used in calculation of the recoverable amount, see Note 7.
 

F - 12

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)
 
  O.
Employee Benefit Plans

 

  a)
Section 14 of the Israeli Severance Pay Law
 
Pursuant to Israel’s Severance Pay Law, Israeli employees are entitled to severance pay equal to one month’s salary for each year of employment, or a portion thereof. The Company has elected to include its employees in Israel under Section 14 of the Severance Pay Law, under which these employees are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary. These payments release the Company from any future obligation under the Israeli Severance Pay Law to make severance payments in respect of those employees; therefore, any liability for severance pay due to these employees, and the deposits under Section 14 are not recorded as an asset in the consolidated balance sheets.

 

  b)
401(k) Savings Plan
 
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of the annual compensation on a pre-tax basis. Company contributions to the plan may be made as the discretion of the Board of Directors
 
  P.
Leases
 
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” which requires lessees to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets, and to recognize on the statements of operations the expenses in a manner similar to prior practice. The Company adopted Topic 842 using the modified retrospective method as of January 1, 2022 and elected the transition option that allows the Company not to restate the comparative periods in the financial statements in the year of adoption.
 
The Company determines if an arrangement is a lease at inception. The Company currently does not have any finance leases.
 
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. Operating lease ROU assets include any prepaid lease payments.
 
Certain lease agreements in Israel include rental payments adjusted periodically for the Israeli consumer price index (“CPI”). The ROU and lease liability were calculated using the initial CPI and are not subsequently adjusted. For short-term leases with a term of 12 months or less, operating lease ROU assets and liabilities are not recognized and the Company records lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. 
 

F - 13

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)
 
  P.
Leases (cont'd)
     
   

The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit in the Company’s leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The Company’s lease terms may include options to extend or terminate the lease. These options are reflected in the ROU asset and lease liability when it is reasonably certain that the Company will exercise the option. Operating lease expense is recognized on a straight-line basis over the lease term.

 

The adoption of the standard resulted in the recognition of right of use ("ROU") assets and lease liabilities of approximately $1.8 million, on January 1, 2022, for the headquarters in Israel.
 
  Q.
Revenue Recognition
 
Revenues are recognized when control of services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
 
The revenue comprised mainly of subscription fees from customers accessing the Company’s enterprise cloud computing services (“SaaS subscriptions”).
 
In addition, the Company provides customization, research, and analytical services to its customers, such professional services revenues are recognized as services are delivered.
 
The Company determines revenue recognition through the following five-step framework:
 
  •
Identification of the contract, or contracts, with a customer;
  •
Identification of the performance obligations in the contract;
  •
Determination of the transaction price;
  •
Allocation of the transaction price to the performance obligations in the contract; and
  •
Recognition of revenue when, or as, the Company satisfies a performance obligation.
 
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the services either on their own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.
 

F - 14

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)

 

  Q.
Revenue Recognition (cont'd)
     
   
The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The Company evaluates the terms and conditions included within the customer’s contracts to ensure appropriate revenue recognition, including whether products and services are considered distinct performance obligations that should be accounted for separately versus together. For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determine standalone selling price by considering the historical selling price of these performance obligations in similar transactions as the well as other factors, including, but not limited to, competitive pricing of similar products, other software vendor pricing, industry publications and current pricing practices.
 
The Company’s SaaS subscriptions revenues consist primarily of fees to provide the Company’s customers access to its cloud-based platform, which includes routine customer support. Subscription service contracts do not provide customers with the right to take possession of the software, are cancelable, and do not contain general rights of return. The Company recognizes subscription revenues ratably over the contract term beginning on the commencement date of each contract, which is the date the Company makes the services available to the customers.
 
Subscription contracts typically have a term of up to three years and are based on fixed-fee and/or a pay per use basis. Certain pay per use contract includes minimum monthly or annual fees. For fixed-fee basis contracts, invoicing occurring in quarterly or monthly installments at the end of each period. Fixed or substantive minimum fees are recognized ratably over the term of the arrangement beginning on the date that the service is made available to the customer. For pay per use basis contracts, the Company applies the ‘as-invoiced’ practical expedient and recognizes revenue in the amount which is equivalent to the service rendered each month. Invoicing is normally done monthly at the end of each month.
 
Contract assets consist of unbilled accounts receivable, which occur when a right to consideration for the Company’s performance under the customer contract occurs before invoicing to the customer. The amount of unbilled accounts receivable included within accounts receivable, net, on the consolidated balance sheets.
 
Contract liabilities consist of deferred revenue. Revenue is deferred when the Company invoices in advance of performance under a contract. To the extent the Company bill customers in advance of the billing period commencement date, the trade receivable and corresponding deferred revenue amounts are netted to zero on the Company’s consolidated balance sheets, unless such amounts have been paid as of the balance sheet date. The current portion of the deferred revenue balance is recognized as revenue during the 12-month period after the balance sheet date.
 
Contract Balances
 
Of the $216 thousand of deferred revenue recorded as of December 31, 2022, the Company expects to recognize 100% as revenue during the year ended December 31, 2023.
     

F - 15

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)

 
  Q.
Revenue Recognition (cont'd)
     
   
Cost to Obtain a Contract
 
The Company capitalizes certain sales commissions as costs of obtaining a contract when they are incremental and if they are expected to be recovered. These costs are subsequently amortized consistently with the pattern of revenue recognition from contracts for which the commissions relate, over an estimated period of benefit. Deferred commission costs capitalized are periodically reviewed for impairment. There were no impairment losses recorded during the periods presented. For costs that the Company would have capitalized and amortized over one year or less, the Company has elected to apply the practical expedient and expense these costs as incurred. Amortization expense of these costs are included in selling and marketing expenses.
 
As of December 31, 2022, the amount of deferred commissions was $273 and is included in other receivables and prepaid expenses and other long-term assets on the consolidated balance sheets. As of December 31, 2021, incremental costs of obtaining a contract that are eligible to capitalization, were immaterial.
 
  R.
Cost of Services
 
Cost of services consists primarily of expenses related to purchasing of data from data suppliers, amounts paid to data suppliers under revenue sharing or fixed price arrangements, software licenses, and personnel-related costs associated with customer support and professional services, including salaries and benefits.
 
  S.
Cloud infrastructure
 
Third-party cloud infrastructure expenses incurred in connection with the Company’s customers’ use of the Company’s platform and the maintenance of the Company’s platform on public clouds, such as cloud computing or other hosting and data storage including different regional deployments. In addition, cloud infrastructure also includes the third-party cloud infrastructure expenses incurred with internal research and development use.
 
  T.
Research and Development
 
Research and development costs include personnel-related expenses associated with the Company’s engineering personnel responsible for the design, development and testing of its products, cost of development environments and tools, and allocated overhead. Research and development costs are expensed as incurred.
     

F - 16

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)
 
  U.
Share Based Compensation
 
Share based compensation expense related to share-based awards is recognized based on the fair value of the awards granted and recognized as an expense on a straight-line basis over the requisite service period for share options and restricted share units (“RSUs”). The Company measures compensation expense for options based on estimated fair values on the date of grant using the Black-Scholes option pricing model. This option pricing model requires estimates as to the option’s expected term and the price volatility of the underlying stock. The fair value of each RSU award is based on the fair value of the underlying ordinary shares on the grant date.
 
The Company records forfeitures for share-based awards and RSUs as they occur. If an employee forfeits an award because he fails to complete the requisite service period, the Company will reverse the compensation cost previously recognized in the period the award is forfeited.
 
  V.
Income Taxes
 
The Company is subject to income taxes in Israel, the U.S., and other foreign jurisdictions. These foreign jurisdictions may have different statutory tax rates than in Israel. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis as well as for operating loss and tax credit carryforwards.
 
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The financial effect of changes in tax laws or rates is accounted for in the period of enactment. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount more likely than not to be realized. The Company recognizes income tax benefits from tax positions only if it believes that it is more likely than not that the tax position will be sustained upon examination. The tax benefits recognized are measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement.
 
  W.
Net Loss Per Share
 
The Company computes net loss per share using the two-class method required for participating securities. The two-class method requires income available to ordinary shareholders for the period to be allocated between ordinary shares and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company considers its redeemable convertible preferred shares to be participating securities as the holders of the redeemable convertible preferred shares would be entitled to dividends that would be distributed to the holders of ordinary shares, on a pro-rata basis assuming conversion of all redeemable convertible preferred shares into ordinary shares. These participating securities do not contractually require the holders of such shares to participate in the Company’s losses. As such, net loss for the periods presented was not allocated to the Company’s participating securities.
     

F - 17

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 2 - Summary of Significant Accounting Policies (cont'd)
 
  W.
Net Loss Per Share (cont'd)
     
   
The Company’s basic net loss per share is calculated by dividing net loss attributable to ordinary shareholders by the weighted-average number of shares of ordinary shares outstanding for the period, without consideration of potentially dilutive securities. The diluted net loss per share is calculated by giving effect to all potentially dilutive securities outstanding for the period using the treasury share method or the if-converted method based on the nature of such securities. Diluted net loss per share is the same as basic net loss per share in periods when the effects of potentially dilutive shares of ordinary shares are anti-dilutive.
 
  X.
Recently Adopted Accounting Pronouncements
 
As an “Emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to put all leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner similar to current practice. The Company adopted this guidance and the related amendments on January 1, 2022. Refer to Notes 2P and 8.
 
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The Company adopted the guidance effective January 1, 2022, with no material impact on its consolidated financial statements.
 
  Y.
Recently Issued Accounting Pronouncements
 
In June 2016, the FASB issued an ASU 2016-13, Topic 326, that supersedes the existing impairment model for most financial assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company is in the process of evaluating the effects of this standard on it the consolidated financial statements.

 

F - 18

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 3 - Business Combinations
 
Neura acquisition
 
On October 4, 2021, the Company acquired 100% of the share capital of Neura Inc. (“Neura”), a privately held company in the United States, which develops an artificial Intelligence (AI) platform that transforms behavioral data into actionable insights (“MI services”).
 
The total purchase consideration transferred for the Neura acquisition was $46.8 million:
 
  (a)
$13.0 million in cash.
  (b)
$33.8 million in equity for the fair value of 443,894 shares of the Company’s ordinary shares issued.
 
The following table summarizes the fair value of assets acquired and liabilities assumed as of the date of acquisition:
 
   
Fair Value
  
   
USD thousands
  
       
Net tangible assets and liabilities assumed (current and non-current)
    
(205
)
Technology
    
10,021
  
Goodwill
    
37,000
  
         
Net assets acquired
    
46,816
  
 
Goodwill is primarily attributable to expected synergies arising from technology integration and expanded product availability to the Company’s existing and new customers. Goodwill is not deductible for income tax purpose.
 
The identified intangible asset acquired was developed technology in the amount of $10.0 million with an estimated useful life of 6 years.
 
The Floow acquisition
 
On April 14, 2022, the Company acquired 100% of the share capital of The Floow Limited (“The Floow”), a privately held company in the United Kingdom, a SaaS provider of connected insurance technology for major carriers globally.
 
The total purchase consideration transferred for The Floow acquisition was $31.4 million:
 
  (a)
$10.8 million in cash
  (b)
$10.7 million in equity for the fair value of 424,242 shares of the Company’s ordinary shares issued.
  (c)
Contingent consideration of up to $12 million in cash and up to 436,364 of the Company’s ordinary shares, based on performance condition, which was evaluated as of the acquisition date, at a fair value of the amount of $9.9 million.
     

F - 19

Otonomo Technologies Ltd.

 

Notes to the Consolidated Financial Statements as of December 31, 2022

 

Note 3 - Business Combinations (cont'd)

 

The Floow acquisition (cont'd)
 
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the date of acquisition:
 
 
  
Fair Value
    
Useful life
  
   
USD thousand
    
In years
  
             
Net tangible assets and liabilities assumed (current
            
and non-current)
    
(1,355
)
      
Customer Rel