|
Filed Pursuant to Rule 424(b)(3) Registration No. 333-276877 |
45,000,000 Ordinary Shares
of
SEALSQ Corp
______________________
This prospectus relates to the resale, from time
to time, by the selling shareholders named herein (the “Selling Shareholders”) of an aggregate of up to 45,000,000 of our
Ordinary Shares, US$0.01 par value per Ordinary Share (the “Ordinary Shares”), reserved for issuance (i) upon the conversion
of currently outstanding 4% discount convertible promissory notes (the “Notes”) held by the Selling Shareholders (the “Conversion
Shares”) and (ii) upon exercise of currently outstanding warrants (the “Warrants”) held by the Selling Shareholders
(the “Warrant Shares”). The Notes and Warrants were issued to the Selling Shareholders on January 9, 2024 (the “Closing
Date”).
We are registering the resale of up to an aggregate
of 45,000,000 Conversion Shares and Warrant Shares as required by the Registration Rights Agreement, dated as of July 11, 2023, as amended
(as amended, the “Registration Rights Agreement”), by and among us and the Selling Shareholders.
The Conversion Shares include Ordinary
Shares issuable upon conversion of $10,000,000.00 in aggregate principal amount of the Notes and in accruing interest which may be
paid by the Company in Conversion Shares with the written consent of the Selling Shareholders (including Ordinary Shares reserved
for potential issuance in the event of possible future default or dilution adjustments). The Notes are convertible at a conversion
price of the lesser of (i) $4.00 per Ordinary Share (the “Fixed Conversion Price”), or (ii) 92% of the lowest daily
variable-weighted average price (the “VWAP”) per Ordinary Share during the 10 trading days preceding the conversion (the
“Variable Conversion Price”). The Variable Conversion Price has a floor of $0.55 per Ordinary Share (the “Floor
Conversion Price”). The Floor Conversion price of the Notes can be lowered by mutual consent of the Company and the Selling
Shareholders. The Notes provide for adjustment of the Fixed Conversion Price for, inter alia, share dividends, share
divisions, share combinations, rights offerings, pro rata distributions of assets, reclassifications of Ordinary Shares, exchanges
of Ordinary Shares or substitutions of Ordinary Shares, dilutive issuances, certain option issuances and issuances of convertible
securities. At the current Floor Conversion Price, the Notes are convertible into an aggregate of 19,636,364 Ordinary Shares.
The Warrant Shares include Ordinary Shares issuable
upon exercise of the Warrants (including Ordinary Shares reserved for potential issuance in the event of possible future default or dilution
adjustments). The Warrants are exercisable, immediately upon issuance at the option of the holders, at an exercise price per Ordinary
Share equal to initial Fixed Conversion Price for the Notes ($4.00 per Ordinary Share). On the Closing Date, the Selling Shareholders
were issued the Warrants to purchase up to an aggregate of 2,288,678 Ordinary Shares.
To the extent that Conversion Shares and/or
Warrant Shares are issued by the Company under the terms of the Notes and Warrants, substantial amounts of Ordinary Shares could be
issued and resold, which would cause dilution and may impact the Company’s share price. See “Risk Factors” and
“Convertible Note Financing” for additional information.
We are not selling any securities under this prospectus
and will not receive any of the proceeds from the sale of our Conversion Shares or Warrant Shares by the Selling Shareholders. However,
we may receive proceeds from the exercise of the Warrants, which, if exercised in full for an aggregate of 2,288,678 Ordinary Shares and
for cash at the current $4.00 exercise price per Ordinary Share, would result in gross proceeds to us of approximately $9,154,712.00.
There is no assurance that the Selling Shareholders will elect to exercise any of the Warrants for cash and, accordingly, no assurance
that we will receive any proceeds from the exercise of the Warrants.
We will pay the expenses of registering the Conversion
Shares and Warrant Shares offered by this prospectus, but all selling and other expenses incurred by the Selling Shareholders will be
paid by the Selling Shareholders. The Selling Shareholders may sell the Conversion Shares and the Warrant Shares offered by this prospectus
from time to time on terms to be determined at the time of sale through ordinary brokerage transactions or through any other means described
in this prospectus under “Plan of Distribution.” The prices at which the Selling Shareholders may sell the Conversion Shares
or the Warrant Shares will be determined by the prevailing market price for our Ordinary Shares or in negotiated transactions.
Our Ordinary Shares are listed on the Nasdaq Capital
Market under the ticker symbol “LAES.” The last reported sale price of our Ordinary Shares on the Nasdaq Capital Market on
February 13, 2024 was $2.33 per share.
Investing in our Ordinary Shares involves
risks. See “Risk Factors” beginning on page 20 of this prospectus for a discussion of information that should be
considered in connection with an investment in our Ordinary Shares.
Neither the U.S. Securities and Exchange Commission
(“SEC”) nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated February 14, 2024.
TABLE OF CONTENTS
Page
ABOUT THIS PROSPECTUS
You should rely only on the
information contained in this prospectus or in any related free-writing prospectus. Neither we nor the Selling Shareholders have authorized
anyone to provide you with information different from that contained in this prospectus or any free-writing prospectus. We are offering
to sell, and seeking offers to buy, the Ordinary Shares only in jurisdictions where offers and sales are permitted. The information contained
in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any
sale of the Ordinary Shares.
We have not taken any action
to permit a public offering of the Ordinary Shares outside the United States or to permit the possession or distribution of this prospectus
outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about
and observe any restrictions relating to the offering of the Ordinary Shares and the distribution of the prospectus outside the United
States.
Unless otherwise indicated,
references to “SEALSQ,” the “Company,” “we,” “our,” “us” or similar terms
refer to the registrant, SEALSQ Corp, and its subsidiaries, except where the context otherwise requires.
Unless otherwise indicated,
all information contained in this prospectus regarding “WISeKey” has been provided by WISeKey to SEALSQ for purposes of inclusion
in this prospectus. Any reference to “WISeKey” is to WISeKey International Holding AG and its subsidiaries, except as otherwise
indicated or where the context otherwise requires.
References to:
“Articles” are to our
memorandum and articles of association, as amended, as in effect as of the date of this prospectus
“BVI” are to the British
Virgin Islands
“BVI Act” are to the BVI
Business Companies Act 2004, as amended
“BVI Insolvency Act” are
to the BVI Insolvency Act, 2003, as amended
“Code” are to U.S. Internal
Revenue Code of 1986, as amended
“IRS” are to the U.S. Internal
Revenue Service
“JOBS Act” are to the U.S.
Jumpstart Our Business Startups Act of 2012
“Sarbanes-Oxley Act” are
to the U.S. Sarbanes-Oxley Act of 2002
“SEC” or “Commission”
are to the U.S. Securities and Exchange Commission
“Securities Act” are to
the U.S. Securities Act of 1933, as amended
“Securities Exchange Act”
and “Exchange Act” are to the U.S. Securities Exchange Act of 1934, as amended
“$”, “US$”,
“USD” and “U.S. dollars” are to the lawful currency of the United States of America
The following industry-specific
acronyms are used in throughout the prospectus and have the meanings as set out below:
“ANSSI” is the Agence Nationale
de la Sécurité des Systèmes d’Information, the French National Cybersecurity Agency
“Common Criteria EAL” refers
to the Common Criteria Evaluation Assurance Level attributed to an IT product or system on a grade of 1 to 7 with 7 being the highest.
“FIDO” means Fast Identity
Online
“FIPS140-2” refers to the
Federal Information Processing Standard Publication 140-2 and is a US government computer security standard which is graded in levels
from 1 to 4
“IC” is an Integrated Circuit
“IoT” is the Internet of
Things
“NCCOE” is the U.S. National
Cybersecurity Center of Excellence
“NIST” refers to the U.S.
National Institute of Standards & Technology
“OEM” is an Original Equipment
Manufacturer
“PKI” is Public Key Infrastructure
“PQC” is Post-Quantum Cryptography
“Secure Element” or “SE”
is a secure Operating System (OS) in a tamper-resistant processor chip or secure component. It can protect assets (root of trust, sensitive
data, keys, certificates, applications) against high level software and hardware attacks.
“USP” refers to Utility
Service Providers
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking
statements. These forward-looking statements include information about possible or assumed future results of our operations or our performance.
Words such as “expects,” “intends,” “plans,” “believes,” “anticipates,” “estimates,”
“projects,” “forecasts” and variations of such words and similar expressions, as they relate to us, WISeKey, our
management or third parties, are intended to identify the forward-looking statements. Forward-looking statements include statements regarding
our business strategy, financial performance, results of operations, market data, events or developments that SEALSQ expects or anticipates
will occur in the future, as well as any other statements which are not historical facts. Although we believe that the expectations reflected
in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These
statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied
by such forward-looking statements. Forward-looking statements include, but are not limited to, statements we make regarding:
| · | Our anticipated goals, growth strategies and profitability; |
| · | Future operating or financial results; |
| · | Our planned capital expenditure program for additional production lines to be added to our supply chain; |
| · | Our intention to make investments in sales and marketing operations including recruiting additional staff,
and R&D of new products such as post-quantum cryptography; |
| · | Our intention to form new strategic partnerships to strengthen our position as an IoT cybersecurity provider; |
| · | Our belief that the products resulting from our R&D will create additional opportunities for growth; |
| · | Our expectation about the development of the markets for SEALSQ, including expanding the role of Metaverse,
increase in cyber threats and growth of secure hardware market, growing demand for IoT solutions, increase in cybersecurity spending based
on the recent regulations and legislations; |
| · | Our estimation that IoT devices will require semiconductors connected to secure platforms, which could
allow the semiconductor industry to maintain an average annual growth of 3% to 4% for the foreseeable future; |
| · | Our plans to upgrade our PKI offer to add new post-quantum features for the IoT market; |
| · | Our intent to invest heavily in the ongoing development of our products and technology; |
| · | Our expectation that we will continue to gain several benefits from our parent company, WISeKey, including
cash management via a loan agreement, and the financial reporting and legal support via certain service agreements; and |
| · | Assumptions underlying or related to any of the foregoing. |
The preceding list is not
intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions
and expectations of future performance, taking into account the information currently available to us and are only predictions based upon
our current expectations and projections about future events. There are important factors that could cause our actual results, levels
of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements. Those factors include, in addition to those set forth in “Risk Factors” and
those included elsewhere in this prospectus, among others, the following:
| · | The inability to realize estimated financial position, results of operations or cash flows; |
| · | Our ability to anticipate market needs and opportunities; |
| · | Our ability to attract new customers and retain existing customer base; |
| · | Our ability to foster innovation, to develop new products and enhancements to our existing products; |
| · | The demand for our products or for the goods into which our products are incorporated; |
| · | Our expectation that order commitments and non-cancellable orders we received are properly executed; |
| · | The sufficiency of our cash and cash equivalents to meet our liquidity needs; |
| · | The impact of any supply chain disruption that we may experience; |
| · | Our dependency on the timely supply of equipment and materials from our third-party suppliers; |
| · | Our ability to protect our intellectual property rights; |
| · | Our ability to keep pace with technical advances in cryptography and semiconductor design; |
| · | Our ability to raise funds for investment by cash flow from operating activities, advance payments from
a key customer, and grants and other available subsidies from funding agencies; |
| · | Our ability to reduce our cost structure and general and administrative costs; |
| · | Our ability to attract and retain qualified employees and key personnel; |
| · | Our ability to attract new customers and retain and expand within our existing customer base; |
| · | Our ability to foster innovation, to develop new products and enhancements to our existing products; |
| · | The future growth of the information technology and cybersecurity industry; |
| · | Risks relating to SEALSQ’s ability to implement its growth strategies; |
| · | Our ability to successfully form new strategic partnerships with our alliance partners; |
| · | Our ability to continue beneficial transactions with material parties, including WISeKey and a limited
number of significant customers; |
| · | Our ability to prevent security breaches and unauthorized access to confidential customer information; |
| · | Our ability to comply with modified or new laws and regulations relating to our industries; |
| · | The activities of our competitors and the introduction of competing products by our competitors; |
| · | Market demand and semiconductor industry conditions; |
| · | Our ability to successfully introduce new technologies and products; |
| · | The cyclical nature of the semiconductor industry; |
| · | An economic downturn in the semiconductor industry; |
| · | Our ability to comply with U.S. and other applicable international laws and regulations; |
| · | Changes in our overall tax position as a result of changes in tax laws or tax rates, new or revised legislation,
the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to
accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets; |
| · | Fluctuations in the exchange rates between the U.S. dollar and the other major currencies we use for our
operations; |
| · | The potential impact of a pandemic affecting our clients’ ability and willingness to spend money in security applications and our
suppliers’ abilities to source key components and material; |
| · | Uncertain negative effects of a pandemic and its effect on the supply chain; |
| · | Our ability to collect accounts receivable; |
| · | Changes in certain commodities used as raw material, which may affect our gross margin; and |
| · | How long we will qualify as an emerging growth company or a foreign private issuer. |
Given these risks and uncertainties,
you should not place undue reliance on forward-looking statements as a prediction of actual results.
WE UNDERTAKE NO OBLIGATION
TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS OR THE DOCUMENTS TO WHICH WE REFER YOU IN THIS
PROSPECTUS, TO REFLECT ANY CHANGE IN OUR EXPECTATIONS WITH RESPECT TO SUCH STATEMENTS OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES
ON WHICH ANY STATEMENT IS BASED, EXCEPT AS REQUIRED BY LAW.
ENFORCEABILITY
OF CIVIL LIABILITIES
We are incorporated under
the laws of the British Virgin Islands and our principal executive offices are located outside the United States. Most of our directors
and officers and those of our subsidiaries are residents of countries other than the United States. Substantially all of our and our subsidiaries’
assets and a substantial portion of the assets of our directors and officers are located outside the United States. As a result, it may
be difficult or impossible for United States investors to effect service of process within the United States upon us, our directors or
officers or our subsidiaries, or to realize against us or them judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the United States or any state in the United States.
Furthermore, there is substantial
doubt that courts in jurisdictions outside the U.S. (i) would enforce judgments of U.S. courts obtained in actions against us or our directors
or officers based upon the civil liability provisions of applicable U.S. federal and state securities laws or (ii) would enforce, in original
actions, liabilities against us or our directors or officers based on those laws.
INDUSTRY AND MARKET
DATA
We obtained the industry,
market, and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from independent
market research, industry, and general publications and surveys, governmental agencies, and publicly available information in addition
to research, surveys, and studies conducted by third parties. Internal estimates are derived from publicly available information released
by industry analysts and third-party sources, our internal research, and our industry experience, and are based on assumptions made by
us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In some cases, we do not expressly
refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any
paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise
expressly stated or the context otherwise requires. In addition, while we believe the industry, market, and competitive position data
included in this prospectus is reliable and based on reasonable assumptions, such data involve risks and uncertainties and are subject
to change based on various factors, including those discussed in the section titled “Risk Factors.” These and other factors
could cause results to differ materially from those expressed in the estimates made by the independent parties or by us.
PROSPECTUS SUMMARY
This summary highlights
information that appears later in this prospectus and is qualified in its entirety by the more detailed information and financial statements
included elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. As an investor
or prospective investor, you should carefully review the entire prospectus, including the section of this prospectus titled “Risk
Factors” and the more detailed information that appears later in this prospectus before making an investment in our Ordinary Shares.
Unless otherwise indicated,
references to “SEALSQ,” “SEAL Semiconductors,” the “Company,” “we,” “our,”
“us” or similar terms refer to the registrant, SEALSQ Corp, and its subsidiaries, except where the context otherwise requires.
Unless otherwise indicated, all references to “U.S. dollars,” “dollars,” “USD”, “US$”
and “$” in this prospectus are to the lawful currency of the United States of America.
Explanatory Note
SEALSQ Corp (formerly
known as SEAL (BVI) Corp.) was incorporated under the laws of the British Virgin Islands on April 1, 2022. SEALSQ was incorporated
by WISeKey to serve as the holding company of 2 subsidiaries and 1 branch (which formerly represented WISeKey’s global
semiconductor business) that were transferred by WISeKey to SEALSQ (the “Subsidiaries” or “SEALSQ Corp
Predecessor”). On January 1, 2023, WISeKey contributed these subsidiaries to SEALSQ, and on May 23, 2023, as the then-sole
shareholder of SEALSQ, distributed 20% of SEALSQ’s outstanding ordinary shares of US$0.01 par value per share (“Ordinary
Shares”) to holders of WISeKey Class B Shares (“Class B Shares”), including to holders of WISeKey American
Depositary Shares (“ADSs”) representing Class B Shares, and to holders of WISeKey Class A Shares (“Class A
Shares”), as a distribution by way of a dividend in kind to such holders who held such ADSs as of the May 22, 2023 record date
and such Class B shares and Class A shares as of the May 19, 2023 record date (the “Spin-Off Distribution”). As of the
date of this prospectus, WISeKey holds 100% ownership of SEALSQ Class F Shares with a par value of US$0.05 per share (“Class F
Shares” and the holders thereof "Class F Shareholders") and 34.84% of SEALSQ Ordinary Shares.
Under the registration statement
of which this prospectus forms a part, the Company is applying to register the resale, from time to time, by the selling shareholders
named herein of the Ordinary Shares issued upon conversion of Notes and/or exercise of Warrants. The Ordinary Shares are listed on the
Nasdaq Capital Market under the ticker symbol “LAES”.
The financial statements in
this prospectus include unaudited interim financial statements of SEALSQ Corp for the six months ended June 30, 2022 and June 30, 2023,
financial statements of the SEALSQ Corp Predecessor for the fiscal years ended December 31, 2020, December 31, 2021 and December 31, 2022,
and the balance sheet of SEALSQ Corp as of December 31, 2022.
Although WISeKey did not transfer
the Subsidiaries constituting the WISeKey semiconductor business to SEALSQ until January 1, 2023, the operating and other statistical
information with respect to SEALSQ’s business is presented as of December 31, 2022, unless otherwise indicated, as if SEALSQ owned
such semiconductor business as of such date.
Overview
SEALSQ serves as an OEM supplier
of state-of-the-art cybersecurity solutions and advanced semiconductors. We cater to a diverse range of clients, including manufacturers
of IoT devices, branded appliances and valuable objects. Our expertise plays a pivotal role in aiding these clients to harness the power
of data and digital transformation. In doing so, we empower them to unlock new efficiencies, amplify productivity, operate sustainably,
and elevate customer satisfaction – key factors for success in the forthcoming decade.
What sets SEALSQ apart in
the IoT technology landscape is our unique amalgamation of secure hardware with a comprehensive platform for key management and the seamless
integration of physical/cyber elements. This integration is embodied in our groundbreaking approach: pairing each hardware chip with a
digital certificate and a dynamic digital record that mirrors the chip's lifecycle. This symbiotic relationship ensures that the chip’s
digital security is firmly anchored in the device's hardware, a cornerstone of our philosophy to instill digital trust in the physical
world.
As it stands, many of the
currently deployed IoT devices lack any serious form of security: the devices contain weaknesses that can easily be exploited, and the
vast majority of data transmission is left unprotected. Regulatory and legislative pressure in combination with the rising danger of ransomware
and other types of attacks, however, will force IoT customers to adopt solid cybersecurity practices and techniques. Our mission revolves
around providing devices and objects with an unforgeable “passport,” a testament to their authenticity and integrity. This
digital passport, underpinned by our fusion of tamperproof semiconductors (the physical aspect) and meticulously managed cryptography
(the digital facet), plays two crucial roles once integrated into the target device or object.
Device Authentication:
It enables the device to self-identify and authenticate in its interactions with platforms or other devices, ensuring secure and trusted
communication.
Anti-Cloning Protection: It
renders the device or object immune to replication and cloning, safeguarding against unauthorized duplications and ensuring the exclusivity
of the original.
SEALSQ continues to lead the
way in bridging the gap between the physical and the digital, offering unparalleled solutions in the ever-evolving world of IoT and cybersecurity.
Our Business
Our Solution: Harnessing Cybersecurity,
Post-Quantum Semiconductors , IoT and AI to Enhance Trust in the Physical and Cyber World
SEALSQ stands at the intersection
of physical and cyber trust, offering unparalleled assurance in an increasingly interconnected world. Our brand epitomizes digital comfort,
trust, and a secure culture, protecting citizens, consumers, and professionals daily. At the heart of our offerings is the innovative
integration of Cybersecurity, Semiconductors, Post-Quantum IoT and artificial intelligence (AI), elevating our solutions to new heights
of security and reliability. Through AIoT (Artificial Intelligence of Things), we are transforming technology, utilizing IoT-generated
data, protected and authenticated by our innovative technology, to enable AI-driven predictive insights and operational enhancements.
This integration is a major step in the AIoT revolution, setting new standards in smart technology.
AI-Enhanced Secure Elements:
Our engineering teams expertly blend analog and digital countermeasures, forming the core DNA of our Secure Elements. These elements are
constantly monitored and updated using Root of Trust and AI algorithms, allowing us to stay ahead of emerging cyber threats. AI's predictive
capabilities enable us to anticipate and thwart new generations of attacks devised by cyber hackers, ensuring our clients' devices remain
impregnable.
Intelligent Provisioning and
Personalization Platform: Our platform utilizes AI to manage the creation of digital keys and certificates. This AI-driven approach ensures
a more efficient, secure, and error-free process, significantly enhancing the reliability of certificate injection into our Secure Elements.
The intelligent system dynamically adapts to evolving security needs, providing personalized security solutions tailored to each customer's
unique requirements.
Root Certificate Authority
with AI Verification: Our Global Root Certificate Authority is, since 1999, at the forefront of digital identity security, leveraging
AI to guarantee the uniqueness and authenticity of the digital identities we generate for our customers. AI algorithms enhance the verification
process, detecting anomalies and ensuring the integrity of each digital identity, thereby fortifying the trust in our digital certificates.
Our products and infrastructures
are not only engineered with cutting-edge technology but also undergo rigorous testing and certification by third-party labs, achieving
the highest industry standards. The addition of AI into our processes not only augments the security of our products but also elevates
their efficiency and adaptability, keeping our clients one step ahead in a rapidly evolving digital landscape. This AI integration underlines
our commitment to providing robust, future-proof solutions in the realm of physical and cyber trust.
Our diverse client base employ
our solutions across a broad spectrum of applications. These range from securing artworks, medical supplies, and access tokens, to safeguarding
advanced technology such as personal health monitors, industrial controllers, IT servers, and more. Our products play a crucial role in
combating counterfeit, unauthorized imports, and theft, while ensuring the safety of connected devices in remote and unmonitored environments
from threats like manipulation, disruption, and data breaches.
We are excited to announce
the implementation of the QUASARS (QUAntum resistant Secure ArchitectureS) project, built on the new WISeKey Secure RISC V platform. This
project marks a significant leap into the Post Quantum Cryptography era, offering hybrid solutions that align with the recommendations
of France's National Cybersecurity Agency (ANSSI). The French SCS Cluster's endorsement of our QUASARS project further underscores our
leading role in semiconductor innovation, particularly in enhancing AI performance.
The exponential growth of
the IoT market, as reported by IoT Analytics2, highlights the increasing significance of IoT in our digital world. SEALSQ’s AIoT
systems, encompassing both cloud-based and edge-based solutions, cater to diverse operational needs, from deep predictive analysis to
real-time data processing. Our AIoT solutions are making significant impacts across industries, including smart cities, healthcare, and
cybersecurity.
The IoT cybersecurity market
presents enormous potential, with a rapidly growing number of connected devices and an increasing awareness of the need for robust security
measures. Our business strategy focuses on expanding our product range, growing our global customer base, leveraging partnerships, and
deepening our penetration in existing markets. This strategy is underpinned by our commitment to innovation, particularly in the development
of next-generation Secure Elements and Crypto Processors capable of running Post-Quantum algorithms.
SEALSQ is at the vanguard
of integrating digital trust into the physical realm, offering cutting-edge cybersecurity solutions for a wide array of applications,
and leading the way in the evolution of AIoT and the Web 3.0 era. Our focus on innovation, market expansion, and partnership leverage
positions us to capitalize on the vast opportunities presented by the rapidly evolving digital landscape.
Our Competitive Strengths
We believe we have several
competitive advantages that will enable us to maintain and extend our market position. Our key competitive strengths include:
| · | SEALSQ is unique because we combine secure hardware with a platform to manage our keys and to manage the
physical/cyber pairing. This pairing associates the hardware chip inseparably with digital certificates and a digital record that reflects
the lifecycle of the chip. Conversely, the digital security is anchored in hardware inside the device. We believe it is this unique proposition
that enables us to bring digital trust to the physical world. |
| · | Customer dedication is in our DNA and we deliver to customers ordering hundreds of millions of units,
as well as to customers ordering a few thousand custom units. |
| · | Ongoing product innovation. We continually innovate on our products to enhance and expand capabilities.
Our agentless technology differentiates us in the market and positions us to capitalize on the proliferation of new device types entering
the enterprise that cannot be supported by agent-based technologies. |
| · | Proven supply chain management processes with a track record of timely delivery. |
| · | Standardized technology and compliance with industry-driven standards, to ease the integration by our
direct customers and by end customers. |
| · | Top-level certifications (Common Criteria EAL5+ and FIPS140-2 Level 3) that address the current and future
requirements of IoT deployments in health care and critical infrastructure. |
| · | The digital certificates are rooted at the OISTE Foundation, a not-for-profit organization based in Geneva,
Switzerland, regulated by article 80 et seq. of the Swiss Civil Code and neutral vis-à-vis any dominant vendor, country or other
market player. |
| · | Broad appeal of our products across a diverse end customer base. We serve end customers of all sizes across
diverse industries. We are deeply integrated into our customers’ security infrastructure, demonstrating immediate and ongoing value.
We have a long-term, loyal base of end customers with many relationships spanning over 10 years. |
| · | Recognized market leadership. We participate in standardization efforts by Wi-SUN Alliance, a global association
to drive interoperability in smart cities and smart grids. SEALSQ is also currently working with NIST’s National Cybersecurity Center
of Excellence (NCCoE) on a reference design for securely onboarding IoT devices. |
| · | Global market reach driven by direct and indirect sales strategy. We have recruited top sales talents
from leading security organizations and retain the highest quality sales representatives with demonstrated success. We are one of the
only vendors in our market solely focused on security and control and, as such, our sales representatives are wholly focused on selling
the standalone value of our products. |
| · | Strong leadership team of security experts. We have a deep bench of talent at the executive level, with
years of industry experience at secure semiconductor manufacturers and cryptography labs. |
Key Challenges
| | We may face a number of challenges,
including: |
| · | We face competition from companies that are larger than us. Our semiconductor offer is limited to Secure
Element, whereas our competition can offer a larger spectrum of microcontrollers components. It gives them the possibility to propose
to their customers larger deals, thus to be potentially more flexible during price negotiation. |
| · | Our competition benefits of their size to lower their manufacturing costs, which gives them as well more
flexibility in price negotiation. |
| · | We face competition from companies that are larger and better known, and we may lack sufficient financial
or other resources to maintain or improve our competitive position. |
| · | Our historical financial information may not be representative of the results we would have achieved as
a stand-alone public company and may not be a reliable indicator of our future results. |
| · | We may have difficulty operating as an independent, publicly traded company. |
| · | We derive a significant amount of our revenues each year from a limited number of significant customers. |
| · | The market price of our Ordinary Shares may be subject to significant fluctuations. |
| | See the section titled “Risk
Factors” for more information on each of these key challenges. |
Market Opportunity
The addressable market for
IoT cybersecurity is massive: more than 12 billion IoT devices were connected in 2021 and this number is expected to grow to 27 billion
units in 2025 with CAGR of 22% according to IoTAnalytics.1
McKinsey predicts an annual US$12.6 trillion in economic value by 2030.2
As it stands, many of the
currently deployed IoT devices lack any serious form of security: the devices contain weaknesses that can easily be exploited, and the
vast majority of data transmission is left unprotected. Regulatory and legislative pressure in combination with the rising danger of ransomware
and other types of attacks, however, will force IoT customers to adopt solid cybersecurity practices and techniques.
An increase in cyber threats
targeting critical infrastructure systems is one reason ABI Research forecasts that Authentication IC (Integrated Circuit), our core market,
will be at the center of IoT cybersecurity. ABI Research also anticipates that the global market size of the Authentication IC will grow
from 0.3 billion in 2022 to 1 billion in 2026 at a CAGR of 57.1%.3
Our Business Strategy
Our Business Strategy: Pioneering
and Expanding in the IoT Landscape
At SEALSQ, while we have traditionally
relied on the one-time sale of semiconductors and sensor hardware, we are actively evolving our business model to embrace recurring revenue
streams. This strategic shift leverages a percentage of the vast install-base of over 1.6 billion semiconductors, harnessing AI to analyze
the data they generate. This data analysis facilitates predictive analytics on the objects we secure, adding a new dimension to our service
offerings. In addition to this, we have established a post-market segment focusing on provisioning, onboarding, and lifecycle management,
which not only generates additional recurring revenue but also enhances customer loyalty and retention.
Our growth strategies are
multi-faceted and forward-looking, focusing on:
| 1. | Product Innovation: We are at the forefront of developing a new generation of Secure Elements, incorporating
cutting-edge technologies to minimize footprint and reduce costs. This includes advanced Flash memory for greater customization and a
new generation of Crypto Processors capable of running Post-Quantum algorithms endorsed by NIST. These innovations are aimed at creating
new opportunities in upgrade markets across various sectors and pioneering applications. |
1 “State of IoT – Spring
2022”, IOT Analytics, May 2022.
2 “The Internet of Things:
Catching up to an accelerating Opportunity”, McKinsey & Company, November 2021.
3 “Embedded Security for the
IoT”, ABI Research, January March 2020.
| 2. | Global Customer Base Expansion: Significant investments have been made, and will continue, in our sales
infrastructure to foster new customer acquisition and to introduce our products in emerging markets. We are confident these efforts will
open doors to new large enterprise opportunities, both domestically and internationally. |
| 3. | Leveraging Partnerships: By capitalizing on our robust ecosystem of technology and channel partners, we
aim to amplify our market presence. This strategy is particularly targeted towards mid-market enterprises, where we see substantial growth
potential. |
| 4. | Expanding Within Existing Customer Networks: Our revenue is intrinsically linked to our clients' sales
volumes. By supporting our existing customers in capturing their market opportunities, we not only grow alongside them but also expand
our reach within their networks. This includes entering new segments of their operations and replacing competitors where possible, thereby
broadening the application of our products in diverse IoT markets. |
In summary, our business strategy
at SEALSQ is dynamic and adaptable, focused on innovative product development, expanding our global reach, leveraging strategic partnerships,
and deepening our engagement with existing clients. This approach positions us to capitalize on the rapidly evolving IoT market, ensuring
sustained growth and continued leadership in the field.
Convertible Note Financing
On July 11, 2023, we closed
an initial $10 million tranche (the “First Tranche”) of a private placement of Convertible Notes and Warrants with certain
investors (collectively, the “Investors”) pursuant to the terms of a Securities Purchase Agreement, dated July 11, 2023, between
the Company and the Investors (the “Purchase Agreement”).
In connection with the closing
of the First Tranche, the Company issued to the Investors (i) 4% Senior Original Issue Discount Convertible Notes due 2025 in an aggregate
principal amount of $10,000,000.00 (the “Initial Notes”), convertible into a number of Ordinary Shares,
and (ii) Warrants with a 5-year maturity (the “Initial Warrants”) to purchase 245,816 Ordinary Shares.
On January 9, 2024 (the “Second
Tranche Closing Date”), the Company entered into an Amendment to the Securities Purchase Agreement (the “Amendment to Purchase
Agreement,” and the Initial Securities Purchase Agreement, as so amended, the “Purchase Agreement”), and closed a $10
million second tranche (the “Second Tranche”) of the offering, resulting in the issuance to the Investors of (i) 4% Senior
Original Issue Discount Convertible Notes due 2026 in an aggregate principal amount of $10,000,000.00 (the “Second Tranche Notes”,
and together with the Initial Notes, “the Notes”) convertible into a number of Ordinary Shares, and (ii) Warrants with a 5-year maturity (the “Second Tranche Warrants”, and together with the Initial Warrants,
the “Warrants”) to purchase an aggregate of 2,288,678 Ordinary Shares.
A third tranche issuance of
notes and warrants (the “Third Tranche”) is subject to the mutual consent of the parties, and may be provided for up to a
total of $10 million in principal amount of notes. Such Third Tranche would close only after the effective date of the Registration Statement
(as defined below) and upon the satisfaction (or waiver) of the closing conditions for the Third Tranche specified in the Purchase Agreement.
We are registering the resale
of up to an aggregate of 45,000,000 Ordinary Shares issuable upon conversion of the Second Tranche Notes (“Conversion Shares”)
and upon exercise of the Second Tranche Warrants (“Warrant Shares”) as required by the Registration Rights Agreement, dated
as of July 11, 2023, as amended (as amended, the “Registration Rights Agreement”), by and among us and the Investors.
The Conversion Shares
include Ordinary Shares issuable upon conversion of $10,000,000.00 in aggregate principal amount of the Second Tranche Notes and in
accruing interest which may be paid by the Company in Conversion Shares with the written consent of the Selling Shareholders
(including Ordinary Shares reserved for potential issuance in the event of possible future default or dilution adjustments). The
Second Tranche Notes are convertible at a conversion price of the lesser of (i) $4.00 per Ordinary Share (the “Fixed
Conversion Price”), or (ii) 92% of the lowest daily variable-weighted average price (the “VWAP”) per Ordinary
Share during the 10 trading days preceding the conversion (the “Variable Conversion Price”). The Variable Conversion
Price has a floor of $0.55 per Ordinary Share (the “Floor Conversion Price”). The Floor Conversion price of the Second
Tranche Notes can be lowered by mutual consent of the Company and the Investors. The Notes provide for adjustment of the Fixed
Conversion Price for, inter alia, share dividends, share divisions, share combinations, rights offerings, pro rata
distributions of assets, reclassifications of Ordinary Shares, exchanges of Ordinary Shares or substitutions of Ordinary Shares,
dilutive issuances, certain option issuances and issuances of convertible securities. At the current Floor Conversion Price, the
Second Tranche Notes are convertible into 19,636,364 Ordinary Shares.
The Warrant Shares include
Ordinary Shares issuable upon exercise of the Second Tranche Warrants (including Ordinary Shares reserved for potential issuance in the
event of possible future default or dilution adjustments). The Second Tranche Warrants are exercisable, immediately upon issuance at the
option of the holders, at an exercise price per Ordinary Share equal to initial Fixed Conversion Price for the Second Tranche Notes ($4.00
per Ordinary Share). Pursuant to the Purchase Agreement, on the Second Tranche Closing Date, the Investors were issued the Second Tranche
Warrants to purchase up to an aggregate of 2,288,678 Ordinary Shares.
To the extent that
Conversion Shares and/or Warrant Shares are issued by the Company under the terms of the Second Tranche Notes and Second Tranche
Warrants, substantial amounts of Ordinary Shares could be issued and resold, which would cause dilution and may impact the
Company’ share price. See the sections titled “Risk Factors” and “Convertible Note Financing” for
additional information.
Risk Factors Summary
An investment in our securities
is subject to a number of risks, including risks related to our industry, business and corporate structure. The following summarizes some,
but not all, of these risks. Please carefully consider all of the information discussed in “Risk Factors” in this prospectus
for a more thorough description of these and other risks.
| · | The semiconductor industry is highly cyclical and highly competitive. If we fail to introduce new technologies
and products in a timely manner, this could adversely affect our business. |
| · | Significantly increased volatility and instability and unfavorable economic conditions may adversely affect
our business. |
| · | The demand for our products depends to a significant degree on the demand for our customers’ end
products. |
| · | The semiconductor industry is characterized by continued price erosion, especially after a product has
been on the market. |
| · | Failure to protect our intellectual property could substantially harm our business, operating results,
and financial condition. |
| · | We face competition from companies that are larger and better known, and we may lack sufficient financial
or other resources to maintain or improve our competitive position. |
| · | Our research and development efforts may not produce successful products or enhancements to our security
solutions that result in significant revenue or other benefits in the near future, if at all. |
| · | We are dependent on the timely supply of equipment and materials from various sub-contractors and if any
one of these suppliers fails to meet or delays their committed delivery schedules, we can suffer with lower or lost revenues. |
| · | Changes in regulations or citizen concerns regarding privacy and protection of citizen data, or any failure
or appearance of failure to comply with such laws, could diminish the value of our services and cause us to lose customers and revenue. |
| · | If our security systems are breached, we may face civil liability, and public perception of our security
measures could be diminished, either of which would negatively affect our ability to attract and retain customers. |
| · | Our business model consists in promoting trust and security, and it depends on trust in our brand. Negative
media coverage could adversely affect our brand and any failure to maintain, protect, and enhance our brand would hurt our ability to
retain or expand our customer base. |
| · | We depend on our customers’ ability to sell their products, which may pose challenges for our ability
to forecast or optimize our inventory and sales. |
| · | We may need to discontinue products and services. During the ramp-down of such products and services,
we may experience a negative impact on our sales. |
| · | We are a holding company with no direct cash generating operations and rely on our subsidiaries to
provide us with funds necessary to pay dividends to shareholders. We are dependent upon our parent company and other members of the
WISeKey Group for the provision of certain services. |
| · | We derive a significant amount of our revenues each year from a limited number of significant customers. |
| · | The dual class structure of our shares has the effect of concentrating voting power with certain shareholders,
in particular, WISeKey, which will effectively eliminate your ability to influence the outcome of important transactions, including a
change of control. |
| · | Our governance structure and our Articles may negatively affect the decision by certain institutional
investors to purchase or hold our Ordinary Shares. |
| · | Provisions in our Articles are intended to discourage certain types of transactions that may involve an
actual or threatened hostile acquisition of control of SEALSQ, which will likely depress the trading price of our Ordinary Shares. |
| · | WISeKey and other Class F Shareholders could have, and WISeKey currently does have, voting power that exceeds 49.99%
of the voting power of our outstanding shares. |
| · | As a result of issuances of our Ordinary Shares or the disposal of Ordinary Shares by WISeKey and other
Class F Shareholders, WISeKey and other Class F Shareholders could have, and currently do have, voting power that is substantially greater
than, and outsized in comparison to, their economic interests and the percentage of our Ordinary Shares that they hold. |
| · | Future issuances of our Ordinary Shares, such as from conversions of the Second Tranche Notes or the exercise
of First and Second Tranche Warrants, will dilute the voting power of our holders of Ordinary Shares, but may not result in further dilution
of the voting power of Class F Shareholders. |
| · | Our convertible note and warrant financing with the Selling Shareholders could cause substantial dilution
and pressure on the public price of our Ordinary Shares as the conversion price of such notes into Ordinary Shares can be a discount to
market and the interest payments under such notes can be paid in Ordinary Shares priced at a discount to market. |
| · | The rights afforded to the Selling Shareholders under our convertible note and warrant financing could
discourage investment in our company from third parties. |
Corporate Structure
We are a subsidiary of WISeKey.
Pursuant to an internal restructuring
of WISeKey on January 1, 2023 (the “Internal Restructuring”), WISeKey transferred the ownership of WISeKey Semiconductors
SAS (formerly known as VaultIC SAS), a French semiconductor manufacturer and distributor, WISeKey IoT Japan KK, a Japan-based sales subsidiary
of WISeKey Semiconductors SAS, and WISeKey Semiconductors, Taiwan Branch, a Taiwan-based sales and support branch of WISeKey Semiconductors
SAS, to SEALSQ in a share exchange. Thereafter, on May 23, 2023, pursuant to the Spin-Off Distribution, WISeKey distributed 20% of SEALSQ’s
outstanding Ordinary Shares to holders of WISeKey Class B Shares, including to holders of ADSs representing WISeKey Class B Shares, and
to holders of WISeKey Class A Shares, as a distribution by way of a dividend in kind to such holders who held Class B Shares and Class
A Shares as of the May 19, 2023 record date, and holders of ADSs as of the May 22, 2023 record date, for the Spin-Off Distribution.
For a discussion of the history
and development of SEALSQ, see the section titled “Business”.
As of the date of this prospectus,
WISeKey International Holding AG holds 100% of the Class F Shares (subject to the grant and exercise of Class F Share Options as described
below) and approximately 35% of the Ordinary Shares. SEALSQ is reserving up to 5% of its Class F Shares for issuance pursuant to an F
Share Option Plan for certain directors and senior management of SEALSQ, its subsidiaries and its parent. As a result, WISeKey’s
initial ownership percentage of SEALSQ Class F Shares is subject to the grant and exercise of SEALSQ Class F Share Options from time to
time. For a description of the Ordinary Shares and the Class F Shares, see “Description of Shares.”
The following diagram depicts
our organizational structure as of the date of this prospectus:
![](https://www.sec.gov/Archives/edgar/data/1951222/000119380524000219/image_001.jpg)
* Subject to the grant and
exercise of Class F Share Options as described above. Currently, 0.58% of the total outstanding Ordinary Shares are held by affiliates
of SEALSQ, including Mr. Carlos Moreira and Mr. Peter Ward but excluding WISeKey.
Recent Developments
On October 4, 2023, transferred
the listing of our Ordinary Shares from the Nasdaq Global Market to the Nasdaq Capital Market. This has no immediate effect on the listing
or trading of the Company’s Ordinary Shares. The Company’s Ordinary Shares will continue to trade under the “LAES”
ticker symbol. The approval by Nasdaq was conditioned upon the Company meeting the applicable market value requirement of publicly held
shares for continued listing and all other applicable requirements for listing on the Nasdaq Capital Market.
On September 25, 2023, we
received a notification letter indicating that we were not in compliance with the minimum Market Value of Publicly Held Shares (“MVPHS”)
set forth in the Nasdaq Rules for continued listing on the Nasdaq Global Market. Nasdaq Listing Rule 5450(b)(2)(C) requires companies
to maintain a minimum MVPHS of USD 15 million, and Listing Rule 5810(c)(3)(D) provides that a failure to meet the MVPHS requirement exists
if the deficiency continues for a period of 30 consecutive business days. Based on the MVPHS of the Company for the 30 consecutive business
days from August 9, 2023 to September 20, 2023, the Company did not meet the MVPHS minimum requirement.
On October 4, 2023, we received
a notification letter from the Listings Qualifications Department of the Nasdaq indicating that, based upon the Company’s market
value of listed securities (“MVLS”) for the 30 consecutive business day period from August 21, 2023 through October 2, 2023,
we did not maintain the minimum MVLS of $50,000,000 required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing
Rule 5450(b)(2)(A). The notification letter also indicated that the Company would be afforded a period of 180 calendar days, or until
April 1, 2024 (the “MVLS Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(C).
The transfer of our listing
to the Nasdaq Capital Market means we are no longer in default of the MVPHS or the MVLS of the Nasdaq Rules. We will continue to monitor
our compliance with the continued listing requirements of the Nasdaq Capital Market.
Corporate Information
SEALSQ Corp is a BVI business
company incorporated and existing under the laws of the British Virgin Islands. Our registered office in the British Virgin Islands is
at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. Our principal executive offices and effective place of management
are located at Avenue Louis-Casaï 58, 1216 Cointrin, Switzerland. Our telephone number from the United States is 011 41 22 594 3000.
Our website can be accessed at www.SEALSQ.com. The information on or linked to on our website is not a part of this prospectus.
Other Information
Because we are incorporated
under the laws of the British Virgin Islands, you may encounter difficulty protecting your interests as shareholders, and your ability
to protect your rights through the U.S. federal court system may be limited. Please refer to the sections titled “Risk Factors”
and “Enforceability of Civil Liabilities” for more information.
Implications of Being an Emerging Growth Company
and a Foreign Private Issuer
We qualify as an “emerging
growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced reporting
and other requirements that are otherwise applicable generally to public companies in the United States. These provisions include:
| · | an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may
adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the
audit and the financial statements; |
| · | reduced disclosure about our executive compensation arrangements; |
| · | an exemption from the non-binding advisory votes on executive compensation, including golden parachute
arrangements; and |
| · | an exemption from the auditor attestation requirement in the assessment of our internal control over financial
reporting pursuant to the Sarbanes-Oxley Act. |
As a result, we do not know
if some investors will find our Ordinary Shares less attractive. The result may be a less active trading market for our Ordinary Shares,
and the price of our Ordinary Shares may become more volatile. We may choose to take advantage of some or all these provisions until the
last day of the fiscal year ending after May 23, 2028 or such earlier time that we are no longer an emerging growth company. We would
cease to be an emerging growth company if we have more than $1.07 billion in total annual gross revenue, have more than $700 million in
market value of our ordinary shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.
Our status as a “foreign
private issuer” also exempts us from compliance with certain laws and regulations of the SEC and certain regulations of Nasdaq.
Consequently, we are not subject to all of the disclosure requirements applicable to U.S. public companies. For example, we are exempt
from certain rules under the Securities Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation
of proxies, consents or authorizations applicable to a security registered under the Securities Exchange Act. In addition, our executive
officers and directors are exempt from the reporting of “short-swing” profit recovery provisions of Section 16 of the Securities
Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic
reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly
available information concerning our company than there is for U.S. public companies.
In addition, foreign private
issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic
issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal
year. Foreign private issuers are also exempt from Regulation FD (Fair Disclosure) of the Securities Exchange Act, aimed at preventing
issuers from making selective disclosures of material information.
We may take advantage of these
exemptions until such time as we no longer qualify as a foreign private issuer. In order to maintain our current status as a foreign private
issuer, either a majority of our outstanding voting securities must be directly or indirectly held of record by non-residents of the United
States, or, if a majority of our outstanding voting securities are directly or indirectly held of record by residents of the United States,
a majority of our executive officers or directors may not be United States citizens or residents, more than 50% of our assets cannot be
located in the United States and our business must be administered principally outside the United States.
We have taken advantage of
certain of these reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different
from the information you receive from other public companies in the U.S. in which you hold equity securities.
Implications of Being a Controlled Company
We are a “controlled
company” as defined under the Nasdaq Stock Market Rules, because one of our shareholders, WISeKey, holds more than 50% of our voting
power. As a result, for so long as we remain a controlled company as defined under those rules, we are exempt from, and our shareholders
generally are not provided with the benefits of, some of the Nasdaq Stock Market corporate governance requirements, including that:
| · | a majority of our board of directors must be independent directors; |
| · | our compensation committee must be composed entirely of independent directors; and |
| · | our corporate governance and nomination committee must be composed entirely of independent directors. |
THE OFFERING
Ordinary Shares offered by the Selling Shareholders |
|
Up to 45,000,000 Ordinary Shares of our Company, which includes Ordinary Shares potentially issuable upon the conversion of the Second Tranche Notes held by the Selling Shareholders (including additional Ordinary Shares reserved for potential issuance in the event of default or dilution adjustments), and Ordinary Shares potentially issuable upon the exercise of the Second Tranche Warrants to purchase Ordinary Shares issued to the Selling Shareholders (including additional Ordinary Shares reserved for potential issuance in the event of default or dilution adjustments). |
|
|
|
Use of proceeds |
|
We will not receive any proceeds from the sale by the Selling Shareholders of the Ordinary Shares being offered by this prospectus. However, we may receive proceeds from the cash exercise of the Second Tranche Warrants, which would result in gross proceeds to us of approximately $9,154,712, assuming exercise in full for cash at the current exercise price of the Warrants of $4.00 per Ordinary Share. The proceeds from such Warrant exercises, if any, will be used for working capital and general corporate purposes. No assurances can be given that all or any portion of the Warrants will be exercised. |
|
|
|
Trading market and symbol |
|
Our Ordinary Shares currently trade on the Nasdaq Capital Market under the symbol “LAES.” |
|
|
|
Risk factors |
|
Your investment in our Ordinary Shares will involve risks. You should carefully consider all the information in this prospectus, including the information referred to in the section titled “Risk Factors” beginning on page 20 of this prospectus and information under the heading “Forward-Looking Statements” beginning on page 3 of this prospectus, before deciding whether to purchase our Ordinary Shares. |
Unless we indicate otherwise,
all information in this prospectus is based on 17,227,122 Ordinary Shares issued and outstanding as of the date of this prospectus.
SUMMARY FINANCIAL AND OTHER DATA
The following table presents
selected financial and other operating data for the periods and at the dates indicated.
The table should be read together
with the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”
The selected financial data of SEALSQ Corp Predecessor as of and for the years ended December 31, 2020, 2021 and 2022 is a summary of,
is derived from, and is qualified by reference to, the audited financial statements of SEALSQ Corp Predecessor and notes thereto. The
financial statements of SEALSQ Corp Predecessor have been prepared in accordance with U.S. generally accepted accounting principles, or
“U.S. GAAP.”
Our statements of operations,
balance sheets, shareholders’ equity and cash flows, together with the notes thereto, are included in the section of this prospectus
titled “Financial Statements” and should be read in their entirety.
SEALSQ Corp
Condensed Consolidated Statement of Loss (unaudited)
|
6 months ended June 30, |
USD'000 |
2023 (unaudited) |
|
2022 (unaudited) |
|
|
|
|
Net sales |
14,751 |
|
10,656 |
Gross profit |
7,790 |
|
4,766 |
|
|
|
|
Research & development expenses |
(1,492) |
|
(1,161) |
Total operating expenses |
(8,069) |
|
(5,149) |
Operating loss |
(279) |
|
(383) |
Loss before income tax expense |
(555) |
|
(182) |
Net loss |
(875) |
|
(183) |
SEALSQ Corp Predecessor
Consolidated Statement of Income / (Loss)
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
|
|
|
|
|
|
Net sales |
23,198 |
|
16,995 |
|
14,317 |
Gross profit |
9,799 |
|
7,147 |
|
5,434 |
|
|
|
|
|
|
Research & development expenses |
(2,308) |
|
(3,050) |
|
(4,128) |
Total operating expenses |
(7,216) |
|
(12,188) |
|
(14,019) |
Operating income / (loss) |
2,583 |
|
(5,041) |
|
(8,585) |
Income / (loss) before income tax expense |
2,525 |
|
(4,821) |
|
(9,196) |
Net income / (loss) |
5,770 |
|
(4,827) |
|
(9,201) |
SEALSQ Corp
Condensed Consolidated Balance Sheet
|
As at June 30 |
As at December 31 |
USD'000, “except par value” |
2023
(unaudited) |
2022
(unaudited) |
|
|
|
Cash and cash equivalents |
1,860 |
4,057 |
Total current assets |
16,363 |
15,432 |
Total noncurrent assets |
7,714 |
6,227 |
Total assets |
24,077 |
21,659 |
|
|
|
Total current liabilities |
9,641 |
10,628 |
Total noncurrent liabilities |
15,081 |
10,819 |
Total liabilities and equity |
24,077 |
21,659 |
SEALSQ Corp Predecessor
Consolidated Balance Sheet
|
As at December 31, |
USD'000, "except par value" |
2022 |
|
2021 |
|
2020 |
|
|
|
|
|
|
Cash and cash equivalents |
4,057 |
|
2,064 |
|
1,830 |
Total current assets |
15,432 |
|
8,248 |
|
7,551 |
Total noncurrent assets |
6,227 |
|
3,596 |
|
5,882 |
Total assets |
21,659 |
|
11,844 |
|
13,433 |
|
|
|
|
|
|
Total current liabilities |
10,628 |
|
7,759 |
|
7,834 |
Total noncurrent liabilities |
10,819 |
|
17,648 |
|
14,972 |
Total liabilities and equity |
21,659 |
|
11,844 |
|
13,433 |
RISK FACTORS
Any investment in our Ordinary
Shares involves a high degree of risk. You should consider carefully the following factors, as well as the other information set forth
in this prospectus before making any investment decision in respect of our Ordinary Shares. Some of the following risks relate principally
to the industry in which we operate and our business in general. Other risks relate to the securities market for, and ownership of, our
Ordinary Shares. Any of the described risks could significantly and negatively affect our business, financial condition, operating results
and the price of our Ordinary Shares. The following risk factors describe the material risks that are presently known to us.
Industry Risk Factors
The semiconductor industry is highly cyclical.
Historically, the relationship
between supply and demand in the semiconductor industry has caused a high degree of cyclicality in the semiconductor market. Semiconductor
supply is partly driven by manufacturing capacity, which in the past has demonstrated alternating periods of substantial capacity additions
and periods in which no or limited capacity was added. As a general matter, semiconductor companies are more likely to add capacity in
periods when current or expected future demand is strong and margins are, or are expected to be, high. Investments in new capacity can
result in overcapacity, which can lead to a reduction in prices and margins. In response, companies typically limit further capacity additions,
eventually causing the market to be relatively undersupplied. In addition, demand for semiconductors varies, which can exacerbate the
effect of supply fluctuations. As a result of this cyclicality, the semiconductor industry has, in the past, experienced significant downturns,
such as in 1997/1998, 2001/2002 and in 2008/2009, often in connection with, or in anticipation of, maturing life cycles of semiconductor
companies’ products and declines in general economic conditions. These downturns have been characterized by diminishing demand for
end-user products, high inventory levels, under-utilization of manufacturing capacity and accelerated erosion of average selling prices.
The foregoing risks have historically had, and may continue to have, a material adverse effect on our business, financial condition and
results of operations.
Significantly increased volatility and instability,
and unfavorable economic conditions may adversely affect our business.
It is difficult for us, our
customers and suppliers to forecast demand trends. We may be unable to accurately predict the extent or duration of cycles or their effect
on our financial condition or result of operations, and can give no assurance as to the timing, extent or duration of the current or future
business cycles generally, or specific to the markets in which we participate. In the event of a future decline in global economic conditions,
our business, financial condition and results of operations could be materially adversely affected, and the resulting economic decline
might disproportionately affect the markets in which we participate, further exacerbating a decline in our results of operations. The
COVID-19 global pandemic, for example, created a period of significant instability in the global economy, including amongst our clients
and our suppliers. The restrictions imposed upon people and businesses around the world served, in the short-run, to reduce demand for
our products as many companies reduced or paused their operations. While this has since served to benefit SEALSQ through the increased
demand for IT network infrastructure amongst other examples, this may not always be the situation.
The semiconductor industry is highly competitive.
If we fail to introduce new technologies and products in a timely manner, this could adversely affect our business.
The semiconductor industry
is highly competitive and characterized by constant and rapid technological change, short product lifecycles, significant price erosion
and evolving standards. Accordingly, the success of our business depends to a significant extent on our ability to develop new technologies
and products that are ultimately successful in the market. The costs related to the research and development necessary to develop new
technologies and products are significant and any reduction of our research and development budget could harm our competitiveness. Meeting
evolving industry requirements and introducing new products to the market in a timely manner and at prices that are acceptable to our
customers are significant factors in determining our competitiveness and success. Commitments to develop new products must be made well
in advance of any resulting sales, and technologies and standards may change during development, potentially rendering our products outdated
or noncompetitive before their introduction. If we are unable to successfully develop new products, our revenue may decline substantially.
Moreover, some of our competitors are well-established entities, are larger than us and have greater resources than we do. If these competitors
increase the resources they devote to developing and marketing their products, we may not be able to compete effectively. Any consolidation
among our competitors could enhance their product offerings and financial resources, further strengthening their competitive position.
In addition, some of our competitors operate in narrow business areas relative to us, allowing them to concentrate their research and
development efforts directly on products and services for those areas, which may give them a competitive advantage. As a result of these
competitive pressures, we may face declining sales volumes or lower prevailing prices for our products, and we may not be able to reduce
our total costs in line with this declining revenue. If any of these risks materialize, they could have a material adverse effect on our
business, financial condition and results of operations.
The demand for our products depends to a
significant degree on the demand for our customers’ end products.
The vast majority of our revenue
is derived from sales to manufacturers in the IT infrastructure (Network Servers, Switch, Home boxes, PC Keyboards, etc.), utilities distribution
edge infrastructure (Smart Meters) and Access Control modules. Demand in these markets fluctuates significantly, driven by consumer spending,
consumer preferences, the development of new technologies and prevailing economic conditions. In addition, the specific products in which
our semiconductors are incorporated may not be successful, or may experience price erosion or other competitive factors that affect the
price manufacturers are willing to pay us. Such customers have in the past, and may in the future, vary order levels significantly from
period to period, request postponements to scheduled delivery dates, modify their orders or reduce lead times. This is particularly common
during periods of low demand. This can make managing our business difficult, as it limits the predictability of future revenue. It can
also affect the accuracy of our financial forecasts. Furthermore, developing industry trends, including customers’ use of outsourcing
and new and revised supply chain models, may affect our revenue, costs and working capital requirements.
If customers do not purchase
products made specifically for them, we may not be able to resell such products to other customers or may not be able to require the customers
who have ordered these products to pay a cancellation fee. The foregoing risks could have a material adverse effect on our business, financial
condition and results of operations.
The semiconductor industry is characterized
by continued price erosion, especially after a product has been on the market.
One of the results of the
rapid innovation in the semiconductor industry is that pricing pressure, especially on products containing older technology, can be intense.
Product life cycles are relatively short and, as a result, products tend to be replaced by more technologically advanced substitutes on
a regular basis.
In turn, demand for older
technology falls, causing the price at which such products can be sold to drop, in some cases precipitously. In order to continue profitably
supplying these products, we must reduce our production costs in line with the lower revenue we can expect to generate per unit. Usually,
this must be accomplished through improvements in process technology and production efficiencies. If we cannot advance our process technologies
or improve our production efficiencies to a degree sufficient to maintain required margins, we will no longer be able to make a profit
from the sale of these products. Moreover, we may not be able to cease production of such products, either due to contractual obligations
or for customer relationship reasons, and as a result may be required to bear a loss on such products. We cannot guarantee that competition
in our core product markets will not lead to price erosion, lower revenue or lower margins in the future. Should reductions in our manufacturing
costs fail to keep pace with reductions in market prices for the products we sell, this could have a material adverse effect on our business,
financial condition and results of operations.
Risks Related To Our Business
Our ability to forecast our future results
of operations and plan for and model future growth is limited and subject to a number of uncertainties due to recent changes in our context
as well as in our own sales organization and go-to-market strategies.
Even though our heritage started
before 2000, much of our business has changed in recent periods. Macro changes impacting our market, particularly the digital transformation
induced by the COVID pandemic, competitors suffering supply chain shortages, and the increased use of Internet of Things (IoT) resulted
in growing demand for our products.
To address this demand, we
made substantial investments in our sales force. Additionally, we have also recently begun to focus on building relationships with potential
distribution partners, to utilize their sales force resources to reach new customers. As a result of these recent changes in our market,
sales organization and go-to-market strategies, and with our limited operating history, our ability to forecast our future results of
operations and plan for and model future growth is limited and subject to a number of uncertainties.
We have encountered and will
continue to encounter risks and uncertainties in developing markets. If our assumptions regarding these risks and uncertainties are incorrect
or change in response to developments in the security market, our results of operations and financial results could differ materially
from our plans and forecasts. If we are unable to achieve our key objectives, our business and results of operations will be adversely
affected, and the fair market value of our Ordinary Shares could decline.
Our growth prospects and revenue will be
adversely affected if our efforts to attract prospective customers and to retain existing customers are not successful.
Our ability to grow our business
and generate revenue depends on retaining and expanding our total customer base, and increasing services revenue by effectively monetizing
value added. We must convince prospective customers of the benefits of our solutions and our existing customers of the continuing value
of our solutions. Our ability to attract new customers, retain existing customers, and reach out to new markets depends in large part
on our ability to continue to offer leading technologies and products, superior security and trust, and integration capabilities. Some
of our competitors, including Infineon, Microchip, NXP and STMicroelectronics, have developed, and are continuing to develop, secure elements,
which puts us at a significant competitive disadvantage.
Additionally, management expects
2024 to be a transition year where the focus of customer demand will shift to the next generation of products which is likely to impair
SEALSQ’s growth in its core business relating to our existing solutions. Our continued growth is therefore heavily dependent upon
the successful attraction of prospective customers in new markets, both geographic such as in India and Taiwan, and product, such as with
secure transport of goods through the global, real-time tracking and tracing capabilities in conjunction with WISeSat.
Failure to protect our intellectual property
could substantially harm our business, operating results, and financial condition.
The success of our business
depends on our ability to protect and enforce our patents, trade secrets, trademarks, copyrights, and all of our other intellectual property
rights, including the silicon intellectual property rights of our semiconductors.
We attempt to protect our
intellectual property under patent, trade secret, trademark, and copyright law through a combination of employee, third-party assignment
and nondisclosure agreements, other contractual restrictions, technological measures, and other methods. These afford only limited protection
and we are still early in the process of securing our intellectual property rights. Despite our efforts to protect our intellectual property
rights and trade secrets, unauthorized parties may attempt to copy aspects of our technology, or obtain and use our trade secrets and
other confidential information. Moreover, policing our intellectual property rights is difficult and time consuming. We cannot assure
you that we would have adequate resources to protect and police our intellectual property rights, and we cannot assure you that the steps
we take to do so will always be effective.
We have filed, and may in
the future file, patent applications on certain of our innovations. It is possible, however, that these innovations may not be patentable.
In addition, given the cost, effort, risks, and downside of obtaining patent protection, including the requirement to ultimately disclose
the invention to the public, we may choose not to seek patent protection for some innovations. Furthermore, our patent applications may
not issue as granted patents, the scope of the protection gained may be insufficient or an issued patent may be deemed invalid or unenforceable.
We also cannot guarantee that any of our present or future patents or other intellectual property rights will not lapse or be invalidated,
circumvented, challenged, or abandoned. Neither can we guarantee that our intellectual property rights will provide competitive advantages
to us. Our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes could
be limited by our relationships with third parties, and any of our pending or future patent applications may not have the scope of coverage
originally sought. We cannot guarantee that our intellectual property rights will be enforced in jurisdictions where competition may be
intense or where legal protection may be weak. We could lose both the ability to assert our intellectual property rights against, or to
license our technology to, others and the ability to collect royalties or other payments.
Litigation or proceedings
before governmental authorities and administrative bodies may be necessary in the future to enforce our intellectual property rights,
to protect our patent rights, trademarks, trade secrets, and domain names and to determine the validity and scope of the proprietary rights
of others. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion
of resources and management time, each of which could substantially harm our operating results. Additionally, changes in law may be implemented,
or changes in interpretation of such laws may occur, that may affect our ability to protect and enforce our patents and other intellectual
property.
Assertions by third parties of infringement
or other violation by us of their intellectual property rights could harm our business, operating results, and financial condition.
Third parties may assert that
we have infringed, misappropriated, or otherwise violated their copyrights, patents, and other intellectual property rights, and, as we
face increasing competition, the possibility of intellectual property rights claims against us grows.
Our ability to provide our
services is dependent upon our ability to license intellectual property rights to semiconductor designs. Various laws and regulations
govern the copyright and other intellectual property rights associated with semiconductor design and cryptographic algorithms. Existing
laws and regulations are evolving and subject to different interpretations, and various legislative or regulatory bodies may expand current
or enact new laws or regulations. Although we expend significant resources to seek to comply with the statutory, regulatory, and judicial
frameworks by, for example, entering into license agreements, we cannot assure you that we are not infringing or violating any third-party
intellectual property rights, or that we will not do so in the future.
Moreover, we rely on multiple
hardware designers, and firmware and software programmers to design our proprietary technologies. Although we make every effort to prevent
the incorporation of licenses that would require us to disclose code and/or innovations in our products, we do not exercise complete control
over the development efforts of our developers, and we cannot be certain that our developers have not used designs or software that is
subject to such licenses or that they will not do so in the future. In the event that portions of our proprietary technology are determined
to be subject to licenses that require us to publicly release the affected portions of our semiconductor design and source code, re-engineer
a portion of our technologies, or otherwise be limited in the licensing of our technologies, we may be forced to do so, each of which
could materially harm our business, operating results, and financial condition.
We face competition from companies that
are larger and better known, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The digital security market
in which we operate faces intense competition, constant innovation and evolving security threats. There are several global security companies
with strong presence in this market, including NXP, Infineon, STMicroelectronics and Microchip.
Some of our competitors are
large companies that have the technical and financial resources and broad customer bases needed to bring competitive solutions to the
market and already have existing relationships as a trusted vendor for other products. Such companies may use these advantages to offer
products and services that are perceived to be as effective as ours at a lower price or for free as part of a larger product package or
solely in consideration for maintenance and services fees. They may also develop different products to compete with our current security
solutions and respond more quickly and effectively than we do to new or changing opportunities, technologies, standards or client requirements.
Additionally, we may compete with smaller regional vendors that offer products with a more limited range of capabilities that purport
to perform functions similar to our security solutions. Such companies may enjoy stronger sales and service capabilities in their particular
regions.
SEALSQ ’s
competitors may have competitive advantages, such as:
| · | greater name recognition, a longer operating history and a larger customer base; |
| · | larger sales and marketing budgets and resources; |
| · | broader distribution and established relationships with distribution partners and customers; |
| · | greater customer care and support resources; |
| · | larger intellectual property portfolios; and |
| · | greater financial, technical and other resources. |
Our current and potential
competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources.
Current or potential competitors may be acquired by third parties with access to greater available resources. As a result of such acquisitions,
our current or potential competitors may be able to adapt more quickly to new technologies and customer needs, devote greater resources
to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of other
opportunities more readily or develop and expand their product and service offerings more quickly than we do. Larger competitors with
more diverse product offerings may reduce the price of products that compete with ours in order to promote the sale of other products
or may bundle them with other products, which would lead to increased pricing pressure on our products and could cause the average sales
prices for our products to decline.
We derive a significant amount of our revenues
each year from a limited number of significant customers.
We derive a significant amount
of our revenues each year from a small number of customers. In the year ended December 31, 2023, our ten largest customers accounted for
90% of our revenue. Our business and results of operations are largely dependent upon the success of our significant customers. The loss
of any large customer, a decline in the volume of sales to these customers or the deterioration of their financial condition could adversely
affect our business, results of operations and financial conditions.
One of our largest customers
is CISCO Systems International. We operate under the terms of a Master Purchase Agreement, dated August 14, 2014. Such agreement defines,
among other things:
| · | the communication process that we shall respect vis a vis forecasting / pricing update, such as determination
of price reflecting component prices in effect on the date of shipment to Cisco’s authorized contract manufactures (“EMS Provider”),
representations and warranties that the product price are, and shall be, no higher than the lowest prices offered by the Company to any
customer purchasing the same or lesser total sales or unit volume on an annual basis; |
| · | buffer stock, timing and volume constitution rules, including but not limited to, obligations to make
commercially reasonable efforts to conduct capacity and materials planning and management sufficient to meet EMS Provider’s forecast
at the period of time agreed between SEALSQ and EMS Providers; |
| · | list of contract manufacturers to whom we are allowed to take purchase orders and to make deliveries; |
| · | rules of fair treatment in case capacity shortage, that is, an obligation to provide Cisco, EMS Providers
and any third party designated by Cisco an allocation of products during its shortage that is no less favorable than that provided to
any other customer; |
| · | warranties, including but not limited to, three years warranty period, delivered product having no less
than eight remaining weeks of shelf-life, replacement of defected products within two business days in general; |
| · | Epidemic failure rules/treatment. Epidemic failure shall be recognized when a single failure mode in excess
of 1% of the product or a multiple failure mode in excess of 3% of the product, during any rolling 3-full calendar month period, occurs.
If an Epidemic failure happens during the five-year period after the delivery of a product, the Company shall, including but not limited
to, notify to Cisco, provide a preliminary plan for problem diagnosis within one business day of the notification, and compensate Cisco
for all reasonable costs incurred by Cisco, provide Cisco, EMS Providers and any third party designated by Cisco, subject to the liability
exclusions and limitations set forth in the agreement. |
Any decline in demand for our products from
our clients could have a material adverse effect on the Company’s business, results of operations and financial condition.
Our business is at risk of
our clients delaying or withdrawing purchase orders for items where we already committed to the production of these pieces. In these situations
and when sufficient notice is given, we are usually able to adjust our production schedules such that the production can be transferred
to alternative clients thereby limiting our exposure. However, there can be a short-term impact upon the levels of stock that we hold
at any given point in time. As our products have a lengthy development cycle, often being in the region of 18 to 24 months from design-win
to delivering the first batch of finished goods, we are not susceptible to losing clients without a lengthy notice period, so there is
a very limited risk that we find ourselves holding material amounts of stocks of finished goods that will not be eventually delivered
to our clients. The greatest risk is that a client might reduce their production allocations with the Company and, in this instance, we
would be required to adapt our purchase requirements accordingly. Most of our raw materials (in particular our wafers) can be redirected
to alternative products and so the risk is limited to finished goods. In the event that a client was to significantly reduce demand with
a limited lead-time and not place new orders for that product at a later stage, this could lead to some finished goods becoming obsolete,
but this risk is considered remote by management. The main risk arising from a decline in demand for our products from one of our top
ten clients is that we would need to find new sources of revenue to replace the departing clients.
We depend on our ability to attract new
customers and to maintain and grow existing customers, and failure to do so may harm our future revenues and operating results.
Our success depends in large
part on our ability to attract new customers (“hunting”) and to expand within existing customers (“farming”).
The number of new customers and the growth at existing customers in a given period impacts both our short-term and long-term revenues.
If SEALSQ is unable to successfully attract a sufficient number of new customers, we may be unable to generate revenue growth.
A large amount of investment
in sales and marketing and support personnel is required to attract new customers. If we are unable to convince these potential new customers
of a need for our products or if we are unable to persuade them of our products’ efficacy, we may be unable to achieve growth and
there may be a meaningful negative impact on future revenues and operating results.
Our success depends on our ability to keep
pace with technical advances in cryptography and semiconductor design.
SEALSQ needs to anticipate,
and quickly react to, rapid changes occurring in security technologies and to the development of new and improved semiconductors and software
that result from these changes. If SEALSQ is unable to respond quickly and cost-effectively to changing hardware and software technologies
and evolving industry standards, the existing offering could become non-competitive and SEALSQ may lose market share. SEALSQ’s success
will depend, in part, on its ability to effectively use leading technologies critical to the business, enhance its existing solutions,
find appropriate technology partners, and continue to develop new solutions and technology that address the increasingly sophisticated
and varied needs of its current and prospective clients and their customers, and its ability to influence and respond to technological
advances, emerging industry and regulatory standards and practices and competitive service offerings. SEALSQ’s ability to remain
technologically competitive may require substantial expenditures and lead-time, and the integration of newly acquired technologies will
also take time. If SEALSQ is unable to adapt and integrate in a timely manner to changing market conditions or customer requirements,
its business, financial condition and results of operations could be seriously harmed.
The use of cryptography is subject to a
variety of laws around the world. Unfavorable developments in legislation and regulation may adversely affect our business, operating
results, and financial condition.
The use of cryptography is
subject to a variety of laws around the world. Government regulation of the internet is evolving and any changes in government regulations
relating to the internet or other areas of our business or other unfavorable developments may adversely affect our business, operating
results, and financial condition.
For example, the U.S. agency
NIST is in the process of selecting post-quantum cryptographic algorithms for all governmental use of cryptography. We depend on their
final selection to make our products successful and, should we fail to be able to implement the finally selected algorithm, our ability
to serve the U.S. market and by extension the rest of the world may be severely impacted.
Our research and development
efforts may not produce successful products or enhancements to our security solutions that result in significant revenue or other benefits
in the near future, if at all.
Investing in research and
development personnel, developing new products and enhancing existing products is expensive and time consuming, and there is no assurance
that such activities will result in significant new marketable products or enhancements to our products, design improvements, cost savings,
revenues or other expected benefits. If we spend significant time and effort on research and development and are unable to generate an
adequate return on our investment, our business and results of operations may be adversely affected. This is expected to be exacerbated
in the coming year with the required integration of newly acquired knowledge automation assets which is expected to result in a more complex
research and development program.
Our services and products depend on the
continued integrity of public key cryptography technology and algorithms that may be compromised or proven obsolete over time.
Our services and products
are relying heavily on cryptography. Advances in attacks on cryptographic algorithms and technology may weaken their effectiveness, and
significant new technology requirements may be imposed by root distribution programs that require us to make significant modifications
to our systems or to reissue digital certificates to some or all of our customers, which could damage our reputation or otherwise harm
our business.
Quantum computing may threaten
the resilience of current cryptography against attacks during the current lifespan of hardware. This is certainly the case for our secure
modules embedded in larger systems and/or deployed on remote locations, such as for smart meter and satellite deployments.
SEALSQ cannot guarantee that
its services and products will still offer sufficient protection against attacks executed with quantum computers.
We are dependent on the timely supply of
equipment and materials from various sub-contractors and if any one of these suppliers fails to meet or delays their committed delivery
schedules due to supply chain disruptions or other reasons, we can suffer with lower or lost revenues.
We use various suppliers for
silicon manufacturing and testing our parts. Any one of these suppliers could not meet their commitments for on-time delivery of our products.
The market supply of such products has seen difficulties in meeting demand and these kinds of supply disruptions can happen due to global
shortages of silicon wafers or chemicals used in the processing of the silicon packaging, or shortages in the labor force due to unrest
or sicknesses. During 2021 and 2022, we had to manage our delivery schedule carefully as a result of the global shortage of semiconductors
material. During this period, the Company was receiving greater volumes of orders than it was capable of delivering due to such shortages,
so we had to program the orders based upon the allocations of materials and production capacity available to us. While we were able to
grow our revenue during this time through careful negotiation with our suppliers, we believe that our revenues would have been higher
had there not been such supply disruption. Further, our business and operating conditions can be at risk if we cannot deliver on our product
demand as committed in our customer contracts. The global shortage was alleviated in 2023 meaning that the same constraints were no longer
applicable during that year and currently, we do not have issues around supply allocations.
Our supply chain depends on third-party
suppliers. Failure of one of our suppliers to handle increased demand could impact our ability to take advantage of upside business opportunities.
We outsource several critical
functions in our supply chain to third-party suppliers such as the manufacture of our semiconductors. They all have a number of risks
that are present in their businesses that could limit their ability to meet increased demands if we see increased orders from our customers.
If our suppliers cannot satisfy our demand, we may not be able to meet our customer demands. Also, if our suppliers add higher costs to
cover their increased volume, we may see drops in our gross profit margins. Many of these costs are not fixed, even though there may be
contracts in place, and may be increased at the discretion of the third-party vendor.
Our agreement
with one of our third-party suppliers, Presto Engineering Inc., defines, among other things,
| · | the list of operational obligations that they shall execute for us. Presto’s services include New
Production Introduction (“NPI”), such as planning of validation and qualification activities, engineering evaluation of the
product and preliminary test solution, and product release to industrial maturity, and Supply Chain Management (“SCM”); |
| · | the On-Time Delivery objectives and rules. Presto is required to provide its SCM service based on agreed
targets for On Time Delivery (“OTD”). OTD is defined numerically and it constitute result obligations under French laws, which
govern the agreement; |
| · | Their obligations vis a vis our quality process and our security process, including their obligations
to be audited on a yearly basis. |
Although common in our industry,
we do not have agreements with any other of our major third-party suppliers. Rather, the Company provides such suppliers with purchase
orders on a quarterly basis, which triggers the launch of manufacturing of the Company’s products. The Company has weekly discussions
and provides the suppliers with 12-month rolling forecasts to allow them to anticipate equipment allocations and raw material supplies.
However, since we do not have written agreements with these suppliers, we are subject to the risk that any of these suppliers could terminate
their relationship with us, leaving us without critical products, software or other services needed to operate our business.
Our IC products mainly depend on supplies
from third-party foundries, and any failure to obtain sufficient foundry capacity from such foundries would significantly delay the shipment
of our products.
As a fabless IC design company,
we do not own any IC fabrication facilities. We currently work with two leading foundries as our main IC fabrication partners and place
purchase orders according to our business needs. It is important for us to have a reliable relationship with third-party foundries as
well as other future foundry service providers to ensure adequate product supply to respond to customer demand.
We cannot guarantee that our
foundry service providers will be able to meet our manufacturing requirements. The ability of our foundry service providers to provide
us with foundry services is limited by available capacity. If any of our foundry service providers fails to succeed in their capacity
promise, it will not be able to deliver to us ICs as per the purchase orders that we have placed to them, which will significantly affect
our shipment of our products and solutions. This could in turn result in lost sales and have a material adverse effect on our relationships
with our customers and on our business and financial condition. In addition, we do not have a guaranteed level of production capacity
from our foundry service providers. We do not have long-term contracts with them, and we source our supplies on a purchase order basis.
As a result, we depend on our foundry service providers to allocate to us a portion of its manufacturing capacity sufficient to meet our
needs, produce products of acceptable quality and at acceptable final test yields and deliver those products to us on a timely basis and
at acceptable prices. If any of our foundry service providers raises its prices or is unable to meet our required capacity for any reason,
such as shortages or delays in the shipment of semiconductor equipment or raw materials required to manufacture our ICs, or if our business
relationships with any of our foundry service providers deteriorate, we may not be able to obtain the required capacity and would have
to seek alternative foundries, which may not be available on commercially reasonable terms, or at all. Moreover, it is possible that other
customers of any of our foundry service providers that are larger and/or better financed than we are, or that have long-term contracts
with it, may receive preferential treatment in terms of capacity allocation or pricing. In addition, if we do not accurately forecast
our capacity needs, any of our foundry service providers may not have available capacity to meet our immediate needs or we may be required
to pay higher costs to fulfill those needs, either of which could materially and adversely affect our business, results of operations
or financial condition.
Other risks associated with
our dependence on third-party foundries include limited control over delivery schedules and quality assurance, lack of capacity in periods
of excess demand, unauthorized use of our intellectual property and limited ability to manage inventory and parts. In particular, although
we have entered into confidentiality agreements with our third-party foundries for the protection of our intellectual property, they may
not protect our intellectual property with the same degree of care as we use to protect our intellectual property. If we fail to properly
manage any of these risks, our business and results of operations may be materially and adversely affected.
Moreover, if any of our foundry
service providers suffers any damage to its facilities, suspends manufacturing operations, loses benefits under material agreements, experiences
power outages or computer virus attacks, lacks sufficient capacity to manufacture our products, encounters financial difficulties, is
unable to secure necessary raw materials from its suppliers or suffers any other disruption or reduction in efficiency, we may encounter
supply delays or disruptions.
We rely on a limited number of third parties
for IC packaging and testing services.
Fabrication of ICs requires
specialized services to process the silicon wafers into ICs by packaging them and to test their proper functioning. We primarily collaborate
with an Outsource Semiconductors Assembly and Testing (OSAT) provider for such services, which may expose us to a number of risks, including
difficulties in finding alternate suppliers, capacity shortages or delays, lack of control or oversight in timing, quality or costs, and
misuse of our intellectual property. If any such problems arise with our packaging and testing partners, we may experience delays in our
production and delivery timeline, inadequate quality control of our products or excessive costs and expenses. As a result, our financial
condition, results of operations, reputation and business may be adversely affected.
Failure at tape-out or failure to achieve
the expected final test yields for our ICs could negatively impact our results of operations.
The tape-out process is a
critical milestone in our business. A tape-out means all the stages in the design and verification process of our ICs have been completed,
and the chip design is sent for manufacturing. The tape-out process requires considerable investment in time and resources and close cooperation
with the wafer foundry, and repeated failures can significantly increase our costs, lengthen our product development period, and delay
our product launch. If the tape-out or testing of a new chip design fails, either as a result of design flaws by our research and development
team or problems with production or the testing process by the wafer foundry, we may incur considerable costs and expenses to fix or restart
the design process. Such obstacles may decrease our profitability or delay the launch of new products.
Once tape-out is achieved,
the IC design is sent for manufacturing, and the final test yield is a measurement of the production success rate. The final test yield
is a function of both product design, which is developed by us, and process technology, which typically belongs to a third-party foundry.
Low final test yields can result from a product design deficiency or a process technology failure or a combination of both. As such, we
may not be able to identify problems causing low final test yields until our product designs go to the manufacturing stage, which may
substantially increase our per unit costs and delay the launch of new products.
Changes in regulations or citizen concerns
regarding privacy and protection of citizen data, or any failure or appearance of failure to comply with such laws, could diminish the
value of our services and cause us to lose customers and revenue.
The regulatory framework for
privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection,
use, storage, transmission, and security of personal information by companies operating over the internet have recently come under increased
public scrutiny.
The U.S. government, including
the Federal Trade Commission and the Department of Commerce, may continue to review the need for greater regulation over the collection
of information concerning consumer behavior on the internet, including regulation aimed at restricting certain targeted advertising practices.
Additionally, the EU may continue
to review the need for greater regulation or reform to its existing data protection legal framework, which may result in a greater compliance
burden for companies with users in Europe. Various government and consumer agencies also have called for new regulation and changes in
industry practices. Our business, including our ability to operate and expand internationally, could be adversely affected if legislation
or regulations are adopted, interpreted, or implemented in a manner that is inconsistent with our current business practices and that
require changes to these practices, the design of our website, services, features, or our privacy policy. In particular, the success of
our business has been, and we expect will continue to be, driven by our ability to responsibly use the personal data that our customers
share with us.
Therefore, our business could
be harmed by any significant change to applicable laws, regulations, or industry practices regarding the use of our customers’ personal
data, for example regarding the manner in which disclosures are made and how the express or implied consent of customers for the use of
personal data is obtained. Such changes may require us to modify our services and features, possibly in a material manner, and may limit
our ability to develop new services and features that make use of the data that our customers voluntarily share with us. In addition,
some of our developers or other partners, such as those that help us measure the effectiveness of advertisements, may receive or store
information provided by us or by our customers through mobile or web applications integrated with our services. We provide limited information
to such third parties based on the scope of services provided to us. However, if these third parties or developers fail to adopt or adhere
to adequate data security practices, or in the event of a breach of their networks, our data or our customers’ data may be improperly
accessed, used, or disclosed.
We depend on highly skilled key personnel
to operate our business, and if we are unable to attract, retain, and motivate qualified personnel, our ability to develop and successfully
grow our business could be harmed.
We believe that our future
success is highly dependent on the talents and contributions of our senior management, including Carlos Moreira, founder and Chief Executive
Officer of WISeKey, members of our executive team, and other key employees, such as key engineering, finance, research and development,
marketing, and sales personnel. Our future success depends on our continuing ability to attract, develop, motivate, and retain highly
qualified and skilled employees. All of our employees, including our senior management, are free to terminate their employment relationship
with us at any time, and their knowledge of our business and industry may be difficult to replace.
Furthermore, our performance
depends on favorable labor relations with our employees and compliance with labor laws in the countries where we have employees and plans
to hire new employees. Any deterioration of current relations or increase in labor costs due to our compliance with labor laws could adversely
affect our business.
Qualified individuals are
in high demand, particularly in the digital industry, and we may incur significant costs to attract them. If we are unable to attract
and retain our senior management and key employees, we may not be able to achieve our strategic objectives, and our business could be
harmed. In addition, we believe that our senior management have developed highly successful and effective working relationships. We cannot
ensure that we will be able to retain the services of any members of our senior management or other key employees. If one or more of these
individuals leave, we may not be able to fully integrate new senior management or replicate the current dynamic, and working relationships
that have developed among our senior management and other key personnel, and our operations could suffer.
Cybersecurity incidents, including data
security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation or exposing
us to liability.
We receive, process, store
and transmit, often electronically, the data of our customers and others, much of which is confidential. Unauthorized access to our computer
systems or stored data could result in the theft, including cyber-theft, or improper disclosure of confidential information, and the deletion
or modification of records could cause interruptions in our operations. These cyber-security risks increase when we transmit information
from one location to another, including over the Internet or other electronic networks. Despite the security measures we have implemented,
our facilities, systems and procedures, and those of our third-party service providers, may be vulnerable to security breaches, acts of
vandalism, software viruses, misplaced or lost data, programming or human errors or other similar events which may disrupt our delivery
of services or expose the confidential information of our customers and others. Any security breach involving the misappropriation, loss
or other unauthorized disclosure or use of confidential information of our customers or others, whether by us or a third party, could
subject us to civil and criminal penalties, have a negative impact on our reputation, or expose us to liability to our customers, third
parties or government authorities. We are not aware of such breaches or any other material cyber-security risks in our supply chain to
date. Any of these developments could have a material adverse effect on our business, results of operations and financial condition.
To mitigate these risks, we
comply with one of the highest security standards in our industry: Webtrust, ISO27001 and the “Common Criteria” standard.
Compliance with these standards require us to implement, monitor and audit on a yearly basis all the processes where we, or our third-party
suppliers, manipulate sensitive data. This includes our supply chain processes and partners which, like us, are audited every year by
security experts certified by governmental authorities. In addition, one of our customers, CISCO, also conducts an independent and extensive
audit to control our processes and proposes improvements.
Our security processes are
piloted by a Global Security Director, under the supervision of a Security Board, which includes the top management of SEALSQ. Once a
year, the Global Security Director reassesses our cybersecurity risks and proposes to the Security Board a plan of action and budget for
the year to come.
The Executive Board Members
of SEALSQ hold a weekly meeting with the General Manager to discuss all matters including operational matters and risk management, as
well as holding regular, wider meetings with the Senior Management of SEALSQ. During these meetings, the risks faced by the business and
any new matters arising or potential threats identified are discussed. The SEALSQ management team also provide updates on their ongoing
projects designed to manage these risks, as well as presenting the results of any audits that are being carried out. The full Board are
also kept appraised on the results of all audits carried out during the year and are required to decide on strategic decisions such as
whether to attain accreditations for the business. The Board and Audit Committee are responsible also for overseeing the annual audit
of SEALSQ which, while primarily focused on the financials of SEALSQ, does also cover certain risks associated with the business.
If our security systems are breached, we
may face civil liability, and public perception of our security measures could be diminished, either of which would negatively affect
our ability to attract and retain customers.
Techniques used to gain unauthorized
access to data and software are constantly evolving, and we may be unable to anticipate or prevent unauthorized access to cryptographic
data. Our software services, which are supported by our own systems and those of third parties that we work with, are vulnerable to software
bugs, computer viruses, internet worms, break-ins, phishing attacks, attempts to overload servers with denial-of-service, or other attacks
and similar disruptions from unauthorized use of our and third-party computer systems, any of which could lead to system interruptions,
delays, or shutdowns, causing loss of critical data or the unauthorized access to personal data.
Computer malware, viruses,
computer hacking, and phishing attacks have become more prevalent in our industry. SEALSQ and WISeKey’s systems have been subject
to such attacks in the past, albeit they have always been unsuccessful, and further such attempts to compromise our systems’ security
may occur in the future. Because of our brand of trust and security, we believe that we are a particularly attractive target for such
attacks. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure
to maintain performance, reliability, security, and availability of our products and technical infrastructure to the satisfaction of our
customers may harm our reputation and our ability to retain existing customers and attract new customers. Although we have developed systems
and processes that are designed to protect our data and user data, to prevent data loss, to disable undesirable accounts and activities
on our platform, and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security, and
we may incur significant costs in protecting against or remediating cyber-attacks.
Additionally, if an actual
or perceived breach of security occurs to our systems or a third party’s platform, we may face regulatory or civil liability and
public perception of our security measures could be diminished, either of which would negatively affect our ability to attract and retain
customers, which in turn would harm our efforts to attract and retain advertisers, content providers, and other business partners. We
also would be required to expend significant resources to mitigate the breach of security and to address matters related to any such breach.
We also may be required to notify regulators about any actual or perceived personal data breach (including the EU Lead Data Protection
Authority) as well as the individuals who are affected by the incident within strict time periods.
Any failure, or perceived
failure, by us to maintain the security of data relating to our customers, to comply with our posted privacy policy, laws and regulations,
rules of self-regulatory organizations, industry standards, and contractual provisions to which we may be bound, could result in the loss
of confidence in us, or result in actions against us by governmental entities or others, all of which could result in litigation and financial
losses, and could potentially cause us to lose customers, advertisers, and revenues. In Europe, European Data Protection Authorities could
impose fines and penalties of up to 4% of annual global turnover or €20 million, whichever is higher, for a personal data breach.
Our semiconductors and software services
are highly technical and may contain undetected software bugs or vulnerabilities, which could manifest in ways that could seriously harm
our reputation and our business.
Our semiconductors and software
services are highly technical and complex and may contain undetected software bugs, hardware errors, and other vulnerabilities. These
bugs and errors can manifest in any number of ways in our products, including through diminished performance, security vulnerabilities,
malfunctions, or even permanently disabled products.
Some errors in our products
may be discovered only after a product has been used by customers and may in some cases be detected only under certain circumstances or
after extended use. Any errors, bugs, or other vulnerabilities discovered in our code or back-end after delivery could damage our reputation,
drive away customers, allow third parties to manipulate or exploit vulnerabilities.
We also could face claims
for product liability, tort, or breach of warranty. Defending a lawsuit, regardless of its merit, is costly and may divert management’s
attention and seriously harm our reputation and our business. In addition, if our liability insurance coverage proves inadequate or future
coverage is unavailable on acceptable terms or at all, our business could be seriously harmed.
Interruptions, delays or discontinuations
in service arising from our own systems or from third parties could impair the delivery of our services and harm our business.
We rely on systems housed
in our own facilities and upon third parties, including bandwidth providers and third-party “cloud” data storage services,
to enable our customers to receive our content in a dependable, timely, and efficient manner. We have experienced and may in the future
experience periodic service interruptions and delays involving our own systems and those of third parties that we work with. Both our
own facilities and those of third parties are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications
failures, and similar events. They also are subject to break-ins, sabotage, intentional acts of vandalism, the failure of physical, administrative,
technical, and cyber security measures, terrorist acts, natural disasters, human error, the financial insolvency of third parties that
we work with, and other unanticipated problems or events. The occurrence of any of these events could result in interruptions in our services
and to unauthorized access to, or alteration of, the content and data contained on our systems and that these third parties store and
deliver on our behalf.
Any disruption in the services
provided by these third parties could materially adversely impact our business reputation, customer relations, and operating results.
Upon expiration or termination of any of our agreements with third parties, we may not be able to replace the services provided to us
in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one
third party to another could subject us to operational delays and inefficiencies until the transition is complete.
Our business model consists in promoting
trust and security, and it depends on trust in our brand. Negative media coverage could adversely affect our brand and any failure to
maintain, protect, and enhance our brand would hurt our ability to retain or expand our customer base.
Maintaining, protecting, and
enhancing our brand is critical to expanding our customer base, and will depend largely on our ability to continue to develop and provide
top-level security. If we do not successfully maintain our brand, our business could be harmed.
Our brand may be impaired
by a number of other factors, including a failure to protect the cryptographic keys, data and software of end customers, any failure to
keep pace with technological advances on our platform or with our services, a failure to protect our intellectual property rights, or
any alleged violations of law, regulations, or public policy. Further, if our partners fail to maintain high standards in the supply chain,
or if we partner with supply chain partners that our customers reject, the strength of our brand could be adversely affected.
We have not historically been
required to spend considerable resources to establish and maintain our brand. However, if we are unable to maintain the growth rate in
our customer base, we may be required to expend greater resources on advertising, marketing, and other brand-building efforts to preserve
and enhance brand awareness, which would adversely affect our operating results and may not be effective.
We depend on our customers’ ability
to sell their products, which may pose challenges for our ability to forecast or optimize our inventory and sales.
Large orders may depend on
the ability of our customer to be awarded significant regional or national contracts. The design of many IoT devices comes with the risk
that it may not see the demand that was expected in that market, or the high-volume contracts may be awarded to competing suppliers. Our
customers may be bidding against several other suppliers to win a government contract and if they lose the bid, we will not see the results
that were originally expected during the forecasting of the opportunity size and profitability. As such, the volume predictions that were
used in the pricing negotiations and forecasts may not always be achievable by our customers and may adversely affect our operating results.
We are currently operating in a period of
economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing
military conflict between Russia and Ukraine, and more recently, the Israel-Hamas war. Our business financial condition and results of operations may be materially adversely affected
by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are
experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between
Russia and Ukraine.
In February 2022, a
full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military
conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in
commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in
Ukraine and globally and assessing its potential impact on our business. Additionally, Russia’s prior annexation of Crimea,
recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions
in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against
Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk
People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide
Interbank Financial Telecommunication, or SWIFT, payment system, expansive ban on imports and exports of products to and from Russia
and ban on exportation of U.S. denominated bank notes to Russia or persons located there. Additional potential sanctions and
penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the
global economy and financial markets and lead to instability and lack of liquidity in capital markets.
Additionally, on October 7, 2023, Hamas, a U.S. designated terrorist organization, launched a series of coordinated attacks from the Gaza
Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflict is ongoing as of the date of this
filing.
Although our operations have
not experienced material and adverse impact on supply chain, cybersecurity or other aspects of our business from the ongoing
conflict between Russia and Ukraine, or from the war between Israel and Hamas, nor from any associated event such as the Red Sea
shipping crisis, there is no assurance that such conflicts and events would not develop or escalate in a way that could materially
and adversely affect our business, financial condition, and results of operations in the future.
We face many risks associated with our international
expansion, including geopolitical tensions, trade barriers, payment delays and currency failures.
We are continuing to expand
our operations into additional international markets. The expansion into international markets may cause difficulties because of distance,
as well as language and cultural differences. Other risks related to international operations include fluctuations in currency exchange
rates, difficulties arising from staffing and managing foreign operations, legal and regulatory requirements of different countries, and
overlapping or differing tax laws. Management cannot assure that it will be able to market and operate SEALSQ’s services successfully
in foreign markets, select appropriate markets to enter, open new offices efficiently or manage new offices profitably.
Offering our services in a
new geographical area also poses geopolitical risks. For example, export and import of cryptographic technologies is subject to sanctions,
and national import and export restrictions. Changes in these restrictions due to geopolitical tensions may significantly harm our business.
As a result of these obstacles,
we may find it impossible or prohibitively expensive to enter additional markets, or our entry into foreign markets could be delayed,
which could hinder our ability to grow our business.
Business practices in the
global markets that we serve may differ and may require us to include non-standard terms in customer contracts, such as extended payment
or warranty terms. To the extent that we enter into customer contracts that include non-standard terms related to payment, warranties
or performance obligations, our results of operations may be adversely impacted.
Additionally, our global sales
and operations are subject to a number of risks, including the following:
| · | difficulty in enforcing contracts and managing collections, as well as long collection periods; |
| · | costs of doing business globally, including costs incurred in maintaining office space, securing adequate
staffing and localizing our contracts; |
| · | management communication and integration problems resulting from cultural and geographic dispersion; |
| · | risk of unexpected changes in regulatory practices, tariffs, tax laws and treaties; |
| · | compliance with anti-bribery laws; |
| · | heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent
sales arrangements that may impact financial results, and give rise to restatements of, or irregularities in, financial statements; |
| · | social, economic and political instability, terrorist attacks and security concerns in general; |
| · | reduced or uncertain protection of intellectual property rights in some countries; and |
| · | potentially adverse tax consequences. |
These factors could harm our
ability to generate future global revenues and, consequently, materially impact our business, results of operations and financial condition.
Global inflationary pressure may have an
adverse impact on our gross margins and our business.
As of the date of this Prospectus,
global inflationary pressure has not materially affected our gross margins and our business. Our suppliers, which are all based in Asia,
have not been impacted by the price inflation for energy that Europe and other geographies have experienced, nor from some raw material
price inflation which might impact other industries. For fiscal year 2023, we incurred significant payroll cost increases for some of
our employees in order to retain and hire engineers given the strong local demand for experienced software and hardware engineers. While
we believe that these costs will be balanced by the US Dollar to Euro exchange rate evolution which has absorbed the extra costs caused
by the salary increase, there is no assurance that this cost balance will continue. Accordingly, continued inflationary pressure may have
an adverse impact on our gross margins and could have a material adverse effect on our business, financial condition, results of operations
or cash flows.
We may need to discontinue products and
services. During the ramp-down of such products and services, we may experience a negative impact on our sales.
All products have a natural
lifecycle that includes the inevitable end-of-life process. During the ramping down of a product, product family, or services there are
many ways that our business operations can be challenged. Last-time-buys are a typical way for customers to deal with the end-of-life
of a product that is still critical to one of their end products. These kinds of orders show an increase in short term sales but result
in the abrupt drop off of revenue from that customer, for that product, after the last time buy is delivered. Discontinuing a product
or service also comes with the risk that we may lose that customer for good if we do not have a replacement for the product or if they
decide to look at alternative suppliers because of the change in supply.
We are a holding company with no direct
cash generating operations and rely on our subsidiaries to provide us with funds necessary to pay dividends to shareholders.
We are a holding company with
no significant assets other than the equity interests in its subsidiaries. The Company’s subsidiaries own substantially all the
rights to its revenue streams. The Company has no legal obligation to, and may not, declare dividends or other distributions on its shares.
The Company’s ability to pay dividends to its shareholders depends on its ability to satisfy a solvency test under the BVI Act and
its Articles, which will depend on the performance of its subsidiaries and their ability to distribute funds to the Company. Under the
BVI Act, a company satisfies the solvency test if the value of the company’s assets exceeds its liabilities and the company is able
to pay its debts as they fall due (the “BVI Solvency Test”).
The ability of a subsidiary
to make distributions to the Company could be affected by a claim or other action by a third party, including a creditor, or by laws which
regulate the payment of dividends by companies. In addition, the subsidiaries’ ability to distribute funds to the Company depends
on, among other things, the availability of sufficient legally distributable profit of such subsidiaries. The Company cannot offer any
assurance that legally distributable profit or reserves from capital contributions will be available in any given financial year.
Even if the BVI Solvency Test
can be met, the Company may not be able to pay a dividend or a distribution of reserves for a variety of reasons. Payment of future dividends
and other distributions will depend on our liquidity and cash flow generation, financial condition and other factors, including regulatory
and liquidity requirements, as well as tax and other legal considerations.
Obligations associated with being a public
company require significant company resources and management attention.
We are subject to the reporting
requirements of the Securities Exchange Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act. Section
404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal control over financial reporting. We became
subject to such requirements recently, following the Spin-Off Distribution.
We work with our legal, accounting
and financial advisors to identify any areas in which changes should be made to our financial and management control systems to manage
our growth and our obligations as a public company. We evaluate areas such as corporate governance, corporate control, internal audit,
disclosure controls and procedures and financial reporting and accounting systems. We will make changes in any of these and other areas,
including our internal control over financial reporting, which we believe are necessary. However, these and other measures we may take
may not be sufficient to allow us to satisfy our obligations as a public company on a timely and reliable basis. In addition, compliance
with reporting and other requirements applicable to public companies do create additional costs for us and require the time and attention
of management. Our limited management resources may exacerbate the difficulties in complying with these reporting and other requirements
while focusing on executing our business strategy. We may not be able to predict or estimate the amount of the additional costs we may
incur, the timing of such costs or the degree of impact that our management’s attention to these matters will have on our business.
If management is unable to provide reports
as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the value of our Ordinary Shares.
Under Section 404 of Sarbanes-Oxley,
we are required to include in each of our annual reports on Form 20-F, beginning with the second such annual report on Form 20-F after
the Spin-Off Distribution, a report containing our management’s assessment of the effectiveness of our internal control over financial
reporting. If, in such annual reports on Form 20-F, our management cannot provide a report as to the effectiveness of our internal control
over financial reporting as required by Section 404, investors could lose confidence in the reliability of our financial statements, which
could result in a decrease in the value of our Ordinary Shares.
We are dependent upon
our parent company and other members of the WISeKey Group regarding the provision of certain services.
We are currently dependent
upon our parent company and other members of the WISeKey Group for the provision of certain services, in particular the roles of Chief
Executive Officer and Chief Financial Officer, as well as certain financial, legal and Information Technology support. We have entered
into certain service agreements with our parent company under the terms of which certain members of staff and associated resources of
WISeKey will be required to carry out certain tasks and duties on behalf of SEALSQ. Under the terms of the service agreements, WISeKey
agrees to provide these services to SEALSQ on a cost-plus basis and WISeKey will regularly invoice SEALSQ for the associated costs of
providing these services. However, if WISeKey were to no longer carry out these roles then SEALSQ would be required to appoint the appropriate
C-suite staff and build out its own support functions which may lead to additional costs and a loss of expertise in the short-term.
Risks Related to Taxation
There can be no assurance that SEALSQ will
not be a PFIC for any taxable year.
Under the Code, generally
a non-U.S. corporation is a passive foreign investment company (“PFIC”) for any taxable year in which, after the application
of certain look-through rules with respect to subsidiaries, either (i) 75% or more of its gross income consists of passive income or (ii)
50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.
Based on SEALSQ’s unaudited interim financial statements, business plan and certain estimates, including as to the relative values
of its assets, SEALSQ believes it was not a PFIC for its 2023 taxable year, although there can be no assurance in this regard. Additionally,
based on the current and projected composition of assets and income of SEALSQ and its subsidiaries, it is not expected that SEALSQ will
be treated as a PFIC for its current taxable year or in the foreseeable future. However, the determination of whether SEALSQ is a PFIC
is a fact-intensive determination that must be made on an annual basis applying principles and methodologies that are in some circumstances
unclear. Moreover, whether SEALSQ is a PFIC for a particular year will depend on the composition of its income and assets and the value
of its assets from time to time (which may be determined, in part, by reference to the market price of SEALSQ Ordinary Shares, which may
fluctuate substantially over time). Accordingly, there can be no assurances regarding SEALSQ’s status as a PFIC for any taxable
year.
If SEALSQ is a PFIC for any
taxable year during which a U.S. investor holds SEALSQ Ordinary Shares, certain adverse U.S. federal income tax consequences could apply
to such U.S. Holder. See the discussion in the section of this registration statement titled “Material Tax Considerations —
U.S. Federal Income Tax Considerations.” U.S. Holders are urged to consult with their own tax advisors regarding the possible application
of the PFIC rules.
The Company could be required to comply
with economic substance requirements in the British Virgin Islands
British Virgin Islands legislation
requires certain entities registered in the British Virgin Islands engaged in “relevant activities” to maintain a substantial
economic presence in the British Virgin Islands and to satisfy economic substance requirements. The list of “relevant activities”
includes carrying on as a business any one or more of: banking, insurance, fund management, financing and leasing, headquarters, shipping,
distribution and service center, intellectual property and pure equity holding entities.
Entities which are tax resident
outside of the British Virgin Islands, provided they are not tax resident in a country which is not included in Annex I to the European
Union list of non-cooperative jurisdictions for tax purposes, (as the Company will be) are not required to have economic substance in
the British Virgin Islands, regardless of the activity they are conducting.
If our tax status changes
and we are conducting any “relevant activities” or if the scope of the relevant statute is changed by subsequent legislation
we may be required to increase our substance in the British Virgin Islands, which could result in additional costs that could adversely
affect our financial condition or results of operations. If we were required to satisfy economic substance requirements in the British
Virgin Islands but failed to do so, we could face spontaneous disclosure to competent authorities in the EU of the information filed by
the entity with the BVI International Tax Authority and the BVI Financial Investigation Agency in connection with the economic substance
requirements and our beneficial and legal ownership and may also face financial penalties, restriction or regulation of our business activities
and/or may be struck off or liquidated as a registered entity in the British Virgin Islands.
The French tax authorities may determine
that the Company is not a Swiss tax resident.
The British Virgin Islands
are considered by France as a “non-cooperative state of territory” and, as such, adverse French tax consequences can arise
on dividend and interest payments made to BVI shareholders of French companies. Under French law, payments of dividend and interest into
a non-cooperative state or territory attract a withholding tax of 75%. However, this 75% withholding tax will not apply to dividends and
interest paid by WISeKey Semiconductors SAS to SEALSQ Corp if (i) the dividends and interest are paid into a bank account that is not
located in the BVI and (ii) SEALSQ is a Swiss resident company for tax purposes and can claim the benefits of the France-Switzerland double
tax treaty.
We believe that SEALSQ is
and will remain a Swiss resident company for tax purposes and that SEALSQ will benefit from the France-Switzerland double tax treaty.
Additionally, any payments of dividends and interest to SEALSQ would be made into a bank account that is located in Switzerland and would
not be subsequently rewired to a bank account located in the BVI (or any other blacklisted jurisdiction).
The status of SEALSQ’s
tax residence may be subject to challenge by the French tax authorities and the onus would be upon SEALSQ to demonstrate that (i) SEALSQ
has sufficient substance in Switzerland, including having its place of effective management in Switzerland along with sufficient substance,
in particular employees and offices, (ii) SEALSQ is not controlled, directly or indirectly, by a non-French or non-Swiss tax resident,
and (iii) SEALSQ is the beneficial owner of the dividends and interest paid by WISeKey Semiconductors SAS.
Risk Related to Our Corporate Structure
As a “foreign private issuer”
(within the meaning of the U.S. Securities Act) we are entitled to claim exemptions from certain Nasdaq corporate governance standards,
and, if we elected to rely on these exemptions, you may not have the same protections afforded to stockholders of companies that are subject
to all of the Nasdaq corporate governance requirements.
As a foreign private issuer,
we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to domestic U.S. issuers.
This may afford less protection to holders of our ordinary shares.
We are exempted from certain
corporate governance requirements of Nasdaq by virtue of being a foreign private issuer. We are required to provide a brief description
of the significant differences between our corporate governance practices and the Nasdaq corporate governance practices required to be
followed by domestic U.S. companies listed on Nasdaq. The standards applicable to us are considerably different from the standards applied
to domestic U.S. issuers. For instance, we are not required to:
| · | have a majority of the board of directors be independent (although all of the members of the audit committee
must be independent under the Securities Exchange Act); |
| · | have a compensation committee or a nominating or corporate governance committee consisting entirely of
independent directors; or |
| · | have regularly scheduled executive sessions with only independent directors. |
We have relied on and intend to continue to rely
on some of these exemptions. As a result, you may not be provided with the benefits of certain corporate governance requirements of Nasdaq.
We are a “controlled company”
as defined under the Nasdaq Stock Market corporate governance rules. As a result, we qualify for, and intend to rely on, exemptions from
certain corporate governance requirements that would otherwise provide protection to shareholders of other companies.
We are a “controlled
company” as defined under the Nasdaq corporate governance rules because WISeKey owns and, following the consummation of this offering
will continue to own more than 50% of our total voting power. For so long as we remain a controlled company, we may rely on certain exemptions
from the corporate governance rules, including the rule that our board of directors be comprised of a majority of independent directors.
As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance
requirements. Even if we cease to be a controlled company, we may still rely on exemptions available to foreign private issuers, including
being able to adopt home country practices in relation to corporate governance matters.
We will likely not pay dividends in the
foreseeable future.
Our dividend policy is subject
to the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements
and other factors. There is no assurance that our board of directors will declare dividends even if we are profitable. Under BVI law,
we may only pay dividends if we satisfy the BVI Solvency Test. In addition, the Second Tranche Notes prohibit us and our subsidiaries
from paying dividends or other cash distributions, except for intercompany transfers to us and payments to WISeKey.
As the rights of shareholders under British
Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.
Our corporate affairs will
be governed by our Articles, the BVI Act, and the common law of the British Virgin Islands. The rights of shareholders to take legal action
against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands
law are governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived
in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law of England and the
wider Commonwealth, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders
and the fiduciary responsibilities of our directors under British Virgin Islands law are largely codified in the BVI Act, but are potentially
not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular,
the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware)
have more fully developed and judicially interpreted bodies of corporate law. As a result of all of the above, holders of our shares may
have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would
as shareholders of a U.S. company.
British Virgin Islands companies may not
be able to initiate shareholder derivative actions in the United States, thereby depriving shareholders of the ability to protect their
interests.
Shareholders of British Virgin
Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders
of a British Virgin Islands company could, however, bring a derivative action in the British Virgin Islands courts, and there is a clear
statutory right to commence such derivative claims under Section 184C of the BVI Act. The circumstances in which any such action may be
brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders
of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly,
shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin
Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability
provisions of U.S. securities laws, and to impose liabilities against us, in original actions brought in the British Virgin Islands, based
on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin
Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce
the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders
were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.
The laws of the British Virgin Islands may
provide less protection for minority shareholders than those under U.S. law, so minority shareholders may have less recourse than they
would under U.S. law if the shareholders are dissatisfied with the conduct of our affairs.
Under the laws of the
British Virgin Islands, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder
remedies and other remedies available under common law (in tort or contractual remedies). The principal protection under statutory
law is that shareholders may bring an action to enforce the constitutional documents of the company (i.e., our Articles) as
shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and
articles of association of the company. A shareholder may also bring an action under statute if they feel that the affairs of the
company have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to them. The BVI
Act also provides for certain other protections for minority shareholders, including in respect of investigation of the company and
inspection of the company books and records. There are also common law rights for the protection of shareholders that may be
invoked, largely dependent on English common law, since the common law of the British Virgin Islands for business companies is
limited.
The Company is not
subject to the supervision of the BVI Financial Services Commission, and so the Shareholders are not protected by any regulatory
inspections by the BVI Financial Services Commission in the BVI.
We are not an entity subject
to any regulatory supervision in the BVI by the BVI Financial Services Commission. As a result, shareholders are not protected by any
regulatory supervision or inspections by any regulatory agency in the BVI, and we are not required to observe any restrictions in respect
of conduct save as disclosed in this prospectus, our Articles, or the BVI Act.
It may be difficult to enforce service of
process and judgments against us and our officers and directors.
We are incorporated under
the laws of the British Virgin Islands and our principal executive offices are located outside the United States. Most of our directors
and officers and those of our subsidiaries are residents of countries other than the United States. Substantially all of our and our subsidiaries’
assets and a substantial portion of the assets of our directors and officers are located outside the United States. As a result, it may
be difficult or impossible for United States investors to effect service of process within the United States upon us, our directors or
officers, our subsidiaries or to realize against us or them judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the United States or any state in the United States.
BVI Regulatory Environment
We are currently a non-operating
business and as such we do not have any industry-specific regulators or regulations that we need to comply with. As a BVI business company
limited by shares, we are regulated by the laws of the British Virgin Islands, and principally by the corporate law of the BVI which is
contained in the BVI Act. The BVI does not distinguish between public and private companies. We are also governed by the BVI Insolvency
Act, 2003 (as amended), and the laws and regulations of the BVI which pertain to economic substance and beneficial ownership, as well
as common law.
Risks Relating to Our Ordinary Shares and this
Offering
Our convertible note and warrant financing
with the Selling Shareholders could cause substantial dilution and pressure on the public price of our Ordinary Shares as repayments under
such notes can be paid in Ordinary Shares priced at a discount to market.
To the extent that the
Notes and Warrants are converted into or exercised for Ordinary Shares, substantial amounts of our Ordinary Shares will be issued.
The Notes may be converted, and the Warrants may become exercisable, at prevailing prices or discounts to prevailing prices, and the
conversion price of the Notes and exercise price of the Warrants may be adjusted in the event of certain issuances of Ordinary
Shares below the original Conversion Price. In addition, we have the ability under certain circumstances to make payments on the
Notes in Ordinary Shares at a discount to prevailing market prices. We are required to reserve 200% of the original number of shares
obtainable under the Second Tranche Notes and Second Tranche Warrants to provide for these circumstances. Although we cannot predict
the number of our Ordinary Shares that will actually be issued in connection with any such conversions and/or sales, such issuances
could result in substantial decreases to our share price.
As of the date of this Prospectus,
the Selling Shareholders have converted all of the First Tranche Notes into an aggregate of 9,717,438 Ordinary Shares. The total number
of outstanding Ordinary Shares of the Company is currently 17,227,122.
Sales of our Ordinary Shares,
or the perception of such sales, including by the Selling Shareholders pursuant to this prospectus in the public market or otherwise could
cause the market price for our Ordinary Shares to decline.
The sale of our Ordinary Shares
in the public market or otherwise, including sales pursuant to this prospectus, or the perception that such sales could occur, could harm
the prevailing market price of our Ordinary Shares. These sales, or the possibility that these sales may occur, also might make it more
difficult for us to sell equity securities in the future at a time and at a price that it deems appropriate (which ability to sell equity
securities is also subject to restrictions under the terms of the Notes and related agreements as described below). Resales of our Ordinary
Shares may cause the market price of our securities to drop significantly, regardless of the performance of our business.
Following the conversion of
the Notes and/or the exercise of the Warrants, there are no limitations on the Selling Shareholders’ ability to sell the Ordinary
Shares received by the Selling Shareholders. As such, sales of a substantial number of Ordinary Shares in the public market could occur
at any time following such conversion or exercise. These sales, or the perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our Ordinary Shares.
Given the substantial number
of Ordinary Shares being registered for potential resale by the Selling Shareholders pursuant to this prospectus, the sale of shares by
the Selling Shareholders, or the perception in the market that the shareholders of a large number of shares intend to sell shares, could
increase the volatility of the market price of our Ordinary Shares or result in a significant decline in the public trading price of our
Ordinary Shares.
The Notes and related agreements restrict
our ability to obtain additional debt and equity financing which may restrict our ability to grow and finance our operations and, further,
no assurances can be made that we will receive cash proceeds from the Warrants.
The agreements related to the sale of the Notes
and Warrants contain a number of restrictive covenants that may impose significant operating and financial restrictions on us while Notes
remain outstanding or unless the restrictions are waived by consent of each noteholder, including the following:
| · | Until repaid, our indebtedness to the Selling Shareholders is required to be the senior debt obligation
of our company; |
| · | We do not have the ability to prepay the Notes prior to maturity; |
| · | Until July 11, 2024, the Selling Shareholders shall have the right to participate in up to thirty percent
(30%) of our future financings undertaken during that period; |
| · | Beginning on January 11, 2024, if we issue any equity securities or indebtedness, then the Selling Shareholders
may request prepayment of the Principal and any accrued and unpaid Interest in an amount of up to thirty percent (30%) of the gross proceeds
received by the Company in such financing; |
| · | From the date of the Purchase Agreement until such time as neither Selling Shareholder holds any of the
Notes having a principal amount in excess of $250,000.00, we shall not: (i) enter into any financing transactions that qualify as “variable
rate transactions” or (ii) utilize any “at the market” offering program in respect of our Ordinary Shares. In addition,
while any Notes are outstanding, we shall not issue any equity option, warrant or similar instrument which contains an “alternative
cashless exercise” provision that provides for the exercise of such security without payment of the exercise price in cash; and |
| · | If we enter into a definitive agreement with respect to a change of control of the Company, the Selling
Shareholders may require us to prepay, effective immediately prior to the consummation of such change of control, an amount equal to one
hundred and twenty percent (120%) of the sum of (x) the outstanding Principal of the Note and (y) and any accrued and unpaid Interest
thereon. |
A breach of
the covenants or restrictions under the agreements governing our indebtedness could result in an event of default under these agreements.
As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing
to operate during general economic or business downturns and/or unable to compete effectively or to take advantage of new business opportunities.
Our Ordinary Shares were not publicly traded
before the completion of the Spin-Off Distribution on May 23, 2023. While an active trading market currently exists, such a market may
not be maintained and therefore it may not provide you with adequate liquidity for our Ordinary Shares.
Before the Spin-Off Distribution,
which was completed on May 23, 2023, there was no public market for our Ordinary Shares. As of the date of this prospectus, WISeKey and its affiliates,
including Mr. Carlos Moreira, held 35.42% of the Ordinary Shares and WISeKey held 100% of the Class F Shares, which together mean they
held 67.71% of the voting rights of SEALSQ, and this concentration of ownership could make it less likely that an active and liquid trading
market for our Ordinary Shares be maintained on Nasdaq. SEALSQ is reserving up to 5% of its Class F Shares for issuance pursuant to an
F Share Option Plan for certain directors and senior management of SEALSQ, its subsidiaries and its parent. As a result, WISeKey’s
initial ownership percentage of Class F Shares is subject to the grant and exercise of SEALSQ Class F Share Options from time to time.
Our Articles provide that, in the event of a change of control (being the acquisition by any person or entity, alone or jointly, of more
than 50% of the voting rights of any Class F Shareholder which is a corporate entity), as determined by SEALSQ’s board of directors,
the Class F Shares owned by such Class F Shareholder will be subject to a mandatory and automatic redemption by SEALSQ in exchange for
the issuance of new Ordinary Shares at a ratio of five (5) Ordinary Shares for each one (1) Class F Share redeemed. A change in the control
of WISeKey would trigger this provision as it is a corporate entity holding Class F Shares.
We cannot predict the extent
to which an active and liquid trading market on Nasdaq for our Ordinary Shares will be maintained. The lack of an active trading market
on Nasdaq and low trading volume for our Ordinary Shares, may make it more difficult for you to sell our Ordinary Shares and could lead
to our share price becoming depressed or volatile. If an active and liquid trading market is not maintained, relatively small sales of
our Ordinary Shares could have a significant negative impact on the price of our Ordinary Shares.
We may experience extreme share price
volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for
prospective investors to assess the rapidly changing value of our Ordinary Shares.
The US stock market has witnessed
instances of extreme stock price run-ups followed by rapid price declines in 2023 and such stock price volatility seemed unrelated to
the issuers’ performance subsequent to their recent initial public offerings, especially among companies with relatively smaller
public floats. As a relatively small-capitalized company, the share price of our Ordinary Shares may experience extreme volatility, lower
trading volume and less liquidity than large-capitalized companies. Although the specific cause of such volatility is unclear, our anticipated
small public float may amplify the impact the actions taken by a few shareholders have on the price of our Ordinary Shares, which may
cause our share price to deviate, potentially significantly, from a price that better reflects the underlying performance of our business.
The potential extreme volatility may confuse public investors regarding the value of our shares, distort the market perception of our
share price and our company’s financial performance and public image, and negatively affect the long-term liquidity of our Ordinary
Shares, regardless of our actual or expected operating performance. Should our Ordinary Shares experience run-ups and declines that are
seemingly unrelated to our actual or expected operating performance and financial condition or prospects, prospective investors may have
difficulty assessing the rapidly changing value of our Ordinary Shares and our ability to access the capital market may be materially
adversely affected. In addition, if the trading volumes of our Ordinary Shares are low, holders of our Ordinary Shares may also not be
able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. As a result of this
volatility, investors may experience losses on their investment in our Ordinary Shares.
If securities or industry
analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading
volume could decline.
As a company
that became publicly traded on May 19, 2023, there is currently limited analyst coverage of the Company. The trading market for our Ordinary
Shares will depend, in part, upon the research and reports that securities or industry analysts publish about us or our business. We do
not have any control over analysts as to whether they will cover us, and if they do, whether such coverage will continue. If additional
analysts do not commence coverage of the Company, or if one or more of these analysts cease coverage of the Company or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
In addition, if one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price may
likely decline.
You may experience future
dilution as a result of future equity offerings and other issuances of our Ordinary Shares or other securities.
In order to raise additional
capital, including to support our growth plans, or in connection with equity awards, strategic transactions or otherwise, we may in the
future offer additional Ordinary Shares, or other securities convertible into or exchangeable for our Ordinary Shares, including convertible
debt. We expect that a component of our potential future financing requirements will be raised through equity offerings. We cannot predict
the size of future issuances or sales of our Ordinary Shares or other securities, including those made in connection with future acquisitions
or capital raising activities, or the effect, if any, that such issuances or sales may have on the market price of our Ordinary Shares.
The issuance and sale of substantial amounts of Ordinary Shares or other equity-linked securities, or announcement that such issuance
and sales may occur, could adversely affect the market price of our Ordinary Shares. In addition, we cannot assure you that we will be
able to make future sales of our Ordinary Shares or other securities in any other offering at a price per share that is equal to or greater
than the price per share paid by investors, and investors purchasing shares or other securities in the future could have rights that are
superior to existing shareholders. The issuance of additional Ordinary Shares or other securities could adversely impact the trading price
of our Ordinary Shares.
The market price of
our Ordinary Shares may be subject to significant fluctuations.
The market price of our Ordinary
Shares may be subject to significant fluctuations as a result of many factors, some of which are beyond our control. Among the factors
that could affect our share price are:
| · | our operating and financial results; |
| · | future announcements concerning our business; |
| · | changes in revenue or earnings estimates and recommendations by securities analysts; |
| · | changes in our business strategy and operations; |
| · | changes in our senior management or board of directors; |
| · | speculation of the press or the investment community; |
| · | disposals of Ordinary Shares by shareholders; |
| · | our involvement in acquisitions, strategic alliances or joint ventures; |
| · | arrival and departure of key personnel; |
| · | investment community views on technology stock; |
| · | liquidity of the Ordinary Shares; and |
| · | general market, economic and political conditions. |
Our Ordinary Shares may trade at prices lower
than the price at which you buy the Ordinary Shares from the Selling Shareholders.
If our Ordinary Shares do not meet the Nasdaq
Capital Market’s minimum share price requirement, and if we cannot cure such deficiency within the prescribed timeframe, our Ordinary
Shares could be delisted.
Under the rules of the Nasdaq
Capital Market, listed companies are required to maintain a share price of at least $1.00 per share. If the share price declines below
$1.00 for a period of 30 consecutive business days, then the listed company has a cure period of at least 180 days to regain compliance
with the $1.00 per share minimum. If the price of our Ordinary Shares closes below $1.00 for 30 consecutive days, and if we cannot cure
that deficiency within the 180-day timeframe, then our Ordinary Shares could be delisted.
If the market price of our
Ordinary Shares is below $5.00 per share, under stock exchange rules, our shareholders will not be able to use such shares as collateral
for borrowing in margin accounts. This inability to continue to use our Ordinary Shares as collateral may lead to sales of such shares
creating downward pressure and increased volatility in the market price of our Ordinary Shares.
Provisions in our Articles are intended
to discourage certain types of transactions that may involve an actual or threatened hostile acquisition of control over SEALSQ, which
will likely depress the trading price of our Ordinary Shares.
Our Articles contain provisions that may make
the acquisition of control over SEALSQ more difficult, including the following:
| · | Our dual class share structure, which provides holders of our Class F Shares the ability to
effectively control the outcome of matters requiring shareholder approval, even if they own significantly less than a majority of
our outstanding shares. Our Articles provide that holders of our Class F Shares as a class are fixed at 49.99% of the
Company’s voting power irrespective of the number of Ordinary Shares that may be issued in the future. |
| · | The ownership of our Class F Shares is subject to the following limitations: |
| · | in the event of a change of control (being the acquisition by any person or entity, alone or jointly,
of more than 50% of the voting rights of any Class F Shareholder which is a corporate entity), as determined by SEALSQ’s board of
directors, the Class F Shares owned by such Class F Shareholder will be subject to a mandatory and automatic redemption by SEALSQ in exchange
for the issuance of new Ordinary Shares at a ratio of five (5) Ordinary Shares for each one (1) Class F Share redeemed; |
| · | the Class F Shares are non-transferrable; and |
| · | the holders of Class F Shares will be bound by the terms of a Class F Shareholders’ Agreement. |
| · | The absence of cumulative voting. |
| · | Vacancies on our board of directors will be able to be filled only by our board of directors and not by
shareholders. |
| · | The Class F Shareholders’ Agreement provides that the holders of Class F Shares: |
| · | will vote the Class F Shares held by them as one and in accordance with the majority (by the number of
shares held) view of the holders of the Class F Shares; and |
| · | are bound by the redemption provisions set out in the Articles and required to take all necessary action
to comply with them. |
These provisions, alone or together, could discourage,
delay or prevent a transaction involving a change of control of our Company. These provisions could also limit the opportunity for our
shareholders to receive a premium for their Ordinary Shares and could also affect the price that some investors are willing to pay for
our Ordinary Shares.
We are an “emerging growth company”
and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Ordinary Shares
less attractive to investors.
We are an “emerging
growth company”, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies. We cannot predict if investors will find our Ordinary
Shares less attractive because we may rely on these exemptions. If some investors find our Ordinary Shares less attractive as a result,
there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.
In addition, under the JOBS
Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over
financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company.
For as long as we take advantage
of the reduced reporting obligations, the information that we provide our shareholders may be different from information provided by other
public companies.
We are a foreign private issuer within the
meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign
private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States
that are applicable to U.S. domestic issuers, including:
| · | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or
current reports on Form 8-K; |
| · | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in
respect of a security registered under the Exchange Act; |
| · | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and
trading activities and liability for insiders who profit from trades made in a short period of time; and |
| · | the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
We will be required to file
an annual report on Form 20-F within four months of the end of each fiscal year. Press releases relating to financial results and material
events will also be furnished to the SEC on Form 6-K.
Techniques employed by short sellers may
drive down the market price of the ordinary shares.
Short selling is the practice
of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities
back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the
sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than
it received in the sale.
As it is in the short seller’s
interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding
the relevant issuer and its prospects to create negative market momentum and generate profits for themselves after selling a security
short. These short attacks have, in the past, led to selling of shares in the market.
Public companies that have
substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has
centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities
and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result,
many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject
to shareholder lawsuits and/or SEC enforcement actions.
It is not clear what effect
such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are
proven to be true or untrue, we could have to expend significant resources to investigate such allegations and/or defend ourselves.
While we would strongly defend
against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by
principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming,
and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations
against us could severely impact our business, and any investment in the ordinary shares could be greatly reduced or even rendered worthless.
We could be subject to securities class
action litigation.
In the past, securities class
action litigation has often been brought against public companies following declines in the market prices of their securities. If we face
such litigation, it could result in substantial costs and a diversion of management’s attention and our resources, which could harm
our business.
Our Ordinary Shares are speculative in nature.
The market value of our Ordinary
Shares is uncertain and there can be no assurance that the market value of our Ordinary Shares will equal or exceed the price at which
you buy the Ordinary Shares from the Selling Shareholders.
Risks Relating to the Dual Class Structure
of our Shares
The dual class structure of our shares has
the effect of concentrating voting power with certain shareholders, in particular WISeKey, which will effectively eliminate your ability
to influence the outcome of important transactions, including a change of control.
Our Ordinary Shares,
which are the shares that are being offered, have one (1) vote per share as against each other Ordinary Share but, as a class, the
Ordinary Shares are fixed at 50.01% of the Company’s voting power. Our Class F Shares have a variable number of votes
that ensure that WISeKey and other Class F Shareholders are fixed at 49.99% of the Company’s voting power, and WISeKey
may, and currently does, have voting power that, in the aggregate, exceeds 49.99% of the Company’s voting
power, regardless of the actual proportion of the shares of the Company held by it. This voting feature is not common among other corporations and may have an adverse effect on our shareholders other than
WISeKey. SEALSQ is reserving up to 5% of its Class F Shares for issuance pursuant to an F Share Option Plan for certain directors
and senior management of SEALSQ, its subsidiaries and its parent. As a result, WISeKey’s initial ownership percentage of Class
F Shares is subject to the grant and exercise of SEALSQ Class F Share Options from time to time. For a description of the Ordinary
Shares and the Class F Shares, see “Description of Shares.” Our Articles provide that, in the event of a change of
control (being the acquisition by any person or entity, alone or jointly, of more than 50% of the voting rights of any Class F
Shareholder which is a corporate entity), as determined by SEALSQ’s board of director, the Class F Shares owned by such Class
F Shareholder will be subject to a mandatory and automatic redemption by SEALSQ in exchange for the issuance of new Ordinary Shares
at a ratio of five (5) Ordinary Shares for each one (1) Class F Share redeemed. A change in the control of WISeKey would trigger
this provision as it is a corporate entity holding Class F Shares. See the section titled “Description of Shares” for
further discussion of the terms of the Articles. Accordingly, WISeKey will effectively control all matters submitted to the
shareholders for the foreseeable future, including the election of directors, amendments of our organizational documents,
compensation matters, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate
transaction requiring shareholder approval.
WISeKey and the other Class
F Shareholders may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your
interests. This concentrated control is likely to have the effect of limiting the likelihood of an unsolicited merger proposal, unsolicited
tender offer, or proxy contest for the removal of directors. As a result, our governance structure and our Articles may have the effect
of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices and make it more difficult
to replace our directors and management.
Our governance structure and our Articles
may negatively affect the decision by certain institutional investors to purchase or hold our Ordinary Shares.
The holding of low-voting
shares, such as our Ordinary Shares, may not be permitted by the investment policies of certain institutional investors or may be less
attractive to the portfolio managers of certain institutional investors. In addition, in July 2017, FTSE Russell and Standard & Poor’s
announced that they would cease to allow most newly public companies utilizing dual- or multi-class capital structures to be included
in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together
make up the S&P Composite 1500. Our multi-class share structure may make us ineligible for inclusion in any of these and certain other
indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices
would not invest in our shares. These policies may depress our valuation compared to those of other similar companies that are included.
The Shareholders’
Agreement also has the effect of concentrating voting power with WISeKey and the other Class F Shareholders, which will effectively eliminate
your ability to influence the outcome of important transactions, including a change of control.
Our Articles provide that
all Class F Shareholders must enter into the Shareholders’ Agreement. The Shareholders’ Agreement provides that all of the
Class F Shares will be voted as one and in accordance with the majority (by the number of shares held) view of the holders of the Class
F Shares. Accordingly, together with our dual class structure, such Class F Shareholders will effectively control all matters submitted
to the shareholders for the foreseeable future, including the election of directors, amendments of our organizational documents, and any
merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.
WISeKey and other Class F Shareholders could
have, and WISeKey currently does have, voting power that exceeds 49.99% of the voting power of our outstanding capital stock.
Our Articles will not
prevent WISeKey or other Class F shareholders from having more than 49.99% of the voting power of our outstanding shares in
aggregate. As of the date of this prospectus, WISeKey holds 34.84% of our Ordinary Shares, and combined with its holding of Class F
Shares, 67.71% of the voting power of our outstanding shares in aggregate (assuming no options on Class F Shares have been
exercised). If all 45,000,000 Ordinary Shares that are being registered under the registration statement of which this prospectus
forms a part are issued (assuming no other issuances of Ordinary Shares), WISeKey will hold approximately 9.6% of our Ordinary
Shares, and combined with its holding of Class F Shares, 54.81% of the voting power of our outstanding shares in aggregate (assuming
no options on Class F Shares have been exercised). In the future, other Class F Shareholders could have voting power that exceeds
49.99% of the voting power of our outstanding shares in aggregate, including substantially in excess, as a result of their ownership
of our Ordinary Shares.
As a result of issuances of our Ordinary
Shares or the disposal of Ordinary Shares by WISeKey and other Class F Shareholders, WISeKey and other Class F Shareholders could have,
and WISeKey currently does have, voting power that is substantially greater than, and outsized in comparison to, their economic interests and the
percentage of our Ordinary Shares that they hold.
In certain circumstances,
our Class F Shareholders could have voting power that is substantially greater than, and outsized in comparison to, their economic interests
and the percentage of our Ordinary Shares that they hold. This separation between voting power and economic interests could cause conflicts
of interest between WISeKey, our Class F Shareholders and our other shareholders, which may result in WISeKey and our other Class F Shareholders
undertaking, or causing us to undertake, actions that would be desirable for WISeKey and our Class F Shareholders but would not be desirable
for our other shareholders.
As of the date of this
prospectus, WISeKey holds 34.84% of our Ordinary Shares, and combined with its holding of Class F Shares, 67.71% of the voting power
of our outstanding shares in aggregate (assuming no options on Class F Shares have been exercised). In the event that WISeKey and
our other Class F Shareholders have less than 49.99% of the voting power of our shares prior to giving effect to the voting power of
the Class F Shares, which is currently the case, the issuance of additional shares by us in the future to shareholders other than
Class F Shareholders will dilute the economic interests of WISeKey and our other Class F Shareholders but will not result in further
dilution of the voting power of WISeKey and our other Class F Shareholders. If all 45,000,000 Ordinary Shares that are being
registered under the registration statement of which this prospectus forms a part are issued (assuming no other issuances of
Ordinary Shares), WISeKey will hold approximately 9.6% of our Ordinary Shares, and combined with its holding of Class F Shares,
54.81% of the voting power of our outstanding shares in aggregate (assuming no options on Class F Shares have been exercised).
Because the Class F Shares have variable voting rights, such issuances will instead correspondingly increase the voting power of the
Class F Shares.
Future issuances of
our Ordinary Shares, such as from conversions of the Second Tranche Notes or the exercise of First and Second Tranche Warrants, will dilute
the voting power of our holders of Ordinary Shares, but may not result in further dilution of the voting power of Class F Shareholders.
Future issuances of our Ordinary
Shares (e.g., such as from conversions of the Second Tranche Warrants, from the exercise of First and Second Tranche Warrants, or in the
event of a mandatory redemption of WISeKey’s F Shares) will dilute the voting power and economic interests of holders of our Ordinary
Shares and future issuances to shareholders other than Class F Shareholders will dilute only the economic interests of our Class F Shareholders.
However, because the Class F Shares have variable voting rights, in the event that our Class F Shareholders have less than 49.999999%
of the voting power of our shares prior to giving effect to the voting power of the Class F Shares, future issuances of Ordinary Shares
to shareholders other than Class F Shareholders will not result in dilution of the voting power of our Class F Shareholders, but rather,
will correspondingly increase the voting power of the Class F Shares.
CONVERTIBLE NOTE
FINANCING
On July 11, 2023 (the “Initial
Closing Date”), we closed an initial tranche (the “First Tranche”) of a private placement of Convertible Notes and Warrants
with L1 Capital Global Opportunities Master Fund Ltd. and Anson Investments Master Fund LP (collectively, the “Investors”)
pursuant to the terms of a Securities Purchase Agreement, dated July 11, 2023, between the Company and the Investors (the “Initial
Securities Purchase Agreement”).
In connection with the closing
of the First Tranche, we issued to the Investors (i) 4% Senior Original Issue Discount Convertible Notes due 2025 in an aggregate principal
amount of $10,000,000.00 (the “Initial Notes”) convertible into a number of Ordinary Shares, and (ii) Warrants with a
5-year maturity (the “Initial Warrants” a) to purchase 245,816 Ordinary Shares.
On January 9, 2024 (the “Second
Tranche Closing Date”), we entered into an Amendment to the Securities Purchase Agreement (the “Amendment to Purchase Agreement,”
and the Initial Securities Purchase Agreement as so amended, the “Purchase Agreement”), and closed a $10 million second tranche
(the “Second Tranche”) of the private placement, resulting in the issuance to the Investors of (i) 4% Senior Original Issue
Discount Convertible Notes due 2026 in an aggregate principal amount of $10,000,000.00 (the “Second Tranche Notes”) convertible
into a number of Ordinary Shares, and (ii) Warrants with a 5-year maturity (the “Second Tranche Warrants”) to purchase an
aggregate of 2,288,678 Ordinary Shares.
We are registering the resale
of up to an aggregate of 45,000,000 Ordinary Shares issuable upon conversion of the Second Tranche Notes (“Conversion Shares”)
and upon exercise of the Second Tranche Warrants (“Warrant Shares”) as required by the Registration Rights Agreement, dated
as of July 11, 2023, as amended (as amended, the “Registration Rights Agreement”), by and among us and the Investors.
The Conversion Shares include
Ordinary Shares issuable upon conversion of $10,000,000.00 in aggregate principal amount of the Second Tranche Notes and in accruing interest
which may be paid by the Company in Conversion Shares with the written consent of the Selling Shareholders (including Ordinary Shares
reserved for potential issuance in the event of possible future default or dilution adjustments). The terms of the Second Tranche Notes
are summarized below.
The Warrant Shares include
Ordinary Shares issuable upon exercise of the Second Tranche Warrants (including Ordinary Shares reserved for potential issuance in the
event of possible future default or dilution adjustments). The terms of the Second Tranche Warrants are summarized below.
We are providing you with
a summary description of the material terms of the Second Tranche Notes and the Second Tranche Warrants and of the related agreements.
Please remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of
an owner of the Second Tranche Notes and Second Tranche Warrants will be determined by reference to the terms of the applicable agreements
and not by reference to this summary. We urge you to review the applicable agreements in their entirety.
Summary
Terms of the Amendment to Purchase Agreement
The
Amendment to Purchase Agreement modifies the Initial Securities Purchase Agreement and the terms of the other transaction documents as
follows:
Fixed
Conversion Price and Exercise Price. All references in the applicable transaction documents for the Second Tranche to the Fixed Conversion
Price and the Exercise Price was changed from $30.00 to $4.00.
Floor
Price. All references in the applicable transaction documents for the Second Tranche to the Floor Price was changed from $2.50 to
$0.55.
Third
Tranche Closing. The parties agreed to provide for a third tranche closing (subject to the mutual consent of the parties and other
closing conditions) and may be provided for up to a total of $10 million in principal amount of additional notes, with terms similar to
the Second Tranche Notes (the “Third Tranche Notes”). The number of warrant shares underlying the additional warrants
issuable in the Third Tranche, which warrants shall have substantially identical terms to the Second Tranche Warrants (the “Third
Tranche Warrants”) will be determined by dividing 30% of the principal amount of Third Tranche Notes by the VWAP as of the closing
date of Third Tranche.
Registration
Rights Agreement. The parties agreed to amend the Registration Rights Agreement to require the Company to file a registration statement
covering all of the securities issuable under the Third Tranche within 20 trading days after such closing.
Investor
Resale Limitation. Provided that no event of default has occurred, and subject to the waiver by the Company, each Investor has agreed
that it shall use its commercially reasonable efforts to not sell converted Ordinary Shares from the Second Tranche Notes or issued upon
exercise of the Second Tranche Warrants in a weekly quantity in excess of 15% of the average weekly trading volume of the Ordinary Shares
on the Nasdaq Capital Market in the current calendar week. This provision shall not apply to any conversion shares received by a holder
pursuant to any prepayment conversion rights or mandatory prepayments under the Second Tranche Notes for the 20 trading day period following
the receipt of any such conversion shares.
Waiver.
Solely with respect to the Second Tranche, the Investors have agreed to waive the Company’s compliance with the following covenant:
The Company shall not incur any indebtedness other than (x) indebtedness under the First Tranche Notes and Second Tranche Notes, (y) indebtedness
up to $2,000,000.00 payable to Cisco System, Inc., (z) any loans provided by affiliates of the Company (not including indebtedness under
(x) above); provided that no such indebtedness in the aggregate may exceed 15% of the average market capitalization of the Company’s
outstanding Ordinary Shares (adjusted for the outstanding number of F Shares at the five F Share to one Ordinary Share redemption ratio
as provided for under the Company’s Articles) as reported by the trading market for the immediately preceding 10 trading
days.
Share
Reserve. The Company shall maintain a reserve of 45,000,000 Ordinary Shares from its duly authorized Ordinary Shares for issuance
under the Second Tranche.
Summary
Terms of the Second Tranche Notes
Seniority. The obligations
of the Company under each Second Tranche Note rank senior to all other existing “Indebtedness” (as defined in the Purchase
Agreement) and equity of the Company except for (i) additional Notes provided for under the Purchase Agreement, (ii) indebtedness up to
$2,000,000.00 payable to Cisco System, Inc., and (iii) intercompany loans up to $8,000,000.00 between the Company and its affiliates;
provided that, the combined debt from (ii) and (iii) shall not exceed 15% of the average market capitalization of the Company’s
issued and outstanding Ordinary Shares (adjusted for the outstanding number of F Shares at the five (5) F Share to one Ordinary Share
redemption ratio).
Original Issuance Discount.
The Second Tranche Notes carry a 4.0% original issue discount, resulting in proceeds before expenses to the Company from the issuance
of the Second Tranche Notes of approximately $9,600,000.00. The Second Tranche Notes were issued on January 9, 2024 (the “Second
Tranche Issuance Date”).
Maturity. Each Second
Tranche Note has a 24-month maturity unless the Investors have given notice to the Company that they elect to accelerate the Maturity
Date to the extent explicitly permitted by the Notes (the “Maturity Date”). The initial Maturity Date may be extended one
time for an additional six (6) months at the option of the Company by written notice to the Investors.
Interest Payments.
Interest on the Second Tranche Notes commenced accruing on the Original Issuance Date at 4% per annum (the “Interest”), is
computed on the basis of a 360-day year and four 90-day quarterly periods and shall be payable by the Company to the holder(s) of such
Notes as of the last day of the applicable quarterly period in cash, within three (3) trading days of the end of each 90-day quarterly
period quarter while this Second Tranche Note remains outstanding (each, a “Scheduled Interest Payment Date”). Upon the written
consent of the Investors, the Interest may be paid by the Company in Ordinary Shares on the Scheduled Interest Payment Date at the applicable
conversion price. All accrued and unpaid Interest not otherwise paid on a Scheduled Interest Payment Date shall be due on the Maturity
Date.
Prepayment; Change of Control
Payment. If the Company directly or indirectly received proceeds from and closes any kind of financing including through the issuance
of any equity securities or indebtedness, the Investors may request prepayment of the Principal and any accrued and unpaid Interest in
an amount of up to thirty percent (30%) of the gross proceeds received by the Company in such financing. The previous sentence shall not
apply to any equity financing undertaken by the Company within six (6) months of the Original Issuance Date. Except as otherwise provided
in the Second Tranche Notes, the Company may not prepay any portion of the principal of the Second Tranche Notes.
In addition, if the Company
enters into a definitive agreement with respect to a change of control of the Company, the Investors may require the Company to prepay,
effective immediately prior to the consummation of such change of control, an amount equal to one hundred and twenty percent (120%) of
the sum of (x) the outstanding Principal of the Notes and (y) and any accrued and unpaid Interest thereon.
Events of Default.
The Second Tranche Notes are subject to customary events of default (each, an “Event of Default”), including, without limitation:
(i) payment defaults; (ii) default in the performance by the Company of its obligations, or breach by the Company of its representations
and warranties, under the Purchase Agreement, the Second Tranche Notes or the Second Tranche Warrants; (iii) failure by the Company to
maintain the required minimum share reserve; (iv) default by the Company under other indebtedness of $200,000.00 or more; (v) where an
Investor has sold Ordinary Shares pursuant to Rule 144 and the Company fails to instruct the transfer agent to remove any legends from
the Ordinary Shares; (vi) bankruptcy, liquidation and similar matters of or concerning the Company or its subsidiaries; (vii) Company
fails to comply in any material respect with the reporting requirements of the Exchange Act; (viii) delisting of the Ordinary Shares from
a national exchange; (ix) consummation by the Company of a “going private” transaction; and (x) the Company or one of its
subsidiaries enters into a Variable Rate Transaction (as defined in the Purchase Agreement). Upon an Event of Default as defined in the
Second Tranche Note, the Investor has the right to accelerate payment of the Second Tranche Notes at a “Mandatory Default Amount”
equal to 120% of the sum of (x) the outstanding principal amount of the Second Tranche Notes on the date on which the first Event of Default
occurred and (y) any accrued and unpaid Interest thereon, if any. In addition, at any time when an Event of Default has occurred and is
continuing, the Investor shall have the option to convert the Mandatory Default Amount at a rate equal to the lower of (i) the Conversion
Price or (ii) 80% of the lowest VWAP in the ten prior trading days prior to the conversion date (the “Alternative Conversion Price”).
Further, if we fail to cure an Event of Default within the time provided by the Second Tranche Note, the remedies provided in the Second
Tranche Note, including the use of the Alternative Conversion Price, shall continue and not be affected by any future cure.
Voluntary Conversion.
The Second Tranche Notes will be convertible, immediately upon issuance at the option of the holders, at a conversion price of the lesser
of (i) $4.00 per Ordinary Share (the “Second Tranche Fixed Conversion Price”), or (ii) 92% of the lowest VWAP per Ordinary
Share during the 10 trading days preceding the conversion (the “Second Tranche Variable Conversion Price”). The Second Tranche
Variable Conversion Price shall have a floor of $0.55 per Ordinary Share (the “Second Tranche Floor Conversion Price”). The
Second Tranche Floor Conversion price of the Second Tranche Notes can be lowered by mutual consent of the Company and the Investors. With
the consent of the Investors, the Company may pay the interest on the Second Tranche Notes in the form of Ordinary Shares at the applicable
conversion price then in effect. In addition, the conversion prices are subject to adjustment for anti-dilution protections.
Provided that no event
of default under the Second Tranche Notes has occurred, and subject to the waiver by the Company, each Investor has agreed that it shall
use its commercially reasonable efforts to not sell converted shares from Second Tranche Notes or Ordinary Shares issued upon exercise
of the Second Tranche Warrants in a weekly quantity in excess of 15% of the average weekly trading volume of the Ordinary Shares on the
Nasdaq Capital Market in the current calendar week. This provision shall not apply to any conversion shares received by a holder pursuant
to any prepayment conversion rights or mandatory prepayments under the Second Tranche Notes for the 20 trading day period following the
receipt of any such conversion shares.
Adjustments
to Conversion Price. The Second Tranche Notes provide for adjustment of the Fixed Conversion Price for, inter alia, share
dividends, share divisions, share combinations, rights offerings, pro rata distributions of assets, reclassifications of Ordinary
Shares, exchanges of Ordinary Shares or substitutions of Ordinary Shares, dilutive issuances, certain option issuances and issuances
of convertible securities.
Summary
Terms of the Second Tranche Warrants
The
Second Tranche Warrants will be exercisable, immediately upon issuance at the option of the holders, at an exercise price per Ordinary
Share equal to Second Tranche Fixed Conversion Price for the Notes ($4.00 per Ordinary Share). Pursuant to the Purchase Agreement, on
the Second Tranche Closing Date, the Investors were issued the Second Tranche Warrants to purchase up to 2,288,678 Ordinary Shares. The
Second Tranche Warrants are exercisable via “cashless” exercise if, after the six-month anniversary of the Second Tranche
Closing Date, there is not an effective Registration Statement (as defined above) covering resale of the Ordinary Share under the Second
Tranche Warrants.
First Tranche Conversions
The Investors have converted
all of the First Tranche Notes into an aggregate of 9,717,438 Ordinary Shares. The total number of outstanding Ordinary Shares of the
Company is currently 17,227,122.
SEALSQ Corp
Unaudited Pro Forma Condensed Combined Financial
Information
For the years ended December
31, 2022, December 31, 2021 and December 31, 2020
1. Introduction
The following unaudited pro forma condensed combined
financial information is presented to illustrate the combination of SEALSQ Corp (“SEALSQ”) and WISeKey Semiconductors SAS
and its affiliates (the “Semiconductors Group”), which designs, develops and markets secure semiconductors worldwide. SEALSQ
Corp. was incorporated on April 1, 2022 and has no operations. On January 1, 2023, SEALSQ acquired 100% of the Semiconductors Group from
its parent, WISeKey International Holding AG (“WISeKey”), against issuance by SEALSQ of 7,501,400 Ordinary Shares and 1,499,700
Class F Shares (the “Consideration Shares”) with the intention to distribute 20% of SEALSQ’s Ordinary Shares to stockholders
of WISeKey on a pro rata basis (the “Spin-Off Distribution”) and list SEALSQ’s Ordinary Shares on the Global Market
segment of the NASDAQ. At the date of the acquisition on January 1, 2023, SEALSQ qualified as a so-called empty shell private company
with no operating activities that was not considered a business under US GAAP standards. The Spin-Off Distribution was completed on May
23, 2023.
The unaudited pro forma condensed combined statement
of operations for the years ended December 31, 2020, 2021 and 2022 should be read in conjunction with the historical audited financial
statements of the Semiconductors Group for the years ended December 31, 2020, 2021 and 2022, which are included in this prospectus. Both
SEALSQ and the Semiconductors Group’s historical audited financial statements were prepared in accordance with US GAAP and presented
in thousand U.S. dollars. The pro forma financial information for the years ended December 31, 2020, 2021 and 2022 have not been audited.
The accompanying unaudited pro forma condensed
combined financial information gives effect to transaction accounting adjustments that reflect the entries to be incurred in relation
to the acquisition by SEALSQ of the Semiconductors Group. The unaudited pro forma condensed combined financial statements give effect
to the combination as if it happened on January 1, 2020.
The combination of SEALSQ and the Semiconductors
Group is a transaction under common control in line with ASC 805-50 because both entities were 100% owned by WISeKey at the date of the
transaction. The combination was accounted for as a reverse acquisition from January 1, 2020 in line with ASC 805-40 “Reverse Acquisitions”
because SEALSQ, then a so-called empty shell private company with no operating activities that was not considered a business under US
GAAP standards, acquired the Semiconductors Group, a private operating company and its affiliates. This transaction being a capital transaction
in substance, it qualifies as a reverse acquisition that is considered a recapitalization under common control whereby SEALSQ is the legal
acquirer and accounting acquiree, whereas the Semiconductors Group is the legal acquiree and accounting acquirer. In accordance with ASC805-40,
the pro forma condensed combined financial statements are therefore issued by the legal parent, SEALSQ, but are considered to be the continuation
of the financial statements of the legal subsidiary, the Semiconductors Group.
In the accompanying unaudited pro forma condensed
combined financial information, the assets and liabilities of the accounting acquiree, SEALSQ, have been consolidated from January 1,
2020. The transaction being under common control, the assets and liabilities of SEALSQ were initially measured at their carrying amounts
in the accounts of WISeKey, in line with ASC 805-50. No goodwill arose as a result of the transaction. The consolidated statement of comprehensive
losses includes the results of SEALSQ from January 1, 2020.
The pro forma adjustments are based upon available
information and certain assumptions which management believes are reasonable under the circumstances and which are described in the accompanying
notes to the unaudited pro forma condensed combined financial information. Actual results may differ materially from the assumptions within
the accompanying unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial
information is not necessarily indicative of the combined financial position or results of operations that would have been realized had
the combination occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or
future results of operations that the combined company will experience after the combination. In addition, the accompanying unaudited
pro forma condensed combined statement of operations does not include any expected cost savings or operating synergies which may be realized
subsequent to the combination, or the impact of any non-recurring activity or integration-related items. Moreover, the pro forma adjustments
represent best estimates based upon the information available to date.
Subsequent to the effective date of the reverse
acquisition, any transactions occurring between SEALSQ and the Semiconductors Group are considered intercompany transactions and eliminated.
SEALSQ and the Semiconductors Group did not have any relationship that could be considered as intercompany transactions in the period
starting from the incorporation of SEALSQ on April 1, 2022 and ending on December 31, 2022. Therefore, no eliminations have been made
in the unaudited pro forma combined financial information for the years ended December 31, 2020, 2021 and 2022.
Unaudited Pro Forma Condensed Combined Consolidated
Balance Sheet as at December 31, 2022
As
at December 31, 2022 USD’000 | |
WISeKey
Semiconductors SAS, SEALSQ Corp. Predecessor | |
SEALSQ
Corp. | |
Transaction
accounting adjustments | |
Notes | |
Autonomous
entity adjustments | |
Notes | |
Pro
Forma Combined |
ASSETS | |
| |
| |
| |
| |
| |
| |
|
Current
assets | |
| |
| |
| |
| |
| |
| |
|
Cash and cash equivalents | |
| 4,057 | | |
| 1 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 4,058 | |
Accounts receivable, net of allowance
for doubtful accounts | |
| 2,219 | | |
| | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 2,219 | |
Inventories | |
| 7,510 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 7,510 | |
Prepaid expenses | |
| 394 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 394 | |
Other current assets | |
| 1,252 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 1,252 | |
Total current
assets | |
| 15,432 | | |
| 1 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 15,433 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Noncurrent assets | |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Deferred income tax assets | |
| 3,296 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 3,296 | |
Deferred tax credits | |
| 692 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 692 | |
Property, plant and equipment net
of accumulated depreciation | |
| 782 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 782 | |
Intangible assets, net of accumulated
amortization | |
| 1 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 1 | |
Operating lease right-of-use assets | |
| 1,379 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 1,379 | |
Other noncurrent assets | |
| 77 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 77 | |
Total noncurrent
assets | |
| 6,227 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 6,227 | |
TOTAL ASSETS | |
| 21,659 | | |
| 1 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 21,660 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
LIABILITIES | |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Current Liabilities | |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Accounts Payable | |
| 6,735 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 6,735 | |
Current portion of obligations under
operating lease liabilities | |
| 324 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 324 | |
Indebtedness to related parties,
current | |
| 3,374 | | |
| 188 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 3,562 | |
Income tax payable | |
| 47 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 47 | |
Other current liabilities | |
| 148 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 148 | |
Total current
liabilities | |
| 10,628 | | |
| 188 | | |
| | | |
| |
| | | |
| |
| 10,816 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Noncurrent liabilities | |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Bonds, mortgages and other long-term
debt | |
| 1,489 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 1,489 | |
Operating lease liabilities, noncurrent | |
| 988 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 988 | |
Indebtedness to related parties,
noncurrent | |
| 7,946 | | |
| ¾ | | |
| ¾ | | |
| |
| 7,980 | | |
(c) | |
| 15,926 | |
Employee benefit plan obligation | |
| 396 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 396 | |
Total noncurrent
liabilities | |
| 10,819 | | |
| ¾ | | |
| ¾ | | |
| |
| 7,980 | | |
| |
| 18,799 | |
TOTAL LIABILITIES | |
| 21,447 | | |
| 188 | | |
| ¾ | | |
| |
| 7,980 | | |
| |
| 29,615 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Commitments and
contingent liabilities | |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
SHAREHOLDERS’ EQUITY | |
| | | |
| | | |
| | | |
| |
| | | |
| |
| | |
Common stock | |
| 1,955 | | |
| ¾ | | |
| (1,805 | ) | |
(a) | |
| ¾ | | |
| |
| 150 | |
Additional paid-in capital | |
| 14,926 | | |
| ¾ | | |
| 1,805 | | |
(a) | |
| ¾ | | |
| |
| 16,731 | |
Accumulated other comprehensive income
/ (loss) | |
| 775 | | |
| ¾ | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 775 | |
Accumulated deficit | |
| (17,444 | ) | |
| (187 | ) | |
| ¾ | | |
| |
| (7,980 | ) | |
(c) | |
| (25,611 | ) |
Total shareholders’
equity | |
| 212 | | |
| (187 | ) | |
| ¾ | | |
| |
| (7,980 | ) | |
| |
| (7,955 | ) |
TOTAL LIABILITIES
AND EQUITY | |
| 21,659 | | |
| 1 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 21,660 | |
Unaudited Pro Forma Condensed Combined Statement
of Comprehensive Loss for the Year Ended December 31, 2022
For
the 12 months ended December 31, 2022 USD’000 | |
WISeKey
Semiconductors SAS, SEALSQ Corp. Predecessor | |
SEALSQ
Corp. | |
Transaction
accounting adjustments | |
Notes | |
Autonomous
entity adjustments | |
Notes | |
Pro
Forma Combined |
| |
| |
| |
| |
| |
| |
| |
|
Net sales | |
| 23,198 | | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| 23,198 | |
Cost of sales | |
| (13,267 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (13,267 | ) |
Depreciation of production assets | |
| (132 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (132 | ) |
Gross profit | |
| 9,799 | | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| 9,799 | |
| |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Other operating income | |
| 2,007 | | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| 2,007 | |
Research & development expenses | |
| (2,308 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (2,308 | ) |
Selling & marketing expenses | |
| (3,824 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (3,824 | ) |
General & administrative expenses | |
| (3,091 | ) | |
| (188 | ) | |
10 | |
(a) | |
| (2,660 | ) | |
(c) | |
| (5,929 | ) |
Total operating
expenses | |
| (7,216 | ) | |
| (188 | ) | |
10 | |
(b) | |
| (2,660 | ) | |
| |
| (10,054 | ) |
Operating income
/ (loss) | |
| 2,583 | | |
| (188 | ) | |
10 | |
| |
| (2,660 | ) | |
| |
| (255 | ) |
| |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Non-operating income | |
| 935 | | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| 935 | |
Interest and amortization of debt
discount | |
| (355 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (355 | ) |
Non-operating expenses | |
| (638 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (638 | ) |
Income / (loss)
before income tax expense | |
| 2,525 | | |
| (188 | ) | |
10 | |
| |
| (2,660 | ) | |
| |
| (313 | ) |
| |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Income tax income / (expense) | |
| 3,245 | | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| 3,245 | |
Net income /
(loss) | |
| 5,770 | | |
| (188 | ) | |
10 | |
| |
| (2,660 | ) | |
| |
| 2,932 | |
| |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Earnings per ordinary
share (USD) | |
| | | |
| | | |
| |
(d) | |
| | | |
| |
| | |
Basic | |
| 3.92 | | |
| (1,881.28 | ) | |
¾ | |
| |
| ¾ | | |
| |
| 0.20 | |
Diluted | |
| 3.92 | | |
| (1,881.28 | ) | |
¾ | |
| |
| ¾ | | |
| |
| 0.20 | |
| |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Earnings per Class F share (USD) | |
| | | |
| | | |
| |
(d) | |
| | | |
| |
| | |
Basic | |
| n/a | | |
| n/a | | |
¾ | |
| |
| ¾ | | |
| |
| 0.98 | |
Diluted | |
| n/a | | |
| n/a | | |
¾ | |
| |
| ¾ | | |
| |
| 0.98 | |
| |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Other comprehensive
income / (loss), net of tax: | |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Foreign currency translation adjustments | |
| (15 | ) | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| (15 | ) |
Defined benefit pension plans: | |
| | | |
| | | |
| |
| |
| | | |
| |
| | |
Net gain (loss) arising during period | |
| 170 | | |
| ¾ | | |
¾ | |
| |
| ¾ | | |
| |
| 170 | |
Other comprehensive
income/ (loss) | |
| 155 | | |
| | | |
| |
| |
| | | |
| |
| 155 | |
Comprehensive
income / (loss) | |
| 5,925 | | |
| (188 | ) | |
10 | |
| |
| (2,660 | ) | |
| |
| 3,087 | |
Unaudited Pro Forma Condensed Combined Statement
of Comprehensive Loss for the Year Ended December 31, 2021
For the 12
months ended December 31, 2021 USD’000 | |
WISeKey
Semiconductors SAS, SEALSQ Corp. Predecessor | |
Transaction
accounting adjustments | |
Notes | |
Autonomous
entity adjustments | |
Notes | |
Pro
Forma Combined |
| |
| |
| |
| |
| |
| |
|
Net sales | |
| 16,995 | | |
¾ | |
| |
¾ | |
| |
| 16,995 | |
Cost of sales | |
| (9,547 | ) | |
¾ | |
| |
¾ | |
| |
| (9,547 | ) |
Depreciation
of production assets | |
| (301 | ) | |
¾ | |
| |
¾ | |
| |
| (301 | ) |
Gross
profit | |
| 7,147 | | |
¾ | |
| |
¾ | |
| |
| 7,147 | |
| |
| | | |
| |
| |
| |
| |
| | |
Other operating
income | |
| 91 | | |
¾ | |
| |
¾ | |
| |
| 91 | |
Research
& development expenses | |
| (3,050 | ) | |
¾ | |
| |
¾ | |
| |
| (3,050 | ) |
Selling
& marketing expenses | |
| (4,245 | ) | |
¾ | |
| |
¾ | |
| |
| (4,245 | ) |
General
& administrative expenses | |
| (4,984 | ) | |
¾ | |
| |
(2,660 | ) |
(c) | |
| (7,644 | ) |
Total
operating expenses | |
| (12,188 | ) | |
¾ | |
(b) | |
(2,660 | ) |
| |
| (14,848 | ) |
Operating
loss | |
| (5,041 | ) | |
¾ | |
| |
(2,660 | ) |
| |
| (7,701 | ) |
| |
| | | |
| |
| |
| |
| |
| | |
Non-operating
income | |
| 483 | | |
¾ | |
| |
¾ | |
| |
| 483 | |
Interest
and amortization of debt discount | |
| (167 | ) | |
¾ | |
| |
¾ | |
| |
| (167 | ) |
Non-operating
expenses | |
| (96 | ) | |
¾ | |
| |
¾ | |
| |
| (96 | ) |
Income
/ (loss) before income tax expense | |
| (4,821 | ) | |
¾ | |
| |
(2,660 | ) |
| |
| (7,481 | ) |
| |
| | | |
| |
| |
| |
| |
| | |
Income tax
expense | |
| (6 | ) | |
¾ | |
| |
¾ | |
| |
| (6 | ) |
Net
income / (loss) | |
| (4,827 | ) | |
¾ | |
| |
(2,660 | ) |
| |
| (7,487 | ) |
| |
| | | |
| |
| |
| |
| |
| | |
Earnings per ordinary
share (USD) | |
| | | |
| |
(d) | |
| |
| |
| | |
Basic | |
| (3.28 | ) | |
¾ | |
| |
¾ | |
| |
| (0.50 | ) |
Diluted | |
| (3.28 | ) | |
¾ | |
| |
¾ | |
| |
| (0.50 | ) |
| |
| | | |
| |
| |
| |
| |
| | |
Earnings per Class F share
(USD) | |
| | | |
| |
(d) | |
| |
| |
| | |
Basic | |
| n/a | | |
¾ | |
| |
¾ | |
| |
| (2.50 | ) |
Diluted | |
| n/a | | |
¾ | |
| |
¾ | |
| |
| (2.50 | ) |
| |
| | | |
| |
| |
| |
| |
| | |
Other
comprehensive income / (loss), net of tax: | |
| | | |
| |
| |
| |
| |
| | |
Foreign
currency translation adjustments | |
| (8 | ) | |
¾ | |
| |
¾ | |
| |
| (8 | ) |
Defined
benefit pension plans: | |
| | | |
| |
| |
| |
| |
| | |
Net gain
(loss) arising during period | |
| 142 | | |
¾ | |
| |
¾ | |
| |
| 142 | |
Other
comprehensive income / (loss) | |
| 134 | | |
¾ | |
| |
¾ | |
| |
| 134 | |
Comprehensive
income / (loss) | |
| (4,693 | ) | |
¾ | |
| |
(2,660 | ) |
| |
| (7,353 | ) |
Unaudited Pro Forma Condensed Combined Statement
of Comprehensive Loss for the Year Ended December 31, 2020
For the 12 months ended December 31, 2020 USD’000 | |
WISeKey Semiconductors SAS, SEALSQ Corp. Predecessor | |
Transaction accounting adjustments | |
Notes | |
Autonomous entity adjustments | |
Notes | |
Pro Forma Combined |
| |
| |
| |
| |
| |
| |
|
Net sales | |
| 14,317 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 14,317 | |
Cost of sales | |
| (8,147 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (8,147 | ) |
Depreciation of production assets | |
| (736 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (736 | ) |
Gross profit | |
| 5,434 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 5,434 | |
| |
| | | |
| | | |
| |
| | | |
| |
| | |
Research & development expenses | |
| (4,128 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (4,128 | ) |
Selling & marketing expenses | |
| (3,103 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (3,103 | ) |
General & administrative expenses | |
| (6,788 | ) | |
| (10 | ) | |
(a) | |
| (2,660 | ) | |
(d) | |
| (9,458 | ) |
Total operating expenses | |
| (14,019 | ) | |
| (10 | ) | |
(c) | |
| (2,660 | ) | |
| |
| (16,689 | ) |
Operating loss | |
| (8,585 | ) | |
| (10 | ) | |
| |
| (2,660 | ) | |
| |
| (11,255 | ) |
| |
| | | |
| | | |
| |
| | | |
| |
| | |
Non-operating income | |
| 146 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 146 | |
Interest and amortization of debt discount | |
| (8 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (8 | ) |
Non-operating expenses | |
| (749 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (749 | ) |
Income / (loss) before income tax expense | |
| (9,196 | ) | |
| (10 | ) | |
| |
| (2,660 | ) | |
| |
| (11,866 | ) |
| |
| | | |
| | | |
| |
| | | |
| |
| | |
Income tax expense | |
| (5 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (5 | ) |
Net income / (loss) | |
| (9,201 | ) | |
| (10 | ) | |
| |
| (2,660 | ) | |
| |
| (11,871 | ) |
| |
| | | |
| | | |
| |
| | | |
| |
| | |
Earnings per ordinary share (USD) | |
| | | |
| | | |
(e) | |
| | | |
| |
| | |
Basic | |
| (6.25 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (0.79 | ) |
Diluted | |
| (6.25 | ) | |
| ¾ | | |
| |
| ¾ | | |
| |
| (0.79 | ) |
| |
| | | |
| | | |
| |
| | | |
| |
| | |
Earnings per Class F share (USD) | |
| | | |
| | | |
(e) | |
| | | |
| |
| | |
Basic | |
| n/a | | |
| ¾ | | |
| |
| ¾ | | |
| |
| (3.96 | ) |
Diluted | |
| n/a | | |
| ¾ | | |
| |
| ¾ | | |
| |
| (3.96 | ) |
| |
| | | |
| | | |
| |
| | | |
| |
| | |
Other comprehensive income / (loss), net of tax: | |
| | | |
| | | |
| |
| | | |
| |
| | |
Foreign currency translation adjustments | |
| 33 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 33 | |
Defined benefit pension plans: | |
| | | |
| | | |
| |
| | | |
| |
| | |
Net gain (loss) arising during period | |
| 105 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 105 | |
Other comprehensive income / (loss) | |
| 138 | | |
| ¾ | | |
| |
| ¾ | | |
| |
| 138 | |
Comprehensive income / (loss) | |
| (9,063 | ) | |
| (10 | ) | |
| |
| (2,660 | ) | |
| |
| (11,733 | ) |
Notes To the Unaudited Pro Forma Combined Financial
Statements
Note 1. Description of Transaction
SEALSQ
was incorporated in 2022 by WISeKey to serve as the holding company of the Semiconductors Group. To that effect, on January 1, 2023, WISeKey
contributed the Semiconductors Group to SEALSQ in exchange for a consideration of 1,499,700 SEALSQ Class F shares, par value USD 0.05,
and 7,501,400 SEALSQ ordinary shares, par value USD 0.01. Then, WISeKey, as the sole shareholder of SEALSQ and in line with the decisions
approved by the general assembly of its shareholders held on April 27, 2023, distributed 20% of SEALSQ’s Ordinary Shares to stockholders
of WISeKey as a dividend in kind on a pro rata basis.
Note 2. Accounting Policies
For purposes of preparing the unaudited pro forma
condensed combined financial information, the historical audited financial statements of WISeKey Semiconductors SAS, SEALSQ Corp. Predecessor,
were prepared under U.S. GAAP. The resulting pro forma condensed combined financial information has not been audited.
Note 3. Accounting for the Combination
The unaudited proforma condensed consolidated
financial information was based on the historical consolidated financial information of SEALSQ and of the Semiconductors Group for the
years ended December 31, 2020, 2021 and 2022.
The combination of SEALSQ and the Semiconductors
Group is a transaction under common control in line with ASC 805-50 because both entities are 100% owned by WISeKey. The combination was
accounted for as a reverse acquisition from January 1, 2020 in line with ASC 805-40 “Reverse Acquisitions” because SEALSQ,
then a so-called empty shell private company with no operating activities that was not considered a business under US GAAP standards,
acquired the Semiconductors Group, a private operating company and its affiliates. This transaction being a capital transaction in substance,
it qualifies as a reverse acquisition that is considered a recapitalization under common control whereby SEALSQ is the legal acquirer
and accounting acquiree, whereas the Semiconductors Group is the legal acquiree and accounting acquirer. In accordance with ASC805-40,
the pro forma condensed combined financial statements are therefore issued by the legal parent, SEALSQ, but are considered to be the continuation
of the financial statements of the legal subsidiary, the Semiconductors Group.
In the accompanying unaudited pro forma condensed
combined financial information, the assets and liabilities of the accounting acquiree, SEALSQ, have been consolidated from January 1,
2020. The transaction being under common control, the assets and liabilities of SEALSQ were initially measured at their carrying amounts
in the accounts of WISeKey, in line with ASC 805-50. No goodwill arose as a result of the transaction. The consolidated statement of comprehensive
losses includes the results of SEALSQ from January 1, 2020.
Note 4. Transaction Accounting Adjustments
and Autonomous Entity Adjustments
| (a) | The combination of SEALSQ and the Semiconductors
Group is a transaction under common control in line with ASC 805-50 because both entities are 100% owned by WISeKey. The combination was
accounted for as a reverse acquisition from January 1, 2020 in line with ASC 805-40 “Reverse Acquisitions” because SEALSQ,
then a so-called empty shell private company with no operating activities that was not considered a business under US GAAP standards,
acquired the Semiconductors Group, a private operating company and its affiliates. This transaction being a capital transaction
in substance, it qualifies as a reverse acquisition that is considered a recapitalization under common control whereby SEALSQ is the legal
acquirer and accounting acquiree, whereas the Semiconductors Group is the legal acquiree and accounting acquirer. In accordance with ASC805-40,
the pro forma condensed combined financial statements are therefore issued by the legal parent, SEALSQ, but are considered to be the continuation
of the financial statements of the legal subsidiary, the Semiconductors Group. |
In the accompanying unaudited pro forma
condensed combined financial information, the assets and liabilities of the accounting acquiree, SEALSQ, have been combined from January
1, 2020. To that effect, we have assumed that SEALSQ, actually incorporated on April 1, 2022, was incorporated with the same assets and
liabilities on January 1, 2020. The transaction being under common control, the assets and liabilities of SEALSQ were initially measured
at their carrying amounts in the accounts of WISeKey, in line with ASC 805-50. No goodwill arose as a result of the transaction. The pro
forma combined statement of comprehensive losses includes the results of SEALSQ from January 1, 2020. However, we note that, for the period
starting from its incorporation until December 31, 2022, SEALSQ recorded in the income statement legal fees in the amount of USD 10,000
incurred in relation to the Spin-Off Distribution and, in the pro forma combined statement of comprehensive losses, we have accounted
for these legal fees upon the deemed incorporation on January 1, 2020 because they are fees directly related to the combination. The major
classes of assets and liabilities acquired by the accounting acquirer, the Semiconductors Group, are as follows:
USD | |
At incorporation on
April 1, 2022 | |
Legal fees in relation to the Spin-Off Distribution | |
Total net assets of SEALSQ Corp. at reverse acquisition on January 1, 2020 |
Current Assets | |
| | | |
| | | |
| | |
Notes receivable from related parties | |
| 100 | | |
| ¾ | | |
| 100 | |
Total current assets | |
| 100 | | |
| ¾ | | |
| 100 | |
TOTAL ASSETS | |
| 100 | | |
| | | |
| 100 | |
| |
| | | |
| | | |
| | |
Current Liabilities | |
| | | |
| | | |
| | |
Indebtedness to related parties, current | |
| ¾ | | |
| 10,000 | | |
| 10,000 | |
Total current liabilities | |
| ¾ | | |
| 10,000 | | |
| 10,000 | |
| |
| | | |
| | | |
| | |
TOTAL LIABILITIES | |
| ¾ | | |
| 10,000 | | |
| 10,000 | |
Net assets acquired | |
| 100 | | |
| (10,000 | ) | |
| (9,900 | ) |
| | The legal capital of the Semiconductors Group has been retroactively adjusted to reflect the legal capital of SEALSQ after
issuance of the Consideration Shares in prior periods, amounting to net assets of USD (9,900). To that effect, we recorded a debit
entry to common stock in an amount of USD 1,621,731 and a credit entry in an amount of USD 1,611,831 on January 1, 2020. Assets and
liabilities of the Semiconductors Group have been recognized and measured at their pre-combination carrying amounts and no goodwill
was recorded. |
| (b) | As described more fully elsewhere in this prospectus, SEALSQ is reserving up to 5% of its Class F Shares
for issuance pursuant to a Class F Share Option Plan for certain directors and senior management of SEALSQ. It is anticipated that some
options to purchase Class F Shares will be granted prior to the transaction described elsewhere in this prospectus. However, the number
and conditions of the grant being undefined at the time when this unaudited pro forma condensed combined financial information is prepared,
we were not able to calculate the potential effect of the grant of options on the unaudited pro forma condensed combined financial information. |
| (c) | This adjustment reflects the incremental amounts relating to general and administrative expenses expected
to be incurred to reflect operations and financial position of SEALSQ as an autonomous entity. |
WISeKey and SEALSQ entered into services
agreements under the terms of which certain members of staff and associated resources of WISeKey will be required to carry out certain
tasks and duties on behalf of SEALSQ. In particular, the Chief Executive Officer and Chief Financial Officer of WISeKey will also carry
out these roles for SEALSQ, while other tasks, such as the financial reporting and legal support of SEALSQ will be performed by officers
of WISeKey and its affiliates. Under the terms of the services agreements, WISeKey agrees to provide these services to SEALSQ on a cost-plus
basis and WISeKey will regularly invoice SEALSQ for the associated costs of providing these services.
SEALSQ will also nominate its non-executive
directors and committee directors, most of whom are expected to also be WISeKey directors and compensated at least in part by WISeKey
which will re-invoice the costs in relation to SEALSQ. SEALSQ did not have any non-executive director as at December 31, 2022.
No expenses in relation to services
provided by WISeKey staff to SEALSQ and the compensation of SEALSQ non-executive directors were actually incurred in the period starting
from the incorporation of SEALSQ on April 1, 2022 and ending on December 31, 2022. However, we estimate that additional expenses in an
amount of USD 2,660,000 per annum for such services would be required to reflect operations and financial position of SEALSQ as an autonomous
entity.
| (d) | The net loss per share attributable to its common stockholders is computed using the two-class method
required for companies with multiple classes of common stock, which determines net loss per common share for each class of common stock
according to dividends declared or accumulated and participation rights in distributed and undistributed earnings or losses. The two-class
method requires income available to common stockholders for the period to be allocated between each class of common stock based upon their
respective rights to receive dividends as if all income for the period had been distributed. |
The dividend rights of the holders
of Ordinary Shares and Class F Shares (collectively, the “common stock”) differ. The dividend right of a Class F Share is
five times greater than the dividend right of an Ordinary Share. As a result, the undistributed earnings are allocated to the classes
of common stock proportionately to their dividend rights and the resulting net loss per share will, therefore, vary for each class of
common stock. As such, in line with ASC 260-10-45, the Company has presented the net loss attributed to its common stock for each class
of common stock. The earnings per share calculation is based on the weighted average number of shares in issue of each class. For WISeKey
Semiconductors SAS, there were no new issue of shares since January 1, 2020 except from the 175,000 common shares issued on December 15,
2022 as part of the Capital Increase Agreement whereby an amount of EUR 7 million (USD 7,348,397) owed to WISeKey International Holding
AG by WISeKey Semiconductors SAS was converted into a capital contribution by way of an offset with the outstanding debt. Under the terms
of this agreement, the capital of WISeKey Semiconductors SAS was increased by 175,000 common shares and a total amount of EUR 7 million
(USD 7,348,397), and the newly created shares were granted to WISeKey International Holding AG in exchange for the reduction of the balance
owed by WISeKey Semiconductors SAS to WISeKey International Holding AG by a total amount of EUR 7 million (USD 7,348,397). This transaction
being a prerequisite for the Spin-Off Distribution, it has been reflected with effect as at January 1, 2020 in the unaudited pro forma
condensed information. Because the Capital Increase Agreement was reflected with effect as at January 1, 2020 in the unaudited pro forma
condensed combined balance sheet, the weighted average number of shares used as denominator for the earnings per share calculation is
equal to the number of shares in issue as at December 31, 2022, after the Capital Increase Agreement, for all periods.
For SEALSQ Corp., there was no new
issue of shares since incorporation on April 1, 2022, therefore the weighted average number of shares used as denominator for the earnings
per share calculation is equal to the number of shares in issue as at December 31, 2022.
For SEALSQ Corp. for Pro Forma Combined
financial information, the number of ordinary and Class F shares in issue after the issuance of the Consideration Shares was used as denominator
for the earnings per share calculation for all periods.
|
WISEeKey Semiconductors SAS,
SEALSQ Corp. Predecessor |
SEALSQ Corp. |
|
12 months
ended December 31, |
12 months
ended December 31 |
Shares used in net earnings / (loss) per share computation: |
2022 |
2021 |
2020 |
2022 |
Weighted average shares outstanding - basic |
1,473,162 |
1,473,162 |
1,473,162 |
100 |
Effect of potentially dilutive equivalent shares |
n/a |
n/a |
n/a |
n/a |
Weighted average shares outstanding – diluted |
n/a |
n/a |
n/a |
n/a |
|
SEALSQ Corp. for Pro Forma Combined |
|
12 months
ended December 31, |
Shares used in net earnings / (loss) per share computation: |
2022 |
2021 |
2020 |
Ordinary Shares |
|
|
|
Weighted average shares outstanding - basic |
7,501,500 |
7,501,500 |
7,501,500 |
Effect of potentially dilutive equivalent shares |
n/a |
n/a |
n/a |
Weighted average shares outstanding – diluted |
n/a |
n/a |
n/a |
|
|
|
|
Class F Shares |
|
|
|
Weighted average shares outstanding - basic |
1,499,700 |
1,499,700 |
1,499,700 |
Effect of potentially dilutive equivalent shares |
n/a |
n/a |
n/a |
Weighted average shares outstanding – diluted |
n/a |
n/a |
n/a |
USE OF PROCEEDS
We are not selling any securities
under this prospectus and will not receive any proceeds from the sale of the Ordinary Shares offered by this prospectus by the Selling
Shareholders. However, we may receive proceeds from the cash exercise of the Warrants, which, if exercised in cash at the current exercise
price with respect to all Warrants, would result in gross proceeds to us of approximately $7,374,480. The proceeds from such Warrant exercises,
if any, will be used for working capital and general corporate purposes. We cannot predict when or whether the Warrants will be exercised,
and it is possible that some or all of the Warrants may expire unexercised. For information about the Selling Shareholders, see “Selling
Shareholders.”
The Selling Shareholders will
pay any underwriting discounts and commissions and expenses incurred by the Selling Shareholders for brokerage or legal services or any
other expenses incurred by the Selling Shareholders in disposing of the Ordinary Shares offered hereby. We will bear all other costs,
fees and expenses incurred in effecting the registration of the ordinary shares covered by this prospectus, including all registration
and filing fees and fees and expenses of our counsel and accountants.
CAPITALIZATION
The following table sets forth
our consolidated capitalization at June 30, 2023, December 31, 2022 and December 31, 2021:
Please read “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Condensed Combined Financial Information”
included elsewhere herein.
|
As at June 30, |
USD’000 except share and per share data |
2023 |
|
|
Cash and cash equivalents |
1,860 |
|
|
Total current liabilities |
9,641 |
Total noncurrent liabilities |
15,801 |
TOTAL LIABILITIES |
24,722 |
Ordinary stock - USD 0.01 par value:
Authorized – 200,000,000 shares
Issued and outstanding – 7,501,500 shares) |
75 |
Common stock – F Shares – USD 0.05 par value:
Authorized – 10,000,000 shares
Issued and outstanding – 1,499,700 |
75 |
Additional paid-in capital |
16,752 |
Accumulated other comprehensive income / (loss) |
771 |
Accumulated deficit |
(18,318) |
Total shareholders’ equity |
(645) |
TOTAL CAPITALIZATION |
24,077 |
|
As at December 31, |
USD’000 except share and per share data |
2022 |
2021 |
|
|
|
Cash and cash equivalents |
4,057 |
2,064 |
|
|
|
Total current liabilities |
10,628 |
7,759 |
Total noncurrent liabilities |
10,819 |
17,648 |
TOTAL LIABILITIES |
21,447 |
25,407 |
Common stock (EUR 1 par value: Authorized, issued and outstanding - 1,473,162 and 1,298,162 shares) |
1,955 |
1,772 |
Additional paid-in capital |
14,926 |
7,258 |
Accumulated other comprehensive income / (loss) |
775 |
621 |
Accumulated deficit |
(17,444) |
(23,214) |
Total shareholders’ equity |
212 |
(13,563) |
TOTAL CAPITALIZATION |
21,659 |
11,844 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following presentation
of management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our
historical financial statements of SEALSQ Corp and of WISeKey Semiconductors SAS, the SEALSQ Corp Predecessor, accompanying notes thereto
and other financial information, appearing elsewhere in this prospectus. SEALSQ Corp was incorporated under the laws of the British Virgin
Islands on April 1, 2022. This discussion contains forward-looking statements that reflect our current views with respect to future events
and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result
of certain factors, such as those set forth in the section titled “Risk Factors” and elsewhere in this prospectus. You should
also carefully read the following discussion with “Risk Factors” and “Forward-Looking Statements,” The financial
statements have been prepared in accordance with U.S. GAAP.
Throughout this report,
all references to “we,” “our,” “us,” “SEALSQ”, “the SEALSQ Group” and the
“Company” refer to SEALSQ Corp and its subsidiaries, and all references to “WISeKey” and “the WISeKey Group”
refer to WISeKey International Holding AG and its subsidiaries. Unless otherwise indicated, all references to “dollars”, “U.S.
Dollar”, “USD” and “$” in this report are to, and amounts are presented in, to the lawful currency of the
United States of America.
Convertible Note Financing
On July 11, 2023, we closed
an initial tranche (the “First Tranche”) of a private placement of Convertible Notes and Warrants with certain investors (collectively,
the “Investors”) pursuant to the terms of a Securities Purchase Agreement, dated July 11, 2023, between the Company and the
Investors (the “Purchase Agreement”).
In connection with the closing
of the First Tranche, the Company issued to the Investors (i) 4% Senior Original Issue Discount Convertible Notes due 2025 in an aggregate
principal amount of $10,000,000.00 (the “Initial Notes”), convertible into a number of the Company’s Ordinary Shares,
and (ii) Warrants with a 5-year maturity (the “Initial Warrants”) to purchase 245,816 Ordinary Shares.
On January 9, 2024 (the “Second
Tranche Closing Date”), the Company entered into an Amendment to the Securities Purchase Agreement (the “Amendment to Purchase
Agreement,” and the Initial Securities Purchase Agreement, as so amended, the “Purchase Agreement”), and closed a $10
million second tranche (the “Second Tranche”) of the private placement, resulting in the issuance to the Investors of (i)
4% Senior Original Issue Discount Convertible Notes due 2026 in an aggregate principal amount of $10,000,000.00 (the “Second Tranche
Notes”, and together with the Initial Notes, “the Notes”) convertible into a number of the Company’s Ordinary
Shares (the “Ordinary Shares”), and (ii) Warrants with a 5-year maturity (the “Second Tranche Warrants”, and together
with the Initial Warrants, the “Warrants”) to purchase an aggregate of 2,288,678 Ordinary Shares.
A third tranche issuance of
notes and warrants (the “Third Tranche”) is subject to the mutual consent of the parties, and may be provided for up to a
total of $10 million in principal amount of notes. Such Third Tranche would close only after the effective date of the Registration Statement
(as defined below) and upon the satisfaction (or waiver) of the closing conditions for the Third Tranche specified in the Purchase Agreement.
We are registering the resale
of up to an aggregate of 45,000,000 Ordinary Shares issuable upon conversion of the Second Tranche Notes (“Conversion Shares”)
and upon exercise of the Second Tranche Warrants (“Warrant Shares”) as required by the Registration Rights Agreement, dated
as of July 11, 2023, as amended (as amended, the “Registration Rights Agreement”), by and among us and the Investors.
The Conversion Shares
include Ordinary Shares issuable upon conversion of $10,000,000.00 in aggregate principal amount of the Second Tranche Notes and in
accruing interest which may be paid by the Company in Conversion Shares with the written consent of the Selling Shareholders
(including Ordinary Shares reserved for potential issuance in the event of possible future default or dilution adjustments). The
Second Tranche Notes are convertible at a conversion price of the lesser of (i) $4.00 per Ordinary Share (the “Fixed
Conversion Price”), or (ii) 92% of the lowest daily variable-weighted average price (the “VWAP”) per Ordinary
Share during the 10 trading days preceding the conversion (the “Variable Conversion Price”). The Variable Conversion
Price has a floor of $0.55 per Ordinary Share (the “Floor Conversion Price”). The Floor Conversion price of the Second
Tranche Notes can be lowered by mutual consent of the Company and the Investors. The Notes provide for adjustment of the Fixed
Conversion Price for, inter alia, share dividends, share divisions, share combinations, rights offerings, pro rata distributions of
assets, reclassifications of Ordinary Shares, exchanges of Ordinary Shares or substitutions of Ordinary Shares, dilutive issuances,
certain option issuances and issuances of convertible securities. At the current Floor Conversion Price, the Second Tranche Notes
are convertible into 19,636,364 Ordinary Shares.
The Warrant Shares include
Ordinary Shares issuable upon exercise of the Second Tranche Warrants (including Ordinary Shares reserved for potential issuance in the
event of possible future default or dilution adjustments). The Second Tranche Warrants are exercisable, immediately upon issuance at the
option of the holders, at an exercise price per Ordinary Share equal to initial Fixed Conversion Price for the Second Tranche Notes ($4.00
per Ordinary Share). Pursuant to the Purchase Agreement, on the Second Tranche Closing Date, the Investors were issued the Second Tranche
Warrants to purchase up to an aggregate of 2,288,678 Ordinary Shares.
To the extent that Conversion
Shares and/or Warrant Shares are issued by the Company under the terms of the Second Tranche Notes and Second Tranche Warrants, substantial
amounts of Ordinary Shares could be issued and resold, which would cause dilution and may impact the Company’s stock price. See
the sections titled “Risk Factors” and “Convertible Note Financing” for additional information.
Key Financial Milestones:
The key highlights of the SEALSQ Group for
the six months ended June 30, 2023 were:
| · | 38%
Revenue growth: increase in revenue to $14.8 million in H1 2023, compared to $10.7 million
in H1 2022. |
| · | Increase
in gross profit margin: reaching 52.8% in H1 2023 compared to 44.7% in H1 2022. |
| · | Increases
in profitability: the Group’s operating loss decreased from $0.4 million in H1
2022 down to $0.3 million andbreakeven EBITDA in H1 2023, despite higher G&A expenses
in relation to the spin-off and Nasdaq listing. |
| · | Investments
in R&D for the development of our post-quantum chip and next generations (“R&D”):
we continue to support our R&D work with $1.5 million invested in R&D during H1 2023. |
The key highlights of the SEALSQ Group for the
years ended December 31, 2021 and 2022 were:
| · | Revenue growth: revenue increased by 36% to $23.2 million in 2022, as compared to $17.0 million
2021 which represented a 19% increase in revenue compared to $14.3 million in 2020. |
| · | Increase in gross profit: gross profit increased by 38% to $9.8 million in 2022, as compared to
$7.1 million in 2021 which represented a 31% increase in gross profit compared to $5.4 million in 2020. |
| · | Increase in gross profit margin: at 42% in 2022 and 2021, our gross profit margin increased by
10% from 38% in 2020. |
| · | Strong investments in Research & Development (“R&D”): we continue to support
our R&D work with $2.3 million, $3.1 million and $4.1 million invested during the years 2022, 2021 and 2020 respectively to develop
new products and create business opportunities in cybersecurity and IoT. In 2022, we started our investment in the QUASARS project paving
the way for the Post Quantum Cryptography era and were able to create the first Quantum-Resistant USB Token demonstrator. |
| · | Strengthening our Sales and Marketing (“S&M”): SEALSQ has continued to reinforce
its sales and marketing team adding members with significant experience in both the Internet of Things (“IoT”) and Public
Key Infrastructure (“PKI”) markets. This has allowed SEALSQ to gain new clients, increase its share in the supply chain of
some existing customers, and build a strong pipeline. |
Key Financial Metrics
A summary of the key performance metrics of the
SEALSQ Group is set out in the tables below:
US GAAP (Million US$) |
H1 2023 |
|
H1 2022 |
Net sales |
14.8 |
|
10.7 |
Gross profit |
7.8 |
|
4.8 |
Operating income / (loss) as reported |
(0.3) |
|
(0.4) |
Net income / (loss) as reported |
(0.9) |
|
(0.2) |
|
|
|
|
Non-GAAP (Million US$) |
|
|
|
EBITDA |
¾ | |
(0.2) |
Adjusted net income / (loss) |
(0.2) |
|
(0.2) |
|
For the year ended December 31, |
U.S. GAAP (Million US$) |
2022 |
2021 |
2020 |
Net sales |
23.2 |
17.0 |
14.3 |
Gross profit |
9.8 |
7.1 |
5.4 |
Operating income / (loss) |
2.6 |
(5.0) |
(8.6) |
Net income / (loss) |
5.8 |
(4.8) |
(9.2) |
|
|
|
|
As at December 31, |
|
2022 |
2021 |
2020 |
Total Cash and cash equivalents |
4.1 |
2.1 |
1.8 |
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2023 was
$1.9 million, compared to $4.1 million at December 31, 2022. The most significant sources of funding of the Group are customer sales,
research tax credits provided by the French government and loans extended by WISeKey.
Cash and cash equivalents as at December 31, 2022
was $4.1 million, compared to $2.1 million and $1.8 million respectively as at December 31, 2021 and 2020, despite a significant investment
in the inventories of the SEALSQ Group as the revenues grew. This reflects the support provided by WISeKey to the SEALSQ Group to build
the base for future growth following the downturn in 2020 as a result of the COVID pandemic and the subsequent supply chain shortages
in the semiconductor industry. The SEALSQ Group holds credit lines with WISeKey and WISeKey’s affiliates that undertake to provide
support for its future cash requirements to enable it to meet its commitments for the foreseeable future. As at December 31, 2022, the
credit line did not cap the amount of loans allowed under the agreement and carried interest at a rate of 3%, and the repayment terms
were flexible. As at December 31, 2022, the Semiconductors Group owed WISeKey and WISeKey’s affiliates a total of $11,354,925 made
up of loans under the credit lines, debt transfers, and unpaid management fees.
The balance due to WISeKey includes an amount
of EUR 5 million ($5,871,714) that was remitted from the Semiconductors Group without any compensation under a Debt Remission Agreement.
Per the terms of the Debt Remission Agreement, WISeKey will have the right to reinstate the debt and ask for repayment in fiscal years
when WISeKey Semiconductors SAS achieves a positive income before income tax expense, in an amount calculated based on the income before
income tax expense. As such, because of the repayment clause, the loan amounts covered by the Debt Remission Agreement are included in
the amount payable to WISeKey International Holding AG.
Subsequent to December 31, 2022, on January 1,
2023, the SEALSQ Group entered into a Loan Agreement (the “New Loan Agreement”) with WISeKey pursuant to which all loans outstanding
were replaced with the New Loan Agreement, meaning that all outstanding loan amounts are governed by the terms and conditions of the New
Loan Agreement. Under the New Loan Agreement, the SEALSQ Group may borrow additional funds up to an aggregate amount of $5 million in
instalments of no more than $1 million each. The New Loan Agreement loan bears interest at the rate of 2.5% per annum and is repayable
by December 31, 2024.
In July 2023, with the closing of the First Tranche
under the Purchase Agreement, the Company issued to the Investors the Initial Notes in an aggregate principal amount of $10 million convertible
into the Company’s Ordinary Shares and received $9.6 million in cash net of an original issuance discount of $400,000.
Revenue
SEALSQ revenue for H1 2023 was $14.8 million,
compared to $10.7 million in H1 2022, which represents a 38% increase year on year. For full year 2022, SEALSQ’s total revenue was
$23.2 million, compared to $17.0 million in 2021 and $14.3 million in 2020. This represents growth of, respectively, 36% and 19% year
on year in 2022 and 2021.
The increase in revenue was driven by two
major factors: first, the SEALSQ Group’s restructuring of, and investment in, its Sales and Marketing operations which have
driven increased revenues through maximizing existing revenue streams and winning new clients, and second, the growth opportunities
presented by the global supply shortages in the semiconductor industry as the effects of the COVID-19 pandemic dissipate and demand
outstripped the available supply. Although the supply shortages started to alleviate in the first half of 2023, there was still a
significant positive impact on our growth directly attributable to the shortage as a result of purchase orders having been received
through to the end of 2023 and product deliveries having been scheduled.
This trend reversal on IoT revenue had been planned
and we managed our supply chain accordingly. In the latter half of 2021 and in 2022, the Company had to manage its delivery schedule carefully
due to the global shortage of semiconductors material. During this period the Company was receiving greater volumes of orders than it
was capable of delivering and so was required to program the orders based upon the allocations of materials and production capacity that
was available to the Company. Through careful and ongoing negotiation with our suppliers, we were able to grow our revenues significantly
through this period while pushing certain other deliveries into 2023 and beyond. Once the supply constraints became known, our supply
chain team worked closely with our clients to ensure that we received order commitments through the maximum length of time possible, often
as far in advance as 18 months, to ensure that we could arrange our supply chain and our delivery schedule accordingly.
In 2023, now that the supply chain is back to
normal, we expect competitiveness to increase in the semiconductors industry as customers are no longer limited by supply shortages and
can diversify their product sources. We anticipate that the revenue increase rate over the full year 2023 will remain strong, albeit not
reaching the level of H1 2023 due to customers reducing orders of the current product generation as they initiate their transition towards
our new product generation, which is still in the course of development, and look to reduce stock levels of the current products accordingly.
Revenue by region
Our operations are global in scope, and we generate
revenue from selling our products and services across various regions. Our operations in North America now contribute the largest part
of our revenues (57% in H1 of 2023), having surpassed Europe which accounted for 30% of our revenues.
Our revenue by geographic region for the six months
ended June 30, 2023 and 2022 and the fiscal years ended December 31, 2022, 2021 and 2020 is set forth in the following tables:
Net sales by region |
6 months ended June 30, |
USD'000 |
2023 (unaudited) |
|
|
2022 (unaudited) |
|
North America |
8,374 |
57% |
|
6,937 |
65% |
Europe, Middle East and Africa |
4,421 |
30% |
|
2,053 |
19% |
Asia Pacific |
1,956 |
13% |
|
1,616 |
15% |
Latin America |
— |
0% |
|
50 |
0% |
Total net sales |
14,751 |
|
|
10,656 |
|
Net sales by region
USD’000
|
|
12 months ended December 31 |
|
|
2022 |
|
2022 |
|
2022 |
|
North America |
13,609 |
59% |
10,631 |
63% |
8,217 |
57% |
EMEA* |
6,777 |
29% |
4,256 |
25% |
4,506 |
32% |
Asia Pacific |
2,745 |
12% |
2,062 |
12% |
1,526 |
11% |
Latin America |
67 |
—% |
46 |
0% |
68 |
0% |
Total net sales |
23,198 |
100% |
16,995 |
100% |
14,317 |
100% |
* EMEA means Europe, Middle East and Africa |
|
|
|
|
Investment in our Supply Chain technology for
enhanced capacity
In order to meet demand from our clients and to
ensure that our production capacity is able to meet with advances in technology, we have planned a five-year capital expenditure program
that will see additional production lines added to our supply chain and allow us to expedite the delivery of orders to our clients and
switch our production to next generation semiconductors. This program started with a $2.4 million investment in the second half of 2022
and the first half of 2023 that, we believe, will lead to a further 5 million units being able to be delivered per year from July 2023,
and, we believe, up to 35 million additional units in 2026 to support our revenue growth. The execution of this plan depends on deliveries
of third-party equipment. Any delay in these deliveries may impact our future revenues.
Beyond 2023
The Groups’ parent, WISeKey has started
the launch of the WISeSat picosatellites constellation which will enable the direct connection of satellites to IoT devices for authentication,
completing the connection cycle from space to device through secure telecommunication means. Management expects that this will lead to
a new revenue stream for SEALSQ. This technology allows for identification in remote, low connectivity areas, and will rely on our semiconductors’
technology.
SEALSQ’s R&D investment in post-quantum
resistant technology is also expected to generate new revenue from next generation semiconductors starting in 2025/2026.
However, management expects 2024 to be a transition
year where the focus of customer demand will shift to the next generation of products, which is likely to impair SEALSQ’s growth
temporarily in 2024 before full production of the next generation products starts in 2025/2026.
Gross Profit
Our gross profit margin increased by 8 percentage
points from 45% in H1 2022 to 52% in H2 2023, whilst growth profit increased by 63% to $7.8 million in H1 2023, in comparison with a gross
profit of $4.8 million in H1 2022. These good results are closely linked to the 38% year-on-year increase in revenue between H1 2022 and
H1 2023, and our ability to update our pricing strategy to absorb the higher purchase costs caused by the shortage in semiconductors that
impacted our inventory in 2022.
Our gross profit increased by 38% to $9.8 million
(gross margin of 42%) in the year ended December 31, 2022 compared to 2021, and by 31% to $7.1 million (gross margin of 42%) in the year
ended December 31, 2021, in comparison with a gross profit of $5.4 million (gross margin of 38%) in the year ended December 31, 2020.
These good results are closely linked to the 36% and 19% year-on-year increase in revenue between 2022 and 2021, and between 2020 and
2021 respectively, and our ability to update our pricing strategy to absorb the changes in purchase costs and increased competition over
the coming years.
However, with the semiconductor supply chain back
to full capacity, we expect that competitiveness will increase and our gross margin will stabilize to pre-Covid levels as customers will
no longer be willing to pay a premium to secure their order and circumvent any shortages.
Operating Results and EBITDA
SEALSQ’s operating loss decreased from $0.4
million in H1 2022 to $0.3 million in H1 2023 despite one-off listing-related expenses of $0.4 million incurred in H1 2023 and expenses
in relation to the newly created Board and management services following the listing of the Group on the Nasdaq. SEALSQ was EBITDA breakeven
in H1 2023 compared with a negative EBITDA of $0.2 million in H1 2022.
For the year ended December 31, 2022, SEALSQ achieved
an operating income of $2.6 million, compared to losses of $(5.0) million and $(8.6) million for the years ended, respectively, 2021 and
2020.
The reduction in the operating loss in 2021 was
largely as a result of the impact of cost savings identified in 2020 and implemented in 2021, such as the transfer of some members of
the Research and Development team who no longer fit with the strategic direction of the SEALSQ Group, and also a reduction in the charges
paid to the WISeKey Group companies for the support time of management staff.
The additional reduction in operating expenses
in 2022 is due, in part, to a one-off credit of $1.9 million in other operating income in relation to the write-off of a liability recorded
in 2013 by the SEALSQ Group which the creditor in insolvency can no longer claim, as well as the benefit from the increased revenues and
gross margin year on year, although there is also a continued benefit from the savings made in the R&D and the S&M team as well
as a reduction in the depreciation as a result of fixed assets becoming fully written-down during the year.
SEALSQ continues to focus on reducing its cost
structure and its General and Administrative (“G&A”) costs, whilst investing in both its Sales and Marketing operations
and R&D of new products such as post-quantum cryptography and the development of its WISe.Sat proposition.
A more detailed analysis of our operating costs
is presented further below.
Net Results
The net loss of $0.9 million for H1 2023 is largely
related to non-cash and/or one-off factors including listing-related expenses of $0.4 million, deferred tax utilization of $0.3 million
and a depreciation expense of $0.3 million.
When these factors are excluded, the Group has
maintained an adjusted net loss of $0.2 million for the half year to June 30, 2023, and remains close to breakeven. This positive result
is largely explained by the 38% increase in revenue through the production capacity investment implemented since 2022 and our pricing
strategy.
SEALSQ achieved a net income of $5.8 million in
2022 in comparison to net losses of $4.8 million in 2021 and $9.2 million in 2020. Excluding the income tax credit in relation to a one-off
recognition of $3.2 million deferred tax asset, this represents an increase in net income by $7.4 million between 2021 and 2022, which
follows an increase by $4.4 million between in 2020 and 2021.
The variance was mainly linked to the reduced
operating loss discussed above but was also impacted by a significant swing in the foreign exchange results from a loss of $0.6 million
in 2020 to a gain of $0.5 million in both 2021 and 2022. This exchange gain was as a result of the relative strengthening of the U.S.
dollar against the Euro in 2021 as a significant amount of SEALSQ’s expenditure is denominated in Euros.
Consolidated Income Statement
|
Unaudited 6 months ended June 30, |
Year-on-Year
Variance |
(Million US$) |
2023 |
|
2022 |
|
|
|
|
|
|
|
|
Net sales |
14.8 |
|
10.7 |
|
38% |
Cost of sales |
(6.8) |
|
(6.1) |
|
10% |
Depreciation of production assets |
(0.2) |
|
0.2 |
|
(183%) |
Gross profit |
7.8 |
|
4.8 |
|
63% |
|
|
|
|
|
|
Other operating income |
¾
|
|
¾
|
|
125% |
Research & development expenses |
(1.5) |
|
(1.2) |
|
29% |
Selling & marketing expenses |
(2.4) |
|
(2.0) |
|
24% |
General & administrative expenses |
(4.2) |
|
(1.9) |
|
105% |
Total operating expenses |
(8.1) |
|
(5.1) |
|
55% |
Operating loss |
(0.3) |
|
(0.4) |
|
(27%) |
|
|
|
|
|
|
Non-operating income |
0.2 |
|
0.5 |
|
(62%) |
Interest and amortization of debt discount |
(0.2) |
|
(0.2) |
|
(8%) |
Non-operating expenses |
(0.3) |
|
(0.1) |
|
(177%) |
Loss before income tax expense |
(0.6) |
|
(0.2) |
|
(205%) |
|
|
|
|
|
|
Income tax income (expense) |
(0.3) |
|
¾
|
|
n/a |
Net loss |
(0.9) |
|
(0.2) |
|
(378%) |
|
12 months ended December 31, |
Year-on-Year Variance |
(Million US$) |
2022 |
2021 |
2020 |
2022 Vs 2021 |
2021 Vs 2020 |
|
|
|
|
|
|
Net sales |
23.2 |
17 |
14.3 |
36% |
19% |
Cost of sales |
(13.3) |
(9.6) |
(8.2) |
38% |
17% |
Depreciation of production assets |
(0.1) |
(0.3) |
(0.7) |
-67% |
-57% |
Gross profit |
9.8 |
7.1 |
5.4 |
38% |
32% |
|
|
|
|
|
|
Other operating income |
2.0 |
0.1 |
— |
1900% |
n/a |
Research & development expenses |
(2.3) |
(3.0) |
(4.1) |
-23% |
-27% |
Selling & marketing expenses |
(3.8) |
(4.2) |
(3.1) |
-9% |
37% |
General & administrative expenses |
(3.1) |
(5.0) |
(6.8) |
-38% |
-26% |
Total operating expenses |
(7.2) |
(12.1) |
(14) |
-40% |
-13% |
Operating income / (loss) |
2.6 |
(5.0) |
(8.6) |
-152%* |
-42% |
|
|
|
|
|
|
Non-operating income |
0.9 |
0.5 |
0.1 |
80% |
400% |
Interest and amortization of debt discount |
(0.4) |
(0.2) |
|
100% |
n/a |
Non-operating expenses |
(0.6) |
(0.1) |
(0.7) |
500% |
-86% |
Income / (loss) before income tax expense |
2.5 |
(4.8) |
(9.2) |
-152%* |
-48% |
|
|
|
|
|
|
Income tax expense |
3.3** |
— |
— |
n/a |
n/a |
Net income / (loss) |
5.8 |
(4.8) |
(9.2) |
-221%* |
-48% |
* decrease in loss and return to profit
** rounded up
Analysis of operating income and expenditure
Other operating income
In 2021, the main components of our other operating
income consisted of recharges of costs related to the use of facilities provided by SEALSQ to third parties in our premises in Meyreuil,
France.
In 2022, in addition to the recharges of costs
related to the use of facilities provided by SEALSQ to third parties, the SEALSQ Group recorded a one-off credit of $1.9 million in other
operating income in relation to the write-off of a liability recorded in 2013 by the SEALSQ Group which the creditor in insolvency can
no longer claim.
In the six months ended June 30, 2023, the other
income related to recharges of costs related to the use of facilities provided by SEALSQ to third parties in our premises in Meyreuil,
France.
Research & development expenses
Our R&D expenses include expenses related
to the research of new technology, products and applications, as well as their development and proof of concept, and the development of
further applications for our new and existing products and technology, such as new VaultIC versions, VaultiTrust and WISe.Sat. They include
salaries, bonuses, pension costs, depreciation and amortization of capitalized assets, costs of material and equipment that do not meet
the criteria for capitalization, as well as any tax credit relating to R&D activities, among others.
Our R&D expenses decreased by $1.1 million
between 2020 and 2021, and by $0.7 million in 2022. The reduction in the expenditure here is as a result of a refocusing of our R&D
efforts away from the hardware design and towards the further development of the software - SaaS- services and the embedded software of
our VaultIC element of our products. Despite this, R&D remains a large part of our operating expenses with, respectively, $2.3 million,
$3.0 million spent in the years ended December 31, 2022 and 2021, representing 25% of total operating expenses excluding other operating
income. SEALSQ being technology-driven, the level of our R&D expenses reflects our engagement to act as a leader in new cybersecurity
developments and future applications. We expect our R&D expenses to remain a significant portion of our overall expenditure as the
SEALSQ Group continues to invest in new products. Our 2022 R&D spend includes the investment already made on our future semiconductors
Quantum Technology, via the launch of our project “QUASARS” (QUAntum resistant Secure ARchitecures project). The QUASARS project,
is a radical innovative solution, based upon the new WISeKey Secure RISC V platform that is paving the way for the Post Quantum Cryptography
era, offering hybrid solutions compliant with ANSSI’s (“Agence nationale de la sécurité des systèmes
d’information,” the National Cybersecurity Agency of France) recommendations. The project has already officially received
the French SCS label (Secured Communicating Solutions) as a recognition of its quality and innovation.
Our R&D expenses in the first half of 2023
have increased as a result of the ramp-up of the QUASARS project, in particular with over $0.6M having been spent with our strategic partner
on this project. Some of this increase has been offset by an increase in the amount recoverable under tax credits for research and development
projects.
Selling & marketing expenses
Our selling & marketing expenses include advertising
and sales promotion expenses such as salaries, bonuses, pension costs, business development consultancy services, and costs of supporting
material and equipment that do not meet the criteria for capitalization, among others.
Our S&M expenses of $4.2 million for the year
ended December 31, 2021 represented an increase of $1.1 million on the prior year as a result of continued efforts to build a stronger
sales force, with an increased presence in the U.S., to support our revenue growth. We recruited 3 new members for our U.S. sales team
in 2021 and doubled the size of our European team in comparison to 2020. In 2022, our S&M expenditure of $3.8 million showed a slight
decrease of $0.4 million in comparison with the same period in the prior year because of the retirement of a senior member of our sales
team, along with an unexpected long-term absence of another senior team member.
Our S&M expenses of $2.4 million for the six
months to June 30, 2023 represented an increase of $0.4 million against the prior year and reflected the continued investments in our
sales team. Two new sales team members were recruited to work in our sales team in North America whilst a further additional resource
was hired in Taiwan to target prospective clients in this critical region. We continue to look to invest further in this area in order
to strengthen our presence in key markets and so this expense is expected to continue to rise.
General & administrative expenses
Our general and administrative (“G&A”)
expenses cover all other charges necessary to run our operations and supporting functions, and include salaries, bonuses, pension costs,
lease and building costs, insurance, legal, professional, accounting and auditing fees, depreciation and amortization of capitalized assets,
and costs of supporting material and equipment that do not meet the criteria for capitalization, among others.
Our G&A expenses decreased by 38% or $1.9
million in 2022 compared to 2021 which had itself decreased by 26% or $1.8 million compared with 2020. The decrease in 2022 is mostly
due to the end of the depreciation period of some production masks acquired in 2016 which has resulted in the decrease of our depreciation
expense by $1.1 million compared to 2021, a decrease by $0.1 million of our audit fees and the streamlining measures taken by the SEALSQ
Group, including a reduction in G&A headcount which resulted in a $0.1 million saving and a $0.2 million decrease in office rental
costs. The decrease in 2021 is due to two main factors: the reduction in the charges paid to WISeCoin R&D Lab France SAS for team
members and associated costs of this company during the period that it was not part of the SEALSQ Group, being a total of $0.6 million,
and a significant reduction in the level of management fees charged by the parent undertaking, in part due to the streamlining of the
invoicing of the U.S. sales team members.
Our G&A expenses increased by $2.1 million
in the six months ended June 2023 which his largely due to the anticipated increase in costs as a result of the growth of SEALSQ and its
listing on the Nasdaq. The costs include $0.4 million of listing-related professional fees as well as charges associated with the recharge
of the fees of Board Members, executive management and certain key staff, all of whom are employees of our parent company, WISeKey. These
charges are in line with those anticipated prior to the listing.
We will continue to challenge our G&A expenses
in future periods although increases are anticipated in certain key categories to support our growth and strategic positioning. Anticipated
costs include those relating to:
| · | Our expansion strategy with potential acquisitions, which will maintain high legal, auditing and accountancy,
and other professional G&A costs; |
| · | Employee Share Option Plan: grants to support our staff retention strategy will impact all cost categories
including G&A; and |
| · | the flexibility of our local entities: many of our staff are involved in projects covering sales &
marketing, R&D and G&A fields. Where the allocation is not straightforward, these staff have been included entirely in G&A
expenses. |
Outlook for 2023 and beyond
Now that the supply chain is back to normal, we
expect competitiveness to increase in the semiconductors industry as customers are no longer limited by supply shortages and can diversify
their product sources. We anticipate that the revenue increase rate over the full year 2023 will remain strong, albeit not reaching the
level of H1 2023 due to customers reducing orders of the current product generation as they initiate a transition towards our new product
generation, which is still in the course of development, and look to reduce stock levels of the current products accordingly.
SEALSQ has taken several initiatives to continue
growing revenue and strengthen net results. These initiatives include:
| · | Enabling companies to quickly and easily get access to Device Attestation Certificates (DACs). The service
is provided by INeS, our managed “PKI as a Service” platform without the necessity to invest and to deploy any hardware infrastructure.
Each manufacturer using the platform can manage the security lifecycle of certificates and devices in their own dedicated, cloud-based
application. We will also be offering our complete range of FIPS Certified Secure Elements with pre-provisioning of keys and DACs ready
for authentication under Matter Protocol. This strong value proposition will enable smart home device manufacturers to achieve faster
time to market through cost effective and simplified design processes when designing Matter compliant smart home products. |
| · | The development of the QUASARS project. |
| · | Planned investment in new equipment to increase the production volume of semiconductors. |
| · | The use of our technology with the WISeSaT PocketQube Satellite constellation to be deployed. |
| · | The strengthening of our Sales and Marketing team through new distribution partnerships. |
Non-GAAP financial measures
In managing the business on a consolidated basis, management develops
an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures including EBITDA and adjusted
net income . In measuring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial
measures from actions taken to reduce costs with the goal of increasing our gross margin and operating margin and when assessing appropriate
levels of research and development efforts. In addition, management relies upon these non-GAAP financial measures when making decisions
about product spending, administrative budgets, and other operating expenses. We believe that these non-GAAP financial measures, when
coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding
of the Company’s results of operations and the factors and trends affecting business. We believe that they enable investors to perform
additional comparisons of our operating results, to assess our liquidity and capital position and to analyze financial performance excluding
the effect of expenses unrelated to operations, certain non-cash expenses related to acquisitions and share-based compensation expense,
which may obscure trends in the Company’s underlying performance. This information also enables investors to compare financial results
between periods where certain items may vary independent of business performance and allows for greater transparency with respect to key
metrics used by management.
These non-GAAP financial measures are provided in addition to, and
not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The presentation of these
and other similar items in non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent,
or unusual. Reconciliations of these non-GAAP measures to the most comparable measures calculated in accordance with GAAP are provided
below.
EBITDA is defined as Operating income/(loss) for the reporting period
before depreciation and amortization for the same reporting period.
Non-GAAP to GAAP Reconciliations - SEALSQ Corp.
Financial Reconciliation of GAAP to non-GAAP Results (unaudited) |
6 months to June 30, |
6 months to June 30, |
(Million US$) |
2023 |
2022 |
Operating income/(loss) as reported |
(0.3) |
(0.4) |
Non-GAAP adjustments |
|
|
Depreciation expense |
0.3 |
0.2 |
EBITDA |
¾ | (0.2) |
|
|
|
Net income/(loss) attributable to WISeKey as reported |
(0.9) |
(0.2) |
Non-GAAP adjustments from continuing operations: |
|
|
Depreciation expense |
0.3 |
¾ |
Listing-related professional fees |
0.4 |
¾ |
Adjusted net income/(loss) attributable to WISeKey |
(0.2) |
(0.2) |
Impact of COVID-19 on our Business
COVID-19 and prolonged economic
uncertainties or downturns adversely affected our business in previous years and could materially adversely affect our business
in the future.
Our business depends on our current and
prospective customers’ ability and willingness to spend money in security applications, and on our suppliers’ ability to
source key components and material, which are both in turn dependent upon the overall economic health. Global negative economic
conditions due to the COVID-19 pandemic caused some of our customers to delay their orders, in the year 2020 in particular, and
caused a global shortage in semiconductors’ material sourcing which continued through the years 2021, 2022 before alleviating
in 2023. Further economic uncertainties have been brought on by the current conflict between Russia and Ukraine, as well as that
between Israel and Hamas, which may also further affect the sourcing of certain materials. Although we do not have any customer
exposure in these regions, the overall economic impact of this conflict is still unknown. Many customers and prospects of SEALSQ are
manufacturers of electronic devices. Our business depends on their ability to produce their devices. If they encounter shortages in
the supply of crucial components, they will slow down the production and thus also reduce their orders of our semiconductors to
avoid idle stocks in their just-in-time provisioning.
As a result of the overall impact of COVID-19,
political tensions, conflicts and other conditions resulting from financial and credit market fluctuations, there could be a decrease
in corporate spending on information security software. Continuing economic challenges may cause our customers to re-evaluate decisions
to purchase our solution or to delay their purchasing decisions, which could adversely impact our results of operations.
Critical Accounting Policies
The discussion and analysis of our financial condition
and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect
significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions.
We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods
of their application. For a description of all of our significant accounting policies, see Note 4 to our consolidated financial statements
included elsewhere herein.
Use of Estimates
The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions. We believe these estimates, judgements
and assumptions are reasonable, based upon information available at the time they were made. These estimates, judgments and assumptions
can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of
revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions
and the actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular
transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also
areas in which management’s judgment in selecting from available alternatives would not produce a materially different result.
Inventories
Inventories are stated at the lower of cost or
net realizable value. Costs are calculated using standard costs, approximating average costs. Finished goods and work-in-progress inventories
include material, labor and manufacturing overhead costs. SEALSQ records write-downs on inventory based on an analysis of obsolescence
or a comparison to the anticipated demand or market value based on a consideration of marketability and product maturity, demand forecasts,
historical trends and assumptions about future demand and market conditions.
Revenue Recognition
SEALSQ’s policy is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve that core principle, SEALSQ applies the following steps:
Step 1: Identify the contract(s) with a customer. |
|
Step 2: Identify the performance obligations in the contract. |
|
Step 3: Determine the transaction price. |
|
Step 4: Allocate the transaction price to the performance obligations in the contract. |
|
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
Revenue is measured based on the consideration
specified in a contract with a customer and excludes amounts collected on behalf of third parties. We typically allocate the transaction
price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or service promised
in the contract. If a standalone price is not observable, we use estimates.
SEALSQ recognizes revenue when it satisfies a
performance obligation by transferring control over goods or services to a customer. The transfer may be done at a point in time (typically
for goods) or over time (typically for services). The amount of revenue recognized is the amount allocated to the satisfied performance
obligation. For performance obligations satisfied over time, the revenue is recognized over time, most frequently on a pro rata temporis
basis as most of the services provided by SEALSQ relate to a set performance period.
If SEALSQ determines that the performance obligation
is not satisfied, it will defer recognition of revenue until it is satisfied. We present revenue net of sales taxes and any similar assessments.
SEALSQ delivers products and records revenue pursuant
to commercial agreements with its customers, generally in the form of an approved purchase order or sales contract.
Where products are sold under warranty, the customer
is granted a right of return which, when exercised, may result in either a full or partial refund of any consideration received, or a
credit that can be applied against amounts owed, or that will be owed, to SEALSQ. For any amount received or receivable for which we do
not expect to be entitled to because the customer has exercised its right of return, we recognize those amounts as a refund liability.
Pension Plan
In 2020, the Group maintained two defined benefit
post retirement plans:
- one for the employees of WISeKey Semiconductors SAS, and
- one for the employees of WISeCoin France R&D Lab SAS.
In 2021, 2022 and 2023, following the transfer
of WISeCoin France R&D Lab SAS’ assets and liabilities to WISeKey Semiconductors SAS and the dissolution of WISeCoin France
R&D Lab SAS in 2021, the Group only maintained one defined benefit post retirement plan for the employees of WISeKey Semiconductors
SAS. In accordance with ASC 715-30, Defined Benefit Plans – Pension, the SEALSQ Group recognizes the funded status of the
plan in the balance sheet. Actuarial gains and losses are recorded in accumulated other comprehensive income / (loss).
Income Taxes
Taxes on income are accrued in the same period
as the revenues and expenses to which they relate.
Deferred taxes are calculated on the temporary
differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of our companies prepared
for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where SEALSQ has
plans to permanently reinvest profits into the foreign subsidiaries.
Deferred tax assets on tax loss carry-forwards
are only recognized to the extent that it is “more likely than not” that future profits will be available and the tax loss
carry-forward can be utilized.
Changes to tax laws or tax rates enacted at the
balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable
in the period when the deferred tax assets or tax liabilities are realized.
SEALSQ is required to pay income taxes in a number
of countries. SEALSQ recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that
the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that
is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position and
all relevant facts. SEALSQ adjusts its recognition of these uncertain tax benefits in the period in which new information is available
impacting either the recognition or measurement of its uncertain tax positions.
Research Tax Credits
Research tax credits are provided by the French
government to give incentives for companies to perform technical and scientific research. Our subsidiary, WISeKey Semiconductors SAS,
is eligible to receive such tax credits.
These research tax credits are presented as a
reduction of R&D expenses in the income statement when companies that have qualifying expenses can receive such grants in the form
of a tax credit irrespective of taxes ever paid or ever to be paid, the corresponding research and development efforts have been completed
and the supporting documentation is available. The credit is deductible from the entity’s income tax charge for the year or payable
in cash the following year, whichever event occurs first. The tax credits are included in noncurrent deferred tax credits in the balance
sheet in line with ASU 2015-17.
Quantitative and Qualitative Disclosures about
Market Risk
SEALSQ is exposed to market risks primarily related
to foreign currency exchange rates and commodity prices. SEALSQ is not exposed to interest rate risks because all its financial instruments
have fixed interest rate terms. As at December 31, 2022, all of SEALSQ’s market risk sensitive instruments are held by entities
with U.S. Dollar as the functional currency so the level of risk is currently considered as fully mitigated.
Foreign currency exchange rate risk
We operate worldwide and as such are exposed to
currency fluctuation risks. Although the majority of our sales, purchase and financial operations are denominated in our reporting currency,
the U.S. Dollar, some sales and financing contracts are denominated in other currency, and especially in the currency of our French subsidiary,
the Euro.
Fluctuations in the exchange rates between the
U.S. Dollar and other currencies may have a significant effect on both the Company’s results of operations, including reported sales
and earnings, and the Company’s assets, liabilities and cash flows. This, in turn, may affect the comparability of period-to-period
results of operations.
We do not currently hedge against foreign currency
fluctuation.
The table below shows the variation in foreign
exchange rates used to prepare our financial statements for the six months ended June 30, 2023 and 2022 and the financial years ended
December 31, 2022, 2021 and 2020.
|
|
|
6 months ended June 30, |
|
|
|
|
|
2023 |
|
2022 |
|
Year-on-Year Variance |
Foreign currency to U.S. Dollar |
|
Closing rate |
6-month Average rate |
|
Closing rate |
6-month Average rate |
|
Closing rate |
6-month Average rate |
Swiss Franc |
CHF:USD |
|
1.117604 |
1.096287 |
|
1.046704 |
1.059902 |
|
6.77% |
3.43% |
Euro |
EUR:USD |
|
1.091776 |
1.081586 |
|
1.046574 |
1.094156 |
|
4.32% |
-1.15% |
Japanese Yen |
JPY:USD |
|
0.006920 |
0.007425 |
|
0.007366 |
0.008165 |
|
-6.05% |
-9.06% |
Taiwanese Dollar |
TWD:USD |
|
0.032095 |
0.032739 |
|
0.033633 |
0.034884 |
|
-4.57% |
-6.15% |
|
|
|
12 months ended December 31, |
|
|
|
|
|
2022 |
|
2021 |
|
Year-on-Year Variance |
Foreign currency to U.S. Dollar |
|
Closing rate |
12-month Average rate |
|
Closing rate |
12-month Average rate |
|
Closing rate |
12-month Average rate |
Swiss Franc |
CHF:USD |
|
1.081761 |
1.048220 |
|
1.096726 |
1.094197 |
|
-1.36% |
-4.20% |
Euro |
EUR:USD |
|
1.073231 |
1.054283 |
|
1.137651 |
1.183361 |
|
-5.66% |
-10.91% |
Japanese Yen |
JPY:USD |
|
0.007633 |
0.007663 |
|
0.008687 |
0.009116 |
|
-12.13% |
-15.94% |
Taiwanese Dollar |
TWD:USD |
|
0.032642 |
0.033655 |
|
0.036081 |
0.035814 |
|
-9.53% |
-6.03% |
|
|
|
12 months ended December 31, |
|
|
|
|
|
|
2021 |
|
2020 |
|
Year-on-Year Variance |
Foreign currency to U.S. Dollar |
|
Closing rate |
12-month
Average rate |
|
Closing rate |
12-month
Average rate |
|
Closing rate |
12-month
Average rate |
Swiss Franc |
CHF:USD |
|
1.096726 |
1.094197 |
|
1.130846 |
1.066001 |
|
-3.02% |
2.65% |
Euro |
EUR:USD |
|
1.137651 |
1.183361 |
|
1.222811 |
1.141357 |
|
-6.96% |
3.68% |
Japanese Yen |
JPY:USD |
|
0.008967 |
0.009221 |
|
0.00969 |
0.009367 |
|
-7.46% |
-1.56% |
Taiwanese Dollar |
TWD:USD |
|
0.036081 |
0.035814 |
|
0.035602 |
0.033968 |
|
1.35% |
5.43% |
We do not operate in countries experiencing hyperinflation
and assessed the impact of inflation as immaterial to our financial statements.
Commodity price risk
The Company has only a very limited exposure to
price risk related to anticipated purchases of certain commodities used as raw material. Our raw material inventory was $3,182,000 as
at June 30, 2023. A change in those prices may affect our gross margin, however because the inventory balance is relatively small in comparison
with our total assets, the Company does not enter into commodity futures, forwards or any other hedge instrument to manage fluctuations
in prices of anticipated purchases.
Implications of Being an Emerging Growth Company
We had less than $1.07 billion in revenue during
our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business
Startups Act, or JOBS Act. An emerging growth company may take advantage or specified reduced reporting and other burdens that are otherwise
applicable generally to public companies. These provisions include:
| · | exemption from the auditor attestation requirement in the assessment of the emerging growth company’s
internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act; |
| · | exemption from new or revised financial accounting standards applicable to public companies until such
standards are also applicable to private companies; and |
| · | exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight
Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would
be required to provide additional information about the audit and financial statements. |
We may take advantage of these provisions until
the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an
emerging growth company. We will cease to be an emerging growth company if, among other things, we have more than $1.07 billion in “total
annual gross revenues” during the most recently completed fiscal year. We may choose to take advantage of some, but not all, of
these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders
may be different from information provided by other public companies. We are choosing to “opt out” of the extended transition
period relating to the exemption from new or revised financial accounting standards and as a result, we will comply with new or revised
accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. Section
107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting
standards is irrevocable.
BUSINESS
History and Development of the Company
SEAL (BVI) Corp. was incorporated
in the British Virgin Islands pursuant to the BVI Business Companies Act 2004 on April 1, 2022 with Company Number 2095496. We changed
our name to SEALSQ Corp on November 15, 2022. We are a company of unlimited duration with liability limited by shares under the laws of
the British Virgin Islands. We are registered under the company name “SEALSQ Corp” and have our registered office at Craigmuir
Chambers, Road Town, Tortola, VG 1110, British Virgin Islands and principal executive offices and place of effective management at Avenue
Louis-Casaï 58, 1216 Cointrin, Switzerland.
SEALSQ Corp. is the holding
company of the SEALSQ Group. The SEALSQ Group consists of SEALSQ Corp, WISeKey Semiconductors SAS, WISeKey IoT Japan KK and WISeKey Semiconductors,
Taiwan Branch. Our business purpose is to incorporate, acquire, hold, and dispose of interests in national and international entities,
in particular entities active in the area of security technology of IoT devices, branded appliances and precious objects, and other such
related areas. Our address on the Internet is http://www.SEALSQ.com. The information on our website is not incorporated by reference in
this registration statement.
Prior to the Spin-Off Distribution,
the Company was a wholly-owned subsidiary of WISeKey International Holding AG (“WISeKey”), a Swiss stock corporation (Aktiengesellschaft)
of unlimited duration under the laws of Switzerland and registered in the Commercial Register of the Canton of Zug, Switzerland, on December
2, 2015 under the register number CHE-143.782.707.
Pursuant to the Internal Restructuring
of WISeKey, WISeKey transferred the ownership of WISeKey Semiconductors SAS (formerly known as VaultIC SAS), a French semiconductor manufacturer
and distributor, WISeKey IoT Japan KK, a Japan-based sales subsidiary of WISeKey Semiconductors SAS, and WISeKey Semiconductors, Taiwan
Branch, a Taiwan-based sales and support branch of WISeKey Semiconductors SAS, to SEALSQ on January 1, 2023 in a share exchange for an
aggregate consideration of USD 18.0 million in value. Thereafter, on May 23, 2023, pursuant to the Spin-Off Distribution, WISeKey distributed
20% of SEALSQ’s outstanding Ordinary Shares to holders of WISeKey Class B Shares, including to holders of ADSs representing WISeKey
Class B Shares, and to holders of WISeKey Class A Shares, as a distribution by way of a dividend in kind to such holders who held Class
B Shares and Class A Shares as of the May 19, 2023 record date, and who held ADSs as of the May 22, 2023 record date, for the Spin-Off
Distribution. WISeKey was deemed to have acted as a statutory underwriter in connection with the Spin-Off Distribution.
WISeKey Semiconductors SAS
was incorporated in France on September 30, 2010 and was acquired by WISeKey International Holding AG on September 21, 2016 for a total
consideration of USD 11.0 million.
On March 15, 2020, WISeKey
Semiconductors SAS purchased the entire share capital of WISeCoin R&D Lab France SAS, a French company engaged in research and development
in the connected device and IoT security domain, from WISeCoin AG, a fellow undertaking of WISeKey, for a notional consideration of EUR
1. On January 1, 2021, the entire assets and liabilities of WISeCoin R&D Lab France SAS were merged into WISeKey Semiconductors SAS
and WISeCoin R&D Lab France SAS was dissolved with immediate effect.
WISeKey Semiconductors SAS
purchased the entire share capital of WISeKey IoT Japan KK on April 15, 2019 from WISeKey SA, a fellow subsidiary undertaking of WISeKey
International Holding AG for a nominal consideration of JPY 1. WISeKey Semiconductors SAS completed the transfer of WISeKey Semiconductors,
Taiwan Branch, on March 4, 2019 from WISeKey International Holding AG for no consideration.
After completion of the Spin-Off
Distribution, WISeKey International Holding AG initially held 100% of the Class F Shares and 80% of the Ordinary Shares. Following issuances
of Ordinary Shares upon conversions of Notes held by L1 Capital Global Opportunities Master Fund Ltd and Anson Investments Master Fund
LP, further details of which are contained in the section titled “Business-Material Contracts-Convertible Note Financing”,
WISeKey International Holding AG now holds 100% of the Class F Shares and approximately 35% of the Ordinary Shares. SEALSQ is reserving
up to 5% of its Class F Shares for issuance pursuant to an F Share Option Plan for certain directors and senior management of SEALSQ,
its subsidiaries and its parent. As a result, WISeKey’s initial ownership percentage of Class F Shares is subject to the grant and
exercise of SEALSQ Class F Share Options from time to time. For a description of the Ordinary Shares and the Class F Shares, see “Description
of Shares.” WISeKey has informed us that it is considering whether to implement a mechanism by which holders of WISeKey Class B
Shares would be able to exchange some of their WISeKey Class B Shares for WISeKey Class A Shares and/or for SEALSQ Class F Shares that
WISeKey holds, subject to certain contractual and regulatory limitations (including compliance with applicable takeover laws and regulations),
and limitations that may be imposed by the WISeKey or SEALSQ boards of directors. Any such conversions would reduce WISeKey’s percentage
ownership of SEALSQ Class F Shares. Our Articles provide that, in the event of a change of control (being the acquisition by any person
or entity, alone or jointly, of more than 50% of the voting rights of any Class F Shareholder which is a corporate entity), as determined
by SEALSQ’s board of directors, the Class F Shares owned by such Class F Shareholder will be subject to a mandatory and automatic
redemption by SEALSQ in exchange for the issuance of new Ordinary Shares at a ratio of five (5) Ordinary Shares for each one (1) Class
F Share redeemed. A change in the control of WISeKey would trigger this provision as it is a corporate entity holding Class F Shares.
Upon completion of a mandatory redemption, the remaining Class F Shareholders, who are likely to be members of SEALSQ’s executive
management, would hold shares with 49.99% of the Company’s voting power. The mandatory redemption of such Class F Shares, and the
issuance of five (5) Ordinary Shares for each one (1) Class F Share redeemed, would result in a dilution of the per share voting power
of the holders of our Ordinary Shares. See the section titled “Description of Shares” for a description of the mandatory redemption
feature.
The following diagram depicts
our organizational structure as of the date of this prospectus:
![](https://www.sec.gov/Archives/edgar/data/1951222/000119380524000219/image_002.jpg)
* Subject to the grant and
exercise of Class F Share Options as described above.
Business Overview
Our mission at SEALSQ is to
pioneer the integration of digital trust into the physical world. We create a harmonious blend of the tangible and intangible, leveraging
tamperproof semiconductors and sophisticated managed cryptography. Our role as an OEM supplier of cybersecurity to IoT device manufacturers,
branded appliance producers, and makers of valuable objects, positions us at the forefront of digital protection and authentication.
Our Solution: Harnessing Cybersecurity,
Post-Quantum Semiconductors , IoT and AI to Enhance Trust in the Physical and Cyber World
SEALSQ stands at the intersection
of physical and cyber trust, offering unparalleled assurance in an increasingly interconnected world. Our brand epitomizes digital comfort,
trust, and a secure culture, protecting citizens, consumers, and professionals daily. At the heart of our offerings is the innovative
integration of Cybersecurity, Semiconductors, Post-Quantum IoT and artificial intelligence (AI), elevating our solutions to new heights
of security and reliability. Through AIoT (Artificial Intelligence of Things), we're transforming technology, utilizing IoT-generated
data, protected and authenticated by our innovative technology, to enable AI-driven predictive insights and operational enhancements.
This integration is a major step in the AIoT revolution, setting new standards in smart technology.
AI-Enhanced Secure Elements:
Our engineering teams expertly blend analog and digital countermeasures, forming the core DNA of our Secure Elements. These elements are
constantly monitored and updated using Root of Trust and AI algorithms, allowing us to stay ahead of emerging cyber threats. AI's predictive
capabilities enable us to anticipate and thwart new generations of attacks devised by cyber hackers, ensuring our clients' devices remain
impregnable.
Intelligent Provisioning and
Personalization Platform: Our platform utilizes AI to manage the creation of digital keys and certificates. This AI-driven approach ensures
a more efficient, secure, and error-free process, significantly enhancing the reliability of certificate injection into our Secure Elements.
The intelligent system dynamically adapts to evolving security needs, providing personalized security solutions tailored to each customer's
unique requirements.
Root Certificate Authority
with AI Verification: Our Global Root Certificate Authority is since 1999 at the forefront of digital identity security, leveraging AI
to guarantee the uniqueness and authenticity of the digital identities we generate for our customers. AI algorithms enhance the verification
process, detecting anomalies and ensuring the integrity of each digital identity, thereby fortifying the trust in our digital certificates.
Our products and infrastructures
are not only engineered with cutting-edge technology but also undergo rigorous testing and certification by third-party labs, achieving
the highest industry standards. The addition of AI into our processes not only augments the security of our products but also elevates
their efficiency and adaptability, keeping our clients one step ahead in a rapidly evolving digital landscape. This AI integration underlines
our commitment to providing robust, future-proof solutions in the realm of physical and cyber trust.
Our diverse client base employ
our solutions across a broad spectrum of applications. These range from securing artworks, medical supplies, and access tokens, to safeguarding
advanced technology such as personal health monitors, industrial controllers, IT servers, and more. Our products play a crucial role in
combating counterfeit, unauthorized imports, and theft, while ensuring the safety of connected devices in remote and unmonitored environments
from threats like manipulation, disruption, and data breaches.
We are excited to announce
the implementation of the QUASARS (QUAntum resistant Secure ArchitectureS) project, built on the new WISeKey Secure RISC V platform. This
project marks a significant leap into the Post Quantum Cryptography era, offering hybrid solutions that align with the recommendations
of France's National Cybersecurity Agency (ANSSI). The French SCS Cluster's endorsement of our QUASARS project further underscores our
leading role in semiconductor innovation, particularly in enhancing AI performance.
The significant growth of
the IoT market, as reported by IoT Analytics4,
highlights the increasing significance of IoT in our digital world. SEALSQ’s AIoT systems, encompassing both cloud-based and edge-based
solutions, cater to diverse operational needs, from deep predictive analysis to real-time data processing. Our AIoT solutions are making
significant impacts across industries, including smart cities, healthcare, and cybersecurity.
The IoT cybersecurity market
presents enormous potential, with a rapidly growing number of connected devices and an increasing awareness of the need for robust security
measures. Our business strategy focuses on expanding our product range, growing our global customer base, leveraging partnerships, and
deepening our penetration in existing markets. This strategy is underpinned by our commitment to innovation, particularly in the development
of next-generation Secure Elements and Crypto Processors capable of running Post-Quantum algorithms.
SEALSQ is at the vanguard
of integrating digital trust into the physical realm, offering cutting-edge cybersecurity solutions for a wide array of applications,
and leading the way in the evolution of AIoT and the Web 3.0 era. Our focus on innovation, market expansion, and partnership leverage
positions us to capitalize on the vast opportunities presented by the rapidly evolving digital landscape.
The addressable market for
IoT cybersecurity is massive: more than 12 billion IoT devices were connected in 2021 and this number is expected to grow to 29 billion
units in 2027 with CAGR of 16% according to IoTAnalytics5.
McKinsey predict an annual US$12.6 trillion in economic value by 2030.6
As it stands, many of the
currently deployed IoT devices lack any serious form of security: the devices contain weaknesses that can easily be exploited, and the
vast majority of data transmission is left unprotected. Regulatory and legislative pressure in combination with the rising danger of ransomware
and other types of attacks, however, will force IoT customers to adopt solid cybersecurity practices and techniques.
4
“State of IoT 2023”, IOT Analytics, May 2023
5
“State of IoT 2023”, IOT Analytics, May 2023
6
“IoT value set to accelerate through 2030”, McKinsey, November 2021
An increase in cyber threats
targeting critical infrastructure systems is one reason ABI Research forecasts that Authentication IC (Integrated Circuit), our core market,
will be at the center of IoT cybersecurity. ABI Research also anticipates that the global market size of the Authentication IC will grow
from 0.3 billion in 2022 to 1 billion in 2026 at a CAGR of 57.1%.7
In the early days of digital payments and digital id-cards, SEALSQ pioneered with top-notch security using tamperproof hardware tokens
and public key cryptography. After our technology found its way in physical and logical access control, firewalls and payment terminals,
it is now found in connected devices and branded appliances.
While analysts expect the
market of secure hardware to grow to more than 5 billion units in 20248,
there are only a handful of suppliers in the world. SEALSQ differs from pure semiconductor suppliers by its managed personalization and
lifecycle. It is our unique symbiosis between tamperproof semiconductors and managed cryptographic personalization that anchor digital
trust in physical objects.
In fact, this is the hard
problem in the market to be solved. Having an empty security shell does not offer trust. It is through our key management platform that
we help our direct customers and end customers build digital trust to the physical world. Our platform pairs physical semiconductors (and
therefore the devices and objects they are bolted on) with their digital equivalent.
We sell into all industries
and to companies of varying sizes, both vendors of appliances and end customers. We sold more than 1 billion semiconductors and we have
customers that bought more than 100 million of our high-end semiconductors. In the year ended December 31, 2022, our top ten customers
represented 90% of our revenue. As of December 31, 2022, we have sold to over 175 customers in over 35 countries since our acquisition
by WISeKey in 2016.
An increase in cyber threats
targeting critical infrastructure systems is one reason ABI Research forecasts that secure hardware modules, our core market, will be
at the center of IoT cybersecurity. ABI Research also forecasts that the global market size of secure hardware modules will grow from
$0.8 billion in 2022 to $1.2 billion in 2026 at a CAGR of 10%.9
Our current focus on R&D
extends our portfolio along the following technological evolutions:
| · | the QUASARS (QUAntum resistant Secure ARchitectureS) project, a radical innovative solution, based upon
the new WISeKey Secure RISC V based platform that is paving the way for the Post Quantum Cryptography era, with hybrid solutions compliant
to ANSSI (“Agence Nationale de la Sécurité des Systèmes d’Information”, the National Cybersecurity
Agency of France) recommendations. |
| · | silicon techniques to bolt our secure vault to general purpose processors in a certifiable tamperproof
way, |
| · | software techniques to secure and automate the onboarding of a connected device with a platform in a cloud, |
| · | cryptographic techniques to combine post-quantum attack resistance with our side channel attack resistance
in a certifiable way, |
| · | ledger and blockchain techniques to offer a transparent, immutable, and cryptographically verifiable journal
of our lifecycle management, |
| · | a cryptocurrency protocol designed to enable internet-connected devices to autonomously engage in seamless
data and currency exchanges (SEALCOIN), |
| · | countermeasure techniques to stay ahead of the cyberattack evolutions, and |
| · | in partnership with FOSSA and WISeKey, the launch of the WISeSat constellation, picosatellites, manufactured
by FOSSA, will enable the direct connection of satellites to IoT devices for authentication, completing the connection cycle from space
to device through secure telecommunication means. This technology allows for identification in remote, low connectivity areas. |
7
“Embedded Security for the IoT”, ABI Research, January March 2020.
8
“Digital Authentication and Embedded Security”, ABI Research, February 2020
9
“Hardware Security Modules”, ABI Research, January 2022
While our current products
serve our current markets well, we believe the products resulting from our R&D will create additional opportunities in upgrade markets,
in different sectors, and in new applications of our technology in innovating markets.
If our efforts to attract
prospective customers and to retain existing customers are not successful, our growth prospects and revenues may be adversely affected.
Please refer to “Risk Factors—Risks Related to Our Business” for a discussion of such risks and information that should
be considered before making an investment decision with respect to our Ordinary Shares.
For the years ended December
31, 2021, and 2022, our revenue was $17.0 million and $23.2 million, respectively, representing year on year growth of 36%. For the years
ended December 31, 2021 and 2022, our net result went from a loss of $4.8 million to an income of $5.8 million respectively.
The Trusted Internet of Things,
or IoT, is poised to disrupt the semiconductor industry at industrial and business levels. IoT devices transform almost all products into
smart devices, from irrigation systems to luxury products to pharma and clothing. Retail, health, bioscience, consumer-based products,
and industrial IoT are all in high demand.
With the growing demand for
IoT solutions comes tremendous potential for profit. The McKinsey Global Institute estimates that IoT applications will generate between
$5.5 trillion and $12.6 trillion globally in 203010.
This growth presents enormous opportunities and challenges for the semiconductor industry.
Perhaps the biggest challenge
facing the semiconductors industry is that IoT chips will change the kinds of semiconductors the industry has to make, demanding new manufacturing
processes and techniques from chip manufacturers to produce smaller chips that consume less power.
SEALSQ uses a unique method
to secure semiconductors designed by the Company through cutting-edge authentication processes combined with post-quantum technology and
third-party identity blockchains, which together with on-the-ground measures ensures the authenticity of the original IoT and generates
its correspondent digital twin.
SEALSQ uses a patented method
to digitally certify the authenticity of a physical object of value. The method includes a storage device, a digital certificate of authenticity
(encrypted information reflecting at least one characteristic unique to the physical object, checking, whenever required, the validity
of the digital certificate of authenticity by use of a network computer), the network computer cooperating with the storage device and
a validating or a certifying authority so as to output sensibly in real time the status of validity of the digital certificate of authenticity,
and the ability to modify it, whenever required.
With a rich portfolio of
40 patent families, covering over 110 fundamental individual patents, and another 12 patents under review, SEALSQ continues to
expand its platform use in various domains. SEALSQ Semiconductors already secures millions of objects: luxury products, high-end
watches, routers, gateways, utilities meters, drones, authentication dongles, storage memory USB sticks, medical devices, connected
door-locks, electronic consumers devices etc. These semiconductors include Digital Identification technology, such as Keys,
Certificates or NFTs, that secures, authenticates, and proves ownership of digital and tangible assets. We believe that the
combination of Digital Identification with NFT will be a game changer in proving ownership of digital tangible assets.
The SEALSQ team of experts
is working with NIST candidates for the MS600X Common Criteria products: Crystals-Kyber for key exchange mechanism and Crystals-Dilithium
for signatures. The partnership is focusing on the practical implementation aspects of algorithms, considering physical side-channel attack
and deep learning processes. This work completes the implementation of two algorithms short-listed by the NIST that the team has already
studied, paving the way for a complete post-quantum cryptography toolbox.
Post-quantum cryptography
(PQC) refers to cryptographic methods that are secure against an attack by a quantum computer. As quantum computers become more powerful,
they may be able to break many of the cryptographic methods that are currently used to protect sensitive information, such as Rivest-Shamir-Aelman
(RSA) and Elliptic Curve Cryptography (ECC). PQC aims to develop new cryptographic methods that are secure against quantum attacks. One
example of a post-quantum technology is lattice-based cryptography. It is a type of public-key cryptography that is based on the hardness
of a mathematical problem called the Shortest Vector Problem (SVP) which is thought to be too difficult for a quantum computer to solve.
Lattice-based cryptography can be used for tasks such as digital signatures, key exchange, and encryption. Another example is code-based
cryptography which is based on the difficulty of decoding certain algebraic structures called error-correcting codes. These codes can
be used to create digital signatures, key exchanges, and encryption schemes that are secure against quantum attacks.
10
“The Internet of Things: Catching up to an Accelerating Opportunity”, McKinsey Global Institute, November 2021
This post-quantum cryptography
toolbox will help to protect against the security threat posed by quantum computers, allowing hybrid solutions by no later than 2025 as
recommended by the French ANSSI. In addition to this, SEALSQ plans to upgrade its PKI offer, adding new post-quantum features for the
IoT market: Secure authentication, Brand protection, Network communications, future FIDO (“Fast Identity Online”) evolutions
and additional generally web-connected smart devices that obtain, analyze, and process the data collected from their surroundings. SEALSQ
is executing this project under the name “QUASARS” (QUAntum resistant Secure ARchitectureS.).
SEALSQ is also working with
NIST to define recommended practices for performing trusted network-layer onboarding, which will aid in the implementation and use of
trusted onboarding solutions for IoT devices at scale. The SEALSQ contribution to the project will be Trust Services for credentials and
secure semiconductors to keep credential secure. Specifically, SEALSQ will offer INeS Certificate Management Service (CMS) for issuing
credentials and VaultIC secure semiconductors to provide tamperproof key storage and cryptographic acceleration.
While quantum computing offers
endless perspectives to incredibly increase computing power, hackers will take advantage of this technology to crack cryptography algorithms,
corrupt cybersecurity and compromise global economy. Research about quantum computing, namely how to use quantum mechanical phenomena
to perform fast computation, was initiated in the early 1980s. The perspectives and unbelievable performances offered by this promising
technology are so huge that many countries are sponsoring public/private R&D initiatives.
SEALSQ via its parent company
WISeKey brings its decades of expertise in designing Common Criteria EAL5+ and FIPS 140-2 Level 3 certified hardware-based secure elements
(MS600x secure microcontrollers, VaultICTM, etc.) and in developing hacker resistant firmware. The new algorithms to be evaluated will
first have to practically run on SEALSQ’s existing and new hardware architectures. The Company will also share its expertise in
deep learning AI (Artificial Intelligence) techniques to prove the robustness of the implementations.
Our semiconductors are used
for securing supply chain management of critical goods by integrating IoT devices communicating with picosatellites launched by parent
company WISeKey and now part of the SEALSQ Platform. SEALSQ security semiconductors are being used to protect different types of IoT devices
such as satellites and their captured images and communications from agriculture and logistics sensors. This product leverages the extensive
reach of the picosatellites and their ability to connect to low energy IoT devices and combines it with the immutability of data and smart
contracting feature of the third-party Casper blockchain to offer unique benefits to the supply chain management industry. You can now
track the data of your goods in transit such as environmental conditions, geo-location, etc. in a reliable manner, and also make logistic
processes more efficient using the smart contracting feature offered by Casper blockchain.
Our semiconductors, when placed
on any object, can securely link the object to NFTs, enabling authentication and tracking of the object. This model is much like an embedded
ePassport, and confirm the identity of the object on the Blockchain ledger. This digital identity, used throughout the object’s
lifetime, allows the object to become a “Trusted Object” of the Internet, and enables proof of its identity and provision
of related verifiable data. As such, SEALSQ IoT and data analytics help supply chain managers make decisions on their objects and prevent
possible accidents or other delay-inducing occurrences that happen on the way.
SEALSQ itself does not offer
any NFTs or blockchain service, and does not use any third-party blockchain for operating its business. SEALSQ’s NFT-related business
is to provide its security – related services, Secure Element, to customers in the form of security-enhanced semiconductors. SEALSQ
does not provide any technology or services in the management of the NFT creation or the distribution of NFTs. The Secure Element service
that SEALSQ provides enables SEAL’s customers to create and maintain a secure link between an object and its NFT (issued by a SEALSQ
customer that purchases SEALSQ semiconductors) that is stored in a blockchain.
The supply chain is already
benefiting from the billions of SEALSQ secure chips that are already embedded in high-tech products and goods to protect data, communication,
and firmware against cyberattacks. This includes routers, modems, energy-smart meters, drones, and medical devices, to mention a few.
By combining the secured IoT devices with the immutability and smart contracting features offered by third-party blockchains such as the
Casper blockchain, the logistic processes can be greatly improved and automated as the data on-chain can now be trusted for further processing
without third-party intervention.
Combining the power of SEALSQ
semiconductors with the ability of these secured IoT devices to communicate with the picosatellites that aim to cover every spot on the
planet with a maximum latency of 10mins, and the immutability and smart contracting provided by third-party blockchains such as the Casper
blockchain, the new product is set to disrupt the supply chain management. The IoT devices are no longer dependent on the cellular networks
and the data sent via the satellites are authenticated through WISeID. We believe this is going to make a significant difference to the
supply chains of critical goods where environmental conditions and security of the goods being shipped are extremely critical e.g., blood,
organs, or vaccines.
IoT applications cannot work
without security, sensors and integrated microchips so all IoT devices will require semiconductors connected to secure platforms. The
smartphone market, which has driven growth in the semiconductor industry for years, has begun to level off. The IoT market could represent
new revenue for semiconductor manufacturers, allowing the semiconductor industry to maintain an average annual growth of 3% to 4% for
the foreseeable future.
IoT devices will increase
demand for sensors, connectivity, memory, microcontrollers, and integrated circuits, which could put pressure on the existing semiconductor
supply chain. Semiconductor manufacturers that choose to meet IoT demands now will be well positioned to take advantage of this developing
market.
SEALSQ semiconductors are
designed for securely storing cryptographic secrets and providing cryptographic functions that use the secrets. The end result is that
the secret stays securely stored on the semiconductor while it is being used in cryptographic calculations.
The following steps illustrate
the link between our semiconductors and an NFT.
| 1. | First verify the product that the NFT links to. This is an essential step to ensure the resulting NFT
retains its provenance, authenticity, and long-term value. |
| 2. | Next the identity of the secure VaultIC semiconductor is established. This identity is in the form of
a unique public private key pair that is embedded in the secure VaultIC semiconductor. |
| 3. | The resulting product information is combined into a patent pending format that ensures that the resulting
NFT is not corrupted, incomplete, or ambiguous. |
| 4. | The NFT blockchain address is then obtained (NFT may need to be created). |
| 5. | The Blockchain address is combined with the VaultIC identity and a PKI certificate is created. |
| 6. | The certificate is written back to the secure VaultIC semiconductor and the off-chain storage. |
After these steps, the physical
item contains two immutable identities that are cryptographically linked, one from the secure semiconductor and it’s PKI certificate,
the other from the Blockchain.
The objective for rigorously
following these steps is to minimize the inherent risks associated with NFTs and to provide cryptographic assurance that the physical
object and the NFT are both linked and authentic. While these steps minimize the risk associated with authenticity, other risks still
remain due to blockchain stability, reliance on third party blockchain technologies, and market forces, among others.
Examples of usage are in the
fields of luxury goods, expensive spirits or wine, or in OEM electronic devices which results from an extremely complex and subcontracted
remote supply chain, for which the OEM wants to keep an indisputable tracking record of all the steps of their fabrication.
Our technology enables systems
and methods for establishing the long-term authenticity of non-fungible tokens (NFTs) minted on a public blockchain by linking the NFT
to its associated object (which itself may be physical, digital, tangible or intangible), the minter of the NFT, the nature of the association
of the NFT minter to the associated physical object, and the possessor and/or originator of the object. In particular, our technology
enables the “embodiment” of this information that constitutes the linkage between the NFT and the associated digital object,
physical object, or intangible object (e.g., intellectual property assets, contracts, or other intangible assets), and consequently allows
for authentication of the NFT and its related object in a variety of scenarios.
NFTs are preserved on a public
blockchain via a network of nodes and secured via the blockchain’s consensus mechanism, such as proof of work, proof of stake, or
other suitable consensus mechanisms for the NFT itself. However, the NFT may not preserve its ability to authenticate an associated object
or its association with that object, particularly over long periods of time. In many instances the NFT at least partially relies on one
or more third parties to establish its association with a specific object. For example, often this responsibility is left to third party
NFT exchanges, centralized databases, the private key holder, or to other entities. In particular, none of the existing NFTs are minted
with composition to ensure their authentication particularly with regard to items with physicality, or items that were not directly derived
from the private key holder.
While there may be a high
confidence in the ability of a blockchain to preserve and store the public key and digital signature information of the NFT itself, along
with any subsequent NFT transaction data over long and very long periods of time – a blockchain cannot preserve information which
the NFT does not itself include. So, for example, in many instances the blockchain will not preserve the linkage between its digital signature
and the actual identity of the NFT minter, the association of the NFT and/or NFT minter with the object, the possessor of the object,
or the originator of the object.
This absence of embedded linkage
is particularly a concern with regard objects that possess significant pre-blockchain history since in many instances, the pre-blockchain
history is not maintained on the blockchain. This history is important to assist in independently verifying the authenticity of the NFT.
For physical objects the unique features that identify the specific object are not necessarily independently linked to the NFT, and the
NFT fails to provide or safekeep information or documentation as to appraisal value, origin, intellectual property rights or limitations
on rights of use. For digital objects, the source construction resources and files are not linked and there are no certifications of authenticity
or origin. Further, for digital NFTs, the ownership of the NFT or indication that the NFT was rightfully minted is not assured at the
time of creation.
As such, typical NFTs fail
to possess sufficient composition in order to ensure that the minted NFT is authenticatable and persistent across time. In particular,
none of the existing NFTs are minted with composition to ensure their authentication particularly with regard to items with physicality,
or items that were not directly derived from the private key holder. Our technology enables the “embodiment” of applicable
information and sourcing linkages between the NFT and the associated object. Such embodiments ensure long term authentication of NFTs
that are associated with physical or intangible objects, sometimes referred to as a “Digital Twin”.
The SEALSQ R&D team are
also working on the continuous development of SEALCOIN, currently in the preregistration phase and launched at Davos in January 2024.
SEALCOIN is a groundbreaking block-chain based data and currency protocol that is designed to enable billions of internet-connected devices
to autonomously engage in seamless data and currency exchanges. By transcending traditional currency exchange mechanisms, SEALCOIN is
establishing a complex network of IoT-enabled transactions and services.
While SEALCOIN is designed
to be utilized by individual traders using block-chain protocols similar to those in use for the transmission of cryptocurrencies, its
primary value proposition lies in its ability to alter the economic operations and communications within IoT devices. SEALCOIN is expected
to be a pivotal development in Machine to Machine (M2M) payments thereby redefining the landscape of digital transactions in the IoT domain.
As an advanced data and currency
protocol, SEALCOIN aims to create a robust economy specifically tailored for internet-driven devices, facilitating not only data exchange
but also secure currency transactions. The objective for SEALCOIN is to allow for IoT structures from various companies to autonomously
interact and leverage each other’s services and products without the need for human intervention, extending beyond simply currency
transactions.
Key features of SEALCOIN include:
| 1. | Autonomous M2M Transactions: Allowing IoT devices to perform transactions without the need for human input |
| 2. | Cross-Company IoT Interactions: Enabling IoT structures from different companies to interact and transact
autonomously |
| 3. | Decentralized Network: Ensuring secure, transparent and decentralized transactions |
| 4. | Integration with Digital Finance: Merging with digital finance thereby allowing for innovative financial
applications in the IoT sphere. |
SEALCOIN is a blockchain-based
technology to ensure secure and transparent transactions, using smart contracts to automate and enforce agreements between devices. This
allows it to handle a high volume of transactions. Some use cases for SEALCOIN include:
| 1. | Automated Supply Chains: IoT devices in supply chains can autonomously order, pay for and restock inventory |
| 2. | Smart Homes and Cities: Smart devices in homes and cities can transact for services like energy, maintenance
and more |
| 3. | Industrial IoT: Seamless M2M transactions in industrial settings |
Market Opportunity
The addressable market for
IoT cybersecurity is massive: more than 12 billion IoT devices were connected in 2021 and this number is expected to grow to 29 billion
units in 2027 with CAGR of 16%.11 McKinsey
predicts an annual $12.6 trillion in economic value by 2026.12
As it stands, many of the
currently deployed IoT devices lack any serious form of security: the devices contain weaknesses that can easily be exploited, and the
vast majority of data transmission is left unprotected. Regulatory and legislative pressure in combination with the rising danger of ransomware
and other types of attacks, however, will force IoT customers to adopt solid cybersecurity practices and techniques.
Vendors of digital devices
and organizations deploying IoT are now realizing that the IoT devices need the same level of protection as banks and governmental card
issuers. They are realizing that many of their devices are placed in uncontrolled locations such as a private home, a parking lot, a car
on the street, a remote field, a container on a ship, and even a human body. And yet, the users of their devices heavily depend on the
reliability in terms of command & control and rely on the accuracy and privacy of their data.
McKinsey13
listed a number of ‘head wind’ factors for IoT adoption rates. To cite some of their observations:
| · | “Consumers, enterprise customers, and governments are increasingly concerned with IoT cybersecurity
because the growing number of connected endpoints offers vulnerable points for hackers to exploit.” |
| · | “Companies are grappling with how much privacy customers will give up in return for lower prices
or special offers in a retail setting. The COVID-19 pandemic has brought this issue into even sharper relief as governments and citizens
attempt to balance public health with individual privacy.” |
| · | “Cybersecurity is a cross-cutting headwind to at-scale IoT deployments, so it should be unsurprising
that this concern is particularly pronounced in the healthcare space. Not only is the security of the IoT device itself paramount but
also that of the underlying data and analytics.” |
Markets and Markets forecasts
the global IoT cybersecurity market size to grow from $14.9 billion in 2021 to $40.3 billion by 2026, at a CAGR of 22.1% from 2021 to
2026.14
Allied Market Research valued
the global IoT security market size at $8.4 billion in 2018 and projected the size to reach $74 billion million by 2026, growing at a
CAGR of 31.20% from 2019 to 2026.15
The IoT market has so far
been self-regulated, and some industries are implementing sector-specific regulations. Governments, however, are increasingly aware of
the cybersecurity risks of IoT that can leave citizens vulnerable to security and privacy risks. Lawmakers enact legislation to:
| · | Make connected devices more resilient to cyber threats and attacks (IoT Cybersecurity); and |
| · | Protect the privacy of personal information (IoT Privacy). |
Aspects of an IoT deployment may then be subject
to many different forms of oversight.
11
“State of IoT 2023”, IOT Analytics, May 2023
12
“The Internet of Things: Catching up to an accelerating Opportunity”, McKinsey & Company, November 2021
13
“The Internet of Things: Catching up to an accelerating Opportunity”, McKinsey & Company, November 2021
14
“IoT Security Market by Type (Network Security, Endpoint Security, Application Security and Cloud Security), Component (Solutions
& Services), Application Area, Deployment Mode (On-premises & Cloud), Organization Size, and Region – Global Forecast to
2026”, Markets And Markets, October 2021
15
“IoT Security Market by Component Solution (Solution and Services), Deployment Model (On-Premise and Cloud), Organization Size (Large
Enterprises and Small & Medium Enterprises), Product Type (Device Authentication & Management, Identity Access & Management,
Intrusion Detection System & Intrusion Prevention System, Data Encryption & Tokenization and Others), Security Type (Network Security,
Endpoint Security, Application Security, Cloud Security, and Others), and Industry Vertical (Manufacturing, Retail & E-Commerce, Government
& Defense, Transportation & Logistics, Energy & Utilities, Healthcare & Others); Global Opportunity Analysis and Industry
Forecast, 2019-2026, Allied Market Research, January 2020
As governments are adopting
new legislation imposing security implementation requirements on IoT deployments, IoT devices and IoT deployments may no longer be able
to comply with new and future legislation and regulations without implementing new levels of cybersecurity features.
Gartner expects that through
2026, less than 30% of U.S. critical infrastructure owners and operators will meet newly mandated government security requirements for
cyber-physical systems.16 Gartner further
expects that the percentage of nation states passing legislation to regulate ransomware payments, fines and negotiations will rise to
30% by the end of 2025, compared to less than 1% in 2021.17
Gartner also forecasts that,
by 2025, 70% of CEOs will mandate a culture of organizational resilience to survive coincident threats from cybercrime, severe weather
events, civil unrest and political instabilities.18
IoT Cybersecurity
Regarding critical infrastructure
protection, regulators and legislators are increasingly concerned about security of IoT actuators in crowded places, power grids, telecom
systems, public transport, traffic control, water distribution, and energy transport.
The EU Cybersecurity Act that
came in effect in 2019, addresses these concerns and applies in all EU member states and the UK. It mandates the EU Agency for Network
& Information Security (“ENISA”) to define an EU-wide cybersecurity certification framework. The UK is currently moving
forward and is shifting the responsibility to secure IoT devices away from consumers and demand strong cybersecurity be built-in by design.
The EU further enacted the
Directive on security of network and information systems (“NIS”). It aims to reach a high level of cybersecurity for Critical
National Infrastructure and essential services, and establishes a range of IoT cybersecurity requirements for operators of essential services
and their digital service providers.
The U.S. currently lacks a
federal IoT cybersecurity regulatory framework. The IoT Cybersecurity Improvement Act passed in 2020, however, sets minimum security standards
for IoT devices procured by the federal government. While the bill avoids to directly regulate the private sector, it aims to leverage
federal government procurement influence to encourage increased cybersecurity and put in place basic security measures for IoT devices.
The bill further gives the National Institute of Standards & Technology (NIST), the authority to oversee IoT cybersecurity risks for
equipment bought by the federal government, and to issue guidelines dealing with IoT cybersecurity. IoT devices procured by the federal
government must comply with these recommendations.
At the state level, California
and Oregon have gone further and passed new IoT security laws (resp. SB 327 and HB-2395) that became effective in 2020. These laws require
that IoT devices sold in California and Oregon be fitted with reasonable security features to protect both the IoT device and the data
it contains. They further place liability and burden of proof on the IoT vendors as soon as the device is connected to the Internet in
those states.
The New York State enacted
the Stop Hacks and Improve Electronic Data Security Act (“SHIELD”) in 2020. The bill requires the implementation of a cybersecurity
program and protective measures for New York State residents and apply to IoT manufacturers.
ABI Research expects Critical
Infrastructure cybersecurity spending to increase from $106 billion in 2021 to $146 billion in 2025 at a CAGR of 8.3%19
IoT Privacy
Regarding privacy, regulators
and legislators are increasingly concerned that individuals may not be able to provide consent for IoT sensors which are permanently collecting
behavioral data, to locate the source of inaccurate data, and to be comfortable that uploaded privacy-sensitive data do not leak out.
The EU General Data Protection
Regulation (“GDPR”) in effect since 2018 establishes a harmonized framework within the EU and the UK, including the right
to be forgotten, the need for clear and affirmative consent, and severe penalties for failure to comply with these rules. The GDPR law
equally applies to IoT devices, IoT platforms and IoT deployments.
16
“3 Planning Assumptions for Securing Cyber-Physical Systems of Critical Infrastructure”, Gartner, February 2022
17
Opening Keynote, “Gartner Security & Risk Management Summit” in Sydney, Australia, Gartner, June 2022
18
Opening Keynote, “Gartner Security & Risk Management Summit” in Sydney, Australia, Gartner, June 2022
19
“Critical Infrastructure Security”, ABI Research, February 2021
The U.S. currently lacks a
comprehensive federal law regulating the collection and use of personal information beyond the U.S. Privacy Act of 1974 and the Children’s
Online Privacy Protection Act. Several states, however, have recently passed new legislation to take digital privacy into account.
The California Consumer Privacy
Act (“CCPA”) in effect since 2020 enhances privacy rights and consumer protection for residents of California. The California
Privacy Rights Act (“CPRA”) supplements the CCPA and took effect on 1 January 2023. It creates a new category of personal
information named sensitive personal information. Biometric data, including facial recognition and other data that may yield details about
race, ethnicity, sexual orientation, religious beliefs, and geolocation, are included in this new group and must be adhered to by IoT
devices, IoT platforms and IoT deployments.
Gartner expects that by the
end of 2023, modern privacy laws will cover the personal information of 75% of the world’s population.20
Sustainability
IoT will continue to transform
the sustainable energy markets, such as wind, solar, biothermal, and nuclear power generation industries. IoT analytics will provide wind
energy suppliers with real-time data on their power plants and storage assets, as well as their customers’ consumption, to ensure
continuous energy generation and distribution. IoT solutions can also enable the adjustment of business operations for dramatically increased
revenue.
There is an expectation to
see a shift in demand for sensors, actuators, and gateways, because all of these devices are needed to predict failures and assure the
overall efficiency of equipment, specifically for sustainable power generation. This trend is the most accurate for green technology companies
that will continue to reduce operational expenses, reserve funds for innovations, and deliver more affordable green energy.
While IoT adoption from Utility
Service Providers (USPs) will be driven by regional stimulus packages, markets will continue to be cautious with their capital spending
on new technology solutions. USPs (energy and water) will remain one of the largest adopters of massive IoT solutions, as they continue
to implement their grid digitalization programs that started more than a decade ago. A utility’s primary objective in implementing
IoT will be to add resilience to their operational processes and support growing demands to shift from the use of fossil fuels and move
toward renewable resources.
Also, Oil & Gas operators
realize they need to transform and embrace climate neutral energy sources. These operators will increase investments in digital transformation
to address commercial, operational, and existential threats, as well as align business models with changing climate action regulation.
ABI Research expects that, in 2030, they will spend $15.6 billion on digital tools to address industry challenges and align operations
with changing business models.21
With digital tools, oil and
gas companies can analyze the condition of transmission and distribution pipes, prepare for changes in oil and gas prices, plan sustainability
strategies and ensure an increasing amount of renewables capacity is integrated into grids and provided to consumers. Data analytics allied
with IoT platforms have become essential to identifying issues ahead of time such as pipeline degradation, wellhead performance, and pollution
from gas flares.
The effect of the cyber-attack
on the Colonial Pipeline made operators aware that even spending unlimited amounts to secure networks and assets will not provide 100
percent security as attackers only need one error to cause havoc. Increasingly, cyber threats are rapidly becoming a concern for both
the C-suite and governments, and IoT cybersecurity has become a top priority for them.
ABI Research expects that
spending on IoT security within the sector will increase by 8.1% between 2022 and 2030 to reach $5.6 billion per annum.22
Metaverse
Gartner expects that by 2026,
25% of people will spend at least one hour a day in the Metaverse for work, shopping, education, and entertainment.23
Gartner defines the Metaverse as a collective virtual open space, created by the convergence of virtually enhanced physical and digital
reality. Beyond entertainment, gaming and social media, a Metaverse provides enhanced immersive experiences for professional activities
including:
20
“Gartner Identifies Top Five Trends In Privacy Through 2024”, Gartner, May 2022
21
“Digital Transformation in the Oil and Gas Market”, ABI Research, December 2021
22
“Digital Transformation in the Oil and Gas Market”, ABI Research, December 2021
23
“Predicts 2022: 4 Technology Bets for Building the Digital Future”, Gartner, December 2021
| · | Training with a more immersive learning experience in medical, industrial and sports. |
| · | Virtual events with a more immersive social experience. |
| · | Retail can extend its reach to an immersive shopping experience that allows for more complex products. |
| · | Enterprises can achieve better engagement, collaboration and connection with their employees through virtually
augmented workspaces. |
The current siloed VR (Virtual
Reality) or AR (Augmented Reality) environments of a single provider will eventually integrate into a single Metaverse adopting open standards.
Activities in a unified Metaverse include:
| · | Obtaining outfits, equipment and accessories for online avatars. |
| · | Purchasing digital land and constructing virtual buildings. |
| · | Participating in virtual events and training classes. |
| · | Trading collectibles, rare assets and unique pieces of digital art. |
| · | Interacting with others for employee onboarding, customer service, and sales. |
Studies by, amongst others,
Gartner24 and ITU25
revealed that consumers and professionals raise the following concerns before adopting the Metaverse:
| · | How to preserve the privacy of personal data |
| · | How to know whether data for decisions can be relied on |
| · | How to get confidence in payment methods |
| · | How to know for sure who you are interacting with |
| · | How to deal with the abundance of endpoints: each device in the office or in someone’s home that
connects to the internet opens up a new door through which cyberattacks can enter. Since the Metaverse will require multiple devices and
sensors, people are becoming even more vulnerable to data breaches. |
While the opportunities offered
by the Metaverse are huge, these key concerns need to be solved first in order to create a “trusted” Metaverse. A trusted
Metaverse enriches digital experiences with trusted bridges to the physical world.
Our solution
SEALSQ has become much more
than a cybersecurity technology company.
We are in the physical/cyber
trust business. Every day, citizens, consumers and professionals rely on the trust we bring to the IoT devices around them. Our brand
reflects digital comfort and a culture of trust, security, and protection.
For that, we offer to our
customers:
| i) | “Secure Elements” implementing a mix of analog and digital countermeasures which are the DNA
of our engineering teams, constantly monitoring and anticipating the new generation of attacks that the cyber hackers may develop. |
24
“What Is a Metaverse”, Gartner, January 2022
25
“AI: The driving force behind the metaverse”, ITU News, June 2022
| ii) | A provisioning and personalization platform, which manages the creation of digital keys and certificates
and their injection into our secure elements. |
| iii) | A Root Certificate Authority, which guarantees the unicity and the authenticity of the digital identities
which we are generating for our customers. |
Our products and infrastructures are certified
with the highest grading of the industry by third party certification labs.
We design, develop and market
secure semiconductors worldwide as a fabless manufacturer, meaning we do not manufacture the semiconductors, but instead collaborate with
production partners for all phases of the manufacturing process of our semiconductors/ICs, including wafer fabrication and packaging and
testing. We provide added security and authentication layers on our semiconductors which can be tailored to customers’ needs.
Our production partners are
responsible for the procurement of all of the raw materials used in manufacturing our products and we understand that the such raw materials
are multi-sourced.
How is SEALSQ different?
SEALSQ is unique because we
combine secure hardware with a platform to manage its keys and to manage the physical/cyber pairing. This pairing associates the hardware
chip inseparably with digital certificates and a digital record that reflects the lifecycle of the chip. Conversely, the digital security
is anchored in hardware inside the device. It is this unique proposition that enables us to bring digital trust to the physical world.
Our legacy of personalizing
payment cards brought us the opportunity to personalize IoT devices. While the market of payment cards and SIM cards has become a commodity,
the market of personalized IoT devices is growing rapidly. With our advanced management platform in combination with our advanced silicon
design, we can capture this booming market. Our efficient platform also enables to extend to mainstream quantities of non-connected objects,
such as e-cigarettes, as well as small batches of high-end controllers, such as satellites placed into orbit.
As such, we offer provenance,
proof of origin, and lifecycle management to devices and objects. Additionally, we enable data collection and data transmission to be
protected against interference and eavesdropping, and we enable command execution and firmware updates to be reliable and trustworthy.
Benefits for Customers
Security is in our DNA, and
we help our direct customers and end customers to understand the security risks, security implications and security solutions. Our platform
takes away the burden of managing sophisticated cryptography and a suite of secret, private and public keys. And we help them through
the lifecycle of the security elements.
Our customers realize that
their products have a clear differentiator to their end customers when SEALSQ security is inside. SEALSQ provides them with an effective
anchor from which trust can be established, and from which new supporting platforms and services such as device life cycle management
can be supported.
Vendors typically find it
hard to manage security and may have little in-house knowledge about cryptographic strength, key generation, key injection, key pairing,
key rotation, key hierarchies, and key lifecycle. We fundamentally offer our customers a one-stop shop for trusted personalization of
their devices.
Superior end customer experience drives customer
loyalty.
Not only security, but also
customer care is in our DNA. We are proud of the customer loyalty we have achieved over the past 20 years. Our customers and their end
customers also appreciate that our product roadmap takes their input into account, as well as market trends and security trends. Moreover,
involving partners in our roadmap, such as FOSSA and Parrot, help our mutual customers to tune their devices and deployments to tackle
the cybersecurity challenges. Customers and end customers further appreciate that we understand and respond to specific regulations they
may be subject to.
We have been able to clearly
demonstrate our customer dedication in 2021. Since 2020, global semiconductor supply was under stress as a by-product of the COVID-19
pandemic. When economies started to rebound in 2021, the combination of supply chain logistics issues and shortages in raw material kept
global semiconductor supply under stress. Dedicated to fulfilling customer demand, we were able to secure large allocations in our supply
chain. In fact, SEALSQ gained new customers thanks to the constrained delivery these customers faced by their former semiconductor suppliers.
Customers openly praised SEALSQ’s dedication and loyalty to its customers.
Benefits for IoT owners
and operators
While our customers are typically
product manufacturers, the end customers are factories, consumers, governmental infrastructures, municipalities, smart transport initiatives,
smart agriculture, etc. Due to increased threats and attacks, these IoT owners and operators demand increasing levels of protection. And
given that they increasingly install devices in unmanned and uncontrolled environments, they even demand the security to be physically
tamperproof.
Further, with emerging policy
debate and regulation on the topic of loT security in Europe, Asia, and North America, IoT owners and operators want security solutions
that can be easily implemented and deployed. With SEALSQ security inside, they know that digital trust is anchored in the hardware of
the device.
Increasing public
trust
For example, when the U.S.
government enacted its Infrastructure Investment and Jobs Act of $1.2 trillion, SEALSQ was approached by integrators that worry about
security and privacy. These integrators were seeking to participate in funded megaprojects to deploy IoT for power infrastructure, water
distribution, airports, road safety, high speed internet and sensors to address climate change and saw that the level of cybersecurity
of their IoT vendors was not always what they expected before SEALSQ came in the picture.
Our Competitive Strengths
We believe we have several
competitive advantages that will enable us to maintain and extend our market position. Our key competitive strengths include:
| · | Customer dedication is in our DNA and we deliver to customers ordering hundreds of millions of units,
as well as to customers ordering a few thousand custom units. |
| · | Ongoing product innovation. We constantly innovate on our products to enhance and expand capabilities.
Our agentless technology differentiates us in the market and positions us to capitalize on the proliferation of new device types entering
the enterprise that cannot be supported by agent-based technologies. |
| · | Proven Supply Chain Management processes with a track record of timely delivery. |
| · | Standardized technology and compliance with industry-driven standards, to ease the integration by our
direct customers and by end customers. |
| · | Top-level certifications (Common Criteria EAL5+ and FIPS140-2 Level 3) that address the current and future
requirements of IoT deployments in health care and critical infrastructure. |
| · | The digital certificates are rooted at the OISTE Foundation, a not-for-profit organization based in Geneva,
Switzerland, regulated by article 80 et seq. of the Swiss Civil Code and neutral vis-à-vis any dominant vendor, country or other
market player. |
| · | Broad appeal of our products across a diverse end customer base. We serve end customers of all sizes across
diverse industries. We are deeply integrated into our customers’ security infrastructure, demonstrating immediate and ongoing value.
We have a long-term, loyal base of end customers with many relationships spanning over 10 years. |
| · | Recognized market leadership. We are invited to speak at Davos and TechAccord. We participate in standardization
efforts by Wi-SUN Alliance, a global association to drive interoperability in smart cities and smart grids. SEALSQ is also currently working
with NIST’s National Cybersecurity Center of Excellence (NCCoE) on a reference design for securely onboarding IoT devices. |
| · | Global market reach driven by direct and indirect sales strategy. We have recruited top sales talent from
leading security organizations and retain the highest quality sales representatives with demonstrated success. We are one of the only
vendors in our market solely focused on security and control and, as such, our sales representatives are wholly focused on selling the
standalone value of our products. |
| · | Strong leadership team of security experts. We have a deep bench of talent at the executive level, with
years of industry experience at semiconductor manufacturers and cryptography laboratories. |
Our Growth Strategies
At SEALSQ, while we have traditionally
relied on the one-time sale of semiconductors and sensor hardware, we are actively evolving our business model to embrace recurring revenue
streams. This strategic shift leverages a percentage of the vast install-base of over 1.6 billion semiconductors, harnessing AI to analyze
the data they generate. This data analysis facilitates predictive analytics on the objects we secure, adding a new dimension to our service
offerings. In addition to this, we have established a post-market segment focusing on provisioning, onboarding, and lifecycle management,
which not only generates additional recurring revenue but also enhances customer loyalty and retention.
Our growth strategies are
multi-faceted and forward-looking, focusing on:
| 1. | Product Innovation: We are at the forefront of developing a new generation of Secure Elements, incorporating
cutting-edge technologies to minimize footprint and reduce costs. This includes advanced Flash memory for greater customization and a
new generation of Crypto Processors capable of running Post-Quantum algorithms endorsed by NIST. These innovations are aimed at creating
new opportunities in upgrade markets across various sectors and pioneering applications.
|
| 2. | Global Customer Base Expansion: Significant investments have been made, and will continue, in our sales infrastructure
to foster new customer acquisition and to introduce our products in emerging markets. We are confident these efforts will open doors to
new large enterprise opportunities, both domestically and internationally.
|
| 3. | Leveraging Partnerships: By capitalizing on our robust ecosystem of technology and channel partners, we aim
to amplify our market presence. This strategy is particularly targeted towards mid-market enterprises, where we see substantial growth
potential.
|
| 4. | Expanding Within Existing Customer Networks: Our revenue is intrinsically linked to our clients' sales volumes.
By supporting our existing customers in capturing their market opportunities, we not only grow alongside them but also expand our reach
within their networks. This includes entering new segments of their operations and replacing competitors where possible, thereby broadening
the application of our products in diverse IoT markets. |
In summary, our business strategy
at SEALSQ is dynamic and adaptable, focused on innovative product development, expanding our global reach, leveraging strategic partnerships,
and deepening our engagement with existing clients. This approach positions us to capitalize on the rapidly evolving IoT market, ensuring
sustained growth and continued leadership in the field.
Capital Investments
SEALSQ has commenced a significant
investment project with the intention of increasing the overall capacity of production within its supply chain. While SEALSQ does not
manufacture its own semiconductors, it does own certain capital materials required in order for its suppliers to undertake and complete
the production process. One of the key constraining factors for SEALSQ currently is the number of production and testing lines that it
has available. In order to increase its production capacity by approximately 5 million units per year, the Company is undertaking a significant
capital expenditure project that is forecast to cost USD 3.4 million, split between its supplier’s factory in Taiwan and the research
and development headquarters in France. The project will be funded by a combination of cash flow from operating activities and an advance
payment of USD 2.0 million from a key customer in exchange for additional delivery slots.
SEALSQ is also developing
a brand-new generation of Secure Elements implementing new technologies in order to optimize its footprint, and thus its cost, a Flash
memory providing more customization flexibility, and a new generation of Crypto Processor capable to run Post-Quantum algorithms selected
by the NIST. This project will require an investment of approximately USD 3.0 million and will be funded by a combination of cash flow
from operating activities, grants and other available subsidies from local, national and international funding agencies.
Material Contracts
Convertible Note and
Warrant Financing
See description in the section
titled “Convertible Note Financing”.
Intracompany Agreements
WISeKey Semiconductors SAS,
which is a wholly owned subsidiary of SEALSQ, entered into a Revolving Credit Agreement with WISeKey International Holding AG on October
1, 2016. Under the terms of this agreement, several advances of funds were made by WISeKey International Holding AG to WISeKey Semiconductors
SAS for the purposes of supporting the working capital requirements and ongoing operations. The loans initially accrued interest at a
rate of 3% per annum, then at a rate of 2.5% per annum pursuant to the Third Amendment to the Revolving Credit Agreement dated November
3, 2022, and may be prepaid at any time. The credit period initially ended on December 31, 2017, but this has been extended through amendments
to the original agreement. Following the Fourth Amendment to the Revolving Credit Agreement, all outstanding loans fell due on November
30, 2022.
On April 1, 2021, WISeKey
Semiconductors SAS entered into a Debt Remission Agreement with WISeKey pursuant to which an outstanding amount of EUR 5 million (USD
5,871,714) owed to WISeKey was remitted without any compensation from WISeKey Semiconductors SAS. Per the terms of the Debt Remission,
WISeKey will have the right to reinstate the debt and ask for repayment in fiscal years when WISeKey Semiconductors SAS achieves a positive
income before income tax expense, in an amount calculated based on the income before income tax expense. As such, because of the repayment
clause, the loan amounts covered by the Debt Remission continue to be shown as noncurrent liabilities payable to WISeKey International
Holding AG.
WISeKey Semiconductors SAS
also undertook several debt transfers with WISeKey International Holding AG and other subsidiary understandings of WISeKey International
Holding AG dated June 28, 2021, December 31, 2021, June 30, 2022, August 31, 2022 and November 3, 2022. Under the terms of these agreements,
amounts owed by WISeKey Semiconductors SAS were paid on WISeKey Semiconductors SAS’s behalf by WISeKey International Holding AG
and the amounts were converted into loans due from WISeKey Semiconductors SAS to WISeKey International Holding AG. The loans initially
accrued interest at a rate of 3% per annum, later amended to 2.5% per annum, and may be prepaid at any time. Following the first amendment
to each of these agreements, all outstanding loans fell due on November 30, 2022.
As part of the Internal Restructuring
of WISeKey prior to the effective date of the Spin-Off Distribution, WISeKey International Holding AG and WISeKey Semiconductors SAS entered
into a Capital Increase Agreement on December 15, 2022 whereby an amount of EUR 7 million owed to WISeKey International Holding AG by
WISeKey Semiconductors SAS was converted into a capital contribution by way of an offset with the outstanding debt under the Revolving
Credit Agreement and the loans resulting from the above-mentioned debt transfers. Under the terms of this agreement, the capital of WISeKey
Semiconductors SAS was increased by EUR 7 million and the balance owed to WISeKey International Holding AG was reduced by an equivalent
amount.
WISeKey Semiconductors SAS
undertook a debt transfer with WISeKey International Holding AG dated December 31, 2022. Under the terms of this agreement, an amount
owed by WISeKey Semiconductors SAS was converted into a loan due from WISeKey Semiconductors SAS to WISeKey International Holding AG.
The loans accrue interest at a rate of 2.5% per annum, and may be prepaid at any time. The loan falls due on December 31, 2024.
Following the Capital Increase
Agreement, there were no balances outstanding under the Revolving Credit Agreement, and outstanding loans in the amount of USD 1,198,747
plus accumulated interests in the amount of USD 208,750 due from WISeKey Semiconductors SAS to WISeKey International Holding AG resulting
from the above-mentioned debt transfers as at December 31, 2022.
On January 1, 2023, all outstanding
balances were consolidated into a new loan agreement between WISeKey Semiconductors SAS and WISeKey International Holding AG. The Revolving
Credit Agreement currently limits the amount of loans allowed under the agreement at USD 5.0 million, of which USD 1.4 million is currently
outstanding. As at June 30, 2023, the outstanding loan with WISeKey International AG, including accrued interest, amounted to USD 1,422,157.
The loan accrues interest at a rate of 2.5% per annum and may be prepaid at any time. The loan falls due on December 31, 2024.
WISeKey Semiconductors SAS,
which is a wholly owned subsidiary of SEALSQ, has two loan agreements outstanding with WISeCoin AG dated April 1, 2019 and October 1,
2019. Under the terms of these agreements, WISeCoin AG agreed to extend to WISeKey Semiconductors SAS sufficient funds to enable it to
carry out its business activities and fund its working capital requirements. These loans initially accrued interest at a rate of 3% per
annum, later amended to 2.5% per annum, and may be prepaid at any time. Each loan falls due for repayment at such time as agreed between
the two parties. The funds were originally extended when the former subsidiary undertaking of WISeKey Semiconductors SAS, WISeCoin R&D
Lab France SAS, was owned by WISeCoin AG. When the ownership of WISeCoin R&D Lab France SAS was transferred to WISeKey Semiconductors
SAS, and again when WISeCoin R&D Lab France SAS was merged into WISeKey Semiconductors SAS on 1 January 2021, the loans were transferred
along with the remaining assets and liabilities of WISeCoin R&D Lab France SAS. As at June 30, 2023, the outstanding loans with WISeCoin
AG, including accrued interests, amount to USD 3,042,865 and EUR 280,029 (USD 305,729).
WISeKey Semiconductors SAS,
which is a wholly owned subsidiary of SEALSQ, has further service agreements with, respectively, WISeKey International Holding AG and
WISeKey SA dated January 1, 2018, WISeKey Semiconductors GmbH dated April 1, 2019, and WISeKey USA Inc. dated January 1, 2019. Under the
terms of these service agreements, the relevant WISeKey companies have agreed to make available to SEALSQ certain resources, including
skilled staff, external consultants and advisors with knowledge across multiple domains including, but not limited to, sales and marketing
accounting, finance, legal, taxation, business and strategy consulting, public relations, marketing, risk management, information technology
and general management. Under the terms of these service agreements, the relevant WISeKey company regularly invoices WISeKey Semiconductors
SAS for the associated costs of providing these services.
Pursuant to the Internal Restructuring
of WISeKey, WISeKey and SEALSQ further entered into a subscription agreement on January 1, 2023 pursuant to which WISeKey transferred
the ownership of WISeKey Semiconductors SAS (formerly known as VaultIC SAS), a French semiconductor manufacturer and distributor, WISeKey
IoT Japan KK, a Japan-based wholly owned sales subsidiary of WISeKey Semiconductors SAS, and WISeKey Semiconductors, Taiwan Branch, a
Taiwan-based sales and support branch of WISeKey Semiconductors SAS, to SEALSQ in a share exchange for an aggregate consideration of USD
18.0 million in value (such value corresponding to the book value of WISeKey Semiconductors SAS in WISeKey International Holding AG’s
statutory financial statements). Under the terms of the subscription agreement, SEALSQ issued 1,499,700 Class F Shares and 7,501,400 Ordinary
Shares to WISeKey International Holding AG in return for the entire issued share capital of WISeKey Semiconductors SAS.
Pursuant to the Internal Restructuring
of WISeKey, WISeKey International Holding AG and SEALSQ entered into certain service agreements under the terms of which certain members
of staff and associated resources of WISeKey will be required to carry out certain tasks and duties on behalf of SEALSQ. In particular,
the Chief Executive Officer and Chief Financial Officer of WISeKey will also carry out these roles for SEALSQ, while other tasks, such
as the financial reporting and legal support of SEALSQ will be performed by officers of WISeKey International Holding AG and its affiliates.
Under the terms of the service agreements, WISeKey agrees to provide these services to SEALSQ on a cost-plus basis and WISeKey will regularly
invoice SEALSQ for the associated costs of providing these services.
Class F Shareholders’
Agreement
The Company and the holders
of the Class F Shares have entered into a Class F Shareholders’ Agreement that provides, among other things, that the holders of
Class F Shares:
| · | will vote the Class F Shares held by them as one and in accordance with the majority (by the number of
shares held) view of the holders of the Class F Shares; and |
| · | are bound by the redemption provisions set out in the Articles and that they will take all necessary
action to comply with them. |
MANAGEMENT
Directors and Senior Management
The following table sets forth
the name, age and functions of our non-executive and executive directors, and our senior management as of the date of this registration
statement. The business address for each director and executive officer is the address of our principal executive office which is located
at Avenue Louis Casaï 58, 1216 Cointrin, Switzerland.
Name |
Age |
Functions in SEALSQ |
Date first appointed |
Independent Non-Executive Directors |
|
|
|
|
|
|
|
Ruma Bose |
50 |
Independent non-executive Board Member |
June 14, 2023 |
Cristina Dolan(1)(2) |
62 |
Independent non-executive Board Member |
March 10, 2023 |
David Fergusson(1)(2) |
63 |
Independent non-executive Board Member |
March 10, 2023 |
Danil Kerimi |
41 |
Independent non-executive Board Member |
November 1, 2023 |
Eric Pellaton(1)(2) |
64 |
Independent non-executive Board Member |
March 10, 2023 |
|
|
|
|
Non-Executive Director |
|
|
|
Peter Ward(3) |
71 |
Board Member |
April 1, 2022 |
|
|
|
|
Executive Directors |
|
|
|
Carlos Moreira(3) |
65 |
Chairman of the Board of Directors and
Chief Executive Officer |
April 1, 2022 |
|
|
|
|
Senior Management |
|
|
|
|
|
|
|
John O’Hara |
46 |
Chief Financial Officer |
January 22, 2024 |
Jean-Pierre Enguent(3) |
61 |
Vice-President of Research & Development Systems and Solutions |
September 20, 2016* |
Bernard Vian(3) |
56 |
General Manager of WISeKey Semiconductors SAS |
September 20, 2016* |
| (1) | Member of the Audit Committee |
| (2) | Member of the Nomination and Compensation Committee |
| (3) | Member of the Strategy Committee |
| * | This represents the date of appointment with WISeKey Semiconductors SAS, which became a subsidiary of
SEALSQ on January 1, 2023 |
Certain biographical
information about each of these individuals is set forth below.
Biographies
Directors
Carlos Moreira has
been a member of the board of directors and Chief Executive Officer and Chairman of the board of directors of SEALSQ since its inception
on April 1, 2022. He is the Founder, Chairman of the board of directors and Chief Executive Officer of WISeKey International Holding AG.
Mr. Moreira is a recognized UN Expert on CyberSecurity and Trust Models for ILO, UN, UNCTAD, ITC/WTO, World Bank, UNDP, ESCAP (83-99).
Author, Internet Pioneer; Founder OISTE.org. Founding Member of the “Comité de Pilotage Project E-Voting” of the Geneva
Government, Member of the UN Global Compact, Member of the WEF Global Agenda Council. Founding Member WEF Global Growth Companies 2007.
WEF New Champion 2007 to 2016, Vice Chair WEF Agenda Council on Illicit Trade 12/15, Member of the Selection Committee for the WEF Growth
Companies. Founder of the Geneva Security Forum. Member the WEF Global Agenda Council on the Future of IT Software & Services 2014-16.
Member of the New York Forum. Selected as one of the WEF, Trailblazers, Shapers and Innovators, Member of Blockchain Advisory Board of
the Government of Mexico. Nominated by Bilan.CH among the 300 most influential persons in Switzerland 2011 and 2013, top 100 of Who’s
Who of the Net Economy, Most Exciting EU Company at Microsoft MERID 2005, Man of the Year AGEFI 2007, Selected by Bilanz among the 100
most important 2016 digital heads in Switzerland 2017. Award Holder CGI. Adjunct Professor of the Graduate School of Engineering RMIT
Australia (95/99). Head of the Trade Efficiency Lab at the Graduate School of Engineering at RMIT. M&A Award 2017 Best EU acquisition.
2018 Blockchain Davos Award of Excellence by the Global Blockchain Business Council. Member of The Blockchain Research Institute. Founder
Blockchain Center of Excellence 2019. Entrepreneur and investor in disruptive cryptotechnology AI, Blockchain, IoT and Cybersecurity.
Keynote speaker at the UN, WEF, CGI, ITU, Bloomberg, Oracle, SAP, Zermatt Summit, Microsoft, IMD, INSEAD, MIT Sloan, HEC, UBS, CEO Summit.
Coauthor of “The transHuman Code: How to Program Your Future” (2019).
Peter Ward has been
a member of the board of directors of SEALSQ since its inception on April 1, 2022, and served as the Chief Financial Officer from April
1, 2022 until January 22, 2024. He has also served as the Chief Financial Officer and a director of WISeKey International Holding AG since
2012. Mr. Ward began his tenure with WISeKey in 2008 as Finance Director. From 2005 to 2008, Mr. Ward served as a director and International
Finance Director at Isotis International Inc., a manufacturer and distributor of bone and skin transplants. From 1996 to 2004, Mr. Ward
served as a director and International Finance Director, then Director Administration and Taxes of Iomega International, a manufacturer
and distributor of external computer drives and disks. From 1986 to 1996, Mr. Ward served as Finance Director for Germany, Austria &
Switzerland Finance for GE Information Services (GEISCO), based in Cologne, Germany, then Commercial Finance Manager for GE Plastics BV,
based in Bergen op Zoom, The Netherlands and Finance Director for Germany, Austria & Switzerland for GE Medical Services AG, based
in Frankfurt am Main, Germany at General Electric. From 1973 to 1985, Mr. Ward served as Cost Analyst at Standard Telephones & Cables
Ltd, a manufacturer and installer of submarine telephone cables, based in Southampton, United Kingdom, then Finance Accountant for Payot
Cosmetics Ltd and Mavala Cosmetics Ltd, manufacturers of cosmetics and nail products respectively, based in Ashford, Kent, United Kingdom,
then Financial Controller for Rimmel Cosmetics Germany and ITT Photoproducts, Germany, distributors of cosmetics and photographic equipment
respectively, based in Frankfurt am Main, Germany, then Financial Analyst for the Automotive and Sanitary Products Division, based in
ITTE HQ in Brussels, Belgium, then Manager Financial Controls for the Telecommunications Division based in ITTE HQ Brussels, Belgium,
at ITTE. He holds a B.A. with honors in Business Administration from Wolverhampton University, in Wolverhampton, U.K. and is a qualified
Chartered Management Accountant.
Ruma Bose was appointed
to our board of directors on June 14, 2023. Ms. Bose was most recently Chief Growth Officer (CGO) at Clearco, a SoftBank-backed fintech
unicorn and the world’s largest e-commerce investor (in which she was previously a longtime advisor, venture partner and early investor).
Previously, Ms. Bose was Managing Partner at Humanitarian Ventures, investing in high growth technology companies and leveraging their
potential for the humanitarian sector. Ms. Bose was previously on the management council of Chobani, one of the world’s largest
yogurt companies, where she served as President of Chobani Ventures and the Chobani Foundation. In addition to her roles at Chobani, she
was also Founding President of Tent Foundation, which she helped establish as one of the leading foundations in the humanitarian sector.
Ms. Bose’s earlier leadership roles include President and co-CEO at Sprayology, a pioneering homeopathic company; President at Vincent
Longo, an iconic global cosmetics brand; Director at Roseworth Capital, a private equity investor focused on consumer/brand/retail and
specialized business and financial services sectors; and Cofounder and VP Market Development at Finishline, a national chemical and products
services company. Ms. Bose was part of the Bose Corporation startup team sent to launch and scale operations in India. She started her
career as an analyst at Scotiabank in the International Banking Group. Ms. Bose co-authored the international bestselling book, “Mother
Teresa, CEO”, which has been translated into eight languages. The book describes the management and leadership principles of Mother
Teresa, who Ms. Bose worked with in Calcutta, and explains how they can be applied to businesses and non-profits alike. Ms. Bose sits
on the Governing Board of Directors of Calvert Impact Capital, one of the pioneers of impact investing, gender lens investing and climate
impact, which in the last 25 years has deployed over $4bn in 100+ countries and on KAO Corporation’s (Tokyo Stock Exchange: 4452)
ESG External Advisory Board, the largest household and personal care product manufacturer in Japan. Ms. Bose is the 2021 recipient of
the prestigious Scotiabank Ethical Leadership Award which, every year recognizes one ethical leader who, through their actions and decisions,
have demonstrated character, courage, and adherence to ethical principles. In 2022, Ms. Bose was awarded an honorary Doctor of Laws from
Dalhousie University, Halifax, Canada, her alma mater. She is a member of the Young Presidents’ Organization (YPO); the Global Entrepreneurs’
Council at the United Nations Foundation; and is active at the World Economic Forum as a member of its Expert Network. Ms. Bose is a frequent
keynote speaker at conferences around the world, including the Forbes 100 Most Powerful Women’s Summit, World Humanitarian Summit,
World Economic Forum, Banff Forum and meetings of the United Nations. She has been featured in publications including The Economist, Wall
Street Journal, Fast Company, NY Times, Financial Times, LA Times, Business Insider and Bloomberg.
Cristina Dolan was
appointed to our board of directors on March 10, 2023. Ms. Dolan has been a member of the board of directors of WISeKey International
Holding AG since June 24, 2022. Ms. Dolan is an award-winning engineer, entrepreneur and author that spend her entire career in variety
of executive roles within the technology industry. Prior to joining RSA in 2021 where she heads up Global Alliances, she advised several
cyber security companies including Crayonic and Cytegic (acquired by Mastercard). Recently she co-authored a book, “Transparency
in ESG and the Sustainable Economy, Capturing Opportunities through Data” and several articles including the World Economic Forum
article ‘Cyber-security should be treated as an ESG Issue’ and the Forbes article ‘Cybersecurity Is A Global Threat
To Democracy, Yet Not Well Understood.’ Honors include being named on lists of most influential and impactful women in technology,
and numerous awards for service and entrepreneurialism. The student coding competition, Dream it. Code it. Win it, which she founded and
led from 2014 to 2016, as the Board Chair of the MIT Enterprise Forum of New York, won numerous awards including the MIT Harold E. Lobdell
Distinguished Service Award, Trader Magazine Charitable Works Award and four Stevie awards for best organization and leadership. The competition
sponsor, Fiverr, celebrated her as a ‘Do-er’ in their global campaigns. As an advocate of computer science education, her
TED talk ‘Just Solve It’, addresses the value of being an engineer and solutionist to create opportunities and has over 933K
views. As a blockchain pioneer since 2014, she founded several companies including Additum, a value-based healthcare company based in
Spain, and iXledger which specialized in cyber insurance. The MIT Center for International Studies Starr Forum: Bitcoin and the Global
Economy talk she gave in April of 2016, was one of the program’s most popular talks. From 2009 to 2016, Cristina held several roles
at Tradingscreen, an award winning institutional multi-asset financial trading platform, including product management for content, data,
chat and communications products and global head of corporate marketing. In 2000, Cristina was recruited by venture backed Wordstream,
as CEO, of the MIT-Harvard spinout focused on multilingual translations utilizing computational linguistics and machine learning, where
she commercialized the software. OneMain, a company she co-founded in 1998, was acquired by Earthlink in 2000 after a highly successful
IPO that surpassed Amazon’s and eBay’s Respective IPOs. As OneMain’s Geographic Communities Division President and Chief
Strategic alliances officer, she launched and built the cornerstone Geographic Communities, which were profitable when launched. Cristina
held executive roles at IBM and Oracle leading consultative selling at strategic accounts within the communications and financial verticals.
At Hearst and Disney, she led technology and software development for the launch of the first consumer websites, which were built on time
and within budget. As an MIT alumna, she served as President of the MIT Club of New York, Chair of the MIT Enterprise Forum, MIT Enterprise
Forum Global Board, MIT Selection Committee, MIT Media Lab 30thAnniversary Committee and was invited as a keynote to the MIT Women’s
Un-Conference March 2018. In addition, she served on the alumnae board at Convent of the Sacred Heart and received the Global Leadership
Alumna Award. She earned a Master of Media Arts and Science from the MIT Media Lab, U.S.A., and also holds a Master of Computer Science
Engineering and Bachelor of Electrical Engineering. Cristina is bilingual, fluent in her native language, English, and Spanish.
David Fergusson was
appointed to our board of directors on March 10, 2023. Mr. Fergusson has also served as a member of the board of directors of WISeKey
International Holding AG since 2017. Since 2018, Mr. Fergusson has served as Executive Managing Director – M&A, for Generational
Equity, the largest volume middle-market M&A investment banking advisory firm in North America. Based in New York, he also heads the
Generational Equity’s Technology Practice Group and Cross Border Practice Group. Prior to joining Generational Equity, from 2010
until 2018, Mr. Fergusson was the CEO and President of The M&A Advisor where he led global think tank services: market intelligence
publishing, media, event and consulting, for the firm’s constituency of over 350,000 finance industry professionals, from their
offices in New York and London. As a partner in Paradigm Capital Management, Mr. Fergusson conducted over 25 acquisitions as an investor.
In 2013, Mr. Fergusson founded the global Corporate Finance Emerging Leaders program, which engages future global business stalwarts to
affect significant change through social innovation. A pioneer in cross border mergers and acquisitions between the United States and
China, he was recognized with the 2017 M&A Leadership Award and the 2019 Lifetime Achievement Award from the China Mergers & Acquisitions
Association and is Co-Chairman of the Global M&A Council of 18 member countries. Mr. Fergusson is a respected speaker on the subjects
of financial services and corporate transformation and social innovation at prominent educational institutions including Cambridge, Columbia,
Harvard, MIT and Cornell; a participant in leadership assemblies including the Vatican, World Economic Forum at Davos, World Bank and
the International Monetary Fund; and a frequent contributor to major media organizations. He is also the editor of 5 annual editions of
the mergers and acquisitions handbook – “The Best Practices of The Best Dealmakers” series with a readership of more
than 500,000 in over 60 countries. Mr. Fergusson is also the co-author of the bestselling book “The transHuman Code”. Recipient
of the 2015 Albert Schweitzer Leadership Award for his work in global youth leadership development, Mr. Fergusson is a Trustee and former
President of Hugh O’Brien Youth Leadership (HOBY), the world’s largest social leadership foundation for high school students.
Mr. Fergusson is also a founding member of the City of London’s Guild of Entrepreneurs, a member of British American Business, and
of the Association for Corporate Growth (ACG). Mr. Fergusson is a graduate of Kings College School and the University of Guelph in Canada,
where he earned a Bachelor of Arts in Political Studies.
Danil Kerimi was appointed
to our board of directors on November 1, 2023. Mr. Kerimi is an experienced technology and public relations executive with a track record
of delivering impactful projects in corporate strategy, national and corporate digital transformation, tech and economic diplomacy in
developed, emerging and frontier markets. After working with the United Nations Terrorism Prevention Branch and the Organization for Security
and Cooperation in Europe after 9/11, Danil joined the World Economic Forum (WEF) during the Global Financial Crisis and over the period
of 12 years served on the Leadership Teams in the Centers for Global Industries, Global Technology Governance and Regional Strategies.
He was posted in Beijing, Geneva and New York and helped developing the Network for Global Technology Governance of the Centres for the
Fourth Industrial Revolution around the world. Danil oversaw technology industry helping reorganize the organization toward digital economy.
He pioneered Forum’s engagement with the digital policy community and created various toolkits and initiatives aimed at increasing
boards oversight of various emerging technology and geo-economic issues in public and private companies around the world. He managed the
Global Councils on AI, A/VR, Cybersecurity, Geopolitics, Quantum, Transparency and Anticorruption.
After leaving WEF, Mr. Kerimi
co-founded the Edgelands Institute (Switzerland), helped establish a national fellowship for Diversity, Equity and Inclusion (USA) and
advised start-ups, corporates, municipal, regional and national governments and international organizations. He regularly contributes
to the initiatives that aim to promote competitiveness, increase productivity, and modernize public services delivery. Danil is working
on the impact of AI and cognitive/neuro tech on the future of talent with several intergovernmental, academic and industry bodies, advising
them on preparing their workforce, financial services, and portfolio companies to face emerging tech risks and opportunities. He has been
elected to serve on the Independent Oversight Committee of the World Intellectual Property Organization, mandated to promote internal
controls, review the effectiveness and operational independence of the internal oversight function, and review and advise on the ethics
function.
Mr. Kerimi is an Affiliated
Fellow at Arrell Future of Food Institute and Berkman-Klein Center on Internet and Society at Harvard. He is a graduate of Shandong University
(LLB), Diplomatic Academy of Vienna (MA), and various executive courses at CEIBS, Columbia, FT, Harvard, IMD, INSEAD, LBS, MIT, NUS and
Wharton. He was a Global Leadership Fellow at the World Economic Forum, Sr. Fellow at Korea Media Governance Lab and FuXi Institute for
Digital Economy. He is a doctoral candidate at the Technical University of Munich/Bavarian School of Governance.
Eric Pellaton was appointed
to our board of directors on March 10, 2023. Mr. Pellaton is an investor in several startup companies involved in different fields: in
Real Estate Holdings, Sofia Rental (Bulgaria), a company that buys, sells and manages apartments and a luxury hotel, where has been a
partner and investor since 2000; in ZeroBoundary Inc (USA), from 2001 until 2018, a company involved in project management and leadership
development products and services, in face-to-face and e-learning delivery formats which he co-founded; in Pelican Packaging (USA), a
company involved in die packaging for the semiconductor industry, where he acted as partner and investor from 2002 until 2007; in ACN
(Switzerland), a company that develops electronic chips that can transfer inter-net/video/audio information through the power line, and
in Seyonics (Switzerland), a company specialized in Nano liter dispensing system (syringe), where, in both cases, he has been acting as
investor and advisor since 2003; in Visage Pro USA, a company involved in skin care products with organic cream ranging from anti-aging
to burn issues, where he was a partner and investor between 2005 and 2018; and in Solar Rain (USA), a company involved in salt water and
dirty water purification systems for drinking water, where he has been a partner and investor since 2008. Prior to that, Mr. Pellaton
held different positions from sales, service, management, CEO and Chairman in the field of automation and robotics at Ismeca Group from
1981 to 2000. Ismeca was producing equipment for the Electronic, Medical, Watches and Car Industries all over the world. Mr. Pellaton
also owns a patent in RFID technology. Mr. Pellaton graduated as an Electronic/Electro technique Engineer from Ecole Technique Supérieure
du Locle, Switzerland.
Senior Management
John O’Hara was
appointed the Chief Financial Officer of SEALSQ on January 24, 2024. A qualified chartered accountant, Mr. O’Hara has many years
of experience in Controllership, Financial Planning and Analysis and Finance Transformation. Mr. O’Hara previously served as the
International Financial Controller of WISeKey International Holding AG. Prior to joining WISeKey in 2018, Mr. O’Hara worked for
Jesuit Worldwide Learning, where he served as the Global Financial Controller. Prior to joining Jesuit Worldwide Learning, Mr. O’Hara
spent three years with Deloitte LLP as the Finance Director for their Tax service line. Prior to joining Deloitte, Mr. O’Hara served
as the Financial Controller for Marsh and McLennan Companies for seven years. Prior to joining Marsh and McLennan Companies, Mr. O’Hara
served as the Group Accountant for Chelsea FC plc for three years. Prior to joining Chelsea FC plc, Mr. O’Hara worked for Grant
Thornton LLP in the audit department for six years. In addition to his chartered accountant qualification (FCA) with the Institute of
Chartered Accountants in England and Wales (ICAEW), UK, Mr. O’Hara holds a BA (Hons) in Economics from Durham University, UK.
Jean-Pierre Enguent
serves as our Vice President of Research and Development Systems and Solutions. Mr. Enguent is a key technology leader with 30 years of
experience in Microelectronics. He joined SEALSQ as Head of Development for Semiconductors Solutions, including R&D, System Engineering
and Global Security. Prior to joining WISeKey, Mr. Enguent spent 7 years at Inside Secure, 6 years at Atmel and 8 years at STMicroelectronics,
leading teams of engineers, scientists and technicians. He worked towards the development of Secure Microcontroller product portfolio
with more than 80 patents, publications and significant contributions to ISO standards. Mr. Enguent has been a founding member and strategic
adviser of InSeal, a France based company providing operating systems for contactless applications to a variety of customers in the payments
market. Mr. Enguent has an Engineering Degree in Microelectronics from the “Ecole Supérieure d’Ingénieur (ESIEE
Paris)” in France.
Bernard Vian serves
as General Manager of WISeKey Semiconductors SAS. Prior to our acquisition of WISeKey Semiconductors SAS, Mr. Vian served as the Executive
Vice President of the Secure Transaction Business Division, Vice President of Business Development and Executive Vice President for Secure
Payments at INSIDE Secure SA. He came to INSIDE Secure from Gemplus where he served in several positions in Sales Support and Marketing,
in Europe and lately in California where he opened the Gemplus North America headquarter and served as Technical Support Director for
5 years. Mr. Vian joined INSIDE Secure’s team in 2002 as Business Development Vice President. He is a graduate of the University
of Aix-Marseille, France, with an engineering degree in Electronic Systems. Our officers, and the other individuals providing services
to us or our subsidiaries may face a conflict regarding the allocation of their time between our business, on the one hand, and the business
interests of WISeKey or its affiliates, on the other hand. The amount of time our officers and such other individuals providing services
to us will allocate between our business and the business of WISeKey and its affiliates will vary from time to time depending on various
circumstances and needs of the businesses, such as the level of strategic activity of each business. While there will be no formal requirements
or guidelines for the allocation of time spent between our business and the other businesses they are involved in, the performance of
their duties will be subject to the ongoing oversight of our board of directors.
Family Relationship
There are no family relationships
among any of our executive and non-executive officers or directors.
Potential arrangements
There are no arrangements
or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected
as a director or member of senior management. However, Carlos Moreira has a significant shareholding in WISeKey as disclosed in the sections
“Certain Relationships and Related Party Transactions” and “Security Ownership of Certain Beneficial Owners.”
Share Ownership
Except as described below,
as of the date of this prospectus, none of the members of the board of directors or senior management own shares or options on shares
in SEALSQ.
The shareholdings of the members
of the board of directors and senior management are as set out in the table below:
Name | |
SEALSQ Class F Shares | |
% of Class F Shares(3) | |
SEALSQ Ordinary Shares | |
% of Ordinary Shares |
Non-Executive Directors | |
| | | |
| | | |
| | | |
| | |
Ruma Bose | |
| — | | |
| — | | |
| — | | |
| — | |
Cristina Dolan | |
| — | | |
| — | | |
| — | | |
| — | |
David Fergusson | |
| — | | |
| — | | |
| — | | |
| — | |
Danil Kerimi | |
| — | | |
| — | | |
| — | | |
| — | |
Eric Pellaton | |
| — | | |
| — | | |
| — | | |
| — | |
Peter Ward | |
| 26 (2) | | |
| 0.01 | % | |
| 315 | | |
| <0.01 | % |
| |
| | | |
| | | |
| | | |
| | |
Executive Directors | |
| | | |
| | | |
| | | |
| | |
Carlos Moreira | |
| 51 (1) | | |
| 0.01 | % | |
| 95,325 | | |
| 0.55 | % |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Senior Management | |
| | | |
| | | |
| | | |
| | |
John O’Hara | |
| — | | |
| — | | |
| 412 | | |
| <0.01 | % |
Jean-Pierre Enguent | |
| — | | |
| — | | |
| — | | |
| — | |
Bernard Vian | |
| — | | |
| — | | |
| — | | |
| — | |
| (1) | Includes options to purchase 51 Class F Shares granted on March 10, 2023 pursuant to the F Share Option
Plan described in “— Equity Compensation Plan” below. The options expire on March 10, 2030. |
| (2) | Includes options to purchase 26 Class F Shares granted on March 10, 2023 pursuant to the F Share Option
Plan described in “— Equity Compensation Plan” below. The options expire on March 10, 2030. |
| (3) | As described in “Description of Shares,” each Class F Share has a number of votes per share
that would cause the total votes of all Class F Shares as a class to equal 49.99% of the voting power of all SEALSQ shares (or, if the
applicable voting standard is “a majority of the shares present in person or represented by proxy and entitled to vote on such matter”,
49.999999% of the voting power of shares present in person or represented by proxy and entitled to vote on such matter). |
Board of Directors
Our Articles provide that
our board of directors consists of a minimum of three (3) and a maximum of twelve (12) directors. We currently have seven members on our
board of directors. Each director shall be elected for a one-year term. Carlos Moreira and Peter Ward were appointed upon incorporation
of the Company on April 1, 2022 to serve until our next annual general shareholders meeting and until their successors are elected at
such next annual general meeting. Cristina Dolan, David Fergusson and Eric Pellaton were appointed on March 10, 2023 to so serve until
our next annual general shareholders meeting and until their successors are elected at such next annual general meeting. Ruma Bose was
elected on June 14, 2023 and Danil Kerimi was appointed on November 1, 2023 both to serve until our next annual general shareholders meeting
and until their successors are elected at such next annual general meeting. Please also refer to “—Directors and Senior Management”
above for further details regarding the periods of service of each of our current directors and senior managers.
Other than with respect to
our directors that are also executive officers, we do not have written agreements with any director providing for benefits upon the termination
of his or her engagement with our company.
As a foreign private issuer,
we are permitted to follow certain home country corporate governance practices instead of those otherwise required under Nasdaq’s
rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country
requirement.
Board Independence
Five of our seven directors,
Ruma Bose, Cristina Dolan, David Fergusson, Danil Kerimi and Eric Pellaton, are considered “independent” under the Nasdaq
rules, and therefore, we currently follow Nasdaq Listing Rule 5605 (b)(1), which requires an issuer to maintain a majority of independent
directors. We note that BVI law does not require an issuer to maintain a majority of independent directors. We are also not subject to
Nasdaq Listing Rule 5605 (b)(2), which requires that independent directors must have regularly scheduled meetings at which only independent
directors are present.
Committees of the Board of Directors
Our board of directors has
established an audit committee, a nomination and compensation committee, and a strategy committee.
Audit Committee
The Audit Committee consists
of three members, being David Fergusson, Eric Pellaton and Cristina Dolan, who were appointed by the board of directors. The audit committee
consists exclusively of members of our board of directors who are financially literate. Our board of directors has determined that all
members of the Audit Committee satisfy the “independence” requirements set forth in Rule 10A-3 under the Securities Exchange
Act and under the rules of Nasdaq. The members of the Audit Committee were appointed by our board of directors. The role of the Audit
Committee complies with BVI law (as applicable), but may not fully comply with the requirements of Nasdaq Listing Rule 5605(c)(1).
BVI law does not impose any
requirements to have an Audit Committee or on the charter of such audit committee. The audit committee is responsible for, among other
things:
| · | overseeing our accounting and financial reporting processes and the audits of our financial statements; |
| · | the compensation, retention and oversight of the work of our independent registered public accounting
firm and auditors who are appointed by the Company; |
| · | our accounting policies, financial reporting and disclosure controls and procedures; |
| · | the quality, adequacy and scope of external audit; |
| · | our accounting compliance with financial reporting requirements; and |
| · | the management’s approach to internal controls with respect to the production and integrity of the
financial statements and disclosure of our financial performance. |
Nomination and Compensation
Committee
Our Nomination and Compensation
Committee consists of three members, being Cristina Dolan, David Fergusson and Eric Pellaton. Our board of directors has determined that
each of the members of the Nomination and Compensation Committee is independent under Nasdaq’s listing standards. We follow our
home country standards with respect to the responsibilities of our Nomination and Compensation Committee. BVI law does not impose any
requirements to have a Nomination and Compensation Committee or on the charter of such nomination and compensation committee.
The primary purpose of our
Nomination and Compensation Committee is to discharge our board of directors’ responsibilities to oversee our compensation policies,
plans and programs, and to review and determine the compensation to be paid to our executive officers, directors and other senior management,
as appropriate.
The Nomination and Compensation
Committee is responsible, among other things to:
| · | review and recommend to our board of directors the compensation of our directors; |
| · | review and approve, or recommend that our board of directors approve, the terms of compensatory arrangements
with our executive officers; |
| · | review and approve, or recommend that our board of directors approve, incentive compensation and equity
plans, and any other compensatory arrangements for our executive officers and other senior management, as appropriate; |
| · | identify, evaluate and select, or recommend that our board of directors approve nominees for election
to our board of directors and new members of the executive management and their terms of employment; and |
| · | consider and make recommendations to our board of directors regarding the composition of the committees
of the board of directors. |
Strategy Committee
Our Strategy Committee consists
of two members of the board of directors: Carlos Moreira (Chairman), and Peter Ward, in addition to two members of our management team,
Bernard Vian and Jean-Pierre Enguent. The Strategy Committee advises the board of directors on all strategic matters, including acquisitions,
investments, product development and technological developments. The Strategy Committee continuously reviews our strategic direction and
assesses the impact of changes in the environment on us. The members of the Strategy Committee are appointed by our board of directors.
Quorum requirements
In accordance with BVI law
and generally accepted business practices, our Articles provide that a shareholders’ meeting will be duly constituted if, at the
commencement of the meeting, there are present in person or by proxy not less than 50% of the votes of the shares entitled to vote on
resolutions of shareholders to be considered at the meeting. Our practice varies from Nasdaq Listing Rule 5620(c), which requires that
such quorum may not be less than one-third of the outstanding voting stock.
Solicitation of proxies
We must submit to shareholders
notice of any shareholders’ meeting not less than twenty calendar days prior to the meeting date, indicate in such notice the items
on the agenda of the meeting and provide together therewith other relevant documents for the meeting, such as any documents to be considered,
the meeting admission card (if any) and the proxy card (if any).
However, BVI law does not
have a regulatory regime for the solicitation of proxies, and thus, our practice varies from Nasdaq Listing Rule 5620(b), which sets forth
certain requirements regarding the solicitation of proxies.
Shareholder approval
Under BVI law and our
Articles, we are not generally required to obtain shareholder approval for the issuance of new securities. To some extent, our
practice therefore varies from the requirements of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain
shareholder approval for the issuance of securities in connection with certain events.
Third party compensation
Neither BVI law nor our
Articles require that we disclose information regarding third party compensation of our directors or director nominees. As a result,
our practice varies from the third party compensation requirements of Nasdaq Listing Rule 5250(b)(3).
Related party transactions
Our board of directors, or
a committee of our board of directors composed of directors not subject to the potential conflict, is required to conduct an appropriate
review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis.
Code of Conduct
We have followed BVI law,
which does not require a company to have a Code of Conduct applicable to all directors, officers and employees. As a result, our practice
varies from Nasdaq Listing Rule 5610, which requires a publicly available Code of Conduct. We do, however, expect ethical behavior from
all of our directors, officers and employees and as a matter of BVI law, directors do have certain statutory and fiduciary duties. Please
refer to “Certain British Virgin Islands Company Considerations —Directors’ fiduciary duties” below for further
details.
Director and Executive Compensation
Our Chief Executive Officer
and Chief Financial Officer, who also serve as members of our board of directors, will not receive additional compensation for their service
as a director.
Each independent director
also serving on the board of directors of WISeKey receives annualized fees of $25,000, to be issued as share options under the intended
Employee Share Option Plan (“ESOP”), plus reimbursement of their out-of-pocket expenses incurred in attending meetings of
our board of directors or any committee of our board of directors. Each independent director may also receive options under the F Share
Option Plan as a one-off award and not an annual compensation.
Each other independent director
receives annualized fees of $125,000, to be issued as a mix of cash and share options under the intended Employee Share Option Plan (“ESOP”),
plus reimbursement of their out-of-pocket expenses incurred in attending meetings of our board of directors or any committee of our board
of directors. Each independent director may also receive options under the F Share Option Plan as a one-off award and not an annual compensation.
SEALSQ Corp has no direct
employees currently. The services of our Chief Executive Officer and Chief Financial Officer are provided under the service agreements
with WISeKey International Holding Ltd. initially for the first 12 months following the Spin-Off Distribution, and then our board of directors
will agree upon any additional management compensation. WISeKey compensates these individuals for their services and we, in turn, reimburse
WISeKey for their compensation. We expect to pay to WISeKey at least $1.5 million per annum for the services of our executive officers
based upon current service levels. See “Business—Material Contracts” for a description of the service agreements. The
Company anticipates entering into direct employment relationships with its executive officers in the current year.
Our executive officers and
directors are also eligible to receive awards under our contemplated equity compensation plan described below under “--Equity Compensation
Plan.” Except as set forth above under “—Share Ownership” we have not granted any awards to directors or officers
of the Company.
Equity Compensation Plans
We intend to implement an
Employee Share Option Plan (“ESOP”) for the benefit of our directors, employees and consultants. Options issued under the
ESOP would entitle the participant to SEALSQ Ordinary shares at the ratio of 1:1, at an exercise price equal to the nominal value of SEALSQ
Ordinary shares of USD0.01. Each grant is subject to the approval of the SEALSQ board of directors who may, in line with the terms and
conditions of the ESOP, amend the terms of the grant.
We have implemented an F Share
Option Plan for the benefit of executive and non-executive directors and senior management of SEALSQ, its subsidiaries and its parent.
Options issued under the F Share Option Plan entitle the participant to SEALSQ Class F Shares at the ratio of 1:1, at an exercise price
equal to the nominal value of SEALSQ Class F Shares of USD0.05, with immediate vesting. Each grant is subject to the approval of the SEALSQ
board of directors which may, in line with the terms and conditions of the F Share Option Plan, amend the terms of the grant. Class F
shareholders are required to enter into the Class F Shareholders’ Agreement, the material terms of which are described under “Business—Material
Contracts” above.
Employees
As at June 30, 2023, our group
had 60 employees, of which 56 were located in France. The following table shows the breakdown of our workforce of employees and contractors
by category of activity as at the dates indicated:
Headcount breakdown |
As at
June 30, |
|
|
Area of Activity |
2023 |
2022 |
Cost of sales |
5 |
5 |
Research and development |
23 |
16 |
Selling and marketing |
18 |
15 |
General and administrative |
14 |
13 |
Total |
60 |
49 |
Heacount breakdown |
As at December 31,
|
Area of Activity |
2022 |
2021 |
2020 |
Cost of sales |
5 |
4 |
4 |
Research and development |
20 |
14 |
25 |
Selling and marketing |
15 |
16 |
16 |
General and administrative |
14 |
11 |
14 |
Total |
54 |
45 |
59 |
With respect to French employees,
French labor laws govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees,
determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination
laws and other conditions of employment. French labor laws also impose the creation of a worker’s council for companies employing
50 people or more. Although WISeKey Semiconductors SAS reduced its headcount to below 50 in 2021, the workers’ council has been
elected for a term ending in January 2023 but has remained in place after the end of its term in anticipation of the new hires planned
in 2022 which brought the headcount above 50 thereby imposing the creation of a worker’s council again. There are no employees of
WISeKey Semiconductors SAS representing labor unions at the workers’ council.
As at June 30, 2023, we also
had 1 team member in Germany and 3 team members in the United States who are employed by fellow subsidiary undertakings of WISeKey, and
whose salaries and associated benefits are charged to SEALSQ on a cost-plus basis.
We have never experienced
any labor-related work stoppages or strikes and believe our relationships with our employees and independent contractors are agreeable.
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
As of the date of this prospectus,
WISeKey owned approximately 35% of our Ordinary Shares and 100% of our Class F Shares. SEALSQ is reserving up to 5% of its Class F
Shares for issuance pursuant to an F Share Option Plan for the benefit of certain directors and senior management of SEALSQ, its
subsidiaries and its parent, as a result of which WISeKey’s percentage ownership of SEALSQ Class F Shares is subject to the
grant and exercise of Class F Share Options. WISeKey has informed us that it is considering whether to implement a mechanism by
which holders of WISeKey Class B Shares would be able to exchange some of their WISeKey Class B Shares for WISeKey Class A Shares
and/or for SEALSQ Class F Shares that WISeKey holds, subject to certain contractual and regulatory limitations (including compliance
with applicable takeover laws and regulations), and to limitations that may be imposed by the WISeKey and SEALSQ boards of
directors. Any such conversions would reduce WISeKey’s percentage ownership of SEALSQ Class F Shares. Our Articles provide
that, in the event of a change of control (being the acquisition by any person or entity, alone or jointly, of more than 50% of the
voting rights of any Class F Shareholder which is a corporate entity), as determined by SEALSQ’s board of directors, the Class
F Shares owned by such Class F Shareholder will be subject to a mandatory and automatic redemption by SEALSQ in exchange for the
issuance of new Ordinary Shares at a ratio of five (5) Ordinary Shares for each one (1) Class F Share redeemed. A change in the
control of WISeKey would trigger this provision as it is a corporate entity holding Class F Shares.
Upon completion of a mandatory
redemption, the remaining Class F Shareholders, who are likely to be members of SEALSQ’s board of directors and senior management,
would hold shares with 49.99% of the Company’s voting power. The mandatory redemption of such Class F Shares, and the issuance of
five (5) Ordinary Shares for each one (1) Class F Share redeemed, (in accordance with above) would result in a dilution of the per share
voting power of the holders of our Ordinary Shares. See the section “Security Ownership of Certain Beneficial Owners” for
more information.
Related party transactions and balances
|
|
Receivables as at |
Payables as at |
Net expenses to |
Net income from |
|
Related Parties |
June 30, |
December 31, |
June 30, |
December 31, |
in the 6 months ended June 30, |
in the 6 months ended June 30, |
|
(in
USD'000) |
2023 (unaudited) |
2022 |
2023 (unaudited) |
2022 |
2023 (unaudited) |
2022 (unaudited) |
2023 (unaudited) |
2022 (unaudited) |
1 |
WISeKey International Holding AG |
— |
— |
9,656
|
7,122
|
1,898
|
359
|
—
|
—
|
2 |
WISeKey SA |
— |
— |
— |
— |
— |
— |
|
|
3 |
WISeKey USA Inc |
— |
— |
646
|
154
|
492
|
255
|
—
|
—
|
4 |
WISeKey Semiconductors GmbH |
— |
— |
870
|
773
|
81
|
92
|
—
|
—
|
5 |
WISeCoin AG |
— |
— |
3,349
|
3,306
|
37
|
44
|
—
|
—
|
|
Total |
— |
— |
14,521
|
11,355
|
2,508
|
750
|
—
|
—
|
|
Related Parties
(in USD'000)
|
Receivables as at
December 31, |
Payables as at
December 31, |
Net expenses to
in the year ended December 31, |
Net income from
in the year ended December 31, |
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
1 |
WISeKey
International Holding AG |
— |
— |
7,122 |
10,889 |
796 |
526 |
— |
— |
2 |
WISeKey SA |
— |
— |
— |
382 |
— |
94 |
— |
128 |
3 |
WISeKey USA Inc |
— |
|
154 |
883 |
558 |
883 |
— |
— |
4 |
WISeKey Semiconductors GmbH |
— |
— |
773 |
615 |
105 |
401 |
— |
— |
5 |
WISeCoin AG |
— |
— |
3,306 |
3,238 |
86 |
90 |
— |
— |
|
Total |
— |
— |
11,355 |
16,017 |
1,555 |
1,994 |
— |
128 |
|
Related Parties
(in USD'000) |
Receivables as at
December 31, |
Payables as at
December 31, |
Net expenses to
in the year ended December 31, |
Net income from
in the year ended December 31, |
|
2021 |
2020 |
2021 |
2020 |
2021 |
2020 |
2021 |
2020 |
1 |
WISeKey International Holding
AG |
— |
— |
10,899 |
7,187 |
526 |
1,072 |
— |
— |
2 |
WISeKey SA |
— |
— |
382 |
1,751 |
94 |
965 |
128 |
— |
3 |
WISeKey USA Inc |
— |
— |
883 |
— |
883 |
— |
— |
— |
4 |
WISeKey Semiconductors GmbH |
— |
— |
615 |
219 |
401 |
161 |
— |
— |
5 |
WISeCoin AG |
— |
— |
3,238 |
3,169 |
90 |
90 |
— |
— |
|
Total |
— |
— |
16,017 |
12,326 |
1,994 |
2,288 |
128 |
— |
Description of the Related Party Transactions
The following provides a description
of the nature of the related party transactions and balances as at and for the six months ended June 30, 2023 and for the years ended
December 31, 2022, 2021 and 2020.
1. The SEALSQ Group is
controlled by WISeKey, which provides financing and management services. The expenses in relation to
WISeKey in the 6 months ended June 30, 2023 and the years ended December 31, 2022, 2021 and 2020 all relate
to interest on the outstanding loans and the recharge of management services.
On October 1, 2016, the SEALSQ
Group entered into a Revolving Credit Agreement (the “Revolving Credit”) with its parent WISeKey International Holding AG
to borrow funds within a credit period starting on October 1, 2016 and ending on December 31, 2017 when all outstanding funds would become
immediately due and payable. Outstanding loan amounts bear an interest rate of 3% per annum. Repayments before the end of the credit period
are permitted. On November 1, 2017, the SEALSQ Group and WISeKey entered into the First Amendment to the Revolving Credit Agreement extending
the credit period by 2 years to December 31, 2019. On March 16, 2021, the SEALSQ Group and WISeKey entered into the Second Amendment to
the Revolving Credit Agreement extending the credit period by another 2 years to December 31, 2022.
On November 12, 2020, WISeKey
provided a Funding Commitment to extend shareholder loans (each the “Shareholder Loan”) to the SEALSQ Group for a maximum
aggregate amount of USD 4 million to be drawn down over six months from the date of the commitment, in instalments of between USD 1 million
and USD 1.5 million. The Shareholder Loans bear interest of 3% per annum. There are no set repayment dates for the Shareholder Loans.
On April 1, 2021, the SEALSQ
Group entered into a Debt Remission Agreement with WISeKey pursuant to which an outstanding amount of EUR 5 million (USD 5,871,714) owed
to WISeKey was remitted without any compensation from the SEALSQ Group. Per the terms of the Debt Remission, WISeKey will have the right
to reinstate the debt and ask for repayment in fiscal years when WISeKey Semiconductors SAS achieves a positive income before income tax
expense, in an amount calculated based on the income before income tax expense. As such, because of the repayment clause, the loan amounts
covered by the Debt Remission continue to be shown as noncurrent liabilities payable to WISeKey International Holding AG.
On June 28, 2021, the SEALSQ
Group entered into a Debt Transfer Agreement with its parent WISeKey International Holding AG and an affiliate of WISeKey, WISeKey SA,
pursuant to which WISeKey extended a loan of USD 1,463,664 to the SEALSQ Group to repay an overdue creditor balance in that same amount
owed to WISeKey SA. The loan bears interest at the rate of 3% per annum and was repayable by December 31, 2022.
On December 31, 2021, the
SEALSQ Group entered into a Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 1,910,754 to the SEALSQ
Group with an interest rate of 3% per annum, repayable on December 31, 2023.
As at December 31, 2021, the
SEALSQ Group owed WISeKey and WISeKey’s affiliates a total of USD 16,017,114, made up of loans under the above facilities and unpaid
management fees.
On June 30, 2022, the SEALSQ
Group entered into a Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 444,542 to the SEALSQ Group
with an interest rate of 3% per annum, repayable on December 31, 2024.
On August 31, 2022, the SEALSQ
Group entered into a Debt Transfer Agreement with WISeKey and WISeKey SA pursuant to which WISeKey extended a loan of USD 381,879 to the
SEALSQ Group with an interest rate of 3% per annum, repayable on December 31, 2024.
On December 15, 2022, and
in view of the negative equity position of the SEALSQ Group, WISeKey as sole shareholder of the SEALSQ Group resolved to recapitalize
the SEALSQ Group by forfeiting EUR 7 million (USD 7,348,397) out of the loans outstanding in exchange for the issuance of 175,000 new
shares in WISeKey Semiconductors SAS, par value EUR 1. Under French law, such a recapitalization is only possible if the loans to be forfeited
are immediately repayable. Therefore, respectively on November 1, 2022 and November 3, 2022, the SEALSQ Group entered into a First Amendment
to the Debt Transfer Agreements and into the Fourth Amendment to the Revolving Credit Agreement pursuant to which the loans owed under
the Debt Transfer Agreements dated June 28, 2021, December 31, 2021, June 30, 2022 and August 31, 2022 as well as all amounts due under
the Revolving Credit became due and payable on November 30, 2022.
As at June 30, 2023, the SEALSQ
Group owed WISeKey and WISeKey’s affiliates a total of USD
14,520,777 made up of loans under the above facilities and unpaid management fees.
Because of the requirement
under French law, we analyzed the amendment of the maturity of the loans and Revolving Credit as being part of the substance of the recapitalization
transaction. We assessed the recapitalization as a capital transaction between related parties in line with ASC 470-50 and, therefore,
recorded a credit entry of USD 183,710 in share capital corresponding to the new issue of 175,000 shares and a credit of USD 7,164,687
to additional paid-in capital, with a total debit entry of USD 7,348,397 to Indebtedness to related parties, noncurrent.
On December 31, 2022, the
SEALSQ Group entered into a Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 283,754 to the SEALSQ
Group with an interest rate of 3% per annum, repayable on December 31, 2024.
As at December 31, 2022, the
SEALSQ Group owed WISeKey and WISeKey’s affiliates a total of USD 11,354,925, made up of Shareholder Loans and unpaid management
fees.
On January 1, 2023, the SEALSQ
Group entered into a loan agreement with WISeKey (the “New Loan”) which replaced all outstanding loan agreements. Per the
terms of the New Loan, WISeKey extended a loan to the SEALSQ Group of up to USD 5 million, with an interest rate of 2.5% per annum, repayable
on December 31, 2024. A first tranche loan of USD 1,407,497 was drawn on January 1, 2023, which was made up of the balance of USD 1,198,746
outstanding from previous loan agreements as at December 31, 2022 and an additional loan amount of USD 208,751.
As at June 30, 2023, the Group
owed WISeKey and WISeKey’s affiliates noncurrent debts in an aggregate amount of USD 12,375,515 and the unamortized effective interest
balance was USD 189,110, hence a carrying value of USD 12,186,405 as at June 30, 2023, made up of loans and unpaid management fees. In
the six months ended June 30, 2023, an aggregate effective interest expense of USD 54,981 was recorded in the income statement.
As at June 30, 2023, the Group
also held an accounts payable balance of USD 2,145,262 with WISeKey in relation to interest on outstanding loans and the recharge of management
services, classified as accounts payable to shareholders.
2. WISeKey SA is a subsidiary
of the group headed by WISeKey International Holding AG (the “WISeKey Group”) and provides management services to the SEALSQ
Group. The expenses in relation to WISeKey SA in 2021 and 2020 relate to interest on the outstanding loans and the recharge of management
services.
3. WISeKey
USA Inc is part of the WISeKey Group and employs sales employees who work for the SEALSQ Group. The expenses in relation to WISeKey USA
Inc. in the 6 months ended June 30, 2023 and in the years ended December 31, 2022,2021and 2020 relate to the recharge of employee costs.
4. WISeKey
Semiconductors GmbH is part of the WISeKey Group and employs sales employees who work for the SEALSQ Group. The expenses in relation to
WISeKey Semiconductors GmbH in the 6 months ended June 30, 2023 and in the years ended December 31, 2022, 2021 and 2020 relate to the
recharge of employee costs.
5. WISeCoin
AG is part of the WISeKey Group. The expenses recorded in the year ended December 31, 2022 and 2021 relate to interest on the outstanding
loans. The expenses recorded in the year ending December 31, 2020 relate to interest on the outstanding loans and the recharge of management
services.
See also the subsections titled
“Business—Material Contracts” and “Management—Share Ownership.”
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
The following table sets forth
information with respect to the beneficial ownership of our Ordinary Shares for each beneficial owner of 5% or more of our Ordinary Shares.
Beneficial ownership is
determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons
who possess sole or shared voting power or investment power with respect to those securities and include shares issuable upon the
exercise of options, warrants or other rights that are immediately exercisable or exercisable within 60 days of February 6, 2024.
Percentage ownership calculations are based on 17,227,122 fully-paid and outstanding Ordinary Shares as of February 6, 2024.
Name of beneficial owner |
Total Ordinary Shares |
Total % of Outstanding Ordinary Shares |
|
|
|
WISeKey International Holding AG(1) |
6,001,200 |
34.84%(2) |
| (1) | The largest single shareholder of WISeKey is Carlos Moreira, the Chief Executive Officer of SEALSQ. The
table below sets forth information with respect to Mr. Moreira’s ownership of the Class A and Class B Shares of WISeKey as at February
6, 2024. |
| (2) | WISeKey initially owned 100% of our Class F Shares. SEALSQ is reserving up to 5% of its Class F Shares
for issuance pursuant to an F Share Option Plan for certain directors and senior management of SEALSQ, its subsidiaries and its parent.
As a result, WISeKey’s initial ownership percentage of Class F Shares is subject to the grant and exercise of SEALSQ Class F Share
Options from time to time. Mr. Moreira was granted options to purchase 51 Class F Shares, which were granted on March 10, 2023 pursuant
to the F Share Option Plan described in “Management—Equity Compensation Plans”. Mr. Ward was granted options to purchase
26 Class F Shares, which were granted on March 10, 2023 pursuant to the F Share Option Plan described in “Management—Equity
Compensation Plans”. As described in “Description of Shares,” each Class F Share has a number of votes per share that
would cause the total votes of all Class F Shares as a class to equal 49.99% of the voting power of all SEALSQ shares (or, if the applicable
voting standard is “a majority of the shares present in person or represented by proxy and entitled to vote on such matter”,
49.999999% of the voting power of shares present in person or represented by proxy and entitled to vote on such matter). |
Name of beneficial owner |
Total WISeKey
Class A Shares |
Total WISeKey
Class B Shares |
Total % of
Outstanding
WISeKey Class A
Shares(i) |
Total % of
Outstanding
WISeKey Class B
Shares(i) |
% WISeKey
Voting Power(ii) |
Carlos Moreira |
1,593,460(ii) |
65,812ii) |
99.5 |
2.0 |
33.4 |
| (i) | Based on the total number of fully paid-in outstanding WISeKey Class A Shares and WISeKey Class B Shares
as at February 6, 2024. |
| (ii) | Based on the total number of fully paid-in outstanding WISeKey Class A Shares and WISeKey Class B Shares
as at February 6, 2024. |
SELLING SHAREHOLDERS
This prospectus relates to the possible offer
and resale from time to time by the Selling Shareholders of up to 45,000,000 Ordinary Shares that have been or may be issued by us to
the Selling Shareholders pursuant to the Second Tranche Notes and the Second Tranche Warrants that are held by the Selling Shareholders.
For additional information regarding the issuance of the Ordinary Shares to be offered by the Selling Shareholders included in this prospectus,
see the section titled “Convertible Note Financing.” We are registering the Ordinary Shares included in this prospectus pursuant
to the provisions of the Registration Rights Agreement in order to permit the Selling Shareholders to offer for resale from time to time
the Ordinary Shares that may be acquired under the Second Tranche Notes and the Second Tranche Warrants. All of the data in the following
tables is as of February 6, 2024.
The table below sets forth, as of February 6,
2024, the following information regarding the Selling Shareholders:
| · | the number of Ordinary Shares owned by the Selling Shareholders prior to this offering, taking into account
the beneficial ownership limitations contained in the Initial Notes and Initial Warrants (as described below); |
| · | the number of Ordinary Shares to be offered by the Selling Shareholders in this offering; |
| · | the number of Ordinary Shares to be owned by the Selling Shareholders assuming the sale of all of the
Ordinary Shares covered by this prospectus; and |
| · | the percentage of our issued and outstanding to be owned by the Selling Shareholders assuming the sale
of all of the Ordinary Shares covered by this prospectus based on 17,227,122 Ordinary Shares issued and outstanding as of February 6,
2024. |
Under the terms of the Second Tranche Notes and
the Second Tranche Warrants, the Selling Shareholders may not convert the Second Tranche Notes or exercise the Second Tranche Warrants
to the extent (but only to the extent) such Selling Shareholder (together with any affiliated parties) would beneficially own a number
of Ordinary Shares which would exceed 4.99% of the outstanding Ordinary Shares of the Company (the “Maximum Percentage”).
This limitation may be increased to 9.99% upon written notice by a Selling Shareholder.
Except as described above, the number of Ordinary
Shares beneficially owned by the Selling Shareholders has been determined in accordance with Rule 13d-3 under the Securities Exchange
Act and includes, for such purpose, Ordinary Shares of common stock that the Selling Shareholders have the right to acquire within 60
days of the date of effectiveness of this registration statement. All information with respect to the Ordinary Share ownership of the
Selling Shareholders has been furnished by or on behalf of the Selling Shareholders. We believe, based on information supplied by the
Selling Shareholders, that except as may otherwise be indicated in the footnotes to the table below, each Selling Shareholder has sole
voting and dispositive power with respect to the Ordinary Shares reported as beneficially owned by it. Because the Selling Shareholders
may sell some or all of the Ordinary Shares beneficially owned by them and covered by this prospectus, and because there are currently
no agreements, arrangements or understandings with respect to the sale of any of the Ordinary Shares, no estimate can be given as to the
number of Ordinary Shares available for resale hereby that will be held by the Selling Shareholders upon termination of this offering.
In addition, the Selling Shareholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose
of, at any time and from time to time, the Ordinary Shares it beneficially owns in transactions exempt from the registration requirements
of the Securities Act after the date on which it provided the information set forth in the table below. We have, therefore, assumed for
the purposes of the following table, that the Selling Shareholders will sell all of the Ordinary Shares owned beneficially by it that
are covered by this prospectus, but will not sell any other Ordinary Shares, if any, that it presently owns.
Selling Shareholders |
Beneficial Ownership Before the Offering (3) |
Number of
Shares
Being Offered (3) |
Beneficial
Ownership
After the Offering (3) |
Percentage
of
Ownership
After the Offering |
L1 Capital Global Opportunities Master Fund (“L1 Capital”)(1)(2) |
859,633 |
22,500,000 |
0 |
0% |
Anson Investments Master Fund LP (“Anson”)(1)(4) |
859,633 |
22,500,000 |
0 |
0% |
| (1) | The percentages in the table have been calculated on the basis of treating as outstanding for a particular
person, all our Ordinary Shares outstanding on February 6, 2024. On February 6, 2024, there were 17,227,122 Ordinary Shares outstanding. |
| (2) | David Feldman and Joel Arber are the Directors of L1 Capital Global Opportunities Master Fund, Ltd. As such they may be deemed to be beneficial
owners of such securities. To the extent Mr. Feldman and Mr. Arber are deemed to beneficially own such securities, Mr. Feldman and Mr.
Arber disclaim beneficial ownership of these securities for all other purposes. The business address of L1 Capital Global Opportunities
Master Fund., Ltd. is 161A Shedden Road, 1 Artillery Court, PO Box 10085, Grand Cayman KY1-1001, Cayman Islands. |
| (3) | This column lists the number of Ordinary Shares beneficially owned by each Selling Shareholder after giving
effect to the Maximum Percentage (as defined above). Without regard to the Maximum Percentage, each Selling Shareholder would beneficially
own (i) 1,144,339 Ordinary Shares issuable upon exercise of the Second Tranche Warrant, currently exercisable at an exercise price of
$4.00 per Ordinary Share, plus (ii) 9,090,909 Ordinary Shares issuable upon the conversion of the principal on the Second Tranche Note,
assuming the Second Tranche Note was converted at the current Floor Conversion Price of $0.55. Beneficially owned shares do not include
an additional 12,264,752 Ordinary Shares reserved for anti-dilution and other adjustments that may affect the total number of Ordinary
Shares obtainable upon conversion of the Second Tranche Notes or upon exercise of the Second Tranche Warrants, as described in the section
titled “Convertible Note Financing”, but such reserved Ordinary Shares are included in the total number of Ordinary Shares
being offered by this prospectus. Because the conversion price of the Second Tranche Notes and the exercise price of the Second Tranche
Warrants may be adjusted, the number of Ordinary Shares that will actually be issued may be more or less than the number of Ordinary Shares
being offered by this prospectus. |
| (4) | Anson Advisors Inc and Anson Funds Management LP, the Co-Investment Advisers of Anson Investments Master Fund LP (“AIMF”),
hold voting and dispositive power over the Common Shares held by AIMF. Tony Moore is the managing member of Anson Management GP LLC, which
is the general partner of Anson Funds Management LP. Moez Kassam and Amin Nathoo are directors of Anson Advisors Inc. Mr. Moore, Mr. Kassam
and Mr. Nathoo each disclaim beneficial ownership of these Common Shares except to the extent of their pecuniary interest therein. The
principal business address of AIMF is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. |
Material Relationships with Selling Shareholders
Other than in connection with the transactions
described above and in the section titled “Convertible Note Financing”, we have not had any material relationships with the
Selling Stockholder in the last three (3) years. Our parent company, WISeKey International Holding AG, has outstanding convertible note
facilities with the Selling Shareholders, as described in WISeKey’s filings with the SEC.
CERTAIN BRITISH
VIRGIN ISLANDS COMPANY CONSIDERATIONS
British Virgin Islands companies
are governed by the BVI Act. The BVI Act is modeled on the laws of England and Wales but does not follow recent statutory enactments,
and differs from laws applicable to United States corporations and their shareholders.
Set forth below is a comparison
of select provisions of the corporate laws of Delaware and the British Virgin Islands showing the default positions in each jurisdiction
that govern shareholder rights.
DELAWARE CORPORATE LAW
|
BVI CORPORATE LAW
|
Class actions and derivative actions generally are available to shareholders of a Delaware corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action. |
Class actions and derivative actions are generally
not available to shareholders under British Virgin Islands law.
The British Virgin Islands courts, however,
would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where
the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s
memorandum and articles of association. Furthermore, consideration would be given by a British Virgin Islands court to acts that are alleged
to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of
the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted
in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to
the High Court of the British Virgin Islands, which may make such order as it sees fit, including an order regulating the conduct of the
company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.
|
Under the Delaware General Corporation Law, the board of directors has the authority to fix the compensation of directors, unless otherwise restricted by the certificate of incorporation or bylaws. |
The Articles contain a provision that the board of directors has the power to determine the remuneration, if any, of the directors. |
Unless directors are elected by written consent
in lieu of an annual meeting, directors are elected in an annual meeting of stockholders on a date and at a time designated by or in the
manner provided in the bylaws. Re-election is possible.
Classified boards are permitted.
|
The Articles provide that the directors
shall be appointed at the Company’s annual general meeting and will hold office until the next annual general meeting or until
their earlier death, resignation or removal. Re-election is not possible.
The directors of the Company may appoint directors
where there is a vacancy.
|
DELAWARE
CORPORATE LAW
|
BVI CORPORATE LAW |
The Delaware General Corporation Law provides
that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of directors (but not other
controlling persons) of the corporation for monetary damages for breach of a fiduciary duty as a director, except no provision in the
certificate of incorporation may eliminate or limit the liability of a director for:
· any
breach of a director’s duty of loyalty to the corporation or its shareholders;
· acts
or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
· statutory
liability for unlawful payment of dividends or unlawful stock purchase or redemption; or
· any
transaction from which the director derived an improper personal benefit.
A Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any proceeding, other than an action by or on behalf of the corporation,
because the person is or was a director or officer, against liability incurred in connection with the proceeding if the director or officer
acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation; and the director
or officer, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Unless ordered by a court, any foregoing indemnification
is subject to a determination that the director or officer has met the applicable standard of conduct:
·
by a majority vote of the directors who are not parties to the proceeding, even though less than a quorum;
·
by a committee of directors designated by a majority vote of the eligible directors, even though less than a quorum;
·
by independent legal counsel in a written opinion if there are no eligible directors, or if the eligible directors so direct; or
·
by the shareholders.
Moreover, a Delaware corporation may not indemnify
a director or officer in connection with any proceeding in which the director or officer has been adjudged to be liable to the corporation
unless and only to the extent that the court determines that, despite the adjudication of liability but in view of all the circumstances
of the case, the director or officer is fairly and reasonably entitled to indemnity for those expenses which the court deems proper.
|
Section 132 of the Companies Act, and the
Articles, provide that, subject to certain limitations, SEALSQ shall indemnify its directors and officers against all expenses, including
legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative
or investigative proceedings. Such indemnity only applies if the person acted honestly and in good faith with a view to the best interests
of the company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful.
Section 133 of the BVI Act permits a
company to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching
to them in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such
officer or director.
|
DELAWARE CORPORATE LAW
|
BVI
CORPORATE LAW |
A director of a Delaware corporation has a
fiduciary duty to the corporation and its shareholders. This duty has two components:
·
the duty of care; and
·
the duty of loyalty.
|
· The
BVI Act imposes a duty on directors and officers of a British Virgin Islands company:
· to
act honestly and in good faith and in what the director believes to be in the best interests of the company when exercising their power as a director;
· to
exercise the reasonable care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account,
but without limitation: i. the nature of the company; ii. the nature of the decision; and iii. the position of the director and the nature
of their responsibilities;
· to exercise their duties for proper purpose and in accordance with the BVI Act and the memorandum and association of the company; and
· to
disclose any interest which they have in a transaction entered into or to be entered into by the company.
· The
statutory duties imposed on directors, by the BVI Act, are further supplemented by common law duties established (over centuries) of
case law. There is considerable overlap between the common law and the BVI Act and in most circumstances it is not necessary to consider
the two separately.
· In
addition, the BVI Act imposes various duties on directors and officers of a company with respect to certain matters of management
and administration of the company.
|
The duty of care requires that a director
act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director
must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction.
The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He
must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the
best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling
shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed
basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption
may be rebutted by evidence a breach of one of the fiduciary duties.
Should such evidence be presented concerning
a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value
to the corporation.
|
The BVI Act also imposes a duty on directors
and officers of a British Virgin Islands company to:
·
act honestly and in good faith with a view to the best interests of the company; and
·
exercise the care, diligence and skill that a reasonable director or officer would exercise in the same circumstances.
In addition, the BVI Act imposes various duties
on directors and officers of a company with respect to certain matters of management and administration of the company.
|
A Delaware corporation may, in its certificate of incorporation, eliminate the right of shareholders to act by written consent. |
The BVI Act
provides that shareholders may take action by written consent. Under the Articles a resolution in writing is passed when it is
signed by the shareholders of SEALSQ who at the date of the notice of the resolution represent such majority of votes of shares as
would be entitled to vote on such resolution. |
A shareholder of a Delaware corporation has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. |
Under the Articles, shareholders entitled to exercise 30% or more of the voting rights, in respect of the matter for which the meeting is requested, can require the directors to convene a meeting of shareholders. |
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation provides for it. |
Under British Virgin Islands law, the voting
rights of shareholders are regulated by the company’s memorandum and articles of association and, in certain circumstances, by the
BVI Act.
The Articles do not provide for cumulative
voting.
|
DELAWARE
CORPORATE LAW
|
BVI
CORPORATE LAW |
A Delaware corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. |
Under the Articles, a director may be removed:
· with
or without cause, by resolution of shareholders passed at a meeting of shareholders called for the purpose of removing the director or
for purposes including the removal of the director or by a written resolution passed by at least 75% of the votes of the shares entitled
to vote; or
· with
cause, by resolution of directors passed by all directors other than the director being removed at a meeting of directors called for
the purpose of removing the director or for purposes including the removal of the director.
|
The Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned 15.0% or more of the corporation’s outstanding voting stock within the past three years. |
There is no similar law in the British Virgin Islands. |
Unless the board of directors of a Delaware corporation approves the proposal to dissolve, dissolution must be approved by shareholders holding 100.0% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. |
As permitted by the BVI Act and our Articles, we may be voluntarily liquidated under Part XII of the BVI Act by resolution of directors and resolution of shareholders if we have no liabilities or we are able to pay our debts as they fall due and the value of our assets equals or exceeds our liability.
A company may also be wound up where a court deems it just and equitable to do so and in circumstances where they are insolvent in accordance with the terms of the BVI Insolvency Act. |
A Delaware corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. |
Under the Articles, the rights conferred upon the holders of our shares of any class may only be varied with the consent in writing of the holders of a majority of the issued shares of that class or by a resolution approved at a meeting of the shares of that class by the affirmative vote of a majority of the votes of the shares of that class which were present at the meeting and were voted. |
A Delaware corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. |
A British Virgin Islands company’s memorandum and articles of association may be amended by resolutions of the board of directors and the shareholders, subject to the BVI Act and the memorandum and articles of association. |
DELAWARE CORPORATE LAW |
BVI
CORPORATE LAW
|
Shareholders of a Delaware corporation, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to obtain copies of list(s) of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records of such subsidiaries are available to the corporation. |
Under the BVI Act, members of the general
public, on payment of a nominal fee, can obtain copies of the public records of a company available at the office of the BVI Registrar
which will include the company’s certificate of incorporation, its memorandum and articles of association (with any amendments), a list of the current directors
and records of license fees paid to date and will also disclose any articles of dissolution, articles of merger and a register of charges
if the company has elected to file such a register.
A shareholder of a company is entitled, on
giving written notice to the company, to inspect:
·
the memorandum and articles;
·
the register of members;
·
the register of directors; and
· the
minutes of meetings and resolutions of members and of those classes of members of which they are a member; and to make copies of or
take extracts from the documents and records referred to in above.
Subject to the memorandum and articles of
association, the directors may, if they are satisfied that it would be contrary to the company’s interests to allow a member to
inspect any document, or part of a document, specified above, refuse to permit the member to inspect the document or limit the inspection
of the document, including limiting the making of copies or the taking of extracts from the records.
Where a company fails or refuses to permit
a member to inspect a document or permits a member to inspect a document subject to limitations, that member may apply to a British Virgin
Islands Court for an order that they should be permitted to inspect the document or to inspect the document without limitation.
|
The board of directors may approve a dividend
without shareholder approval. Subject to any restrictions contained in its certificate of incorporation, the board may declare and pay
dividends upon the shares of its capital stock either:
·
out of its surplus, or
·
in case there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding
fiscal year.
Stockholder approval is required to authorize
capital stock in excess of that provided in the charter. Directors may issue authorized shares without stockholder approval.
|
Under British Virgin Islands law, the board
of directors may declare a dividend without shareholder approval, but a company may not declare or pay dividends if there are reasonable
grounds for believing that:
·
the company is, or would after the payment be, unable to pay its debts as they fall due; or
·
that the value of the company’s assets would be less than its liabilities.
|
All creation of shares require the board of directors to adopt a resolution or resolutions, pursuant to authority expressly vested in the board of directors by the provisions of the company’s certificate of incorporation. |
The number of shares that a British Virgin
Islands company is authorized to issue is set out in the memorandum and articles of association.
The Articles provide that the company is authorized
to issue 210,000,000 shares in two classes as follows:
·
200,000,000 Ordinary Shares; and
·
10,000,000 Class F Shares.
|
Under the Delaware General Corporation Law, with certain exceptions, a merger, consolidation, sale, lease or transfer of all or substantially all of the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. A shareholder of a Delaware corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction. The Delaware General Corporation Law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90.0% of each class of capital stock without a vote by the shareholders of such subsidiary. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights. |
The consolidation or merger of a British Virgin
Islands company with another company or corporation (other than certain affiliated companies) requires the consolidation or merger to
be approved by the company’s board of directors and by its shareholders. Unless the company’s memorandum and articles of association
provide otherwise, the approval of a majority of the shareholders voting at a meeting of shareholders is required to approve the consolidation
or merger agreement.
Under British Virgin Islands law, in the event
of a consolidation or merger of a British Virgin Islands company with another company or corporation, a shareholder of the British Virgin
Islands company who did not vote in favor of the amalgamation or merger and who is not satisfied that fair value has been offered for
such shareholder’s shares may seek fair value for those shares in accordance with Section 179 of the BVI Act.
|
DIVIDEND POLICY
We intend to keep any future
earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.
In accordance with the
BVI Act and our Articles, our board of directors may authorize and declare a dividend to shareholders at such time and of such an
amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our
assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further British Virgin
Islands statutory restriction on the amount of funds which may be distributed by us by dividend. The respective proportions of
dividends which may be due to Class F Shareholders and Ordinary Shareholders is set out in the Articles. Currently, the Articles
state that any dividends paid against each Ordinary Share shall be one fifth of any amount paid by the Company against each Class F
Share.
In addition, the Second Tranche Notes prohibit us and our subsidiaries from paying dividends or other cash distributions, except for intercompany
transfers to us and payments to WISeKey.
MATERIAL TAX CONSIDERATIONS
The following is a discussion
of the material British Virgin Islands, Swiss and United States federal income tax considerations applicable to SEALSQ and U.S. Holders
and Non-U.S. Holders, each as discussed below, of SEALSQ Ordinary Shares.
British Virgin Islands Tax Considerations
The Government of the British
Virgin Islands does not, under existing legislation, impose any income, corporate or capital gains tax, estate duty, inheritance tax,
gift tax or withholding tax upon our Company or our security holders who are not tax resident in the British Virgin Islands.
Our Company and all distributions,
interest and other amounts paid by our Company to persons who are not tax resident in the British Virgin Islands will not be subject to
any income, withholding or capital gains taxes in the British Virgin Islands, with respect to the shares in our Company owned by them
and dividends received on such shares.
No estate, inheritance, succession
or gift tax, rate, duty, levy or other charge is payable by persons who are not tax resident in the British Virgin Islands with respect
to any shares, debt obligations or other securities of our Company.
Except to the extent that
we have any direct or indirect interest in real property in the British Virgin Islands, all instruments relating to transactions in respect
of the shares, debt obligations or other securities of our Company and all instruments relating to other transactions relating to the
business of our Company are exempt from the payment of stamp duty in the British Virgin Islands.
There are currently no withholding
taxes or exchange control regulations in the British Virgin Islands applicable to our Company or our security holders.
U.S. Federal Income Tax Considerations
The following is a description
of certain U.S. federal income tax consequences to U.S. Holders, as defined below, of acquiring, owning and disposing of SEALSQ Ordinary
Shares. The following discussion is intended only as a summary and does not purport to be a complete description of all the potential
tax effects of the acquisition, ownership and disposition of SEALSQ Ordinary Shares. This discussion is based on the Code, administrative
pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between Switzerland
and the United States (the “US-CH Treaty”), all as of the date hereof, any of which is subject to change or differing interpretations,
possibly with retroactive effect. The tax treatment of the transactions discussed herein to holders will vary depending upon their particular
situations.
A “U.S. Holder”
is a holder who, for U.S. federal income tax purposes, is a beneficial owner of SEALSQ Ordinary Shares, as applicable, who is eligible
for the benefits of the US-CH Treaty and who is:
| · | a citizen or individual resident of the United States; |
| · | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of
the United States, any state therein or the District of Columbia; or |
| · | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
This discussion applies only
to a U.S. Holder that will hold SEALSQ Ordinary Shares as capital assets for U.S. federal income tax purposes. The discussion below does
not address any state, local or foreign or estate and gift tax laws, the Medicare contribution tax on net investment income, or the alternative
minimum tax. Furthermore, it does not address classes of U.S. Holders that may be subject to special rules, such as:
| · | banks, insurance companies, and certain other financial institutions; |
| · | dealers or traders in securities who use a mark-to-market method of tax accounting; |
| · | persons holding Ordinary Shares as part of a hedging transaction, straddle, wash sale, conversion transaction
or other integrated transaction or persons entering into a constructive sale with respect to the Ordinary Shares, as applicable; |
| · | regulated investment companies or real estate investment trusts; |
| · | U.S. expatriates and certain former citizens or long-term residents of the United States; |
| · | U.S. Holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
| · | entities or arrangements classified as partnerships (or partners therein) or S corporations for U.S. federal
income tax purposes; |
| · | tax-exempt entities, including an “individual retirement account” or “Roth IRA”; |
| · | persons that own or are deemed to own ten percent or more of SEALSQ shares by vote or value; or |
| · | persons holding Ordinary Shares in connection with a trade or business conducted outside of the United
States. |
If an entity or arrangement
that is classified as a partnership for U.S. federal income tax purposes holds SEALSQ Ordinary Shares, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding SEALSQ Ordinary
Shares, as applicable, and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax
consequences of acquiring, owning and disposing of SEALSQ Ordinary Shares, as applicable.
U.S. Holders are urged to
consult with their own tax advisers concerning the U.S. federal, state, local, and other tax consequences of acquiring, owning and disposing
of SEALSQ Ordinary Shares in their particular circumstances.
Ownership of SEALSQ Ordinary Shares
Taxation of Distributions
SEALSQ does not currently
expect to pay cash dividends in the foreseeable future. If SEALSQ does make distributions of cash or property with respect to SEALSQ Ordinary
Shares, subject to the passive foreign investment company rules below, such distributions will generally be treated as dividends to the
extent paid out of SEALSQ’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles).
Because SEALSQ does not maintain calculations of its earnings and profits under U.S. federal income tax principles, SEALSQ expects that
distributions generally will be reported to U.S. Holders as dividends. For so long as SEALSQ Ordinary Shares are listed on Nasdaq or SEALSQ
is eligible for benefits under the US-CH Treaty, and provided that SEALSQ was not, in the year prior to the year in which the dividend
was paid, and is not, in the year in which the dividend is paid, a PFIC, dividends paid to certain non-corporate U.S. Holders will be
eligible for taxation as “qualified dividend income” and therefore, subject to applicable limitations, will be taxable at
rates not in excess of the long-term capital gain rate applicable to such U.S. Holder. U.S. Holders should consult their tax advisers
regarding the availability of the reduced tax rate on dividends in their particular circumstances.
The amount of a dividend will
include any amounts withheld by us in respect of Swiss income taxes. The amount of the dividend will be treated as foreign-source dividend
income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the
Code. Dividends will be included in a U.S. Holder’s income on the date of such holder’s receipt of the dividend. The amount
of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the exchange rate in effect
on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars at that time.
If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency
gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into
U.S. dollars after the date of receipt.
Subject to applicable limitations,
some of which vary depending upon the U.S. Holder’s particular circumstances, Swiss income taxes withheld from dividends on SEALSQ
Ordinary Shares (if any) at a rate not exceeding the rate provided by the US-CH Treaty will be creditable against the U.S. Holder’s
U.S. federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisers
regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders
may, at their election, deduct foreign taxes, including any Swiss income tax, in computing their taxable income, subject to generally
applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign
taxes paid or accrued in the taxable year.
Sale or Other Disposition
of SEALSQ Ordinary Shares
Subject to the passive foreign
investment company rules described below, gain or loss realized on the sale or other disposition of SEALSQ Ordinary Shares will be capital
gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the SEALSQ Ordinary Shares for more than one year. The
amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the SEALSQ Ordinary Shares disposed
of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source
gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to various limitations.
Passive Foreign Investment Company Rules
SEALSQ will be classified
as a passive foreign investment company (“PFIC”) for any taxable year in which, after the application of certain “look-through”
rules with respect to subsidiaries, either (i) 75% or more of its gross income for the taxable year is “passive income,” or
(ii) 50% or more of the average quarterly value of its assets consist of assets that produce, or are held for the production of, “passive
income.” For purposes of the above calculations, SEALSQ will be treated as if it holds a proportionate share of the assets of, and
receives directly a proportionate share of the income of, any other corporation in which it directly or indirectly owns at least 25%,
by value, of the shares of such corporation. Passive income generally includes interest, dividends, rents, certain non-active royalties
and capital gains.
Based on SEALSQ’s unaudited interim financial statements, business plan and certain estimates, including as to the relative values
of its assets, SEALSQ believes it was not a PFIC for its 2023 taxable year, although there can be no assurance in this regard. Additionally,
based on the current and projected composition of assets and income of SEALSQ and its subsidiaries, it is not expected that SEALSQ will
be treated as a PFIC for its current taxable year or in the foreseeable future. However, the determination of whether SEALSQ is a PFIC
is a fact-intensive determination that must be made on an annual basis applying principles and methodologies that are in some circumstances
unclear. Moreover, whether SEALSQ is a PFIC for a particular year will depend on the composition of its income and assets and the value
of its assets from time to time (which may be determined, in part, by reference to the market price of SEALSQ Ordinary Shares, which may
fluctuate substantially over time). Accordingly, there can be no assurances regarding SEALSQ’s status as a PFIC for any taxable
year. If a U.S. Holder holds SEALSQ Ordinary Shares in any year in which SEALSQ is treated as a PFIC, SEALSQ generally will continue to
be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder holds SEALSQ Ordinary Shares,
even if SEALSQ ceases to meet the threshold requirements for PFIC status. However, if SEALSQ ceases to be a PFIC, a U.S. Holder can avoid
the continuing impact of the PFIC rules by making a special election to recognize gain as if such U.S. Holder’s Ordinary Shares
had been sold on the last day of the last taxable year during which SEALSQ was a PFIC. U.S. Holders should consult their own tax advisor
about the advisability of making this election.
If SEALSQ is classified as
a PFIC, and a U.S. Holder has not made a timely mark-to-market election, as described below, the U.S. Holder will generally be subject
to a special tax at ordinary income tax rates on “excess distributions” (generally, any distributions that are received in
a taxable year that are greater than 125 percent of the average annual distributions that the holder has received in the preceding three
taxable years, or its holding period, if shorter), including any gain that a U.S. Holder recognizes on the sale of its Ordinary Shares,
which gain will be allocated ratably over the U.S. Holder’s holding period for its Ordinary Shares, as applicable. The amount of
gain from a disposition of Ordinary Shares that is allocated to the taxable year of the disposition and to any year before SEALSQ becomes
a PFIC will be taxed as ordinary income. The amount allocated to any other tax year will be subject to U.S. federal income tax at the
highest tax rate applicable to ordinary income in each such year, and an interest charge will be imposed on the tax liability for each
such year to compensate for tax deferral, calculated as if such tax liability had been due in each such year.
If SEALSQ is classified as
a PFIC, a U.S. Holder can avoid certain of the adverse rules described above by making a mark-to-market election with respect to its SEALSQ
Ordinary Shares provided that the Ordinary Shares are “marketable.” SEALSQ Ordinary Shares will be considered marketable if
they are “regularly traded” on a “qualified exchange” or other market within the meaning of applicable regulations.
If a U.S. Holder makes the mark-to-market election, generally the U.S. Holder will recognize as ordinary income any excess of the fair
market value of the SEALSQ Ordinary Shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary
loss in respect of any excess of the adjusted tax basis of the SEALSQ Ordinary Shares over their fair market value at the end of the taxable
year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder
makes the election, the holder’s tax basis in the SEALSQ Ordinary Shares will be adjusted to reflect the income or loss amounts
recognized. If a U.S. Holder makes a mark-to-market election with respect to its SEALSQ Ordinary Shares in a year other than the first
year in which the U.S. Holder holds such Ordinary Shares (and no QEF election was in effect for the prior years), then special coordination
rules will apply to the first taxable year in which the mark-to-market election is effective.
Although a U.S. Holder of
SEALSQ Ordinary Shares could also avoid the unfavorable PFIC rules described above by electing to treat its Ordinary Shares as interests
in a qualified electing fund (“QEF”), SEALSQ does not intend to provide the information that would allow a U.S. Holder to
make such an election. Accordingly, if SEALSQ is treated as a PFIC, a U.S. holder will not be able to make a “QEF election.”
A U.S. Holder that owns an
equity interest in a PFIC must annually file IRS Form 8621, and may be required to file other IRS forms. A failure to file one or more
of these forms as required may toll the running of the statute of limitations in respect of each of the U.S. Holder’s taxable years
for which such form is required to be filed. As a result, the taxable years with respect to which the U.S. holder fails to file the form
may remain open to assessment by the IRS indefinitely, until the form is filed.
U.S. Holders should consult
their tax advisers concerning SEALSQ’s potential PFIC status and the potential application of the PFIC rules.
U.S. Information Reporting
Information Reporting
and Backup Withholding
Payments of dividends and
sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to
information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient
or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is
not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against
the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely
furnished to the IRS.
Information With Respect
to Foreign Financial Assets
A U.S. Holder who is an individual
and, in certain cases, an entity, and who holds certain specified foreign financial assets (which may include SEALSQ Ordinary Shares)
with an aggregate value in excess of certain thresholds, is generally required to report information related to such interests by attaching
a completed IRS Form 8938 (Statement of Specified Foreign Financial Assets) with such U.S. Holder’s tax return for each year in
which such U.S. Holder held an interest in the specified foreign financial assets, subject to certain exceptions (including an exception
for SEALSQ Ordinary Shares held in accounts maintained by U.S. financial institutions). Persons who are required to report foreign financial
assets and fail to do so may be subject to substantial penalties. U.S. Holders should consult their tax advisors regarding these information
reporting requirements.
Swiss Tax Considerations
The following is a description of certain Swiss
income tax consequences to “Swiss Holders”, as defined below, of acquiring, owning and disposing of SEALSQ Ordinary Shares.
The following discussion is intended only as a summary and does not purport to be a complete description of all the potential tax effects
of the acquisition, ownership and disposition of SEALSQ Ordinary Shares. This discussion is based on the Direct Federal Tax Act of 1990,
the Federal Harmonization of Cantonal and Communal Direct Taxes Act of 1990, the Federal Withholding Tax Act of 1965, the Federal Stamp
Tax Act of 1973, as amended (the “Swiss Tax Laws”), administrative pronouncements, judicial decisions, all as of the date
hereof, any of which are subject to change or differing interpretations, possibly with retroactive effect. The tax treatment of the transactions
discussed herein to holders will vary depending upon their particular situations. A “Swiss Holder” is a holder who, for Swiss
tax purposes, is a beneficial owner of SEALSQ Ordinary Shares who is:
| · | an individual resident of Switzerland or otherwise subject to Swiss taxation under article 3, 4 or 5 of
the Direct Federal Tax Act of 1990, as amended, or article 3 or 4 of the Federal Harmonization of Cantonal and Communal Direct Taxes Act
of 1990, as amended; or |
| · | a corporation or other entity taxable as a corporation organized under the laws of Switzerland or otherwise
subject to Swiss taxation under article 50 or 51 of the Direct Federal Tax Act of 1990, as amended, or article 20 or 21 of the Federal
Harmonization of Cantonal and Communal Direct Taxes Act of 1990, as amended. |
Holders who are not resident in Switzerland for
tax purposes and who do not engage in a trade or business carried on through a permanent establishment or fixed place of business situated
in Switzerland for tax purposes, and who are not subject to corporate or individual income taxation in Switzerland for any other reason,
will not be subject to any Swiss federal, cantonal or communal income tax in connection with acquiring, owning and disposing of SEALSQ
Ordinary Shares.
Ownership of SEALSQ Ordinary Shares
Taxation of Distributions
Dividend distributions to individual Swiss Holders
who hold their SEALSQ Ordinary Shares as private assets will be subject to Swiss federal, cantonal and communal income tax, unless these
dividends are distributed out of qualifying capital contribution reserves recognized by the Swiss Federal Tax Administration.
Corporate and individual Swiss Holders who hold
their SEALSQ Ordinary Shares as part of a trade or business carried out in Switzerland (including Swiss-resident private individuals who,
for income tax purposes, are classified as “professional securities dealers” for reasons of, inter alia, frequent dealing,
or leveraged investments, in shares and other securities), as the case may be, through a permanent establishment or fixed place of business
situated in Switzerland for tax purposes (the “Commercial Swiss Holders”) are required to recognize dividend distributions
of SEALSQ in their income statement for the respective taxation period and are subject to Swiss federal, cantonal and communal individual
or corporate income tax, as the case may be, on any net taxable earnings for such taxation period. Corporate Swiss Holders may be eligible
for the participation relief in respect of such dividend distributions if the SEALSQ Ordinary Shares held by them as part of a Swiss business
have an aggregate market value of at least CHF 1 million.
Holding of SEALSQ Ordinary Shares
Individual Swiss Holders who hold their SEALSQ
Ordinary Shares as private assets are required to report their SEALSQ Ordinary Shares as part of their private assets and are subject
to cantonal and communal wealth tax.
Commercial Swiss Holders are required to report
their SEALSQ Ordinary Shares as part of their business assets or taxable capital, as the case may be, and are subject to cantonal and
communal wealth or annual capital tax.
Sale or other Disposal of SEALSQ Ordinary
Shares
Individual Swiss Holders who hold their SEALSQ
Ordinary Shares as private assets will realize a tax-free capital gain or a non-deductible loss upon a sale or other disposal of the SEALSQ
Ordinary Shares.
Commercial Swiss Holders are required to recognize
the gain, if any, from a sale or other disposal of the SEALSQ Ordinary Shares in their income statement for the respective taxation period
and are subject to Swiss federal, cantonal and communal individual or corporate income tax, as the case may be, on any net taxable earnings
for such taxation period. A loss, if any, is deductible for Swiss individual or corporate income tax purposes.
Swiss Federal Securities Transfer Tax
Any transactions in SEALSQ Ordinary Shares in
the secondary markets are subject to Swiss securities transfer tax at an aggregate rate of 0.15% of the consideration paid for such SEALSQ
Ordinary Shares, however, only if a bank or other securities dealer in Switzerland, as defined in the Swiss Federal Stamp Tax Act, is
a party or an intermediary to the transaction and no exemption applies.
Taxation of SEALSQ
Corporate Income Tax
SEALSQ has its place of effective management in
Switzerland and as such is a Swiss resident for tax purposes. A Swiss resident company is subject to corporate income tax at federal,
cantonal and communal levels on its worldwide income. However, qualifying net dividend income and net capital gains on the sale of qualifying
investments in subsidiaries are effectively exempt from federal, cantonal and communal corporate income tax. Consequently, SEALSQ expects
dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss corporate income
tax.
Issuance Stamp Duty
The Swiss issuance stamp duty of 1% is levied
on the issuance of shares and increases in or contributions to the equity of Swiss tax resident corporations. Exemptions are available
in tax neutral restructuring transactions. As a result, the issuance of shares by SEALSQ or any other increase in its equity may be subject
to the issuance stamp duty unless the equity is increased in the context of a qualifying restructuring transaction.
Swiss Withholding Tax
Dividend distributions of Swiss tax resident corporations
are subject to 35% dividend withholding tax unless such dividends are distributed out of qualifying capital contribution reserves recognized
by the Swiss Federal Tax Administration. Since SEALSQ is a Swiss resident for tax purposes, its dividend distributions are generally subject
to 35% withholding tax.
Upon request, the Swiss withholding tax, if any,
will generally be refunded to shareholders of SEALSQ who have their tax residence in Switzerland, provided that such shareholders duly
declare the consideration in the tax return or, in the case of legal entities, in the profit and loss statement. SEALSQ shareholders who
are not tax residents of Switzerland may be entitled to a full or partial refund of the Swiss withholding tax if the country of residence
for tax purposes has entered into a bilateral treaty for the avoidance of double taxation with Switzerland and the conditions of such
treaty are met.
Automatic Exchange of Information in Tax
Matters
On November 19, 2014, Switzerland signed
the Multilateral Competent Authority Agreement. The Multilateral Competent Authority Agreement is based on Article 6 of the OECD/Council
of Europe administrative assistance convention and is intended to ensure the uniform implementation of Automatic Exchange of Information
(the “AEOI”). The Federal Act on the International Automatic Exchange of Information in Tax Matters (the “AEOI Act”)
entered into force on January 1, 2017. The AEOI Act is the legal basis for the implementation of the AEOI standard in Switzerland.
The AEOI has been introduced in Switzerland through
bilateral agreements or multilateral agreements. The agreements have been, and will be, concluded on the basis of guaranteed reciprocity,
compliance with the principle of speciality (i.e., the information exchanged may only be used to assess and levy taxes (and for criminal
tax proceedings)) and adequate data protection.
Based on such multilateral or bilateral agreements
and the implementation of Swiss law, Switzerland collects and exchanges data in respect of financial assets, including SEALSQ Ordinary
Shares, held in, and income derived thereon and credited to, accounts or deposits with a paying agent in Switzerland for the benefit of
individuals resident in a European Union member state or in a treaty state.
Swiss Facilitation of the Implementation
of the U.S. Foreign Account Tax Compliance Act
Switzerland has concluded an intergovernmental
agreement with the United States to facilitate the implementation of U.S. Foreign Account Tax Compliance Act. The agreement ensures that
the accounts held by U.S. persons with Swiss financial institutions are disclosed to the U.S. tax authorities either with the consent
of the account holder or by means of group requests within the scope of administrative assistance. Information will not be transferred
automatically in the absence of consent, and instead will be exchanged only within the scope of administrative assistance on the basis
of the double taxation agreement between the United States and Switzerland. On October 8, 2014, the Swiss Federal Council approved
a mandate for negotiations with the United States on changing the current direct-notification-based regime to a regime where the relevant
information is sent to the Swiss Federal Tax Administration, which in turn provides the information to the U.S. tax authorities.
DESCRIPTION OF
SHARES
General
We are a British Virgin Islands
Business Company (company number 2095496) and our affairs are governed by our Articles, the BVI Act and common law of the British Virgin
Islands. Based upon the Articles, we are authorised to issue a maximum of 210,000,000 shares in two classes as follows:
| (a) | 200,000,000 Ordinary Shares; and |
| (b) | 10,000,000 Class F Shares. |
As of the date of this prospectus,
17,227,122 Ordinary Shares are issued and outstanding and 1,499,700 Class F Shares are issued and outstanding. No preferred shares are
issued or outstanding or authorized by our Articles. The following description summarizes the material terms of our shares as set out
more particularly in our Articles. Because it is only a summary, it may not contain all the information that is important to you.
Share Rights
Each Ordinary Share confers
upon the shareholder:
| (a) | the right to attend any meeting of Shareholders; |
| (b) | the right to one vote per Ordinary Share on any resolution of shareholders as against each other Ordinary
Share but, as a class, the Ordinary Shares shall retain 50.01% of the Company’s voting power; |
| (c) | the right to an equal share in any dividend paid by the Company against each other Ordinary Share, which
shall be one fifth of any amount paid by the Company against each Class F Share but which shall not rank in preference to any other share; |
| (d) | the right to an equal share in the distribution of the surplus assets of the Company against each other
Ordinary Share, which shall be one fifth of any amount paid by the Company against each Class F Share but which shall not rank in preference
to any other share; and |
| (e) | such other rights and entitlements as may be specified in the Articles. |
Our Ordinary Shareholders have no conversion,
pre-emptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the Ordinary Shares.
Each Class F Share confers
upon the shareholder:
| (a) | the right to attend any meeting of shareholders; |
| (b) | a number of votes per Class F Share, on any matter that is submitted to a vote of shareholders, that would
cause the total votes of all Class F Shares to equal 49.99% of the voting power of all shares (or, if the applicable voting standard is
“a majority of the shares present in person or represented by proxy and entitled to vote on such matter”, 49.999999% of the
voting power of Shares present in person or represented by proxy and entitled to vote on such matter); |
| (c) | the right to an equal share in any dividend paid by the Company against each other Class F Shares, and
which shall be five times greater than any amount paid by the Company against each Ordinary Share but which shall not rank in preference
to any other share; and |
| (d) | the right to an equal share in the distribution of the surplus assets of the Company against each other
Class F Shares, and which shall be five times greater than any amount paid by the Company against each Ordinary Share but which shall
not rank in preference to any other share. |
The Class F Shares are subject to mandatory and
automatic redemption, in the event of a change of control (being the acquisition by any person or entity, alone or jointly, of more than
50% of the voting rights of any Class F Shareholder which is a corporate entity), as determined by SEALSQ’s board of directors,
in exchange for the issuance of new Ordinary Shares at a ratio of five (5) Ordinary Shares for each one (1) Class F Share redeemed.
The Class F Shares are non-transferable.
The Company and the holders
of the Class F Shares have entered into a Class F Shareholders’ Agreement that provides, among other things, that the holders of
Class F Shares:
| · | will vote the Class F Shares held by them as one and in accordance with the majority (by the number of
shares held) view of the holders of the Class F Shares; and |
| · | are bound by the redemption provisions set out in the Articles and that they will take all necessary
action to comply with them. |
Register of Members
Under the BVI Act, the shares
are deemed to be issued when the name of the shareholder is entered in the register of members. Our register of members will be maintained
by our transfer agent, Computershare Inc.
If:
| (a) | information that is required to be entered in the register of members is omitted from the register or
is inaccurately entered in the register; or |
| (b) | there is unreasonable delay in entering information in the register, a shareholder of the company, or
any person who is aggrieved by the omission, inaccuracy or delay, may apply to the British Virgin Islands Courts for an order that the
register be rectified, and the court may either refuse the application or order the rectification of the register, and may direct the
Company to pay all costs of the application and any damages the applicant may have sustained. |
Dividends
We have not paid any
cash dividends on our shares to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings.
Under the laws of the British Virgin Islands and our Articles, we may only pay a dividend or make a distribution to our shareholders
if, following such dividend or distribution, the value of our assets will exceed our liabilities and we will be able to pay our
debts as they fall due. In addition, the Second Tranche Notes prohibit us and our subsidiaries from paying dividends or other cash distributions, except for intercompany
transfers to us and payments to WISeKey.
PLAN OF DISTRIBUTION
We are registering the resale by the Selling Shareholders
of 45,000,000 Ordinary Shares.
We will not receive any of the proceeds from the
sale of the securities by the Selling Shareholders. However, we may receive proceeds from the cash exercise of the Second Tranche Warrants,
which, if exercised in cash at the current $4.00 exercise price with respect to all of the 2,288,678 Ordinary Shares, would result in
gross proceeds to us of approximately $9,154,712. The aggregate proceeds to the Selling Shareholders will be the purchase price of the
securities less any discounts and commissions borne by the Selling Shareholders.
The Ordinary Shares beneficially owned by the
Selling Shareholders covered by this prospectus may be offered and sold from time to time by the Selling Shareholders. The term “Selling
Shareholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date
of this prospectus from a Selling Shareholder as a gift, pledge, partnership distribution or other transfer. The Selling Shareholders
will act independently of us in making decisions with respect to the timing, manner and size of each sale by the Selling Shareholders.
Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing
or at prices related to the then current market price or in negotiated transactions. The Selling Shareholders may sell their Ordinary
Shares by one or more of, or a combination of, the following methods:
| · | purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant
to this prospectus; |
| · | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
| · | block trades in which the broker-dealer so engaged will attempt to sell the Ordinary Shares as agent but
may position and resell a portion of the block as principal to facilitate the transaction; |
| · | an over-the-counter distribution in accordance with the rules of the Nasdaq Stock Market LLC; |
| · | to or through underwriters or broker-dealers; |
| · | in privately negotiated transactions; |
| · | in options transactions; |
| · | through a combination of any of the above methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
In addition, any Ordinary Shares that qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.
We also have agreed to indemnify the Selling Shareholders
and certain other persons against certain liabilities in connection with the offering of Ordinary Shares offered hereby, including liabilities
arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
The Selling Shareholders have agreed to indemnify us against liabilities under the Securities Act that may arise from certain written
information furnished to us by the Selling Shareholders specifically for use in this prospectus or, if such indemnity is unavailable,
to contribute amounts required to be paid in respect of such liabilities. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers, and controlling persons, we have been advised that in the opinion of the SEC
this indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. To the extent required,
this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. In connection with distributions
of the Ordinary Shares or otherwise, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of Ordinary
Shares in the course of hedging transactions, and broker-dealers or other financial institutions may engage in short sales of Ordinary
Shares in the course of hedging the positions they assume with Selling Shareholders. The Selling Shareholders may also sell Ordinary Shares
short and redeliver the Ordinary Shares to close out such short positions. The Selling Shareholders may also enter into option or other
transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution
of Ordinary Shares offered by this prospectus, which Ordinary Shares such broker- dealer or other financial institution may resell pursuant
to this prospectus (as supplemented or amended to reflect such transaction). The Selling Shareholders may also pledge Ordinary Shares
to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution may effect sales
of the pledged shares pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders may enter into derivative
transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions.
If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered
by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities
pledged by any Selling Shareholder or borrowed from any Selling Shareholder or others to settle those sales or to close out any related
open borrowings of stock, and may use securities received from any Selling Shareholder in settlement of those derivatives to close out
any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in the applicable
prospectus supplement (or a post-effective amendment). In addition, any Selling Shareholder may otherwise loan or pledge securities to
a financial institution or other third party that in turn may sell the securities short using this prospectus. Such financial institution
or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering
of other securities.
In effecting sales, broker-dealers or agents engaged
by the Selling Shareholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts
or concessions from the Selling Shareholders in amounts to be negotiated immediately prior to the sale.
The Selling Shareholders and any broker-dealers
or agents that are involved in selling the Ordinary Shares offered under this prospectus may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any
profit on the resale of the Ordinary Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Any broker-dealers or agents that are deemed to be underwriters may not sell Ordinary Shares offered under this prospectus unless
and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this
prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which
this prospectus is a part. The Selling Shareholders and any other persons participating in the sale or distribution of the Ordinary Shares
offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act,
including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the Ordinary
Shares by, the Selling Shareholders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period
of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect
the marketability of the Ordinary Shares.
If any of the Ordinary Shares offered for sale
pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use
this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether
the Selling Shareholders will sell all or any portion of the Ordinary Shares offered under this prospectus.
We agreed to use commercially reasonable efforts
to keep the registration statement of which this prospectus is a part effective at all times until the Selling Shareholders no longer
own any Warrants or Ordinary Shares issuable upon the exercise thereof and there is an available balance of Ordinary Shares under such
registration statement . The Ordinary Shares will be sold only through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the Ordinary Shares covered hereby may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied
with.
In order to comply with the securities laws of
certain states, if applicable, the Ordinary Shares must be sold in such jurisdictions only through registered or licensed brokers or dealers.
In addition, in certain states the Ordinary Shares may not be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with.
We have advised the Selling Shareholders that
the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of Ordinary Shares in the market and to the activities
of the Selling Shareholders and its affiliates. In addition, we will make copies of this prospectus available to the Selling Shareholders
for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Shareholders may indemnify any broker-dealer
that participates in transactions involving the sale of the Ordinary Shares against certain liabilities, including liabilities arising
under the Securities Act.
At the time a particular offer of Ordinary Shares
is made, if required, a prospectus supplement will be distributed that will set forth the number of Ordinary Shares being offered and
the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer,
and the proposed selling price to the public.
We know of no existing arrangements between the
Selling Shareholders or any other shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the Ordinary
Shares offered by this prospectus.
SERVICE OF PROCESS
AND ENFORCEMENT OF CIVIL LIABILITIES
We are a British Virgin Islands
business company limited by shares and our registered office is Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands
and our executive office is located outside of the United States in Cointrin, Switzerland.
Most of our directors and
officers and those of our subsidiaries are residents of countries other than the United States. Substantially all of our and our subsidiaries’
assets and a substantial portion of the assets of our directors and officers are located outside the United States. As a result, it may
be difficult or impossible for United States investors to effect service of process within the United States upon us, our directors or
officers, our subsidiaries or to realize against us or them judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the United States or any state in the United States.
In addition, there is uncertainty
as to whether the courts of the British Virgin Islands would (1) recognize or enforce against us, or our directors or our officers, judgments
of courts of the United States based on civil liability provisions of applicable U.S. federal and state securities laws; or (2) impose
liabilities against us or our directors and officers in original actions brought in the British Virgin Islands, based on these laws.
LEGAL MATTERS
Certain legal matters with
respect to British Virgin Islands law in connection with this offering are being passed upon for us by Harney Westwood & Riegels LP.
Certain matters of U.S. federal and New York law are being passed upon for us by Patterson Belknap Webb & Tyler LLP, New York, New
York.
EXPERTS
The financial statements of
SEALSQ Corp Predecessor as of and for the years ended December 31, 2020 and 2021, and the balance sheet of SEALQ Corp as of December 31,
2022, in each case included in this prospectus have been audited by BDO AG, an independent registered public accounting firm, as stated
in their report appearing herein and elsewhere in this registration statement. Such financial statements are included in reliance upon
the report of such firm given upon their authority as experts in accounting and auditing. The current address of BDO AG is Route de Meyrin
123, 1219 Châtelaine, Switzerland, phone number 011 41 22 322 24 24. The financial statements of SEALSQ Corp Predecessor as of and
for the years ended December 31, 2022, in each case included in this prospectus have been audited by BDO France,
an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in this registration statement.
Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and
auditing. The current address of BDO Rhône-Alpes SAS is 28 rue de la République, 69002 Lyon, France, phone number 011 33
4 72 61 05 76.
SEALSQ CORP AND WISEKEY SEMICONDUCTORS SAS, SEALSQ
CORP PREDECESSOR
CONSOLIDATED FINANCIAL STATEMENTS
Index to consolidated
financial statements
Unaudited Condensed Consolidated Financial Statements of SEALSQ Corp as at June 30,
2023 |
|
Pages |
|
|
|
Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss) for the six-month periods
ended June 30, 2023 |
|
|
|
|
|
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023 |
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the
six-month periods ended June 30, 2023 |
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30,
2023 |
|
|
|
|
|
Notes to the Unaudited Condensed Consolidated Interim Financial Statements |
|
|
|
|
|
Audited Consolidated Financial Statements of SEALSQ Corp Predecessor as at December 31, 2022 |
|
Report of the Statutory Auditor |
|
Report of the Statutory Auditor |
|
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2022, 2021 and 2020 |
|
Consolidated Balance Sheets as of December 31, 2022 and 2021 |
|
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021 |
|
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 |
|
Notes to the Consolidated Financial Statements |
|
|
|
Audited Consolidated Financial Statements of SEALSQ Corp Predecessor as at December 31, 2021 and December 31, 2020 |
|
Report of the Statutory Auditor |
|
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2021 and 2020 |
|
Consolidated Balance Sheets as of December 31, 2021 and 2020 |
|
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021 and 2020 |
|
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 |
|
Notes to the Consolidated Financial Statements |
|
|
|
Audited Balance Sheet of SEALSQ Corp |
|
Report of Independent Registered Public Accounting Firm |
|
Audited Balance Sheet for the period ended December 31, 2022 |
|
Notes to the Audited Balance Sheet |
|
| 1. | Condensed Consolidated Statements of Comprehensive Income/(Loss) |
|
|
|
|
|
|
|
Unaudited 6 months ended June 30, |
Note
ref. |
USD'000 |
2023 |
|
2022 |
|
|
|
|
|
|
|
Net sales |
14,751 |
|
10,656 |
|
24 |
Cost of sales |
(6,760) |
|
(6,130) |
|
|
Depreciation of production assets |
(201) |
|
240 |
|
|
Gross profit |
7,790 |
|
4,766 |
|
|
|
|
|
|
|
|
Other operating income |
9 |
|
4 |
|
25 |
Research & development expenses |
(1,492) |
|
(1,161) |
|
|
Selling & marketing expenses |
(2,441) |
|
(1,970) |
|
|
General & administrative expenses |
(4,145) |
|
(2,022) |
|
|
Total operating expenses |
(8,069) |
|
(5,149) |
|
|
Operating loss |
(279) |
|
(383) |
|
|
|
|
|
|
|
|
Non-operating income |
180 |
|
469 |
|
26 |
Interest and amortization of debt discount |
(143) |
|
(155) |
|
19 |
Non-operating expenses |
(313) |
|
(113) |
|
27 |
Loss before income tax expense |
(555) |
|
(182) |
|
|
|
|
|
|
|
|
Income tax expense |
(320) |
|
(1) |
|
|
Net loss |
(875) |
|
(183) |
|
|
|
|
|
|
|
|
Earnings per ordinary share (USD) |
|
|
|
|
|
Basic |
(0.06) |
|
(0.01) |
|
29 |
Diluted |
(0.06) |
|
(0.01) |
|
29 |
|
|
|
|
|
|
Earnings per F share (USD) |
|
|
|
|
|
Basic |
(0.29) |
|
(0.06) |
|
29 |
Diluted |
(0.29) |
|
(0.06) |
|
29 |
|
|
|
|
|
|
Other comprehensive income / (loss), net of tax: |
|
|
|
|
|
Foreign currency translation adjustments |
(4) |
|
(9) |
|
|
Defined benefit pension plans: |
|
|
|
|
20 |
Net gain (loss) arising during period |
— |
|
— |
|
|
Other comprehensive loss |
(4) |
|
(9) |
|
|
Comprehensive loss |
(879) |
|
(192) |
|
|
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
| 2. | Condensed Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, |
|
As at December 31, |
|
Note ref.
|
USD'000, except “par value" |
|
2023 (unaudited) |
|
2022 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,860 |
|
|
|
4,057 |
|
|
|
8 |
|
Accounts receivable, net of allowance for doubtful accounts |
|
|
3,471 |
|
|
|
2,219 |
|
|
|
9 |
|
Inventories |
|
|
9,334 |
|
|
|
7,510 |
|
|
|
10 |
|
Prepaid expenses |
|
|
925 |
|
|
|
394 |
|
|
|
|
|
Other current assets |
|
|
773 |
|
|
|
1,252 |
|
|
|
11 |
|
Total current assets |
|
|
16,363 |
|
|
|
15,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets |
|
|
2,977 |
|
|
|
3,296 |
|
|
|
|
|
Deferred tax credits |
|
|
1,180 |
|
|
|
692 |
|
|
|
12 |
|
Property, plant and equipment net of accumulated depreciation |
|
|
2,181 |
|
|
|
782 |
|
|
|
13 |
|
Intangible assets, net of accumulated amortization |
|
|
— |
|
|
|
1 |
|
|
|
14 |
|
Operating lease right-of-use assets |
|
|
1,294 |
|
|
|
1,379 |
|
|
|
15 |
|
Other noncurrent assets |
|
|
82 |
|
|
|
77 |
|
|
|
16 |
|
Total noncurrent assets |
|
|
7,714 |
|
|
|
6,227 |
|
|
|
|
|
TOTAL ASSETS |
|
|
24,077 |
|
|
|
21,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
9,018 |
|
|
|
6,735 |
|
|
|
17 |
|
Indebtedness to related parties, current |
|
|
— |
|
|
|
3,374 |
|
|
|
19 |
|
Current portion of obligations under operating lease liabilities |
|
|
353 |
|
|
|
324 |
|
|
|
15 |
|
Income tax payable |
|
|
45 |
|
|
|
47 |
|
|
|
|
|
Other current liabilities |
|
|
225 |
|
|
|
148 |
|
|
|
18 |
|
Total current liabilities |
|
|
9,641 |
|
|
|
10,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds, mortgages and other long-term debt |
|
|
1,577 |
|
|
|
1,489 |
|
|
|
20 |
|
Operating lease liabilities, noncurrent |
|
|
889 |
|
|
|
988 |
|
|
|
15 |
|
Indebtedness to related parties, noncurrent |
|
|
12,186 |
|
|
|
7,946 |
|
|
|
19 |
|
Employee benefit plan obligation |
|
|
429 |
|
|
|
396 |
|
|
|
21 |
|
Total noncurrent liabilities |
|
|
15,081 |
|
|
|
10,819 |
|
|
|
|
|
TOTAL LIABILITIES |
|
|
24,722 |
|
|
|
21,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary stock |
|
|
75 |
|
|
|
75 |
|
|
|
23 |
|
Par value - USD 0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 200,000,000 and 200,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding - 7,501,500 and 7,501,400 shares |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - F-Shares |
|
|
75 |
|
|
|
75 |
|
|
|
23 |
|
Par value - USD 0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 10,000,000 and 10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding - 1,499,700 and 1,499,700 |
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
16,752 |
|
|
|
16,731 |
|
|
|
|
|
Accumulated other comprehensive income / (loss) |
|
|
771 |
|
|
|
775 |
|
|
|
|
|
Accumulated deficit |
|
|
(18,318 |
) |
|
|
(17,444 |
) |
|
|
|
|
Total shareholders' equity |
|
|
(645 |
) |
|
|
212 |
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
24,077 |
|
|
|
21,659 |
|
|
|
|
|
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
| 3. | Condensed Consolidated Statements of Changes in Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
Unaudited
6 months ended June 30, |
USD'000 (except
for share numbers) |
Number of
ordinary
shares
|
Number of
F shares |
Share Capital
|
Additional
paid-in capital |
Accumulated
deficit |
|
Accumulated
other comprehensive income / (loss) |
|
Total
equity (deficit) |
As
at December 31, 2021 |
6,610,293
|
1,499,700
|
141
|
8,889
|
(23,214)
|
|
621
|
|
(13,563)
|
Indebtedness to related
parties |
—
|
—
|
—
|
149
|
—
|
|
—
|
|
149
|
Comprehensive income / (loss) |
—
|
—
|
—
|
—
|
(183)
|
|
(9)
|
|
(192)
|
As
at June 30, 2022 |
6,610,293
|
1,499,700
|
141
|
9,038
|
(23,397)
|
|
612
|
|
(13,606)
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2022 |
7,501,400
|
1,499,700
|
150
|
16,731
|
(17,444)
|
|
775
|
(a)
|
212
|
Reverse recapitalization |
100
|
—
|
—
|
(188)
|
—
|
|
—
|
|
(188)
|
Indebtedness to related
parties |
—
|
—
|
—
|
209
|
—
|
|
—
|
|
209
|
Comprehensive income / (loss) |
—
|
—
|
—
|
—
|
(874)
|
(a) |
(4)
|
|
(878)
|
As
at June 30, 2023 |
7,501,500
|
1,499,700
|
150
|
16,752
|
(18,318)
|
|
771
|
|
(645)
|
(a) Adjusted
for rounding |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these condensed consolidated interim financial statements
| 4. | Condensed Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
Unaudited 6 months ended June 30, |
USD'000 |
2023 |
|
2022 |
|
|
|
|
|
Cash Flows from operating activities: |
|
|
|
Net Income (loss) |
(875) |
|
(183) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
Depreciation of property, plant & equipment |
273 |
|
198 |
Amortization of intangible assets |
1 |
|
2 |
Interest and amortization of debt discount |
143 |
|
155 |
Inventory obsolescence impairment |
257 |
|
(240) |
Income tax expense / (recovery) net of cash paid |
320 |
|
1 |
Changes in operating assets and liabilities, net of effects of businesses acquired |
|
|
|
Decrease (increase) in accounts receivables |
(1,252) |
|
(766) |
Decrease (increase) in inventories |
(2,081) |
|
(1,479) |
Decrease (increase) in other current assets and prepaids, net |
(52) |
|
(539) |
Decrease (increase) in deferred research & development tax credits, net |
(488) |
|
(224) |
Decrease (increase) in other noncurrent assets, net |
(5) |
|
7 |
Increase (decrease) in accounts payable |
2,095 |
|
531 |
Increase (decrease) in income taxes payable |
(2) |
|
(3) |
Increase (decrease) in other current liabilities |
77 |
|
(95) |
Increase (decrease) in defined benefit pension liability |
33 |
|
13 |
Net cash provided by (used in) operating activities |
(1,556) |
|
(2,622) |
|
|
|
|
|
Cash Flows from investing activities: |
|
|
|
Sale / (acquisition) of property, plant and equipment |
(1,677) |
|
(132) |
Net cash provided by (used in) investing activities |
(1,677) |
|
(132) |
|
|
|
|
|
Cash Flows from financing activities: |
|
|
|
Proceeds from debt |
209 |
|
2,562 |
Increase (decrease) in indebtedness to related parties, noncurrent, net of cash proceeds from debt |
658 |
|
— |
Net cash provided by (used in) financing activities |
867 |
|
2,562 |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
169 |
|
130 |
|
|
|
|
|
Cash and cash equivalents |
|
|
|
Net increase (decrease) during the period |
(2,197) |
|
(62) |
Balance, beginning of period |
4,057 |
|
2,064 |
Cash and cash equivalents balance, end
of period |
|
1,860 |
2,002 |
|
|
|
|
|
Supplemental cash flow information |
|
|
|
Cash paid for incomes taxes |
— |
|
— |
ROU assets obtained from operating lease |
65 |
|
29 |
|
|
|
|
|
|
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
| 5. | Notes to the Condensed Consolidated Interim Financial Statements |
1. The SEALSQ Group
SEALSQ Corp., together with its consolidated subsidiaries
(“SEALSQ” or the “Group” or the “SEALSQ Group”), has its headquarters in Tortola,
BVI. SEALSQ Corp., the parent of the SEALSQ Group, was incorporated in April 2022 and is listed on the NASDAQ Capital Market exchange
with the valor symbol “LAES” since May 23, 2023.
On January 1, 2023, SEALSQ Corp. acquired WISeKey
Semiconductors SAS, a private joint stock company (French Simplified Joint Stock Company), and its subsidiaries. Prior to that acquisition,
SEALSQ did not have any operations. As further described in the notes below, the acquisition qualified as a reverse recapitalization.
SEALSQ designs, develops and markets secure semiconductors
worldwide as a fabless manufacturer. It provides added security and authentication layers on its semiconductors which can be tailored
to customers’ needs. As an advanced chip designer, the Group holds the intellectual property (IP) for the semiconductors it sells.
SEALSQ is also accredited as a Product Attestation
Authority (PAA) and, as such, can issue MATTER Device Attestation Certificates (DAC).
The Group anticipates being able to generate profits
in the near future thanks to the increased focus on the security and authentication of IT components and networks.
2. Future operations and going concern
The Group recorded a loss from operations in this
reporting period and the accompanying condensed consolidated interim financial statements have been prepared assuming that the Group will
continue as a going concern.
The Group incurred a net operating loss of USD 0.3
million in the six months ended June 30, 2023 and had positive working capital of USD 6.7 million as at June 30, 2023, calculated
as the difference between current assets and current liabilities. Based on the Group’s cash projections up to September 30, 2024,
SEALSQ has sufficient liquidity to fund operations.
We note that, historically, the Group has been
dependent on financing from its parent, WISeKey International Holding Ltd, to augment the operating cash flow to cover its cash requirements.
Based on the foregoing, Management believe it
is correct to present these figures on a going concern basis.
3. Basis of presentation
The condensed consolidated interim financial statements
are prepared in accordance with the Generally Accepted Accounting Principles in the United States of America (“US GAAP”)
as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC). All amounts are in United
States dollars (“USD”) unless otherwise stated.
These unaudited condensed consolidated interim
financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Group’s
annual financial statements for the year ended December 31, 2022, as filed in the 20-F on June 27, 2023.
The Group’s interim period results do not
necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The significant accounting
policies applied in the annual consolidated financial statements of the Group as of December 31, 2022, contained in the Group’s
Annual Report have been applied consistently in these unaudited condensed consolidated financial statements.
Reverse Acquisition
On January 1, 2023, SEALSQ Corp., then a so-called
empty shell private company with no operating activities that was not considered a business under US GAAP standards, acquired WISeKey
Semiconductors SAS, a private operating company. Before this acquisition, both companies were wholly owned by WISeKey International Holding
AG (“WISeKey”). This transaction being a capital transaction in substance, it qualifies as a reverse acquisition that
is considered a recapitalization whereby SEALSQ Corp. is the legal acquirer and accounting acquiree, whereas WISeKey Semiconductors SAS
is the legal acquiree and accounting acquirer. In accordance with ASC 805-40 (Reverse acquisition), the condensed consolidated interim
financial statements are therefore issued by the legal parent, SEALSQ Corp., but are considered to be the continuation of the financial
statements of the legal subsidiary, WISeKey Semiconductors SAS.
Comparative information in SEALSQ’s condensed
consolidated interim financial statements relates to WISeKey Semiconductors SAS and not to the non-operating SEALSQ Corp. until the date
of the transaction. The assets and liabilities of the accounting acquiree, SEALSQ Corp., have been consolidated from January 1, 2023.
No goodwill arose as a result of the transaction. The consolidated interim statement of comprehensive losses includes the results of SEALSQ
Corp. from January 1, 2023.
The newly formed company was then listed on the
Nasdaq Global Market on May 23, 2023 through a spin-off by WISeKey of 20% of the ordinary share capital.
4. Summary of significant accounting policies
Fiscal Year
The Group’s fiscal year ends on December
31.
Principles of Consolidation
The condensed consolidated financial statements
include the accounts of SEALSQ Corp. and its wholly owned subsidiaries over which the Group has control.
Intercompany income and expenses, including unrealized
gross profits from internal group transactions and intercompany receivables, payables and loans have been eliminated.
Use of Estimates
The preparation of condensed consolidated financial
statements in conformity with US GAAP requires management to make certain estimates, judgments and assumptions. We believe these estimates,
judgements and assumptions are reasonable, based upon information available at the time they were made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported
amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments
or assumptions and the actual results, our condensed consolidated financial statements will be affected. In many cases, the accounting
treatment of a particular transaction is specifically dictated by US GAAP and does not require management’s judgment in its application.
There are also areas in which management’s judgment in selecting from available alternatives would not produce a materially different
result.
Foreign Currency
The functional currency of SEALSQ Corp. is USD.
In general, the functional currency of a foreign
operation is the local currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance
sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. The effects of foreign currency
translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income/loss. The
Group's reporting currency is USD.
Cash and Cash Equivalents
Cash consists of deposits held at major banks
that are readily available. Cash equivalents consist of highly liquid investments that are readily convertible to cash and with original
maturity dates of three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities
of these instruments.
Accounts Receivable
Receivables represent rights to consideration
that are unconditional and consist of amounts billed and currently due from customers, and revenues that have been recognized for accounting
purposes but not yet billed to customers. The Group extends credit to customers in the normal course of business and in line with industry
practices.
Allowance for Doubtful Accounts
We recognize an allowance for credit losses to
present the net amount of receivables expected to be collected as of the balance sheet date. The allowance is based on the credit losses
expected to arise over the asset’s contractual term taking into account historical loss experience, customer-specific data as well
as forward-looking estimates. Expected credit losses are estimated individually.
Accounts receivables are written off when deemed
uncollectible and are recognized as a deduction from the allowance for credit losses. Expected recoveries, which are not to exceed the
amount previously written off, are considered in determining the allowance balance at the balance sheet date.
Inventories
Inventories are stated at the lower of cost or
net realizable value. Costs are calculated using standard costs, approximating average costs. Finished goods and work-in-progress inventories
include material, labor and manufacturing overhead costs. The Group records write-downs on inventory based on an analysis of obsolescence
or a comparison to the anticipated demand or market value based on a consideration of marketability and product maturity, demand forecasts,
historical trends and assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, Plant and Equipment
Minimum
Maximum
Property, plant and equipment are stated at cost,
net of accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives which range from
1 to 5 years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the improvements or the lease terms,
as appropriate. Property, plant and equipment are periodically reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Intangible Assets
Intangible Assets
Those intangible assets that are considered to
have a finite useful life are amortized over their useful lives, which generally range from 1 to 10 years. Each period we evaluate the
estimated remaining useful lives of intangible assets and whether events or changes in circumstances require a revision to the remaining
periods of amortization or that an impairment review be carried out.
Leases
In line with ASC 842, the Group, as a lessee,
recognizes right-of-use assets and related lease liabilities on its balance sheet for all arrangements with terms longer than twelve months,
and reviews its leases for classification between operating and finance leases. Obligations recorded under operating and finance leases
are identified separately on the balance sheet. Assets under finance leases and their accumulated amortization are disclosed separately
in the notes. Operating and finance lease assets and operating and finance lease liabilities are measured initially at an amount equal
to the present value of minimum lease payments during the lease term, as at the beginning of the lease term.
The Group has elected the short-term lease practical
expedient whereby we do not present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months
or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise.
We have also elected the practical expedients
related to lease classification of leases that commenced before the effective date of ASC 842.
Revenue Recognition
The Group’s policy is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve that core principle, the group applies the following steps:
| - | Step 1: Identify the contract(s) with a customer. |
| - | Step 2: Identify the performance obligations in the contract. |
| - | Step 3: Determine the transaction price. |
| - | Step 4: Allocate the transaction price to the performance obligations in the contract. |
| - | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
Revenue is measured based on the consideration
specified in a contract with a customer and excludes amounts collected on behalf of third parties. We typically allocate the transaction
price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or service promised
in the contract. If a standalone price is not observable, we use estimates.
The Group recognizes revenue when it satisfies
a performance obligation by transferring control over goods or services to a customer. The transfer may be done at a point in time (typically
for goods) or over time (typically for services). The amount of revenue recognized is the amount allocated to the satisfied performance
obligation. For performance obligations satisfied over time, the revenue is recognized over time, most frequently on a prorata temporis
basis as most of the services provided by the Group relate to a set performance period.
If the Group determines that the performance obligation
is not satisfied, it will defer recognition of revenue until it is satisfied.
We present revenue net of sales taxes and any
similar assessments.
The Group delivers products and records revenue
pursuant to commercial agreements with its customers, generally in the form of an approved purchase order or sales contract.
Where products are sold under warranty, the customer
is granted a right of return which, when exercised, may result in either a full or partial refund of any consideration received, or a
credit that can be applied against amounts owed, or that will be owed, to the Group. For any amount received or receivable for which we
do not expect to be entitled to because the customer has exercised its right of return, we recognize those amounts as a refund liability.
Contract Assets
Contract assets consist of accrued revenue where
the Group has fulfilled its performance obligation towards the customer but the corresponding invoice has not yet been issued. Upon invoicing,
the asset is reclassified to trade accounts receivable until payment.
Deferred Revenue
Deferred revenue consists of amounts that have
been invoiced and paid but have not been recognized as revenue. Deferred revenue that will be realized during the succeeding 12-month
period is recorded as current and the remaining deferred revenue recorded as non-current. This would relate to multi-year certificates
or licenses.
Contract Liability
Contract liability consists of either:
| - | amounts that have been invoiced and not yet paid, nor recognized as revenue. Upon payment, the liability
is reclassified to deferred revenue if the amounts still have not been recognized as revenue. Contract liability that will be realized
during the succeeding 12-month period is recorded as current and the remaining contract liability recorded as non-current. This would
relate to multi-year certificates or licenses. |
| - | advances from customers not supported by invoices. |
Sales Commissions
Sales commission expenses where revenue is recognized
are recorded in the period of revenue recognition.
Cost of Sales and Depreciation of Production
Assets
Our cost of sales consists primarily of expenses
associated with the delivery and distribution of products. These include expenses related to the license to the Global Cryptographic ROOT
Key, the global Certification authorities as well as the digital certificates for people, servers and objects, expenses related to the
preparation of our secure elements and the technical support provided on the Group's ongoing production and on the ramp-up phase, including
materials, labor, test and assembly suppliers, and subcontractors, freights costs, as well as the amortization of probes, wafers and other
items that are used in the production process. This amortization is disclosed separately under depreciation of production assets on the
face of the income statement.
Research and Development and Software Development
Costs
All research and development costs and software
development costs are expensed as incurred.
Advertising Costs
All advertising costs are expensed as incurred.
Pension Plan
In the six months ended June 30, 2023, the Group
maintained one defined benefit post retirement plans covering the French employees of WISeKey Semiconductors SAS.
In accordance with ASC 715-30, Defined Benefit
Plans – Pension, the Group recognizes the funded status of the plan in the balance sheet. Actuarial gains and losses are recorded
in accumulated other comprehensive income / (loss).
Income Taxes
Taxes on income are accrued in the same period
as the revenues and expenses to which they relate.
Deferred taxes are calculated on the temporary
differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of our companies prepared
for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Group
has plans to permanently reinvest profits into the foreign subsidiaries.
Deferred tax assets on tax loss carry-forwards
are only recognized to the extent that it is “more likely than not” that future profits will be available and the tax loss
carry-forward can be utilized.
Changes to tax laws or tax rates enacted at the
balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable
in the period when the deferred tax assets or tax liabilities are realized.
The Group is required to pay income taxes in a
number of countries. The Group recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than
not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit
that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position
and all relevant facts. The Group adjusts its recognition of these uncertain tax benefits in the period in which new information is available
impacting either the recognition or measurement of its uncertain tax positions.
Research Tax Credits
Research tax credits are provided by the French
government to give incentives for companies to perform technical and scientific research. WISeKey Semiconductors SAS is eligible to receive
such tax credits.
These research tax credits are presented as a
reduction of research & development expenses in the income statement when companies that have qualifying expenses can receive such
grants in the form of a tax credit irrespective of taxes ever paid or ever to be paid, the corresponding research and development efforts
have been completed and the supporting documentation is available. The credit is deductible from the entity’s income tax charge
for the year or payable in cash the following year, whichever event occurs first. The tax credits are included in noncurrent deferred
tax credits in the balance sheet in line with ASU 2015-17.
Earnings per Share
Basic earnings per share are calculated using
the two-class method required for companies with multiple classes of common stock. The two-class method determines net earnings per common
share for each class of common stock according to dividends declared or accumulated and participation rights in distributed and undistributed
earnings or losses. The two-class method requires income available to common stockholders for the period to be allocated between each
class of common stock based upon their respective rights to receive dividends as if all income for the period had been distributed.
For SEALSQ, the dividend rights of the holders
of ordinary and Class F common stock (collectively, the “common stock”) differ. The dividend rights of a Class F Share are
five times greater than the dividend rights of an ordinary share. Undistributed earnings are allocated to the classes of common stock
proportionately to their dividend rights and the resulting net results per share will, therefore, vary for each class of common stock.
In line with ASC 260-10-45, the Group has presented the net earnings attributed to its common stock for each class of common stock. The
earnings per share calculation is based on the weighted average number of shares in issue of each class.
When the effects are not antidilutive, diluted
earnings per share is calculated using the weighted-average outstanding common shares and the dilutive effect of stock options as determined
under the treasury stock method.
Segment Reporting
Our chief operating decision maker, who is also
our Chief Executive Officer, regularly reviews information related to one operating segment, secure microcontrollers, for purposes of
allocating resources and assessing budgets and performance. We report our financial performance based on this segment structure described
in Note 28.
Recent Accounting Pronouncements
Adoption of new FASB Accounting Standard in the current year – Prior-Year Financial Statements not restated:
As of January 1, 2023, the Group adopted Accounting
Standards Update (ASU) 2021-08, Business Combinations (topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts
with Customers.
ASU 2021-08 amends ASC 805 to “require
acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.”
Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. ASU 2021-08 requires contract assets
and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance
with ASC 606 (meaning the acquirer should assume it has entered the original contract at the same date and using the same terms as the
acquiree). This new ASU applies to contract assets and contract liabilities acquired in a business combination and to other contracts
that directly/indirectly apply the requirements of ASC 606.
There was no impact on the Group's results upon
adoption of the standard.
New FASB Accounting Standard to be adopted
in the future:
In March 2023, The FASB issued ASU No. 2023-01, Leases
(Topic 842): Common Control Arrangements, which requires all companies to amortize leasehold improvements associated with common
control leases over the asset’s useful life to the common control group regardless of the lease term.
Summary: The amendments allow a private company to
elect to account for a common control leasing arrangement using the written terms and conditions without having to determine if those
terms and conditions are legally enforceable. If the terms of the arrangement are not in writing, then the entity would apply existing
guidance to determine the legally enforceable terms and conditions of the arrangement. The amendments also require leasehold improvements
associated with leases between entities under common control to be amortized over the useful life of the improvements until the lessee
ceases to control the use of the underlying asset through a lease, at which time the remaining value of the leasehold improvement would
be accounted for as a transfer between entities under common control.
Effective Date: ASU 2023-01 is effective for public
business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. An entity should
apply the amendments prospectively to business combinations occurring on or after the effective dates. Early adoption is permitted.
The Group expects to adopt all the aforementioned
guidance when effective. Management is assessing the impact of the aforementioned guidance on its consolidated financial statements but
does not expect it to have a material impact.
In June 2023, The FASB issued ASU No. 2023-03,
“Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which
clarifies how the fair value of equity securities subject to contractual sale restrictions is determined.
Summary: The ASU clarifies that a contractual
sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject
to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities.
Effective Date: ASU 2023-03 is effective for public
business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. An entity should
apply the amendments prospectively to business combinations occurring on or after the effective dates. Early adoption is permitted.
The Group expects to adopt all the aforementioned
guidance when effective. Management is assessing the impact of the aforementioned guidance on its consolidated financial statements but
does not expect it to have a material impact.
5. Concentration of credit risks
Financial instruments that are potentially subject
to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Our cash is held with large financial institutions.
Management believes that the financial institutions that hold our investments are financially sound and accordingly, are subject to minimal
credit risk. Deposits held with banks may exceed the amount of insurance provided on such deposits.
The Group sells to large, international customers
and, as a result, may maintain individually significant trade accounts receivable balances with such customers during the year. We generally
do not require collateral on trade accounts receivable. Summarized below are the clients whose revenue were 10% or higher than the respective
total consolidated net sales for the 6 months to June 30, 2023 or 2022, and the clients whose trade accounts receivable balances were
10% or higher than the respective total consolidated trade accounts receivable balance as at June 30, 2023 and December 31, 2022. In addition,
we note that some of our clients are contract manufacturers for the same companies; should these companies reduce their operations or
change contract manufacturers, this would cause a decrease in our customer orders which would adversely affect our operating results.
|
Revenue concentration
(% of total net sales) |
|
Receivables
concentration
(% of total accounts receivable) |
|
6
months ended June 30, |
|
As
at June 30, |
As
at December 31, |
Revenue
Receivables
|
2023
(unaudited) |
2022
(unaudited) |
|
2023
(unaudited) |
2022 |
Multinational
electronics contract manufacturing company |
22% |
20% |
|
39% |
34% |
International
digital security company |
12% |
0% |
|
8% |
6% |
Multinational
technology company |
4% |
0% |
|
16% |
0% |
International
equipment and software manufacturer |
3% |
5% |
|
1% |
12% |
International
equipment and product manufacturer |
2% |
11% |
|
0% |
0% |
6. Fair value measurements
ASC 820 establishes a three-tier fair value hierarchy
for measuring financial instruments, which prioritizes the inputs used in measuring fair value. These tiers include:
| · | Level 1, defined as observable inputs such as quoted prices in active markets; |
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions. |
Level 3
Accounts
Receivable
Accounts Payable
Indebtedness
to Related Parties, Current
|
As
at June 30, 2023 (unaudited) |
|
As
at December 31, 2022 |
|
Fair
value level |
|
USD'000 |
Carrying
amount |
Fair
value |
|
Carrying amount |
Fair
value |
|
Note
ref. |
Nonrecurring
fair value measurements |
|
|
|
|
|
|
|
|
Accounts
receivable |
3,471
|
3,471
|
|
2,219
|
2,219
|
|
3 |
9 |
Accounts
payable |
9,018
|
9,018
|
|
6,735
|
6,735
|
|
3 |
17 |
Indebtedness
to related parties, current |
— |
— |
|
3,374
|
3,374
|
|
3 |
19 |
Bonds,
mortgages and other long-term debt |
1,577
|
1,577
|
|
1,489
|
1,489
|
|
3 |
20 |
Indebtedness
to related parties, noncurrent |
12,186
|
12,186
|
|
7,946
|
7,946
|
|
3
|
19
|
In addition to the methods and assumptions we
use to record the fair value of financial instruments as discussed in the Fair Value Measurements section above, we used the following
methods and assumptions to estimate the fair value of our financial instruments:
| - | Accounts receivable – carrying amount approximated fair value due to their short-term nature. |
| - | Accounts payable – carrying amount approximated fair value due to their short-term nature. |
| - | Indebtedness to related parties, current – carrying amount approximated fair value. |
| - | Bonds, mortgages and other long-term debt - carrying amount approximated fair value. |
| - | Indebtedness to related parties, noncurrent - carrying amount approximated fair value. |
7. Business combination
Reverse Acquisition
On January 1, 2023, SEALSQ Corp., then a so-called
empty shell private company with no operating activities that was not considered a business under US GAAP standards, acquired WISeKey
Semiconductors SAS, a private operating company. This transaction being a capital transaction in substance, it qualifies as a reverse
acquisition that is considered a recapitalization whereby SEALSQ Corp. is the legal acquirer and accounting acquiree, whereas WISeKey
Semiconductors SAS is the legal acquiree and accounting acquirer. In accordance with ASC 805-40 (Reverse acquisition), the condensed
consolidated financial statements are therefore issued by the legal parent, SEALSQ Corp., but are considered to be the continuation of
the financial statements of the legal subsidiary, WISeKey Semiconductors SAS.
In line with ASC 805-40, comparative information
in SEALSQ’s condensed consolidated financial statements relate to WISeKey Semiconductors SAS and not to the non-operating SEALSQ
Corp. until the date of the transaction. The assets and liabilities of the accounting acquiree, SEALSQ Corp., have been consolidated from
January 1, 2023. No goodwill arose as a result of the transaction. The consolidated statement of comprehensive losses includes the results
of SEALSQ Corp. from January 1, 2023.
The major classes of assets and liabilities acquired
by the accounting acquirer, WISeKey Semiconductors SAS, are as follows:
Business Combination - Schedule of Assets
and Liabilities Acquired
USD'000 |
As at
December 31, 2022 |
ASSETS |
|
TOTAL ASSETS |
— |
|
|
LIABILITIES |
|
Indebtedness to related parties, current |
188 |
Total current liabilities |
188 |
TOTAL LIABILITIES |
188 |
|
|
Commitments and contingent liabilities |
|
|
|
SHAREHOLDERS' EQUITY |
|
Common stock |
— |
USD 0.00 par value |
|
Authorized, issued and outstanding - 100 shares |
|
Additional paid-in capital |
— |
Accumulated deficit |
(188) |
Total shareholders'equity |
(188) |
TOTAL LIABILITIES AND EQUITY |
— |
The reverse acquisition resulted in a net debit
adjustment to total stock equity of USD 188,027 corresponding to the net assets acquired.
8. Cash and cash equivalents
Cash consists of deposits held at major banks.
9. Accounts receivable
The breakdown of the accounts receivable balance
is detailed below:
Accounts Receivable - Schedule of Accounts
Receivable
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Trade accounts receivable |
3,520 |
|
2,269 |
Allowance for doubtful accounts |
(50) |
|
(50) |
Accounts receivable from underwriters, promoters, and employees |
1 |
|
— |
Total accounts receivable net of allowance for doubtful accounts |
3,471 |
|
2,219 |
10. Inventories
Inventories consisted of the following:
Inventories - Schedule of Inventories, Current
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Raw materials |
3,182 |
|
4,523 |
Work in progress |
6,152 |
|
2,987 |
Total inventories |
9,334 |
|
7,510 |
11. Other current assets
Other current assets consisted of the following:
Other Current Assets - Schedule of
Other Current Assets
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Value-Added Tax Receivable |
315 |
|
224 |
Advanced payment to suppliers |
454 |
|
1,025 |
Deposits, current |
4 |
|
3 |
Total other current assets |
773 |
|
1,252 |
12. Deferred tax credits
WISeKey Semiconductors SAS is eligible for research
tax credits provided by the French government (see Note 4 Summary of significant accounting policies). As at June 30, 2023 and December
31, 2022, the receivable balances in respect of these research tax credits owed to the Group were respectively USD 1,179,981 and
USD 692,314. The credit is deductible from the entity’s income tax charge for the year or payable in cash the following year,
whichever event occurs first.
13. Property, plant and equipment
Property, plant and equipment, net consisted of
the following.
Property, Plant and Equipment - Schedule
of Property, Plant and Equipment
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Machinery & equipment Machinery
&
Equipment | 11,961 |
|
10,410 |
Office
equipment and furniture Office Equipment and Furniture |
2,320 |
|
2,320 |
Computer
equipment and licences Computer Equipment and Licenses |
681 |
|
558 |
Total property, plant and equipment gross |
14,962 |
|
13,288 |
|
|
|
|
Accumulated depreciation for: |
|
|
|
Machinery & equipment |
(10,075) |
|
(9,985) |
Office equipment and furniture |
(2,189) |
|
(2,028) |
Computer equipment and licences |
(517) |
|
(493) |
Total accumulated depreciation |
(12,781) |
|
(12,506) |
Total property, plant and equipment, net |
2,181 |
|
782 |
Depreciation charge for the 6 months to June 30, |
273 |
|
198 |
In the six months ended June 30, 2023 and in 2022,
SEALSQ Corp. did not identify any events or changes in circumstances indicating that the carrying amount of any asset may not be recoverable.
As a result, the Group did not record any impairment charge on Property, plant and equipment in the six months ended June 30, 2023 and
in the year ended December 31, 2022.
Software
Production Tools
The useful economic life of property plant and
equipment is as follow:
|
· |
Office equipment
and furniture: |
2 to 5 years |
|
· |
Production masks: |
5 years |
|
· |
Production tools: |
3 years |
14. Intangible assets
Intangible assets and future amortization expenses
consisted of the following:
Intangible Assets - Schedule of Finite-Lived
Intangible Assets
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Intangible assets subject to amortization: |
|
|
|
Patents |
2,281 |
|
2,281 |
License agreements |
1,699 |
|
1,699 |
Other intangibles |
923 |
|
923 |
Total intangible assets gross |
4,903 |
|
4,903 |
Accumulated amortization for: |
|
|
|
Patents Patents |
(2,281) |
|
(2,281) |
License
agreements License Agreements |
(1,699) |
|
(1,698) |
Other
intangibles Other Intangibles |
(923) |
|
(923) |
Total accumulated amortization |
(4,903) |
|
(4,902) |
Total
intangible assets subject to amortization, net Total intangible assets subject to amortization, net |
— |
|
1 |
Total intangible assets, net |
— |
|
1 |
Amortization charge for the 6 months to June 30, |
1 |
|
2 |
The useful economic life of intangible assets
is as follow:
|
· |
License agreements: |
1 to 3
years |
|
· |
Other intangibles: |
5
years |
15. Leases
The Group has historically entered into a
number of lease arrangements under which it is the lessee. As at June 30, 2023, the SEALSQ Group holds four operating leases. The
operating leases rel ate to premises. We do not sublease. All of our operating leases include multiple optional renewal periods
which are not reasonably certain to be exercised.
During the six months ended June
30, 2023 and 2022 we recognized rent expenses associated with our leases as follows:
Leases
- Schedule of Lease Costs
|
|
|
|
|
6 months ended June 30, |
USD'000 |
2023 (unaudited) |
|
2022 (unaudited) |
Operating lease cost: |
|
|
|
Fixed rent expense |
172 |
|
166 |
Short-term lease cost |
— |
|
— |
Net lease cost |
172 |
|
166 |
Lease
cost - Cost of sales Cost of Sales |
— |
|
— |
Lease
cost - General & administrative expenses General &
Administrative Expenses |
172 |
|
166 |
Net lease cost |
172 |
|
166 |
In the six months ended June 30,
2023 and the year ended December 31, 2022, we had the following cash and non-cash activities associated with our leases:
Leases - Schedule of Cash and Non-Cash
Activities Associated with Leases
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
Operating cash flows from operating leases |
161 |
|
328 |
Non-cash investing and financing activities : |
|
|
|
Net lease cost |
172 |
|
332 |
Additions to ROU assets obtained from: |
|
|
|
New operating lease liabilities |
65 |
|
56 |
The following table provides the details of right-of-use
assets and lease liabilities as of June 30, 2023:
Leases - Schedule of Right-Of-Use Assets and
Lease Liabilities
|
As at June 30, 2023 |
USD'000 |
Right-of-use assets: |
|
Operating leases |
1,294 |
Total right-of-use assets |
1,294 |
Lease liabilities: |
|
Operating leases |
1,242 |
Total lease liabilities |
1,242 |
As at June 30, 2023, future minimum annual lease
payments were as follows, which corresponds to the future minimum lease payments under legacy ASC 840 in line with ASU 2018-11.
Leases - Schedule of Future Minimum
Lease Payments
Other Liabilities | |
USD'000 | |
USD'000 | |
USD'000 | |
USD'000 |
Year | |
Operating | |
Short-term | |
Finance | |
Total |
2023 | | |
| 164 | | |
| — | | |
| — | | |
| 164 | |
2024 | | |
| 318 | | |
| — | | |
| — | | |
| 318 | |
2025 | | |
| 293 | | |
| — | | |
| — | | |
| 293 | |
2026 | | |
| 289 | | |
| — | | |
| — | | |
| 289 | |
2027 and beyond | | |
| 447 | | |
| — | | |
| — | | |
| 447 | |
Total future minimum operating and short-term lease payments | | |
| 1,511 | | |
| — | | |
| — | | |
| 1,511 | |
Less effects of discounting | | |
| (269 | ) | |
| — | | |
| — | | |
| (269 | ) |
Lease liabilities recognized | | |
| 1,242 | | |
| — | | |
| — | | |
| 1,242 | |
As of June 30, 2023 the weighted-average remaining
lease term was 4.93 years for operating leases.
For our operating leases, we calculated an estimate
rate based upon the estimated incremental borrowing rate of the entity holding the lease. The weighted average discount rate associated
with operating leases as of June 30, 2023 was 3.06%.
16. Other noncurrent assets
Other noncurrent assets consisted of noncurrent
deposits. Deposits are primarily made up of rental deposits on the premises rented by the Group.
17. Accounts payable
The accounts payable balance consisted of the
following:
Accounts Payable - Schedule of Accounts
Payable
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Trade creditors |
4,916 |
|
5,001 |
Accounts payable to shareholders |
2,145 |
|
— |
Accounts payable to underwriters, promoters, and employees |
826 |
|
1,071 |
Other accounts payable |
1,131 |
|
663 |
Total accounts payable |
9,018 |
|
6,735 |
Accounts payable to shareholders consist of short-term
payables due to WISeKey International Holding AG in relation to interest on outstanding loans and the recharge of management services
(see Notes 19 and 31).
Accounts payable to underwriters, promoters and
employees consist primarily of payable balances to employees in relation to holidays, bonus and 13th month accruals across the Group.
Other accounts payable are mostly accruals of
social charges in relation to the accrued liability to employees.
18. Other current liabilities
Other current liabilities consisted of the following:
Other Current Liabilities - Schedule of
Other Current Liabilities
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Other tax payable |
30 |
|
28 |
Customer contract liability, current |
157 |
|
84 |
Other current liabilities |
38 |
|
36 |
Total other current liabilities |
225 |
|
148 |
19. Indebtedness to related parties
WISeKey International Holding AG
On October 1, 2016, the SEALSQ Group entered into
a Revolving Credit Agreement (the “Revolving Credit”) with its parent WISeKey International Holding AG to borrow funds
within a credit period starting on October 1, 2016 and ending on December 31, 2017 when all outstanding funds would become immediately
due and payable. Outstanding loan amounts under the Revolving Credit bore an interest rate of 3% per annum. Repayments before the end
of the credit period were permitted. On November 1, 2017, the Group and WISeKey entered into the First Amendment to the Revolving Credit
Agreement extending the credit period by 2 years to December 31, 2019. On March 16, 2021, the Group and WISeKey entered into
the Second Amendment to the Revolving Credit Agreement extending the credit period by another 2 years to December 31, 2022. On November
1, 2022, the Group and WISeKey entered into the Third Amendment to the Revolving Credit Agreement pursuant to which the interest rate
was amended to 2.5% per annum.
On November 12, 2020, WISeKey provided a Funding
Commitment to extend shareholder loans (each the “Shareholder Loan”) to the Group for a maximum aggregate amount of
USD 4 million to be drawn down over six months from the date of the commitment, in instalments of between USD 1 million and USD 1.5 million.
The Shareholder Loans bore interest of 3% per annum. There were no set repayment dates for the Shareholder Loans.
On April 1, 2021, the Group entered into a Debt
Remission Agreement (the “Debt Remission”) with WISeKey pursuant to which an outstanding amount of EUR 5 million
(USD 5,871,714 at historical rate) owed to WISeKey was remitted without any compensation from the Group. Per the terms of the Debt Remission,
WISeKey will have the right to reinstate the debt and ask for repayment in fiscal years when WISeKey Semiconductors SAS achieves a positive
income before income tax expense, in an amount calculated based on the income before income tax expense and as agreed by the parties.
As such, because of the repayment clause, the loan amount covered by the Debt Remission continues to be shown as noncurrent liabilities
included in the line Indebtedness to related parties, noncurrent. The outstanding amount under the Debt Remission is revalued at each
period end at the applicable closing rate. As at June 30, 2023, the full amount of EUR 5 million (USD 5,459,000) remained
outstanding.
On June 28, 2021, the Group entered into a Debt
Transfer Agreement with its parent, WISeKey, and an affiliate of WISeKey, WISeKey SA, pursuant to which WISeKey extended a loan of USD
1,463,664 to the Group to repay an overdue creditor balance in that same amount owed to WISeKey SA. The loan bore interest at the rate
of 3% per annum and was repayable by December 31, 2022.
On December 31, 2021, the Group entered into a
Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 1,910,754 to the Group with an interest rate of
3% per annum, repayable on December 31, 2023.
On June 30, 2022, the Group entered into a Debt
Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 444,542 to the Group with an interest rate of 3%
per annum, repayable on December 31, 2024.
On August 31, 2022, the Group entered into a Debt
Transfer Agreement with WISeKey and WISeKey SA pursuant to which WISeKey extended a loan of USD 381,879 to the Group with an interest
rate of 3% per annum, repayable on December 31, 2024.
On December 15, 2022, and in view of the negative
equity position of the Group, WISeKey as then sole shareholder of the SEALSQ Group resolved to recapitalize the Group by forfeiting EUR 7 million
(USD 7,348,397 at historical rate) out of the loans outstanding in exchange for the issuance of 175,000 new shares in WISeKey Semiconductors
SAS, par value EUR 1. Under French law, such a recapitalization is only possible if the loans to be forfeited are immediately repayable.
Therefore, respectively on November 1, 2022 and November 3, 2022, the Group entered into a First Amendment to the Debt Transfer Agreements
and into the Fourth Amendment to the Revolving Credit Agreement pursuant to which the loans owed under the Debt Transfer Agreements dated
June 28, 2021, December 31, 2021, June 30, 2022 and August 31, 2022 as well as all amounts due under the Revolving Credit became
due and payable on November 30, 2022.
Because of the requirement under French law, we
analyzed the amendment of the maturity of the loans and Revolving Credit as being part of the substance of the recapitalization transaction.
We assessed the recapitalization as a capital transaction between related parties in line with ASC 470-50 and, therefore, in the
year ended December 31, 2022, recorded a credit entry of USD 183,710 in share capital corresponding to the new issue of 175,000 shares
and a credit of USD 7,164,687 to additional paid-in capital, with a total debit entry of USD 7,348,397 to Indebtedness to related
parties, noncurrent.
On December 31, 2022, the Group entered into a
Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 283,754 to the Group with an interest rate
of 3% per annum, repayable on December 31, 2024.
As at December 31, 2022, the Group owed WISeKey
USD 1,198,746 in loans under the various agreements and the unamortized debt discount balance was USD 35,340, hence a carrying
value of USD 1,163,406 as at December 31, 2022
On January 1, 2023, the SEALSQ Group entered into
a loan agreement with WISeKey (the “New Loan”) which replaced all outstanding loan agreements. Per the terms of the
New Loan, WISeKey extended a loan to the SEALSQ Group of up to USD 5 million, with an interest rate of 2.5% per annum, repayable
on or around December 31, 2024. A first tranche loan of USD 1,407,497 was drawn on January 1, 2023, which was made up of the balance
of USD 1,198,746 outstanding from previous loan agreements as at December 31, 2022 and an additional loan amount of USD 208,751.
We determined the New Loan to be a troubled debt restructuring under ASC 470-60, where the future undiscounted cash flows of the New Loan
were more than the net carrying value of USD 1,163,406 of the original debt with WISeKey. Therefore, in line with ASC 470-60,
we recorded the New Loan with a new effective interest rate of 12.3% established based on the carrying value of the original debt and
the revised cash flows. No gain was recorded.
All entities in the SEALSQ Group are subject to
management fees from WISeKey and WISeKey’s affiliates. Where the payment terms have been defined, the classification between current
and noncurrent follows the payment terms, however, where there is no set payment date for these fees, they have been classified as noncurrent.
As at June 30, 2023, the Group owed WISeKey and
WISeKey’s affiliates noncurrent debts in an aggregate amount of USD 12,375,515 and the unamortized effective interest balance
was USD 189,110, hence a carrying value of USD 12,186,405 as at June 30, 2023, made up of loans and unpaid management fees.
In the six months ended June 30, 2023, an aggregate effective interest expense of USD 54,981 was recorded in the income statement.
As at June 30, 2023, the Group also held an accounts
payable balance of USD 2,145,262 with WISeKey in relation to interest on outstanding loans and the recharge of management services,
classified as accounts payable to shareholders.
20. Bonds, mortgages and other long-term debt
Production Capacity Investment Loan Agreement
In November 2022, SEALSQ entered into a loan agreement
with a third-party client to borrow funds for the purpose of increasing their production capacity. Under the terms of the Agreement,
the client has lent to SEALSQ a total of USD 2 million. The loan will be reimbursed by way of a volume rebate against future
sales volumes of certain products from the SEALSQ Group to the client during the period from July 1, 2023, through to December
31, 2025. The volume rebate is based upon quarterly sales volumes in excess of a base limit on a yearly projected basis. Any amount
still outstanding as at December 31, 2025 shall fall due for repayment on that date. The loan does not bear any interest and there
were no fees or costs attributed to the loan.
At inception in November 2022, a debt discount
totaling USD 511,128 was booked to additional paid-in capital.
As of June 30, 2023, SEALSQ has not repaid any
amount. The Group recorded a debt discount amortization expense of USD 87,653 in the six months ended June 30, 2023.
As at June 30, 2023, the loan balance remains
USD 2 million with an unamortized debt discount balance of USD 423,475, thus leaving a carrying value of USD 1,576,525.
21. Employee benefit plans
Defined benefit post-retirement plan
As of June 30, 2023, the Group maintained one
defined benefit post retirement plan for the employees of WISeKey Semiconductors SAS.
The plan is and was considered a defined benefit
plan and accounted for in accordance with ASC 715 Compensation – Retirement Benefits. This model allocates pension costs over
the service period of employees in the plan. The underlying principle is that employees render services ratably over this period, and
therefore, the income statement effects of pensions should follow a similar pattern. ASC 715 requires recognition of the funded status
or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the balance sheet, with
a corresponding adjustment recorded in the net loss. If the projected benefit obligation exceeds the fair value of the plan assets, then
that difference or unfunded status represents the pension liability.
The Group records net service cost as an operating
expense and other components of defined benefit plans as a non-operating expense in the statement of comprehensive loss.
The liabilities and annual income or expense of
the pension plan are determined using methodologies that involve several actuarial assumptions, the most significant of which are the
discount rate and the long-term rate of asset return (based on the market-related value of assets). The fair value of plan assets is determined
based on prevailing market prices.
The defined benefit pension plan maintained by
WISeKey Semiconductors SAS, and their obligations to employees in terms of retirement benefits, is limited to a lump sum payment based
on remuneration and length of service, determined for each employee. The plan is not funded.
The pension liability calculated as at June 30,
2023 is based on annual personnel costs and assumptions as of December 31, 2022.
The expected future cash flows to be paid by the
Group for employer contribution for the year ended December 31, 2023, are USD 26,000.
|
|
|
Movement in Funded Status |
6 months ended June 30, |
USD'000 |
2023 |
2022 |
Net Service cost |
19 |
23 |
Interest cost/(credit) |
7 |
2 |
Settlement / curtailment cost / (credit) |
— |
— |
Total Net Periodic Benefit Cost/(credit) |
26 |
25 |
|
|
|
Employer contributions paid in the period |
(13) |
(12) |
Total Cashflow |
(13) |
(12) |
22. Commitments and contingencies
Lease commitments
The future payments due under leases are shown
in Note 15.
Guarantees
Our software and hardware product sales agreements
generally include certain provisions for indemnifying customers against liabilities if our products infringe a third party’s intellectual
property rights. Certain of our product sales agreements also include provisions indemnifying customers against liabilities in the event
we breach confidentiality or service level requirements. It is not possible to determine the maximum potential amount under these indemnification
agreements due to our lack of history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. To date, we have not incurred any costs as a result of such indemnifications and have not accrued any liabilities related to
such obligations in our condensed consolidated financial statements.
23. Stockholders’ equity
Stockholders’ equity consisted of the following:
Stockholders' Equity - Schedule of Stock by Class
|
|
|
|
|
|
|
SEALSQ Corp. |
|
WISeKey Semiconductors SAS |
|
As at June 30, 2023 |
|
As at December 31, 2022 |
Share Capital |
Ordinary shares |
F shares |
|
In equivalent ordinary shares |
In equivalent
F shares |
Par value per share |
USD 0.01 |
USD 0.05 |
|
USD 0.01 |
USD 0.05 |
Share capital (in USD) |
75,015 |
74,985 |
|
75,014 |
74,985 |
— |
— |
— |
— |
— |
— |
Total number of authorized shares |
200,000,000 |
10,000,000 |
|
200,000,000 |
10,000,000 |
Total number of fully paid-in issued shares |
7,501,500 |
1,499,700 |
|
7,501,400 |
1,499,700 |
Total number of fully paid-in outstanding shares |
7,501,500 |
1,499,700 |
|
7,501,400 |
1,499,700 |
Total share capital (in USD) |
150,000 |
|
149,999 |
On May 23, 2023, the ordinary shares of the SEALSQ
Group were listed on the Nasdaq Global Market.
24. Revenue
| I. | Nature of goods and services |
The following is a description of the principal
activities from which the Group generates its revenue.
The Group recognizes revenue when a customer takes
possession of the chips, which usually occurs when the goods are delivered. Customers typically pay once goods are delivered.
| II. | Disaggregation of revenue |
The following table shows the Group’s revenues
disaggregated by product or service type:
Revenue - Schedule of Disaggregation of Revenue
Disaggregation
of revenue (unaudited) At One Point in Time |
Revenue recognized |
At one point in time |
|
Total |
6 months ended June 30, |
|
6 months ended June 30, |
USD'000 |
|
2023 |
2022 |
|
2023 |
2022 |
Secure Microcontrollers Segment |
|
|
|
|
|
|
Secure chips |
Upon delivery |
10,156 |
9,671 |
|
10,156 |
9,671 |
Total Secure Microcontrollers segment revenue |
10,156 |
9,671 |
|
10,156 |
9,671 |
All Other Segment |
|
|
|
|
|
|
Secure chips |
Upon delivery |
4,595 |
985 |
|
4,595 |
985 |
Total All Other segment revenue |
4,595 |
985 |
|
4,595 |
985 |
Total Revenue |
14,751 |
10,656 |
|
14,751 |
10,656 |
For the six months ended June 30, 2023 and 2022,
the Group recorded no revenues related to performance obligations satisfied in prior periods.
The following table shows the Group’s revenues
disaggregated by geography, based on our customers’ billing addresses:
Revenue - Schedule of Disaggregation
of Revenue by Geographic Areas
Net sales by region (unaudited) |
6 months ended June 30, |
USD'000
Rest of EMEA
North America
Asia Pacific
Latin America
France
|
2023 |
|
2022 |
Secure Microcontrollers Segment |
|
|
|
France |
31 |
|
90 |
Rest of EMEA |
1,357 |
|
1,280 |
North America |
7,956 |
|
6,937 |
Asia Pacific |
812 |
|
1,314 |
Latin America |
— |
|
50 |
Total Secure Microcontrollers segment revenue |
10,156 |
|
9,671 |
All Other Segment |
|
|
|
France |
109 |
|
4 |
Rest of EMEA |
2,924 |
|
679 |
North America |
418 |
|
— |
Asia Pacific |
1,144 |
|
302 |
Total All Other segment revenue |
4,595 |
|
985 |
Total net sales |
14,751 |
|
10,656 |
*EMEA means Europe, Middle East and Africa |
|
|
|
| III. | Contract assets, deferred revenue and contract liability |
Our contract assets, deferred revenue and contract
liability consist of:
Revenue - Schedule of Contract Assets,
Deferred Revenue and Contract Liability
|
As at June 30, |
|
As at December 31, |
USD'000 |
2023 (unaudited) |
|
2022 |
Trade accounts receivables |
|
|
|
Trade accounts receivable - Secure Microcontrollers Segment |
2,424 |
|
1,794 |
Trade accounts receivable - All Other Segment |
1,096 |
|
475 |
Total trade accounts receivables |
3,520 |
|
2,269 |
Contract liabilities - current |
157 |
|
84 |
Total contract liabilities |
157 |
|
84 |
Revenue recognized in the period from amounts included in the deferred revenue at the beginning of the year |
— |
|
— |
Increases or decreases in trade accounts receivable,
contract assets, deferred revenue and contract liability were primarily due to normal timing differences between our performance and customer
payments.
| IV. | Remaining performance obligations |
As of June 30, 2023, approximately USD 157,392
is expected to be recognized from remaining performance obligations for contracts. We expect to recognize revenue for these remaining
performance obligations in 2023.
25. Other operating income
The other operating income relates to a liability
written off after expiry of the statute of limitation.
26. Non-operating income
Non-operating income consisted of the following:
Non-Operating Income - Schedule of
Non-Operating Income
|
|
|
|
|
Unaudited 6 months ended June 30, |
USD'000 |
2023 |
|
2022 |
Foreign exchange gain |
125 |
|
469 |
Interest income |
55 |
|
— |
Total non-operating income |
180 |
|
469 |
27. Non-operating expenses
Non-operating expenses consisted of the following:
Non-Operating
Expenses - Schedule of Non-Operating Expenses
|
|
|
|
|
Unaudited 6 months ended June 30, |
USD'000 |
2023 |
|
2022 |
Foreign exchange losses |
253 |
|
111 |
Financial charges |
2 |
|
1 |
Interest expense |
52 |
|
— |
Other |
6 |
|
1 |
Total non-operating expenses |
313 |
|
113 |
28. Segment reporting
The Group has one operating segment that meets
the criteria set in ASC 280-10-50: Secure Microcontrollers. The Group’s chief operating decision maker, who is its Chief Executive
Officer, reviews financial performance of this operating segment for purposes of allocating resources and assessing budgets and performance.
The remaining non-reportable operating segments
and other business activities that are not identified as operating segments are combined and disclosed in an “all other” standalone
category.
The Secure Microcontrollers segment encompasses
the design, manufacturing, sales and distribution of high-end, Common Criteria EAL5+ & FIPS 140-3-certified secure microprocessors.
|
|
|
|
|
|
|
|
|
|
|
|
6 months ended June 30, |
2023 (unaudited) |
|
2022 (unaudited) |
USD'000 |
Secure Microcontrollers |
|
All Other |
|
Total |
|
Secure Microcontrollers |
|
All Other |
|
Total |
Revenues from external customers |
10,156 |
|
4,595 |
|
14,751 |
|
9,671 |
|
985 |
|
10,656 |
Intersegment revenues |
— |
|
231 |
|
231 |
|
— |
|
180 |
|
180 |
Interest revenue |
38 |
|
17 |
|
55 |
|
— |
|
— |
|
— |
Interest expense |
36 |
|
16 |
|
52 |
|
110 |
|
11 |
|
121 |
Depreciation and amortization |
190 |
|
86 |
|
275 |
|
181 |
|
19 |
|
200 |
Segment income /(loss) before income taxes |
718 |
|
(1,262) |
|
(544) |
|
687 |
|
(860) |
|
(173) |
Profit / (loss) from intersegment sales |
— |
|
11 |
|
11 |
|
— |
|
9 |
|
9 |
Income tax recovery /(expense) |
— |
|
(320) |
|
(320) |
|
— |
|
(1) |
|
(1) |
Segment assets |
13,279 |
|
7,864 |
|
24,148 |
|
13,279 |
|
1,695 |
|
14,974 |
6 months ended June 30, |
|
2023 |
|
2022 |
|
|
USD'000 |
|
USD'000 |
Revenue reconciliation |
|
|
|
|
Total revenue for reportable segment |
14,982 |
|
10,836 |
Elimination
of intersegment revenue Intersegment |
(231) |
|
(180) |
Total consolidated revenue |
|
14,751 |
|
10,656 |
|
|
|
|
|
Loss reconciliation |
|
|
|
|
Total profit / (loss) from reportable segments |
(544) |
|
(173) |
Elimination of intersegment profits |
|
(11) |
|
(9) |
Income /(Loss) before income taxes |
(555) |
|
(182) |
As at June 30, |
|
2023 |
|
2022 |
|
|
USD'000 |
|
USD'000 |
Asset reconciliation |
|
|
|
|
Total
assets from reportable segments Reportable Segments |
24,148 |
|
14,974 |
Elimination of intersegment receivables Intersegment |
(71) |
|
(279) |
Consolidated total assets |
|
24,077 |
|
14,695 |
Revenue and property, plant and equipment by geography
The following tables summarize geographic information
for net sales based on the billing address of the customer, and for property, plant and equipment.
Segment Reporting - Schedule of Revenue and Property, Plant and Equipment by Geography
Net sales by region |
6 months ended June 30, |
USD'000 |
2023 (unaudited) |
|
2022 (unaudited) |
France |
140 |
|
94 |
Rest of EMEA* |
4,281 |
|
1,959 |
North America |
8,374 |
|
6,937 |
Asia Pacific |
1,956 |
|
1,616 |
Latin America |
— |
|
50 |
Total net sales |
14,751 |
|
10,656 |
* EMEA means Europe, Middle East and Africa |
|
|
|
Property, plant and equipment, net of depreciation, by region |
As at June 30, |
|
As at December 31, |
USD'000 |
2023 |
|
2022 |
France |
2,181 |
|
782 |
Total Property, plant and equipment, net of depreciation |
2,181 |
|
782 |
29. Earnings/(Loss) per share
The computation of basic and diluted net earnings/(loss)
per share for the Group is as follows:
Earnings/(Loss) Per Share - Schedule
of Earnings Per Shares, Basic and Diluted
|
|
|
|
|
6 months ended June 30, |
Earnings / (loss) per share |
2023 (unaudited) |
2022 (unaudited) |
Net income (USD'000) |
(875) |
|
(183) |
Effect of potentially dilutive instruments on net gain (USD'000) |
n/a |
|
n/a |
Net income / (loss) after effect of potentially dilutive instruments (USD'000) |
(875) |
|
(183) |
Ordinary shares used in net earnings / (loss) per share computation: |
|
|
|
Weighted average shares outstanding - basic |
7,501,500 |
|
6,610,293 |
Effect of potentially dilutive equivalent shares |
n/a |
|
n/a |
Weighted average shares outstanding - diluted |
7,501,500 |
|
6,610,293 |
Net earnings / (loss) per ordinary share |
|
|
|
Basic weighted average loss per share (USD) |
(0.06) |
|
(0.01) |
Diluted weighted average loss per share (USD) |
(0.06) |
|
(0.01) |
|
|
|
|
F shares used in net earnings / (loss) per share computation: |
|
|
|
Weighted average shares outstanding - basic |
1,499,700 |
|
1,499,700 |
Effect of potentially dilutive equivalent shares |
n/a |
|
n/a |
Weighted average shares outstanding - diluted |
1,499,700 |
|
1,499,700 |
|
|
|
|
Net earnings / (loss) per F share |
|
|
|
Basic weighted average loss per share (USD) |
(0.29) |
|
(0.06) |
Diluted weighted average loss per share (USD) |
(0.29) |
|
(0.06) |
30. Legal proceedings
We are currently not party to any legal proceedings
and claims that are not provided for in our financial statements.
31. Related parties disclosure
Subsidiaries
As at June 30, 2023, the condensed consolidated
financial statements of the Group include the entities listed in the following table:
Related Parties Disclosure - Schedule
of Subsidiary/Parent Ownership Interest
Group
Company Name |
Country
of incorporation |
Year
of incorporation |
Share
Capital |
%
ownership
as at June 30, 2023 |
%
ownership
as at December 31, 2022 |
Nature
of business |
WISeKey
Semiconductors SAS |
France |
2010 |
EUR
1,473,162 |
100.0% |
100.0% |
Chip
manufacturing, sales & distribution |
WISeKey
IoT Japan KK |
Japan |
2017 |
JPY 1,000,000
|
100.0% |
100.0% |
Sales
& distribution |
WISeKey
IoT Taiwan |
Taiwan |
2017 |
TWD 100,000
|
100.0% |
100.0% |
Sales
& distribution |
Related party transactions and balances
|
|
Receivables
as at |
Payables as
at |
Net expenses
to |
Net income
from |
|
Related
Parties |
June
30, |
December
31, |
June
30, |
December
31, |
in the 6 months
ended June 30, |
in the 6 months
ended June 30, |
|
(in
USD'000) |
2023
(unaudited) |
2022 |
2023
(unaudited) |
2022 |
2023
(unaudited) |
2022
(unaudited) |
2023
(unaudited) |
2022
(unaudited) |
1 |
WISeKey
International Holding AG |
—
|
—
|
9,656
|
7,122
|
1,898
|
359
|
—
|
—
|
2 |
WISeKey
USA Inc |
—
|
—
|
646
|
154
|
492
|
255
|
—
|
—
|
3 |
WISeKey
Semiconductors GmbH |
—
|
—
|
870
|
773
|
81
|
92
|
—
|
—
|
4 |
WISeCoin
AG |
—
|
—
|
3,349
|
3,306
|
37
|
44
|
—
|
—
|
|
Total |
—
|
—
|
14,521
|
11,355
|
2,508
|
750
|
—
|
—
|
| 1. | The SEALSQ Group is 90%-owned by WISeKey International Holding AG, which provides financing and management
services, including, but not limited to, sales and marketing, accounting, finance, legal, taxation, business and strategy consulting,
public relations, marketing, risk management, information technology and general management. The expenses in relation to WISeKey International
Holding AG for the six months ended June 30, 2023 and 2022 relate to interest on outstanding loans and the recharge of management services. |
| 2. | WISeKey USA Inc is part of the group headed by WISeKey International Holding AG (the “WISeKey
Group”) and employs sales staff who work for the SEALSQ Group. The expenses in relation to WISeKey USA Inc. in the six
months ended June 30, 2023 and 2022 relate to the recharge of employee costs. |
| 3. | WISeKey Semiconductors GmbH is part of the WISeKey Group and employs sales staff who work for the SEALSQ
Group. The expenses in relation to WISeKey Semiconductors GmbH in the six months ended June 30, 2023 and 2022 relate to the recharge
of employee costs. |
| 4. | WISeCoin AG is part of the WISeKey Group. The expenses recorded in the six months ended June 30, 2023
and 2022 relate to interest on an outstanding loan. |
32. Subsequent events
Capital Increase
On July 10, 2023, the Group issued 8,184 new ordinary
shares to a shareholder as a result of a share ledger correction.
Subsequent Event
Private Placement
Securities Purchase Agreement
On July 11, 2023, the Group entered into a Securities
Purchase Agreement with L1 Capital Global Opportunities Master Fund Ltd. and Anson Investments Master Fund LP (each the “Investor”,
together the “Investors”) pursuant to which the Investors may enter into a private placement of up to a maximum amount of
USD 20 million, divided into two equal tranches.
The first tranche for a total of USD 10 million
was paid in July 2023 by the Investors. In connection with the closing of the First Tranche, the Company issued to the Investors (i) 4%
Senior Original Issue Discount Convertible Notes due 2025 in an aggregate principal amount of USD 10 million, convertible into
SEALSQ’s ordinary shares, and (ii) warrants with a 5-year maturity. The Senior Original Issue Discount Convertible bears a 4% per
annum interest rate. SEALSQ has also created a capital reserve of 8,000,000 ordinary shares from its duly authorized ordinary shares for
issuance under the First Tranche.
The funding of the Second Tranche is, inter
alia, subject to the mutual consent of the Group and each Investor.
33. Business Update Related to COVID-19
In March 2020, the World Health Organization declared
the Coronavirus (COVID-19) a pandemic. The outbreak spread quickly around the world, including in every geography in which the Group operates.
The pandemic has created uncertainty around the impact of the global economy and has resulted in impacts to the financial markets and
asset values. Governments implemented various restrictions around the world, including closure of non-essential businesses, travel, shelter-in-place
requirements for citizens and other restrictions.
The Group took a number of precautionary steps
to safeguard its businesses and colleagues from COVID-19, including implementing travel restrictions, working from home arrangements and
flexible work policies. The Group has now returned to offices around the world. We continue to prioritize the safety and well-being of
our colleagues.
The Group’s major production centers, located
in Taiwan and Vietnam, were quick to implement controls and safeguards around their processes that enabled us to continue delivering products
with minimal interruption to our clients. In the six months to June 30, 2023, the impact upon the Group has been very limited and we remain
confident that we are able to, and will be able to, fulfil all current and future client orders.
Currently the Group remains able to meet its commitments
and does not foresee any significant challenges in the near future. The Group currently does not anticipate any material impact on its
liquidity position in future periods nor on its outlook.
At this stage it remains impossible to predict
the extent of the impact of the COVID-19 pandemic on future periods as this will depend on numerous evolving factors and future developments
that the Group is not able to predict.
34. Impacts of the war in Ukraine
Following the outbreak of the war in Ukraine in
late February 2022, several countries imposed sanctions on Russia, Belarus and certain regions in Ukraine. There has been an abrupt change
in the geopolitical situation, with significant uncertainty about the duration of the conflict, changing scope of sanctions and retaliation
actions including new laws.
The SEALSQ group does not have any operation or
customer in Russia, Belarus or Ukraine, and, as such, does not foresee any direct impact of the war on its operations. However, the war
has also contributed to an increase in volatility in currency markets, energy prices, raw material and other input costs, which may impact
the Group’s supply chain in the future.
As at June 30, 2023, SEALSQ has assessed the consequences
of the war for its financial disclosures and considered the impacts on key judgments and significant estimates, and has concluded that
no changes were required. SEALSQ will continue to monitor these areas of increased risk for material changes.
![](https://www.sec.gov/Archives/edgar/data/1951222/000119380524000219/image_003.jpg) |
Tél. : 04 72 61 05 76
www.bdo.fr |
28 rue de la République
69002 LYON
|
|
1. |
Report of the Independent Registered Public Accounting Firm |
Report of Independent Registered Public Accounting
Firm
Shareholders and Board of Directors
WISeKey Semiconductors SAS - Arteparc
de Bachasson, Bâtiment A, rue de la Carrière de Bachasson
13590 Meyreuil - FRANCE
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheets of WISeKey Semiconductors SAS Group (the “Company”) as of December 31, 2022 and 2021, the related consolidated
statements of comprehensive income/loss, stockholders’ equity, and cash flows for each of the years then ended, 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 at December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audit. 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.
Lyon (France), April 20, 2023
BDO Rhône-Alpes
/s/ Justine GAIRAUD
Represented by Justine GAIRAUD
We have served as the Company's auditor since
2016.
Siège social : BDO Rhône-Alpes
– Le Pixel – 10bis avenue des FTPF - 38130 Echirolles
SAS au capital de 3 000 000
Euros - SIREN 061 500 542 RCS Grenoble - N°TVA Intracommunautaire FR 720 615 00542
Société d’Expertise
Comptable inscrite au Tableau de l’Ordre de la Région AURA
Société de
Commissaires aux Comptes Compagnie Régionale Dauphiné Savoie
|
![](https://www.sec.gov/Archives/edgar/data/1951222/000119380524000219/image_004.jpg) |
![](https://www.sec.gov/Archives/edgar/data/1951222/000119380524000219/image_003.jpg) |
Phone +41 44 444 35 55
www.bdo.ch
zurich@bdo.ch
|
BDO Ltd
Schiffbaustrasse 2
8031 Zurich |
Report of Independent Registered Public Accounting Firm
Opinion on the Consolidated
Financial Statements
We have audited the accompanying
consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows of WISeKey Semiconductors SAS
(the “Company”) for the year ended December 31, 2020 and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements for the year ended December 31, 2020 present fairly,
in all material respects, the results of its operations and its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audit. 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 audit
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 audit, 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 audit 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 audit 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 audit
provides a reasonable basis for our opinion.
Zurich, Switzerland,
December 9, 2022
BDO AG
/s/ Philipp Kegele |
/s/ Sascha Gasser |
|
|
Philipp Kegele |
ppa. Sascha Gasser |
We served as the Company’s
auditor since 2022.
|
2. |
Consolidated Statements of Comprehensive Income/(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months ended December 31, |
|
|
USD'000 |
|
2022 |
|
2021 |
|
2020 |
|
Note ref. |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
23,198 |
|
|
|
16,995 |
|
|
|
14,317 |
|
|
|
23 |
|
Cost of sales |
|
|
(13,267 |
) |
|
|
(9,547 |
) |
|
|
(8,147 |
) |
|
|
|
|
Depreciation of production assets |
|
|
(132 |
) |
|
|
(301 |
) |
|
|
(736 |
) |
|
|
|
|
Gross profit |
|
|
9,799 |
|
|
|
7,147 |
|
|
|
5,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income |
|
|
2,007 |
|
|
|
91 |
|
|
|
— |
|
|
|
24 |
|
Research & development expenses |
|
|
(2,308 |
) |
|
|
(3,050 |
) |
|
|
(4,128 |
) |
|
|
|
|
Selling & marketing expenses |
|
|
(3,824 |
) |
|
|
(4,245 |
) |
|
|
(3,103 |
) |
|
|
|
|
General & administrative expenses |
|
|
(3,091 |
) |
|
|
(4,984 |
) |
|
|
(6,788 |
) |
|
|
|
|
Total operating expenses |
|
|
(7,216 |
) |
|
|
(12,188 |
) |
|
|
(14,019 |
) |
|
|
|
|
Operating income / (loss) |
|
|
2,583 |
|
|
|
(5,041 |
) |
|
|
(8,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income |
|
|
935 |
|
|
|
483 |
|
|
|
146 |
|
|
|
25 |
|
Interest and amortization of debt discount |
|
|
(355 |
) |
|
|
(167 |
) |
|
|
(8 |
) |
|
|
25 |
|
Non-operating expenses |
|
|
(638 |
) |
|
|
(96 |
) |
|
|
(749 |
) |
|
|
26 |
|
Income / (loss) before income tax expense |
|
|
2,525 |
|
|
|
(4,821 |
) |
|
|
(9,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax income (expense) |
|
|
3,245 |
|
|
|
(6 |
) |
|
|
(5 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) |
|
|
5,770 |
|
|
|
(4,827 |
) |
|
|
(9,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (USD) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3.92 |
|
|
|
(3.72 |
) |
|
|
(7.09 |
) |
|
|
28 |
|
Diluted |
|
|
3.92 |
|
|
|
(3.72 |
) |
|
|
(7.09 |
) |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income / (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(15 |
) |
|
|
(8 |
) |
|
|
33 |
|
|
|
|
|
Defined benefit pension plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Net gain (loss) arising during period |
|
|
170 |
|
|
|
142 |
|
|
|
105 |
|
|
|
|
|
Other comprehensive income / (loss) |
|
|
155 |
|
|
|
134 |
|
|
|
138 |
|
|
|
|
|
Comprehensive income / (loss) |
|
|
5,925 |
|
|
|
(4,693 |
) |
|
|
(9,063 |
) |
|
|
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
|
3. |
Consolidated Balance Sheets |
|
|
As at December 31, |
|
As at December 31, |
|
|
USD'000, "except par value" |
|
2022 |
|
2021 |
|
Note ref. |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
4,057 |
|
|
|
2,064 |
|
|
|
7 |
|
Accounts receivable, net of allowance for doubtful accounts |
|
|
2,219 |
|
|
|
2,606 |
|
|
|
8 |
|
Inventories |
|
|
7,510 |
|
|
|
2,710 |
|
|
|
9 |
|
Prepaid expenses |
|
|
394 |
|
|
|
454 |
|
|
|
|
|
Other current assets |
|
|
1,252 |
|
|
|
414 |
|
|
|
10 |
|
Total current assets |
|
|
15,432 |
|
|
|
8,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets |
|
|
3,296 |
|
|
|
— |
|
|
|
27 |
|
Deferred tax credits |
|
|
692 |
|
|
|
847 |
|
|
|
11 |
|
Property, plant and equipment net of accumulated depreciation |
|
|
782 |
|
|
|
886 |
|
|
|
12 |
|
Intangible assets, net of accumulated amortization |
|
|
1 |
|
|
|
5 |
|
|
|
13 |
|
Operating lease right-of-use assets |
|
|
1,379 |
|
|
|
1,776 |
|
|
|
14 |
|
Other noncurrent assets |
|
|
77 |
|
|
|
82 |
|
|
|
15 |
|
Total noncurrent assets |
|
|
6,227 |
|
|
|
3,596 |
|
|
|
|
|
TOTAL ASSETS |
|
|
21,659 |
|
|
|
11,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
6,735 |
|
|
|
7,256 |
|
|
|
16 |
|
Indebtedness to related parties, current |
|
|
3,374 |
|
|
|
— |
|
|
|
18 |
|
Current portion of obligations under operating lease liabilities |
|
|
324 |
|
|
|
320 |
|
|
|
14 |
|
Income tax payable |
|
|
47 |
|
|
|
3 |
|
|
|
|
|
Other current liabilities |
|
|
148 |
|
|
|
180 |
|
|
|
17 |
|
Total current liabilities |
|
|
10,628 |
|
|
|
7,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds, mortgages and other long-term debt |
|
|
1,489 |
|
|
|
— |
|
|
|
33 |
|
Operating lease liabilities, noncurrent |
|
|
988 |
|
|
|
1,456 |
|
|
|
14 |
|
Indebtedness to related parties, noncurrent |
|
|
7,946 |
|
|
|
15,617 |
|
|
|
18 |
|
Employee benefit plan obligation |
|
|
396 |
|
|
|
575 |
|
|
|
19 |
|
Total noncurrent liabilities |
|
|
10,819 |
|
|
|
17,648 |
|
|
|
|
|
TOTAL LIABILITIES |
|
|
21,447 |
|
|
|
25,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1,955 |
|
|
|
1,772 |
|
|
|
21 |
|
EUR 1 par value |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 1,473,162 and 1,298,162 shares |
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding - 1,473,162 and 1,298,162 shares |
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
14,926 |
|
|
|
7,258 |
|
|
|
|
|
Accumulated other comprehensive income / (loss) |
|
|
775 |
|
|
|
621 |
|
|
|
22 |
|
Accumulated deficit |
|
|
(17,444 |
) |
|
|
(23,214 |
) |
|
|
|
|
Total shareholders' equity |
|
|
212 |
|
|
|
(13,563 |
) |
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
21,659 |
|
|
|
11,844 |
|
|
|
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
|
4. |
Consolidated Statements of Changes in Shareholders’ Equity |
USD'000 |
|
Number of common shares |
|
Common Share Capital |
|
Additional paid-in capital |
|
Accumulated deficit |
|
Accumulated other comprehensive income / (loss) |
|
Total equity (deficit) |
As at December 31, 2020 |
|
|
1,298,162 |
|
|
|
1,772 |
|
|
|
6,755 |
|
|
|
(18,387 |
) |
|
|
487 |
|
|
(9,373 |
) |
Indebtedness to related parties |
|
|
— |
|
|
|
— |
|
|
|
503 |
|
|
|
— |
|
|
|
— |
|
|
503 |
|
Comprehensive income / (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,827 |
) |
|
|
134 |
|
|
(4,693 |
) |
As at December 31, 2021 |
|
|
1,298,162 |
|
|
|
1,772 |
|
|
|
7,258 |
|
|
|
(23,214 |
) |
|
|
621 |
|
|
(13,563 |
) |
Recapitalization by WISeKey International Holding Ltd |
|
|
175,000 |
|
|
|
183 |
|
|
|
7,165 |
|
|
|
— |
|
|
|
— |
|
|
7,348 |
|
LT loan debt discount |
|
|
— |
|
|
|
— |
|
|
|
511 |
|
|
|
— |
|
|
|
— |
|
|
511 |
|
Indebtedness to related parties |
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
(8 |
) |
Comprehensive income / (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,770 |
|
|
|
155 |
(a) |
|
5,925 |
|
As at December 31, 2022 |
|
|
1,473,162 |
|
|
|
1,955 |
|
|
|
14,926 |
|
|
|
(17,444 |
) |
|
|
775 |
|
|
212 |
|
(a) Adjusted for rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Recapitalization by WISeKey International
Holding Ltd that occurred in 2022 is further detailed in Note 18.
The accompanying notes are an integral part of
these consolidated financial statements.
|
5. |
Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
12 months ended December 31, |
USD'000 |
|
2022 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
Cash Flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
5,770 |
|
|
(4,827 |
) |
|
(9,201 |
) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation of property, plant & equipment |
|
404 |
|
|
1,532 |
|
|
2,243 |
|
Amortization of intangible assets |
|
4 |
|
|
5 |
|
|
604 |
|
Interest and amortization of debt discount |
|
355 |
|
|
167 |
|
|
8 |
|
Inventory obsolescence impairment |
|
554 |
|
|
— |
|
|
(457 |
) |
Income tax expense / (recovery) net of cash paid |
|
(3,250 |
) |
|
6 |
|
|
5 |
|
Release of provision |
|
— |
|
|
— |
|
|
(52 |
) |
Other non cash expenses /(income) |
|
|
|
|
|
|
|
— |
|
Expenses accrued under noncurrent liabilities |
|
882 |
|
|
— |
|
|
— |
|
Unrealized and non cash foreign currency transactions |
|
— |
|
|
— |
|
|
616 |
|
Other |
|
— |
|
|
— |
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of businesses acquired |
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivables |
|
387 |
|
|
(400 |
) |
|
1,539 |
|
Decrease (increase) in inventories |
|
(5,354 |
) |
|
(236 |
) |
|
313 |
|
Decrease (increase) in other current assets and prepaids, net |
|
(778 |
) |
|
172 |
|
|
198 |
|
Decrease (increase) in deferred research & development tax credits, net |
|
154 |
|
|
464 |
|
|
1,330 |
|
Decrease (increase) in other noncurrent assets, net |
|
5 |
|
|
4 |
|
|
63 |
|
Increase (decrease) in accounts payable |
|
(521 |
) |
|
522 |
|
|
(457 |
) |
Increase (decrease) in deferred revenue, current |
|
— |
|
|
(150 |
) |
|
143 |
|
Increase (decrease) in income taxes payable |
|
44 |
|
|
3 |
|
|
(10 |
) |
Increase (decrease) in other current liabilities |
|
(31 |
) |
|
(413 |
) |
|
169 |
|
Increase (decrease) in defined benefit pension liability |
|
(179 |
) |
|
(440 |
) |
|
43 |
|
Net cash provided by (used in) operating activities |
|
(1,554 |
) |
|
(3,591 |
) |
|
(3,023 |
) |
|
|
|
|
|
|
|
|
— |
|
Cash Flows from investing activities: |
|
|
|
|
|
|
|
— |
|
Sale / (acquisition) of property, plant and equipment |
|
(299 |
) |
|
(36 |
) |
|
(52 |
) |
Acquisition of a business, net of cash and cash equivalents acquired |
|
— |
|
|
— |
|
|
215 |
|
Net cash provided by (used in) investing activities |
|
(299 |
) |
|
(36 |
) |
|
163 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from debt |
|
3,750 |
|
|
3,691 |
|
|
4,013 |
|
Repayments of debt |
|
— |
|
|
— |
|
|
(1,208 |
) |
Net cash provided by (used in) financing activities |
|
3,750 |
|
|
3,691 |
|
|
2,805 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
96 |
|
|
170 |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Net increase (decrease) during the period |
|
1,993 |
|
|
234 |
|
|
(15 |
) |
Balance, beginning of period |
|
2,064 |
|
|
1,830 |
|
|
1,845 |
|
Balance, end of period |
|
4,057 |
|
|
2,064 |
|
|
1,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
Cash paid for incomes taxes |
|
4 |
|
|
— |
|
|
16 |
|
Recapitalization by WISeKey International Holding Ltd |
|
7,348 |
|
|
— |
|
|
|
|
ROU assets obtained from operating lease |
|
56 |
|
|
33 |
|
|
90 |
|
The accompanying notes are an integral part of
these consolidated financial statements.
|
6. |
Notes to the Consolidated Financial Statements |
Note 1. The
Semiconductors Group
WISeKey Semiconductors SAS, together with its
consolidated subsidiaries (the “Group” or the “Semiconductors Group”), has its headquarters in France. WISeKey
Semiconductors SAS, the parent of the Semiconductors Group, was incorporated in July 2010 and is a private joint stock company (French
Simplified Joint Stock Company).
In 2020, the Group acquired WISeCoin France R&D
Lab SAS, a private French company which was spun off from the Group in 2019. The primary activity of WISeCoin France R&D Lab SAS is
to carry out research and development on hardware and software components of semiconductors and integrated circuits with a focus on authentication
and security solutions. On January 1, 2021, WISeCoin France R&D Lab SAS’ assets and liabilities were transferred to WISeKey
Semiconductors SAS and WISeCoin France R&D Lab SAS was dissolved.
The Group designs, develops and markets secure
semiconductors worldwide as a fabless manufacturer. It provides added security and authentication layers on its semiconductors which can
be tailored to customers’ needs. As an advanced chip designer, the Group holds the intellectual property (“IP”) for
the semiconductors it sells.
The Group anticipates being able to generate profits
in the near future thanks to the increased focus on the security and authentication of IT components and networks.
Note 2. Future
operations and going concern
The Group recorded an income from operations in
this reporting period and the accompanying consolidated financial statements have been prepared assuming that the Group will continue
as a going concern.
The Group recorded a net operating income of USD 2.6 million
in the year ended December 31, 2022 and a net operating loss of USD 5.0 million in the year ended December 31, 2021, and had
positive working capital of, respectively, USD 6.2 million and USD 0.5 million as at December 31, 2022 and
2021, both calculated as the difference between current assets and current liabilities. Based on the Group’s cash projections up
to April 30, 2024, it has sufficient liquidity to fund operations. Historically, the Group has been dependent on financing from its parent,
WISeKey International Holding Ltd, to augment the operating cash flow to cover its cash requirements.
Based on the foregoing, Management believe it
is correct to present these figures on a going concern basis.
Note 3. Basis
of presentation
The consolidated financial statements are prepared
in accordance with the Generally Accepted Accounting Principles in the United States of America (“US GAAP”) as set forth in
the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC). All amounts are in United States dollars
(“USD”) unless otherwise stated.
Note 4. Summary
of significant accounting policies
Fiscal Year
The Group’s fiscal year ends on December
31.
Principles of Consolidation
The consolidated financial statements include
the accounts of WISeKey Semiconductors SAS and its wholly-owned subsidiaries over which the Group has control.
Intercompany income and expenses, including unrealized
gross profits from internal group transactions and intercompany receivables, payables and loans have been eliminated.
Use of Estimates
The preparation of consolidated financial statements
in conformity with US GAAP requires management to make certain estimates, judgments and assumptions. We believe these estimates, judgements
and assumptions are reasonable, based upon information available at the time they were made. These estimates, judgments and assumptions
can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of
revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions
and the actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular
transaction is specifically dictated by US GAAP and does not require management’s judgment in its application. There are also areas
in which management’s judgment in selecting from available alternatives would not produce a materially different result.
Foreign Currency
The functional currency of WISeKey Semiconductors
SAS is USD.
In general, the functional currency of a foreign
operation is the local currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance
sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. The effects of foreign currency
translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income/loss. The
Group's reporting currency is USD.
Cash and Cash Equivalents
Cash consists of deposits held at major banks
that are readily available. Cash equivalents consist of highly liquid investments that are readily convertible to cash and with original
maturity dates of three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities
of these instruments.
Accounts Receivable
Receivables represent rights to consideration
that are unconditional and consist of amounts billed and currently due from customers, and revenues that have been recognized for accounting
purposes but not yet billed to customers. The Group extends credit to customers in the normal course of business and in line with industry
practices.
Allowance for Doubtful Accounts
We recognize an allowance for credit losses to
present the net amount of receivables expected to be collected as of the balance sheet date. The allowance is based on the credit losses
expected to arise over the asset’s contractual term taking into account historical loss experience, customer-specific data as well
as forward looking estimates. Expected credit losses are estimated individually.
Accounts receivables are written off when deemed
uncollectible and are recognized as a deduction from the allowance for credit losses. Expected recoveries, which are not to exceed the
amount previously written off, are considered in determining the allowance balance at the balance sheet date.
Inventories
Inventories are stated at the lower of cost or
net realizable value. Costs are calculated using standard costs, approximating average costs. Finished goods and work-in-progress inventories
include material, labor and manufacturing overhead costs. The Group records write-downs on inventory based on an analysis of obsolescence
or a comparison to the anticipated demand or market value based on a consideration of marketability and product maturity, demand forecasts,
historical trends and assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost,
net of accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives which range from 1 to 10 years.
Leasehold improvements are amortized over the lesser of the estimated useful lives of the improvements or the lease terms, as appropriate.
Property, plant and equipment are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Intangible Assets
Those intangible assets that are considered to
have a finite useful life are amortized over their useful lives, which generally range from 1 to 10 years. Each period
we evaluate the estimated remaining useful lives of intangible assets and whether events or changes in circumstances require a revision
to the remaining periods of amortization or that an impairment review be carried out.
Leases
In line with ASC 842, the Group, as a lessee,
recognizes right-of-use assets and related lease liabilities on its balance sheet for all arrangements with terms longer than twelve months,
and reviews its leases for classification between operating and finance leases. Obligations recorded under operating and finance leases
are identified separately on the balance sheet. Assets under finance leases and their accumulated amortization are disclosed separately
in the notes. Operating and finance lease assets and operating and finance lease liabilities are measured initially at an amount equal
to the present value of minimum lease payments during the lease term, as at the beginning of the lease term.
The Group has elected the short-term lease practical
expedient whereby we do not present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months
or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise.
We have also elected the practical expedients
related to lease classification of leases that commenced before the effective date of ASC 842.
Revenue Recognition
The Group’s policy is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve that core principle, the Group applies the following steps:
|
- |
Step 1: Identify the contract(s) with a customer. |
|
- |
Step 2: Identify the performance obligations in the contract. |
|
- |
Step 3: Determine the transaction price. |
|
- |
Step 4: Allocate the transaction price to the performance obligations in the contract. |
|
- |
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. |
Revenue is measured based on the consideration
specified in a contract with a customer and excludes amounts collected on behalf of third parties. We typically allocate the transaction
price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or service promised
in the contract. If a standalone price is not observable, we use estimates.
The Group recognizes revenue when it satisfies
a performance obligation by transferring control over goods or services to a customer. The transfer may be done at a point in time (typically
for goods) or over time (typically for services). The amount of revenue recognized is the amount allocated to the satisfied performance
obligation. For performance obligations satisfied over time, the revenue is recognized over time, most frequently on a prorata
temporis basis as most of the services provided by the Group relate to a set performance period.
If the Group determines that the performance obligation
is not satisfied, it will defer recognition of revenue until it is satisfied.
We present revenue net of sales taxes and any
similar assessments.
The Group delivers products and records revenue
pursuant to commercial agreements with its customers, generally in the form of an approved purchase order or sales contract.
Where products are sold under warranty, the customer
is granted a right of return which, when exercised, may result in either a full or partial refund of any consideration received, or a
credit t hat can be applied against amounts owed, or that will be owed, to the Group. For any amount received or receivable for which
we do not expect to be entitled to because the customer has exercised its right of return, we recognize those amounts as a refund liability.
Contract Assets
Contract assets consists of accrued revenue where
the Group has fulfilled its performance obligation towards the customer but the corresponding invoice has not yet been issued. Upon invoicing,
the asset is reclassified to trade accounts receivable until payment.
Deferred Revenue
Deferred revenue consists of amounts that have
been invoiced and paid but have not been recognized as revenue. Deferred revenue that will be realized during the succeeding 12-month
period is recorded as current and the remaining deferred revenue recorded as non-current. This would relate to multi-year certificates
or licenses.
Contract Liability
Contract liability consists of either:
|
- |
amounts that have been invoiced and not yet paid, nor recognized as revenue. Upon payment, the liability is reclassified to deferred revenue if the amounts still have not been recognized as revenue. Contract liability that will be realized during the succeeding 12-month period is recorded as current and the remaining contract liability recorded as non-current. This would relate to multi-year certificates or licenses. |
|
- |
advances from customers not supported by invoices. |
Sales Commissions
Sales commission expenses where revenue is recognized
are recorded in the period of revenue recognition.
Cost of Sales and Depreciation of Production
Assets
Our cost of sales consists primarily of expenses
associated with the delivery and distribution of products. These include expenses related to the license to the Global Cryptographic ROOT
Key, the global Certification authorities as well as the digital certificates for people, servers and objects, expenses related to the
preparation of our secure elements and the technical support provided on the Group's ongoing production and on the ramp-up phase, including
materials, labor, test and assembly suppliers, and subcontractors, freights costs, as well as the amortization of probes, wafers and other
items that are used in the production process. This amortization is disclosed separately under depreciation of production assets on the
face of the income statement.
Research and Development and Software Development
Costs
All research and development costs and software
development costs are expensed as incurred.
Advertising Costs
All advertising costs are expensed as incurred.
Pension Plan
In 2022, the Group maintained one defined benefit
post retirement plans covering the employees of WISeKey Semiconductors SAS.
In accordance with ASC 715-30, Defined
Benefit Plans – Pension, the Group recognizes the funded status of the plan in the balance sheet. Actuarial gains and losses
are recorded in accumulated other comprehensive income / (loss).
Income Taxes
Taxes on income are accrued in the same period
as the revenues and expenses to which they relate.
Deferred taxes are calculated on the temporary
differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of our companies prepared
for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Group
has plans to permanently reinvest profits into the foreign subsidiaries.
Deferred tax assets on tax loss carry-forwards
are only recognized to the extent that it is “more likely than not” that future profits will be available and the tax loss
carry-forward can be utilized.
Changes to tax laws or tax rates enacted at the
balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable
in the period when the deferred tax assets or tax liabilities are realized.
The Group is required to pay income taxes in a
number of countries. The Group recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than
not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit
that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position
and all relevant facts. The Group adjusts its recognition of these uncertain tax benefits in the period in which new information is available
impacting either the recognition or measurement of its uncertain tax positions.
Research Tax Credits
Research tax credits are provided by the French
government to give incentives for companies to perform technical and scientific research. WISeKey Semiconductors SAS is eligible to receive
such tax credits.
These research tax credits are presented as a
reduction of Research & development expenses in the income statement when companies that have qualifying expenses can receive such
grants in the form of a tax credit irrespective of taxes ever paid or ever to be paid, the corresponding research and development efforts
have been completed and the supporting documentation is available. The credit is deductible from the entity’s income tax charge
for the year or payable in cash the following year, whichever event occurs first. The tax credits are included in noncurrent deferred
tax credits in the balance sheet in line with ASU 2015-17.
Earnings per Share
Basic earnings per share are calculated using
WISeKey Semiconductors SAS’ weighted-average outstanding common shares. When the effects are not antidilutive, diluted earnings
per share is calculated using the weighted-average outstanding common shares and the dilutive effect of stock options as determined under
the treasury stock method.
Segment Reporting
Our chief operating decision maker, who is also
our Chief Executive Officer, regularly reviews information related to one operating segment, secure microcontrollers, for purposes of
allocating resources and assessing budgets and performance. We report our financial performance based on this segment structure described
in Note 32.
Recent Accounting Pronouncements
Adoption of new FASB Accounting Standard in
the current year – Prior-Year Financial Statements not restated:
As of January 1, 2022, the Group adopted Accounting
Standards Update (ASU) 2020-06, 'Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity.
ASU 2020-06 simplifies accounting for convertible
instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will
be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting
for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for
the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings
per share (EPS) calculation in certain areas.
There was no material impact on the Group's results
upon adoption of the standard.
As of January 1, 2022, the Group also adopted
ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options —
a consensus of the FASB Emerging Issues Task Force.
The ASU provides a principles-based framework
to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense. The ASU is to clarify
and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options
(for example, warrants) that remain equity classified after modification or exchange. The amendments in the ASU affect all entities that
issue freestanding written call options that are classified in equity.
There was no material impact on the Group's results
upon adoption of the standard.
As of January 1, 2022, the Group also adopted
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.
The ASU provides an update to increase the transparency
of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the
effect of the assistance on an entity’s financial statements. ASC 832 requires the following disclosures in the notes: information
about the nature of the transactions, the accounting policies used to account for the transactions, and balance sheet and income statement
affected by the transactions. The duration, commitments, provisions, and other contingencies are required to be disclosed.
There was no material impact on the Group's results
upon adoption of the standard.
New FASB Accounting Standard to be adopted
in the future:
In October 2021, The FASB issued ASU No. 2021-08, Business
Combinations (topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.
Summary: The ASU amends ASC 805 to “require
acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.”
Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. ASU 2021-08 requires contract assets
and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance
with ASC 606 (meaning the acquirer should assume it has entered the original contract at the same date and using the same terms as the
acquiree). This new ASU applies to contract assets and contract liabilities acquired in a business combination and to other contracts
that directly/indirectly apply the requirements of ASC 606.
Effective Date: ASU 2021-08 is effective for public
business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. An entity should
apply the amendments prospectively to business combinations occurring on or after the effective dates. Early adoption is permitted.
The Group expects to adopt all the aforementioned
guidance when effective. Management is assessing the impact of the aforementioned guidance on its consolidated financial statements but
does not expect it to have a material impact.
Note 5. Concentration
of credit risks
Financial instruments that are potentially subject
to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Our cash is held with large financial institutions.
Management believes that the financial institutions that hold our investments are financially sound and accordingly, are subject to minimal
credit risk. Deposits held with banks may exceed the amount of insurance provided on such deposits.
The Group sells to large, international customers
and, as a result, may maintain individually significant trade accounts receivable balances with such customers during the year. We generally
do not require collateral on trade accounts receivable. Summarized below are the clients whose revenue were 10% or higher than the respective
total consolidated net sales for fiscal years 2022, 2021 or 2020, and the clients whose trade accounts receivable balances were 10% or
higher than the respective total consolidated trade accounts receivable balance for fiscal years 2022 and 2021. In addition, we note that
some of our clients are contract manufacturers for the same companies; should these companies reduce their operations or change contract
manufacturers, this would cause a decrease in our customer orders which would adversely affect our operating results.
|
|
Revenue concentration
(% of total net sales) |
|
Receivables concentration
(% of total accounts receivable) |
|
|
12 months ended December 31, |
|
As at December 31, |
|
|
2022 |
|
2021 |
|
2020 |
|
2022 |
|
2021 |
IoT operating segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multinational electronics contract manufacturing company |
|
|
16 |
% |
|
|
13 |
% |
|
|
19 |
% |
|
|
34 |
% |
|
|
17 |
% |
International equipment and software manufacturer |
|
|
6 |
% |
|
|
10 |
% |
|
|
9 |
% |
|
|
12 |
% |
|
|
0 |
% |
Semiconductor equipment and electronic devices manufacturing company |
|
|
4 |
% |
|
|
5 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
12 |
% |
International telecommunication company |
|
|
5 |
% |
|
|
5 |
% |
|
|
6 |
% |
|
|
7 |
% |
|
|
11 |
% |
International digital security company |
|
|
10 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
6 |
% |
|
|
0 |
% |
Note 6. Fair
value measurements
ASC 820 establishes a three-tier fair value hierarchy
for measuring financial instruments, which prioritizes the inputs used in measuring fair value. These tiers include:
·
Level 1, defined as observable inputs such as quoted prices in active markets;
·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
|
As at December 31, 2022 |
|
As at December 31, 2021 |
|
Fair value
level |
|
|
USD'000 |
|
Carrying amount |
|
Fair value |
|
Carrying amount |
|
Fair value |
|
|
Note ref. |
Nonrecurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
2,219 |
|
|
|
2,219 |
|
|
|
2,606 |
|
|
|
2,606 |
|
|
|
3 |
|
|
|
8 |
|
Accounts payable |
|
|
6,735 |
|
|
|
6,735 |
|
|
|
7,256 |
|
|
|
7,256 |
|
|
|
3 |
|
|
|
17 |
|
Indebtedness to related parties, current |
|
|
3,374 |
|
|
|
3,374 |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
18 |
|
Bonds, mortgages and other long-term debt |
|
|
1,489 |
|
|
|
1,489 |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
33 |
|
Indebtedness to related parties, noncurrent |
|
|
7,946 |
|
|
|
7,946 |
|
|
|
15,617 |
|
|
|
15,617 |
|
|
|
3 |
|
|
|
18 |
|
In addition to the methods and assumptions we
use to record the fair value of financial instruments as discussed in the Fair Value Measurements section above, we used the following
methods and assumptions to estimate the fair value of our financial instruments:
|
- |
Accounts receivable – carrying amount approximated fair value due to their short-term nature. |
|
- |
Accounts payable – carrying amount approximated fair value due to their short-term nature. |
|
- |
Indebtedness to related parties, noncurrent - carrying amount approximated fair value. |
Note 7. Cash
and cash equivalents
Cash consists of deposits held at major banks.
Note 8. Accounts
receivable
The breakdown of the accounts receivable balance
is detailed below:
Accounts Receivable - Schedule of Accounts
Receivable
|
|
As at December 31, |
|
As at December 31, |
|
USD'000 |
|
2022 |
|
2021 |
|
Trade accounts receivable |
|
|
2,269 |
|
|
|
2,656 |
|
Allowance for doubtful accounts |
|
|
(50 |
) |
|
|
(50 |
) |
Total accounts receivable net of allowance for doubtful accounts |
|
|
2,219 |
|
|
|
2,606 |
|
Note 9. Inventories
Inventories consisted of the following:
Inventories - Schedule of Inventories, Current
|
|
As at December 31, |
|
As at December 31, |
USD'000 |
|
2022 |
|
2021 |
Raw materials |
|
|
4,523 |
|
|
|
950 |
|
Work in progress |
|
|
2,987 |
|
|
|
1,760 |
|
Total inventories |
|
|
7,510 |
|
|
|
2,710 |
|
In the years ended December 31, 2022, 2021 and
2020, the Group recorded inventory obsolescence charges in the income statement of respectively USD 204,211, USD 57,302 and
USD 156,188 on raw materials, and USD 349,623, USD 404,509 and USD 301,215 on work in progress.
The inventory obsolescence provisions as at December
31, 2022, and 2021 are, respectively, USD 44,290 and USD 79,846 for raw materials, and USD 270,552 and USD 507,090 for
work in progress.
Note 10. Other
current assets
Other current assets consisted of the following:
Other Current Assets - Schedule of
Other Current Assets
|
|
As at December 31, |
|
As at December 31, |
USD'000 |
|
2022 |
|
2021 |
Value-Added Tax Receivable |
|
|
224 |
|
|
|
188 |
|
Advanced payment to suppliers |
|
|
1,025 |
|
|
|
220 |
|
Deposits, current |
|
|
3 |
|
|
|
5 |
|
Other current assets |
|
|
— |
|
|
|
1 |
|
Total other current assets |
|
|
1,252 |
|
|
|
414 |
|
Note 11. Deferred
tax credits
WISeKey Semiconductors SAS is eligible for research
tax credits provided by the French government (see Note 4 Summary of significant accounting policies). As at December 31, 2022 and 2021,
the receivable balances in respect of these research tax credits owed to the Group were respectively USD 692,314 and USD 846,808.
The credit is deductible from the entity’s income tax charge for the year or payable in cash the following year, whichever event
occurs first.
Note 12. Property,
plant and equipment
Property, plant and equipment, net consisted of
the following.
Property, Plant and Equipment - Schedule
of Property, Plant and Equipment
|
|
As at December 31, |
|
As at December 31, |
USD'000 |
|
2022 |
|
2021 |
Machinery & equipment |
|
|
10,410 |
|
|
|
10,180 |
|
Office equipment and furniture |
|
|
2,320 |
|
|
|
2,320 |
|
Computer equipment and licences |
|
|
558 |
|
|
|
488 |
|
Total property, plant and equipment gross |
|
|
13,288 |
|
|
|
12,988 |
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation for: |
|
|
|
|
|
|
|
|
Machinery & equipment |
|
|
(9,985 |
) |
|
|
(9,928 |
) |
Office equipment and furniture |
|
|
(2,028 |
) |
|
|
(1,706 |
) |
Computer equipment and licences |
|
|
(493 |
) |
|
|
(468 |
) |
Total accumulated depreciation |
|
|
(12,506 |
) |
|
|
(12,102 |
) |
Total property, plant and equipment, net |
|
|
782 |
|
|
|
886 |
|
Depreciation charge for the year |
|
|
404 |
|
|
|
1,532 |
|
In 2022 and 2021, WISeKey Semiconductors SAS did
not identify any events or changes in circumstances indicating that the carrying amount of any asset may not be recoverable. As a result,
the Group did not record any impairment charge on Property, plant and equipment in the years 2022 and 2021.
The useful economic life of property plant and
equipment is as follow:
|
· |
Office equipment and furniture: 2 to 5 years |
|
· |
Production masks 5 years |
|
· |
Production tools 3 years |
Note 13. Intangible
assets
Intangible assets and future amortization expenses
consisted of the following:
Intangible Assets - Schedule of Finite-Lived
Intangible Assets
|
|
As at December 31, |
|
As at December 31, |
USD'000 |
|
2022 |
|
2021 |
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
Patents |
|
|
2,281 |
|
|
|
2,281 |
|
License agreements |
|
|
1,699 |
|
|
|
1,699 |
|
Other intangibles |
|
|
923 |
|
|
|
923 |
|
Total intangible assets gross |
|
|
4,903 |
|
|
|
4,903 |
|
Accumulated amortization for: |
|
|
|
|
|
|
|
|
Patents |
|
|
(2,281 |
) |
|
|
(2,281 |
) |
License agreements |
|
|
(1,698 |
) |
|
|
(1,694 |
) |
Other intangibles |
|
|
(923 |
) |
|
|
(923 |
) |
Total accumulated amortization |
|
|
(4,902 |
) |
|
|
(4,898 |
) |
Total intangible assets subject to amortization, net |
|
|
1 |
|
|
|
5 |
|
Total intangible assets, net |
|
|
1 |
|
|
|
5 |
|
Amortization charge for the year to December 31, |
|
|
4 |
|
|
|
5 |
|
The useful economic life of intangible assets
is as follow:
|
· |
License agreements: 1 to 3 years |
|
· |
Other intangibles: 5 years |
Future amortization charges are detailed below:
Intangible Assets - Schedule of Intangible
Asset Future Amortization Expense
Future estimated aggregate amortization expense |
|
Year |
USD'000 |
2023 |
1 |
Total intangible assets subject to amortization, net |
1 |
Note 14. Leases
The Group has historically entered into a number
of lease arrangements under which it is the lessee. As at December 31, 2022, the Semiconductors Group holds five operating leases. The
operating leases relate to premises. We do not sublease. All of our operating leases include multiple optional renewal periods which are
not reasonably certain to be exercised.
In the years 2022, 2021 and 2020 we recognized
rent expenses associated with our leases as follows:
Leases - Schedule of Lease Costs
|
12 months ended December 31, |
|
12 months ended December 31, |
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
Operating lease cost: |
|
|
|
|
|
Fixed rent expense |
332 |
|
378 |
|
339 |
Short-term lease cost |
— |
|
3 |
|
15 |
Net lease cost |
332 |
|
381 |
|
354 |
Lease cost - Cost of sales |
— |
|
— |
|
— |
Lease cost - General & administrative expenses |
332 |
|
381 |
|
354 |
Net lease cost |
332 |
|
381 |
|
354 |
In the years 2022 and 2021, we had the following
cash and non-cash activities associated with our leases:
Leases - Schedule of Cash and Non-Cash
Activities Associated with Leases
|
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
Operating cash flows from operating leases |
328 |
|
380 |
Non-cash investing and financing activities : |
|
|
|
Net lease cost |
332 |
|
381 |
Additions to ROU assets obtained from: |
|
|
|
New operating lease liabilities |
56 |
|
33 |
The following table provides the details of right-of-use
assets and lease liabilities as of December 31, 2022:
Leases - Schedule of Right-Of-Use Assets and
Lease Liabilities
|
As at December 31,
2022 |
USD'000 |
Right-of-use assets: |
|
Operating leases |
1,379 |
Total right-of-use assets |
1,379 |
Lease liabilities: |
|
Operating leases |
1,312 |
Total lease liabilities |
1,312 |
As at December 31, 2022, future minimum annual
lease payments were as follows:
Leases - Schedule of Future Minimum
Lease Payments
Other Liabilities |
|
USD'000 |
|
USD'000 |
|
USD'000 |
|
USD'000 |
|
Year |
|
Operating |
|
Short-term |
|
Finance |
|
Total |
|
|
2023 |
|
|
|
313 |
|
|
|
— |
|
|
|
— |
|
|
|
313 |
|
|
2024 |
|
|
|
293 |
|
|
|
— |
|
|
|
— |
|
|
|
293 |
|
|
2025 |
|
|
|
285 |
|
|
|
— |
|
|
|
— |
|
|
|
285 |
|
|
2026 |
|
|
|
285 |
|
|
|
— |
|
|
|
— |
|
|
|
285 |
|
|
2027 and beyond |
|
|
|
442 |
|
|
|
— |
|
|
|
— |
|
|
|
442 |
|
|
Total future minimum operating and short-term lease payments |
|
|
|
1,618 |
|
|
|
— |
|
|
|
— |
|
|
|
1,618 |
|
|
Less effects of discounting |
|
|
|
(306 |
) |
|
|
— |
|
|
|
— |
|
|
|
(306 |
) |
|
Lease liabilities recognized |
|
|
|
1,312 |
|
|
|
— |
|
|
|
— |
|
|
|
1,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In line with ASU 2018-11, future minimum
lease payments under legacy ASC 840 are disclosed in the table below:
Leases - Schedule of Minimum Lease Payments
under Legacy ASC 840
Year |
USD'000 |
2023 |
313 |
2024 |
293 |
2025 |
285 |
2026 |
285 |
2027 and beyond |
442 |
Total future minimum operating and short-term lease payments |
1,618 |
Less effects of discounting |
(306) |
Lease liabilities recognized |
1,312 |
As of December 31, 2022, the weighted-average
remaining lease term was 5.92 years for operating leases.
For our operating leases, we calculated an estimate
rate based upon the estimated incremental borrowing rate of the entity holding the lease. The weighted average discount rate associated
with operating leases as of December 31, 2022 was 3.02%.
Note 15. Other
noncurrent assets
Other noncurrent assets consisted of noncurrent
deposits. Deposits are primarily made up of rental deposits on the premises rented by the Group.
Note 16. Accounts
payable
The accounts payable balance consisted of the
following:
Accounts Payable - Schedule of Accounts
Payable
|
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
Trade creditors |
5,001 |
|
5,680 |
Factors or other financial institutions for borrowings |
— |
|
27 |
Accounts payable to underwriters, promoters, and employees |
1,071 |
|
792 |
Other accounts payable |
663 |
|
757 |
Total accounts payable |
6,735 |
|
7,256 |
Accounts payable to underwriters, promoters and
employees consist primarily of payable balances to employees in relation to holidays, bonus and 13th month accruals across the Group.
Other accounts payable are mostly accruals of
social charges in relation to the accrued liability to employees.
Note 17. Other
current liabilities
Other current liabilities consisted of the following:
Other Current Liabilities - Schedule of
Other Current Liabilities
|
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
Other tax payable |
28 |
|
22 |
Customer contract liability, current |
84 |
|
111 |
Other current liabilities |
36 |
|
47 |
Total other current liabilities |
148 |
|
180 |
Note 18. Indebtedness
to related parties
On October 1, 2016, the Group entered into a Revolving
Credit Agreement (the “Revolving Credit”) with its parent WISeKey International Holding AG (“WISeKey”) to borrow
funds within a credit period starting on October 1, 2016 and ending on December 31, 2017 when all outstanding funds would become immediately
due and payable. Outstanding loan amounts bear an interest rate of 3% per annum. Repayments before the end of the credit period are permitted.
On November 1, 2017, the Group and WISeKey entered into the First Amendment to the Revolving Credit Agreement extending the credit period
by 2 years to December 31, 2019. On March 16, 2021, the Group and WISeKey entered into the Second Amendment to the Revolving Credit Agreement
extending the credit period by another 2 years to December 31, 2022. On November 1, 2022, the Group and WISeKey entered into the Third
Amendment to the Revolving Credit Agreement pursuant to which the interest rate was amended to 2.5% per annum.
On November 12, 2020, WISeKey provided a Funding
Commitment to extend shareholder loans (each the “Shareholder Loan”) to the Group for a maximum aggregate amount of USD 4 million to
be drawn down over six months from the date of the commitment, in instalments of between USD 1 million and USD 1.5 million. The Shareholder
Loans bare interest of 3% per annum. There are not set repayment dates for the Shareholder Loans.
All entities in the Semiconductors Group are subject
to management fees from WISeKey and WISeKey’s affiliates. There is no set payment date for these fees, as a result they have been
classified as noncurrent.
On April 1, 2021, the Group entered into a Debt
Remission Agreement (the “Debt Remission”) with WISeKey pursuant to which an outstanding amount of EUR 5 million
(USD 5,871,714) owed to WISeKey was remitted without any compensation from the Group. Per the terms of the Debt Remission, WISeKey
will have the right to reinstate the debt and ask for repayment in fiscal years when WISeKey Semiconductors SAS achieves a positive income
before income tax expense, in an amount calculated based on the income before income tax expense. As such, because of the repayment clause,
the loan amounts covered by the Debt Remission continue to be shown as noncurrent liabilities under the line Indebtedness to related parties,
noncurrent.
On June 28, 2021, the Group entered into a Debt
Transfer Agreement with its parent WISeKey International Holding AG (“WISeKey”) and an affiliate of WISeKey, WISeKey SA, pursuant
to which WISeKey extended a loan of USD 1,463,664 to the Group to repay an overdue creditor balance in that same amount owed
to WISeKey SA. The loan bears interest at the rate of 3% per annum and is repayable by December 31, 2022.
On December 31, 2021, the Group entered into a
Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 1,910,754 to the Group with an interest
rate of 3% per annum, repayable on December 31, 2023.
On June 30, 2022, the Group entered into a Debt
Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 444,542 to the Group with an interest rate
of 3% per annum, repayable on December 31, 2024.
On August 31, 2022, the Group entered into a Debt
Transfer Agreement with WISeKey and WISeKey SA pursuant to which WISeKey extended a loan of USD 381,879 to the Group with an
interest rate of 3% per annum, repayable on December 31, 2024.
On December 15, 2022, and in view of the negative
equity position of the Group, WISeKey as sole shareholder of the Semiconductors Group resolved to recapitalize the Group by forfeiting
EUR 7 million (USD 7,348,397) out of the loans outstanding in exchange for the issuance of 175,000 new shares
in WISeKey Semiconductors SAS, par value EUR 1. Under French law, such a recapitalization is only possible if the loans to be forfeited
are immediately repayable. Therefore, respectively on November 1, 2022 and November 3, 2022, the Group entered into a First Amendment
to the Debt Transfer Agreements and into the Fourth Amendment to the Revolving Credit Agreement pursuant to which the loans owed under
the Debt Transfer Agreements dated June 28, 2021, December 31, 2021, June 30, 2022 and August 31, 2022 as well as all amounts due under
the Revolving Credit became due and payable on November 30, 2022.
Because of the requirement under French law, we
analyzed the amendment of the maturity of the loans and Revolving Credit as being part of the substance of the recapitalization transaction.
We assessed the recapitalization as a capital transaction between related parties in line with ASC 470-50 and, therefore, recorded
a credit entry of USD 183,710 in share capital corresponding to the new issue of 175,000 shares and a credit of USD 7,164,687 to
additional paid-in capital, with a total debit entry of USD 7,348,397 to Indebtedness to related parties, noncurrent.
On December 31, 2022, the Group entered into a
Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 283,754 to the Group with an interest
rate of 3% per annum, repayable on December 31, 2024.
As at December 31, 2022, the Semiconductors Group
owed WISeKey and WISeKey’s affiliates a total of USD 11,354,925 and the unamortized debt discount balance was USD 35,340,
hence a carrying value of USD 11,319,585 as at December 31, 2022, made up of Shareholder Loans and unpaid management
fees. In 2021, an aggregate debt discount charge of USD 355,327 was amortized to the income statement.
Note 19. Employee
benefit plans
Defined benefit post-retirement plan
In 2022, the Group maintained one defined benefit
post retirement plan for the employees of WISeKey Semiconductors SAS.
The plans are and were considered defined benefit
plans and accounted for in accordance with ASC 715 Compensation – Retirement Benefits. This model allocates pension costs over
the service period of employees in the plan. The underlying principle is that employees render services ratably over this period, and
therefore, the income statement effects of pensions should follow a similar pattern. ASC 715 requires recognition of the funded status
or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the balance sheet, with
a corresponding adjustment recorded in the net loss. If the projected benefit obligation exceeds the fair value of the plan assets, then
that difference or unfunded status represents the pension liability.
The Group records net service cost as an operating
expense and other components of defined benefit plans as a non-operating expense in the statement of comprehensive loss.
The liabilities and annual income or expense of
the pension plan are determined using methodologies that involve several actuarial assumptions, the most significant of which are the
discount rate and the long-term rate of asset return (based on the market-related value of assets). The fair value of plan assets is determined
based on prevailing market prices.
The defined benefit pension plan maintained by
WISeKey Semiconductors SAS, and their obligations to employees in terms of retirement benefits, is limited to a lump sum payment based
on remuneration and length of service, determined for each employee. The plan is not funded.
The pension liability calculated as at December
31, 2022 is based on annual personnel costs and assumptions as of December 31, 2022.
Personnel Costs |
As at December 31, |
|
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
Wages and Salaries |
4,286 |
|
4,345 |
|
4,955 |
Social security contributions |
1,940 |
|
2,049 |
|
2,250 |
Net service costs |
42 |
|
68 |
|
75 |
Total |
6,268 |
|
6,462 |
|
7,280 |
|
As at December 31, |
Assumptions |
2022 |
2021 |
2020 |
|
France |
France |
France |
Discount rate |
3.65% |
0.75% |
0.30% |
Expected rate of return on plan assets |
n/a |
n/a |
n/a |
Salary increases |
3% |
3% |
3% |
As at December 31, 2022 the Group’s accumulated
benefit obligation amounted to USD 395,786.
Reconciliation to Balance Sheet start of year |
|
|
|
|
|
|
USD'000 |
|
|
|
|
|
|
Fiscal year |
|
2022 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
Projected benefit obligation |
|
|
575 |
|
|
|
1,015 |
|
|
|
981 |
|
Surplus/deficit |
|
|
575 |
|
|
|
1,015 |
|
|
|
981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance sheet asset/provision (funded status) |
|
|
575 |
|
|
|
1,015 |
|
|
|
981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of benefit obligation during the year |
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at start of year |
|
|
575 |
|
|
|
1,015 |
|
|
|
981 |
|
Net Service cost |
|
|
43 |
|
|
|
71 |
|
|
|
72 |
|
Interest expense |
|
|
4 |
|
|
|
3 |
|
|
|
7 |
|
Net benefits paid to participants |
|
|
(24 |
) |
|
|
(116 |
) |
|
|
(30 |
) |
Actuarial losses/(gains) |
|
|
(170 |
) |
|
|
(141 |
) |
|
|
(106 |
) |
Curtailment & Settlement |
|
|
0 |
|
|
|
(187 |
) |
|
|
— |
|
Currency translation adjustment |
|
|
(32 |
) |
|
|
(70 |
) |
|
|
91 |
|
Projected benefit obligation at end of year |
|
|
396 |
|
|
|
575 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconcilation to balance sheet end of year |
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit obligation - funded plans |
|
|
396 |
|
|
|
575 |
|
|
|
1,015 |
|
Surplus/deficit |
|
|
396 |
|
|
|
575 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance sheet asset/provision (funded status) |
|
|
396 |
|
|
|
575 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated OCI |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain) |
|
|
(364 |
) |
|
|
(205 |
) |
|
|
(68 |
) |
Deficit |
|
|
(364 |
) |
|
|
(205 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amount to be amortized from accumulated OCI into NPBC over next fiscal year |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain) |
|
|
52 |
|
|
|
51 |
|
|
|
— |
|
Movement in Funded Status |
|
|
|
|
|
|
USD'000 |
|
|
|
|
|
|
Fiscal year |
|
2022 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
Opening balance sheet liability (funded status) |
|
|
575 |
|
|
|
1,015 |
|
|
|
981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Service cost |
|
|
43 |
|
|
|
71 |
|
|
|
72 |
|
Interest cost/(credit) |
|
|
4 |
|
|
|
3 |
|
|
|
7 |
|
Settlement / curtailment cost / (credit) |
|
|
— |
|
|
|
(187 |
) |
|
|
— |
|
Currency translation adjustment |
|
|
0 |
|
|
|
(8 |
) |
|
|
(1 |
) |
Total Net Periodic Benefit Cost/(credit) |
|
|
47 |
|
|
|
(121 |
) |
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain)/loss on liabilities due to experience |
|
|
(170 |
) |
|
|
(142 |
) |
|
|
(105 |
) |
Total gain/loss recognized via OCI |
|
|
(170 |
) |
|
|
(142 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions paid in the year + Cashflow required to pay benefit payments |
|
|
(24 |
) |
|
|
(116 |
) |
|
|
(30 |
) |
Total cashflow |
|
|
(24 |
) |
|
|
(116 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
(32 |
) |
|
|
(61 |
) |
|
|
91 |
|
Closing balance sheet liability (funded status) |
|
|
396 |
|
|
|
575 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Gain / Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Amount at beginning of year |
|
|
(205 |
) |
|
|
(68 |
) |
|
|
34 |
|
Liability (gain) / loss |
|
|
(170 |
) |
|
|
(142 |
) |
|
|
(105 |
) |
Currency translation adjustment |
|
|
11 |
|
|
|
5 |
|
|
|
3 |
|
Amount at year-end |
|
|
(364 |
) |
|
|
(205 |
) |
|
|
(68 |
) |
The table below shows the breakdown of expected
future contributions payable to the plan:
Employee Benefit Plans - Schedule of
Future Contributions Payable
Period
USD'000 |
France |
2023 |
26 |
2024 |
8 |
2025 |
29 |
2026 |
50 |
2027 |
49 |
2028 to 2032 |
331 |
The Group expects to make contributions of approximately
$26,000 in 2023.
Note 20. Commitments
and contingencies
Lease commitments
The future payments due under leases are shown
in Note 14.
Guarantees
Our software and hardware product sales agreements
generally include certain provisions for indemnifying customers against liabilities if our products infringe a third party’s intellectual
property rights. Certain of our product sales agreements also include provisions indemnifying customers against liabilities in the event
we breach confidentiality or service level requirements. It is not possible to determine the maximum potential amount under these indemnification
agreements due to our lack of history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. To date, we have not incurred any costs as a result of such indemnifications and have not accrued any liabilities related to
such obligations in our consolidated financial statements.
Note 21. Stockholders’
equity
Stockholders’ equity consisted of the following:
Stockholders' Equity - Schedule of Stock by Class
WISeKey Semiconductors SAS |
As at December 31, 2022 |
As at December 31, 2021 |
Share Capital |
Common stock |
Common stock |
Par value per share (in EUR) |
1.00 |
1.00 |
Share capital (in USD) |
1,955,441 |
1,771,732 |
— |
|
|
Total number of authorized shares |
1,473,162 |
1,298,162 |
Total number of fully paid-in issued shares |
1,473,162 |
1,298,162 |
Total number of fully paid-in outstanding shares |
1,473,162 |
1,298,162 |
Note 22. Accumulated
other comprehensive income, net of tax
USD'000 |
|
|
Accumulated other comprehensive income as at December 31, 2020 |
|
487 |
|
Total net foreign currency translation adjustments |
(8) |
|
|
Total defined benefit pension adjustment |
142 |
|
Total other comprehensive income/(loss), net |
|
134 |
Accumulated other comprehensive income as at December 31, 2021 |
|
621 |
|
Total net foreign currency translation adjustments (1) |
(16) |
|
|
Total defined benefit pension adjustment |
170 |
|
Total other comprehensive income/(loss), net |
|
154 |
Accumulated other comprehensive income as at December 31, 2022 |
|
775 |
(1) Adjusted for rounding |
|
|
There is no income tax expense or benefit allocated
to other comprehensive income.
Note 23. Revenue
Nature of goods and services
The following is a description of the principal
activities from which the Group generates its revenue.
The Group recognizes revenue when a customer takes
possession of the chips, which usually occurs when the goods are delivered. Customers typically pay once goods are delivered.
Disaggregation of revenue
The following table shows the Group’s revenues
disaggregated by product or service type:
Revenue - Schedule of Disaggregation of Revenue
Disaggregation of revenue |
Typical payment |
At one point in time |
|
Total |
USD'000 |
|
2022 |
2021 |
2020 |
|
2022 |
2021 |
2020 |
Secure Microcontrollers Segment |
|
|
|
|
|
|
|
|
Secure chips |
Upon delivery |
18,336 |
14,850 |
11,289 |
|
18,336 |
14,850 |
11,289 |
Total Secure Microcontrollers Segment |
18,336 |
14,850 |
11,289 |
|
18,336 |
14,850 |
11,289 |
All Other Segment |
|
|
|
|
|
|
|
|
Secure chips |
Upon delivery |
4,862 |
2,145 |
3,028 |
|
4,862 |
2,145 |
3,028 |
Total All Other Segment |
4,862 |
2,145 |
3,028 |
|
4,862 |
2,145 |
3,028 |
Total Revenue |
23,198 |
16,995 |
14,317 |
|
23,198 |
16,995 |
14,317 |
For the years ended December 31, 2022, 2021 and
2020 the Group recorded no revenues related to performance obligations satisfied in prior periods.
The following table shows the Group’s revenues
disaggregated by geography, based on our customers’ billing addresses:
Revenue - Schedule of Disaggregation
of Revenue by Geographic Areas
Net sales by region |
12 months ended December 31, |
USD'000
Rest of EMEA
North America
Asia Pacific
Latin America
France
|
2022 |
|
2021 |
|
2020 |
Secure Microcontrollers Segment |
|
|
|
|
|
France |
147 |
|
37 |
|
64 |
Rest of EMEA |
2,775 |
|
2,944 |
|
1,861 |
North America |
13,408 |
|
10,234 |
|
7,922 |
Asia Pacific |
1,939 |
|
1,588 |
|
1,421 |
Latin America |
67 |
|
47 |
|
21 |
Total Secure Microcontrollers segment revenue |
18,336 |
|
14,850 |
|
11,289 |
All Other Segment |
|
|
|
|
|
France |
64 |
|
175 |
|
466 |
Rest of EMEA |
3,791 |
|
1,099 |
|
2,116 |
North America |
201 |
|
397 |
|
294 |
Asia Pacific |
806 |
|
474 |
|
105 |
Latin America |
— |
|
— |
|
47 |
Total All Other segment revenue |
4,862 |
|
2,145 |
|
3,028 |
Total Net sales |
23,198 |
|
16,995 |
|
14,317 |
*EMEA means Europe, Middle East and Africa |
|
|
|
|
|
Contract assets, deferred revenue and contract
liability
Our contract assets, deferred revenue and contract
liability consist of:
Revenue - Schedule of Contract Assets,
Deferred Revenue and Contract Liability
|
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
Trade accounts receivables |
|
|
|
Trade accounts receivable - Secure Microcontrollers Segment |
1,794 |
|
2,321 |
Trade accounts receivable - All Other Segment |
475 |
|
335 |
Total trade accounts receivables |
2,269 |
|
2,656 |
Contract liabilities - current |
84 |
|
111 |
Total contract liabilities |
84 |
|
111 |
Revenue recognized in the period from amounts included in the deferred revenue at the beginning of the year |
— |
|
150 |
Increases or decreases in trade accounts receivable,
contract assets, deferred revenue and contract liability were primarily due to normal timing differences between our performance and customer
payments.
Remaining performance obligations
As of December 31, 2022, approximately USD 83,589 is
expected to be recognized from remaining performance obligations for contracts. We expect to recognize revenue for these remaining performance
obligations during the next year approximately as follows:
Estimated revenue from remaining performance obligations as at December 31, 2022
(USD'000) |
Total |
2023 |
84 |
Total remaining performance obligation from continuing operations |
84 |
Note 24. Other
operating income
|
|
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
Accounts payable write-off |
1,899 |
|
— |
|
— |
Other operating income - other |
108 |
|
91 |
|
— |
Total other operating income |
2,007 |
|
91 |
|
— |
The accounts payable write-off relates to a liability
recorded in 2013 by WISeKey Semiconductors SAS which the creditor in insolvency can no longer claim.
Note 25. Non-operating
income
Non-operating income consisted of the following:
Non-Operating Income - Schedule of
Non-Operating Income
|
|
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
Foreign exchange gain |
926 |
|
482 |
|
117 |
Financial income |
9 |
|
— |
|
8 |
Other |
— |
|
1 |
|
21 |
Total non-operating income |
935 |
|
483 |
|
146 |
Note 26. Non-operating
expenses
Non-operating expenses consisted of the following:
Non-Operating
Expenses - Schedule of Non-Operating Expenses
|
|
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
Foreign exchange losses |
383 |
|
— |
|
728 |
Financial charges |
1 |
|
1 |
|
1 |
Interest expense |
250 |
|
— |
|
— |
Other |
4 |
|
95 |
|
20 |
Total non-operating expenses |
638 |
|
96 |
|
749 |
Note 27. Income
taxes
The components of income before income taxes
are as follows:
Income Taxes - Schedule of Components
of Income before Income Taxes
|
|
|
|
|
|
Income / (Loss) |
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
France France |
2,879 |
|
(4,429) |
|
(8,806) |
Foreign Foreign |
(354) |
|
(392) |
|
(390) |
Income/(loss) before income tax |
2,525 |
|
(4,821) |
|
(9,196) |
The components of income taxes relating to the
Group are as follows:
Income Taxes - Schedule of Income Tax
Expense
|
|
|
|
|
|
Income taxes |
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
France |
(3,250) |
|
— |
|
— |
Foreign |
5 |
|
6 |
|
5 |
Income tax expense / (income) |
(3,245) |
|
6 |
|
5 |
The difference between the income tax recovery
(expense) at the local statutory rate compared to the Group’s income tax recovery (expense) as reported is reconciled below:
Income Taxes - Schedule of Income Tax
Expense at the Swiss Statutory Rate
|
|
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
Net income/(loss) before income tax |
2,525 |
|
(4,821) |
|
(9,196) |
Statutory tax rate |
25% |
|
26.5% |
|
28% |
Expected income tax (expense)/recovery |
(631) |
|
1,278 |
|
2,575 |
Change in valuation allowance |
2,185 |
|
660 |
|
(1,940) |
Change in tax loss carryforwards |
(41) |
|
(382) |
|
(635) |
Add back of loss carryforwards used for the debt remission |
1,342 |
|
— |
|
— |
Permanent difference |
390 |
|
(1,562) |
|
(5) |
Income tax (expense) / recovery |
3,245 |
|
(6) |
|
(5) |
The Group assesses the recoverability of its deferred
tax assets and, to the extent recoverability does not satisfy the “more likely than not” recognition criterion under ASC 740,
records a valuation allowance against its deferred tax assets. The Group considered its recent operating results and anticipated future
taxable income in assessing the need for its valuation allowance.
In the years up until and including 2021, the
Group recorded a valuation allowance for the full amount of its deferred tax assets. However, in view of the Group’s income before
income tax in the year ended December 31, 2022, and of the anticipated future taxable income per management’s forecast, the Group
assessed that the recoverability of its deferred tax assets partially satisfied the “more likely than not” recognition criterion
under ASC 740 as at December 31, 2022 and, therefore, partially reversed the valuation allowance previously recorded.
The Group’s deferred tax assets and liabilities
consist of the following:
Income Taxes - Schedule of Deferred
Tax Assets and Liabilities
Deferred income tax assets/(liabilities) |
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
France |
3,296 |
|
— |
Foreign |
— |
|
— |
Deferred income tax assets/(liabilities) |
3,296 |
|
— |
Deferred tax assets and liabilities |
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
Defined benefit accrual |
(29) |
|
161 |
Tax loss carryforwards |
3,599 |
|
3,640 |
Add back loss carryforwards used for the debt remission |
1,342 |
|
— |
Valuation allowance |
(1,616) |
|
(3,801) |
Deferred tax assets / (liabilities) |
3,296 |
|
— |
As of December 31, 2022, the Group’s operating
cumulated loss carry-forwards of all jurisdictions are as follows:
Income Taxes - Schedule of Operating Loss Carryforward
Operating loss-carryforward |
|
USD'000 France |
France |
Total |
Expiration date |
As of December 31, 2022 |
14,396 |
14,396 |
None |
In France, operating losses may be carried forward
indefinitely, but may be offset against the taxable profits of a given fiscal year only up to an amount of €1 million, plus 50% of
the taxable result in excess of that threshold.
The following tax years remain subject to examination:
Income Taxes - Summary of Income Tax Examinations
Significant jurisdictions |
Open years |
France |
2020 - 2022 |
Japan Japan |
2022 |
Taiwan Taiwan |
2022 |
As at December 31, 2020, the Group had a tax provision
of USD 118,294, initially recorded in 2019 following a tax audit started in 2018 in relation to prior years, which was neither utilized
nor released. There was no additional accrual in the year 2020. In 2021, the Group had decrease its tax provision to USD 47,368.
As at December 31, 2022, the Group had decrease
its tax provision to USD 39,901. Although the final conclusions have not yet been communicated formally, management believes that
it is more probable than not that the entity will have to pay additional taxes and has calculated the provision based on preliminary discussions
with the tax authorities.
The Group has no unrecognized tax benefits.
Note 28. Earnings/(Loss)
per share
The computation of basic and diluted net earnings/(loss)
per share for the Group is as follows:
Earnings/(Loss) Per Share - Schedule
of Earnings Per Shares, Basic and Diluted
|
|
|
|
|
|
|
12 months ended December 31, |
Earnings / (loss) per share |
2022 |
|
2021 |
|
2020 |
Net income (USD'000) |
5,770 |
|
(4,827) |
|
(9,201) |
Effect of potentially dilutive instruments on net gain (USD'000) |
n/a |
|
n/a |
|
n/a |
Net income / (loss) after effect of potentially dilutive instruments (USD'000) |
5,770 |
|
(4,827) |
|
(9,201) |
Shares used in net earnings / (loss) per share computation: |
|
|
|
|
|
Weighted average shares outstanding - basic |
1,473,162 |
|
1,298,162 |
|
1,298,162 |
Effect of potentially dilutive equivalent shares |
n/a |
|
n/a |
|
n/a |
Weighted average shares outstanding - diluted |
1,473,162 |
|
1,298,162 |
|
1,298,162 |
Net earnings / (loss) per share |
|
|
|
|
|
Basic weighted average loss per share (USD) |
3.92 |
|
(3.72) |
|
(7.09) |
Diluted weighted average loss per share (USD) |
3.92 |
|
(3.72) |
|
(7.09) |
For the years 2020, 2021 and 2022, the group had
no dilutive instruments to be considered for the computation of diluted earnings per share.
Note 29. Legal
proceedings
We are currently not party to any legal proceedings
and claims that are not provided for in our financial statements.
Note 30. Related
parties disclosure
Subsidiaries
As at December 31, 2022, the consolidated financial
statements of the Group include the entities listed in the following table:
Related Parties Disclosure - Schedule
of Subsidiary/Parent Ownership Interest
Group Company Name |
|
Country of incorporation |
|
Year of incorporation |
|
Share Capital |
|
% ownership
as at December 31, 2022 |
|
% ownership
as at December 31, 2021 |
|
Nature of business |
WISeKey IoT Japan KK |
|
|
Japan |
|
|
|
2017 |
|
|
|
JPY 1,000,000 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Sales & distribution |
WISeKey IoT Taiwan |
|
|
Taiwan |
|
|
|
2017 |
|
|
|
TWD 100,000 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Sales & distribution |
Related party transactions and balances
|
|
Receivables as at |
Payables as at |
Net expenses to |
Net income from |
|
Related Parties |
December 31, |
December 31, |
December 31, |
December 31, |
in the year ended December 31, |
in the year ended December 31, |
|
(in
USD'000) |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2020 |
2022 |
2021 |
2020 |
1 |
WISeKey International Holding AG |
— |
— |
7,122 |
10,899 |
796 |
526 |
1,072 |
— |
— |
— |
2 |
Wisekey SA |
— |
— |
— |
382 |
— |
94 |
965 |
— |
128 |
— |
3 |
WISeKey USA Inc |
— |
— |
154 |
883 |
558 |
883 |
— |
— |
— |
— |
4 |
WISeKey Semiconductors GmbH |
— |
— |
773 |
615 |
105 |
401 |
161 |
— |
— |
— |
5 |
WISeCoin AG |
— |
— |
3,306 |
3,238 |
86 |
90 |
90 |
— |
— |
— |
|
Total |
— |
— |
11,355 |
16,017 |
1,555 |
1,994 |
2,288 |
— |
128 |
— |
1. The Semiconductors group is wholly owned by
WISeKey International Holding AG, which provides financing and management services, including, but not limited to, sales and marketing,
accounting, finance, legal, taxation, business and strategy consulting, public relations, marketing, risk management, information technology
and general management. The expenses in relation to WISeKey International Holding AG in 2022, 2021 and 2020 relate to interest on the
outstanding loans and the recharge of management services.
2. WISeKey SA is a subsidiary of the group headed
by WISeKey International Holding AG (the “WISeKey Group”) and provides management services to the Semiconductors Group, including,
but not limited to, sales and marketing, accounting, business and strategy consulting, public relations, marketing, risk management and
information technology. The expenses in relation to WISeKey SA in 2022, 2021 and 2020 relate to interest on the outstanding loans and
the recharge of management services.
3. WISeKey USA Inc is part of the WISeKey Group
and employs sales employees who work for the Semiconductors Group. The expenses in relation to WISeKey USA Inc. in 2022 and 2021 relate
to the recharge of employee costs.
4. WISeKey Semiconductors GmbH is part of the
WISeKey Group and employs sales employees who work for the Semiconductors Group. The expenses in relation to WISeKey Semiconductors GmbH
in 2022, 2021 and 2020 relate to the recharge of employee costs.
5. WISeCoin AG was the parent of WISeCoin France
R&D Lab SAS until it was acquired by the Semiconductors Group. WISeCoin AG is part of the WISeKey Group. The expenses recorded in
2020 relate to interest on the outstanding loans and the recharge of management services. The expenses recorded in 2022 and 2021 relate
to interest on the outstanding loans.
Note 31. Subsequent
events
Reverse Acquisition
On January 1, 2023, the Semiconductors Group was
sold by WISeKey International Holding Ltd to its wholly owned subsidiary SEALSQ Corp. in exchange for a consideration of 1,499,700 SEALSQ
Class F shares, par value USD 0.05 and 7,501,400 SEALSQ ordinary shares.
The acquisition by SEALSQ Corp. of the Semiconductors
Group is a transaction under common control in line with ASC 805-50 because both entities were wholly owned by WISeKey. The combination
will be accounted for as a reverse acquisition from January 1, 2023, in line with ASC 805-40 “Reverse Acquisitions” because
SEALSQ Corp., then a so-called empty shell private company with no operating activities that was not considered a business under US GAAP
standards, acquired the Semiconductors Group, a private operating company and its affiliates. This transaction being a capital transaction
in substance, it qualifies as a reverse acquisition that is considered a recapitalization under common control whereby SEALSQ is the legal
acquirer and accounting acquiree, whereas the Semiconductors Group is the legal acquiree and accounting acquirer.
Indebtedness to related parties
On January 1, 2023, the Group entered into a Loan
Agreement (the “New Loan Agreement”) with WISeKey pursuant to which all loans outstanding are replaced with the New Loan Agreement,
meaning that all outstanding loan amounts are governed by the terms and conditions of the New Loan Agreement. Under the New Loan Agreement,
the Group may borrow funds up to an aggregate amount of USD 5 million in instalments of no more than USD 1 million
each. The New Loan Agreement loan bears interest at the rate of 2.5% per annum and is repayable by December 31, 2024.
Line of Credit
Note 32. Segment
reporting
The Group has one operating segment that meets
the criteria set in ASC 280-10-50: Secure Microcontrollers. The Group’s chief operating decision maker, who is its Chief Executive
Officer, reviews financial performance of this operating segment for purposes of allocating resources and assessing budgets and performance.
The remaining non-reportable operating segments
and other business activities that are not identified as operating segments are combined and disclosed in an “all other” standalone
category.
The Secure Microcontrollers segment encompasses
the design, manufacturing, sales and distribution of high-end, Common Criteria EAL5+ & FIPS 140-3-certified secure microprocessors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months ended December 31, |
|
2022 |
2021 |
2020 |
USD'000 |
|
Secure Microcontrollers |
All Other |
Total |
Secure Microcontrollers |
All Other |
Total |
Secure Microcontrollers |
All Other |
Total |
Revenues from external customers |
|
18,336 |
|
4,862 |
|
23,198 |
|
14,850 |
|
2,145 |
|
16,995 |
|
11,289 |
|
3,028 |
|
14,317 |
|
Intersegment revenues |
|
— |
|
368 |
|
368 |
|
— |
|
415 |
|
415 |
|
— |
|
4,930 |
|
4,930 |
|
Interest revenue |
|
7 |
|
2 |
|
9 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
Interest expense |
|
200 |
|
53 |
|
254 |
|
150 |
|
22 |
|
171 |
|
72 |
|
19 |
|
91 |
|
Depreciation and amortization |
|
319 |
|
85 |
|
404 |
|
1,339 |
|
193 |
|
1,532 |
|
1,769 |
|
474 |
|
2,243 |
|
Segment income /(loss) before income taxes |
|
526 |
|
2,017 |
|
2,543 |
|
(2,235 |
) |
(2,566 |
) |
(4,801 |
) |
(5,195 |
) |
(3,766 |
) |
(8,961 |
) |
Profit / (loss) from intersegment sales |
|
— |
|
18 |
|
18 |
|
— |
|
20 |
|
20 |
|
— |
|
235 |
|
235 |
|
Income tax recovery /(expense) |
|
2,565 |
|
680 |
|
3,245 |
|
— |
|
(6 |
) |
(6 |
) |
— |
|
(5 |
) |
(5 |
) |
Segment assets |
|
18,340 |
|
5,010 |
|
21,734 |
|
10,296 |
|
1,726 |
|
12,022 |
|
10,531 |
|
3,225 |
|
13,756 |
|
12 months ended December 31, |
2022 |
|
2021 |
|
2020 |
|
|
USD'000 |
|
USD'000 |
|
USD'000 |
Revenue reconciliation |
|
|
|
|
|
|
Total revenue for reportable segment |
23,566 |
|
17,410 |
|
19,247 |
Elimination of intersegment revenue |
(368) |
|
(415) |
|
(4,930) |
Total consolidated revenue |
|
23,198 |
|
16,995 |
|
14,317 |
|
|
|
|
|
|
|
Loss reconciliation |
|
|
|
|
|
|
Total profit / (loss) from reportable segments |
2,543 |
|
(4,801) |
|
(8,961) |
Elimination of intersegment profits |
|
(18) |
|
(20) |
|
(235) |
Income /(Loss) before income taxes |
2,525 |
|
(4,821) |
|
(9,196) |
As at December 31, |
|
2022 |
|
2021 |
|
|
USD'000 |
|
USD'000 |
Asset reconciliation |
|
|
|
|
Total assets from reportable segments Reportable Segments |
21,734 |
|
12,022 |
Elimination of intersegment receivables Intersegment |
(75) |
|
(178) |
Consolidated total assets |
|
21,659 |
|
11,844 |
Revenue and property, plant and equipment
by geography
The following tables summarize geographic information
for net sales based on the billing address of the customer, and for property, plant and equipment.
Segment Reporting - Schedule of Revenue and Property, Plant and Equipment by Geography
Net sales by region |
|
|
12 months ended December 31, |
USD'000 |
2022 |
|
2021 |
|
2020 |
France |
211 |
|
457 |
|
1,614 |
Rest of EMEA* |
6,566 |
|
3,798 |
|
2,892 |
North America |
13,609 |
|
10,631 |
|
8,217 |
Asia Pacific |
2,745 |
|
2,062 |
|
1,526 |
Latin America |
67 |
|
47 |
|
68 |
Total net sales |
23,198 |
|
16,995 |
|
14,317 |
* EMEA means Europe, Middle East and Africa |
|
|
|
|
|
Property, plant and equipment, net of depreciation, by region |
As at December 31, |
|
As at December 31, |
USD'000 |
2022 |
|
2021 |
France |
782 |
|
886 |
Total Property, plant and equipment, net of depreciation |
782 |
|
886 |
Note 33. Bonds,
mortgages and other long-term debt
Production Capacity Investment Loan Agreement
In November 2022, WISeKey Semiconductors SAS entered
into a loan agreement with a third party client to borrow funds for the purpose of increasing their production capacity. Under the
terms of the Agreement, the client has lent to WISeKey Semiconductors SAS a total of USD 2,000,000. The loan will be reimbursed by
way of a volume rebate against future sales volumes from the Semiconductors Group to the client during the period from July 1, 2023, through
to December 31, 2025. The volume rebate is based upon quarterly sales volumes in excess of a base limit on a yearly projected basis.
Any amount still outstanding as at December 31, 2025 falls due for repayment on this date. The loan does not bear any interest and
there were no fees or costs attributed to the loan.
An unamortized debt discount totaling USD 511,128 was
calculated and booked to APIC in 2022. WISeKey Semiconductors SAS has not repaid any amount as at December 31, 2022, and no debt
discount charge was recorded to the income statement in 2022. The amortization of the debt will start in 2023.
Therefore, as at December 31, 2022, the loan
balance was USD 2,000,000 and the unamortized debt discount balance was USD 511,128, leaving a carrying value of USD 1,488,872.
Note 34. Business
Update Related to COVID-19
In March 2020, the World Health Organization declared
the Coronavirus (COVID-19) a pandemic. The outbreak spread quickly around the world, including in every geography in which the Group operates.
The pandemic has created uncertainty around the impact of the global economy and has resulted in impacts to the financial markets and
asset values. Governments implemented various restrictions around the world, including closure of non-essential businesses, travel, shelter-in-place
requirements for citizens and other restrictions.
The Group took a number of precautionary steps
to safeguard its businesses and colleagues from COVID-19, including implementing travel restrictions, working from home arrangements and
flexible work policies. The Group started to return to offices around the world, in line with the guidelines and orders issued by national,
state and local governments, implementing a phased approach in its main office in France. We continue to prioritize the safety and well-being
of our colleagues during this time.
The Group’s major production centers, located
in Taiwan and Vietnam, were quick to implement controls and safeguards around their processes that enabled us to continue delivering products
with minimal interruption to our clients. In 2022, the impact upon the Group has been limited and we remain confident that we are able
to fulfil all current client orders.
The Group retains a strong liquidity position
and believes that it has sufficient cash reserves to support the entity for the foreseeable future (see note 2 for further details.) The
Group continues to review its costs and suspended its share buy-back programs in order to reduce the cash burn. The Group has applied
for, and received, support under the schemes announced by the Swiss government. Currently the Group remains able to meet its commitments
and does not foresee any significant challenges in the near future. The Group currently does not anticipate any material impact on its
liquidity position and outlook.
At this stage it remains impossible to predict
the extent of the impact of the COVID-19 pandemic as this will depend on numerous evolving factors and future developments that the Group
is not able to predict.
Note 35. Impacts
of the war in Ukraine
Following the outbreak of the war in Ukraine in
late February 2022, several countries imposed sanctions on Russia, Belarus and certain regions in Ukraine. There has been an abrupt change
in the geopolitical situation, with significant uncertainty about the duration of the conflict, changing scope of sanctions and retaliation
actions including new laws.
The Semiconductors Group does not have any operation
or customer in Russia, Belarus or Ukraine, and, as such, does not foresee any direct impact of the war on its operations.
However, the war has also contributed to an increase
in volatility in currency markets, energy prices, raw material and other input costs, which may impact the Group’s supply chain
in the future.
As at December 31, 2022, the Semiconductors Group
has assessed the consequences of the war for its financial disclosures and considered the impacts on key judgements and significant estimates,
and has concluded that no changes were required. The Semiconductors Group will continue to monitor these areas of increased risk for material
changes.
|
Phone +41 22 322 24 24
Fax +41 22 322 24 00
www.bdo.ch |
BDO AG
Schiffbaustrasse 2
8031 Zurich
|
|
1. |
Report of the Statutory Auditor |
Report of Independent Registered Public Accounting
Firm
WISeKey International Holding AG, (sole Shareholder
of WISeKey Semiconductors SAS)
6300 Zug
Switzerland
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheets of WISeKey Semiconductors SAS (the “Company”) as of December 31, 2021 and 2020, the related consolidated
statements of comprehensive income /loss, changes in shareholders’ equity, and cash flows for each of the two years in the period
ended December 31, 2021, 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 at December
31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 audit, 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.
Zurich, Switzerland, December 9, 2022
BDO AG
/s/ Philipp Kegele |
/s/ i.V. Sarah Schrauwen |
|
|
Philipp Kegele |
i.V. Sarah Schrauwen |
We have served as the Company's auditor since
2022.
BDO Ltd, a limited company under Swiss law, incorporated in Zurich, forms part of the international BDO Network of independent member firms. |
WISeKey Semiconductors SAS, SEALSQ Corp Predecessor |
Consolidated Financial Statements as at June 30, 2022 |
|
2. |
Consolidated Statements of Comprehensive Income/(Loss) |
|
|
|
|
|
|
|
12 months ended December 31, |
|
Note ref |
USD'000 |
2021 |
|
2020 |
|
|
|
|
|
|
|
Net sales |
16,995 |
|
14,317 |
|
24 |
Cost of sales |
(9,547) |
|
(8,147) |
|
|
Depreciation of production assets |
(301) |
|
(736) |
|
|
Gross profit |
7,147 |
|
5,434 |
|
|
|
|
|
|
|
|
Other operating income |
91 |
|
— |
|
25 |
Research & development expenses |
(3,050) |
|
(4,128) |
|
|
Selling & marketing expenses |
(4,245) |
|
(3,103) |
|
|
General & administrative expenses |
(4,984) |
|
(6,788) |
|
|
Total operating expenses |
(12,188) |
|
(14,019) |
|
|
Operating loss |
(5,041) |
|
(8,585) |
|
|
|
|
|
|
|
|
Non-operating income |
483 |
|
146 |
|
26 |
Interest and amortization of debt discount |
(167) |
|
(8) |
|
19 |
Non-operating expenses |
(96) |
|
(749) |
|
27 |
Income /(loss) before income tax expense |
(4,821) |
|
(9,196) |
|
|
|
|
|
|
|
|
Income tax expense |
(6) |
|
(5) |
|
28 |
|
|
|
|
|
|
Net income / (loss) |
(4,827) |
|
(9,201) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
Basic |
(3.72) |
|
(7.09) |
|
29 |
Diluted |
(3.72) |
|
(7.09) |
|
29 |
|
|
|
|
|
|
Other comprehensive income / (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
(8) |
|
33 |
|
|
Defined benefit pension plans: |
|
|
|
|
20 |
Net gain (loss) arising during period |
142 |
|
105 |
|
|
Other comprehensive income / (loss) |
134 |
|
138 |
|
|
|
|
|
|
|
|
Comprehensive income / (loss) |
(4,693) |
|
(9,063) |
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
|
3. |
Consolidated Balance Sheets |
USD'000 |
As at December 31,
2021 |
|
As at December 31,
2020 |
|
Note ref. |
ASSETS |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
2,064 |
|
1,830 |
|
7 |
Accounts receivable, net of allowance for doubtful accounts |
2,606 |
|
2,206 |
|
8 |
Inventories |
2,710 |
|
2,474 |
|
9 |
Prepaid expenses |
454 |
|
414 |
|
|
Other current assets |
414 |
|
627 |
|
10 |
Total current assets |
8,248 |
|
7,551 |
|
|
|
|
|
|
|
|
Noncurrent assets |
|
|
|
|
|
Deferred tax credits |
847 |
|
1,311 |
|
12 |
Property, plant and equipment net of accumulated depreciation |
886 |
|
2,426 |
|
13 |
Intangible assets, net of accumulated amortization |
5 |
|
9 |
|
14 |
Operating lease right-of-use assets |
1,776 |
|
2,050 |
|
15 |
Other noncurrent assets |
82 |
|
86 |
|
16 |
Total noncurrent assets |
3,596 |
|
5,882 |
|
|
TOTAL ASSETS |
11,844 |
|
13,433 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Accounts payable |
7,256 |
|
6,734 |
|
17 |
Deferred revenue, current |
— |
|
150 |
|
24 |
Current portion of obligations under operating lease liabilities |
320 |
|
356 |
|
15 |
Income tax payable |
3 |
|
— |
|
|
Other current liabilities |
180 |
|
594 |
|
18 |
Total current liabilities |
7,759 |
|
7,834 |
|
|
|
|
|
|
|
|
Noncurrent liabilities |
|
|
|
|
|
Operating lease liabilities, noncurrent |
1,456 |
|
1,694 |
|
15 |
Indebtedness to related parties, noncurrent |
15,617 |
|
12,263 |
|
19 |
Employee benefit plan obligation |
575 |
|
1,015 |
|
20 |
Total noncurrent liabilities |
17,648 |
|
14,972 |
|
|
TOTAL LIABILITIES |
25,407 |
|
22,806 |
|
|
Commitments and contingent liabilities |
|
|
|
|
21 |
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Common stock |
1,772 |
|
1,772 |
|
22 |
EUR 1 par value |
|
|
|
|
|
Authorized - 1,298,162; 1,298,162 and 1,298,162 shares |
|
|
|
|
|
Issued and outstanding - 1,298,162; 1,298,162 and 1,298,162 shares |
|
|
|
|
|
Additional paid-in capital |
7,258 |
|
6,755 |
|
|
Accumulated other comprehensive income / (loss) |
621 |
|
487 |
|
23 |
Accumulated deficit |
(23,214) |
|
(18,387) |
|
|
Total shareholders' equity |
(13,563) |
|
(9,373) |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
11,844 |
|
13,433 |
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
|
4. |
Consolidated Statements of Changes in Shareholders’ Equity |
USD'000 |
Number of common shares |
Common Share Capital |
Additional paid-in capital |
Accumulated deficit |
|
Accumulated other comprehensive income / (loss) |
Total equity (deficit) |
As at December 31, 2019 |
1,298,162 |
1,772 |
6,684 |
(6,325) |
|
349 |
2,480 |
Indebtedness to related parties |
— |
— |
71 |
— |
|
— |
71 |
Acquisition of WISeCoin France R&D Lab SAS |
— |
— |
— |
(2,861) |
* |
— |
(2,861) |
Comprehensive income / (loss) |
— |
— |
— |
(9,201) |
|
138 |
(9,063) |
As at December 31, 2020 |
1,298,162 |
1,772 |
6,755 |
(18,387) |
|
487 |
(9,373) |
Indebtedness to related parties |
— |
— |
503 |
— |
|
— |
503 |
Comprehensive income / (loss) |
— |
— |
— |
(4,827) |
|
134 |
(4,693) |
As at December 31, 2021 |
1,298,162 |
1,772 |
7,258 |
(23,214) |
|
621 |
(13,563) |
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income/(Loss)
* Adjusted for rounding
The accompanying notes are an integral part of
these consolidated financial statements.
|
5. |
Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
12 months ended December 31, |
USD'000 |
|
2021 |
|
2020 |
|
|
|
|
|
Cash Flows from operating activities: |
|
|
|
Net Income (loss) |
(4,827) |
|
(9,201) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
Depreciation of property, plant & equipment |
1,532 |
|
2,243 |
Amortization of intangible assets |
5 |
|
604 |
Interest and amortization of debt discount |
167 |
|
8 |
Inventory obsolescence impairment |
— |
|
(457) |
Income tax expense / (recovery) net of cash paid |
6 |
|
5 |
Release of provision |
|
|
(52) |
Increase (decrease) in defined benefit pension liability |
(440) |
|
43 |
Other non cash expenses /(income) |
|
|
|
Unrealized and non cash foreign currency transactions |
— |
|
616 |
Other |
— |
|
(120) |
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of businesses acquired |
|
|
|
Decrease (increase) in accounts receivables |
(400) |
|
1,539 |
Decrease (increase) in inventories |
(236) |
|
313 |
Decrease (increase) in other current assets, net |
172 |
|
198 |
Decrease (increase) in deferred research & development tax credits, net |
464 |
|
1,330 |
Decrease (increase) in other noncurrent assets, net |
4 |
|
63 |
Increase (decrease) in accounts payable |
522 |
|
(457) |
Increase (decrease) in deferred revenue, current |
(150) |
|
143 |
Increase (decrease) in income taxes payable |
3 |
|
(10) |
Increase (decrease) in other current liabilities |
(413) |
|
169 |
Net cash provided by (used in) operating activities |
(3,591) |
|
(3,023) |
|
|
|
|
|
Cash Flows from investing activities: |
|
|
|
Acquisition of property, plant and equipment |
(36) |
|
(52) |
Sale of a business, net of cash and cash equivalents acquired |
— |
|
215 |
Net cash provided by (used in) investing activities |
(36) |
|
163 |
|
|
|
|
|
Cash Flows from financing activities: |
|
|
|
Proceeds from debt from related parties |
3,691 |
|
4,013 |
Repayments of debt |
— |
|
(1,208) |
Net cash provided by (used in) financing activities |
3,691 |
|
2,805 |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
170 |
|
40 |
|
|
|
|
|
Cash and cash equivalents |
|
|
|
Net increase (decrease) during the period |
234 |
|
(15) |
Balance, beginning of period |
1,830 |
|
1,845 |
Balance, end of period |
2,064 |
|
1,830 |
|
|
|
|
|
Supplemental cash flow information |
|
|
|
Cash paid for incomes taxes |
— |
|
16 |
ROU assets obtained from operating lease |
33 |
|
90 |
The accompanying notes are an integral part of
these consolidated financial statements.
|
6. |
Notes to the Consolidated Financial Statements |
Note 1. The Semiconductors
Group
WISeKey Semiconductors SAS, together with its
consolidated subsidiaries (the “Group” or the “Semiconductors Group”), has its headquarters in France.
WISeKey Semiconductors SAS, the parent of the Semiconductors Group, was incorporated in July 2010 and is a private joint stock company
(French Simplified Joint Stock Company).
The Group designs, develops and markets secure
semiconductors worldwide as a fabless manufacturer. It provides added security and authentication layers on its semiconductors which can
be tailored to customers’ needs. As an advanced chip designer, the Group holds the intellectual property (“IP”)
for the semiconductors it sells.
The Group anticipates being able to generate profits
in the near future thanks to the increased focus on the security and authentication of IT components and networks.
Note 2. Future
operations and going concern
The Group experienced a loss from operations in
this reporting period. Although the Semiconductors Group does anticipate being able to generate profits in the near future, this cannot
be predicted with any certainty. The accompanying consolidated financial statements have been prepared assuming that the Group will continue
as a going concern.
The Group incurred a net operating loss of, respectively,
USD 5.0 million and USD 8.6 million in the years ended December 31, 2021 and 2020, and had positive working capital
of USD 0.5 million as at December 31, 2021 and negative working capital of USD -0.3 million as at December 31, 2020,
both calculated as the difference between current assets and current liabilities. Based on the Group’s cash projections up to December
31, 2023, it has sufficient liquidity to fund operations. Historically, the Group has been dependent on financing from its parent, WISeKey
International Holding Ltd, to augment the operating cash flow to cover its cash requirements.
Based on the foregoing, Management believe it
is correct to present these figures on a going concern basis.
Note 3. Basis
of presentation
The consolidated financial statements are prepared
in accordance with the Generally Accepted Accounting Principles in the United States of America (“US GAAP”) as set
forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC). All amounts are in United States
dollars (“USD”) unless otherwise stated.
Acquisition of WISeCoin France R&D
Lab SAS
On March 15, 2020, the Group acquired WISeCoin
France R&D Lab SAS, a private French company which was spun off from the Group in 2019. The primary activity of WISeCoin France
R&D Lab SAS is to carry out research and development on hardware and software components of semiconductors and integrated circuits
with a focus on authentication and security solutions.
Both the Semiconductors Group and WISeCoin France
R&D Lab SAS being controlled by ultimate parent WISeKey International Holding AG, the acquisition qualified as a transaction under
common control in line with ASC 805-50. In application of ASC 805-50-45, the assets, liabilities and results of WISeCoin France
R&D Lab SAS have been consolidated in the Group’s financial statements as of the beginning of the period, i.e., from January
1, 2020.
Dissolution of WISeCoin France R&D
Lab SAS
On January 1, 2021, WISeCoin France R&D Lab
SAS’ assets and liabilities were transferred to WISeKey Semiconductors SAS and WISeCoin France R&D Lab SAS was dissolved. As
a fully owned subsidiary, the net assets of WISeCoin France R&D Lab SAS in the Semiconductors Group as at January 1, 2021 were transferred
at carrying value to WISeKey Semiconductors SAS.
Note 4. Summary
of significant accounting policies
Fiscal Year
The Group’s fiscal year ends on December
31.
Principles of Consolidation
The consolidated financial statements include
the accounts of WISeKey Semiconductors SAS and its wholly-owned subsidiaries over which the Group has control.
Intercompany income and expenses, including unrealized
gross profits from internal group transactions and intercompany receivables, payables and loans have been eliminated.
General Principles of Business Combinations
The Group uses the acquisition method to account
for business combination, in line with ASC Topic 805-10 Business Combinations. Subsidiaries acquired or divested in the course of the
year are included in the consolidated financial statements respectively as of the date of purchase, and up to the date of sale. The consideration
for the acquisition is measured as the fair value of the assets transferred, the liabilities incurred and the equity interests issued
by the Company.
Use of Estimates
The preparation of consolidated financial statements
in conformity with US GAAP requires management to make certain estimates, judgments and assumptions. We believe these estimates, judgements
and assumptions are reasonable, based upon information available at the time they were made. These estimates, judgments and assumptions
can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of
revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions
and the actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular
transaction is specifically dictated by US GAAP and does not require management’s judgment in its application. There are also areas
in which management’s judgment in selecting from available alternatives would not produce a materially different result.
Foreign Currency
The functional currency of WISeKey Semiconductors
SAS is USD.
In general, the functional currency of a foreign
operation is the local currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance
sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. The effects of foreign currency
translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income/loss. The
Group's reporting currency is USD.
Cash and Cash Equivalents
Cash consists of deposits held at major banks
that are readily available. Cash equivalents consist of highly liquid investments that are readily convertible to cash and with original
maturity dates of three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities
of these instruments.
Accounts Receivable
Receivables represent rights to consideration
that are unconditional and consist of amounts billed and currently due from customers, and revenues that have been recognized for accounting
purposes but not yet billed to customers. The Group extends credit to customers in the normal course of business and in line with industry
practices.
Allowance for Doubtful Accounts
We recognize an allowance for credit losses to
present the net amount of receivables expected to be collected as of the balance sheet date. The allowance is based on the credit losses
expected to arise over the asset’s contractual term taking into account historical loss experience, customer-specific data as well
as forward looking estimates. Expected credit losses are estimated individually.
Accounts receivable are written off when deemed
uncollectible and are recognized as a deduction from the allowance for credit losses. Expected recoveries, which are not to exceed the
amount previously written off, are considered in determining the allowance balance at the balance sheet date.
Inventories
Inventories are stated at the lower of cost or
net realizable value. Costs are calculated using standard costs, approximating average costs. Finished goods and work-in-progress inventories
include material, labor and manufacturing overhead costs. The Group records write-downs on inventory based on an analysis of obsolescence
or a comparison to the anticipated demand or market value based on a consideration of marketability and product maturity, demand forecasts,
historical trends and assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost,
net of accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives which range from 1 to 10 years.
Leasehold improvements are amortized over the lesser of the estimated useful lives of the improvements or the lease terms, as appropriate.
Property, plant and equipment are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Intangible Assets
Those intangible assets that are considered to
have a finite useful life are amortized over their useful lives, which generally range from 1 to 10 years. Each period
we evaluate the estimated remaining useful lives of intangible assets and whether events or changes in circumstances require a revision
to the remaining periods of amortization or that an impairment review be carried out.
Leases
In line with ASC 842, the Group, as a lessee,
recognizes right-of-use assets and related lease liabilities on its balance sheet for all arrangements with terms longer than twelve months,
and reviews its leases for classification between operating and finance leases. Obligations recorded under operating and finance leases
are identified separately on the balance sheet. Assets under finance leases and their accumulated amortization are disclosed separately
in the notes. Operating and finance lease assets and operating and finance lease liabilities are measured initially at an amount equal
to the present value of minimum lease payments during the lease term, as at the beginning of the lease term.
The Group has elected the short-term lease practical
expedient whereby we do not present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months
or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise.
We have also elected the practical expedients
related to lease classification of leases that commenced before the effective date of ASC 842.
Revenue Recognition
The Group’s policy is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve that core principle, WISeKey applies the following steps:
|
- |
Step 1: Identify the contract(s) with a customer. |
|
- |
Step 2: Identify the performance obligations in the contract. |
|
- |
Step 3: Determine the transaction price. |
|
- |
Step 4: Allocate the transaction price to the performance obligations in the contract. |
|
- |
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. |
Revenue is measured based on the consideration
specified in a contract with a customer and excludes amounts collected on behalf of third parties. We typically allocate the transaction
price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or service promised
in the contract. If a standalone price is not observable, we use estimates.
The Group recognizes revenue when it satisfies
a performance obligation by transferring control over goods or services to a customer. The transfer may be done at a point in time (typically
for goods) or over time (typically for services). The amount of revenue recognized is the amount allocated to the satisfied performance
obligation. For performance obligations satisfied over time, the revenue is recognized over time, most frequently on a prorata
temporis basis as most of the services provided by the Group relate to a set performance period.
If the Group determines that the performance obligation
is not satisfied, it will defer recognition of revenue until it is satisfied.
We present revenue net of sales taxes and any
similar assessments.
The Group delivers products and records revenue
pursuant to commercial agreements with its customers, generally in the form of an approved purchase order or sales contract.
Where products are sold under warranty, the customer
is granted a right of return which, when exercised, may result in either a full or partial refund of any consideration received, or a
credit that can be applied against amounts owed, or that will be owed, to the Group. For any amount received or receivable for which we
do not expect to be entitled to because the customer has exercised its right of return, we recognize those amounts as a refund liability.
Contract Assets
Contract assets consists of accrued revenue where
the Group has fulfilled its performance obligation towards the customer but the corresponding invoice has not yet been issued. Upon invoicing,
the asset is reclassified to trade accounts receivable until payment.
Deferred Revenue
Deferred revenue consists of amounts that have
been invoiced and paid but have not been recognized as revenue. Deferred revenue that will be realized during the succeeding 12-month
period is recorded as current and the remaining deferred revenue recorded as non-current. This would relate to multi-year certificates
or licenses.
Contract Liability
Contract liability consists of either:
|
- |
amounts that have been invoiced and not yet paid, nor recognized as revenue. Upon payment, the liability is reclassified to deferred revenue if the amounts still have not been recognized as revenue. Contract liability that will be realized during the succeeding 12-month period is recorded as current and the remaining contract liability recorded as non-current. This would relate to multi-year certificates or licenses. |
|
- |
advances from customers not supported by invoices. |
Sales Commissions
Sales commission expenses where revenue is recognized
are recorded in the period of revenue recognition.
Cost of Sales and Depreciation of Production
Assets
Our cost of sales consists primarily of expenses
associated with the delivery and distribution of products. These include expenses related to the license to the Global Cryptographic ROOT
Key, the global Certification authorities as well as the digital certificates for people, servers and objects, expenses related to the
preparation of our secure elements and the technical support provided on the Group's ongoing production and on the ramp-up phase, including
materials, labor, test and assembly suppliers, and subcontractors, freights costs, as well as the amortization of probes, wafers and other
items that are used in the production process. This amortization is disclosed separately under depreciation of production assets on the
face of the income statement.
Research and Development and Software Development
Costs
All research and development costs and software
development costs are expensed as incurred.
Advertising Costs
All advertising costs are expensed as incurred.
Pension Plan
In 2020, the Group maintained two defined benefit
post retirement plans:
|
- |
one for the employees of WISeKey Semiconductors SAS, and |
|
- |
one for the employees of WISeCoin France R&D Lab SAS. |
In 2021, following the transfer of WISeCoin France
R&D Lab SAS’ assets and liabilities to WISeKey Semiconductors SAS and the dissolution of WISeCoin France R&D Lab SAS, the
Group only maintained one defined benefit post retirement plan for the employees of WISeKey Semiconductors SAS.
In accordance with ASC 715-30, Defined
Benefit Plans – Pension, the Group recognizes the funded status of the plan in the balance sheet. Actuarial gains and losses
are recorded in accumulated other comprehensive income / (loss).
Income Taxes
Taxes on income are accrued in the same period
as the revenues and expenses to which they relate.
Deferred taxes are calculated on the temporary
differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of our companies prepared
for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Group
has plans to permanently reinvest profits into the foreign subsidiaries.
Deferred tax assets on tax loss carry-forwards
are only recognized to the extent that it is “more likely than not” that future profits will be available and the tax loss
carry-forward can be utilized.
Changes to tax laws or tax rates enacted at the
balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable
in the period when the deferred tax assets or tax liabilities are realized.
The Group is required to pay income taxes in a
number of countries. The Group recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than
not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit
that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position
and all relevant facts. The Group adjusts its recognition of these uncertain tax benefits in the period in which new information is available
impacting either the recognition or measurement of its uncertain tax positions.
Research Tax Credits
Research tax credits are provided by the French
government to give incentives for companies to perform technical and scientific research. WISeKey Semiconductors SAS is eligible to receive
such tax credits.
These research tax credits are presented as a
reduction of Research & development expenses in the income statement when companies that have qualifying expenses can receive such
grants in the form of a tax credit irrespective of taxes ever paid or ever to be paid, the corresponding research and development efforts
have been completed and the supporting documentation is available. The credit is deductible from the entity’s income tax charge
for the year or payable in cash the following year, whichever event occurs first. The tax credits are included in noncurrent deferred
tax credits in the balance sheet in line with ASU 2015-17.
Earnings per Share
Basic earnings per share are calculated using
WISeKey Semiconductors SAS’ weighted-average outstanding common shares. When the effects are not antidilutive, diluted earnings
per share is calculated using the weighted-average outstanding common shares and the dilutive effect of stock options as determined under
the treasury stock method.
Segment Reporting
Our chief operating decision maker, who is also
our Chief Executive Officer, regularly reviews information related to one operating segment, secure microcontrollers, for purposes of
allocating resources and assessing budgets and performance. We report our financial performance based on this segment structure described
in Note 34.
Recent Accounting Pronouncements
Adoption of new FASB Accounting Standard in
the current year – Prior-Year Financial Statements not restated:
In 2020, the Group adopted ASU 2018-13, Fair
Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which
modifies the disclosure requirements on fair value measurements in Topic 820 as follows:
The following disclosure requirements were removed
from Topic 820:
|
· |
The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; The policy for timing of transfers between levels; |
|
· |
The valuation processes for Level 3 fair value measurements;. |
The following disclosure requirements were added
to Topic 820:
|
· |
The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. There was no material impact on the Group’s disclosures in 2020 upon adoption of the new standard. |
As of January 1, 2020, the Group adopted Accounting
Standards Update ASU 2016-13, Financial Instruments - Credit Losses, which requires the measurement of expected lifetime credit losses,
rather than incurred losses, for financial instruments held at the reporting date based on historical experience, current conditions and
reasonable forecasts. There was no material impact on the Group's results upon adoption of the standard.
The Group also adopted ASU 2019-04, Codification
Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,
Codification improvements, which clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging,
and recognition and measurement of financial instruments to ASU 2016-01, 2016-13 & 2017-12. Since issuance of these standards, the
FASB has identified areas that need clarification and correction, resulting in changes similar to those issues under its ongoing Codification
improvements. There was no material impact on the Group’s results of operations in 2020 upon adoption of the new standard.
As of January 1, 2021, the Group adopted ASU 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes
to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor
defined benefit pension or other postretirement plans.
ASU 2018-14 deletes the following disclosure requirements:
The amounts in accumulated other comprehensive
income expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets
expected to be returned to the employer; related party disclosures about the amount of future annual benefits covered by insurance and
annuity contracts and significant transactions between the employer or related parties and the plan. The effects of a one-percentage-point
change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit
costs and (b) benefit obligation for postretirement health care benefits.
ASU 2018-14 adds/clarifies disclosure requirements
related to the following:
The weighted-average interest crediting rates
for cash balance plans and other plans with promised interest crediting rates; An explanation of the reasons for significant gains and
losses related to changes in the benefit obligation for the period; The projected benefit obligation (PBO) and fair value of plan assets
for plans with PBOs in excess of plan assets; The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs
in excess of plan assets. There was no material impact on the Group's results upon adoption of the standard.
As of January 1, 2021, the Group also adopted
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (the ASU), as part of its overall simplification initiative
to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided
to users of financial statements, which amendments primarily impact ASC 740, Income Taxes, and may impact both interim and annual reporting
periods.
It eliminates the need for an organization to
analyze whether the following apply in a given period:
|
· |
Exception to the incremental approach for intraperiod tax allocation; Exceptions to accounting for basis differences when there are ownership changes in foreign investments; Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. |
The ASU also improves financial statement preparers’
application of income tax-related guidance and simplifies GAAP for:
|
· |
Franchise taxes that are partially based on income; Transactions with a government that result in a step up in the tax basis of goodwill; Separate financial statements of legal entities that are not subject to tax; Enacted changes in tax laws in interim periods. |
There was no material impact on the Group's results
upon adoption of the standard.
As of January 1, 2021, the Group also adopted
ASU 2020-10, Codification improvements, which further clarify and improve the Codification by codifying all guidance that requires or
provides the option for an entity to disclose information within the footnotes. This clarification is meant to reduce the likelihood of
a preparer missing required disclosure requirements. While the amendments do not introduce new topics or subtopics or change existing
GAAP, all entities should review the changes found in the ASU to assess the impact it may have on their financial reporting requirements.
There was no material impact on the Group's results
upon adoption of the standard.
New FASB Accounting Standard to be adopted
in the future:
In October 2021, The FASB has issued Accounting
Standards Update (ASU) No. 2021-08, Business Combinations (topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers.
Summary: The ASU amends ASC 805 to “require
acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.”
Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. ASU 2021-08 requires contract assets
and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance
with ASC 606 (meaning the acquirer should assume it has entered the original contract at the same date and using the same terms as the
acquiree). This new ASU applies to contract assets and contract liabilities acquired in a business combination and to other contracts
that directly/indirectly apply the requirements of ASC 606.
Effective Date: ASU No. 2021-08 is effective for
public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. An entity
should apply the amendments prospectively to business combinations occurring on or after the effective dates. Early adoption is permitted.
The Group expects to adopt all the aforementioned
guidance when effective. Management is assessing the impact of the aforementioned guidance on its consolidated financial statements but
does not expect it to have a material impact.
In November 2021, The FASB has issued Accounting
Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.
Summary: The ASU provides an update to increase
the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance,
and the effect of the assistance on an entity’s financial statements. ASC 832 requires the following disclosures in the notes, information
about the nature of the transactions, the accounting policies used to account for the transactions, and balance sheet and income statement
affected by the transactions. The duration, commitments, provisions, and other contingencies are required to disclose.
Effective Date: ASU No. 2021-10 is effective for
fiscal years beginning after December 15, 2021. Early adoption is permitted.
The Group expects to adopt all the aforementioned
guidance when effective. Management is assessing the impact of the aforementioned guidance on its consolidated financial statements but
does not expect it to have a material impact.
The Group reviewed the Accounting Standards Updates
(ASU) issued up until the date of release of these financial statements and did not identify further ASUs relevant to the Group.
Note 5. Concentration
of credit risks
Financial instruments that are potentially subject
to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Our cash is held with large financial institutions.
Management believes that the financial institutions that hold our investments are financially sound and accordingly, are subject to minimal
credit risk. Deposits held with banks may exceed the amount of insurance provided on such deposits.
The Group sells to large, international customers
and, as a result, may maintain individually significant trade accounts receivable balances with such customers during the year. We generally
do not require collateral on trade accounts receivable. Summarized below are the clients whose revenue were 10% or higher than the respective
total consolidated net sales, and the clients whose trade accounts receivable balances were 10% or higher than the respective total consolidated
trade accounts receivable balance for fiscal years 2021 and 2020. In addition, we note that some of our clients are contract manufacturers
for the same companies; should these companies reduce their operations or change contract manufacturers, this would cause a decrease in
our customer orders which would adversely affect our operating results.
|
Revenue concentration
(% of total net sales) |
|
Receivables concentration
(% of total accounts receivable) |
|
12 months ended December 31, |
|
As at December 31, |
|
2021 |
2020 |
|
2021 |
2020 |
Multinational electronics contract manufacturing company |
13% |
19% |
|
17% |
19% |
Provider of authentications & security solutions |
10% |
9% |
|
0% |
10% |
Semiconductor equipment and electronic devices manufacturing company |
5% |
0% |
|
12% |
0% |
Multinational electronics manufacturing services company |
5% |
6% |
|
11% |
13% |
Note 6. Fair
value measurements
ASC 820 establishes a three-tier fair value hierarchy
for measuring financial instruments, which prioritizes the inputs used in measuring fair value. These tiers include:
·
Level 1, defined as observable inputs such as quoted prices in active markets;
·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
As at December 31, 2021 |
|
As at December 31, 2020 |
Fair value level |
|
USD'000 |
Carrying amount |
Fair value |
|
Carrying amount |
Fair value |
Note ref. |
Nonrecurring fair value measurements |
|
|
|
|
|
|
|
Accounts receivable |
2,606 |
2,606 |
|
2,206 |
2,206 |
3 |
8 |
Accounts payable |
7,256 |
7,256 |
|
6,734 |
6,734 |
3 |
18 |
Indebtedness
to related parties, noncurrent |
15,617 |
15,617 |
|
12,263 |
12,263 |
3 |
20 |
In addition to the methods and assumptions we
use to record the fair value of financial instruments as discussed in the Fair Value Measurements section above, we used the following
methods and assumptions to estimate the fair value of our financial instruments:
|
- |
Accounts receivable – carrying amount approximated fair value due to their short-term nature. |
|
- |
Accounts payable – carrying amount approximated fair value due to their short-term nature. |
|
- |
Indebtedness to related parties, noncurrent - carrying amount approximated fair value. |
Note 7. Cash
and cash equivalents
Cash consists of deposits held at major banks.
Note 8. Accounts
receivable
The breakdown of the accounts receivable balance
is detailed below:
Accounts Receivable - Schedule of Accounts
Receivable
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Trade accounts receivable |
2,656 |
|
2,227 |
Allowance for doubtful accounts |
(50) |
|
(21) |
Total accounts receivable net of allowance for doubtful accounts |
2,606 |
|
2,206 |
Note 9. Inventories
Inventories consisted of the following:
Inventories - Schedule of Inventories, Current
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Raw materials |
950 |
|
543 |
Work in progress |
1,760 |
|
1,931 |
Total inventories |
2,710 |
|
2,474 |
In the years ended December 31, 2021, and 2020,
the Group recorded inventory obsolescence charges in the income statement of respectively USD 57,302 and USD 156,188 on
raw materials, and USD 404,509 and USD 301,215 on work in progress.
The inventory obsolescence provisions as at December
31, 2021, and 2020 are, respectively, USD 79,846 and USD 97,730 for raw materials, and USD 507,090 and USD 499,617 for
work in progress.
Note 10. Other
current assets
Other current assets consisted of the following:
Other Current Assets - Schedule of
Other Current Assets
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Value-Added Tax Receivable |
188 |
|
575 |
Advanced payment to suppliers |
220 |
|
43 |
Deposits, current |
5 |
|
5 |
Other current assets |
1 |
|
4 |
Total other current assets |
414 |
|
627 |
Note 11. Acquisition
under common control
Acquisition of WISeCoin France R&D Lab
SAS
On March 15, 2020, the Group acquired WISeCoin
France R&D Lab SAS, a private French company which was spun off from the Group in 2019. The primary activity of WISeCoin France R&D
Lab SAS is to carry out research and development on hardware and software components of semiconductors and integrated circuits with a
focus on authentication and security solutions.
At the acquisition date, WISeKey Semiconductors
SAS and WISeCoin France R&D Lab SAS were both businesses controlled by WISeKey International Holding AG. Therefore, in line with ASC 805-50,
the transfer of ownership to WISeKey Semiconductors SAS was assessed as a common control transaction and WISeKey Semiconductors SAS initially
measured the recognized assets and liabilities transferred at their carrying amounts in the account of WISeKey International Holding AG.
The amount of consideration paid in excess of the carrying amount of the assets and liabilities transferred was recognized as an equity
transaction (deemed dividend).
In application of ASC 805-50-45, the assets,
liabilities and results of WISeCoin France R&D Lab SAS have been consolidated in the Group’s financial statements as of the
beginning of the period, i.e., from January 1, 2020.
The major classes of assets and liabilities acquired
by the Group at carrying amounts on the date of acquisition and as of January 1, 2020 are as follows:
Acquisition Under Common Control - Schedule
of Assets and Liabilities Acquired
|
As at March 15, |
As at January 1, |
USD'000 |
2020 |
2020 |
ASSETS |
|
|
Current assets |
|
|
Cash and cash equivalents |
215 |
312 |
Accounts receivable from related parties |
923 |
1,473 |
Prepaid expenses |
18 |
4 |
Other current assets |
34 |
100 |
Total current assets |
1,190 |
1,889 |
|
|
|
Noncurrent assets |
|
|
Deferred tax credits |
699 |
552 |
Total noncurrent assets |
699 |
552 |
TOTAL ASSETS |
1,889 |
2,441 |
|
|
|
LIABILITIES |
|
|
Current Liabilities |
|
|
Accounts payable |
361 |
803 |
Accounts payable to related parties |
3,780 |
3,895 |
Other current liabilities |
229 |
244 |
Total current liabilities |
4,370 |
4,942 |
|
|
|
Noncurrent liabilities |
|
|
Employee benefit plan obligation |
352 |
361 |
Total noncurrent liabilities |
352 |
361 |
TOTAL LIABILITIES |
4,722 |
5,303 |
|
|
|
TOTAL NET ASSETS |
(2,833) |
(2,862) |
The consideration for the acquisition was USD 1.10,
hence a deemed dividend at the date of acquisition and as of January 1, 2020 in an amount of:
|
USD |
USD |
Total consideration paid |
1.10 |
1.10 |
Net assets acquired |
(2,832,894.83) |
(2,861,632.76) |
Deemed dividend at acquisition |
2,832,895.93 |
2,861,633.86 |
For the period started on the date of acquisition
of March 15, 2020 until the end of the reporting period on December 31, 2020, the revenue of WISeCoin France R&D Lab SAS recorded
in the consolidated income statement was USD nil because WISeCoin France R&D Lab SAS generates revenue exclusively from transactions
with WISeKey Semiconductors SAS.
For the period started on the date of acquisition
of March 15, 2020 until the end of the reporting period on December 31, 2020, WISeCoin France R&D Lab SAS’ net income was USD 40,730.
Dissolution of WISeCoin France R&D
Lab SAS
On January 1, 2021, WISeCoin France R&D Lab
SAS’ assets and liabilities were transferred to WISeKey Semiconductors SAS and WISeCoin France R&D Lab SAS was dissolved. As
a fully owned subsidiary, the net assets of WISeCoin France R&D Lab SAS in the Semiconductors Group as at January 1, 2021 were transferred
at carrying value to WISeKey Semiconductors SAS.
Note 12. Deferred
tax credits
WISeKey Semiconductors SAS is eligible for research
tax credits provided by the French government (see Note 4 Summary of significant accounting policies). As at December 31, 2021 and 2020,
the receivable balances in respect of these research tax credits owed to the Group were respectively USD 846,808 and USD 1,310,685.
The credit is deductible from the entity’s income tax charge for the year or payable in cash the following year, whichever event
occurs first.
Note 13. Property,
plant and equipment
Property, plant and equipment, net consisted of
the following.
Property, Plant and Equipment - Schedule
of Property, Plant and Equipment
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Machinery & equipment |
10,180 |
|
10,203 |
Office equipment and furniture |
2,320 |
|
2,320 |
Computer equipment and licences |
488 |
|
472 |
Total property, plant and equipment gross |
12,988 |
|
12,995 |
|
|
|
|
Accumulated depreciation for: |
|
|
|
Machinery & equipment |
(9,928) |
|
(8,733) |
Office equipment and furniture |
(1,706) |
|
(1,382) |
Computer equipment and licences |
(468) |
|
(454) |
Total accumulated depreciation |
(12,102) |
|
(10,569) |
Total property, plant and equipment, net |
886 |
|
2,426 |
Depreciation charge for the year |
1,532 |
|
2,243 |
In 2021 and 2020, WISeKey Semiconductors SAS did
not identify any events or changes in circumstances indicating that the carrying amount of any asset may not be recoverable. As a result,
the Group did not record any impairment charge on Property, plant and equipment in the years 2021 and 2020.
The useful economic life of property plant and
equipment is as follow:
|
· |
Office equipment and furniture: |
2 to 5 years |
|
· |
Production masks |
5 years |
|
· |
Production tools |
3 years |
Note 14. Intangible
assets
Intangible assets and future amortization expenses
consisted of the following:
Intangible Assets - Schedule of Finite-Lived
Intangible Assets
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Intangible assets subject to amortization: |
|
|
|
Patents |
2,281 |
|
2,281 |
License agreements |
1,699 |
|
1,699 |
Other intangibles |
923 |
|
923 |
Total intangible assets gross |
4,903 |
|
4,903 |
|
|
|
|
Accumulated amortization for: |
|
|
|
Patents |
(2,281) |
|
(2,281) |
License agreements |
(1,694) |
|
(1,690) |
Other intangibles |
(923) |
|
(923) |
Total accumulated amortization |
(4,898) |
|
(4,894) |
Total intangible assets subject to amortization, net |
5 |
|
9 |
Total intangible assets, net |
5 |
|
9 |
Amortization charge for the year to December 31, |
5 |
|
604 |
The useful economic life of intangible assets
is as follow:
|
· |
License agreements: |
1 to 3 years |
|
· |
Other intangibles: |
5 years |
Future amortization charges are detailed below:
Intangible Assets - Schedule of Intangible
Asset Future Amortization Expense
Future estimated aggregate amortization expense |
|
Year |
USD'000 |
2022 |
4 |
2023 |
1 |
Total intangible assets subject to amortization, net |
5 |
Note 15. Leases
The Group has historically entered into a number
of lease arrangements under which it is the lessee. As at December 31, 2021, the Semiconductors Group holds five operating leases. The
short-term leases and operating leases relate to premises. We do not sublease. All of our operating leases include multiple optional renewal
periods which are not reasonably certain to be exercised.
In the years 2021 and 2020 we recognized rent
expenses associated with our leases as follows:
Leases - Schedule
of Lease Costs
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
Operating lease cost: |
|
|
|
Fixed rent expense |
378 |
|
339 |
Short-term lease cost |
3 |
|
15 |
Net lease cost |
381 |
|
354 |
Lease cost - Cost of sales |
— |
|
— |
Lease cost - General & administrative expenses |
381 |
|
354 |
Net lease cost |
381 |
|
354 |
In the years 2021 and 2020, we had the following
cash and non-cash activities associated with our leases:
Leases - Schedule of Cash and Non-Cash
Activities Associated with Leases
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
Operating cash flows from operating leases |
380 |
|
367 |
Non-cash investing and financing activities: |
|
|
|
Net lease cost |
381 |
|
354 |
Additions to ROU assets obtained from: |
|
|
|
New operating lease liabilities |
33 |
|
90 |
As at December 31, 2021, future minimum annual
lease payments were as follows:
Leases - Schedule of Future Minimum
Lease Payments
|
USD'000 |
USD'000 |
USD'000 |
USD'000 |
Year |
Operating |
Short-term |
Finance |
Total |
2022 |
348 |
— |
— |
348 |
2023 |
304 |
— |
— |
304 |
2024 |
302 |
— |
— |
302 |
2025 |
302 |
— |
— |
302 |
2026 and beyond |
771 |
— |
— |
771 |
Total future minimum operating and short-term lease payments |
2,027 |
— |
— |
2,027 |
Less effects of discounting |
(251) |
— |
— |
(251) |
Lease liabilities recognized |
1,776 |
— |
— |
1,776 |
In line with ASU 2018-11, future minimum
lease payments under legacy ASC 840 are disclosed in the table below:
Leases - Schedule of Minimum Lease Payments
under Legacy ASC 840
Year |
USD'000 |
2022 |
348 |
2023 |
304 |
2024 |
302 |
2025 |
302 |
2026 and beyond |
771 |
Total future minimum operating and short-term lease payments |
2,027 |
Less effects of discounting |
(251) |
Lease liabilities recognized |
1,776 |
As of December 31, 2021, the weighted-average
remaining lease term was 6.40 years for operating leases.
For our operating leases, we calculated an estimate
rate based upon the estimated incremental borrowing rate of the entity holding the lease. The weighted average discount rate associated
with operating leases as of December 31, 2021 was 3%.
Note 16. Other
noncurrent assets
Other noncurrent assets consisted of noncurrent
deposits. Deposits are primarily made up of rental deposits on the premises rented by the Group.
Note 17. Accounts
payable
The accounts payable balance consisted of the
following:
Accounts Payable - Schedule of Accounts
Payable
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Trade creditors |
5,680 |
|
4,467 |
Factors or other financial institutions for borrowings |
27 |
|
178 |
Accounts payable to underwriters, promoters, and employees |
792 |
|
945 |
Other accounts payable |
757 |
|
1,144 |
Total accounts payable |
7,256 |
|
6,734 |
Accounts payable to underwriters, promoters and
employees consist primarily of payable balances to employees in relation to holidays, bonus and 13th month accruals across the Group.
Other accounts payable are mostly accruals of
social charges in relation to the accrued liability to employees.
Note 18. Other current
liabilities
Other current liabilities consisted of the following:
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Value-Added Tax payable |
- |
|
312 |
Other tax payable |
22 |
|
5 |
Customer contract liability, current |
111 |
|
147 |
Other current liabilities |
47 |
|
130 |
Total other current liabilities |
180 |
|
594 |
Note 19. Indebtedness
to related parties, noncurrent
On October 1, 2016, the Group entered into a Revolving
Credit Agreement (the “Revolving Credit”) with its parent WISeKey International Holding AG (“WISeKey”)
to borrow funds within a credit period starting on October 1, 2016 and ending on December 31, 2017 when all outstanding funds would become
immediately due and payable. Outstanding loan amounts bear an interest rate of 3% per annum. Repayments before the end of the credit period
are permitted. On November 1, 2017, the Group and WISeKey entered into the First Amendment to the Revolving Credit Agreement extending
the credit period by 2 years to December 31, 2019. On March 16, 2021, the Group and WISeKey entered into the Second Amendment to the Revolving
Credit Agreement extending the credit period by another 2 years to December 31, 2022.
On November 12, 2020, WISeKey provided a Funding
Commitment to extend shareholder loans (each the “Shareholder Loan”) to the Group for a maximum aggregate amount of
USD 4 million to be drawn down over six months from the date of the commitment, in instalments of between USD 1 million and USD 1.5 million. The Shareholder Loans bare interest of 3% per annum. There are not set repayment dates for the Shareholder Loans.
All entities in the Semiconductors Group are subject
to management fees from WISeKey and WISeKey’s affiliates. There is no set payment date for these fees, as a result they have been
classified as noncurrent.
As at December 31, 2020, the Semiconductors Group
owed WISeKey and WISeKey’s affiliates a total of USD 12,326,275 and the unamortized debt discount balance was USD 63,091,
hence a carrying value of USD 12,263,184 as at December 31, 2020, made up of Shareholder Loans and unpaid management
fees. In 2020, an aggregate debt discount charge of USD 8,278 was amortized to the income statement.
On April 1, 2021, the Group entered into a Debt
Remission Agreement (the “Debt Remission”) with WISeKey pursuant to which an outstanding amount of EUR 5 million
(USD 5,871,714) owed to WISeKey was remitted without any compensation from the Group. Per the terms of the Debt Remission, WISeKey
will have the right to reinstate the debt and ask for repayment in fiscal years when WISeKey Semiconductors SAS achieves a positive income
before income tax expense, in an amount calculated based on the income before income tax expense. As such, because of the repayment clause,
the loan amounts covered by the Debt Remission continue to be shown as noncurrent liabilities under the line Indebtedness to related parties,
noncurrent.
On June 28, 2021, the Group entered into a Debt
Transfer Agreement with its parent WISeKey International Holding AG (“WISeKey”) and an affiliate of WISeKey, WISeKey
SA, pursuant to which WISeKey extended a loan of USD 1,463,664 to the Group to repay an overdue creditor balance in that same
amount owed to WISeKey SA. The loan bears interest at the rate of 3% per annum and is repayable by December 31, 2022.
On December 31, 2021, the Group entered into a
Debt Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 1,910,754 to the Group with an interest
rate of 3% per annum, repayable on December 31, 2023.
As at December 31, 2021, the Semiconductors Group
owed WISeKey and WISeKey’s affiliates a total of USD 16,017,114 and the unamortized debt discount balance was USD 399,762,
hence a carrying value of USD 15,617,352 as at December 31, 2021, made up of Shareholder Loans and unpaid management
fees. In 2021, an aggregate debt discount charge of USD 166,919 was amortized to the income statement.
Note 20. Employee
benefit plans
Defined benefit post-retirement plan
In 2020, the Group maintained two defined benefit
post retirement plans:
|
- |
one for the employees of WISeKey Semiconductors SAS, and |
|
- |
one for the employees of WISeCoin France R&D Lab SAS. |
In 2021, following the transfer of WISeCoin France
R&D Lab SAS’ assets and liabilities to WISeKey Semiconductors SAS and the dissolution of WISeCoin France R&D Lab SAS, the
Group only maintained one defined benefit post retirement plan for the employees of WISeKey Semiconductors SAS.
The plans are and were considered defined benefit
plans and accounted for in accordance with ASC 715 Compensation – Retirement Benefits. This model allocates pension costs over
the service period of employees in the plan. The underlying principle is that employees render services ratably over this period, and
therefore, the income statement effects of pensions should follow a similar pattern. ASC 715 requires recognition of the funded status
or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the balance sheet, with
a corresponding adjustment recorded in the net loss. If the projected benefit obligation exceeds the fair value of the plan assets, then
that difference or unfunded status represents the pension liability.
The Group records net service cost as an operating
expense and other components of defined benefit plans as a non-operating expense in the statement of comprehensive loss.
The liabilities and annual income or expense of
the pension plan are determined using methodologies that involve several actuarial assumptions, the most significant of which are the
discount rate and the long-term rate of asset return (based on the market-related value of assets). The fair value of plan assets is determined
based on prevailing market prices.
The defined benefit pension plan maintained by
WISeKey Semiconductors SAS, and their obligations to employees in terms of retirement benefits, is limited to a lump sum payment based
on remuneration and length of service, determined for each employee. The plan is not funded.
The pension liability calculated as at December
31, 2021 is based on annual personnel costs and assumptions as of December 31, 2021.
Personnel Costs |
As at December 31, |
As at December 31, |
USD'000 |
2021 |
2020 |
Wages and salaries |
4,345 |
4,955 |
Social security contributions |
2,049 |
2,250 |
Net service costs |
68 |
75 |
Total |
6,462 |
7,280 |
|
As at December 31, |
Assumptions |
2021 |
2020 |
|
France |
France |
Discount rate |
0.75% |
0.30% |
Expected rate of return on plan assets |
n/a |
n/a |
Salary increases |
3% |
3% |
As at December 31, 2021 the Group’s accumulated
benefit obligation amounted to USD 574,927.
Reconciliation to Balance Sheet start of year |
|
|
|
USD'000 |
|
|
|
Fiscal year |
2021 |
|
2020 |
|
|
|
|
Projected benefit obligation |
1,015 |
|
981 |
Surplus / deficit |
1,015 |
|
981 |
Opening balance sheet asset / provision (funded status) |
1,015 |
|
981 |
|
|
|
|
Reconciliation of benefit obligation during the year |
|
|
|
Projected benefit obligation at start of year |
1,015 |
|
981 |
Net service cost |
71 |
|
72 |
Interest expense |
3 |
|
7 |
Net benefits paid to participants |
(116) |
|
(30) |
Actuarial losses / (gains) |
(141) |
|
(106) |
Curtailment & settlement |
(187) |
|
— |
Currency translation adjustment |
(70) |
|
91 |
Projected benefit obligation at end of year |
575 |
|
1,015 |
|
|
|
|
Reconcilation to balance sheet end of year |
|
|
|
Defined benefit obligation - funded plans |
575 |
|
1,015 |
Surplus/deficit |
575 |
|
1,015 |
|
|
|
|
Closing balance sheet asset / provision (funded status) |
575 |
|
1,015 |
|
|
|
|
Amounts recognized in accumulated OCI |
|
|
|
Net loss (gain) |
(205) |
|
(68) |
Deficit |
(205) |
|
(68) |
|
|
|
|
Estimated amount to be amortized from accumulated OCI into NPBC over next fiscal year |
|
|
|
Net loss (gain) |
51 |
|
— |
Movement in Funded Status |
|
|
|
USD'000 |
|
|
|
Fiscal year |
2021 |
|
2020 |
|
|
|
|
Opening balance sheet liability (funded status) |
1,015 |
|
981 |
|
|
|
|
Net service cost |
71 |
|
72 |
Interest cost / (credit) |
3 |
|
7 |
Settlement / curtailment cost / (credit) |
(187) |
|
— |
Currency translation adjustment |
(8) |
|
(1) |
Total Net Periodic Benefit Cost/(credit) |
(121) |
|
78 |
|
|
|
|
Actuarial (gain) / loss on liabilities due to experience |
(142) |
|
(105) |
Total gain/loss recognized via OCI |
(142) |
|
(105) |
|
|
|
|
Employer contributions paid in the year + Cashflow required to pay benefit payments |
(116) |
|
(30) |
Total cashflow |
(116) |
|
(30) |
|
|
|
|
Currency translation adjustment |
(61) |
|
91 |
Closing balance sheet liability (funded status) |
575 |
|
1,015 |
|
|
|
|
Reconciliation of net gain / loss |
|
|
|
Amount at beginning of year |
(68) |
|
34 |
Liability (gain) / loss |
(142) |
|
(105) |
Currency translation adjustment |
5 |
|
3 |
Amount at year-end |
(205) |
|
(68) |
The table below shows the breakdown of expected
future contributions payable to the plan:
Employee Benefit Plans - Schedule of
Future Contributions Payable
Period
USD'000 |
France |
2022 |
25 |
2023 |
28 |
2024 |
7 |
2025 |
23 |
2026 |
52 |
2027 to 2031 |
420 |
The Group expects to make contributions of approximately
$25,000 in 2022.
Note 21. Commitments
and contingencies
Lease commitments
The future payments due under leases are shown
in Note 15.
Guarantees
Our software and hardware product sales agreements
generally include certain provisions for indemnifying customers against liabilities if our products infringe a third party’s intellectual
property rights. Certain of our product sales agreements also include provisions indemnifying customers against liabilities in the event
we breach confidentiality or service level requirements. It is not possible to determine the maximum potential amount under these indemnification
agreements due to our lack of history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. To date, we have not incurred any costs as a result of such indemnifications and have not accrued any liabilities related to
such obligations in our consolidated financial statements.
Note 22. Stockholders’
equity
Stockholders’ equity consisted of the following:
Stockholders' Equity - Schedule of Stock by Class
WISeKey Semiconductors SAS |
As at December 31, 2021 |
|
As at December 31, 2020 |
Share Capital |
Common stock |
|
Common stock |
Par value per share (in EUR) |
1.00 |
|
1.00 |
Share capital (in USD) |
1,771,732 |
|
1,771,732 |
|
— |
|
— |
Total number of authorized shares |
1,298,162 |
|
1,298,162 |
Total number of fully paid-in issued shares |
1,298,162 |
|
1,298,162 |
Total number of fully paid-in outstanding shares |
1,298,162 |
|
1,298,162 |
Note 23. Accumulated
other comprehensive income
USD'000 |
|
|
|
Accumulated other comprehensive income as at December 31, 2019 |
|
349 |
|
Total net foreign currency translation adjustments |
33 |
|
|
Total defined benefit pension adjustment |
105 |
|
Total other comprehensive income/(loss), net |
|
138 |
Accumulated other comprehensive income as at December 31, 2020 |
|
487 |
|
Total net foreign currency translation adjustments |
(8) |
|
|
Total defined benefit pension adjustment |
142 |
|
Total other comprehensive income/(loss), net |
|
134 |
Accumulated other comprehensive income as at December 31, 2021 |
|
621 |
There is no income tax expense or benefit allocated
to other comprehensive income.
Note 24. Revenue
Nature of goods and services
The following is a description of the principal
activities from which the Group generates its revenue.
The Group recognizes revenue when a customer takes
possession of the chips, which usually occurs when the goods are delivered. Customers typically pay once goods are delivered.
Disaggregation of revenue
The following table shows the Group’s revenues
disaggregated by product or service type:
Revenue - Schedule of Disaggregation of Revenue
Disaggregation of revenue |
Typical payment |
At one point in time |
|
Total |
USD'000 |
|
2021 |
2020 |
|
2021 |
2020 |
Secure Microcontrollers Segment |
|
|
|
|
|
|
Secure chips |
Upon delivery |
14,850 |
11,289 |
|
14,850 |
11,289 |
Total Secure Microcontrollers Segment |
14,850 |
11,289 |
|
14,850 |
11,289 |
All Other Segment |
|
|
|
|
|
|
Secure chips |
Upon delivery |
2,145 |
3,028 |
|
2,145 |
3,028 |
Total All Other Segment |
2,145 |
3,028 |
|
2,145 |
3,028 |
Total Revenue |
16,995 |
14,317 |
|
16,995 |
14,317 |
For the years ended December 31, 2021, and 2020
the Group recorded no revenues related to performance obligations satisfied in prior periods.
The following table shows the Group’s revenues
disaggregated by geography, based on our customers’ billing addresses:
Revenue - Schedule of Disaggregation
of Revenue by Geographic Areas
|
|
|
|
Net sales by region |
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
Secure Microcontrollers segment |
|
|
|
France |
37 |
|
64 |
Rest of EMEA |
2,944 |
|
1,861 |
North America |
10,234 |
|
7,922 |
Asia Pacific |
1,588 |
|
1,421 |
Latin America |
47 |
|
21 |
Total Secure Microcontrollers segment revenue |
14,850 |
|
11,289 |
All Other segment |
|
|
|
France |
175 |
|
466 |
Rest of EMEA |
1,099 |
|
2,116 |
North America |
397 |
|
294 |
Asia Pacific |
474 |
|
105 |
Latin America |
— |
|
47 |
Total All Other segment revenue |
2,145 |
|
3,028 |
Total Net sales |
16,995 |
|
14,317 |
*EMEA means Europe, Middle East and Africa |
|
|
|
Contract assets, deferred revenue and contract
liability
Our contract assets, deferred revenue and contract
liability consist of:
Revenue - Schedule of Contract Assets,
Deferred Revenue and Contract Liability
Contract assets and contract liabilities |
|
|
|
|
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Trade accounts receivables |
|
|
|
Trade accounts receivable - Secure Microcontrollers segment |
2,321 |
|
1,756 |
Trade accounts receivable - All Other segment |
335 |
|
471 |
Total trade accounts receivables |
2,656 |
|
2,227 |
Contract liabilities - current |
111 |
|
147 |
Total contract liabilities |
111 |
|
147 |
Deferred revenue |
|
|
|
Deferred revenue - Secure Microcontrollers Segment |
— |
|
150 |
Total deferred revenue |
— |
|
150 |
Revenue recognized in the period from amounts included in the deferred revenue at the beginning of the year |
150 |
|
— |
Increases or decreases in trade accounts receivable,
contract assets, deferred revenue and contract liability were primarily due to normal timing differences between our performance and customer
payments.
Remaining performance obligations
As of December 31, 2021, approximately USD 111,000 is
expected to be recognized from remaining performance obligations for contracts. We expect to recognize revenue for these remaining performance
obligations during the next year approximately as follows:
Estimated revenue from remaining performance obligations
as at December 31, 2021 (USD'000) |
Total |
Year 2022 |
111 |
Total remaining performance obligation |
111 |
Note 25. Other
operating income
Other operating income consisted mainly of a release
of accruals for tax liabilities amounting to USD 91,193.
Note 26. Non-operating
income
Non-operating income consisted of the following:
Non-Operating Income - Schedule of
Non-Operating Income
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
Foreign exchange gain |
482 |
|
117 |
Financial income |
— |
|
8 |
Other |
1 |
|
21 |
Total non-operating income |
483 |
|
146 |
Note 27. Non-operating
expenses
Non-operating expenses consisted of the following:
Non-Operating
Expenses - Schedule of Non-Operating Expenses
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
Foreign exchange losses |
— |
|
728 |
Financial charges |
1 |
|
1 |
Other |
95 |
|
20 |
Total non-operating expenses |
96 |
|
749 |
Note 28. Income
taxes
The components of income before income taxes
are as follows:
Income Taxes - Schedule of Components
of Income before Income Taxes
|
|
|
|
Income / (Loss) |
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
France |
(4,429) |
|
(8,806) |
Foreign |
(392) |
|
(390) |
Income/(loss) before income tax |
(4,821) |
|
(9,196) |
Income taxes relating to the Group are as follows:
Income Taxes - Schedule of Income Tax
Expense
|
|
|
|
Income taxes |
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
France |
— |
|
— |
Foreign |
6 |
|
5 |
Income tax expense / (income) |
6 |
|
5 |
Income tax at the local statutory rate compared
to the Group’s income tax expenses as reported are as follows:
Income Taxes - Schedule of Income Tax
Expense at the Swiss Statutory Rate
|
|
|
|
|
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
Net income / (loss) before income tax |
(4,821) |
|
(9,196) |
Statutory tax rate |
26.5% |
|
28% |
Expected income tax (expense) / recovery |
1,278 |
|
2,575 |
Income tax (expense) / recovery |
(6) |
|
(5) |
Change in valuation allowance |
660 |
|
(1,940) |
Permanent differences |
(1,556) |
|
— |
Change of tax loss carryforwards |
(382) |
|
(635) |
Income tax (expense) / recovery |
(6) |
|
(5) |
The Group assesses the recoverability of its deferred
tax assets and, to the extent recoverability does not satisfy the “more likely than not” recognition criterion under ASC 740,
records a valuation allowance against its deferred tax assets. The Group considered its recent operating results and anticipated future
taxable income in assessing the need for its valuation allowance.
The Group’s deferred tax assets and liabilities
consist of the following:
Income Taxes - Schedule of Deferred
Tax Assets and Liabilities
Deferred tax assets and liabilities |
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
Defined benefit accrual |
161 |
|
284 |
Tax loss carry-forwards |
3,640 |
|
4,177 |
Valuation allowance |
(3,801) |
|
(4,461) |
Deferred tax assets / (liabilities) |
— |
|
|
As of December 31, 2021, the Group’s operating
cumulated loss carry-forwards of all jurisdictions are as follows:
Income Taxes - Schedule of Operating Loss Carryforward
Operating loss-carryforward |
|
USD'000
France
Tax Year 2020
Tax Year 2021
|
France |
Total |
Expiration date |
As of December 31, 2020 |
14,917 |
14,917 |
None |
As of December 31, 2021 |
13,736 |
13,736 |
None |
In France, operating losses may be carried forward
indefinitely, but may be offset against the taxable profits of a given fiscal year only up to an amount of €1 million, plus 50% of
the taxable result in excess of that threshold.
The following tax years remain subject to examination:
Income Taxes - Summary of Income Tax Examinations
Significant jurisdictions |
Open years |
France |
2019 - 2021 |
Japan |
2017 - 2021 |
Taiwan |
2021 |
As at December 31, 2020, the Group had a tax provision
of USD 118,294, initially recorded in 2019 following a tax audit started in 2018 in relation to prior years, which was neither utilized
nor released. There was no additional accrual in the year 2020.
As at December 31, 2021, the Group had decrease
its tax provision to USD 47,368. Although the final conclusions have not yet been communicated formally, management believes that
it is more probable than not that the entity will have to pay additional taxes and has calculated the provision based on preliminary discussions
with the tax authorities.
The Group has no unrecognized tax benefits.
Note 29. Earnings/(Loss)
per share
The computation of basic and diluted net earnings/(loss)
per share for the Group is as follows:
Earnings/(Loss) Per Share - Schedule
of Earnings Per Shares, Basic and Diluted
|
|
|
|
|
12 months ended December 31, |
Earnings / (loss) per share |
2021 |
|
2020 |
Net income (USD'000) |
(4,827) |
|
(9,201) |
Effect of potentially dilutive instruments on net gain (USD'000) |
n/a |
|
n/a |
|
|
|
|
Net income / (loss) after effect of potentially dilutive instruments (USD'000) |
(4,827) |
|
(9,201) |
|
|
|
|
Shares used in net earnings / (loss) per share computation: |
|
|
|
Weighted average shares outstanding - basic |
1,298,162 |
|
1,298,162 |
Effect of potentially dilutive equivalent shares |
n/a |
|
n/a |
Weighted average shares outstanding - diluted |
1,298,162 |
|
1,298,162 |
|
|
|
|
Net earnings / (loss) per share |
|
|
|
Basic weighted average loss per share (USD) |
(3.72) |
|
(7.09) |
Diluted weighted average loss per share (USD) |
(3.72) |
|
(7.09) |
For the year 2020 and 2021, the group had no dilutive
instruments to be considered for the computation of diluted earnings per share.
Note 30. Legal
proceedings
We are currently not party to any legal proceedings
and claims that are not provided for in our financial statements.
Note 31. Related
parties disclosure
Subsidiaries
As at December 31, 2020, the consolidated financial
statements of the Group include the entities listed in the following table:
Related Parties Disclosure - Schedule
of Subsidiary/Parent Ownership Interest
Group Company Name |
|
Country of incorporation |
|
Year of incorporation |
|
Share Capital |
|
% ownership
as at December 31, 2020 |
|
Nature of business |
WISeKey IoT Japan KK |
|
Japan |
|
2017 |
|
JPY 1,000,000 |
|
100.0% |
|
Sales & distribution |
WISeKey IoT Taiwan |
|
Taiwan |
|
2017 |
|
TWD 100,000 |
|
100.0% |
|
Sales & distribution |
WISeCoin France R&D Lab SAS |
|
France |
|
2019 |
|
EUR 10,000 |
|
100.0% |
|
Research & development |
As at December 31, 2021, the consolidated financial
statements of the Group included the entities listed in the following table:
Group Company Name |
|
Country of incorporation |
|
Year of incorporation |
|
Share Capital |
|
% ownership
as at December 31, 2021 |
|
% ownership
as at December 31, 2020 |
|
Nature of business |
WISeKey IoT Japan KK |
|
Japan |
|
2017 |
|
JPY 1,000,000 |
|
100.0% |
|
100.0% |
|
Sales & distribution |
WISeKey IoT Taiwan |
|
Taiwan |
|
2017 |
|
TWD 100,000 |
|
100.0% |
|
100.0% |
|
Sales & distribution |
Related party transactions and balances
|
|
|
Receivables as at |
|
Payables as at |
|
Net expenses to |
|
Net income from |
|
Related Parties |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
in the year ended December 31, |
|
in the year ended December 31, |
|
(in
USD'000) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
1 |
WISeKey International Holding AG |
|
— |
|
— |
|
10,899 |
|
7,187 |
|
526 |
|
1,072 |
|
— |
|
— |
2 |
WISeKey SA |
|
— |
|
— |
|
382 |
|
1,751 |
|
94 |
|
965 |
|
128 |
|
— |
3 |
WISeKey USA Inc |
|
— |
|
— |
|
883 |
|
— |
|
883 |
|
— |
|
— |
|
— |
4 |
WISeKey Semiconductors GmbH |
|
— |
|
— |
|
615 |
|
219 |
|
401 |
|
161 |
|
— |
|
— |
5 |
WISeCoin AG |
|
— |
|
— |
|
3,238 |
|
3,169 |
|
90 |
|
90 |
|
— |
|
— |
|
Total |
|
— |
|
— |
|
16,017 |
|
12,326 |
|
1,994 |
|
2,288 |
|
128 |
|
— |
1. The Semiconductors group is wholly owned by
WISeKey International Holding AG, which provides financing and management services, including, but not limited to, sales and marketing,
accounting, finance, legal, taxation, business and strategy consulting, public relations, marketing, risk management, information technology
and general management. The expenses in relation to WISeKey International Holding AG in 2021 and 2020 relate to interest on the outstanding
loans and the recharge of management services.
2. WISeKey SA is a subsidiary of the group headed
by WISeKey International Holding AG (the “WISeKey Group”) and provides management services to the Semiconductors
Group, including, but not limited to, sales and marketing, accounting, business and strategy consulting, public relations, marketing,
risk management and information technology. The expenses in relation to WISeKey SA in 2021 and 2020 relate to interest on the outstanding
loans and the recharge of management services.
3. WISeKey USA Inc is part of the WISeKey Group
and employs sales employees who work for the Semiconductors Group. The expenses in relation to WISeKey USA Inc. in 2021 relate to the
recharge of employee costs.
4. WISeKey Semiconductors GmbH is part of the
WISeKey Group and employs sales employees who work for the Semiconductors Group. The expenses in relation to WISeKey Semiconductors GmbH
in 2021 and 202 relate to the recharge of employee costs.
5. WISeCoin AG was the parent of WISeCoin France
R&D Lab SAS until it was acquired by the Semiconductors Group. WISeCoin AG is part of the WISeKey Group. The expenses recorded in
2020 relate to interest on the outstanding loans and the recharge of management services. The expenses recorded in 2021 relate to interest
on the outstanding loans.
Note 32. Subsequent
events
War in Ukraine
Following the outbreak of the war in Ukraine in
late February 2022, several countries imposed sanctions on Russia, Belarus and certain regions in Ukraine. There has been an abrupt change
in the geopolitical situation, with significant uncertainty about the duration of the conflict, changing scope of sanctions and retaliation
actions including new laws.
The Semiconductors Group does not have any operation
or customer in Russia, Belarus or Ukraine, and, as such, does not foresee any direct impact of the war on its operations.
However, the war has also contributed to an increase
in volatility in currency markets, energy prices, raw material and other input costs, which may impact the Group’s supply chain
in the future.
Indebtedness to related parties
On June 30, 2022, the Group entered into a Debt
Transfer Agreement with WISeKey pursuant to which WISeKey extended a loan of USD 444,542 to the Group with an interest rate
of 3% per annum, repayable on December 31, 2024.
On August 31, 2022, the Group entered into a Debt
Transfer Agreement with its parent WISeKey and an affiliate of WISeKey, WISeKey SA, pursuant to which WISeKey extended a loan of USD 381,879 to
the Group to repay an overdue creditor balance in that same amount owed to WISeKey SA. The loan bears interest at the rate of 3%
per annum and is repayable by December 31, 2024.
On November 3, 2022, the Group entered into a
Debt Transfer Agreement with its parent WISeKey and two affiliates of WISeKey, WISeKey SA and WISeKey USA Inc., pursuant to which WISeKey
extended a loan of USD 1,286,580 to the Group to repay an overdue creditor balance in that same amount owed to WISeKey USA Inc.
The loan bears interest at the rate of 2.5% per annum and is repayable by November 30, 2022.
On November 3, 2022, the Group and WISeKey
entered into the Third and the Fourth Amendments to the Revolving Credit Agreement pursuant to which the interest rate of the loans issued
under the Revolving Credit Agreement is brought to 2.5% per annum and the end of the credit period is set as November 30, 2022 or any
date mutually agreed in writing. Management has assessed the effect of these changes on the going concern basis used in the financial
statements. The amendment of the credit period was required because it is planned that WISeKey and the Group will enter into a Capital
Increase Agreement whereby an amount of approximately USD 7 million owed to WISeKey by the Group will be converted into a capital contribution
by way of an offset with the outstanding debt. Under the terms of this agreement, the capital of WISeKey Semiconductors SAS will be increased
by USD 7 million and the balance owed to WISeKey will reduce by an equivalent amount. In order to effect this planned capital contribution,
French law requires that the debt to be converted be immediately repayable or overdue, which prompted the change in the end date of the
credit period to November 30, 2022. Therefore, the liquidity position and the cash projections of the Group will not be affected by the
amendment of the credit period and Management believe it remains correct to present these financial statements on a going concern basis.
Note 33. Segment
reporting
The Group has one operating segment that meets
the criteria set in ASC 280-10-50: Secure Microcontrollers. The Group’s chief operating decision maker, who is its Chief Executive
Officer, reviews financial performance of this operating segment for purposes of allocating resources and assessing budgets and performance.
The remaining non-reportable operating segments
and other business activities that are not identified as operating segments are combined and disclosed in an “all other” standalone
category.
The Secure Microcontrollers segment encompasses
the design, manufacturing, sales and distribution of high-end, Common Criteria EAL5+ & FIPS 140-3-certified secure microprocessors.
|
|
|
|
|
|
|
|
|
|
|
|
12 months to December 31, |
2021 |
|
2020 |
USD'000 |
Secure Microcontrollers |
|
All Other |
|
Total |
|
Secure Microcontrollers |
|
All Other |
|
Total |
Revenues from external customers |
14,850 |
|
2,145 |
|
16,995 |
|
11,289 |
|
3,028 |
|
14,317 |
Intersegment revenues |
— |
|
415 |
|
415 |
|
— |
|
4,930 |
|
4,930 |
Interest revenue |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Interest expense |
150 |
|
22 |
|
171 |
|
72 |
|
19 |
|
91 |
Depreciation and amortization |
1,339 |
|
193 |
|
1,532 |
|
1,769 |
|
474 |
|
2,243 |
Segment income /(loss) before income taxes |
(2,235) |
|
(2,566) |
|
(4,801) |
|
(5,195) |
|
(3,766) |
|
(8,961) |
Profit / (loss) from intersegment sales |
— |
|
20 |
|
20 |
|
— |
|
235 |
|
235 |
Income tax recovery /(expense) |
— |
|
(6) |
|
(6) |
|
— |
|
(5) |
|
(5) |
Segment assets |
10,296 |
|
1,726 |
|
12,022 |
|
10,531 |
|
3,225 |
|
13,756 |
12 months to December 31, |
|
2021 |
|
2020 |
|
|
USD'000 |
|
USD'000 |
Revenue reconciliation |
|
|
|
|
Total revenue for reportable segment |
17,410 |
|
19,247 |
Elimination of intersegment revenue |
(415) |
|
(4,930) |
Total consolidated revenue |
|
16,995 |
|
14,317 |
|
|
|
|
|
Loss reconciliation |
|
|
|
|
Total profit / (loss) from reportable segments |
(4,801) |
|
(8,961) |
Elimination of intersegment profits |
(20) |
|
(235) |
Income /(Loss) before income taxes |
(4,821) |
|
(9,196) |
As at December 31, |
|
2021 |
|
2020 |
|
|
USD'000 |
|
USD'000 |
Asset reconciliation |
|
|
|
|
Total assets from reportable segments |
12,022 |
|
13,756 |
Elimination of intersegment receivables |
(178) |
|
(323) |
Consolidated total assets |
|
11,844 |
|
13,433 |
Revenue and property, plant and equipment
by geography
The following tables summarize geographic information
for net sales based on the billing address of the customer, and for property, plant and equipment.
Segment Reporting - Schedule of Revenue and Property, Plant and Equipment by Geography
Net sales by region |
12 months ended December 31, |
USD'000 |
2021 |
|
2020 |
France |
457 |
|
1,614 |
Rest of EMEA* |
3,798 |
|
2,892 |
North America |
10,631 |
|
8,217 |
Asia Pacific |
2,062 |
|
1,526 |
Latin America |
47 |
|
68 |
Total net sales |
16,995 |
|
14,317 |
* EMEA means Europe, Middle East and Africa |
|
|
|
Property, plant and equipment, net of depreciation, by region |
As at December 31, |
|
As at December 31, |
USD'000 |
2021 |
|
2020 |
France |
886 |
|
2,426 |
Total Property, plant and equipment, net of depreciation |
886 |
|
2,426 |
Note 34. Business
Update Related to COVID-19
In March 2020, the World Health Organization declared
the Coronavirus (COVID-19) a pandemic. The outbreak spread quickly around the world, including in every geography in which the Group operates.
The pandemic has created uncertainty around the impact of the global economy and has resulted in impacts to the financial markets and
asset values. Governments implemented various restrictions around the world, including closure of non-essential businesses, travel, shelter-in-place
requirements for citizens and other restrictions.
At the beginning of the pandemic, the Group took
a number of precautionary steps to safeguard its businesses and colleagues from COVID-19, including implementing travel restrictions,
working from home arrangements and flexible work policies. The Group started to return to offices around the world in 2020 and 2021, in
line with the guidelines and orders issued by national, state and local governments, implementing a phased approach in its main offices
in Switzerland and France. We continue to prioritize the safety and well-being of our colleagues during this time.
The Group’s major production centers, located
in Taiwan and Vietnam, were quick to implement controls and safeguards around their processes that enabled us to continue delivering products
with minimal interruption to our clients. At the end of the second quarter 2020, we started to see the first impact of the pandemic upon
our activities with certain clients reducing or delaying their orders. However, in 2021, as the shortage in semiconductor supplies eased
up, revenue increased by USD 2.7 million and the Group’s loss decreased by USD 4.3 million which shows the recovery
from the adverse effect of the shortage.
Currently the Group continues to monitor the evolution
of the pandemic and the related official guidelines with its suppliers but does not foresee any significant challenges in the near future.
The Group currently does not anticipate any material impact on its liquidity position and outlook.
At this stage it remains impossible to predict
the extent of the impact of the COVID-19 pandemic as this will depend on numerous evolving factors and future developments that the Group
is not able to predict.
|
Phone +41 44 444
35 55
www.bdo.ch
|
BDO AG
Schiffbaustrasse 2
8031 Zurich
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Report of Independent Registered Public Accounting
Firm
WISeKey International Holding AG, (sole Shareholder
of SEALSQ Corp.)
6300 Zug
Switzerland
Opinion on the Financial Statements
We have audited the accompanying balance sheet
of SEALSQ Corp. (the “Company”) as of December 31, 2022 and the related notes (collectively referred to as the “financial
statement”). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company
at December 31, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
This financial statement is the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statement based on our
audit. 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 audit 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 financial
statement is 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 audit, 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 audit included performing procedures to assess
the risks of material misstatement of the financial statement, 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 financial statement.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
Zurich, Switzerland, March 10, 2023
BDO AG
/s/ Philipp Kegele |
/s/ Sascha Gasser |
Philipp Kegele |
ppa. Sascha Gasser |
We have served as the Company's auditor since
2022.
Audited
Balance Sheet as at December 31, 2022
USD'000 |
As at December 31, 2022 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
— |
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TOTAL ASSETS |
— |
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LIABILITIES |
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Current Liabilities |
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Indebtedness to related parties, current |
188 |
3 |
Total current liabilities |
188 |
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TOTAL LIABILITIES |
188 |
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Commitments and contingent liabilities |
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SHAREHOLDERS' EQUITY |
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Common stock |
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4 |
USD 0.00 par value |
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Authorized - 100 shares |
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Issued and outstanding - 100 shares |
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Common stock |
— |
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Accumulated deficit |
(188) |
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Total shareholders' equity |
(188) |
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TOTAL LIABILITIES AND EQUITY |
— |
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Notes to the Balance Sheet
Background
and Nature of Operations
SEALSQ Corp. (the “Company”) was incorporated
on April 1, 2022 as a company limited by shares under the BVI Business Companies Act 2004 in the British Virgin Islands under the name
SEAL (BVI) Corp. On November 15, 2022 the Company’s name was changed to SEALSQ Corp. The Company was formed for the purposes of
effecting a “spin-off” transaction by WISeKey International Holding AG (“WISeKey".) Prior to the spin-off, WISeKey
will contribute to the Company the full ownership of WISeKey Semiconductors SAS and its subsidiary undertaking, WISeKey Japan KK (the
“Semiconductors Group”) As the sole shareholder of the Company, WISeKey intends to distribute 20% of the Company’s Ordinary
Shares to stockholders of WISeKey on a pro rata basis.
Basis of Presentation
and Accounting Policies
The balance sheet is presented in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). Separate statements of operations, comprehensive
income, changes in stockholder’s equity, and cash flows have not been presented because there have been no operations since the
Company was formed.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date
of the balance sheet. Actual results could differ from those estimates.
Indebtedness
to related parties, current
SEALSQ is subject to management fees from WISeKey
and WISeKey’s affiliates relating to tasks carried out by these entities on behalf of SEALSQ.
Stockholder’s
Equity
As of December 31, 2022, the company had 100 issued
and outstanding shares of common stock which were held by WISeKey.
Subsequent
Events
Filing of Registration Statement
Subsequent to December 31, 2022, in order to effectuate
the “spin-off” transaction described in Note 1, the Company filed a Registration Statement on Form F-1 pursuant to the Securities
Act of 1933 with the U.S. Securities and Exchange Commission.
Contribution of WISeKey Semiconductors
SAS
On 1 January 2023, in order to effectuate the
“spin-off” transaction, WISeKey contributed the entire issued share capital of the Semiconductor Group to SEALSQ in exchange
for 1,499,700 F Shares and 7,501,400 Ordinary Shares in SEALSQ which were issued on February 7, 2023.
Changes to the Capital Structure
On February 7, 2023, SEALSQ adopted the new Memorandum
and Articles of Association of SEALSQ which replaced the current authorized share capital of 100 Ordinary shares with no par value with
an authorized share capital of 200,000,000 Ordinary shares with a par value of $0.01 and 10,000,000 class F shares with a par value of
$0.05. The Company then issued 7,501,400 Ordinary shares and 1,499,700 class F shares to WISeKey in return for the contribution of the
entire issued share capital of the Semiconductor Group.
Each Ordinary share carries the right to an equal
share in any dividend paid by the Company against each other ordinary Share and which shall be one fifth of any amount paid by the Company
against each Class F share but which shall not rank in preference to any other share.
Each Class F share carries the right to an equal
share in any dividend paid by the Company against each other Class F share and which shall be five times greater than any amount paid
by the Company against each Ordinary share but which shall not rank in preference to any other Share.
SEALSQ
CORP
PROSPECTUS
February 14, 2024
SEALSQ (NASDAQ:LAES)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
SEALSQ (NASDAQ:LAES)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024