UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report………………………………
For the transition period from ______ to ______
Commission File Number 001-33129
ALLOT LTD
(Exact Name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
ISRAEL
(Jurisdiction of incorporation or organization)
22 Hanagar Street
Neve Ne’eman Industrial Zone B
Hod-Hasharon 45240
Israel
(Address of principal executive offices)
Rael Kolevsohn, Adv.
VP Legal Affairs & General Counsel
Allot Ltd.
22 Hanagar Street
Hod-Hasharon 4501317, Israel
Tel/Fax: +972 (9) 762-8419
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary Shares, par value ILS 0.10 per share
Trading Symbol(s)
ALLT
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019:
34,520,728 ordinary shares, ILS 0.10 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under those Sections.
Yes ☐ No ☒
2
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an
emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if
the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
U.S. GAAP ☒
International Financial Reporting
Standards as issued by the
International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Item 17 ☐ Item 18 ☐
Yes ☐ No ☒
3
TABLE OF CONTENTS
PART I
ITEM 1: Identity of Directors, Senior Management and Advisers
ITEM 2: Offer Statistics and Expected Timetable
ITEM 3: Key Information
A.
B.
C.
D.
Selected Financial Data
Capitalization and Indebtedness
Reasons for Offer and Use of Proceeds
Risk Factors
ITEM 4: Information on Allot
A.
B.
C.
D.
History and Development of Allot
Business Overview
Organizational Structure
Property, Plant and Equipment
ITEM 4A: Unresolved Staff Comments
ITEM 5: Operating and Financial Review and Prospects
A.
B.
C.
D.
E.
F.
Operating Results
Liquidity and Capital Resources
Research and Development, Patents and Licenses
Trend Information
Off-Balance Sheet Arrangements
Contractual Obligations
ITEM 6: Directors, Senior Management and Employees
A.
Directors and Senior Management
Directors
Executive Officers
B.
C.
D.
E.
Compensation of Officers and Directors
Board Practices
Employees
Share Ownership
ITEM 7: Major Shareholders and Related Party Transactions
A.
B.
C.
Major Shareholders
Related Party Transactions
Interests of Experts and Counsel
ITEM 8: Financial Information
A.
B.
Consolidated Financial Statements and Other Financial Information.
Significant Changes
ITEM 9: The Offer and Listing
ITEM 10: Additional Information
A.
B.
C.
D.
E.
F.
G.
H.
I.
Share Capital
Memorandum and Articles of Association
Material Contracts
Exchange Controls
Taxation
Dividends and Paying Agents
Statement by Experts
Documents on Display
Subsidiary Information
ITEM 11: Quantitative and Qualitative Disclosures About Market Risk
ITEM 12: Description of Securities Other Than Equity Securities
4
7
7
7
7
7
9
9
9
32
32
33
45
46
46
46
46
57
58
58
58
59
59
59
60
62
64
67
73
74
77
77
79
80
80
80
80
81
81
81
81
86
86
87
100
100
100
101
101
102
PART II
ITEM 13: Defaults, Dividend Arrearages and Delinquencies
ITEM 14: Material Modifications to the Rights of Security Holders and Use of Proceed
A.
B.
Material Modifications to the Rights of Security Holders
Use of Proceeds
ITEM 15: Controls and Procedures
ITEM 16: Reserved
ITEM 16A: Audit Committee Financial Expert
ITEM 16B: Code of Ethics
ITEM 16C: Principal Accountant Fees and Services
Audit Committee’s Pre-Approval Policies and Procedures
ITEM 16D: Exemptions from the Listing Standards for Audit Committees
ITEM 16E: Purchase of Equity Securities by the Company and Affiliated Purchasers
ITEM 16F: Change in Registrant’s Certifying Accountant
ITEM 16G: Corporate Governance
ITEM 16H: Mine Safety Disclosure
PART III
ITEM 17: Financial Statements
ITEM 18: Financial Statements
ITEM 19: Exhibits
5
102
102
102
102
102
102
103
103
103
104
104
104
104
104
105
105
105
105
105
105
Terms
PRELIMINARY NOTES
As used herein, and unless the context suggests otherwise, the terms “Allot,” “Company,” “we,” “us” or “ours” refer to Allot Ltd.
Cautionary Note Regarding Forward-Looking Statements
In addition to historical facts, this annual report on Form 20-F contains forward-looking statements within the meaning of Section
27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the U.S. Securities Exchange Act of
1934, as amended (the “Exchange Act”) and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our current expectations and projections about future events. Forward-
looking statements include information concerning our possible or assumed future results of operations, business strategies,
financing plans, competitive position, industry environment, potential growth opportunities, potential market opportunities and
the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by
terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes and
the negatives of those terms. These statements include but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
statements regarding projections of capital expenditures;
statements regarding competitive pressures;
statements regarding expected revenue growth;
statements regarding the expected growth in demand of our products;
statements regarding trends in mobile networks, including the development of a digital lifestyle, over-the-top applications, the need to
manage mobile network traffic and cloud computing, among others;
statements regarding our ability to develop technologies to meet our customer demands and expand our product and service offerings;
statements regarding the acceptance and growth of our services by our customers;
statements regarding the expected growth in the use of particular broadband applications;
statements as to our ability to meet anticipated cash needs based on our current business plan;
statements as to the impact of the rate of inflation and the political and security situation on our business;
statements regarding the price and market liquidity of our ordinary shares;
statements as to our ability to retain our current suppliers and subcontractors; and
statements regarding our future performance, sales, gross margins, expenses (including stock-based compensation expenses) and cost of
revenues.
6
These statements may be found in the sections of this annual report on Form 20-F entitled “ITEM 3: Key Information—Risk
Factors,” “ITEM 4: Information on Allot,” “ITEM 5: Operating and Financial Review and Prospects,” “ITEM 10: Additional
Information—Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Considerations” and
elsewhere in this annual report, including the section of this annual report entitled “ITEM 4: Information on Allot—Business
Overview—Overview” and “ITEM 4: Information on Allot—Business Overview—Industry Background,” which contain
information obtained from independent industry sources. Actual results could differ materially from those anticipated in these
forward-looking statements due to various factors, including all the risks discussed in “ITEM 3: Key Information—Risk Factors”
and elsewhere in this annual report.
All forward-looking statements in this annual report reflect our current views about future events and are based on assumptions
and are subject to risks and uncertainties that could cause our actual results to differ materially from future results expressed or
implied by the forward-looking statements. Many of these factors are beyond our ability to control or predict. You should not put
undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other
applicable laws, we do not intend to update or revise any forward-looking statements.
PART I
ITEM 1: Identity of Directors, Senior Management and Advisers
Not applicable.
ITEM 2: Offer Statistics and Expected Timetable
Not applicable.
ITEM 3: Key Information
A. Selected Financial Data
You should read the following selected consolidated financial data in conjunction with “ITEM 5: Operating and Financial
Review and Prospects” and our consolidated financial statements and the related notes included elsewhere in this annual
report on Form 20-F. The consolidated statements of operations data for the years ended December 31, 2017, 2018 and
2019 and the consolidated balance sheet data as of December 31, 2018 and 2019 are derived from our audited
consolidated financial statements included in “ITEM 18: Financial Statements,” which have been prepared in accordance
with generally accepted accounting principles in the United States. The consolidated statements of operations for the
years ended December 31, 2015 and 2016 and the consolidated balance sheet data as of December 31, 2015 and 2016
have been derived from our audited consolidated financial statements which are not included in this annual report.
7
Consolidated Statements of Operations:
Revenues:
Products
Services
Total revenues
Cost of revenues(1):
Products
Services
Total cost of revenues
Gross profit
Operating expenses:
Research and development, gross
Less grant participation
Research and development, net(1)
Sales and marketing(1)
General and administrative(1)
Total operating expenses
Operating (loss)
Financing income (expenses), net
Income (loss) before income tax expenses (benefit)
Income tax expenses (benefit)
Net income (loss)
Basic net (loss) per share
Diluted net (loss) per share
Weighted average number of shares used in computing basic
net earnings (loss) per share
Weighted average number of shares used in computing diluted
net earnings (loss) per share
$
$
$
$
2015
Year ended December 31,
2017
2016
2018
2019
62,642 $
37,325
99,967
26,707
6,720
33,427
66,540
27,674
1,252
26,422
43,318
12,702
82,442
(15,902)
(584)
(16,486)
3,356
(19,842) $
(0.59) $
(0.59) $
54,432 $
35,937
90,369
20,401
7,494
27,895
62,474
24,827
606
24,221
35,290
9,812
69,323
(6,849)
1,059
(5,790)
2,204
(7,994) $
(0.24) $
(0.24) $
48,727 $
33,265
81,992
19,258
9,272
28,530
53,462
22,244
392
21,852
38,316
10,696
70,864
(17,402)
894
(16,508)
1,564
(18,072) $
(0.54) $
(0.54) $
56,169 $
39,668
95,837
20,061
9,288
29,349
66,488
25,792
374
25,418
40,849
10,416
76,683
(10,195)
2,208
(7,987)
2,428
(10,415) $
(0.31) $
(0.31) $
67,440
42,660
110,100
22,743
11,091
33,834
76,266
31,839
378
31,461
47,105
6,678
85,244
(8,978)
1,960
(7,018)
1,641
(8,659)$
(0.25)$
(0.25)$
33,419,917
33,202,309
33,253,158
33,710,507
34,250,582
33,419,917
33,202,309
33,253,158
33,710,507
34,250,582
___________________
(1)
Includes stock-based compensation expense related to options and restricted stock units, or RSUs, granted to employees and others as follows:
Cost of revenues
Research and development expenses, net
Sales and marketing expenses
General and administrative expenses
Total
2015
2016
Year ended December 31,
2017
(in thousands)
2018
2019
$
$
324 $
1,637
2,802
2,407
7,170 $
8
367 $
1,240
1,833
1,701
5,141 $
362 $
648
1,166
1,190
3,366 $
316 $
678
928
940
2,862 $
264
847
1,257
1,052
3,420
2015
2016
At Year ended December 31,
2017
(in thousands)
2018
2019
$
15,470 $
42,903
64,921
126,756
208,215
44,810
(96,181)
837
163,405
23,326 $
29,821
60,507
123,980
190,940
33,637
(104,175)
843
157,303
15,342 $
31,471
63,194
111,786
184,525
41,396
(122,247)
851
143,129
16,336 $
23,008
64,290
101,999
189,844
53,491
(131,950)
853
135,903
16,930$
28,740
61,012
79,444
215,169
83,318
(140,609)
871
131,851
Consolidated balance sheet data:
Cash and cash equivalents
Short-term deposits and restricted deposits
Marketable securities
Working capital
Total assets
Total liabilities
Accumulated deficit
Share capital
Total shareholders’ equity
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business involves a high degree of risk. You should consider carefully the risks described below, together with the
financial and other information contained in this annual report and our other filings with the SEC. If any of the following
risks actually occurs, our business, financial condition and results of operations would suffer. In this case, the trading
price of our ordinary shares would likely decline and you might lose all or part of your investment. The risks described
below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to
be immaterial may also impair our business operations.
Risks Relating to Our Business
We have a history of losses and may not be able to achieve or maintain profitability in the future.
We have a history of net losses in all fiscal years since our inception, other than in 2006 and 2011. In 2019 we had a net
loss of $8.7 million. Compared to the previous year, in 2019 revenues increased by $14.3 million while the gross profit
increased by $9.8 million. Operating expenses increased by $8.6 million, tax expenses increased by $0.8 million and
financial income decreased by $0.2 million. In the future we intend to continue to invest in these areas that we believe
will contribute to our future growth. We had a net loss of $10.4 million in 2018, resulting mainly from an increase in
[operating expenses of $5.8 million and tax expenses of $0.9 million]. We had a net loss of $18.1 million in 2017,
resulting mainly from a decrease in both products revenues and services revenues of $8.4 million, restructuring expenses
of $2.4 million, changes in tax related items of $1.7 million and the impact of the weakening of the U.S. dollar mainly
against the ILS and Euros.
We can provide no assurance that we will be able to achieve or maintain profitability, and we may incur losses in the
future if we do not generate sufficient revenues.
9
Our revenues and business may be adversely affected if we do not effectively compete in the markets in which we
operate.
We compete against large companies in a rapidly evolving and highly competitive sector of the networking technology
and security markets, which offer, or may offer in the future, competing technologies, including partial or alternative
solutions to operators’ and enterprises’ challenges, and which, similarly to us, intensely pursue the largest service
providers (referred to as Tier 1 operators) as well as large enterprises. Our ability to effectively compete in these markets
may be limited since our competitors may have greater financial resources, significant market share and established
relationships with operators and distribution channels.
Our Deep Packet Inspection (DPI) technology enabled offerings face significant competition from router and switch
infrastructure companies that integrate functionalities into their platforms, addressing some of the same types of issues
that our products are designed to address.
Our security products are offered to operators and are deployed in their networks, enabling them to provide security
services to their end customers. Such products face significant competition from companies that directly offer to end
customers security applications to be installed on their devices; companies that approach that directly offer cloud security
products to the business enterprise sector through distribution channels; and companies that offer security products
bundled with other products. By offering our security products to operators that provide security services to both business
enterprises and individual end customers, we aim to expand the reach of our products. However, such business model may
prove to be slower to market or less effective than our competitors’ models, in which case our business may be harmed.
Certain of our current direct competitors are substantially larger than we are and have significantly greater financial, sales
and marketing, technical, manufacturing and other resources. As the intelligent broadband solutions market has grown,
including the markets for DPI enabled solutions for mobile networks and for security products, new competitors have
entered and may continue to enter the market. Furthermore, our market is subject to industry consolidation, as companies
attempt to maintain or strengthen their positions in our evolving industry. Some of our current and potential competitors
have made acquisitions or have announced new strategic alliances designed to position them to provide many of the same
products and services that we provide to both the service provider and enterprise markets, such as the recent Sandvine –
Procera transaction, which resulted in a combined company positioned to compete with us in the fields of analytics, policy
charging and control, traffic management, security, regulatory compliance and cloud managed services. As the merged
company became fully integrated, we expect that competition from Sandvine will intensify. Industry consolidation may
result in stronger competitors that are better able to compete as sole-source vendors for customers, may cause price
reductions, reduced gross margins and loss of market share.
If our competitors announce new products, services or enhancements that better meet the needs of customers or changing
industry requirements, offer alternative methods to achieve customer objectives or implement faster go to market
strategies, if our business model proves less effective than those of our competitors, if new competitors enter the market,
or if industry consolidation results in stronger competitors with wider range of product offerings and greater financial
resources, our ability to effectively compete may be harmed, which could have a material adverse effect on our business,
financial condition or results of operations.
10
Our technology faces challenges due to increased network encryption.
Our DPI, analytics and security products rely on their ability to read and understand the nature of Internet traffic. Due to
an increase in network encryption our ability to read, understand and analyze the traffic transmitted becomes impaired and
may reduce or eliminate our ability to provide our customers with the classification of the traffic and the necessary tools
and capabilities that they might require.
We depend on one or more significant customers and the loss of any such significant customer or a significant
decrease in business from any such customer could harm our results of operations.
We derived 27%, 22% and 32% of our total revenues in 2019, 2018 and 2017, respectively, from two Tier 1 mobile and
fixed operators. In addition, revenues from individual customers may fluctuate from time to time based on the timing and
the terms under which orders are received and the duration of the delivery and implementation of such orders, potentially
resulting in decreases in revenues from such customers. The loss of any significant customer or a significant decrease in
business from any such customer could have a material adverse effect on our revenues, results of operations and financial
condition. For example, we entered into an agreement with an existing customer in the EMEA region for a one-time
delivery of our services, including AllotSmart products and related services for tens of millions of dollars, which is
expected to represent a substantial portion of our revenues in 2020. In the event the agreement is not implemented for any
reason on its terms, our revenues and our operational and financial position for fiscal year 2020 may be materially
adversely affected.
Our revenues and business may be adversely affected due to decline in revenues and profits of Communication
Service Providers (CSPs).
Currently a substantial amount of our revenues are received from communication service providers. Many of these CSPs
are facing declining revenues and profits due to commoditization of the provided services (voice and data) and limited
success in introduction of the new services for the consumers and may not be able to continue to purchase our products
and services for the prices we charge or will be unable to purchase these products and services entirely. The outcome of
such could result in a decline in our revenues and profits and adversely affect our business.
Demand for our products may be impacted by government regulation of the telecommunications industry.
Service providers are subject to government regulation in a number of jurisdictions in which we sell our products. There
are several existing regulations and proposals in the United States, Europe and elsewhere for regulating service providers’
ability to prioritize applications in their networks. Some advocates for regulating this industry claim that collecting
premium fees from certain “preferred” applications would distort the market for Internet applications in favor of larger
and better-funded content providers. They also claim that this would impact end-users who already purchased broadband
access only to experience response times that differ based on content provider. Some opponents believe that content
providers who support bandwidth-intensive applications should be required to pay service providers a premium in order to
support further network investments.
11
On December 14, 2017 the United States Federal Communications Commission (the “FCC”) announced that it voted to
repeal the Open Internet Report and Order on Remand, Declaratory Ruling, and Order (the “Open Internet Order”). The
Open Internet Order was issued by the FCC and went into effect on June 12, 2015. The Open Internet Order set forth
rules, grounded, among others, on Title II of the Communications Act of 1934; the Open Internet Order regulated both
fixed and mobile Internet Service Providers (ISPs) and prohibited them, subject to reasonable network management, from
blocking and/or throttling of lawful content, applications, services, or non-harmful devices, and from unreasonably
interfering or disadvantaging of (i) end users’ ability to select, access service of the lawful Internet content, applications,
services, or devices of their choice or (ii) edge providers’ ability to make lawful content, applications, services, or devices
available to end users. The Open Internet Order also prohibited paid prioritization of content. The repeal largely reversed
the Open Internet Order, including the classification of broadband Internet service as a telecommunications service, which
is subject to certain common carrier regulations, and restored the regulatory framework that preceded the Open Internet
Order. Because our products allow ISPs to identify network traffic and facilitate traffic management, the reinstatement of
this traditional regulatory framework has not, to date, affected but may in the future affect ISP’s demand for certain of our
products. The repeal of the Open Internet Order was upheld by a federal appeals court in October 2019, however, the
repeal does not preclude state and local governments from enacting their own net neutrality rules and certain U.S. states
have already implemented net neutrality protections. Therefore, the impact of the FCC’s repeal on the demand for our
products is uncertain and difficult to assess at this time.
On April 30, 2016, Regulation (EU) 2015/2120 of the European Parliament and of the Council came into effect, setting
forth the first EU-wide Net Neutrality (“Open Internet”) rules. Under these rules, blocking, throttling and discrimination
of internet traffic by ISPs is prohibited in the EU, with three exceptions: (i) compliance with legal obligations; (ii)
integrity of the network; and (iii) congestion management in exceptional and temporary situations. Outside these
exceptions, there can be no prioritization of traffic within an internet access service. However, equal treatment permits
reasonable day-to-day traffic management according to objectively justified technical requirements, and which must be
independent of the origin or destination of the traffic and of any commercial considerations. These rules also allow
internet access providers, as well as content and applications providers, to offer special services with specific quality
requirements (provided the Open Internet is not negatively affected by the provision of these services). Such specialized
services cannot be a substitute to internet access services, can only be provided if there is sufficient network capacity to
provide them in addition to any internet access service and must not be to the detriment of the availability or general
quality of internet access services for end-users.
Such regulation of both fixed and mobile ISPs, in European Economic Area (EEA) Member States, may limit ISPs’
ability to manage, prioritize and monetize their network. Additionally, these regulations may attract growing public debate
and attention of regulators in other jurisdictions we operate in. Demand from service providers, in affected jurisdictions,
for the traffic management and subscriber management features of our products may be adversely affected by such
regulations. To date, we have not experienced any material decrease in demand for these features; however, a decrease in
demand in the future could adversely impact sales of our products and could have a material adverse effect on our
business, financial condition or results of operations.
In addition, strict data privacy laws regulating the collection, transmission, storage and use of employee data and
consumers’ personally-identifying information applicable to ISPs are evolving in the US, European Union and other
jurisdictions in which we sell our products. For example, in the U.S., legislation has in recent years been proposed
regarding restrictions on the use of geolocation information collected by mobile devices without consumer consent and
California’s California Consumer Privacy Act, which grants expanded rights to access and delete personal information
and opt out of certain personal information sharing, among other things, became effective on January 1, 2020 Similarly,
the General Data Protection Regulation (“GDPR”), enforcement of which began on May 25, 2018, creates a range of new
compliance obligations, increases financial penalties for non-compliance and extends the scope of the EU data protection
law to all companies established in the EEA, and all companies established outside the EEA that either: (a) offer goods or
services to individuals in the EEA; or (b) monitor the behavior of individuals in the EEA. The GDPR imposes a strict
data protection compliance regime and includes enhanced rights for individuals. It applies to the collection, use, retention,
security, processing, transfer and deletion of personally identifiable information of individuals, and creates a range of new
compliance obligations. Implementation of, and compliance with, the GDPR has increased, and could continue to
increase, our cost of doing business. In addition, the GDPR may be interpreted or applied in a manner that is unforeseen
by, or adverse to, us. Violations of the GDPR may result in significant fines (up to four percent of worldwide annual
turnover or EUR 20.0 million, whichever is greater) and reputational harm. Such regulations may increase our compliance
and administrative burden significantly and may require us to invest resources and management attention in order to
update our IT systems to meet the new requirements.
12
The GDPR and other privacy and data protection laws may be interpreted and applied differently from country to country
and may create inconsistent or conflicting requirements. Such regulations increase our customers’ compliance and
administrative burden significantly and may require us to adapt certain of our products, if necessary, to different
requirements in EEA Member States, as well as in the US, in order to allow our customers in such jurisdictions, to comply
with such regulations. There is also no assurance that we will be able to adapt our products sufficiently in order to allow
our customers in various jurisdictions to comply with such regulatory requirements in each jurisdiction.
As data protection and privacy-related laws and regulations continue to evolve, these changes may result in increased
regulatory and public scrutiny, escalating levels of enforcement and sanctions and increased costs of compliance.
Therefore, we may be required to modify the features and functionalities of certain of our products, in a manner that is
less attractive to customers. Such adjustments of our products, if required, may require extensive financial investments
and may take long periods of time, leading to delay in sales cycles, deployment of our products and recognition of related
revenues.
We need to continue to increase the functionality of our products and offer additional features and products to
maintain or increase our profitability.
The commoditization of DPI technology and the introduction of competitive features and services will result in a decrease
of the average sale prices of our DPI technology enabled products.
The market in which we operate is highly competitive and unless we continue to enhance the functionality of our
products, add additional features and offer additional products, our competitiveness may be harmed.
We seek to enhance our products by offering higher system speeds, additional features and products, such as security and
parental control products, and support for additional applications and enhanced reporting tools. We also continuously
endeavor to assure our solutions comply with contemporary network and software architectures such as virtualized
network services (NFV).
Our products offer customers additional tools to increase the efficiency of their networks or to help them offer additional
services to their end customers and derive additional revenues from their end customers. The industry and market for our
products are still developing and are affected, among others, by trends and changes in internet broadband traffic,
including changes in methods used by various content providers and broadband applications and evolution of network
security threats.
We cannot provide any assurance that demand for our additional features and products will continue or grow, or that we
will be able to generate revenues from such sales at the levels we anticipate or at all. Any inability to sell or maintain our
additional features and products may lead to commercial disputes with our customers and increased spending on technical
solutions, any of which may negatively impact our results of operations.
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Our revenues and business will be harmed if we do not keep pace with changes in broadband applications,
network security threats and with advances in technology, or if we do not achieve widespread market acceptance,
including through significant investments.
We will need to invest heavily in the continued development of our technology in order to keep pace with rapid changes
in applications, increased broadband network speeds, network security threats and with our competitors’ efforts to
advance their technology. Our ability to develop and deliver effective product offerings depends on many factors,
including identifying our customers’ needs, technical implementation of new services and integration of our products with
our customers’ existing network infrastructure. While we will continue to introduce innovative products, we cannot
provide any assurance that any new products we introduce will achieve the same degree of success that we have with our
existing products. Designers of broadband applications and distributors of various network security threats that our
products identify, manage or mitigate are using increasingly sophisticated methods to avoid detection and management
and/or mitigation by network operators.
Even if our products successfully identify a particular application, it is sometimes necessary to distinguish between
different types of traffic belonging to a single application. Accordingly, we face significant challenges in ensuring that we
identify new applications and new versions of current applications as they are introduced, without impacting network
performance, especially as networks become faster. This challenge is increased as we seek to expand sales of our products
to new geographic territories because the applications vary from country to country and region to region.
The network equipment market is characterized by rapid technological progress, frequent new product introductions,
changes in customer requirements and evolving industry standards. To compete, we need to achieve widespread market
acceptance. Alternative technologies could achieve widespread market acceptance and displace the technology on which
we have based our product architecture. Our business and revenues will be adversely affected if we fail to develop
enhancements to our products, in order to keep pace with changes in broadband applications, network security threats and
advances in technology. We can give no assurance that our technological approach will achieve broad market acceptance
or that other technology or devices will not supersede our technology and products.
A failure of our products may adversely affect the operation of our customers’ live networks or the quality and
scope of service to our customers and their end users, including, specifically with regard to security protection
which could harm our reputation, brand position, and financial condition.
Our products are, generally, installed in line as part of our customers’ networks and provide a wide range of services that
our customers may offer to their own customers. We endeavor to avoid any interruption to the regular operation of our
customers’ networks, any reduction of quality of services or failure to provide the quality and/or scope of services to
users, including, by performing certain tasks during predetermined maintenance windows, and implementing a system
bypass, in the event of malfunctions. In addition, we offer security protection services offered by our customers to their
end users at a certain level and terms of performance. However, in certain cases, a failure of our products or failure of our
products to perform in accordance with the performance levels to which we may be committed, may result in our
customers experiencing loss of functionality, denial of service and access, interruption of live traffic on our customers’
networks, loss of security protection or inability to provide similar services to our customers’ end users. Such failure of
our products, may cause disputes with our customers, adversely affect our reputation, lead to loss of revenues and
potential legal exposure.
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Sales of our products to large service providers can involve a lengthy sales cycle, which may impact the timing of
our revenues and result in us expending significant resources without making any sales.
Our sales cycles to large service providers, including carriers, mobile operators and cable operators, are generally lengthy
because these end-customers consider our products to be critical equipment and undertake significant testing to assess the
performance of our products within their networks. Furthermore, many of our product and service arrangements with our
customers provide that the final acceptance of a product or service may be specified by the customer. In such instances,
we do not recognize the revenue until all acceptance criteria have been met. As a result, we often invest significant time
from initial contact with a large service provider until it decides to incorporate our products into its network, and we may
not be able to recognize the revenue from a customer until all acceptance criteria have been satisfied. We may also expend
significant resources in attempting to persuade large service providers to incorporate our products into their networks
without success. Even after deciding to purchase our products, the initial network deployment of our products by a large
service provider may last up to one year and in certain exceptional instances up to one and a half years. If a competitor
succeeds in convincing a large service provider to adopt that competitor’s product, it may be difficult for us to displace
the competitor because of the cost, time, effort and perceived risk to network stability involved in changing solutions. As
a result, we may incur significant expenses without generating any sales, which could adversely affect our profitability.
In addition, we intend to enter, from time to time, into deal structures based on a revenues model determined by the
number of end subscribers using our solution. In these types of deals we may invest resources upfront comprised of
professional services, hardware and other resources, while the revenues stream will occur at a later stage.
The complexity and scope of the solutions and services we provide to larger service providers are increasing, and
such larger projects entail greater operational risk and an increased chance of failure.
The complexity and scope of the solutions and services we provide to larger service providers are increasing. The larger
and more complex such projects are, the greater the operational risks associated with them. These risks include, but are
not limited to, the failure to meet high customization requirements of service providers, the failure to fully integrate our
products into the service provider’s network or with third-party products, our dependence on subcontractors and partners
and on effective cooperation with third-party vendors for the successful and timely completion of such projects. If we
encounter any of these risks, we may incur higher costs in order to complete the project and may be subject to contractual
penalties resulting in lower profitability. In addition, the project may demand more of our management’s time than was
originally planned, and our reputation may be adversely impacted.
15
We depend on third parties to market, sell, and install our products and to provide initial technical support for our
products for a material portion of our business.
We depend on third-party channel partners, such as distributors, resellers, original equipment manufacturers, or OEMs,
and system integrators, to market and sell a material portion of our products to end-customers. In 2019, approximately
48% of our revenues were derived from channel partners. In some cases, our channel partners are also responsible for
installing and providing initial customer support for our products, with our continuous technical assistance. In the
majority of the cases, the partners are responsible for the initial customer support (Tier 1 support), while we act as the
escalation level. As a result, we depend on the ability of our channel partners to successfully market and sell our products
to these end-customers. We can give no assurance that our channel partners will market our products effectively, receive
and fulfill customer orders for our products on a timely basis or continue to devote the resources necessary to provide us
with effective sales, marketing and technical support. In addition, our channel partners may experience disruptions in, or
be prevented from, conducting business activities as a result of the ongoing coronavirus (COVID-19) pandemic, which
could have a material adverse effect on our results of operations. Any failure by our channel partners to provide adequate
initial support to end-customers , due to the coronavirus (COVID-19) pandemic or any other reason, could result in
customer dissatisfaction with us or our products, which could result in a loss of customers, harm our reputation and delay
or limit market acceptance of our products. Our products are complex and it takes time for a new channel partner to gain
experience in the operation and installation of these products. Therefore, it may take a long period of time before a new
channel partner can successfully market, sell and support our products if an existing channel partner ceases to sell our
products. Additionally, our agreements with channel partners are generally not exclusive and our channel partners may
market and sell products that compete with our products. Our agreements with our distributors and resellers are usually
for an initial one-year term and following the expiration of this term, can be terminated by either party. We can give no
assurance that these agreements will continue to remain in effect. If we are unable to maintain our relationships with
existing channel partners and to develop relationships with new channel partners in key markets our profitability and
results of operations may be materially adversely affected.
We are subject to certain regulatory regimes that may affect the way that we conduct business internationally, and
our failure to comply with applicable laws and regulations could materially adversely affect our reputation and
result in penalties and increased costs.
We are subject to a complex system of laws and regulations related to international trade, including economic sanctions
and export control laws and regulations. We also depend on our distributors and agents outside of Israel for compliance
and adherence to local laws and regulations in the markets in which they operate. It is our policy not to make direct or
indirect prohibited sales of our products, including into countries sanctioned under laws to which we are subject, and to
contractually limit the territories into which our channel partners may sell our products. None of the Company’s contracts
with its channel partners authorize or contemplate any activities with sanctioned countries, and the Company does not
intend to authorize any channel partner to engage in activities with those countries in the future. Nevertheless, several
years ago one of our channel partners sold certain of our products (designed for the enterprise market) outside of its
contractually designated territory, including into a sanctioned country, and we subsequently determined that our contract
management protocol for authorizing channel partner sales was not adequately followed in that instance. Although the
Company is not aware of any channel partner making indirect sales to entities or individuals in sanctioned countries in
2019, there is no guarantee that the Company’s channel partners will not make such indirect sales in the future, which
could result in material adverse impact on our reputation and lead to penalties and increased costs.
We are also subject to the U.S. Foreign Corrupt Practices Act and may be subject to similar worldwide anti-bribery laws
that generally prohibit companies and their intermediaries from making improper payments to government officials for
the purpose of obtaining or retaining business. Some of the countries in which we operate have experienced governmental
corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local
customs and practices. Despite our compliance and training programs, we cannot be certain that our procedures will be
sufficient to ensure consistent compliance with all applicable international trade and anti-corruption laws, or that our
employees or channel partners will strictly follow all policies and requirements to which we subject them. Any alleged or
actual violations of these laws may subject us to government scrutiny, investigation, debarment, and civil and criminal
penalties, which may have an adverse effect on our results of operations, financial condition and reputation.
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Our revenues and business from the enterprise segment may be adversely affected by new market and technology
trends, including SD-WAN and the transition to 5G networks.
Our business from the enterprise segment may depends on new market and technology trends. For example, some
enterprises are starting to implement a new network architecture, enabled by Software Defined Wide Area Networking
(SD-WAN) technology, in which some data traffic is sent from remote offices of the enterprise directly to the public cloud
services. In such designs, Allot’s products deployed at the central location of the enterprise will have less traffic capacity
to manage and will provide only partial visibility into the enterprise’s traffic. This may corrode the value provided by
Allot’s solutions and reduce amount of revenues derived from enterprise segment.
Additionally, as networks start to evolve towards 5G, we will need to adapt the functionality of our products to comply
with the design and standards prescribed by 3GPP organization, which requires significant investment. Our business may
be affected if we are unable to adapt our existing products in a quick and timely manner or successfully develop and
introduce solutions supporting 5G networks. In addition, in 4G/LTE networks, Allot provides a Traffic Detection Function
(TDF) element of the core network. According to the recent network design specifications, published by the 3GPP
organization, which is responsible for the industry standardization effort, in 5G networks this TDF function will be
merged within the User Plane Function (UPF), which is provided by major NEP competitors. This change in network
architecture may jeopardize Allot’s ability to sell a standalone TDF function, which may have a material adverse impact
on our business and financial results.
Our financial condition and results of operations may be harmed by political events and regulatory developments
that could have a material adverse effect on global economic conditions
Significant political or regulatory developments in the jurisdictions in which we sell our products, such as those stemming
from the recent change in the presidential administration in the U.S. or the U.K.’s potential exit from the E.U., are difficult
to predict and may have a material adverse effect on us. For example, in the United States, the presidential administration
has imposed tariffs on imports from China, Mexico, Canada and other countries, and has expressed support for greater
restrictions on free trade and has increased tariffs on goods imported into the United States. Changes in U.S. political,
regulatory and economic conditions or in its policies governing international trade and foreign manufacturing and
investment in the U.S. could materially adversely affect our sales in the U.S.
In the United Kingdom, following the vote to approve an exit from the E.U., commonly referred to as “Brexit,” the
government officially separated from the E.U. on January 31, 2020. While the U.K. and the E.U. entered into a
withdrawal agreement providing for a transition period through the end of 2020 (which may be extended up to 2022),
during which time E.U. law is applicable to and in the U.K., the scope and exact terms of their future relationship remain
unclear. The withdrawal of the U.K from the E.U. could potentially disrupt the free movement of goods, services and
people between the U.K. and the E.U., undermine bilateral cooperation in key geographic areas and significantly disrupt
trade between the U.K. and the E.U. or other nations as the U.K. pursues independent trade relations. Because this is an
unprecedented event, it is unclear what long-term economic, financial, trade, tax and legal implications Brexit would have
and how it would affect the regulation applicable to our business globally and in the region. The impact on us will depend,
in part, on the outcome of tariff, trade, regulatory and other negotiations. Brexit could also lead to legal uncertainty and
potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. In
addition, Brexit may lead other E.U. member countries to consider referendums regarding their European Union
membership. Any of these developments, along with any political, economic and regulatory changes that may occur,
could cause political and economic uncertainty in Europe and internationally and could materially adversely affect our
sales in Europe.
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We depend on our network intelligence solutions for the substantial majority of our revenues.
In the past few years, we have increased sales of our security products. However, sales of our network intelligence
solutions, which provide service providers with visibility and control of their networks, continue to account for a major
portion of our revenues, and accounted for 76% of our total revenue in 2019. We expect that the network intelligence
solutions will continue to account for a considerable portion of our revenues in the immediate future. If we are unable to
increase these sales, or compensate for them by sales of security products, our business will suffer. In addition, service
providers may choose embedded or integrated solutions using routers and switches from larger networking vendors over a
standalone solution that we offer. Any factor adversely affecting our ability to sell, or the pricing of or demand for, our
network intelligence solutions would severely harm our ability to generate revenues and could have a material adverse
effect on our business.
We integrate into or bundle various third-party solutions with our products and may integrate or offer additional
third-party solutions in the future. If we lose the right to use such solutions, our sales could be disrupted and we
would have to spend additional capital to replace such components.
We integrate various third-party solutions into our products and offer third-party solutions bundled with our products. We
may integrate or offer additional third-party solutions in the future. Sales of our products could be disrupted if such third-
party solutions were either no longer available to us or no longer offered to us on commercially reasonable terms. In either
case, we would be required to spend additional capital to either source alternative third-party solutions, redesign our
products to function with alternate third-party solutions or develop substitute components ourselves. As a result, our sales
may be delayed and/or adversely affected and we might be forced to limit the features available in our current or future
product offerings, which could have a material adverse effect on our business.
Our products are highly technical and any undetected software or hardware errors in our products could have a
material adverse effect on our operating results.
Our products are complex and are incorporated into broadband networks, which are a major source of revenue for service
providers and support critical applications for subscribers and enterprises. Due to the highly technical nature of our
products and variations among customers’ network environments, we may not detect product defects until our products
have been fully deployed in our customers’ networks. Regardless of whether warranty coverage exists for a product, we
may be required to dedicate significant technical resources to repair any defects. If we encounter significant errors, we
could experience, among other things, loss of major customers, cancellation of orders, increased costs, delay in
recognizing revenues and damage to our reputation. We could also 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. In addition, if our
business liability insurance is inadequate or future coverage is unavailable on acceptable terms or at all, our financial
condition could be harmed.
Demand for our DPI technology enabled products depends, in part, on the rate of adoption of bandwidth-intensive
broadband applications, and the impact multiple applications may have on network speed.
Our DPI technology enabled products are used by service providers and enterprises to monitor and manage bandwidth-
intensive applications that cause congestion in broadband networks and impact the quality of experience for users.
Demand for our products is driven particularly by growth in applications, which are highly sensitive to network delays
and therefore require efficient network management. If the rapid growth in the adoption of such applications does not
continue, the demand for our products may be adversely impacted.
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Demand for our security products depends, in part, on continued evolution of on-line threats as well as
on operators’ interest in providing security services to their end customers.
Our security products are used by service providers to offer security services to their end customers, comprising both of
business enterprises as well as individual end customers. The demand for these services depends highly on continued
evolution and increase of online threats. In the event that such threats decrease, that end customers are unwilling to incur
the costs of security services and/or that ISPs do not continue to pursue security services to their end customers as a
revenue source, demand for our security products may be materially adversely impacted.
We currently depend on a single subcontractor to manufacture and provide hardware and warranty support for
our Service Gateway Tera platform. If this subcontractor experiences delays, disruptions, quality control problems
or a loss in capacity, our operating results could be materially and adversely affected.
We currently depend on a single subcontractor, Flex (Israel) Ltd. (previously Flextronics (Israel) Ltd.), a subsidiary of
Flex (previously Flextronics), a global electronics manufacturing services company, to manufacture, assemble, test,
package and provide hardware warranty support for our Service Gateway Tera platform. In addition, our agreement with
Flex (Israel) requires it to procure and store key components for our products at its facilities. If Flex (Israel) experiences
delays, disruptions or quality control problems in manufacturing our products, including as a result of the ongoing
coronavirus (COVID-19) pandemic, or if we fail to effectively manage our relationship with Flex (Israel), product
shipments may be delayed and our ability to deliver certain products to customers could be adversely affected. Flex
(Israel) may terminate our agreement at any time during the term of the agreement with advance notice. We expect that it
would take approximately six months to transition the manufacturing of our products to an alternate manufacturer and our
inventory of completed products may not be sufficient for us to continue delivering products to our customers on a timely
basis during any such transition period. Therefore, the loss of Flex (Israel) could materially and adversely affect our sales
and operating results and harm our reputation.
Certain hardware and software components for our products come from single or limited sources and we could
lose sales if these sources fail to satisfy our supply requirements or if our customers refuse to implement
components from certain sources.
We obtain certain hardware components used in our products from single or limited sources.
Although such hardware components are off-the-shelf items, because our systems have been designed to incorporate these
specific hardware components, any change to these components due to an interruption in supply chains or our inability to
obtain such components on a timely basis, including as a result of the coronavirus (COVID-19) pandemic, may require
engineering changes to our products before substitute hardware components could be incorporated. Such changes could
be costly and could result in lost sales particularly to our traffic management systems. The agreements with our suppliers
do not contain any minimum supply commitments. If we or our contract manufacturers fail to obtain components in
sufficient quantities when required, our business could be harmed.
We obtain certain software components of our security products from a few limited sources, depending primarily on our
customers’ preferences. In the event that we are no longer able to source such software components from a particular
source, and our customers refuse to implement components from our alternative sources, we may be required to identify
an alternative source from which we do not currently acquire such software or develop such software ourselves. This may
result in disputes with our customers and/or cancellation or delay of orders, which may materially adversely affect our
business.
Our suppliers also sell products to our competitors and may enter into exclusive arrangements with our competitors, stop
selling their products or components to us at commercially reasonable prices or refuse to sell their products or
components to us at any price. Our inability to obtain sufficient quantities of single-source or limited-sourced components
or to develop alternative sources for components or products would harm our ability to maintain and expand our business.
19
We face risks related to health epidemics and other widespread outbreaks of contagious disease, including the
recent coronavirus (COVID-19) pandemic, which could significantly disrupt our operations and materially
negatively impact our financial results.
The ongoing coronavirus (COVID-19) pandemic originating in Wuhan, China could have a material and adverse effect on
our business operations. The pandemic and any preventative or protective actions that governments, other third parties or
we may take in response could result in a period of economic, financial and business disruptions and reduced operations.
These could include disruptions or restrictions on our ability to travel, temporary closures of our facilities or the facilities
of our suppliers, customers or sales channels [in the affected areas] negative effects on the health of our management and
employees and uncertainty and volatility in the global financial markets. Countries around the world, including those
jurisdictions in which we operate, have imposed quarantines, business shutdowns and travel and other restrictions. In
particular, the Israeli prime minister announced a number of additional restrictions to contain the virus, following
recommendations from the Israeli ministries of health and finance. These new restrictions require private sector
businesses to reduce onsite workforces by 70%, certain non-essential businesses to shut down and the public sector to
operate in a state of emergency. Additionally, on March 19, 2020, the Israeli government enacted emergency regulations
restricting outdoor activity for all citizens. Although travel to and from work is still permitted we cannot predict whether
the Israeli government will impose further restrictions that could lead to significant changes to, or a potential shutdown of,
our operations and we cannot assure you that we or our suppliers will be designated an “essential business” under the new
regulations. Any significant disruption of our business, or that of our suppliers, customers or sales channels could cause
significant delays until we, our suppliers, customers or sales channels are able to resume normal business operations, and
would likely negatively impact our sales and profitability, including among other things with regard to the timely and
successful performance and implementation of transactions that contribute materially to our anticipated revenues.
Although we are monitoring the situation, we cannot predict whether, for how long, or the extent to which the pandemic
and pandemic containment efforts may disrupt our supply chain and/or operations. The duration and severity of the
coronavirus (COVID-19) pandemic, the intensity of the measures to contain its spread and the resulting impact on the
global economy and our results of operations will depend on future developments, which are highly uncertain and cannot
be predicted.
We may expand our business or enhance our technology through acquisitions that could result in diversion of
resources and extra expenses. This could disrupt our business and adversely affect our financial condition.
Part of our strategy is to selectively pursue partnerships and acquisitions. We have acquired a number of companies in
recent years. The negotiation of acquisitions, investments or joint ventures, as well as the integration of acquired or jointly
developed businesses or technologies, could divert our management’s time and resources. Acquired businesses,
technologies or joint ventures may not be successfully integrated with our products and operations and we may not realize
the intended benefits of these acquisitions. We may also incur future losses from any acquisition, investment or joint
venture. In addition, acquisitions could result in:
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substantial cash expenditures;
potentially dilutive issuances of equity securities;
the incurrence of debt and contingent liabilities;
a decrease in our profit margins; and
amortization of intangibles and potential impairment of goodwill.
20
If we are unable to successfully protect the intellectual property embodied in our technology, our business could be
materially adversely affected.
Know-how relating to networking protocols, building carrier-grade systems, identifying applications and developing and
maintaining security products is an important aspect of our intellectual property. It is our practice to have our employees
sign appropriate non-compete agreements when permitted under applicable law. These agreements prohibit our employees
who cease working for us from competing directly with us or working for our competitors for a limited period of time.
The enforceability of non-compete clauses in certain jurisdictions in which we operate may be limited. Under the current
laws of some jurisdictions in which we operate, we may be unable to enforce these agreements and it may thereby be
difficult for us to restrict our competitors from gaining the expertise our former employees gained while working for us.
Further, to protect our know-how, we customarily require our employees, distributors, resellers, software testers and
contractors to execute confidentiality agreements or agree to confidentiality undertakings when their relationship with us
begins. Typically, our employment contracts also include clauses regarding assignment of intellectual property rights for
all inventions developed by employees and non-disclosure of all confidential information. We cannot provide any
assurance that the terms of these agreements are being observed and will be observed in the future. Because our product
designs and software are stored electronically and thus are highly portable, we attempt to reduce the portability of our
designs and software by physically protecting our servers through the use of closed networks, which prevent external
access to our servers. We cannot be certain, however, that such protection will adequately deter individuals or groups
from wrongfully accessing our technology. Monitoring unauthorized use of intellectual property is difficult and some
foreign laws do not protect proprietary rights to the same extent as the laws of the United States. We cannot be certain that
the steps we have taken to protect our proprietary information will be sufficient. In addition, to protect our intellectual
property, we may become involved in litigation, which could result in substantial expenses, divert the attention of
management, or materially disrupt our business, all of which could adversely affect our revenue, financial condition and
results of operations.
As of December 31, 2019, we had a patent portfolio consisting of 19 issued U.S. patents. While we plan to protect our
intellectual property with, among other things, patent protection, there can be no assurance that:
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current or future U.S. or foreign patents applications will be approved;
our issued patents will protect our intellectual property and not be held invalid or unenforceable if challenged by third-parties;
we will succeed in protecting our technology adequately in all key jurisdictions in which we or our competitors operate;
the patents of others will not have an adverse effect on our ability to do business; or
others will not independently develop similar or competing products or methods or design around any patents that may be issued to us.
Any failure to obtain patents, inability to obtain patents with claims of a scope necessary to cover our technology or the
invalidation of our patents may weaken our competitive position and may adversely affect our revenues.
21
We may be subject to claims of intellectual property infringement by third parties that, regardless of merit, could
result in litigation and our business, operating results or financial condition could be materially adversely affected.
There can be no assurance that we will not receive communications from third parties asserting that our products, and
other intellectual property infringe, or may infringe their proprietary rights. We are not currently subject to any
proceedings for infringement of patents or other intellectual property rights and are not aware of any parties that intend to
pursue such claims against us except for an initial approach from a competitor asserting a potential infringement which
we strongly refute. Any such claim, regardless of merit, could result in litigation, which could result in substantial
expenses, divert the attention of management, cause significant delays and materially disrupt the conduct of our business.
As a consequence of such claims, we could be required to pay substantial damage awards, develop non-infringing
technology, enter into royalty-bearing licensing agreements, stop selling our products or re-brand our products. If it
appears necessary, we may seek to license intellectual property that we are alleged to infringe. Such licensing agreements
may not be available on terms acceptable to us or at all. Litigation is inherently uncertain and any adverse decision could
result in a loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from others and
otherwise negatively affect our business. In the event of a successful claim of infringement against us and our failure or
inability to develop non-infringing technology or license the infringed or similar technology, our business, operating
results or financial condition could be materially adversely affected.
We use certain “open source” software tools that may be subject to intellectual property infringement claims, the
assertion of which could impair our product development plans, interfere with our ability to support our clients or
require us to pay licensing fees
Certain of our products contain open source code, and we may use more open source code in the future. Open source code
is the type of code that is covered by a license agreement that permits the user to copy, modify and distribute the software
without cost, provided that users and modifiers abide by certain licensing requirements. The original developers of the
open source code provide no warranties on such code. As a result of our use of open source software, we could be subject
to suits by parties claiming ownership of what we believe to be open source code, and we may incur expenses in
defending claims that we did not abide by the open source code license. If we are not successful in defending against such
claims, we may be subject to monetary damages or be required to remove the open source code from our products. Such
events could disrupt our operations and the sales of our products, which would negatively impact our revenues and cash
flow. In addition, under certain conditions, the use of open source code to create derivative code may obligate us to make
the resulting derivative code available to others at no cost. If we are required to publicly disclose the source code for such
derivative products or to license our derivative products that use an open source license, our previously proprietary
software products would be available to others, including our customers and competitors without charge. While we
endeavor to ensure that no open source software is used in a way which may require us to disclose the source code to our
related product, such use could inadvertently occur. If we were required to make our software source code freely
available, our business could be seriously harmed. The use of such open source code may ultimately subject some of our
products to unintended conditions so that we are required to take remedial action that may divert resources away from our
development efforts.
Unfavorable or unstable economic conditions in the markets in which we operate could have a material adverse
effect on our business, financial condition or operating results.
In recent years, economies worldwide have demonstrated instability, and the ongoing coronavirus (COVID-19) pandemic
has served to markedly increase instability and volatility in the global markets. The full economic impact of the pandemic
is highly uncertain, but it is increasingly plausible that a global economic downturn will result as governments impose
business shutdowns, workforce reductions, quarantines and travel restrictions, and international trade, production and
supply chains are disrupted. Negative economic conditions in the global economy or certain regions such as the European
Market, from which we derived 33% of our revenues in 2019, could cause a decrease in spending on the types of products
and services that we offer.
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Additionally, if the worldwide economy remains unstable or further deteriorates, enterprises, telecommunication carriers
and service providers in affected regions may significantly reduce or postpone capital investments, which could result in
reductions in sales of our products or services, longer sales cycles, slower adoption of new technologies and increased
price competition in such regions. Such circumstances would have a material adverse effect on our results of operations
and cash flows.
Further, because a substantial portion of our operating expenses consists of salaries, we may not be able to reduce our
operating expenses in line with any reduction in revenues and, therefore, may not be able to continue to generate
increased revenues and manage our costs to maintain profitability.
Our international operations expose us to the risk of fluctuations in currency exchange rates.
Our revenues are generated primarily in U.S. dollars and a major portion of our expenses are denominated in U.S. dollars.
As a result, we consider the U.S. dollar to be our functional currency. A significant portion of our revenue is also
generated in Euros. Other significant portions of our expenses are denominated in Israeli shekel (ILS) and, to a lesser
extent, in Euros and other currencies. Our ILS-denominated expenses consist principally of salaries and related personnel
expenses. We anticipate that a material portion of our expenses will continue to be denominated in ILS. In the past years,
we have experienced material fluctuation between the ILS and the U.S. dollar and we anticipate that the ILS will continue
to fluctuate against the U.S dollar in the future. In 2019, the ILS appreciated by approximately 8.4% against the U.S.
dollar and in 2018 the ILS depreciated by approximately 7.5% against the U.S. dollar. In 2019, the Euro depreciated by
approximately 2% against the U.S. dollar, and in 2018 the Euro depreciated by approximately 4.4% against the U.S.
dollar. If the U.S dollar weakens against the ILS we are exposed to negative impact on our results of operations.
Moreover, if the U.S. dollar strengthens against the Euro, our results of operations generated by revenue in the EUR may
be negatively impacted.
Further, volatility in exchange rates resulting from Brexit is expected to continue in the short term as the U.K. continues
to negotiate its exit from the E.U. We translate sales and other results denominated in foreign currency into U.S. dollars
for our financial statements. During periods of a strengthening dollar, our reported international sales and earnings could
be reduced because foreign currencies may translate into fewer U.S. dollars.
We use derivative financial instruments, such as foreign exchange forward contracts and others, to mitigate the risk of
changes in foreign exchange rates on forecast cash flows. We may not purchase derivative instruments adequately to
insulate ourselves from foreign currency exchange risks. Volatility in the foreign currency markets may make hedging our
foreign currency exposures challenging. In addition, because a portion of our revenue is not earned in U.S. dollars,
fluctuations in exchange rates between the U.S. dollar and the currencies in which such revenue is earned may have a
material adverse effect on our results of operations and financial condition. We could be adversely affected when the U.S.
dollar strengthens relative to the local currency between the time of a sale and the time we receive payment, which would
be collected in the devalued local currency. Accordingly, if there is an adverse movement in one or more exchange rates,
we might suffer significant losses and our results of operations may otherwise be adversely affected. Uncertainty in
global market conditions has resulted in and may continue to cause significant volatility in foreign currency exchange
rates which could increase these risks. As our international operations expand, our exposure to these risks also increases.
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Disruption to our IT systems could adversely affect our reputation and have a material adverse effect on our
business and results of operations.
Risks to cybersecurity and privacy, including the activities of criminal hackers, hacktivists, state-sponsored intrusions,
industrial espionage, employee malfeasance and human or technological error, are constantly evolving. Computer hackers
and others routinely attempt to breach the security of companies, governmental agencies, technology products, services
and systems.
Our IT systems contain personal, financial and other information that is entrusted to us by our customers and employees
as well as financial, proprietary and other confidential information related to our business, and we rely on said systems to
manage our business, operations and research and development. If these IT systems are compromised as a result of cyber-
attacks or cyber-related incidents, it could result in the loss or misappropriation of sensitive data or other disruption to our
operations. Although we have a cybersecurity program designed to protect and preserve the integrity of our information
technology systems, we have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT
systems or networks (such as limited phishing and malware activities identified by us in the past, which were
mitigated). Although none of these actual or attempted cyber-attacks has had a material effect on our operations or
financial condition, we cannot guarantee that any such incidents would not materially harm our business in the future.
If our IT systems are compromised as a result of cyber-attacks or cyber-related incidents, it could result in the loss or
misappropriation of sensitive data or other disruption to our operations. It could also disrupt our electronic
communications systems and thus our ability to conduct our business operations, our ability to process customer orders
and electronically deliver products and services and our distribution channels.
Additionally, as a provider of network intelligence and security solutions for mobile and fixed service providers, an actual
or perceived cyber-attack, breach of security or theft of personal data store by us, regardless of whether the cyber-attack,
breach or theft is attributable to the failure of our products, could adversely affect the market’s perception of the efficacy
of our solutions, and current or potential customers may look to our competitors for alternative solutions. A breach of our
systems may also lead defects and security vulnerabilities to be introduced into our software, thereby damaging the
reputation and perceived reliability and security of our products and services and potentially making the data systems of
our customers vulnerable to further data loss and cyber incidents.
Despite our investments in risk prevention and contingencies, data protection, prevention of intrusions, access control
systems and other security measures, we can provide no assurance that our current IT systems are fully protected against
third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. Any such security breach,
whether actual or alleged, could result in system disruptions or shutdowns and/or destruction, alteration, theft or
unauthorized disclosure of confidential information. Even when an actual or attempted security breach is detected, the full
extent of the breach may not be determined for some time. An increasing number of companies have disclosed security
breaches of their IT systems and networks, some of which have involved sophisticated and highly targeted attacks. We
believe such incidents are likely to continue, and we are unable to predict the direct or indirect impact of these future
attacks on our business.
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Our financial results may differ materially from any guidance we may publish from time to time.
We may, from time to time, voluntarily publish guidance regarding our future performance that represents our
management’s estimates as of the date of relevant release. Any such guidance is based upon a number of assumptions and
estimates that, while presented with numerical specificity, is inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific
assumptions with respect to future business decisions, some of which will change. The principal reason that we may
release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We
do not accept any responsibility for any projections or reports published by any such persons. Guidance is necessarily
speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not
materialize or will vary significantly from actual results. Further, our sales during any given quarter tend to be unevenly
distributed as individual orders tend to close in greater numbers immediately prior to the relevant quarter end and
further. Our revenues from individual customers may also fluctuate from time to time based on the timing and the terms
under which further orders are received and the duration of the delivery and implementation of such orders. Therefore, if
our projected sales do not close before the end of the relevant quarter, our actual results may be inconsistent with our
published guidance. Accordingly, our guidance is only an estimate of what management believes is realizable as of the
date of release. Actual results will vary from the guidance and the variations may be material. Investors should also
recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast. In
light of the foregoing, investors are urged to consider any guidance we may publish in context and not to place undue
reliance on it.
Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected
tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our
results of operations and share price.
As we operate in the global market, we are subject to taxation in Israel and various jurisdictions in which we conduct our
business. Our tax expenses include the impact of tax exposures in certain jurisdictions, and may also be affected by
adverse changes in the underlying profitability and financial outlook of our operations or changes in tax laws, including
introduction of unilateral taxation such as digital services taxes in certain countries, international tax treaties, or guidelines
such as the OECD inclusive framework on BEPS, or EU ATAD I and II, all of which could lead to an increase in our
effective tax rate or to changes in our valuation allowances against deferred tax assets on our consolidated balance sheets.
Furthermore, we are subject to tax audits by governmental authorities everywhere we do business. If we experience
unfavorable results from one or more such tax audits, there could be an adverse effect on our tax rate and therefore on our
net income.
Our results of operations may also be affected by changes in tax laws, tax rates or double tax treaties. For example, in the
United States, the 2017 Tax Cuts and Jobs Act (the “TCJA”) made significant changes to the U.S. Internal Revenue Code,
including a reduction in the federal income corporate tax rate from 35% to 21% and limitations on certain corporate
deductions and credits. In addition, the TCJA requires complex computations to be performed that were not previously
required in U.S. tax law, and the preparation and analysis of information not previously relevant or regularly produced.
Because the law is still relatively new, the U.S. Treasury Department, the IRS, and other standard-setting bodies could
interpret or issue guidance on how provisions of the TCJA will be applied or otherwise administered that is different from
our interpretation. Finally, foreign governments may enact tax laws in response to the TCJA that could result in further
changes to global taxation and materially affect our financial position and results of operations.
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Additionally, actions by national and international regulators and law enforcement agencies may result in changes to debt
reference rates, including the United Kingdom’s Financial Conduct Authority’s announcement that it intends to phase out
the London Interbank Offered Rate (“LIBOR”) by the end of 2021. While we do not have any long-term borrowings, it is
difficult to predict the effect of potential alternatives to LIBOR on our business, including the liquidity of our customers,
due to a lack of current consensus as to what rate or rates may become accepted alternatives to LIBOR. However, if
LIBOR ceases to exist, there may be an adverse impact on the value of [or interest earned on] any LIBOR-based
marketable securities, loans and derivatives that are included in our financial assets and liabilities and may also adversely
affect us as holders of derivative instruments hedging our non-dollar currency exposure.
Risks Related to Our Ordinary Shares
The share price of our ordinary shares has been and may continue to be volatile.
The market price of our ordinary shares has been volatile in the past and may continue to be volatile. Our quarterly
financial performance is likely to vary in the future, and may not meet our expectations or the expectations of analysts or
investors, which may lead to additional volatility in our share price. Many factors could cause the market price of
ordinary shares to fluctuate substantially, including, but not limited to:
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announcements or introductions of technological innovations, new products, product enhancements or pricing policies by us or our
competitors;
winning or losing contracts with service providers;
disputes or other developments with respect to our or our competitors’ intellectual property rights;
announcements of strategic partnerships, joint ventures, acquisitions or other agreements by us or our competitors;
recruitment or departure of key personnel;
regulatory developments in the markets in which we sell our products;
our future repurchases, if any, of our ordinary shares pursuant to our current share repurchase program and/or any other share repurchase
program which may be approved in the future;
our sale of ordinary shares or other securities;
changes in the estimation of the future size and growth of our markets;
The effect of the ongoing coronavirus (COVID-19) pandemic and containment efforts on global markets; or
market conditions in our industry, the industries of our customers and the economy as a whole.
Share price fluctuations may be exaggerated if the trading volume of our ordinary shares is too low. The lack of a trading
market may result in the loss of research coverage by securities analysts. Moreover, we can provide no assurance that any
securities analysts will initiate or maintain research coverage of our company and our ordinary shares. If our future
quarterly operating results are below the expectations of securities analysts or investors, the price of our ordinary shares
would likely decline. Securities class action litigation has often been brought against companies following periods of
volatility.
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Our shareholders do not have the same protections afforded to shareholders of a U.S. company because we have
elected to use certain exemptions available to foreign private issuers from certain NASDAQ corporate governance
requirements.
As a foreign private issuer, we are permitted under NASDAQ Rule 5615(a)(3) to follow Israeli corporate governance
practices instead of the NASDAQ Stock Market requirements that apply to U.S. companies. As a condition to following
Israeli corporate governance practices, we must disclose which requirements we are not following and describe the
equivalent Israeli law requirement. We must also provide NASDAQ with a letter from our Israeli outside counsel,
certifying that our corporate governance practices are not prohibited by Israeli law. As a result of these exemptions, our
shareholders do not have the same protections as are afforded to shareholders of a U.S. company. We currently follow
Israeli home country practices with regard to the quorum requirement for shareholder meetings and shareholder approval
of equity compensation plans requirements. As permitted under the Israeli Companies Law, 5759-1999, or the
Companies Law, our articles of association provide that the quorum for any meeting of shareholders shall be the presence
of at least two shareholders present in person or by proxy who hold at least 25% of the voting power of our shares instead
of 33 1/3% of our issued share capital (as prescribed by NASDAQ's rules). We do not seek shareholder approval for
equity compensation plans in accordance with the requirements of the Companies Law, which does not fully reflect the
requirements of Rule 5635(c).
In the future, we may also choose to follow Israeli corporate governance practices instead of NASDAQ requirements with
regard to, among other things, the composition of our board of directors, compensation of officers, director nomination
procedures and quorum requirements at shareholders’ meetings. In addition, we may choose to follow Israeli corporate
governance practice instead of NASDAQ requirements to obtain shareholder approval for certain dilutive events (such as
for issuances that will result in a change of control of the company, certain transactions other than a public offering
involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another
company). Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ corporate
governance rules. Following our home country governance practices, as opposed to the requirements that would otherwise
apply to a U.S. company listed on the Nasdaq Global Select Market, may provide less protection than is accorded to
investors of domestic issuers. See “ITEM 16G: Corporate Governance”.
As a foreign private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules and are
exempt from filing certain Exchange Act reports.
As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing
and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required
under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as
promptly as U.S. domestic companies whose securities are registered under the Exchange Act. We are permitted to
disclose limited compensation information for our executive officers on an individual basis and we are generally exempt
from filing quarterly reports with the SEC under the Exchange Act. Moreover, we are not required to comply with
Regulation FD, which restricts the selective disclosure of material nonpublic information to, among others, broker-dealers
and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade
in the company’s securities on the basis of the information. These exemptions and leniencies reduce the frequency and
scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.
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We would lose our foreign private issuer status if (a) a majority of our outstanding voting securities were either directly or
indirectly owned of record by residents of the United States and (b)(i) a majority of our executive officers or directors
were United States citizens or residents, (ii) more than 50% of our assets were located in the United States or (iii) our
business were administered principally in the United States. Our loss of foreign private issuer status would make U.S.
regulatory provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic
issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and
registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms
available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including
the requirement to disclose, under U.S. law, more detailed information about the compensation of our senior executive
officers on an individual basis. We may also be required to modify certain of our policies to comply with accepted
governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional
costs. In addition, we would lose our ability to rely upon exemptions from certain NASDAQ corporate governance
requirements that are available to foreign private issuers.
Certain U.S. holders of our ordinary shares may suffer adverse tax consequences if we or any of our non-U.S.
subsidiaries are characterized as a “controlled foreign corporation”, or a CFC, under Section 957(a) of the
Internal Revenue Code of 1986, as amended (the “Code”).
A non-U.S. corporation is considered a CFC if more than 50 percent of (1) the total combined voting power of all classes
of stock of such corporation entitled to vote, or (2) the total value of the stock of such corporation, is owned, or is
considered as owned by applying certain constructive ownership rules, by United States shareholders who each own stock
representing 10% or more of the vote or 10% or more of the value on any day during the taxable year of such non-U.S.
corporation (“10% U.S. Shareholder”). Because our group includes one or more U.S. subsidiaries, certain of our non-
U.S. subsidiaries could be treated as CFCs (regardless of whether or not we are treated as a CFC). Generally, 10% U.S.
Shareholders of a CFC are required to report annually and include currently in its U.S. taxable income such 10% U.S.
Shareholder’s pro rata share of the CFC’s “Subpart F income”, “global intangible low-taxed income”, and investments in
U.S. property by CFCs, regardless of whether we make an actual distribution to such shareholders. “Subpart F income”
includes, among other things, certain passive income (such as income from dividends, interests, royalties, rents and
annuities or gain from the sale of property that produces such types of income) and certain sales and services income
arising in connection with transactions between the CFC and a person related to the CFC.
Any individual that is a U.S. Shareholder with respect to a CFC generally would not be allowed certain tax deductions or
foreign tax credits that would be allowed to a 10% U.S. Shareholder that is a U.S. corporation. Failure to comply with
these reporting obligations may subject a 10% U.S. Shareholder to significant monetary penalties and may prevent the
statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting
was due from starting. We cannot provide any assurances that we will assist investors in determining whether any of our
non-U.S. subsidiaries is treated as a CFC or whether any investor is treated as a 10% U.S. Shareholder with respect to any
such CFC or furnish to any 10% United States shareholders information that may be necessary to comply with the
aforementioned reporting and tax payment obligations. A United States investor should consult its tax advisors regarding
the potential application of these rules to an investment in our ordinary shares.
If the price of our ordinary shares declines, we may be more vulnerable to an unsolicited or hostile acquisition bid.
We do not have a controlling shareholder. Notwithstanding provisions of our articles of association and Israeli law, a
decline in the price of our ordinary shares may result in us becoming subject to an unsolicited or hostile acquisition bid. In
the event that such a bid is publicly disclosed, it may result in increased speculation regarding our company and volatility
in our share price even if our board of directors decides not to pursue a transaction. If our board of directors does pursue a
transaction, there can be no assurance that it will be consummated successfully or that the price paid will represent a
premium above the original price paid for our shares by all of our shareholders.
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Additionally, in recent years, U.S. and non-U.S. companies listed on securities exchanges in the United States have been
faced with governance-related demands from activist shareholders, unsolicited tender offers and proxy contests. Although
as a foreign private issuer we are not subject to U.S. proxy rules, responding to any action of this type by activist
shareholders could be costly and time-consuming, disrupting our operations and diverting the attention of management
and our employees. Such activities could interfere with our ability to execute our strategic plans. In addition, a proxy
contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy
solicitation expenses and require significant time and attention by management and our board of directors. The perceived
uncertainties due to such actions of activist shareholders also could affect the market price of our securities.
Risks Relating to our Location in Israel
Conditions in Israel could adversely affect our business.
We are incorporated under Israeli law and our principal offices, research and development division and manufacturing
facilities are located in Israel. Accordingly, political, economic and military conditions in Israel directly affect our
business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and
its Arab neighbors. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority,
there has been an increase in unrest and terrorist activity, which began in September 2000 and continued with varying
levels of severity into 2019. In recent years, these have included, among others, hostilities between Israel and Hezbollah
in Lebanon and Hamas in the Gaza strip, both of which resulted in rockets being fired into Israel, causing casualties and
significant disruption of economic activities. Outside of periods of armed conflict, Israel has also historically experienced
terrorist activity and unrest, including for instance, recent unrest due to the United States’ announcement to relocate its
embassy from Tel Aviv to Jerusalem. Any armed conflicts, terrorist activities or political instability in the region may
affect a significant portion of our work force, which is located in Israel, and may limit materially our ability to obtain raw
materials from affected countries or sell our products to companies in these countries. Any hostilities involving Israel or
the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the
economic or financial condition of Israel, could adversely affect our operations and product development and
manufacturing, cause our revenues to decrease and adversely affect the share price of publicly traded companies having
operations in Israel, such as us.
Continued salary increase of Research and Development manpower could adversely affect our ability to recruit
suitable Research and Development employees and could have an adverse effect on our business and revenues.
The current ongoing increase in salary of Research and Development manpower could have an adverse effect on our
ability to recruit such suitable individuals as well as adversely affect our ability to meet the ongoing Research and
Development related requirements of the market and our customers.
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Our operations may be disrupted by the obligations of personnel to perform military service.
As of December 31, 2019, we employed 594 people, of whom 321 were based in Israel. Some of our employees in Israel
are obligated to perform annual military reserve duty in the Israel Defense Forces, depending on their age and position in
the army. Additionally, they may be called to active reserve duty at any time under emergency circumstances for extended
periods of time. Our operations could be disrupted by the absence of one or more of our executive officers or key
employees for a significant period due to military service and any significant disruption in our operations could harm our
business. The full impact on our workforce or business if some of our executive officers and employees are called upon to
perform military service, especially in times of national emergency, is difficult to predict. Additionally, the absence of a
significant number of employees at our manufacturing subcontractor, Flex, as a result of military service obligations may
disrupt their operations and could have a material adverse effect on our ability to timely deliver products to customers
may be materially adversely affected.
The tax benefits that are available to us require us to meet several conditions and may be terminated or reduced in
the future, which would increase our costs and taxes.
Our investment program in equipment at our facility in Hod-Hasharon, Israel, has been granted approved enterprise status
and we are therefore eligible for tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959,
referred to as the Investments Law. We also have been granted benefited enterprise status. We expect to utilize these tax
benefits after we utilize our net operating loss carry forwards. As of December 31, 2019, our net operating loss carry
forwards for Israeli tax purposes amounted to approximately $62 million. To remain eligible for these tax benefits, we
must continue to meet certain conditions stipulated in the Investments Law and its regulations and the criteria set forth in
the specific certificate of approval. If we do not meet these requirements, the tax benefits would be canceled and we could
be required to refund any tax benefits and investment grants that we received in the past. Further, in the future these tax
benefits may be reduced or discontinued. If these tax benefits are cancelled, our Israeli taxable income would be subject
to regular Israeli corporate tax rates. The standard corporate tax rate in Israel since the 2018 tax year is 23%.
Effective January 1, 2011, the Investments Law was amended (the “2011 Amendment”) to revise the criteria for receiving
tax benefits. Under the transition provisions of the 2011 Amendment, a company may decide to irrevocably implement
the 2011 Amendment while waiving benefits provided under the Investments Law’s prior benefits programs or to remain
subject to the Investments Law’s prior benefits programs. We have opted not to apply the benefits under the 2011
Amendment, however, in the future, we may not be eligible to receive additional tax benefits as were made available
under the Investments Law prior to the 2011 Amendment. The termination or reduction of these tax benefits would
increase our tax liability, which would reduce our profits. Finally, in the event of a distribution of a dividend from the
abovementioned tax-exempt income, in addition to withholding tax at the following rates: (i) Israeli resident corporation –
0%, (ii) Israeli resident individual – 20% in 2014 and onwards, and (iii) non-Israeli resident – 20% in 2014 and onwards
subject to a reduced tax rate under the provisions of an applicable double tax treaty, we would also be subject to income
tax on the amount distributed in accordance with the effective corporate tax rate which would have been applied had we
not enjoyed the exemption. See “ITEM 10: Additional Information—Taxation—Israeli Tax Considerations and
Government Programs.”
No assurance can be given that we will be eligible to receive additional tax benefits under the Investments Law in the
future. The termination or reduction of these tax benefits would increase our tax liability in the future, which would
reduce our profits or increase our losses. Additionally, if we increase our activities outside of Israel, for example, by
future acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefit programs.
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The government grants we have received for research and development expenditures require us to satisfy specified
conditions and restrict our ability to manufacture products and transfer technologies outside of Israel. If we fail to
comply with these conditions or such restrictions, we may be required to refund grants previously received
together with interest and penalties and may be subject to criminal charges.
We have received grants from the Israel Innovation Authority (formerly known as the Office of the Chief Scientist of the
Ministry of Economy) for the financing of a portion of our research and development expenditures in Israel, pursuant to
the provisions of The Encouragement of Research, Development and Innovation in Industry Law, 1984, referred to as the
Research and Development Law. In the future we may not receive grants or we may receive significantly smaller grants
from the Israel Innovation Authority, and our failure to receive grants in the future could adversely affect our
profitability. In 2018 and 2019 we received and accrued non-royalty-bearing grants totaling $0.4 million and $0.4
million, respectively, from the Israel Innovation Authority, representing 1.5% and 1.2%, respectively, of our gross
research and development expenditures. In each of the years 2018 and 2019, we qualified to participate in one non-
royalty-bearing research and development program, funded by the Israel Innovation Authority to develop generic
technology relevant to the development of our products. Such programs are approved pursuant to special provisions of the
Research and Development Law. We were eligible to receive grants constituting of up to 50% of certain research and
development expenses relating to these programs.] Although the grants under these programs are not required to be repaid
by way of royalties, the restrictions of the Research and Development Law described below apply to these programs.
The provisions of the Research and Development Law and the terms of the Israel Innovation Authority grants prohibit us
from transferring manufacturing products which we originally planned to manufacture in Israel outside of Israel if they
incorporate technologies funded by the Israel Innovation Authority, and from transferring intellectual property rights in
technologies developed using these grants, without special approvals from the Israel Innovation Authority.
Even if we receive approval to manufacture our products outside of Israel, we may be required to pay an increased total
amount of royalties, which may be up to 300% of the grant amount plus interest, depending on our manufacturing volume
outside Israel. This restriction may impair our ability to outsource manufacturing or engage in similar arrangements for
those products or technologies. Know-how developed under an approved research and development program may not be
transferred to any third-parties, except in certain circumstances and subject to prior approval. Similarly, even if we receive
approval to transfer intellectual property rights in technologies developed using these grants, we may be required to repay
up to 6 times of the original grants plus LIBOR interest to the Israel Innovation Authority. In addition, if we fail to
comply with any of the conditions and restrictions imposed by the Research and Development Law or by the specific
terms under which we received the grants, we may be required to refund any grants previously received together with
interest and penalties, and we may be subject to criminal charges.
It may be difficult to enforce a U.S. judgment against us, our officers and directors in Israel or the United States,
or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.
We are incorporated in Israel. The majority of our executive officers and directors are not residents of the United States,
and the majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be
difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability
provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect
service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other
person or entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear
a claim based on a violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which
to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is
applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact
which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
There is little binding case law in Israel addressing the matters described above.
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Provisions of Israeli law and our articles of association may delay, prevent or make undesirable an acquisition of
all or a significant portion of our shares or assets.
Our articles of association contain certain provisions that may delay or prevent a change of control, including a classified
board of directors. In addition, Israeli corporate law regulates acquisitions of shares through tender offers and mergers,
requires special approvals for transactions involving significant shareholders and regulates other matters that may be
relevant to these types of transactions. These provisions of Israeli law could delay or prevent a change in control and may
make it more difficult for third-parties to acquire us, even if doing so would be beneficial to our shareholders, and may
limit the price that investors may be willing to pay for our ordinary shares in the future. Furthermore, Israeli tax
considerations may make potential transactions undesirable to us or to some of our shareholders. See “ITEM 10:
Additional Information—Memorandum and Articles of Association—Acquisitions under Israeli Law” and “—Anti-
Takeover Measures.”
ITEM 4: Information on Allot
A. History and Development of Allot
Our History
Our legal and commercial name is Allot Ltd. We are a company limited by shares organized under the laws of the State of
Israel. Our principal executive offices are located at 22 Hanagar Street, Neve Ne’eman Industrial Zone B, Hod-Hasharon
45240, Israel, and our telephone number is +972 (9) 761-9200. We have irrevocably appointed Allot Communications
Inc. as our agent to receive service of process in any action against us in any United States federal or state court. The
address of Allot Communications Inc. is 1500 District Avenue, Burlington, MA 01803.
We were incorporated on November 12, 1996 as “Ariadne Ltd.” and commenced operations in 1997. In September 1997,
we changed our name to “Allot Communications Ltd.”. In November 2006, we listed our shares on NASDAQ. In 2007,
we introduced our Service Gateway platform that enables broadband providers to build efficient, secure, manageable and
profitable intelligent networks that are optimized to deliver Internet-based content and services. In 2008, we completed
the acquisition of the business of Esphion Limited, a developer of network protection solutions for carriers and internet
service providers. In 2010, we listed our shares on the Tel Aviv Stock Exchange, or TASE, and began applying the
reporting reliefs afforded under the Israeli Securities Law to companies whose securities are dually listed on NASDAQ
and the TASE. In 2012, we acquired the business of Ortiva Wireless Inc., a developer of video optimization solutions for
mobile and Internet networks. In 2012, we acquired the business of Oversi Networks Ltd., a developer of products and
systems for caching Internet content. In 2015, we acquired substantially all of the assets and business of Optenet S.A., a
Madrid-based global IT security company. In early 2018, we acquired all of the outstanding shares of Netonomy Ltd., a
Tel-Aviv based developer of software-based cyber security for the connected home. All acquisitions were financed by the
Company’s existing funds. In October 2018, we changed our name to “Allot Ltd”.
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B. Business Overview
Overview
We are a provider of leading innovative network intelligence and security solutions for mobile and fixed service providers
as well as enterprises worldwide. Our solutions are deployed globally for network and application analytics, traffic control
and shaping, network-based security including mobile security, DDoS protection, IoT security, and more. Allot’s multi-
service platforms are deployed by over 550 mobile, fixed and cloud service providers and over 1000 enterprises. Our
industry leading network-based security as a service solution has achieved over 50% penetration with some service
providers and is already used by over 21 million subscribers in Europe.
We have a global and diverse customer base composed of mobile and fixed broadband service providers, cable operators,
satellite service providers, private networks, data centers, governments, and enterprises such as financial and educational
institutions. With over 20 years of experience empowering service providers and enterprises to get more out of their
networks and to manage them better, we enable network operators as well as enterprises, to clearly see and understand
their networks from within, to optimize, innovate and capitalize on every opportunity, to learn about users and network
behaviors, to improve quality of service and reduce costs, and to detect security breaches to protect their own networks
and their users from attacks, all while increasing value to customers and deploying new services faster.
Through our combination of innovative technology, proven know-how and collaborative approach to industry standards
and partnerships, we deliver solutions that equip service providers with the capabilities to elevate their role as premier
digital services providers and to expand into new business opportunities. We offer our customers market leading,
proprietary technologies that are powerful, diverse, and scalable. In addition, we have developed significant industry
know-how and expertise through our experience in designing and implementing use cases with our large customer
base. We believe that when visibility is clear and network intelligence is accurate, service providers can make smart
decisions in real time to manage their networks, engage customers and innovate with new services.
Industry Background
The rapid proliferation of broadband networks in recent years has been largely driven by demand from users for faster and
more reliable access to the Internet and by the proliferation in the number and complexity of broadband applications, as
well as the proliferation of mobile smartphones, tablets and other Internet-connected devices.
Rising Network Operational Costs Due to the Rapid Adoption of Broadband Applications
Advances in broadband access (such as the introduction of long-term evolution, or LTE, technology) combined with the
advanced data capabilities of end-user devices (such as smartphones and tablets) have promoted a growing number of
applications and content delivered over broadband networks. The vast majority of these applications run over-the-top of
the network, which means they are not originated, controlled or charged by the network operator. The use of OTT
applications, such as streaming video, peer-to-peer (P2P), Voice over IP (VoIP), social networks, interactive gaming and
online content, requires large and increasing amounts of bandwidth. Moreover, many of these applications are highly
sensitive to network delays caused by congestion. In response to these challenges, service providers have been forced to
invest heavily in network infrastructure upgrades and customer support services in order to maintain the quality of
experience for subscribers.
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Rising Data Traffic in Mobile Networks
The mobile data market continues to grow rapidly, fueled by the proliferation of smartphones and tablets, mobile-enabled
laptops that use mobile modems or tethered smartphones to connect to the Internet. On average, the data traffic generated
by an Internet user with a smartphone is multiple times that of an Internet user without a smartphone.
The cost of increasing the bandwidth in mobile networks is significantly higher than that in wireline networks. As a result,
mobile operators are experiencing economic and infrastructure challenges in meeting the rising tide of data traffic over
their networks. In addition, as capacity increases in mobile networks, smartphone users are likely to have increased
expectations with respect to speed and performance.
It is becoming increasingly apparent that unmanaged 4G/LTE mobile networks (and soon also 5G mobile networks) will
not be able to cope with the rising tide of data traffic, without implementing intelligent bandwidth management solutions.
Moreover, network providers may need to develop new pricing models if they are not able to monetize the OTT traffic
carried by their networks.
Service Providers Demand the Ability to Offer Services that Can Be Monetized at Different Rates
Some service providers still offer flat-rate broadband access, regardless of the type of applications and data used by
subscribers. These operators provide the same level of service to all subscribers and do not guarantee access quality,
regardless of a subscriber’s willingness to pay for premium services and network performance. However, with the
increasing amount of data used, the flat-rate pricing model may not be profitable, especially for mobile broadband
operators, unless they can charge subscribers high rates. As a result, both mobile and fixed operators have begun to offer
service plans based on gigabytes of data used. However, this pricing model is also subject to competition from other
service providers offering lower rates, contributing to downward pricing pressure and high subscriber turnover rates.
To address these issues and increase the average revenue per user (ARPU), a significantly increased number of service
providers have begun to offer premium, differentiated services, such as free usage for specific applications, content
bundling, off-peak usage incentives, security services, improved quality for VoIP and Internet video, among others. By
offering such tiered services and charging subscribers according to the value of these services, as well as based on the
gigabyte usage, service providers can capitalize on the revenue opportunities embodied in their networks. To offer
premium services and to guarantee high-quality delivery of content and user experience, service providers need enhanced
visibility into and control of network traffic, including visibility into the type of applications used on the network and
levels of traffic generated by different subscribers.
The Challenge of Elevating the Role of Fixed and Mobile Broadband Networks
In the evolving digital lifestyle, consumers recognize the importance of the devices they use to access the Internet and
choose the Internet content and services they use based on quality. However, the network that connects them to the
Internet is not as “visible”, and is therefore not as highly valued, even though it plays a critical role in the service chain. In
order to generate revenue through various pricing models and encourage consumers and content providers to seek higher
quality network services, service providers are seeking to elevate the role of network connectivity and services. To do so,
service providers must be able to identify and leverage the business intelligence in their data networks and capitalize on
the network traffic that they generate.
The ability to identify, distinguish and prioritize different applications plays a major role in intelligent management of
network resources and service delivery, allowing service providers to optimize bandwidth utilization and reduce
operational costs, while maintaining high quality of service for tiered and premium services. Application designers are
employing increasingly sophisticated methods to avoid detection by network operators who desire to manage network
use. Traditional network infrastructure devices, such as routers and switches, do not generally have sufficient computing
resources or the required algorithms to distinguish between different and rapidly evolving applications.
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Network Security Threats
As reliance on the Internet has grown, service provider and enterprise networks have become increasingly vulnerable to a
wide range of security threats, including distributed denial of service attacks, spambots malware and other threats. These
attacks are designed to flood the network with traffic that consumes all the available bandwidth and hinder the ability to
provide high quality broadband access to subscribers or to prevent enterprises from using mission-critical applications.
These threats also compromise network and data integrity. We believe service providers and enterprises must protect
against such attacks by detecting and neutralizing malicious traffic at very early stages before such threats can
compromise network integrity and services.
End-User Security Threats
Broadband devices, especially mobile devices, are increasingly vulnerable to online threats such as malware and phishing.
Since most broadband users have limited cyber-security expertise, they become easy targets for cybercriminals. Mobile
device users are even more exposed since the threat awareness is lower than that of PC users. There are several options to
safeguard broadband users on-the-go. We believe service providers must protect their subscribers by providing security-
as-a-service so that individual and business customers are always protected seamlessly from the network security threats.
Enterprise Demand for Visibility and Delivery of Mission-Critical Applications and Services in the Cloud
The proliferation of network applications, bring your own device and cloud computing present significant challenges for
enterprises that operate data centers, wide-area networks, virtual private networks (VPN) and Internet connectivity for
organizations of all sizes. Enterprises depend on network infrastructure to ensure the delivery of business-critical
applications to an increasingly mobile and often global workforce, and as such, face many of the same issues as service
providers. At the same time, Internet access has introduced a wide variety of recreational and non-business applications to
enterprise networks, resulting in network congestion and negatively impacting employee productivity. As a result, there is
an increasing need for enterprises to be able to monitor and control the traffic on their business networks.
Governments are looking for automated tools to implement regulatory requirements on the networks in their
jurisdictions and protect the networks from external threats
Many governments around the world have already implemented or are in the process of implementing network-related
regulations. These regulations may apply to multiple areas, for example, provision of level of service (SLA) by service
providers to the consumers or defining certain types of content which will not be accessible to the private individuals. In
addition, governments want to protect the networks from external cyber threats, such as DDoS attacks, hacking and botnet
attacks. To achieve these goals and meet the regulation requirements, the service providers are required to deploy scalable
network-based solutions, which can be provided by Allot, capable of measuring different network parameters, filtering the
content and identifying and mitigating cyber attacks.
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Integrated Network Intelligence Solutions
Our integrated network intelligence solutions provide network visibility and control allowing mobile, fixed and enterprise
operators to elevate their role in the digital lifestyle ecosystem and expand into new business opportunities. Our solutions
enable our customers to increase revenues by monetizing network usage through value-added products and services,
value-based charging, reduce costs by optimizing the delivery and performance of OTT content and cloud computing
services and improve customer loyalty by personalizing operator offerings with various choices of service tiers and digital
lifestyle options.
Our Network Intelligence Solutions include:
•
•
•
•
Analytics solutions deliver accurate and meaningful network business intelligence to drive capacity planning, congestion management,
service planning, regulatory compliance and marketing decisions.
Traffic Management solutions prioritize critical network traffic, control congestion and optimize service delivery. Dynamic Quality of
Experience (QoE) enforcement enables effective traffic management strategies that minimize infrastructure and operating costs.
Policy Control and Charging solutions drive personalized service plans and pay-for-use pricing models based on real-time consumption
of bandwidth and OTT applications. We provide a single point of integration with provisioning and pricing systems.
Service Enablement solutions facilitate a wide variety of cost-saving and revenue-generating use cases to create personalized customer
experiences demanded by today’s sophisticated consumers.
Allot’s Products (Our Platforms)
The Allot Service Gateway platforms (including Allot Service Gateway Tera and Allot Service Gateway 9500 & 9700)
are based on leading technology and high performance, designed for in-line deployment in a wide range of networks.
Allot service Gateway platforms are designed for deployment both on traditional and virtualized network access
infrastructure. Within each platform, our Dynamic Actionable Recognition Technology (DART) engine employs multiple
deep packet inspection (DPI) and analytical methods to identify network traffic by subscriber, application, device and
network topology. Our technology is able to identify more OTT applications than any other solution on the market with
frequent and custom updates to our extensive signature library. These granular elements may be mapped directly into
dynamic traffic management, charging and service enablement policies.
High-Performance Platforms
•
•
Allot Service Gateway (series of products) provides visibility, control and security of application and user traffic in cloud data centers
and ISP networks. The platform provides a unified framework and single point of integration for traffic visibility and policy enforcement,
charging, as well as pre-integrated services, including, web and cyber security, and web optimization, cyber threat protection, data
sourcing, and network analytics.
Allot Service Gateway Tera powers the deployment and delivery of digital lifestyle services in fixed, mobile and cloud networks that
are on the path to software-defined networking (SDN)and virtualized network services (NFV). The Allot Service Gateway Tera provides
a unified framework for traffic detection, policy enforcement and service integration across any access network, and helps manage traffic
loads, keeping pace with the growing demand for services and the complex needs of application delivery. Allot Service Gateway Tera
supports both physical and virtual service deployment and serves as a single point of seamless integration in the network for real-time
data sourcing, traffic management, service chaining, application-based charging, endpoint protection and anti-DDoS, as well as value-
added services from other leading vendors.
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•
•
Allot Service Gateway Virtual Edition provides contemporary, software only based version of our Service Gateway functionality,
enabling telecommunication service providers to deploy leading integrated network intelligence, policy enforcement and revenue-
generating services in a scalable manner, which complies with any hardware and orchestration infrastructure used by the provider. Our
Service Gateway Virtual Edition enables both on-premises and cloud deployments, and provides the promise of expansion on demand
based on the actual traffic dynamic of the network.
Allot Secure Service Gateway integrates network intelligence, policy enforcement, and web security in a single scalable platform for
large enterprises. This unified platform offers enterprises a cost-effective solution of advance technologies for visibility, control and
security of their network. Allot’s SSG ranges from several hundred Mbps (megabits per second) to several dozen Gbps, hence providing
full coverage to even the most complex enterprise network.
Subscriber Management Platform
The Allot Subscriber Management Platform (SMP) drives the centralized creation, provisioning and pricing of subscriber
services, including tiered and usage-based data plans, which we believe are key to personalizing digital lifestyle offerings
and maximizing average revenue per user. The Allot SMP allows subscriber traffic to be managed across converged
access networks and when offloading to Wi-Fi hotspots. Modular licensing provides flexible and scalable management for
any number of subscribers.
Analytics Services
Our analytics solutions analyze traffic data to drive smart business decisions.
•
•
Allot ClearSee Analytics: Is a business intelligence application that helps network operators turn big data into valuable insight for the
decision-makers in their organization. Its self-service approach allows network operators to synthesize and analyze large varieties and
volumes of data with extreme efficiency. Tools include built-in dashboards for mining Network, Application, Subscriber, Device, and
Quality of Experience data, plus Self-Service data mining for modeling fresh perspectives and gaining deeper understanding of network
usage and subscriber behavior.
Allot ClearSee Data Source: Extracts a rich variety of raw traffic statistics from operator networks, enriches it with data from operator
business systems, and loads it into a cutting-edge data warehouse where it is transformed into modeled data objects that are meaningful to
telco operators and easy to manipulate using the Allot ClearSee Analytics application. This valuable source data may also be exported to
external analytics tools and other business applications.
Security Solutions
Our security solutions protect network customers, network service integrity and brand reputation.
•
“Security as a Service”: Solutions enable operators to secure subscribers against online threats and harmful content by providing
network-based Security as a Service (SECaaS) to their end customers.
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o Allot NetworkSecure (previously WebSafe Personal): A platform that allows the service provider to offer opt-in security services that
allow subscribers to define and enforce safe-browsing limits (Parental Control) and to prevent incoming malware from infecting their
devices (Anti-Malware). Services are enforced at the network level, requiring no device involvement or battery consumption.
o Allot HomeSecure: A platform that allows the service provider to offer opt-in security services that allow subscribers to define and
enforce safe-browsing limits (Parental Control) and to prevent incoming malware from infecting their devices (Anti-Malware). Services
are enforced at the home router & network level.
•
•
•
•
•
Allot IoTSecure: A multi-tenant platform that enables CSP to grant each of its enterprise customers a dedicated management console
for monitoring and securing their mobile IoT deployments on the CSP network.
Allot DDoS Secure: Platform that provides attack detection and mitigation services that protect commercial networks against inbound
and outbound Denial of Service (DoS/DDoS) attacks, Zero Day attacks, worms, zombie and spambot behavior.
Allot Content Protector: Provides a carrier-class URL filtering service that blocks access to blacklisted and illegal content, enabling
network operators to comply with regulatory requirements.
Allot SpamOut Protector: Prevents malicious spambots from compromising operators’ network service and includes an anti-spam filter
which detects and blocks outbound spam and protects network and IP domain against being blacklisted as a spammer or a phishing
security risk.
Allot Unified Security: Provides end-to end security capabilities through combining Allot’s multi-tenant NetworkSecure and
Homesecure platform and third party (Bitdefender) endpoint protection. Offering On-Net and Off-Net coverage, the solution blends
advanced threat detection technologies in network, CPE and at the endpoint with customer intelligence and comprehensive
personalization capabilities to deliver a scalable platform that simplifies security service activation, service awareness, operation and
management.
Centralized Management
The Allot NetXplorer is the management umbrella for our devices, platforms and solutions, providing a central access
point for network-wide monitoring, reporting, analytics, troubleshooting, accounting and QoS policy provisioning. Its
user-friendly interface provides our customers with a comprehensive overview of the application, user, device and
network topology traffic, while its wide variety of reports provide accessible, detailed analyses of granular traffic data.
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Customers
We have a global, diversified customer base consisting primarily of mobile and fixed service providers, cable operators,
private networks, data centers, governments and enterprises. We derive a significant and growing portion of our revenue
from direct sales to large mobile and fixed-line service providers. We generate the remainder of our revenue through a
select and well-developed network of channel partners, generally consisting of distributors, resellers, OEMs and system
integrators. We also endeavor to increase our sales to enterprises and have adapted the structure of our sales organization
to this end. In 2019, we derived 33% of our revenues from Europe, 15% from the Americas, 39% from Asia and Oceania
and 13% from the Middle East and Africa. A breakdown of total revenues by geographic location for 2017, 2018 and
2019 is set forth in the following table.
Revenues:
Europe
Asia and Oceania
Middle East and Africa
Americas
Total Revenues
2019
% Revenues
Revenues by Location
2018
% Revenues
($ in thousands)
2017
% Revenues
$
$
36,199
42,994
14,331
16,576
110,100
33% $
39%
13%
15%
100% $
45,730
22,018
13,726
14,363
95,837
48% $
23%
14%
15%
100% $
40,394
13,936
12,130
15,532
81,992
49%
17%
15%
19%
100%
In September 2019 we entered into an agreement to provide AllotSmart products to an existing customer in the EMEA
region. The sale is being effected through a system integrator that will provide our equipment and services along with
additional products and services to the end customer. We already received a portion of the total consideration as an
advance payment. We expect to recognize the majority of the revenues related to this agreement in 2020, with additional
ongoing revenues related primarily to the ongoing maintenance component of the agreement to be recognized over several
years, in each case, subject to customary delivery and acceptance terms. The expected margins are similar to our average
margins and the products and services we are required to provide are our standard products and services, including our
AllotSmart products and services as well as our standard maintenance and support services for these products. The
agreement is for the performance and implementation of a specific project and does not contain any renewal provisions.
Channel Partners
We market and sell our products to end-customers both by direct sales and through channel partners, which include
distributors, resellers, OEMs and system integrators. A significant portion of our sales occur through our channel partners.
In 2019, approximately 48% of our revenues were derived from channel partners. In some cases, our channel partners are
also responsible for installing and providing initial customer support for our products, with our continuous technical
assistance. In the majority of the cases, the partners are responsible for the initial customer support (Tier 1 support), while
we act as the escalation level. Our channel partners are located around the world and address most major markets. Our
channel partners target a range of end-users, including carriers, alternative carriers, cable operators, private networks, data
centers and enterprises in a wide range of industries, including government, financial institutions and education. Our
agreements with channel partners that are distributors or resellers are generally non-exclusive, for an initial term of one
year and automatically renew for successive one-year terms unless terminated. After the first year, such agreements may
typically be terminated by either party upon ninety days prior notice.
We offer support to our channel partners. This support includes the generation of leads through marketing events,
seminars and web-based leads and incentive programs as well as technical and sales training.
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Sales and Marketing
Our product sales cycle varies based on the intended use by the end-customer. The sales cycle for initial network
deployment may generally last between twelve and eighteen months for large and medium service providers, six to twelve
months for small service providers, and one to six months for enterprises. Follow-on orders and additional deployment of
our products usually require shorter cycles. Large and medium service providers generally take longer to plan the
integration of our solutions into their existing networks and to set goals for the implementation of the technology.
We focus our marketing efforts on product positioning, increasing brand awareness, communicating product advantages
and generating qualified leads for our sales organization. We rely on a variety of marketing communications channels,
including our website, trade shows, industry research and professional publications, the press and special events to gain
wider market exposure.
We have organized our worldwide sales efforts into the following regions: North America, South America, Europe, the
Middle East and Africa; and Asia and Oceania. We have regional offices in Spain, Italy, France, Singapore, India,
Colombia, the U.S. and Israel. As of December 31, 2019, our sales and marketing staff, including product management
and business development functions, consisted of 139 employees.
Service and Technical Support
We believe our technical support and professional services capabilities are a key element of our sales strategy. Our
technical staff provides project management, delivery, training, support and professional services, as well as assists in
presale activities and advises channel partners on the integration of our solutions into end-customer networks. Our basic
warranty to end-customers (directly or through our partners) is three months for software and twelve months for
hardware. Generally, end-customers are also offered a choice of one year or multi-year customer support programs when
they purchase our products. These customer support programs can be renewed at the end of their terms. Our end-customer
support plans generally offer the following features:
•
•
•
•
unlimited 24/7 access to our global support organization, via phone, email and online support system, provided by regional support
centers;
expedited replacement units in the event of a warranty claim;
software updates and upgrades offering new features and protocols and addressing new and changing network applications; and
periodic updates of solution documentation, technical information and training.
Our support plans are designed to maximize network up-time and minimize operating costs. Our customers, including
partners and their end-customers, are entitled to take advantage of our around-the-clock technical support which we
provide through our seven support centers, located in France, Israel, Singapore, India, Colombia Spain and the United
States. We also offer our customers, 24-hour access to an external web-based technical knowledge base, which provides
technical support information and, in the case of our channel partners, enables them to support their customers
independently and obtain follow up and support from us.
Many of our strategic customers purchase special support contracts, which include specifics service levels (for example,
with respect to response time, restoration time, resolution time, on-site support, spare parts management, and resident
engineers).
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We also offer particular professional services, such as, network audit, solution design, project management, business
intelligence reports, customer project documentation, integration services, interoperability testing and training and
specific customizations.
The expenditures associated with the technical support staff are allocated in our statements of comprehensive loss
between sale and marketing expenses and cost of goods sold, based on the roles of and tasks performed by personnel.
As of December 31, 2019, our technical staff consisted of 149 employees, including 64 technical support persons, 70
deployment and professional services engineers, 13 documentation and training persons, and 2 Customer Success
managers.
Research and Development
Our research and development activities take place primarily in Israel. We also have research and development activities
in Spain, Mexico and India. As of late 2018, we have also been using a subcontractor in Belarus to source R&D
engineers. As of December 31, 2019, 154 of our employees in Israel, 46 of our employees in Spain, 29 of our employees
in Belarus and three of our employees in Mexico and one in India, were engaged primarily in research and development.
We devote a significant amount of our resources towards research and development in order to introduce new products
and continuously enhance existing products and to support our growth strategy. We have assembled a core team of
experienced engineers, many of whom are leaders in their particular field or discipline and have technical degrees from
top universities and have experience working for leading Israeli or international networking companies. These engineers
are involved in advancing our core technologies, as well as in applying these core technologies to our product
development activities. In previous years, our research and development efforts have benefited from royalty-bearing
grants from the Israel Innovation Authority. As of December, 31 2019, there are no outstanding royalties due from us to
the Israel Innovation Authority. In 2019, we benefited from additional grants from the Israel Innovation Authority;
however, these grants do not bear royalties. Under the terms of those grants we are required to perform our manufacturing
activities within the state of Israel, as a condition to maintaining these benefits. The State of Israel does not own any
proprietary rights in technology developed with the Innovation Authority funding and there is no restriction related to the
Israel Innovation Authority on the export of products manufactured using technology developed with the Israel
Innovation Authority funding (other limitations on export apply under applicable law). For a description of restrictions on
the transfer of the technology and with respect to manufacturing rights, please see “ITEM 3: Key Information—Risk
Factors—The government grants we have received for research and development expenditures require us to satisfy
specified conditions and restrict our ability to manufacture products and transfer technologies outside of Israel. If we fail
to comply with these conditions or such restrictions, we may be required to refund grants previously received together
with interest and penalties and may be subject to criminal charges.”
Manufacturing
We subcontract the manufacture and repair of the hardware components of our Service Gateway Tera platform to Flex
(Israel) Ltd., which manufactures these components in accordance with our design. This strategy enables us to reduce our
fixed costs, focus on our core research and development competencies and provide flexibility in meeting market demand.
Flex (Israel) is contractually obligated to provide us with manufacturing services based on agreed specifications,
including manufacturing, assembling, testing, packaging and procuring the raw materials for our devices. We are not
required to provide any minimum orders. Our agreement with Flex (Israel) is automatically renewed annually for
additional one-year terms. Flex (Israel) may terminate our agreement with them at any time during the term upon prior
notice. We retain the right to procure independently any of the components used in our products. Flex (Israel) has
affiliates outside of Israel, to which it can, with the prior consent of the Israel Innovation Authority, transfer
manufacturing of our products if necessary, in which event we may be required to pay increased royalties to the Israel
Innovation Authority.
We subcontract the integration of our security software products with an off-the-shelf hardware platforms provided by
Lenovo and Hewlett Packard Enterprise (HPE). Based on verbal understandings, Arrow ocs (Israel) performs the
integration of the software product with HPE servers, while Malam-Team (Israel) performs the integration of such
software with Lenovo Servers. Such hardware components are manufactured in accordance with our design.
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We design and develop internally a number of the key components for our products, including printed circuit
boards. Some of the hardware components of our products are obtained from single or limited sources. Since our
products have been designed to incorporate these specific components, any change in these components due to an
interruption in supply or our inability to obtain such components on a timely basis may require engineering changes to our
products before we could incorporate substitute components. In particular, we purchase the central processing unit for our
Service Gateway platforms from NetLogic Microsystems, Inc. (now part of Broadcom Corporation, recently acquired by
Avago). We also purchase off the shelf hardware components from single or limited sources for our security and Traffic
Management products. We carry approximately three to six months of inventory of key components. We also work
closely with our suppliers to monitor the end-of-life of the product cycle for integral components, and believe that in the
event that they announce end of life, we will be able to increase our inventory to allow enough time for replacing such
components. The agreements with our suppliers do not contain any minimum purchase or supply commitments. Product
testing and quality assurance is performed by our contract manufacturer using tests and automated testing equipment and
according to controlled test documentation we specify. We also use inspection testing and statistical process controls to
assure the quality and reliability of our products.
Competition
We compete against large companies in a rapidly evolving and highly competitive sector of the networking technology
market, which offer, or may offer in the future, competing technologies, including partial or alternative solutions to
operators’ and enterprises’ challenges, and which, similarly to us, intensely pursue the largest service providers (referred
to as Tier 1 operators) as well as large enterprises. Our DPI technology enabled offerings face significant competition
from router and switch infrastructure companies that integrate functionalities into their platforms addressing some of the
same types of issues that our products are designed to address. This competition is expected to intensify as transition to
5G networks progresses.
Our security products, which are offered to operators and are deployed in their networks for the purpose of enabling them
to provide security services to their end customers, are subject to competition from companies which offer security
products, based on different technology and marketing and sales approaches. Generally, we compete on the basis of
product performance, ease of use and installation, customer support and price.
Our security product offerings face significant competition from companies that directly approach end customers and
offer them security applications to be installed on their devices; companies that approach the business enterprise sector
through distribution channels and offer cloud security products; and companies that offer security products bundled with
other products. By offering our security products to operators that provide security services to both business enterprises
and individual end customers, we aim to expand the reach of our products.
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See “ITEM 3: Key Information—Risk Factors—Our revenues and business may be adversely affected if we do not
effectively compete in the markets in which we operate.”
Intellectual Property
Our intellectual property rights are very important to our business. We believe that the complexity of our products and the
know-how incorporated into them makes it difficult to copy them or replicate their features. We rely on a combination of
confidentiality and other protective clauses in our agreements, copyright and trade secrets to protect our know-how. We
also restrict access to our servers physically and through closed networks since our product designs and software are
stored electronically and thus are highly portable.
We customarily require our employees, subcontractors, customers, distributors, resellers, software testers, technology
partners and contractors to execute confidentiality agreements or agree to confidentiality undertakings when their
relationship with us begins. Typically, our employment contracts also include assignment of intellectual property rights
for all inventions developed by employees, non-disclosure of all confidential information, and non-compete clauses,
which generally restrict the employee for six months following termination of employment. The enforceability of non-
compete clauses in certain jurisdictions in which we operate may be limited. See “ITEM 3: Key Information—Risk
Factors—If we are unable to successfully protect the intellectual property embodied in our technology, our business could
be harmed significantly.” Because our product designs and software are stored electronically and thus are highly portable,
we attempt to reduce the portability of our designs and software by physically protecting our servers through the use of
closed networks, which prevent external access to our servers.
The communications equipment industry is characterized by constant product changes resulting from new technological
developments, performance improvements and lower hardware costs. We believe that our future growth depends to a large
extent on our ability to be an innovator in the development and application of hardware and software technology. As we
develop the next generation products, we intend to pursue patent protection for our core technologies in the
telecommunications segment. We plan to seek patent protection in our largest markets and our competitors’ markets, for
example in the United States and Europe. As we continue to move into new markets, such as Japan, Korea and China, and
Latin America countries we will evaluate how best to protect our technologies in those markets. We intend to vigorously
prosecute and defend the rights of our intellectual property.
As of December 31, 2019, we had 19 issued U.S. patents and five pending patent applications in the U.S. We expect to
formalize our evaluation process for determining which inventions to protect by patents or other means. We cannot be
certain that patents will be issued as a result of the patent applications we have filed.
Government Regulation
Due to the industry and geographic diversity of our operations and services, our operations are subject to a variety of rules
and regulations, and several government agencies in the United States, the E.U. and other countries regulate various
aspects of our business. See the following risk factors in “ITEM 3. Key Information—D. Risk Factors” for more
information on regulation material to our business, financial condition and results of operations:
•
Risks Relating to our Business—Demand for our products may be impacted by government regulation of the telecommunications industry.
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•
•
•
•
•
•
•
•
Risks Relating to our Business—We are subject to certain regulatory regimes that may affect the way that we conduct business internationally,
and our failure to comply with applicable laws and regulations could materially adversely affect our reputation and result in penalties and
increased costs.
Risks Relating to our Business—Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or
unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of
operations and share price.
Risks Relating to our Ordinary Shares—Our shareholders do not have the same protections afforded to shareholders of a U.S. company
because we have elected to use certain exemptions available to foreign private issuers from certain NASDAQ corporate governance
requirements.
Risks Relating to our Ordinary Shares—As a foreign private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules
and are exempt from filing certain Exchange Act reports.
Risks Relating to our Ordinary Shares—Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive
foreign investment company.
Risks Relating to our Ordinary Shares—Certain U.S. holders of our ordinary shares may suffer adverse tax consequences if we or any of our
non-U.S. subsidiaries are characterized as a “controlled foreign corporation,” or a CFC, under Section 957(a) of the Internal Revenue Code of
1986, as amended (the “Code”).
Risks Relating to our Ordinary Shares—The tax benefits that are available to us require us to meet several conditions and may be terminated
or reduced in the future, which would increase our costs and taxes.
Risks Relating to our Ordinary Shares—The government grants we have received for research and development expenditures require us to
satisfy specified conditions and restrict our ability to manufacture products and transfer technologies outside of Israel. If we fail to comply
with these conditions or such restrictions, we may be required to refund grants previously received together with interest and penalties and
may be subject to criminal charges.
Additionally, see “ITEM 5: Overview—Government Grants” for a description of grants received from the Israel
Innovation Authority of the Ministry of Economy and “ITEM 10: Additional Information—Taxation—United States
Federal Income Taxation—Passive Foreign Investment Company Considerations” for a description of classification as a
“passive foreign investment company,” or a PFIC, for United States federal income tax purposes.
Internal Cybersecurity
As a provider of innovative network intelligence and security solutions for mobile and fixed service providers, we are
sensitive about the possibility of cyber-attacks and data theft. A breach of our system could provide data information
about us and the customers that our solutions protect. Further, we may be targeted by cyber-terrorists as an Israeli
company. We are also aware of the impact that an actual or perceived breach of our network may have on the market
perception of our products and services and on our potential liability.
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We are focused on instituting new technologies and solutions to assist in the prevention of potential and attempted cyber-
attacks, as well as protective measures and contingency plans in the event of an existing attack. For instance, in our
internal IT systems, we employ identity and access controls, product software designs and other security measures that we
believe are less susceptible to cyber-attacks. We also continuously monitor our IT networks and systems for intrusions and
regularly maintain our backup and protective systems. We have made certain updates to our IT infrastructure to enhance
our ability to prevent and respond to such threats and we routinely test the infrastructure for vulnerabilities.
We conduct periodic trainings for our employees in this respect on phishing, malware and other cybersecurity risks to the
Company. We also have mechanisms in place designed to ensure prompt internal reporting of potential or actual
cybersecurity breaches, and maintain compliance programs to address the potential applicability of restrictions on trading
while in possession of material, nonpublic information generally and in connection with a cybersecurity breach. Finally,
our agreements with third parties also typically contain provisions that reduce or limit our exposure to liability.
C. Organizational Structure
As of December 31, 2019, we held directly and indirectly the percentage indicated of the outstanding capital stock of the
following subsidiaries:
Company
Jurisdiction of Incorporation
Percentage
Ownership
Allot Communications Inc.
Allot Communications Europe SARL
Allot Communications (Asia Pacific) Pte. Limited
Allot Communications (UK) Limited (with branches in Spain,
Italy and Germany)
Allot Communications Japan K.K.
Allot Communications (New Zealand) Limited (with a branch in
Australia)
Oversi Networks Ltd.
Allot Communications (Hong Kong) Ltd
Allot Communications Africa (PTY) Ltd
Allot Communications India Private Ltd
Allot Communications Spain, S.L. Sociedad Unipersonal
Allot Communications (Colombia) S.A.S
Allot MexSub
Allot Turkey Komunikasion Hizmeleri limited
Allot Australia (PTY) LTD
United States
France
Singapore
United Kingdom
Japan
New Zealand
Israel
Hong Kong
South Africa
India
Spain
Colombia
Mexico
Turkey
Australia
* Allot Ltd also holds a branch in Colombia.
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100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
D. Property, Plant and Equipment
Our principal administrative and research and development activities are located in our approximately 71,827 square foot
(6,673 square meter) facilities in Hod-Hasharon, Israel. The leases for our facilities vary in dates and terms, with the main
facility’s non-stabilized lease expiring in March 2022.
We also lease a total of 11,248 square feet (1,045 square meter) in two facilities in Spain, mainly for our sales and
research and development operations in Spain, pursuant to lease agreements. The lease agreement of our main site in
Spain was renewed for one year in 2019 and may be renewed for additional terms by mutual consent.
ITEM 4A: Unresolved Staff Comments
Not applicable.
ITEM 5: Operating and Financial Review and Prospects
The information contained in this section should be read in conjunction with our consolidated financial statements for the year
ended December 31, 2019 and related notes and the information contained elsewhere in this annual report. Our financial
statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements that are
subject to known and unknown risks and uncertainties. As a result of many factors, such as those set forth under “ITEM 3.D:
Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” our actual results may differ materially from
those anticipated in these forward-looking statements.
A. Operating Results
Overview
We are a leading global provider of network intelligence and security solutions that enable service providers and
enterprises to protect and personalize the digital experience and monetize on their networks. Allot’s flexible and highly
scalable service delivery framework leverages the intelligence in data networks, enabling service providers to get closer to
their customers, safeguard network assets and users, and accelerate time-to-revenue for value-added services. Our
customers use our solutions to create sophisticated policies to monitor network applications, enforce quality of service
policies that guarantee mission-critical application performance, mitigate security risks and leverage network
infrastructure investments. Demand from users for faster and more reliable access to the Internet, an increase in the
number and complexity of broadband applications, and growth in mobile data-enhanced smartphones have resulted in the
rapid proliferation of broadband access networks in recent years. Our carrier-class products are used by service providers
to offer subscriber-based and application-based tiered services that enable them to optimize their service offerings, reduce
churn rates and increase ARPU.
We market and sell our products through a variety of channels, including direct sales and through our channel partners,
which include distributors, resellers, OEMs and system integrators. End customers of our products include carriers,
mobile operators, cable operators, wireless, wireline and satellite Internet service providers, educational institutions,
governments and enterprises. The resulting intelligent, content-aware broadband networks enable our customers to
accurately monitor and manage IP traffic per application, subscriber, network topology and device.
In 2019, the primary drivers of our revenues were the mobile and fixed markets, which were highlighted by our ongoing
relationship with global Tier 1 mobile and fixed operators groups
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In March 2015, we acquired the business and substantially all of the assets of Optenet, S.A., a developer of security
solutions for internet service providers and enterprises. Under the terms of the agreement, the consideration includes
approximately $9.9 million (€8.9 million) in cash. In addition, there is a performance-based earn-out over a period of five
years following closing, which is capped at approximately $27.5 million (€25 million) and is contingent upon reaching
certain revenue thresholds from sale of Optenet products. The fair value of the contingent consideration as of the
acquisition date was estimated at $8.1 million (€7.3 million).
In January 2018, we acquired all of the outstanding shares of Netonomy Ltd., a developer of software-based cyber
security for the connected home. Under the terms of the agreement, the consideration includes approximately $3.2 million
in cash, a $1.1 million holdback amount and a performance-based contingent amount over a period of two and a half years
following closing, which is capped at approximately $1.1 million. See Note [1(b)] to our consolidated financial statements
for further information.
Key measures of our performance
Revenues
We generate revenues from two sources: (1) sales of our network traffic management systems and our network
management application solutions and platforms, security as a service solution to telecom providers and (2) maintenance
and support services and professional services, including installation and training. We generally provide maintenance and
support services pursuant to a one- to three-year maintenance and support program, which may be purchased by
customers at the time of product purchase or on a renewal basis.
We recognize revenue under the core principle that transfer of control to our customers should be depicted in an amount
reflecting the consideration we expect to receive in revenue. As such, we identify a contract with a customer, identify the
performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance
obligation in the contract and recognize revenues when (or as) we satisfy each performance obligation. We typically grant
a one-year hardware and three-month software warranty on all of our products, or one-year hardware and software
warranty to customers that purchase annual maintenance and support. Typically, our support contracts with our
customers, provide hot line support, warranty, software updates and upgrades, if and when available. We record a
provision for warranty at the time the product’s revenue is recognized. We estimate the liability of possible warranty
claims based on our historical experience. Warranty claims have to date been immaterial to our results of operations.
Maintenance and support revenues are recognized on a straight-line basis over the term of the applicable maintenance and
support agreement. See “—Critical Accounting Policies and Estimates—Revenue Recognition” below.
Geographical breakdown. See “—Operating Results—Results of Operations—Revenues.” for the geographic breakdown
of our revenues by percentage for the years ended December 31, 2018 and 2019.
Cost of revenues and gross margins
Our products’ cost of revenues consists primarily of costs of materials, manufacturing services and overhead,
warehousing and product testing. Our services’ cost of revenues consists primarily of salaries and related personnel costs
for our customer support staff. In 2019, our gross margin increased compared to 2018, mainly due to increase in revenues
while the gross margin rate remains similar to last year. In 2018, our gross margin increased compared to 2017, partially
due to an increase in revenues, which was driven mainly by the higher demand of our Visibility and Control offering in
addition to better execution capabilities. We expect our percentage of gross margin to remain at the same level as in 2020.
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Operating expenses
Research and development. Our research and development expenses consist primarily of salaries and related personnel
costs, costs for subcontractor services, depreciation, rent and costs of materials consumed in connection with the design
and development of our products. We expense all of our research and development costs as they are incurred. Our net
research and development expenses are comprised of gross research and development expenses offset by financing
through grants from the Israel Innovation Authority. Such participation grants are recognized at the time at which we are
entitled to such grants on the basis of the costs incurred and included as a deduction of research and development
expenses (see “—Government Grants” below). We believe that significant investment in research and development,
including hiring high quality research and development personnel, is essential to our future success.
Sales and marketing. Our sales and marketing expenses consist primarily of salaries and related personnel costs, travel
expenses, costs associated with promotional activities such as public relations, conventions and exhibitions, rental
expenses, depreciation and commissions paid to third parties, promote our brand, establish new marketing channels and
expand our presence worldwide.
General and administrative. Our general and administrative expenses consist of salaries and related personnel costs,
rental expenses, costs for professional services and depreciation. General and administrative expenses also include costs
associated with corporate governance, tax and regulatory compliance, compliance with the rules implemented by the SEC,
NASDAQ and the Tel-Aviv Stock Exchange (“TASE”) and premiums for our director and officer liability insurance.
Approved Enterprise
Our facilities in Hod-Hasharon, Israel have been granted Approved Enterprise status under the Encouragement of Capital
Investments Law, 1959, and enjoy certain tax benefits under this program. We intend to utilize these tax benefits after we
utilize our net operating loss carry forwards. As of December 31, 2019, our net operating loss carry forwards for Israeli
tax purposes totaled approximately $62 million, which includes losses related to our acquisition of Oversi. As a result of
our acquisition of Oversi, through 2019 we may offset operating losses in Israel, which were generated prior to the Oversi
acquisition, against taxable income annually with a limitation of up to 14% of the total accumulated loss but no more than
50% of our taxable income. Income derived from other sources, other than through our “Approved Enterprise” status,
during the benefit period will be subject to the regular corporate tax rate.
Government Grants
Our research and development efforts have been financed, in part, through grants from the Israel Innovation Authority
under our approved plans in accordance with the Research and Development Law. In 2018 and 2019 we received grants
from the Israel Innovation Authority through non-royalty bearing programs.
Factors Affecting Our Performance
Our business, financial position and results of operations, as well as the period-to-period comparability of our financial
results, are significantly affected by a number of factors, some of which are beyond our control, including:
Customer concentration. We derived 27% of our total revenues in 2019 and 22% of our total revenues in 2018 from two
global Tier 1 mobile and fixed operator groups. While we have some visibility into the likely scope of the customers’
projects, our relationships are conducted solely on a purchase order basis and we do not have any commitment for future
purchase orders from these customers. The loss of any of such third parties could harm our results of operations and
financial condition.
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Size of end-customers and sales cycles. We have a global, diversified end-customer base consisting primarily of service
providers and enterprises. The deployment of our products by small and midsize enterprises and service providers can be
completed relatively quickly. Large service providers take longer to plan the integration of our solutions into their existing
networks and to set goals for the implementation of the technology. Sales to large service providers are therefore more
complicated as they involve a relatively larger number of network elements and solutions. We are seeking to achieve
further significant customer wins in the large service provider market that would positively impact our future
performance. The longer sales cycles associated with the increased sales to large service providers of our platforms may
increase the unpredictability of the timing of our sales and may cause our quarterly and annual operating results to
fluctuate if a significant customer delays its purchasing decision and/or defers an order. Furthermore, longer sales cycles
may result in delays from the time we increase our operating expenses and make investments in inventory to the time that
we generate revenue from related product sales.
Average selling prices. Our performance is affected by the selling prices of our products. We price our products based on
several factors, including manufacturing costs, the stage of the product’s life cycle, competition, technical complexity of
the product, and discounts given to channel partners in certain territories. We typically are able to charge the highest price
for a product when it is first introduced to the market. We expect that the average selling prices for our products will
decrease over the product’s life cycle as our competitors introduce new products. In order to maintain or increase our
current prices, we expect that we will need to enhance the functionality of our existing products by offering higher system
speeds, additional products and features, such as additional security functions, supporting additional applications and
providing enhanced reporting tools. We also from time to time introduce enhanced products, typically higher-end models
that include new architecture and design and new capabilities. Such enhanced products typically increase our average
selling price. To further offset such declines, we sell maintenance and support programs for our products, and as our
customer base and number of field installations grow, our related service revenues are expected to increase.
Cost of revenues and cost reductions. Our cost of revenues as a percentage of total revenues was 30.6% for 2018 and
30.7% for 2019. Our products use off-the-shelf components and typically the prices of such components decline over
time. However, the introduction and sale of new or enhanced products and services may result in an increase in our cost of
revenues. We make a continuous effort to identify cheaper components of comparable performance and quality. We also
seek improvements in engineering and manufacturing efficiency to reduce costs. Our products incorporate features that
are purchased from third parties. In addition, new products usually have higher costs during the initial introduction period.
We generally expect such costs to decline as the product matures and sales volume increases. The introduction of new
products may also involve a significant decrease in demand for older products. Such a decrease may result in a
devaluation or write-off of such older products and their respective components. The growth of our customer base is
usually coupled with increased service revenues primarily resulting from increased maintenance and support. In addition,
the growth of our installed base with large service providers may result in increased demand for professional services,
such as training and installation services. An increase in demand for such services may require us to hire additional
personnel and incur other expenditures. However, these additional expenses, handled efficiently, may be utilized to further
support the growth of our customer base and increase service revenues. In 2018 our cost of revenues increased due to an
increase in revenues while we kept fixed elements of cost of revenues on a similar level. In 2019 our cost of revenues
increased due to increase in projects which require a higher portion of services and a higher portion of deals with a larger
hardware components.
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Currency exposure. A majority of our revenues and a substantial portion of our expenses are denominated in the U.S.
dollar. However, a significant portion of our revenues is incurred in currencies other than the U.S. dollar, mostly in Euros.
In addition, a significant portion of our expenses, associated with our global operations, including personnel and facilities-
related expenses, are incurred in currencies other than the U.S. dollar; this is the case primarily in Israel and to a lesser
extent in other countries in Europe, Asia, Africa and Latin America. Consequently, a decrease in the value of the U.S.
dollar relative to local currencies will increase the dollar cost of our operations in these countries. A relative decrease in
the value of the U.S. dollar would be partially offset to the extent that we generate revenues in such currencies. In order to
partially mitigate this exposure, we have decided in the past and may decide from time to time in the future to enter into
hedging transactions. We may discontinue hedging activities at any time. As such decisions involve substantial judgment
and assessments primarily regarding future trends in foreign exchange markets, which are very volatile, as well as our
future level and timing of cash flows of these currencies, we cannot provide any assurance that such hedging transactions
will not affect our results of operations when they are realized. See Note [5] to our consolidated financial statements
included elsewhere in this annual report for further information. Also see “ITEM 11: Quantitative and Qualitative
Disclosure About Market Risk.”
Interest rate exposure. We have a significant amount of cash that is currently invested primarily in interest bearing
vehicles, such as bank time deposits and available for sale marketable securities. These investments expose us to risks
associated with interest rate fluctuations See “ITEM 11: Quantitative and Qualitative Disclosure About Market Risk.”
Impacts of the coronavirus (COVID-19) pandemic. The trajectory of the pandemic remains highly uncertain, and we
cannot predict the impacts, trends and uncertainties resulting from the pandemic’s effect on global economic activity, the
industry in which we operate, our sales, the availability and price of our component parts, and the extent to which our
operations and our business may be materially and adversely affected.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP,
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. These estimates and judgments are subject to an inherent
degree of uncertainty and actual results may differ. Our significant accounting policies are more fully described in Note 2
to our consolidated financial statements included elsewhere in this annual report. Certain of our accounting policies are
particularly important to the portrayal of our financial position and results of operations. In applying these critical
accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making
certain estimates. Those estimates are based on our historical experience, the terms of existing contracts, our observance
of trends in our industry, information provided by our customers and information available from other outside sources, as
appropriate. With respect to our policies on revenue recognition and warranty costs, our historical experience is based
principally on our operations since we commenced selling our products in 1998. Our estimates are primarily guided by
observing the following critical accounting policies:
•
Revenue recognition;
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•
•
•
•
•
•
•
•
•
•
Provision for returns;
Business combinations
Allowance for doubtful accounts;
Accounting for stock-based compensation;
Inventories;
Marketable securities;
Impairment of goodwill and long lived assets;
Income taxes;
Contingent liabilities; and
Contingent Consideration.
Because each of the accounting policies listed above requires the exercise of certain judgments and the use of estimates,
actual results may differ from our estimations and as a result would increase or decrease our future revenues and net
income.
Revenue recognition.
We generate revenues mainly from selling products along with related maintenance and support services. At times, these
arrangements may also include professional services, such as installation services or training. We generally sell our
products through resellers, distributors, OEMs and system integrators, all of whom are considered end-users.
We have adopted accounting standards codification 606, “Revenue from Contracts with Customers” (“ASC 606”),
effective as of January 1, 2018. We recognize revenue under the core principle that transfer of control to our customers
should be depicted in an amount reflecting the consideration we expect to receive. As such, we identify a contract with a
customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction
price to each performance obligation in the contract and recognize revenues when (or as) we satisfy each performance
obligation.
We enter into contracts that can include combinations of products and services, that are capable of being distinct and
accounted for as separate performance obligations. The products are distinct as the customer can derive the economic
benefit of it without any professional services, updates or technical support. We allocate the transaction price to each
performance obligation based on its relative standalone selling price out of the total consideration of the contract. For
support, we determine the standalone selling prices based on the price at which we separately sell a renewal contract on a
stand-alone basis. For professional services, we determine the standalone selling prices based on the price at which we
separately sell those services on a stand-alone basis. If the SSP is not observable, the Company estimates the SSP taking
into account available information such as geographic or regional specific factors, internal costs, profit objectives, and
internally approved pricing guidelines related to the performance obligation.
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Maintenance and support related revenues are deferred and recognized on a straight-line basis over the term of the
applicable maintenance and support agreement. Other services are recognized upon the completion of installation or when
the service is provided.
Deferred revenue includes amounts received from customers for which revenue has not yet been recognized. Deferred
revenues are classified as short and long-term based on their contractual term and recognized as revenues at the time the
respective elements are provided.
As of December 31, 2019, following the adoption of ASC 606, we recognize for term-based license agreements at the
point in time when control transfers and the associated maintenance revenues over the contract period. Adoption of this
standard resulted in a reduction of deferred revenues of $712 that was recorded in accumulated deficit due to upfront
recognition of license revenues from term licenses. This adjustment relates to the way we account for term-based license
agreements. Under ASC 605 we recognized both the term license and maintenance revenues ratably over the contract
period whereas under the new revenue standard we recognize term license revenues at the point in time when control
transfers and the associated maintenance revenues over the contract period.
Provision for returns. We provide a provision for product returns based on its experience with historical sales returns.
Such provisions amounted to $0.2 million and $0.2 million as of December 31, 2019 and 2018, respectively.
Business combinations. We account for our business acquisitions in accordance with Accounting Standards Codification
(ASC) No. 805, Business Combinations. We use management best estimates and assumptions as part of the purchase price
allocation process to value assets acquired and liabilities assumed at the business combination date. The total purchase
price allocated to the tangible assets acquired is assigned based on the fair values as of the date of the acquisition.
Allowance for doubtful accounts. We evaluate the collectability of our accounts receivable on a specific basis. We
estimate this allowance based on our judgment as to our ability to collect outstanding receivables. We primarily base this
judgment on an analysis of significant outstanding invoices, the age of the receivables, our historical collection experience
and current economic trends. In circumstances where we are aware of a specific customer’s inability to meet its financial
obligations to us, we record a specific allowance against amounts due to reduce the net recognized receivable to the
amount we reasonably believe will be collected.
Accounting for stock-based compensation. We account for stock-based compensation in accordance with Accounting
Standards Codification No. 718, “Compensation - Stock Compensation” (“ASC No. 718”) that requires companies to
estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of
the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods
in our consolidated statement of operations. We recognize compensation expense for the value of its awards granted based
on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC No.
718 requires forfeitures to be estimated at the time of the grant and revised in subsequent periods if actual forfeitures
differ from those estimates.
In connection with the grant of options and RSUs, we recorded total stock-based compensation expenses of $2.9 million
in 2018 and $3.4 million in 2019. In 2019, $0.3 million, $0.8 million, $1.3 million and $1.1 million of our stock-based
compensation expense resulted from cost of revenue, research and development expenses, net, sales and marketing
expenses and general and administrative expenses, respectively, based on the department in which the recipient of the
option grant was employed. As of December 31, 2019, we had an aggregate of $8.4 million of unrecognized stock-based
compensation remaining to be recognized over a weighted average vesting period of 3 years.
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Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from
slow-moving items, technological obsolescence, excess inventory and discontinued products. Inventory write-off
provision as of December 31, 2019 and 2018 totaled $0.6 million and $2.2 million, respectively.
Marketable securities. We account for our investments in marketable securities using Accounting Standards Codification
No. 320, “Investments – Debt and Equity Securities” (“ASC No. 320”).
We determine the appropriate classification of marketable securities at the time of purchase and evaluate such designation
as of each balance sheet date. We classify all of our investments in marketable securities as available for sale. Available
for sale securities are carried at fair value, with unrealized gains and losses reported in “accumulated other comprehensive
income (loss)” in shareholders’ equity. Realized gains and losses on sales of investments are included in earnings and are
derived using the specific identification method for determining the cost of securities. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization together
with interest and dividends on securities are included in financial income, net, if any.
As of December 31, 2019, we held available for sale marketable securities of $61 million. As of December 31, 2019, the
unrealized gain recorded in other comprehensive income was $0.3 million.
Impairment of goodwill and long lived assets. Goodwill represents the excess of the purchase price over the fair value of
net assets of purchased businesses. Under Accounting Standards Codification No. 350, “Intangibles-Goodwill and Other”
(“ASC No. 350”), goodwill and intangible assets deemed to have indefinite lives are tested for impairment annually, or
more often if there are indicators of impairment present.
We perform an annual impairment analysis of goodwill at December 31 of each year, or more often as applicable. We
operate in one operating segment, and this segment comprises only one reporting unit. The provisions of ASC No. 350
require that a two-step impairment test be performed on goodwill at the level of the reporting units. In the first step, we
compare the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value of the net
assets, goodwill is considered not impaired, and no further testing is required to be performed. If the carrying value of the
net assets exceeds the fair value, then we must perform the second step of the impairment test in order to determine the
implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, then we would record an
impairment loss equal to the difference.
We believe that our business activity and management structure meet the criterion of being a single reporting unit for
accounting purposes. We performed an annual impairment analysis as of December 31, 2019 and determined that the
carrying value of the reporting unit was more than the fair value of the reporting unit. Fair value is determined using
market capitalization. During the years ended 2018 and 2019, no impairment losses were recorded.
Intangible assets acquired in a business combination are recorded at fair value at the date of the acquisition. Following
initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated
impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets that
are not considered to have an indefinite useful life are amortized over their estimated useful lives. Some of the acquired
intangible assets are amortized over their estimated useful lives in proportion to the economic benefits realized. This
accounting policy results in accelerated amortization of such customer relationships and backlog as compared to the
straight-line method. All other intangible assets are amortized over their estimated useful lives on a straight-line basis.
53
Property and equipment and intangible assets subject to amortization are reviewed for impairment in accordance with
ASC No. 360, “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected
to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended
2018 and 2019, no impairment losses were recorded.
Income taxes. We account for income taxes in accordance with Accounting Standards Codification No. 740, “Income
Taxes” (“ASC No. 740”). ASC No. 740 prescribes the use of the liability method, whereby deferred tax asset and liability
account balances are determined based on differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
We provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
In Israel, we have accumulated operating loss carry forwards of approximately $62 million and capital losses of
approximately $27 million for tax purposes as of December 31, 2019, which may be carried forward and offset against
ordinary income and capital gains respectively in the future for an indefinite period. In the United States, the accumulated
losses for U.S. federal income tax return purposes were approximately $6 million as of December 31, 2019, and expire
between 2026 and 2037. We believe that because of our history of losses, and uncertainty with respect to future taxable
income, it is more likely than not that some of the deferred tax assets regarding the loss carry forwards will not be utilized
in the foreseeable future, and therefore, a valuation allowance was provided to reduce deferred tax assets to their
realizable value. The valuation allowance attributed to such losses for the year ended December 31, 2019 was $16
million.
ASC No. 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first
step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available
evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be
sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the
tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
Contingent liabilities. We are, from time to time, involved in claims, lawsuits, government investigations, and other
proceedings arising in the ordinary course of our business. In making a determination regarding provisions for liability,
using available information, we evaluate the likelihood of an unfavorable outcome in legal or regulatory proceedings to
which we are a party to and record a loss contingency when it is probable a liability has been incurred and the amount of
the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory
proceedings, the merits of our defenses and consultation with legal counsel. Legal proceedings are inherently
unpredictable and subject to significant uncertainties, some of which are beyond our control. Should any of these
estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of
operations, financial position and cash flows.
Contingent Consideration. We measure liabilities related to earn-out payments at fair value at the end of each reporting
period. The fair value was estimated by utilizing the future potential cash payments discounted to arrive at a present value
amount, based on our expectation. The discount rate was based on the Monte-Carlo simulation method by taking into
account, forecast future revenues, expected volatility and weighted average cost of debt.
54
For more information regarding recently issued accounting pronouncements see Note 2 to the consolidated financial
statements.
Results of Operations
The following table sets forth our statements of operations as a percentage of revenues for the periods indicated:
Revenues:
Products
Services
Total revenues
Cost of revenues:
Products
Services
Total cost of revenues
Gross profit
Operating expenses:
Research and development, net
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Financing income, net
Loss before income tax expense
tax expense
Net loss
Revenues
Year Ended December 31,
2018
2019
58.6%
41.4
100.0
61.3%
38.7
100.0
20.9
9.7
30.6
69.4
26.5
42.6
10.9
80.0
10.6
2.3
8.3
2.6
10.9%
20.6
10.1
30.7
69.3
28.6
42.8
6.1
77.5
8.2
1.8
6.4
1.5
7.9%
See “ITEM 4B: Information on Allot—Business Overview—Customers” for the geographic breakdown of our revenues
by percentage for the years ended December 31, 2017, 2018 and 2019.
Ended December 31, 2019 Compared to Year Ended December 31, 2018
Products. Product revenues increased by $11.3 million, or 20.1%, to $67.4 million in 2018 from $56.2 million in 2018.
The increase in revenues in 2019 was attributable to a better execution capability, changes in the Company structure to
support better our sales efforts and higher demand of our Visibility and Control offering.
55
Services. Service revenues increased by $3.0 million, or 7.5%, to $42.7 million in 2019 from $39.6 million in 2018. A
material part of the sales of our Services is linked to the sale of our products; thus, service revenues increased in
correlation with product revenues.
Product revenues comprised 61.3% of our total revenues in 2019, a increase of 2.7% compared to 2018 while the services
revenues portion of total revenues decreased by 2.7%.
Cost of revenues and gross margin
Products. Cost of product revenues increased by $2.7 million, or 13.4%, to $22.7 million in 2019 from $20.1 million in
2018. Product gross margin increased to 66.3% in 2019 from 64.3% in 2018. This increase is attributed to increase in
projects which require a larger portion of hardware components.
Services. Cost of services revenues increased by $1.8 million, or 19.4%, to $11.1 million in 2019 from $9.3 million in
2018. This increase is due to an increase in projects which require a higher portion of professional services.
Total gross margin decreased to 69.3% in 2019 from 69.4% in 2018.
Operating expenses
Research and development. Gross research and development expenses increased by $6.0 million, or 23.4%, to $31.8
million in 2019 from $25.8 million in 2018. Gross research and development expenses as a percentage of total revenues
increased to 28.9% (28.6%, net) in 2019 from 26.9% (26.5%, net) in 2018.
Sales and marketing. Sales and marketing expenses increased by $6.3 million, or 15.3%, to $47.1 million in 2019 from
$40.8 million in 2018. The increase in our sales and marketing expenses is mainly attributable to our increased efforts to
strengthen our position in certain territories, which led to the recruitment of additional senior sales representatives in
various countries, as well as use of agents in specific accounts. In addition, we have focused on increasing our Security
sales and recruiting the appropriate sales representative. Sales and marketing expenses as a percentage of total revenues
increased to 42.8% in 2019 from 42.6% in 2018.
General and administrative. General and administrative expenses decreased by $3.7 million, or 35.9%, to $6.7 million in
2019 from $10.4 million in 2018, deriving mainly from the re-evaluation of the Optenet acquisition earn-out provisions.
General and administrative expenses as a percentage of revenues decreased to 6.1% in 2019 from 10.9% in 2018.
Financial income, net. In 2019 we had $2.0 million financial income, net. In 2018 we had $2.2 million financial income,
net. The change in 2019 was primarily attributed to [foreign currency exchange differences of $0.5 million compared to
2018 an increase in interest income of $0.4 million].
Income tax expense. Income tax expense in 2019 was $1.6 million, compared to income tax expense of $2.4 million in
2018. The increase in 2019 was mainly due to [an increase in the write-off of withholding taxes expenses of
approximately $0.3 million] and decrease in current tax and deferred tax expenses of $0.5 million, compared to 2018.
56
For a discussion of our operating results for the fiscal year ended December 31, 2018 as compared to the fiscal year ended
December 31, 2017, see “ITEM 5. Operating and Financial Review and Prospects—Operating Results” of our Annual
Report on Form 20-F for the fiscal year ended December 31, 2018, which was filed with the SEC on March 19, 2019.1
B. Liquidity and Capital Resources
As of December 31, 2019, we had $16.9 million in cash and cash equivalents, $61.0 million available for sale marketable
securities $28.7 million in short-term deposits and restricted deposits and $10.9 million in long-term restricted deposits.
As of December 31, 2019, our working capital, which we calculate by subtracting our current liabilities from our current
assets, was $79.9 million.
Based on our current business plan, we believe that our existing cash balances will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next twelve months. If our estimates of revenues,
expense or capital or liquidity requirements change or are inaccurate and are insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity or arrange additional debt financing. In addition, we may seek to sell
additional equity or arrange debt financing to give us financial flexibility to pursue attractive acquisitions or investment
opportunities that may arise in the future.
Operating activities.
During 2019, we had $16.1 million in cash and cash equivalents from operating activities. Net cash provided by operating
activities consisted mainly of a net loss of $8.7 million, depreciation, amortization and impairment of intangible assets of
$4.3 million, $3.4 million of stock-based compensation expense, an increase of $0.3 million in inventory, an increase of
$4.6 million in employees and payroll accruals, an increase of $2.9 million in trade receivables, an increase of $3.9
million in trade payables, a decrease of $9.0 in other payables and accrued expenses, an increase of $3.2 million in other
receivables and prepaid expenses, an increase of $23.5 million in deferred revenues and $0.4 million related to other
operating activities.
During 2018, we had $1.0 million in cash and cash equivalents from operating activities. Net cash provided by operating
activities consisted mainly of a net loss of $10.4 million, depreciation, amortization and impairment of intangible assets of
$3.8 million, $2.9 million of stock-based compensation expense, an increase of $3.4 million in inventory, a decrease of
$1.2 million in employees and payroll accruals, an increase of $3.4 million in trade receivables, an increase of $1.9
million in trade payables, an increase of $6.9 in other payables and accrued expenses, an increase of $1.1 million in other
receivables and prepaid expenses, an increase of $3.6 million in deferred revenues and $1.4 million related to other
operating activities.
Investing activities.
Net cash used in investing activities in 2019 was $16.5 million, primarily attributable to an investment in available-for
sale marketable securities of $40.0 million, purchase of property and equipment for $3.7 million and investment in short-
term bank deposits and restricted deposits of $16.9 million. The above changes were partially offset by redemption of
marketable securities of $43.6 million.
57
Net cash used in investing activities in 2018 was $0.5 million, primarily attributable to an investment in available-for sale
marketable securities of $34.8 million, purchase of property and equipment for $3.5 million and the acquisition of
Netonomy for a purchase price of $3.0 million. The above changes were partially offset by redemption of marketable
securities of $32.6 million and the redemption in short-term bank deposits and restricted deposits of $8.2 million.
We expect that our capital expenditures will total approximately $8.7 million in 2020. We anticipate that these capital
expenditures will be primarily related to purchase of equipment of Security as a service deals and to further investments
in lab equipment for research and development and customer success as well as IT infrastructure.
Financing activities.
Net cash provided by financing activities in 2019 was $1.0 million, which was attributable to issuance of share capital
through the exercise of stock options and RSUs
Net cash provided by financing activities in 2018 was $0.4 million, which was attributable to issuance of share capital
through the exercise of stock options and RSUs.
For a discussion of our our liquidity and capital resources for the fiscal year ended December 31, 2017, see “ITEM 5.
Operating and Financial Review and Prospects—Liquidity and Capital Resources” of our Annual Report on Form 20-F
for the fiscal year ended December 31, 2018, which was filed with the SEC on March 19, 2019.2
C. Research and Development, Patents and Licenses
In 2018 and 2019, we benefited from non-royalty bearing grants from the Israel Innovation Authority. The government
grants we have received for research and development expenditures restrict our ability to manufacture products and
transfer technologies outside of Israel and require us to satisfy specified conditions. If we fail to comply with such
restrictions or these conditions, we may be required to refund grants previously received together with interest and
penalties, and we may be subject to criminal charges.
As of December 31, 2019, we had 19 issued U.S. patents and five pending patent applications in the United States. We
expect to formalize our evaluation process for determining which inventions to protect by patents or other means. We
cannot be certain that patents will be issued as a result of the patent applications we have filed.
D. Trend Information
See “ITEM 5: Operating and Financial Review and Prospects” above.
E. Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose
financing or partnership entities that are likely to create material contingent obligations.
58
F. Contractual Obligations
The following table of our material contractual and other obligations known to us as of December 31, 2019, summarizes
the aggregate effect that these obligations are expected to have on our cash flows in the periods indicated.
Contractual Obligations
Purchase obligations
Operating leases - offices(1)
Operating leases - vehicles
Uncertain tax position (ASC-740)
Total
_____________________
(1)
Payments due by period
Total
Less than 1
year
1–3 years
Over 3 years
$
$
$
12,303 $
6,425 $
771
243
19,742 $
(in thousands of U.S. dollars)
12,303 $
2,886 $
419
$
3,442
352
15,608 $
3,794 $
97
97
Consists primarily of an operating lease for our facilities in Hod Hasharon, Israel, as well as operating leases for facilities leased by our subsidiaries.
ITEM 6: Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth the names, ages and positions of our directors and executive officers as of March 1, 2020:
Name
Directors
Yigal Jacoby(5)
Manuel Echanove(5)
Itzhak Danziger (5)
Nurit Benjamini (1)(2)(3)(4)(5)
Steven D. Levy (1)(2)(4)(5)
Miron (Ronnie) Kenneth (1)(2)(5)
Nadav Zohar (5)
Executive Officers
Erez Antebi
Ziv Leitman
Nir Pery
Ronit Weinstein
Ronen Priel
Rael Kolevsohn
Pini Gvili
Keren Rubanenko
Ran Fridman
Vered Zur
Hagay Katz
Mark Shteiman
____________
(1) Member of our compensation and nomination committee.
(2) Member of our audit committee.
(3)
Lead independent director.
(4) Outside director.
(5)
Independent director under the rules of NASDAQ.
Age
Position
Chairman of the Board
Director
Director
Director
Director
Director
Director
Chief Executive Officer and President
Chief Financial Officer
Senior Vice President, Research and Development
Vice President, Human Resources
Chief Technology Officer
Vice President, Legal Affairs, General Counsel and Company
Secretary
Vice President, Operations
Senior Vice President, Customer Success
Executive Vice President, Global Sales
Vice President, Marketing
VP Strategic Accounts, Cyber Security
Vice President Product Management
59
55
71
53
63
64
54
61
61
50
57
44
50
55
43
45
56
60
44
59
Directors
Yigal Jacoby has served as Chairman of the Board of Directors since November, 2016. Mr. Jacoby co-founded our
company in 1996 and served as our CEO until 2006 and as a Chairman of our board of directors until 2008. Prior to co-
founding Allot, Mr. Jacoby founded Armon Networking, a manufacturer of network management solutions in 1992, and
managed it until it was acquired by Bay Networks, a network hardware vendor, where he served as the General Manager
of its Network Management Division. From 1985 to 1992, Mr. Jacoby held various engineering and marketing
management positions at Tekelec, a manufacturer of Telecommunication monitoring and diagnostic equipment. Currently,
Mr. Jacoby is an active investor and director of several Israeli start-up companies, including serving as Chairman at LiveU
Ltd., a provider of live cellular video transmission solutions. Mr. Jacoby has a B.A., cum laude, in Computer Science
from Technion — Israel Institute of Technology and an M.Sc. in Computer Science from University of Southern
California.
Manuel Echanove has served as an interim director since July 2017. Prior to his appointment Mr. Echanove served in
various management positions with the Telefonica group, a multinational telecommunications company, between 1996
and 2012. During his tenure at Telefonica, Mr. Echanove held various senior management positions as Commercial
General Manager, General Director of Business Development and General Director of Multimedia and Brand Business.
He also served as General Manager in the Corporate Strategy area of Telefónica S.A. before leaving Telefonica in 2012.
Prior to joining Telefonica, Mr. Echanove served in sales and marketing management positions at France Telecom, British
Telecom, each a multinational telecommunications company, and Data General, a minicomputer firm. Mr. Echanove is
currently the CEO of Wetania Consulting S.L. a management consulting company, which he founded in 2013. Mr.
Echanove has an Economics and Business Administration degree from the Universidad Pontificia de Comillas.
Itzhak Danziger has served as a director since 2011. Prior to his appointment as a director, Mr. Danziger served as an
observer to our Board since 2010. Itzhak Danziger serves as a member of the board of Galil Software, an Israeli software
services company, and as a director of EyeControl and Jinni Media, privately held technology companies. From 1985 to
2007, Mr. Danziger held various executive positions at Comverse, a technology companies group that develops and
markets telecommunications systems, including as president of Comverse Technology Group, as president of Comverse
Network Systems and as chairman of Comverse subsidiary - Starhome. Prior to joining Comverse, Mr. Danziger held
various R&D and management positions in Tadiran Telecom Division, a privately held manufacturer of business
telecommunications equipment. In the non-profit sector, Mr. Danziger serves as the chairman of the Center for
Educational Technology (CET), as Vice President and board member of the New Israel Fund (NIF), a non-profit for social
justice and equality, the chairman of Israel Venture Network (IVN)- Yozma fund for investments in social businesses and
a director in Israel Venture Network (IVN), a venture philanthropy NGO. Mr. Danziger was also a member of the
National Task Force for the Advancement of Education in Israel (Dovrat Committee). Mr. Danziger holds a B.Sc. cum
laude and an M.Sc. in electrical engineering from the Technion - Israel Institute of Technology and an M.A. cum laude in
philosophy and digital culture from Tel Aviv University.
60
Nurit Benjamini has served as an outside director since 2007 and serves as the lead independent director on our board.
Since December 2013, Ms. Benjamini has served as the Chief Financial Officer of TabTale Ltd., a company that provides
mobile content. Ms. Benjamini served as the Chief Financial Officer of Wix.com Ltd. (NASDAQ: WIX), a software
company providing web development solutions, from 2011 to 2013. Previously, from 2007 to 2011, Ms. Benjamini has
served as the Chief Financial Officer of CopperGate Communications Ltd. (now Sigma Designs Ltd.) that was acquired
by Sigma Designs Inc. (NASDAQ:SIGM), a provider of system-on-chip semiconductors, in November 2009. Prior to her
position with CopperGate Communications Ltd., Ms. Benjamini served as the Chief Financial Officer of Compugen Ltd.,
a genomics-based drug and diagnostic discovery company, from 2000 to 2007. Ms. Benjamini serves as an outside
director of BiolineRX Ltd. (NASDAQ/TASE: BLRX), a biopharmaceutical company focused on oncology, as a member
of its compensation committee, and as a chairman of its audit committee. Ms. Benjamini serves as a director and chair-
person of the audit committee of Redhill Biopharma, a biopharmaceutical company focused on gastrointestinal diseases.
Ms. Benjamini serves as a director and chair-person of the audit committee of Gamida Cell Ltd. (NASDAQ: GMDA), an
advanced cell therapy company. Ms. Benjamini holds a B.A. in Economics and Business and an M.B.A. in Finance, both
from Bar Ilan University, Israel.
Steven D. Levy has served as an outside director since 2007. Mr. Levy served as a Managing Director and Global Head
of Communications Technology Research at Lehman Brothers, a global financial services firm, from 1998 to
2005. Before joining Lehman Brothers, Mr. Levy was a Director of Telecommunications Research at Salomon Brothers,
an American investment bank, from 1997 to 1998, Managing Director and Head of the Communications Research Team
at Oppenheimer & Co., a global full-service brokerage and investment bank from 1994 to 1997 and a senior
communications analyst at Hambrecht & Quist, a California-based investment bank, from 1986 to 1994. Mr. Levy has
served as a director of PCTEL, a broadband wireless technology company since 2006 and served as a director of Edison
Properties, a privately held U.S. real estate company, since 2018. Mr. Levy previously served as a director of privately
held GENBAND Inc., a U.S. provider of telecommunications equipment. Mr. Levy holds a B.Sc. in Materials
Engineering and an M.B.A., both from the Rensselaer Polytechnic Institute.
Miron (Ronnie) Kenneth has served as a director since October 2014. Mr. Kenneth has more than 20 years of experience
in the global high technology business, and is currently a private investor in high technology startups. He serves as the
Chairman of Teridion Technologies Ltd., a privately held company specializing in overlay network technologies for
service providers. From May 2011 to May 2013, Mr. Kenneth served as the CEO of Pontis Ltd., a privately-held company
specializing in providing online marketing and analytics platforms for service providers. Prior to his tenure at Pontis, Mr.
Kenneth was the Chairman and Chief Executive Officer of Voltaire Technologies Ltd., a provider of scale-out data center
fabrics, (from January 2001 to 2011). In 2011 Voltaire was acquired by Mellanox Technologies Ltd. (NASDAQ: MLNX),
a multinational supplier of computer networking products. Prior to his employment at Voltaire, Mr. Kenneth was a
General Partner in Telos Venture Partners, a Silicon Valley based venture firm. Prior to Telos, Mr. Kenneth also held
senior management positions in the European organization of Cadence Design Systems Inc. (NASDAQ: CDN), a
multinational electronic design automation software and engineering services company. Mr. Kenneth has an M.B.A. from
Golden Gate University in San Francisco, California and a B.A. in Economics and Computer Science from Bar Ilan
University in Israel.
Nadav Zohar has served as an interim director since February 2017 and as a director since April 2017. Mr. Zohar serves
as the head of Business Development of Gett, an “on demand” transportation service provider. Prior to joining Gett, Mr.
Zohar served as Chief Operating Officer of Delek Global Real Estate PLC, company description to be added, between
2006 and 2009 and held several executive positions with Morgan Stanley, a multinational investment bank and financial
services company, between 2001 and 2006, the last of which was Executive Director, Financial Sponsors Group. Prior to
joining Morgan Stanley, Mr. Zohar served in executive roles at Lehman Brothers, a global financial services firm,
between 1997 and 2001. Mr. Zohar serves as a board member of Matomy Media Group Ltd. (London Stock Exchange:
MTMY), a digital performance-based advertising company. Mr. Zohar holds a Masters in Finance (graduated with Merit)
from the London Business School and a LLB in Law (graduated with honors) from the University of Reading.
61
Executive Officers
Erez Antebi has served as our President and Chief Executive Officer since February 2017. Mr. Antebi served as the CEO
of Gilat Satellite Networks (NADAQ: GILT), a satellite communications technology and services provider, between 2012
and 2015. Between 2005 and 2012 Mr. Antebi also served in several executive roles at Gilat Satellite Networks. Between
2003 and 2005 Mr. Antebi served as the CEO of Clariton Networks, a start-up company, providing services in cellular
coverage. Prior to that Mr. Antebi has served in a variety of roles at Gilat Satellite Networks, Tadiran, a provider of radio
communications for military applications and for Rafael, Israel Ministry of Defense. Mr. Antebi currently serves on the
advisory boards of HiSky. Mr. Antebi holds a B. Sc., Electrical Engineering (Communications), Summa Cum Laude, and
a M.Sc., Electrical Engineering (Information Theory), both from the Technion, Israel.
Ziv Leitman has served as our Chief Financial Officer since November 2019. Prior to joining Allot, Mr. Leitman served
as CFO of Powermat Technologies, a wireless charging pioneer leader, and from 2011 to 2017 as CFO of Partner
Communications, one of Israel’s leading mobile, fixed-line, Internet and TV service providers. Between 2009 to 2011, he
served as Deputy CEO and CFO of Paz Oil Company, and between 2002 to 2009, as CFO of Comverse Inc., a leading
provider of telecommunications products. From 1989 to 2002 Mr. Leitman also held CFO positions at Discount
Investment Corp., Lucent Technologies EIS, Kimberly-Clark Israel and Optrotech (Orbotech). Mr. Leitman is a Certified
Public Accountant and holds a B.A. in Economics and Accounting and an M.B.A. in Finance & Information Systems,
both from the Tel Aviv University.
Ronit Weinstein has served as our Vice President—Human Resources since May, 2019. Prior to joining Allot Ms.
Weinstein served between 2018 to 2019 as VP Human Resources at Verint Systems Ltd. a leading global company in the
field of actionable intelligence, between 2017 and 2018 as a Human Resources and Organizational Consultant, between
2007 and 2017 as VP Human Resources at Flash Networks Ltd. a leading provider of optimization solutions, between
2007 to 2007 as VP Human Resources at TTI Telecom, between 2003 to 2006 as VP Human Resources at Compugen Ltd.
a leading genomics-based drug and diagnostic discovery company, between 1997 to 2003 as VP Human Resources of the
Enavis subsidiary of ECI Telecom, a global provider of ELASTIC network solutions to CSPs, critical infrastructures and
data center operators and between 1993 to 1996 as an organizational consultant. Ms. Weinstein holds a B.A. in Political
Science and Sociology from Tel Aviv University and a B.A. in Sociology from UCLA.
Mark Shteiman has served as our Vice President Product Management since October 2019. Prior to that Mr. Shteiman
served as our Associate Vice President Product Management from June 2018. Prior to Allot Mr. Shteiman served as Vice
President Product Management at Kaminario Ltd. a leading All-flash Software-defined storage company, redefining the
future of cloud-scale datacenters, between 2012 and 2015 served as Head of Product, City business unit of AGT
International Ltd., between 2011 and 2013 founded Friendize Me. a SaaS Social E-commerce company and served as its
CEO, between 2009 and 2011 as Vice President, Products at Gigafone Ltd., between 2006 and 2008 as VP Product
Management NGM at Neustar, between 2000 – 2006 he held a number of positions at Followap a leading mobile instant
messaging(IM) and interoperability provider for mobile telecom operators and internet service providers, during 2000
held a position in the Israeli Defense Forces and between 1996 – 1998 served as a software developer at Aitech Defense
Systems. Mr. Shteiman holds a B.Sc in Computer Science from the Technion, Israel.
Ronen Priel has served as our Chief Technology Offer since October 2019. Prior to that, Mr. Priel served as Allot’s Vice
President—Product Management & Marketing, from August 2016. Prior to joining Allot, Mr. Priel served as VP Business
Management and Strategy, Video Intelligence Solutions (VIS) Division of Verint (NADAQ: VRNT), a global leader in
Actionable Intelligence® solutions with a focus on customer engagement optimization, security intelligence, and fraud,
risk and compliance, since 2014. Between 2008 and 2014 Mr. Priel served in a number of executive roles in Verint.
Between 2006 and 2008 he served as Senior Director of Products Marketing at Pontis Ltd. and between 1999 and 2004
Mr. Priel served as Product Line Manager & Director of Marketing at ECtel Ltd. Mr. Priel holds a BA in computer
science from the Israeli Open University and an M.B.A. from Insead, France.
62
Rael Kolevsohn joined our company in 2014 and serves as our Vice President—Legal Affairs, General Counsel, and
Company Secretary. Prior to joining us, he served as Vice President and General Counsel of Radvision Ltd. from 2007 to
2014. From 1998 to 2007, Mr. Kolevsohn served as General Counsel and Vice President of Gilat Satellite Networks Ltd.
after joining Gilat as Legal Counsel. From 1994 to 1998, he completed his legal internship and worked as an attorney at
the Tel Aviv law firm of Yossifof, Amir Cohen & Co. Mr. Kolevsohn is a member of the Israel Bar Association and holds
an LL.B. degree, with honors, from the Hebrew University in Jerusalem.
Pini Gvili has served as our Vice President—Operations since 2006. Prior to joining us, from 2004 to 2006, he served as
Vice President Operations for Celerica, a start-up company specializing in solutions for cellular network optimization.
From 2001 to 2004, Mr. Gvili was the Vice President—Operations and IT at Terayon Communication Systems, and from
1998 to 2000, held the position of Manager of Integration and Final Testing at Telegate. Mr. Gvili was also a
hardware/software engineer at Comverse/Efrat, a world leader of voice mail and digital recording systems, from 1994 to
1997. Mr. Gvili has a B.Sc. in Computer Science from Champlain University and was awarded a practical electronics
degree from ORT Technical College.
Ran Fridman has served as our Executive Vice President, Global Sales since April 2017. Prior to joining us, Mr.
Fridman served as Chief Business Officer of eVolution Networks, a provider of Deep Learning AI based energy efficiency
solution for mobile operators and data centers. Between 2013 and 2015 Mr. Fridman served as SVP of Sales and
Customer Services, worldwide, of Flash Networks, a provider of mobile optimization and monetization solutions. Prior to
that, Mr. Fridman held various executive sales positions at Nokia Siemens Networks. Mr. Fridman holds a B.A. in
computer science from the Academic College of Tel-Aviv Jaffa.
Vered Zur has served as our Vice President, Marketing since April 2017. Prior to joining us, Ms. Zur served as CMO of
Electra Ltd. (TASE: ELECTRA), a leading supplier of electric appliances. Between 2011 and 2014, Ms. Zur served as VP
global Sales Operations and Business enablement of Amdocs (NASDAQ: DOX), a provider of software and services to
communications and media companies. Between 2005 and 2011, Ms. Zur served as VP Customer Marketing of Comverse
(Xura), a company that provided telecommunications software. Prior to that Ms. Zur served in various marketing roles at
telecommunications companies and advertising agencies. Ms. Zur holds a B.A. in Behavioral Science from the Ben-
Gurion University and a M.B.A from the Edinburgh Business School, Heriot-Watt University.
Hagay Katz has served as our VP Strategic Accounts, Cyber Security, BD since July 2017. Prior to joining us Mr. Katz
served as Head of VSAT line of business at Gilat Satellite Networks (NASDAQ/TASE: GILT), a provider of satellite
communication, systems between 2010 and 2017. Between 2006 and 2010 Mr. Katz served as Director of Products at
Modu Mobile, a provider of cellular handsets and consumer electronics. Between 2000 and 2006 Mr. Katz served as Co-
Founder and VP Marketing and Business Development of PacketLight Networks, a developer of broadband
access/transport system to operator networks and a range of optical transport systems for storage applications, which was
acquired by the RAD group. Prior to that, Mr. Katz served as Regional VP Sales – APAC and Scandinavia of Teledata and
as a project manager in Telstra. Mr. Katz also serves as a member of the advisory boards of several technological
companies. Mr. Katz holds a BSc and a MSc in Electronic Engineering from the Tel-Aviv University and a MBA in
Marketing and Finance of Monash University; Melbourne.
Nir Perry has served as our SVP Research and Development since September 24, 2017. Prior to joining us, Mr. Perry has
served in various research and development and managerial roles of increasing responsibilities, in Verint Systems Ltd.
(NASDAQ: VRNT), an analytics company, providing actionable intelligence solutions in the areas of customer
engagement and cyber intelligence, between the years 1996 and 2017, most recently, serving as SVP Product House and
ISL Site Manager, Enterprise Intelligence Solutions, between 2015 and 2017, as SVP Global R&D, Video Intelligence
Solutions, between 2011 and 2014, and as VP TLV R&D, Witness Action Solution, between 2008 and 2010. Mr. Perry
holds a B.Sc. cum laude, in Electrical and Electronical Engineering from the Tel-Aviv University and a MBA from the
Tel-Aviv University.
63
Keren Rubanenko has served as our Senior Vice President, Customer Success since November 2018 Prior to joining
Allot, Keren was VP Customer Success at RADCOM, VP R&D and Operations Surveillance Solutions at Nice Systems
between 2011 and 2015, between 1999-2011 Keren held a number of senior positions at Comverse Technologies
including serving as Associate VP and General Manager, Voice Product Unit. Ms. Rubanenko holds a B.A. in Business
Administration.
B. Compensation of Officers and Directors
The aggregate compensation paid to or accrued on behalf of our directors and executive officers as a group during 2019
consisted of approximately $4.3 million in salary, fees, bonus, commissions and directors’ fees, including amounts we
expended for automobiles made available to our officers, but excluding equity based compensation, dues for professional
and business associations, business travel and other expenses, and other benefits commonly reimbursed or paid by
companies in Israel. This amount includes approximately $0.8 million set aside or accrued to provide pension, severance,
retirement or similar benefits or expenses.
In 2019, we paid or accrued to the chairman of the board of directors, Mr. Yigal Jacoby, an annual fee of ILS 358,200
(approximately $100,544). During such time we paid our directors, Itzhak Danziger, Nadav Zohar and Manuel Echanove
ILS 80,565 (approximately $22,614), ILS 78,315 (approximately $21,982) and ILS 82,065 (approximately $23,035),
respectively, and we paid or accrued to each of our outside directors, Nurit Benjamini, Steven Levy and Miron (Ronnie)
Keneth, as permitted by the Companies Law, an annual fee of ILS 100,815 (approximately $28,298), ILS 115,065
(approximately $32,298) and ILS 112,065 (approximately $31,456), respectively. The above fees for each of our directors
(other than Yigal Jacoby) have included a per-meeting attendance fee of ILS 3,750 (approximately $1,053) for any
meeting he or she attended in person, and ILS 2,250 (approximately $632) for any meeting he or she attended by
conference call or similar means. Our directors are also typically granted upon election an agreed amount of equity based
awards, which vest over a period of not less than three years, and 10,000 RSUs, as of every third annual general meeting
following the respective director’s initial election.
During 2019, our executive officers and directors received, in the aggregate, RSUs to purchase 195,000 ordinary shares
under our equity incentive plans.
Compensation of our Five Most Highly Compensated Office Holders
Summary Compensation Table
The table and summary below outline the compensation granted to our five most highly compensated office holders
during or with respect to the year ended December 31, 2019. We refer to the five individuals for whom disclosure is
provided herein as our “Covered Executives.”
64
For purposes of the table and the summary below, “compensation” includes base salary, discretionary and non-equity
incentive bonuses, equity-based compensation, payments accrued or paid in connection with retirement or termination of
employment, and personal benefits and perquisites such as car, phone and social benefits paid to or earned by each
Covered Executive during the year ended December 31, 2019.
Name and Principal Position (1)
Erez Antebi, President and Chief Executive Officer
Ran Fridman, Executive Vice President Global Sales
Alberto Sessa, Former Chief Financial Officer
Nir Pery, Vice President R&D
Keren Rubanenko, Vice President Customer Success
Salary
($)
270,102
255,874
226,647
203,180
202,099
Bonus and
Commision
($) (2)
Equity-Based
Compensation
($) (3)
All Other
Compensation
($) (4)
150,151
186,580
41,439
38,783
40,400
294,677
111,128
200,289
118,893
66,547
84,187
106,105
175,500
62,194
68,822
Total
($)
799,117
659,688
643,825
423,050
377,868
(1) Unless otherwise indicated herein, all Covered Executives are full-time employees of Allot.
(2) Amounts reported in this column represent annual incentive bonuses and commissions granted to the Covered Executives based on
performance-metric based formulas set forth in their respective employment agreements.
(3) Amounts reported in this column represent the grant date fair value computed in accordance with accounting guidance for stock-based
compensation. For a discussion of the assumptions used in reaching this valuation, see Note [12] to our consolidated financial statements for
the year ended December 31, 2019, included herein.
(4) Amounts reported in this column include personal benefits and perquisites, including those mandated by applicable law. Such benefits and
perquisites may include, to the extent applicable to the respective Covered Executive, payments, contributions and/or allocations for savings
funds ( e.g., Managers Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, vacation,
car or car allowance, medical insurances and benefits, risk insurance ( e.g., life insurance or work disability insurance), telephone expense
reimbursement, convalescence or recreation pay, relocation reimbursement, payments for social security, and other personal benefits and
perquisites consistent with the Company’s guidelines. All amounts reported in the table represent incremental cost to the Company.
Compensation Policy
Under the Companies Law, we are required to adopt a compensation policy, recommended by the compensation and
nominating committee and approved by the Board of Directors and the shareholders, in that order. The shareholder
approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have
a personal interest in the matter. In general, all directors and executive officers’ terms of compensation, including fixed
remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and
the grant of an exemption from liability, must comply with the compensation policy.
In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is
considered a controlling shareholder must be approved separately by the compensation and nominating committee, the
Board of Directors and the shareholders of the Company (by the same majority noted above), in that order. The
compensation terms of other executive officers require the approval of the compensation and nominating committee and
the Board of Directors.
Our compensation policy was approved by our compensation and nominating committee and by our Board of Directors,
and subsequently approved by our shareholders in September 2019, and will be in effect for a period of three years
following approval. Our compensation policy provides:
•
Objectives: To attract, motivate and retain highly experienced personnel who will provide leadership for Allot’s success and enhance
shareholder value, and to promote for each executive officer an opportunity to advance in a growing organization.
65
•
•
•
•
•
•
•
•
•
•
•
•
Compensation instruments: Includes base salary; benefits and perquisites; cash bonuses; equity-based awards; and retirement and
termination arrangements.
Ratio between fixed and variable compensation: Allot aims to balance the mix of fixed compensation (base salary, benefits and
perquisites) and variable compensation (cash bonuses and equity-based awards) pursuant to the ranges set forth in the compensation
policy in order, among other things, to tie the compensation of each executive officer to Allot’s financial and strategic achievements and
enhance the alignment between the executive officer’s interests and the long-term interests of Allot and its shareholders .
Internal compensation ratio: Allot will target a ratio between overall compensation of the executive officers and the average and median
salary of the other employees of Allot, as set forth in the compensation policy, to ensure that levels of executive compensation will not
have a negative impact on work relations in Allot.
Base salary, benefits and perquisites: The compensation policy provides guidelines and criteria for determining base salary, benefits and
perquisites for executive officers.
Cash bonuses: Allot’s policy is to allow annual cash bonuses, which may be awarded to executive officers pursuant to the guidelines and
criteria, including maximum bonus opportunities, set forth in the compensation policy.
“Clawback”: In the event of an accounting restatement, Allot shall be entitled to recover from current executive officers bonus
compensation in the amount of the excess over what would have been paid under the accounting restatement, with a three-year look-back.
Equity-based awards: Allot’s policy is to provide equity-based awards in the form of stock options, restricted stock units and other forms
of equity, which may be awarded to executive officers pursuant to the guidelines and criteria, including minimum vesting period, set forth
in the compensation policy.
Retirement and termination: The compensation policy provides guidelines and criteria for determining retirement and termination
arrangements of executive officers, including limitations thereon.
Exculpation, indemnification and insurance: The compensation policy provides guidelines and criteria for providing directors and
executive officers with exculpation, indemnification and insurance.
Directors: The compensation policy provides guidelines for the compensation of our directors in accordance with applicable regulations
promulgated under the Companies Law, and for equity-based awards that may be granted to directors pursuant to the guidelines and
criteria, including minimum vesting period, set forth in the compensation policy.
Applicability: The compensation policy applies to all compensation agreements and arrangements approved after the date on which the
compensation policy is approved by the shareholders.
Review: The compensation and nominating committee and the Board of Directors of Allot shall review and reassess the adequacy of the
Compensation Policy from time to time, as required by the Companies Law.
66
C. Board Practices
Corporate Governance Practices
As a foreign private issuer, we are permitted under NASDAQ Rule 5615(a)(3) to follow Israeli corporate governance
practices instead of the NASDAQ Stock Market requirements applicable to the U.S. issuers, provided we disclose which
requirements we are not following and describe the equivalent Israeli requirement. See “ITEM 16G: Corporate
Governance Requirements” for a discussion of those ways in which our corporate governance practices differ from those
required by NASDAQ for domestic companies.
Board of Directors
Terms of Directors
Our articles of association provide that we may have not less than five directors and up to nine directors.
Under our articles of association, our directors (other than the outside directors, whose appointments are required under
the Companies Law; see “—Outside Directors”) are divided into three classes. Each class of directors consists, as nearly
as possible, of one-third of the total number of directors constituting the entire board of directors (other than the outside
directors). At each annual general meeting of our shareholders, the election or re-election of directors following the
expiration of the term of office of that class of directors is for a term of office that expires on the third annual general
meeting following such election or re-election, such that each year the term of office of only one class of directors will
expire.
Our Class I directors, Nadav Zohar, will hold office until the 2022 Annual General Meeting of Shareholders. Our Class II
directors, Itzhak Danziger and Miron Kenneth, will hold office until our annual meeting of shareholders to be held
in 2020. Our Class III directors, Yigal Jacoby (who also serves as our Chairman of the board of directors) and Manuel
Echanove, will hold office until our annual meeting of shareholders to be held in 2021. The directors (other than the
outside directors) are elected by a vote of the holders of a majority of the voting power present and voting at the meeting.
Each director will hold office until the annual general meeting of our shareholders for the year in which his or her term
expires and until his or her successor is duly elected and qualified, unless the tenure of such director expires earlier
pursuant to the Companies Law or unless he or she resigns or is removed from office.
Under the Companies Law, a director (including an outside director) must declare in writing that he or she has the
required skills and the ability to dedicate the time required to serve as a director in addition to other statutory
requirements. A director who ceases to meet the statutory requirements for his or her appointment must immediately
notify us of the same and his or her office will become vacated upon such notice.
Under our articles of association, the approval of a special majority of the holders of at least 75% of the voting rights
present and voting at a general meeting is generally required to remove any of our directors (other than the outside
directors) from office. The holders of a majority of the voting power present and voting at a meeting may elect directors
in their stead or fill any vacancy, however created, in our board of directors. In addition, vacancies on our board of
directors, other than a vacancy in the office of an outside director, may be filled by a vote of a simple majority of the
directors then in office. A director so chosen or appointed will hold office until the next annual general meeting of our
shareholders, unless earlier removed by the vote of a majority of the directors then in office prior to such annual meeting.
See “—Outside Directors” for a description of the procedure for election of outside directors.
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Outside Directors
Qualifications of Outside Directors
The Companies Law requires companies incorporated under the laws of the State of Israel with shares listed on a stock
exchange, including the NASDAQ Global Select Market, to appoint at least two outside directors. Our outside directors
are Ms. Benjamini and Mr. Levy. Ms. Benjamini also serves as the lead independent director.
Outside directors are required to meet standards of independence and qualifications set forth in the Companies Law and
related regulations. Among other independence qualifications, a person may not serve as an outside director if he is a
relative of a controlling shareholder of a company, or if he or his affiliate (as defined in the Companies Law) has an
employment, business or professional relationship or other affiliation (as defined in the Companies Law) with us.
In addition, the Companies Law requires every outside director appointed to the board of directors of an Israeli company
to qualify as a “financial and accounting expert” or as “professionally competent,” as such terms are defined in the
applicable regulations under the Companies Law, and at least one outside director must qualify as a “financial and
accounting expert.” If at least one of our directors meets the independence requirements of the Exchange Act and the
standards of the NASDAQ Stock Market rules for membership on the audit committee and also has financial and
accounting expertise as defined in the Companies Law, then the other outside directors are only required to meet the
professional qualifications requirement. Under applicable regulations, a director with financial and accounting expertise is
a director who, through his or her education, professional experience and skill, has a high level of proficiency in and
understanding of business accounting matters and financial statements. He or she must be able to thoroughly comprehend
the financial statements of the company and initiate debate regarding the manner in which financial information is
presented.
Election of Outside Directors
Outside directors are elected by a majority vote at a shareholders’ meeting, provided that either:
•
•
the majority of shares voted at the meeting, including at least a majority of the shares of non-controlling shareholder(s) and shareholders
who do not have a personal interest in the election of the outside director (other than a personal interest that does not result from the
shareholder’s relationship with a controlling shareholder), voted at the meeting, excluding abstentions, vote in favor of the election of the
outside director; or
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the election of the
outside director (excluding a personal interest that does not result from the shareholder's relationship with a controlling shareholder)
voted against the election of the outside director does not exceed two percent of the aggregate voting rights in the company.
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The initial term of an outside director is three years, and he or she may be reelected to up to two additional terms of three
years each at a shareholders’ meeting, subject to the voting threshold set forth above. Thereafter, an outside director may
be reelected for additional periods of up to three years each, only if the company’s audit committee and board of directors
confirm that, in light of the outside director’s expertise and special contribution to the work of the board of directors and
its committees, the reelection for such additional period is beneficial to the company. The terms of our outside directors,
Nurit Benjamini and Steven Levy, will continue until February 20, 2022 and August 14, 2022, respectively, unless such
office is vacated in accordance with our Articles of Association or the Israel Companies Law. Outside directors may be
removed by the same voting threshold as is required for their election, or by a court, and only if the outside directors cease
to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. The tenure
of outside directors, like all directors, may also be terminated by a court under limited circumstances. If the vacancy of an
outside director position causes the company to have fewer than two outside directors, a company’s board of directors is
required under the Companies Law to call a special general meeting of the company’s shareholders as soon as possible to
appoint a new outside director. Each committee of a company’s board of directors which is authorized to exercise the
board of directors’ authorities is required to include at least one outside director, except for the audit committee and the
compensation committee, which are required to include all outside directors.
An outside director is entitled to compensation and reimbursement of expenses as provided in regulations promulgated
under the Companies Law, and is otherwise prohibited from receiving any other compensation, directly or indirectly, in
connection with services provided as an outside director, other than indemnification, exculpation and insurance as
permitted pursuant to the Companies Law.
NASDAQ Requirements
Under the NASDAQ Stock Market rules, a majority of directors must meet the independence requirements specified in
those rules. Our board of directors consists of seven members, all of whom are independent under the NASDAQ Stock
Market rules. Specifically, our board has determined that Ms. Nurit Benjamini, Mr. Itzhak Danziger, Mr. Yigal Jacoby,
Mr. Steven Levy, Mr. Miron Kenneth, Mr. Nadav Zohar and Mr. Manuel Echanove meet the independence standards of
the NASDAQ Stock Market rules. In reaching this conclusion, the board determined that none of these directors have a
relationship that would preclude a finding of independence and that the other relationships that these directors have with
us do not impair their independence. See “ITEM 16G. Corporate Governance” for additional information.
Audit Committee
Companies Law Requirements
Under the Companies Law, the board of directors of any public company must appoint an audit committee comprised of
at least three directors, including all of the outside directors. The following persons may not be appointed as members of
the audit committee:
•
•
•
the chairperson of the board of directors;
a controlling shareholder or a relative of a controlling shareholder (as defined in the Companies Law); or
any director who is engaged by, or provides services on a regular basis to the company, the company’s controlling shareholder or an
entity controlled by a controlling shareholder or any director who generally relies on a controlling shareholder for his or her livelihood.
The Companies Law requires the majority of the audit committee members to be independent directors (as defined in the
Companies Law), and the chairman of the audit committee is required to be an outside director. Any person disqualified
from serving as a member of the audit committee may not be present at the audit committee meetings, unless the
chairperson of the audit committee has determined that this person is required to be present for a particular matter. The
Companies Law provides for certain other exclusions to this provision.
69
NASDAQ Requirements
Under the NASDAQ Stock Market rules, companies are required to maintain an audit committee consisting of at least
three independent directors, all of whom are financially literate and one of whom has accounting or related financial
management expertise. Our audit committee members are required to meet additional independence standards, including
minimum standards set forth in rules of the SEC and adopted by the NASDAQ Stock Market.
Each of the members of our audit committee is “independent” under the relevant NASDAQ Stock Market rules and as
defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board
and committee members.
Approval of Transactions with Related Parties
The approval of the audit committee is required to effect specified actions and transactions with office holders and
controlling shareholders. The term “office holder” means a general manager, chief business manager, deputy general
manager, vice general manager, or any other person assuming the responsibilities of any of the foregoing positions,
without regard to such person’s title, as well as any director or manager directly subordinate to the general manager. The
term “controlling shareholder” means a shareholder with the ability to direct the activities of the company, other than by
virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or
more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its
general manager. For the purpose of approving transactions with controlling shareholders, the term also includes any
shareholder that holds 25% or more of the voting rights of the company, if the company has no shareholder that owns
more than 50% of its voting rights. For purposes of determining the holding percentage stated above, two or more
shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint
holders. The audit committee may not approve an action or a transaction with a controlling shareholder or with an office
holder unless all the requirements of the Companies Law regarding the structure of the committee and the persons entitled
to be present at meetings are met at the time of approval.
Audit Committee Role
Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee
consistent with the rules of the SEC and the NASDAQ Stock Market, which include:
•
•
•
retaining and terminating the company’s independent auditors, subject to shareholder ratification;
pre-approval of audit and non-audit services provided by the independent auditors; and
approval of transactions with office holders and controlling shareholders, as described above, and other related-party transactions.
70
Additionally, under the Companies Law, the audit committee is responsible for: (a) identifying deficiencies in the
management of a company’s business and making recommendations to the board of directors as to how to correct them;
(b) reviewing and deciding whether to approve certain related party transactions and certain transactions involving
conflicts of interest; (c) deciding whether certain actions involving conflicts of interest are material actions and whether
certain related party transactions are extraordinary transactions; (d) reviewing the internal auditor’s work program; (e)
examining the company’s internal control structure and processes, the performance of the internal auditor and whether the
internal auditor has the tools and resources required to perform his or her duties; and (f) examining the independent
auditor’s scope of work as well as the independent auditor’s fees, and providing the corporate body responsible for
determining the independent auditor’s fees with its recommendations. In addition, the audit committee is also responsible
for implementing procedures concerning employee complaints on improprieties in the administration of the company’s
business and the protection to be provided to such employees. Furthermore, in accordance with regulations promulgated
under the Companies Law, the audit committee discusses the draft financial statements and presents to the board its
recommendations with respect to the draft financial statements. The audit committee charter states that in fulfilling this
role the committee is entitled to rely on interviews and consultations with our management, our internal auditor and our
independent auditor, and is not obligated to conduct any independent investigation or verification.
Our audit committee consists of Ms. Nurit Benjamini, Mr. Steven Levy and Mr. Miron Kenneth. The financial experts on
the audit committee pursuant to the definition of the SEC are all members of the audit committee.
Compensation and Nominating Committee
Under the Companies Law, the compensation committee of a public company must consist of at least three directors who
satisfy certain independence qualifications, including the additional independence requirements of the NASDAQ Stock
Market rules applicable to the members of compensation committees, and the chairman of the compensation committee is
required to be an outside director. We have established a compensation and nominating committee which currently
consists of Ms. Nurit Benjamini, Mr. Steven Levy, and Mr. Miron Kenneth. The chairperson is Mr. Levy. This committee
oversees matters related to our compensation policy and practices. Our board of directors has adopted a compensation and
nominating committee charter setting forth the responsibilities of the committee consistent with the Companies Law and
the NASDAQ Stock Market rules, which include:
•
•
•
•
approving, and recommending to the board of directors and the shareholders for their approval, the compensation of our Chief Executive
Officer and other executive officers;
granting options and RSUs to our employees and the employees of our subsidiaries;
recommending candidates for nomination as members of our board of directors; and
developing and recommending to the board corporate governance guidelines and a code of business ethics and conduct in accordance
with applicable laws.
The compensation committee is also authorized to retain and terminate compensation consultants, legal counsel or other
advisors to the committee and to approve the engagement of any such consultant, counsel or advisor, to the extent it
deems necessary or appropriate after specifically analyzing the independence of any such consultant retained by the
committee.
On specified criteria, to review modifications to the compensation policy from time to time, to review its implementation
and to approve the actual compensation terms of office holders prior to approval by the board of directors.
71
Internal Auditor
Under the Companies Law, the board of directors of a public company must appoint an internal auditor nominated by the
audit committee. The role of the internal auditor is, among other things, to examine whether a company’s actions comply
with applicable law and orderly business procedure. The internal auditor may be an employee of the company but not an
interested party (as defined in the Companies Law), an office holder of the company, or a relative of an interested party or
an office holder, among other restrictions. The firm of Deloitte Brightman Almagor Zohar is the internal auditor of the
Company.
Exculpation, Insurance and Indemnification of Office Holders
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of
loyalty. However, a company may provide certain indemnification rights as detailed below and obtain insurance for an act
performed in breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or
its approval does not harm the company, and the office holder discloses the nature of his or her personal interest in the act
and all material facts and documents a reasonable time before discussion of the approval. Our articles of association, in
accordance with Israeli law, allow us to exculpate an office holder, in advance, from liability to us, in whole or in part, for
damages caused to us as a result of a breach of duty of care. We may not exculpate a director for liability arising out of a
prohibited dividend or distribution to shareholders or prohibited purchase of its securities.
In accordance with Israeli law, our articles of association allow us to indemnify an office holder in respect of certain
liabilities either in advance of an event or following an event. Under Israeli law, an undertaking provided in advance by an
Israeli company to indemnify an office holder with respect to a financial liability imposed on him or her in favor of
another person pursuant to a judgment, settlement or arbitrator’s award approved by a court must be limited to events
which in the opinion of the board of directors can be foreseen based on the company’s activities when the undertaking to
indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the
circumstances, and such undertaking must detail the above mentioned events and amount or criteria. Our articles of
association allow us to undertake in advance to indemnify an office holder for, among other costs, reasonable litigation
expenses, including attorneys’ fees, and certain financial liabilities and obligations, subject to certain restrictions pursuant
to the Companies Law.
In accordance with Israeli law, our articles of association allow us to insure an office holder against certain liabilities
incurred for acts performed as an office holder, including certain breaches of duty of loyalty to the company, a breach of
duty of care to the company or to another person and certain financial liabilities and obligations imposed on the office
holder.
We may not indemnify or insure an office holder against any of the following:
•
•
•
•
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act
would not prejudice the company;
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office
holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine, civil fine, monetary sanction or forfeit levied against the office holder.
72
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our
compensation committee and our board of directors and, in respect of our directors, the chief executive officer, and any
employee or service provider who is considered a controlling shareholder, by our shareholders, provided that changes to
existing arrangements may be approved by the audit committee if it approves that such changes are immaterial.
As of the date of this annual report, there are no claims for directors’ and officers’ liability insurance which have been
filed in 2019 under our policies and we are not aware of any pending or threatened litigation or proceeding involving any
of our directors or officers in which indemnification is sought.
We have entered into agreements with each of our directors and with certain of our office holders exculpating them, to the
fullest extent permitted by law, from liability to us for damages caused to us as a result of a breach of duty of care, and
undertaking to indemnify them to the fullest extent permitted by law. This indemnification is limited to events determined
as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by
the board of directors as reasonable under the circumstances, and the insurance is subject to our discretion depending on
its availability, effectiveness and cost. The current maximum amount set forth in such agreements is the greater of (1) with
respect to indemnification in connection with a public offering of our securities, the gross proceeds raised by us and/or
any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public
offering of our securities, an amount equal to 50% of the our shareholders’ equity on a consolidated basis, based on our
most recent financial statements made publicly available before the date on which the indemnity payment is made.
In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act is
against public policy and therefore unenforceable.
D. Employees
As of December 31, 2019, we had 594 employees of whom 321 were based in Israel, 149 in Europe, 20 in North America,
30 in Latin America and 74 in Asia, Africa and Oceania. We have never experienced a work stoppage or a strike. The
breakdown of our employees by department is as follows:
Department
Manufacturing and operations
Research and development
Sales, marketing, service and support
Management and administration
Total
2017
December 31,
2018
2019
13
163
250
51
477
13
200
261
50
524
The table below provides a breakdown of personnel employed or engaged by the Company:
Department
Full time Employee
Part time Employee
Permanent Contractor
Subcontractor
Total
2017
December 31,
2018
2019
404
26
36
11
477
422
27
41
34
524
73
13
233
289
59
594
478
29
37
50
594
In the foregoing table and in each instance herein where number of employees is provided, employees include full time
and part time employees, as well as subcontractors and consultants. Typically, our employees, as well as our
subcontractors and consultants, are employed or engaged for indefinite periods of time and may be dismissed or
terminated with or without notice, depending on the jurisdiction and contracts under which they are employed or engaged.
Under applicable Israeli law, we and our employees are subject to protective labor provisions such as restrictions on
working hours, minimum wages, minimum vacation, sick pay, severance pay and advance notice of termination of
employment as well as equal opportunity and anti-discrimination laws. Orders issued by the Israeli Ministry of Economy
make certain industry-wide collective bargaining agreements applicable to us. These agreements affect matters such as
cost of living adjustments to salaries, length of working hours and week, recuperation, travel expenses, and pension rights.
Except as otherwise stated hereunder, our employees are not represented by a labor union. Under Spanish Labor law, we
and our employees are subject to protective labor provisions and collective bargaining agreements, governing, among
others, restrictions on working hours, minimum wages, minimum vacation, sick pay, severance pay and advance notice of
termination of employment as well as equal opportunity and anti-discrimination laws. Our workers in our San Sebastian
office in Spain, are represented by a worker’s representative, who will be subject to reelection during 2020. In addition,
our employees in our Madrid office are represented by five worker representatives, who were recently elected for a term
of four years and thus will be subject to reelection during 2021. Such representatives represent the employees with respect
to labor health and prevention, training and equality. We provide our employees with benefits and working conditions
which we believe are competitive with benefits and working conditions provided by similar companies. We have never
experienced labor-related work stoppages and believe that our relations with our employees are good.
E. Share Ownership
Beneficial Ownership of Executive Officers and Directors
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of March
1, 2020 by (i) each of our directors, (ii) each of our executive officers and (iii) all of our executive officers and directors
serving as of March 1, 2020, as a group. Unless otherwise stated, the address of each named executive officer and director
is c/o Allot Ltd, 22 Hanagar Street, Neve Ne’eman Industrial Zone B, Hod-Hasharon 45240, Israel.
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Name of Beneficial Owner
Directors
Nurit Benjamini
Itzhak Danziger
Manuel Echanove
Nadav Zohar
Steven D. Levy
Yigal Jacoby
Miron Kenneth
Executive Officers
Erez Antebi
Ziv Leitman
Nir Pery
Ronit Weinstein
Ronen Priel
Rael Kolevsohn
Pini Gvili
Keren Rubanenko
Ran Fridman
Vered Zur
Hagay Katz
Mark Shteiman
All directors and executive officers as a group
____________
Number of
Shares
Beneficially
Held(1)
Percent of
Class
*
*
*
*
*
462,681
*
*
*
*
*
*
*
*
*
*
*
1,029,443
*
*
*
*
*
1.33%
*
*
*
*
*
*
*
*
*
*
*
2.97%
* Less than one percent of the outstanding ordinary shares.
(1) As used in this table, “beneficial ownership” is determined in accordance with the rules of the SEC and consists of either or both voting or
investment power with respect to securities. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from March 1, 2019 through the exercise of any option or pursuant to vesting of RSU. Ordinary shares subject to
options that are currently exercisable or exercisable within 60 days of March 1, 2020 and outstanding RSUs vesting within 60 days of March 1,
2020, are deemed outstanding for computing the ownership percentage of the person holding such options or RSUs, but are not deemed
outstanding for the purpose of computing the ownership percentage of any other person. Except as otherwise indicated, the persons named in the
table have reported that they have sole voting and sole investment power with respect to all ordinary shares shown as beneficially owned by
them. The amounts and percentages are based upon 34,700,606 ordinary shares outstanding as of March 1, 2020 pursuant to Rule 13d-3(d)(1)(i)
under the Exchange Act.
Our directors and executive officers hold, in the aggregate, 1,233,961 outstanding options and RSUs. The said amount
includes options currently exercisable for 714,950 ordinary shares, as of March 1, 2020. The options (excluding RSUs)
have a weighted average exercise price of $7.23 per share and have expiration dates until 2025.
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Share Option Plans
The following table summarizes our equity incentive plans, which have outstanding awards as of March 1, 2020:
Plan
2016 Incentive Compensation
Plan
____________
Shares
reserved
Option and
RSU grants,
net (*)
Outstanding
options and
RSUs
Options
outstanding
exercise price
Date of expiration
Options
exercisable
577,002
8,029,483
3,058,083
0.029-27.58
03/01/2020-09/06/2025
1,170,265
(*) “Option and RSU grants, net” is calculated by subtracting options and RSUs expired or forfeited.
As of March 1, 2020, we had 34,700,606 ordinary shares outstanding. We have adopted three share option plans. Under
our share option plans, as of March 1, 2020, there were 3,058,083 outstanding options and RSUs, including options
currently exercisable for 1,170,265 ordinary shares. As of March 1, 2020, 577,002 shares remained available for future
grants under the 2016 Plan (as described below). Upon issuance, such ordinary shares may be freely sold in the public
market, except for shares held by affiliates who have certain restrictions on their ability to sell. The options (excluding
RSUs) have a weighted average exercise price of $7.75 per share.
We will only grant options, RSUs or other equity incentive awards under the 2016 Incentive Compensation Plan, although
previously-granted options will continue to be governed by our other plans.
2016 Incentive Compensation Plan, as amended (formerly, 2006 Incentive Compensation Plan)
The Allot Ltd 2006 Incentive Compensation Plan (the “2006 Plan”) was adopted by the Board on October 29, 2006 and
became effective immediately prior to the effective date of the Company’s IPO. Effective October 28, 2016, the Board of
Directors of the Company amended and restated the 2006 Plan to extend the term of the 2006 Plan by ten years and to
rename the 2006 Plan as the Allot Ltd 2016 Incentive Compensation Plan (the “2016 Plan”). The 2016 Plan will remain
in effect, subject to the right of the Board of Directors to amend or terminate the 2016 Plan at any time pursuant to the
terms of the 2016 Plan, until all shares reserved for issuance under the 2016 Plan shall have been delivered, and any
restrictions on such shares shall have lapsed, provided that in no event may an award under the 2016 Plan be granted on
or after October 27, 2026.
The 2016 Plan is intended to further our success by increasing the ownership interest of certain of our and our
subsidiaries’ employees, directors and consultants and to enhance our and our subsidiaries’ ability to attract and retain
employees, directors and consultants.
The number of ordinary shares that we may issue under the 2016 Plan will increase on the first day of each fiscal year
during the term of the 2016 Plan, in each case in an amount equal to the lesser of (i) 1,000,000 shares, (ii) 3.5% of our
outstanding ordinary shares on the last day of the immediately preceding year, or (iii) an amount determined by our board
of directors. The number of shares subject to the 2016 Plan is also subject to adjustment if particular capital changes affect
our share capital. Ordinary shares subject to outstanding awards under the 2016 Plan or our 2003 plan or 1997 plans that
are subsequently forfeited or terminated for any other reason before being exercised will again be available for grant
under the 2016 Plan. As of March 1, 2020, there were 3,058,083 outstanding options and RSUs under the 2016 Plan and
577,002 ordinary shares remained reserved for future grants under the 2016 Plan.
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Israeli participants in the 2016 Plan may be granted options and/or restricted stock units subject to Section 102 of the
Ordinance. Section 102 of the Ordinance, allows employees, directors and officers, who are not controlling shareholders
and are considered Israeli residents to receive favorable tax treatment for compensation in the form of shares or options.
Our non-employees service providers and controlling shareholders may only be granted options under another section of
the Ordinance, which does not provide for similar tax benefits. Section 102 includes two alternatives for tax treatment
involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional
alternative for the issuance of options or shares directly to the grantee. The most favorable tax treatment for the grantees
is under Section 102(b)(2) of the Ordinance, the issuance to a trustee under the “capital gain track.” However, under this
track we are not allowed to deduct an expense with respect to the issuance of the options or shares. Any stock options
granted under the 2016 Plan to participants in the United States will be either “incentive stock options,” which may be
eligible for special tax treatment under the U.S. Internal Revenue Code of 1986, or options other than incentive stock
options (referred to as “nonqualified stock options”), as determined by our compensation and nominating committee and
stated in the option agreement.
Our compensation and nominating committee administers the 2016 Plan and it selects which of our and our subsidiaries’
and affiliates’ eligible employees, directors and/or consultants receive options, RSUs or other awards under the 2016 Plan
and will determine the terms of the grant, including, exercise prices, method of payment, vesting schedules, acceleration
of vesting and the other matters necessary in the administration of the plan.
If we undergo a change of control, as defined in the 2016 Plan, subject to any contrary law or rule, or the terms of any
award agreement in effect before the change of control, (a) the compensation and nominating committee may, in its
discretion, accelerate the vesting, exercisability and payment, as applicable, of outstanding options, RSUs and other
awards; and (b) the compensation and nominating committee, in its discretion, may adjust outstanding awards by
substituting ordinary shares or other securities of any successor or another party to the change of control transaction, or
cash out outstanding options, RSUs and other awards, in any such case, generally based on the consideration received by
our shareholders in the transaction.
ITEM 7: Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our outstanding ordinary shares as
of March 1, 2020, by each person who we know beneficially owns 5.0% or more of the outstanding ordinary shares. Each
of our shareholders has identical voting rights with respect to its shares. All of the information with respect to beneficial
ownership of the ordinary shares is given to the best of our knowledge.
Lynrock Lake Partners LLC (2)
Outerbridge Master Fund LP (3)
Clal Insurance Enterprises Holdings Ltd. (4)
Migdal Insurance & Financial Holdings Ltd. (5)
Renaissance Technologies LLC (6)
Sphera Funds Management Ltd. (7)
______________
Ordinary
Shares
Beneficially
Owned(1)
Percentage of
Ordinary
Shares
Beneficially
Owned
6,200,731
2,940,802
2,550,531
2,323,473
1,949,869
1,808,196
17.87%
8.47%
7.35%
6.70%
5.61%
5.21%
(1) As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition
of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days
from March 1, 2020 through the exercise of any option or warrant. Ordinary shares subject to options or warrants that are currently
exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding such options
or warrants, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are
based upon 34,700,606 ordinary shares outstanding as of March 1, 2020.
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(2) Based on a Schedule 13G/A filed on February 14, 2020, Lynrock Lake LP, Lynrock Lake Partners LLC and Cynthia Paul reported that each
had sole voting power over 6,200,731 ordinary shares.
As of December 31, 2019, Lynrock Lake Master Fund LP ("Lynrock Lake Master") directly held 6,200,731 ordinary shares of the Company.
Lynrock Lake LP (the “Investment Manager”) is the investment manager of Lynrock Lake Master, and pursuant to an investment management
agreement, the Investment Manager has been delegated full voting and investment power over securities of the Issuer held by Lynrock Lake
Master. Cynthia Paul, the Chief Investment Officer of the Investment Manager and Sole Member of Lynrock Lake Partners LLC, the general
partner of the Investment Manager, may be deemed to exercise voting and investment power over securities of the Issuer held by Lynrock
Lake Master. The address of the reporting persons is 2 International Drive, Suite 130, Rye Brook, NY 10573.
(3) Based on a Schedule 13G/A filed on February 14, 2020, Outerbridge Capital Management, LLC, Outerbridge Master Fund LP, Outerbridge
GP, LLC and Rory Wallace reported that they had shared voting and dispositive power over 2,940,802 ordinary shares. The address of
Outerbridge Capital Management, LLC, Outerbridge GP, LLC and Rory Wallace is 767 Third Avenue, 11th Floor, New York, New York
10017. The address of Outerbridge Master Fund LP is c/o Ogier Global (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman
KY1-9009, Cayman Islands.
(4) Based on information provided to us by Clal Insurance Enterprises Holdings Ltd. (“Clal”), on March 1, 2020 Clal had shared voting and
dispositive power over 2,550,531 of our shares. All of these shares are held for members of the public through, among others, provident funds,
mutual funds, pension funds and insurance policies, which are managed by subsidiaries of Clal. The address of the reporting person is 36
Raoul Wallenberg Street, Tel Aviv 37070, Israel.
(5) Based on information provided to us by Midgal Insurance & Financial Holdings Ltd. (“Migdal”), on March 1, 2020 Migdal had shared voting
power and dispositive power over these ordinary shares. Of these shares, 2,323,473 ordinary shares are held for members of the public
through, among others, provident funds, mutual funds, pension funds and insurance policies, which are managed by direct and indirect
subsidiaries of Reporting Person, each of which subsidiaries operates under independent management and makes independent voting and
investment decisions and 166,385 ordinary shares are held by companies for the management of funds for joint investments in trusteeship,
each of which operates under independent management and makes independent voting and investment decisions. The address of the reporting
person is 4 Efal Street; P.O BOX 3063; Petach Tikva 49512, Israel.
(6) Based on a Schedule 13G filed on February 13, 2020, Renaissance Technologies LLC (“RTC”) and Renaissance Technologies Holdings
Corporation (“RTHC”) reported that they each had sole voting power over 1,725,490 ordinary shares, sole dispositive power over 1,949,869
shares and shared dispositive power over 3,294 ordinary shares. RTC is a majority-owned subsidiary of RTHC. Certain funds and accounts
managed by RTC have the right to receive dividends and proceeds from the sale of the ordinary shares. The address of RTC and RTHC is 800
Third Avenue, New York, New York 10022.
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(7) Based on a Schedule 13G/A filed on February 11, 2020, Ron Senator, Sphera Funds Management Ltd. (“SFML”) and Sphera Capital Ltd.
(“Sphera Capital”) reported that they had shared voting and dispositive power over 1,808,196 ordinary shares, including (i) 1,455,425
ordinary shares beneficially owned by SFML, which acts as the investment management company for Sphera Master Fund LP., (ii) 285,832
ordinary shares beneficially owned by Sphera Capital, which acts as the investment management company for Sphera Small Cap Fund Ltd.
and (iii) 66,939 ordinary shares beneficially owned by SFML, which has investment discretion under an investment management agreement to
manage the investments of EJS Investment Management S.A. (a company incorporated under the laws of Switzerland), acting for and on
behalf of Firstag Securities Ltd. and Galatee Holdings Ltd (both companies incorporated under the laws of the British Virgin Islands). Sphera
Master Fund L.P. has delegated its investment management authority to SFML and Sphera Small Cap Fund Ltd. has delegated its investment
management authority to Sphera Capital. Ron Senator may be considered the beneficial owner of all such ordinary serves as the portfolio
manager for Sphera Funds Management Ltd. and Sphera Capital Ltd. The address of Ron Senator is c/o Sphera Funds Management Ltd.,
Platinum House, 21 Ha’arba’ah Street, Tel Aviv 64739, Israel. The address of Sphera Funds Management Ltd. and Sphera Capital Ltd. is 21
Ha’arba’ah Street, Tel Aviv 64739, Israel.
Significant Changes in the Ownership of Major Shareholders
As of February 13, 2020, Renaissance Technologies LLC was the beneficial owner of 1,949,869, or 5.69%, of our
ordinary shares.
As of December 31, 2109, Outerbridge Master Fund LP was the beneficial owner of 2,940,802, or 8.47% of our ordinary
shares.
As of December 31, 2019, Sphera Funds Management Ltd. was the beneficial owner of 1,808,196, or 5.21% of our
ordinary shares.
As of December 31, 2019, Phoenix Holdings Ltd. ceased to beneficially own more than 5% of our ordinary shares. As of
November 3, 2019, Itshak Sharon (Tshuva) and the Delek Group Ltd. ceased to beneficially own more than 5% of our
ordinary shares.
A.
Record Holders
As of March 1, 2020, there were 17 record holders of ordinary shares, of which eight consisted of United States record
holders holding approximately 99.5% of our outstanding ordinary shares. The actual number of shareholders is greater
than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in
street name by brokers and other nominees. The United States record holders included Cede & Co., the nominee of the
Depositary Trust Company.
B. Related Party Transactions
Our policy is to enter into transactions with related parties on terms that, on the whole, are no less favorable, than those
available from unaffiliated third parties. Based on our experience in the business sectors in which we operate and the
terms of our transactions with unaffiliated third parties, we believe that all of the transactions described below met this
policy standard at the time they occurred.
Agreements with Directors and Officers
Engagement of Officers. We have entered into employment agreements with each of our officers, who work for us as
employees or as consultants. These agreements all contain provisions standard for a company in our industry regarding
noncompetition, confidentiality of information and assignment of inventions. The enforceability of covenants not to
compete in Israel may be limited. In connection with the engagement of our officers, we have granted them options
pursuant to our 2016 Plan.
79
Exculpation, Indemnification and Insurance. Our articles of association permit us to exculpate, indemnify and insure our
office holders, in accordance with the provisions of the Companies Law. We have entered into agreements with each of
our directors and certain office holders, exculpating them from a breach of their duty of care to us to the fullest extent
permitted by law and undertaking to indemnify them to the fullest extent permitted by law, to the extent that these
liabilities are not covered by insurance. See “ITEM 6: Directors, Senior Management and Employees—Board Practices—
Exculpation, Insurance and Indemnification of Office Holders.”
C. Interests of Experts and Counsel
Not applicable.
ITEM 8: Financial Information
A. Consolidated Financial Statements and Other Financial Information.
Consolidated Financial Statements
For our audited consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of
comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2019, please see pages F-5 to F-50 of this report.
Export Sales
See “ITEM 4: Operating and Financial Review and Prospects” under the caption “Customers” for certain details of export
sales for the last three fiscal years.
Legal Proceedings
We may, from time to time in the future be involved in legal proceedings in the ordinary course of business. Such matters
are generally subject to many uncertainties and outcomes are not predictable with assurance. We accrue for contingencies
when the loss is probable and it can reasonably estimate the amount of any such loss. Except as set forth in Note [11] to
our consolidated financial statements for the fiscal year ended December 31, 2019 included elsewhere in this report, we
are currently not a party to any material legal or administrative proceedings for which an appropriate accrual has not been
made, and is not aware of any pending or threatened material legal or administrative proceedings against us.
Dividends
We have never declared or paid any cash dividends on our ordinary shares and we do not anticipate paying any cash
dividends on our ordinary shares in the future. We currently intend to retain all future earnings to finance our operations
and to expand our business. Any future determination relating to our dividend policy will be made at the discretion of our
board of directors and will depend on a number of factors, including future earnings, capital requirements, financial
condition and future prospects and other factors our board of directors may deem relevant.
B. Significant Changes
Since the date of our audited financial statements included elsewhere in this annual report, there have not been any
significant changes in our financial position.
80
ITEM 9: The Offer and Listing
Our ordinary shares have been quoted under the symbol “ALLT” on the NASDAQ Stock Market since November 16, 2006 and
on the Tel Aviv Stock Exchange since December 21, 2010.
As of March 1, 2020, the last reported sale price of our ordinary shares on the Nasdaq Global Select Market was $10.85 per share
and on the Tel Aviv Stock Exchange was $37.36 per share.
ITEM 10: Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Memorandum and Articles of Association Incorporation
We are registered as a public company with the Israeli Registrar of Companies. Our registration number is 51-239477-6.
Objective
Our objectives under our memorandum of association are to engage in the business of computers, hardware and software,
including without limitation research and development, marketing, consulting and the selling of knowledge, and any other
activity which our board of directors shall determine.
Ordinary Shares
Our authorized share capital consists of 200,000,000 ordinary shares, par value ILS 0.10 per share. As of March 1, 2020,
we had 34,700,606 ordinary shares outstanding. All outstanding ordinary shares are validly issued, fully paid and non-
assessable. The rights attached to the ordinary shares are as follows:
Voting. Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of
shareholders at a shareholder meeting. Shareholders may vote at shareholder meeting either in person, by proxy or by
written ballot. Shareholder voting rights may be affected by the grant of any special voting rights to the holders of a class
of shares with preferential rights that may be authorized in the future.
Transfer of Shares. Fully paid ordinary shares are issued in registered form and may be freely transferred under our
articles of association unless the transfer is restricted or prohibited by another instrument, Israeli law or the rules of a
stock exchange on which the shares are traded.
Election of Directors. Our ordinary shares do not have cumulative voting rights for the election of directors. Rather,
under our articles of association our directors are elected by the holders of a simple majority of our ordinary shares at a
general shareholder meeting. As a result, the holders of our ordinary shares that represent more than 50% of the voting
power represented at a shareholder meeting have the power to elect any or all of our directors whose positions are being
filled at that meeting, subject to the special approval requirements for outside directors. See “ITEM 6: Directors, Senior
Management and Employees—Board Practices—Outside Directors.”
81
Dividend and Liquidation Rights. Under the Companies Law, shareholder approval is not required for the declaration of
a dividend, unless the company’s articles of association provide otherwise. Our articles of association provide that our
board of directors may declare and distribute a dividend to be paid to the holders of ordinary shares without shareholder
approval in proportion to the paid up capital attributable to the shares that they hold. Dividends may be paid only out of
profits legally available for distribution, as defined in the Companies Law, provided1 that there is no reasonable concern
that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become
due. If we do not have profits legally available for distribution, we may seek the approval of the court to distribute a
dividend. The court may approve our request if it is convinced that there is no reasonable concern that a payment of a
dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of
ordinary shares in proportion to the paid up capital attributable to the shares that they hold. Dividend and liquidation
rights may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with
preferential rights that may be authorized in the future.
Shareholder Meetings
We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not
more than 15 months following the preceding annual general meeting. Our board of directors may convene a special
general meeting of our shareholders and is required to do so at the request of two directors or one quarter of the members
of our board of directors or at the request of one or more holders of 5% or more of our share capital and 1% of our voting
power or the holder or holders of 5% or more of our voting power. All shareholder meetings require prior notice of at
least 21 days. The chairperson of our board of directors, or any other person appointed by the board of directors, presides
over our general meetings. In the absence of the chairperson of the board of directors or such other person, one of the
members of the board designated by a majority of the directors presides over the meeting. If no director is designated to
preside as chairperson, then the shareholders present will choose one of the shareholders present to be chairperson.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to
participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors,
which may be between four and 40 days prior to the date of the meeting.
Quorum
The quorum required for a meeting of shareholders consists of at least two shareholders present in person, by proxy or by
written ballot, who hold or represent between them at least 25% of our voting power. A meeting adjourned for lack of a
quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as
the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of at least
two shareholders present, in person, by proxy or by written ballot, who hold or represent between them at least 10% of
our voting power, provided that if the meeting was initially called pursuant to a request by our shareholders, then the
quorum required must include at least the number of shareholders entitled to call the meeting. See “—Shareholder
Meetings.”
82
Resolutions
An ordinary resolution requires approval by the holders of a simple majority of the voting rights represented at the
meeting, in person, by proxy or by written ballot, and voting on the resolution.
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the
shareholders require a simple majority. A resolution for the voluntary winding up of the company requires the approval by
holders of at least 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting
on the resolution. Under our articles of association (1) certain shareholders’ resolutions require the approval of a special
majority of the holders of at least 75% of the voting rights represented at the meeting, in person, by proxy or by written
ballot, and voting on the resolution, and (2) certain shareholders’ resolutions require the approval of a special majority of
the holders of at least two-thirds of the voting securities of the company then outstanding.
Access to Corporate Records
Under the Companies Law, all shareholders generally have the right to review minutes of our general meetings, our
shareholder register, including with respect to material shareholders, our articles of association, our financial statements
and any document we are required by law to file publicly with the Israeli Companies Registrar. Any shareholder who
specifies the purpose of its request may request to review any document in our possession that relates to any action or
transaction with a related party which requires shareholder approval under the Companies Law. We may deny a request to
review a document if we determine that the request was not made in good faith, that the document contains a commercial
secret or a patent or that the document’s disclosure may otherwise impair our interests.
Fiduciary duties and approval of specified related party transactions under Israeli law
Fiduciary duties of office holders
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care of an office holder requires an office holder to act with the degree of proficiency with which a reasonable
office holder in the same position would have acted under the same circumstances. The duty of care includes, among
other things, a duty to use reasonable means, in light of the circumstances, to obtain certain information pertaining to the
proposed action before the board of directors.
The duty of loyalty incumbent on an office holder requires him or her to act in good faith and for the benefit of the
company, and includes, among other things, the duty to avoid conflicts of interest with the company, to refrain from
competing with the company, and to disclose to the company information disclosed to him or her as a result of being an
office holder.
We may approve an act specified above which would otherwise constitute a breach of the office holder’s duty of loyalty,
provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office
holder discloses his or her personal interest a sufficient time before the approval of such act. Any such approval is subject
to the terms of the Companies Law, setting forth, among other things, the organs of the company entitled to provide such
approval, and the methods of obtaining such approval.
83
Disclosure of personal interests of an office holder and approval of acts and transactions
The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she
may have relating to any existing or proposed transaction by the company (as well as certain information or
documents). Once an office holder has disclosed his or her personal interest in a transaction, the approval of the
appropriate organ(s) in the company is required in order to effect the transaction. However, a company may approve such
a transaction or action only if it is in the best interests of the Company.
Disclosure of personal interests of a controlling shareholder and approval of transactions
Under the Companies Law, a controlling shareholder must also disclose any personal interest it may have in an existing or
proposed transaction by the company. Transactions with controlling shareholders that are material, that are not in the
ordinary course of business or that are not on market terms require approval by the audit committee, the board of directors
and the shareholders of the company, and the Companies Law provides for certain quantitative requirements in respect of
the voting of shareholders not having a personal interest in the applicable transaction.
Duties of shareholders
Under the Companies Law, a shareholder has a duty to refrain from abusing its power, to act in good faith and to act in an
acceptable manner in exercising its rights and performing its obligations to the company and other shareholders. A
shareholder also has a general duty to refrain from acting to the detriment of other shareholders.
In addition, any controlling shareholder or any shareholder having specific power with respect to a company (the power to
appoint an office holder, or specific influence over a certain vote) is under a duty to act with fairness towards the
company. The Companies Law does not describe the substance of this duty except to state that the remedies generally
available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the
shareholder’s position in the company into account.
Approval of private placements
Under the Companies Law and the regulations promulgated thereunder, certain private placements of securities may
require approval at a general meeting of the shareholders of a company. These include, for example, certain private
placements completed in lieu of a special tender offer (See “Memorandum and Articles of Association—Acquisition
under Israeli law”) or a private placement which qualifies as a related party transaction (See “Corporate governance
practices—Fiduciary duties and approval of specified related party transactions under Israeli law”).
Acquisitions under Israeli Law
Full Tender Offer. A person wishing to acquire shares of a public Israeli company and who would as a result hold over
90% of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender
offer for the purchase of all of the issued and outstanding shares of the company. If the shareholders who do not accept the
offer hold less than 5% of the issued and outstanding share capital of the company, and more than half of the offerees who
do not have a personal interest in the tender offer accept the tender offer, all of the shares that the acquirer offered to
purchase will be transferred to the acquirer by operation of law. Notwithstanding the above, if the shareholders who do
not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable
class, the offer will nonetheless be accepted. However, a shareholder that had its shares so transferred may, within six
months from the date of acceptance of the tender offer, petition the court to determine that the tender offer was for less
than fair value and that the fair value should be paid as determined by the court. The bidder may provide in its tender offer
that any accepting shareholder may not petition the court for fair value, but such condition will not be valid unless all of
the information required under the Companies Law was provided prior to the acceptance date. The description above
regarding a full tender offer also applies, with certain limitations, when a full tender offer for the purchase of all of the
company’s securities is accepted.
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Special Tender Offer. The Companies Law provides, subject to certain exceptions, that an acquisition of shares of a public
Israeli company must be made by means of a “special tender offer” if, as a result of the acquisition, the purchaser would
become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another
holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of
shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would
become a holder of more than 45% of the voting rights in the company, and there is no other shareholder of the company
who holds more than 45% of the voting rights in the company. The special tender offer may be consummated subject to
certain majority requirements set forth in the Companies Law, and provided further that at least 5% of the voting rights
attached to the company’s outstanding shares will be acquired by the party making the offer.
Merger. The Companies Law permits merger transactions between two Israeli companies if approved by each party’s
board of directors and a certain percentage of each party’s shareholders. Following the approval of the board of directors
of each of the merging companies, the boards must jointly prepare a merger proposal for submission to the Israeli
Registrar of Companies.
Under the Companies Law, if the approval of a general meeting of the shareholders is required, merger transactions may
be approved by the holders of a simple majority of our shares present, in person, by proxy or by written ballot, at a
general meeting of the shareholders and voting on the transaction. In determining whether the required majority has
approved the merger, if shares of the company are held by the other party to the merger, by any person holding at least
25% of the voting rights, or 25% of the means of appointing directors or the general manager of the other party to the
merger, then a vote against the merger by holders of the majority of the shares present and voting, excluding shares held
by the other party or by such person, or any person or entity acting on behalf of, related to or controlled by either of them,
is sufficient to reject the merger transaction. In certain circumstances, a court may still approve the merger upon the
request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and
reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
The Companies Law provides for certain requirements and procedures that each of the merging companies is to fulfill. In
addition, a merger may not be completed unless at least fifty days have passed from the date that a proposal for approval
of the merger was filed with the Israeli Registrar of Companies and thirty days from the date that shareholder approval of
both merging companies was obtained.
Anti-Takeover Measures
Undesignated preferred shares. The Companies Law allows us to create and issue shares having rights different from
those attached to our ordinary shares, including shares providing certain preferred or additional rights with respect to
voting, distributions or other matters and shares having preemptive rights. We do not have any authorized or issued shares
other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class
of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise
prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The
authorization of a new class of shares will require an amendment to our articles of association which requires the prior
approval of a simple majority of our shares represented and voted at a general meeting. In addition, we undertook towards
the TASE that, as long as our shares are registered for trading with the TASE we will not issue or authorize shares of any
class other than the class currently registered with the TASE, unless such issuance is in accordance with certain provisions
of the Israeli Securities Law determining that a company registering its shares for trade on the TASE may not have more
than one class of shares for a period of one year following registration with the TASE, and following such period the
company is permitted to issue preferred shares if the preference of those shares is limited to a preference in the
distribution of dividends and the preferred shares have no voting rights.
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Supermajority voting. Our articles of association require the approval of the holders of at least two-thirds of our combined
voting power to effect certain amendments to our articles of association.
Classified board of directors. Our articles of association provide for a classified board of directors. See “ITEM 6:
Directors, Senior Management and Employees—Board Practices—Term of Directors.”
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is American Stock Transfer & Trust Company. Its address is 6201
15th Avenue, Brooklyn, New York 11219, and its telephone number is (800) 937-5449.
C. Material Contracts
We have not been party to any material contracts within the two years prior to the date of this annual report, other than
contracts entered into in the ordinary course of business, or as otherwise described below in this ITEM 10.C.
Location
Material Contract
Agreement with Flextronics (Israel) Ltd. and Amendment No. 1 thereto “ITEM 4.B: Information on the Company–Business Overview–Manufacturing.”
“ITEM 5.A: Operating and Financial Review and Prospects-Operating Results”
Agreement with Optenet S.A
“ITEM 4: Information on Allot – D. Property, Plant and Equipment”
Non-Stabilized Lease Agreement
D. Exchange Controls
In 1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely
deal in foreign currency and foreign assets, and non-residents may freely deal in Israeli currency and Israeli assets. There
are currently no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds
from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to
which currency controls can be imposed by administrative action at any time.
Non-residents of Israel may freely hold and trade our securities. Neither our memorandum of association nor our articles
of association nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by non-
residents, except that such restrictions may exist with respect to citizens of countries which are in a state of war with
Israel. Israeli residents are allowed to purchase our ordinary shares.
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E. Taxation
Israeli Tax Considerations and Government Programs
The following is a general discussion only and is not exhaustive of all possible tax considerations. It is not intended, and
should not be construed, as legal or professional tax advice and should not be relied upon for tax planning purposes. In
addition, this discussion does not address all of the tax consequences that may be relevant to purchasers of our ordinary
shares in light of their particular circumstances, or certain types of purchasers of our ordinary shares subject to special tax
treatment. Examples of this kind of investor include residents of Israel and traders in securities who are subject to special
tax regimes not covered in this discussion. Each individual/entity should consult its own tax or legal advisor as to the
Israeli tax consequences of the purchase, ownership and disposition of our ordinary shares.
To the extent that part of the discussion is based on new tax legislation, which has not been subject to judicial or
administrative interpretation, we cannot assure that the tax authorities or the courts will accept the views expressed in this
section.
The following summary describes the current tax structure applicable to companies in Israel, with special reference to its
effect on us. The following also contains a discussion of the material Israeli tax consequences to holders of our ordinary
shares.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax. In 2019 and 2018, the corporate tax rate was 23%. The corporate
tax rate for 2020 and thereafter is scheduled to be 23%. However, the effective tax rate payable by a company that derives
income from an Approved Enterprise, a Benefited Enterprise, a Preferred Enterprise or a Technological Preferred
Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally
subject to the prevailing corporate tax rate.
Tax Benefits and Grants for Research and Development
Israeli tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the
year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:
•
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•
The expenditures are approved by the relevant Israeli government ministry, determined by the field of research;
The research and development must be for the promotion of the company; and
The research and development is carried out by or on behalf of the company seeking such tax deduction.
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the
finance of such scientific research and development projects. No deduction under these research and development
deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general
depreciation rules of the Ordinance. Expenditures from research and development that not so approved are deductible in
equal amounts over three years, according to the Ordinance.
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From time to time we may apply the Israel Innovation Authority for approval to allow a tax deduction for all research and
development expenses during the year incurred. There can be no assurance that such application will be accepted.
Law for the Encouragement of Industry (Taxes), 1969
The Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law,
provides several tax benefits for industrial companies. We believe that we currently qualify as an “Industrial Company”
within the meaning of the Industry Encouragement Law. The Industry Encouragement Law defines “Industrial Company”
as a company resident in Israel, of which 90% or more of its income in any tax year, other than of income from defense
loans, capital gains, interest and dividend, is derived from an “Industrial Enterprise which is located in Israel” owned by
it. An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production
activity.
The following corporate tax benefits, among others, are available to Industrial Companies:
•
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Amortization of the cost of purchased know-how and patents and of rights to use a patent and know-how which are used for the
development or advancement of the company, over an eight-year period;
Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and
Expenses related to a public offering in Israel and in recognized stock markets, are deductible in equal amounts over three years.
Under certain tax laws and regulations, an “Industrial Enterprise” may be eligible for special depreciation rates for
machinery, equipment and buildings. These rates differ based on various factors, including the date the operations begin
and the number of work shifts. An “Industrial Company” owning an approved enterprise may choose between these
special depreciation rates and the depreciation rates available to the approved enterprise.
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any
governmental authority. We can give no assurance that we qualify or will continue to qualify as an “Industrial Company”
or that the benefits described above will be available in the future.
Israeli Transfer Pricing Regulations
On November 29, 2006, the Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section
85A of the Ordinance, came into effect (the “TP Regulations”). Section 85A of the Ordinance and the TP Regulations
generally require that all cross-border transactions carried out between related parties be conducted on an arm’s length
basis and be taxed accordingly. The TP Regulations did not have a material effect on us.
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Tax Benefits under the Law for Encouragement of Capital Investments, 1959
Tax Benefits Prior to the 2005 Amendment
The Law for the Encouragement of Capital Investments, 1959, as amended, generally referred to as the Investments Law,
provides that a proposed capital investment in eligible facilities may, upon application to the Investment Center of the
Ministry of Industry and Commerce of the State of Israel, be designated as an “Approved Enterprise.”
The Investments Law provides that an approved enterprise is eligible for tax benefits on taxable income derived from its
approved enterprise programs. The tax benefits under the Investments Law also apply to income generated by a company
from the grant of a usage right with respect to know-how developed by the Approved Enterprise, income generated from
royalties, and income derived from a service which is auxiliary to such usage right or royalties, provided that such income
is generated within the Approved Enterprise’s ordinary course of business. The tax benefits under the Investments Law
are not, generally, available with respect to income derived from products manufactured outside of Israel. In addition, the
tax benefits available to an Approved Enterprise are contingent upon the fulfillment of conditions stipulated in the
Investments Law and regulations and the criteria set forth in the specific certificate of approval, as described above. In the
event that a company does not meet these conditions, it would be required to refund the amount of tax benefits, plus a
consumer price index linkage adjustment and interest.
The Investments Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and
equipment that are included in an Approved Enterprise program in the first five years of using the equipment.
Should we derive income from sources other than the Approved Enterprise during the relevant period of benefits, such
income will be taxable at the regular corporate tax rates.
Under certain circumstances (as further detailed below), the benefit period may extend to a maximum of ten years from
the commencement of the benefit period.
A company may elect to receive an alternative package of benefits. Under the alternative package of benefits, a
company’s undistributed income derived from the Approved Enterprise will be exempt from corporate tax for a period of
between two and ten years from the first year the company derives taxable income under the program, after the
commencement of production, depending on the geographic location of the Approved Enterprise within Israel, and such
company will be eligible for a reduced tax rate for the remainder of the benefits period.
A company that has elected the alternative package of benefits, such as us, that subsequently pays a dividend out of
income derived from the approved enterprise(s) during the tax exemption period will be subject to corporate tax in the
year the dividend is distributed in respect of the gross amount distributed, at the rate which would have been applicable
had the company not elected the alternative package of benefits, (generally 10%-25%, depending on the percentage of the
company’s ordinary shares held by foreign shareholders). The dividend recipient is subject to withholding tax at the
reduced rate of 15% applicable to dividends from approved enterprises, if the dividend is distributed during the tax
exemption period or within twelve years thereafter. In the event, however, that the company qualifies as a foreign
investors’ company, there is no such time limitation.
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Foreign Investors’ Company (“FIC”)
A company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a foreign
investors’ company. A foreign investors’ company is a company of which, among other criteria, more than 25% of its
share capital and combined share and loan capital is owned by non-Israeli residents. A company that qualifies as a foreign
investors’ company and has an approved enterprise program is eligible for tax benefits for a ten-year benefit period.
Subject to applicable provisions concerning income under the alternative package of benefits, dividends paid by a
company are considered to be attributable to income received from the entire company and the company’s effective tax
rate is the result of a weighted average of the various applicable tax rates, excluding any tax-exempt income. Under the
Investments Law, a company that has elected the alternative package of benefits is not obliged to distribute retained
profits, and may generally decide from which year’s profits to declare dividends.
In 1998, the production facilities of the Company related to its computational technologies were granted the status of an
“Approved Enterprise” under the Law. In 2004, an expansion program was granted the status of “Approved Enterprise.”
According to the provisions of the Law, the Company has elected the alternative package of benefits and has waived
Government grants in return for tax benefits.
As of December 31, 2019, the company has not yet realized the benefits under the “Approved Enterprise” program. We
believe that we met the aforementioned conditions.
Tax Benefits under the 2005 Amendment
An amendment to the Investments Law, generally referred as the 2005 Amendment, effective as of April 1, 2005 has
significantly changed the provisions of the Investments Law. The amendment includes revisions to the criteria for
investments qualified to receive tax benefits as an Approved Enterprise.
The 2005 Amendment simplifies the approval process for the approved enterprise. According to the 2005 Amendment,
only approved enterprises receiving cash grants require the approval of the Investment Center.
As a result of the 2005 Amendment, it is no longer necessary for a company to acquire Approved Enterprise status in
order to receive the tax benefits previously available under the Alternative Route, and therefore such companies need not
apply to the Investment Center for this purpose. Rather, a company may claim the tax benefits offered by the Investments
Law directly in its tax returns or by notifying the Israeli Tax Authority within twelve months of the end of that year,
provided that its facilities meet the criteria for tax benefits set out by the 2005 Amendment. Such enterprise is referred to
as the Benefited Enterprise. Companies are also granted a right to approach the Israeli Tax Authority for a pre-ruling
regarding their eligibility for benefits under the 2005 Amendment. Tax benefits are available under the 2005 Amendment
to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business
income from export. In order to receive the tax benefits, the 2005 Amendment states that a company must make an
investment in the Benefited Enterprise exceeding a certain percentage or a minimum amount specified in the Investments
Law.
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The duration of tax benefits is subject to a limitation of the earlier of seven to ten years from the Commencement Year, or
twelve years from the first day of the Year of Election. The Commencement Year is defined as the later of (a) the first tax
year in which a company had derived income for tax purposes from the Beneficiary Enterprise or (b) the year in which a
company requested to have the tax benefits apply to the Beneficiary Enterprise – Year of Election. The tax benefits
granted to a Benefited Enterprise are determined, as applicable to its geographic location within Israel, according to one
of the following tax routes, which may be applicable to us:
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Similar to the aforementioned alternative route, exemption from corporate tax on undistributed income for a period of two to ten years,
depending on the geographic location of the Benefited Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the
remainder of the benefits period, depending on the level of foreign investment in each year. Benefits may be granted for a term of seven
to ten years, depending on the level of foreign investment in the company. If the company pays a dividend out of income derived from the
Benefited Enterprise during the tax exemption period, such income will be subject to corporate tax at the applicable rate (10%-25%) in
respect of the gross amount of the dividend that may be distributed. The company is required to withhold tax at the source at a rate of
15% from any dividends distributed from income derived from the Benefited Enterprise; and
A special tax route, which enables companies owning facilities in certain geographical locations in Israel to pay corporate tax at the rate
of 11.5% on income of the Benefited Enterprise. The benefits period is ten years. Upon payment of dividends, the company is required to
withhold tax at source at a rate of 15% for Israeli residents and at a rate of 4% for foreign residents.
Generally, a company that is Abundant in Foreign Investment (owned by at least 74% foreign shareholders and has
undertaken to invest a minimum sum of $20 million in the Benefited Enterprise as defined in the Investments Law) is
entitled to an extension of the benefits period by an additional five years, depending on the rate of its income that is
derived in foreign currency.
The 2005 Amendment changes the definition of “foreign investment” in the Investments Law so that the definition
requires a minimal investment of ILS 5.0 million by foreign investors. Furthermore, such definition also includes the
purchase of shares of a company from another shareholder, provided that the company’s outstanding and paid-up share
capital exceeds ILS 5.0 million. Such changes to the aforementioned definition took effect retroactively from 2003.
As a result of the 2005 Amendment, tax-exempt income generated under the provisions of the Investments Law, as
amended, will subject us to taxes upon distribution or liquidation and we may be required to record deferred tax liability
with respect to such tax-exempt income.
We elected the year of 2009 as “year of election” under the Investments Law after the 2005 Amendment.
We believe that a substantial portion of taxable operating income that we may realize in the future will be eligible to
benefits under the Investments Law.
As of December 31, 2019, we did not generate exempt income under the provisions of the Investments Law.
Tax Benefits under the 2011 Amendment
As of January 1, 2011 new legislation amending the Investments Law came into effect (the “2011 Amendment”). The
2011 Amendment introduced a new status of “Preferred Company” and “Preferred Enterprise”, replacing the then existing
status of “Benefited Company” and “Benefited Enterprise”. Similar to a “Benefited Company”, a Preferred Company is
an industrial company owning a Preferred Enterprise which meets certain conditions (including a minimum threshold of
25% export). However, under this legislation the requirement for a minimum investment in productive assets was
cancelled.
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Under the 2011 Amendment, a uniform corporate tax rate applies to all qualifying income of the Preferred Company, as
opposed to the former law, which was limited to income from the Approved Enterprises and Benefited Enterprise during
the benefits period. As of the 2017 tax year the corporate tax rate is 7.5%in areas in Israel designated as Development
Zone A and 16% elsewhere in Israel .
A dividend distributed from income which is attributed to a Preferred Enterprise will be subject to withholding tax at
source at the following rates: (i) Israeli resident corporation –0%, (ii) Israeli resident individual – 20% in 2014 and
onwards (iii) non-Israeli resident - 20% in 2014 and onwards, subject to a reduced tax rate under the provisions of an
applicable double tax treaty.
The provisions of the 2011 Amendment also provided transitional provisions to address companies already enjoying
current benefits. Under the transition provisions of the new legislation, a company may decide to irrevocably implement
the 2011 Amendment while waiving benefits provided under the Investments Law prior to the 2011 Amendment; or to
remain subject to the Investments Law prior to the 2011 Amendment. We have examined the possible effect, if any, of
these provisions of the 2011 Amendment on our financial statements and have decided, at this time, not to opt to apply the
new benefits under the 2011 Amendment.
Tax Benefits under the 2016 Amendment
In December 2016 new legislation amended the Investments Law (the “2016 Amendment”). Under the 2016 Amendment
a new status of “Technological Preferred Enterprise” was introduced to the Investments Law.
Under the 2016 Amendment two new tracks are available:
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Technological Preferred Enterprise – an enterprise which is part of a consolidated group with consolidated annual revenues of less than
ILS 10 billion. A Technological Preferred Enterprise which is located in areas other than Development Zone A will be subject to tax at a
rate of 12% on profits derived from intellectual property, and a Technological Preferred Enterprise in Development Zone A will be
subject to tax at a rate of 7.5%; and
Special Technological Preferred Enterprise – an enterprise which is part of a consolidated group with consolidated annual revenues
exceeding ILS 10 billion. Such an enterprise will be subject to tax at a rate of 6% on profits derived from intellectual property regardless
of the enterprise’s geographical location.
Any dividends distributed to foreign companies, as defined in the Investments Law, derived from income from the
Technological Preferred Enterprise will be subject to tax at a rate of 20% (which may be reduced by an applicable double
tax treaty), or a lower rate of 4% in case 90% or more of the Preferred Technological Enterprise’s shares are held by
foreign corporations.
We have examined the possible effect, if any, of these provisions of the 2016 Amendment on our financial statements and
have decided, at this time, not to opt to apply the new benefits under the 2016 Amendment.
Special Provisions Relating to Israeli Tax Reporting in United States Dollars
Under the Income Tax (Inflationary Adjustments) Law, 1985, results for tax purposes are measured in real terms, in
accordance with the changes in the Israeli Consumer Price Index (“Israeli CPI”). Accordingly, until 2011, results for tax
purposes were measured in terms of earnings in ILS after certain adjustments for increases in the Israeli CPI.
Commencing in the taxable year 2012, we have elected to measure our taxable income and file our tax return in United
States Dollars, under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of
Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986.
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Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for
Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and
non-residents of Israel, unless a specific exemption is available or a tax treaty between Israel and the shareholder’s
country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The
inflationary surplus is a portion of the total capital gain which is equivalent to the increase of the relevant asset’s purchase
price which is attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign
currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital
gain over the inflationary surplus.
The tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for
Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in
which case the gain is generally taxed at a rate of 30%. Additionally, if such shareholder is considered a “material
shareholder” at any time during the 12-month period preceding such sale, i.e., such shareholder holds directly or
indirectly, including with others, at least 10% of any means of control in a company, the tax rate is 30%. Israeli companies
are subject to the Corporate Tax rate on capital gains derived from the sale of shares. However, the foregoing tax rates do
not apply to: (i) dealers in securities; and (ii) shareholders who acquired their shares prior to an initial public offering (that
may be subject to a different tax arrangement).
Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 3% on annual income
exceeding a certain threshold (NIS 649,560 for 2019, linked to the annual change in the Israeli Consumer Price Index),
including, but not limited to income derived from, dividends, interest and capital gains.
Non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli
companies publicly traded on a recognized stock exchange or regulated market outside of Israel, provided that such
capital gains are not derived from a permanent establishment in Israel, and the shareholders did not acquire their shares
prior to an initial public offering. However, non-Israeli corporations will not be entitled to such exemption if Israeli
residents (i) have a controlling interest of more than 25% in such non-Israeli corporation, or (ii) are the beneficiaries or
are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of
the consideration may be subject to the withholding of Israeli tax at the source.
Pursuant to the Convention between the government of the United States and the government of Israel with respect to
taxes on income, as amended (the “U.S.-Israel Tax Treaty”), the sale, exchange or disposition of ordinary shares by a
person who (i) holds the ordinary shares as a capital asset, (ii) qualifies as a resident of the United States within the
meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to such person by the U.S.-Israel
Tax Treaty, generally, will not be subject to the Israeli capital gains tax. Such exemption will not apply if (i) such U.S.
resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-
month period preceding such sale, exchange or disposition, subject to certain conditions, (ii) the capital gains from such
sale, exchange or disposition can be allocated to a permanent establishment in Israel, or (iii) such U.S. resident is an
individual and was present in Israel for 183 days or more during the relevant taxable year. In such case, the sale, exchange
or disposition of ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel
Tax Treaty, such U.S. resident would be permitted to claim a credit for such taxes against the U.S. federal income tax
imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax
credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
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Taxation of Dividends paid to Non-Resident Holders of Shares
Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel. Such sources of
income include passive income such as dividends. On distributions of dividends other than bonus shares, or stock
dividends, income tax is applicable at the rate of 25%, or 30% for a shareholder that is considered a “material
shareholder” at any time during the 12-month period preceding such distribution, unless a different rate is provided in a
treaty between Israel and the shareholder’s country of residence. However, under the Investments Law, dividends
generated by an Approved Enterprise, Privileged Enterprise, Preferred Enterprise or Technological Preferred Enterprise
may be are taxed at a different rate as discussed above.
Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares that is a Treaty U.S.
Resident is 25%. However, if the income out of which the dividend is paid is not generated by an Approved Enterprise,
Privileged Enterprise, Preferred Enterprise or Technological Preferred Enterprise, and not more than 25% of our gross
income consists of interest or dividends (and certain other conditions are met), dividends paid to a U.S. corporation
holding at least 10% of our issued voting power during the part of the tax year which precedes the date of payment of the
dividend and during the whole of its prior tax year are generally taxed at a rate of 12.5%.
United States Federal Income Taxation
The following is a description of the material United States federal income tax consequences of the ownership and
disposition of our ordinary shares. This description addresses only the United States federal income tax considerations of
holders that hold such ordinary shares as capital assets. This description does not address tax considerations applicable to
holders that may be subject to special tax rules, including:
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financial institutions or insurance companies;
real estate investment trusts, regulated investment companies or grantor trusts;
dealers or traders in securities or currencies;
tax-exempt entities;
certain former citizens or long-term residents of the United States;
persons that will hold our shares through a partnership or other pass-through entity;
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•
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persons that received our shares as compensation for the performance of services;
persons that will hold our shares as part of a “hedging” or “conversion” transaction or as a position in a “straddle” for United States
federal income tax purposes;
persons whose “functional currency” is not the United States dollar;
persons subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into
account in an applicable financial statement; or
holders that own directly, indirectly or through attribution 10.0% or more of the voting power or value of our shares.
Moreover, this description does not address the United States federal estate and gift or alternative minimum tax
consequences of the ownership and disposition of our ordinary shares.
This description is based on the U.S. Internal Revenue Code of 1986, as amended, existing, proposed and temporary
United States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and
available on the date hereof. All of the foregoing are subject to change, which change could apply retroactively and could
affect the tax consequences described below.
For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States
federal income tax purposes, is:
•
•
•
•
a citizen or individual resident of the United States;
corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the
United States or any state thereof, including the District of Columbia;
an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a
court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons
have the authority to control all of the substantial decisions of such trust.
A “Non-U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other
entity treated as a partnership for United States federal income tax purposes).
If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our
ordinary shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and
the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.
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You should consult your tax advisor with respect to the United States federal, state, local and foreign tax
consequences of owning and disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder,
for United States federal income tax purposes, the gross amount of any distribution made to you, with respect to our
ordinary shares before reduction of any Israeli taxes withheld therefrom, other than certain distributions, if any, of our
ordinary shares distributed pro rata to all our shareholders, will be includible in your income as dividend income to the
extent such distribution is paid out of our current or accumulated earnings and profits as determined under United States
federal income tax principles. Subject to the discussion below under “Passive Foreign Investment Company
Considerations,” non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on
ordinary shares applicable to long-term capital gains (that is, gains from the sale of capital assets held for more than one
year), provided that certain conditions are met, including certain holding period requirements and the absence of certain
risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally
allowed to corporate U.S. Holders. Subject to the discussion below under “Passive Foreign Investment Company
Considerations,” to the extent, if any, that the amount of any distribution by us exceeds our current and accumulated
earnings and profits as determined under United States federal income tax principles, it will be treated first as a tax-free
return of your adjusted tax basis in our ordinary shares and thereafter as capital gain. We do not expect to maintain
calculations of our earnings and profits under United States federal income tax principles and, therefore, if you are a U.S.
Holder you should expect that the entire amount of any distribution generally will be reported as dividend income to you.
If you are a U.S. Holder, dividends paid to you with respect to your ordinary shares will be treated as foreign source
income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain conditions and
limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your United
States federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect
to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category
income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed
on distributions may be denied when you do not satisfy certain minimum holding period requirements. In addition, for
periods in which we are a “United Stated-owned foreign corporation”, a portion of dividends paid by us may be treated as
U.S. source solely for purposes of the foreign tax credit. We would be treated as a United States-owned foreign
corporation if 50% or more of the total value or total voting power of our stock is owned, directly, indirectly or by
attribution, by United States persons. To the extent any portion of our dividends is treated as U.S. source income pursuant
to this rule, the ability of a U.S. Holder to claim a foreign tax credit for any Israeli withholding taxes payable in respect of
our dividends may be limited. A U.S. Holder entitled to benefits under the United States-Israel Tax Treaty may, however,
elect to treat any dividends as foreign source income for foreign tax credit purposes if the dividend income is separated
from other income items for purposes of calculating the U.S. Holder’s foreign tax credit. The rules relating to the
determination of the foreign tax credit are complex, and you should consult your personal tax advisors to determine
whether and to what extent you would be entitled to this credit.
Subject to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a
Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on dividends
received by you on your ordinary shares, unless you conduct a trade or business in the United States and such income is
effectively connected with that trade or business.(or, if required by an applicable income tax treaty, the dividends are
attributable to a permanent establishment that such holder maintains in the United States).
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Sales Exchange or other Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder,
you generally will recognize gain or loss on the sale, exchange or other disposition of our ordinary shares equal to the
difference between the amount realized on such sale, exchange or other disposition and your adjusted tax basis in our
ordinary shares. Such gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, capital gain from
the sale, exchange or other disposition of ordinary shares is eligible for the preferential rate of taxation applicable to long-
term capital gains if your holding period for such ordinary shares exceeds one year (that is, such gain is long-term capital
gain). Gain or loss, if any, recognized by you generally will be treated as United States source income or loss for United
States foreign tax credit purposes. The deductibility of capital losses for U.S. federal income tax purposes is subject to
limitations.
Subject to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a
Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on any gain
realized on the sale or exchange of our ordinary shares unless:
•
•
such gain is effectively connected with your conduct of a trade or business in the United States (or, if required by an applicable income
tax treaty, the gain is attributable to a permanent establishment that you maintain in the United States); or
you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and
certain other conditions are met.
Passive Foreign Investment Company Considerations
A non-U.S. corporation will be classified as a “passive foreign investment company,” or a PFIC, for United States federal
income tax purposes in any taxable year in which, after applying certain look-through rules, either:
•
•
at least 75 percent of its gross income is “passive income”; or
at least 50 percent of the average value of its gross assets (based on the quarterly value of such gross assets, or in certain cases, adjusted
basis) is attributable to assets that produce “passive income” or are held for the production of passive income.
Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and
securities transactions and the excess of gains over losses from the disposition of assets which produce passive income.
PFIC status is an annual determination that is based on tests which are factual in nature and our status in future years will
depend on our income, assets and activities in each of those years. Therefore, there can be no assurance that we will not
be considered a PFIC for any taxable year. While public companies often employ a market capitalization method to value
their assets, the IRS has not issued guidance concerning how to value a foreign public company’s assets for PFIC
purposes. The market price of our ordinary shares is likely to fluctuate and the market price of the shares of technology
companies has been especially volatile. In certain circumstances, including volatile market conditions, it may be
appropriate to employ alternative methods to more accurately determine the fair market value of our assets other than the
market capitalization method. Given the volatility of the capital markets in recent years, we have obtained an independent
valuation of our company for the 2019 tax year, as well as an opinion from a U.S. tax advisor that, applying the results of
the independent valuation of our company which employed an approach other than the market capitalization approach,
and which provided the reasoning underlying the use of such approach, we should not be a PFIC for the 2019 taxable
year. We considered such valuation in determining the value of our total assets and we also considered the above-
referenced opinion. On that basis, we believe that we were not a PFIC for the 2019 tax year. However, there can be no
certainty that the IRS will not challenge such a position and determine that based on the IRS’s interpretation of the asset
test, we were a PFIC for the 2019 tax year. If we were a PFIC, and you are a U.S. Holder, you generally would be subject
to ordinary income tax rates, imputed interest charges and other disadvantageous tax treatment (including the denial of the
taxation of such dividends at the lower rates applicable to long-term capital gains, as discussed above under “—
Distributions”) with respect to any gain from the sale, exchange or other disposition of, and certain distributions with
respect to, your ordinary shares. A U.S. Holder should consult his, her or its own tax advisor with respect to the potential
application of the PFIC rules in his, her or its particular circumstances.
97
Because the market price of our ordinary shares is likely to fluctuate and the market price of the shares of technology
companies has been especially volatile, particularly as a result of the ongoing coronavirus (COVID-19) pandemic, and
because that market price may affect the determination of whether we will be considered a PFIC, we cannot assure you
that we will not be considered a PFIC for any taxable year.
Under the PFIC rules, unless a U.S. Holder makes one of the elections described in the next paragraphs, a special tax
regime will apply to both (a) any “excess distribution” by us (generally, the U.S. Holder’s ratable portion of distributions
in any year which are greater than 125% of the average annual distribution received by such U.S. Holder in the shorter of
the three preceding years or the U.S. Holder’s holding period) and (b) any gain realized on the sale or other disposition of
the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and
will be subject to tax as if (a) the excess distribution or gain had been realized ratably over the U.S. Holder’s holding
period, (b) the amount deemed realized had been subject to tax in each year of that holding period, and (c) the interest
charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those
years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long
term capital gains discussed above under “Distributions.”
Certain elections are available to U.S. Holders of shares that may serve to alleviate some of the adverse tax consequences
of PFIC status. If we agreed to provide the necessary information, you could avoid the interest charge imposed by the
PFIC rules by making a qualified electing fund, or a QEF election, which election may be made retroactively under
certain circumstances, in which case you generally would be required to include in income on a current basis your pro rata
share of our ordinary earnings as ordinary income and your pro rata share of our net capital gains as long-term capital
gain. We do not expect to provide to U.S. Holders the information needed to report income and gain pursuant to a QEF
election, and we make no undertaking to provide such information in the event that we are a PFIC.
Under an alternative tax regime, you may also avoid certain adverse tax consequences relating to PFIC status discussed
above by making a mark-to-market election with respect to our ordinary shares annually, provided that the shares are
“marketable.” Shares will be marketable if they are regularly traded on certain U.S. stock exchanges (including
NASDAQ) or on certain non-U.S. stock exchanges. For these purposes, the shares will generally be considered regularly
traded during any calendar year during which they are traded, other than in negligible quantities, on at least fifteen days
during each calendar quarter.
If you choose to make a mark-to-market election, you would recognize as ordinary income or loss each year an amount
equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares and your
adjusted tax basis in the PFIC shares. Losses would be allowed only to the extent of net mark-to-market gain previously
included by you under the election for prior taxable years. If the mark-to-market election were made, then the PFIC rules
set forth above relating to excess distributions and realized gains would not apply for periods covered by the election. If
you make a mark-to-market election after the beginning of your holding period of our ordinary shares, you would be
subject to interest charges with respect to the inclusion of ordinary income attributable to the period before the effective
date of such election.
98
Under certain circumstances, ordinary shares owned by a Non-U.S. Holder may be attributed to a U.S. person owning an
interest, directly or indirectly, in the Non-U.S. Holder. In this event, distributions and other transactions in respect of such
ordinary shares may be treated as excess distributions with respect to such U.S. person, and a QEF election may be made
by such U.S. person with respect to its indirect interest in us, subject to the discussion in the preceding paragraphs.
We may invest in stock of non-U.S. corporations that are PFICs. In such a case, provided that we are classified as a PFIC,
a U.S. Holder would be treated as owning its pro rata share of the stock of the PFIC owned by us. Such a U.S. Holder
would be subject to the rules generally applicable to shareholders of PFICs discussed above with respect to distributions
received by us from such a PFIC and dispositions by us of the stock of such a PFIC (even though the U.S. Holder may not
have received the proceeds of such distribution or disposition). Assuming we receive the necessary information from the
PFIC in which we own stock, certain U.S. Holders may make the QEF election discussed above with respect to the stock
of the PFIC owned by us, with the consequences discussed above. However, no assurance can be given that we will be
able to provide U.S. Holders with such information. A. U.S. Holder generally would not be able to make the mark-to-
market election described above with respect to the stock of any PFIC owned by us.
If we were a PFIC, a holder of ordinary shares that is a U.S. Holder must file United States Internal Revenue Service
Form 8621 for each tax year in which the U.S. Holder owns the ordinary shares.
You should consult your own tax advisor regarding our potential status as a PFIC and the tax consequences and
filing requirements that would arise if we were treated as a PFIC.
Foreign Asset Reporting
Certain U.S. Holders who are individuals (and certain specified entities) are required to report information relating to an
interest in ordinary shares, subject to certain exceptions (including an exception for securities held in certain accounts
maintained by financial institutions). U.S. Holders are encouraged to consult their own tax advisers regarding the effect of
this reporting requirement on their ownership and disposition of ordinary shares.
3.8% Medicare Tax on “Net Investment Income”
Certain U.S. Holders who are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other
things, dividends and capital gains from the sale or other disposition of ordinary shares. U.S. Holders are encouraged to
consult their own tax advisers regarding the effect of this additional tax on their ownership and disposition of ordinary
shares.
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Backup Withholding Tax and Information Reporting Requirements
United States backup withholding tax and information reporting requirements generally apply to certain payments to
certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on, and to
proceeds from the sale or redemption of, ordinary shares made within the United States, or by a United States payor or
United States middleman, to a holder of ordinary shares, other than an exempt recipient (including a corporation, a payee
that is not a United States person that provides an appropriate certification and certain other persons). A payor will be
required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or
redemption of, ordinary shares within the United States, or by a United States payor or United States middleman, to a
holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or
otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements.
Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against the beneficial
owner’s United States federal income tax liability, if any, provided that the required information is furnished to the IRS.
The above description is not intended to constitute a complete analysis of all tax consequences relating to
ownership and disposition of our ordinary shares. You should consult your tax advisor concerning the tax
consequences of your particular situation.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are currently subject to the information and periodic reporting requirements of the Exchange Act, and file periodic
reports and other information with the SEC through its electronic data gathering, analysis and retrieval (EDGAR) system.
The SEC maintains a website at http:/www.sec.gov containing reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. Our securities filings, including this annual report and
the exhibits thereto, are available on the SEC’s website, the TASE’s website at http://maya.tase.co.il and the Israeli
Securities Authority’s website at http://www.magna.isa.gov.il. As permitted under NASDAQ Stock Market Rule 5250(d)
(1)(C), we will also post our annual reports filed with the SEC on our website at http://www.allot.com. The information
contained on our website is not part of this or any other report filed with or furnished to the SEC. We will furnish hard
copies of such reports to our shareholders upon written request free of charge. The information contained on our website
is not part of this or any other report filed with or furnished to the SEC.
As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of
proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing
profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the
Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States
companies whose securities are registered under the Exchange Act. However, we are required to file with the SEC, within
120 days after the end of each subsequent fiscal year, an annual report on Form 20-F containing financial statements
which will be examined and reported on, with an opinion expressed, by an independent public accounting firm. We also
furnish to the SEC reports on Form 6-K containing quarterly unaudited financial information.
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I. Subsidiary Information
Not applicable.
ITEM 11: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including foreign currency exchange fluctuations, changes in interest rates and
inflation. We regularly assess currency, interest rate and inflation risks to minimize any adverse effects on our business as a result
of those factors.
Risk of Interest Rate Fluctuation
The primary objectives of our investment activities are to preserve principal, support liquidity requirements, and maximize
income without significantly increasing risk. Our investments are subject to market risk due to changes in interest rates, which
may affect our interest income and fair market value of our investments.
To minimize this risk, we maintain our portfolio of cash, cash equivalents and short and long-term investments in a variety of
securities, including U.S. government and agency securities, and corporate debt securities. We do not have any long-term
borrowings. We have a significant amount of cash that is currently invested primarily in interest bearing investment such as bank
time deposits, money market funds and available for sale marketable securities. These investments expose us to risks related to
changes in interest rates. If interest rates further decline, our results of operations may be adversely affected due to lower interest
income from these investments. We do not believe that a 10% increase or decrease in interest rates would have a material impact
on our operating results, cash flows or the fair value of our portfolio. The primary objective of our investment activities is to
preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and
loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the
fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Due to the
short- and medium-term maturities nature of our investments to date, their carrying value approximates the fair value. We
generally hold investments to maturity in order to limit our exposure to interest rate fluctuations.
Foreign Currency Exchange Risk
Our foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, our
functional and reporting currency, mainly against the ILS. In 2018, we derived our revenues primarily in U.S. dollars and a
substantial portion in Euros and other currencies. Although a substantial part of our expenses were denominated in U.S. dollars, a
significant portion of our expenses were denominated in ILS and to a lesser extent in Euros and other currencies. Our ILS-
denominated expenses consist principally of salaries and related personnel expenses. We monitor foreign currency exposure and,
from time to time, may use various instruments to preserve the value of sales transactions and commitments; however, this cannot
assure our protection against risks of currency fluctuations. Any strengthening or weakening in the value of the ILS against the
U.S. dollar is being partially mitigated using hedging transactions and therefore, though we cannot provide any assurance that
such transaction will fully mitigate the effect on our net income, it is not likely that such effect will be material.
In the event of a 10% hypothetical strengthening or weakening in the value of the Euro against the U.S. dollar, we may be able to
mitigate the effect of such currency exchange fluctuation by adapting our pricing. However, in the event that market conditions
will limit our ability to adjust our pricing, we might not be able to fully mitigate the adverse effect of such currency fluctuation.
We estimate that in such event, the impact on our net income in 2019 is not likely to exceed $2 million. For more information
regarding foreign currency related risks, see “ITEM 3: Key Information—Risk Factors—Our international operations expose us
to the risk of fluctuations in currency exchange rates.”
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We use currency forward contracts together with currency options primarily to hedge payments in ILS and CNY. These
transactions constitute a future cash flow hedge. As of December 31, 2019, we had outstanding forward contracts in the amount
of $42.1 million. These transactions were for a period of up to twelve months. As of December 31, 2019, the fair value of the
above mentioned foreign currency derivative contracts was $0.9 million.
ITEM 12: Description of Securities Other Than Equity Securities
Not applicable.
PART II
ITEM 13: Defaults, Dividend Arrearages and Delinquencies
None.
ITEM 14: Material Modifications to the Rights of Security Holders and Use of Proceeds
A. Material Modifications to the Rights of Security Holders
None.
B. Use of Proceeds
Not applicable.
ITEM 15: Controls and Procedures
(a)
(b)
Disclosure Controls and Procedures. As of the end of the period covered by this report, our management, including our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of December 31, 2019. Based upon, and as of the date of, such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of December 31, 2019, our disclosures controls and procedures were effective such that the
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over
financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
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•
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of
our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019.
In making this assessment, our management used the criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has concluded,
based on its assessment, that our internal control over financial reporting was effective as of December 31, 2019 to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for
external reporting purposes in accordance with generally accepted accounting principles.
(c)
(d)
Our independent auditors, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, have audited the consolidated financial statements
included in this annual report on Form 20-F, and as part of its audit, have issued an audit report on the effectiveness of our internal control over
financial reporting. The report is included in pages F-2 and F-3 of this annual report on Form 20-F and is incorporated herein by reference.
Changes in Internal Control over Financial Reporting. During the period covered by this report, no changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) have occurred that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16: Reserved
ITEM 16A: Audit Committee Financial Expert
The board of directors has determined that Nurit Benjamini is an “audit committee financial expert” as defined under the U.S.
federal securities laws and is independent under the rules of the NASDAQ Stock Market.
ITEM 16B: Code of Ethics
We have adopted a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, principal accounting officer
or controller and persons performing similar functions. This code has been posted on our website, www.allot.com. Information
contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated
by reference herein. Waivers of our code of ethics may only be granted by the board of directors. Under Item 16B of Form 20-F,
if a waiver or amendment of the code of ethics applies to the persons specified in Item 16B(a) of the Form 20-F and relates to
standards promoting any of the values described in Item 16B(b) of Form 20-F, we will disclose such waiver or amendment (i) on
our website within five business days following the date of amendment or waiver in accordance with the requirements of
Instruction 4 to such Item 16B or (ii) through the filing of a Form 6-K. We granted no waivers under our code of ethics in 2019.
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ITEM 16C: Principal Accountant Fees and Services
Fees paid to the Auditors
The following table sets forth, for each of the years indicated, the fees expensed by our independent registered public accounting
firm.
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
Total
Year ended December, 31,
2018
2019
(in thousands of U.S. dollars)
275 $
10
104
280
15
133
389 $
428
$
$
____________
(1)
(2)
(3)
“Audit fees” include fees for services performed by our independent public accounting firm in connection with our annual audit for 2018 and 2019,
certain procedures regarding our quarterly financial results submitted on Form 6-K and consultation concerning financial accounting and reporting
standards.
“Audit-Related fees” relate to assurance and associated services that are traditionally performed by the independent auditor, including: accounting
consultation and consultation concerning financial accounting, reporting standards and due diligence investigations.
“Tax fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance, transfer pricing
and tax advice on actual or contemplated transactions.
Audit Committee’s Pre-Approval Policies and Procedures
Our audit committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain
audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the
independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the
categories of audit service, audit-related service and tax services that may be performed by our independent accountants.
Our audit committee pre-approved all audit and non-audit services provided to us and to our subsidiaries during the periods listed
above.
ITEM 16D: Exemptions from the Listing Standards for Audit Committees
Not applicable.
ITEM 16E: Purchase of Equity Securities by the Company and Affiliated Purchasers
On August 2015, the Board of Directors approved a program for the Company to repurchase up to $15 million of its outstanding
ordinary shares, which program was thereafter approved by the Israeli court, pursuant to Israeli law on November 26, 2015.
Share purchases will take place in open market transactions or in privately negotiated transactions and may be made from time to
time depending on market conditions, share price, trading volume and other factors. Such purchases will be made in accordance
with all applicable securities laws and regulations. The repurchase program does not require Allot to acquire a specific number of
shares, and may be suspended from time to time or discontinued. The court approvals previously granted were each valid for a
period of six months. During 2017, 2018 and 2019 we did not repurchase any outstanding ordinary shares under this program.
ITEM 16F: Change in Registrant’s Certifying Accountant
None.
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ITEM 16G: Corporate Governance
As a foreign private issuer, we are permitted under NASDAQ Rule 5615(a)(3) to follow Israeli corporate governance practices
instead of the NASDAQ Stock Market requirements, provided we disclose which requirements we are not following and describe
the equivalent Israeli requirement. We must also provide NASDAQ with a letter from outside counsel in our home country,
Israel, certifying that our corporate governance practices are not prohibited by Israeli law.
We rely on this “foreign private issuer exemption” with respect to the following items:
• We follow the requirements of Israeli law with respect to the quorum requirement for meetings of our shareholders, which are different from the
requirements of Rule 5620(c). Under our articles of association, the quorum required for an ordinary meeting of shareholders consists of at least
two shareholders present in person, by proxy or by written ballot 33.33%, who hold or represent between them at least 25% of the voting power
of our shares, instead of the issued share capital provided by under the NASDAQ requirements. This quorum requirement is based on the
default requirement set forth in the Companies Law.
• We do not seek shareholder approval for equity compensation plans in accordance with the requirements of the Companies Law, which does not
fully reflect the requirements of Rule 5635(c). Under Israeli law, we may amend our 2016 Plan by the approval of our board of directors, and
without shareholder approval as is generally required under Rule 5635(c). Under Israeli law, the adoption and amendment of equity
compensation plans, including changes to the reserved shares, do not require shareholder approval.
We are subject to additional Israeli corporate governance requirements applicable to companies incorporated in Israel whose
securities are listed for trading on a stock exchange outside of Israel.
We may in the future provide NASDAQ with an additional letter or letters notifying NASDAQ that we are following our home
country practices, consistent with the Companies Law and practices, in lieu of other requirements of Rule 5600.
ITEM 16H: Mine Safety Disclosure
Not applicable.
PART III
ITEM 17: Financial Statements
Not applicable.
ITEM 18: Financial Statements
See Financial Statements included at the end of this report.
ITEM 19: Exhibits
See exhibit index incorporated herein by reference.
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The registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 26, 2020
Allot Ltd
By: /s/ Erez Antebi
Erez Antebi
Chief Executive Officer and
President
106
ANNUAL REPORT ON FORM 20-F
INDEX OF EXHIBITS
Number
Description
1.1
1.2
1.3
2.1
2.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
8.1
12.1
12.2
13.1
15.1
Articles of Association of the Registrant (2)
Certificate of Name Change (9)
Memorandum of Association of the Registrant (10)
Specimen share certificate (1)
Description of Registrant’s Securities
Non-Stabilized Lease Agreement, dated February 13, 2006, by and among, Aderet Hod Hasharon Ltd., Miritz, Inc., Leah and Israel Ruben
Assets Ltd., Tamar and Moshe Cohen Assets Ltd., Drish Assets Ltd., S. L. A. A. Assets and Consulting Ltd., Iris Katz Ltd., Y. A. Groder
Investments Ltd., Ginotel Hod Hasharon 2000 Ltd. and Allot Ltd (1)
2016 Incentive Compensation Plan, as amended and restated (6)
Israeli Subplan (Appendix A) of the 2016 Incentive Compensation Plan, as amended and restated (7)
US Subplan (Appendix B) of the 2016 Incentive Compensation Plan, as amended and restated (8)
Manufacturing Agreement, dated July 19, 2007, by and between Flextronics (Israel) Ltd. and the Registrant (4)
Amendment No. 1, dated September 1, 2012, to the Manufacturing Agreement, dated July 19, 2007, by and between Flextronics (Israel)
Ltd. and the Registrant (11)
Asset Purchase Agreement, dated February 19, 2015, by and between Optenet S.A. and the Registrant. (3)
Compensation Policy for Executive Officers and Directors (5)
List of Subsidiaries of the Registrant
Certification of Principal Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications)
Certification of Principal Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications)
Certification of Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(b) and Rule 15d-14(b) (Section 906
Certifications), furnished herewith
Consent of Kost Forer Gabbay & Kasierer
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
101.DEF
____________
(1)
Previously filed with the Securities and Exchange Commission on October 31, 2006 pursuant to a registration statement on Form F-1 (File No. 333-
138313) and incorporated by reference herein.
Previously included in Exhibit 99.3 to the report of foreign private issuer on Form 6-K furnished to the Securities and Exchange Commission on
November 1, 2018 and incorporated by reference herein.
Previously filed with the Securities and Exchange Commission on March 26, 2015 as Exhibit 4.8 to the annual report on Form 20-F for the year
ended December 31, 2014 and incorporated by reference herein.
Previously filed with the Securities and Exchange Commission on March 28, 2016 as Exhibit 5.1 to the annual report on Form 20-F for the year
ended December 31, 2015 and incorporated by reference herein.
Previously included in Exhibit A-1 to Proxy statement included in Exhibit 99.1 to the report of foreign private issuer on Form 6-K furnished to the
Securities and Exchange Commission on August 15, 2016 and incorporated by reference herein.
Previously filed with the Securities and Exchange Commission on March 23, 2017 as Exhibit 4.2 to the annual report on Form 20-F for the year
ended December 31, 2016 and incorporated by reference herein.
Previously filed with the Securities and Exchange Commission on March 23, 2017 as Exhibit 4.3 to the annual report on Form 20-F for the year
ended December 31, 2016 and incorporated by reference herein.
Previously filed with the Securities and Exchange Commission on March 23, 2017 as Exhibit 4.4 to the annual report on Form 20-F for the year
ended December 31, 2016 and incorporated by reference herein.
Previously included in Exhibit 99.1 to the report of foreign private issuer on Form 6-K furnished to the Securities and Exchange Commission on
November 1, 2018 and incorporated by reference herein.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10) Previously included in Exhibit 99.2 to the report of foreign private issuer on Form 6-K furnished to the Securities and Exchange Commission on
November 1, 2018 and incorporated by reference herein.
(11) Previously filed with the Securities and Exchange Commission on March 22, 2018 as Exhibit 4.6 to the annual report on Form 20-F for the year
ended December 31, 2017 and incorporated by reference herein
107
ALLOT LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
U.S. DOLLARS IN THOUSANDS
ALLOT LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
U.S. DOLLARS IN THOUSANDS
INDEX
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
- - - - - - - -
Page
F-2 - F-3
F-4 - F-5
F-6
F-7
F-8 - F-9
F-10 - F-46
Kost Forer Gabbay & Kasierer
144 Menahem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ALLOT LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Allot Ltd. (the “Company“) as of December 31, 2019
and 2018, the related consolidated statements of comprehensive loss, changes in stockholders‘ equity and cash flows, for each of
the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated
financial statements“). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2019, in conformity with US generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated March 26, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion
on the Company‘s 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 US 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 financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a
test basis, evidence regarding the amounts and disclosures in the 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
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company‘s auditor since 2006.
Tel Aviv, Israel
March 26, 2019
F - 2
Kost Forer Gabbay & Kasierer
144 Menahem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ALLOT LTD.
Opinion on Internal Control over Financial Reporting
We have audited Allot Ltd. (the "Company") internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the "COSO Criteria"). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018 and the related consolidated
statements of operations, statements of comprehensive loss, Changes in Stockholders’ Equity and cash flows for each of the three
years in the period ended December 31, 2019 of the Company and our report dated March 26, 2019 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the 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 effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company‘s auditor since 2006.
Tel-Aviv, Israel
March 26, 2020
F - 3
CONSOLIDATED BALANCE SHEETSU.S.
U.S. dollars in thousands
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted deposits
Short-term bank deposits
Available-for-sale marketable securities
Trade receivables (net of allowance for doubtful accounts of $ 1,867 and $ 1,415 at December 31, 2019 and 2018,
$
respectively)
Other receivables and prepaid expenses
Inventories
Total current assets
NON-CURRENT ASSETS:
Restricted deposits
Severance pay fund
Operating lease right-of-use assets
Deferred taxes
Other assets
Property and equipment
Intangible assets, net
Goodwill
Total non-current assets
Total assets
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
ALLOT LTD.
December 31,
2019
2018
16,930 $
23,183
5,557
61,012
29,008
6,528
10,668
16,336
465
22,543
64,290
26,093
3,647
11,345
152,886
144,719
10,913
387
6,368
517
926
8,135
3,354
31,683
257
345
-
281
600
6,249
4,961
32,432
62,283
45,125
$
215,169 $
189,844
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables
Employees and payroll accruals
Deferred revenues
Short-term operating lease liabilities
Other payables and accrued expenses
Total current liabilities
LONG-TERM LIABILITIES:
Deferred revenues
Long-term operating lease liabilities
Accrued severance pay
Other long-term liability
Total long-term liabilities
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Share capital -
Ordinary shares of NIS 0.1 par value - Authorized: 200,000,000 shares at December 31, 2019 and 2018; Issued:
35,336,728 and 34,712,261 shares at December 31, 2019 and 2018, respectively; Outstanding: 34,520,728 and
33,896,261 shares at December 31, 2019 and 2018, respectively
Additional paid-in capital
Treasury stock at cost - 816,000 shares at December 31, 2019 and 2018.
Accumulated other comprehensive income (loss)
Accumulated deficit
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
ALLOT LTD.
$
December 31,
2019
2018
11,676 $
12,041
36,360
3,151
10,214
7,813
7,357
13,855
-
13,695
73,442
42,720
5,262
3,820
794
-
4,247
-
806
6,168
9,876
11,221
871
276,112
(3,998)
(525)
(140,609)
853
271,765
(3,998)
(767)
(131,950)
131,851
135,903
$
215,169 $
189,844
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands, except share and per share data
Revenues:
Products
Services
Total revenues
Cost of revenues:
Products
Services
Total cost of revenues
Gross profit
Operating expenses:
Research and development (net of grant participations of $ 378, $ 374 and $ 392 for the years
ended December 31, 2019, 2018 and 2017, respectively)
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Financial income, net
Loss before income tax expense
Income tax expense
Net loss
Unrealized gain (loss) on available-for-sale marketable securities
Unrealized gain (loss) on foreign currency cash flow hedges transactions
Net amount reclassified to earnings
Total comprehensive loss from hedge transactions
Total comprehensive loss
Net loss per share:
Basic and diluted
ALLOT LTD.
Year ended December 31,
2018
2019
2017
$
67,440 $
42,660
110,100
56,169 $
39,668
95,837
48,727
33,265
81,992
22,743
11,091
20,061
9,288
19,258
9,272
33,834
29,349
28,530
76,266
66,488
53,462
31,461
47,105
6,678
25,418
40,849
10,416
21,852
38,316
10,696
85,244
76,683
70,864
(8,978)
1,960
(10,195)
2,208
(7,018)
1,641
(7,987)
2,428
(17,402)
894
(16,508)
1,564
$
(8,659) $
(10,415) $
(18,072)
670
(332)
(96)
(428)
(226)
(1,480)
903
(577)
(35)
1,016
(796)
220
$
(8,417) $
(11,218) $
(17,887)
$
(0.25) $
(0.31) $
(0.54)
Weighted average number of shares used in per share computations of net loss:
Basic and diluted
34,250,582
33,710,507
33,253,158
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share data
ALLOT LTD.
Ordinary shares
Outstanding
shares
Amount
Additional
paid-in capital
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
Total
shareholders'
equity
33,057,719
843
264,782
(3,998)
(149)
(104,175)
157,303
425,543
-
-
-
8
-
-
-
354
3,351
-
-
-
-
-
-
-
-
-
-
362
3,351
185
-
-
(18,072)
185
(18,072)
33,483,262
851
268,487
(3,998)
36
(122,247)
143,129
-
412,999
-
-
-
-
2
-
-
-
-
416
2,862
-
-
-
-
-
-
-
-
-
-
712
-
-
(803)
-
-
(10,415)
712
418
2,862
(803)
(10,415)
33,896,261
853
271,765
(3,998)
(767)
(131,950)
135,903
624,467
18
974
-
-
-
-
-
-
3,373
-
-
-
-
-
-
-
-
-
-
242
-
-
(8,659)
992
3,373
242
(8,659)
34,520,728
871
276,112
(3,998)
(525)
(140,609)
131,851
Balance at January 1,
2017
Exercise of stock
options
Stock-based
compensation
Other comprehensive
income
Net loss
Balance at December
31, 2017
Cumulative effect of
new accounting
standard (See Note 1)
Exercise of stock
options
Stock-based
compensation
Other comprehensive
income
Net loss
Balance at December
31, 2018
Exercise of stock
options
Stock-based
compensation
Other comprehensive
income
Net loss
Balance at December
31, 2019
Accumulated other comprehensive loss:
Accumulated unrealized gain (loss) on available-for-sale marketable securities
Accumulated unrealized loss on foreign currency cash flows hedge transactions gain (loss)
Accumulated other comprehensive gain (loss)
Year ended
December 31,
2018
2019
2017
$
$
321 $
(846)
(349) $
(418)
(525) $
(767) $
(123)
159
36
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
ALLOT LTD.
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
Stock-based compensation
Capital loss
Increase (decrease) in accrued severance pay, net
Decrease in other assets
Decrease in accrued interest and amortization of premium on available-for sale marketable
securities
Changes in operating lease right-of-use asset
Changes in operating leases liability
Decrease (increase) in trade receivables
Decrease (increase) in other receivables and prepaid expenses
Increase in inventories
Decrease (increase) in long-term deferred taxes, net
Increase in trade payables
Increase (decrease) in employees and payroll accruals
Increase in deferred revenues
Increase (decrease) in other payables and accrued expenses
Year ended December 31,
2018
2019
2017
$
(8,659) $
(10,415) $
(18,072)
4,359
3,420
-
(54)
(326)
343
(6,368)
6,971
(2,915)
(3,168)
(253)
(236)
3,863
4,635
23,520
(9,040)
3,834
2,862
39
16
535
804
-
(3,356)
(1,101)
(3,448)
20
1,945
(1,178)
3,566
6,906
3,668
3,366
27
105
1
913
-
1,421
1,350
(662)
(34)
2,582
1,140
518
3,449
Net cash provided by (used in) operating activities
16,092
1,029
(228)
Cash flows from investing activities:
Investment in restricted deposits
Redemption of (Investment in) short-term deposits
Purchase of property and equipment
Investment in available-for sale marketable securities
Proceeds from redemption or sale of available-for sale marketable securities
Acquisition of Netonomy, net of cash
(33,374)
16,986
(3,708)
(39,950)
43,555
-
(294)
8,500
(3,485)
(34,777)
32,651
(3,048)
(428)
(1,222)
(2,833)
(30,123)
26,488
-
Net cash used in by investing activities
(16,491)
(453)
(8,118)
F - 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from financing activities:
Proceeds from exercise of stock options
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
ALLOT LTD.
Year ended
December 31,
2018
2019
2017
993
418
993
418
362
362
594
16,336
994
15,342
(7,984)
23,326
Cash and cash equivalents at the end of the year
$
16,930 $
16,336 $
15,342
Supplementary cash flow information:
Cash paid during the year for:
Taxes
Non cash activity:
$
473 $
347 $
342
Changes in operating lease right-of-use singed during 2019
Changes in operating leases liability singed during 2019
$
$
(1,208)
1,208
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:- GENERAL
ALLOT LTD.
a.
Allot Ltd. (the "Company") was incorporated in November 1996 under the laws of the State of Israel. The Company is engaged in
developing, selling and marketing network intelligence and security solutions for mobile, fixed and cloud service providers, as well as
enterprises, and helping them enhance value to their customers. The Company’s flexible and highly scalable hardware platforms and
software applications are deployed globally for network and application analytics, traffic control and shaping, network-based security
including mobile security, DDoS protection, IoT security and more. The Company's main platforms include Allot Service Gateway
service delivery platform and Allot Secure. Allot SG enables network operators to learn about users and network behaviors to improve
quality of service and reduce costs; and Allot Secure enables customers to detect security breaches and protect networks and network
users from attacks. These platforms and the solutions they provide empower service providers and enterprises to get more out of their
networks, to secure and to manage them better, to clearly see and understand their networks from within, and to innovate, optimize,
and capitalize on every opportunity, all the while deploying new services faster and constantly increasing value to their customers.
The Company's Ordinary Shares are listed in the NASDAQ Global Select Market under the symbol "ALLT"
from its initial public offering in November 2006. Since November 2010, the Company's Ordinary Shares have
been listed for trading in the Tel Aviv Stock Exchange as well.
The Company holds fourteen wholly-owned subsidiaries (the Company together with said subsidiaries shall
collectively be referred to as "Allot"): Allot Communications, Inc. in Burlington, Massachusetts, United-States
(the "U.S. subsidiary"), which was incorporated in 1997 under the laws of the State of California, Allot
Communication Europe SARL in Sophia, France (the "European subsidiary"), which was incorporated in 1998
under the laws of France, Allot Communications Japan K.K. in Tokyo, Japan (the "Japanese subsidiary"), which
was incorporated in 2004 under the laws of Japan, Allot Communication (UK) Limited (the "UK subsidiary"),
which was incorporated in 2006 under the laws of England and Wales, Allot Communications (Asia Pacific)
Pte. Ltd. ("the Singaporean subsidiary"), which was incorporated in 2006 under the laws of Singapore, Allot
Communications (New Zealand) Limited. (the "NZ subsidiary"), which was incorporated in 2007 under the
laws of New Zealand, Allot India Private Limited. (the "Indian subsidiary”), which was incorporated in 2012
under the laws of India and commenced its activity in 2013, Allot Communications Africa (PTY) Ltd. (the
"African subsidiary”), which was incorporated in 2013 under the laws of South Africa, Allot Communications
(Hong Kong) Limited (the "HK subsidiary”), which was incorporated in 2013 under the laws of Hong-Kong,
Allot Communications Spain, S.L. Sociedad Unipersonal (the "Spanish subsidiary”), which was incorporated in
2015 under the laws of Spain, Allot Communications (Colombia) S.A.S (the "Colombian subsidiary”), which
was incorporated in 2015 under the laws of Colombia and Allot MexSub (the "Mexican subsidiary"), which
was incorporated in 2015 under the laws of Mexico, Allot Turkey Komunikasion Hizmeleri limited (the
“Turkish subsidiary”), which was incorporated in 2018 under laws of Turkey, Allot Australia (PTY) LTD (the
“Australian subsidiary”), which was incorporated in 2018 under the laws of Australia.
F - 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:- GENERAL (Cont.)
ALLOT LTD.
The U.S., Spanish, Colombian and Indian subsidiaries are engaged in the sale, marketing and technical support
services of the Company's products in the Americas, Colombia and India, respectively. The European
(excluding Spanish), Japanese, NZ, UK, Singaporean, HK, African, Turkish and Australian subsidiaries are
engaged in marketing and technical support services of the Company's products in Europe, Japan, Oceania, UK,
Asia and Africa, respectively.
The Spanish and Mexican subsidiaries commenced operations in 2015 and are engaged in the marketing,
technical support and development activities of one of the Company's product lines.
b.
Acquisition:
On January 14, 2018 (the "Netonomy acquisition date"), the Company entered into a purchase agreement with
the shareholders of Netonomy LTD ("Netonomy"), a developer of software-based cybersecurity solutions for
the connected home.
The total consideration for the acquisition was $ 3,765, which consisted of $ 3,180 paid in cash, holdback
amount summing to $ 303 and additional contingent consideration at a fair value of $ 282 at the Netonomy
acquisition date. As of December 31, 2019, the contingent consideration is estimated at a fair value of $ 1,081,
The change in fair value of the contingent consideration was recorded to operating expenses.
The holdback amount (“Holdback Amount”) summing to $ 1,100 would be held to partially satisfy any claims
for indemnification. Such amount shall be paid in three installments consisting each one 40%, 40% and 20% of
the Holdback amount following the first, second and 30-months anniversaries of the Closing Date, respectively.
Notwithstanding the aforementioned, a sum of $ 797 thousand out of the Holdback Amount shall be paid
provided that certain employees keep working in the Company during the here mentioned periods (“the
Restricted Holdback Amount”).
The contingent consideration is payable over a two-and-a-half-year term, starting April 1, 2018 and ending
September 30, 2020 depending on the Company’s revenues from Netonomy’s technology, and has payments
cap of $ 1,100. A sum of $ 797 thousand out of the contingent consideration Amount shall be paid provided that
certain employees keep working in the Company during the mentioned periods under the “Restricted Holdback
Amount”. The obligations in respect of the holdback amount and the contingent consideration are presented
under Other payables and accrued expenses.
F - 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:- GENERAL (Cont.)
ALLOT LTD.
The acquisition was accounted for using the purchase method of accounting in accordance with ASC No. 805,
“Business Combinations” ("ASC No. 805"). Accordingly, the purchase price was allocated according to the
estimated fair values of the assets acquired and liabilities assumed and the excess of the purchase price over the
net tangible and identified intangible assets was assigned to goodwill. The fair value of intangible assets was
determined by management with the assistance of a third-party valuation.
On July 2018, the merger of Netonomy with the Company was approved by the Israeli tax authorities with Allot
as the receiving company and Netonomy as the transferring company and March 31, 2018 as the Merger Date.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the
acquisition date:
Non-current assets
Account Payable
Other Payables
IPR&D
Goodwill
Net assets acquired
Fair value
$
4
(11)
(142)
3,659
121
$
3,631
The acquired assets are net of cash balance of $ 132.
IPR&D is related to new technology that is still under development. Netonomy’s solution provides a simple,
reliable and secure network for connected homes through a minimal footprint agent installed on the home
router, which provides visibility into the network and blocks external and internal attacks.Acquisition costs in a
total amount of $49 were recorded to operating expenses. The Company started to depreciate the IPR&D asset
from Q3 2019 as the R&D phase was completed and the product was ready to sell.
Unaudited pro forma condensed results of operations:
Pro forma results of operations related to this acquisition have not been prepared because they are not material
to the Company’s consolidated statements of income.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles ("U.S. GAAP").
F - 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES
a. Use of estimates:
ALLOT LTD.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates, judgments and assumptions. The Company's management believes that the estimates,
judgments and assumptions used are reasonable based upon information available at the time they are made.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those estimates.
b. Financial statements in U.S. dollars:
The majority of the revenues of the Company and its subsidiaries are generated in U.S. dollars ("dollar") or
linked to the dollar. In addition, a major portion of the Company's and certain of its subsidiaries' costs are
incurred or determined in dollars. The Company's management believes that the dollar is the currency of the
primary economic environment in which the Company and its subsidiaries operate. Thus, the functional and
reporting currency of the Company and its subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars
in accordance with Accounting Standards Codification No. 830, "Foreign Currency Matters" ("ASC No. 830").
All transactions gains and losses from the remeasurement of monetary balance sheet items are reflected in the
statements of operations as financial income or expenses as appropriate.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany
balances and transactions have been eliminated upon consolidation.
d. Cash and cash equivalents:
The Company considers all unrestricted highly liquid investments which are readily convertible into cash, with
a maturity of three months or less at the date of acquisition, to be cash equivalents.
e. Restricted deposits:
The restricted deposits are held in favor of financial institutions in respect of fulfillment of forward contracts
and operating obligations. As of December 31, 2019, a major prepayment received from a client was classified
as a restricted deposit due to the contractual terms with the client.
F - 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
f.
Short-term bank deposits:
ALLOT LTD.
Short-term bank deposits are deposits with maturities of more than three months but less than one year at the
balance sheet date. The deposits are in dollars and bear interest at an annual weighted average rate of 2.33% and
2.82% at December 31, 2019 and 2018, respectively. In connection with the Company's hedging transactions,
the Company is required to maintain compensating deposits balances in the bank. Out of the short-term bank
deposits, a total of $2,500 is due to the hedging transactions as of December 31, 2019 and 2018.
g. Marketable securities:
The Company accounts for investments in marketable securities in accordance with ASC 320, "Investments -
Debt and Equity Securities". Management determines the appropriate classification of its investments in debt
securities at the time of purchase and re-evaluates such determinations at each balance sheet date.
Marketable securities classified as "available-for-sale" are carried at fair value, based on quoted market prices.
Unrealized gains and losses are reported in a separate component of shareholders' equity in accumulated other
comprehensive income (loss). Gains and losses are recognized when realized, on a specific identification basis,
in the Company's consolidated statements of comprehensive loss.
The Company's securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets are
considered to be impaired, the impairment charge is recognized in earnings when a decline in the fair value of
its investments below the cost basis is judged to be Other-Than-Temporary Impairment (OTTI). Factors
considered in making such a determination include the duration and severity of the impairment, the reason for
the decline in value, the potential recovery period and the Company's intent to sell, including whether it is more
likely than not that the Company will be required to sell the investment before recovery of cost basis. Based on
the above factors, the Company concluded that unrealized losses on its available-for-sale securities, for the
years ended 2019, 2018 and 2017, were not OTTI.
h. Inventories:
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover
risks arising primarily from end of life products and from slow-moving items, technological obsolescence, and
excess inventory. Inventory write-offs during the years ended December 31, 2019, 2018 and 2017 amounted to
$ 629, $ 2,231 and $ 1,260, respectively, and were recorded in cost of revenues.
Inventory write-off provision as of December 31, 2019 and 2018 amounted to $ 2,839 and $ 2,818, respectively.
Inventory cost is determined using the weighted average cost method.
F - 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i. Property and equipment, net:
ALLOT LTD.
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the
straight-line method over the estimated useful lives of the assets at the following annual rates:
Lab equipment
Computers and peripheral equipment
Office furniture
Leasehold improvements
j.
Goodwill impairment:
%
16 - 25
33
6
Over the shorter of the
term of the lease or the
useful life of the asset
Goodwill represents the excess of the purchase price over the fair value of net assets of purchased businesses.
Under Accounting Standards Codification No. 350, "Intangibles-Goodwill and Other" ("ASC No. 350"),
goodwill is not amortized, but rather subject to an annual impairment test, or more often if there are indicators
of impairment present. In accordance with ASC No. 350 the Company performs an annual impairment test at
December 31 each year.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the
two-step quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely
than not indication of impairment, no further impairment testing is required. If it does result in a more likely
than not indication of impairment, the two-step impairment test is performed. Alternatively, ASC 350 permits
an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first
step of the goodwill impairment test.
The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying
amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise,
no further step is required. The second step, measuring the impairment loss, compares the implied fair value of
the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the
applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to
fair value.
The Company operates in one operating segment, and this segment comprises its only reporting unit. The
Company has performed an annual impairment analysis as of December 31, 2019 and determined that the
carrying value of the reporting unit was less than the fair value of the reporting unit. Fair value is determined
using market capitalization. During years 2019, 2018 and 2017, no impairment losses were recorded.
F - 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.
Impairment of long-lived assets and intangible assets subject to amortization:
ALLOT LTD.
Property and equipment and intangible assets subject to amortization are reviewed for impairment in
accordance with ASC No. 360, "Accounting for the Impairment or Disposal of Long-Lived Assets," whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets.
Intangible assets acquired in a business combination are recorded at fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any
accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or
indefinite. Intangible assets that are not considered to have an indefinite useful life are amortized over their
estimated useful lives. Some of the acquired intangible assets are amortized over their estimated useful lives in
proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such
customer relationships as compared to the straight-line method. All other intangible assets are amortized over
their estimated useful lives on a straight-line basis.
During the years ended December 31, 2019, 2018 and 2017, no impairment losses were recorded.
l.
Revenue recognition:
The Company generates revenues mainly from selling its products along with related maintenance and support
services. At times, these arrangements may also include professional services, such as installation services or
training. Some of the Company’s product sells is done through resellers, distributors, OEMs and system
integrators, all of whom are considered end-users.
The Company adopted accounting standards codification 606, "Revenue from Contracts with Customers"
("ASC 606"), effective on January 1, 2018. The Company recognizes revenue under the core principle that
transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the
Company expects to receive. As such, the Company identifies a contract with a customer, identifies the
performance obligations in the contract, determines the transaction price, allocates the transaction price to each
performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a
performance obligation.
F - 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
The Company enters into contracts that can include combinations of products and services, that are capable of
being distinct and accounted for as separate performance obligations. The products are distinct as the customer
can derive the economic benefit of it without any professional services, updates or technical support. The
Company allocates the transaction price to each performance obligation based on its relative standalone selling
price out of the total consideration of the contract. For support, the Company determines the standalone selling
prices based on the price at which the Company separately sells a renewal contract on a stand-alone basis. For
professional services, the Company determines the standalone selling prices based on the price at which the
Company separately sells those services on a stand-alone basis. If the SSP is not observable, the Company
estimates the SSP taking into account available information such as geographic or regional specific factors,
internal costs, profit objectives, and internally approved pricing guidelines related to the performance
obligation.
Maintenance and support related revenues are deferred and recognized on a straight-line basis over the term of
the applicable maintenance and support agreement. Other services are recognized upon the completion of
installation or when the service is provided.
Deferred revenue includes amounts received from customers for which revenue has not yet been recognized.
Deferred revenues are classified as short and long-term based on their contractual term and recognized as
revenues at the time the respective elements are provided.
Transaction price allocated to remaining performance obligations represents non-cancelable contracts that have
not yet been recognized that include deferred revenue and amounts not yet received that will be recognized as
revenue in future periods. The aggregate amount of the transaction price allocated to remaining performance
obligations that the Company expects to recognize after the year ending December 31, 2020 is approximately
$37,875.
The Company pays sales commissions to sales and marketing personnel based on their certain predetermined
sales goals. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a
customer. Sales commissions earned by its employees are capitalized and amortized in over the revenue
recognition period. Amortization expenses related to these costs are included in sales and marketing expenses in
the consolidated statements of operations. For the year ended December 31, 2019, the amortization of deferred
commission was $1,351. The Company uses the practical expedient and does not assess the existence of a
significant financing component when the difference between payment and revenue recognition is a year or
less.
The Company estimated variable consideration related to product returns based on its experience with historical
product returns and other known factors. Such provisions amounted to $163 and $191 as of December 31, 2019
and 2018, respectively. Following the adoption of ASC 606, As of December 31, 2019 and 2018, this provision
was recorded as part of other payables and accrued expenses.
F - 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
Following the adoption of ASC 606 in January 1, 2018, the Company recognizes for term-based license
agreements at the point in time when control transfers and the associated maintenance revenues over the
contract period. Adoption of the standard has resulted in a reduction of deferred revenues of $712 that was
recorded in accumulated deficit due to upfront recognition of license revenues from term licenses.
The cumulative effect of the changes made to the consolidated balance sheet as of January 1, 2018 for the
adoption of Topic 606-10 was as follows:
Deferred revenue, short term
Deferred revenue, long term
Trade receivables
Accumulated deficit
December
31, 2017 Adjustments
(in thousands)
January 1,
2018
11,370
3,878
22,737
122,247
(311)
(75)
326
(712)
11,059
3,803
23,063
121,535
In accordance with Topic 606-10, the disclosure of the impact of adoption on the consolidated balance sheet as
of December 31, 2018 was as follows:
Amounts
under
Topic 605
Impact of
Adoption
(in thousands)
As
Reported
Consolidated Balance Sheet
Deferred revenue, short term
Deferred revenue, long term
Trade receivables
Accumulated deficit
14,152
4,264
25,603
132,754
(297)
(17)
490
(804)
13,855
4,247
26,093
131,950
In addition, following the adoption of ASC 606, the Company’s consolidated statement of operations for the
year ended December 31, 2018, included an increase of revenue in the amount of $ 92, net, compared to the
accounting treatment under ASC 605.
m. Cost of revenues:
Cost of revenues consists primarily of costs of materials and the cost of maintenance and services, resulting
from costs associated with support, customer success and professional services.
n. Advertising expenses:
Advertising expenses are charged to the statement of comprehensive loss, as incurred. Advertising expenses for
the years ended December 31, 2019, 2018 and 2017 amounted to $ 1,274, $ 1,270 and $ 1,236, respectively.
F - 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. Research and development costs:
ALLOT LTD.
Accounting Standards Codification No. 985-20, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is established upon the
completion of a working model. The Company does not incur material costs between the completion of a
working model and the point at which the products are ready for general release. Therefore, research and
development costs are charged to the consolidated statement of comprehensive loss as incurred.
p. Severance pay:
The liability in Israel for substantially all of the Company`s employees in respect of severance pay liability is
calculated in accordance with Section 14 of the Severance Pay Law -1963 (herein- "Section 14"). Section 14
states that Company's contributions for severance pay shall be in line of severance compensation and upon
release of the policy to the employee, no additional obligations shall be conducted between the parties regarding
the matter of severance pay and no additional payments shall be made by the Company to the employee.
Furthermore, the related obligation and amounts deposited on behalf of such obligation under Section 14, are
not stated on the balance sheet, because pursuant to the current ruling, they are legally released from the
obligation to employees once the deposits have been paid.
There are a limited number of employees in Israel, for whom the Company is liable for severance pay. The
Company's liability for severance pay for its Israeli employees was calculated pursuant to Section 14, based on
the most recent monthly salary of its Israeli employees multiplied by the number of years of employment as of
the balance sheet date for such employees.
The Company's liability was partly provided by monthly deposits with severance pay funds and insurance
policies and the remainder by an accrual.
Severance expense for the years ended December 31, 2019, 2018 and 2017, amounted to $ 2,249, $ 1,950 and
$ 1,801, respectively.
q. Accounting for stock-based compensation:
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification
No. 718, "Compensation - Stock Compensation" ("ASC No. 718") that requires companies to estimate the fair
value of equity-based payment awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service
periods in the Company's consolidated statement of comprehensive loss. The Company recognizes
compensation expenses for the value of its awards based on the straight-line method over the requisite service
period of each of the awards, net of estimated forfeitures.
F - 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
The Company accounted for changes in award terms as a modification in accordance with ASC 718. A
modification to the terms of an award should be treated as an exchange of the original award for a new award
with total compensation cost equal to the grant-date fair value of the original award plus the incremental value
measured at the same date. Under ASC 718, the calculation of the incremental value is based on the excess of
the fair value of the new (modified) award based on current circumstances over the fair value of the original
award measured immediately before its terms are modified based on current circumstances.
The Company estimated the forfeiture rate based on historical forfeitures of equity awards and adjusted the rate
to reflect changes in facts and circumstances if any. The Company adopted ASU 2016-09 in the first quarter of
the fiscal year 2017 and elected to retain its existing accounting policy and estimate expected forfeitures. The
adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
The following table sets forth the total stock-based compensation expense resulting from stock options,
restricted share units ("RSUs") and Phantoms granted to employees included in the consolidated statements of
comprehensive loss, for the years ended December 31, 2019, 2018 and 2017:
Cost of revenues
Research and development
Sales and marketing
General and administrative
Year ended
December 31,
2018
2019
2017
$
264 $
847
1,257
1,052
316 $
678
928
940
362
648
1,166
1,190
Total stock-based compensation expense
$
3,420 $
2,862 $
3,366
The Company selected the binomial option pricing model as the most appropriate fair value method for its
stock-based compensation awards with the following assumptions for the years ended December 31, 2018 and
2017:
Suboptimal exercise multiple
Risk free interest rate
Volatility
Dividend yield
Year ended December 31,
2018
2017
2.9-3.5
2.9-3.5
2.09%-3.05% 0.80%-2.20%
26%-47% 27%-49%
0%
0%
The expected annual post-vesting and pre-vesting forfeiture rates affects the number of exercisable options.
Based on the Company's historical experience, the annual pre-vesting and post-vesting are in the range of
0%-33% and 0%-41%, respectively, in the years 2018 and 2017. During 2019 no options were granted by the
Company.
F - 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
The computations of expected volatility and suboptimal exercise multiple is based on the average of the
Company's realized historical stock price. The computation of the suboptimal exercise multiple and the
forfeiture rates are based on the grantee's expected exercise prior and post vesting termination behavior. The
interest rate for a period within the contractual life of the award is based on the U.S. Treasury Bills yield curve
in effect at the time of grant.
The Company currently has no plans to distribute dividends and intends to retain future earnings to finance the
development of its business.
The expected life of the stock options represents the weighted-average period the stock options are expected to
remain outstanding and is a derived output of the binomial model. The expected life of the stock options is
impacted by all of the underlying assumptions used in the Company's model.
r. Treasury stock:
The Company repurchases its Ordinary shares from time to time on the open market and holds such shares as
treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of shareholders'
equity.
s. Concentration of credit risks:
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of
cash and cash equivalents, marketable securities, short-term bank deposits, trade receivables and derivative
instruments.
The majority of cash and cash equivalents and short-term deposits of the Company are invested in dollar
deposits in major U.S. and Israeli banks. Such investments in the United States may be in excess of insured
limits and are not insured in other jurisdictions. Generally, the cash and cash equivalents and short-term bank
deposits may be redeemed upon demand, and therefore, bear minimal risk.
Marketable securities include investments in dollar linked corporate and municipal bonds. Marketable securities
consist of highly liquid debt instruments with high credit standing. The Company’s investment policy, approved
by the Board of Directors, limits the amount the Group may invest in any one type of investment or issuer,
thereby reducing credit risk concentrations. Management believes that the portfolio is well diversified and,
accordingly, minimal credit risk exists with respect to these marketable debt securities
The Company's trade receivables are primarily derived from sales to customers located mainly in EMEA, as
well as in APAC, Latin America and the United States. Concentration of credit risk with respect to trade
receivables is limited by credit limits, ongoing credit evaluation and account monitoring procedures. The
Company performs ongoing credit evaluations of its customers and establishes an allowance for doubtful
accounts on a specific basis. Allowance for doubtful accounts amounted to $ 1,867 and $ 1,415 as of December
31, 2019 and 2018, respectively.
F - 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
The Company utilizes foreign currency forward contracts to protect against the risk of overall changes in
exchange rates. The derivative instruments hedge a portion of the Company's non-dollar currency exposure.
Counterparties to the Company’s derivative instruments are all major financial institutions and its exposure is
limited to the amount of any asset resulting from the forward contracts.
The Company has no significant off-balance sheet concentrations of credit risk.
t. Grants from the Israel Innovation Authority:
Participation grants from the Israel Innovation Authority (Previously known as the Office of the Chief Scientist)
for research and development activity are recognized at the time the Company is entitled to such grants on the
basis of the costs incurred and included as a deduction of research and development costs. Research and
development non royalty bearing grants recognized amounted to $ 378, $ 374 and $ 392 in 2019, 2018 and
2017, respectively.
u. Income taxes:
The Company accounts for income taxes in accordance with Accounting Standards Codification No. 740,
"Income Taxes" ("ASC No. 740"). ASC No. 740 prescribes the use of the liability method, whereby deferred
tax asset and liability account balances are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The deferred tax assets and liabilities are classified to non-current assets
and liabilities, respectively.
ASC No. 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions.
The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the
weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical
merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation
processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement. The Company classifies interest related to unrecognized tax benefits in taxes
on income
v. Basic and diluted net income (loss) per share:
Basic net income (loss) per share is computed based on the weighted average number of Ordinary Shares
outstanding during each year. Diluted net income (loss) per share is computed based on the weighted average
number of Ordinary Shares outstanding during each year, plus dilutive potential Ordinary Shares considered
outstanding during the year, in accordance with FASB ASC 260 "Earnings Per Share".
F - 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
For the years ended December 31, 2019, 2018 and 2017, all outstanding options and RSUs have been excluded
from the calculation of the diluted net loss per share since their effect was anti-dilutive. See Note 16. The
amount of those options and RSU’s was : 3,105,801, 2,998,174, 2,902,387 respectively.
w. Comprehensive loss:
The Company accounts for comprehensive loss in accordance with Accounting Standards Codification No. 220,
"Comprehensive Income" ("ASC No. 220"). This statement establishes standards for the reporting and display
of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive
loss represents all changes in shareholders' equity during the period except those resulting from investments by,
or distributions to shareholders. The Company determined that its items of comprehensive loss relate to
unrealized gains and losses on hedging derivative instruments and unrealized gains and losses on available-for-
sale marketable securities.
The following table shows the components and the effects on net loss of amounts reclassified from accumulated
other comprehensive loss as of December 31, 2019:
Balance as of December 31, 2018
Changes in other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss) to:
Cost of revenues
Operating expenses
Financial income, net
Year ended
December 31, 2019
Unrealized
gains
(losses) on
cash flow
hedges
Unrealized
gain (losses)
on
marketable
securities
$
(349) $
666
(418) $
(332)
-
-
4
(7)
(89)
-
Net current-period other comprehensive income (loss)
670
(428)
Total
(767)
334
(7)
(89)
4
242
Balance as of December 31, 2019
$
321 $
(846) $
(525)
x. Fair value of financial instruments:
The Company measures its cash and cash equivalents, marketable securities, derivative instruments, short-term
bank deposits, trade receivables, other receivables, trade payables and other payables at fair value. The carrying
amounts of short-term bank deposits, trade receivables, other receivables, trade payables and other payables
approximate their fair value due to the short-term maturities of such instruments.
F - 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
Fair value is an exit price, representing the amount that would be received if the Company were to sell an asset
or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a
market-based measurement that should be determined based on assumptions that market participants would use
in pricing an asset or a liability.
The Company uses a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies
in measuring fair value:
Level 1 -
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 -
Include other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in
Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable
(model-derived valuations in which significant inputs are observable), or can be derived principally from or
corroborated by observable market data; and
Level 3 -
Unobservable inputs which are supported by little or no market activity.
The Company categorized each of its fair value measurements in one of those three levels of hierarchy. The fair
value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
The Company's earn-out considerations are classified within Level 3. The valuation methodology used by the
Company to calculate the fair value consideration is the discounted cash flow using the Monte-Carlo simulation
method by taking into account, forecast future revenues, expected volatility of 42.5% for Optenet and 20.7% for
Netonomy and the weighted average cost of debt of 2%. As of December 31, 2019 the fair value of the
consideration was determined according to discounted cash flow since the earn-out will be completely paid by
the third quarter of 2020.
y. Derivatives and hedging:
The Company accounts for derivatives and hedging based on Accounting Standards Codifiation No. 815,
"Derivatives and Hedging" ("ASC No. 815").
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value.
Derivative instruments that are not designated and qualified as hedging instruments must be adjusted to fair
value through earnings.
F - 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
For derivative instruments that hedge the exposure to variability in expected future cash flows that are
designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported
as a component of accumulated other comprehensive income (loss) in shareholders' equity and reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. As a result of
adopting new accounting guidance discussed in Note 2, " Recently adopted accounting pronouncements,"
beginning January 1, 2019, gains and losses on the derivatives instruments that are designated and qualify as a
cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into in the
same accounting period in which the designated forecasted transaction or hedged item affects earnings. Prior to
January 1, 2019, cash flow hedge ineffectiveness was separately measured and reported immediately in
earnings. Cash flow hedge ineffectiveness was immaterial during 2018 and 2017. To apply hedge accounting
treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on
hedged transactions.
z.
Business combinations:
The Company accounts for business combinations in accordance with ASC No. 805. ASC No. 805 requires
recognition of assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date,
measured at their fair values as of that date. Any excess of the fair value of net assets acquired over the
purchase price is recorded as goodwill and any subsequent changes in estimated contingencies are to be
recorded in earnings. In addition, changes in valuation allowance related to acquired deferred tax assets and
acquired income tax positions are to be recognized in earnings.
aa. Lease:
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (ASC 842). The Company determines if
an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract
involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the
economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to
direct the use of the asset. The Company elected to not recognize a lease liability and a right-of-use (“ROU”)
asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not
separate lease and non-lease components for its leases.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the
obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at
amounts, which represents the discounted present value of the lease payments over the lease, plus any initial
direct costs incurred. The lease liability is initially measured at lease commencement date based on the
discounted present value of minimum lease payments over the lease term. The implicit rate within the operating
leases is generally not determinable, therefore the Company uses the Incremental Borrowing Rate (“IBR”)
based on the information available at commencement date in determining the present value of lease payments.
The Company’s IBR is estimated to approximate the interest rate for collateralized borrowing with similar
terms and payments and in economic environments where the leased asset is located. Certain leases include
options to extend or terminate the lease.
F - 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
An option to extend the lease is considered in connection with determining the ROU asset and lease liability
when it is reasonably certain that the Company will exercise that option. An option to terminate is considered
unless it is reasonably certain that the Company will not exercise the option.
Payments under our lease arrangements are primarily fixed, however, certain lease agreements contain variable
payments, which are expensed as incurred and not included in
the operating lease right-of-use assets and liabilities. Variable lease payments are primarily comprised of
payments affected by common area maintenance and utility charges.
ab. Warranty costs:
The Company generally provides three months software and a one-year hardware warranty for all of its
products. A provision is recorded for estimated warranty costs at the time revenues are recognized based on the
Company's experience. Warranty expenses for the years ended December 31, 2019, 2018 and 2017 were
immaterial.
ac. Recently Adopted Accounting Pronouncements:
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). The standard requires the
recognition of ROU assets and lease liabilities for all leases. The standard requires a modified retrospective
transition approach to recognize and measure leases at the initial application.
The Company adopted the standard as of January 1, 2019, using a modified retrospective transition approach
and elected to use the effective date as the date of initial application. The Company adopted the ”package of
practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease
identification, lease classification and initial direct costs. As a result, the consolidated balance sheets as of
December 31, 2018 were not restated, continue to be reported under ASC 840, which did not require
recognition of operating lease assets and liabilities on the balance sheets, and are not comparative.
The standard had a material impact on the Company’s consolidated balance sheets which resulted in the
recognition of ROU assets and lease liabilities of $6.7 million and $6.7 million, respectively, on January 1,
2019, which included reclassifying deferred rent and rent prepayments as components of the ROU assets. The
standard did not have a material impact on the Company's consolidated statements of comprehensive income.
See also Note 11a.
F - 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ALLOT LTD.
The Company adopted Accounting Standards Update (“ASU”) No. 2017- 12, “Derivatives and Hedging”
(Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amended the eligibility
criteria for hedged items and transactions to expand an entity’s ability to hedge nonfinancial and financial risk
components. The new guidance eliminates the requirement to separately measure and present hedge
ineffectiveness and aligns the presentation of hedge gains and losses with the underlying hedge item. The new
guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. The
amended presentation and disclosure requirements were adopted on a prospective basis, while any amendments
to cash flow and net investment hedge relationships which existed on the date of adoption were applied on a
“modified retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained
earnings as of the beginning of the year of adoption. The new guidance was effective for the Company on
January 1, 2019 and the adoption did not have a material impact on the Company’s consolidated financial
statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, "Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting" (ASU 2018-
07). ASU 2018-07 was issued to simplify several aspects of the accounting for nonemployee share-based
payment transactions resulting from expanding the scope of Topic 718, Compensation – Stock Compensation,
to include share-based payment transactions for acquiring goods and services from nonemployees. The
amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment
awards. The Company adopted this standard as of December 31, 2019 and did not have material effect on its
consolidated financial statements.
ad. Recently Issued Accounting Pronouncement Not Yet Adopted:
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The standard changes the
methodology for measuring credit losses on financial instruments and the timing of when such losses are
recorded. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years,
beginning after December 15, 2018. The Company will adopt this standard as of January 1, 2020 and does not
expect this to have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 eliminates the requirement to measure the
implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within
that unit (the "Step 2 test") from the goodwill impairment test. Instead, if the carrying amount of a reporting
unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the
amount of goodwill in that reporting unit. ASU 2017-04 will become effective for the Company beginning
January 1, 2020 and must be applied to any annual or interim goodwill impairment assessments after that date.
Early adoption is permitted. The new guidance was effective for the Company on January 1, 2020. The
adoption did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic
740): “Simplifying the Accounting for Income Taxes” (ASU 2019-12), which simplifies the accounting for
income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, and early
adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated
financial statements.
F - 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 3:- AVAILABLE-FOR-SALE MARKETABLE SECURITIES
The following is a summary of available-for-sale marketable securities:
ALLOT LTD.
December 31, 2019
Gross
Gross
unrealized
unrealized
loss
gain
Amortized
cost
Fair
value
Amortized
cost
December 31, 2018
Gross
Gross
unrealized
unrealized
loss
gain
Fair
value
Available-for-sale - matures
within one year:
Governmental debentures $
Corporate debentures
Available-for-sale - matures
after one year through
three years:
Governmental debentures
Corporate debentures
449 $
30,928
1 $
79
- $
(8)
450 $
30,999
1,799 $
37,808
- $
6
(2) $
(98)
1,797
37,716
31,377
80
(8)
31,449
39,607
6
(100)
39,513
855
23,653
1
197
-
(7)
856
23,843
476
24,455
-
4
(4)
(253)
472
24,206
24,508
198
(7)
24,699
24,931
4
(257)
24,678
Available-for-sale - matures
after three years through
five years:
Corporate debentures
4,806
4,806
60,691 $
$
58
58
336 $
-
-
(15) $
4,864
4,864
61,012 $
101
101
64,639 $
-
-
10 $
(2)
(2)
(359) $
99
99
64,290
As of December 31, 2019, the Company had no investments with a significant unrealized losses for more than 12
months.
F - 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 4:-
FAIR VALUE MEASUREMENTS
ALLOT LTD.
In accordance with ASC No. 820, the Company measures its marketable securities and foreign currency derivative
instruments at fair value. Cash equivalents and available for sale marketable securities are classified within Level 1 or
Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models
utilizing market observable inputs.
The earn-out liability related to the acquisitions of Optenet and Netonomy are classified within Level 3 because these
liabilities are based on present value calculations and an external valuation model whose inputs include market
interest rates, estimated operational capitalization rates and volatilities. As of December 31, 2019 the fair value of the
consideration was determined according to discounted cash flow since the earn-out will be completely paid by the
third quarter of 2020.
The Company's financial net assets measured at fair value on a recurring basis, including accrued interest
components, consisted of the following types of instruments as of December 31, 2019 and 2018, respectively:
Available-for-sale marketable securities
Foreign currency derivative contracts
Earn-out liability
Total financial net assets
Available-for-sale marketable securities
Foreign currency derivative contracts
Earn-out liability
Total financial net assets
As of December 31, 2019
Fair value measurements using input type
Level 1
Level 2
Level 3
Total
- $
-
-
61,012 $
(871)
-
- $
-
(1,100)
61,012
(871)
(1,100)
- $
60,141 $
(1,100) $
59,041
As of December 31, 2018
Fair value measurements using input type
Level 1
Level 2
Level 3
Total
- $
-
-
64,290 $
(324)
-
- $
-
(6,051)
64,290
(324)
(6,051)
- $
63,966 $
(6,051) $
57,915
$
$
$
$
Fair value measurements using significant unobservable inputs (Level 3):
Balance at January 1, 2019
Earn Out liability adjustments due to exchange rates
Adjustment due to change in forecast and time value of earn-out consideration
Balance at December 31, 2019
F - 29
$
6,051
(113)
(4,838)
$
1,100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:- DERIVATIVE INSTRUMENTS
ALLOT LTD.
The Company enters into hedge transactions with a major financial institution, using derivative instruments, primarily
forward contracts and options to purchase and sell foreign currencies, in order to reduce the net currency exposure
associated with anticipated expenses (primarily salaries and related expenses that are designated as cash flow hedges),
trade receivables and forecasted revenues denominated in currencies other than U.S. dollar.
The Company currently hedges such future exposures for a maximum period of two years. However, the Company
may choose not to hedge certain foreign currency exchange exposures for a variety of reasons, including but not
limited to immateriality, accounting considerations and the prohibitive economic cost of hedging particular
exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from
movements in foreign currency exchange rates.
The Company records all derivatives on the consolidated balance sheets at fair value in accordance with ASC No.
820 at Level 2. Cash flow hedges are recorded in other comprehensive income (loss) until the hedged item is
recognized in earnings. The Company does not enter into derivative transactions for trading purposes. The net income
(loss) recognized in "Financial income (expense), net" during the years ended December 31, 2019, 2018 and 2017
was $534, $1,480 and $(1,801), respectively.
The Company had a net unrealized loss associated with cash flow hedges of $845 and $418 recorded in other
comprehensive loss as of December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the
Company had outstanding hedge transactions in the net amount of $ 36,139 and $ 20,816, respectively.
The fair value of the outstanding foreign exchange contracts recorded by the Company on its consolidated balance
sheets as of December 31, 2019 and 2018, as assets and liabilities is as follows:
Foreign exchange forward and
options contracts
Balance sheet
Fair value of foreign exchange hedge transactions
Fair value of foreign exchange hedge transactions
Other receivables and prepaid expenses
Other payables and accrued expenses
Total derivatives designated as hedging instruments Other Comprehensive loss
December 31,
2019
2018
$
$
158 $
(1,041)
56
(474)
(846) $
(418)
Gain or loss on the derivative instruments, which partially offset the foreign currency impact from the underlying
exposures, reclassified from other comprehensive loss to operating expenses and cost of revenues for the years ended
December 31, 2019, 2018 and 2017 were $ (96), $ 903 and $ (796), respectively.
F - 30
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:- DERIVATIVE INSTRUMENTS (Cont.)
Non-designated hedges:
The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from
the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives do
not qualify for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded
in financial income, net. Changes in the fair value of these derivatives are largely offset by the re-measurement of the
underlying assets and liabilities. The derivatives have maturities of approximately twelve months. As of December
31, 2019 and 2018, the Company’s outstanding non-hedge transactions were $ 15,741 and $ 16,023, respectively.
The fair value of the outstanding non-designated foreign exchange contracts recorded by the Company on its
consolidated balance sheets as of December 31, 2019 and 2018, as assets and liabilities are as follows:
Foreign exchange forward and
options contracts
Balance sheet
December 31,
2019
2018
Fair value of foreign exchange non-designated
hedge transactions
Other receivables and prepaid expenses
$
12 $
Total derivatives non-designated as hedging
instruments
12
94
94
NOTE 6:- OTHER RECEIVABLES AND PREPAID EXPENSES
Prepaid expenses
Government authorities
Short-term lease deposits
Foreign currency derivative contracts
Others
F - 31
December 31,
2019
2018
$
3,957 $
1,773
195
170
433
1,635
1,327
159
150
376
$
6,528 $
3,647
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:-
INVENTORIES
Raw materials
Finished goods
ALLOT LTD.
December 31,
2019
2018
$
1,264 $
9,404
551
10,794
$
10,668 $
11,345
As of December 31, 2019 and 2018, the finished products line item above includes deferral of the cost of goods sold
for which revenue was not yet recognized in the amount of approximately $ 1,335 and $ 1,336, respectively.
NOTE 8:- PROPERTY AND EQUIPMENT, NET
Cost:
Lab equipment
Computers and peripheral equipment
Office furniture and equipment
Leasehold improvements
Lease equipment
Accumulated depreciation:
Lab equipment
Computers and peripheral equipment
Office furniture and equipment
Leasehold improvements
Lease equipment
$
December 31,
2019
2018
17,548 $
22,374
1,356
2,557
930
16,038
20,680
1,197
2,212
-
44,765
40,127
14,548
20,145
659
1,162
116
13,273
19,039
598
968
-
36,630
33,878
Depreciated cost
$
8,135 $
6,249
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $ 2,752, $ 2,203 and $ 2,191,
respectively.
F - 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 9:-
INTANGIBLE ASSETS, NET
a.
The following table shows the Company's intangible assets for the periods presented:
Original Cost:
Technology
Backlog
Customer relationships
IP R&D
Accumulated amortization:
Technology
Backlog
Customer relationships
IP R&D
Amortized cost
ALLOT LTD.
Weighted
Average
Useful life
(Years)
December 31,
2019
2018
$
3.8
2.8
4.4
6
9,111 $
1,877
3,592
3,659
9,111
1,877
3,592
3,659
$
18,239 $
18,239
$
9,111 $
1,877
3,592
305
8,563
1,877
2,838
-
$
14,885 $
13,278
$
3,354 $
4,961
b.
c.
Amortization expense for the years ended December 31, 2019, 2018 and 2017 were $ 1,607, $ 1,631 and $ 1,477, respectively.
Estimated amortization expense for the years ending:
Year ending December 31,
2020
2021
2022
Thereafter
Total
F - 33
610
610
610
1,524
3,354
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 10:- OTHER PAYABLES AND ACCRUED EXPENSES
Advances from customers
Accrued expenses
Government authorities
Holdback and contingent earnout
Foreign currency derivative contracts
Provision for returns
Others
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Lease commitments:
ALLOT LTD.
December 31,
2019
2018
$
253 $
3,887
3,061
1,575
1,041
163
234
5,700
3,346
3,356
484
474
191
144
$
10,214 $
13,695
The Group's facilities are leased under several lease agreements for periods ending up to 2023, with options to
extend the leases ending up to 2025.
In addition, the Company has various operating lease agreements with respect to motor vehicles.
Lease expenses of office rent and vehicles for the years ended December 31, 2019, 2018 and 2017 were
approximately $3,129, $2,934 and $3,126, respectively. Expenses for short- term leases in 2019 were $ 278.
The following table represents the weighted-average remaining lease term and discount rate:
Weighted average remaining lease term
Weighted average discount rate
Year ended
December
31, 2019
2.52 years
1.54%
The discount rate was determined based on the estimated collateralized borrowing rate of the Company,
adjusted to the specific lease term and location of each lease.
F - 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
Maturities of operating lease liabilities were as follows:
Year ending December 31,
2020
2021
2022
2023
2024 and thereafter
Total lease payments
Less - imputed interest
Present value of lease liabilities
ALLOT LTD.
$
$
$
$
3,170
2,641
1,019
211
78
7,119
(148)
6,971
As of December 31, 2019 maturities of operating lease liabilities which were not recognized under ASU No.
2016-02, Leases (ASC 842) were $ 225.
b. Major subcontractor:
The Company currently depends on one subcontractor to manufacture and provide certain hardware, warranty
and support components for its traffic management systems. If the subcontractor experiences delays,
disruptions, quality control problems or a loss in capacity, shipments of products may be delayed and the
Company's ability to deliver such products could be materially adversely affected. In the event that the
Company terminates its business connection with the subcontractor, it will have to compensate the
subcontractor for certain inventory costs, as specified in the agreement with the subcontractor.
c.
Liens and guarantees:
As of December 31, 2019, the Company has provided bank guarantees in respect of prepayments from
customers in an aggregate amount of approximately $ 26 million, in addition to bank guarantees in favor of
leases agreements in an aggregate amount of approximately $ 501 .
d. Litigations:
On February 18, 2016, a former employee filed a claim against the Company alleging that he is entitled to
compensation for unlawful dismissal by the Company. In September 2019, the parties filed a request to approve
a settlement agreement which the Court approved in October 2019.
NOTE 12:- SHAREHOLDERS' EQUITY
a.
Company's shares:
As of December 31, 2019, the Company's authorized share capital consists of NIS 20,000,000 divided into
200,000,000 Ordinary Shares, par value NIS 0.1 per share. Ordinary Shares confer on their holders the right to
receive notice to participate and vote in general meetings of the Company, the right to a share in the excess of
assets upon liquidation of the Company, and the right to receive dividends if declared.
F - 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
b.
Stock option plan:
ALLOT LTD.
A summary of the Company's stock option activity, pertaining to its option plans for employees and related
information is as follows:
2019
Number
of shares
upon
exercise
Weighted
average
exercise
price
Year ended December 31,
2018
2017
Number
of shares
upon
exercise
Weighted
average
exercise
price
Number
of shares
upon
exercise
Weighted
average
exercise
price
Outstanding at beginning of year
Granted
Forfeited
Exercised
1,736,143 $
- $
(59,107) $
(223,295) $
7.26
-
10.05
4.36
2,189,297 $
62,200 $
(414,617) $
(100,737) $
7.63
5.91
9.79
4.07
1,959,014 $
676,550 $
(346,750) $
(99,517) $
Outstanding at end of year
1,453,741 $
7.59
1,736,143 $
7.26
2,189,297 $
8.24
4.93
7.01
3.56
7.63
Exercisable at end of year
1,240,005 $
8.01
1,281,665 $
8.02
1,274,649 $
9.26
Vested and expected to vest
1,442,990 $
7.61
1,464,802 $
7.65
1,607,782 $
8.44
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing
stock price on the last trading day of the fiscal years 2019, 2018 and 2017 and the exercise price, multiplied by
the number of in-the-money options) that would have been received by the option holders if all option holders
exercised their options on December 31, 2019, 2018 and 2017, respectively. This amount may change based on
the fair market value of the Company's stock. The total intrinsic value of options outstanding at December 31,
2019, 2018 and 2017, were $ 3,510, $ 1,518 and $ 1,063, respectively. The total intrinsic value of exercisable
options at December 31, 2019, 2018 and 2017, were approximately $ 2,791, $ 1,058 and $ 684, respectively.
The total intrinsic value of options vested and expected to vest at December 31, 2019, 2018 and 2017, were
approximately $ 3,399, $ 1,246 and $ 819, respectively.
The total intrinsic value (the difference between the Company's closing stock price on the exercise date and the
exercise price) of options exercised during the years ended December 31, 2019, 2018 and 2017 were
approximately $ 769, $ 201 and $ 176, respectively. The weighted-average grant-date fair value of the options
granted during the years ended December 31, 2018 and 2017 were $ 2.89 and $ 2.36, respectively. No options
were granted during 2019. The number of options vested during the year ended December 31, 2019 was
226,317. The weighted-average remaining contractual life of the outstanding options as of December 31, 2019
is 3.45 years. The weighted-average remaining contractual life of exercisable options as of December 31, 2019
is 3.25 years.
F - 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
ALLOT LTD.
The options outstanding as of December 31, 2019, have been classified by exercise price, as follows:
Exercise price
Shares upon exercise of
options outstanding as of
December 31, 2019
Weighted average
remaining contractual life
Years
Shares upon exercise of
options exercisable as of
December 31, 2019
$
$
$
$
$
23.31-27.58
15.2-17.07
10.0 -14.68
5.01-9.7
0.1-4.95
64,500
49,936
173,250
508,083
657,972
1,453,741
2.63
1.97
3.92
2.84
4.00
64,500
49,936
173,250
435,487
516,832
1,240,005
The following provides a summary of the restricted stock unit activity for the Company for the two years ended
December 31, 2019:
Year ended December 31,
2019
2018
Number
of shares
upon
exercise
Weighted
average
share price
Number
of shares
upon
exercise
Weighted
average
share price
Outstanding at beginning of year
Granted
Vested
Forfeited
1,252,031 $
1,001,000 $
(401,904) $
(199,067) $
5.45
7.53
7.53
7.61
713,090 $
996,200 $
(312,201) $
(145,058) $
Unvested at end of year
1,652,060 $
6.53
1,252,031 $
6.04
5.54
5.72
5.01
5.45
As of December 31, 2019, $ 402 and $ 8,001 unrecognized compensation cost related to stock options and
RSUs respectively is expected to be recognized over a weighted average vesting period of 3.01 years.
Under the terms of the above option plans, options may be granted to employees, officers, directors and various
service providers of the Company and its subsidiaries. The options vest over a four-year period, subject to the
continued employment of the employee. The options generally expire no later than ten years from the date of
the grant. The exercise price of the options at the date of grant under the plans may not be less than the nominal
value of the shares into which such options are exercised, any options, which are forfeited or cancelled before
expiration, become available for future grants. As of December 31, 2019, 34,652 Ordinary shares are available
for future issuance under the option plans.
In addition to granting stock options, the Company granted 1,001,000 and 996,200 RSUs in 2019 and 2018,
respectively under the 2016 option plan. RSUs vest over a four-year period subject to the continued
employment of the employee. RSUs that are cancelled or forfeited become available for future grants.
F - 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME
a.
Corporate tax rates:
ALLOT LTD.
The Israeli corporate income tax rate was 23% in 2019, 23% in 2018 and 24% in 2017.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for
Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income
tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018
b. Foreign Exchange Regulations:
Commencing in taxable year 2012, the Company has elected to measure its taxable income and file its tax
return under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of
Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income) 1986
("Foreign Exchange Regulations"). Under the Foreign Exchange Regulations, an Israeli company must
calculate its tax liability in U.S. Dollars according to certain rules. The tax liability, as calculated in U.S.
Dollars is translated into NIS according to the exchange rate as of December 31st of each year.
c.
Tax benefits under Israel's law for the Encouragement of Capital Investments, 1959 ("the Law"):
In 1998, the production facilities of the Company related to its computational technologies were granted the
status of an "Approved Enterprise" under the Law. In 2004, an expansion program was granted the status of
"Approved Enterprise". According to the provisions of the Law, the Company has elected the alternative track
of benefits and has waived Government grants in return for tax benefits. The period of tax benefits, detailed
above, is limited to the earlier of 12 years from the commencement of production, or 14 years from the approval
date.
According to the provisions of the Law under the alternative track, the Company's income may be tax-exempt
for a period of two years commencing with the year it first earns taxable income, and subject to corporate taxes
at the reduced rate of 10% to 25%, for an additional period of five to eight years depending upon the level of
foreign ownership of the Company.
F - 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME (Cont.)
ALLOT LTD.
The Law was significantly amended effective April 1, 2005 ("the 2005 - Amendment"). The 2005 -
Amendment includes revisions to the criteria for investments qualified to receive tax benefits as a Beneficiary
Enterprise and among other things, simplifies the approval process. The Amendment applies to new investment
programs. Therefore, investment programs commencing after December 31, 2004, do not affect the approved
programs of the Company.
In addition, the Law provides that terms and benefits included in any letter of approval already granted will
remain subject to the provisions of the Law as they were on the date of such approval. Therefore, the
Company's existing Approved Enterprise will generally not be subject to the provisions of the 2005 -
Amendment. The Company elected 2006 and 2009 as "year of election" under the 2005 - Amendment.
The entitlement to the above benefits is contingent upon the fulfillment of the conditions stipulated in the Law,
regulations published thereunder and the criteria set forth in the specific letters of approval. In the event of
failure to comply with these conditions, the benefits may be canceled and the Company may be required to
refund the amount of the benefits, in whole or in part, including interest and linked to changes in the Israeli CPI.
As of December 31, 2019, management believes that the Company meets the aforementioned conditions.
If the Company pays a dividend out of exempt income derived from the Approved and Beneficiary Enterprise,
it will be subject to corporate tax in respect of the gross amount distributed, including any taxes thereon, at the
rate which would have been applicable had it not enjoyed the alternative benefits, generally 10%-25%,
depending on the percentage of the Company's Ordinary shares held by foreign shareholders. The dividend
recipient is subject to withholding tax at the rate of 15% applicable to dividends from approved enterprises, if
the dividend is distributed during the tax exemption period or within twelve years thereafter. The Company
currently has no plans to distribute dividends and intends to retain future earnings to finance the development of
its business.
As of December 31, 2019, there is no income earned by the Company Israel’s “Approved Enterprises” and
“Beneficiary Enterprise”.
Income from sources other than the "Approved and Beneficiary Enterprise" during the benefit period will be
subject to tax at the regular corporate tax rate.
As of January 1, 2011, new legislation amending the Law came into effect (the "2011 Amendment"). The 2011
Amendment introduced a new status of "Preferred Company" and "Preferred Enterprise", replacing the then
existing status of "Beneficiary Company" and "Beneficiary Enterprise". Similarly to "Beneficiary Company", a
Preferred Company is an industrial company owning a Preferred Enterprise which meets certain conditions
(including a minimum threshold of 25% export). However, under this legislation the requirement for a
minimum investment in productive assets was cancelled.
F - 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME (Cont.)
ALLOT LTD.
Under the 2011 Amendment, a uniform corporate tax rate will apply to all qualifying income of the Preferred
Company, as opposed to the former law, which was limited to income from the Approved Enterprises and
Beneficiary Enterprise during the benefits period. The uniform corporate tax rate was 9% in areas in Israel
designated as Development Zone A and 16% elsewhere in Israel during 2016 and 2017.
A dividend distributed from income which is attributed to a Preferred Enterprise/Special Preferred Enterprise
will be subject to withholding tax at source at the following rates: (i) Israeli resident corporation – 0%, (ii)
Israeli resident individual – 20% as of 2014 and thereafter (iii) non-Israeli resident - 20% as of 2014 and
thereafter subject to a reduced tax rate under the provisions of an applicable double tax treaty.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy
for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement
of Capital Investments ("the 2016 - Amendment") was published. According to the 2016 - Amendment, a
preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective
from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas
remains at 16%).
The December 2016 amendment also prescribes special tax tracks for technological enterprises, the new tax
tracks under the amendment are as follows:
Technological preferred enterprise - an enterprise whose total consolidated revenues (parent company and all
subsidiaries) is less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is
located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual
property (in development area A - a tax rate of 7.5%).
Special technological preferred enterprise - an enterprise whose total consolidated revenues (parent company
and all subsidiaries) exceeds NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits
deriving from intellectual property, regardless of the enterprise’s geographical location.
Under the transition provisions of the 2016 Amendment, the Company may decide to irrevocably implement
the new law while waiving benefits provided under the current law or to remain subject to the current law.
d.
Tax benefits under the law for the Encouragement of Industry (Taxes), 1969 (the "Encouragement Law"):
The Encouragement Law, provides several tax benefits for industrial companies. An industrial company is
defined as a company resident in Israel, at least 90% of the income of which in a given tax year exclusive of
income from specified Government loans, capital gains, interest and dividends, is derived from an industrial
enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax
year is industrial production activity.
F - 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME (Cont.)
ALLOT LTD.
Management believes that the Company is currently qualified as an "industrial company" under the
Encouragement Law and as such, enjoys tax benefits, including: (1) deduction of purchase of know-how and
patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to
file a consolidated tax return with additional related Israeli industrial companies and an industrial holding
company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public
offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in
equal amounts over three years.
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any
governmental authority. No assurance can be given that the Israeli tax authorities will agree that the Company
qualifies, or, if the Company qualifies, then the Company will continue to qualify as an industrial company or
that the benefits described above will be available to the Company in the future.
e.
Pre-tax income (loss) is comprised as follows:
Domestic
Foreign
F - 41
Year ended
December 31,
2018
2019
2017
$
(8,934) $
1,916
(9,877) $
1,890
(17,539)
1,031
$
(7,018) $
(7,987) $
(16,508)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME (Cont.)
ALLOT LTD.
f.
A reconciliation of the theoretical tax expenses, assuming all income is taxed at the statutory tax rate applicable to the income of the
Company and the actual tax expenses is as follows:
Year ended
December 31,
2018
2019
2017
Loss before taxes on income
$
(7,018) $
(7,987) $
(16,508)
Theoretical tax income computed at the Israeli statutory tax rate
(23%, 23% and 24% for the years 2019, 2018 and 2017, respectively)
$
(1,614) $
(1,837) $
(3,962)
Changes in valuation allowance
Increase in losses and temporary differences due to change in Israeli
corporate and “Approved Enterprise" tax
Previous years
Write off of prepaid and withholding taxes
Foreign tax rates differences related to subsidiaries
Non-deductible expenses and other
Non-deductible share-based compensation expense
951
1,189
8,946
-
659
(5,376)
1,536
44
327
397
1,828
50
65
474
909
(48)
684
411
Actual tax expense
$
1,641 $
2,428 $
1,564
g.
Income tax expense is comprised as follows:
Current taxes
Deferred taxes expense (benefit)
Write off of prepaid and withholding taxes
F - 42
Year ended December 31,
2018
2019
2017
$
341 $
(236)
1,536
580 $
20
1,828
689
(34)
909
$
1,641 $
2,428 $
1,564
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME (Cont.)
h. Net operating losses carry forward:
ALLOT LTD.
The Company has accumulated net operating losses for tax purposes as of December 31, 2019, in the amount of
approximately $62,128, which may be carried forward and offset against taxable income in the future for an
indefinite period. In December 2014, the Israeli Tax Authorities approved a final tax ruling with respect to the
Company’s acquisition of Oversi. According to the ruling, the net operating losses on the merger date may be
offset against taxable income annually with a limitation of up to 14% of the total accumulated losses but no
more than 50% of the Company's taxable income. As of December 31, 2019, the Company recorded a full
valuation allowance with respect to its deferred tax assets in Allot Ltd. and wrote-off prepaid and withholding
taxes of $7,182 as the Company does not expect to utilize these tax assets in the near future. In addition, the
Company has accumulated capital losses for tax purposes as of December 31, 2019, of approximately $27,243,
which may be carried forward and offset against taxable capital gains in the future for an indefinite period but
are limited as stated above with regard to the Oversi merger. Management currently believes that since the
Company has a history of losses, and uncertainty with respect to future taxable income, it is more likely than
not that the deferred tax assets regarding the loss carry forwards will not be utilized in the foreseeable future.
Thus, a valuation allowance was provided to reduce deferred tax assets to their realizable value.
The U.S. subsidiary has accumulated losses for U.S. federal income tax return purposes of approximately
$ 5,524 and $ 7,438 for state taxes. The federal accumulated losses for tax purposes expire between 2026 and
2037. The state accumulated losses for tax purposes began to expire in 2014. As of December 31, 2019, the
Company recorded a partial valuation allowance with respect to its deferred tax assets in the US Subsidiary.
A portion of the losses are subject to limitations of Internal Revenue Code, Section 382, which in general
provides that utilization of net operating losses is subject to an annual limitation if an ownership change
results from transactions increasing the ownership of certain shareholders or public groups in the stock of a
corporation by more than 50 percentage points over a three-year period. The annual limitations may result in
the expiration of losses before utilization.
In December 2017 the U.S. Tax Cuts and Jobs Act of 2017 was signed into law. This legislation makes
significant changes to the U.S. Internal Revenue Code. Such changes include a reduction in the corporate tax
rate, changes in U.S. international taxation and limitations on certain corporate deductions and credits, among
other changes. The deferred tax asset at December 31, 2019 reflects the impact of the US Tax reform.
F - 43
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13:- TAXES ON INCOME (Cont.)
i.
Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income taxes are as follows:.
Deferred tax assets:
Operating and capital loss carryforwards
Reserves and allowances including lease liability
Deferred tax asset before valuation allowance
Valuation allowance
Deferred tax asset net of valuation allowance
Deferred tax liability including ROU asset
Net deferred tax asset
December 31,
2019
2018
$
$
22,353
9,071
21,348
3,723
31,424
(25,880)
5,544
25,071
(24,790)
281
5,027
517
$
$
-
281
j.
As of December 31, 2019, the Company’s provision in respect of ASC 740-10 is $243. The accrued interest and penalties related to
the provision in income taxes are immaterial.
The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries file
income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. In the normal
course of business, the Company is subject to examination by taxing authorities throughout the world, including
such major jurisdictions as Israel, France, and the United States. With a few exceptions, the Company is no
longer subject to Israeli tax assessment through the year 2013 and the Spanish and U.S. subsidiaries have final
tax assessments through 2014 and 2015, respectively. The Company is currently under audit by the Israeli Tax
Authorities for the years 2015– 2016.
NOTE 14:- GEOGRAPHIC INFORMATION
Allot operates in a single reportable segment. Revenues are based on the location of the Company's channel partners
which are considered as end customers, as well as direct customers of the Company:
Europe
Asia and Oceania
Americas
Middle East and Africa
F - 44
Year ended
December 31,
2018
2019
2017
$
36,199 $
42,994
16,576
14,331
45,730 $
22,018
14,363
13,726
40,394
13,936
15,532
12,130
$
110,100 $
95,837 $
81,992
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14:- GEOGRAPHIC INFORMATION (Cont.)
The following are the Company’s major customers:
Customer A
Customer B
ALLOT LTD.
Year ended
December 31,
2018
2019
2017
16%
11%
27%
22%
-
22%
32%
-
32%
A total percentage of 76% of the Company’s revenues for the year ended December 31, 2019 is attributed to network
intelligence solutions, while 24% is attributed to security solutions.
The following presents total long-lived assets as of December 31, 2019 and 2018:
Long-lived assets:
Israel
Other
NOTE 15:- FINANCIAL INCOME (EXPENSES), NET
Financial income:
Interest income
Exchange rate differences and other
Financial expenses:
December 31,
2019
2018
$
$
7,614 $
521
5,931
317
8,135 $
6,249
Year ended
December 31,
2018
2019
2017
$
2,551 $
-
2,696 $
305
2,513
-
Exchange rate differences and other
Amortization/accretion of premium/discount on marketable securities, net
334
257
-
793
602
1,017
$
1,960 $
2,208 $
894
F - 45
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 16:- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share:
Numerator:
Net loss
Year ended
December 31,
2018
2019
2017
$
(8,659) $
(10,415) $
(18,072)
Denominator:
Weighted average number of shares outstanding used in computing basic and diluted net
loss per share
34,250,582
33,710,507 33,253,158
Basic and diluted net loss per share
$
(0.25) $
(0.31) $
(0.54)
Note 17:- SUBSEQUENT EVENT
a.
In January 2020, inventory stored in the one of the Company’s warehouses suffered water damage. The Company is currently evaluating the
effect of the event on its inventories value and does not expect it to have a material impact.
F - 46
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES ACT OF 1934
EXHIBIT 2.2
The following description sets forth certain material terms and provisions of Allot Ltd.’s (the “Company”) securities that
are registered under Section 12 of the Securities Exchange Act of 1934, as amended.
DESCRIPTION OF SHARE CAPITAL
This description summarizes relevant provisions of the Israeli Companies Law, 5759-1999, or the Companies Law. The
following summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the
applicable provisions of the Companies Law and the Company’s articles of association, a copy of which is incorporated by
reference as an exhibit to the Annual Report on Form 20-F of which this Exhibit 2.2 is a part. The Company encourages you to
read its articles of association and the applicable provisions of the Companies Law for additional information.
Ordinary Shares
Our authorized share capital consists of 200,000,000 ordinary shares, par value ILS 0.10 per share. As of March 1, 2020, we
had 34,700,606 ordinary shares outstanding. All outstanding ordinary shares are validly issued, fully paid and non-assessable.
Our ordinary shares are listed under the symbol “ALLT” on the NASDAQ Stock Market and on the Tel Aviv Stock Exchange
(“TASE”).
The rights attached to the ordinary shares are as follows:
Voting. Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of
shareholders at a shareholder meeting. Shareholders may vote at shareholder meeting either in person, by proxy or by written
ballot. Shareholder voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with
preferential rights that may be authorized in the future.
Transfer of Shares. Fully paid ordinary shares are issued in registered form and may be freely transferred under our articles
of association unless the transfer is restricted or prohibited by another instrument, Israeli law or the rules of a stock exchange on
which the shares are traded.
Election of Directors. Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under
our articles of association our directors are elected by the holders of a simple majority of our ordinary shares at a general
shareholder meeting. As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented
at a shareholder meeting have the power to elect any or all of our directors whose positions are being filled at that meeting,
subject to the special approval requirements for outside directors.
Outside directors are elected by a majority vote at a shareholders’ meeting, provided that either:
•
the majority of shares voted at the meeting, including at least a majority of the shares of non-controlling shareholder(s) and shareholders who do
not have a personal interest in the election of the outside director (other than a personal interest that does not result from the shareholder’s
relationship with a controlling shareholder), voted at the meeting, excluding abstentions, vote in favor of the election of the outside director; or
•
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the election of the outside
director (excluding a personal interest that does not result from the shareholder's relationship with a controlling shareholder) voted against the
election of the outside director does not exceed two percent of the aggregate voting rights in the company.
Dividend and Liquidation Rights. Under the Companies Law, shareholder approval is not required for the declaration of a
dividend, unless the company’s articles of association provide otherwise. Our articles of association provide that our board of
directors may declare and distribute a dividend to be paid to the holders of ordinary shares without shareholder approval in
proportion to the paid up capital attributable to the shares that they hold. Dividends may be paid only out of profits legally
available for distribution, as defined in the Companies Law, provided that there is no reasonable concern that the payment of a
dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. If we do not have profits
legally available for distribution, we may seek the approval of the court to distribute a dividend. The court may approve our
request if it is convinced that there is no reasonable concern that a payment of a dividend will prevent us from satisfying our
existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of
ordinary shares in proportion to the paid up capital attributable to the shares that they hold. Dividend and liquidation rights may
be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights
that may be authorized in the future.
Shareholder Meetings
We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not
more than 15 months following the preceding annual general meeting. Our board of directors may convene a special general
meeting of our shareholders and is required to do so at the request of two directors or one quarter of the members of our board of
directors or at the request of one or more holders of 5% or more of our share capital and 1% of our voting power or the holder or
holders of 5% or more of our voting power. All shareholder meetings require prior notice of at least 21 days. The chairperson of
our board of directors, or any other person appointed by the board of directors, presides over our general meetings. In the absence
of the chairperson of the board of directors or such other person, one of the members of the board designated by a majority of the
directors presides over the meeting. If no director is designated to preside as chairperson, then the shareholders present will
choose one of the shareholders present to be chairperson. Subject to the provisions of the Companies Law and the regulations
promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date
to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting.
Quorum
The quorum required for a meeting of shareholders consists of at least two shareholders present in person, by proxy or by
written ballot, who hold or represent between them at least 25% of our voting power. A meeting adjourned for lack of a quorum
generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors
designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of at least two shareholders
present, in person, by proxy or by written ballot, who hold or represent between them at least 10% of our voting power, provided
that if the meeting was initially called pursuant to a request by our shareholders, then the quorum required must include at least
the number of shareholders entitled to call the meeting.
Resolutions
An ordinary resolution requires approval by the holders of a simple majority of the voting rights represented at the meeting,
in person, by proxy or by written ballot, and voting on the resolution.
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the
shareholders require a simple majority. A resolution for the voluntary winding up of the company requires the approval by
holders of at least 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the
resolution. Under our articles of association (1) certain shareholders’ resolutions require the approval of a special majority of the
holders of at least 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the
resolution, and (2) certain shareholders’ resolutions require the approval of a special majority of the holders of at least two-thirds
of the voting securities of the company then outstanding.
Access to Corporate Records
Under the Companies Law, all shareholders generally have the right to review minutes of our general meetings, our
shareholder register, including with respect to material shareholders, our articles of association, our financial statements and any
document we are required by law to file publicly with the Israeli Companies Registrar. Any shareholder who specifies the
purpose of its request may request to review any document in our possession that relates to any action or transaction with a
related party which requires shareholder approval under the Companies Law. We may deny a request to review a document if we
determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the
document’s disclosure may otherwise impair our interests.
Acquisitions under Israeli Law
Full Tender Offer. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90%
of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender offer for the
purchase of all of the issued and outstanding shares of the company. If the shareholders who do not accept the offer hold less than
5% of the issued and outstanding share capital of the company, and more than half of the offerees who do not have a personal
interest in the tender offer accept the tender offer, all of the shares that the acquirer offered to purchase will be transferred to the
acquirer by operation of law. Notwithstanding the above, if the shareholders who do not accept the offer hold less than 2% of the
issued and outstanding share capital of the company or of the applicable class, the offer will nonetheless be accepted. However, a
shareholder that had its shares so transferred may, within six months from the date of acceptance of the tender offer, petition the
court to determine that the tender offer was for less than fair value and that the fair value should be paid as determined by the
court. The bidder may provide in its tender offer that any accepting shareholder may not petition the court for fair value, but such
condition will not be valid unless all of the information required under the Companies Law was provided prior to the acceptance
date. The description above regarding a full tender offer also applies, with certain limitations, when a full tender offer for the
purchase of all of the company’s securities is accepted.
Special Tender Offer. The Companies Law provides, subject to certain exceptions, that an acquisition of shares of a public
Israeli company must be made by means of a “special tender offer” if, as a result of the acquisition, the purchaser would become
a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least
25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a holder of more
than 45% of the voting rights in the company, and there is no other shareholder of the company who holds more than 45% of the
voting rights in the company. The special tender offer may be consummated subject to certain majority requirements set forth in
the Companies Law, and provided further that at least 5% of the voting rights attached to the company’s outstanding shares will
be acquired by the party making the offer.
Merger. The Companies Law permits merger transactions between two Israeli companies if approved by each party’s board
of directors and a certain percentage of each party’s shareholders. Following the approval of the board of directors of each of the
merging companies, the boards must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.
Under the Companies Law, if the approval of a general meeting of the shareholders is required, merger transactions may be
approved by the holders of a simple majority of our shares present, in person, by proxy or by written ballot, at a general meeting
of the shareholders and voting on the transaction. In determining whether the required majority has approved the merger, if shares
of the company are held by the other party to the merger, by any person holding at least 25% of the voting rights, or 25% of the
means of appointing directors or the general manager of the other party to the merger, then a vote against the merger by holders
of the majority of the shares present and voting, excluding shares held by the other party or by such person, or any person or
entity acting on behalf of, related to or controlled by either of them, is sufficient to reject the merger transaction. In certain
circumstances, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company,
if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the
consideration offered to the shareholders.
The Companies Law provides for certain requirements and procedures that each of the merging companies is to fulfill. In
addition, a merger may not be completed unless at least fifty days have passed from the date that a proposal for approval of the
merger was filed with the Israeli Registrar of Companies and thirty days from the date that shareholder approval of both merging
companies was obtained.
Anti-Takeover Measures
Undesignated preferred shares. The Companies Law allows us to create and issue shares having rights different from those
attached to our ordinary shares, including shares providing certain preferred or additional rights with respect to voting,
distributions or other matters and shares having preemptive rights. We do not have any authorized or issued shares other than
ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares,
depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our
shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class
of shares will require an amendment to our articles of association which requires the prior approval of a simple majority of our
shares represented and voted at a general meeting. In addition, we undertook towards the TASE that, as long as our shares are
registered for trading with the TASE we will not issue or authorize shares of any class other than the class currently registered
with the TASE, unless such issuance is in accordance with certain provisions of the Israeli Securities Law determining that a
company registering its shares for trade on the TASE may not have more than one class of shares for a period of one year
following registration with the TASE, and following such period the company is permitted to issue preferred shares if the
preference of those shares is limited to a preference in the distribution of dividends and the preferred shares have no voting rights.
Supermajority voting. Our articles of association require the approval of the holders of at least two-thirds of our combined
voting power to effect certain amendments to our articles of association.
Classified board of directors. Under our articles of association, our directors (other than the outside directors, whose
appointments are required under the Companies Law) are divided into three classes. Each class of directors consists, as nearly as
possible, of one-third of the total number of directors constituting the entire board of directors (other than the outside directors).
At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of
office of that class of directors is for a term of office that expires on the third annual general meeting following such election or
re-election, such that each year the term of office of only one class of directors will expire.
The directors (other than the outside directors) are elected by a vote of the holders of a majority of the voting power present
and voting at the meeting. Each director will hold office until the annual general meeting of our shareholders for the year in
which his or her term expires and until his or her successor is duly elected and qualified, unless the tenure of such director expires
earlier pursuant to the Companies Law or unless he or she resigns or is removed from office.
The initial term of an outside director is three years, and he or she may be reelected to up to two additional terms of three
years each at a shareholders’ meeting, subject to the voting threshold set forth above. Thereafter, an outside director may be
reelected for additional periods of up to three years each, only if the company’s audit committee and board of directors confirm
that, in light of the outside director’s expertise and special contribution to the work of the board of directors and its committees,
the reelection for such additional period is beneficial to the company.
List of Subsidiaries
EXHIBIT 8.1
Company
Allot Communications Inc.
Allot Communications Europe SARL
Allot Communications (Asia Pacific) Pte. Limited
United States
France
Singapore
Allot Communications (UK) Limited (with branches in Spain, Italy
United Kingdom
Jurisdiction of Incorporation
and Germany)
Allot Communications Japan K.K.
Allot Communications (New Zealand) Limited (with a branch in
Australia)
Oversi Networks Ltd.
Allot Communications (Hong Kong) Ltd
Allot Communications Africa (PTY) Ltd
Allot Communications India Private Ltd
Allot Communications Spain, S.L. Sociedad Unipersonal
Allot Communications (Colombia) S.A.S
Allot MexSub
Allot Turkey Komunikasion Hizmeleri limited.
Allot Australia (PTY) LTD
*
Allot Ltd also holds a branch in Colombia.
Japan
New Zealand
Israel
Hong Kong
South Africa
India
Spain
Colombia
Mexico
Turkey
Australia
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
EXCHANGE ACT RULE 13a-14(a)/15d-14(d)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 12.1
I, Erez Antebi, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Allot Ltd (the “company”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control
over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: March 26, 2020
/s/ Erez Antebi
Erez Antebi
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
EXCHANGE ACT RULE 13a-14(a)/15d-14(d)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 12.2
I, Ziv Leitman, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Allot Ltd (the “company”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control
over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 26, 2020
/s/ Ziv Leitman
Ziv LeitmanChief Financial Officer
(Principal Financial Officer)
EXHIBIT 13.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT
TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Allot Ltd (the “Company”) on Form 20-F for the period ended December 31, 2019, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Erez Antebi, and I, Ziv Leitman, do
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
to my knowledge:
•
•
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 26, 2020
Date: March 26, 2020
/s/ Erez Antebi
Erez Antebi
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ziv Leitman
Ziv Leitman
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 has been provided to Allot Ltd and will be retained by Allot
Ltd and furnished to the Securities and Exchange Commission or its staff upon request.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement on Form S-8 (File Nos. 333-140701, 333-149237,
333-159306, 333-165144, 333-172492, 333-180770, 333-187406, 333-194833, 333-203028, 333-210420, 333-216893, 333-
223838 and 333-230391) pertaining to the 2016 Incentive Compensation Plan (formerly 2006 Incentive Compensation Plan) of
Allot Ltd, of our report dated March 26, 2020, with respect to the consolidated financial statements and the effectiveness of
internal control over financial reporting of Allot Ltd included in this annual report on Form 20-F for the year ended December 31,
2019.
EXHIBIT 15.1
/s/ KOST FORER GABBAY &
KASIERER
KOST FORER GABBAY &
KASIERER
A Member of Ernst & Young Global
Tel Aviv, Israel
March 26, 2020