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
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
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 4501317
Israel
(Address of principal executive offices)
Rael Kolevsohn, Adv.
VP Legal Affairs & General Counsel
Allot Ltd
22 Hanagar Street
Neve Ne’eman Industrial Zone B
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
Trading Symbol(s)
Name of each exchange on which registered
Ordinary Shares, par value ILS 0.10 per share
ALLT
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 stock or ordinary shares as of December 31, 2024:
39,530,993 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.
Yes ☐ No ☒
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.
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 whether the registrant has filed a report on the attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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.
Item 17 ☐ Item 18 ☐
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).
Yes ☐ No ☒
2
TABLE OF CONTENTS
PART I
6
ITEM 1: Identity of Directors, Senior Management
and Advisers
6
ITEM 2: Offer Statistics and Expected Timetable
6
ITEM 3: Key Information
6
A. [Reserved]
6
B. Capitalization and Indebtedness
6
C. Reasons for Offer and Use of Proceeds
6
D. Risk Factors
6
ITEM 4: Information on Allot
32
A. History and Development of Allot
32
B. Business Overview
32
C. Organizational Structure
42
D. Property, Plant and Equipment
43
ITEM 4A: Unresolved Staff Comments
43
ITEM 5: Operating and Financial Review and Prospects
43
A. Operating Results
43
B. Liquidity and Capital Resources
48
C. Research and Development, Patents and Licenses
50
D. Trend Information
51
E. Critical Accounting Estimates
51
ITEM 6: Directors, Senior Management and Employees
55
A. Directors and Senior Management
55
B. Compensation of Officers and Directors
59
C. Board Practices
62
D. Employees
68
E. Share Ownership
69
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
72
ITEM 7: Major Shareholders and Related Party Transactions
72
A. Major Shareholders
72
B. Record Holders
73
C. Interests of Experts and Counsel
73
ITEM 8: Financial Information
74
A. Consolidated Financial Statements and Other Financial Information.
74
B. Significant Changes
74
ITEM 9: The Offer and Listing
74
ITEM 10: Additional Information
75
A. Share Capital
75
B. Memorandum and Articles of Association
75
C. Material Contracts
80
D. Exchange Controls
80
E. Taxation
80
F. Dividends and Paying Agents
91
G. Statement by Experts
91
H. Documents on Display
91
I. Subsidiary Information
92
ITEM 11: Quantitative and Qualitative Disclosures
About Market Risk
92
ITEM 12: Description of Securities Other Than
Equity Securities
93
3
PART II
93
ITEM 13: Defaults, Dividend Arrearages and Delinquencies
93
ITEM 14: Material Modifications to the Rights
of Security Holders and Use of Proceeds
93
A. Material Modifications to the Rights of Security Holders
93
B. Use of Proceeds
93
ITEM 15: Controls and Procedures
94
ITEM 16: Reserved
95
ITEM 16A: Audit Committee Financial Expert
95
ITEM 16B: Code of Ethics
95
ITEM 16C: Principal Accountant Fees and Services
95
ITEM 16D: Exemptions from the Listing Standards
for Audit Committees
96
ITEM 16E: Purchase of Equity Securities by the
Company and Affiliated Purchasers
96
ITEM 16F: Change in Registrant’s Certifying
Accountant
96
ITEM 16G: Corporate Governance
96
ITEM 16H: Mine Safety Disclosure
96
ITEM 16I: Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections
96
ITEM 16J: Insider Trading Policies
98
ITEM 16K: Cybersecurity
98
PART III
99
ITEM 17: Financial Statements
99
ITEM 18: Financial Statements
99
ITEM 19: Exhibits
99
4
PRELIMINARY NOTES
Terms
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,”
“forecast,” “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 competitive pressures;
•
statements regarding expected revenue growth and profitability;
•
statements regarding future expansion of our SECaas business;
•
statements regarding expected tax benefits;
•
statements regarding new market and technology trends, including 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,
including
introducing innovative products;
•
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, tariffs (and related retaliatory measures) and the global and local 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 share-based compensation expenses) and cost
of revenues.
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.
5
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. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
Our business involves a high degree of risk. You should consider
carefully the risks and uncertainties described below, together with the financial and other
information contained in this annual report
and our other filings with the U.S. Securities and Exchange Commission (the “SEC”). If any of the following
risks actually
occur, 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. This report also contains forward-looking statements that involve
risks and uncertainties.
Our results of operations could materially differ from those anticipated in these forward-looking statements,
as a result of certain factors including the
risks described below and elsewhere in this report and our other filings with the SEC. These
risks 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.
6
Below is a high-level overview of the risks that we and those
in our industry face, and is intended to enhance the readability and accessibility of our
disclosures. These risks include, but are not
limited to:
•
general economic and business conditions, including fluctuations of interest and inflation rates and the impact of tariffs (and related
retaliatory
measures), which may affect demand for our technology and solutions;
•
the effects of fluctuations in currency on our results of operation and financial condition;
•
our ability to achieve and maintain profitability, such as through keeping pace with advances in technology and achieving market
acceptance and
increasing the functionality of our products and offering additional features and products;
•
the impact of the telco operator’s Go To Market strategy and implementation efforts, on the success of a “as a Service”
deals of our Security-as-a-
service (“SECaaS”) and other Solutions;
•
our reliance on our network intelligence solutions for significant revenues;
•
impacts to our revenues and operational risk as a result of making sales to large service providers;
•
technological risks, including network encryption, live network failures and software or hardware errors;
•
our ability to retain and recruit key personnel and maintain satisfactory labor relations;
•
our dependence on third parties for products and solutions that make up a material portion of our business;
•
the ability of our suppliers to provide, or refusal of our customers to implement, the single or limited sources from which certain
hardware and
software components for our products are made;
•
sales disruptions or costs arising from a loss of rights to use the third-party solutions we integrate with our products;
•
our ability to increase sales of Allot Secure products;
•
the impacts of new market and technology trends on our enterprise market;
•
our ability to comply with international regulatory regimes wherever we conduct business, including governmental requirements and
initiatives related
to the telecommunication industry and data privacy;
•
potential misuse of our products by CSP, governmental or law enforcement customers;
•
risks related to our proprietary rights and information, including our ability to protect the intellectual property embodied in our
technology, to defend
against third-party infringement claims, and protect our IT systems from disruptions;
•
risks related to our ordinary shares, including volatile share prices and tax consequences for U.S. shareholders;
•
our status as a foreign private issuer and related exemptions with respect thereto;
•
exposure to unexpected or uncertain tax liabilities or consequences as a result of changes to fiscal and tax policies;
•
conditions and requirements as a result of being incorporated in Israel, including economic volatility and obligations to perform
military service;
•
costs and business impacts of complying with the requirements of the Israeli and foreign countries governments as well as international
organizations
who provide us with grants for research and development expenditures;
•
costs and business impacts of litigation and other legal and regulatory proceedings encountered in the course of business;
•
our ability to successfully identify, manage and integrate acquisitions; and
•
other factors as described in the section below.
7
Economic and External Risks
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. Negative economic
conditions in the global economy or certain regions such as the
European Market, from which we derived 38% of our revenues in 2024, could
cause a decrease in spending on the types of products and services that we
offer.
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 achieve 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
revenues are 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
fluctuations 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 2024, the ILS depreciated by approximately 1% against the U.S. dollar, while in 2023 the ILS depreciated by approximately 3%
against the U.S.
dollar. In 2024, the Euro depreciated by approximately 6% against the U.S. dollar, and in 2023 the Euro appreciated by
approximately 3.7% against the
U.S. dollar. As 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.
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 have been, and could
continue to be, reduced because foreign currencies may translate into fewer U.S. dollars.
We use derivative financial instruments, such as foreign exchange forward contracts,
in an effort to mitigate the risk of changes in foreign exchange rates
on forecasted 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.
8
The invasion of Ukraine by Russia, and the
related disruptions to the global economy and financial markets, has affected and could continue to
adversely affect our operations in
Ukraine and with our service provider in Poland, as well as our business, financial condition and results of
operations as a whole.
We are currently engaged with two subcontractors in Ukraine and Poland to support
our research and development activities. The Russian invasion of
Ukraine in February 2022 and sanctions on Belarus have had a minimal
impact on the operations of our subcontractors thus far. However, we may
experience interruptions or delays in the services that the Polish
company provide to us in the future due to them employing Belarus employees.
In response to the conflict, the United States, the European Union, Japan and the
United Kingdom, among others, have announced targeted economic
sanctions on Russia, the regions of Donetsk and Luhansk, certain Russian
citizens and enterprises, including financial measures such as freezing Russia’s
central bank assets and limiting its ability to
access its dollar reserves. The continuation of the conflict may trigger a series of additional economic and
other sanctions enacted by
the United States and other countries, as well as counter responses by the governments of Russia or other jurisdictions, which
could adversely
affect the global financial markets generally, levels of economic activity, and increase financial markets volatility. The potential impact
of
bans, sanction programs and boycotts on our business is uncertain at the current time due to the fluid nature of the military conflict
and international
responses to it, but it could result in a material adverse effect on our business, financial condition, and results
of operations. In addition, the potential
impacts include supply chain and logistics disruptions, financial impacts including volatility
in commodity prices, foreign exchange rates and interest rates,
inflationary pressures on raw materials and energy, heightened cybersecurity
threats and other restrictions.
Risks Related to our Business and Results of Operations
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 the last ten years. We had a net loss of $6 million
in 2024 and $63 million in 2023. In the future, we intend to continue to
invest significantly in research and development and sales and
marketing, which we believe will contribute to our future growth. 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.
Our inability to streamline operations and
improve cost efficiencies could result in the contraction of our business and the implementation of
significant cost cutting measures.
We have undertaken, and may continue to undertake, efforts to streamline operations
and improve cost efficiencies. We may not realize, in full or in part,
the anticipated benefits, savings and improvements in our operating
results from these efforts due to unforeseen difficulties, delays or unexpected costs. If
we are unable to realize the expected operational
efficiencies and cost savings, our operating results and financial condition would be adversely affected.
We also cannot guarantee that
we will not have to undertake additional workforce reductions in the future. Furthermore, our workforce reductions may be
further disruptive
to our operations. For example, our workforce reductions could yield unanticipated consequences, such as adversely impacting our ability
to perform our contractual obligations in a timely manner and at required level of quality, attrition beyond planned staff reductions,
increased difficulties in
our day-to-day operations and reduced employee morale. In addition, while positions have been eliminated, certain
functions necessary to our reduced
operations remain, and we may be unsuccessful in distributing the duties and obligations of departed
employees among our remaining employees. We may
also discover that the reductions in workforce and cost cutting measures will make it
difficult for us to pursue new opportunities and initiatives and require
us to hire qualified replacement personnel, which may require
us to incur additional and unanticipated costs and expenses. Moreover, there is no assurance
we will be successful in our efforts. Our
failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our
business, financial
condition, and results of operations.
9
Our future growth and prospects depend significantly
on our ability to grow revenues from the recurring revenue deals such as “Security-as-a-service”
(SECaaS) and other “as
a Service” offerings.
We generated 18% of our revenues in 2024, 11% of our revenues in 2023 and 6% of our
revenues in 2022 from our SECaaS offering. While we continue to
forecast significant future expansion of our SECaas business, the growth
of our SECaaS recurring revenue model has been slower than originally
anticipated. We will need to expand the number of recurring security
revenue deals and the end user penetration within existing customers to achieve the
goals that we have set for our business. This will
involve a number of steps. Initially, we need to persuade Communication Service Providers (CSPs) as to
the benefits that Allot Secure
can offer them in terms of driving additional revenue. Those CSPs, with our support, will then need to persuade their
customers, consumers
and small and medium-sized businesses, to subscribe for security services. We expect that we will need to demonstrate the value that
our
services offer and add new features to both (i) retain customers in the face of competition and (ii) to capitalize on opportunities where
CSPs currently
using our competitors’ products are considering a change. We face significant challenges in growing our security
business and our failure to do so would
adversely impact our future growth and prospects.
Our revenues and business may be adversely
affected if we do not effectively compete in the markets in which we operate, or expand into new markets.
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 Network Inspection (DNI) 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 the established security
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; companies
that offer their products through
operators in that or another business model; 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, this business model may prove to be slower to market or less effective than our competitors’ models, in
which case our
business and growth prospects may be harmed. In addition, as we introduce new solutions for this product line, strong competition
from established
vendors may require higher investments than anticipated and may cause us to lose focus on products that currently comprise
a big portion of our revenues.
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 DNI enabled solutions for mobile
networks and for security products, new competitors
have entered and may continue to enter the market. This competition has contributed to a slowing
growth of network intelligence bids for
CSPs. 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.
10
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.
In addition to enhancing our presence in existing markets, we will need to continue
to expand our global reach to enter new markets and build local
delivery and support teams to serve customers in new territories.
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 plan to continue introducing innovative products, we cannot provide any
assurance that new products
we introduce will achieve the level of market acceptance that we target. 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.
Additionally, as the adoption of 5G continues to expand, we will need to adapt the
functionality of our products to comply with the design and standards
prescribed by the 3rd Generation Partnership Project (the 3GPP Organization),
which is responsible for the industry standardization effort and 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, in 5G networks this TDF function will be merged
with the User Plane
Function (UPF), which is provided by major NEP (Network Equipment Provider) 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.
11
Our revenues and business from the enterprise
market may be adversely affected by new market and technology trends, including public cloud adoption
and the transition to 5G networks.
Our business from the enterprise market may depend on new market and technology trends.
For example, some enterprises are implementing a new
network architecture, transitioning their datacenter infrastructure to public clouds
(such as AWS, Azure, and Google), in which most of the data traffic is
sent directly to and from the public cloud. In such designs, Allot’s
products deployed at the central location of the enterprise datacenter will have less traffic
capacity to manage and will provide only
partial visibility into the enterprise’s traffic. This may erode the value provided by Allot’s solutions and reduce
the amount
of revenues derived from the enterprise market. Additionally, some enterprises might decide to outsource their network operation to a
public
cloud, which would diminish the need for Allot’s products. Due to these factors, we do not anticipate additional growth in
the enterprise market.
Our revenues and business may be adversely
affected due to decline in revenues and profits of CSPs.
A substantial amount of our revenues are currently generated from CSPs. Many of these
CSPs are facing declining revenues and profits due to
commoditization of the voice and data services they provide and limited success
in introduction of the new services for the consumers. In addition, many
CSPs are seeing a rise in operational expenses due to the global
energy crisis, which may affect their budget allocation for new projects. This might impact
their ability 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.
The growth of aging receivables and a deterioration
in the collectability of these accounts could materially and adversely affect our results of
operations.
We provide for doubtful debts principally based upon the aging of accounts receivable,
in addition to the collectability of specific customer accounts, our
history of doubtful debts, and the general condition of the industry.
In 2023, we booked a credit loss of $23 million related to sales that we made to resellers
in Africa and a customer in America. Most of
the revenue related to those sales was recognized in 2022. Recognition of the credit losses in 2023 adversely
impacted our results of
operations and share price and any such outcome with respect to our currently past-due receivables could have a similar material
adverse
impact on us. During 2024, we adopted new credit limit procedures and, in 2024, we recorded a $0.1 million doubtful debt provision.
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 and governmental customers with visibility and control of
their networks, continue to account for a major portion of our revenues, and accounted
for 64% of our total revenue in 2024. 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 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.
In 2024, our ten largest customers accounted for 42.7% of our total revenues. In 2023,
our ten largest customers accounted for 47% of our total revenues,
and we derived 15% of our total revenue from our largest customer and
9% of our total revenue from our second largest customer. 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.
12
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.
We may incur significant expenses without generating any sales. Our management
views realization of revenue from signed contracts as a primary
challenge for our current business model and failure to do so could adversely
affect our profitability.
As of 2024, our primary sales strategy is to target large, strategic accounts, while
implementing minimum revenue thresholds or customer assurances for
our small to medium sized accounts. While we believe this strategy
will generate greater revenue and help us achieve profitability sooner, it may decrease
our market share. Additionally, there is inherent
risk in implementing a new business plan successfully. If we are unable to secure large, strategic accounts,
the economic harm to our
business will be exacerbated due to this strategic shift.
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. 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 the acceptance criteria have been satisfied. We have in the past,
and
may in the future, cancelled certain contracts that we later anticipate are unlikely to launch projects and generate revenues.
The complexity and scope of the solutions 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 all the 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.
Continued salary increases of research and
development personnel could adversely affect our ability to recruit such employees and could have an
adverse effect on our business and
revenues.
The current ongoing increase in salaries of research and development personnel 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.
Risks Related to Our Technology and Products
Our technology faces challenges due to increased
network encryption.
Our DNI, analytics and security products rely on the ability to read, understand and
analyze the nature of Internet traffic. Due to an increase in network
encryption, including the meta-data of the network data packets,
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 and categorization of the traffic and the necessary tools, capabilities and
values that they might
require. We will need to continuously invest research and development resources into this domain so that similar value can be
provided
to the customers; however, we cannot guarantee success of these activities.
13
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 DNI technology and the introduction of competitive features
and services may result in a decrease of the average sale prices of our
DNI 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 offset this risk by enhancing our products by offering higher system speeds,
additional features, such as advanced Quality of Experience (QoE)
management functionality, 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, but not limited to, virtualized network services (NFV), containerized deployments
and 5G networks compliance.
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.
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 materially 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 total or partial network unavailability,
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.
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.
14
Demand for our DNI 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 DNI 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.
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 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.
Risks Related to Our Dependence on Third Parties
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 (OEMs), and system integrators, to market and
sell a material portion of our products to end-customers. In 2024,
approximately 43% 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
most 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 macroeconomic factors, 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 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, are
usually automatically
renewed for additional one year periods, unless 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.
15
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.
We currently depend on a limited number of
subcontractors to integrate, assemble, store and service, as well as provide hardware and warranty support
for, our Service Gateway platform
and Network Management System. If any one of these subcontractors experiences delays, disruptions, quality control
problems or a loss
in capacity, our operating results could be adversely affected.
We currently depend on a limited number of subcontractors, such as Malam Team and
Arrow Electronics, to integrate, assemble, test, store, package and
prepare for shipment our various Service Gateway, Network Management
and Enterprise platforms. If any of these subcontractors experience delays,
disruptions or quality control problems in manufacturing or
integrating our products or if we fail to effectively manage our relationships with them, product
shipments may be delayed and our ability
to deliver certain products to customers could be adversely affected.
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 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.
16
Legal, Regulatory and Compliance Risks
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 our contracts with channel partners
authorize or
contemplate any activities with sanctioned countries or sanctioned entities, and we do not intend to authorize any channel partner to
engage in
activities with those countries and entities in the future. Nevertheless, over ten 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 we are not aware of any
channel partner making indirect sales to entities or individuals in sanctioned
countries in 2024, there is no guarantee that our 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. Though we have
not had a material impact to date,
we can provide no assurance that new or existing measures will not have a material impact in the future.
We are also subject to the U.S. Foreign Corrupt Practices Act and may be subject to
similar worldwide anti-bribery and anti – corruption 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.
As with many DNI products, some of our products
may be used by governmental or law enforcement customers in a manner that is, or that is perceived
to be, incompatible with human rights.
We cannot always verify whether our customers are using our products in a lawful or
ethical manner. It is possible that some of our governmental or law
enforcement customers have used our products in a manner that is incompatible
with, or that is perceived to be incompatible with, human rights. In some
circumstances, governmental customers may desire to surveil
their citizenry and may use our products to achieve those ends. For example, some foreign
governments use internet infrastructure to undermine
democratic values through surveillance of and control over online communications between political
activists. Any misuse of our products
by our governmental or law enforcement customers, or allegations of misuse, may damage our reputation, business
and results of operations.
17
Demand for our products may be impacted by
government regulation of the internet and 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.
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 which
could impact our operations.
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.
18
Our failure to comply with data privacy laws
may expose us to reputational harm and potential regulatory actions and fines.
Strict data privacy laws regulating the collection, transmission, storage and use
of employee data and consumers’ personal information applicable to ISPs
are evolving in the US, European Union (“EU”)
and other jurisdictions in which we sell our products. Such regulations have increased our compliance and
administrative burden significantly
and require us to invest resources and management attention in order to update our IT systems to meet the new
requirements, including
those related to recordkeeping of personal identifiable information and segregation of duties.
For example, in the US, legislation has in recent years been proposed regarding restrictions
on the use of geolocation information collected by mobile
devices without consumer consent. Furthermore, the California Consumer Privacy
Act, as amended by the California Privacy Rights Act (“CPRA” and,
collectively, the “CCPA”) grants California
residents certain rights to access, correct and request deletion of personal information and opt out of the sale
and sharing of personal
information. Similar laws passed in various other states such as Virginia, Colorado, Connecticut, New Jersey and Texas, with
effective
dates through 2026. A broad range of legislative measures also have been introduced at the federal level. Some state laws also minimize
what data
can be collected from consumers and how businesses may use and disclose it.
Similarly, the General Data Protection Regulation (“GDPR”) imposes stringent
compliance obligations related to, for example, data use, sharing and
processing, data breach notifications, data subject rights, documentation,
and cross-border data transfers for EEA entities as well as non-EEA entities that
offer goods or services to, or monitor, individuals
in the EEA. We are required to comply with the GDPR and, following the exit of the United Kingdom
(“UK”) from the EU, the
UK equivalent (“UK GDPR”), the implementation of which exposes us to two parallel data protection regimes in Europe, each
of
which imposes several stringent requirements for controllers and processors of personal information and could make it more difficult
and/or more costly for
us to collect, store, use, transmit and process personal information and sensitive data. 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 million [or GBP 17.5
million for the UK GDPR], whichever is greater) and reputational harm.
Additionally, the Israeli Privacy Protection Law, 1981 (“PPL”), along
with its regulations such as the Israeli Privacy Protection Regulations (Data Security)
2017 (“Security Regulations”), mandates
strict requirements for processing, transferring and securing personal information. A significant amendment to the
PPL, known as Amendment
13, was approved by the Israeli Parliament in August 2024 and will be effective from August 14, 2025. This amendment
notably enhances
the investigative powers of the Privacy Protection Authority and increases the potential monetary sanctions for violations, which could
reach millions of NIS in certain cases. Compliance with Amendment 13 may necessitate substantial changes to our data processing practices
and could
involve significant costs. Non-compliance with the PPL may lead to enforcement actions, litigation, including class actions,
and substantial fines and
penalties.
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, as well as our support and maintenance
services, 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
and/or our support
and maintenance services 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.
Furthermore, we may
be required to adjust the geographical and operational structure of our Customer Success department, if required, and this may entail
extensive financial investments in providing support and maintenance services.
19
Risks Related to Our Intellectual Property and Proprietary Information
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.
We also aim to protect our intellectual property with patent protection. As of December
31, 2024, we had a patent portfolio consisting of 25 patent families,
including 32 in-force U.S. patents, 5 reissued U.S. patents , and
29 in-force patents in Canada, Israel and other jurisdictions. There can be no assurance
that:
•
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.
20
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.
Disruption to our IT systems could adversely
affect our reputation and have a material adverse effect on our business and results of operations.
Risks related 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 cyber-attacks of our IT systems or networks (such as limited phishing,
ransomware and
malware activities identified by us in the past, which were mitigated). Although prior known cyber-attacks directed at
us have not had a material effect on
our operations or financial condition, due to our current security measures and awareness, which
we continue to bolster, we cannot guarantee that any past,
future, or ongoing cyber-attacks, or other security breaches or incidents,
against us, if successful, would not have a material impact on our business or
financial results, either directly or indirectly.
If our IT systems or those of our customers or third-party providers on which we rely
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.
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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.
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.
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:
•
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;
22
•
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;
•
market conditions in our industry, the industries of our customers and the economy as a whole;
•
a failure to meet publicly announced guidance or other expectations; or
•
equity awards to our directors, officers and employees.
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.
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 corporate governance requirements of the Nasdaq Stock Market (“Nasdaq”).
As a foreign private issuer, we are permitted under Nasdaq Rule 5615(a)(3) to follow
Israeli corporate governance practices instead of Nasdaq 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% of our issued share capital (as prescribed by Nasdaq’s rules). We do not seek shareholder approval for (i)
equity compensation
plans in accordance with the requirements of the Companies Law, which does not reflect the requirements of Rule 5635(c), (ii) the
issuance
of securities that would result in a change of control, which does not reflect the requirements of Rule 5635(b), and (iii) certain private
issuances of
securities representing more than 20% of our outstanding shares or voting power at below market prices, which does not reflect
the requirements of Rule
5635(b).
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. 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 Nasdaq, may provide less protection
than is accorded
to investors of domestic issuers. See “ITEM 16G: Corporate Governance.”
23
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.
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) either (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-US 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% 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, including
certain downward attribution 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 will 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 10% 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.
24
Your percentage ownership in the Company may
be diluted in the future because of equity awards that have been, or may be, granted to our directors,
officers and employees.
We have adopted equity compensation plans that provide for the grant of equity-based
awards, including restricted units and share options to our directors,
officers, and other employees. As of March 3, 2025 we had 3,784,500
options and restricted units outstanding to employees and directors of the Company,
and there were 539,962 shares available for future
awards under our equity compensation plans. The vesting of restricted units and granting of share
options are generally contingent upon
performance and/or service conditions. Vesting of those shares of restricted units and shares would dilute the
ownership interest of existing
shareholders. Equity awards will continue to be a source of compensation for employees and directors going forward.
We may fail to meet our publicly announced
guidance or other expectations about our business, which could cause our share price to decline.
We may provide from time to time guidance regarding our expected financial and business
performance. Correctly identifying key factors affecting
business conditions and predicting future events is inherently an uncertain process,
and our guidance may not ultimately be accurate and has in the past
been inaccurate in certain respects. Our guidance is based on certain
assumptions such as those relating to anticipated production and sales volumes (which
generally are not linear throughout a given period),
average sales prices, and supplier and commodity costs. If our guidance varies from actual results due
to our assumptions not being met
or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value
of our ordinary
shares could decline significantly.
Risks Relating to our Indebtedness and Capital Structure
The issuance of ordinary shares upon conversion
of the Note (as defined below) could substantially dilute your investment and could impede our ability
to obtain additional financing.
On February 18, 2022, we issued to Lynrock Lake Master Fund LP a senior unsecured
promissory note in an aggregate principal amount of $40 million
(the “Note”). The Note is convertible into our ordinary shares
at an initial conversion rate of 97.0874 ordinary shares per $1,000 of the principal amount
being converted (based on an initial conversion
price equal to $10.30 per ordinary share). The conversion price decreases by up to two $1 increments if we
elect to extend the maturity
of the Note by up to two successive years following the initial maturity date of February 14, 2025. On November 4, 2024, we
notified Lynrock
Lake Master Fund LP that we would extend the maturity of the Note by one year until February 14, 2026. Conversion of the Note would
result
in dilution to the equity interests of our other shareholders. We have no control over whether or when the holder will exercise its right
to convert the
Note. We cannot predict the market price of our ordinary shares at any future date, and therefore cannot predict whether
the Note will be converted. The
existence and potentially dilutive impact of the conversion of the Note may prevent us from obtaining
additional financing in the future on acceptable
terms, or at all.
25
Our indebtedness and liabilities could limit
the cash flow available for our operations, expose us to risks that could adversely affect our business,
financial condition and results
of operations, restrict our ability to incur additional indebtedness and impair our ability to satisfy our obligations under
the Note.
Our indebtedness could have material adverse consequences for our security holders
and our business, results of operations and financial condition by,
among other things:
•
increasing our vulnerability to adverse economic and industry conditions;
•
limiting our ability to obtain additional financing;
•
limiting our flexibility to plan for, or react to, changes in our business;
•
diluting the interests of our existing shareholders as a result of issuing ordinary shares upon conversion of the Note; and
•
placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
The Note includes financially restrictive covenants that, among other things, limit
our ability to incur additional debt. Without the consent of the holders of
a majority in aggregate principal amount of the Note, we may
not create, incur, assume or be liable for any indebtedness for borrowed money unless the
aggregate principal amount of such indebtedness
does not exceed $5 million.
Following provision of one notice to extend the Note’s maturity, the Note matures
on February 14, 2026, subject to our right to extend it for one more
successive year. At maturity, unless converted or redeemed, we will
need to repay the principal amount under the Note. Our business may not generate
sufficient funds, and we may otherwise be unable to maintain
sufficient cash reserves, to pay amounts due under our indebtedness, including the Note, and
our cash needs may increase in the future.
We may be unable to raise the funds necessary
to repurchase the Note for cash following a change of control, or to pay any cash amounts due upon
redemption or conversion, and our other
indebtedness may limit our ability to repurchase the Note or pay cash upon its conversion.
In the event of a change of control, the holder of the Note has the right to require
us to convert all or a portion of the Note to ordinary shares or redeem all
(but not less than all) of the outstanding principal amount
of the Note. In the event of such conversion or redemption in connection with a change of
control, we will also be required to pay to
the holder an amount in cash equal to 6% per annum of the then-outstanding principal amount of the Note. We
may not have enough available
cash or be able to obtain financing at the time we are required to redeem the Note or pay the cash amounts due upon
conversion or redemption.
In addition, applicable law, regulatory authorities and the agreements governing any future indebtedness may restrict our ability
to repurchase
the Note or pay the cash amounts due upon conversion or redemption. Our failure to repurchase the Note or to pay the cash amounts due
upon conversion or redemption when required will constitute a default under the Note. A default under the Note could also lead to a default
under
agreements governing any future indebtedness, which may result in that other indebtedness becoming immediately payable in full.
We may not have
sufficient funds to satisfy all amounts due under such other indebtedness and the Note.
26
Provisions in the Note could delay or prevent
an otherwise beneficial takeover of us.
Certain provisions in the Note could make a third-party attempt to acquire us more
difficult or expensive. For example, if a takeover constitutes a change of
control, then the noteholder will have the right to convert
all or a portion of the Note or redeem all (but not less than all) of the outstanding principal
amount of the Note. In this case, and
in other cases, our obligations under the Note could increase the cost of acquiring us or otherwise discourage a third
party from acquiring
us, including in a transaction that holders of our ordinary shares may view as favorable.
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 throughout
2024.
On October 7, 2023, terrorists from Hamas and other terrorist organizations infiltrated
Israel’s southern border from the Gaza Strip and conducted a series
of attacks on civilian and military targets, including widespread
killings and kidnappings. They also launched extensive rocket attacks on the Israeli civilian
population. Shortly following the attack,
Israel declared war against Hamas. A ceasefire between the sides took effect in mid-January 2025. Hostilities have
since resumed on a
limited scale, and future developments are unpredictable.
Following Hamas’ attack on Israel’s southern border and Israel’s
security cabinet declaration of war against Hamas, Hezbollah, a terrorist organization
based primarily in Lebanon, also launched missile,
rocket, and shooting attacks against Israeli military sites, troops, and civilian areas in northern Israel. In
response to these attacks,
the Israeli army initially carried out targeted strikes on Hezbollah in southern Lebanon and targets in Syria, followed by a ground
incursion
into southern Lebanon beginning in late September 2024. A ceasefire between Israel and Hezbollah came into effect in late November 2024
but
there is no certainty that this ceasefire will be sustained.
Iran also joined the hostilities with several significant missile attacks against
Israel, and the Houthi movement, which controls parts of Yemen, fired
missiles at Israel and sent unmanned aerial vehicles carrying explosives
to Israel and launched a number of attacks on marine vessels traversing the Red
Sea, which marine vessels were thought to either be in
route towards Israel or to be partly owned by Israeli businessmen. Terrorist groups have also
attacked U.S. military targets in the Middle
East. These clashes may escalate into a greater regional conflict.
To date, none of our facilities or infrastructure have been damaged nor have our supply
chains been significantly impacted since the war broke out.
However, a prolonged war could adversely impact our supply chain and our ability
to ship products from Israel, which could disrupt our operations. Our
commercial insurance does not cover losses that may occur
as a result of events associated with war and terrorism. Although the Israeli government
currently covers the reinstatement value of direct
damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government
coverage will be maintained or
that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse
effect on our
business.
In the past, the State of Israel and Israeli companies have been subjected to economic
boycotts. Several countries still restrict business with the State of
Israel and with Israeli companies. These restrictive laws and policies
may have an adverse impact on our operating results, financial condition or the
expansion of our business. A campaign of boycotts, divestment
and sanctions has been undertaken against Israel, which could also adversely impact our
business.
27
Our operations may be disrupted by the obligations
of personnel to perform military service.
As of December 31, 2024, we employed 495 Employees, of whom 191 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.
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 have also been granted
benefited enterprise status in prior years, but beginning
in 2021, this status is no longer applicable to us. We expect that the Approved Enterprise tax
benefits will be available to us after
we utilize our net operating loss carry forwards. As of December 31, 2024, our net operating loss carry forwards for
Israeli tax purposes
amounted to approximately $136.5 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, 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.
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
2023, we recognized
non-royalty-bearing grants totaling $0.6 million, representing 1% of our gross research and development expenditures. In 2024, we
recognized
non-royalty-bearing grants totaling $0.5 million, representing 2% of our gross research and development expenditures. In each of the years
2024 and 2023, 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. In the past three years, we were eligible to receive grants constituting of up to 53% 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.
28
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 150% 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, or our auditors in Israel or the United States, or to assert U.S.
securities laws claims in Israel
or serve process on our officers and directors or our auditors.
We are incorporated in Israel. The majority of our executive officers and directors,
and our auditors are not residents of the U.S., and the majority of our
assets and the assets of these persons are located outside the
U.S. 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.
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.”
29
General Risk Factors
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 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 condition.
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 exit
from the E.U., are difficult to predict and may have a material adverse effect on us. For example, in
the United States, tariffs have
recently been imposed on imports from China, Mexico, Canada and other countries, and there may be further 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. A transition period ended
on December 31, 2020, during which the U.K. and the E.U. negotiated the terms of the U.K.’s
relationship with the E.U. going forward.
With the implementation of the E.U.-U.K. Trade and Cooperation Agreement beginning on January 1, 2021, it is
still unclear how the deal
will impact relationships within the U.K. and between the U.K. and other countries on many aspects of fiscal policy, cross-border
trade
and international relations. The Trade and Cooperation Agreement 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.
30
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 the past. 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:
•
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.
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, guidelines such as
the OECD inclusive framework on BEPS, proposed regimes informally known as Pillar 2 which apply to large
multinational corporations, 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.
London Interbank Offered Rate (“LIBOR”) and other interest rates that
are indices deemed to be “benchmarks” are the subject of recent and ongoing
national, international and other regulatory guidance
and proposals for reform. Some of these reforms are already effective, while others are still to be
implemented. These reforms may cause
such benchmarks to perform differently than in the past, or to disappear entirely as in the case of LIBOR, or have
other consequences
that cannot be predicted. Any such consequence could have a material adverse effect on our future debt linked to such a “benchmark”
and our ability to service debt that bears interest at floating rates of interest.
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.
31
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.
Adverse resolution of litigation may harm our
operating results or financial condition.
We are a party to lawsuits in the normal course of our business. Litigation can be
expensive, lengthy, and disruptive to normal business operations.
Moreover, the results of complex legal proceedings are difficult to
predict. Unfavorable resolution of lawsuits could have a material adverse effect on our
business, operating results, or financial condition.
ITEM 4: Information on Allot
A. History and Development of Allot
Our History
Our legal and commercial name is Allot Ltd. We were incorporated on November 12, 1996.
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 4501317, 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.
Our website address is 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. We have included our
website address in this annual report solely for informational purposes. Our SEC
filings are available to you on the SEC’s website
at http://www.sec.gov, which contains reports, proxy and information statements, and other information
regarding issuers that file electronically
with the SEC. The information on that website is not part of this annual report and is not incorporated by reference
herein.
B. Business Overview
Overview
We are a provider of leading innovative security solutions and network intelligence
solutions for mobile, fixed and cloud service providers as well as
enterprises worldwide. For over 25 years, our solutions have been deployed
globally for network-based security, including mobile security, distributed
denial of service (“DDoS”) protection and Internet
of Things (“IoT”) security, network and application analytics, traffic control and shaping, and more.
More recently, we have
cultivated a strategic focus on the expansion and advancement of our SECaaS product offerings.
32
The Company delivers a unified security service for individual consumers and small
and medium-sized businesses (“SMBs”), at home, at work and on the
go, with the Allot Secure product family. Our Allot Security
Management product is, to our knowledge, the only platform that unifies security services for
mobile, fixed and 5G converged networks.
Our industry-leading network-based SECaaS solution has previously achieved high double-digit
percentage of penetration with some service providers and
is used by approximately 20 million subscribers globally. Our multi-service
platforms (AllotSmart) are deployed by over 500 mobile, fixed and cloud
service providers and over 1,000 enterprises.
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. We have a strong backlog representing customers’
orders for products and services not yet
recognized as revenues. Backlog is subject to delivery delays or program cancellations, which are beyond our
control.
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 and enterprises to detect security breaches, to protect
their own networks and their users from attacks, to clearly see and understand their
networks from within, to optimize, innovate and capitalize
on every opportunity, to learn about users and network behaviors, and to improve Quality of
Service (“QoS”) and reduce costs,
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.
During 2024 we defined a new strategy for the company. As part of the strategy process
Allot is becoming a security-first company, operating under a
single, unified business unit. Our foundations are our deep expertise and
proven capabilities combining two key areas: cybersecurity and network
intelligence.
We have been working to leverage synergies between our existing network intelligence
assets and our security offerings including integrated cloud-based
solutions focused on network visibility, traffic management, and cybersecurity
for the 5G era.
The combination creates a compelling value proposition, enabling us to deliver a highly
differentiated, fully integrated solution.
We generated total revenues of $92 million in the year ended December 31, 2024, a
decrease of 1% over the prior year. In 2024, 36% of our revenues were
attributable to security solutions, and 64% of our revenues were
attributable to network intelligence solutions.
33
Industry Overview
Security Solutions
As the number of networks, applications and network-connected devices has increased,
consumers, enterprises and SMBs have become increasingly
vulnerable to cyber threats and crime, and communication service providers (“CSPs”)
have begun to encounter complex operational challenges requiring
nuanced solutions.
•
Network Security Threats: As reliance on the Internet has grown,
service providers and enterprise networks have become increasingly vulnerable
to a wide range of security threats, including DDoS attacks,
spambots, malware and other threats. These attacks are designed to flood the network
with traffic that consumes all available bandwidth,
impeding operators’ ability to provide high quality broadband access to subscribers or
preventing enterprises from using mission-critical
applications. These threats also compromise network and data integrity. We believe service
providers and enterprises can better protect
against such attacks by detecting and neutralizing malicious traffic at very early stages, before such
threats can compromise network
integrity and services. In addition, there is a monetization opportunity for the service provider to monetize the
network infrastructure
by providing additional protection services to SMB and enterprises.
•
End-User Security Threats: Broadband devices and mobile devices
have also become increasingly vulnerable to online threats, such as malware,
ransomware and phishing. Broadband and mobile device users
have limited cyber-security expertise and therefore present easy targets for
cybercriminals. In recent years, we have seen a growing demand
from large and mid-size operators to offer such security services to their
customers-both individual consumers and small and mid-size
businesses. We believe few consumers download security applications to all of their
personal devices, but CSPs are well positioned to
provide security services because they are the sole providers of access to the network for their
consumers, are capable of blocking attacks
before they reach the consumer and have multiple touch points with consumers as trusted brands,
through ongoing customer support and frequent
communication. Research conducted in partnership with Coleman Parkes Research in 2022
revealed that 84% of consumers believe that security
solutions should already be on the device or the responsibility of the devise manufacturer or
CSPs. Further, data provided and developed
by Coleman Parkes Research in a separate research study of consumers’ attitudes toward
cybersecurity revealed that 68% of mobile
users are willing to pay an additional $3 per month for a security service, and that 64% of fixed
broadband users are willing to pay an
additional $6 per month for broadband a security service.
Network Visibility and Traffic Management Solutions
The rapid proliferation of broadband networks in recent years has been driven largely
by demand from users for faster and more reliable access to the
Internet and by the increased number and complexity of broadband applications,
as well as the proliferation of mobile smartphones, tablets and other
Internet-connected devices. As a result of this rapid proliferation,
service providers have been forced to invest heavily in network infrastructure upgrades
and customer support services to maintain the
quality of experience for subscribers. Further, the cost of increasing the bandwidth in mobile networks is
significantly higher than that
in wireline networks, and mobile operators require intelligent bandwidth management solutions to handle increased data
traffic and the
requirement for continuous low-latency transmission. Moreover, to offset the increased investment and operational costs, CSPs need to
be
able to offer premium services to consumers. To offer premium services, to guarantee high-quality delivery of content and user experience,
to optimize
bandwidth utilization and to reduce operational costs, CSPs 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.
Our Security Solutions
Our Security-as-a-Service Market Opportunity
For CSPs offering the Allot solutions as security services to their subscribers, the
Allot SECaaS solutions are offered to the CSPs on a recurring revenue
basis, in which both Allot and the operator share the revenue generated
from the operator’s subscribers for the use of Allot security services, or offered for
a fixed yearly fee or a fixed fee up to an
agreed number of subscribers.
34
Our Products
Allot provides a comprehensive security solution, referred to as Allot Secure 360,
to protect network customers, network service integrity and brand
reputation. Allot’s SECaaS solutions enable operators to secure
subscribers against online threats and harmful content by providing network-based SECaaS
to their customers. Allot Secure 360 provides
consumers and SMBs with a 360-degree security architecture-complete, end-to-end protection anywhere,
against any cyber threat, and on
any device.
Protection for Consumers and SMBs - 360-Degree Security
•
Allot Secure Management (ASM): The Allot Secure Management platform creates a unified security
experience for Allot security consumers by
providing an end-to-end security management infrastructure that seamlessly communicates with
and integrates each enforcement point-
NetworkSecure, HomeSecure, DNSecure, IoTSecure, EndpointSecure, and BusinessSecure. On-net coverage
is provided through NetworkSecure,
HomeSecure, DNSecure, and IoTSecure, and off-net coverage through EndPoint Secure, and the ASM solution
creates a flexible security
architecture of advanced threat detection technologies in-network, at the consumer-premises equipment and
at the endpoint device with network
intelligence solutions, machine learning and comprehensive personalization capabilities. The ASM solution
delivers a scalable platform that
simplifies security service activation, system awareness, new enforcement point integration, threat
event reporting and handling, operation and
management by the consumer regardless of which enforcement point is active.
•
Allot NetworkSecure: A multi-tenant solution 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.
•
Allot HomeSecure: A multi-tenant solution 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 DNSecure: A multi-tenant solution 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 DNS requests level, requiring no device involvement or battery consumption.
•
Allot IoTSecure: A multi-tenant solution that enables CSPs to grant each of its enterprise
customers a dedicated management console for
monitoring and securing their mobile IoT deployments on the CSP network.
•
Allot BusinessSecure: A multi-tenant solution that provides a simple, reliable and secure
network for the connected business achieved through a
small firmware agent installed on the business router, supported by the Allot Secure
cloud, and a mobile application. These elements, working in
concert, provide visibility into the network and block both external and internal
attacks.
•
EndPoint Secure: A multi-tenant solution that functions as an extension of NetworkSecure,
securing the subscribers’ devices while off the
Internet, producing seamless customer protection using market leading malware protection
and controls.
•
Allot Secure Cloud: The Allot Secure cloud provides to each enforcement point in the security
architecture up-to-date threat intelligence, web
categorization and device fingerprint data. The Allot Secure cloud uses machine learning
and Artificial Intelligence technologies to identify
connected devices, create device-specific profiles and provide anti-virus screening.
•
Allot Network Protection as a Service - A multi-tenant solution that allows the service
provider to offer opt-in network protection services to
SMB and Enterprise customers to protect their connectivity lines from DDoS attacks,
to prevent traffic saturation, and to ensure uninterrupted
service.
35
Protection for the Carriers
•
DDoS Secure: A solution that provides attack detection and mitigation services that protect
commercial networks against inbound and outbound
Denial of Service (“DoS”) and DDoS attacks, Zero Day attacks, worms, zombie
and spambot behavior.
•
NetProtect: Allot’s multi-layer approach provides protection from multi-vector attacks
against network infrastructure, subscribers, and
applications. It is composed of multiple protection capabilities: Anti-DDoS, Anti-Botnet,
Firewall and QoE protection.
•
5GNetProtect: A solution focused on 5G SA architecture and providing means to integrate with
5G Core on top of the security functionality.
Integrated Network Visibility and Traffic Management Solutions
In addition to our comprehensive and sophisticated security offerings, our integrated
network visibility and traffic management solutions, together called
AllotSmart, provide network visibility and control and allow mobile,
fixed and enterprise operators to elevate their role in the digital lifestyle ecosystem
and expand into new business opportunities. AllotSmart
provides our customers with the potential to increase their revenues by monetizing network usage
through value-added products and services,
implementing value-based charging and reducing costs by optimizing the delivery and performance of OTT
content and cloud computing services.
AllotSmart also promotes improved customer loyalty by enabling service providers to offer a selection of service
tiers and digital lifestyle
options, empowering customers to personalize their network experience. In addition, AllotSmart enables telecommunication
providers to
comply with a wide range of regulatory requirements aimed to assist governments with securing the public. Our products enable both CSPs
and our governmental and law enforcement customers to monitor the content of internet traffic in order to oversee compliance with legal
and law
enforcement requirements.
Allot Smart offering includes the following solutions:
•
Smart5G: Deliver granular visibility and control of 5G network and application performance
to help CSPs meet customer expectations from
eMBB, mMTC, and URLLC.
•
SmartVisibility: Access accurate usage data and analytics to improve network performance and
deliver the services subscribers want. Make
informed business decisions based on granular insights.
•
SmartTraffic QoE: Leverage SmartVisibility to reap the benefits of automated congestion management
and QoE optimization. Get the most out
of deployed infrastructure and defer expansion.
•
SmartPCC: Innovate and grow revenue by rolling out personalized service plans that cater to
the unique and dynamic needs of prepaid, postpaid,
and business customers.
•
SmartSentinel: Navigate the regulatory landscape with flexibility and precision. Comply with
URL filtering, data retention and GDPR
regulations efficiently and cost effectively.
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 Quality of Service
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.
36
Customers
We derive a significant and growing portion of our revenue from direct sales to large
mobile and fixed-line service providers, as well as government and
law enforcement entities. 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.
In 2024, we derived 38% of our revenues from Europe, 15% from the Americas, 26% from Asia
and Oceania and 20% from the Middle East and
Africa. A breakdown of total revenues by geographic location for 2022, 2023 and 2024 is set forth in the
following table.
Revenues by Location
($ in thousands)
2024
%
Revenues
2023
%
Revenues
2022
%
Revenues
Revenues
Europe
$
35,140
38% $
39,945
43% $
41,773
34%
Asia and Oceania
$
24,010
26% $
20,547
22% $
29,888
24%
Middle East and Africa
$
18,881
21% $
16,116
17% $
29,285
24%
Americas
$
14,164
15% $
16,542
18% $
21,791
18%
Total Revenues
$
92,195
100% $
93,150
100% $
122,737
100%
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 2024, approximately 43% 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.
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 twenty-four 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.
37
Our SECaaS sales strategy is to target strategic accounts that have high revenue potential,
while ensuring small to medium sized deals have customer
assurances or minimum revenue threshold. Moving forward, the number of our SECaaS
deals will likely drop, but we anticipate the total sales potential
will remain the same as was expected under the prior SECaaS sales
strategy, and we believe the emphasis on larger customers with a minimum guaranteed
revenues will help us achieve profitability sooner.
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, as well as an internal cyber marketing team.
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, Kazakhstan, Japan, Colombia and Israel. As of December 31, 2024, our
sales and marketing staff, including product management and
business development functions, consisted of 103 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.
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.
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, 2024, our technical staff consisted of 138 Employees, including 59 technical support
persons, 68 deployment and professional services
engineers, 10 documentation and training persons, and 1 Management.
38
Research and Development
Our research and development activities take place primarily in Israel. We also have
research and development activities in Spain and India. In addition,
since 2020 we have been using subcontractors in Ukraine, Israel and
Belarus to source research and development engineers. 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 non-royalty-bearing grants from the Israel Innovation Authority. As of December 31, 2024,
there are
no outstanding royalties due from us to the Israel Innovation Authority. In 2024, we received 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). In addition, we have received during 2024 grants
from the Spain Tax Authority. 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.”
Subcontracting
We subcontract the integration of our software products with off-the-shelf hardware
platforms provided mainly 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 the design of our
products.
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. Global semiconductor shortages could increase the
possibility of making such engineering changes,
or taking other remedial measures, as many of our suppliers use semiconductors in the products we
require.
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 nine 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
integrators 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.
39
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 DNI 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 expansion of 5G networks progresses. The DNI market
has lower
long-term visibility; therefore there is less visibility for growth in our DNI segment for 2025.
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. Primarily we compete by providing a network
native architecture that allows zero touch operation by the end-user. Additionally, we compete
on the basis of product performance, ease
of use and installation, customer support, ability to integrate multiple solutions over our management system 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
small and medium size business and individual
end customers, we aim to expand the reach of our products.
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.”
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 initiated and continuously pursue patent protection
for our core technologies in the telecommunications
market. We have and plan to continue to seek patent protection in our largest markets and our
competitors’ markets, for example
in the United States and Europe. As we continue to spread our business into additional markets, such as Japan and
Australia, 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, 2024, we had 32 in-force U.S. patents and 5 U.S. reissued patents.
We expect to formalize our evaluation process for determining
which inventions to protect by patents or other means.
40
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:
•
Legal, Regulatory and Compliance Risks - 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.
•
Legal, Regulatory and Compliance Risks - As with many DNI products, some of our products may be used by governmental or law enforcement
customers in a manner that is, or that is perceived to be, incompatible with human rights.
•
Legal, Regulatory and Compliance Risks - Demand for our products may be impacted by government regulation of the internet and
telecommunications
industry.
•
Legal, Regulatory and Compliance Risks - Our failure to comply with data privacy laws may expose us to reputational harm and potential
regulatory actions and fines.
•
Risks Related 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 corporate governance requirements
of Nasdaq.
•
Risks Related 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 Related 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
Code.
•
Risks Related to our Location in Israel - 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 Related to our Location in Israel - 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.
•
General Risks - 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.
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.
41
Internal Cybersecurity
As a provider of innovative network intelligence and security solutions for mobile
and fixed service providers, we are particularly 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
because we are an Israeli company. We are also aware of the material 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.
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, next-
gen endpoint protection and other security measures
that we believe make our infrastructure 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, 2024, we held directly and indirectly the percentage indicated of the outstanding
capital of the following subsidiaries:
Company
Jurisdiction of
Incorporation
Percentage
Ownership
Allot Communications Inc.
United States
100%
Allot Communications Europe SARL
France
100%
Allot Communications (Asia Pacific) Pte. Limited
Singapore
100%
Allot Communications (UK) Limited (with branches in Italy and Germany)
United Kingdom
100%
Allot Communications Japan K.K.
Japan
100%
Allot Communications Africa (PTY) Ltd
South Africa
100%
Allot Communications India Private Ltd
India
100%
Allot Communications Spain, S.L. Sociedad Unipersonal
Spain
100%
Allot Communications (Colombia) S.A.S
Colombia
100%
Allot MexSub
Mexico
100%
Allot Turkey Komunikasion Hizmeleri limited
Turkey
100%
Allot Australia (PTY) LTD
Australia
100%
* Allot Ltd also holds a branch in Colombia.
42
D. Property, Plant and Equipment
Our principal administrative and research and development activities are located in
our approximately 43,000 square foot (4,000 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 2030.
We also lease a total of 7,664 square feet (712 square meters) 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 three years in 2023 till 2026.
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, 2024
and related notes and the information contained elsewhere
in this annual report. Our financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“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 provider of innovative network intelligence and security solutions
that enable service providers and enterprises to protect and personalize
the digital experience and monetize on their networks. Our 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.
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. We have a diversified end-customer
base consisting primarily of service providers, enterprises, government and law
enforcement entities. The resulting intelligent, content-aware
broadband networks enable our customers to accurately monitor and manage network traffic
per application, subscriber, network topology
and device.
In 2024, the primary drivers of our revenues were the mobile and fixed markets.
43
Key measures of our performance
Revenues
We generate revenues from two sources: (1) sales of our network traffic management
systems, our network management application solutions and
platforms, and our security solution to telecom providers and (2) the provision
of maintenance and support services and professional services, including
installation and training. We generally provide maintenance and
support services pursuant to a 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 of our products
or services to our customers should be reflected by an amount that
represents 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.
Apart from our Security-as-a-Service deals, 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. As part of our
Security-as-a-Service
offering, the maintenance and support services are inherent to the security service fee. Typically, our support contracts with our
customers
provide hot line support, warranty, and 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, 2023 and 2024.
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 success staff. In 2024, our gross margin increased
compared to 2023 due to an efficiency and cost reduction
process undertaken by the company to align cost structure and revenue levels. In 2023, our gross
margin decreased compared to 2022 due
to a decrease in revenues.
We believe that measuring our products’ cost of revenues and gross margins is
helpful to understand our financial statements and results of operations
because it enables the investors to evaluate the company’s
effectiveness in its operations. In addition, our management team uses these metrics to monitor
the company’s performance.
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 and Spain Tax 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.
44
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, credit loss
expenses and depreciation. General and administrative expenses also include costs associated with corporate governance, VAT and
other
tax expenses and regulatory compliance, compliance with the rules implemented by the SEC, Nasdaq and the 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, 2024, our net operating loss carry forwards for
Israeli tax purposes totaled approximately $136.5 million. 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 2024 and 2023, we received
grants from the Israel Innovation Authority through non-royalty
bearing programs. In addition, during 2024, 2023 and 2022, we received
non-royalty bearing grants from the Spain Tax Authority.
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. The revenues derived
from our largest customer in each of the past three years were 8%, 15% and 8% of our total revenues in
2024, 2023 and 2022, respectively.
The revenues derived from our second largest customer amounted to 6%, 9% and 7% of our total revenues for 2024,
2023 and 2022, respectively.
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.
Size of end-customers and sales cycles. We
have a global, diversified end-customer base consisting primarily of service providers, enterprises, government
and law enforcement entities.
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 obtain further significant customers in the large service provider market that would positively
impact our future performance, but could
decrease our market share. 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.
45
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 each 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 that will be offered for an additional charge.
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 30.9% for 2024 and 43.4% for 2023. 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 2024, our cost of revenues decreased due to efficiency and cost
structure alignment to revenue levels.
Currency exposure. A majority of our revenues
in previous years 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, for example 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.”
46
Results of Operations
The following table sets forth our statements of operations as a percentage of revenues
for the periods indicated:
Year Ended December 31,
2023
2024
Revenues:
Products
40.4
32.6
Services
59.6
67.4
Total revenues
100
100
Cost of revenues:
Products
17.9
11.6
Services
25.5
19.3
Total cost of revenues
43.4
30.9
Gross profit
56.6
69.1
Operating expenses:
Research and development, net
42
28.3
Sales and marketing
47.1
33.5
General and administrative
37.2
13.8
Total operating expenses
126.3
75.6
Operating loss
69.7
6.5
Financing income, net
3.45
2.07
Loss before income tax expense
66.26
4.45
tax expense
1.16
1.91
Net loss
67.4
6.4
Revenues
See “ITEM 4B: Information on Allot-Business Overview-Customers” for the
geographic breakdown of our revenues by percentage for the years ended
December 31, 2022, 2023 and 2024.
Year Ended December 31, 2024 Compared to Year
Ended December 31, 2023
Products. Product revenues decreased by $7.5
million, or 20%, to $30.1 million in 2024 from $37.6 million in 2023. The decrease in product revenues in
2024 was mainly attributable
to a decrease in the number of AllotSmart product deals during 2024.
Services. Service revenues increased by $6.5
million, or 12%, to $62.1 million in 2024 from $55.6 million in 2023. The increase was mainly attributed to
an increase in our SECaaS
solution recurring revenue from new and existing customers.
Product revenues comprised 32.6% of our total revenues in 2024, a decrease of 7.8%
compared to 2023 while the services revenues portion of total
revenues comprised 67.4% of our total revenues in 2024, an increase by 7.8%.
Cost of revenues and gross margin
Products. Cost of product revenues decreased
by $6 million, or 35.9%, to $10.7 million in 2024 from $16.7 million in 2023. Product gross margin
increased to 64.4% in 2024 from 55.6%
in 2023. The increase in product gross margin was mainly attributed to an efficiency and cost reduction process
done during 2024 to align
cost structure and revenue.
47
Services. Cost of services revenues decreased
by $6 million, or 25.2%, to $17.8 million in 2024 from $23.8 million in 2023. Services gross margin
increased to 71.4% in 2024 from 57.2%
in 2023. This increase in service gross margin is mainly attributed to a change in our mix of services and products.
Specifically, in
2024 relative to 2023, there was a higher percentage of revenues attributable to our SECaaS solution, as well as a lower cost of
services due
to a lower cost of product deals.
Total gross margin increased from 56.6% in 2023 to 69.1% in 2024.
Operating expenses
Research and development. Gross research and
development expenses decreased by $14.5 million, or 34.4%, to $27.7 million in 2024 from $42.2 million in
2023. The decrease in our research
and development expenses is mainly attributable to reduction in workforce and cost structure alignment as part of
efficiency process carried
out in 2024. Gross research and development expenses as a percentage of total revenues decreased to 31.7% (28.3%, net) in 2024
from 45.3%
(42%, net) in 2023.
Sales and marketing. Sales and marketing expenses
decreased by $13 million, or 29.6%, to $30.9 million in 2024 from $43.9 million in 2023. The decrease
is primarily attributable to reduction
in workforce and change in sales structure process carried out in 2024. Sales and marketing expenses as a percentage
of total revenues
decreased to 33.5% in 2024 from 47.1% in 2023.
General and administrative. General and administrative
expenses decreased by $22 million, or 63.4%, to $12.7 million in 2024 from $34.7 million in 2023.
The decrease is primarily attributable
to higher credit losses in 2023 relative to 2024 and the reduction in workforce carried out in 2024. General and
administrative expenses
as a percentage of revenues decreased to 13.7% in 2024 from 37.2% in 2023.
Financial income, net. In 2024, we had $1.9
million financial income, net. In 2023, we had $3.2 million financial income, net. The change in 2024 was
mainly attributed to a decrease
in interest income.
Income tax expense. In 2024, we had
$1.8 million income tax expense. In 2023 we had $1.0 million income tax expense. The change in 2024 was mainly
attributed to the increase
in withholding taxes and provision for uncertain tax position.
For a discussion of our operating results for the fiscal year ended December 31, 2023,
as compared to the fiscal year ended December 31, 2022, 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, 2023,
which was filed with the SEC on April 10, 2024.
B. Liquidity and Capital Resources
As of December 31, 2024, we had $16.1 million in cash and cash equivalents, $26.5
million available for sale marketable securities, and $15.3 million in
short-term deposits and $0.9 million short-term restricted deposits.
As of December 31, 2024, our working capital, which we calculate by subtracting our
current liabilities from our current assets, was $54.2
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.
48
Operating Activities
Net cash used in operating activities in 2024 was $4.8 million. Net cash used in operating
activities consisted mainly of a net loss of $5.9 million,
depreciation, amortization and impairment of intangible assets of $6.2 million,
$6 million of share-based compensation expense, a decrease of $3.3 million
in inventory, a decrease of $4.4 million in employees and payroll
accruals, an increase of $1.7 million in trade receivables, a decrease of $0.1 million in
trade payables, a decrease of $0.5 million in
other payables and accrued expenses, a decrease of $0.7 million in other receivables and prepaid expenses, an
increase of $1.9 million
in deferred revenues and a decrease of $0.9 million related to other operating activities. The change in employees and payroll
accruals,
trade payables and other receivables and prepaid expenses was mainly due to advanced payments to suppliers and payroll-related items.
During 2023, we had $29.7 million in cash and cash equivalents from operating activities.
Net cash used in operating activities consisted mainly of a net
loss of $62.8 million, depreciation, amortization and impairment of intangible
assets of $8.1 million, $8.8 million of share-based compensation expense, a
decrease of $1.4 million in inventory, a decrease of $1.6
million in employees and payroll accruals, a decrease of $34.3 million in trade receivables, a
decrease of $10.7 million in trade payables,
a decrease of $1.1 million in other payables and accrued expenses, a decrease of $0.5 million in other
receivables and prepaid expenses,
a decrease of $5.8 million in deferred revenues and a decrease of $1 million related to other operating activities. The
change in employees
and payroll accruals, trade payables and other receivables and prepaid expenses was mainly due to advanced payments to suppliers
and payroll-related
items occurring in 2022.
Investing Activities
Net cash provided for investing activities in 2024 was $2.9 million, primarily attributable
to proceeds from maturities of short-term deposits of $19.3
million, the purchase of short-term deposits of $24.6 million, the purchase
of property and equipment of $2.1 million, investment in available-for sale
marketable securities $61 million and other activities. The
above changes were partially offset by the redemption or sale of marketable securities of $64.8
million and a decrease in restricted deposits
of $0.7 million.
Net cash provided for investing activities in 2023 was $31.6 million, primarily attributable
to proceeds from maturities of short-term deposits of $74.7
million, the purchase of short-term deposits of $15.9 million, the purchase
of property and equipment of $2.5 million, investment in available-for sale
marketable securities $46 and other activities. The above
changes were partially offset by the redemption or sale of marketable securities of $23 million and
an increase in restricted deposits
of $0.8 million.
Financing Activities
There was no material net cash provided by financing activities in 2024 and 2023.
For a discussion of our liquidity and capital resources for the fiscal year ended
December 31, 2023, 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, 2023, which was filed with the
SEC on April 10, 2024.
On February 18, 2022, we issued to Lynrock Lake Master Fund LP a senior unsecured
promissory note, convertible into our ordinary shares, with an
aggregate principal amount of $40 million. The note will mature on February
14, 2026, pursuant to Company’s election to extend the original maturity date
by one year. The note may be extended by one more
year pursuant to its terms. The closing balance of the convertible note as of December 31, 2024 was
$39 million (calculated by subtracting
the $1 million issuance expense from the gross principal amount of $40 million).
49
Material Cash Requirements
Our material cash requirements as of December 31, 2024, and any subsequent interim
period, primarily include our capital expenditures, lease obligations
and purchase obligations.
Our capital expenditures primarily consist of purchases of lab equipment, computers
and peripheral equipment, office furniture and equipment, leasehold
improvements and SECaaS equipment. Our capital expenditures were $5.6
million in 2022, $2.5 million in 2023 and $2.1 million in 2024. We will
continue to make capital expenditures to meet the expected growth
of our business.
Our lease obligations consist of the commitments under the lease agreements for our
group facilities and motor vehicles. The group facilities are leased
under several lease agreements with various expiration dates. Our
leasing expenses were $3.8 million in 2022, $3.6 million in 2023 and $2.7 million in
2024.
As of December 31, 2024, we had fixed future minimum lease payments of $6.4 million
related to offices and car leases arrangements, of which $1.1
million is due in the next twelve months, and that we cannot early terminate
or where we would be required to pay a termination fee in the event of early
termination.
Our purchase obligations consist primarily of commitments for our operating activities.
Our operating expenses were $115 million in 2022, $118 million in
2023 and $70 million in 2024. More than 75% of the Company’s operating
expenses are attributable to salary expenses. As of December 31, 2024, we had
$1.3 million outstanding non-cancelable inventory purchase
obligations with a remaining term of 12 months.
We intend to fund our existing and future material cash requirements with our existing
cash balance. We will continue to make cash commitments,
including capital expenditures, to support the growth of our business.
Other than as discussed above, we did not have any significant capital and other commitments
or long-term obligations as of December 31, 2024.
C. Research and Development, Patents and Licenses
In 2022, 2023 and 2024, we received non-royalty bearing grants from the Israel Innovation
Authority. However, the terms of the grants require us to
comply with the IIA’s restrictions and obligations as set out below.
•
Local Manufacturing Obligation. We must manufacture the products developed with these grants
in Israel. We may manufacture the products
outside Israel only if we receive prior approval from the IIA (such approval is not required
for the transfer of up to 10% of the manufacturing
capacity in the aggregate, in which case a notice must be provided to the IIA and not
objected to by the IIA within 30 days of such notice).
•
Know-How Transfer Limitation. We have certain limitations on our ability to transfer know-how
funded by the IIA. Approval of any transfer of
IIA funded know-how to another Israeli company will be granted only if the recipient abides
by the provisions of the Innovation Law and related
regulations. Transfer of IIA funded know-how outside of Israel requires prior approval
of the IIA and may be subject to payments to the IIA.
•
Change of Control. We must notify the IIA in respect of any change in the means of control
in our company, including ownership of our shares. In
respect of any non-Israeli citizen, resident or entity that, among other things,
(i) becomes a holder of 5% or more of our share capital or voting
rights, (ii) is entitled to appoint one or more of our directors or
our chief executive officer or (iii) due to the change in the means of control in our
company, is nominated as one of our directors or
as our chief executive officer we are required to obtain an undertaking that such non-Israeli
citizen, resident or entity will comply
with the rules and regulations applicable to the grant programs of the IIA.
50
Approval to manufacture products outside of Israel or consent to the transfer of IIA
funded know-how, if requested, is within the discretion of the IIA.
Furthermore, the IIA may impose conditions on any arrangement under
which it permits us to transfer IIA funded know-how or manufacturing out of
Israel.
As of December 31, 2024, we had 35 issued U.S. patents,4 U.S. reissued patents, and
3 pending U.S. patent applications. 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.
In addition, during 2022, 2023 and 2024, we received non-royalty bearing grants from
the Spain Tax Authority.
D. Trend Information
See “ITEM 5: Operating and Financial Review and Prospects” above.
E. Critical Accounting Estimates
The preparation of financial statements in conformity with 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;
•
Allowance for credit losses;
•
Accounting for share-based compensation;
•
Inventories;
•
Impairment of goodwill and long lived assets;
•
Income taxes; and
•
Contingent liabilities.
51
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. 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 sales are through
resellers, distributors,
OEMs and system integrators, all of whom are considered end-users. The Company also generates revenues from services, in which
the Company
provides network filtering and security services to its customers.
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.
Most of the Company’s contracts usually 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 support
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 standalone selling price is not observable, the Company estimates the standalone selling price
by 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.
Product revenue is recognized at a point in time when the performance obligation is
being satisfied. Maintenance and support related revenues are deferred
and recognized on a straight-line basis over the term of the applicable
maintenance and support agreement. Professional services are usually recognized at a
point in time when the performance obligation is
being satisfied.
The Company also enters into service contracts, in which the Company provides SECaaS
solutions to operators, which the Company considers as its
customers. The Company’s SECaaS solutions are offered to operators on
a Revenue Share business model, where both the Company and the operator share
the revenue generated from the operator’s subscribers,
or offered for a fixed yearly fee or up to an agreed number of subscribers. Most of the Company’s
SECaaS contracts contain a single
performance obligation comprised of series of distinct goods and services satisfied over time. The contracts
consideration is based on
usage by the operator’s subscribers. As such, the Company allocates the variable consideration in those contracts to distinct
service
periods in which the service is provided and recognizes revenue for each distinct service period.
Allowance for credit losses. Trade receivables
are recorded and carried at the original invoiced amount which was recognized as revenues less an allowance
for any potential uncollectible
amounts. The Company makes estimates of expected credit losses for the allowance for credit losses and allowance for
unbilled receivables
based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality
of
its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that
may affect its ability
to collect from customers. The estimated credit losses allowance is recorded as general and administrative expenses
on the Company’s consolidated
statements of income (loss).
52
Accounting for share-based compensation. We
account for share-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 comprehensive loss. 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. The expected annual pre-vesting forfeiture rate
affects the number of vested RSUs. The pre-vesting rate ranged between
0% and 30% in the years 2024, 2023 and 2022. In connection with the grant of
options and RSUs, we recorded total share-based compensation
expenses of $6 million in 2024 and $8.8 million in 2023. In 2024, $0.8 million, $2 million,
$1.9 million and $1.4 million of our share-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, 2024, we had an aggregate of $6 million of unrecognized share-based compensation remaining to be recognized over a
weighted average
vesting period of 2 years.
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 expenses in 2024 and 2023 totaled $3 million and $1.6 million, respectively.
Impairment of goodwill and long-lived assets.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform
the 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 the Company elects not to use this option, or if the Company determines that it is more likely than not that the
fair value
of a reporting unit is less than its carrying value, then the Company prepares a quantitative analysis to determine whether
the carrying value of reporting
unit exceeds its estimated fair value. If the carrying value of a reporting unit exceeds its estimated
fair value, the Company recognizes an impairment of
goodwill for the amount of this excess.
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, 2024 and determined that the carrying value
of the reporting unit was lower than the fair value of the reporting unit. Fair value
is determined using market value. During the years
2024, 2023 and 2022, no impairment losses were recorded.
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, 2024, and determined
that the carrying value of the reporting unit was lower than the fair value of the
reporting unit. Fair value is determined using market
value. During the years ended 2023 and 2024, 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 year ended 2024, no impairment losses were recorded and during
the
year ended 2023, impairment losses were recorded in the amount of $1.6 million, due to concerns regarding the recoverability of the asset's
carrying
value.
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 in the near future, 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 $136.5
million and capital losses of approximately $27.5 million for tax
purposes as of December 31, 2024, 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 $2 million and the
accumulated losses for U.S. state income tax return
purposes were approximately $5 million. The federal accumulated losses for tax purposes expire
between 2027 and 2038. U.S. states have
varying rules regarding expiration of net operating losses. We believe that because of our 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, and therefore, a valuation allowance was provided to reduce deferred tax assets to nil. The valuation allowance
attributed to such
losses for the year ended December 31, 2024, was $50 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.
For more information regarding recently issued accounting pronouncements see Note
2 to the consolidated financial statements.
54
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 20, 2025:
Name
Age
Position
Directors
David Reis (5)
64
Chairman of the Board
Efrat Makov (1)(2)(3)(4)(5)
57
Director
Steven D. Levy (1)(2)(4)(5)
68
Director
Nadav Zohar (2)(5)
59
Director
Cynthia L. Paul
52
Director
Raffi Kesten (1)(5)
71
Director
Executive Officers
Eyal Harari
48
Chief Executive Officer and President
Liat Nahum
45
Chief Financial Officer
Rael Kolevsohn
55
Vice President, Legal Affairs, General Counsel and Company Secretary
Boaz Grossmann
56
Senior Vice President, R&D
Noam Lila
50
Senior Vice President, Customer Success and Operations
Vered Zur
61
Vice President, Marketing
Mark Shteiman
49
Chief Product Officer
Gili Groner
56
Chief Human Resources Officer
_____________
(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.
Directors
David Reis has served as Chairman of our Board
since September 2023. Mr. Reis has served as a director of Stratasys Ltd. (NASDAQ: SSYS)
(“Stratasys”) since June 2013.
During his tenure with Stratasys, he also served as vice chairman of the board of directors of Stratasys and as an executive
director.
Since 2017, Mr. Reis has served as Chairman at Enercon Technologies Ltd., Tuttnauer Ltd and Seed X Inc. (since 2020) and a director
at Scodix
Ltd (since 2021). He also served as a director of Objet Ltd. from 2003 until the closing of the Stratasys-Objet merger and as
the Chief Executive Officer of
Stratasys from March 2009 until July 2016 (and, prior to the Stratasys-Objet merger, as Chief Executive
Officer of Objet). Previously, he served as Chief
Executive Officer and President of NUR Macroprinters Ltd. (NURMF.PK), a wide format
printer manufacturer that was acquired by HP, from February
2006 to March 2008. Prior to joining NUR, Mr. Reis served as the Chief Executive
Officer and President of ImageID, an automatic identification and data
capture solution provider, and of Scitex Vision, a developer and
manufacturer of wide-format printers. Mr. Reis holds a B.A. in Economics and
Management from the Technion-Israel Institute of Technology
and an M.B.A. from the University of Denver. Mr. Reis is also a graduate of the Harvard
Business School Advanced Management Program.
55
Efrat Makov has served as the lead independent
director on our board since November 2021. She has served as a director of Ceragon Networks Ltd since
October 2022 and of B Communications
Ltd. (TASE: BCOM) since November 2019. Ms. Makov previously served as a director of BioLight Life Sciences
Ltd. (TASE: BOLT), Kamada Ltd.
(NASDAQ: KMDA), Anchiano Therapeutics Ltd. (NASDAQ: ANCN) (now known as Chemomab Therapeutics Ltd.
(NASDAQ: CMMB)) and of iSPAC
1 Ltd. (TASE: ISPC). Previously, Ms. Makov served as the Chief Financial Officer of Alvarion Ltd. (formerly
NASDAQ; TASE: ALVR) and Aladdin
Knowledge Systems Ltd. (formerly NASDAQ; TASE: ALDN). Prior to that, Ms. Makov served in management
positions at two Israeli-based public
companies, including as Vice President of Finance at Check Point Software Technologies Ltd. (NASDAQ: CHKP),
and as Director of Finance
for NUR Macroprinters Ltd. (formerly NASDAQ: NURM) (now known as Ellomay Capital Ltd. (NYSE; TASE: ELLO)).
Earlier in her career, Ms.
Makov spent seven years in public accounting with Arthur Andersen LLP in its New York, London and Tel Aviv offices. Ms.
Makov holds a
B.A. degree in Accounting and Economics from Tel Aviv University and is a certified public accountant in Israel and the United States.
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 as their Chairman until 2023, and served as a director of Edison Properties, a privately held U.S.
real estate
company, since 2015. 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.
Nadav Zohar has served as an interim director
since February 2017 and as a director since April 2017. Mr. Zohar has held the position of Chairman of the
LRC Group since 2018. Mr. Zohar
served as the head of Business Development of Gett, an “on demand” transportation service provider from March 2015
and October
2018. 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.
Cynthia L. Paul, CFA,
has served as a director since December 2022. She is Chief Investment Officer and Chief Executive Officer of Lynrock Lake LP,
an investment
management firm she founded in 2018. Ms. Paul invests across the full capital structure of public and private companies, employing a long-
term,
fundamentally-driven, value-oriented investment strategy, with a focus on the technology industry. She is Chairperson of the Board of
CalAmp, Inc, a
privately-owned IoT company that provides telematics solutions to help customers monitor, track, and protect vital assets.
She is a board member of ON24,
Inc. (NYSE: ONTF), a SaaS company providing a cloud-based sales and marketing platform for digital engagement.
From 2018 until the time of its
acquisition in 2021, Ms. Paul served as a board member of DSP Group, a NASDAQ-listed semiconductor company.
She served as chairperson of the
Nomination and Corporate Governance Committee, a member of the Audit Committee, and a member of the Compensation
Committee. Ms. Paul served as
Chairperson of the Board of Conexant Systems, LLC, a privately-held semiconductor company, from 2013 until
its acquisition in 2017. Ms. Paul is an
advisory board member and former board member of AlphaSense Inc., a privately-held SaaS company
providing intelligent search to enterprise customers.
From 2002 to 2017, Ms. Paul was a portfolio manager at Soros Fund Management LLC
(“SFM”), where she managed a portfolio across corporate credit,
convertible and equity securities. Ms. Paul joined SFM in
2000 and served on SFM’s Investment Committee. Prior to joining SFM, she worked at The
Palladin Group in 1999 and at JP Morgan from
1994 to 1999, most recently as Head of Convertible Research. Ms. Paul graduated from Princeton
University in 1994 with an Independent
Major in Statistics and Operations Research, a Certificate from the Princeton School of Public and International
Affairs, and a Certificate
in Engineering Management Systems.
56
Raffi Kesten has served as an interim director
since May 2022 and as a director since December 2022. Mr. Kesten served as Chief Business Officer of
Radware Ltd. (NASDAQ: RDWR) since
June 2019 until February 2022, leading all customer-facing functions worldwide as well as international sales,
professional services,
sales engineering and business development, and international sales. Mr. Kesten has over 30 years of experience in leadership roles at
various technology companies, including Intel ,Vice President of HP Indigo Division, a division of HP Inc., between 1991 and 1995, as
a Chief Operating
Officer and General Manager of Cisco Videoscape (formerly NDS Group - Prior acquisition) from 1996 to 2015, as Vice
President Video and General
Manager Israel of Cisco Videoscape from 2012 to 2015, as Silicon Process Engineer of Intel Corporation from
1982 to 1991, and as a managing partner at
Jerusalem Venture Partners from 2014 to 2018. Mr. Kesten holds a B.S. in chemical engineering
from Ben Gurion University and an Executive M.B.A.
from The Hebrew University, Israel.
Executive Officers
Eyal Harari has served as our President and
Chief Executive Officer since May 2024. Prior to joining Allot, between November 2019 and January
2024, Mr. Harari served as
Chief Executive Officer of Radcom Ltd., a NASDAQ listed company that provides leading automated service assurance
solutions for telecom
operators running 5G/4G networks. He held a number of senior and management positions within the Radcom group of companies
during the
period from January 2001 to November 2019 including, Chief Operating Officer of Radcom Ltd and the CEO of Radcom’s U.S subsidiary,
Radcom Inc., between December 2016 and November 2019. Mr. Harari holds a Bachelor of Science in Computer Science from the Open University
of
Israel, an M.B.A in Business Administration from Tel Aviv University and an M.A. in Business Law from Bar Ilan University.
Liat Nahum has served as our Chief Financial
Officer since July 2024. Prior to joining Allot, Ms. Nahum was VP Strategic Business Executive at Amdocs
Ltd., a public NASDAQ listed,
multinational telecommunications technology company that specializes in software and services for communications, media
and financial
services providers and digital enterprises, VP Finance at Taboola Inc, a public NASDAQ listed, advertising technology company that
provides
content recommendation sponsored links to advertising partners and Director of finance at Amdocs. Ms. Nahum is a Certified Public Accountant
and holds a B.A. in Finance and Accounting from the University of Haifa and an M.B.A. in Accounting and Business Management from the Ruppin
Academic Center.
Mark Shteiman has served as our Senior Vice
President AllotSmart Business Unit since December 2021. Prior to that Mr. Shteiman 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 Chief Executive Officer, 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.
57
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.
Vered Zur has served as our Vice President,
Marketing since April 2017. Prior to joining us, Ms. Zur served as Chief Marketing Officer 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.
Boaz Grossmann has served as our Senior Vice
President R&D since December 2024. Prior to that time, Mr. Grossmann served as our Senior Vice
President, Cybersecurity Product Unit
from January 2024 through December 2024, as our Vice President Cyber Security R&D from May 2022 through
December 2024, and as
our AVP Security Management System from October 2020 through May 2022. Mr. Grossmann has more than 20 years R&D and
management experience
in software development in multi-disciplinaries areas (ISP, Satellite, Managed Network Service and Cybersecurity) and
technologies leading
units and groups in different geographical locations. Boaz holds B.Sc. in Mathematics and Computer Sciences from University of
Haifa and
Executive MBA from the Hebrew University of Jerusalem.
Gili Groner has served as our Chief Human Resources
Officer since August 2024. Prior to joining Allot, she was the Head of HR for Bayer Israel for six
years where she played a strategic
part in managing HR during key mergers (such as Monsanto integration to Bayer Israel) and was responsible for aligning
HR strategies with
corporate goals and overseeing the entire employee lifecycle during periods of significant organizational changes. Before that, Ms.
Groner
was at Teva Pharmaceuticals for 16 years and during her time there in various HR roles, her last was VP of HR Business Partner for Global
Quality
& Biologics Operations orchestrating the development of a 6,500-employee organization. Ms. Groner holds a B.Sc. in Biology
and a M.B.A. from the
Hebrew University of Jerusalem.
Noam Lila has served as our Senior Vice President,
Customer Success and Operations since January 2021. Prior to that time, Mr. Lila served as our
Assistant Vice President, APAC Customer
Success from February 2019. Prior to joining Allot, Mr. Lila accumulated over 20 years of experience in the
telecommunications industry,
holding various executive positions at Amdocs and Comverse. Most recently, he was Vice President of Services at Amdocs
located in Australia,
Vice President of APAC CS at Comverse located in Japan, VP of IT & SCM at Comverse, AVP of EMEA CS at Comverse and others.
Throughout
his career, Mr. Lila lead hundreds of projects deployment and transformation programs to Tier 1 customers and some with value of more
than
$100 million (USD) each.
58
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 2024 consisted of approximately $3.9
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 $0.1 million set aside or accrued to provide pension, severance, retirement
or similar benefits or
expenses.
In 2024, we paid or accrued to the chairman of the board of directors, Mr. David Reis,
an annual fee of ILS 456,000 (approximately $123,257 USD).
During such time, we paid our directors, Nadav Zohar, Efrat Makov and Manuel
Echanove, ILS 97,079 (approximately $26,240 USD), ILS 165,329
(approximately $44,688 USD), and ILS 8,850 (approximately $2,392 USD), respectively,
and we paid or accrued to our directors, Steven Levy, Raffi
Kesten and Cynthia Paul, as permitted by the Companies Law, an annual fee
of ILS 112,829 (approximately $30,498 USD), ILS 136,079 (approximately
$36,782 USD), and ILS 112,929 (approximately $30,525 USD), respectively.
The above fees for each of our directors (other than David Reis) have
included an annual fee of currently ILS 80,000 (21,332 USD) and
a per-meeting attendance fee of currently ILS 4,687 (approximately $1,267 USD) for any
meeting he or she attended in person and a fee
of currently ILS 2,812 (approximately $760 USD) for any meeting he or she attended by conference call or
similar means.
Our directors are also typically granted, upon his or her initial election to the
board of directors, an initial grant of RSUs. In the past, this grant was for
20,000 RSUs and at our last Annual Shareholders’ Meeting,
our shareholders approved an increase to this amount to 30,000 RSUs, which will vest over a
period of three years in equal quarterly installments
subject to such director continuing to serve as a director over such period. Each director, other than the
Chairman, is also entitled
to 10,000 RSUs as of every third annual general meeting following the respective director’s initial election.
Additionally, our shareholders approved an amendment to the equity compensation payable
to our directors such that the number of RSUs to be granted to
directors shall be determined based on a monetary value, as opposed to
a fixed number, and such number of RSUs shall be granted annually. Under the
amended arrangement, (i) a director who is elected
or reelected at the Annual Meeting, and (ii) commencing with the 2025 annual meeting of shareholders,
a director who is elected or reelected
at an annual meeting of shareholders, or a director who is not nominated for reelection at an annual meeting of
shareholders but continues
to serve by virtue of having been elected or appointed to a term that extends beyond such annual meeting, shall be entitled to a
number
of equity based awards valued at $50,000 less the value of any unvested RSUs held by the director as of the date of such annual meeting
(with the
value of such unvested RSUs being calculated for such purpose based on the average closing price of an ordinary share over the
30-trading day period
ending on the last trading day prior to the annual meeting of shareholders at which such unvested RSUs were granted).
The number of RSUs will be
determined based on a price per share that is the higher of (i) $3.00 and (ii) the average closing price of
an ordinary share over the 30-trading day period
ending on the last trading day prior to the annual meeting of shareholders at which such
RSUs are granted.
During 2024, our executive officers and directors received, in the aggregate, 949,337 RSUs under our equity
incentive plans.
Compensation of our Five Most Highly Compensated Office Holders
Summary Compensation Table
For so long as we qualify as a foreign private issuer, we are not required to comply
with the proxy rules applicable to U.S. domestic companies, including
the requirement applicable to U.S. domestic companies to disclose
the compensation of certain executive officers on an individual, rather than an
aggregate, basis. Nevertheless, the regulations promulgated
under the Companies Law require us to disclose the annual compensation of our five most
highly compensated directors and officers on an
individual, rather than on an aggregate, basis.
59
The table and summary below outline the compensation granted to our five most highly
compensated office holders during or with respect to the year
ended December 31, 2024. We refer to the five individuals for whom disclosure
is provided herein as our “Covered Executives.”
For purposes of the table and the summary below, “compensation” includes
base salary, discretionary and non-equity incentive bonuses, equity-based
compensation accrued or paid, payments accrued or paid in connection
with retirement or termination of employment, and personal benefits and perquisites
such as car, phone and social benefits paid to or
earned by each Covered Executive during the year ended December 31, 2024.
Name and Principal Position(1)
Salary ($)
Bonus and
Commission
($)(2)
Equity-Based
Compensation
($)(3)
All Other
Compensation
($)(4)
Total ($)
Eyal Harari, Chief Executive Officer and President
257,581
270,000
319,971
67,649
915,201
Assaf Eyal, Former Senior Vice President, Global Sales*
259,488
142,020
155,079
45,836
602,423
Mark Shteiman, Chief Product Officer
227,052
51,087
189,896
38,463
506,498
Noam Lila, Senior Vice President, Customer Success and
Operations
207,591
46,708
145,496
26,872
426,667
Rael Kolevsohn, Vice President, Legal Affairs, General
Counsel and Company Secretary
227,052
51,087
110,491
28,248
416,878
* Former Officer
________________________
(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 share-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, 2024, 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.
60
Compensation Policy
Under the Companies Law, we are required to adopt a compensation policy, recommended
by the compensation and nominating committee and approved
by our 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.
We strive to provide a mix of compensation that supports a pay-for-performance culture
and emphasizes long-term incentives. Our executive compensation
packages have historically included equity grants, which we believe to
be effective tools in aligning performance with compensation.
The compensation and nominating committee and the Board are committed to responsible
management of earnings-per-share dilution, as the Company
must balance the requirements associated with its equity compensation program
during its growth stage with the effect on dilution. Therefore, the
compensation and nominating committee and the Board continue to review
the Company’s equity compensation practices to ensure that they remain in line
with evolving regulatory conditions and changes in
best practices. The Company remains focused on open and ongoing dialogue with its shareholders and
welcomes regular feedback regarding
its compensation policies.
Our compensation policy was approved by our compensation and nominating committee
and by our Board of Directors, and subsequently approved by our
shareholders in December 2022, and is in effect for a period of three
years following approval. In December 2024, our shareholders approved an
amendment to our compensation policy. The compensation
policy, as amended, allows the grant of equity awards to non-executive directors with a vesting
period of not less than one year; equity
awards may also be granted with immediate vesting, but in such event the awards would be treated as cash awards
rather than equity awards
for purposes of the limitations imposed by the compensation policy. Such grants will not exceed in value (based on accepted
valuation
methods), on the date of grant, $200,000, per vesting annum.
Our compensation policy as amended 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.
•
Compensation instruments: Includes guidelines and criteria for determining 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.
61
•
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
share options, restricted share 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.
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 Nasdaq 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 have up to nine directors.
Under our articles of association, our directors (other than our 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 our outside directors). At each annual meeting of
our shareholders, the election
or reelection of directors following the expiration of the term of office of the directors of that class of directors is for a term
of
office that expires on the third annual meeting following such election or reelection, such that each year the term of office of one class
of directors
expires.
62
Our Class II directors, David Reis (who also serves as our chairman of the board of
directors) and Raffi Kesten, will hold office until our annual meeting of
shareholders to be held in 2026. Our Class I directors, Nadav
Zohar and Cynthia Paul, will hold office until the 2025 Annual General Meeting of
Shareholders. We currently have no Class III directors
on our board. 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.
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 Nasdaq, to
appoint at least two outside directors. Our outside directors are Ms. Makov
and Mr. Levy. Ms. Makov also serves as the lead independent director.
Outside directors are required to meet standards of independence requirements set
forth in the Companies Law and of the listing standards of Nasdaq.
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 Nasdaq 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.
63
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.
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,
Efrat
Makov and Steven Levy, will continue until December 11, 2027 and August 14, 2025, 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 Nasdaq rules, a majority of directors must meet the independence requirements
specified in those rules. Our board of directors consists of six
members, all of whom are independent under the listing standards of Nasdaq,
as determined by the board of directors. Specifically, our board has
determined that Ms. Efrat Makov, Mr. David Reis, Mr. Steven Levy,
Mr. Raffi Kesten, Ms. Cynthia Paul and Mr. Nadav Zohar meet the independence
standards of Nasdaq rules. In reaching this conclusion, the
board determined that none of these directors has a relationship that would interfere with the
exercise of independent judgment in carrying
out the responsibilities of a director. None of our directors is a member of our executive team. See “ITEM
16G. Corporate Governance”
for additional information.
64
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.
Nasdaq Requirements
Under Nasdaq 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 Nasdaq.
Each of the members of our audit committee is “independent” under the
relevant Nasdaq 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 Nasdaq, 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.
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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. Efrat Makov, Mr. Steven Levy and Mr. Nadav Zohar.
The chairperson is Ms. Makov. The financial experts on the audit
committee pursuant to the definition under the relevant SEC rules and
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 Nasdaq
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. Efrat Makov, Mr. Steven Levy, and
Mr. Raffi Kesten. 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 Nasdaq 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.
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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 audit committee has appointed the firm of Deloitte Brightman Almagor Zohar as 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.
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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 2024 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, 2024, we had 495 Employees of whom 191 were based in Israel, 171
in Europe, 21 in North America, 16 in Latin America and 97 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:
December 31,
Department
2022
2023
2024
Manufacturing and operations
15
12
12
Research and development
328
220
186
Sales, marketing, service and support
328
263
241
Management and administration
78
64
57
Total
749
559
495
The table below provides a breakdown of employees, permanent contractors and subcontractors
employed or engaged by the Company (herein: “Personnel
Employed”):
December 31,
2022
2023
2024
Full time Employee
523
401
351
Part time Employee
38
33
31
Permanent Contractor
37
32
30
Subcontractor
151
93
83
Total
749
559
495
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* Based on the number of full time equivalent Personnel Employed, which is the product
of all full time Personnel Employed, plus the ratio of the average
monthly hours of part time Personnel Employed to average monthly hours
of full time Personnel Employed. 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 was recently elected for
a term of four years. In addition, our employees in our Madrid office in Spain are represented by five
worker representatives, who were
recently elected for a term of four years. 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. To foster wellbeing, we allow a hybrid mode of work to employees who attend an office. We expect
employees to work in the office for 3 days each week, while in the remaining 2 days they may work remotely to allow flexibility and work
life balance. In
addition, starting May 2023, we have allowed a short work week (4 working days a week) once a month, for all company
personnel. From the second half
of 2025, this practice will be reduced to a short weekend once every quarter. 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 3, 2025 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 3, 2025, 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
4501317, Israel.
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Name of Beneficial Owner
Number of
Shares
Beneficially
Held(1)
Percent of
Class
Directors
David Reis
*
*
Efrat Makov
*
*
Nadav Zohar
*
*
Steven D. Levy
*
*
Raffi Kesten
*
*
Cynthia Paul
8,793,999
22.2%
Executive Officers
Eyal Harari
*
*
Liat Nahum
*
*
Rael Kolevsohn
*
*
Vered Zur
*
*
Mark Shteiman
*
*
Noam Lila
*
*
Gili Groner
-
-
Boaz Grossman
*
*
All directors and executive officers as a group
9,395,078
23.7%
____________
* 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 3, 2025, 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 3, 2025, and outstanding RSUs vesting within 60 days of March 3, 2025 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 39,692,814 ordinary
shares outstanding
as of March 3, 2025, pursuant to Rule 13d-3(d)(1)(i) under the Exchange Act.
Our directors and executive officers hold, in the aggregate, 1,811,491 outstanding
options and RSUs. Such amount includes options currently exercisable
for 30,000 ordinary shares as of March 3, 2025. The options
(excluding RSUs) have a weighted average exercise price of $5.94 per share and have
expiration dates during Q2 2025.
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Share Option Plans
The following table summarizes our equity incentive plans, which have outstanding
awards as of March 3, 2025:
Plan
Shares reserved
Option and
RSU grants, net
(*)
Outstanding
options and
RSUs
Options
outstanding
exercise price
Date of
expiration
Options
exercisable
2016 Incentive Compensation Plan
539,962
9,111,434
3,784,500
5.939
9/6/2025
30,000
____________
(*) “Option and RSU grants, net” is calculated by subtracting options
and RSUs expired or forfeited.
As of March 3, 2025, we had 39,692,814 ordinary shares outstanding. We have adopted
four share option plans. Under our share option plans, as of March
3, 2025, there were 3,784,500 outstanding options and RSUs, including
options currently exercisable for 30,000 ordinary shares. As of March 3, 2025,
539,962 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 $5.94 per share.
We will only grant options, RSUs or other equity incentive awards under the 2016 Incentive Compensation
Plan.
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 Company’s board of directors on October 29, 2006 and became
effective immediately prior to the effective date of
the Company’s initial public offering. Effective October 28, 2016, our board of directors 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 (as
amended,
the “2016 Plan”). The 2016 Plan will remain in effect, subject to the right of our 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. On March 27, 2025,
our board of directors approved an amendment to the 2016 Plan to eliminate the limitation
on the annual increase of the share reserve and to clarify that
such annual increase will be set at the discretion of the board of directors.
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, in each case in an amount
determined by our board of directors with respect to such fiscal year.
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 2006 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 3,
2025, there were 3,784,500
outstanding options and RSUs under the 2016 Plan and 539,962 ordinary shares remained reserved for future grants under the
2016 Plan.
Israeli participants in the 2016 Plan may be granted options and/or restricted share 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
share options granted
under the 2016 Plan to participants in the United States will be either “incentive share options,” which may be eligible for
special tax
treatment under the U.S. Internal Revenue Code of 1986, or options other than incentive share options (referred to as “nonqualified
share options”), as
determined by our compensation and nominating committee and stated in the option agreement.
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Our compensation and nominating committee administer 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.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
We were not required to prepare an accounting restatement during or after the last completed fiscal year.
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 3, 2025, 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.
Ordinary
Shares
Beneficially
Owned(1)
Percentage of
Ordinary
Shares
Beneficially
Owned
Lynrock Lake Master Fund LP (2)
8,768,666
22.1%
QVT Family Office Fund LP (3)
3,555,793
9.0%
Kanen Wealth Management, LLC (4)
4,250,286
10.8%
__________________
(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 3, 2025
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 39,692,814 ordinary share outstanding as of
March 3, 2025.
(2) Based on a Schedule 13D/A filed on November 11, 2023, Lynrock Lake Master Fund LP directly holds 8,768,666 of our ordinary shares.
Cynthia Paul,
the Chief Investment Officer of Lynrock Lake LP (“Lynrock Lake”) and Sole Member of Lynrock Lake Partners LLC,
the general partner of Lynrock
Lake, may be deemed to exercise voting and investment power over securities of the Issuer held by Lynrock
Lake Master Fund LP.
(3) Based on a Schedule 13D/A filed on February 28, 2025 QVT Family Office Fund LP (“QVT Fund”) had shared voting and dispositive
power over
3,555,793 of our ordinary shares. QVT Financial LP (“QVT Financial”), as the investment manager for QVT Fund,
and QVT Associates GP LLC
(“QVT Fund GP”), was the general partner of the QVT Fund, have voting and dispositive power over
these shares. The principal executive offices of
QVT Fund, QVT Financial and QVT Fund GP is 888 Seventh Avenue, 43rd Floor, New York,
New York 10106.
(4) Based on a Schedule 13G filed on November 18, 2024 by Philotimo Fund LP, a Delaware limited partnership (“Philotimo”),
Philotimo Focused
Growth and Income Fund, a series of World Funds Trust and a Delaware statutory trust (“PHLOX”), Kanen Wealth
Management, LLC, a Florida
limited liability company (“KWM”) and David L. Kanen, Philotomo beneficially owned 1,062,501 of
our ordinary shares, PHLOX beneficially owned
1,062,642 of our ordinary shares, and KWM and David L. Kanen had each shared voting and
dispositive power over 2,125,143 of our ordinary shares.
David L. Kanen is the managing member of KWM and has voting and dispositive power
over these shares. The business address of such holders is
6810 Lyons Technology Circle, Suite 160, Coconut Creek, Florida 33073.
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Significant Changes in the Ownership of Major Shareholders
As described above, based on a Schedule 13G filed on November 18, 2024 by Philotomo,
PHLOX, KWM and David L. Kanen, KWM and David L. Kanen
became the beneficial owner of 5% or more of our ordinary shares, and are now each
the beneficial owners of 2,125,143, or 5.4%, of our ordinary shares.
Record Holders
As of March 3, 2025, there were 14 record holders of ordinary shares, of which seven
consisted of United States record holders holding approximately
99.58% 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, Officers and Suppliers
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.
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.
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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, 2024 and 2023, and
the related consolidated statements of comprehensive loss, changes in
shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2024, please see pages F-5 to F-47 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, 2024 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.
ITEM 9: The Offer and Listing
Our ordinary shares have been quoted under the symbol “ALLT” on Nasdaq
since November 16, 2006 and on the TASE since December 21, 2010.
As of March 3, 2025, the last reported sale price of our ordinary shares on Nasdaq
was $5.75 per share and on the TASE was 21.9 ILS per share.
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ITEM 10: Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Registration Number and Objectives
We are registered as a public company with the Israeli Registrar of Companies. Our
registration number is 51-239477-6.
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 3, 2025, we had 39,692,814 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.”
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.
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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, as we are a Nasdaq-listed company at the request of one or more holders
of 10% or more of our share capital
and 1% of our voting power or the holder or holders of 10% 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, as we are a Nasdaq-listed
company, may be between four and 60 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.”
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.
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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.
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.
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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.
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.
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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. 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.
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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.
Material Contract
Location
Non-Stabilized Lease Agreement
“ITEM 4: Information on Allot - D. Property, Plant and Equipment”
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.
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 rate of 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
lower. Capital gains derived by an Israeli company are
generally subject to the prevailing corporate tax rate.
80
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:
•
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 for research and development not approved are
deductible in equal amounts over three years, according
to the Ordinance.
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 certain government loans,
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:
•
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.
81
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.
Should a company derive income from sources other than the Approved Enterprise during
the relevant period of benefits, such income is taxable at the
regular corporate tax rates.
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. Under certain circumstances (as detailed below regarding
Foreign Investment
Companies), the benefit period may extend to a maximum of ten years from the commencement of the benefit period.
A company that has elected the alternative track 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 track 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.
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, with the exception of amendment 74, a company that has elected the alternative
track of benefits is not obliged to distribute
retained profits, and may generally decide from which year’s profits to declare dividends.
82
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.
As of December 31, 2024, 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.
A program receiving benefits under the 2005 Amendment is referred to as the Benefited
Enterprise.
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. We elected the year of 2009 as “year
of election” under the Investments Law after the 2005 Amendment. The benefit period under this
year of election has ended on December
31, 2020.
We believe that a 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, 2024, we did not generate exempt income under the provisions of
the Investments Law.
Trapped Earning
Following amendment 74 to the Investment Law as part of the Law for Economic Efficiency
(Legislative Amendments for Attaining the Budget Goals for
Fiscal Years 2021 and 2022), which was enacted in November, 2021, any dividends
distributed, or deemed as distributed under the Investment Law after
August 15, 2021 by a company which earned exempt income under the
Approved or Benefited Enterprise regimes (Trapped Earnings) which it did not elect
to release under the terms of amendment 74, will be
allocated pro-rata between exempt income and other sources and taxed accordingly. In addition, the
corporate income tax claw-back will
apply upon any dividend distribution, as long as the company has Trapped Earnings.
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.
83
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 for
preferred taxable income 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, effective as of the
2017 tax year (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:
•
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 eligible intellectual property, (“Preferred Technological Income”), 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 Preferred Technological Income
regardless of the
enterprise’s geographical location.
Any dividends distributed out of Preferred Technological Income by a Technological
Preferred Enterprise or a Special Technological Preferred Enterprise,
will be subject to tax at a rate of 20% (with an exemption from
such withholding tax applying to dividends paid to an Israeli company), or a lower rate of
4% in case 90% or more of the Preferred Technological
Enterprise’s shares are held by foreign corporations, and other conditions are satisfied. The above
rates may be reduced by an applicable
double tax treaty, subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a
reduced tax rate.
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.
84
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%. “Means of control”
generally
includes the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or
order someone who holds any of
the aforesaid rights on how to exercise these rights, regardless of the source of such right. 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).
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. Shareholders
may be required to demonstrate that they are exempt from tax on their capital gains in order to
avoid withholding at source at the time
of sale.
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) the capital gain arising from such
sale, exchange or disposition is attributed to real estate located in Israel, (ii) the capital gain arising from such sale, exchange or
disposition is attributed to
royalties, (iii) 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, (iv)
the capital gains from such sale, exchange or disposition can be allocated to
a permanent establishment in Israel, or (v) 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.
85
Taxation of Dividends paid to Holders of Shares
Individual Israeli residents and non-Israeli residents (whether individual or corporations)
are generally subject to Israeli income tax on the receipt of
dividends, that may be paid on our ordinary shares other than bonus shares,
or stock dividends, 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, w. Such dividends are generally subject to Israeli
withholding tax at a rate of 25% if
the shares are registered with a nominee company (whether the recipient is a material shareholder or not). However,
under the Investments
Law, dividends generated by an Approved Enterprise, Benefited Enterprise, Preferred Enterprise or Technological Preferred
Enterprise may
be are taxed at a different rate as discussed above. Dividend distributions to Israeli resident corporations are generally not subject
to a
withholding tax.
However, with respect to non-Israeli resident, a reduced tax rate may be available
under an applicable tax treaty. 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,
Benefited 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%. If the aforementioned conditions are met and the income out of which the dividend is paid
is generated by an Approved
Enterprise, Benefited Enterprise, Preferred Enterprise or Technological Preferred Enterprise, then the tax
rate will be 15%. If the dividend is partly
attributable to income derived from an Approved Enterprise, Benefited Enterprise, Preferred
Enterprise or Technological Preferred Enterprise, and partly to
other sources of income, the withholding rate will be a blended rate reflecting
the relative portions of the two types of income. We cannot assure you that
we will designate the profits that we may distribute in a
way that will reduce shareholders’ tax liability.
Surtax
Individuals who are subject to tax in Israel (whether or not Israeli residents) are
subject to a surtax at a rate of 3% of annual taxable income in excess of
NIS 721,560 (for the 2025 tax year, which amount is linked to
the annual change in the Israeli consumer price index), including, but not limited to,
dividends, interest and capital gain. According
to the Economic Efficiency Law (Legislative Amendments to Achieve the Budget Targets for the 2025
Budget Year) (Freezing of Tax Updates
and Surtax), 5785-2024 (the “Economic Efficiency Law”), during the years 2025-2027, the aforementioned amount
will not be
adjusted in accordance with the Israeli consumer price index. In addition, pursuant to the Economic Efficiency Law, an individual whose
taxable
income from “Capital Sources” in the tax year exceeds the aforesaid amount shall be subject to an additional tax on
the portion of their taxable income
from Capital Sources that exceeds the aforesaid amount at a rate of 2%. For this purpose, a Capital
Source is any source of income (including, among other
things, capital gain, dividend and interest) other than income from business, employment
and personal exertion.
86
United States Federal Income Taxation
The following is a description of the material United States federal income tax consequences
to U.S. Holders (defined below) of the ownership and
disposition of our ordinary shares, but does not purport to be a comprehensive discussion
of all tax considerations that may be relevant to a particular
person’s decision to acquire our ordinary shares. This description
addresses only the United States federal income tax considerations of holders that hold
such ordinary shares as capital assets for U.S.
federal income tax purposes. This description does not address tax considerations applicable to holders that
may be subject to special
tax rules, including:
•
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 or arrangement;
•
persons that received our shares as compensation for the performance of services;
•
persons that will hold our shares as part of a “hedging,” “conversion,” “wash sale,” or other
integrated transaction or as a position in a “straddle”
for United States federal income tax purposes;
•
persons whose “functional currency” for U.S. federal income tax purposes is not the United States dollar;
•
persons owning ordinary shares in connection with a trade or business conducted outside the United States;
•
certain U.S. expatriates;
•
persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares 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 any U.S. state, local or non-U.S. tax
law, the Medicare tax on net investment income, the United States federal
estate and gift or alternative minimum tax consequences of the
ownership and disposition of our ordinary shares, and, except as expressly described herein,
this description does not address the U.S.
federal income tax consequences that may apply to U.S. Holders under the U.S.-Israel Tax Treaty.
This description is based on the Code, 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.
87
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, any state thereof, or 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.
If a partnership (or any other entity or arrangement 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.
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,”
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,” 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.
Subject to the discussion below under “Passive Foreign Investment Company Considerations,”
dividends paid to non-corporate U.S. Holders will be taxed
at the lower capital gains rate applicable to “qualified dividend income,”
provided that (i) we are eligible for the benefits of the U.S.-Israel Tax Treaty, (ii)
we are not a PFIC (as discussed below under “Passive
Foreign Investment Company Considerations”) for the taxable year in which the dividend is paid and
the preceding taxable year, and
(iii) certain holding period and other requirements are met. However, such dividends will not be eligible for the dividends
received deduction
generally allowed to corporate U.S. Holders.
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 at a rate not exceeding the rate
provided in the U.S.-Israel Tax Treaty
(if applicable) 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
shares is owned, directly, indirectly
or by attribution, by United States persons. Furthermore, Treasury Regulations that apply to taxable years beginning on
or after December
28, 2021 may in some circumstances prohibit a U.S. Holder from claiming a foreign tax credit unless the taxes are creditable under the
U.S.-Israel Tax Treaty and the holder is eligible for benefits under the U.S.-Israel Tax Treaty and elects its application. However, a
recent notice from the
IRS indicates that the U.S. Department of the Treasury and the IRS are considering proposing amendments to such
Treasury Regulations and allows,
subject to certain conditions, taxpayers to defer the application of many aspects of such Treasury Regulations
for taxable years beginning on or after
December 28, 2021 and ending before the date that a notice or other guidance withdrawing or modifying
the temporary relief is issued (or any later date
specified in such notice or other guidance). 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.
88
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.
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 (generally 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. As a public company, the
market capitalization method was employed
to value our assets for PFIC purposes. In previous years, we obtained an independent valuation of our
company which employed an approach
other than the market capitalization approach. For the 2024 tax year, based on the analysis of our U.S. tax advisor,
the market capitalization
method was determined to be appropriate for determining our PFIC status. On that basis, we believe that we were not a PFIC for
the 2024
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 2024 tax year. However, because PFIC status is based on our income, assets and
activities for the entire taxable year,
it is not possible to determine whether we will be characterized as a PFIC for the 2025 taxable
year until after the close of the year. Moreover, we must
determine our PFIC status annually based on tests which are factual in nature,
and our status in future years will depend on our income, assets, market
capitalization and activities in each of those years. 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, 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. 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.
89
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.
We may invest in stock of non-U.S. corporations that are PFICs, or if we are a PFIC,
U.S. Holders will be deemed to own their proportionate share of our
PFIC subsidiaries. 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.
90
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.
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 U.S. Holders of
shares. 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 U.S. 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 U.S. 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 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.
91
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.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
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 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.
92
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 2024, we derived substantial part of our
revenues in U.S. dollars and also 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 upcoming year.
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 2024 did not
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.”
We use currency derivatives contracts primarily to hedge payments in ILS, EUR, AUD
and CAD against USD. These transactions constitute a future cash
flow hedge. As of December 31, 2024, we had outstanding derivatives contracts
in the amount of $10.3 million, net. These transactions were for a period of
up to twelve months. As of December 31, 2024, the fair value
of the above-mentioned foreign currency derivative contracts was $0.3 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.
93
ITEM 15: Controls and Procedures
(a) 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, 2024. 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, 2024, 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.
(b) 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 designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements 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;
•
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, 2024.
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, 2024 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) Attestation Report of the Registered Independent Public Accounting Firm. Our independent
auditors, Kost Forer Gabbay & Kasierer, A Member of EY
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 unqualified
audit report on the effectiveness of our internal control
over financial reporting as of December 31, 2024. 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.
(d) 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.
94
ITEM 16: Reserved
ITEM
16A: Audit Committee Financial Expert
The board of directors has determined that Ms. Efrat Makov is an “audit committee
financial expert” as defined under the U.S. federal securities laws and is
independent under the rules of Nasdaq. The board of directors
has also determined that Ms. Makov is independent, as such term is defined by Nasdaq Rule
5605(a)(2) and Rule 10A-3 under the Exchange
Act.
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 2024.
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.
Year ended December, 31,
2023
2024
(in thousands of U.S. dollars)
Audit Fees(1)
$
489 $
480
Audit-Related Fees(2)
$
5 $
7
Tax Fees(3)
$
70 $
49
Other
-
Total
$
564 $
536
__________________
(1) “Audit fees”
include fees for services performed by our independent public accounting firm in connection with our annual audit for 2022 and
2023, certain
procedures regarding our quarterly financial results submitted on Form 6-K and consultation concerning financial accounting and reporting
standards.
(2) “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.
(3) “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.
95
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
In 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 have expired on
May 26, 2016.
During 2022, 2023 and 2024, we did not repurchase any outstanding ordinary shares under this program.
ITEM
16F: Change in Registrant’s Certifying Accountant
None.
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 Nasdaq
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.
96
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, 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 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 a practice which complies with the requirements of the Companies
Law, but
does not 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 follow Section 274 of the Companies Law, which does not require shareholder approval for (i) certain private issuance of securities
that may
result in a change of control, which does not reflect the requirements of Rule 5635(b), and (ii) certain private issuances of
securities representing
more than 20% of our outstanding shares or voting power at below market prices, which does not reflect the requirements
of Rule 5635(d).
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.
ITEM
16I: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
97
ITEM 16J: Insider Trading Policies
We have adopted an Insider Trading Policy which governs the purchase, sale and other dispositions of our securities by our directors, officers, employees
and contractors that is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations and the listing standards of
Nasdaq. A copy of our Insider Trading Policy is filed as Exhibit 11.1 to this Annual Report.
ITEM 16K: Cybersecurity
Risk management and strategy
We prioritize the management of cybersecurity risk and the protection of information across our enterprise by embedding risk-based data protection and
cybersecurity risk management in our operations. Our processes for assessing, identifying, and managing material risks from cybersecurity threats have
been integrated into our overall risk management system and processes.
As a foundation for this approach, we have implemented a layered governance structure to help assess, identify and manage cybersecurity risks. Our
cybersecurity risk management program includes processes to assess and identify cybersecurity risks with regards to our assets, classify such risks, and
implement corrective and preventive actions in accordance with industry best practice. We undergo annual external evaluation by third party consultants,
whose work includes the performance of cybersecurity risk management process reviews, penetration testing, and security surveys. We are ISO27001 and
ISO22301 certified and undergo annual SOX audits by our external auditors.
Our privacy and cybersecurity policies that currently exist and will continue to fortified and updated to adapt to applicable regulatory requirements,
encompass incident response procedures, vendor management standards and information security domains including security awareness training, asset
management, network security, business continuity management, and backups and restoration. In order to help develop these policies and procedures, we
monitor the privacy and cybersecurity laws, regulations and guidance applicable to us in the regions where we do business. Our cybersecurity risk
management program is modeled on industry standards and best practices, as well as the requirements of applicable privacy and cybersecurity laws and
regulations.
Our cybersecurity risk management program will include processes to monitor and manage vendors’ cybersecurity risks. Our agreements with applicable
third-party service providers require such providers to adhere to privacy and cybersecurity standards, and we perform risk assessments of vendors,
including evaluating their ability to protect data from unauthorized access. Furthermore, we monitor and review vendors’ access to our systems and data.
We maintain an experienced information technology team who are tasked with implementing our privacy and cybersecurity program and support the CISO
in carrying out reporting, security and mitigation functions. We also hold employee trainings on privacy and cybersecurity, records and information
management, conduct phishing tests and generally seek to promote awareness of cybersecurity risk through communication and education of our employee
population.
As described in Item 3.D “Risk Factors,” our operations rely on the secure processing, storage and transmission of confidential and other information in our
computer systems and networks. Computer viruses, hackers, employee or vendor misconduct, and other external hazards could expose our information
systems and those of our vendors to security breaches, cybersecurity incidents or other disruptions, any of which could materially and adversely affect our
business, by way of disclosing our confidential business and financial information and/or affecting our platforms’ availabilities (affecting our ability to
provide services and support to our customers) and/or affecting our data integrity. We are not aware that we have experienced a material cybersecurity
incident during the 2024 fiscal year.
The sophistication of cybersecurity threats, including through the use of artificial intelligence, continues to increase, and the controls and preventative
actions we take to reduce the risk of cybersecurity incidents and protect our systems, including the regular testing of our cybersecurity incident response
plan, may be insufficient. In addition, new technology that could result in greater operational efficiency such as use of artificial intelligence may further
expose our computer systems to the risk of cybersecurity incidents.
Governance
As part of our overall risk management approach, we prioritize the identification and management of cybersecurity risk at several levels, including Board
oversight, executive commitment, IT management team. Our Audit Committee, comprised of independent directors from our Board, oversees the Board’s
responsibilities relating to the operational risk affairs of the Company (including information systems (IT), business continuity and data security risks). This
is also supported by an annual Risk Assessment Survey Validation, presented to the Board, by our external auditors, where the main risk exposures
are assessed, quantified and ranked.
Our CISO, who has been a chief information security officer for 20 years and worked in banking and hi-tech industries, oversees the implementation and
compliance of our information security standards and mitigation of information security related risks. The IT Steering Committee, which includes our
group Chief Information Officer and members of executive leadership, oversees IT initiatives while considering cybersecurity risk mitigation with respect
to these initiatives.
The IT Steering Committee reports regularly to the company’s management of the security risks. According to our Incident Response procedures, the CISO
is responsible for supervising cybersecurity alerts and incidents, investigating them, and escalating them, through the company’s management to the Board,
if and when necessary.
98
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
Number
Description
1.1
Articles of Association of the Registrant (2)
1.2
Certificate of Name Change (9)
1.3
Memorandum of Association of the Registrant (10)
2.1
Specimen share certificate (1)
2.2
Description of Registrant’s Securities
4.1
Non-Stabilized Lease Agreement, dated February 13, 2006 (as amended from time to time), 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)
4.2
2016 Incentive Compensation Plan, as amended (6)
4.3
Israeli Subplan (Appendix A) of the 2016 Incentive Compensation Plan, as amended and restated (7)
4.4
US Subplan (Appendix B) of the 2016 Incentive Compensation Plan, as amended and restated (8)
4.6
Compensation Policy for Executive Officers and Directors (5)
4.7
Securities Purchase Agreement, dated February 14, 2022, between the Registrant and Lynrock Lake Master Fund LP (12)
4.8
Convertible Promissory Note, dated February 17, 2022 between the Registrant and Lynrock Lake Master Fund LP (14)
4.9
Registration Rights Agreement, dated February 17, 2022 between the Registrant and Lynrock Lake Master Fund LP (15)
4.10
Cooperation Agreement, dated May 11, 2022, between the Registrant and Outerbridge Special Opportunities Fund II, LP (13)
8.1
List of Subsidiaries of the Registrant
11.1
Insider Trading Policy of Allot Ltd.
12.1
Certification of Principal Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications)
12.2
Certification of Principal Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications)
13.1
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
15.1
Consent of Kost Forer Gabbay & Kasierer
97.1
Policy for the Recovery of Erroneously Awarded Compensation (16)
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Label Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
___________________
(1)
Previously filed with the SEC on October 31, 2006 pursuant to a registration statement on Form F-1 (File No. 333-138313) and incorporated by
reference herein.
(2)
Previously included in Exhibit 99.3 to the report of foreign private issuer on Form 6-K furnished to the SEC on November 1, 2018 and
incorporated by reference herein.
(3)
Previously filed with the SEC 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.
(4)
Previously filed with the SEC 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.
(5)
Previously included as Exhibit A-1 to the proxy statement included in Exhibit 99.1 to the report of foreign private issuer on Form 6-K furnished to
the SEC on November 17, 2022 and incorporated by reference herein.
(6)
Previously filed with the SEC on March 23, 2017 as Exhibit 4.2 to the annual report on Form 20-F for the year ended December 31, 2016 and
amended as set forth in Exhibit 99.1 to the report of foreign private issuer on Form 6-K furnished to the Commission on November 16, 2023, each
of which are incorporated by reference herein.
(7)
Previously filed with the SEC 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.
(8)
Previously filed with the SEC 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.
(9)
Previously included in Exhibit 99.1 to the report of foreign private issuer on Form 6-K furnished to the SEC on November 1, 2018 and
incorporated by reference herein.
(10)
Previously included in Exhibit 99.2 to the report of foreign private issuer on Form 6-K furnished to the SEC on November 1, 2018 and
incorporated by reference herein.
(11)
Previously filed with the SEC 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.
(12)
Previously included in Exhibit 4.1 to the report of foreign private issuer on Form 6-K furnished to the SEC on February 15, 2022 and incorporated
by reference herein.
(13)
Previously included in Exhibit 4.1 to the report of foreign private issuer on Form 6-K furnished to the SEC on May 12, 2022 and incorporated by
reference herein.
(14)
Previously filed with the SEC on April 10, 2024 as Exhibit 4.8 to the annual report on Form 20-F for the year ended December 31, 2023 and
incorporated by reference herein.
(15)
Previously filed with the SEC on April 10, 2024 as Exhibit 4.9 to the annual report on Form 20-F for the year ended December 31, 2023 and
incorporated by reference herein.
(16)
Previously filed with the SEC on April 10, 2024 as Exhibit 97.1 to the annual report on Form 20-F for the year ended December 31, 2024 and
incorporated by reference herein.
99
SIGNATURES
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.
Allot Ltd
By: /s/ Eyal Harari
Eyal Harari
Chief Executive Officer
Dated: March 27, 2025
100
ALLOT LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024
U.S. DOLLARS IN THOUSANDS
ALLOT LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024
U.S. DOLLARS IN THOUSANDS
INDEX
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 1281)
F-2 - F-4
Consolidated Balance Sheets
F-5 - F-6
Consolidated Statements of Comprehensive Loss
F-7
Consolidated Statements of Changes in Shareholders' Equity
F-8
Consolidated Statements of Cash Flows
F-9 - F-10
Notes to Consolidated Financial Statements
F-11 - F-47
- - - - - - - -
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 the Board of Directors 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, 2024 and 2023, the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. 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, 2024, 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 27, 2025 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 PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 included 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.
F - 2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
Description of the
Matter
As described in Note 2m to the consolidated financial statements, the Company derives its revenues mainly from sales of products,
related maintenance and support services and professional services. The Company’s contracts with customers often contain
multiple performance obligations which are accounted for separately when they are distinct. The Company allocates the
transaction price to the distinct performance obligations on a relative standalone selling price basis and recognizes revenue when
control is transferred. Product revenues are recognized at the point in time when the product has been delivered. The Company
recognizes revenues from maintenance and support services ratably over the term of the applicable maintenance and support
agreement. Revenues from professional services are recognized, when the services are provided.
Auditing the Company’s determination of the stand-alone selling price was complex and required judgment due to the subjectivity
of the assumptions that were used in developing the stand-alone selling price of distinct performance obligations.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated design and tested the operating effectiveness of internal controls over the determination
of the stand-alone selling prices.
To test management’s determination of stand-alone selling price for each performance obligation, we performed procedures to
evaluate the methodology applied. We evaluated the Company's analysis of stand-alone selling price, including reading sample of
executed contracts to understand and evaluate management’s identification of significant terms, tested the accuracy of the
underlying data and calculations and the application of that methodology to the sampled contracts. We tested the reasonableness of
factors considered by management, such as historical sales, allocation of expenses, and appropriate margins. We also tested the
mathematical accuracy of management’s calculations of revenue.
Finally, we assessed the appropriateness of the related disclosures in the consolidated financial statements.
We have served as the Company’s auditor since 2006.
Tel-Aviv, Israel
/s/ KOST FORER GABBAY & KASIERER
March 27, 2025
A Member of EY Global
F - 3
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. internal control over financial reporting as of December 31, 2024, 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, Allot Ltd. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, 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, 2024 and 2023, the related consolidated statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report
dated March 27, 2025, 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 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.
Tel-Aviv, Israel
March 27, 2025
/s/ KOST FORER GABBAY & KASIERER
A Member of EY Global
F - 4
ALLOT LTD.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31,
2024
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
16,142 $
14,192
Restricted deposits
904
1,728
Short-term bank deposits
15,250
10,000
Available-for-sale marketable securities
26,470
28,853
Trade receivables, net (net of allowance for credit losses of $ 25,306 and $ 25,253 on December 31, 2024 and 2023,
respectively)
16,482
14,828
Other receivables and prepaid expenses
6,317
8,437
Inventories
8,611
11,874
Total current assets
90,176
89,912
NON-CURRENT ASSETS:
Severance pay fund
464
395
Restricted deposit
279
158
Operating lease right-of-use assets
6,741
3,057
Other assets
2,151
704
Property and equipment, net
7,692
11,189
Intangible assets, net
305
915
Goodwill
31,833
31,833
Total non-current assets
49,465
48,251
Total assets
$
139,641 $
138,163
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
ALLOT LTD.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
December 31,
2024
2023
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables
$
946 $
969
Employees and payroll accruals
8,208
12,566
Deferred revenues
17,054
14,892
Short-term operating lease liabilities
562
1,453
Other payables and accrued expenses
9,200
9,528
Total current liabilities
35,970
39,408
LONG-TERM LIABILITIES:
Deferred revenues
7,136
7,437
Long-term operating lease liabilities
5,807
702
Accrued severance pay
946
1,080
Convertible debt
39,973
39,773
Total long-term liabilities
53,862
48,992
SHAREHOLDERS' EQUITY:
Share capital -
Ordinary shares of NIS 0.1 par value - Authorized: 200,000,000 shares at December 31, 2024 and 2023; Issued:
40,346,993 and 39,192,939 shares at December 31, 2024 and 2023, respectively; Outstanding: 39,530,993 and
38,376,939 shares at December 31, 2024 and 2023, respectively
1,012
981
Additional paid-in capital
318,138
312,128
Treasury share at cost - 816,000 shares at December 31, 2024 and 2023.
(3,998)
(3,998)
Accumulated other comprehensive income
357
483
Accumulated deficit
(265,700)
(259,831)
Total shareholders' equity
49,809
49,763
Total liabilities and shareholders' equity
$
139,641 $
138,163
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
ALLOT LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands, except share and per share data
Year ended December 31,
2024
2023
2022
Revenues:
Products
$
30,068 $
37,599 $
60,980
Services
62,127
55,551
61,757
Total revenues
92,195
93,150
122,737
Cost of revenues:
Products
10,708
16,693
21,345
Services
17,797
23,771
18,486
Total cost of revenues
28,505
40,464
39,831
Gross profit
63,690
52,686
82,906
Operating expenses:
Research and development (net of grant participations of $ 1,595, $ 3,129 and $ 825 for the
years ended December 31, 2024, 2023 and 2022, respectively)
26,112
39,115
49,800
Sales and marketing
30,908
43,850
49,393
General and administrative
12,684
34,656
15,982
Total operating expenses
69,704
117,621
115,175
Operating loss
(6,014)
(64,935)
(32,269)
Financial income, net
1,910
3,215
2,134
Loss before income tax expense
(4,104)
(61,720)
(30,135)
Income tax expense
1,765
1,084
1,895
Net loss
$
(5,869) $
(62,804) $
(32,030)
Net loss per share:
Basic and diluted
$
(0.15) $
(1.66) $
(0.87)
Weighted average number of shares used in per share computations of net loss:
Basic and diluted
38,928,475
37,911,214
36,975,424
Unrealized gain (loss) on available-for-sale marketable securities
14
41
(140)
Net amount reclassified to earnings from available-for-sale marketable securities
-
-
2
Total comprehensive gain (loss) from available-for-sale marketable securities
14
41
(138)
Unrealized gain (loss) on foreign currency cash flow hedges transactions
20
(960)
(5,562)
Net amount reclassified to earnings from hedging transactions
(160)
2,656
4,175
Total comprehensive gain (loss) from hedge transactions
(140)
1,696
(1,387)
Total other comprehensive income (loss)
(126)
1,737
(1,525)
Total comprehensive loss
(5,995) $
(61,067) $
(33,555)
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
ALLOT LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share data
Ordinary shares
Accumulated
other
Outstanding
shares
Amount
Additional
paid-in
capital
Treasury
share
comprehensive
income (loss)
Accumulated
deficit
Total
shareholders' equity
Balance as of January
1, 2022
36,491,480
929
293,803
(3,998)
271
(164,997)
126,008
Exercise of share
options and restricted
share units
878,563
25
226
-
-
-
251
Share-based
compensation
-
-
9,269
-
-
-
9,269
Other comprehensive
loss
-
-
-
-
(1,525)
-
(1,525)
Net loss
-
-
-
-
-
(32,030)
(32,030)
Balance as of
December 31, 2022
37,370,043
954
303,298
(3,998)
(1,254)
(197,027)
101,973
Exercise of share
options and restricted
share units
1,006,896
27
(27)
-
-
-
-
Share-based
compensation
-
-
8,857
-
-
-
8,857
Other comprehensive
loss
-
-
-
-
1,737
-
1,737
Net loss
-
-
-
-
-
(62,804)
(62,804)
Balance as of
December 31, 2023
38,376,939
981
312,128
(3,998)
483
(259,831)
49,763
Exercise of share
options and restricted
share units
1,154,054
31
(30)
-
-
-
1
Share-based
compensation
-
-
6,040
-
-
-
6,040
Other comprehensive
loss
-
-
-
-
(126)
-
(126)
Net loss
-
-
-
-
-
(5,869)
(5,869)
Balance as of
December 31, 2024
39,530,993
1,012
318,138
(3,998)
357
(265,700)
49,809
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
ALLOT LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net loss
$
(5,869) $
(62,804) $
(32,030)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment
6,224
8,132
7,352
Share-based compensation
6,040
8,845
9,165
Amortization of issuance costs of Convertible debt
200
198
171
Changes in operating assets and liabilities:
Increase (decrease) in accrued severance pay, net
(203)
116
92
Decrease in other assets, other receivables and prepaid expenses
702
621
720
Decrease (increase) in accrued interest and amortization of premium on available-for
sale marketable securities
(1,392)
(712)
71
Decrease in operating lease right-of-use asset
2,174
2,686
3,126
Decrease in operating leases liability
(1,644)
(3,322)
(3,131)
Decrease (increase) in trade receivables
(1,654)
34,273
(11,629)
Decrease (increase) in inventories
3,263
1,388
(2,170)
Increase (decrease) in trade payables
(24)
(10,692)
7,721
Decrease in employees and payroll accruals
(4,358)
(1,571)
(385)
Increase (decrease) in deferred revenues
1,861
(5,781)
(9,970)
Decrease in other payables and accrued expenses
(494)
(1,113)
(1,668)
Net cash provided by (used in) operating activities
4,826
(29,736)
(32,565)
Cash flows from investing activities:
Decrease (increase) in restricted deposits
703
(836)
430
Investment in short-term bank deposits
(24,550)
(15,900)
(130,050)
Withdrawal in short-term bank deposits
19,300
74,665
122,220
Purchase of property and equipment
(2,117)
(2,489)
(5,642)
Investment in available-for sale marketable securities
(61,003)
(46,742)
-
Proceeds from maturity of available-for-sale marketable securities
64,790
22,935
6,859
Proceeds from sale of available-for-sale marketable securities
-
-
171
Acquisition
-
-
(500)
Net cash provided by (used in) investing activities
(2,877)
31,633
(6,512)
F - 9
ALLOT LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended
December 31,
2024
2023
2022
Cash flows from financing activities:
Proceeds from exercise of share options
1
-
251
Issuance of convertible debt
-
-
39,404
Net cash provided by financing activities
1
-
39,655
Increase in cash and cash equivalents
1,950
1,897
578
Cash and cash equivalents at the beginning of the year
14,192
12,295
11,717
Cash and cash equivalents at the end of the year
$
16,142 $
14,192 $
12,295
Supplementary cash flow information:
Cash paid/received during the year for:
Taxes paid
$
601 $
385 $
413
Interest received
$
2,938 $
3,287 $
923
Non-cash activity:
Right-of-use assets obtained in the exchange for operating lease liabilities
$
5,858 $
356 $
196
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1: -
GENERAL
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 of leading innovative network intelligence (“Allot Smart”) and security solutions (“Allot Secure”)
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, distributed denial of service
(DDoS) protection, IoT security, and more. Allot Smart generates insightful intelligence that allows CSPs to analyze every packet of
network, user, application and security data, CSPs can see, control and secure their networks, optimizing performance, minimizing
costs and maximizing end-user QoE. Allot Secure provides security service for the mass market and SMB at home, at work and on the
go for mobile, fixed and 5G converged networks. Allot Secure enables customers to detect security breaches and protect networks and
network users from attacks.
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 twelve wholly-owned subsidiaries (the Company together with its 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, 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 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 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 - 11
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1: -
GENERAL (Cont.)
The European, Singaporean, Indian, Colombian, U.S, Japanese, African and Turkish subsidiaries are engaged in sales and marketing,
technical support services and other services of the Company's products. The UK and Australian subsidiaries are engaged in sales and
marketing and other services.
The Spanish and Mexican subsidiaries commenced operations in 2015 and are engaged in the sales and marketing, technical support
and development activities of one of the Company's product lines.
b.
Acquisitions:
a.
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, 2021, the
contingent consideration is estimated at a fair value of $ 834, The change in fair value of the contingent consideration was recorded to
operating expenses.
According to the agreement, 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 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 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”). As of December 31, 2024 the Company has no Holdback liability.
In this agreement, the contingent consideration was payable over a two-and-a-half-year term, starting April 1, 2018 and ending
September 30, 2020 ("Contingent Consideration Period") depending on the Company’s revenues from Netonomy’s technology, and
has payments cap of $ 1,100. A maximum sum of $ 797 out of the contingent consideration amount shall be paid provided that certain
employees keep working in the Company during the mentioned period. The obligations in respect of the holdback amount and the
contingent consideration are presented under other payables and accrued expenses.
As of December 31, 2024, the Contingent Consideration Period ended however, part of Contingent Consideration was not settled yet.
See Note 12b.
F - 12
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1: -
GENERAL (Cont.)
b.
On December 18, 2022 (the "Keepers acquisition date"), the Company entered into an Bussines combination (the "Keepers
PPA") with the shareholders of Keepers Child Safety Ltd. ("Keepers") a private company which has a business of developing
and marketing software to protect children from digital online threats.
The total consideration for the acquisition was $ 1,152, which consisted of $ 500 paid in cash and an additional contingent
consideration estimated at fair value of $ 652 at the Keepers acquisition date. As of December 31, 2024, the contingent consideration
is estimated at fair value of $ 0.
The contingent consideration consists of two components: (a) $ 1,000 paid against actual income. (b) All expected revenues exceeding
$ 1,000 multiplied by 3.0% limited for the period of 10 years as of Valuation Date.
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 the excess of the purchase price over the net tangible and identified intangible assets was assigned to goodwill.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
Fair value
Technology
$
1,002
Goodwill
150
Net assets acquired
$
1,152
During 2023, the Company reassess it’s research and development projects in order to focus its available resources. As a result of this
assessment, management decided to stop further development of the Keepers technology and abandon the technology. Therefore, the
Company estimated Keppers contingent consideration in a fair value of $0.
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 Comprehensive Loss.
F - 13
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
a.
Use of estimates:
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 operation of the Company and its subsidiaries are generated in U.S. dollars ("dollar") or linked to the dollar. 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. Financial gains and (losses) related to exchange rate differences in connection with revaluation of assets and liabilities in
non-dollar denominated currencies for the years ended December 31, 2024, 2023, and 2022 amounted to $ (502), $ 378 and $ 442,
respectively.
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.
F - 14
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
e.
Restricted deposits:
Restricted deposits consist of deposits used as security for the company’s transactions with customers, hedging transactions and lease
agreements. As of December 31, 2024 and 2023, restricted deposits were mainly denominated in U.S. dollars, amounted to $ 1,183
and $1,886, respectively, and bore a weighted average interest rate of 4.54% and 4.77%, respectively.
f.
Short-term bank deposits:
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 5.23% and 6.58% on December 31, 2024 and 2023,
respectively
g.
Trade Receivable and Allowances:
Trade receivables are recorded and carried at the original invoiced amount which was recognized as revenues less an allowance for
any potential uncollectible amounts. The Company makes estimates of expected credit losses for the allowance for credit losses and
allowance for unbilled receivables based upon its assessment of various factors, including historical experience, the age of the trade
receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future
economic conditions, and other factors that may affect its ability to collect from customers. The estimated credit loss allowance is
recorded as general and administrative expenses on the Company’s consolidated statements of income (loss).
The following table displays a rollforward of the total allowance for credit losses for the years ended December 31, 2024, 2023, and
2022.
2024
2023
2022
Total allowance for credit losses – January 1
25,253
2,908
2,398
Current-period provision for expected credit losses
190
22,563
823
Write-offs
-
(145)
(64)
Recoveries collected
(137)
(73)
(249)
Total allowance for credit losses – December 31
25,306
25,253
2,908
During 2023, the Company recognized $ 22,563 increase in the credit losses provision. This increase was primarily due to
management’s estimation regarding the deterioration in the economic conditions of four customers, mainly in Africa, during 2023 and
their ability to repay their outstanding debt.
F - 15
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h.
Marketable securities:
Marketable securities consist mainly of government bonds. The Company determines the appropriate classification of marketable
securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASB ASC No. 320
“Investments- Debt Securities,” the Company classifies marketable securities as available-for-sale. Available-for-sale securities are
stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate
component of shareholders’ equity, net of taxes. Realized gains and losses on sales of marketable securities, as determined on a
specific identification basis, are included in financial income, net. The amortized cost of marketable securities is adjusted for
amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income,
net. The Company has classified all marketable securities as short-term, even though the stated maturity date may be one year or more
beyond the current balance sheet date, because it is probable that the Company will sell these securities prior to maturity to meet
liquidity needs or as part of risk versus reward objectives.
Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount
of that difference, if any, is caused by expected credit losses in accordance with ASC 326, Financial Instrument-Credit Losses.
The Company periodically evaluates its available-for-sale debt securities for impairment. If the amortized cost of an individual
security exceeds its fair value, the Company considers its intent to sell the security or whether it is more likely than not that it will be
required to sell the security before recovery of its amortized basis. If either of these criteria are met, the Company writes down the
security to its fair value and records the impairment charge in interest and other income, net in the Consolidated Statements Of
Comprehensive Loss. If neither of these criteria are met, the Company determines whether credit loss exists.
Expected credit losses on available-for-sale debt securities are recognized in interest and other income (expense), net, on the
Company’s consolidated statements of income (loss), and any remaining unrealized losses, net of taxes, are included in accumulated
other comprehensive income (loss) in Shareholder's equity. As of December 31, 2024, 2023 and 2022, no credit loss impairment was
recorded regarding the available for sale marketable securities.
F - 16
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i.
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 net write-offs
during the years ended December 31, 2024, 2023 and 2022 amounted to $ 3,020, $ 1,558 and $ 905, respectively, and were recorded in
cost of revenues.
Provision for slow moving inventory as of December 31, 2024 and 2023 amounted to $ 10,411 and $ 8,895, respectively.
Inventory cost is determined using the weighted average cost method.
j.
Property and equipment, net:
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
16 - 25
Computers and peripheral equipment
33
Office furniture
6
SECaaS equipment*
25
Leasehold improvements
Over the shorter of the term of
the lease or the useful life of the
asset
*SECaaS equipment – the equipment used for SECaaS revenues
k.
Goodwill:
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 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 the Company elects not to use this option, or if the Company determines that it is more likely than not that the
fair value of a reporting unit is less than its carrying value, then the Company prepares a quantitative analysis to determine whether
the carrying value of reporting unit exceeds its estimated fair value. If the carrying value of a reporting unit exceeds its estimated fair
value, the Company recognizes an impairment of goodwill for the amount of this excess.
F - 17
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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, 2024 and determined that the carrying value of the reporting unit was lower than the
fair value of the reporting unit. Fair value is determined using market value. During the years 2024, 2023 and 2022, no impairment
losses were recorded.
l.
Impairment of long-lived assets, Right-of-use assets, and intangible assets subject to amortization:
Property and equipment, Right-of-use assets, 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. The 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.
The Company has performed an annual impairment analysis as of December 31, 2024 and determined that there were no
circumstances indicating the asset’s carrying value may not be recoverable. During the year 2024, no impairment losses were
recorded. During 2023, impairment losses were recorded in the amount of $ 1,614. During 2022, no impairment losses were recorded.
m.
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
sales are through resellers, distributors, OEMs and system integrators, all of whom are considered end-users. The Company also
generates revenues from services, in which the Company provides network filtering and security services to its customers.
F - 18
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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. Revenue
is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales tax and
other indirect taxes).
Some of the Company's contracts usually 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 support 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 standalone selling price is not observable, the Company
estimates the standalone selling price by 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.
Product revenue is recognized at a point in time when the performance obligation is being satisfied, generally upon shipment or
acceptance. Maintenance and support related revenues are deferred and recognized on a straight-line basis over the term of the
applicable maintenance and support agreement since these services have a consistent continuous pattern of transfer to a customer
during the contract period. Professional services are usually recognized at a point in time when the performance obligation is being
satisfied.
The Company elected the practical expedient to not assess whether a contract has a significant financing component if the expectation
at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the
customer will be one year or less. In general, the company payment terms are one year or less.
In certain contracts, the Company provides the customer with financing for a period exceeding the regular credit terms for customers.
In such circumstances, the Company recognizes revenue based on the amount that reflects the price that would have been paid by the
customer in cash on the date of receipt of the goods or services, and the balance is recognized in finance income.
The Company also enters service contracts, in which the Company provides security as a service (SECaaS) solution to operators,
which the Company considers as its customers. The Company's security as a service solution is offered to operators on a Revenue
Share business model, where both the Company and the operator share the revenue generated from the operator's subscribers or a
monthly fee per user. Most of the Company's security as a service contracts contain a single performance obligation comprised of
series of distinct goods and services satisfied over time. The contracts consideration is based on usage by the operator's subscribers. As
such, the Company allocates the variable consideration in those contracts to distinct service periods in which the service is provided
and recognizes revenue for each distinct service period.
F - 19
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 (or when) the Company performs under the
contract.
During the years ended December 31, 2022, 2023 and 2024, the Company recognized revenue of approximately $19,193, $17,165 and
$10,322, respectively, which was included in the deferred revenue balances at the beginning of each respective period.
The change in the deferred revenues balances during the period consisted of increases due to payments received in advance of
performance, which were offset by decreases due to revenues recognized in the period.
The portion of the transaction price allocated to remaining performance obligations represents 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. As of
December 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations that the Company
expects to recognize is $ 63 million of which approximately $ 45 million is estimated to be recognized before December 31, 2025 and
approximately $ 18 million is estimated to be recognized after December 31, 2025. Excluding variable considerations related to base
fee from SECaaS.
The Company pays sales commissions to sales and marketing personnel based on their certain predetermined sales goals. The
company evaluates its commission and capitalize only incremental commissions costs which are considered recoverable costs of
obtaining a contract with a customer. These capitalized sales commissions costs are amortized over a period of benefit which is
typically over the term of the customer contracts as initial commission rates are commensurate with the renewal commission rates.
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, 2024 and December 31, 2023, the deferred commission was $1,131 and $1,572 accordingly. The
amortization of deferred commission for 2024, 2023 and 2022 were $2,087, $1,239 and $1,296. 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 $33 and $90 as of December 31, 2024 and 2023, respectively. As of December 31,
2024 and 2023, this provision was recorded as part of other payables and accrued expenses.
The Company recognizes term-based license agreements at the point in time when control transfers and the associated maintenance
revenues over the contract period.
Depending on the shipping terms agreed with the customer, the Company may perform shipping and handling activities after the
customer obtains control of the goods and revenue is recognized. The Company has elected to account for shipping and handling costs
as activities to fulfill the promise to transfer the goods. As a result of this accounting policy election, the Company does not consider
shipping and handling activities after the customer obtains control of the goods as promised services to its customers. Shipping
expenses for the years ended December 31, 2024, 2023 and 2022 were immaterial.
n.
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.
F - 20
ALLOT LTD.
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:
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, 2024, 2023 and 2022, amounted to $ 1,861, $ 6,057and $ 3,516, respectively.
During 2023, the Company implemented a cost reduction plan which included separation of employees which derived the 2023
severance exepenses.
F - 21
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q.
Accounting for share-based compensation:
The Company accounts for share-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.
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 following table sets forth the total share-based compensation expense resulting from share options, restricted share units and
Phantoms granted to employees included in the consolidated statements of comprehensive loss, for the years ended December 31,
2024, 2023 and 2022:
Year ended
December 31,
2024
2023
2022
Cost of revenues
$
779 $
1,219 $
1,133
Research and development
1,988
3,010
3,168
Sales and marketing
1,855
2,651
2,943
General and administrative
1,418
1,965
1,921
Total share-based compensation expense
$
6,040 $
8,845 $
9,165
During 2024, 2023 and 2022 no options were granted by the Company.
The computations of expected volatility and suboptimal exercise multiple is based on the average of the Company's realized historical
share 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.
F - 22
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 share options represents the weighted-average period the share options are expected to remain outstanding and
is a derived output of the binomial model. The expected life of the share options is impacted by all of the underlying assumptions used
in the Company's model.
The option pricing model of the of restricted share units ("RSUs") is based on the closing market value of the underlying shares at the
date of grant.
The expected annual pre-vesting forfeiture rate affects the number of vested RSUs. Based on the Company's historical experience, the
pre-vesting is in the range of 0%-30% in the years 2024, 2023 and 2022.
r.
Treasury share:
In the past, the Company repurchased its Ordinary shares on the open market and holds such shares as treasury share. The Company
presents the cost to repurchase treasury share 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 government 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 derived from sales to customers located 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
credit losses on a specific basis. Allowance for credit losses amounted to $ 25,306 and $ 25,253 as of December 31, 2024 and 2023,
respectively. See note 2g above.
F - 23
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
As of December 31, 2024 we have past due of $3.1 million.
The Company utilizes foreign currency forward contracts to protect against risk of overall changes in exchange rates for some of its
currencies exposure. 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.
t.
Government grants:
Grants from the Israel Innovation Authority (IIA):
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
$ 489, $ 552 and $ 539 in 2024, 2023 and 2022, respectively.
Grants from the Spain Tax Authorities:
Participation grants from the Spain Tax Authorities 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 $ 1,106, $ 2,577 and $ 286 in 2024 ,2023 and 2022, 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.
F - 24
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 and penalties 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".
For the years ended December 31, 2024, 2023 and 2022, all outstanding options and RSUs have been excluded from the calculation of
the diluted net loss per share since their effect was anti-dilutive. The amount of those options and RSU’s was: 3,107,441, 2,665,194,
2,735,125 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 other comprehensive loss relate to unrealized gains and losses on hedging derivative instruments and unrealized gains and losses on
available-for-sale marketable securities.
F - 25
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table shows the components and the effects on net loss of amounts reclassified from accumulated other comprehensive
loss as of December 31, 2024:
Year ended
December 31, 2024
Unrealized
gain
(losses) on
marketable
securities
Unrealized
gains
(losses) on
cash flow
hedges
Total
Balance as of December 31, 2023
$
1 $
482 $
483
Changes in other comprehensive loss before reclassifications
14
20
34
Amounts reclassified from accumulated other comprehensive loss to:
Cost of revenues
-
(27)
(27)
Research and development
-
(68)
(68)
Sales and marketing
-
(36)
(36)
General and administrative
-
(29)
(29)
Net current-period other comprehensive loss
14
(140)
(126)
Balance as of December 31, 2024
$
15 $
342 $
357
There was no income tax expense or benefit allocated to other comprehensive income, including reclassification adjustments for the
year ended December 31, 2024.
x.
Fair value of financial instruments:
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.
The Company measures its cash and cash equivalents, marketable securities, derivative instruments and earn-out considerations at fair
value. 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.
F - 26
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 measures its marketable securities and foreign currency derivative contracts at fair value. Marketable securities and
foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market
observable data of similar instruments.
The Company's earn-out considerations were classified within Level 3. This year, the valuation methodology used by the Company to
calculate the fair value consideration is the discounted cash flow using purchase method by taking into account, forecast future
revenues. According to the management there are no estimation for future revenues and therefore the earn-out fair value measurement
is nil.
y.
Derivatives and hedging:
The Company accounts for derivatives and hedging based on Accounting Standards Codification 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. For highly effective
derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges.
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.
F - 27
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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:
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 an identified asset, (2) whether the Company obtains the right to substantially all the economic benefits
from the use of the asset throughout lease 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 company's operating leases is generally not determinable, therefore the Company uses it’s 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.
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 include rental payments that are
adjusted periodically for the consumer price index ("CPI"). The ROU and lease liability were calculated using the CPI as of the
commencement date and will not be subsequently adjusted, unless the liability is reassessed for other reasons. Other variable lease
payments are primarily comprised of payments affected by common area maintenance and utility charges.
F - 28
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2: -
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ab.
Warranty costs:
The Company generally provides three months software and a one-year hardware assurance for 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, 2024, 2023 and 2022 were immaterial.
ac.
Recently Adopted Accounting Pronouncements:
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose
information about their reportable segments’ significant expenses and other segment items on an annual basis. Public entities with a
single reportable segment are required to apply the disclosure requirements in ASU.
2023-07 as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an annual basis. ASU 2023-07 is
effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company operates in one operating
segment, and this segment comprises only one reporting unit. Therefore, there is no influence adopting the Standard.
In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement - Reporting Comprehensive
Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses. This ASU requires to disclose
disaggregated information about certain income statement expense line items. Entities are required to disclose purchases of inventory,
employee compensation, depreciation, intangible asset amortization and depletion for each income statement line item that contains
those expenses. Specified expenses, gains or losses that are already disclosed under existing US GAAP are required to be included in
the disaggregated income statement expense line-item disclosures, and any remaining amounts need to be described qualitatively.
Separate disclosures of total selling expenses and an entity’s definition of those expenses are also required. This ASU is effective for
fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early
adoption permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial
statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which
requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure
of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with
early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09.
F - 29
ALLOT LTD.
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:
December 31, 2024
December 31, 2023
Amortized
cost
Gross
unrealized
gain
Gross
unrealized
loss
Fair
Value
Amortized
cost
Gross
unrealized
gain
Gross
unrealized
loss
Fair
value
Available-for-sale - matures
within one year:
US Governmental
debentures
26,455
15
-
26,470
28,495
9
-
28,504
Corporate debentures
-
-
-
-
357
-
(8)
349
26,455
15
-
26,470
28,852
9
(8)
28,853
Available-for-sale - matures
after one year through three
years:
US Governmental
debentures
-
-
-
-
-
-
-
-
Corporate debentures
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
26,455 $
15 $
- $
26,470 $
28,852 $
9 $
(8) $
28,853
As of December 31, 2024 and 2023, the Company had no investments with a significant unrealized loss for more than 12 months.
As of December 31,2024, 2023 and 2022, no credit loss impairment was recorded regarding the available for sale marketable securities.
NOTE 4: -
FAIR VALUE MEASUREMENTS
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.
Last year, the earn-out liability related to the acquisitions of Keepers are classified within Level 3 because these liabilities were based on
present value calculations and an external valuation model whose inputs include market interest rates, estimated operational capitalization
rates and volatilities. The fair value of the consideration was determined according to discounted cash flow.
F - 30
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 4: -
FAIR VALUE MEASUREMENTS (Cont.)
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, 2024 and 2023, respectively:
As of December 31, 2024
Fair value measurements using input type
Level 1
Level 2
Level 3
Total
Assets:
Available-for-sale marketable securities
$
- $
26,470 $
- $
26,470
Foreign currency derivative contracts
-
584
-
584
Liabilities:
Foreign currency derivative contracts
-
(224)
-
(224)
Total financial net assets
$
- $
26,830 $
- $
26,830
As of December 31, 2023
Fair value measurements using input type
Level 1
Level 2
Level 3
Total
Assets:
Available-for-sale marketable securities
$
- $
28,853 $
- $
28,853
Foreign currency derivative contracts
-
650
-
650
Liabilities:
Earn-out liability
-
-
-
-
Foreign currency derivative contracts
-
(106)
-
(106)
Total financial net assets
$
- $
29,397 $
- $
29,397
F - 31
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5: -
DERIVATIVE INSTRUMENTS
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, 2024, 2023 and 2022 was $(862), $(42) and $1,520, respectively.
The Company had a net unrealized gain (loss) associated with cash flow hedges of $ 342 and $482 recorded in other comprehensive loss as
of December 31, 2024, respectively. As of December 31, 2024 and 2023, the Company had outstanding hedge transactions in the net amount
of $ 30,354 and $ 17,245, respectively.
The fair value of the outstanding foreign exchange contracts recorded by the Company on its consolidated balance sheets as of December 31,
2024 and 2023, as assets and liabilities are as follows:
Foreign exchange forward and
December 31,
options contracts
Balance sheet
2024
2023
Fair value of foreign exchange hedge
transactions
Other receivables and prepaid expenses
$
566 $
537
Fair value of foreign exchange hedge
transactions
Other payables and accrued expenses
(224)
(55)
Total derivatives designated as hedging
instruments
Other Comprehensive profit
$
342 $
482
Gain or loss on the derivative instruments, which partially offset the foreign currency impact from the underlying exposures, reclassified
from other comprehensive profit (loss) to cost of revenues for the years ended December 31, 2024, 2023 were $ 27 , $ (474), respectively.
The amount reclassified from other comprehensive profit (loss) to operating expenses for the years ended December 31, 2024, 2023 were $
133, $ (2,176), respectively.
The amount reclassified from other comprehensive profit (loss) to Sales and marketing expenses for the years ended December 31, 2024,
2023 were $ 36 and $ (540), respectively.
F - 32
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5: -
DERIVATIVE INSTRUMENTS(Cont.)
The amount reclassified from other comprehensive profit (loss) to General and administrative expenses for the years ended December 31,
2024, 2023 were $ 29 and $ (440), respectively.
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 up to twelve
months.
As of December 31, 2024 and 2023, the Company’s outstanding non-hedge transactions were $ 10,326 and $ 12,459, 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, 2024 and 2023, as assets and liabilities are as follows:
Foreign exchange forward and
December 31,
options contracts
Balance sheet
2024
2023
Fair value of foreign exchange non-
designated hedge transactions
Other receivables and prepaid expenses
$
18 $
113
Fair value of foreign exchange non-
designated hedge transactions
Other payables and accrued expenses
-
(51)
Total derivatives non-designated as hedging
instruments
$
18 $
62
NOTE 6: -
OTHER RECEIVABLES AND PREPAID EXPENSES
December 31,
2024
2023
Prepaid expenses
$
4,335 $
5,890
Government authorities
969
988
Accrued interest
34
591
Foreign currency derivative contracts
584
650
Grants receivable from the OCS
12
-
Short-term lease deposits
124
145
Others
259
173
$
6,317 $
8,437
F - 33
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7: -
INVENTORIES
December 31,
2024
2023
Raw materials
$
650 $
1,656
Finished goods
7,961
10,218
$
8,611 $
11,874
As of December 31, 2024 and 2023, 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 $ 3,046 and $ 1,788, respectively.
NOTE 8: -
PROPERTY AND EQUIPMENT, NET
December 31,
2024
2023
Cost:
Lab equipment
$
13,011 $
12,750
Computers and peripheral equipment
12,058
11,353
Office furniture and equipment
1,431
1,438
Leasehold improvements
3,094
2,990
SECaaS equipment
7,476
8,036
37,070
36,567
Accumulated depreciation:
Lab equipment
10,944
9,835
Computers and peripheral equipment
10,778
9,041
Office furniture and equipment
588
535
Leasehold improvements
1,941
1,692
SECaaS equipment
5,127
4,275
29,378
25,378
Depreciated cost
$
7,692 $
11,189
Depreciation expenses for the years ended December 31, 2024, 2023 and 2022 was $ 5,613, $ 5,536 and $ 6,406, respectively.
F - 34
ALLOT LTD.
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
December 31,
2024
2023
Original Cost:
Technology
$
10,113 $
10,113
Backlog
1,877
1,877
Customer relationships
3,592
3,592
Software license
1,651
1,651
IP R&D
3,659
3,659
$
20,892 $
20,892
Accumulated amortization:
Technology
$
10,113 $
10,113
Backlog
1,877
1,877
Customer relationships
3,592
3,592
Software license
1,651
1,651
IP R&D
3,354
2,744
$
20,587 $
19,977
Amortized cost
$
305 $
915
b.
Amortization expense for the years ended December 31, 2024, 2023 and 2022 were $ 610, $ 982 and $ 946, respectively.
c.
Estimated amortization expense for the years ending:
Year ending December 31,
2025
305
Total
$
305
NOTE 10: - OTHER PAYABLES AND ACCRUED EXPENSES
December 31,
2024
2023
Accrued expenses
$
6,230 $
5,964
Deferred revenues from IIA
-
302
Onerous contract liability
276
551
Government authorities
2,032
2,108
Foreign currency derivative contracts
224
106
Holdback and contingent earnout
300
299
Provision for returns
33
90
Others
105
108
$
9,200 $
9,528
F - 35
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11: - LEASE
The Group's facilities are leased under several lease agreements.
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, 2024, 2023 and 2022 were approximately $ 2,735, $
3,545 and $ 3,784, respectively.
Expenses for short- term leases in 2024 were $ 199, $ 229 and $ 82, respectively. Variable lease costs for the years ended December
31, 2024, 2023 and 2022 were $ 826, $ 831 and $813, respectively.
The following table represents the weighted-average remaining lease term and discount rate:
Year ended December 31,
2024
2023
Weighted average remaining lease term
5 years
1.5 years
Weighted average discount rate
8.84%
2.10%
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.
Cash paid for amounts included in measurement of lease liabilities during the years ended 2024, 2023 and 2022 were $2,751, $4,152,
and $2,843, respectively.
Maturities of operating lease liabilities were as follows:
Year ending December 31,
2025
1,059
2026
1,511
2027
1,590
2028 and thereafter
3,832
Total lease payments
7,992
Less - imputed interest
(1,622)
Present value of lease liabilities
6,370
During the years ended December 31, 2024, and 2023, the short-term maturities of operating lease liabilities with a term of twelve
months or less were $ 199 and $ 195, respectively.
F - 36
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12: - COMMITMENTS AND CONTINGENT LIABILITIES
a.
Liens and guarantees:
As of December 31, 2024, the Company has provided bank guarantees in respect of performance obligation to customers in an
aggregate amount of approximately $ 736, in addition to bank guarantees in favor of leases agreements in an aggregate amount of
approximately $ 396.
b.
Litigations:
On November 2, 2021 two founders and six employees of Netonomy Ltd., a company acquired by Allot in January, 2018, filed a civil
claim against Allot (the “plaintiffs”), alleging that Allot breached certain clauses of the share acquisition agreement claiming damages
in the amount of app. $ 834. Allot has filed its defense statement refuting all claims and denying any breach and obligation to
compensate. On March 6, 2023 the Company signed a settlement agreement with the two founders in which the Company will be pay
both founders an amount of $ 260 and the founders will waive their claim.
There are ongoing legal proceedings against the rest. As of December 31, 2024, the results of this claim were uncertain.
NOTE 13: - SHAREHOLDERS' EQUITY
a.
Company's shares:
As of December 31, 2024, 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 - 37
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13: - SHAREHOLDERS' EQUITY (Cont.)
b.
Share option plan:
A summary of the Company's share option activity, pertaining to its option plans for employees and related information is as follows:
Year ended December 31,
2024
2023
2022
Number
of shares
upon
exercise
Weighted
average
exercise
price
Number
of shares
upon
exercise
Weighted
average
exercise
price
Number
of shares
upon
exercise
Weighted
average
exercise
price
Outstanding at beginning of
year
413,995 $
5.44
487,839 $
5.96
675,986 $
7.99
Granted
- $
-
- $
-
- $
-
Forfeited
(353,745) $
5.35
(72,480) $
9.04 (139,494) $
16.08
Exercised
(250) $
5.16
(1,364) $
0.03
(48,653) $
5.01
Outstanding at end of year
60,000 $
5.94
413,995 $
5.44
487,839 $
5.96
Exercisable at end of year
60,000 $
5.94
413,995 $
5.44
487,839 $
5.96
Vested and expected to vest
60,000 $
5.94
413,995 $
5.44
487,839 $
5.96
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing share price on the last
trading day of the fiscal years 2024, 2023 and 2022 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, 2024, 2023 and 2022,
respectively. This amount may change based on the fair market value of the Company's share. The total intrinsic value of options
outstanding as of December 31, 2024, 2023 and 2022, were $ 1, $ 0 and $ 10, respectively.
The total intrinsic value of exercisable options as of December 31, 2024, 2023 and 2022, were approximately $ 1, $ 1 and $ 10 ,
respectively. The total intrinsic value of options vested and expected to vest as of December 31, 2024, 2023 and 2022, were
approximately $ 1, $ 0 and $ 10, respectively.
The total intrinsic value (the difference between the Company's closing share price on the exercise date and the exercise price) of
options exercised during the years ended December 31, 2024, 2023 and 2022 were approximately $ 0, $ 93 and $ 93 , respectively.
The number of options vested during the year ended December 31, 2024 was 0. The weighted-average remaining contractual life of
the outstanding options as of December 31, 2024 is 0.68 years. The weighted-average remaining contractual life of exercisable options
as of December 31, 2024 is 0.68 years.
F - 38
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 13: - SHAREHOLDERS' EQUITY (Cont.)
The following provides a summary of the restricted share unit activity for the Company for the two years ended December 31, 2024:
Year ended December 31,
2024
2023
Number
of shares
upon
exercise
Weighted
average
share
price
Number
of shares
upon
exercise
Weighted
average
share
price
Outstanding at beginning of year
2,263,699 $
4.95 2,255,620 $
8.52
Granted
2,531,837 $
2.44 1,330,500 $
2.47
Vested
(1,153,804) $
2.21 (1,005,532) $
2.19
Forfeited
(594,291) $
3.47
(316,889) $
2.38
Unvested at end of year
3,047,441 $
2.69 2,263,699 $
4.95
As of December 31, 2024, $ 6,026 unrecognized compensation cost related to RSUs is expected to be recognized over a weighted
average vesting period of 1.64 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, 2024, 13,023 Ordinary shares are
available for future issuance under the option plans.
The Company granted 2,531,837 and 1,330,500 RSUs in 2024 and 2023, respectively under the 2016 option plan. RSUs vest over a
period of between one year to four years, subject to the continued employment of the employee. RSUs that are cancelled or forfeited
become available for future grants.
NOTE 14: - TAXES ON INCOME
a.
Corporate tax rates:
The Israeli corporate income tax rate was 23% in 2024, 2023 and 2022.
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.
F - 39
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14: - TAXES ON INCOME (Cont.)
c.
Pre-tax income (loss) is comprised as follows:
Year ended
December 31,
2024
2023
2022
Domestic
$
(4,988) $
(64,360) $
(32,826)
Foreign
884
2,640
2,691
$
(4,104) $
(61,720) $
(30,135)
d.
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,
2024
2023
2022
Loss before taxes on income
$
(4,104) $
(61,720) $
(30,135)
Theoretical tax income computed at the Israeli statutory tax rate (23%
for the years 2024, 2023 and 2022, respectively)
$
(944) $
(14,196) $
(6,931)
Changes in valuation allowance
599
13,131
4,116
Write off of prepaid and withholding taxes
1,113
749
1,388
Foreign tax rates differences related to subsidiaries
-
20
46
Non-deductible expenses
(144)
(269)
512
Capital note and inter-company balances release taxes
-
-
544
Other expenses and Exchange rate differences
80
(37)
195
Non-deductible share-based compensation expense
709
1,586
1,925
Change in expense associated with tax positions for current year
352
100
100
Actual tax expense
$
1,765 $
1,084 $
1,895
F - 40
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14: - TAXES ON INCOME (Cont.)
e.
Taxes on income
Income tax expense is comprised as follows:
Year ended December 31,
2024
2023
2022
Current taxes
$
288 $
248 $
391
Taxes in respect of previous years
12
(13)
16
Write off of prepaid and withholding taxes
1,113
749
1,388
Change in expense associated with tax positions for current year
352
100
100
$
1,765 $
1,084 $
1,895
Taxes on income by jurisdiction were as follows:
Year ended December 31,
2024
2023
2022
Domestic
$
946 $
822 $
1,129
Foreign
819
262
766
Total
$
1,765 $
1,084 $
1,895
Domestic
Current taxes
$
- $
- $
-
Taxes in respect of previous years
-
-
(20)
Write off of prepaid and withholding taxes
946
822
1,149
Total Domestic
$
946 $
822 $
1,129
Foreign
Current taxes
$
288 $
248 $
391
Taxes in respect of previous years
12
(13)
36
Write off of prepaid and withholding taxes
167
(73)
239
Change in expense associated with tax positions for current year
352
100
100
Total foreign
$
819 $
262 $
766
Total income tax expense (benefit)
$
1,765 $
1,084 $
1,895
F - 41
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14: - TAXES ON INCOME (Cont.)
f.
Net operating losses carry forward:
The Company has accumulated net operating losses for Israeli tax purposes as of December 31, 2024, in the amount of approximately
$ 136,499, which may be carried forward and offset against taxable income in the future for an indefinite period. As of December 31,
2024, the Company recorded a full valuation allowance with respect to its net deferred tax assets in Allot Ltd. and wrote-off prepaid
and withholding taxes of $ 6,607 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, 2024, of approximately $ 27,191, which may be carried
forward and offset against taxable capital gains in the future for an indefinite period. 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 $ 1,568 and $ 5,477 for state
taxes. The federal accumulated losses for tax purposes expire until 2037. As of December 31, 2024, the Company recorded a 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 share 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.
F - 42
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14: - TAXES ON INCOME (Cont.)
g.
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:
December 31,
2024
2023
Deferred tax assets:
Operating and capital loss carryforwards
$
38,538 $
34,420
Research and development
6,051
8,423
Employee benefits
415
1,522
Intangible assets
248
353
Operating lease liabilities
1,465
496
Stock based compensation expenses
708
1,733
Onerous contract
63
127
Prepaid and withholding taxes
6,607
6,297
Other temporary differences
576
543
Deferred tax asset before valuation allowance
54,671
53,914
Valuation allowance
(49,907)
(49,928)
Deferred tax asset net of valuation allowance
4,764
3,986
Deferred tax liability:
Intangible assets
3,214
3,284
Operating lease right-of-use assets
1,550
703
Net deferred tax asset
$
- $
-
As of December 31, 2024, the Company has provided a valuation allowance of approximately $50 million in respect of the Company’s
deferred tax assets resulting from tax loss carryforwards and other temporary differences. Realization of deferred tax assets is
dependent upon future earnings, if any, the time and amount of which are uncertain. As the Company has accumulated net operating
losses for Israeli tax purposes as of December 31, 2024, in the amount of approximately $136,499, so it is more likely than not that
sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was
recorded to reduce the deferred tax assets to nil.
Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence. Deferred taxes were not provided
for undistributed earnings of the Company’s foreign subsidiaries. Currently, the Company does not intend to distribute any amounts of
its undistributed earnings as dividends. Accordingly, no deferred income taxes have been provided in respect of these subsidiaries. If
these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli
income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.
F - 43
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14: - TAXES ON INCOME (Cont.)
As of December 31, 2024, $ 5,577 of undistributed earnings held by the Company’s foreign subsidiaries are designated as indefinitely
reinvested. If these earnings were re-patriated to Israel, they would be subject to income taxes and to an adjustment for foreign tax
credits and foreign withholding taxes in the amount of $1,060. The Company did not recognize deferred taxes liabilities on
undistributed earnings of its foreign subsidiaries, as the Company intends to indefinitely reinvest those earnings.
h.
As of December 31, 2024, the total gross uncertain tax benefits amounted to $1,395, , if recognized, would impact the Company’s
effective tax rate. The Company conducts operations across multiple jurisdictions globally, and its tax returns are periodically audited
or subject to review by both domestic and foreign authorities. The Company does not anticipate any material changes to its uncertain
tax positions over the next 12 months, unless there are settlements with tax authorities. However, the likelihood and timing of which is
difficult to predict.
Year ended
December 31,
2024
2023
2022
Uncertain tax position, beginning of year
$
1,043 $
943 $
843
Increase related to current years' tax positions
156
137
94
Increase related to prior years' tax positions
196
160
6
Decrease due to lapses of statutes limitations
-
(197)
-
Uncertain tax position, end of year
$
1,395 $
1,043 $
943
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, Spain, Japan and the
United States. With a few exceptions, the Company is no longer subject to Israeli tax assessment through the year 2021 and the
Spanish and U.S. subsidiaries have final tax assessments through 2019 and 2020, respectively.
F - 44
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 15: - GEOGRAPHIC AND SEGMENT INFORMATION
The Company identifies operating segments in accordance with ASC Topic 280, “Segment Reporting” as components of an entity for which
discrete financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”), or decision-making
group, in making decisions regarding resource allocation and evaluating financial performance. Our Chief Executive Officer is our chief
operating decision maker who evaluates performance and makes operating decisions about allocating resources based on consolidated
financial data. Our CODM uses consolidated net income to measure segment profit or loss, to allocate resources and assess performance.
Further, the CODM reviews and utilizes functional expenses (cost of revenues, sales and marketing, research and development, and general
and administrative) at the consolidated level to manage the Company’s operations, evaluate return on total assets in deciding whether to
invest in the development and expansion of our consolidated operations or into strategic transactions, such as acquisitions and capital
repurchases.
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:
Year ended
December 31,
2024
2023
2022
Europe
$
35,140 $
39,945 $
41,773
Asia and Oceania
24,010
20,547
29,888
Americas
14,163
16,542
21,791
Middle East and Africa
18,882
16,116
29,285
$
92,195 $
93,150 $
122,737
The following table sets forth the customers that represented 10% or more of the Company’s total revenues in each of the periods set forth
below:
Year ended
December 31,
2024
2023
2022
1st Customer
-
15%
-
2nd Customer
-
-
-
-
15%
-
F - 45
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 15: - GEOGRAPHIC AND SEGMENT INFORMATION (Cont.)
A total percentage of 64%, 77% and 77% of the Company’s revenues for the years ended December 31, 2024, 2023 and 2022, respectively
are attributed to network intelligence solutions, while 36%, 23% and 23% are attributed to security solutions for the years ended December
31, 2024, 2023 and 2022, respectively.
The following presents total long-lived assets as of December 31, 2024 and 2023:
December 31,
2024
2023
Long-lived assets:
Israel
$
13,577 $
13,431
Other
856
815
$
14,433 $
14,246
NOTE 16: - FINANCIAL INCOME (EXPENSES), NET
Year ended
December 31,
2024
2023
2022
Financial income:
Interest income
$
1,183 $
2,341 $
1,880
Amortization/accretion of premium/discount on marketable securities, net
1,387
732
-
Exchange rate differences and other
-
214
292
Financial expenses:
Exchange rate differences and other
660
-
-
Institutions interest Expenses
-
72
-
Amortization/accretion of premium/discount on marketable securities, net
-
-
38
$
1,910 $
3,215 $
2,134
F - 46
ALLOT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 17: - RELATED PARTIES BALANCES AND TRANSACTIONS
a.
The Company’s board approved Galil Software pursuant to which the Company acquired services amounting to approximately $ 325
and $ 993 for the years ended December 31, 2023 and 2022 respectively.
As of December 31, 2023 and 2022, the Company had other payables balance due to its related party in amount of approximately $ 24
and $ 93 , respectively.
During 2024, Galil Software does not considered as a related party anymore.
b.
Lynrock Lake Master Fund LP (“Lynrock”) is a Major Sharholder of the Company’s ordinary shares as of December 31, 2024 and 2023.
As of December 31, 2024, the Company had an outstanding senior unsecured promissory note in an aggregate principal amount of $
40,000 (the “Note”) issued to Linrock, see note 18 below. The Company recorded amortization expenses related to the issuance costs of
the notes during the years ended December 31, 2024 and 2023, in amounts of $ 200 and $ 198, respectively.
In addition, as of December 31, 2024 and 2023, the Company had Convertible debt balances due to its Note in amounts of approximately
$ 39,973 and $ 39,773, respectively.
NOTE 18: - CONVERTIBLE NOTES
On February 14, 2022, the Company issued to Lynrock Lake Master Fund LP a senior unsecured promissory note in an aggregate principal
amount of $40 million (the “Note”). The Note is convertible into the company's ordinary shares atan initial conversion rate of 97.0874
ordinary shares per $1,000 of the principal amount being converted (based on an initial conversion price equal to $10.30 per ordinary share).
The conversion price decreases by up to two $1 increments if the company elects to extend the maturity of the Note by up to two successive
years following the initial maturity date of February 14, 2025. On November 4, 2024, the Company notified Lynrock Lake Master Fund LP
extending the maturity till February 14, 2026
In event of a change of control (as defined in the note), the holder of the note has the right to require the company to convert all or a portion
of the note to ordinary shares or redeem all (but not less than all) of the outstanding principal amount of the note.
In the event of such a conversion or redemption in connection with a change in control, the company will also be required to pay the holder
an amount in cash equal to 6% per annum on the then-outstanding principal amount of the note from the date of such conversion or
redemption trough the maturity date, as it may have been extended.
The Convertible Notes consisted of the following as of December 31, 2024:
December 31,
2024
Liability:
Principal
$
40,000
Unamortized issuance costs
(27)
Net carrying amount
$
39,973
As of the issuing date, the company recorded the issuance costs related to the Note in amount of $596 as a deduction of the liability which
will be amortized over 3 years with an annual effective interest rate of the net liability is 0.14%.
The company recorded an amortization expenses related to the issuance costs during the years ended December 31, 2024 and 2023 in
amounted of $ 200 and $ 198, respectively.
F - 47
EXHIBIT 2.2
DESCRIPTION OF THE REGISTRANT’S
SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES ACT OF 1934
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 3,
2025, we had 39,692,814
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, as we are a Nasdaq-listed company at the request of one or more
holders of 10% or more of our share capital and 1% of our voting power or the holder or holders of 10% 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, as we are a
Nasdaq-listed company, may be between four and 60 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.
EXHIBIT 8.1
List of Subsidiaries
Company
Jurisdiction of Incorporation
Allot Communications Inc.
United States
Allot Communications Europe SARL
France
Allot Communications (Asia Pacific) Pte. Limited
Singapore
Allot Communications (UK) Limited (with branches in Italy and Germany) United Kingdom
Allot Communications Japan K.K.
Japan
Allot Communications Africa (PTY) Ltd
South Africa
Allot Communications India Private Ltd
India
Allot Communications Spain, S.L. Sociedad Unipersonal
Spain
Allot Communications (Colombia) S.A.S
Colombia
Allot MexSub
Mexico
Allot Turkey Komunikasion Hizmeleri limited.
Turkey
Allot Australia (PTY) LTD
Australia
* Allot Ltd also holds a branch in Colombia.
Exhibit 11.1
ALLOT LTD.
INSIDER TRADING POLICY
April, 2019
A.
INTRODUCTION AND LEGAL BACKGROUND
Allot Ltd. (the “Company”) is committed to the highest standards of ethics, as well as to full compliance with both the letter and the spirit of all
applicable rules and
regulations. To that end, the Company’s board of directors has adopted this Policy on the Prevention of Insider Trading (this “Policy”)
with respect to the trading of Company securities, as well as the trading in securities of any other company
about whom you learn material, nonpublic
information in the course of performing your duties for the Company.
U.S. federal and state securities laws and the Israeli securities laws (collectively, the “Securities Laws”) prohibit the purchase or sale of a company’s
securities by “insiders”
who are aware of material information about a company that is not generally known by or available to the public. These laws also
prohibit persons who are aware of such material nonpublic information from disclosing this information to others who
may trade. Companies and their
directors, officers and other supervisory personnel are also subject to liability if they fail to take reasonable steps to prevent insider trading by company
personnel.
This Policy is designed to prevent insider trading or allegations of insider trading and even the appearance of improper conduct on the part of
anyone employed by or associated
with the Company and to protect the Company’s reputation for integrity and ethical conduct. This Policy is also intended
to enable Company personnel who hold Company securities or wish to invest in the Company to do so in a manner consistent with
applicable law.
References in this Policy to the Company include any direct or indirect subsidiary of the Company. It is your obligation to understand and comply with this
Policy. Failure to comply with the policies and procedures set forth below
can result in a serious violation of the Securities Laws, leading to potential civil
and criminal penalties. Should you have any questions regarding this Policy, please contact the Company’s stock compliance officer (the “Stock
Compliance
Officer”), Rael Kolevsohn at rkolevsohn@allot.com.
B.
SCOPE OF POLICY
1.
Persons Covered
This Policy covers trading by all directors, officers and other employees of the Company and its subsidiaries and all consultants and contractors of
the Company and its
subsidiaries who have been granted Company stock options, as well as those consultants and contractors of the Company who are
designated by the Stock Compliance Officer to be subject to this Policy (collectively, “Restricted Persons”).
The same restrictions that apply to Restricted Persons also apply to “Associates” of such Restricted Persons, which consist of: (i) anyone who lives
in the household of a
Restricted Person and (ii) any Family Member (as defined below) who does not live in the household of a Restricted Person but
whose transactions in Company securities or Derivative Securities (as defined below) are directed by or subject to the
influence or control of a Restricted
Person (such as parents or children who consult with a Restricted Person before they trade in Company securities or Derivative Securities). "Family
Members" consist of the following persons: any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse (or comparable co-habitation
relationship), sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, in each case including adoptive
relationships.
- 2 -
In addition, Restricted Persons are expected to be responsible for compliance with this Policy in connection with securities transactions by any trust
or estate in which the
Restricted Person or related individuals subject to this Policy is a settlor, beneficiary, trustee, executor or the like that has or shares
with others the power to decide whether to buy or sell the Company securities or Derivative Securities; any
partnership in which the Restricted Person or
such related individuals is a general partner; and any corporation in which the Restricted Person or such related individuals either singly or together own a
controlling interest; and any trust,
corporation, charitable organization or other firm entity, or group where the Restricted Person or such related individuals
has or shares with others the power to decide whether to buy or sell Company securities or Derivative Securities.
2.
Transactions Covered
This Policy applies to all transactions in Company securities, including ordinary shares, options for ordinary shares and any other securities the
Company may issue from time to
time, such as warrants and convertible debentures, as well as to derivative securities relating to the Company’s ordinary
shares, whether or not issued by the Company, such as exchange-traded options, puts, calls and options (each, a “Derivative
Security”). This Policy does
not apply to the grant or the exercise of employee stock options; however, this Policy does apply to the sale of Company securities issued upon the exercise
of options, including as part of a broker-assisted cashless
exercise of an option or any other market sale for the purpose of generating the cash needed to
pay the exercise price of an option.
3.
Companies Covered
The prohibition on insider trading in this Policy is not limited to trading in the Company’s own securities, but also includes trading in securities of
any other company about
whom a Restricted Person learns material, nonpublic information in the course of performing his or her duties for the Company.
For example, it can include trading in securities of customers or suppliers of the Company, competitors of the Company
and those with which the Company
may be negotiating major transactions, such as an acquisition, investment or sale. Information that is not material to the Company may nevertheless be
material to one of those other companies.
C.
DEFINITION OF MATERIAL NONPUBLIC INFORMATION
Material Information. Information is material if there is a substantial likelihood that a reasonable investor would consider it important
in deciding
whether to buy, hold or sell a security. Any information that could reasonably be expected to affect the price of the security, whether positive or negative, is
material. While it may be difficult under this standard to determine
whether particular information is material, there are various categories of information
that are particularly sensitive and, as a general rule, should always be considered material. Examples of information that is almost always regarded as
material
include:
•
quarterly or annual financial results;
•
projections of future earnings or losses, or other earnings guidance;
•
a significant increase or decrease in financial results;
•
significant actions by regulatory bodies;
•
significant management changes;
•
a purchase or sale of substantial assets;
- 3 -
•
launches or acquisitions of new products;
•
proposed securities offerings or joint ventures;
•
stock splits;
•
gain or loss of substantial customer or supplier;
•
impending bankruptcy or financial liquidity problems;
•
significant exposure due to actual or threatened litigation or the commencement of any major litigation;
•
significant product defects or modifications;
•
significant pricing changes;
•
a significant merger or acquisition proposal or agreement;
•
changes in dividend policy; or
•
any material development or expected material development in the Company or a material change or expected material change in the
Company’s situation.
It is also important to keep in mind that material information need not be certain or definitive information. Even information concerning events,
actions, results, etc. that may
happen can be considered material under certain circumstances. For example, if you found out that the Company was in
merger negotiations, even though the deal had not yet been agreed to, that information could very well be material.
Any Restricted Person who has questions as to the materiality of any nonpublic information is advised to contact the Stock Compliance Officer for
guidance. When in doubt as to
the materiality of any nonpublic information, Restricted Persons should refrain from trading.
Nonpublic Information. Nonpublic information is information that is not generally known or available to the public. Information is
considered
publicly available and thus public only when it has been released broadly to the market place (such as by a press release or a filing with the Securities and
Exchange Commission (the “SEC”)) and the investing public has had time to
absorb the information fully. As a general rule, information is considered
nonpublic until the second full trading day after the information has been released or filed. More limited dissemination of the information, such as in a
company
communication to employees (even if it is to all employees generally) does not qualify as public disclosure for the purposes of this Policy.
D.
OUR POLICY
1.
No Trading on Inside Information
No Restricted Person who is aware of material, nonpublic information may, directly or through family members or other persons or entities, buy or
sell securities of (a) the
Company, or (b) any other company if the Restricted Person is aware of material nonpublic information about that company
obtained in the course of his or her employment with or engagement by the Company.
- 4 -
2.
No Tipping
Restricted Persons are prohibited from “tipping” others. The concept of unlawful tipping includes (i) passing on information to friends or family
members under circumstances that
suggest that the tipper was trying to help them make a profit or avoid a loss or (ii) providing a person with trading
advice with respect to the Company’s securities, Derivative Securities, securities of any other company or Derivative Securities
of such securities (even
though the nonpublic information that provides the basis for the advice is not disclosed to the person) (each a “tippee”). When tipping occurs, both the
tipper and the tippee may be held liable, and this liability may
extend to all those to whom the tippee, in turn, gives the information.
Restricted Persons should not discuss internal matters or developments with anyone outside of the Company (including family members), except as
required in the performance of his
or her regular duties. This prohibition applies specifically (but not exclusively) to inquiries about the Company that may
be made by the financial press, investment analysts or others in the financial community. Unless an individual is expressly
authorized to respond to
inquiries of this nature, such inquiries should be referred to the Stock Compliance Officer. All memoranda, correspondence and other documents that
reflect nonpublic information should be kept in a secure place, such as a
locked office, a locked file cabinet or a protected computer file, so that they cannot
be seen or accessed by third persons.
No Restricted Persons at any time should participate in discussions or "talk backs" regarding the Company in Internet chat rooms, message boards,
websites or other similar
venues. Posting Company information to such venues would be considered a violation of this Policy and be subject to appropriate
disciplinary actions. Do not discuss material nonpublic information where it may be overheard, such as in restaurants,
elevators, restrooms, and other
public places. Remember that cellular phone conversations are often overheard and that voice mail, text messages and e-mail messages may be retrieved by
persons other than their intended recipients, if not carefully
addressed. A Restricted Person who believes that he or she may have inadvertently disclosed
material non-public information should report this matter immediately to the Stock Compliance Officer.
3.
Blackout Periods
(a)
Pre-Earnings Blackout Periods
Due to the particular sensitivity of trading by those who have access to the Company’s financial information as the Company’s financial statements
are being prepared, all
Restricted Persons are subject to blackouts on trading during the period leading up to the release of quarterly or annual financial
statements. To avoid even the appearance of trading on the basis of material, nonpublic information, Restricted
Persons may not trade in the Company’s
securities during the period beginning 14 days prior to the end of the Company’s fiscal quarter or year and ending at the close of trading on the second full
trading day following the public dissemination by
the Company of its quarterly (or, in the case of the fourth quarter, annual) financial results. The Stock
Compliance Officer will endeavor to provide the Restricted Persons advance notice by e-mail of upcoming blackout periods, although failure to
give such
notice does not affect the applicability of such blackout period.
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(b)
Event-Specific Blackout Periods
From time to time, an event may occur that is material to the Company and which is known by only a few directors, officers and other employees.
Directors, officers and other
employees designated by the Stock Compliance Officer and his or her Associates may not trade in the Company’s securities
until they receive further notice from the Stock Compliance Officer. The existence of an event-specific blackout will not be
announced other than to those
who are already aware of the event giving rise to the blackout. A person subject to an event- specific blackout who requests pre-clearance to trade in the
Company’s securities will be informed by the Stock Compliance
Officer of the existence of the event-specific blackout period without disclosing the reason
for it. Any Restricted Person or their Associates made aware of the existence of an event-specific blackout period should not disclose the existence of the
blackout for any reason. The failure of the Stock Compliance Officer to designate a person as being subject to an event-specific blackout shall not relieve
that person of the obligation not to trade while aware of material nonpublic information.
E.
GENERAL PROVISIONS
1.
Ad hoc Exceptions
Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure) are no
exception to the basic policy
described above. The Securities Laws do not recognize such mitigating circumstances and even the appearance of an improper
transaction must be avoided to preserve the Company’s reputation for adhering to the highest standard of conduct.
Notwithstanding the foregoing, any two
of the Company’s Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Stock Compliance Officer may, on a case-by-case basis,
authorize trading in the Company’s securities during a
restricted period due to financial hardship or other extenuating circumstances only after: (a) the
person wishing to trade has notified the Company’s Stock Compliance Officer in writing (which writing may be in the form of electronic mail) of the
applicable circumstances and the amount and nature of the proposed trade(s), and (b) the person trading has certified to the Company’s Stock Compliance
Officer in writing no earlier than two business days prior to the proposed trade(s) that he or
she is not in possession of material nonpublic information
concerning the Company.
The Company may approve or reject any trading requests at its sole discretion.
2.
Hedging Transactions
Certain forms of hedging or monetization transactions, such as zero-cost collars, short sales, calls, exchange funds and forward sale contracts,
involve the establishment of a
short position in the Company’s securities and limit or eliminate the ability to profit from an increase in the value of the
Company’s securities. These transactions allow the Restricted Person to continue to own the covered Company security, but
without the full risks and
rewards of ownership. When that occurs, the Restricted Person may no longer have the same objectives as the Company’s other securityholders. Such
transactions are complex and involve many aspects of the Securities Laws.
Therefore, Restricted Persons are prohibited from employing any such
methodologies or using any such financial instruments with respect to a Company security absent a request for pre-clearance to the Stock Compliance
Officer at least two weeks
prior to the proposed execution of documents evidencing the proposed arrangement and written approval of the Stock
Compliance Officer.
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3.
Standing Orders
A standing order placed with a broker to sell or purchase Company shares at a specified price leaves the shareholder with no control over the timing
of the transaction. A
transaction pursuant to a standing order – which does not meet the standards of a Rule 10b5-1 Plan (as defined below) – executed by
the broker when the Restricted Person is aware of material nonpublic information may result in unlawful insider
trading. Accordingly, standing orders are
prohibited during any quarterly or event-specific blackout period and at any time that the Restricted Person is aware of material, non- public information.
4.
Margin Accounts and Pledging
Restricted Persons are prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan.
This is because a margin or
foreclosure sale may occur at a time when such persons are aware of material nonpublic information or otherwise are not
permitted to trade in Company securities. An exception to this prohibition may be granted where a Restricted Person wishes to
pledge Company securities
as collateral for a loan (not including margin debt) and clearly demonstrate the financial capacity to repay the loan without resort to the pledged securities.
A Restricted Person that wishes to pledge Company securities
as collateral for a loan must submit a request for approval to the Stock Compliance Officer at
least two weeks prior to the proposed execution of documents evidencing the proposed pledge.
5.
Gifts
A bona fide gift of Company securities or Derivative Securities to a Family Member is not subject to the restrictions contained in this Policy. Except
during a blackout period as
provided in Part D.3 of this Policy, a bona fide gift of Company securities or Derivative Securities to a charitable, educational
or a similar institution or to a person who is not a Family Member is not subject to the restrictions contained in
this Policy. The recipient of a gift who is a
Restricted Person or an Associate of a Restricted Person would be subject to the restrictions of this Policy in connection with any subsequent sale of the
gifted securities. Directors and executive
officers may not make a gift of Company securities or Derivative Securities, except to a Family Member, during a
blackout period as provided in Part D.3 of this Policy without the prior approval of the Stock Compliance Officer.
6.
Termination of Employment or Office
The restrictions set forth in this Policy apply to Restricted Persons and their Associates following the termination of their employment, engagement
or term of office, as
applicable, for such period as the Stock Compliance Officer shall determine such person is likely to be in possession of material
nonpublic information or until the information has become public or is no longer material.
7.
Personal Responsibility
The ultimate responsibility for adhering to this Policy and avoiding improper trading rests with you. Because there are so many “gray areas” in the
law of insider trading, you
should not try to make close calls about what is legal or illegal by yourself. Err on the side of caution: either refrain from trading
altogether if there is any question in your mind about the propriety of a particular trade, even if it is
proposed to take place outside of a blackout period, or
consult with the Stock Compliance Officer with respect to a particular trade prior to execution. Remember, however, the ultimate responsibility for
adhering to this Policy and avoiding
improper transactions rests with you. It is imperative that you use your best judgment.
- 7 -
8.
Compliance with Policy
The Company expects strict compliance with these procedures by all Restricted Persons. Although this Policy is expressly not intended to result in
the imposition of additional
legal liability that would not otherwise exist, failure to observe these procedures will be considered an extremely serious matter
and may be grounds for appropriate disciplinary action, including termination of employment. All employees must
certify their understanding of, and intent
to comply with, this Policy. An example of a certification which may be used to certify one's understanding and intended compliance with this Policy is set
forth in Exhibit
A.
F.
ADDITIONAL PROCEDURES
1.
Pre-Clearance of Transactions in the Company’s Securities
To help prevent inadvertent violations of the Securities Laws and avoid even the appearance of trading on material, nonpublic information, all
directors and officers, as well as
any other employees and consultants designated by the Stock Compliance Officer, may not engage in any transaction
involving Company securities, without first obtaining the Stock Compliance Officer’s pre-clearance of the transaction (the “Prior
Approval Requirement”).
The Prior Approval Requirement also applies to Associates of persons who are subject to the Prior Approval Requirement. The request for pre-clearance
should be submitted at least three business days in advance of the
proposed transaction. The Stock Compliance Officer is under no obligation to approve a
transaction submitted for pre-clearance and may determine not to permit the transaction. In the case of a proposed transaction in the Company securities or
Derivative Securities by the Stock Compliance Officer (or other matters that would require a determination by the Stock Compliance Officer under this
Policy), the Chief Executive Officer shall take such actions as are usually required of the Stock
Compliance Officer hereunder. In the case of a proposed
transaction in the Company securities by the Chief Executive Officer (or other matters that would require a determination by the Stock Compliance Officer
under this Policy), the Chairman of
the Board shall take such actions as are usually required of the Stock Compliance Officer hereunder. The granting of
pre-clearance does not constitute legal advice and in no way relieves those persons who are subject to the Prior Approval
Requirement of their legal
obligations to refrain from trading while in possession of material nonpublic information.
2.
Rule 10b5-1 Plans
Pursuant to SEC Rule 10b5-1, directors, officers and other employees and consultants of the Company may establish written programs (a “Rule
10b5-1 Plan”) which permit (i)
automatic trading of the Company’s stock through a third-party broker or (ii) trading of the Company’s stock by an
independent person (e.g., an investment banker) who is not aware of material nonpublic information at the time of a trade. A person
wishing to implement a
Rule 10b5-1 Plan must notify the Company’s Stock Compliance Officer at least three business days prior to entering into the plan and must obtain the
Stock Compliance Officer’s pre-clearance of the plan. The Approved Plan must
comply with the requirements of SEC Rule 10b5-1 and any conditions that
the Company's Stock Compliance Officer may require. A person may only enter into a Rule 10b5-1 Plan (1) when not in possession of material nonpublic
information and (2) not
during a blackout period. Any Rule 10b5-1 Plan must be a written, binding contract, instruction or plan and it must expressly
specify the amounts, prices and dates of transactions (specifically or through a written formula, or a combination
thereof) or confer discretionary authority
on another person (who is not a Restricted Person or Associate and otherwise is not in possession of material nonpublic information) to effect one or more
purchase or sale transactions for the account of
the instructing person. In addition, the instructing person may not exercise any subsequent influence over
how, when or whether the transactions are effected and the purchase or sale must occur pursuant to the Rule 10b5-1 Plan. Transactions
effected pursuant to
an approved Rule 10b5-1 Plan and in accordance with the applicable rules of the SEC are not subject to the prohibition on trading on the basis of material
nonpublic information contained in this Policy or the blackout period
restrictions in this Policy, and will not require further approval at the time of the
transaction.
- 8 -
Trading of the Company's stock would still remain subject to applicable provisions of Israeli law, including a presumption that sales and purchases
within a three month period
are prohibited (see section F(3), below). In addition, the Rule 10b5-1 Plan must provide that the transactions shall be effected
on the NASDAQ Stock Market (or any other stock market located outside Israel) via a non-Israeli broker (although
coordination with an Israeli affiliate,
branch, agent of such broker shall be permitted) and may not be pre-arranged with an Israeli resident.
Any director or executive officer that wishes to do so must submit a request for approval to the Company’s Stock Compliance Officer at least two
weeks prior to the proposed
execution of documents evidencing the proposed Rule 10b5-1 Plan.
3.
Presumption Against Trading Within Three Months Under Israeli Law
Under applicable provisions of Israeli law, if an officer or director purchases Company securities within three months of the date that he or she sold
Company securities (or
sells Company securities within three months of the date that he or she purchased Company securities), it would be prima facie
evidence that such person was using inside information, and the office holder could have the burden to prove that he or
she was not using inside
information. Therefore, although this Policy does not prohibit purchases and sales by office holders within a three month period, this Policy strongly
discourages such practice.
G.
POSSIBLE CONSEQUENCES AND PENALTIES OF INSIDER TRADING UNDER THE SECURITIES LAWS
The possible consequences of insider trading can be severe. Insider trading is a crime, penalized by criminal fines of up to $5 million and
imprisonment for up to 20 years. In
addition, in the United States, the SEC may seek the imposition of a civil penalty of up to three times the profits made
or losses avoided from the trading. Insider traders must also disgorge any profits made, are often subjected to an injunction
against future violations and
may be barred from serving as officers or directors of public companies. Finally, under some circumstances, insider traders may be subjected to civil
liability in private lawsuits.
Insider traders may also be liable for improper transactions by any person to whom they have disclosed material nonpublic information regarding
the Company or to whom they have
made recommendations or expressed opinions on the basis of such information as to trading in Company securities.
The SEC has imposed large penalties even when the disclosing person did not profit from the trading.
The Company and its controlling persons (including the board of directors, as well as officers and other supervisory personnel) could also be held
vicariously responsible for the
insider trading violations of employees if they fail to adopt adequate policies and procedures to prevent insider trading. If the
Company fails to take the necessary steps to prevent illegal insider trading, it may be held to have “controlling
person” liability with civil penalties of up to
the greater of $1 million and three times the profit gained or loss avoided, as well as a criminal penalty of up to $25 million.
For all of the foregoing reasons, it is very important, both to you and the Company, that this Policy be adhered to and insider trading violations not
occur. You should be aware
that stock market surveillance techniques are becoming more sophisticated all the time, and the chance that U.S. federal
authorities or the Israeli Securities Authority will detect and prosecute even small-level insider trading is a significant
one. Even an investigation that does
not result in prosecution can tarnish one’s reputation and damage a career. In short, the risk of insider trading is simply not worth taking.
- 9 -
EXHIBIT A
ALLOT LTD.
INSIDER TRADING POLICY CERTIFICATION
To: Allot Ltd.
I, (name), have received and read a copy of the Allot Ltd. (the “Company”) Insider
Trading Policy dated [ ] (the “Policy”).
I hereby agree to strictly comply with the specific requirements of the Policy (as well as any amendments to the
Policy brought to my attention) in all
respects during my employment or other service relationship with the Company. I understand that my failure to comply in all respects with the Policy, as so
amended, is a basis for termination for cause of my
employment or other service relationship with the Company or its subsidiaries.
By:
Name:
Title:
Date:
Please certify your receipt of the attached insider trading policy by dating and signing this certification and returning it to Rael Kolevsohn at the
Company’s corporate office
or e-mail to rkolevsohn@allot.com.
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EXHIBIT 12.1
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
I, Eyal Harari, certify that:
1.
I have reviewed this annual report on Form 20-F of Allot Ltd. (the “company”);
2.
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;
3.
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;
4.
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)
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;
(b)
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;
(c)
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
(d)
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)
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
(b)
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.
/s/ Eyal Harari
Eyal Harari
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 26, 2025
Exhibit 12.2
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
I, Liat Nahum, certify that:
1.
I have reviewed this annual report on Form 20-F of Allot Ltd. (the “company”);
2.
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;
3.
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;
4.
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)
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;
(b)
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;
(c)
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
(d)
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)
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
(b)
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.
/s/ Liat Nahum
Liat Nahum
Chief Financial Officer (Principal
Financial Officer)
Date: March 26, 2025
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, 2023, 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.
/s/ Eyal Harari
Eyal Harari
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 26, 2025
/s/ Liat Nahum
Liat Nahum
Chief Financial Officer (Principal
Financial Officer)
Date: March 26, 2025
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.
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form F-3 No. 333-264202) of Allot Ltd., and
(2) Registration Statements (Form S-8 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, 333-230391, 333-237405, 333-254298, 333-263767, 333-270903, 333-278607 and 333-
285268) pertaining to the 2016 Incentive Compensation Plan (formerly the 2006 Incentive Compensation Plan) of Allot Ltd.;
of our reports dated March 27, 2025, with respect to the consolidated financial statements of Allot Ltd., and the effectiveness of
internal control over
financial reporting of Allot Ltd., included in this Annual Report (Form 20-F) of Allot Ltd. for the year ended December 31, 2024.
Tel-Aviv, Israel
/s/ Kost Forer Gabbay & Kasierer
March 27, 2025
A Member of EY Global