UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20–F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(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, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to _______________
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 _____________
Commission file number 000-31215
MIND C.T.I. LTD.
(Exact name of Registrant as specified in its charter
and translation of Registrant’s name into English)
ISRAEL
(Jurisdiction of incorporation or organization)
2 HaCarmel Street, Yoqneam, 2066724, Israel
(Address of principal executive offices)
Ran Mendelaw
c/o MIND C.T.I. Ltd.
2 HaCarmel Street
Yoqneam, 2066724, Israel
Tel: +972-4-9936666
investor@mindcti.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Ordinary Shares, nominal value
NIS 0.01 per share
Trading Symbol(s)
MNDO
Name of each exchange on which
registered
Nasdaq Global Market
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close
of the period covered by the annual report.
As of December 31, 2021, the Registrant had outstanding 20,057,326 Ordinary Shares, nominal value NIS 0.01 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
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 on its corporate Web site, if any, 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 and 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. ☐
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
Unless the context requires otherwise, “MIND”, “us”, “we”, “our company”, “the company”, “the Company” and
“our” refer to MIND C.T.I. Ltd. and its subsidiaries.
FORWARD LOOKING STATEMENTS AND SUMMARY RISK FACTORS
Statements in this Annual Report concerning our business outlook or future economic performance;
anticipated revenues, expenses or other financial items; introductions and advancements in development of products,
and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any
future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined
under the United States Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and
other factors, which could cause actual results to differ materially from those stated in such statements. Factors that
could cause or contribute to such differences include, but are not limited to, those set forth under “Risk Factors” in
this Annual Report as well as those discussed elsewhere in this Annual Report and in our other filings with the
Securities and Exchange Commission. The following is a summary of some of the principal risks we face:
We may be unable to compete effectively in the marketplace;
We may fail to attract and retain qualified personnel;
Our backlog, revenues and operating results may vary significantly from quarter to quarter;
Our acquisition strategy could divert resources and disrupt our business;
We may not be successful in integrating acquisitions;
We may not adequately enhance our products and services and introduce new products and features to retain
our customers and attract new ones;
Our products could be affected by cyber security breaches;
Our products may fail to comply with or to enable our customers and channel partners to comply with
applicable privacy and other laws and regulations;
We may be unable to manage our international operations effectively;
Our Israeli tax benefits may be discontinued or reduced;
Our business may be negatively affected by exchange rate fluctuations;
We may lose the services of key personnel;
We may become subject to claims of intellectual property infringement;
Our use of “open source” software tools may be subject to IP infringement claims or subject our derivative
works or products to unintended consequences;
We are subject to ongoing costs and risks associated with being a public company, including potential
lawsuits;
System disruptions and failures may result in customer dissatisfaction and customer loss;
The market segment of small to medium size communication service providers may fails to grow;
We may lose existing customers or the use of our products may decline;
Our billing software and the systems into which it is integrated may contain undetected errors;
We may be unable to attract new messaging customers in a cost-effective manner;
We may be unable to increase adoption of our messaging products by enterprises;
We rely on network service providers for our messaging services;
We may have to lower our prices for messaging products;
We may have defects or errors in our messaging products;
We face a risk of litigation resulting from customer misuse of our messaging software to send unauthorized
messages;
System disruptions and failures may result in customer dissatisfaction and customer loss;
Changes to regulations or technology vendor rules may prevent us from using some services;
Our articles of association may be amended to include forum selection clauses for certain claims brought
under the U.S. securities laws or under Israeli law.
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 the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
We believe that the occurrence of any one or some combination of the following factors would have a
material adverse effect on our business, financial condition and results of operations.
1
Risks Relating to our Business and Industry
If we are unable to compete effectively in the marketplace, we may suffer a decrease in market share,
revenues and profitability.
All the markets we operate in are significantly fragmented and highly competitive. The principal
competitive factors in our market include completeness of offering, global reach, ease of integration, product
features, platform scalability, reliability, security and performance, brand awareness and reputation, the strength of
sales and marketing efforts, customer support, as well as the cost of deploying and using our products.
Some of our competitors are larger and have greater name recognition, longer operating histories, more
established customer relationships, larger budgets and significantly greater resources than we do. In addition, they
have the operating flexibility to bundle competing products and services at little or no perceived incremental cost,
including offering them at a lower price as part of a larger sales transaction. As a result, our competitors may be able
to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or
customer requirements. In addition, some competitors may offer products or services that address one or a limited
number of functions at lower prices, with greater depth than our products or in different geographies. Our current
and potential competitors may develop and market new products and services with comparable functionality to our
products, and this could lead to us having to decrease prices in order to remain competitive.
With the introduction of new products and technologies and new market entrants, we expect competition to
intensify in the future. Some of our competitors have lower list prices than ours, which may be attractive to certain
customers even if those products have different or lesser functionality. Pricing pressures and increased competition
could result in reduced revenue, reduced margins, increased losses, any of which could harm our business, results of
operations and financial condition.
If we fail to attract and retain qualified personnel, we will not be able to implement our business strategy or
operate our business effectively.
Our products require sophisticated software development, sales, professional services and technical
customer support. Our success depends on our ability to attract, train, motivate and especially retain highly skilled
personnel within each of these areas of expertise. Qualified personnel in these areas are in great demand worldwide
and are likely to remain a limited resource. We cannot assure you that we will be able to retain the skilled employees
we require. In addition, the resources required to retain such personnel may adversely affect our operating margins.
The failure to retain qualified personnel may harm our business. In particular, we maintain a large engineering and
support center in Iasi, Romania and have encountered many successful attempts from other technology companies to
recruit our employees after we have trained them. If this phenomenon continues and increases, we may not be able
to retain the highly skilled personnel we require to implement our business strategy and operate our business
effectively. If we significantly raise the salaries of our Romanian employees, our results of operations will be
harmed.
2
Our backlog, revenues and operating results may vary significantly from quarter to quarter.
Our results of operations, including the levels of our revenues, cost of revenues, gross margins and
operating expenses, have fluctuated from quarter to quarter in the past and may continue to vary significantly in the
future. These fluctuations are a result of a variety of factors, many of which are outside of our control, may be
difficult to predict and may or may not fully reflect the underlying performance of our business. Our operating
results may vary significantly from quarter to quarter due to a number of factors, including the following:
● our ability to retain and increase revenue from existing customers and attract new customers;
● our ability to introduce new products and enhance existing products;
●
●
competition and the actions of our competitors, including pricing changes and the introduction of new
products, services and geographies;
changes in network service provider fees that we pay in connection with the delivery of
communication services on our messaging platforms;
●
changes in foreign currency exchange rates;
●
expenses in connection with mergers, acquisitions or other strategic transactions;
● potential termination of contracts by our customers; and
●
changes in our pricing policies.
Due to all of the foregoing, we cannot predict revenues for any future quarter with any significant degree of
accuracy. Accordingly, we believe that period-to-period comparisons of our operating results are not necessarily
meaningful, and you should not rely upon them as indications of future performance. Accordingly, in the event of a
revenue shortfall, we may not be able to mitigate the negative impact on our income (loss) and margins in the short
term. If we fail to meet or exceed the expectations of investors, we could face costly lawsuits, including securities
class action suits.
In future quarters, our operating results may be below the expectations of public market analysts and
investors, and as a result, the price of our ordinary shares may fall.
We seek to expand our business through acquisitions, which could result in diversion of resources and extra
expenses and which may involve other risks that could disrupt our business and harm our financial condition.
It is part of our strategy to pursue acquisitions of business, products and technologies, or the establishment
of joint venture arrangements in order to offer new products or services or otherwise enhance our market position or
strategic strengths, and we are actively evaluating potential acquisition opportunities. The negotiation of potential
acquisitions or joint ventures, as well as the integration of an acquired or jointly developed business, technology or
product, could cause diversion of management’s attention from the day-to-day operation of our business. This could
impair our relationships with our employees, customers, distributors, resellers and marketing allies. Future
acquisitions could result in:
● potentially dilutive issuances of equity securities;
●
the incurrence of debt and contingent liabilities;
●
amortization of intangible assets;
●
changes in our business model and margins;
●
research and development write-offs; and
● other acquisition-related expenses.
In addition, we have limited experience with respect to negotiating an acquisition and operating an acquired
business. Due to the multiple risks and difficulties associated with any acquisition, there can be no assurance that we
will be successful in achieving our expected strategic, operating and financial goals for any such acquisition. If
future acquisitions disrupt our operations, our business may suffer.
3
We may not be successful in the integration of our acquisitions.
We cannot assure you that we have identified, or will be able to identify, all material adverse issues related
to the integration of our acquisitions, such as significant defects in the internal control policies of companies that we
have acquired. In addition, our acquisitions could lead to difficulties in integrating acquired personnel and
operations and in retaining and motivating key personnel from these businesses, while maintaining our corporate
culture. In some instances, we may need to depend on the seller of an acquired business to provide us with certain
transition services in order to meet the needs of our customers. Any failure to properly integrate and retain
personnel, to recognize significant defects in the internal control policies of acquired companies or to scale and
adapt our internal control policies and our reporting systems and procedures, and any interruptions of transition
services, may require a significant amount of time and resources to address and may harm our company.
If we do not continually enhance our products and service offerings, introduce new products and features and
adopt and monetize new technologies and methodologies in the marketplace, we may have difficulty retaining
existing customers and attracting new customers.
We believe that our future success will depend, to a significant extent, upon our ability to enhance our
existing products and services, to introduce new products, services and features to meet the requirements of our
customers, and to adopt and leverage new technologies and methodologies such as cloud, microservices-based
architecture in a rapidly developing and evolving market. We devote significant resources to refining and expanding
our base software modules and to developing our products, services and development methodologies and tools. In
some instances, we rely on cooperative relationships with third parties to assist us in delivering certain products and
services to our customers. Our present or future products, services and technology may not satisfy the evolving
needs of the communications industry or of other industries that we serve. If we are unable to anticipate or respond
adequately to such needs, due to resource, technological or other constraints, our business and results of operations
could be harmed.
If our security measures for our software, hardware, services or cloud offerings are compromised and as a
result, our data, our customers’ data or our IT systems are accessed improperly, made unavailable, or
improperly modified, our products and services may be perceived as vulnerable, which may materially affect
our business and result in potential legal liability.
Our products and services, including our cloud offerings, store, retrieve, and manage our customers’
information and data, as well as our own data. We have a reputation for secure and reliable product offerings and
related services, and we have invested a great deal of time and resources in protecting the integrity and security of
our products, services and the internal and external data that we manage. Despite our efforts to implement network
security measures, we cannot guarantee that our systems are fully protected from vulnerabilities related to IT-
related viruses, worms and other malicious software programs, attacks, break-ins and similar disruptions from
unauthorized tampering by computer hackers and others. Such cybersecurity incident could include an attempt to
gain unauthorized access to digital systems for purposes of misappropriating assets or sensitive information,
corrupting data, or causing operational disruption. Security measures in our products and services may be penetrated
or bypassed by computer hackers and others who may gain unauthorized access to our or our customers’ or partners’
software, hardware, cloud offerings, networks, data or systems. They may use a wide variety of methods, which may
include developing and deploying malicious software to attack our products third-party data, products or services
incorporated into our own. Data may also be accessed or modified improperly as a result of customer, partner or
employee error or malfeasance and third parties may attempt to fraudulently induce customers, partners, employees
or suppliers into disclosing sensitive information such as usernames, passwords or other information in order to gain
access to our data or IT systems or our customers’ or partners’ data or IT systems. Any of the foregoing occurrences
could create system disruptions and cause shutdowns or denials of service or compromise data, including personal or
confidential information, of us, our partners or our customers.
4
If a cyber attack or other security incident (for example phishing, advanced persistent threats, or social
engineering) were to result in unauthorized access to, or deletion of, and/or modification and/or exfiltration of our
customers’ data, other external data or our own data or our IT systems or if the services we provide to our customers
were disrupted, customers could lose confidence in the security and reliability of our products and services,
including our cloud offerings, and perceive them not to be secure. This in turn could lead to fewer customers using
our products and services and result in reduced revenue and earnings. The costs we would incur to address and fix
these security incidents would increase our expenses. These risks will increase as we continue to grow our cloud and
network offerings and store and process increasingly large amounts of data, including personal information and our
customers’ confidential information and data and other external data, and host or manage parts of our customers’
businesses in cloud-based IT environments.
Any of the events described above could cause our customers to make claims against us for damages
allegedly resulting from a security breach or service disruption, which could adversely affect our business, results of
operation and financial condition.
Our products and platform and our business are subject to a variety of European and international laws and
regulations, including those regarding privacy, data protection and information security, and our customers
may be subject to regulations related to the handling and transfer of certain types of sensitive and
confidential information. Any failure of our products to comply with or enable our customers and channel
partners to comply with applicable laws and regulations would harm our business, results of operations and
financial condition.
We and our customers that use our products may be subject to privacy and data protection-related laws and
regulations that impose obligations in connection with the collection, processing and use of personal data, financial
data, health or other similar data. The U.S. federal and various state and foreign governments have adopted or
proposed limitations on, or requirements regarding, the collection, distribution, use, security and storage of
personally identifiable information of individuals. The U.S. Federal Trade Commission and numerous state
attorneys general are applying federal and state consumer protection laws to impose standards on the online
collection, use and dissemination of data, and to the security measures applied to such data.
Similarly, many foreign countries and governmental bodies, including the European Union, or the EU,
member states, have laws and regulations concerning the collection and use of personally identifiable information
obtained from individuals located in the EU or by businesses operating within their jurisdiction, which are often
more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the
collection, use, storage, disclosure and security of personally identifiable information that identifies or may be used
to identify an individual, such as names, telephone numbers, email addresses and, in some jurisdictions, IP addresses
and other online identifiers.
5
For example, the General Data Protection Regulation, or GDPR, took effect in the European Union on May
25, 2018. The GDPR enhances data protection obligations for businesses and requires service providers (data
processors) processing personal data on behalf of customers to cooperate with European data protection authorities,
implement security measures and keep records of personal data processing activities. Noncompliance with the
GDPR can trigger fines equal to or greater of €20 million or 4% of global annual revenues. There are also additional
EU laws and regulations (and member states implementations thereof) which govern the protection of consumers
and of electronic communications. If our efforts to comply with GDPR or other applicable EU laws and regulations
are not successful, we may be subject to penalties and fines that would adversely impact our business and results of
operations, and our ability to conduct business in the EU could be significantly impaired.
As well, we continue to see jurisdictions imposing data localization laws, which require personal
information, or certain subcategories of personal information to be stored in the jurisdiction of origin. These
regulations may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in
those markets without significant additional costs.
The uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of
compliance, delay or reduce demand for our services, restrict our ability to offer services in certain locations, impact
our customers’ ability to deploy our solutions in certain jurisdictions, or subject us to sanctions, by national data
protection regulators, all of which could harm our business, financial condition and results of operations.
Additionally, although we endeavor to have our products and platform comply with applicable laws and
regulations, these and other obligations may be modified, they may be interpreted and applied in an inconsistent
manner from one jurisdiction to another, and they may conflict with one another, other regulatory requirements,
contractual commitments or our internal practices.
We also may be bound by contractual obligations relating to our collection, use and disclosure of personal,
financial and other data or may find it necessary or desirable to join industry or other self-regulatory bodies or other
privacy or data protection-related organizations that require compliance with their rules pertaining to privacy and
data protection.
We expect that there will continue to be new proposed laws, rules of self-regulatory bodies, regulations and
industry standards concerning privacy, data protection and information security in the United States, the European
Union and other jurisdictions, and we cannot yet determine the impact such future laws, rules, regulations and
standards may have on our business. Moreover, existing U.S. federal and various state and foreign privacy and data
protection-related laws and regulations are evolving and subject to potentially differing interpretations, and various
legislative and regulatory bodies may expand current or enact new laws and regulations regarding privacy and data
protection-related matters. Because global laws, regulations and industry standards concerning privacy and data
security have continued to develop and evolve rapidly, it is possible that we or our products or platform may not be,
or may not have been, compliant with each such applicable law, regulation and industry standard and compliance
with such new laws or to changes to existing laws may impact our business and practices, require us to expend
significant resources to adapt to these changes, or to stop offering our products in certain countries. These
developments could adversely affect our business, results of operations and financial condition.
6
Any failure or perceived failure by us, our products or our platform to comply with new or existing U.S.,
EU or other foreign privacy or data security laws, regulations, policies, industry standards or legal obligations, or
any security incident that results in the unauthorized access to, or acquisition, release or transfer of, personally
identifiable information or other customer data may result in governmental investigations, inquiries, enforcement
actions and prosecutions, private litigation, fines and penalties, adverse publicity or potential loss of business.
Because our revenues are generated in numerous countries, our results of operations could suffer if we are
unable to manage international operations effectively.
Our sales are made in many countries, with different legislation and complex taxation rules and in many
states in the United States. Managing our existing international operations and additional international markets
requires significant management attention and financial resources. Our ability to penetrate some international
markets may be limited due to different technical standards, protocols and requirements for our products in different
markets. In addition, conducting our business internationally subjects us to a number of risks, including:
●
the burden of compliance with a wide variety of foreign laws and regulations;
●
staffing and managing foreign operations; and
●
adverse effects of political and economic instability.
We currently benefit from Israeli tax benefits that may be discontinued or reduced.
We have derived benefits from various programs, including Israeli tax benefits relating to our “Approved
and Preferred Enterprise” programs, and starting in 2017, we have derived benefits relating to the “Preferred
Technological Enterprise” program under the Israel Law for the Encouragement of Capital Investment, 1959.
To be eligible for tax benefits as a “Preferred Technological Enterprise,” we must continue to meet certain
conditions. Should it be determined that our Preferred Technological Enterprise programs have not met, or do not
meet, the statutory conditions, our income taxes will increase.
Additional tax liabilities could materially adversely affect our results of operations and financial condition.
As a global corporation, we are subject to income and other taxes both in Israel and in various foreign
jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in
different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income
taxes paid or accrued is subject to our interpretation of applicable laws in the jurisdictions in which we do business.
From time to time, we are subject to income and other tax audits in various jurisdictions, the timings of which are
unpredictable. While we believe we comply with applicable tax laws, there can be no assurance that a governing tax
authority will not have a different interpretation of the law and assess us with additional taxes. Should we be
assessed additional taxes, there could be a material adverse effect on our results of operations and financial
condition.
7
Our business may be negatively affected by exchange rate fluctuations.
Approximately 55% of our revenues are denominated in Euro, and approximately 40% in U.S. dollars, or
dollar. Approximately 20% of our expenses are incurred in New Israeli Shekel, or NIS, and approximately 73% in
Euro or linked to the Euro. At the same time, the majority of our cash reserves and investments are denominated in
dollars, and our financial statements are demonimated in dollars. As a result, we may be negatively affected by
fluctuations in the exchange rates between the Euro or the NIS and the dollar. We cannot predict any future trends in
the rate of devaluation or appreciation of the NIS or of the Euro against the dollar. If the dollar cost of our operations
in Israel increases, our dollar-measured results of operations will be adversely affected. We may choose to limit
these exposures by entering into hedging transactions. However, hedging transactions may not enable us to avoid
exchange-related losses, and our business may be harmed by exchange rate fluctuations.
We depend on a limited number of key personnel who would be difficult to replace. If we lose the services of
these individuals, our business may be harmed.
The success of our business depends in large part upon the continuing contributions of our senior
management, specifically on the managerial and technical skills of our founder, President and Chief Executive
Officer, Ms. Monica Iancu, and other members of our senior management. If either Ms. Iancu or other members of
the senior management team are unable or unwilling to continue their employment with us, our business may be
harmed.
If we become subject to a claim of intellectual property infringement, our business may be materially
adversely affected.
If anyone asserts a claim against us relating to proprietary technology or information, we might seek to
license the claimant’s intellectual property or to develop non-infringing technology. We might not be able to obtain
a license on commercially reasonable terms or on any terms. Alternatively, our efforts to develop non-infringing
technology could be unsuccessful. Our failure to obtain the necessary licenses or other right or to develop non-
infringing technology could prevent us from selling our software and could therefore seriously harm our business.
We use certain “open source” software tools that may be subject to intellectual property infringement claims
or that may subject our derivative works or products to unintended consequences, possibly impairing our
product development plans, interfering with our ability to support our clients or requiring us to allow access
to the source code of our products or necessitating that we pay licensing fees.
Certain of our products contain open source code and we may use more open source code in the future. In
addition, certain third-party software that we embed in our products contains open source code. Open source code is
code that is covered by a license agreement that permits the user to liberally use, 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.
8
As a result of the use of open source software, we could be subject to suits by parties claiming ownership of
what they believe to be their proprietary code or we may incur expenses in defending claims alleging non-
compliance with certain open source code license terms. In addition, third-party licensors do not provide intellectual
property protection with respect to the open source components of their products, and we may be unable to be
indemnified by such third-party licensors in the event that we or our customers are held liable in respect of the open
source software contained in such third-party software. If we are not successful in defending against any such claims
that may arise, we may be subject to injunctions and/or 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.
Moreover, 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. The circumstances under which our use of open
source code would compel us to offer derivative code at no cost are subject to varying interpretations. 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 may be available to others without charge.
If this happens, our customers and our competitors may have access to our products without cost to them, which
could harm our business. Certain open source licenses require as a condition to use, modification or distribution of
such open source that proprietary software incorporated into, derived from or distributed with such open source be
disclosed or distributed in source code form, be licensed for the purpose of making derivative works or be
redistributable at no charge. The foregoing may under certain conditions be interpreted to apply to our software,
depending upon the use of the open source and the interpretation of the applicable open source licenses.
We monitor our use of open source code to avoid subjecting our products to conditions we do not intend.
The use of open source code, however, 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.
We are subject to ongoing costs and risks associated with being a public company, including potential
lawsuits.
As an Israeli company subject to U.S. federal securities laws, we spend a significant amount of
management time and resources to comply with laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, Securities and Exchange Commission, or SEC,
regulations, Nasdaq listing rules and the Israeli Companies Law, 1999, or the Companies Law, or the Israeli
Companies Law”. In connection with our compliance with Section 404 and the other applicable provisions of the
Sarbanes-Oxley Act of 2002, our management and other personnel devote a substantial amount of time to assure that
we continue to comply with these requirements. There is no guarantee that these efforts will result in management
assurance that our internal control over financial reporting is adequate in future periods. If our internal controls are
found to be ineffective in future periods, it could harm our operations, financial reporting or financial results.
Since we are a public company in the United States, the cost of our directors’ and officers’ liability
insurance has significantly increased over recent years, as a result of which we have decided not to renew such
insurance. Instead, our directors and officers rely on indemnification agreements provided by us. Accordingly, any
lawsuits against our directors and officers could result in expensive legal expenses, settlements and judgments that
we would be required to bear, which would harm our financial condition.
9
Risks Relating to our Billing and Related Services Business
System disruptions and failures may result in customer dissatisfaction, customer loss or both, which could
materially and adversely affect our reputation and business.
Our billing systems are an integral part of our customers’ business operations. The continued and
uninterrupted performance of these systems for our customers is critical to our success. Customers may become
dissatisfied by any system failure that interrupts our ability to provide services to them.
Our ability to serve our customers depends on our ability to protect our systems and infrastructure against
damages and unexpected adverse events. We also depend on various cloud providers and co-location datacenter
providers which provide us environments, tools and applications on which we provide our products. Although we
maintain insurance that we believe is appropriate for our business and industry, such coverage may not be sufficient
to compensate for any significant losses that may occur as a result of any of these events. In addition, we have
experienced systems outages and service interruptions in the past, none of which has had a material adverse effect
on us. However, a prolonged system-wide outage or frequent outages could cause harm to our customers and to our
reputation and reduce the attractiveness of our services significantly, which could result in decreased demand for our
products and services and could cause our customers to make claims against us for damages allegedly resulting from
an outage or interruption. Any damage or failure that interrupts or delays our operations could result in material
harm to our business and expose us to material liabilities.
The customer base for our billing and customer care products is characterized by small to medium size
communication service providers, or CSPs. If this market segment fails to grow, the demand for our billing
and customer care software would diminish substantially.
Our billing and customer care products target small to medium size carriers. Our growth in this field
depends on continued growth of carriers of this size. We cannot be certain that carriers of this size will be able to
successfully compete with large CSPs. If this market segment fails to grow, the demand for our billing and customer
care software would diminish substantially and our business would suffer. In addition, there may never be
significant demand for new billing and customer care software by providers of telecom services.
If we experience loss of one or more existing billing customers, we may suffer a decrease in revenues,
reputation and profitability.
A significant part of our revenues is derived from our existing customer base, maintenance agreements,
customizations and additional professional services. Small service providers may be acquired by larger carriers and
replace our solutions with the buyer’s existing billing platform, cease operations due to lack of funding, or terminate
their relationship with us due to their financial condition, loss of market share and competitive pricing, as occurred
with customers of ours over the years. If one or more customers cease using our solutions or services due to
replacements or any other reason, our business and results of operations would suffer.
10
From time to time, our billing software and the systems into which it is integrated contain undetected errors.
This may cause us to experience a significant decrease in market acceptance and use of our software products
and we may be subject to warranty and other liability claims.
From time to time, our billing software, as well as the systems into which it is integrated, contains
undetected errors. Because of this integration, it can be difficult to determine the source of the errors. Also, from
time to time, hardware systems we resell contain certain defects or errors. As a result, and regardless of the source of
the errors, we could experience one or more of the following adverse results:
● diversion of our resources and the attention of our personnel from our research and development
efforts to address these errors;
● negative publicity and injury to our reputation that may result in loss of existing or future customers;
and
●
loss of or delay in revenue and loss of market share.
In addition, we may be subject to claims based on errors in our software or mistakes in performing our
services. Our licenses and agreements generally contain provisions such as disclaimers of warranties and limitations
on liability for special, consequential and incidental damages, designed to limit our exposure to potential claims.
However, not all of our contracts contain these provisions and we cannot assure you that the provisions that exist
will be enforceable. In addition, while we maintain product liability and professional indemnity insurance, we
cannot assure you that this insurance will provide sufficient, or any, coverage for these claims. A product liability or
professional indemnity claim, whether or not successful, could adversely affect our business by damaging our
reputation, increasing our costs, and diverting the attention of our management team.
Risks Relating to our Messaging Business
Our messaging business depends on customers increasing their use of our messaging products, and any loss of
customers or decline in their use of our products could materially and adversely affect our business, results of
operations and financial condition.
Our ability to grow our mobile messaging business and generate incremental revenue depends, in part, on
our ability to maintain and grow our relationships with existing messaging customers and to have them increase their
usage of our messaging platform. If our customers do not increase their use of our messaging products, then our
revenue may decline and our results of operations may be harmed. Messaging customers are charged based on the
usage of our products. Most of these customers do not have long-term contractual financial commitments to us and,
therefore, they may reduce or cease their use of our products at any time without penalty or termination charges.
Messaging customers may terminate or reduce their use of our products for any number of reasons, including if they
are not satisfied with our products, the value proposition of our products or our ability to meet their needs and
expectations. We cannot accurately predict customers’ usage levels, and the loss of customers or reductions in their
usage levels of our products may each have a negative impact on our business, results of operations and financial
condition. If a significant number of messaging customers cease using, or reduce their usage of our products, it
could harm our operations, financial reporting or financial results.
11
If we are unable to attract new messaging customers in a cost-effective manner, then our business, results of
operations and financial condition would be adversely affected.
In order to grow our messaging business, we must continue to attract new customers in a cost-effective
manner. We use a variety of marketing channels to promote our messaging products and platform, such as regional
customer events and telemarketing campaigns. We will incur marketing expenses before we are able to recognize
any revenue that the marketing initiatives may generate, and these expenses may not result in increased revenue or
brand awareness. We may make significant expenditures and investments in new marketing campaigns, and we
cannot guarantee that any such investments will lead to the cost-effective acquisition of additional customers. If we
are unable to maintain effective marketing programs, then our ability to attract new customers could be materially
and adversely affected, our marketing expenses could increase substantially and our results of operations may suffer.
If we are unable to increase adoption of our messaging products by enterprises, our business, results of
operations and financial condition may be adversely affected.
Our ability to increase the customer base of our messaging business, especially among enterprises, and
achieve broader market acceptance of our messaging products will depend, in part, on our ability to effectively
organize, focus and train our sales and marketing personnel.
As we seek to increase the adoption of our messaging products by enterprises, we expect to incur higher
costs and longer sales cycles. In the enterprise market segment, the decision to adopt our products may require the
approval of multiple technical and business decision makers, including security, compliance, procurement,
operations and IT. In addition, while enterprise customers may quickly deploy our products on a limited basis before
they will commit to deploying our products at scale, they often require extensive education about our products and
significant customer support time, engage in protracted pricing negotiations and seek to secure readily available
development resources. In addition, sales cycles for enterprises are inherently more complex and less predictable,
and some enterprise customers may not use our products enough to generate revenue amounts that justify our cost to
acquire such customers. In addition, these complex and resource intensive sales efforts could place additional strain
on our product and engineering resources. Further, enterprises, including some of our customers, may choose to
develop their own messaging solutions that do not include our products. They also may demand reductions in
pricing as their usage of our products increases, which could have an adverse impact on our gross margin. As a
result of our limited experience selling and marketing messaging products to enterprises, our efforts to sell to these
potential customers may not be successful. If we are unable to increase the messaging revenue that we derive from
enterprises, then our business, results of operations and financial condition may be adversely affected.
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To deliver our messaging products, we rely on network service providers for our messaging services.
We currently interconnect with network service providers around the world to enable the use by our
customers of our messaging products over their networks. We expect that we will continue to rely heavily on
network service providers for these services going forward. Our reliance on network service providers has reduced
our operating flexibility, ability to make timely service changes and control quality of service. In addition, the fees
that we are charged by network service providers may change daily or weekly, while we do not typically change our
customers’ pricing as rapidly.
Furthermore, many of these network service providers do not have long-term committed contracts with us
and may terminate their agreements with us without notice or restriction. If a significant portion of our network
service providers stop providing us with access to their infrastructure, fail to provide these services to us on a cost-
effective basis, cease operations or otherwise terminate these services, the delay caused by qualifying and switching
to other network service providers could be time consuming and costly and could adversely affect our business,
results of operations and financial condition. Further, if problems occur with our network service providers, it may
cause errors or poor-quality communications with our products, and we could encounter difficulty identifying the
source of the problem. The occurrence of errors or poor quality communications on our messaging products,
whether caused by our platform or a network service provider, may result in the loss of our existing customers or the
delay of adoption of our products by potential customers and may adversely affect our business, results of operations
and financial condition.
We may have to lower our prices for messaging products or change our pricing model from time to time.
We charge our customers based on their use of our messaging products. We expect that we may need to
change our pricing from time to time. In the past we have sometimes reduced our prices either for individual
customers in connection with long-term agreements or for a particular product. One of the challenges to our pricing
is that the fees that we pay to network service providers over whose networks we transmit communications can vary
daily or weekly and are affected by volume and other factors that may be outside of our control and difficult to
predict. This can result in us incurring increased costs that we may be unable or unwilling to pass through to our
customers, which could adversely impact our business, results of operations and financial condition.
Further, as competitors introduce new messaging products or services that compete with ours or reduce
their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing.
As we expand internationally, we also must determine the appropriate price to enable us to compete effectively
internationally. Moreover, enterprises, which are a primary focus for our direct sales efforts for our messaging
products, may demand substantial price concessions. In addition, if the mix of products sold changes, including for a
shift to IP-based products, then we may need to, or choose to, revise our pricing. As a result, in the future we may be
required or choose to reduce our prices or change our pricing model, which could adversely affect our business,
results of operations and financial condition.
Defects or errors in our messaging products could diminish demand for these products, harm our business
and results of operations and subject us to liability.
Our customers use our messaging products for important aspects of their businesses, and any errors, defects
or disruptions to our products and any other performance problems with our products could damage our customers’
businesses and, in turn, hurt our brand and reputation. We provide regular updates to our messaging products, which
may contain undetected errors, failures, vulnerabilities and bugs when first introduced or released. Real or perceived
errors, failures or bugs in our products could result in negative publicity, loss of or delay in market acceptance of our
messaging platform, loss of competitive position, lower customer retention or claims by customers for losses
sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to
expend additional resources in order to help correct the problem. In addition, we may not carry insurance sufficient
to compensate us for any losses that may result from claims arising from defects or disruptions in our products. As a
result, our reputation and our brand could be harmed, and our business, results of operations and financial condition
may be adversely affected.
13
We face a risk of litigation resulting from customer misuse of our messaging software to send unauthorized
messages in violation of applicable laws.
The actual or perceived improper sending of messages with our messaging software may subject us to
potential risks, including liabilities or claims relating to consumer protection laws. For example, the U.S. Telephone
Consumer Protection Act of 1991 restricts telemarketing and the use of automatic SMS text messages without
proper consent. The scope and interpretation of the laws that are or may be applicable to the delivery of messages
are continually evolving and developing. If we do not comply with these laws or regulations or if we become liable
under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper
consent, we could face direct liability.
In addition, if our customers’ use of our messaging products will not adhere to privacy regulations and
messaging rules, they and us may be blocked from sending more messages through specific channels and may be
fined for such conduct. Our failure to prevent such infringements could have a material adverse effect on our
business.
System disruptions and failures may result in customer dissatisfaction, customer loss or both, which could
materially and adversely affect our reputation and business.
We provide real time messaging services to our customers. The continued and uninterrupted performance
of these services for our customers is critical to our success. Customers may become dissatisfied by any service
failure that interrupts their business, which could lead them to stop using our messaging services. This could
materially and adversely affect our reputation and business.
Changes to regulations or technology vendor rules could materially and adversely affect our business.
We use messaging technologies and products, such as SMS and WhatsApp, to deliver messages from our
customers to consumers. Changes in rules and regulations may prevent us from using some services, which may
block our ability to grow our services and have a material adverse effect on our business.
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Risks Relating to our Ordinary Shares
Our share price has fluctuated and could continue to fluctuate significantly.
The market for our ordinary shares, as well as the prices of shares of other technology companies, has been
volatile. The price of our ordinary shares has fluctuated significantly over the years.
We do not control these matters and any of them may adversely affect our share price. In addition, trading in
shares of companies listed on the Nasdaq Global Market in general and trading in shares of technology companies in
particular has been subjected to extreme price and volume fluctuations that have been unrelated or disproportionate
to operating performance. These broad market and industry factors may depress our share price, regardless of our
actual operating results. Given the likely volatility that exists for our ordinary shares, sales of a substantial number
of our ordinary shares could cause the market price of our ordinary shares to decline.
If we are characterized as a passive foreign investment company, our U.S. shareholders will be subject to
adverse tax consequences.
If, for any taxable year, either, (i) 75% or more of our gross income is passive income; or (ii) 50% or more
of our assets, averaged over the year and generally determined based upon value, including cash (even if held as
working capital), produce or are held to produce passive income, we may be characterized as a “passive foreign
investment company”, or PFIC for United States federal income tax purposes. For this determination, passive
income includes dividends, interest, royalties, rents, annuities and the excess of gain over losses from the disposition
of assets that produce passive income.
As a result of our cash position and the value of our assets, we may be deemed to be a PFIC for U.S.
federal income tax purposes.
If we are characterized as a PFIC, our shareholders who are residents of the United States will be subject to
adverse U.S. tax consequences. Our treatment as a PFIC could result in a reduction in the after-tax return to
shareholders resident in the United States and may cause a reduction in the value of our shares. If we were to be
treated as a PFIC, our shareholders will be required, absent certain elections, to pay an interest charge together with
tax calculated at the then prevailing highest tax rates on ordinary income on certain “excess distributions” including
any gain on the sale of Ordinary Shares. The consequences of holding shares in a PFIC are described below under
“Additional Information - United States Federal Income Tax Consequences - Passive Foreign Investment
Companies.” Prospective investors should consult with their own tax advisors with respect to the tax consequences
applicable to them of investing in our Ordinary Shares.
15
At our upcoming annual meeting of shareholders, we plan to propose an amendment to our articles of
association adding a forum selection clause providing that unless we consent to an alternative forum, the
federal district courts of the United States shall be the exclusive forum for the resolution of any claims arising
under the Securities Act of 1933, as amended, or the Securities Act, which may limit the ability of our
shareholders to initiate litigation against us or increase the cost thereof.
We plan to propose an amendment to our articles of association to provide that, unless we consent in
writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive
forum for the resolution of any claims arising under the Securities Act. Section 22 of the Securities Act creates
concurrent jurisdiction for federal and state courts over all such Securities Act actions, and accordingly, both state
and federal courts have jurisdiction to entertain such claims. While the proposed federal forum provision in our
amended and restated articles would not restrict the ability of our shareholders to bring claims under the Securities
Act, we recognize that it may limit shareholders’ ability to bring a claim in the judicial forum that they find
favorable and may increase certain litigation costs, which may discourage the filing of claims under the Securities
Act against the Company, its directors and officers. However, the enforceability of similar forum provisions
(including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising
under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings,
and there is uncertainty as to whether courts would enforce the exclusive forum provision that we propose to add to
our articles of association. If a court were to find the choice of forum provision contained in our articles of
association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving
such action in other jurisdictions, which could materially adversely affect our business, financial condition and
results of operations.
16
Risks Relating to Our Location in Israel
Potential political, economic and military conditions concerning Israel may harm our operating results.
Most of our senior management is located in Israel. Accordingly, our operating results are directly
influenced by economic, political and military conditions in and relating to Israel. Since the establishment of Israel
in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist
militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). In
addition, Iran has threatened to attack Israel and is believed to be developing nuclear weapons. Iran is also believed
to have a strong influence among parties hostile to Israel in areas that neighbor Israel, such as the Syrian
government, Hamas in Gaza and Hezbollah in Lebanon. Any armed conflicts or political instability in the region,
including an increase in the degree of violence between Israel and the Palestinians, could negatively affect business
conditions and harm our results of operations. Furthermore, several countries, companies and trade groups restrict
business with Israel and Israeli companies, and additional countries, companies and trade groups may restrict doing
business with Israel and Israeli companies for political reasons. These restrictive laws and policies may seriously
harm our operating results, financial condition or the expansion of our business. In addition, the situation in Israel
could adversely affect our operations if our customers and/or strategic allies believe that instability in the region
could affect our ability to fulfill our commitments.
It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities
laws claims in Israel.
We are incorporated in the State of Israel. Substantially most of our executive officers and directors are
nonresidents of the United States, and a substantial portion of our assets and the assets of these persons are located
outside the United States. Therefore, it may be difficult for a shareholder, or any other person or entity, to collect a
judgment obtained in the United States against us or any of these persons, or to effect service of process upon these
persons in the United States.
17
We have been informed by our legal counsel in Israel that it may be difficult to bring original actions in
Israel to enforce civil liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because
Israel is not the most appropriate forum to bring such a claim. In addition, 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 these matters.
Subject to specified time limitations and legal procedures, under the rules of private international law
currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil matter, including judgments
based upon the civil liability provisions of the U.S. securities laws and including a monetary or compensatory
judgment in a non-civil matter, provided that the following key conditions are met:
●
subject to limited exceptions, the judgment is final and non-appealable;
●
●
●
●
●
●
●
the judgment was given by a court competent under the laws of the state of the court and is otherwise
enforceable in such state;
the judgment was rendered by a court competent under the rules of private international law
applicable in Israel;
the laws of the state in which the judgment was given provide for the enforcement of judgments of
Israeli courts;
adequate service of process has been effected and the defendant has had a reasonable opportunity to
present his arguments and evidence;
the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of
the State of Israel;
the judgment was not obtained by fraud and does not conflict with any other valid judgment in the
same matter between the same parties; and
an action between the same parties in the same matter was not pending in any Israeli court at the time
the lawsuit was instituted in the U.S. court.
Provisions of Israeli law and our articles of association may delay, prevent or make difficult a change of
control and therefore may depress the price of our stock.
Some of the provisions of our articles of association and Israeli law could, together or separately:
● discourage potential acquisition proposals;
● delay or prevent a change in control; and
●
limit the price that investors might be willing to pay in the future for our ordinary shares.
18
In particular, our articles of association provide that our board of directors will be divided into three classes
that serve staggered three-year terms and authorize our board of directors to adopt protective measures to prevent or
delay a coercive takeover, including without limitation the adoption of a “Shareholder Rights Plan.” In addition,
Israeli corporate law regulates mergers and acquisitions of shares through tender offers, requires approvals for
transactions involving significant shareholders and regulates other matters that may be relevant to these types of
transactions. See Item 10.B “Memorandum and Articles of Associations - Mergers and Acquisitions under Israeli
Law.” Furthermore, Israeli tax law treats stock-for-stock acquisitions between an Israeli company and a foreign
company less favorably than does U.S. tax law. For example, Israeli tax law may subject a shareholder who
exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in
such stock-for stock swap.
At our upcoming annual meeting of shareholders, we plan to propose an amendment to our articles of
association adding a forum selection clause for substantially all disputes between us and our shareholders
under the Companies Law and the Securities Law, which could limit our shareholders’ ability to bring claims
and proceedings against us, our directors, officers and other employees.
We plan to propose an amendment to our articles of association to provide that the competent courts of Tel
Aviv, Israel are the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company,
(ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees
to the Company or to our shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the
Companies Law or the Israeli Securities Law, 1968, or the Securities Law. This proposed exclusive forum provision
is intended to apply to claims arising under Israeli law and would not apply to claims brought pursuant to the
Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction.
Such exclusive forum provision would not relieve us of our duties to comply with federal securities laws and the
rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these
laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a
judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may
discourage lawsuits against us, our directors, officers and employees.
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Item 4. Information on the Company
A. History and Development of the Company.
General
Our name is MIND C.T.I. Ltd. for both legal as well as commercial purposes. We were incorporated under
the laws of the State of Israel on April 6, 1995 as a company with limited liability, and we are subject to the Israeli
Companies Law and the regulations promulgated thereunder. Our principal executive offices are located at 2
HaCarmel Street, Yoqneam 2066724, Israel. Our telephone number is +972 4 993 6666. Our agent in the United
States is MIND Software, Inc. and its principal offices are located at 10306 Eaton Pl., Suite 300, Fairfax, VA 22030,
USA.
Principal Capital Expenditures
During 2019, 2020 and 2021, the aggregate cash amount of our capital expenditures was $52 thousand, $68
thousand, and $82 thousand, respectively. These expenditures were mainly for the purchase of equipment and
licenses for software tools to be used by our engineering teams. We currently have no material commitments for
capital expenditures.
B. Business Overview
Overview
We develop, manufacture, market and implement convergent billing and customer care software solutions
for communication service providers, including traditional wireline and wireless, voice over IP, or VoIP, broadband
IP network operators, wireless internet service providers, or WISPs, LTE operators, cable operators and mobile
virtual network operators, or MVNOs.
Our convergent billing and customer care solution supports multiple services, including voice, data and
content services as well as prepaid, postpaid and pay-in-advance payment models in a single platform. It includes a
powerful workflow engine to support the implementation of business processes, such as subscriber registration,
order management, trouble ticket and debt collection, providing a high level of customization to our customer
operation flows.
It also includes an integral point of sale (POS) solution that extends our offering to cover all dealer, store
and cashier management and sales cycle related activities. Our solution is built upon a multi-layered architecture
supporting real-time distributed processing, achieving high performance, scalability and high availability.
MINDBill can be installed on-premises or in a cloud environment.
As part of our offering, we provide professional services, primarily to our billing and customer care
customers, consisting of turnkey project delivery, customer support and maintenance services, integration,
customizations and project management. Our professional services also include enhanced support options, known as
managed services, which are performed from our offices. These managed services include performing day to day
billing operational tasks.
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In addition to our billing and customer care solutions, we offer unified communications analytics solutions
and call accounting systems, which we call PhonEX ONE. PhonEX ONE is used by organizations around the world
for call accounting, telecom expense management, traffic analysis and fraud detection. PhonEX ONE delivers a full-
management solution including real-time and historical data dashboards, providing in-depth analysis of every
session type specific to unified communications as well as traditional/VoIP PBXs, for monitoring and optimizing
telephony communication networks and unified communications platforms. The flexible and scalable architecture of
PhonEX ONE meets the needs of large enterprises, supporting an unlimited number of extensions, users and sites, it
provides full functionality through a web browser, based on Microsoft SQL database and the advanced ASP.NET
technology.
In addition, from 2019, following the acquisitions of Message Mobile and GTX, we offer enterprise
messaging services, wholesale messaging services and mobile payment services.
Our enterprise mobile messaging platform enables enterprises to easily communicate with clients and
partners via text / SMS, instant messaging or voice. The platform may be integrated with the customers’ CRM or
marketing automation platforms. The messaging services are used by businesses for direct communication with their
customers for several reasons, such as customer care, notifications, appointments, OTPs (one-time passwords) and
marketing.
Our wholesale mobile messaging business offers wholesale messaging services and messaging termination
services on our software platform. The software is designed to provide advanced routing functionality enabling us to
offer competitive wholesale and termination prices to other aggregators and service providers. The payment for the
wholesale and termination services is based on volume (number of messages) and is being calculated and paid every
month. In most cases, there are long-term contracts with other aggregators for the wholesale and termination
services, but the prices are being negotiated ad-hoc based on demand.
Our mobile payment services to businesses are offered over a proprietary software platform. These services
allow consumers (end users) to pay for their purchases via their mobile phone bill. The billing process is operated by
us and is activated by the consumers either via a mobile message transaction (SMS) or via an online process (online
billing).
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Our Market Opportunity
Billing and Customer Care Industry
Billing and customer care are critical to telecommunications service providers as they enable them to
manage customer relations, track and bill for usage, and launch, deploy and charge new services and bundles,
marketing programs and rate plans. The need for comprehensive billing solutions is driven by the market trend that
requires service providers to introduce new services, to be innovative in creating new product offerings and to
optimize business processes for maximum efficiency. We provide tier 2 and tier 3 service providers with flexible,
easy to deploy, truly convergent and scalable billing solutions.
From time to time, telecommunications service providers initiate searches for billing solutions to replace
existing ones in order to offer additional services, reduce costs and improve service. In addition, our existing
customers occasionally consider adding new modules that we developed to their existing platform, replacing other
vendors or migrating to a newer version with up-to-date technology and enhanced functionality.
Also, from time to time, new providers surface and introduce new offering to the market or try to attract a
specific targeted customer base. They build new infrastructure or resell traffic and initiate searches for billing
solutions.
Mobile Messaging
The global messaging market, via SMS and IP messaging, is growing, with new use cases added every year
and enterprises moving their operation and marketing activities from traditional mail and email channels to mobile
messaging technologies. Application to person, or A2P, messaging continues to grow as the most effective way for
businesses to engage with consumers and is also believed to be the most trusted form of communication. Our
Communications Platform as a Service, or CPaaS, provides simple APIs with well-defined ways to easily integrate
messaging into the enterprise’s legacy systems (such as CRM) or our own applications. Our platform helps our
customers to reduce costly in-house development and the need to negotiate complex commercial agreements with
service providers.
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Our Strategy
Our objective is to be a leader in the market for convergent billing and customer care software for tier 2 and
tier 3 service providers, to increase our presence in mobile messaging and to remain as profitable as possible in an
increasingly competitive environment.
We introduced our billing and customer care software in 1997. We believe that our customer base, high
customer satisfaction and our reputation for offering high quality, reliable platform provide us with brand name
recognition. We continually invest in research and development to enhance our products with additional modules to
address the digitalization of the telecom industry.
The key elements of our strategy to increase our presence in mobile messaging include:
● Expand through acquisitions. We believe that A2P messaging needs are increasing worldwide, be it
in traditional text (SMS) or in IP messaging. This market is consolidating, as most of our competitors
are very active and successful in executing their acquisition strategy. We intend to continue targeting
potential acquisitions that could benefit our growth;
● Provide multi-channel messaging solutions. We intend to continue to develop our platform to support
multiple messaging channels such as SMS, WhatsApp, RCS, Telegram and others in order to provide
to our customers multiple messaging options for personal mobile communication; and
Billing and Customer Care Solutions
The key functionalities of our billing and customer care solutions are as follows:
● Mediation. Providing real-time and batch event collection, interfacing with the voice, content, data,
service delivery and routing network elements;
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● Provisioning. Setting up the ability of a subscriber to use services, enabling features and quantitative
limits on network elements and legacy billing solutions;
● Authentication, Authorization and Accounting. Authenticating subscribers, authorizing a particular
usage and. calculating the amount to be charged to the subscriber;
●
Interconnect Billing. MINDBill generates reports that enable providers to bill for traffic and services
that are being transported across their networks by other providers;
● Roaming. MINDBill provides the ability to define and manage the required roaming contract terms and
the applicable tariff plan for each roaming partner;
● Virtual Providers. MINDBill allows carriers to have resellers of traffic under different brand names
and manage them as Virtual Providers;
● Multiple Services and Products Support. MINDBill allows CSPs to provide all types of services and
bundle them into packages with special rates, discounts and promotions;
● On-Line-Charging (OCS). Flexible real-time rating engine that facilitates a wide variety of billing
plans and tariff parameters, content-based rates, rates based on the day of the week, time of the day,
call origin and destination and multi-currency rates for international services;
●
Invoicing. Support for all stages of invoice generation, multiple billing cycles and invoice on demand.
Invoices can be printed locally or exported to printing service bureaus, using a customizable invoice
layout;
● Account Receivables (A/R). MINDBill manages all A/R activities, supports multiple payment methods
and a built-in debt collection process;
● Collection procedures. Flexible collection solution that provides full monitoring and control of the
collection treatment (dunning process);
● Customer Support Representative Web Interface. User-friendly web interface that allows operators to
perform all customer care operations from any location;
● Self-Care Web Interface. Subscriber web interface that allows subscribers to obtain information about
their account, including invoices, payments and usage details. Subscribers can also make payments and
update subscription details;
● E-commerce Web Interface. New module that supports the entire sales cycle of plans, devices and
accessories;
● Point of Sale (POS). Our POS enables operators to offer their products and services in retail stores,
selling services, equipment and accessories to new and existing customers. POS integrates with
external systems, such as credit card clearinghouses, external taxation engines, field service solutions
and address validation systems;
24
● Business Processes Workflow Environment. Creating tailored business processes such as customer
onboarding, managing subscriptions, trouble tickets and debt collection; and
● Monitoring. MINDBill includes a monitoring tool that enables 24x7 operational control, proactive
monitoring and historical analysis of the platform’s behavior.
Enterprise Software
Our enterprise product, known as PhonEX ONE, is used by corporations for telecom expense management,
call accounting, traffic analysis and fraud detection. It allows organizations to more effectively manage their
telecommunications resources. PhonEX ONE is a call management system that collects, records and stores all call
information and enables:
●
to generate near real-time reports on the enterprise’s communication use;
● monitor quality of experience;
●
track agent’s performance in contact centers;
● produce sophisticated reports and graphics for easy and effective analysis of call activity; and
●
allocate telephone expenses to specific departments, individual clients or projects.
PhonEX ONE can be installed on-premises or in a cloud environment.
Some of its major advantages are:
● Quality of Service (QoS) Monitoring. PhonEX ONE enables quantification of the user’s perceived
audio call quality so the organization can ensure the relevant communication quality of experience of
its contact centers, calls between branches, out-going calls, etc.;
● User centric. The PhonEX ONE user-centric architecture provides a consolidated solution for the
collection, analysis, reporting, and managing of all the telecommunication and data traffic expenses;
● Dashboard. A visual representation of the most significant information regarding calls, a useful tool
that helps administrators to get a quick and relevant image of the general system activity. The
Dashboard can quickly provide - through its graphical and non-graphical monitors - a snapshot over
the outgoing and incoming calls, traffic and exceptions as well as several top requested reports;
● Multi-site solution. The PhonEX ONE scales to support large multi-site organizations using voice and
data equipment from multiple vendors. PhonEX ONE supports complex hierarchies on which any
employee can be associated to any branch of the organization and under a separate matrix to any
corporate department;
● ASP.NET and MS-SQL database. PhonEX ONE is designed using the Microsoft .Net technology and
has extensive configuration capabilities using XML files with server – client interaction;
25
● Certification by IP switch vendors. PhonEX ONE is interoperable and certified on a timely manner
with new releases of IP switch vendors, including Cisco and Microsoft;
● Enhanced security. PhonEX ONE security management includes user authentication, security group
restrictions, event log monitoring and encryption methodology of data base entries. This management
tool enables a secure and easy control over the system;
● Modular architecture supporting high scalability. The PhonEX ONE’s scalable system architecture
supports an unlimited number of sites and extensions;
● Guard and Alerter. The PhonEX ONE Guard and Alerter provide sophisticated tools for fraud
prevention, alerting on phone misuse, budget surpass, possible toll fraud or other abnormal behaviors
within the organization; and
● Multilingual and multicurrency. The built-in support of multiple languages and multiple currencies
enables telecom expense management for multinational organizations.
Mobile Messaging
Following the acquisition of Message Mobile and GTX we offer messaging and payment solutions to
enterprise and wholesale customers. We plan to expand the range of services we offer and the technological vehicles
used to deliver them to our customers, and to increase the rate of new customer acquisition by facilitating self-
registration and on-boarding for new customers, and by offering competitive pricing and quality services.
Technology
Our software products are based on an open architecture, which was developed using industry standard API
that enables it to readily integrate with other software applications. These application program interfaces create an
object-oriented, multi-layered architecture that support a distributed environment. Our object-oriented technology
enables the design and implementation of software utilizing reusable business objects rather than complex
procedural codes. We implement our software in a distributed configuration. This allows further customization and
solution adjustment based on modules to be installed on different servers to support the system’s scalability and
security. We utilize a business processes workflow environment that facilitates the implementation of tailored and
automated business processes to fit our customers’ unique business rules.
We believe that our technology allows us to offer products with the following benefits:
●
fast integration and interoperability with telecommunications equipment of major manufacturers,
legacy systems and external software;
● modular architecture that allows our products to be easily scalable and enables us to customize our
software relatively quickly;
●
reliable products that support high availability of the service for mission-critical applications; and
●
security at all levels of the architecture.
Our messaging and payment services are based on our modern, cloud-based messaging platforms
developed by our subsidiaries in Germany.
Sales and Marketing
We conduct our sales and marketing activities primarily directly. We also work with appointed distributors
and resellers throughout the world.
Our marketing programs are focused on creating awareness, interest and preference for our products and
services. We engage in a variety of marketing activities, including:
● participating in industry trade shows and special events; and
●
conducting ongoing public and press relations programs.
26
Principal Markets
The following table shows our revenues for each of the past three years classified by type of revenue and
geographic region.
2019
Years Ended December 31,
2020
(dollars in thousands)
2021
The Americas (total)
Sale of Licenses
Services
Asia Pacific and Africa (total)
Sale of Licenses
Services
Europe (total)
Sale of Licenses
Services
Israel (total)
Sale of Licenses
Services
Total
Sale of Licenses
Services
Customers
$
12,030 $
683
11,347
523
168
355
8,839
829
8,010
1,272
618
654
22,664
2,298
20,366
10,355 $
482
9,873
392
97
295
11,734
513
11,221
893
274
619
23,374
1,366
22,008
9,421
72
9,349
838
88
750
14,702
792
13,910
1,366
596
770
26,331
1,548
24,783
Billing and Customer Care Solutions
Our billing and customer care solutions have been installed for a large base of customers worldwide,
including:
● Traditional telephony providers that evolved into quad-play providers, offering wireless, wireline,
cable, content and internet services, such as Moldtelecom, Belize Telemedia and Docomo Pacific;
● Wireless telephony providers, LTE operators and MVNO’s, such as KDDI America, Inc. and Chat
Mobility;
● Cable providers that also offer voice services, such as EastLink; and
● Mobile Virtual Network Enablers (MVNEs), such as Pelephone Communications Ltd.
Enterprise Software
Our enterprise software products have been installed for a large base of customers worldwide, including
international banking firms, global technology leaders, government agencies and other thousands of small to very
large organizations.
Messaging and Payment Services
Our messaging and payment solutions are used by more than 100 enterprise customers, mostly in Germany.
27
Competition
Billing and Customer Care Solutions
Competition in the market for billing and customer care software is intense and we expect competition to
continue to be strong.
We believe that our competitive advantage is based on:
● our ability to rapidly deploy a complete turn-key product-based solution;
● our truly convergent platform using one database and one product catalog for both prepaid and
postpaid subscribers;
● our solutions’ functionality, which includes billing, customer care, point-of-sale, mediation,
provisioning, online charging for multiple services and online store (eCommerce) modules;
● our proven platform and our many years of experience to satisfy customer requirements; and
● our flexibility to meet customer requirements in a short time frame.
Some of our competitors have greater financial, technical, sales, marketing and other resources and greater
name recognition than we do. Some of our competitors have lower cost structure and compete with us on pricing.
Current and potential competitors have established, and may establish in the future, cooperative relationships among
themselves or with third parties to increase their ability to address the needs of prospective customers. Accordingly,
new competitors or alliances among competitors may emerge and rapidly acquire significant market share and their
solutions could achieve greater market acceptance than our solutions.
Enterprise Software
Our competitors in the market for enterprise software products are mainly local companies. To compete
effectively, companies must be able to offer adequate technical support and ongoing product development. In
addition, multinational companies prefer call accounting systems that can be installed at their various offices
throughout the world, and therefore require call accounting products that are multilingual and support the local
telecommunication requirements. The principal factors upon which we compete are scalability, ease of use, being
certified by major IP switch vendors and the multi-lingual and multi-currency nature of our system.
28
Messaging and Payment
Our competition in the messaging and payment market comes from a few international companies, such as
Sinch AB and CM.com, and from many small, local service providers in Germany. Our competitive advantage is
based on a combination of technology and service – our ability and will to tailor our services to the needs of
enterprise customers.
C. Organizational Structure
Set forth below is a list of our significant subsidiaries:
● MIND Software Limited, a wholly owned subsidiary, incorporated in the United Kingdom;
● MIND Software, Inc., a wholly owned subsidiary, incorporated in the State of Delaware;
● MIND Software SRL., a wholly owned subsidiary of MIND Software Limited, incorporated in
Romania;
● MIND CTI GmbH, a wholly owned subsidiary, incorporated in Germany;
● Message Mobile GmbH, a wholly owned subsidiary of MIND CTI GmbH, incorporated in Germany;
and
● GTX GmbH, a wholly owned subsidiary of MIND CTI GmbH, incorporated in Germany.
D. Property, Plant and Equipment
Our headquarters are located in Yoqneam, Israel, approximately 50 miles north of Tel Aviv. We lease
approximately 5,800 square feet at our Yoqneam headquarters and approximately 3,000 square feet in Luneburg,
Germany. We also lease approximately 15,550 square feet in Iasi, Romania and approximately 7,400 square feet in
Suceava, Romania. The offices in Iasi and Suceava are used primarily for software development and for customer
support.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations should be read
together with our audited consolidated financial statements and the related notes included elsewhere in this annual
report. The following discussion contains forward-looking statements that are based upon our current expectations
and are subject to uncertainty and changes in certain circumstances. Actual results may differ materially from these
expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those
identified under “Forward-Looking Statements and Summary Risk Factors” and under “Risk Factors” elsewhere in
this annual report.
29
Overview
We were incorporated in Israel in 1995 and started providing our enterprise software products in that year.
In 1997, we introduced our billing and customer care software for Voice over IP. We have enhanced our billing
solutions since then to support multiple IP services, wireless and wireline carriers and triple play (voice, data and
content) service providers. Following the acquisitions completed during 2019 (see below), we, together with our
subsidiaries, also provide enterprise and wholesale messaging, communication and payment solutions.
On March 25, 2019, we acquired Message Mobile GmbH, a leading provider of enterprise messaging,
communication and payment solutions, based in Germany, with more than 15 years’ experience in the mobile
industry. Its messaging platform enables enterprises to easily communicate with clients and partners via text / SMS,
voice and instant messaging services like WhatsApp, Facebook Messenger and Telegram. Message Mobile also
offers mobile payment solutions that use phone bill charging for a wide range of applications, such as mobile
parking payment.
On September 25, 2019, we acquired GTX GmbH, a company based in Germany offering global SMS
services for B-2-B customers, providing business partners a robust and easy-to-use system to send SMS messages to
end-users at the best possible quality and attractive pricing, acting as a one-stop-platform for clients aiming to
extend their messaging activities on different channels, e.g., WhatsApp, Chatbot on Messenger and Rich
Communication Services (RCS).
In 2021, 46% of our total revenues were derived from providing our billing and customer care software,
46% of our total revenues were derived from enterprise messaging and payment solutions and 8% of our total
revenues were derived from providing our enterprise software. In 2021, services represented 94% of our total
revenues and license fees represented 6% of our total revenues.
In 2019, 2020 and 2021, no customer accounted for more than 10% of our total revenues. We expect to
continue to derive sizeable revenues from a small number of changing customers.
Consolidation in the telecom markets was not favorable to us in the last years, and we closed fewer deals
than in previous years. Accordingly, we expect challenges in maintaining our revenues and our profitability levels in
the near term.
Our dividend policy is to declare a dividend distribution once per year, in the approximate amount of our
EBITDA for the preceding year plus financial income (expenses) minus taxes on income, subject to specific board
approval and applicable law. Since 2003, our cash dividends amount to approximately $5.30 per share (including the
dividend declared in 2022 in respect of 2021). The amount per share that we distributed in 2020 and 2021 was $0.24
and $0.26 respectively, and a dividend of $0.26 per share was declared in March 2022. The board of directors’
decision to approve the annual distribution is based, among other factors, on our cash position at that time, potential
acquisitions and future cash needs. Our board of directors may decide to discontinue the dividend distribution in
whole or in part at any time.
30
In previous reporting periods (until the year ended on December 31, 2018), we operated in one reportable
segment (billing and related services). Following the acquisition of Message Mobile on March 25, 2019 (see above),
management determined that we operate since that date in two reportable segments, the second one being
messaging.
Revenues. In the billing and related services segment, we are paid license fees by our customers for the
right to use our products, based on (i) traffic volume, which is measured by factors such as number of subscribers,
and (ii) the functionality of the system, based on application modules that are added to the software. In relation to
our professional services, other than maintenance services and managed services, we mainly quote a fixed price
based on the type of service offered, estimated direct labor costs and the expenses that we will incur to provide these
services. We also provide Agile development teams that perform solution enhancements, each dedicated for a period
of time to a specific customer, for a fixed cost per person per month. Fees for maintenance services are based on a
percentage of the solution fee and are paid annually, quarterly or monthly. Fees for managed services are primarily
based on the number of subscribers or customers business volume and are paid monthly.
We primarily use two business models when we sell our solutions in the billing and related services
segment, the license model and the managed services model. In the license model, the customer pays a one-time
implementation fee, a one-time license fee for a perpetual license limited by the traffic metrics chosen by the
customer, and additional fees to expand the chosen traffic metrics limitation. In addition, we are paid maintenance
fees to renew periodically the maintenance agreement at the customer discretion. In the managed services model, the
customer pays a one-time implementation fee, a monthly fee that includes a periodic license (right to use),
maintenance and services fees, calculated by the metrics chosen by the customer (mainly, number of subscribers).
In the messaging segment, revenues are derived from customers using our messaging software platform,
when the messaging service has been rendered, i.e., the messages are delivered to recipient.
We also offer payment solutions where our customer can enable their customers (the end users) to pay for
goods or services by charging their mobile phone account. For these services we are entitled to a share of the
processed transactions/payment.
We provide a revenue breakdown for our billing and customer care software, our messaging and payment
solutions and our enterprise call management software. We believe that this information provides a better
understanding of our performance and allows investors to make a more informed judgment about our business.
Cost of Revenues. In the billing and related services segment, the cost of revenues consists primarily of
direct labor costs and overhead expenses related to software installation and maintenance. Cost of revenues also
includes, among other things, software license fees to third parties, primarily Oracle, hardware, travel expenses and
shipping costs.
In the messaging segment, the cost of revenues consists primarily of fees paid to network providers. Our
arrangements with the network service providers require us to pay fees based on the volume of text messages sent,
as well as telephone numbers acquired by us to service our customers.
Research and Development Expenses. Our research and development expenses consist primarily of
compensation, overhead and related costs for research and development personnel and depreciation of equipment.
Research and development costs related to software products are expensed as incurred until the “technological
feasibility” of the product has been established. Because of the relatively short time period between “technological
feasibility” and product release, no software development costs have been capitalized. We expect to continue to
make investments in research and development.
Selling and Marketing Expenses. Our selling and marketing expenses consist primarily of compensation,
overhead and related costs, for sales and marketing personnel, the operation of international sales offices, sales
commissions, marketing programs, public relations, promotional materials, travel expenses, trade shows and
exhibition expenses.
General and Administrative Expenses. Our general and administrative expenses consist primarily of
compensation, overhead and related costs for executives and administrative personnel, professional fees, insurance,
provisions for doubtful accounts and other general corporate expenses.
31
Financial Income, Net. Our financial income, net consists mainly of interest earned on bank deposits and
short-term investments, gains and losses from the change in value and realization of marketable securities, gains and
losses from the conversion of monetary balance sheet items denominated in non-dollar currencies into dollars, net of
financing costs, and bank charges.
Taxes on Income. See “Corporate Tax Rate” below.
A. Operating Results
The following discussion of our results of operations for the years ended December 31, 2020 and 2021,
including the percentage data in the following table, is based upon our statements of operations contained in our
consolidated financial statements for those years, and the related notes thereto, included in Item 18:
Revenues
Cost of revenues
Gross profit
Research and development
Selling and marketing
General and administrative
Operating income
Financial income, net
Income before taxes on income
Taxes on income
Net income
Years Ended December
31,
2020
2021
(% of revenues)
100.0 %
47.7
52.3
17.0
4.2
7.8
100.0 %
47.3
52.7
15.4
5.3
6.1
23.3
1.6
24.9
1.9
23.0 %
25.9
0.2
26.1
3.5
22.6 %
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Revenues
License sales
Services
Total revenues
Years Ended December
31,
2020
2021
(dollars in millions)
1.4 $
22.0
23.4 $
1.5
24.8
26.3
$
$
% Change
7.1 %
12.7 %
12.4 %
Total revenues increased from $23.4 million in 2020 to $26.3 million in 2021, attributable to an increase in
revenues in our messaging segment, from $8.7 million in 2020 to $12.0 in 2021. This unusual growth was primarily
attributed to the high messages volumes in Q2 and Q3 of 2021, related to specific COVID-19 regulations in
Germany. This exceptional increase was temporary in nature and does not represent a trend.
32
Revenues from our billing and customer care solutions for service providers increased from $12.0 million
in 2020 to $12.1 million in 2021. The increase was primarily attributed to a one-time large increase in license
revenues, based on an increase in the number of subscribers at two customers, but we expect a future trend of market
decline due to shrinking relevant telecom markets and strong competition.
Revenues from our enterprise products decreased from $2.7 million in 2020 to $2.2 million in 2021. The
decrease was primarily due to the trend of market decline, strong competition and the effect of the COVID-19
pandemic. We expect that the trend of market decline will continue.
Revenues from licenses increased from $1.4 million in 2020 to $1.5 million in 2021. The increase was
attributed to the increase in our revenues from billing and customer care. Revenues from services increased from
$22.0 million in 2020 to $ 24.8 million in 2021, primarily as a result of the increase in revenues in our messaging
segment discussed above.
The following table presents the geographic distribution of our revenues:
The Americas
Europe
Asia Pacific and Africa
Israel
Total
Years Ended December
31,
2021
2020
(% of revenues)
44.3 %
50.2
1.7
3.8
100.0 %
35.8 %
55.8
3.2
5.2
100.0 %
Our revenues in the Americas decreased from $10.4 million in 2020 to $9.4 million in 2021. The decrease
was primarily due to the reduced budgets allocated by CSPs to replace or upgrade their billing solutions and the loss
of a few customers in this area. We expend this trend to continue.
Our revenues in Europe significantly increased from $11.7 million in 2020 to $14.7 million in 2021. The
increase was primarily attributed to the increase in revenues in our messaging segment. The percentage of total
revenues in Europe significantly increased from 50.2% in 2020 to 55.8% in 2021, due to the same reason.
Our revenues in Israel increased from $0.9 million in 2020 to $1.4 million in 2021, mainly due to the sale
of licenses to one of our customers in Israel during 2021.
33
Cost of Revenues
Cost of sales of license
Cost of services
Total cost of revenues
Years Ended December
31,
2020
2021
(dollars in millions)
% Change
$
$
0.08 $
11.07
11.15 $
0.09
12.36
12.45
12.5 %
11.7 %
11.7 %
Total cost of revenues in 2021 increased by $1.3 million, or 11.7%, compared with 2020, primarily due to
the increase in revenues in our messaging segment, which generated cost of revenues of approximately $9.0 million
during 2021 and cost of revenues of approximately $6.8 million in 2020, offset by the decrease in expenses related
to our billing segment.
Gross profit as a percentage of total revenues increased from 52.3% in 2020 to 52.7% in 2021. The increase
was primarily attributed to the increase in license revenues and the decrease in expenses related to the billing segment.
Operating Expenses
Research and development
Selling and marketing
General and administrative
Total operating expenses
$
$
Years Ended
December 31,
2020
2021
(dollars in millions)
4.0 $
1.0
1.8
6.8 $
% Change
2.1 %
40.0 %
(11.1 )%
4.4 %
4.1
1.4
1.6
7.1
Research and Development. The increase in our research and development expenses by 2.1% in 2021,
compared to 2020, was primarily due to an increase in personnel expenses. Research and development expenses as a
percentage of total revenues decreased from 17.0% in 2020 to 15.4 % in 2021, due to the significant increase in total
revenues attributed to the messaging segment and the fact that research and development in the messaging segment
represents a lower percentage of revenues in comparison to our billing segment.
Selling and Marketing Expenses. Selling and marketing expenses increased from $1.0 million in 2020 to
$1.4 million in 2021, mainly attributable to an increase in personnel expenses. Selling and marketing expenses as a
percentage of total revenues increased from 4.2% in 2020 to 5.3% in 2021, mainly due to the above-mentioned
increase.
34
General and Administrative Expenses. General and administrative expenses decreased from $1.8 million in
2020 to $1.6 million in 2021, mainly due to a decrease in administrative personnel expenses, partially offset by an
increase in professional services expenses incurred in 2021. General and administrative expenses as a percentage of
revenues decreased from 7.8% in 2020 to 6.1% in 2021 due to the decrease in expenses as mentioned above and an
increase in total revenues.
Impairment of Goodwill. No impairment of goodwill was required following the annual assesment
performed during 2020 and 2021.
Financial Income, net. In 2021, financial income consisted of interest income on short-term bank deposits
and income on marketable securities in the aggregate amount of $112 thousand, offset by loss from currency
exchange rate fluctuations in the aggregate amount of $8 thousand, and bank charges in an aggregate amount of $49
thousand. In 2020, financial income consisted of interest income on short-term bank deposits and marketable
securities in the aggregate amount of $255 thousand and gains from currency exchange rate fluctuations in the
aggregate amount of $147 thousand, offset by bank charges in an aggregate amount of $23 thousand.
Taxes on Income. Taxes on income are comprised of current and deferred taxes. On a regular basis, we
estimate our actual current tax exposures and assess temporary differences resulting from differing treatment of
items for tax and accounting purposes. These differences result in deferred taxes, which are included in our
consolidated balance sheet. In 2021, our taxes on income in the amount of $936 thousand included taxes on income,
mainly in Israel and in Germany, in the amount of $992 thousand ($687 thousand in Israel and $305 thousand in
Germany) and an increase in deferred taxes in the amount of $96 thousand. In 2020, our taxes on income in the
amount of $459 thousand included taxes on income, mainly in Israel, in the amount of $420 thousand and a decrease
in deferred taxes in the amount of $59 thousand.
For a comparison of the year ended December 31, 2020 to the year ended December 31, 2019, please refer to
Item 5 in our annual report on Form 20-F for the year ended December 31, 2020, filed with the SEC on
March 18, 2021.
Our Functional Currency
The currency of the primary economic environment in which we operate is the dollar. Although 55% of our
revenues are denominated in Euro, approximately 40% of our revenues are denominated in dollars and the vast
majority of our cash reserves and investments are denominated in dollars. Thus, the functional currency of the
Company and certain subsidiaries is the dollar.
The Company and certain subsidiaries’ transactions and balances denominated in dollars are presented at
their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with
Accounting Standards Codification, or ASC, 830, “Foreign Currency Matters”. All transaction gains and losses from
remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements
of income as financial income or expenses, as appropriate.
For those subsidiaries whose functional currency has been determined to be a non-dollar currency, assets
and liabilities are translated at year-end exchange rates, and statement of operation’s items are translated at average
exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of
accumulated other comprehensive income (loss) in shareholders’ equity.
35
Impact of Foreign Currency Fluctuations on Results of Operations
The dollar revenues and cost of our operations may be significantly influenced by currency fluctuations.
The weakening of the dollar in in relation to the Euro and the NIS would have a negative effect on our
profitability because we incur a significant portion of our expenses, mainly personnel expenses, in Euro and NIS.
The weakening of the Euro in relation to the dollar would have a negative effect on our revenues because
we incur a significant portion of our revenues in Euro.
Because exchange rates between the NIS and the Euro to the dollar fluctuate continuously, exchange rate
fluctuations and especially larger periodic devaluations would have an impact on our revenues, profitability and
period-to-period comparisons of our results. The effects of foreign currency remeasurements are reported in our
consolidated financial statements in current operations.
B. Liquidity and Capital Resources
Since our inception, we have financed our operations mainly through cash generated by operations. We
supplemented this source by two private rounds of equity financing, the first in 1997 (with a follow-on in 1999) and
the second in 2000 and our initial public offering in 2000, which raised total net proceeds in the amount of $44.3
million.
As of December 31, 2021, we had $4.2 million in cash and cash equivalents and $14.1 million in short-term
bank deposits, and our working capital was $15 million. In our opinion, our working capital is sufficient for our
requirements for the foreseeable future.
The majority of our cash and cash equivalents and our deposits are denominated in dollars.
Net Cash Provided by Operating Activities. Net cash provided by operating activities in 2021 was $6.9
million, attributable to our net income of $5.9 million, non-cash related items, net, in the amount of $0.3 million, a
net increase in operating assets and liabilities items in the amount of $0.6million. Net cash provided by operating
activities in 2020 was $6.5 million, attributable to our net income of $5.4 million, non-cash related items, net, in the
amount of $0.3 million, a net increase in operating assets and liabilities items in the amount of $0.8 million.
The increase in net cash provided by operating activities of $0.4 million in 2020 to 2021 reflects mainly an
increase of $0.6 million in our net income from 2020 to 2021, partially offset by a decrease of $0.2 million in
operating assets and liabilities items from 2020 to 2021.
Net Operating Working Capital
As of December 31, 2021, net operating working capital was $15.0 million, compared with $14.0 million as
of December 31, 2020. The increase of $1.0 million is mainly due to an increase in our cash balances as a result of
the net cash flows provided by our operating activities during 2021 of $6.9 million, offset by a dividend of $4.8
million paid to our shareholders in March 2021.
Cash Deposits
As of December 31, 2021, we had approximately $ 14.0 million in bank deposits with maturities of
between three and twelve months.
36
Marketable Securities
As of December 31, 2021, we held marketable securities of approximately $210 thousand.
Net Cash Used in Investing Activities. In 2021, we increased our investments in short-term bank deposits
by $6.9 million, and we decreased our investments in marketable securities by $1.4 million. In 2020, we increased
our investments in short-term bank deposits by $0.4 million, and we decreased our investments in marketable
securities by $0.5 million.
Net Cash Used in Financing Activities. In 2021, our financing activities used $5.2 million due to a cash
dividend of $5.2 million. In 2020, our financing activities used $4.8 million due to a cash dividend of $4.8 million.
Capital Expenditures. The aggregate cash amount of our capital expenditures was $82 thousand and $68
thousand in 2021 and 2020, respectively. These expenditures were principally for the purchase of equipment, mainly
for our engineering teams. Although we have no material commitments for capital expenditures, we anticipate an
increase in capital expenditures if we purchase or merge with companies or purchase assets in order to obtain
complementary technology and to expand our product offerings, customer base and geographical presence.
Cash Dividends. Since 2003, we have distributed aggregate cash dividends of $5.30 per share to our
shareholders, including $0.24 per share in March 2020 and $0.26 per share in March 2021 and the dividend of $0.26
per share that we declared in March 2022. For information about our dividend policy, please see Item 8 “Financial
Information - Dividend Policy.”
C. Research and Development, Patents and Licenses, etc.
We believe that investment in research and development is essential for maintaining and expanding our
technological expertise in the market for billing and customer care software and to our strategy of being a leading
provider of new and innovative convergent billing products. Our customers provide significant feedback for product
development and innovation.
We have invested significant time and resources to create a structured process for undertaking research and
product development. We believe that the method that we use for our product development and testing is well suited
for identifying market needs, addressing the activities required to release new products, and bringing development
projects to market successfully. Our product development activities also include the release of new versions of our
products. Although we expect to develop new products internally, we may, based upon timing and cost
considerations, acquire or license technologies or products from third parties.
We invested in research and development $4.1 million (or 15% of total revenues) in 2021 and $4 million
(or 17% of total revenues) in 2020. The increase in 2021 was mainly due to an increase in personnel expenses. Our
engineering department comprised approximately 103 employees as of December 31, 2021.
D. Trend Information
Our billing and customer care solutions target tier 2 and tier 3 service providers. Some service providers
seek solutions that are implemented upon a native cloud architecture. However, we have not developed native cloud-
based solutions, and this has harmed our competitive position.
Service providers are facing many challenges, including the need to reduce cost and offer new services.
Wireline telephony is diminishing. Mobile operators, after incurring high investment expenses in deploying 5G
networks, need to monetize on the high-speed connectivity and rich content offering. Subscribers expect customer
support, uninterrupted service and full digitalization, while telcos seek ways to reduce workforce and increase
profitability. Our solutions address those challenges as it enables them to rapidly deploy all types of services for
prepaid and postpaid, residential and business customers. Our solution reduces the Total Cost of Ownership (TCO)
with its end-to-end capabilities, its built-in mediation, provisioning, point-of-sale and automated business processes.
MIND enhanced its solutions with eCommerce, Mobile App and Self-service modules that enable high quality
service with Omnichannel architecture.
37
There is a need to replace outdated billing systems that are not secure due to old technologies and that
require high costs to operate. Most telcos in our relevant segment are reluctant to invest in transformation projects,
and are turning to low cost point-solutions. This buying behavior results in lower demand for our end-to-end
solutions.
Accordingly, we had fewer new customers in 2021, providing lower initial proceeds. Also, the
telecommunication market is undergoing consolidation and intensifying competition, and we have lost a few
customers. We expect that these trends will negatively impact our revenues and profitability in 2022.
The trend we expect in the messaging business is companies turning to Application to Person (A2P)
messaging to reach and engage with their target audience in a reliable, fast and secure way. Essentially, A2P
messaging allows an application to send a message (typically SMS or IP Messaging). Examples of these types of
messages include bank alerts, shipping notifications from online stores, appointment reminders, promotional and
loyalty program notifications and two-factor authentication one-time passcodes for account security.
E. Critical Accounting Estimates
Our discussion and analysis of our consolidated financial statements of operations are based upon our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting
principles, or GAAP. The preparation of these financial statements requires us to make estimates, assumptions and
judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. On a regular basis, we
evaluate and may revise our estimates. We base our estimates on historical experience and various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent. Actual results
could differ materially from the estimates under different assumptions or conditions.
Our most significant critical accounting policy is revenue recognition. We have customer contracts in the
Billing and Related Services segment where revenue is recognized over the term of the contracts (“over time”), as
our performance does not create an asset with an alternative use and we have an enforceable right to payment,
including a reasonable profit. We use labor hours incurred to measure progress towards completion of these
contracts. The extent of progress towards completion is measured based on the total labor hours incurred compared
to the total estimated labor hours for completion of the contracts. Our determination of revenue to be recognized for
these contracts accounted for over time requires management to make significant estimates of the total labor hours
needed to complete the contracts, including updates to those estimates throughout the life of the contracts. The
estimate of the total number of hours to complete a project is inherently a matter of judgment and depends upon the
complexity of the work being undertaken, the customization being made to software and the customer environment
being interfaced to. The updates of the existing estimates is not expected to have a significant impact on our
financial condition or results of operations.
F. [Reserved]
38
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth certain information regarding our directors and executive officers as of the
date of filing of this Annual Report:
Name
Monica Iancu
Ran Mendelaw
Gilad Parness
Oren Tanhum
Shoval Cohen Nissan
Victor Balteanu
Marian Scurtu
Liviu Serea
Meir Nissensohn
Joseph Tenne
Itay Barzilay
Amnon Neubach
Age
64
44
53
51
47
42
44
67
78
66
47
78
Position
President and Chief Executive Officer, Director
Chief Financial Officer
Vice President Sales
Vice President, Professional Services
Vice President, Information Technology
Vice President Engineering
Vice President Customer Success
General Manager, MIND Romania
Chairman of the Board of Directors
Director and Chairman of the Audit Committee
Director
Director
The background of each of our directors and executive officers is as follows:
Monica Iancu. Ms. Iancu founded MIND and has been President and Chief Executive Officer of our
company since inception and, until April 6, 2012, also served as the Chairperson. Ms. Iancu holds a B.Sc. degree in
Computer Science and a Master’s degree in Telecommunications (with expertise in Voice and Data Integration over
the Ethernet) from the Technion, Israel Institute of Technology.
Ran Mendelaw. Mr. Mendelaw rejoined MIND in August 2021 as Chief Financial Officer, bringing over 18
years of experience in accounting, financial management and public companies. Ran served as MIND’s CFO from
May 2018 until June 2019. For two years before 2018, he served as a group controller in a public industrial company
– Tadir-Gan Precision Products 1993 Ltd. (TASE: TDGN). Prior to that, he served for ten years as senior manager at
PwC Israel. Mr. Mendelaw holds a B.A. degree in Accounting and Economics from Haifa University and he is a
Certified Public Accountant in Israel.
Gilad Parness. Mr Parness has served as our Vice President of Sales since June 2020. He joined MIND in
2004 as a team leader in MINDBill Support. Mr. Parness was promoted to Support Manager and later to Director
Professional Services, leading the Sentori support team in 2007. In 2009 he joined our Sales and Account
Management and in 2014 was promoted to Vice President of Enterprise Solutions leading the engineering, the
support and the sales teams. Mr. Parness also serves as Executive Director of Message Mobile GmbH and GTX
GmbH. Mr. Parness holds a Practical Engineer degree from Tel Chai College.
39
Oren Tanhum. Mr. Tanhum has served as our Vice President of Professional Services since 2016. He
joined MIND in July 1997 as a software engineer and was involved in the development of all versions of our billing
platform. Throughout his almost 20 years with us, he has been promoted in the R&D organization, filling leadership
roles at various levels. Mr. Tanhum holds a B.A. degree in Mathematics and Computer Science from Haifa
University.
Shoval Cohen Nissan. Mr. Cohen Nissan has served as our IT Manager since December 1998 and was
promoted to Vice President of IT in 2016. Mr. Cohen Nissan leads the planning and management of the supporting
infrastructure company-wide and the implementation of network security at the corporate level. He also acts as
Purchasing Manager for our internal needs and customer solutions. Mr. Cohen Nissan holds a Practical Engineering
degree from Braude College.
Victor Balteanu. Victor Balteanu has served as our VP Engineering since November 2020. He joined
MIND in 2002 as a testing engineer. Between 2004 and 2006, he served as Subject Matter Expert at Amdocs
(NASDAQ:DOX) and in 2006, he returned to MIND as a software developer. He was promoted within the
organization to Team Leader in 2007, Group Leader in 2013 and Director of Engineering in 2019. Mr. Balteanu
holds a B.A. degree in Automatic Control and Industrial Informatics from Gheorghe Asachi
Technical University of Iași.
Marian Scurtu. Marian Scurtu joined MIND in 2001 as a support engineer. Throughout his over 20 years
with us he has been involved in the delivery of more than 40 projects around the world, filling various leadership
roles including Project Manager and Program Manager. He was promoted to VP Customer Success in January 2022.
Marian holds a B.Sc. degree in Computer Science from Gheorghe Asachi Technical
University of Iași and an M.B.A. from Alexandru Ioan Cuza University of Iasi.
Liviu Serea. Mr. Serea has served as General Manager of our Romania office since January 2001. Before
joining MIND, for over five years Mr. Serea managed a local company involved in hardware assembly, distribution
and support. Mr. Serea holds a M.Sc. degree in Electronics and Telecommunications from the Politechnic Institute
of Iasi.
Meir Nissensohn. Mr. Nissensohn has served as our Chairman of the Board since 2020 and as a director of
our company since 2014. Mr. Nissensohn served as the Chairman of the Board of Directors and Chief Executive
Officer of IBM Israel Ltd. from 1996 to 2012, having joined IBM Israel as a computer programmer in 1969. Since
his retirement from IBM, he serves in several Boards of Directors and is involved in various business initiatives. Mr.
Nissensohn holds a B.Sc. in Industrial Engineering from the Technion – Israeli Institute of Technology, and an
M.B.A. from Tel Aviv University.
Joseph Tenne. Mr. Tenne has served as an independent director of our company since August 2014. Since
May 2017, Mr. Tenne has served as a financial consultant to Itamar Medical Ltd., a NASDAQ-listed company that
was acquired by ZOLL Medical Corporation in December 2021. Mr. Tenne serves as a director at AudioCodes Ltd.
(NASDAQ and TASE: AUDC), at OPC Energy Ltd. (TASE: OPCE), at Highcon Systems Ltd. (TASE: HICN), at
ElectReon Wireless Ltd. (TASE: ELWS), and at Sapir Corp Ltd. (TASE: SPIR). From 2014 to 2017, Mr. Tenne
served as the CFO and VP Finance of Itamar Medical Ltd. From 2005 to 2013, Mr. Tenne served as the CFO of
Ormat Technologies, Inc. (NYSE and TASE: ORA). From 1997 to 2003, Mr. Tenne was a partner in PwC Israel.
Mr. Tenne holds a B.A. degree in Accounting and Economics and an M.B.A. degree from Tel Aviv University. Mr.
Tenne is also a Certified Public Accountant in Israel.
40
Itay Barzilay. Mr. Barzilay has served as a director of our company since May 2020. Since 2019 Mr.
Barzilay has served as the CFO of Personetics. From 2010 to 2019, Mr. Barzilay held a number of finance
leadership positions at Amdocs and most recently served as Vice President Finance for Amdocs Technology &
Media and for Amdocs Global Services (NASDAQ: DOX). From 2008 to 2010, Mr. Barzilay was the CFO of
MIND. From 2004 to 2008, Mr. Barzilay served in several finance management roles with Avaya. Mr. Barzilay is a
Certified Public Accountant, holds a BA in Accounting and Economics from Tel Aviv University and an MBA from
NYU’s Stern School of Business.
Amnon Neubach. Mr. Neubach had served as an external director of our company from 2001 until 2014 and
rejoined our board of directors in 2021. Mr. Neubach served as Chairman of the Tel Aviv Stock Exchange Ltd. from
2014 to 2021. Mr. Neubach has served in various privately held companies and public companies as a director, a
member of executive committees and in some as chairman of the board. Mr. Neubach holds a B.A. degree in
Economics and Business Administration and an M.A. degree in Economics, both from Bar Ilan University.
To the best of our knowledge, there are no family relationships between any of the directors or members of
senior management named above. To the best of our knowledge, there is no arrangement or understanding with
major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a
director or member of senior management.
B. Compensation of Directors and Executive Officers
The aggregate direct remuneration paid to all persons who served in the capacity of director or executive
officer during 2021 was $1.5 million, including $0.1 million that was set aside for pension and retirement benefits.
This does not include amounts expensed by us for automobiles made available to our officers or expenses, including
business, travel, professional and business association dues and expenses, reimbursed to officers, and do not include
equity-based compensation expenses.
During 2021, we granted to our executive officers under our option plans options to purchase 20,000
ordinary shares at exercise price of $0.003 per share. All these options expire in 2026.
41
The table below outlines the compensation granted to our five most highly compensated office holders
during or with respect to the year ended December 31, 2021. We refer to the five individuals for whom disclosure is
provided herein as our “Covered Executives.”
Summary Compensation Table
Name of Officer
Monica Iancu
Ran Mendelaw
Gilad Parness
Shoval Cohen
Nisaan
Oren Tanhum
Position of
Officer
President and
Chief Executive
Officer
Chief Financial
Officer (starting
August 2021)
Vice President
Sales
Vice President,
Information
Technology
Vice President,
Professional
Services
Cash
Bonus(1)
Equity-Based
Compensation(2
)
Salary
240,00
240,00
0
0
32,126 7,432 $
48,001
115,56
2 31,028
115,18
3 27,869
105,27
4 23,534
All Other
Compensation(3)
Total
($)
533,21
53,214
4
103,72
16,169
7
198,18
51,597
6
194,03
50,977
0
177,51
48,705
4
(1) Amounts reported in this column represent annual incentive bonuses granted to the Covered Executives or
commissions based on performance-metric formulas set forth in their respective employment agreements.
(2) Amounts reported in this column represent the grant date fair value computed in accordance with accounting
guidance for stock-based compensation.
(3) 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 insurance and benefits, risk insurance (e.g., life insurance or disability insurance),
convalescence or recreation pay, payments for National Insurance (social security), and other personal benefits
and perquisites consistent with the Company’s guidelines. All amounts reported in this column represent
incremental cost of the Company.
On June 24, 2013, at our 2013 annual general meeting of shareholders, our shareholders approved a new
compensation policy for directors and officers. In accordance with the Companies Law, the compensation terms of
office holders of public companies are required to be determined in accordance with a compensation policy that is
reviewed and approved at least one every three years. The compensation policy for directors and officers was
updated and re-approved by our shareholders at our 2016, 2017, 2018 and 2019 annual general meetings.
On May 4, 2017, our board of directors resolved that each of our external directors will be entitled to
receive an annual fee of $13,200 and a participation fee of $680 per meeting. On August 9, 2017, payment in the
same amounts to each of our non-executive directors was approved by our shareholders. At the meeting our
shareholders also approved that the remuneration of those of our external directors who our Board classifies as
“expert external directors” (as such term is defined in the Israeli Companies Law) will be 20% more than the
remuneration of non-expert external directors.
42
C. Board Practices
Board of Directors
Our board is divided into three classes of directors, denominated Class I, Class II and Class III. The term of
Class I will expire in 2022, Class II in 2023 and Class III in 2024. Monica Iancu is a member of Class I, Itay
Barzilay and Joseph Tenne are members of Class II and Meir Nissensohn and Amnon Neubach are members of
Class III. At each annual general meeting of shareholders, directors will be elected by a simple majority of the votes
cast for a three-year term to succeed the directors whose terms then expire. There is no legal limit on the number of
terms that may be served by directors.
Pursuant to regulations that took effect in April 2016, a Nasdaq-listed company that does not have a
controlling shareholder is entitled to opt out of the provisions of the Companies Law requiring at least two external
directors and certain related requirements, so long as the company complies with the SEC regulations and Nasdaq
listing rules regarding independent directors and the composition of the audit and compensation committees. In May
2016, our board of directors decided to adopt this relief, subject to the shareholder approval of related amendments
to our articles of association, which occurred in August 2016.
Under the Companies Law, our board of directors must determine the minimum number of directors having
financial and accounting experience, as defined in the regulations, which our board of directors should have. In
determining the number of directors required to have such expertise, the board of directors must consider, among
other things, the type and size of the company and the scope and complexity of its operations. Our board of directors
has determined that we require one director with the requisite financial and accounting expertise.
Audit Committee
Under the Companies Law, our board of directors is required to appoint an audit committee, comprised of
at least three directors. The members of the audit committee must satisfy certain independence standards under the
Companies Law. Our audit committee consists of Mr. Joseph Tenne (Chairman of the audit committee), Mr. Itay
Barzilay, Mr. Amnon Neubach and Mr. Meir Nissensohn.
Under the Companies Law, the roles of the audit committee include examining flaws in the management of
the company’s business, in consultation with the internal auditor and the company’s independent accountants,
suggesting remedial measures, approving specified related party transactions, establishing whistleblower procedures
and assessing the company’s internal audit system and the performance of its internal auditor. The approval of the
audit committee is required to effect specified actions and transactions with office holders, controlling shareholders
and entities in which they have a personal interest.
The Companies Law defines the term “office holder” of a company to include a director, the chief
executive officer, the chief business manager, a vice president and any officer that reports directly to the chief
executive officer.
Under the Nasdaq rules, our audit committee assists the board in fulfilling its responsibility for oversight of
the quality and integrity of our accounting, auditing and financial reporting practices and financial statements and
the independence qualifications and performance of our independent auditors. Our audit committee also has the
authority and responsibility to oversee our independent auditors, to recommend for shareholder approval the
appointment and, where appropriate, replacement of our independent auditors and to pre-approve audit engagement
fees and all permitted non-audit services and fees. We have adopted an audit committee charter, which sets forth the
qualifications, powers and responsibilities of our audit committee.
43
Our audit committee also serves as (i) our compensation committee, as described below, and (ii) our
nominations committee, authorized to recommend all director nominees for the selection of the board of directors,
provided that no such recommendation is required in cases, if any, where the right to nominate a director legally
belongs to a third party. In its capacity as our compensation committee, the audit committee is authorized to, among
other things, review, approve and recommend to our board of directors base salaries, incentive bonuses, including
the specific goals and amounts, stock option grants, employment agreements, and any other benefits, compensation
or arrangements of our office holders.
Under the Companies Law, at least once every three years our compensation committee is required to
propose for shareholder approval by a special majority, a policy governing the compensation of office holders based
on specified criteria, to review, from time to time, modifications to the compensation policy and examine its
implementation and to approve the actual compensation terms of office holders prior to approval thereof by the
board of directors.
All the members of our audit committee are “independent directors” under the Nasdaq rules and meet the
additional qualifications for membership on an audit committee and a compensation committee under applicable
law.
Internal Auditor
Under the Companies Law, the board of directors must appoint an internal auditor proposed by the audit
committee. The role of the internal auditor is to examine, among other things, whether the company’s actions
comply with the law and orderly business procedure. The internal auditor must satisfy certain independence
standards. Ms. Dana Gottesman-Erlich, C.P.A., partner of the accounting firm of BDO Israel, serves as our internal
auditor.
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 requires an office holder to act with the level of care with which a reasonable office holder in the same
position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means
to obtain:
●
information on the advisability of a given action brought for his approval or performed by him by
virtue of his position; and
●
all other important information pertaining to these actions.
44
The duty of loyalty of an office holder includes a duty to:
●
refrain from any conflict of interest between the performance of his duties in the company and the
performance of his other duties or his personal affairs;
●
refrain from any activity that is competitive with the company;
●
refrain from exploiting any business opportunity of the company to receive a personal gain for
himself or others; and
● disclose to the company any information or documents relating to a company’s affairs which the
office holder has received due to his position as an office holder.
Disclosure of Personal Interest of an Office Holder
The Companies Law requires that an office holder of a company disclose to the company any personal
interest that he may have and all related material information known to him, in connection with any existing or
proposed transaction by the company. The disclosure is required to be made promptly and in any event no later than
the board of directors meeting in which the transaction is first discussed. If the transaction is an extraordinary
transaction, the office holder must also disclose any personal interest held by:
●
●
the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and
the spouses of any of these people; or
any corporation in which the office holder is a 5% or greater shareholder, director or general
manager or in which he has the right to appoint at least one director or the general manager.
Under Israeli law, an extraordinary transaction is a transaction:
● other than in the ordinary course of business;
● otherwise than on market terms; or
●
that is likely to have a material impact on the company’s profitability, assets or liabilities.
Approval of Related Party Transactions
Once an office holder complies with the above disclosure requirement, the board of directors may approve
a transaction between the company and an office holder, or a third party in which an office holder has a personal
interest. A transaction that is adverse to the company’s interest may not be approved.
If the transaction is an extraordinary transaction, approval of both the audit committee and the board of
directors is required. Under specific circumstances, shareholder approval may also be required.
45
Office Holder Compensation
In general, all office holders’ 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 company’s 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 generally must be approved separately by the compensation committee, the board of directors and the
shareholders of the company, in that order. The compensation terms of other officers require the approval of the
compensation committee and the board of directors.
Disclosure of Personal Interests of a Controlling Shareholder
Under the Companies Law, the disclosure requirements, which apply to an office holder, also apply to a
controlling shareholder of a public company. For this purpose, a controlling shareholder is a shareholder who has the
ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no
other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely
from his or her position on the board of directors or any other position with the company. Extraordinary transactions
with a controlling shareholder or in which a controlling shareholder has a personal interest (other than compensation
matters, which are discussed above under “Office Holder Compensation”), require the approval of the audit
committee, the board of directors and the shareholders of the company, in that order. Except under specific
circumstances, such a transaction needs to be re-approved in accordance with the foregoing procedure once in every
three years. The shareholder approval must be by a majority of the shares voted on the matter, provided that either:
●
●
at least a majority of the shares of shareholders who have no personal interest in the transaction
and who vote on the matter vote in favor thereof; or
the shareholders who have no personal interest in the transaction who vote against the transaction
do not represent more than two percent of the voting rights in the company.
Shareholders generally have the right to examine any document in the company’s possession pertaining to
any matter that requires shareholder approval. If this information is made public in Israel or elsewhere, we will file
the information with the SEC in the United States.
For information concerning the direct and indirect personal interests of an office holder and principal
shareholders in specified transactions with us, see Item 7.B “Related Party Transactions.”
Executive Officers
Our executive officers are appointed by our board of directors and serve at the discretion of our board of
directors. We maintain written employment agreements with our executive officers. Each agreement terminates
upon 30 days’ written notice and provides for standard terms and conditions of employment. All of our executive
officers have agreed not to compete with us for 12 months (or 24 months in the case of Monica Iancu) following the
termination of their employment with us. Monica Iancu is entitled to severance pay upon termination of her
employment by either her or us (other than by us for cause) and to receive, during each month of the six-month
period following termination of her employment by us, or by her for cause, an amount of salary and benefits equal to
her former monthly salary and other benefits. Under Israeli case law, the non-competition undertakings of
employees may not be enforceable.
46
D. Employees
In the years ended December 31, 2019, 2020 and 2021, our total number of employees was 214, 188 and
160, respectively. The numbers and breakdowns of our employees as of the end of the past three years are set forth
in the following table:
Approximate numbers of employees by geographic location
Israel
Romania
United States
Germany
Total workforce
Approximate numbers of employees by category of activity
General and administration
Research and development
Professional services and customer support
Sales and marketing
Total workforce
E. Share Ownership
As of December 31,
2020
2019
2021
25
171
2
16
214
18
138
46
12
214
25
147
-
16
188
15
115
47
11
188
23
124
-
13
14
103
32
11
160
As of April 1, 2022, Monica Iancu beneficially owned 3,316,625, or 16.5% of our ordinary shares. None of
our other directors or members of senior management beneficially owns 1% or more of our ordinary shares.
We have established stock option plans to provide for the issuance of options to our directors, officers and
employees. Our most recent share incentive plan was adopted by our shareholders at our 2011 annual general
meeting, or the 2011 Share Incentive Plan. Under the 2011 Share Incentive Plan, our ordinary shares and/or options
to purchase our ordinary shares may be issued from time to time to our directors, officers, employees, consultants
and contractors at exercise prices and on other terms and conditions as determined by our board of directors. Our
board of directors determines the exercise price and the vesting period of options granted. Unless otherwise is
determined by our Board, any award granted under the 2011 Share Incentive Plan will have a four-year vesting
schedule, such that 50% of the award will vest on the second anniversary of the commencement date and 25% of the
award will vest on each of the third and fourth anniversaries of the commencement date.
As of April 1, 2022, options to purchase 392,500 ordinary shares were outstanding and options for
2,315,290 ordinary shares had been exercised. The options vest over four years, primarily commencing on the date
of grant. Generally, options not previously exercised will expire five years after they are granted. Our board of
directors elected the capital gains treatment afforded under Section 102 of the Israeli Income Tax Ordinance [New
Version], 1961, or the Tax Ordinance, in respect of options and ordinary shares awarded to our Israeli employees
under our option or share incentive plans after January 1, 2003. Accordingly, gains derived from options awarded to
our Israeli employees and held by a trustee for two years from the date of grant, will generally be taxed as capital
gains at a rate of 25%, and we will generally not be entitled to recognize an expense for the award of such options.
On September 2, 2021, Ms. Iancu adopted a Rule 10b5-1 Sale Plan in order to establish a systematic
program by which Oppenheimer & Co. Inc. is instructed to sell on Nasdaq up to 1,800,000 ordinary shares held by
her pursuant to the guidelines set forth therein. As of March 1, 2022, no shares were sold under this plan.
47
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares
as of April 1, 2022, unless otherwise specified, by each person who is known to own beneficially 5% or more of the
outstanding ordinary shares.
Name of Beneficial Owners
Monica Iancu
Invesco Ltd. and affiliates
Morgan Stanley and affiliates
(1) Based on 20,104,326 ordinary shares outstanding on April 1, 2022.
(2) Based on a Schedule 13G/A filed with the SEC on March 5, 2015.
(3) Based on a Schedule 13G filed with the SEC on February 12, 2021.
(4) Based on a Schedule 13G filed with the SEC on February 11, 2022.
Total
Shares
Beneficially
Owned
3,316,625 (2)
1,216,450 (3)
1,273,975 (4)
Percentage
of
Ordinary
Shares(1)
16.5 %
6.1 %
6.3 %
As of April 1, 2022, there were nine holders of record of our ordinary shares in the United States who
collectively held less than 1% of our outstanding ordinary shares. In addition to this amount, there were also
17,164,919 shares held by the Depositary Trust Company in the United States. The number of record holders in the
United States is not representative of the number of beneficial holders nor is it representative of where such
beneficial holders are resident since many of these ordinary shares were held of record by brokers or other
nominees.
B. Related Party Transactions
None.
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
Financial Statements
See Item 18.
Export Sales
We conduct our sales activities primarily directly, by our sales force located in the MIND offices in Israel
and Germany. For information regarding our revenues by geographic market, see Item 5 — “Operating and
Financial Review and Prospects.”
48
Legal Proceedings
We are, or may be, from time to time named as a defendant in certain routine litigation incidental to our
business. However, we are currently not a party to any legal proceedings which may have or have had in the recent
past significant effects on our financial position or profitability.
Dividend Policy
Our dividend policy is distribute a cash dividend once in each calendar year, in the amount approximately
equal to our EBITDA plus financial income (expenses), minus taxes on income. Each dividend under the policy is
subject to board approval and the requirements of applicable law. Our board of directors plans to declare the annual
dividend when it approves the applicable year-end financial statements.
B. Significant Changes
Except as otherwise disclosed in this annual report, no significant change has occurred since December 31,
2021.
Item 9. The Offer and Listing
A. Offer and Listing Details
Our ordinary shares have been listed on the Nasdaq Global Market under the symbol MNDO since August
8, 2000.
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares are quoted on the Nasdaq Global Market under the symbol MNDO.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
49
B. Memorandum and Articles of Associations
Objects and Purposes
We were first registered under Israeli law on April 6, 1995 as a private company, and on August 8, 2000
became a public company. Our registration number with the Israeli registrar of companies is 51-213448-7. The full
details of our objects and purposes can be found in Section 2 of our Memorandum of Association filed with the
Israeli registrar of companies. Among the objects and purposes stipulated are the following: “to engage in any kind
of commercial and/or productive business and to engage in any action or endeavor which the company’s managers
consider to be beneficial to the company.”
Transfer of Shares and Notices
Fully paid ordinary shares are issued in registered form and may be freely transferred pursuant to our
articles of association unless such transfer is restricted or prohibited by another instrument. Unless otherwise
prescribed by law, we will provide at least 21 calendar days’ prior notice of any general shareholders meeting.
Election of Directors
The ordinary shares do not have cumulative voting rights in the election of directors. Thus, the holders of
ordinary shares conferring more than 50% of the voting power have the power to elect all the directors, to the
exclusion of the remaining shareholders. Our board of directors is divided into three classes of directors serving
staggered three-year terms.
Dividend and Liquidation Rights
Dividends on our ordinary shares may be paid only out of profits and other surplus, as defined in the
Companies Law, as of our most recent financial statements or as accrued over a period of two years, whichever is
higher, unless otherwise approved by a court order. Our board of directors is authorized to declare dividends,
provided that there is no reasonable concern that the 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 their respective holdings.
Dividend or liquidation right may be affected by the grant of preferential dividends or distribution rights to the
holders of a class of shares with preferential rights that may be authorized in the future.
Voting, Shareholders’ Meetings and Resolutions
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of
shareholders.
These 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.
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We have two types of general shareholders meetings: the annual general meetings and extraordinary
general meetings. These meetings may be held either in Israel or in any other place the board of directors
determines. An annual general meeting must be held in each calendar year, but not more than 15 months after the
last annual general meeting. Our board of directors may convene an extraordinary meeting, from time to time, at its
discretion and is required to do so upon the request of shareholders holding at least 5% of our ordinary shares.
The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present
in person or by proxy who hold or represent between them at least 25% of the outstanding voting shares, unless
otherwise required by applicable rules. Nasdaq generally requires a quorum of 33-1/3%, but we have an exemption
from that requirement and instead follow the generally accepted business practice for companies in Israel. 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 Chairman may designate with the consent of the shareholders voting on the matter
adjourned. At such reconvened meeting, the required quorum consists of any two members present in person or by
proxy, unless otherwise required by applicable rules.
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all
resolutions of the shareholders require a simple majority of the shares present, in person or by proxy, and voting on
the matter. However, our articles of association require approval of 75% of the shares present and voting to remove
directors or change the structure of our staggered board of directors.
We file annual reports on Form 20-F electronically with the SEC and post a copy on our website.
Duties of Shareholders
Under the Companies Law, each and every shareholder has a duty to act in good faith in exercising his
rights and fulfilling his obligations towards the company and other shareholders and to refrain from abusing his
power in the company, such as in voting in the general meeting of shareholders on the following matters:
●
any amendment to the articles of association;
●
an increase of the company’s authorized share capital;
●
a merger; or
●
approval of certain actions and transactions which require shareholder approval.
In addition, each and every shareholder has the general duty to refrain from depriving rights of other
shareholders. Furthermore, any controlling shareholder, any shareholder who knows that it possesses the power to
determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions of the articles of
association, has the power to appoint or to prevent the appointment of an office holder in the company or any other
power toward the company is under a duty to act in fairness towards the company. The Companies Law does not
describe the substance of this duty of fairness. These various shareholder duties, which typically do not apply to
shareholders of U.S. companies, may restrict the ability of a shareholder to act in what the shareholder perceives to
be its own best interests.
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Restrictions on Non-Israeli Residents
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of
countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or
articles of association or by the laws of the State of Israel.
Mergers and Acquisitions under Israeli Law
The Companies Law includes provisions that allow a merger transaction and requires that each company
that is party to a merger approve the transaction by its board of directors and a vote of the majority of its shares,
voting on the proposed merger at a shareholders’ meeting. For purposes of the shareholder vote, unless a court rules
otherwise, the merger will not be deemed approved if a majority of the shares held by parties other than the other
party to the merger, or by any person who holds 25% or more of the shares or the right to appoint 25% or more of
the directors of the other party, vote against the merger. Upon the request of a creditor of either party of the
proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern
that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to
the merger. In addition, a merger may not be completed unless at least (i) 50 days have passed from the time that a
proposal of the merger has been filed by each party with the Israeli Registrar of Companies and (ii) 30 days have
passed since the merger was approved by the shareholders of each party.
The Companies Law also provides that an acquisition of shares of public company must be made by means
of tender offer if as a result of the acquisition the purchaser would become a 25% or more shareholder of the
company and there is no 25% or more shareholder in the company. In addition, an acquisition of shares of a public
company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a
greater than 45% shareholder of the company and there is greater than 45% shareholder in the company. These
requirements do not apply if the acquisition (i) is made in a private placement that received shareholder approval,
(ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the
company or (iii) was from a greater than 45% shareholder of the company and resulted in the acquirer becoming a
greater than 45% shareholder of the company. The tender offer must be extended to all shareholders, but the offer or
is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are
tendered by shareholders. The tender offer may be consummated only if (i) at least 5% of the company’s outstanding
shares will be acquired by the offer and (ii) the number of shares tendered in the offer exceeds the number of shares
whose holders objected to the offer.
If as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s outstanding
shares, the Companies Law requires that the acquisition be made by means of a tender offer for all of the
outstanding shares. If as a result of a full tender offer the acquirer would own more than 95% of the outstanding
shares, then all the shares that the acquirer offered to purchase will be transferred to it. The law provides for
appraisal rights if any shareholder files a request in court within six months following the consummation of a full
tender offer, although the acquirer may stipulate that any tendering shareholders forfeit their appraisal rights. If as a
result of a full tender offer the acquirer would own 95% or less of the outstanding shares, then the acquirer may not
acquire shares that will cause his shareholding to exceed 90% of the outstanding shares.
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Finally, Israeli tax law treats stock-for-stock acquisitions between an Israeli company and a foreign
company less favorably than does U.S. tax law. For example, Israeli tax law subjects a shareholder who exchanges
his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-
for-stock swap.
Modification of Class Rights
Our articles of association provide that the rights attached to any class (unless otherwise provided by the
terms of such class), such as voting, rights to dividends and the like, may be varied by a shareholders resolution,
subject to the approval of the holders of a majority of the issued shares of that class.
Board of Directors
According to the Companies Law and our articles of association, the oversight of the management of our
business is vested in our board of directors. The board of directors may exercise all such powers and may take all
such actions that are not specifically granted to our shareholders. As part of its powers, our board of directors may
cause the company to borrow or secure payment of any sum or sums of money, at such times and upon such terms
and conditions as it thinks fit, including the grants of security interests on all or any part of the property of the
company.
A resolution proposed at any meeting of the board of directors shall be deemed adopted if approved by a
majority of the directors present and voting on the matter. For additional information, please see Item 6.C “Board
Practices.”
Exculpation of Office Holders
Under the Companies Law, an Israeli company may not exempt an office holder from liability for a breach
of his duty of loyalty, but may exempt in advance an office holder from his liability to the company, in whole or in
part, for a breach of his duty of care (except in connection with distributions) provided the articles of association of
the company allow it to do so. Our articles allow us to exempt our office holders to the fullest extent permitted by
law.
Insurance of Office Holders
Our articles of association provide that, subject to the provisions of the Companies Law, we may enter into
a contract for the insurance of the liability of any of our office holders, with respect to an act performed in the
capacity of an office holder for:
●
a breach of his duty of care to us or to another person;
●
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had
reasonable cause to assume that his act would not prejudice our interests; or
●
a financial liability imposed upon him in favor of another person.
53
Indemnification of Office Holders
Our articles of association provide that we may indemnify an office holder against the following
obligations and expenses imposed on or incurred by the office holder with respect to an act performed in the
capacity of an office holder:
●
●
●
●
a financial obligation imposed on him in favor of another person by a court judgment, including a
settlement or an arbitrator’s award approved by the court; such indemnification may be approved (i)
after the liability has been incurred or (ii) in advance, provided that our undertaking to indemnify is
limited to events that our board of directors believes are foreseeable in light of our actual operations at
the time of providing the undertaking and to a sum or criterion that our board of directors determines to
be reasonable under the circumstances;
reasonable litigation expenses, including attorneys’ fees, expended by the office holder as a result of an
investigation or proceeding instituted against him by a competent authority, provided that such
investigation or proceeding concluded without the filing of an indictment against him and either (A)
concluded without the imposition of any financial liability in lieu of criminal proceedings or (B)
concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a
criminal offense that does not require proof of criminal intent or in connection with a financial
sanction;
reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to
him by a court in connection with: (A) proceedings we institute against him or instituted on our behalf
or by another person; or (B) a criminal charge from which he was acquitted; or (C) a criminal
proceeding in which he was convicted of an offense that does not require proof of criminal intent; and
a financial obligation imposed upon an office holder and reasonable litigation expenses, including
attorney fees, expended by the office holder as a result of an administrative proceeding instituted
against him. Without derogating from the generality of the foregoing, such obligation or expense will
include a payment which the office holder is obligated to make to an injured party as set forth in
Section 52(54)(a)(1)(a) of the Securities Law and expenses that the office holder incurred in
connection with a proceeding under Chapters H’3, H’4 or I’1 of the Securities Law, including
reasonable legal expenses, which term includes attorney fees.
Limitations on Exculpation, Insurance and Indemnification
The Companies Law provides that a company may not exculpate or indemnify an office holder, or enter
into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of
the following:
●
a breach by the office holder of his duty of loyalty unless, with respect to indemnification or insurance
coverage, the office holder acted in good faith and had a reasonable basis to believe that the act would
not prejudice the company;
54
●
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly;
●
any act or omission done with the intent to derive an illegal personal benefit; or
●
any fine levied against the office holder.
In addition, under the Companies Law, indemnification of, and procurement of insurance coverage for, our
office holders must be approved by our audit committee and our board of directors and, if the beneficiary is a
director, by our shareholders.
We have agreed to exempt from liability and indemnify our office holders to the fullest extent permitted
under the Companies Law. We currently do not maintain directors and officers liability insurance for the benefit of
our office holders.
C. Material Contracts
None.
D. Exchange Controls
There are currently no Israeli currency control restrictions on payments of dividends or other distributions
with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli
residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect,
pursuant to which currency controls can be imposed by administrative action at any time.
E. Taxation
Israeli Tax Considerations
The following is a summary of the current tax structure applicable to companies in Israel, with special
reference to its effect on us. Note that this tax structure and any resulting benefit may not apply for any income
derived by our foreign subsidiaries, which subsidiaries may be taxed according to tax laws applicable to their
country of residence. The following also contains a discussion of the material Israeli tax consequences to persons
purchasing our ordinary shares. To the extent that the discussion is based on tax legislation, which has not been
subject to judicial or administrative interpretation, we cannot assure you that the tax authorities or courts will accept
the views expressed in the discussion in question.
Prospective purchasers of our ordinary shares should consult their own tax advisors as to the United States,
Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in
particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure
The general rate of corporate tax in Israel to which Israeli companies are subject is 23% for the 2021 tax
year and for future years. The general rate of capital gains tax in Israel to which Israeli companies are subject is the
corporate tax rate. However, the effective tax rate payable by a company which derives income from an “Approved
Enterprise”, “Preferred Enterprise” or “Preferred Technological Enterprise” (all as defined below) may be
considerably less, as further discussed below.
55
Law for the Encouragement of Capital Investments, 1959
General
The Law for Encouragement of Capital Investments, 1959, or the Investments Law, as in effect until 2005,
provided that upon application to the Investment Center of the Ministry of Industry and Trade of the State of Israel,
a proposed capital investment in eligible facilities may be designated as an “Approved Enterprise.” Please see
discussion below regarding reforms of the Investments Law that came into effect in 2011 and in 2017.
Our Approved and Preferred Enterprises
During 2011, we decided to implement the new legislation amending the Investments Law, while waiving
future benefits provided from the Approved Enterprise program under the Investments Law (see more details
hereinafter).
Further information with regard to our Approved and Preferred Enterprise programs can be found in Item 3,
“Risk Factors” under the caption “We currently benefit from local tax benefits that may be discontinued or reduced”
and in Note 8 of our Consolidated Financial Statements under the caption “Taxes on Income.”
Reform of the Investments Law - 2011
On December 29, 2010, the Israeli parliament approved an amendment to the Investments Law, effective as
of January 1, 2011, which constitutes a reform of the incentives regime under such law. This amendment revises the
objectives of the Investments Law to focus on achieving enhanced growth in the business sector, improving the
Israeli industry’s competitiveness in international markets and creating employment and development opportunities
in remote areas of Israel. The amendment allows enterprises meeting certain required criteria to enjoy grants as well
as tax benefits. The amendment also introduces certain changes to the map of geographic development areas for
purposes of the Investments Law, which will take effect in future years.
The amendment generally abolishes the previous tax benefit routes that were afforded under the
Investments Law, specifically the tax-exemption periods previously allowed, and introduces new tax benefits for
industrial enterprises meeting the criteria of the law, which include the following:
● A reduced corporate tax rate for industrial enterprises, provided that more than 25% of their annual
income is derived from export, which will apply to the enterprise’s entire preferred income the reduced
tax rate in recent years is 9% for development area A and 16% for the rest of Israel. Under an
amendment to the Investment Law enacted in December 2016, the reduced tax rate of 9% decreased to
7.5% for 2017 and thereafter.
56
● The reduced tax rates will no longer be contingent upon making a minimum qualifying investment in
productive assets.
● A definition of “preferred income” was introduced into the Investments Law to include certain types of
income that are generated by the Israeli production activity of a Preferred Enterprise.
● A reduced dividend withholding tax rate of 15% will apply to dividends paid from preferred income to
both Israeli and non-Israeli investors, with an exemption from such withholding tax applying to
dividends paid to an Israeli company. Under a later amendment of the Investments Law, the dividend
withholding tax rate of 15% was increased to 20% for dividends paid from preferred income that
accrued from the tax year 2014 and onwards.
The amendment will generally apply to preferred income produced or generated by a Preferred Company
(as defined in the Investments Law) commencing from January 1, 2011. The amendment contains various transition
provisions which allow, under certain circumstances, to apply the new regime to investment programs previously
approved or elected under the Investments Law in its previous form. Although this recent amendment took effect on
January 1, 2011, the transitional provisions of its adoption also allow the company to defer its adoption to future
years.
The 2017 amendment (“Preferred Technological Enterprises”)
Amendment 73 to the Investments Law, which came into effect on January 1, 2017, provides a new tax
incentive regime. Regulations have been promulgated to implement the “Nexus Principles,” based on OECD
guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project.
The new incentive regime applies to “Preferred Technological Enterprises” that meet certain conditions,
including all of the following:
● The company’s average R&D expenses in the three years prior to the current tax year must be greater
than or equal to 7% of its total revenue or exceed NIS 75 million (approximately $20 million) per year;
and
● The company must satisfy one of the following conditions:
●
at least 20% of the workforce (or at least 200 employees) are employed in R&D;
●
a venture capital investment in an amount approximately equivalent to at least NIS 8 million was
previously made in the company, and the company has not changed its business following such
investment; or
● growth in sales or workforce by an average of 25% over the three years preceding the applicable tax
year, and the company’s total revenue was at least NIS 10 million or at least 50 employees are
employed by the company over the three years preceding the applicate tax year.
57
A Preferred Technological Enterprises will be subject to a corporate tax rate of 12% unless it is located in a
specified development zone, in which case the rate will be 7.5%, all with respect to the portion of income derived
from eligible intellectual property developed in Israel. The withholding tax on dividends from such enterprises will
be 4% for dividends paid to a foreign parent company holding at least 90% of the shares of the distributing
company. For other dividend distributions, the withholding tax rate will be 20% (or a lower rate provided under a
tax treaty, if applicable).
On February 18, 2018, the Israel Tax Authority issued a tax ruling granting us “Preferred Technological
Enterprise” status, subject to the conditions and terms of the tax ruling. The grant of the status means that starting
January 1, 2017 we are subject to a reduced Israeli corporate tax rate of 7.5% on any future taxable “technological
income”.
The tax ruling was in force for five years through the 2021 tax year. On January 16, 2022, the tax ruling
was extended by the Israel Tax Authority for an additional period of five years through the 2026 tax year.
Dividends Taxation
When dividends are distributed from the Preferred Enterprise, they are generally considered to be
attributable to the entire enterprise and their effective tax rate is a result of a weighted combination of the applicable
tax rates. Further information with regard to taxation of dividends can be found in Note 8 of our Consolidated
Financial Statements.
We paid dividends to our shareholders in the amount of $5.1 million in 2019, $4.8 million in 2020, and
$5.2 million in 2021. In March 2022, we declared a dividend of approximately $5.2 million and withholding tax
applied at a rate of 22%.
Law for the Encouragement of Industry (Taxes), 1969
Under the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law, a
company qualifies as an “Industrial Company” if it is resident in Israel and at least 90% of its income in a given tax
year, determined in NIS, exclusive of income from certain government loans, is derived from Industrial Enterprises
owned by that company. An “Industrial Enterprise” is defined as an enterprise whose major activity in a particular
tax year is industrial production activity.
Industrial Companies qualify (based on tax regulations) for accelerated depreciation rates for machinery,
equipment and buildings used by an Industrial Enterprise. An Industrial Company owning an Approved Enterprise,
as described above, may choose between the above depreciation rates and the depreciation rates available to
Approved Enterprises.
Pursuant to the Industry Encouragement Law, an Industrial Company is also entitled to amortize the
purchase price of know-how and patents over a period of eight years beginning with the year in which such rights
were first used.
58
In addition, an Industrial Company is entitled to deduct over a three-year period expenses involved with the
issuance and listing of shares on a stock exchange and has the right, under certain conditions, to elect to file a
consolidated tax return with related Israeli Industrial Companies that satisfy conditions set forth in the law.
Eligibility for the benefits under the law is not subject to receipt of prior approval from any governmental
authority. We believe that we currently qualify as an Industrial Company within the definition of the Industry
Encouragement Law. However, the definition may be amended from time to time and the Israeli tax authorities,
which reassess our qualifications annually, may determine that we no longer qualify as an Industrial Company. As a
result of either of the foregoing, the benefits described above might not be available in the future.
Israeli Transfer Pricing Regulations
On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated
under Section 85A of the Tax Ordinance, or the Transfer Pricing Regulations, came into force. Section 85A of the
Tax Ordinance and the Transfer Pricing Regulations generally require that all cross-border transactions carried out
between related parties will be conducted on an arm’s length principle basis and will be taxed accordingly.
Capital Gains Tax on the Sale of our Ordinary Shares
General
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
non-residents of Israel, unless a specific exemption is available or unless 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 equal to the increase in the purchase price of the relevant asset 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.
Israeli Residents
Generally, 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 will generally be taxed at a rate of 30%. Additionally, if such
shareholder is considered a “significant 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
the company, the tax rate will be 30%. However, the foregoing tax rates will not apply to individuals: (i) who are
dealers in securities; or (ii) who acquired their shares prior to an initial public offering (that may be subject to a
different tax arrangement). Israeli companies are subject to the corporate tax rate on capital gains derived from the
sale of listed shares.
Shareholders that are individuals who have taxable income that exceeds a certain threshold in a tax year
(linked to the CPI, which threshold is NIS 663,240 in the 2022 tax year), will be subject to an additional tax, referred
to as High Income Tax, at the rate of 3% on their taxable income for such tax year which is in excess of such
threshold. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable
income from dividend distributions.
59
Non-Residents of Israel
Non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares
publicly traded on a recognized stock market outside of Israel, provided that such capital gains are not derived from
a permanent establishment in Israel and that such shareholders did not acquire their shares prior to the issuer’s 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 of or are entitled
to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares,
the payment of the consideration may be subject to the withholding of Israeli tax at the source.
Pursuant to the Convention between the Government of the United States of America and the Government
of Israel with Respect to Taxes on Income, as amended, or the U.S.- Israel Tax Treaty, the sale, exchange or
disposition of our ordinary shares by a person who qualifies as a resident of the United States and is entitled to claim
the benefits afforded to a resident, or a Treaty U.S. Resident, will not be subject to Israeli capital gains tax unless (i)
the Treaty U.S. Resident held, directly or indirectly, shares representing 10% or more of our voting power during
any part of the 12-month period preceding the sale, exchange or disposition, (ii) the capital gains from such sale can
be allocated to a permanent establishment in Israel or (iii) such Treaty U.S. Resident is an individual and was
present in Israel for 183 days or more during the relevant taxable year. A sale, exchange or disposition of our
ordinary shares by a Treaty U.S. Resident who does not meet the above conditions will be subject to Israeli capital
gains tax, to the extent applicable. However, under the U.S.-Israel Tax Treaty, this Treaty U.S. Resident would be
permitted to claim a credit for such taxes against 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 state or local taxes.
A non-resident of Israel who receives dividend income or that realizes capital gains derived from the sale of
our ordinary shares, from which tax was withheld at the source, in practice, is exempt from the duty to file tax
returns in Israel with respect to such income, provided such income was not derived from a business conducted in
Israel by the taxpayer and the taxpayer has no other taxable sources of income in Israel.
Dividend Taxation
Income Taxes on Dividends Distributed by the Company to Israeli Residents
The distribution of dividend income to Israeli residents will generally be subject to income tax at a rate of
25% for individuals and will be exempt from income tax for corporations. The portion of dividends paid out of
profits earned under a Preferred Enterprise (accrued from the 2014 tax year and onwards) or a Preferred
Technological Enterprise tax status of the Company to individuals is subject to withholding tax at the rate of 20%.
In addition, if an Individual Israeli shareholder is considered a “significant shareholder” at any time during
the 12-month period preceding such distribution, i.e., such shareholder holds directly or indirectly, including with
others, at least 10% of any means of control in the company, the tax rate on the dividend (not sourced from eligible
Preferred Enterprise or Preferred Technological Enterprise income) will be 30%.
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For information with respect to the applicability of High Income Tax on distribution of dividends, see
“Capital Gains Tax on Sales of Our Ordinary Shares - Taxation of Israeli Residents.”
Income Taxes on Dividends Distributed by the Company to Non-Israeli Residents
Subject to the provisions of applicable tax treaties, dividend distributions from regular profits (non-
Preferred Enterprise) by the Company to a non-resident shareholder are generally subject to withholding tax of 25%.
The portion of dividends paid out of profits earned under a Preferred Enterprise (accrued from the 2014 tax year and
onwards) or a Preferred Technological Enterprise tax status of the Company is subject to withholding tax at the rate
of 20%.
Generally, under the U.S-Israel Tax Treaty the maximum rate of withholding tax on dividends paid to a
shareholder who is a resident of the United States (as defined in the U.S. – Israel Tax Treaty) will be 25%. However,
when a U.S. tax resident corporation is the recipient of the dividend, the withholding tax rate on a dividend out of
regular (non-Approved/Preferred Enterprise/Preferred Technological Enterprise) profits may be reduced to 12.5%
under the U.S-Israel Tax Treaty, where the following conditions are met:
(a)
(b)
the recipient corporation owns at least 10% of the outstanding voting rights of the Company for all of the
period preceding the dividend during the Company’s current and prior taxable year; and
generally not more than 25% of the gross income of the paying corporation for its prior tax year consists of
certain interest and dividend income.
Otherwise, the usual rates apply. Dividends paid to such U.S. corporation from income derived during any
period for which the Israeli company is entitled to the reduced tax rate applicable to an Approved Enterprise,
Preferred Enterprise or Preferred Technological Enterprise will be subject to a 15% tax rate, provided that the
conditions in clauses (a) and (b) above are met.
U.S. Federal Income Taxation
Subject to the limitations described in the next paragraph, the following discussion summarizes the material
U.S. federal income tax consequences to a “U.S. Holder” arising from the purchase, ownership and sale of the
Ordinary Shares. For this purpose, a “U.S. Holder” is a holder of Ordinary Shares that is: (1) an individual citizen or
resident of the United States, including an alien individual who is a lawful permanent resident of the United States
or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or other entity
treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is not
treated as a U.S. person under any applicable U.S. Treasury Regulations) created or organized in or under the laws
of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of
which is subject to U.S. federal income tax regardless of source; (4) a trust if a court within the United States is able
to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust; (5) a trust that has a valid election in effect to be treated as a U.S. person
to the extent provided in U.S. Treasury regulations; or (6) any person otherwise subject to U.S. federal income tax
on a net income basis in respect of the Ordinary Shares, if such status as a U.S. Holder is not overridden pursuant to
the provisions of an applicable tax treaty.
61
This summary is for general information purposes only and does not purport to be a comprehensive
description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase or hold
our Ordinary Shares. This summary generally considers only U.S. Holders that will own our Ordinary Shares as
capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax
consequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s
status as a U.S. Holder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended,
or the Code, final, temporary and proposed U.S. Treasury Regulations promulgated thereunder, administrative and
judicial interpretations thereof, and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of
which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations.
The Company will not seek a ruling from the U.S. Internal Revenue Service, or the IRS, with regard to the U.S.
federal income tax treatment of an investment in our Ordinary Shares by U.S. Holders and, therefore, can provide no
assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a
particular shareholder based on such shareholder’s particular circumstances and in particular does not discuss any
estate, gift, generation-skipping, transfer, state, local or foreign tax considerations. In addition, this discussion does
not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company,
regulated investment company, or other financial institution or “financial services entity”; (2) a broker or dealer in
securities or foreign currency; (3) a person who acquired our Ordinary Shares in connection with employment or
other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S.
Holder that holds our Ordinary Shares as a hedge or as part of a hedging, straddle, conversion or constructive sale
transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real
estate investment trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of
the United States; or (9) a person having a functional currency other than the dollar. This discussion does not
address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time,
Ordinary Shares representing 10% or more of our voting power. Additionally, the U.S. federal income tax treatment
of persons who hold Ordinary Shares through a partnership or other pass-through entity are not considered.
You are encouraged to consult your own tax advisor with respect to the specific U.S. federal and state
income tax consequences to you of purchasing, holding or disposing of our Ordinary Shares, including the effects of
applicable state, local, foreign or other tax laws and possible changes in the tax laws.
Distributions on Ordinary Shares
Subject to the discussion under the heading “Passive Foreign Investment Companies” below, a U.S. Holder
will be required to include in gross income as ordinary income the amount of any distribution paid on Ordinary
Shares (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such
distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal
income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a
non-taxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares to the extent thereof, and
then capital gain. Corporate holders generally will not be allowed a deduction for dividends received. For
noncorporate U.S. Holders, to the extent that their total adjusted income does not exceed applicable thresholds, the
maximum federal income tax rate for “qualified dividend income” and long-term capital gains is generally 15%. For
those noncorporate U.S. Holders whose total adjusted income exceeds such income thresholds, the maximum federal
income tax rate for “qualified dividend income” and long-term capital gains is generally 20%. For this purpose,
“qualified dividend income” means, among other things, dividends received from a “qualified foreign corporation.”
A “qualified foreign corporation” is a corporation that is entitled to the benefits of a comprehensive tax treaty with
the United States which includes an exchange of information program. The IRS has stated that the Israel/U.S. Tax
Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
62
In addition, our dividends will be qualified dividend income if our Ordinary Shares are readily tradable on
Nasdaq or another established securities market in the United States. Dividends will not qualify for the preferential
rate if we are treated, in the year the dividend is paid or in the prior year, as a passive foreign investment company,
or PFIC. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our Ordinary
Shares or ADRs for at least 61 days of the 121-day period beginning on the date which is 60 days before the ex-
dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments on substantially
similar property. Any days during which the U.S. Holder has diminished its risk of loss on our Ordinary Shares are
not counted towards meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income
as “investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our Ordinary Shares will be measured by the amount of the fair
market value of any property distributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes
withheld therefrom. (See discussion above under “Israeli Tax Considerations - Dividend Taxation.”) Cash
distributions paid by us in NIS will be included in the income of U.S. Holders at a dollar amount based upon the
spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.
Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such dollar value. If the U.S.
Holder subsequently converts the NIS, any subsequent gain or loss in respect of such NIS arising from exchange rate
fluctuations will be U.S. source ordinary exchange gain or loss.
Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes.
Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S.
income tax liability for Israeli income tax withheld from distributions received in respect of the Ordinary Shares. In
general, these rules limit the amount allowable as a foreign tax credit in any year to the amount of regular U.S. tax
for the year attributable to foreign source taxable income. This limitation on the use of foreign tax credits generally
will not apply to an electing individual U.S. Holder whose creditable foreign taxes during the year do not exceed
$300, or $600 for joint filers, if such individual’s gross income for the taxable year from non-U.S. sources consists
solely of certain passive income. A U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax
withheld from dividends received with respect to the Ordinary Shares if such U.S. Holder has not held the Ordinary
Shares for at least 16 days out of the 31-day period beginning on the date that is 15 days before the ex-dividend date
or to the extent that such U.S. Holder is under an obligation to make certain related payments with respect to
substantially similar or related property. Any day during which a U.S. Holder has substantially diminished his or her
risk of loss with respect to the Ordinary Shares will not count toward meeting the 16-day holding period. A U.S.
Holder will also be denied a foreign tax credit if the U.S. Holder holds the Ordinary Shares in an arrangement in
which the U.S. Holder’s reasonably expected economic profit is insubstantial compared to the foreign taxes
expected to be paid or accrued. The rules relating to the determination of the U.S. foreign tax credit are complex,
and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are
entitled to such credit. U.S. Holders that do not elect to claim a foreign tax credit may instead claim a deduction for
Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.
63
Disposition of Shares
Except as provided under the PFIC rules described below, upon the sale, exchange or other disposition of
our Ordinary Shares, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between
such U.S. Holder’s tax basis in the sold Ordinary Shares and the amount realized on the disposition of such Ordinary
Shares (or its dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, if the
amount realized is denominated in a foreign currency). The gain or loss realized on the sale or exchange or other
disposition of Ordinary Shares will be long-term capital gain or loss if the U.S. Holder has a holding period of more
than one year at the time of the disposition.
In general, gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares will
generally be treated as U.S. source income for U.S. foreign tax credit purposes. A loss realized by a U.S. Holder on
the sale, exchange or other disposition of Ordinary Shares is generally allocated to U.S. source income. However,
U.S. Treasury Regulations require such loss to be allocated to foreign source income to the extent specified
dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer
recognized the loss. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares
is subject to limitations.
Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay 3.8% tax on their net
investment income (including dividends on and gains from the sale or other disposition of our Ordinary Shares), or
in the case of estates and trusts on their net investment income that is not distributed. In each case, the 3.8%
Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Passive Foreign Investment Companies
Special U.S. federal income tax laws apply to a U.S. Holder who owns shares of a corporation that was (at
any time during the U.S. Holder’s holding period) a PFIC. We would be treated as a PFIC for U.S. federal income
tax purposes for any tax year if, in such tax year, either:
● 75% or more of our gross income (including our pro rata share of gross income for any company, U.S.
or foreign, in which we are considered to own 25% or more of the shares by value), in a taxable year is
passive, or the Income Test; or
● At least 50% of our assets, averaged over the year and generally determined based upon value
(including our pro rata share of the assets of any company in which we are considered to own 25% or
more of the shares by value), in a taxable year are held for the production of, or produce, passive
income, or the Asset Test.
64
For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and
income from certain commodities transactions and from notional principal contracts. Cash is treated as generating
passive income.
If we are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by
making a “QEF election”, or who has not elected to mark the shares to market (as discussed below), would, upon
receipt of certain distributions by us and upon disposition of our Ordinary Shares at a gain, be liable to pay U.S.
federal income tax at the then prevailing highest tax rates on ordinary income plus interest on such tax, as if the
distribution or gain had been recognized ratably over the taxpayer’s holding period for the Ordinary Shares. In
addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax
basis of such shares would not receive a step-up to fair market value as of the date of the decedent’s death, but
instead would be equal to the decedent’s basis if lower, unless all gain were recognized by the decedent. Indirect
investments in a PFIC may also be subject to special U.S. federal income tax rules.
The PFIC rules would not apply to a U.S. Holder who makes a QEF election for all taxable years that such
U.S. Holder has held the Ordinary Shares while we are a PFIC, provided that we comply with specified reporting
requirements. Instead, each U.S. Holder who has made such a QEF election is required for each taxable year that we
are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary income and
such U.S. Holder’s pro rata share of our net capital gains as long-term capital gain, regardless of whether we make
any distributions of such earnings or gain. In general, a QEF election is effective only if we make available certain
required information. The QEF election is made on a shareholder-by-shareholder basis and generally may be
revoked only with the consent of the IRS. U.S. Holders should consult with their own tax advisors regarding
eligibility, manner and advisability of making a QEF election if we are treated as a PFIC.
A U.S. Holder of PFIC shares which are traded on qualifying public markets, including the Nasdaq, can
elect to mark the shares to market annually, recognizing 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 the U.S. Holder’s
adjusted tax basis in the PFIC shares. Losses are allowed only to the extent of net mark-to-market gain previously
included income by the U.S. Holder under the election for prior taxable years.
In light of the complexity of PFIC rules, we cannot assure you that we have not been or are not a PFIC or
will avoid becoming a PFIC in the future. U.S. Holders who hold Ordinary Shares during a period when we are a
PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S.
Holders who made a QEF or mark-to-market election. U.S. Holders are strongly urged to consult their tax advisors
about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them
of making a QEF or mark-to-market election with respect to our Ordinary Shares in the event we that qualify as a
PFIC.
65
Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding (at a rate of 24%) with respect to cash dividends and
proceeds from a disposition of Ordinary Shares. In general, back-up withholding will apply only if a U.S. Holder
fails to comply with specified identification procedures. Backup withholding will not apply with respect to payments
made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is
not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder,
provided that the required information is timely furnished to the IRS.
Under the Hiring Incentives to Restore Employment Act of 2010, or the HIRE Act, some payments made to
“foreign financial institutions” in respect of accounts of U.S. stockholders at such financial institutions may be
subject to withholding at a rate of 30%. U.S. Treasury Regulations provide that such withholding will only apply to
distributions paid on or after January 1, 2014, and to other “withholdable payments” (including payments of gross
proceeds from a sale or other disposition of our Ordinary Shares) made on or after January 1, 2017. U.S. Holders
should consult their tax advisors regarding the effect, if any, of the HIRE Act on their ownership and disposition of
our Ordinary Shares. See “Non-U.S. Holders of Ordinary Shares.”
Non-U.S. Holders of Ordinary Shares
Except as provided below, an individual, corporation, estate or trust that is not a U.S. Holder generally will
not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the
disposition of, our Ordinary Shares.
A non-U.S. Holder may be subject to U.S. federal income or withholding tax on a dividend paid on our
Ordinary Shares or the proceeds from the disposition of our Ordinary Shares if: (1) such item is effectively
connected with the conduct by the non-U.S. Holder of a trade or business in the United States or, in the case of a
non-U.S. Holder that is a resident of a country which has an income tax treaty with the United States, such item is
attributable to a permanent establishment or, in the case of gain realized by an individual non-U.S. Holder, a fixed
place of business in the United States; (2) in the case of a disposition of our Ordinary Shares, the individual non-
U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and other specified
conditions are met; (3) the non-U.S. Holder is subject to U.S. federal income tax pursuant to the provisions of the
U.S. tax law applicable to U.S. expatriates.
In general, non-U.S. Holders will not be subject to backup withholding with respect to the payment of
dividends on our Ordinary Shares if payment is made through a paying agent, or office of a foreign broker outside
the United States. However, if payment is made in the United States or by a U.S. related person, non-U.S. Holders
may be subject to backup withholding, unless the non-U.S. Holder provides on an applicable Form W-8 (or a
substantially similar form) a taxpayer identification number, certifies to its foreign status, or otherwise establishes an
exemption. A U.S. related person for these purposes is a person with one or more current relationships with the
United States.
The amount of any backup withholding from a payment to a non-U.S. Holder will be allowed as a credit
against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the
required information is timely furnished to the IRS.
66
The HIRE Act may impose withholding taxes on some types of payments made to “foreign financial
institutions” and some other non-U.S. entities. Under the HIRE Act, the failure to comply with additional
certification, information reporting and other specified requirements could result in withholding tax being imposed
on payments of dividends and sales proceeds to U.S. Holders that own Ordinary Shares through foreign accounts or
foreign intermediaries and specified non-U.S. Holders. The HIRE Act imposes a 30% withholding tax on dividends
on, and gross proceeds from the sale or other disposition of, Ordinary Shares paid from the United States to a
foreign financial institution or to a foreign nonfinancial entity, unless (1) the foreign financial institution undertakes
specified diligence and reporting obligations or (2) the foreign nonfinancial entity either certifies it does not have
any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. In addition,
if the payee is a foreign financial institution, it generally must enter into an agreement with the U.S. Treasury that
requires, among other things, that it undertake to identify accounts held by specified U.S. persons or U.S.-owned
foreign entities, annually report certain information about such accounts, and withhold 30% on payments to other
specified account holders. U.S. Treasury Regulations provide that such withholding will only apply to distributions
paid on or after January 1, 2014, and to other “withholdable payments” (including payments of gross proceeds from
a sale or other disposition of our Ordinary Shares) made on or after January 1, 2017. You should consult your tax
advisor regarding the HIRE Act.
F. Dividends and paying agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to certain of the information reporting requirements of the Exchange Act. As a foreign
private issuer, we are exempt from the rules and regulations under the Exchange Act prescribing the 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, with respect to their purchase and
sale of our shares. In addition, we are not required to file reports and financial statements with the SEC as frequently
or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required
to file with the SEC, within four months after the end of each fiscal year, an annual report on Form 20-F containing
financial statements audited by an independent accounting firm. We publish unaudited interim financial information
after the end of each quarter. We furnish this quarterly financial information to the SEC under cover of a Form 6-K.
We are subject to the informational requirements of the Exchange Act, applicable to foreign private issuers
and fulfill the obligations with respect to such requirements by filing reports with the SEC. You may read and copy
any document we file, including any exhibits, with the SEC without charge at the SEC’s public reference room at
100 F Street, N.E., Washington, D.C. 20549.Copies of such material may be obtained by mail from the Public
Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Certain of our SEC filings are also available to the public at the SEC’s
website at http://www.sec.gov, and on our website at http://www.mindcti.com.
67
You may request a copy of our SEC filings, at no cost, by e-mailing to investor@mindcti.com and upon
said request copies will be sent by e-mail. A copy of each report submitted in accordance with applicable U.S. law is
available for review at our principal executive offices.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of changes in the value of our financial instruments as a result of
fluctuations in foreign currency exchange rates.
The following table sets forth our consolidated balance sheet exposure with respect to change in foreign
currency exchange rates as of December 31, 2021.
Currency
NIS
EURO
Romanian RON
Other non-dollar currencies
Current
Monetary
Assets
(Liabilities)-
Net
(dollars in
thousands)
306
1,706
111
65
2,188
$
$
Our annual expenses paid in NIS are approximately $4.1 million. Accordingly, we estimate that a
hypothetical increase of the value of the NIS against the dollar by 1% would result in an increase in our operating
expenses by approximately $41 thousand for the year ended December 31, 2021.
We are exposed to changes in prices of various securities in which we invest. As of December 31, 2021, we
held short term investments (mainly highly rated corporate bonds) of $0.2 million, which are held for trading and
presented in the balance sheet as marketable securities. These debt securities are exposed to potential loss in market
value due to a decline in debt securities prices. The potential loss in fair value resulting from a 10% adverse change
in debt securities prices would be approximately $0.02 million.
As of December 31, 2021, we did not hold any derivative financial instruments for either trading or non-
trading purposes.
Item 12. Description of Securities Other Than Equity Securities
None.
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Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. The
evaluation was performed with the participation of our senior management and under the supervision and with the
participation of our chief executive officer and chief financial officer. Based on this evaluation, our chief executive
officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of
December 31, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our chief executive officer and chief financial officer, is responsible for
establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our
management and our board of directors regarding the reliability of financial reporting and the preparation and fair
presentation of published financial statements for external purposes in accordance with generally accepted
accounting principles. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to
financial statement preparation and presentation. 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 decline.
Our management (with the participation of our chief executive officer and chief financial officer) conducted
an evaluation, pursuant to Rule 13a-15(c) under the Exchange Act, of the effectiveness, as of the end of the period
covered by this Annual Report, of our internal control over financial reporting based on the criteria set forth in the
Internal Control-Integrated Framework (2103 framework) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on the results of this evaluation, management assessed the effectiveness of our
internal control over financial reporting as at December 31, 2021 and concluded that our internal control over financial
reporting was effective as of December 31, 2021.
69
Attestation Report of the Registered Public Accounting Firm
Not applicable.
Changes in Financial Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during 2021 that have
materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Our board of directors has designated Mr. Joseph Tenne as our “audit committee financial expert”, as
defined by the SEC rules.
Item 16B. Code of Ethics
We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our
principal executive and financial officers. The Code of Ethics is publicly available on our website at
www.mindcti.com. If we make any substantive amendments to the Code of Ethics or grant any waiver from a
provision of this code to our chief executive officer, principal financial officer, principal accounting officer or
controller, we will either disclose the nature of such amendment or waiver on our website or in our annual report on
Form 20-F.
Item 16C. Principal Accountant Fees and Services
At the annual meeting held on May 11, 2021, our shareholders reappointed Brightman Almagor Zohar &
Co., certified public accountants in Israel and a firm in the Deloitte Global Network, as our independent auditor until
the close of the following year’s annual general meeting. Brightman Almagor Zohar has served as our independent
auditor since 2009.
Brightman Almagor Zohar billed the following fees to us for professional services in each of the last two
fiscal years:
Audit Fees
Tax Fees
Total
Years Ended December
31,
2020
2021
$
$
87,209 $ 147,516
27,500
87,209 $ 175,016
-
Our audit committee’s policy is to approve each audit and non-audit service to be performed by our
independent accountant before the accountant is engaged.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
70
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
We follow the Israeli Companies Law, the relevant provisions of which are summarized in
this annual report, rather than comply with the Nasdaq requirement relating to the quorum for shareholder meetings,
as described in Item 10.B “Additional Information – Memorandum and Articles of Association – Voting,
Shareholders’ Meetings and Resolutions”, and rather than comply with the Nasdaq requirements relating to
compensation committees (other than the due composition thereof), our audit committee (in its capacity as our
compensation committee) fulfills the duties of a compensation committee in accordance with the Companies Law,
as described in Item 6 “Directors, Senior Management and Employees - Board Practices.“In addition, we are exempt
from Nasdaq’s requirement to send an annual report to shareholders prior to our annual general meetings. Instead,
we file annual reports on Form 20-F electronically with the SEC and post a copy on our website.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclsoure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
71
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
See pages F-1 through F-27 of this annual report attached hereto.
72
Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
Exhibit No. Exhibit
1.1*
1.2**
2(d)*****
4.1***
4.2***
4.3****
4.4******
8
11****
12.1
Memorandum of Association, as amended
Articles of Association, as amended
Description of Ordinary Shares
MIND 1998 Share Option Plan
MIND 2000 Share Option Plan
MIND 2011 Share Incentive Plan
Compensation Policy of Directors and Officers, dated May 26, 2019
List of Subsidiaries
Code of Ethics and Business Conduct
Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to
§302 of the Sarbanes-Oxley Act
Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to
§302 of the Sarbanes-Oxley Act
Certification of Principal Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act
Certification of Principal Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act
Consent of Brightman Almagor Zohar & Co., a firm in the Deloitte Global Network
The following financial information from MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the year
ended December 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language):
12.2
13.1
13.2
15.1
101
(i)
(ii)
(iii)
(iv)
(v)
Consolidated Balance Sheets at December 31, 2020 and 2021;
Consolidated Statements of Operations for the years ended December 31, 2019, 2020 and
2021;
Consolidated Comprehensive Income for the years ended December 31, 2019, 2020 and
2021;
Consolidated Statements of Changes in Shareholders’ Equity for the years ended
December 31, 2019, 2020 and 2021;
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2020 and
2021; and
(vi)
Notes to Consolidated Financial Statements, tagged as blocks of text
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
**
***
Incorporated by reference to MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2002.
Incorporated by reference to MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2016.
Incorporated by reference to MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2003.
****
*****
******
Incorporated by reference to MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2011.
Incorporated by reference to MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2019.
Incorporated by reference to MIND C.T.I. Ltd.’s Notice of Annual General Meeting of Shareholders on
Form 6K filed on April 16, 2019.
73
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly
caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
MIND CTI LTD.
/s/ Monica Iancu
By: Monica Iancu
Title: President and Chief Executive Officer
Date: April 10, 2022
74
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID No.
1197)
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of comprehensive income
Consolidated statements of changes in shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of MIND C.T.I Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MIND C.T.I Ltd. and subsidiaries (the
“Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive
income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December
31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021
and 2020, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the 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. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the 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.
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 critical audit matters does not alter in any way our opinion
on the 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: Measuring Progress towards Completion – Refer to Note 1(o) and 1(a)(5) to the financial
statements
F-2
Critical Audit Matter Description
The Company has customer contracts in the Billing and Related Services segment for upgrades that requires
significant software customization. Revenue is recognized over the term of the contracts (“over time”) as the
Company’s performance does not create an asset with an alternative use and the Company has an enforceable right
to payment, including a reasonable profit. The Company uses labor hours incurred to measure progress towards
completion of these contracts. The extent of progress towards completion is measured based on the total labor hours
incurred compared to the total estimated labor hours at completion of the contracts. The Company’s determination
of revenue to be recognized for these contracts accounted for over time requires management to make significant
estimates of the total labor hours needed to complete the contracts, including updates to those estimates throughout
the life of the contracts. The estimate of the total number of hours to complete a project is inherently judgmental and
depends upon the complexity of the work being undertaken, the customization being made to software and the
customer environment being interfaced to. Given the significant management judgments necessary to estimate total
labor hours at completion of these contracts for which revenue is recognized over time, auditing such estimates
required extensive audit effort and a high degree of auditor judgment when performing audit procedures and
evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s estimates of future labor hours and total labor hours at completion
included
the following, among others:
● For the estimates relating to the contracts for upgrades requiring significant software customization, we
performed the following;
− Read the contracts and evaluated whether their terms and conditions were properly considered in
management’s calculations of revenue recognized over time.
− Selected a sample and tested the completeness and accuracy of labor hours incurred by agreeing the
hours used in the revenue recognition calculations to supporting documentation and time-charged
records. We further corroborated the labor hours incurred through inquiries of the project manager.
− Evaluated management’s estimates of future labor hours and total labor hours at completion by
comparing the estimates used in the revenue recognition calculations to management’s work plans. We
further corroborated the expectation of labor hours at completion through inquiries of the Company’s
project manager.
● We evaluated management’s ability to accurately estimate total labor hours for the contracts by comparing
the estimated total labor hours used in the revenue recognition calculations to the actual labor hours
incurred as of year-end and upon contract completion.
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
April 10, 2022
We have served as the Company’s auditor since 2009.
F-3
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
Note
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term bank deposits
Marketable securities
Accounts receivable, net:
Trade
Other
Prepaid expenses
Total current assets
INVESTMENTS AND OTHER NON-CURRENT ASSETS:
Severance pay fund
Deferred income taxes
Property and equipment, net of accumulated depreciation
Right-of-use assets, net of accumulated depreciation
Intangible assets, net of accumulated amortization
Goodwill
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade
Other
Current maturities of lease liabilities
Deferred revenues
Total current liabilities
LONG-TERM LIABILITIES:
Deferred revenues
Lease liabilities, net of current maturities
Accrued severance pay
Deferred income taxes
Total liabilities
SHAREHOLDERS’ EQUITY:
Share capital - Ordinary shares of NIS 0.01 par value – Authorized:
88,000,000 shares at December 31, 2021 and 2020;
Issued: 21,660,010 shares at December 31, 2021 and 2020; Outstanding:
20,057,326 and 19,985,826 shares at December 31, 2021 and 2020,
respectively
Additional paid-in capital
9a
9a
2
9b
6
8c
3
4
5a
5b
9c
4
4
6
7
$
4,182 $
14,071
208
8,260
7,180
1,576
$
$
1,803
145
124
20,533
2,134
269
273
19,692
2,325
184
175
1,463
522
7,929
33,131 $
1,823
127
159
1,775
702
8,139
32,417
839 $
2,265
376
2,155
5,635
154
1,098
2,361
157
9,405
1,278
1,908
346
2,113
5,645
85
1,492
1,865
211
9,298
54
27,324
54
27,202
Accumulated other comprehensive loss
Accumulated deficit
Treasury shares - 1,602,684 and 1,674,184 shares at December 31, 2021 and
2020, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
(836 )
(1,722 )
(522 )
(2,472 )
(1,094 )
23,726
33,131 $
(1,143 )
23,119
32,417
$
The accompanying notes are an integral part of the consolidated financial statements.
F-4
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
REVENUES:
Sales of licenses
Services
Total revenues
COST OF REVENUES
Cost of sales of licenses
Cost of services
Total cost of revenues
GROSS PROFIT
OPERATING EXPENSES:
Research and development
Selling and marketing
General and administrative
Total operating expenses
OPERATING INCOME
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
Note
U.S. dollars in thousands,
except per share data
10a
$
1,548 $
24,783
26,331
1,366 $
22,008
23,374
2,298
20,366
22,664
86
12,364
12,450
13,881
82
11,071
11,153
12,221
140
9,986
10,126
12,538
4,048
1,403
1,602
7,053
6,828
3,963
973
1,822
6,758
5,463
4,186
1,225
2,087
7,498
5,040
FINANCIAL INCOME, net
10b
55
379
483
INCOME BEFORE TAXES ON INCOME
6,883
5,842
5,523
TAXES ON INCOME
NET INCOME
8
936
459
458
$
5,947 $
5,383 $
5,065
EARNINGS PER SHARE - in U.S. dollars:
Basic
Diluted
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES
USED IN COMPUTATION OF EARNINGS
PER SHARE – in thousands:
Basic
Diluted
10c
10c
$
$
0.30 $
0.29 $
0.27 $
0.27 $
0.26
0.25
20,006
19,907
19,746
20,270
20,138
19,962
The accompanying notes are an integral part of the consolidated financial statements.
F-5
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
U.S. dollars in thousands
NET INCOME
$
5,947 $
5,383 $
5,065
OTHER COMPREHENSIVE INCOME (LOSS):
Translation adjustments
Total other comprehensive income (loss)
TOTAL COMPREHENSIVE INCOME
(314 )
(314 )
5,633 $
362
362
5,745 $
(7 )
(7 )
5,058
$
The accompanying notes are an integral part of the consolidated financial statements.
F-6
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Share capital
Number
Additional
paid-in
of shares
outstanding Amount capital
In thousands
Accumulated
other
comprehensive Accumulated Treasury
loss
deficit
U.S. dollars in thousands
shares Total
BALANCE AS OF
JANUARY 1, 2019
CHANGES DURING
2019:
Comprehensive income
(loss)
Dividend paid ($0.26 per
share) (Note 7c)
Employees share based
compensation
expenses
Shares issued in respect
of acquisition of a
subsidiary
from
treasury shares (Note
1a3)
Exercise
options
of
issued to employees
from treasury shares
BALANCE AS OF
31,
DECEMBER
2019
CHANGES DURING
2020:
Comprehensive income
Dividend paid ($0.24 per
share) (Note 7c)
Employees share based
compensation
expenses
Exercise
options
of
issued to employees
from treasury shares
BALANCE AS OF
31,
DECEMBER
2020
19,439 $
54 $
26,404 $
(877 ) $
(3,084 ) $ (1,515 ) $ 20,982
-
-
-
-
-
-
(7 )
5,065
- 5,058
-
(5,061 )
- (5,061 )
-
-
200
-
-
-
200
349
-
519
108
-
(73 )
-
-
-
238
757
-
73
-
19,896
54
27,050
(884 )
(3,080 )
(1,204 ) 21,936
-
-
-
-
-
-
362
5,383
- 5,745
-
(4,775 )
- (4,775 )
-
-
213
90
-
(61 )
-
-
-
-
213
-
61
-
19,986
54
27,202
(522 )
(2,472 )
(1,143 ) 23,119
CHANGES DURING
2021:
Comprehensive income
-
-
-
(314 )
5,947
- 5,633
Dividend paid ($0.26 per
share) (Note 7c)
Employees share based
compensation
expenses
Exercise
options
of
issued to employees
from treasury shares
BALANCE AS OF
31,
DECEMBER
2021
-
-
-
-
(5,197 )
- (5,197 )
-
-
171
71
-
(49 )
-
-
-
-
171
-
49
-
20,057
54
27,324
(836 )
(1,722 )
(1,094 ) 23,726
The accompanying notes are an integral part of the consolidated financial statements.
F-7
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Deferred income taxes, net
Accrued severance pay
Unrealized loss (gain) from marketable securities
Realized gain on sale of marketable securities, net
Realized gain on sale of property and equipment
Employees share-based compensation
Changes in operating asset and liability items:
Decrease in accounts receivable:
Trade
Other
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable and accruals:
Trade
Other
Change in operation lease liability
Increase in deferred revenues
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities, net
Acquisition of subsidiaries
Purchase of property and equipment
Proceeds from sales of property and equipment
Severance pay funds
Proceeds from (investment in) short-term bank deposits
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid
Net cash used in financing activities
Years Ended December 31,
2 0 2 1 2 0 2 0 2 0 1 9
U.S. dollars in thousands
$ 5,947 $ 5,383 $ 5,065
194
(96 )
83
1
(3 )
(3 )
171
200
(128 )
118
(51 )
(25 )
-
213
243
117
149
1,073
323
(45 )
151
(30 )
111
(93 )
(24 )
-
200
805
187
(15 )
(363 )
399
(52 )
111
6,898
(901 )
58
78
203
6,499
138
48
(15 )
153
6,681
1,370
-
(82 )
3
(89 )
(6,891 )
(5,689 )
545
-
(68 )
-
(126 )
(385 )
(34 )
2,529
(2,310 )
(52 )
-
(139 )
2,017
2,045
(5,197 )
(5,197 )
(4,775 )
(4,775 )
(5,061 )
(5,061 )
TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVILENTS
(90 )
91
11
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(4,078 )
1,781
3,676
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR
8,260
6,479
2,803
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 4,182 $ 8,260 $ 6,479
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW AND NON-CASH ACTIVITIES:
Taxes paid
Net lease liabilities arising from obtaining right-of-use asset
Shares issued in respect of acquisition of a subsidiary from treasury shares
$
$
$
903 $
454 $
12
-
- $
- $
599 $
- $
757
The accompanying notes are an integral part of the consolidated financial statements.
F-8
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. General:
1) Nature of operations:
MIND C.T.I. Ltd. (the “Company”) is an Israeli company which, together with its subsidiaries (the
“Group”), provides integrated products and services. The Company designs, develops, markets, supports,
implements and operates billing and customer care systems, including consulting and managed services,
primarily to wireless, wireline, next-generation service providers throughout the world. The Company also
provides a call management system used by enterprises for call accounting, traffic analysis, and fraud
detection.
Following the acquisitions completed during the year ended December 31, 2019 (see (3) below), the
Company, through its subsidiaries, also provides enterprise and wholesale messaging.
The Company has wholly-owned subsidiaries in the United States (“MIND Software Inc.”), Romania
(“MIND Software Srl”), U.K. (“MIND Software Limited”) and Germany (“MIND CTI GmbH”, “Message
Mobile GmbH” and “GTX Messaging GmbH”).
2) Effects of the spreading of the coronavirus (COVID-19):
The Company experienced the effect of the pandemic in some areas of its business, mainly due to the
general economic uncertainty.
Since this event is not under the control of the Company, and matters such as the virus continuing to spread
or stopping may affect the Company’s assessments, the Company is continuing to regularly follow the
changes on the markets and is examining the mid and long-term effects on the business results of the
Company.
3) Acquisitions:
Acquisition of Message Mobile GmbH (“Message Mobile”)
On March 25, 2019, the Company acquired 100% of the outstanding shares of a German-based company,
Message Mobile, for a total consideration of approximately $3 million, $2.25 million was paid in cash and
approximately $0.75 million was paid in shares. Message Mobile is a leading provider of enterprise
messaging and payment solutions.
The acquisition was accounted for as a business combination. This method requires, among other things,
that assets acquired, and liabilities assumed in a business combination will be recognized at their fair values
as of the acquisition date.
The Company recorded core technology, customer relationships and goodwill in an amount of
approximately $0.3 million, $0.55 million and $2.2 million, respectively. The estimated useful life of the
core technology and customer relationships are 10.75 years and 5.75 years, respectively.
The results of Message Mobile’s operations have been included in the consolidated financial statements
commencing the second quarter of 2019.
Acquisition of GTX Messaging GmbH (“GTX”)
On September 25, 2019, the Company acquired 100% of the outstanding shares of a German based
company, GTX, for a total consideration of EUR 250 thousand in cash (approximately $273 thousand).
GTX is a provider of wholsale and enterprise messaging communication.
The acquisition was accounted for as a business combination, therefore the Company recorded goodwill in
an amount of approximately $0.2 million.
The results of GTX operations have been included in the consolidated financial statements commencing the
fourth quarter of 2019.
F-9
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4) Accounting principles:
The consolidated financial statements were prepared in accordance with the United States Generally
Accepted Accounting Principles (“GAAP”).
5) Use of estimates in preparation of financial statements:
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses
during the reporting years. Actual results could differ from those estimates. The most significant estimates
with regard to the Company’s consolidated financial statements relate to revenue recognition for projects
that apply the percentage of completion measurement.
6) Functional currency:
The currency of the primary economic environment in which the operations of the Company and certain
subsidiaries are conducted is the U.S. dollar (“dollar” or “$”). Most of the Company’s and its non-German
subsidiaries’ revenues are derived from sales which are denominated primarily in dollars. In addition, the
majority of the Company’s cash reserves and investments are denominated in dollars. Thus, the functional
currency of the Company and certain subsidiaries is the dollar.
The Company and certain subsidiaries transactions and balances denominated in dollars are presented at
their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance
with Accounting Standards Codification (“ASC”) 830, “Foreign Currency Matters”. All transaction gains
and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are
reflected in the statements of income as financial income or expenses, as appropriate.
The currency of the primary economic environment in which the operations of the Company’s German
subsidiaries, Message Mobile, GTX and MIND CTI GmbH, are conducted is the Euro. Most of the
revenues of the German subsidiaries, see below, are denominated primarily in Euros. Thus, the functional
currency of such subsidiaries is the Euro. For those subsidiaries, assets and liabilities are translated at year-
end exchange rates and statement of operations’ items are translated at average exchange rates prevailing
during the year. Such translation adjustments are recorded as a separate component of accumulated other
comprehensive income (loss) in shareholders’ equity.
b. Principles of consolidation:
The consolidated financial statements include the accounts of the Company and all of its wholly-owned
subsidiaries.
Inter-company balances and transactions have been eliminated in consolidation. Profits from inter-company
sales, not yet realized outside the Company and its subsidiaries, have also been eliminated.
c. Business combination:
The Company includes the results of operations of the businesses that are acquired as of the acquisition
date. The Company allocates the purchase price of acquisitions to the assets acquired and liabilities
assumed, based on the estimated fair values. The excess of the purchase price over the fair values of the
identifiable assets and liabilities is recorded as goodwill. Acquisition related costs are recognized separately
from the business combination and are expensed as incurred.
F-10
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
d. Comprehensive income (loss):
The purpose of reporting comprehensive income (loss) is to report a measure of all changes in equity of an
entity that result from recognized transactions and other economic events of the period resulting from
transactions from non-owner sources.
e. Segment reporting:
The chief operating decision maker (the “CODM”) of the Company is the Chief Executive Officer. The
CODM reviews financial information presented on a consolidated basis for purposes of allocating resources
and evaluating financial performance.
In previous reporting periods (until the year ended on December 31, 2018), the Company operated in one
reportable segment. Following the acquisitions completed during the year ended December 31, 2019 (see
a(3) above), management has determined that the Company operates in two reportable segments
commencing from the date of acquisitions (see Note 11).
f. Cash equivalents:
The Company and its subsidiaries consider all highly liquid investments, which include short-term bank
deposits (up to three months from original date of deposit) that are not restricted as to withdrawal or use, to
be cash equivalents.
g. Fair value of financial instruments:
The Company records its financial assets and liabilities at fair value. The accounting guidance for fair value
provides a framework for measuring fair value, clarifies the definition of fair value, and expands
disclosures regarding fair value measurements. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in
markets that are not active, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
The Company recognizes transfers among Level 1, Level 2 and Level 3 classifications as of the actual date
of the events or change in circumstances that caused the transfers.
The Company’s financial instruments, including cash, cash equivalents, short-term bank deposits,
marketable securities, accounts receivable, accounts payable and accruals have carrying amounts which
approximate fair value due to the short-term maturity of these instruments.
F-11
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
h. Short-term bank deposits:
Bank deposits with maturities of more than three months but less than one year are included in short-term
bank deposits. These deposits are presented at cost and earn interest at market rates.
i. Marketable securities:
Marketable securities are classified as “financial assets held at fair value through profit or loss” when held
for trading or are designated upon initial recognition as financial assets at fair value through profit or loss.
Financial assets at fair value through profit or loss are shown at fair value. Any gain or loss arising from
changes in fair value, including those originating from changes in exchange rates is recognized in profit or
loss in the period in which the change occurred. Net gain or loss recognized in profit or loss incorporates
any dividend or interest earned on the financial asset.
j. Leases:
The Company adopted ASC 842, “Leases”. In accordance with ASC 842, the Company first determines if
an arrangement contains a lease and the classification of that lease, if applicable, at inception. ASC 842
requires the recognition of right-of-use assets and lease liabilities for the Company’s operating leases.
The Company elected to adopt the package of practical expedients permitted under ASC 842. Therefore,
the Company was not required to reassess: (i) whether any expired or existing contracts are or contain
leases; (ii) the classification of any expired or existing leases; and (iii) initial direct costs for any existing
leases.
k. Property and equipment:
These assets are stated at cost, less accumulated depreciation and amortization.
The assets are depreciated by the straight-line method, on basis of their estimated useful life.
Annual rates of depreciation are as follows:
Computers and electronic equipment
Office and furniture equipment
Motor vehicles
%
15-33
(mainly
33)
6-7
15
Leasehold improvements are amortized by the straight-line method over the term of the lease, which is
shorter than the estimated useful life of the improvements.
l.
Intangible assets:
Intangible assets with definite lives are amortized over their estimated useful lives using the straight-line
method, at the following annual periods ranges:
Core technology
Customer relationships
F-12
Years
10.75
5.75
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
m. Goodwill:
Goodwill reflects the excess of the purchase price of subsidiaries acquired over the fair value of net assets
acquired. Under ASC 350, “Intangibles – Goodwill and Others”, goodwill is not amortized but rather tested
for impairment at least annually.
Events or changes in circumstances that could trigger an impairment review include a significant adverse
change in business climate, an adverse action or assessment by a regulator, unanticipated competition, a
loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for
our overall business, significant negative industry or economic trends, or significant underperformance
relative to expected historical or projected future results of operations.
The Company has the option to first assess qualitative factors to determine whether the existence of events
or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying value, including goodwill. If, after assessing the totality of events or circumstances,
the Company determines that it is not more likely than not that the fair value of a reporting unit is less than
its carrying amount, additional impairment testing is not required.
Alternatively, the Company may elect to proceed directly to the impairment test and bypass the qualitative
assessment. Goodwill impairment should be measured by comparing the fair value of a reporting unit with
its carrying amount.
The Company performed the annual impairment tests during the third quarter of 2021, 2020 and 2019 and
did not identify any indication for impairment losses (see Note 5b).
n. Income taxes:
The Company accounts for income taxes, in accordance with the provisions of ASC 740, “Income Taxes”,
under the liability method of accounting. Under the liability method, deferred taxes are determined based
on the differences between the financial statement and tax basis of assets and liabilities at enacted tax rates
in effect in the year in which the differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to amounts expected to be realized.
Deferred tax liabilities and assets are classified as non-current.
For uncertain tax positions, the Company follows a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained on
audit. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon ultimate resolution. The Company’s policy is to include interest and penalties related to
unrecognized tax benefits within income tax expenses.
o. Revenue recognition:
The Company generates its revenues from software licensing, sales of professional services including
integration and implementation, maintenance services, managed services and mobile messaging services.
F-13
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company adopts ASC 606, “Revenue from Contracts with Customers. Under ASC 606, revenue is
measured as the amount of consideration the Company expects to be entitled to, in exchange for
transferring products or providing services to its customers and is recognized when performance
obligations under the terms of contracts with the Company’s customers are satisfied. ASC 606 prescribes a
five-step model for recognizing revenue from contracts with customers: (i) identify contract(s) with the
customer; (ii) identify the separate performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the separate performance obligations in the contract; and (v)
recognize revenue when (or as) each performance obligation is satisfied.
The Company applies the provisions of ASC 606, as follows:
i) Sale of standard licensed products
Revenue from perpetual licenses is classified as software license revenue. Software license revenue is
recognized upon transfer of control to the customer which usually occurs when the licensed product and the
utility that enables the customer to access authorization keys is delivered, provided that a signed contract
has been received.
ii) Services
Revenues from ongoing maintenance and support fees are recognized on a pro-rated basis over the duration
of the contract. Revenues earned from time and material arrangements, usually based on a pre agreed
monthly rates, recognized over time, based on the duration of the contract and the service time provided to
date.
Ongoing work on customizations performed for existing customers is generally provided on a fixed price
basis and as such revenue is recognized when the related services are performed.
Contracts may include a combination of the Company’s various products and services offerings, software,
consulting services, and maintenance. For contracts with multiple performance obligations, the Company
accounts for individual performance obligations separately if they are distinct. Significant judgment may be
required to identify distinct obligations within a contract.
The total transaction price is allocated to the individual performance obligations based on the ratio of the
relative established standalone selling prices (SSP), or the Company’s best estimate of SSP, of each distinct
product or service in the contract. Revenue is then recognized for each distinct performance obligation.
Measuring Progress towards Completion
Where a performance obilgation is satisfied over time for an upgrade or implemantation project that
requires significant customer modifications and complex implementation, revenue is recognized over time,
as the Company’s performance does not create an asset with an alternative use and the Company has an
enforceable right to payment, including a reasonable profit, based on the percentage of completion using
the input method. This method relies on the Group’s internal measure of progress, compared to the total
effort to complete the modifications and implementation utilizing direct labor as the input measure.
Estimates are based on the total number of hours performed on the project, compared to the total number of
hours expected to complete the project. The estimate of the total number of hours to complete a project is
inherently judgemental and depends upon the complexity of the work being undertaken, the customization
being made to software and the customer environment being interfaced to. The scope of projects frequently
changes, consequently, the judgement of total estimate at completion is subjected to a high level of review
at all stages in a project life cycle.
Managed Services
Revenues from managed services include a monthly fee for services and a right to access the Company’s
software and are recorded as service revenues. The Company does not provide the customer with the
contractual right to take possession of the software at any time during the period under these contracts. The
monthly fee is based mainly on the number of subscribers or customer’s business volume and the contracts
include a minimum monthly charge. These revenues are recognized on a monthly basis when those services
are satisfied.
F-14
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iii) Mobile Messaging Transactions
Certain of the Company’s subsidiaries provide mobile messaging services, via text messages (SMS) and IP
(Internet Protocol) messaging channels. Revenues from mobile messaging services are recognized when the
messaging service has been rendered, i.e., the messages are delivered to recipient. The revenue amount is
based on the price specified in the contract.
iv) Mobile Payment Services
One of the Company’s subsidiaries offers payment solutions where the customer can get their consumers
(the end users) to pay for services by charging their mobile phone account. For these services the Company
is entitled to a share of the processed transaction/payment. Consequently, only the Company’s share of the
processed transactions are recognized as revenues when the service is performed.
p. Research and development expenses:
Pursuant to ASC 985-20, “Software - Costs of Software to be Sold, Leased, or Marketed”, development
costs related to software products are expensed as incurred until the “technological feasibility” of the
product has been established. Because of the relatively short time period between “technological
feasibility” and product release, and the insignificant amount of costs incurred during such period, no
software development costs have been capitalized.
q. Allowance for doubtful accounts:
The allowance is determined for specific debts doubtful of collection.
r. Share-based compensation:
The Company accounts for share-based compensation in accordance with ASC 718, “Compensation -
Stock Compensation”, which requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based payment awards made to employees. ASC 718 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 statements of operations.
The Company recognizes compensation cost for an award with only service conditions that has a graded
vesting schedule using the straight-line method over the requisite service period for the entire award, net of
estimated forfeitures.
s. Earnings per share (“EPS”):
Basic EPS is computed by dividing net income by the weighted average number of shares outstanding
during the year, net of treasury shares.
Diluted EPS reflects the increase in the weighted average number of shares outstanding that would result
from the assumed exercise of employee stock options, calculated using the treasury stock method.
t. Treasury shares:
Treasury shares are presented as a reduction of shareholders’ equity, at their cost to the Company, under
“Treasury shares”.
F-15
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
v. Concentration of credit risks:
Most of the cash and cash equivalents and short-term deposits of the Company and its subsidiaries are
deposited with Israeli, European and U.S. banks. The Company is not aware of any specific credit risks in
respect of these banks.
The Company’s revenues have been generated from a large number of customers. Consequently, the
exposure to credit risks relating to trade receivables is limited. The Company performs ongoing credit
evaluations of its customers for the purpose of determining the appropriate allowance for doubtful
accounts.
NOTE 2 - MARKETABLE SECURITIES
Short-term marketable securities - Corporate bond (a)
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
208 $
1,576
$
(a) The Company invests in highly-rated marketable securities, and its policy limits the amount of credit
exposure to any one issuer. The Company’s investment policy requires investments to be investment grade,
rated BBB- or better, with the objective of minimizing the potential risk of principal loss. Fair values were
determined for each individual security in the investment portfolio, based on quoted prices in active
markets.
NOTE 3 - PROPERTY AND EQUIPMENT, NET
a. Composition of assets, grouped by major classification, is as follows:
Computers and electronic equipment
Office furniture and equipment
Vehicles
Leasehold improvements
Less - accumulated depreciation and amortization
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
$
$
1,977 $
157
87
27
2,248
(2,073 )
175 $
1,902
157
109
27
2,195
(2,036 )
159
b. Depreciation expenses totaled $63 thousand, $77 thousand and $55 thousand in the years ended
December 31, 2021, 2020 and 2019, respectively.
c. Property and equipment, net - by geographical location:
F-16
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2 0 2 1
2 0 2 0
$
U.S. dollars in
thousands
62 $
67
46
63
83
13
$
175 $
159
Israel
Romania
Germany
Total
NOTE 4 – LEASES
The following represents the aggregate right-of-use assets and related lease liabilities as:
Amounts recognized in the consolidated balance sheet – right-of-use assets, net
Current liabilities
Long-term liabilities
Total operating leased liabilities
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
$
$
$
1,463 $
376 $
1,098
1,474 $
1,775
346
1,492
1,838
In the fourth quarter of 2020, the Company entered into a new operating lease agreement of a new office
space in Israel which resulted in increase of the right-of-use asset and the lease liability in approximately
$600 thousand, the lease terms expected to be seven years commencing in January 2021.
The weighted average lease term and weighted average discount rate as of December 31, 2021 were as
follows:
Weighted average lease term – operating lease
Weighted average discount rate – operating lease
4.65 years
7.05 %
The future cash flows related to the operating lease liabilities as of December 31, 2021 were as follows:
Years ending December 31:
2022
2023
2024
2025
2026
Thereafter
Total lease payments (undiscounted)
U.S.
dollars in
thousands
$
427
427
333
162
158
199
1,706
Less – discount to net present value
Present value of lease liabilities
(232 )
1,474
$
F-17
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
a. Definite-lived intangible assets:
Core technology
Customer relationships
Less – accumulated amortization
Functional currency translation adjustments
Total intangible assets, net
b. Goodwill
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
312 $
545
857
(348 )
509
13
522 $
312
545
857
(217 )
640
62
702
$
$
Billing
and
related
services
Messaging
U.S. dollars in thousands
Total
Balance as of January 1, 2020
Changes during the year ended December 31, 2020:
Functional currency translation adjustments
Balance as of December 31, 2020
Changes during the year ended December 31, 2021:
Functional currency translation adjustments
Balance as of December 31, 2021
NOTE 6 – SEVERANCE PAY
$
5,430 $
2,480 $
7,910
-
5,430 $
229
2,709 $
-
5,430 $
(210 )
2,499 $
229
8,139
(210 )
7,929
$
$
Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination
of employment in certain other circumstances. The severance pay liability of the Company to its Israeli
employees, based upon the number of years of service and the latest monthly salary, is partially covered by
regular deposits with severance pay funds and pension funds, and by purchase of insurance policies; under
labor agreements, the deposits with recognized pension funds and the insurance policies, as above, are in
the employees’ names and are, subject to certain limitations, the property of the employees.
The Company has entered into an agreement with some of its employees implementing Section 14 of the
Israeli Severance Pay Law, 1963 and the general approval of the Minister of Welfare and Social Affairs
dated June 30, 1998, issued in accordance with such Section 14. The agreement mandates that upon
termination of such employees’ employment, all the amounts accrued in their severance funds, pension
funds and by the insurance policies will be released to them. The severance pay liabilities and deposits
covered by these plans are not reflected in the balance sheet, as the severance pay risks have been
irrevocably transferred to the severance funds, pension funds and isnsurance companies.
F-18
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts accrued and the portions funded, with severance pay funds, pension funds and by the
insurance policies are reflected in the financial statements as follows:
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
Accrued severance pay
Less - amounts funded (presented in “investment and other non-current assets”)
Unfunded balance
$
$
2,361 $
(2,325 )
36 $
1,865
(1,823 )
42
The amounts of accrued severance pay as above cover the Company’s severance pay liability in accordance
with labor agreements in force and based on salary components which, in management’s opinion, create
entitlement to severance pay. The Company records the obligation as if it was payable at each balance
sheet date on an undiscounted basis.
Withdrawals from the funds are generally made for the purpose of paying severance pay.
The severance pay expenses were $89 thousand, $126 thousand and $140 thousand in the years ended
December 31, 2021, 2020 and 2019, respectively.
NOTE 7 - SHAREHOLDERS’ EQUITY
a. Share capital:
The Company’s ordinary shares are traded in the United States on the Nasdaq Global Market, under the
symbol MNDO.
b. Treasury shares:
During the period between September 2008 and December 2009, the Company has purchased an aggregate
amount of 3,165,092 ordinary shares for a total consideration of approximately $2.8 million. Currently, the
Company does not have an active buyback plan. As of December 31, 2021, the remaining treasury shares
are 1,602,684 which amounted to $1,094 thousand.
c. Dividend:
Dividends paid per share in the years ended December 31, 2021, 2020 and 2019 were $0.26, $0.24 and
$0.26, respectively.
The Company paid dividends to its shareholders in the amounts of $5.2 million, $4.8 million and $5.1
million during the years ended December 31, 2021, 2020 and 2019, respectively.
d. Stock option plan:
In 2011, the Board of Directors and the Company’s shareholders approved a share incentive plan (the
“2011 Share Incentive Plan”). Under the 2011 Share Incentive Plan, options for up to 1,800,000 ordinary
shares of NIS 0.01 par value can be granted to employees, directors, consultants or contractors of the
Company and its subsidiaries.
Each option can be exercised to purchase one ordinary share. Immediately upon issuance, the ordinary
shares issuable upon the exercise of the options will confer on holders the same rights as the other ordinary
shares.
The Board of Directors determines the exercise price and the vesting period of the options granted. The
outstanding options granted under the abovementioned plan vest over 2-4 years. Options not exercised will
expire five years after the day of grant.
F-19
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The compensation costs charged against income for the 2011 Share Incentive Plan during the years ended
December 31, 2021, 2020 and 2019 were approximately $171 thousand, $213 thousand and $200 thousand,
respectively.
Under Section 102 of the Israeli Income Tax Ordinance, pursuant to an election made by the Company
thereunder, Israeli employees (except for employees who are deemed “Controlling Members” under the
Israeli Income Tax Ordinance) are subject to a lower tax rate onpart of the capital gains accruing to them in
respect of Section 102 awards. However, the Company is not allowed to claim as an expense for tax
purposes the amounts credited to such employees.
1) The following is a summary of the status of the 2011 Share Incentive Plan as of December 31, 2021, 2020
and 2019, and changes during the years ended on those dates:
2 0 2 1
Years Ended December 31,
2 0 2 0
2 0 1 9
Weighted
average
exercise
price
Number
Number
Weighted
average
exercise
price
Number
Weighted
average
exercise
price
Options outstanding at the
beginning of year
Changes during year:
Granted (a)
Exercised
Forfeited
Expired
Options outstanding at the end
266,500 $
0.003 352,000 $
0.23 674,200 $
1.460
172,000 $
(71,500 ) $
(96,500 ) $
(1,000 ) $
0.003
0.003
0.003
0.003
64,000 $
(89,500 ) $
(56,000 ) $
(4,000 ) $
0.003 156,000 $
0.003 (108,200 ) $
1.233
(90,000 ) $
2.688 (280,000 ) $
0.003
0.003
0.003
2.947
of year
269,500 $
0.003 266,500 $
0.003 352,000 $
0.23
Options exercisable at the end
of year
Weighted average grant date
fair value of options granted
during the year (b)
30,000 $
0.003
23,000 $
0.003
34,000 $
1.49
$
1.79
$
1.32
$
1.31
(a) In the years ended December 31, 2021 and 2020 and 2019, the options were granted with an exercise
price equal to par value of NIS 0.01 ($0.003).
(b) The fair value of each stock option granted is computed on the date of grant according to the Black-
Scholes option pricing model with the following assumptions:
F-20
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividend yield
Expected volatility*
Average risk-free interest rate
Expected average term - in years
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
8.73 %
10.3 %
34 %
0.81 %
3.88
22 %
0.53 %
3.88
11 %
25 %
1.86 %
3.88
* Volatility is based on historical volatility of the Company’s share price for periods matching the expected
term of the option until exercise.
As of December 31, 2021, there were approximately $405 thousand of total unrecognized compensation
costs, net of expected forfeitures, related to unvested share-based compensation awards granted under the
2011 Share Incentive Plan. The costs are expected to be recognized over a weighted average period of 1.49
years.
2) The following table summarizes information about options outstanding and exercisable as of December 31,
2021:
Options Outstanding
Options Exercisable
Range of
exercise
prices
Number
outstanding
at
December 31,
2021
Weighted
average
remaining
contractual
life
Years
Number
exercisable
at
December
31,
2021
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life
Years
Weighted
average
exercise
price
$
0.003
269,500
3.41 $
0.003
30,000
2.04 $
0.003
The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019
were approximately $235 thousand, $212 thousand and $115 thousand, respectively. As of December 31,
2021 the aggregate intrinsic value of the outstanding options is $837 thousand, and the aggregate intrinsic
value of the exercisable options is $93 thousand.
NOTE 8 - TAXES ON INCOME
a.
Israeli corporate tax
1) Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Company is an “Industrial Company”, as defined by this law. As such, the Company is entitled to
claim depreciation at increased rates for equipment used in industrial activity, as stipulated by regulations
published under the Income Tax (Inflationary Adjustments) Law, 1985.
2) Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”):
On February 18, 2018, the Company received a status of “Technologic Preferred Enterprise” as defined
under the Investment Law (the “Approval”). In accordance with the Approval, starting in 2017 and until
2021, income originating from granting the right of use as defined in the Approval, will be defined as
Technologic Preferred Income, as defined under the Law, and will be subject to a tax rate of 7.5%. The
reduced tax rate applies only with respect to the revenue attributable to the portion of intellectual property
developed in Israel. The Preferred Technological Income is calculated for each tax year by applying the
“Nexus” formula as detailed in the Israeli regulations.
On January 16, 2022, the Company received a status of “Technologic Preferred Enterprise” for the years
2022 until 2026.
Dividend distributed from income which is attributed to a “Technologic Preferred Enterprise” will be
subject to withholding tax of 20%, subject to a reduced tax rate under the provisions of an applicable
double taxation treaty.
F-21
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b. Other applicable tax rates:
1)
Income from other sources in Israel
The tax rate relevant to corporates in Israel in the year 2021 and thereafter is 23%.
2)
Income of non-Israeli subsidiaries
Non-Israeli subsidiaries are taxed according to tax laws in their countries of residence (19% in the U.K,
30% in Germany, 21% in U.S. and 16% in Romania).
3) On October 8, 2021, 136 countries approved a statement known as the OECD BEPS Inclusive Framework,
which builds upon the OECD’s continuation of the BEPS project. The first pillar is focused on the
allocation of taxing rights between countries for in-scope multinational enterprises that sell goods and
services into countries with little or no local physical presence. The second pillar is focused on developing
a global minimum tax rate of at least 15 percent applicable to in-scope multinational enterprises. The
Company is monitoring the developments closely to ensure that the Company is compliant with the various
requirements.
c. Deferred income taxes:
1) Provided in respect of the following:
Research and development expenses
Carryforward tax losses, see (2) below
Other
Less - valuation allowance, see (2) below
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
$
$
104 $
1,588
18
(1,526 )
184 $
84
1,604
11
(1,572 )
127
Deferred income tax assets are presented in the balance sheet among non-current assets.
2) As of December 31, 2021 and 2020, the Company has provided valuation allowances in respect of certain
deferred tax assets in certain subsidiaries resulting from tax loss carryforward due to uncertainty
concerning their realization.
Taxes on income included in the statements of operations:
1) As follows:
Current:
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
U.S. dollars in thousands
In Israel
Outside Israel
Deferred:
In Israel
Outside Israel
$
$
687 $
346
1,033
(18 )
(79 )
936 $
420 $
167
587
(59 )
(69 )
459 $
316
172
488
(2 )
(28 )
458
2) Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax
rates applicable to companies in Israel (see b above), and the actual tax expense:
F-22
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
U.S. dollars in thousands
Income before taxes on income, as reported in the statements of
operations*
$
6,883 $
5,842 $
5,523
Theoretical tax expense
Less - tax benefits arising from Technologic Preferred Enterprise status,
see a. above
Increase (decrease) in taxes resulting from permanent differences:
Disallowable deductions
Taxes on income previous years
Changes in valuation allowance
Other
Taxes on income for the reported years:
* As follows:
Taxable in Israel
Taxable outside Israel
d. Tax assessments:
1,583
1,344
1,270
(739 )
844
38
169
(127 )
12
936 $
(796 )
548
52
-
(152 )
11
459 $
(651 )
619
44
-
(212 )
7
458
4,936 $
1,947
6,883 $
5,135 $
707
5,842 $
4,039
1,484
5,523
$
$
$
The Company’s tax assessments through the 2017 tax year, are deemed final.
F-23
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION
a. Cash, cash equivalents and short-term bank deposits:
Cash
Cash eqivalents
Total cash and cash equivalents
Short-term bank deposits*
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
$
$
4,182 $
-
4,182 $
4,221
4,039
8,260
$
14,071 $
7,180
* The average interest rate of short-term deposits is 0.73% and 1.27%, as of December 31, 2021 and 2020,
respectively.
b. Accounts receivable - other:
Government institutions
Employees
Interest receivable
Sundry
c. Accounts payable and accruals - other:
Payroll and related expenses
Government institutions
Accrued vacation pay
Accrued expenses and sundry
F-24
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
$
$
55 $
27
24
39
145 $
29
26
23
191
269
December 31,
2 0 2 1
2 0 2 0
U.S. dollars in
thousands
$
$
946 $
453
87
779
2,265 $
801
370
101
636
1,908
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SELECTED STATEMENT OF OPERATIONS DATA
a. Revenues:
1) The Company’s revenues derive from sale of software products and services in two operating segments.
The Company has three product lines: (i) product line “A” - billing and customer care solutions for service
providers; (ii) product line “B” - call accounting and call management solutions for enterprises; and (iii)
product line “C” – mobile messaging, communication and payment solutions (as from the year ended
December 31, 2019).
The following table sets forth the revenues classified by product lines:
Product line “A”
Product line “B”
Product line “C”
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
U.S. dollars in thousands
$
$
12,069 $
2,286
11,976
26,331 $
11,986 $
2,642
8,746
23,374 $
13,591
2,956
6,117
22,664
2) The following table sets forth the geographical revenues classified by geographical location of the customers:
The Americas
Europe
Israel
Other
b. Financial income, net:
Income:
Interest on bank deposits and short-term investments
Non-dollar currency gains, net
Income from marketable securities
Realized gain from sale of available-for-sale securities
Expenses:
Non-dollar currency losses, net
Years Ended December 31,
2 0 2 1
2 0 2 0 2 0 1 9
U.S. dollars in thousands
$
$
9,421 $
14,702
1,366
842
26,331 $
10,355 $
11,734
893
392
23,374 $
12,030
8,839
1,272
523
22,664
Years Ended December 31,
2 0 2 1 2 0 2 0 2 0 1 9
U.S. dollars in thousands
$
110 $
-
-
3
113
172 $
147
83
-
402
219
89
165
24
497
(8 )
-
-
Unrealized loss from marketable securities
Bank commissions and charges
(1 )
(49 )
(58 )
55 $
-
(23 )
(23 )
379 $
-
(14 )
(14 )
483
$
F-25
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. Earnings per ordinary share (“EPS”):
The following table sets forth the computation of the Company’s basic and diluted EPS:
Years Ended December 31,
2 0 2 1
2 0 2 0
2 0 1 9
In thousands
Weighted average number of shares issued and outstanding - used in
computation of basic EPS
Incremental shares from assumed exercise of options
Weighted average number of shares used in computation of diluted EPS
20,006
264
20,270
19,907
231
20,138
19,746
216
19,962
In the years ended December 31, 2021, 2020 and 2019, options that had an anti-dilutive effect were not
taken into account in computing the diluted EPS. The number of options that could potentially dilute EPS
in the future and were not included in the computation of diluted EPS is none, none and 32,000 options, for
the years ended December 31, 2021, 2020 and 2019, respectively.
NOTE 11 - REPORTABLE SEGMENTS
The Company applies ASC 280, “Segment Reporting”. ASC 280 establishes standards for reporting
information about operating segments. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated regularly by the CODM in
deciding how to allocate resources and in assessing performance.
As mentioned in Note 1e, the CODM of the Company is the Chief Executive Officer. The CODM assesses
the performance of each segment and allocates resources to those segments based on net revenues and
operating results and does not evaluate our segments using discrete asset information.
In previous reporting periods (until December 31, 2018), the Company operated in one reportable segment.
Following the acquisitions completed during the year ended December 31, 2019 (see Note 1a(3)),
management has determined that the Company operates in two reportable segments commencing from the
date of acquisitions.
Year Ended December 31, 2021
Billing and
Related
Services Messaging Total
U.S. dollars in thousands
$
14,355 $
11,976 $
26,331
$
4,818 $
2,010 $
6,828
Revenues
Operating income
F-26
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2020
Billing and
Related
Services Messaging Total
U.S. dollars in thousands
$
14,628 $
8,746 $
23,374
$
4,412 $
1,051 $
5,463
Year Ended December 31, 2019
Billing
and
Related
Services Messaging* Total
U.S. dollars in thousands
$
16,547 $
6,117 $
22,664
$
4,254 $
786 $
5,040
Revenues
Operating income
Revenues
Operating income
* The results of operations reported for the year ended December 31, 2019, include the results of operations of
Messaging commencing the second quarter of 2019 (see Note 1a(3)).
NOTE 12 - RELATED PARTIES
a. Balances
As of December 31, 2021 and 2020, the Company had an accrual in the amount of $240 thousand, pursuant
to the compensation policy regarding the Chief Executive Officer annual bonus.
b. Transactions
During the years ended December 31, 2021, 2020 and 2019, the Company recorded salary expenses, cash
bonus and directors’ fees to its related parties in the amount of $596 thousand, $596 thousand and $578
thousand, respectively.
NOTE 13 - SUBSEQUENT EVENT
On March 10, 2022, the Company declared a cash dividend to its shareholders in the amount of
approximately $5.2 million ($0.26 per share).
F-27