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
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2023
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)
Arie Abramovich
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, 2023, the Registrant had outstanding 20,124,826 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 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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting
Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ 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.
Table of Contents
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
[RESERVED]
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 16I.
ITEM 16J.
ITEM 16K. CYBERSECURITY
ITEM 17.
ITEM 18.
ITEM 19.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
INSIDER TRADING POLICIES
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
i
1
1
1
17
25
25
33
40
41
41
42
56
56
57
57
57
57
57
58
58
58
58
58
58
59
59
59
59
60
60
61
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 fail 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; and
Our articles of association include forum selection clauses for certain claims brought under the U.S. securities laws or under Israeli law.
ii
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
PART I
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 operating results 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 information technology, or 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. See Item 16K below. 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, including by use of artificial intelligence, or AI, 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.
For example, the General Data Protection Regulation, or GDPR, took effect in the EU 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.
5
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 U.S., the EU 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.
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.
6
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 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.
Our business may be negatively affected by exchange rate fluctuations.
Approximately 53% of our revenues are denominated in Euro, and approximately 43% in U.S. dollars, or dollar. Approximately 12% of our
expenses are incurred in New Israeli Shekel, or NIS, and approximately 74% 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 denominated 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.
7
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.
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.
8
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 to purchase minimal coverage insurance. 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.
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.
9
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.
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.
10
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.
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.
11
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.
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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.
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.
13
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 U.S. 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.
Our articles of association provide 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.
Our articles of association 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 federal forum provision in our amended and restated articles does 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.
14
Risks Relating to Our Location in Israel
Potential political, economic and military conditions concerning Israel may harm our operating results.
While the vast majority of our employees are located outside of Israel, most of our senior management is located in Israel. Accordingly, our
operating results may be 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. The situation in Israel or the region could adversely affect our operations if our customers
and/or strategic partners believe that instability could affect our ability to fulfill our commitments.
In October 2023, thousands of Hamas terrorists invaded Israel’s southern border towns near the Gaza Strip and carried out attacks on civilian and
military targets that were extraordinary in scale and brutality. Hamas and other terrorist groups also launched extensive rocket attacks from the Gaza Strip
against civilian targets in various parts of Israel. As a result, Israel declared war against Hamas, called up hundreds of thousands of reserve soldiers and
launched an extensive military campaign against them. In parallel, border clashes between Israel and the Hezbollah terrorist group on Israel’s northern
border with Lebanon have intensified and may escalate into a greater regional conflict. To date, our business and operations have not been adversely
affected by the war. We have back-up IT systems and remote work ability that we expect will enable our operations to function well in the event of an
emergency.
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.
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.
15
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.
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.
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Our articles of association provide that the competent courts of Tel Aviv, Israel are the exclusive forum 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.
Our articles of association 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 exclusive forum provision applies 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 does 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.
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.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information that is filed electronically with
the SEC at http://www.sec.gov. Our website address is at https://mindcti.com. Information contained, or that can be accessed through, our website does
not constitute a part of this annual report and is not incorporated by reference herein, and we have included our website address in this annual report
solely for informational purposes.
Principal Capital Expenditures
During 2023, 2022 and 2021, the aggregate cash amount of our capital expenditures was $64 thousand, $130 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.
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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
and 5G carriers, 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.
We enhanced our billing and customer care platform with optional modules that we developed in recent years, including online store
(e-commerce), mobile app and self-service modules that enable high quality service with Omnichannel architecture.
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.
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 GmbH, or Message Mobile and GTX GmbH, or GTX, we offer enterprise
messaging services and wholesale messaging 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.
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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.
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 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
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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;
● 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;
● 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.
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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;
● 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.
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Mobile Messaging
Following the acquisition of Message Mobile and GTX in 2019, we offer messaging 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 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 some marketing
activities, including participating in industry trade shows and special events.
22
Principal Markets
The following table shows our revenues for each of the past three years classified by type of revenue and geographic region.
$
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
Billing and Customer Care Solutions
7,897
158
7,739
1,162
33
1,129
11,633
249
11,384
920
118
802
21,612
558
21,054
2023
Years Ended December 31,
2022
(dollars in thousands)
$
$
2021
9,421
72
9,349
838
88
750
14,702
792
13,910
1,366
596
770
26,331
1,548
24,783
8,536
64
8,472
808
139
669
11,382
297
11,085
825
111
714
21,551
611
20,940
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, IPTV, content and internet
services, such as Moldtelecom, Belize Telemedia and Docomo Pacific;
● Internet services providers that offer a triple play of broadband data, VoIP and video, such as Iskon, Vodafone Net and MSTelcom;
● 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.
23
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 Services
Our messaging solutions are used by more than 100 enterprise customers, mostly in Germany.
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 (e-commerce) 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.
Messaging
Our competition in the messaging 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.
24
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; and
● Message Mobile GmbH (with which our subsidiary GTX GmbH was merged in 2023), 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 7,900 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.
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 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.
25
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 2023, GTX was merged with Message Mobile to form one legal entity that operates in the messaging segment.
In 2023, 53% of our total revenues were derived from providing our billing and customer care software, 37% of our total revenues were derived
from enterprise messaging and payment solutions and 10% of our total revenues were derived from providing our enterprise software. In 2023, services
represented 97% of our total revenues and license fees represented 3% of our total revenues.
In 2023 and 2022, one customer accounted for approximately 12% of our total revenues. In 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
net financial income minus taxes on income, subject to specific board of directors’ approval and applicable law. Since 2003, our cash dividends amount
to approximately $5.78 per share (including the dividend declared in March 2024 in respect of 2023). The amount per share that we distributed in 2023
was $0.24, in 2022 was $0.26, and a dividend of $0.24 per share was declared in March 2024. 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.
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. All the revenues in the messaging segment are recognized as services revenues.
We provide a revenue breakdown for our billing and customer care software, our messaging 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.
26
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, sales commissions, marketing programs, promotional materials, travel expenses and trade shows 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, directors’ fees, insurance, costs related to being a public company, allowance for credit
losses and other general corporate expenses.
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 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, 2023 and 2022, 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
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating income
Financial income, net
Income before taxes on income
Taxes on income
Net income
27
Years Ended December 31,
2023
2022
(% of revenues)
100.0%
49.7
50.3
100.0%
46.6
53.4
16.3
5.4
6.6
28.3
22.0
3.6
25.6
1.6
24.0%
16.2
4.5
7.1
27.8
25.6
0.4
26.1
1.5
24.5%
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
Revenues
License sales
Services
Total revenues
Years Ended December 31,
2023
2022
(dollars in millions)
$
$
0.6
21.0
21.6
$
$
0.6
20.9
21.5
% Change
(8.7)%
0.5%
0.3%
Total revenues increased from $21.5 million in 2022 to $21.6 million in 2023, attributable to an increase in revenues in our messaging segment,
from $7.7 million in 2022 to $8.0 million in 2023, offset by a decrease in enterprise products that are part of our billing and related services segment from
$2.3 million in 2022 to $2.1 million in 2023.
Revenues from our billing and customer care solutions for service providers were $11.5 million in each of 2022 and 2023. We expect a future
trend of market decline due to shrinking relevant telecom markets and strong competition.
Revenues from our messaging segment were substantially positively impacted by translation differences as a result of appreciation of the Euro
against the dollar. Our revenues in Euro increased from €7.3 million in 2022 to €7.4 million in 2023, while in dollars the increase is from $7.7 million in
2022 to $8.0 million in 2023.
Revenues from our enterprise products decreased from $2.3 million in 2022 to $2.1 million in 2023. The decrease was primarily attributed to a
few one-time major upgrades to the latest version at existing customers in 2022. We continue to expect that this market will generally decline.
Revenues from licenses were $0.6 million in each of 2022 and 2023. Revenues from services increased from $20.9 million in 2022 to $ 21.0
million in 2023, 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,
2023
2022
(% of revenues)
36.5%
53.8
5.3
4.4
100%
39.6%
52.8
3.8
3.8
100.0%
Our revenues in the Americas decreased from $8.5 million in 2022 to $7.9 million in 2023. The decrease was primarily due to the loss of a few
customers in this region during 2022. We expect this trend to continue.
Our revenues in Europe increased from $11.3 million in 2022 to $11.6 million in 2023. The increase was primarily attributed to the increase in
revenues in our messaging segment. The percentage of total revenues in Europe increased from 52.8% in 2022 to 53.8% in 2023, due to the same reason.
Our revenues in Israel increased from $0.8 million in 2022 to $0.9 million in 2023, mainly due to a significant follow-on order for
customizations from an existing customer, an Israeli carrier, in 2023.
28
Cost of Revenues
Cost of sales of license
Cost of services
Total cost of revenues
Years Ended December 31,
2023
(dollars in millions)
2022
$
$
0.1
10.6
10.7
$
$
0.1
9.9
10.0
% Change
6.5%
7.0%
7.0%
Total cost of revenues in 2023 increased by $0.7 million, or 7%, compared with 2022, primarily due to the increase in our messaging segment
revenues and the increase in personnel expenses.
Gross profit as a percentage of total revenues decreased from 53.4% in 2022 to 50.3% in 2023. The decrease was primarily due to the increase in
our messaging segment which operates with significantly lower gross margins and the increase in personnel expenses.
Operating Expenses
Research and development
Selling and marketing
General and administrative
Total operating expenses
Years Ended December 31,
2023
2022
(dollars in millions)
$
$
3.5
1.1
1.4
6.1
$
$
3.4
1.0
1.5
5.9
% Change
1.2%
20.4%
(7.0)%
2.2%
Research and Development. The increase in our research and development expenses by 1.2% in 2023, compared to 2022 was primarily due to an
increase in personnel expenses. Research and development expenses as a percentage of total revenues slightly increased from 16.2% in 2022 to 16.3% in
2023, due to the abovementioned increase in personnel expenses.
Selling and Marketing Expenses. Selling and marketing expenses increased from $1.0 million in 2022 to $1.1 million in 2023, mainly
attributable to an increase in expenses for customer acquisition costs. Selling and marketing expenses as a percentage of total revenues increased from
4.5% in 2022 to 5.4% in 2023, mainly due to the abovementioned increase.
General and Administrative Expenses. General and administrative expenses decreased from $1.5 million in 2022 to $1.4 million in 2023, mainly
due to a collection of doubtful debt from one customer and decrease in administrative personnel expenses. General and administrative expenses as a
percentage of total revenues decreased from 7.1% in 2022 to 6.6% in 2023, mainly due to the abovementioned decrease in expenses.
Impairment of Goodwill. No impairment of goodwill was required following the annual assessment performed during each of 2022 and 2023.
29
Financial Income, net. In 2023, financial income mainly consisted of interest income on short-term bank deposits and marketable securities in
the aggregate amount of $737 thousand and gains from currency exchange rate fluctuations in the aggregate amount of $50 thousand, offset by bank
charges in an aggregate amount of $27 thousand. In 2022, financial income consisted of interest income on short-term bank deposits and marketable
securities in the aggregate amount of $262 thousand and interest income on a long-term trade receivable in the amount of $58 thousand, offset by a loss
from currency exchange rate fluctuations in the aggregate amount of $99 thousand, interest on tax assessments in the aggregate amount of $60 thousand,
realized and unrealized loss from marketable securities in the aggregate amount of $45 thousand and 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 2023, our taxes on income in the amount of $359 thousand included current taxes on income,
mainly in Israel, in the amount of $353 thousand and deferred taxes in the amount of $6 thousand. In 2022, our taxes on income in the amount of $330
thousand included current taxes on income, mainly in Israel, in the amount of $335 thousand and deferred taxes in the amount of $7 thousand, offset by a
net refund outside of Israel in the amount of $12 thousand.
For a comparison of the year ended December 31, 2022 to the year ended December 31, 2021, please refer to Item 5 in our annual report on
Form 20-F for the year ended December 31, 2022, filed with the SEC on March 14, 2023.
Our Functional Currency
The currency of the primary economic environment in which we operate is the dollar. Although 53% of our revenues are denominated in Euro,
approximately 43% 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 operations 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.
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 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 dollar in relation to the Euro would have a significant positive effect on our revenues because we incur the majority 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.
30
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, 2023, we had $3.0 million in cash and cash equivalents and $13.6 million in short-term bank deposits and marketable
securities, and our working capital was $15.2 million. In our opinion, our working capital is sufficient for our requirements for the foreseeable future.
The majority of our cash and cash equivalents, our short-term bank deposits and marketable securities are denominated in dollars.
Net Cash Provided by Operating Activities. Net cash provided by operating activities in 2023 was $4.1 million, attributable to our net income of
$5.2 million, non-cash related items, net, in the amount of $0.5 million, a net decrease in operating assets and liabilities items in the amount of $1.6
million. Net cash provided by operating activities in 2022 was $4.6 million, attributable to our net income of $5.3 million, non-cash related items, net, in
the amount of $0.5 million, a net decrease in operating assets and liabilities items in the amount of $1.3 million.
The decrease in net cash provided by operating activities of $0.5 million from 2022 to 2023 is mainly due to extended payment terms for one of
our customers.
Net Operating Working Capital
As of December 31, 2023, net operating working capital was $15.2 million, compared to $15.1 million as of December 31, 2022. The increase of
$0.1 million is mainly due to a decrease in our cash position, offset by a decrease of $0.4 million in deferred revenues and increase of $0.3 million in
prepaid expenses and other current assets.
Cash Deposits
As of December 31, 2023, we had approximately $13.4 million in bank deposits with maturities of between three and twelve months.
Marketable Securities
As of December 31, 2023, we held marketable securities of approximately $182 thousand.
Net Cash Used in Investing Activities. In 2023, we increased our investments in short-term bank deposits by $1.4 million. In 2022, we decreased
our investments in short-term bank deposits by $2.0 million.
Net Cash Used in Financing Activities. In 2023, our financing activities included a cash dividend of $4.9 million. In 2022, our financing
activities included a cash dividend of $5.2 million.
Capital Expenditures. The aggregate cash amount of our capital expenditures was $64 thousand and $130 thousand in 2023 and 2022,
respectively. These expenditures were principally for the purchase of equipment, mainly for the upgrade of our hosted platform that services the
messaging segment, vehicles and 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 $5.78 per share to our shareholders, including $0.26 per share in
April 2022, $0.24 per share in March 2023, and the dividend of $0.24 per share that we declared in March 2024. For information about our dividend
policy, please see Item 8 “Financial Information - Dividend Policy.”
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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 $3.5 million (or 16.3% of total revenues) in 2023 and $3.4 million (or 16.2% of total revenues) in
2022. The increase in 2023 was mainly due to an increase in personnel expenses, required in order to retain talent. Our engineering department comprised
approximately 82 employees as of December 31, 2023.
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 yet completed the development of our 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 they enable them to rapidly deploy all types of services for prepaid and postpaid, residential and
business customers. Our solutions reduce 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 e-commerce, Mobile App and Self-service modules that enable high quality
service with Omnichannel architecture.
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 heavily invest in transformation projects and are turning to low-cost solutions. This buying behavior results in
lower demand for our comprehensive and sophisticated end-to-end solutions.
Accordingly, our new customers in 2022 and in 2023 provided 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 continue to negatively impact our
revenues and profitability in 2024.
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.
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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. Actual results could differ materially from the estimates under different assumptions or conditions.
Goodwill impairment assessment is a critical accounting estimate. As a result of our acquisitions, our goodwill represents the excess of the
consideration paid or transferred. Goodwill is subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill
impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. When we perform such an analysis, we determine
the fair value of a reporting unit, using discounted cash flows. In such analysis we apply assumptions that market participants would consider in
determining the fair value of each reporting unit and the fair value of the identifiable assets and liabilities of the reporting units, as applicable.
Another critical accounting policy is revenue recognition. We have customer contracts in the billing and related services segment where revenue
is recognized 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. 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 updates
of the existing estimates are not expected to have a significant impact on our financial condition or results of operations.
F. [Reserved]
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
Arie Abramovich
Gilad Parness
Oren Tanhum
Shoval Cohen Nissan
Victor Balteanu
Marian Scurtu
Liviu Serea
Joseph Tenne
Itay Barzilay
Amnon Neubach
Age
66
37
55
53
49
44
46
69
68
49
80
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
Director and Chairman of the Audit Committee
Chairman of the Board of Directors
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.
Arie Abramovich. Mr. Abramovich rejoined MIND in December 2022 as Chief Financial Officer. Prior to rejoining MIND, Arie served as
Corporate Assistant Controller at Albaad Massuot Yitzhak Ltd. (TASE: ALBA). From 2020 until 2021, Arie served as MIND’s Assistant Controller and
prior to that as Senior Accountant at KPMG from 2017 until 2020. Mr. Abramovich holds a B.A. degree in Accounting from The School of Business
Administration at the Hebrew University of Jerusalem, and he is a Certified Public Accountant in Israel.
33
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 holds a Practical Engineer degree from Tel Chai College.
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.
Joseph Tenne. Mr. Tenne has served as a director of our company since August 2014. . Mr. Tenne serves as a director at AudioCodes Ltd.
(NASDAQ), at OPC Energy Ltd. (TASE), at Electreon Wireless Ltd. (TASE), at Tarya Israel Ltd. (TASE), and at Sapir Corp Ltd. (TASE). From 2017 to
2023, Mr. Tenne served as a financial executive at Itamar Medical Ltd. (NASDAQ and TASE), which was sold in 2021 to ZOLL Medical Corporation,
and from 2014 to 2017 he served as its Vice President Finance and CFO. From 2005 to 2013, Mr. Tenne served as the CFO of Ormat Technologies, Inc.
(NYSE and TASE) and Ormat Industries Ltd. (TASE). From 2003 to 2004, Mr. Tenne served as the CFO of Treofan Germany GmbH & Co. KG, a
German private company. From 1997 to 2003, Mr. Tenne was a partner in Kesselman & Kesselman, Certified Public Accountants in Israel and a member
of PricewaterhouseCoopers International Limited (PwC Israel). Mr. Tenne served as a director at Enzymotec Ltd. (NASDAQ) from 2013 to 2018, at
Orbotech Ltd. (NASDAQ) from 2014 to 2019, at Ratio Energies (Finance) (TASE) from 2005 to 2021, and at Highcon Systems Ltd. (TASE) from 2021
to 2024 . Mr. Tenne holds a B.A. degree in Accounting and Economics and an M.B.A. degree from Tel Aviv University, and he is a Certified Public
Accountant in Israel.
Itay Barzilay. Mr. Barzilay has served as Chairman of the Board since 2023 and 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.
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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 2023 was $1.5 million,
including $0.08 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 2023, we granted to our executive officers under our option plans options to purchase 28,000 ordinary shares at exercise price of $0.003
per share. All these options expire in 2028.
The table below outlines the compensation granted to our five most highly compensated office holders during or with respect to the year ended
December 31, 2023. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
Summary Compensation Table
Name of Officer
Monica Iancu
Arie Abramovich
Gilad Parness
Shoval Cohen Nisaan
Oren Tanhum
Position of Officer
President and Chief Executive Officer
Chief Financial Officer
Vice President Sales
Vice President, Information Technology
Vice President, Professional Services
Salary
240,000
76,981
105,025
105,116
92,105
Cash
Bonus(1)
240,000
4,337
26,023
26,023
22,770
Equity-Based
Compensation
(2)
All Other
Compensation
(3)
-
30,463
-
-
-
53,853
37,817
45,550
49,548
42,586
Total
($)
533,853
149,598
176,598
180,687
157,461
(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 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.
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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 2025, Class II
in 2026 and Class III in 2024. Monica Iancu is a member of Class I, Itay Barzilay and Joseph Tenne are members of Class II and Amnon Neubach is a
member 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 and Mr. Amnon Neubach.
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.
36
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. If the shareholders do not approve a proposed compensation policy, the board of directors is entitled to approve it if the compensation
committee and the board of directors, after re-evaluating the proposed policy, conclude that approving the policy is in the company’s best interests.
At our 2022 annual general meeting, the shareholders did not approve the renewal of our compensation policy that was approved by our
shareholders at our 2019 annual general meeting. Our board of directors subsequently re-evaluated the policy, after receiving the compensation
committee’s recommendation on the matter, and resolved that the renewal of the existing compensation policy is in our company’s best interests.
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.
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.
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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;
● other 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.
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.
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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.
D. Employees
As of December 31, 2023, 2022, and 2021 our total number of employees was 144, 153, 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
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
2023
As of December 31,
2022
2021
23
110
11
144
15
90
31
8
144
24
116
13
153
15
97
32
9
153
23
124
13
160
14
103
32
11
160
As of March 1, 2024, Monica Iancu beneficially owned 3,121,527, or 15.5% 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 2011 Share Incentive
Plan was extended in 2022 for an additional ten years. 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.
39
As of March 1, 2024, options to purchase 501,000 ordinary shares were outstanding and options for 2,395,790 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 June 5, 2023, 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, 2024, 195,098 shares
had been sold under this plan.
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 March 1, 2024, 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
Morgan Stanley and affiliates
A-6684 Capital Ltd.
(1) Based on 20,184,826 ordinary shares outstanding as of March 1, 2024.
(2) Based on a Schedule 13G/A filed with the SEC on January 29, 2024.
(3) Based on a Schedule 13G/A filed with the SEC on February 8, 2024.
(4) Based on a Schedule 13G/A filed with the SEC on February 14, 2024.
Total
Shares
Beneficially
Owned
3,121,527(2)
1,091,018(3)
1,051,000(4)
Percentage of
Ordinary
Shares(1)
15.5%
5.4%
5.2%
As of March 1, 2024, there were eight 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 17,441,618 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.
As of March 1, 2023, Ms. Iancu had beneficial ownership of 3,316,625 ordinary shares, constituting 16.5% of our outstanding shares.
B. Related Party Transactions
None.
C. Interests of Experts and Counsel
Not applicable.
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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.”
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 to 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, 2023.
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.
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Item 10. Additional Information
A. Share Capital
Not applicable.
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.
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.
42
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.
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.
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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.
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.
44
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.
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;
● 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.
45
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 2023 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.
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.
46
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, equal to 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.
● 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.
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.
47
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 7 of our Consolidated Financial Statements.
We paid dividends to our shareholders in the amount of $5.2 million in 2021, $5.2 million in 2022, and $4.8 million in 2023. In March 2024, we
declared a dividend of approximately $4.8 million and withholding tax applied at a rate of 20%.
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.
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.
Tax benefits and grants for research and development
Israeli tax law allows, under certain conditions, a tax deduction for expenditures related to scientific research and development projects,
including capital expenditures, in the year in which they are incurred. Expenditures are deemed related to scientific research and development projects if:
● the expenditures are approved by the relevant Israeli government ministry, which depends on the field of research;
● the research and development must be for the promotion of the company; and
● the research and development is carried out by or on behalf of the company seeking such tax deduction.
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such
scientific research and development projects. Under these research and development deduction rules, no deduction is allowed for any expense invested in
an asset depreciable under the general depreciation rules of the Tax Ordinance. Expenditures that do not qualify for this special deduction are deductible
in equal amounts over three years.
48
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.
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.
49
Regardless of whether non-Israeli shareholders may be liable for Israeli capital gains tax on the sale of our ordinary shares, the payment of the
consideration for such sale may be subject to withholding of Israeli tax at source and holders of our ordinary shares may be required to demonstrate that
they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, the Israel Tax Authority may
require shareholders who are not liable for Israeli capital gains tax on such a sale to sign a declaration on a forms specified by the Israel Tax Authority,
provide documents (including, for example, a certificate of residency) or obtain a specific exemption from the Israel Tax Authority to confirm their status
as non-Israeli residents. In the absence of such declarations or exemptions, the Israel Tax Authority may require the purchaser of the shares to withhold
tax at source.
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 that (i) such income was
not derived from a business conducted in Israel by the taxpayer; (ii) the taxpayer has no other taxable sources of income in Israel; and (iii) the taxpayer is
not liable to surtax (as described below under “Surtax”).
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%.
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%, unless relief is provided in an applicable tax treaty between Israel and the
shareholder’s country of residence. However, if the non-resident shareholder is considered a “significant shareholder” at any time during the 12-month
period preceding such distribution, the tax rate on the dividend (not sourced from eligible Preferred Enterprise or Preferred Technological Enterprise
income) will be 30%. Such dividends are generally subject to Israeli withholding tax at a rate of 25% if the shares are registered with a nominee company
(whether the recipient is a significant shareholder or not). 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)
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
(b) 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.
50
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. If the dividend is attributable partly to income derived from an Approved
Enterprise, Preferred Enterprise or Preferred Technological Enterprise, and partly to other sources of income, the withholding rate will be a blended rate
reflecting the relative portions of the two types of income. The aforementioned rates under the U.S-Israel Tax Treaty will not apply if the dividend
income was derived through or attributed to a permanent establishment of the U.S. tax resident in Israel. Application for this reduced tax rate requires
appropriate documentation presented to, and specific instruction received from, the Israel Tax Authority. We cannot assure you that we will designate the
profits that we may distribute in a way that will reduce shareholders’ tax liability.
Surtax
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 698,280 and NIS 721,560 in the 2023 and 2024 tax years, respectively), will be subject to an additional 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.
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.
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.
51
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.
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.
52
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.
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.
53
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.
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.
54
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.
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.
J. Annual Report to Security Holders
Not applicable.
55
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, 2023.
Currency
NIS
EURO
Romanian RON
Other non-dollar currencies
Current
Monetary Assets
(Liabilities)-Net
(dollars in
thousands)
$
$
(4)
1,411
83
(9)
1,481
Our annual expenses paid in NIS are approximately $2.0 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 $20 thousand for the year ended December 31, 2023.
We are exposed to changes in prices of various securities in which we invest. As of December 31, 2023, 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, 2023, 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.
56
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
PART II
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, 2023. 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, 2023.
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, 2023 and concluded that our internal control over financial reporting was effective as of December 31, 2023.
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 2023 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. Mr. Tenne is an
“independent director”, as defined by the Nasdaq listing rules.
57
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 9, 2023, our shareholders re-appointed Fahn Kanne & Co. Grant Thornton Israel, certified public
accountants in Israel, as our independent auditor until the close of the following year’s annual general meeting.
Fahn Kanne & Co. Grant Thornton Israel earned fees from us for professional services in fiscal years 2023 and 2022, respectively:
Audit Fees
Tax Fees
Total
Years Ended December 31,
2023
2022
$
$
101,654
-
101,654
$
$
119,129
-
119,129
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.
Item 16F. Change in Registrant’s Certifying Accountant
A change in our independent registered public accounting firm in June 2022 was previously disclosed in our Annual Report on Form 20-F for
the year ended December 31, 2022.
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”, rather than comply with Nasdaq’s shareholder approval requirements with respect to
equity compensation plans, as described in Item 6.C “Directors, Senior Management and Employees – Board Practices–Office Holder Compensation”,
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.A “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.
58
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 16J. Insider Trading Policies
Not applicable.
Item 16K. Cybersecurity
Risk management and strategy
We prioritize the management of cybersecurity risk and the protection of information across our enterprise by embedding data protection and
cybersecurity risk management in our operations. Our processes for assessing, identifying, and managing material risks from cybersecurity threats have
been integrated into our overall risk management system and processes.
As a foundation of this approach, we have implemented a layered governance structure to help assess, identify and manage cybersecurity risks.
Our privacy and cybersecurity policies encompass incident response procedures, information security and vendor management. In order to help develop
these policies and procedures, we monitor the privacy and cybersecurity laws, regulations and guidance applicable to us in the regions where we do
business (including Germany and Israel), as well as proposed privacy and cybersecurity laws, regulations, guidance and emerging risks.
We annually undergo an external evaluation by cybersecurity consulting firms, including the performance of penetration testing, vulnerability
and risk assessment and certification of ISO 27001 framework. With respect to third party service providers, we obligate our vendors to adhere to privacy
and cybersecurity measures, and we perform risk assessments of vendors, including their ability to protect data from unauthorized access.
As described in Item 3.D “Risk Factors,” our products and services, including our cloud offerings, rely on the secure processing, storage and
transmission of confidential and other information of our customers, as well as our own data. Computer viruses, hackers, employee or vendor misconduct,
and other external hazards could expose our information systems and those of our vendors to security breaches, cybersecurity incidents or other
disruptions, any of which could materially and adversely affect our business in the form of system disruptions and shutdowns or denials of service or
compromise data, including personal or confidential information, of us, our partners or our customers. We have not experienced cybersecurity incidents
to date.
The sophistication of cybersecurity threats, including through the use of artificial intelligence, continues to increase, and the controls and
preventative actions we take to reduce the risk of cybersecurity incidents and protect our systems, including the regular testing of our cybersecurity
incident response plan, may be insufficient. In addition, new technology that could result in greater operational efficiency, such as our use of artificial
intelligence, may further expose our computer systems to the risk of cybersecurity incidents.
Governance
As part of our overall risk management approach, we prioritize the identification and management of cybersecurity risk at several levels,
including board of directors oversight, executive commitment and employee training. Our audit committee, comprised of independent directors, oversees
the board of directors’ responsibilities relating to the operational (including IT risks, business continuity and data security) risk affairs of the Company.
Our audit committee is informed of such risks through quarterly reports from our Vice President of IT, and the board of directors reviews our processes
every six months.
Our VP of IT, who has over 25 years of experience in information technology in our company and is supported by management, oversees the
implementation and compliance of our information security standards and mitigation of information security related risks.
At the employee level, we maintain an experienced information technology team who are tasked with implementing our privacy and
cybersecurity program and support the VP of IT in carrying out reporting, security and mitigation functions. We also hold employee trainings on privacy
and cybersecurity, records and information management, conduct phishing tests and generally seek to promote awareness of cybersecurity risk through
communication and education of our employee population. Each of the software tools installed in order to prevent attacks generates real-time alerts.
These alerts reach multiple people in our company, who are prepared to respond at any time. In case of a real threat, the CEO is notified.
59
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
See pages F-1 through F-29 of this annual report attached hereto.
60
Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
Exhibit No.
1.1*
1.2******
2(d)****
4.1**
4.2**
4.3***
4.4*****
8
11***
12.1
12.2
13.1
13.2
15.1
15.2
97
101
Exhibit
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
Consent of Fahn Kanne & Co. Grant Thornton Israel
Policy for Recovery of Erroneously Awarded Compensation
The following financial information from MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2023,
formatted in XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets at December 31, 2023 and 2022;
(ii) Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021;
(iii) Consolidated Comprehensive Income for the years ended December 31, 2023, 2022 and 2021;
(iv) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021;
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021; and
(vi) Notes to Consolidated Financial Statements, tagged as blocks of text
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, 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.
Incorporated by reference to MIND C.T.I. Ltd.’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022.
104
*
**
***
****
*****
******
61
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: March 18, 2024
62
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
TABLE OF CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID No. 1375)
REPORTS 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
F-10
Fahn Kanne & Co.
Head Office
32 Hamasger Street
Tel-Aviv 6721118, ISRAEL
PO Box 36172, 6136101
T +972 3 7106666
F +972 3 7106660
www.grantthornton.co.il
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, 2023 and
2022, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the two years
in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2023, 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.
Certified Public Accountants
Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd
F-2
Critical Audit Matter Description
Goodwill Impairment Analysis
As described further in Note 1k and Note 4b to the consolidated financial statements, as of September 30, 2023, the Company performed goodwill
impairment analysis with respect to goodwill balance with a total carrying amount of $7.9 million that was allocated to two reporting units. As disclosed
in Note 1k, goodwill is not amortized but rather tested for impairment at least annually or most often if indicators of impairment are present. Management
either 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 (qualitative assessment) or elects to proceed directly to the impairment
test and bypass the qualitative assessment. As part of the qualitative assessment, 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. Goodwill impairment is measured by comparing the fair value of a reporting unit with its carrying amount. The impairment test was based on a
valuation performed by management. Judgments and assumptions used in the discounted cash flow model which included projected net cash flows from
operations, short-term and long-term growth rates, weighted average cost of capital, interest, capital expenditures, cash flows, and market conditions. We
identified the goodwill impairment analysis as a critical audit matter.
The principal considerations for our determination that the goodwill impairment assessment is a critical audit matter are the high degree of auditor
judgment, effort and subjectivity in performing procedures and evaluating management’s fair value estimate, which included projected net cash flows
from operations, estimated weighted average cost of capital and short-term and long-term growth rates for the reporting units. Given the subjective nature
and judgment applied by management, auditing these estimates required a high degree of auditor judgment and an increased extent of effort, including the
use of our valuation specialist.
Our audit procedures related to the annual goodwill impairment analysis of the reporting units included, among others, the following:
● We evaluated the appropriateness of the discounted cash flow model; tested the completeness, accuracy and relevance of underlying data used in the
model; and evaluated the reasonableness of significant assumptions used by management, including projected net cash flows from operations,
estimated weighted average cost of capital and short-term and long-term growth rates for the reporting units. Our evaluation involved evaluating
whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the
consistency with external market and industry data, and (iii) the consistency of the assumptions used with evidence obtained in other areas of the
audit.
● We utilized a valuation specialist to assess the appropriateness of the impairment methodology used and to assist us with testing the appropriateness
of the discount rate used (the estimated weighted average cost of capital) in the discounted cash flow model.
/s/ FAHN KANNE & CO. GRANT THORNTON ISRAEL
FAHN KANNE & CO. GRANT THORNTON ISRAEL
Certified Public Accountants (Isr.)
Tel-Aviv, March 18, 2024
We have served as the Company’s auditor since 2022.
Certified Public Accountants
Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd
F-3
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 statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows of
MIND C.T.I Ltd. and subsidiaries (the “Company”) for the year 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 results of its operations and its cash flows
for the year 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 audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the 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 audit 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 audit provide a reasonable basis for our opinion.
/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 began serving as the Company’s auditor since 2009. In 2022, we became the predecessor auditor.
F-4
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term bank deposits
Marketable securities
Accounts receivable (net of allowance for credit losses of $12 and $70 as of December 31, 2023 and
2022, respectively)
Other current assets
Prepaid expenses
Total current assets
NON-CURRENT ASSETS:
Accounts receivable
Severance pay fund
Deferred income taxes
Property and equipment, net
Right-of-use assets, net
Intangible assets, net
Goodwill
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Other current liabilities and accruals
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 as of
December 31, 2023 and 2022; Issued: 21,660,010 shares as of December 31, 2023 and 2022;
Outstanding: 20,184,826 and 20,124,326 shares as of December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Treasury shares - 1,475,184 and 1,535,684 shares as of December 31, 2023 and 2022, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2 0 2 2
2 0 2 3
U.S. dollars in thousands
Note
8a
8a
8b
5
7c
2
3
4a
4b
8c
3
3
5
6
$
$
$
$
$
$
$
2,958
13,464
182
2,295
538
277
19,714
714
2,051
102
216
690
266
7,872
31,625
989
1,749
218
1,517
4,473
100
424
2,060
80
7,137
5,265
12,040
174
2,357
293
169
20,298
58
1,914
143
225
946
374
7,785
31,743
937
1,978
271
1,986
5,172
107
615
1,930
112
7,936
54
27,776
(1,001)
(1,334)
(1,007)
24,488
31,625
$
54
27,546
(1,073)
(1,662)
(1,058)
23,807
31,743
The accompanying notes are an integral part of the consolidated financial statements.
F-5
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
FINANCIAL INCOME, net
INCOME BEFORE TAXES ON INCOME
TAXES ON INCOME
NET INCOME
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
Note
9a
9b
7
9c
9c
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands,
except per share data
2 0 2 1
$
$
$
$
558
21,054
21,612
115
10,631
10,746
10,866
3,538
1,162
1,417
6,117
4,749
777
5,526
359
5,167
0.26
0.25
$
$
$
$
611
20,940
21,551
108
9,936
10,044
11,507
3,495
965
1,523
5,983
5,524
93
5,617
330
5,287
0.26
0.26
$
$
$
$
1,548
24,783
26,331
86
12,364
12,450
13,881
4,048
1,403
1,602
7,053
6,828
55
6,883
936
5,947
0.30
0.29
20,163
20,471
20,099
20,397
20,006
20,270
The accompanying notes are an integral part of the consolidated financial statements.
F-6
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS):
Translation adjustments
TOTAL COMPREHENSIVE INCOME
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
5,167
$
5,287
$
5,947
72
5,239
$
(237)
5,050
$
(314)
5,633
$
$
The accompanying notes are an integral part of the consolidated financial statements.
F-7
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Share capital
Number
of shares
outstanding
In thousands
Additional
paid-in
capital
Amount
Accumulated
other
comprehensive Accumulated
loss
deficit
U.S. dollars in thousands
Treasury
shares
Total
BALANCE AS OF JANUARY 1, 2021
19,986 $
54 $
27,202 $
(522) $
(2,472) $
(1,143) $
23,119
CHANGES DURING 2021:
Comprehensive income
Dividend paid ($0.26 per share) (Note 6c)
Employees share-based compensation
expenses
Exercise of options issued to employees from
treasury shares
BALANCE AS OF DECEMBER 31, 2021
CHANGES DURING 2022:
Comprehensive income
Dividend paid ($0.26 per share) (Note 6c)
Employees share-based compensation
expenses
Exercise of options issued to employees from
treasury shares
BALANCE AS OF DECEMBER 31, 2022
CHANGES DURING 2023:
Comprehensive income
Dividend paid ($0.24 per share) (Note 6c)
Employees share-based compensation
expenses
Exercise of options issued to employees from
treasury shares
BALANCE AS OF DECEMBER 31, 2023
(314)
-
-
-
(836)
(237)
-
-
-
-
-
-
-
-
-
-
171
71
20,057
-
54
(49)
27,324
-
-
-
67
20,124
-
-
-
61
20,185
-
-
-
-
54
-
-
-
-
54
-
-
258
(36)
27,546
-
(1,073)
-
-
281
72
-
-
(51)
27,776
-
(1,001)
5,947
(5,197)
-
-
(1,722)
5,287
(5,227)
-
-
(1,662)
5,167
(4,839)
-
-
(1,334)
-
-
-
49
(1,094)
-
-
-
36
(1,058)
-
-
-
51
(1,007)
5,633
(5,197)
171
-
23,726
5,050
(5,227)
258
-
23,807
5,239
(4,839)
281
-
24,488
The accompanying notes are an integral part of the consolidated financial statements.
F-8
MIND C.T.I. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
$
5,167
$
5,287
$
5,947
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 from marketable securities
Unrealized gain from marketable securities
Realized loss (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 (increase) in accounts receivable, net
Decrease (increase) in other current assets
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable
Increase (decrease) in other current liabilities and accruals
Change in operation lease liability
Increase (decrease) in deferred revenues
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of (investment in) marketable securities, net
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
TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVILENTS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Taxes paid
$
$
The accompanying notes are an integral part of the consolidated financial statements.
F-9
196
6
46
-
(8)
-
-
281
(549)
(244)
(108)
20
(243)
12
(476)
4,100
-
(64)
-
(53)
(1,424)
(1,541)
(4,839)
(4,839)
(27)
(2,307)
5,265
193
7
41
34
-
11
-
258
(666)
(149)
(45)
139
(265)
(71)
(216)
4,558
(11)
(130)
-
(61)
2,031
1,829
(5,227)
(5,227)
(77)
1,083
4,182
2,958
$
5,265
$
194
(96)
83
1
-
(3)
(3)
171
243
117
149
(363)
399
(52)
111
6,898
1,370
(82)
3
(89)
(6,891)
(5,689)
(5,197)
(5,197)
(90)
(4,078)
8,260
4,182
419
$
413
$
903
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. is an Israeli company which, together with its subsidiaries (the “Company”), 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. 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), United Kingdom
(MIND Software Limited) and Germany (MIND CTI GmbH and Message Mobile GmbH (“Message Mobile”)).
2) The impact of Iron Sword War (Israel-Hamas War):
On October 7, 2023, thousands of Hamas terrorists invaded Israel’s southern border towns near the Gaza Strip and carried out attacks on
civilian and military targets that were extraordinary in scale and brutality. Hamas and other terrorist groups also launched extensive rocket
attacks from the Gaza Strip against civilian targets in various parts of Israel. As a result, Israel declared war against Hamas, called up
hundreds of thousands of reserve soldiers and launched an extensive military campaign against them. In parallel, border clashes between
Israel and the Hezbollah terrorist group on Israel’s northern border with Lebanon have intensified and may escalate into a greater regional
conflict. To date, the Company operations have not been adversely affected by the war. The Company has back-up IT systems and remote
work ability that the Company expect will enable its operations to function well in the event of an emergency.
3) Accounting principles:
The consolidated financial statements were prepared in accordance with the United States Generally Accepted Accounting Principles
(“GAAP”).
4) 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 and goodwill impairment analysis.
5) 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.
F-10
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 operations 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 and
MIND CTI GmbH, are conducted is the Euro. Most of the revenues of the German subsidiaries, are denominated primarily in Euros. Thus,
the functional currency of such subsidiaries is the Euro. For the purpose of consolidation of 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.
The resulting 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. 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 the purposes of allocating resources and evaluating financial performance. The Company
has two reporting segments, see Note 10.
d. Cash and cash equivalents:
The Company 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.
e. 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.
F-11
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is equal or approximate fair value due to the short-term maturity of
these instruments.
The measurement of cash and cash equivalents and marketable securities are classified within Level 1.
f.
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 which present the fair value.
g. 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.
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.
h. 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.
i.
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 which best reflects the pattern of use.
Annual rates of depreciation are as follows:
Computers and electronic equipment
Office furniture and equipment
Vehicles
%
15-33
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.
F-12
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
j.
Intangible assets:
Intangible assets with definite lives are amortized over their estimated useful lives using the straight-line method which best reflects the
pattern of use, at the following annual periods ranges:
Core technology
Customer relationships
Years
10.75
5.75
The recoverability of these assets is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows
expected to be generated by the assets. If the assets are considered to be impaired, the amount of any impairment is measured as the
difference between the carrying value and the fair value of the impaired assets.
During the years ended December 31, 2023, 2022 and 2021, no impairment losses have been identified with respect to intangible assets.
k. Goodwill:
Goodwill reflects the excess of the purchase price of subsidiaries acquired in business combination transactions 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 or most often if indicators of impairment are present.
Events or changes in circumstances that could trigger an impairment review include macroeconomic and other industry specific factors
including, among others, 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 the Company’s use of the acquired assets or the strategy for its
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 is measured by comparing the fair value of a reporting unit with its carrying amount.
The Company performed the annual impairment tests as of September 30, 2023, 2022 and 2021 and did not identify any indication for
impairment losses (see Note 4b). The impairment test was based on a valuation performed by management. Judgments and assumptions
used in the discounted cash flow model which included projected net cash flows from operations, short-term and long-term growth rates,
weighted average cost of capital, interest, capital expenditures, cash flows, and market conditions.
l.
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 in
respect of the deferred tax assets are provided for if, based upon the weight of available evidence, it is more likely than not that all or a
portion of the deferred income tax assets will not be realized.
F-13
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
m. 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.
The Company applies 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.
Deferred revenues include unearned amounts received from customers (mostly for ongoing maintenance and customizations performed for
existing customers) but are not yet recognized as revenues. Such deferred revenues are recognized as described below.
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 as a point in time 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 over time 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.
F-14
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Measuring Progress towards Completion
Where a performance obligation is satisfied over time for an upgrade or implementation 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 Company’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 judgmental 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 over time on a monthly basis when those services are
satisfied.
iii) Mobile Messaging Transactions
Certain of the Company’s subsidiaries in Germany 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 the recipient. The revenue amount is based on the price specified in the contract.
n. 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.
o. 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.
F-15
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
p. 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.
q. Treasury shares:
Treasury shares are presented as a reduction of shareholders’ equity, at their cost to the Company, under “Treasury shares”.
r. 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 credit losses.
s. Recently issued accounting pronouncements:
Some accounting pronouncements which have become effective from January 1, 2023 and have therefore been adopted, The adoption of
such pronouncement did not have a material impact on the Company’s consolidated financial statements.
On November 27, 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-
07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure", (“ASU 2023-07”). ASU 2023-07 is aimed to
improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In
accordance with ASU 2023-07, public entities are required to disclose significant segment expenses by reportable segment if they are
regularly provided to the CODM and included in each reported measure of segment profit or loss. Such disclosures are required on both an
annual and an interim basis. In addition, the amendments in ASU 2023-07 enhance interim disclosure by requiring that all existing annual
disclosures about segment profit or loss must be provided on an interim basis in addition to disclosure of significant segment expenses and
other segment items. ASU 2023-07 also clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss.
ASU 2023-07 is effective in a retrospective manner, for fiscal years beginning after December 15, 2023. The Company is in the process of
evaluating what impact ASU 2023-07 will have on its consolidated financial statements and related disclosures.
On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASC
2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as
information on income taxes paid. ASU 2023-09 applies to all entities subject to income taxes. The amendments require that public business
entities ((“PBEs”) on an annual basis (i) disclose specific categories in the rate reconciliation; and (ii) provide additional information for
reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the
amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). Specifically, PBEs are required to
disclose a tabular reconciliation, using both percentages and reporting currency amounts, according to specific categories. Separate
disclosure is required for any reconciling item in which the effect of the item is equal to or greater than 5 percent of the amount computed
by multiplying the income (or loss) from continuing operations before income taxes by the applicable statutory income tax rate. Also, ASU
2023-09 require entities to disclose on an annual basis, information about income taxes paid, including the amount of income taxes paid (net
of refunds received) disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid (net of refunds
received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent
of total income taxes paid (net of refunds received). Also, the amendments in ASU 2023-09 eliminate certain disclosure requirements. ASU
2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is in the process of evaluating what impact ASU
2023-09 will have on consolidated financial statements and related disclosures.
The Company has evaluated other recently issued accounting pronouncements that are not yet effective and does not currently believe that
any of these pronouncements will have a material impact on its consolidated financial statements and related disclosures.
F-16
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - 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 3
2 0 2 2
U.S. dollars in thousands
$
$
$
2,148
158
116
27
2,449
(2,233)
2,089
158
121
27
2,395
(2,170)
216
$
225
b. Depreciation expenses totaled $76 thousand, $77 thousand and $63 thousand in the years ended December 31, 2023, 2022 and 2021,
respectively.
c. Property and equipment, net - by geographical location:
Israel
Romania
Germany
Total
F-17
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
$
$
$
88
58
70
216
$
74
70
81
225
NOTE 3 – LEASES
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has entered into various non-cancelable operating lease agreements for certain office spaces. The leases have original lease
periods expiring between 2024 and 2028. The Company does not assume renewals in its determination of the lease term unless the renewals
are considered as reasonably assured.
The following represents the aggregate right-of-use assets and related lease liabilities from operating lease agreements for certain offices 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 3
2 0 2 2
U.S. dollars in thousands
$
$
$
690
218
424
642
$
$
$
946
271
615
886
In the third quarter of 2022, the Company returned one floor of office space in Romania, which resulted in a decrease of the right-of-use
asset and in the lease liability in the amount of approximately $173 thousand. There were no additional changes in the lease terms in the
reported years.
The weighted average lease term and weighted average discount rate as of December 31, 2023, were as follows:
Weighted average lease term – operating lease
Weighted average discount rate – operating lease
The future cash flows related to the operating lease liabilities as of December 31, 2023, were as follows:
Years ending December 31:
2024
2025
2026
2027
2028
Total lease payments (undiscounted)
Less – discount to net present value
Present value of lease liabilities
F-18
3.7 years
6.73%
U.S. dollars
in thousands
250
145
141
141
40
717
(75)
642
$
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – 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
Balance as of January 1, 2022
Changes during the year ended December 31, 2022:
Functional currency translation adjustments
Balance as of December 31, 2022
Changes during the year ended December 31, 2023:
Functional currency translation adjustments
Balance as of December 31, 2023
F-19
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
$
$
312
545
857
(586)
271
(6)
266
$
$
312
545
857
(524)
333
41
374
Billing and
related
services
Messaging
U.S. dollars in thousands
Total
$
$
$
5,430
$
2,499
$
7,929
-
5,430
-
5,430
$
$
(144)
2,355
87
2,442
$
$
(144)
7,785
87
7,872
NOTE 5 – SEVERANCE PAY
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Labor 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 insurance companies.
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:
Accrued severance pay
Severance pay fund
Unfunded balance
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
$
$
2,060
(2,051)
9
$
$
1,930
(1,914)
16
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 $53 thousand, $61 thousand and $89 thousand in the years ended December 31, 2023, 2022 and 2021,
respectively.
F-20
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - 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. The Ordinary
shares of the Company confer upon their holders the right to receive notice to participate and vote in general meetings of the Company and
the right to receive dividends, if and when, declared.
b. Treasury shares:
During the period between September 2008 and December 2009, the Company purchased an aggregate number 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,
2023, the remaining treasury shares are 1,475,184 ordinary shares which amounted to $1,007 thousand. The treasury shares are mainly
utilized by the Company to settle exercise of options by employees. During the years ended December 31, 2023, 2022 and 2021 treasury
shares were utilized in amounts of 61 thousand, 67 thousand and 72 thousand, respectively.
c. Dividend:
Dividends paid per share in the years ended December 31, 2023, 2022 and 2021 were $0.24, $0.26 and $0.26, respectively.
The Company paid dividends to its shareholders in the total amounts of approximately $4.8 million, $5.2 million and $5.2 million during the
years ended December 31, 2023, 2022 and 2021, respectively.
d. Stock option plan:
In 2011, the Board of Directors and the Company’s shareholders approved a ten-year share incentive plan (the “2011 Share Incentive Plan”)
that was further extended by the Board of Directors for additional ten years. 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 their 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 on service basis. Options not exercised will expire five years after the day of grant.
The compensation costs charged against income for the 2011 Share Incentive Plan were comprised as follows:
Cost of revenues
Research and development expenses
Selling and marketing expenses
General and administrative expenses
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
$
$
60
180
3
38
281
$
$
63
159
1
35
258
$
$
49
90
4
28
171
Under Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 (the “Israeli 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 of 25% on part 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 as income for tax purposes to such employees.
F-21
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The following is a summary of the status of the 2011 Share Incentive Plan as of December 31, 2023, 2022 and 2021, and changes during the
years ended on those dates:
2 0 2 3
Weighted
average
exercise
price
Number
452,500
$
132,000
$
(60,500) $
(15,000) $
(8,000) $
$
501,000
0.003
0.003
0.003
0.003
0.003
0.003
Options outstanding at the beginning of
year
Changes during year:
Granted (a)
Exercised
Forfeited
Expired
Options outstanding at the end of year
Options exercisable at the end of year
30,000
$
0.003
25,500
Weighted average grant date fair value of
options granted during the year (b)
$
1.28
Years Ended December 31,
2 0 2 2
Number
269,500
$
304,000
$
(67,000) $
(54,000) $
$
-
452,500
Weighted
average
exercise
price
0.003
0.003
0.003
0.003
0.003
0.003
0.003
1.58
$
$
$
2 0 2 1
Weighted
average
exercise
price
Number
266,500
$
172,000
$
(71,500) $
(96,500) $
(1,000) $
$
269,500
0.003
0.003
0.003
0.003
0.003
0.003
30,000
$
0.003
$
1.79
(a)
In the years ended December 31, 2023 and 2022 and 2021, 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:
Dividend yield
Expected volatility*
Average risk-free interest rate
Expected average term - in years
Years Ended December 31,
2 0 2 2
2 0 2 1
2 0 2 3
10.48%
51%
4.53%
3.88
9.69%
30%
1.99%
3.88
8.73%
34%
0.81%
3.88
* Volatility is based on the historical volatility of the Company’s share price for periods matching the expected term of the option until exercise.
As of December 31, 2023, there were approximately $517 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 1.29 years.
F-22
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2) The following table summarizes information about options outstanding and exercisable as of December 31, 2023:
Range of
exercise
prices
Number
outstanding
at
December 31,
2 0 2 3
Options Outstanding
Weighted
average
remaining
contractual
life
Years
Weighted
average
exercise
price
Number
exercisable
at
December 31,
2 0 2 3
Options Exercisable
Weighted
average
remaining
contractual
life
Years
Weighted
average
exercise
price
$
0.003
501,000
3.27
$
0.003
30,000
1.45
$
0.003
The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 were approximately $129 thousand,
$184 thousand and $235 thousand, respectively. As of December 31, 2023 the aggregate intrinsic value of the outstanding options is $980
thousand, and the aggregate intrinsic value of the exercisable options is $59 thousand.
NOTE 7 - 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 and on February 16, 2022, the Company received a status of “Technologic Preferred Enterprise” as defined under the
Investment Law (the “Approvals”). In accordance with the Approvals, starting in 2017 and until 2026, 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.
Dividends 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.
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).
F-23
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. Deferred income taxes:
1) Provided in respect of the following:
Research and development expenses, which are recognized for tax purposes over three years
Carryforward tax losses, see (2) below
Other
Less - valuation allowance, see (2) below
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
$
$
95
1,134
7
(1,134)
102
$
$
105
1,388
10
(1,360)
143
Deferred income tax assets are presented in the balance sheet among non-current assets. Also, as of December 31, 2023 and 2022, the
Company has deferred income tax liability in amount of $80 thousand and $112 thousand, respectively, which is calculated on temporary
difference on intangible assets, which were recorded as a part of Message Mobile’s acquisition. Deferred income tax liability is presented in
the balance sheet among long-term liabilities.
2) As of December 31, 2023 and 2022, the Company has provided valuation allowances in respect of certain deferred tax assets in certain
subsidiaries resulting from tax losses carryforward due to uncertainty concerning their realization.
d. Taxes on income included in the statements of operations:
1) As follows:
Current:
In Israel
Outside Israel
Deferred:
In Israel
Outside Israel
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
$
$
308
45
353
12
(6)
359
$
$
335
(12)
323
1
6
330
$
$
687
346
1,033
(18)
(79)
936
F-24
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
Income before taxes on income, as reported in the statements of operations*
$
5,526
$
5,617
$
6,883
Theoretical tax expense
Less - tax benefits arising from Technologic Preferred Enterprise status, see a. above
Increase (decrease) in taxes resulting from other differences:
Disallowable deductions
Taxes on income from previous years
Changes in valuation allowance
Other
Taxes on income for the reported years:
* As follows:
Taxable in Israel
Taxable outside Israel
e. Tax assessments:
1,271
(757)
514
140
(88)
(178)
(29)
359
4,830
696
5,526
$
$
$
1,292
(797)
495
20
(80)
(119)
14
330
5,144
473
5,617
$
$
$
1,583
(739)
844
38
169
(127)
12
936
4,936
1,947
6,883
$
$
$
On March 23, 2023, the Company has received final assessments from the Israel Tax Authority for the 2018-2021 tax years.
F-25
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SUPPLEMENTARY BALANCE SHEET INFORMATION
a. Cash, cash equivalents and short-term bank deposits:
Cash
Cash equivalents
Total cash and cash equivalents
Short-term bank deposits*
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
$
$
$
2,187
771
2,958
13,464
$
$
$
4,535
730
5,265
12,040
*
The average interest rate on short-term deposits is 6.05% and 4.15%, as of December 31, 2023 and 2022, respectively.
b. Other current assets:
Government institutions
Employees
Interest receivable
Sundry
c. Other current liabilities and accruals:
Payroll and related expenses
Government institutions
Accrued vacation pay
Accrued expenses and sundry
F-26
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
114
9
344
71
538
$
$
36
31
185
41
293
December 31,
2 0 2 3
2 0 2 2
U.S. dollars in thousands
814
135
68
732
1,749
$
$
840
277
64
797
1,978
$
$
$
$
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SELECTED STATEMENT OF OPERATIONS DATA
a. Revenues:
1) The Company’s revenues derive from sale of software products and services in two operating segments, see Note 10. 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 and communication solutions. Product lines
“A” and “B” relate to the billing and related services reporting segment and product line “C” relates to the messaging reporting segment.
The following table sets forth the revenues classified by product lines:
Product line “A”
Product line “B”
Product line “C”
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
$
$
11,497
2,127
7,988
21,612
$
$
11,545
2,343
7,663
21,551
$
$
12,069
2,286
11,976
26,331
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
Unrealized gain from marketable securities
Realized gain from sale of marketable securities
Other financial income
Expenses:
Non-dollar currency losses, net
Unrealized loss from marketable securities
Realized loss from sale of marketable securities
Bank commissions and charges
Other financial expenses
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
7,897
11,633
920
1,162
21,612
$
$
8,536
11,382
825
808
21,551
$
$
9,421
14,702
1,366
842
26,331
2 0 2 3
Years Ended December 31,
2 0 2 2
U.S. dollars in thousands
2 0 2 1
737
50
8
-
10
805
-
-
-
(27)
-
(27)
777
$
$
262
-
-
-
58
320
(99)
(34)
(11)
(23)
(60)
(227)
93
$
$
110
-
-
3
-
113
(8)
(1)
-
(49)
-
(58)
55
$
$
$
$
F-27
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:
2 0 2 3
Years Ended December 31,
2 0 2 2
In thousands
2 0 2 1
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
20,163
308
20,471
20,099
298
20,397
20,006
264
20,270
NOTE 10 - 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 described in Note 1c, 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 the Company’s reportable
segments using discrete asset information.
Revenues
Operating income
Revenues
Operating income
Year Ended December 31, 2023
Billing and
Related
Services
Messaging
U.S. dollars in thousands
Total
$
$
13,624
4,623
$
$
7,988
126
$
$
21,612
4,749
Year Ended December 31, 2022
Billing and
Related
Services
Messaging
U.S. dollars in thousands
Total
$ 13,888
$
5,105
$
$
7,663
419
$
$
21,551
5,524
F-28
MIND C.T.I. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2021
Billing and
Related
Services
Messaging
U.S. dollars in thousands
Total
$
$
14,355
4,818
$
$
11,976
2,010
$
$
26,331
6,828
Revenues
Operating income
Revenues from one customer of the Company’s billing and related services segment represent approximately 12%, 12% and 7% of the total
revenues for the years ended December 31, 2023, 2022 and 2021, respectively.
NOTE 11 - RELATED PARTIES
a. Balances
As of December 31, 2023 and 2022, the Company had a short-term accrual in the amount of $240 thousand, pursuant to the compensation
policy regarding the Chief Executive Officer’s annual bonus.
b. Transactions
During the years ended December 31, 2023, 2022 and 2021, the Company recorded salary expenses, cash bonus and directors’ fees to its
related parties in the amount of $598 thousand, $615 thousand and $596 thousand, respectively.
NOTE 12 - SUBSEQUENT EVENT
On March 6, 2024, the Company declared a cash dividend to its shareholders in the amount of approximately $4.8 million ($0.24 per share).
F-29
Name of Subsidiary
MIND Software SRL
MIND Software, Inc.
MIND Software Limited
MIND CTI GmbH
Message Mobile GmbH
LIST OF SUBSIDIARIES
Jurisdiction of Incorporation
Romania
Delaware
United Kingdom
Germany
Germany
Exhibit 8
Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a),
as adopted pursuant to §302 of the Sarbanes-Oxley Act
Exhibit 12.1
I, Monica Iancu, certify that:
1.
I have reviewed this annual report on Form 20-F of MIND C.T.I. Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the company and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report my conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: March 18, 2024
/s/ Monica Iancu
Monica Iancu
President and Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a),
as adopted pursuant to §302 of the Sarbanes-Oxley Act
Exhibit 12.2
I, Arie Abramovich, certify that:
1.
I have reviewed this annual report on Form 20-F of MIND C.T.I. Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the company and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report my conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: March 18, 2024
/s/ Arie Abramovich
Arie Abramovich
Chief Financial Officer
(Principal Financial Officer)
Certification of Principal Executive Officer pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act
Exhibit 13.1
In connection with the annual report on Form 20-F for the fiscal year ended December 31, 2023 of MIND C.T.I. Ltd. (the “Company”) as filed with the
U.S. Securities and Exchange Commission (the “Commission”) on the date hereof (the “Report”) and pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Monica Iancu, certify that:
● the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
● the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 18, 2024
/s/ Monica Iancu
Monica Iancu
President and Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act
Exhibit 13.2
In connection with the annual report on Form 20-F for the fiscal year ended December 31, 2023 of MIND C.T.I. Ltd. (the “Company”) as filed with the
U.S. Securities and Exchange Commission (the “Commission”) on the date hereof (the “Report”) and pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Arie Abramovich, certify that:
● The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 18, 2024
/s/ Arie Abramovich
Arie Abramovich Chief Financial Officer
(Principal Financial Officer)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-8 (Registration No. 333-181383; No. 333-117054; No. 333-100804
and No. 333-54632) of our report dated April 10, 2022, relating to the consolidated financial statements of MIND C.T.I. Ltd. (the “Company”) appearing
in this Annual Report on Form 20-F of the Company for the year ended December 31, 2021.
Exhibit 15.1
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
March 18, 2024
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 18, 2024, with respect to the consolidated financial statements included in the Annual Report of MIND C.T.I.
Ltd. on Form 20-F for the year ended December 31, 2023. We consent to the incorporation by reference of said report in the Registration Statements of
MIND C.T.I. Ltd. on Forms S-8 (File No. 333-181383; File No. 333-117054; File No. 333-100804 and File No. 333-54632).
Exhibit 15.2
/s/ FAHN KANNE & CO. GRANT THORNTON ISRAEL
FAHN KANNE & CO. GRANT THORNTON ISRAEL
Tel Aviv, Israel
March 18, 2024
MIND C.T.I. LTD.
POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
Exhibit 97
MIND C.T.I. Ltd. (the “Company”) has adopted this Policy for Recovery of Erroneously Awarded Compensation (the “Policy”), effective as of
November 14, 2023. Capitalized terms used in this Policy but not otherwise defined herein are defined in Section 11.
1
Persons Subject to Policy
This Policy shall apply to and be binding and enforceable on current and former Officers. In addition, the Committee and the Board may apply
this Policy to persons who are not Officers, and such application shall apply in the manner determined by the Committee and the Board in their sole
discretion.
2
Compensation Subject to Policy
This Policy shall apply to Incentive-Based Compensation received on or after October 2, 2023. For purposes of this Policy, the date on which
Incentive-Based Compensation is “received” shall be determined under the Applicable Rules, which generally provide that Incentive-Based
Compensation is “received” in the Company’s fiscal period during which the relevant Financial Reporting Measure is attained or satisfied, without regard
to whether the grant, vesting or payment of the Incentive-Based Compensation occurs after the end of that period.
3
Recovery of Compensation
In the event that the Company is required to prepare a Restatement, the Company shall recover, reasonably promptly and in accordance with
Section 4 below, the portion of any Incentive-Based Compensation that is Erroneously Awarded Compensation, unless the Committee and the Board
have determined that recovery from the relevant current or former Officer would be Impracticable. Recovery shall be required in accordance with the
preceding sentence regardless of whether the applicable Officer engaged in misconduct or otherwise caused or contributed to the requirement for the
Restatement and regardless of whether or when restated financial statements are filed by the Company. For clarity, the recovery of Erroneously Awarded
Compensation under this Policy will not give rise to any Officer’s right to voluntarily terminate employment for “good reason” or due to a “constructive
termination” (or any similar term of like effect) under any plan, program or policy of or agreement with the Company or any of its affiliates.
4
Manner of Recovery; Limitation on Duplicative Recovery
The Committee and the Board shall, in its sole discretion, determine the manner of recovery of any Erroneously Awarded Compensation, which
may include, without limitation, reduction or cancellation by the Company or an affiliate of the Company of Incentive-Based Compensation or
Erroneously Awarded Compensation, reimbursement or repayment by any person subject to this Policy, and, to the extent permitted by law, an offset of
the Erroneously Awarded Compensation against other compensation payable by the Company or an affiliate of the Company to such person.
Notwithstanding the foregoing, unless otherwise prohibited by the Applicable Rules, to the extent this Policy provides for recovery of Erroneously
Awarded Compensation already recovered by the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 or Other Recovery
Arrangements, the amount of Erroneously Awarded Compensation already recovered by the Company from the recipient of such Erroneously Awarded
Compensation may be credited to the amount of Erroneously Awarded Compensation required to be recovered pursuant to this Policy from such person.
5
Administration
This Policy shall be administered, interpreted and construed by the Committee, which is authorized to make all determinations necessary,
appropriate or advisable for such purpose. The Board may re-vest in itself the authority to administer, interpret and construe this Policy in accordance
with applicable law, and in such event references herein to the “Committee” shall be deemed to be references to the Board. Subject to any permitted
review by the applicable national securities exchange or association pursuant to the Applicable Rules, all determinations and decisions made by the
Committee pursuant to the provisions of this Policy shall be final, conclusive and binding on all persons, including the Company and its affiliates,
shareholders and employees. The Committee may delegate administrative duties with respect to this Policy to one or more directors or employees of the
Company, as permitted under applicable law, including any Applicable Rules.
6
Interpretation
This Policy shall be interpreted and applied in a manner that is consistent with the requirements of the Applicable Rules, and to the extent this
Policy is inconsistent with such Applicable Rules, it shall be deemed amended to the minimum extent necessary to ensure compliance therewith.
7
No Indemnification; No Liability
The Company shall not indemnify or insure any person against the loss of any Erroneously Awarded Compensation pursuant to this Policy, nor
shall the Company directly or indirectly pay or reimburse any person for any premiums for third-party insurance policies that such person may elect to
purchase to fund such person’s potential obligations under this Policy. None of the Company, an affiliate of the Company or any member of the
Committee or the Board shall have any liability to any person as a result of actions taken under this Policy.
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Application; Enforceability
Except as otherwise determined by the Committee or the Board, the adoption of this Policy does not limit, and is intended to apply in addition to,
any Other Recovery Arrangements. Subject to Section 4, the remedy specified in this Policy shall not be exclusive and shall be in addition to every other
right or remedy at law or in equity that may be available to the Company or an affiliate of the Company or is otherwise required by applicable law and
regulations.
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Severability
The provisions in this Policy are intended to be applied to the fullest extent of the law; provided, however, to the extent that any provision of this
Policy is found to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum extent permitted, and shall
automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to any limitations required under
applicable law.
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Amendment and Termination
The Committee and the Board may amend, modify or terminate this Policy in whole or in part at any time and from time to time as deemed
necessary, appropriate or advisable for compliance with Israeli law or of the Applicable Rules, as the same may be amended and interpreted from time to
time.
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Definitions
“Applicable Rules” means Section 10D of the Exchange Act, Rule 10D-1 promulgated thereunder, the listing rules of the national securities
exchange or association on which the Company’s securities are listed, and any applicable rules, standards or other guidance adopted by the Securities and
Exchange Commission or any national securities exchange or association on which the Company’s securities are listed.
“Board” means the Board of Directors of the Company.
“Compensation Policy” means the Company’s compensation policy for officers and directors, as adopted in accordance with the Israeli
Companies Law 5759-1999 and as in effect from time to time (the “Companies Law”).
“Committee” means the Compensation Committee of the Board or, in the absence of such a committee, a majority of the independent directors
serving on the Board.
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“Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation received by a current or former Officer that
exceeds the amount of Incentive-Based Compensation that would have been received by such current or former Officer based on a restated Financial
Reporting Measure, as determined on a pre-tax basis in accordance with the Applicable Rules.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Financial Reporting Measure” means any measure determined and presented in accordance with the accounting principles used in preparing
the Company’s financial statements, and any measures derived wholly or in part from such measures, including GAAP, IFRS and non-GAAP/IFRS
financial measures, as well as stock price and total shareholder return.
“GAAP” means United States generally accepted accounting principles.
“IFRS” means international financial reporting standards as adopted by the International Accounting Standards Board.
“Impracticable” means (a) the direct expense paid to third parties to assist in enforcing recovery would exceed the Erroneously Awarded
Compensation; provided that the Company has (i) made reasonable attempt(s) to recover the Erroneously Awarded Compensation, (ii) documented such
reasonable attempt(s) and (iii) provided such documentation to the relevant listing exchange or association, (b) the recovery would violate the Company’s
home country laws adopted prior to November 28, 2022 pursuant to an opinion of home country counsel; provided that the Company has (i) obtained an
opinion of home country counsel, acceptable to the relevant listing exchange or association, that recovery would result in such a violation and (ii)
provided such opinion to the relevant listing exchange or association, or (c) recovery would likely cause an otherwise tax-qualified retirement plan, under
which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the
regulations thereunder.
“Incentive-Based Compensation” means, with respect to a Restatement, any compensation that is granted, earned, or vested based wholly or in
part upon the attainment of one or more Financial Reporting Measures and received by a person: (a) after such person began service as an Officer; (b)
who served as an Officer at any time during the performance period for that compensation; and (c) during the applicable Three-Year Period.
“Officer” means each person who the Company determines serves as a Company officer, as defined in Section 16 of the Securities Exchange
Act of 1934, as amended, or in Section 1 of the Companies Law.
“Other Recovery Arrangements” means any clawback, recoupment, forfeiture or similar policies or provisions of the Company or its
affiliates, including any such policies or provisions of such effect contained in any employment agreement, bonus plan, incentive plan, equity-based plan
or award agreement thereunder or similar plan, program or agreement of the Company or an affiliate or required under applicable law (including, without
limitation, the Compensation Policy).
“Restatement” means an accounting restatement to correct the Company’s material noncompliance with any financial reporting requirement
under securities laws, including restatements that correct an error in previously issued financial statements (a) that is material to the previously issued
financial statements or (b) that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current
period.
“Three-Year Period” means, with respect to a Restatement, the three completed fiscal years immediately preceding the date that the Board, a
committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably
should have concluded, that the Company is required to prepare such Restatement, or, if earlier, the date on which a court, regulator or other legally
authorized body directs the Company to prepare such Restatement. The “Three-Year Period” also includes any transition period (that results from a
change in the Company’s fiscal year) within or immediately following the three completed fiscal years identified in the preceding sentence. However, a
transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to
12 months shall be deemed a completed fiscal year.
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