Ceragon Networks Ltd 20-F for FY2021
Ceragon Networks Ltd (CRNT)
20-F
2022-05-02
For: 2021-12-31
View Original
Added on
April 11, 2026
About this 20-F
Ceragon Networks Ltd filed this 20-F on May 2, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $290.77M
- up 10.6% from $262.88M a year earlier
- Net loss
- $14.83M
- compared with a net loss of $17.09M a year earlier
As filed with the Securities and Exchange Commission on April 29, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For the fiscal year ended
OR
For the transition period from __________ to __________
OR
Date of event requiring this shell company report ____________
Commission file number
________________________________
(Exact Name of Registrant as Specified in Its Charter)
________________________________
(Jurisdiction of Incorporation or Organization)
(Address of Principal Executive Offices)
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
|
|
|
|
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
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 ☐
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.
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 ☐ |
|
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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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
ii
|
Page | ||
|
PART I |
||
|
1 | ||
|
1 | ||
|
1 | ||
|
29 | ||
|
46 | ||
|
46 | ||
|
57 | ||
|
78 | ||
|
80 | ||
|
82 | ||
|
82 | ||
|
94 | ||
|
95 | ||
|
PART II |
||
|
95 | ||
|
95 | ||
|
95 | ||
|
96 | ||
|
96 | ||
|
97 | ||
|
97 | ||
|
97 | ||
|
97 | ||
|
98 | ||
|
98 | ||
|
PART III |
||
|
98 | ||
|
98 | ||
| 99 | ||
- i -
INTRODUCTION
Definitions
In this annual report, unless the context otherwise requires:
| • |
references to “Ceragon,” the “Company,” “us,” “we,” “our” and the “registrant”
refer to Ceragon Networks Ltd., an Israeli company, and its consolidated subsidiaries; |
| • |
references to “ordinary shares,” “our shares” and similar expressions refer to our Ordinary Shares, NIS 0.01
nominal (par) value per share; |
| • |
references to “dollars,” “U.S. dollars” and “$” are to United States Dollars; |
| • |
references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency; |
| • |
references to the “Companies Law” are to Israel’s Companies Law, 5759-1999; |
| • |
references to the “SEC” are to the United States Securities and Exchange Commission; and |
| • |
references to the "Nasdaq Rules" are to the rules of the Nasdaq Global Select Market. |
Cautionary Statement Regarding Forward-Looking Statements
This annual report on Form 20-F includes “forward-looking
statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and the safe-harbor provisions of the Private Securities Litigation Reform Act
of 1995. We have based these forward-looking statements on our current expectations and projections about future events.
Forward-looking statements can be identified by the use of terminology such as “may,”
“will,” “assume,” “expect,” “anticipate,” “estimate,” “continue,”
“believe,” “potential,” “possible,” “intend” and similar expressions that are intended
to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking
statements discuss future expectations, plans and events, contain projections of results of operations or of financial condition or state
other “forward-looking” information. They involve known and unknown risks and uncertainties that may cause the actual
results, performance or achievements of Ceragon to be materially different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Factors that could cause our actual results to differ materially from those projected
in the forward-looking statements include, without limitation, the risk factors set forth under “Item 3. Key Information -D. Risk
Factors,” the information about us set forth under Item 4. “INFORMATION ON THE COMPANY” and information related to our
financial condition under Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS” and in this annual report generally. Any
forward-looking statements represent Ceragon’s views only as of the date hereof and should not be relied upon as representing its
views as of any subsequent date. Ceragon does not assume any obligation to update any forward-looking statements unless required
by applicable law.
PART I
| ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| ITEM 3. |
KEY INFORMATION |
Risk Factors
The following risk factors, among others, could affect our business,
results of operations or financial condition and cause our actual results to differ materially from those expressed in forward-looking
statements made by us. These forward-looking statements are based on current expectations and we assume no obligation to update this information.
You should carefully consider the risks described below, in addition to the other information contained elsewhere in this annual report.
The following risk factors are not the only risk factors that the Company faces, and as such, additional unknown risks and uncertainties
that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously
harmed if any of the events underlying any of these risks or uncertainties actually occur. In such an event, the market price for our
ordinary shares could decline.
Below are some of the main risks factors and challenges that we
have been facing and may further face, which could have an adverse effect on our business, results of operations and financial condition:
| • |
the effect of the global shortage in components and semiconductors and other commodities, on our supply chain, manufacturing capacity
and ability to timely deliver our products, predominantly due to the global increase in demand for supply of electronic components while
production capacity remains limited, which has and may continue to have an adverse effect on the lead-time for our components and their
prices, adversely impacting our revenue and gross margins and our ability to timely supply our products; |
| • |
the impact of the transition to 5G technologies on our revenues if such transition is developed differently than we anticipated,
either in terms of technology, use-case timeline or otherwise; |
| • |
the effect of the concentration of a major portion of our business on large mobile operators around the world from which we derive
a significant portion of our ordering, that due to their significant weight compared to the then overall ordering by other customers at
the same point of time, coupled with inconsistent ordering pattern and volume of business directed to us (which may deviate as a result
of parameters such as buying decisions, price lists, roll-out strategy, local market conditions, regulatory environment, etc.), creates
high volatility with respect to our financial results and results of operations, which could adversely affect our revenues; |
| • |
competition from other wireless transport equipment providers and from other communication solutions that compete with our high-capacity
point-to-point wireless products; |
| • |
the current effect of the COVID-19 pandemic (“COVID-19”) on the global markets, on the markets in which we operate and
on our business and operations; |
| • |
risks related to the rapid change in the markets for our products and in related technologies and operational concepts development;
|
| • |
sensitivity to changes in demand in the wireless communication market domain and market segment at which we have focused our business
until recently, and related risks if this segment should experience a decline in demand, while our new offering that is aimed to include,
among other things, also WISPs (wireless internet services), private networks, software based solutions and disaggregated cell-site routing,
will take time to mature and have a significant impact on our results that could compensate for the aforementioned risk; |
| • |
risks relating to entering new business domains and models, predominantly by an increased focus on services and software solutions
as well as increasing our market share in small operators and private networks, that neither succeed nor develop as we anticipate could
result in a negative impact on our business and financial results; |
1
| • |
risks relating to failure to attract or retain qualified and skilled “talents” and personnel and the intense competition
for such “talents” and personnel. |
| • |
increased breaches of network or information technology security along with an increase in cyber-attack activities, which is enhanced,
among other things, as a result from the application of remote operation mode (associated with COVID-19 and current labor market trends)
and changes in privacy and data protection laws increases the risk that we shall be subject to cyber-attacks that could have an adverse
effect on our business; |
| • |
difficulties in predicting our gross margin as it is exposed to significant fluctuations as a result of potential changes in the
various geographical locations where we generate revenues; |
| • |
difficulties in predicting our operating results and revenue, which may vary significantly from quarter to quarter and from our expectations
for any specific period; |
| • |
the high volatility in the supply needs of our customers which can lead to delivery issues due to long lead time and availability
of components and manufacturing power; |
| • |
reliance on third-party manufacturers, suppliers and service providers, which may disrupt the proper and timely management of deliveries
of our products; |
| • |
our engagement in providing installation or rollout projects for our customers, which are long-term projects that are subject
to inherent risks, including early delivery of our products with delayed payment terms, delays or failures in acceptance testing
procedures, credit risks associated with our customers and their ability to manage the projects to a timely collection from their end
customer, their dependency on other suppliers for the completion of such projects and reaching payment milestones, our dependency
on the prime contractor’s performance and ability to pursue and manage the execution of the project and to collect the proceeds
due thereunder in cases where we serve as a subcontractor to such primes, and other risks that are beyond our control; |
| • |
risks relating to macro and micro adverse effects on the global and European markets in which we operate due to the invasion of Ukraine
by Russia, such as, among others, cancellation or suspension of orders placed by Russian customers or for Russian end-users, disruption
of delivery of raw materials, oil and gas, goods, and supplies’ price increases, disruption to deliveries, shipping and transportation,
imposition of sanctions and embargoes, loss of business, cyber-attacks, commodity shortages and other effects that could have an adverse
effect on us, our business, suppliers and customers; |
| • |
risks related to fluctuations in currency exchange rates and restrictions related to foreign currency exchange controls;
|
| • |
the occurrence of international, political, regulatory or economic events in emerging economies in Latin America, India, Asia Pacific
and Africa, where a majority of our sales are made; and |
| • |
the effect of global economic trends such as rising inflation, rising interest rates, commodity price increases/fluctuations, commodity
shortages, and exposure to economic slowdown in China. |
2
These and other risk factors are further described and elaborated
herein below. You should carefully read and consider the full description of the risk factors as described below, in addition to the other
information contained elsewhere in this annual report:
Risks Relating to Our Business
The global supply of electronic
components, including integrated circles, has experienced, and may continue to experience, a sharp increase in demand, while production
capacity remains limited, which had, and may continue to have, an adverse effect on the lead-time for our components and increase in their
prices.
The global demand for electronic components including digital components,
chipsets and semiconductors, has experienced a sharp increase in the past several years, with a growing number of industries increasing
their demand and consumption. This, together with the effect of COVID-19 and trade embargos which have discouraged U.S. companies from
using fabs in China, have led to longer lead-time of electronic components, which in turn has led many companies to stock up and increase
their inventory levels, which has added to the pressure on the supply chain and caused an increase in the prices and lead-time of the
electronic components (either electronic or such having the electronics as part of it), with many cases of a lead time longer than a year.
The lack of sufficient production facilities and capacity of the semiconductor foundry industry to meet such demand, which created shortage
in chipsets, electronic equipment and components, has already caused, and is expected to continue to cause, significant price increases
and extension of delivery time. As a result of this situation, we may be unable to obtain essential components in a timely manner and
at a reasonable cost that is necessary for us to remain competitive. During such times, supplier-specific or industry-wide lead times
for delivery can be as long as twelve months or more. If we are unable to obtain components in a timely manner to fulfill our customers’
demand, or at a reasonable cost, we may be unable to meet commitments under our contracts with customers, which could expose us to substantial
liquidated damages and other claims and could materially and adversely affect our results of operations, financial condition, business
and prospects. Additionally, the increase in lead time and the shortage in chipsets may result in delays in the delivery of our products
and in meeting the timetables for the execution of our projects, which may trigger penalties, cancellation of orders and loss of some
of our customers or market share. This has adversely affected, and may continue to adversely affect, our costs (including a significant
increase in production costs) and to erode our gross margin. Furthermore, as our new Systems-on-Chip (SoC) commercialization and commencement
of mass production is highly dependent on the timely delivery of the chipsets, these delays may also adversely affect the commercialization
and mass production timetable, causing a delay in our ability to timely introduce the new SoC-based products to the market and safeguard
and maintain our position and market share as leaders in the introduction of advanced 5G solution. In addition, given the significant
increase in components lead time, and in order to minimize disruption to our business, we increased our forecast horizon to 12-18 months.
As a result, our inventory level increased significantly and risk of write-offs due to, among other factors, missing our forecast has
increased.
It is difficult to predict the impact of the
transition to 5G technologies on our revenues as it depends, among other things, on the timelines of such transition.
We consider the wireless market transition from 4G to 5G technologies
to be one of our main growth engines in the foreseeable future. Thus, the development roadmap of our products is designed to introduce
to the market 5G-based products. Nonetheless, the pace of the transition is hard to predict, as it depends on numerous factors which are
uncertain and beyond our control, including 5G technology developments, standardization and deployments of 5G networks, as well as on
the effect of COVID-19 on the ability to, among other things, deploy 5G networks. The expected transition from 4G to 5G technologies has
led to an overall slowdown in procurement and capital investments in 4G infrastructure and equipment by our customers, and such slowdown,
among other things, together with the continuing COVID-19 effects, contributed to a decline in our results from 2019 to 2020. Further
delays in 5G technologies deployment, could have an adverse effect on our future revenues, profitability and cash flow and cause our results
to materially differ from our expectations.
A major portion of our business concentrates
on large mobile operators that due to their significant weight compared to the then overall ordering by other customers at the same point
of time, such as in India, where two customers represent a significant portion of our revenues, coupled with inconsistent ordering patterns
and volume of business which may deviate as a result of numerous parameters, which could negatively affect our business, financial condition
and results of operations.
In 2021, approximately 28.3% of our total revenues were attributed
to two customers in India. In 2020 approximately 19.7% of our total revenues were attributed to one customer in India and in 2019 approximately
17% of our total revenues were attributed to two customers in India. Since (i) government actions relating to the rollout of cellular
networks affect the demand for our products from customers in India, (ii) our sales are mostly generated from case-by-case purchase orders
rather than long-term contracts, (iii) said customers in India are not bound by any minimum quota, and (iv) the ordering pattern and volume
of business directed to us by such customers may fluctuate as a result of parameters such as buying decisions, price lists, roll-out strategy,
local market conditions, regulatory environment, etc. - we have difficulty projecting future revenues from these customers. The loss
of such significant customers or any material reduction in orders from them in the absence of gaining new significant customers to replace
such lost business has adversely affected, and in the future could adversely affect, various aspects of our results of operations, including
our cash flow and financial condition. In addition, the difficulty to project future revenues from these customers, could have, and
has had in the past, predominantly with respect to such customers in India, an adverse effect on our ability to report future revenues,
profitability and cash flow.
3
Furthermore, since a significant portion of our business is derived
from specific countries, such as India, our business could be negatively impacted should certain events occur in these countries, such
as a slowdown in investments and expansion of communication networks due to the cyclical characteristic of the investment in this industry,
as well as changes in local legislation, changes in governmental controls and regulations (including those specifically related to the
communication industry), changes in tariffs and taxes, trade restrictions, downturn in economic or financial conditions, and an outbreak
of natural calamities, including floods, epidemics (such as COVID-19) and fires. Also, an outbreak of hostilities, political or economic
instability, as well as any other extraordinary events having an adverse effect on the economy or business environment in these countries,
may harm the operations of our customers in these countries, and result in a significant decline of business coming from those countries.
Realization of any of these or other risks could result in a material reduction in orders and could adversely affect our results of operations,
including cash flow and our financial condition. Although some of those risks derive inherently from the concentration of our business,
certain risks may be attributed also to the geographical territories in which we operate as detailed under the risk “Due
to the volume of our sales in emerging markets, we are susceptible to a number of political,
economic and regulatory risks that could have a material adverse effect on our business,
reputation, financial condition and results of operations”.
We face intense
competition from other wireless transport equipment providers and from other communication solutions that compete with our high-capacity
point-to-point wireless products. If we fail to compete effectively, we
may experience a decline in the demand for our products and our business, financial condition and results of operations
could be materially adversely affected.
The market for wireless transport equipment is rapidly evolving,
highly competitive and subject to rapid changes.
Our main competitors include companies such as Huawei Technologies
Co., Ltd., L.M. Ericsson Telephone Company, NEC Corporation, Nokia and ZTE Corporation, commonly referred to as “generalists”,
each providing a vast wireless solutions portfolio, which includes a wireless transport solution within their portfolio. These generalists
may also compete with us on “best-of-breed” projects, in which operators invest resources and efforts to select the best wireless
transport solution. In addition to these primary competitors, a number of smaller wireless transport specialists, including Aviat Networks
Inc., SIAE Microelectronica S.P.A. and Intracom Telecom, offer, or are developing, competing products.
In addition, the industry generalists are substantially larger
than us, have longer operating histories and possess greater financial, sales, service, marketing, distribution, technical, manufacturing
and other resources. These generalists have greater name recognition, a larger customer base and may be able to respond more quickly
to changes in customer requirements and evolving industry standards.
To our knowledge, many of these generalists also have well-established
relationships with our current and potential customers and may have extensive knowledge of our target markets, which may give them additional
competitive advantages. In addition, to our knowledge, these generalists focus more on selling services and bundling the entire network
as a full-package offering, and therefore some of our customers, which seek “best-of-breed” solutions like ours, may prefer
to purchase “bundled” solutions from the generalists. Moreover, as these generalists are usually financially stronger than
us, they may be able to offer customers more attractive pricing and payment terms, as well as customer credit programs, which may increase
the appeal of their products in comparison to ours.
In addition, our products compete with other high-speed communications
solutions, including fiber optic lines and other wireless technologies. Some of these technologies utilize existing installed infrastructure
and have achieved significantly greater market acceptance and penetration than high-capacity point-to-point wireless technologies.
Moreover, as more and more data demands are imposed on existing network frameworks coupled with growing demand for additional bandwidth
as a result of massive use of remote services and work from home modes of operation accelerated by the COVID-19 pandemic, and due to consolidation
of fixed and mobile operators, operators may be more motivated to invest in more expensive high-speed fiber optic networks to meet current
needs and remain competitive. Some of the principal disadvantages of high capacity, point-to-point wireless technologies that may make
other technologies more appealing include suboptimal operations in extreme weather conditions and limitations in connection with the need
to establish line of sight between antennas and limitations in site acquisition for multiple links, or the perception that fiber-optic
solutions are more “environmentally-friendly” predominantly in populated areas, favoring other technologies.
4
To counter the disadvantages of licensed point to point wireless
technologies, license exempt technologies in the V-band spectrum (60Ghz band), which can operate in the wide bandwidth available at this
band, may be used to deliver multi-Gbps capacity backhaul for a limited set of scenarios, such as dense urban areas, serving short range
point-to-multipoint communications, thereby reducing site acquisition barriers, enabling flexible deployment models. Though the applicability
of such solutions is limited to a small set of use cases, with shared capacity thus limiting the peak capacity available for urban backhaul,
those may take a share of point-to-point solutions we provide for these same urban scenarios. Furthermore, future 5G implementations may
require on-the-move solutions to establish communication channels with moving platforms, creating an additional advantage to point to
multi-point solutions. In addition, 5G-NR Integrated Access and Backhaul (IAB of 5G-NR) technology which operates within the 5G
access band, can potentially be used to connect base station/small cell sites to one another. Though the applicability of such solutions
is limited to a small set of use cases, with shared capacity thus limiting the peak capacity available for urban backhaul, those may take
a share of point to point solutions we provide for these same urban scenarios.
To the extent that these competing communications solutions reduce
demand for our high-capacity point-to-point wireless transmission products, there may be a material adverse effect on our business and
results of operations.
Moreover, some of our competitors can benefit from currency fluctuations
as their costs and expenses are primarily denominated in currencies other than the U.S. dollar. In case the U.S. dollar strengthens against
these currencies these competitors might offer their products and services for a lower price and capture market share from us, which might
adversely affect our business and negatively influence our results of operation and financial condition.
We expect to face continuing competitive pressures in the future.
If we are unable to compete effectively, our business, financial condition and results of operations would be materially adversely affected.
For more information on the “best-of-breed” market, please refer to Item 4. INFORMATION ON THE COMPANY; B. Business Overview
– “Wireless Transport; Short-haul, Long-haul and Small Cells Transport”.
The global COVID-19 pandemic may continue to
negatively impact the global economy in a significant manner for a further extended period of time, and may also adversely affect our
operating results in a material manner.
The COVID-19 worldwide pandemic had created macro-economic uncertainty
and disruption in the business and financial markets. Many countries around the world, including Israel, have taken various measures designated
to limit the spread of COVID-19, including the closure of workplaces, restricting travel, prohibiting assembling, closing international
borders and quarantining populated areas. As our global operations require physical presence in many stages of our business activities,
including lab work that cannot be done remotely, travel for installation and services, shipment of materials and products, as well as
teamwork, we are particularly vulnerable to the consequences of and the restrictions caused by COVID-19. If COVID-19 continues to negatively
impact the global economy in a significant manner for a further extended period of time, this may also adversely affect our operating
results in a material manner.
Below are some of the main risks and challenges that we have been
facing and may continue to face as a result of a prolonged disruption of work, global deliveries and transportation due to COVID-19,
which could have an adverse effect on our business, and on various aspects of our results of operations, cash flow and financial condition:
| • |
Increase in shipment and logistical costs and delivery time. COVID-19 presents various challenges
to global shipment and delivery of goods, products and materials, resulting in continuous growth in shipment costs, shortage in vehicles
and available shipping time slots, conjunction and cul-de-sac in sea ports, which are slowing down the delivery timetables and endanger
the timely performance of projects and contractual delivery obligations. Such increased costs cannot always be reflected in the prices
for our products, which causes erosion in our margins. In addition, we may suffer from cancellation of orders or termination of agreements,
and imposition of penalties for late deliveries. |
| • |
Disruptions to our Marketing and Sales activities. Disruptions or restrictions may also be
imposed on our marketing and sales operations, including on our ability to interact with existing and new customers. |
| • |
Adverse effects on employees’ health, working routines and teamwork. COVID-19 could
continue to endanger or harm the health of our employees, including key employees, which could in turn harm our ability to function fully
and effectively. |
| • |
Damage to significant customers. COVID-19 has had and could continue to have an adverse effect
on our business as a result of the materialization of any of the above or similar risks with respect to our significant customers. Our
business has been and could further be impacted negatively if there is a prolonged impact of COVID-19 in countries from which we generate
a significant portion of our business. For example, this may cause and to some extent has caused a freeze of procurement budgets, cancellation,
suspension or reduction in new equipment purchases from us, failure by our customers in meeting their obligations under purchase orders
already issued, postponement or cancellation of rollout projects for wireless networks, or the inability to pursue network development
towards 5G, and consequently, postponement in the transition to 5G technologies and in the introduction of our new products and capabilities.
|
5
| • |
Difficulties in debt collection. COVID-19 may cause delays in billing and in collection of
amounts due from our customers, and in satisfying revenue recognition procedures, including as a result of financial difficulties and
insolvencies of major customers, which could lead to slowing the payment of their obligations to us or even discharging those obligations,
or due to inability to surrender or receive payment documents such as acceptance certificates which sometimes require on-site acceptance
tests that depend on our or our subcontractors’ ability to arrive to the respective sites. |
| • |
Damage to our competitive position in the market. Since we focus on certain elements
of wireless communication networks and not on the entire end-to-end offering up to the end-users’ end points (as further detailed
below), we may not benefit from certain conditions resulting from COVID-19, as opposed to other players in the market. For example, we
did not benefit from the growth in demand for bandwidth and Wi-Fi connectivity due to the increased need for remote applications, as did
the WISPs (Wireless Internet Service Providers). |
As the scale and duration of these effects remain uncertain, further
realization of any of the above-mentioned or other risks could have macro and micro negative effects on the global economy and financial
markets in general, and on our business in particular, and cause a material risk to our operations, financial condition and share price.
The markets for our products change
rapidly. If we fail to timely develop, commercialize and market new products and solutions that keep pace with
technological developments, the changing industry standards and our customers’ needs,
or if our competitors or new market entrants introduce their products before us, we may not be able to grow, may lose market share or
may not be able to sustain our business.
The wireless equipment industry is characterized by rapid technological
developments, changing customer needs that expect increase in product performance and evolving industry standards, as well as increasing
pressure to produce more cost-effective products. These rapid technological developments could either render our products obsolete or
require us to modify our products, necessitating significant investment, both in time and cost, in new technologies, products and solutions.
Our success depends, among other things, on our ability to maintain an agile infrastructure that is capable of adapting to such changes
in a timely manner, developing and marketing new products or enhancing our existing products in a timely manner in order to keep pace
with developments in technology, customer requirements and competitive solutions offered by third parties, but we cannot assure you that
any such development or production ramp-up will be completed in a timely or cost-effective manner, or how the market will receive or adopt
our products compared to our competitors’ products.
We are continuously seeking to develop new products and enhance
our existing products. In 2020 we released our IP-50 products’ family, which joined our line of point-to-point wireless transport
products, designed to deliver premium wireless transport capabilities. The IP-50 products deliver solutions to various use cases, including
5G scenarios. In addition, we have achieved leadership in technology by innovating through design of state-of-the-art Systems-on-Chip
(SoC), which we plan to integrate in the products we provide. While we expect to productize our 5G SoC in the next couple of months, the
overloads and continuous delays in deliveries in the semiconductor market can cause delays in the mass production and productization of
our SoC, and therefore, we cannot assure you that we will be able to successfully commercialize such sophisticated and technology-rich
SoC by the time we expected. As a result, we may need to purchase SoCs from another source, which may not have the same qualities, and
may be more expensive, thus negatively impacting our gross profit. Also, delays in the production of our SoC may delay the launch of new
products and consequently we may lose our competitive advantage. Moreover, we cannot provide any assurance that our new products will
be accepted in the market or will result in profitable sales or that such products will not require additional quality assurance and defect-fixing
processes. We also record perpetual usage rights of technologies of third parties, as well as part of our R&D investments, as assets
on our balance sheet. While at the time we record such items as assets, the estimated risk of failure of our R&D integration efforts
into our new products and into our new SoC is low, if we fail with our new product introduction, we may incur significant loss.
6
Furthermore, as noted above, we consider the wireless market transition
from 4G to 5G technologies to be one of our main growth engines in the foreseeable future. If our competitors or new market entrants will
develop products for this market that are, or are perceived to be, more advantageous to our customers from a technological and/or financial
(i.e., cost-benefit) perspective, or if they introduce and market their products prior to us doing so, they may be able to better position
themselves in the market and we may lose potential or existing market share, which could have a material adverse effect on our business,
financial results and financial condition.
Our market is also characterized by a growing demand for more sophisticated
and rich software-based capabilities within the network IP layer (layer 3 routing/MPLS), some of which may require us to utilize and embed
additional components, either in hardware or software (including third-party software), in the solutions we provide. We cannot assure
you that we will continue to be successful in providing these necessary software-based capabilities in a cost-effective manner, which
could affect our business performance. Additionally, we have established technological cooperation with third parties to address some
of these capabilities, but we cannot assure that such technological cooperation will be successful or achieve the expected results. If
indeed such cooperation will not be successful, we shall have to consider other alternatives, and such investigation and entering into
new cooperation in lieu of the failed ones, might cause a delay in the introduction of such capabilities.
In addition, new products and new versions of existing products
are more prone to technical problems which may, among other things, adversely affect our ability to ramp up and to meet delivery commitments
to our customers in a timely manner, and may cause us to incur additional manufacturing, development and repair costs. This may have a
material adverse effect on our business and results of operation.
Last, we cannot assure you that we will successfully forecast technology
trends or that we will anticipate innovations made by other companies and respond with our own innovation in a timely manner, which could
affect our competitiveness in the market.
Our future
operations are based on forward-looking forecasts, among other things, on market trends, future business concepts and use cases, and customers’
needs and requirements, while there is no assurance that such forecasts will materialize as we predicted. If we fail to
rightfully identify those needs and trends, we may experience a decline in the demand for our products and our business, financial condition
and results of operations could be materially adversely affected.
We have based the future planning of our corporate, business, marketing
and product strategies on the forecasted evolution of the market developments, such as market trends, future use cases, business concepts,
technologies and future demand, and accordingly shape the development of our networks’ architecture design, technological and operational
solutions and offering, so as to adapt to such estimated needs and changes. As an example, part of our solutions are focused on Open RAN
and on disaggregated architecture model. We cannot assure you that the concept of Open RAN and disaggregation will be accepted, or that
we have successfully forecasted or will continue to successfully forecast such trends, that the markets will shape as we anticipated or
that our offering will indeed satisfy the future demand. A failure in any of the above, may result in significant losses and a decline
in the demand for our products, and may adversely affect our financial results and reputation.
Design Wins may not assure
or secure the materialization of an actual sale.
As part of the marketing and sales of our products, predominantly
such that had been recently released and introduced to the market or to the specific customer, including new 5G technologies, our products
and solutions undergo an evaluation stage and design into the customer’s products or systems. The award of a Design Win does not
necessarily mean that such customer shall eventually buy our products or that only our solution has been chosen for the design. Any such
design and evaluation phase is subject to the risk of failure to meet the customer’s technological and operational requirements,
specifications, delivery date or certain other parameters at any time before the design is frozen. Thus, being awarded a Design Win does
not assure nor secure the materialization of actual sale and should not be relied upon by you as such.
7
Until recently, we sold products
and services in one single market domain - the wireless communication market, and were focused on the “best-of-breed” market
segment of the wireless transport market, which we believed to have the most profit potential. We are currently expanding our offering,
and until such new offering will rump-up, we continue selling mostly in a single market domain, which may result in sensitivity to the
changes in demand for this market segment. If this segment should experience a decline in demand which is not replaced by our new offering,
we will likely experience a negative effect on our business, financial condition and results of operations.
Until recently, we mainly attributed our leadership position in
our target market to the focus on the “best-of-breed” market segment of the wireless transport market. Focusing on this one
market segment led to a decline in sales in 2019 to 2021, as opposed to a growth in sales in 2018 and 2017. Investment cycles in this
market depend on technology cycles of mobile networks services (e.g., 4G to 5G technologies). Hence, if this segment of the market or
the service providers enter into a negative cycle, or our market share in the market shrinks, our sales and revenues may decline, and
our results of operations and cash flow may be significantly and adversely affected. In such case, we may need to take cost reduction
and other measures, which may adversely impact our research and development, operations, marketing and sales activities and our ability
to effectively compete in the market.
Moreover, we used to develop and sell products in one market domain
of the wireless communication market, characterized as point-to-point licensed wireless connectivity - often referred to as “backhaul”,
“midhaul”, “fronthaul” or simply wireless “transport” - into this “best-of-breed” market
segment. As a result, we were, and still are, more likely to be adversely affected by a reduction in demand for point-to-point wireless
transport products in comparison to companies that also sell multiple and diversified product lines and solutions in different market
domains. If technologies or market conditions change, resulting in a decreased demand for our specific technology, and our new offering
will not be mature or material enough to compensate for it, it could have a material adverse effect on our business, financial results
and financial condition as we attempt to address these issues.
Although we have revisited and updated our strategy to include,
among other things, WISPs (wireless internet services), private networks, software based solutions and disaggregated cell-site routing,
it will take time for our new offering to mature and have a significant impact on our results in a way that would mitigate and compensate
for the aforementioned risks, and as such activities bear their own inherent risks, we currently might not be able to secure an alternative
in order to avoid the implications of the realization of the risks detailed above.
We are expanding our service offering to new
areas, including software-based services (SaaS) and solutions for wireless communication networks design, implementation, operation, monitoring
and maintenance, either remotely or on premise, which pose product development, marketing, sales, operation, implementation and
support challenges that might result in significant losses and may adversely affect our financial results.
We are expanding the services we offer to new areas including the
introduction of software-based tools and services to support design, implementation, operation, monitoring and maintenance of wireless
communication networks, either remotely or on-premise. Although we have deployed similar solutions for our own use for many years, the
complexity of such solutions, the lack of customer-experience in such SaaS and similar solutions, us having to operate and support such
activities vis-à-vis multiple third parties if demand increases rapidly without us having sufficient time to accommodate accordingly,
all increase the risk of not meeting our performance obligations. Furthermore, the selling of software solutions includes inherent risks
common for such type of activities, such as, among other things, cybersecurity vulnerability, unexpected integration challenges, debugging,
upgrading and increased need for version releases, underpricing, etc. In addition, new products and new versions of existing products
or tools, are more prone to bugs, software failure and other problems which may, among other things, adversely affect our ability to ramp
up this activity or meet our commitments to our customers, and may cause us to incur additional development, debugging and implementation
costs. Moreover, the outcome following such projects’ implementation may not be to the full satisfaction of the customer or aligned
with their expectations (whether or not justified), who may in turn, impose penalties against us or exercise any other remedy available
to it under agreement or law. Any of these risks, among others, may also cause the NRE (Non-Recurring Engineering) and cost of such projects
to be higher than planned.
Our planning, shaping and development of these software-based solutions
is based on our experience and understanding of the market needs and challenges, and forecasted evolution of market developments, such
as market trends, future use cases, business concepts, technologies and future demand. However, there is no assurance that we have successfully
forecasted or will continue to successfully forecast such trends and needs, that the markets will accept our solutions as we anticipate
or that our offering will satisfy future demand. A failure in any of the above, may result in significant losses and may adversely affect
our financial results and reputation.
8
If we fail to attract or retain qualified and
skilled “talents” and personnel, our business, operations and product development efforts may be materially adversely
affected.
Our products require sophisticated research and development, marketing
and sales, and technical customer support. Our success depends on our ability to attract, train and retain qualified personnel in all
these professional areas while also taking into consideration varying geographical needs and cultures. We compete with other companies
for personnel in all of these areas, both in terms of profession and geography, and we may not be able to hire sufficient personnel to
achieve our goals or support the anticipated growth in our business. The market for the highly trained personnel we require globally is
competitive, due to the limited number of people available with the necessary technical skills and understanding of our products and technology.
Particularly commencing in 2021, especially in the Israeli labor market, we are experiencing immense competition on talent predominantly
among R&D and technological personnel, or employees having experience or expertise in high-tech and traded companies, which is reflected,
among other things, an increase in salaries and retention challenges. If we fail to attract and retain qualified personnel due to compensation
or other factors, our business, operations and product development efforts would suffer.
Furthermore, in addition to the shortage in skilled engineers and
other computers science and technology professionals versus high market demand and competitive environment predominantly in Israel where
our laboratories are located, we are also experiencing fierce competition driven from the effect of major fund raising and initial public
offerings activities in the Israeli capital markets that had created sudden and high demand for professional manpower having skills, experience
and expertise in the management and performance of professional functions at all levels within publicly traded companies, coupled with
the means to place challenging highly competitive offers.
As the demand for qualified and highly skilled personal is on constant
demand, our ability to retain existing “talents” and recruit new ones is becoming more challenging. Consequently, we may have
to face with increasing employment costs for existing and new personnel in professions characterized with high demand, and might have
to increase our equity-based long-term incentive programs, which in turn could result in the dilution of our shareholders due to the exercise
of such rights. Loss of senior level “talents” may cause delays in our development efforts and operational challenges as well
as shortage in knowhow and capabilities which cannot always immediately mitigated.
Increased breaches of network or information
technology security along with changes in privacy and data protection laws could have an adverse effect on our business.
Cyber-attacks or other breaches of network or IT security may cause
equipment failures or disrupt our systems and operations, expose us to ransom demands or sensitive data leaks. We might be subject to
attempts to breach the security of our networks and IT infrastructure through cyber-attacks, malware, computer viruses and other means
of unauthorized access. While we maintain insurance coverage for some of these events, we cannot be certain that our coverage will be
adequate for liabilities actually incurred. While we take cybersecurity measures and maintain redundancy and disaster recovery practices
for our critical services, we cannot assure you that our cybersecurity measures and technology will adequately protect us from these and
other risks. Furthermore, our inability to operate our facilities as a result of such events, even for a limited period of time, may result
in significant expenses or loss of market share to our competitors.
Maintaining the security of our products, computers and networks
is a critical issue for us and our customers. Therefore, each year we invest additional resources and technologies to better
protect our assets. However, security researchers, criminal hackers and other third parties regularly develop new techniques to penetrate
computer and network security measures. In addition, hackers also develop and deploy viruses, worms, Trojan horses and other malicious
software programs, some of which may be specifically designed to attack our products, systems, computers or networks. Moreover, due to
COVID-19 and current labor market trends, a significant number of our employees or employees of our vendors, suppliers and service providers,
have moved to work from their homes and remotely access our or such vendors’, suppliers’ or service providers’ IT networks.
Such remote working mode creates the risk of attacking the end-point user stations, connection channels and gateways. We have seen a significant
increase of cyberattacks on enterprises and individuals in recent years and we assume that we shall further be exposed to such threats
going forward. In addition, our and our vendors’, suppliers’ and service providers’ IT systems are increasingly being
moved to cloud-based platforms such as IaaS (Infrastructure as a Service) and SaaS (Software as a Service) IT solutions. The or based
cloud-based arena poses risks of attack on and from the end-point user stations, connection channels and gateways as well as the IaaS
and SaaS infrastructures of our service providers. Additionally, external parties may attempt to fraudulently induce our employees or
users of our products to disclose sensitive information in order to gain access to our data or our customers’ data. These potential
breaches of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information
or sensitive, personal or confidential data about us, our employees or our customers, including the potential loss or disclosure of such
information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers
or the individuals affected, to a risk of loss or misuse of this information, result in litigation and potential liability or fines for
us, damage to our brand and reputation or otherwise harm our business.
9
In addition, a failure to protect the privacy of customers’
or employees’ confidential and/or personal data against breaches of network or IT security could result in monetary liabilities
and damage to our reputation. The regulatory framework for data and privacy protection issues is evolving worldwide, including the
imposition of more comprehensive data protection requirements under the General Data Protection Regulation (GDPR), which imposes stricter
obligations and provides for greater penalties for noncompliance. These laws and regulations constantly evolve and remain subject to significant
change. In addition, the application and interpretation of these laws and regulations are often uncertain. New data protection and privacy
laws and regulations add additional complexity, requirements, restrictions and potential legal risk, require additional investment in
resources to compliance programs, and could result in increased compliance costs and/or changes in business practices and policies.
Unauthorized use or behavior on part of our vendors’, suppliers’
and service providers’ employees or taking insufficient cybersecurity measures by them, could result with data leaks and penetration
to our databases that are located or installed in their network. In addition, the shift to software solutions coupled with requirement
to move data to cloud-based and open-source environments impose enhanced cybersecurity challenges that can make our vendors, suppliers
and service providers more vulnerable to cyber-attacks.
Cyber-attacks on our customers’ networks
involving our products could have an adverse effect on our business.
Maintaining the security of our products (including newly introduced
software products) which are installed with our customers is a critical issue for us, therefore each year we invest additional resources
and technologies to better protect our assets. However, security researchers, criminal hackers and other third parties regularly develop
new techniques to penetrate computer and network security measures. Cyber-attacks, or other breaches of security on our customers’
networks, may be initiated at any network location or device including initiation through our products. Although we maintain high levels
of cyber-security aware development processes, we cannot assure that such attacks, or other breaches of security through our products,
will fail and therefore may negatively affect our customers’ business. Moreover, criminal hackers or hackers associated with national
governments, may target a customer of ours or even try to get access to a wider group of the communication network users while devoting
immense resourced for long-term access to industry, economy or critical infrastructure users, gather intelligence and develop the means
to disable their systems, which attacks are hard to detect, prevent and illuminate. Such attacks could be highly sophisticated, such as
slipping malware and Trojan horses and warms into software updates or systematically search for vulnerabilities in our products or in
the components we use even before it supplies to us. While we maintain insurance coverage for some of these events, we cannot be certain
that our coverage will be adequate for liabilities actually incurred. In addition, these events could also result in damage to our reputation
which will further negatively impact our business.
Unauthorized use or behavior on part of our customers’ employees
or taking insufficient cybersecurity measures by certain customers, could result with data leaks and penetration to our systems that are
located or installed in its network. In addition, the shift to software solutions coupled with requirement to move data to cloud-based
and open-source environments impose enhanced cybersecurity challenges that can make our products and services more vulnerable to cyber-attacks.
These
potential breaches of our security measures could expose our customers to network failures or other related risks, result in litigation
and potential liability or fines for us, damage to our brand and reputation or otherwise harm our business.
It is difficult to predict our gross margin
as it is exposed to significant fluctuations as a result of potential changes in the geographical mix of our revenues.
Our revenues are derived from multiple regions, each of which may
consist of a number of countries. Gross margin percentages may vary significantly between different regions and even among different countries
within the same region and even within different customers in the same country, dependent on the size and characteristic of specific deal
terms. A significant change in the actual ratio of our revenues among the different regions/countries, whereby the actual ratio of revenues
from a higher gross margin region/country exceeds our expectations, may cause our gross margin to significantly increase, while in case
the actual ratio of revenues from a lower gross-margin region/country exceeds our expectations, our gross-margin may significantly decrease.
10
Our operating results and revenue are hard
to predict and may vary significantly from quarter to quarter and from our expectations for any specific period.
Our quarterly results are difficult to predict and may vary significantly
from quarter to quarter, or from our expectations and guidance for any specific period. Most importantly, delays in product delivery or
completion of related services, delays in performing acceptance tests or delays in projects timetable on part of our customers or their
other vendors, can cause our revenues, net income and operating cash flow to deviate significantly from anticipated levels, especially
as a large portion of our revenues are traditionally generated towards the end of each quarter.
Additionally, as a significant portion of our business is concentrated
with certain customers, who are not obligated to purchase from us a fixed amount of products or services over any period of time and may
terminate or reduce their purchases from us at any time without prior notice or penalty, we have difficulty projecting future revenues
from these customers, which highly affect our overall revenue, cash-flow and business. In addition to the inherent uncertainty associated
with such business pattern, any credit crunch, distressed financial situation or insolvency on the part of such customers, may adversely
affect our ability to collect the balance due from them and further expend the variation in our revenues and operating results.
Moreover, factors such as geographical mix, delivery terms and
timeline(s), product mix, related services mix and other deal terms may differ significantly from our expectations, and thus impact our
revenue recognition timing, gross margins, costs and expenses, as well as cash flow from operations. In addition, the spending decisions
of our customers throughout the year may also create unpredictable fluctuations in the timing in which we receive orders and can recognize
revenues, which may impact our quarterly results. Such unpredictable fluctuations could be material in cases where these spending decisions
are made by our largest customers or regarding significant deals. Additionally, the aggregation of several revenue recognition requirements
for each such transaction, results in difficulty and complexity in establishing a firm prediction as to the end-of-term results, and consequently,
our actual revenue rates may significantly exceed or be less than our expectations.
We experience high volatility
in the supply needs of our customers, which from time to time lead to delivery issues due to long lead time and availability of components
and manufacturing power. If we fail to effectively cope with such volatility and short-noticed supply demands of our customers, we may
be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations for a certain
quarter.
The delivery requirements of our customers are unevenly spread
throughout the year. We may receive very large orders that were not forecasted, or that were expected with a different timing requirement.
In addition, we offer our products to our customers in a wide variety of products variations and configurations, and our inability to
forecast the quantities or mix of the delivery demands for our products may result in underestimating our material purchasing needs, as
well as production capacity requirements. If we fail to effectively manage our deliveries to the customers in a timely manner, or
otherwise fulfill our contractual obligations to them - for example if we are unable to synchronize our supply chain and production process
in cases of rapidly increasing production needs - the cost of our material purchasing, manufacturing and logistics may increase and we
may also be obligated to pay expediting fees to our contract manufacturers or penalties to our customers for delays, all of which would
adversely affect our business, financial results and our relationship with our customers.
Relying on third-party manufacturers, suppliers
and service providers may disrupt the proper and timely management of deliveries of our products, a risk that is intensified in the case
of a single source supplier.
We outsource our manufacturing and the majority of our logistics
operations and purchase ancillary equipment for our products from contract and other independent manufacturers. Although our policy is
to maintain a second source for all of our products’ components, disruption in deliveries or in operations of these and other third-party
suppliers or service providers, as a result of, for example, capacity constraints, production disruptions, price increases, regulatory
restrictions, force majeure events, decreased availability of raw materials or commodities, as well as quality control problems related
to components, may all cause such third parties not to comply with their contractual obligations to us. This could have an adverse effect
on our ability to meet our commitments to customers and could increase our operating costs. Such risk is intensified when there is a sharp
increase in demand for components throughout the electronic industry. For additional information see “The
global supply of electronic components, including ICs, has experienced, and may continue to experience, a sharp increase in demand, while
production capacity remains limited, which had, and may continue to have, an adverse effect on the lead-time for our components and increased
their prices”.
11
Although we believe that our contract manufacturers and logistics
service providers have sufficient economic incentive to perform our manufacturing and logistics services requirements, the resources devoted
to these activities are not within our control. We cannot assure you that manufacturing or logistics problems will not occur in the future
due to insufficient resources devoted to our requirements by such manufacturers and logistics service providers, or due to insolvency
or other circumstances that could have a material adverse effect on those manufacturers and logistics service providers’ operations.
In addition, we cannot assure that we will have the ability or be in the position to demand from our contract manufacturers to assume
our obligations to our customers, apply the same terms back-to-back to our contract manufacturers and suppliers, a risk that is intensified
in the case of a single source supplier.
In addition, some of our contract manufacturers currently obtain
key components from a limited number of suppliers. Our contract manufacturers’ dependence on a single or sole source supplier, or
on a limited number of suppliers, subjects us to the following risks:
| • |
The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers.
Consequently, these shortages could delay the manufacture of our products and shipments to our customers. |
| • |
The component suppliers could discontinue the manufacture or supply of components used in our systems. In such an event, we or our
contract manufacturers may be unable to develop alternative sources for the components necessary to manufacture our products, which could
force us to redesign our products or buy a large stock of the component into inventory before it is discontinued. Any such redesign of
our products would likely interrupt the manufacturing process and could cause delays in our product shipments. Moreover, a significant
modification in our product design may increase our manufacturing costs and bring about lower gross margins. In addition, we may be exposed
to excess inventory of such component, which we will have to write-down in case the demand is not as high as we anticipated at the time
of buying these components. |
| • |
The component suppliers may significantly increase component prices at any time and particularly if demand for certain components
increases dramatically in the global market which would have an adverse effect on the Company’s business. |
| • |
The component suppliers may significantly increase the time to produce and deliver their components at any time resulting in an immediate
effect, as evidenced recently with respect to the semiconductors foundry industry. These lead time increases would delay our products’
delivery timetable and could expose us to shortage in supply or late supplies that may trigger penalties, orders cancellation and losing
some of our customers. |
| • |
The component suppliers may refuse or be unable to further supply such component for various reasons, including, among other things,
their prioritization, focus, regulations, force majeure events or financial situation. |
The materialization of the risks detailed above could result in
delays in deliveries of our products to our customers, which could subject us to penalties payable to our customers or cancellation of
orders, increased warranty costs as well as increases in manufacturing and shipment expenses in the case of expedited deliveries, as well
as damage our reputation. If any of these problems occur, we may be required to seek alternate manufacturers or logistics service providers
and we may not be able to secure such alternate manufacturers or logistics service providers that meet our needs and standards in a timely
and cost-effective manner. Consequently, such occurrences, extra costs and penalties could significantly reduce our gross margins and
profitability. The above-mentioned risks are exacerbated in the case of raw materials or component parts that are purchased from a single-source
supplier.
12
We are engaged in providing installation
or rollout projects for our customers, which are long-term projects that
are subject to inherent risks, including early delivery of our products with delayed payment terms, delays or failures
in acceptance testing procedures and other items beyond our control, all of which could have a material adverse effect on our results
of operations or financial condition.
In certain projects, we serve as an integrator and prime
contractor of end-to-end rollout projects, which include installation and other services for our customers. In this context, we may act
as the prime contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services
required for these projects, or we may provide such services and equipment (or part thereof) for projects handled by others, primarily
system integrators. Those rollout projects often require us to deliver products and services representing an important portion of the
contract price before receiving any significant payment from the customer, as significant amounts are to be paid by our customers over
time. In cases where we do not serve as prime contractors as aforesaid, and the full project is handled by others, even if we have delivered
to our commitments, there is a risk that we will not be able to receive payments in a timely fashion due to failure or default on part
of the prime contractor or other issues which are not related to the performance of our portion of the project, causing payment
delays by the end customers. Therefore, these types of projects could cause us to experience substantial period-to-period fluctuations
in our results of operations, cash flow and financial condition.
Once a purchase order has been executed, the timing and amount
of revenue may remain difficult to predict. The completion of the installation and testing of the customer’s networks
and the completion of all other suppliers’ network elements are subject to the customer’s timing and efforts, and other factors
outside our control, such as site readiness for installation or availability of power and access to sites, which may prevent us from making
predictions of revenue with any certainty. Throughout the COVID-19 outbreak, for example, we have experienced difficulties in completion
and testing of sites or in obtaining acceptance certificates due to travel limitations, lockouts restrictions and other disruption of
our and our suppliers’ activities or of our customers’ operations, which impair our ability to recognize revenue.
Also, as we usually engage subcontractors, third party service
providers and temporary employees to perform a significant part of the work (such as installation, supervision, on-site testing, commissioning,
repair and replacement services), we are dependent on such service providers’ and temporary employees’ timely and quality
performance, including with respect to the fulfillment of or default under their back-to-back obligations to those we may have undertaken
vis-à-vis our customers, as well as pricing that may fluctuate significantly due to various factors. All these factors may affect
our ability to accurately project our costs and profits in providing these services and may result in significant deviations from our
projections, which may adversely affect our financial results. In addition, we may be subject to other risks that may apply to our subcontractors
or associated with their businesses.
In some of these projects, we may need to provide bank guarantees
to ensure successful completion of the rollout services, to secure an advance payment we have received, in case we fail to meet our obligations,
or to secure our warranty obligations. As a result, in these projects we assume greater financial risk.
In addition, typically in rollout projects, we are dependent on
the customer to issue acceptance certificates to generate and recognize revenue. In such projects, we bear the risks of loss and
damage to our products until the customer has issued an acceptance certificate upon successful completion of acceptance tests. Moreover,
we are not always the prime integrator in these projects and in such cases, the acceptance may be delayed even further since it depends
on the acceptance of other network elements not in our control. The early deployment of our products during a long-term project reduces
our cash flow, as we generally collect a significant portion of the contract price after successful completion of an acceptance test.
If our products are damaged or stolen, if the network we install does not pass the acceptance tests or if the customer does not or will
not issue an acceptance certificate, the end user or the system integrator could refuse to pay us any balance owed and we would incur
substantial costs, including fees owed to our installation subcontractors, increased insurance premiums, transportation costs and expenses
related to repairing or manufacturing the products. In such a case, we may not be able to repossess the equipment, thus suffering additional
losses.
Our offering includes full design and implementation of wireless
communication networks, while also using technologies of third-party vendors. The complexity of such projects and the reliance on third
parties’ performance is increasing the risk of not meeting our performance obligations. As a result, the completion of such projects
may be delayed, or the outcome may not be to the full satisfaction of the customer, who may in turn, impose penalties or exercise any
other remedy available to customers in the service contract. In addition, the cost of such projects may be higher than planned. This may
result in significant losses and may adversely affect our financial results.
13
Our engagement in long term projects expose
us to customers credit risks.
Our offering includes long term projects such the networks rollout,
program-based selling, 5G design wins and the like. Some of those projects are characterized by providing customers’ credit and
availing long payment terms, which exposes us to the risks of default, insolvency, or other adverse effect on the customer’s ability
to pay us. Although we hedge or insure some of those risks, the entire exposure cannot be covered. This may result in significant losses
and may adversely affect our financial results.
We are subject to complex and evolving regulatory
requirements that may be difficult and expensive to comply with and that could adversely impact our business, results of operations and
financial condition.
Our business and operations are subject to regulatory requirements
in Israel and may be subject to additional regulatory requirements in other jurisdictions where we operate or where our subsidiaries’
offices are located, including, among other things, with respect to government contracts, global trade compliance, export controls, trade
sanctions, labor, tax, anti-bribery, anti-corruption, and data privacy and protection. Compliance with these regulatory requirements may
be onerous, time-consuming, and expensive, especially where these requirements vary from jurisdiction to jurisdiction or where the jurisdictional
reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory requirements in one jurisdiction
may make it difficult or impossible to do business in another jurisdiction. Moreover, the cross-border nature of our business operations
may trigger not only a responsibility to comply with Israeli trade compliance legislation but also a responsibility to comply with certain
applicable foreign trade control regulations. Certain of such requirements may also vary from the jurisdiction in which we operate to
jurisdictions in which our suppliers, customers or resellers are operating. If we or our suppliers fail to obtain any required export
licenses, or where existing licenses are revoked or become subject to export restrictions, our ability to manufacture, market and sell
our products and services could be adversely affected.
Additionally, we may be limited in our ability to transfer or outsource
certain aspects of our business to certain jurisdictions, and may be limited in our ability to undertake research, development, or sales
activities in certain jurisdictions, or we may be unsuccessful in obtaining permits, licenses or other authorizations required to operate
our business, such as for the marketing, sale, import or export of products, solutions and services, which may adversely affect our business,
operations and results. We rely on a global supply chain and on certain marketing channels that may be similarly affected by these
regulatory requirements. We cannot assure you that despite our efforts we will be able to successfully or effectively assure that all
of our suppliers, agent and resellers will adhere, or will succeed in making sure that their suppliers or customers adhere, to the regulatory
requirements that flow down to them. Further, these regulatory requirements are subject to change and governments around the world are
adopting a growing number of compliance and enforcement initiatives. In particular, the pace and scope of changes to global trade
control regulations has increased dramatically over the past year, in multiple jurisdictions relevant to our business. These regulations
may continue to increase and change at an unusually rapid pace. It has been and may continue to be increasingly difficult to keep up with
the pace and scope of these changes. Violations of applicable laws or regulations, including by our officers, employees, contractors or
agents, may harm our reputation and deter governments and governmental agencies and other existing or potential customers or partners
from purchasing our solutions. Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, civil penalties,
or criminal penalties against us, our officers or our employees, restrictions on the conduct of our business, and damage to our reputation.
While we make efforts to comply with such regulatory requirements, we cannot assure you that we will be fully successful in our efforts,
or that that regulatory changes will not negatively affect our ability to develop, manufacture and sell the products, solutions and services
we offer.
Our business is subject to numerous laws and regulations designed
to protect the environment, including with respect to discharge management of hazardous substances. Although we believe that we comply
with these requirements and that such compliance does not have a material adverse effect on our results of operations, financial condition
or cash flows, the failure to comply with current or future environmental requirements could expose the Company to criminal, civil and
administrative charges. Due to the nature of our business and environmental risks, we cannot provide assurance that any such material
liability will not arise in the future.
Our wireless communications products emit electromagnetic radiation.
While we are currently unaware of any negative effects associated with our products, there has been publicity regarding the potentially
negative direct and indirect health and safety effects of electromagnetic emissions from wireless telephones and other wireless equipment
sources, including allegations that these emissions may cause cancer. Health and safety issues related to our products may arise that
could lead to litigation or other actions against us or to additional regulation of our products, and we may be required to modify our
technology without the ability to do so. Even if these concerns prove to be baseless, the resulting negative publicity could affect our
ability to market these products and, in turn, could harm our business and results of operations. Claims against other wireless equipment
suppliers or wireless service providers could adversely affect the demand for our transport solutions.
14
The regulatory framework for data protection and privacy issues
is rapidly evolving worldwide and is likely to continue developing in the foreseeable future. As such, in May 2016, the European Union
adopted the GDPR, fully enforceable as of May 25, 2018, which imposes striker data protection obligations and provides for greater penalties
for noncompliance. Any inability to adequately address these privacy and data protection concerns or to comply with the respective applicable
laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial position.
As part of our business is located throughout
Europe, we are exposed to the negative impact of invasion of Ukraine by Russia on the European markets in which we operate and on our
operations.
The invasion of Ukraine by Russia is likely to have numerous adverse
effects on the global and European markets in which we operate. Sanctions and export controls imposed by the U.S. U.K. and E.U. countries
significantly limit trade with Russian entities and individuals, requiring us to apply for export licenses and approval for orders
placed by Russian customers or that are to be delivered to Russian end-users, while there is no assurance that such licenses and permissions
shall be awarded. Due to the pace of changes, the complexity and the immediate effect of the new sanctions and export controls, they pose
a risk of failure to timely respond, adjust, implement or comply therewith. These new regulatory measures may also lead to the cancellation
or suspension of orders in the short term as well as a more long-term loss of market share to competitors who are unaffected
or do not seek to comply with the new Russia-related trade limitation. Furthermore, as Russia is a global source of raw materials, oil
and gas and additional goods and commodities, the ongoing war and hostility also disrupts the supply of these resources (in addition to
the imposition of sanctions and embargoes), causes price increases, shortage, disruption to deliveries, shipping and transportation. These
disruptions are reflected both in price increases and shortages impacting our contract manufacturers and suppliers, and adversely affect
our production and supply chain costs and timelines. Furthermore, there is an increased risk of cyber-attacks and deliberate disruption
to the routine activities in general and communication channels in particular. The above-described risks are continuously changing and
developing at an unprecedented rate as the war continues. Those and other risks could have an adverse effect on us, our business, suppliers
and customers.
Our international operations expose
us to the risk of fluctuations in currency exchange rates and restrictions
related to foreign currency exchange controls.
We are a global company that operates in a multi-currency environment.
Although we derive a significant portion of our revenues in U.S. dollars, a portion of our revenues are derived from customers operating
in local currencies other than the U.S. dollar. Therefore, devaluation in the local currencies of our customers relative to the U.S. dollar
could cause our customers to cancel or decrease orders or to delay payment, which could have a negative impact on our revenues and results
of operations. We are also subject to other foreign currency risks including repatriation restrictions in certain countries,
particularly in Latin America, Asia Pacific and in Africa. See also the risk of “Due to the volume
of our sales in emerging markets, we are susceptible to a number of political, economic and
regulatory risks that could have a material adverse effect on our business, reputation, financial
condition and results of operations”.
A substantial portion of our operating expenses are denominated
in NIS, and to a lesser extent, other non-U.S. dollar currencies. Our NIS-denominated expenses consist principally of salaries and related
costs as well as other related personnel expenses. In addition, our lease and Israeli facility-related expenses and certain engagements
with other Israeli vendors are denominated in NIS as well. We anticipate that a portion of our expenses will continue to be denominated
in NIS. Devaluation of the U.S. dollar against the NIS, could have a negative impact on our results of operations.
We use derivative financial instruments, such as foreign exchange
forward contracts, to mitigate the risk of changes in foreign exchange rates on our balance sheet accounts and forecast cash flows. We
do not use derivative financial instruments or other “hedging” techniques to cover all our potential exposure and may
not purchase derivative instruments that adequately insulate us from foreign currency exchange risks. In some countries, we are unable
to use “hedging” techniques to mitigate our risks because hedging options are not available for certain government restricted
currencies. Moreover, derivative instruments are usually limited in time and as a result, cannot mitigate currency risks for the longer
term. During 2021, we incurred losses in the amount of $3.4 million as a result of exchange rate fluctuations that have not been fully
offset by our hedging policy. The volatility in the foreign currency markets may make it challenging to hedge our foreign currency exposures
effectively.
15
In some cases, we may face regulatory, tax, accounting or corporate
restrictions on money transfer from the country from which consideration should have been paid to us (or to our respective selling subsidiary)
or revenues could have accumulated and allocated to us, or could face general restriction on foreign currency transfer outside of such
country. Inability to collect and receive amounts that are already due and payable, could have a negative impact on our results of operations.
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 including indirect as well as withholding taxes. Our domestic and international tax
liabilities are subject to the allocation of revenues and expenses in different jurisdictions and differentiation in the timing of recognizing
revenues and expenses. Our tax expense includes estimates or additional tax, which may be incurred for tax exposures and reflects various
estimates and assumptions, including assessments of our future earnings that could impact the valuation or recognition of our deferred
tax assets. From time to time, we are subject to income and other tax audits, the timing of which is unpredictable. Our future
results of operations could be adversely affected by changes in our effective tax rate as a result of a change in the mix of earnings
in countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation and rates, changes in
tax treaties, changes in international tax guidelines (such as the OECD Base Erosions and Profit Shifting project – known as BEPS),
changes in generally accepted accounting principles, changes in the valuation or recognition of deferred tax assets and liabilities, the
results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures. 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 impose additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our results
of operations and financial condition.
Due to the volume of our sales
in emerging markets, we are susceptible to a number of political, economic
and regulatory risks that could have a material adverse effect on our
business, reputation, financial condition and results of operations.
A majority of our sales are made in emerging economies in Latin
America, India, Asia Pacific and Africa. For each of the years ended December 31, 2021 and 2020, sales in these regions accounted for
approximately 68% and 69% of our revenues, respectively. As a result, the occurrence of international,
political, regulatory or economic events in these regions could adversely affect our business and result in significant revenue shortfalls
and collection risk. Any such revenue shortfalls and/or collection risks could have material adverse effects on our business, financial
condition and results of operations. Furthermore, other governmental action related to tariffs or international trade agreements,
changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing,
development and investment in the territories and countries, where our customers are located, could adversely affect our business, financial
condition, operating results and cash flows.
Below are the main risks and challenges that we face as a result
of operating in emerging markets:
| • |
unexpected or inconsistent changes in regulatory requirements, including security regulations, licensing and allocation processes;
|
| • |
unexpected changes in or imposition of tax, tariffs, customs levies or other barriers and restrictions; |
| • |
fluctuations in foreign currency exchange rates; |
| • |
restrictions on currency and cash repatriation; |
| • |
the burden of complying with a variety of foreign laws, including foreign import restrictions which may be applicable to our products;
|
16
| • |
difficulties in protecting intellectual property; |
| • |
laws and business practices favoring local competitors; |
| • |
collection delays and uncertainties; |
| • |
business interruptions resulting from geopolitical actions, including war and acts of terrorism, or natural disasters, emergence
of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including for example, the
COVID-19 outbreak); |
| • |
requirements to do business in local currency; |
| • |
requirements to manufacture or purchase locally, including the possible transfer of knowhow and intellectual property licenses; and
|
| • |
judicial systems that do not apply the principals of natural justice with regard to disputes with foreign nationals. |
All of these risks could result in increased costs or decreased
revenues, either of which could have a materially adverse effect on our profitability.
Business practices in emerging markets may
expose us to legal and business conduct-related regulatory risks.
Local business practices in jurisdictions in which we operate,
and particularly in emerging markets, may be inconsistent with international regulatory requirements, such as anti-corruption and anti-bribery
laws and regulations, to which we are subject. It is possible that, notwithstanding our strict policies and in violation of our instructions,
employees of ours, subcontractors, agents or business partners may violate such legal and regulatory requirements, which may expose us
to criminal or civil enforcement actions. If we fail to comply with or effectively enforce such legal and regulatory requirements, our
business and reputation may be harmed, and we might be exposed to civil and criminal penalties or sanctions.
An industry downturn, reduction in our customers’
profitability due to increased regulation or new mobile services requirements, may cause operators’ investments in networks to slow,
be delayed or stop, which could harm our business.
We are exposed to changing network models that affect operator
spending on infrastructure as well as trends in investment cycles of telecom operators and other service providers. The changes include:
(i) further expansion of coverage; expansion out of metro, as well as other urban and suburban areas to rural areas; (ii) densification
and optimization of the 4G networks to provide faster speeds; (iii) introduction of 5G services; and (iv) 2G and/or 3G networks
shutdown, which is expected to take place within the next several years and designed to free spectrum for the delivery of 5G services.
The proliferation of strategic options for service providers, as
outlined above, coupled with uncertain development path and clarity as to the future standards and mass-market use cases, may cause service
providers to prolong evaluations of services and network strategies, resulting in slower and smaller budget spent in the next several
years, which may negatively affect our business. In addition, the intensification of use of “over-the-top services” - which
make use of the operators’ network to deliver rich content to users but do not generate revenue to operators - is causing operators
to lose a substantial portion of their potential revenues. In addition, changes in regulatory requirements in certain jurisdictions around
the world are allowing smaller operators to enter the market, which may also reduce our customers’ pricing to their end-users, further
causing them to lose revenues. This has made operators more careful in their spending on infrastructure upgrades and buildouts.
As a result,
operators are looking for more cost-efficient solutions and network architectures, which will allow them to break the linearity of cost,
coverage, capacity and costs of service delivery through more efficient use of existing infrastructure and assets. If operators fail to
monetize new services, fail to introduce new business models or experience a decline in operator revenues or profitability, their willingness
or ability to invest further in their network systems may decrease, which will reduce their demand for our products and services and may
have an adverse effect on our business, operating results and financial condition.
17
We cannot assure you that we will be able to
maintain profitability or positive operating cash flows.
Throughout the years 2015 to 2018 we were profitable, recognized
positive net income and generated cash flow from operating activities. However, in 2019 we suffered a reduction in our net income, recognized
a net loss of $2.3 million and generated negative cash flow from operating activities of $12.9 million, in 2020 we again were suffered
a reduction in our net income and recognized a net loss of $17.1 million but generated a positive cash flow from operating activities
of $17.2 million. In 2021 we were exposed to COVID-19 disruptions, suffered a reduction in our net income, recognized a net loss of $14.8
million and generated a negative cash flow from operating activities of $15.0 million. There is no assurance that we will be able to improve
such results, which may require the implementation of additional cost reduction measures. Our failure to maintain profitability or to
continue to have positive operating cash flows may impact our ability to compete in the market for the short and long term and may impair
our financial condition.
Consolidation within our customer base could
harm our business.
The increasing trend towards mergers in the telecommunications
industry, such as the merger of T-Mobile and Sprint in the United States, has resulted in the consolidation of our current and potential
customer base. In situations where an existing customer consolidates with another industry participant, which uses a competitor’s
products or which already has an installed base covering the areas which are of interest to our customer, our sales to that existing customer
could be reduced or eliminated completely to the extent that the consolidated entity decides to adopt the competing products or use the
existing installed base. Furthermore, during the interim period commencing the announcement until the actual closing or failure to close
under such transaction, the parties to the merger or any of them might suspend, delay or cancel new engagements with us or procurement
of our products, even if the merger shall not be consumed. Further, consolidation of our customer base could result in purchasing decision
delays as consolidating customers integrate their operations and could generally reduce our opportunities to win new customers, to the
extent that the number of the existing or potential customers decreases. Moreover, some of our customers may agree to share networks,
resulting in a decreased requirement for network equipment and associated services, and thus a decrease in the overall size of the market. Some network
operators share parts of their network infrastructure through cooperation agreements rather than legal consolidations, which may adversely
affect demand for network equipment and could harm our business and results of operations.
Our failure to establish and maintain effective
internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet our
reporting obligations. This may expose us to fines and damages and cause investors to lose confidence in our reported financial information,
which could result in the trading price of our shares to decline.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision
and with the participation of our management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer
(“CFO”), we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2021, using the criteria established in “Internal Control - Integrated Framework” set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (COSO). Based on our assessment under that framework and the criteria established
therein, our management concluded that the Company’s internal control over financial reporting was effective as of December 31,
2021 in providing reasonable assurance regarding the reliability of the Company’s financial reporting.
However, if we conclude in the future that our internal controls
over financial reporting are not effective, we may fail to meet our future reporting obligations on a timely basis, our financial statements
may contain material misstatements, our operating results may be negatively impacted, and we may be subject to litigation and regulatory
actions, causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of our shares.
Even if we conclude that our internal controls over financial reporting are adequate, any internal control or procedure, no matter how
well designed and operated, can only provide reasonable assurance of achieving desired control objectives and cannot prevent all mistakes
or intentional misconduct or fraud.
18
Due to inaccurate forecasts or business changes,
we may be exposed to inventory-related losses on inventory purchased by our contract manufacturers and other suppliers, or to increased
expenses should unexpected production ramp up be required. In addition, part of our inventory may be written off, which would increase
our cost of revenues.
Our contract manufacturers and other suppliers are required to
purchase inventory based on manufacturing projections we provide to them. If the actual orders from our customers are lower than projected,
or the mix of products ordered changes, or if we decide to change our product line and/or our product support strategy, our contract manufacturers
or other suppliers will have excess inventory of raw materials or finished products, which we would typically be required to purchase,
thus incurring additional costs and our gross profit and results of operations could be adversely affected. In addition, our inventory
levels may be too high, and inventory may become obsolete or over-stated on our balance sheet. This would require us to write off inventory,
which could adversely affect our gross profit and results of operations.
We require our contract manufacturers and other suppliers from
time to time, to purchase more inventory than is immediately required and with respect to our contract manufacturers, to partially assemble
components, in order to shorten our delivery time in case of an increase in demand for our products. In the absence of such increased
demand, we may need to make advance payments, compensate our contract manufacturers or other suppliers, or even buy the redundant inventory,
as needed. We also may purchase components or raw materials from time to time for use by our contract manufacturers in the manufacturing
of our products. This may cause additional write offs and may have a negative impact on our results of operations and cash flow.
Alternatively, if we underestimate our requirements and our actual
orders from customers are significantly larger than our planned forecast, we may be required to accelerate the production and purchase
of supplies, which may result in additional costs of buying components at less attractive prices, paying expediting fees and excess shipment
costs, overtime and other manufacturing expenses. As a result, our gross margins and results of operations could be adversely affected.
Inventory of raw materials, work in-process or finished products
located either at our warehouses or our customers’ sites as part of the network build-up may accumulate in the future, and we may
encounter losses due to a variety of factors, including:
| • |
new generations of products replacing older ones, including changes in products because of technological advances and cost reduction
measures; and |
| • |
the need of our contract manufacturers to order raw materials that have long lead times and our inability to estimate exact amounts
and types of items thus needed, especially regarding the frequencies in which the final products ordered will operate. |
Further, our inventory of finished products located either at our
warehouse or our customers’ sites as part of a network build-up may accumulate if a customer were to cancel an order or refuse to
physically accept delivery of our products, or in rollout projects, which include acceptance tests, refuse to accept the network. The
rate of accumulation may increase in a period of economic downturn.
Lastly, and as indicated above, given the significant increase
in components lead time, particularly the electronics part of it (with many cases of a lead time longer than a year), and in order to
minimize disruption to business, we increased our forecast horizon to 12-18 months. As a result, our forecast our inventory level increased
significantly and risk of write-offs due to, among other factors, missing our forecast has increased.
Our sales cycles in connection
with competitive bids or to prospective customers are lengthy.
It typically takes from three to twelve months after we first begin
discussions with a prospective customer, before we receive an order from that customer, if an order is received at all. In some instances,
we participate in competitive bids, in tenders issued by our customers or prospective customers, and these tender processes can continue
for many months before a decision is made by the customer. In addition, even after the initial decision is made, there may be a lengthy
testing and integration phase or contract negotiation phase before a final decision to purchase is made. In some cases, even if
we have signed a contract and our products were tested and approved for usage, it could take a significant amount of time until the customer
places purchase orders, if at all. As a result, we are required to devote a substantial amount of time and resources to secure sales.
In addition, the lengthy sales cycle results in greater uncertainty with respect to any particular sale, as events that impact customers’
decisions occur during such cycle and in turn, increase the difficulty of forecasting our results of operations and may cause an increase
in inventory levels and our liability to our suppliers, and a risk for inventory write downs and write-offs.
19
If we fail to obtain regulatory
approval for our products, or if sufficient radio frequency spectrum is
not allocated for use by our products, our ability to market our products
may be restricted.
Generally, our products must conform to a variety of regulatory
requirements and international treaties established to avoid interference among users of transmission frequencies and to permit interconnection
of telecommunications equipment. Any delays in compliance with respect to our future products could delay the introduction of those products.
Also, these regulatory requirements may change from time to time, which could affect the design and marketing of our products as well
as the competition we face from other suppliers’ products, which may not be affected as much from such changes. Delays in allocation
of new spectrum for use with wireless transport communications, such as the E, V, D and W bands in various countries, at prices which
are competitive for our customers, may also adversely affect the marketing and sales of our products.
In addition, in most jurisdictions in which we operate, users of
our products are generally required to either have a license to operate and provide communications services in the applicable radio frequency
or must acquire the right to do so from another license holder. Consequently, our ability to market our products is affected by the allocation
of the radio frequency spectrum by governmental authorities, which may be by auction or other regulatory selection. These governmental
authorities may not allocate sufficient radio frequency spectrum for use by our products. We may not be successful in obtaining regulatory
approval for our products from these authorities and as we develop new products either our products or some of the regulations will need
to change to take full advantage of the new product capabilities in some geographies. Historically, in many developed countries, the lack
of available radio frequency spectrum has inhibited the growth of wireless telecommunications networks. If sufficient radio spectrum is
not allocated for use by our products, our ability to market our products may be restricted, which would have a materially adverse effect
on our business, financial condition and results of operations. Additionally, regulatory decisions allocating spectrum for use in wireless
transport at frequencies used by our competitors’ products, could increase the competition we face. In addition, the 5G rollout
could be contingent upon the allocation of the radio frequency spectrum by governmental authorities which could cause a delay in the ramp
up of those activities.
Other areas of regulation and governmental restrictions, including
tariffs on imports and technology controls on exports or regulations related to licensing and allocation processes, could adversely affect
our operations and financial results.
Our products are used in critical communications
networks, which may subject us to significant liability claims.
Since our products are used in critical communications networks,
we may be subject to significant liability claims if our products do not work properly. The terms of agreements with our customers do
not always provide sufficient protection from liability claims. In addition, any insurance policies we have may not adequately cover our
exposure with respect to such claims. We warrant to our current customers that our products will operate in accordance with our product
specifications, but if our products fail to conform to these specifications, our customers could require us to remedy the failure or could
assert claims for damages. Liability claims could require us to spend significant time and money in litigation or to pay significant damages.
Any such claims, successful or not, would be costly and time-consuming to defend, and could divert management’s attention and seriously
damage our reputation and our business.
We could be adversely affected by our failure
to comply with the covenants in our credit agreement or by the failure of any bank to provide us with credit under committed credit facilities.
We have a committed credit facility available for our use from
a syndicate of several banks. Our credit agreement contains financial and other covenants. Any failure to comply with the covenants, including
due to poor financial performance, may constitute a default under the credit facility, which may have a material adverse effect on our
financial condition. In addition, the payment may be accelerated, and the credit facility may be cancelled upon an event, in which a current
or future shareholder acquires control (as defined under the Israeli Securities Law) of us. For more information, please refer to Item
5: “OPERATING AND FINANCIAL REVIEW AND PROSPECTS; Liquidity and Capital Resources.”
In addition, the credit facility is provided by the syndication
with each bank agreeing severally (and not jointly) to make its agreed portion of the credit loans to us. If one or more of the banks
providing the committed credit facility were to default on its obligation to fund its commitment, the portion of the committed facility
provided by such defaulting bank would not be available to us.
In the event that the credit facility is terminated in accordance with its terms,
including due to breach of covenants by us, and we shall not be able to secure alternative financing, we could experience a distressed
cash flow challenges that could harm our business operations and prospects, results of operations, cash flow and financial position.
20
In previous years we experienced a decline
in our revenues, incurred substantial losses and generated negative cash flows. If this decline continues, our results of operations and
cash flow may be significantly adversely impacted. Although we were able to increase our booking and backlog in 2021 and in the first
quarter of 2022, we cannot assure you that we will be able to maintain this improving trend and convert such backlog into profitability
and positive operating cash flows.
In 2019 we incurred a net loss of $2.3 million, a net loss of
$17.1 million in 2020 and a net loss of $14.8 million in 2021. We have also experienced a fluctuation in our cash flow from operations
of $(12.9) million, $17.2 million and $(15.0) million in 2019 through 2021, respectively. Our prior losses resulted from, among other
things, decreases in revenues, decreased gross margins, decline in procurement and capital expenses related to 4G products by our customers
as well as slow ramp-up of 5G rollout and new ordering and other factors detailed in in our Annual Reports on Form 20-F for the years
2019 and 2020. Commencing 2020, our losses resulted, among other things, also from the health and economic implications of the COVID-19
pandemic and the significant expenses, costs and charges associated, among other things, with the global semiconductors and electric components
shortage and increase in price of such components, increase in logistical supply chains’, shipment and delivery costs and an extension
of delivery timelines, expediting fees and increased inventory expenditures, and other factors as further detailed in this Annual Report
on Form 20-F and in our Annual Reports on Form 20-F for the years 2019 and 2020.
While in 2021 we have taken measures to improve our gross profit,
reduce our operating expenses, improve our working capital management and secure 5G design wins and booking, the implementation of such
measures is lengthy, may be delayed as a result of the other risks and uncertainties detailed in this Annual Report on Form 20-F and there
is no assurance that such measures will be sufficient or successful or that we will not continue to experience a decline in our revenues,
incur substantial losses and generate negative cash flows or that such decline, losses and negative cash flow will not intensify. In the
event that our revenues continue to decline and that our losses and negative cash flow increase, our results of operations will be significantly
adversely impacted. In such a case, we may need to take additional measures such as cut in costs, which may impact our ability to compete
in the market and serve our working capital needs as planned. Furthermore, our working capital needs may require additional or alternate
cash resources. If we are unable to obtain such resources nor generate an improved cash flow from our operations, our liquidity and ability
to fund operations could be impaired.
If we are unable to protect our intellectual
property rights, our competitive position may be harmed.
Our ability to compete will depend, in part, on our ability to
obtain and enforce intellectual property protection for our technology internationally. We currently rely upon a combination of trade
secret, patent, trademark and copyright laws, as well as contractual rights, to protect our intellectual property. However, as our patent
portfolio may not be as extensive as those of our competitors, we may have limited ability to assert any patent rights in negotiations
with, or in counterclaims against, competitors who assert intellectual property rights against us.
We also enter into confidentiality, non-competition and invention
assignment agreements with our employees and contractors engaged in our research and development activities, as well as non-disclosure
agreements with our suppliers and certain customers so as to limit access to and disclosure of our proprietary information. We cannot
assure you that any steps taken by us will be adequate to deter misappropriation or impede independent third-party development of similar
technologies. Moreover, under current law, we may not be able to enforce the non-competition agreements with our employees to their fullest
extent.
We cannot assure you that the protection provided for our intellectual
property by the laws and courts of foreign nations will be substantially similar to the remedies available under U.S. law. Furthermore,
we cannot assure you that third parties will not assert infringement claims against us based on foreign intellectual property rights and
laws that are different from those established in the United States. Any such failure or inability to obtain or maintain adequate protection
of our intellectual property rights, for any reason, could have a material adverse effect on our business, results of operations and financial
condition.
Moreover, in an effort to further grow our business, we may also
sell our innovative Systems-on-Chip (SoC), which we use within our products, to some of our larger competitors, with full or limited access
to our technology capabilities, over which they may design products that more effectively compete with our own.
Defending against intellectual property infringement
claims could be expensive and could disrupt our business.
The wireless equipment industry is characterized by vigorous protection
and pursuit of intellectual property rights, which has resulted in often protracted and expensive litigation. We have been exposed
to infringement allegations in the past, and we may in the future be notified that we or our vendors, allegedly infringed certain
patent or other intellectual property rights of others. Any such litigation or claim could result in substantial costs and diversion of
resources. In the event of an adverse result of any such litigation, we could be required to pay substantial damages (including potentially
punitive damages and attorney’s fees should a court find such infringement willful), or to cease the use and licensing of allegedly
infringing technology and the sale of allegedly infringing products (including those we purchase from third parties). We may be forced
to expend significant resources to develop non-infringing technology, obtain licenses for the infringing technology or replace infringing
third party equipment. We cannot assure you that we would be successful in developing such non-infringing technology, that any license
for the infringing technology would be available to us on commercially reasonable terms, if at all, or that we would be able to find a
suitable substitute for infringing third party equipment.
We occasionally use Open Source codes during
our development process. An unintentional breach of Open Source licenses might compel us to publish certain confidential and proprietary
codes, incur damages, and result with intellectual property infringement claims that could be expensive and could disrupt our business.
We occasionally use open source software component under open source
licenses. As certain open source copyright licenses may be categorized as “copyleft licenses” that place certain requirements
and restrictions on users, we maintain a process to assure the use of permissive licenses that guarantee the freedom to use, modify and
redistribute, and creating proprietary derivative works, in order to avoid any limitations on our IPs and exposure of confidential proprietary
software. Nonetheless, if we shall not correctly monitor and manage those licenses, fail to maintain their terms or otherwise fail in
identifying limited open source codes, we might be subject to third party copyright and to reciprocity obligation requiring us to make
our code open for use by others as well. Such claims my harm our development efforts and competitive advantage and expose us to copyright
infringement claims that could be expensive and could disrupt our business.
21
Merger and acquisition activities expose us
to risks and liabilities, which could also result in integration problems and adversely affect our business.
We continue to explore potential merger and acquisition opportunities
within our wireless transport market or as a diversification effort in order to create a growth engine and implement a growth strategy.
In addition, we also explore merger and acquisition opportunities aimed at obtaining technological improvement of our products, adding
new technologies to our products and to diversify our business. However, we are unable to predict whether or when any prospective deals
will be completed.
In addition, these strategic transactions involve numerous risks,
which can jeopardize or even eliminate the benefits entailed in such transactions, such as:
| • |
we may not be able to discover, or the target company may fail to provide us with, all relevant information and documents in relation
to the transaction, which could lead to a failure to achieve the objectives of acquisition and to a substantial loss; |
| • |
we may fail to reveal that the due diligence materials and documents provided contain untrue statements of material facts or omit
to state a material fact necessary to make the statements therein not misleading, hence fail to achieve the objectives of acquisition
and suffer a substantial loss; |
| • |
we may fail to correctly assess the due diligence investigation findings, establish a correct investment thesis or establish a correct
post-merger integration plan; |
| • |
the process of integrating an acquired business including, for example, the operations, systems, technologies, products, and personnel
of the combined companies, particularly companies with large and widespread operations and/or complex products, may be prolonged due to
unforeseen difficulties; |
| • |
the implementation of the transaction may distract and divert management’s attention from the normal daily operations of our
business; |
| • |
we may sustain and record significant expenditure and costs associated with outstanding transactions that either did not or will
not materialize or would fail to achieve its objectives; |
| • |
there will be increased expenses associated with the transaction, and we may need to use a substantial portion of our cash resources
or incur debt in order to cover such expenses; expenses which the combined revenues of the merged companies may not be sufficient to offset;
|
| • |
we may generate negative cash flow as a result of such transaction, which may require fund raising that may not be available for
us; |
| • |
we may incur unexpected accounting and other expenses associated with the transaction, such as tax expenses, write offs, amortization
expenses related to intangible assets, restructuring costs, litigation costs or such other costs derived from the acquisition; |
| • |
the transaction may harm our business as currently conducted (for example, there may be a temporary loss of revenues, we may experience
loss of current key employees, customers, resellers, vendors and other business partners or companies with whom we engage today or which
relate to any acquired company); |
| • |
we may be required to issue ordinary shares as part of the transaction, which would dilute our current shareholders; |
| • |
we may need to assume material liabilities of the merged entity; |
| • |
the failure to successfully complete the integration associated with the transaction (including integrating any acquired technology
into our products), which may cause new markets we were aiming for not to materialize or in which competitors may have a stronger market
position; or |
| • |
we may fail to effectively obtain the technological improvement. |
Failure to manage and successfully complete a strategic transaction
could materially harm our business operating results and cash flow. As a result, the anticipated benefits or cost savings of such mergers
and acquisitions or other restructuring activities may not be fully realized, or at all, or may take longer to realize than expected. Acquisitions
involve numerous risks, any of which could harm our business, results of operations cash flow and financial condition as well as the price
of our ordinary shares.
22
Our global operation exposes us to the effects
of global economic trends such as rising inflation, rising interest rates, commodity price increases/fluctuations, commodity shortages,
exposure to economic slowdown, etc.
The global nature of our activity and our global presence and operation
in different countries, regulatory, legal and financial regimes, exposure to wide spread of customers, suppliers, subcontractors and contractors,
global and local macro and micro developments, and the aggregative impact thereof, might have direct or indirect impact on our business
and results of operations, which are hard to predict, monitor or asses, causing uncertainties and high volatility with respect to our
estimated or expected results of operations and, in addition, could have an adverse effect on our business, results of operations and
financial condition.
Risks Relating to Our Ordinary Shares
Holders of our ordinary shares who are U.S.
residents may be required to pay additional U.S. income taxes if we are classified as a passive foreign investment company (“PFIC”)
for U.S. federal income tax purposes.
There is a risk that we may be classified as a PFIC. Our treatment
as a PFIC could result in a reduction in the after-tax return for U.S. holders of our ordinary shares and may cause a reduction in the
value of our shares. For U.S. federal income tax purposes, we will generally be classified as a PFIC for any taxable year in which either:
(1) 75% or more of our gross income is passive income, or (2) at least 50% of the average value (determined on a quarterly basis) of our
total assets for the taxable year produce, or are held for the production of, passive income. Based on our analysis of our income, assets,
activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2021. However, there
can be no assurance that the United States Internal Revenue Service (“IRS”) will not challenge our analysis or our conclusion
regarding our PFIC status. There is also a risk that we were a PFIC for one or more prior taxable years or that we will be a PFIC in future
years, including 2022. If we were a PFIC during any prior years, U.S. shareholders who acquired or held our ordinary shares during such
years will generally be subject to the PFIC rules. The tests for determining PFIC status are applied annually and it is difficult to make
accurate predictions of our future income, assets, activities and market capitalization, which are relevant to this determination. If
we were determined to be a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning our ordinary
shares and such U.S. holders could suffer adverse U.S. tax consequences.
For more information, please see Item 10. ADDITIONAL INFORMATION
– E. Taxation - “U.S. Federal Income Tax Considerations” – “Tax Consequences if We Are a Passive Foreign
Investment Company.”
The price and trading
volume of our ordinary shares are subject to volatility. Such volatility could limit investors’ ability to sell our shares at a
profit, could limit our ability to successfully raise funds and may expose us to class actions against the Company and its senior executives.
The stock market in general, and the market price of our ordinary
shares in particular, are subject to fluctuation. As a result, changes in our share price and trading volumes may be unrelated to our
operating performance. The price of our ordinary shares and the trading volumes in our ordinary shares have experienced volatility in
the past and may continue to do so in the future, which may make it difficult for investors to predict the value of their investment,
to sell shares at a profit at any given time, or to plan purchases and sales in advance. In the two-year period ended December 31,
2021, the price of our ordinary shares has ranged from a high of $6.90 per share to a low of $0.99 per share. On
December 31, 2021 and 2020, the closing prices of our ordinary shares were $2.57 per share and $2.78 per share, respectively. A variety
of factors may affect the market price and trading volume of our ordinary shares, including:
| • |
announcements of technological innovations or new commercial products by us or by our competitors; |
| • |
competitors’ positions and other events related to our market; |
23
| • |
changes in the Company’s estimations regarding forward looking statements and/or announcement of actual results that vary significantly
from such estimations; |
| • |
the announcement of corporate transactions, merger and acquisition activities or other similar events by companies in our field or
industry; |
| • |
changes and developments effecting our field or industry; |
| • |
period to period fluctuations in our results of operations; |
| • |
changes in financial estimates by securities analysts; |
| • |
our earnings releases and the earnings releases of our competitors; |
| • |
our ability to show and accurately predict revenues; |
| • |
our need to raise additional funds and the success or failure thereof; |
| • |
other announcements, whether by the Company or others, referring to the Company’s financial condition, results of operations
and changes in strategy; |
| • |
changes in senior management or the board of directors; |
| • |
the general state of the securities markets (with a particular emphasis on the technology and Israeli sectors thereof); |
| • |
the general state of the credit markets, the volatility of which could have an adverse effect on our investments; |
| • |
developments concerning material proprietary rights, including material patents; |
| • |
whether we or our competitors receive or are denied regulatory approvals; and |
| • |
global macroeconomic developments, including in connection with the COVID-19 outbreak, components shortage, Russia-Ukraine war, and
other occurrences. |
Many of these factors are out of our control, and we believe that
period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
All these factors and any corresponding price fluctuations may
materially and adversely affect the market price of our ordinary shares and may result in substantial losses to our investors.
In addition to the volatility of the market price of our shares,
the stock market in general and the market for technology companies in particular, has been highly volatile and at times thinly traded.
These broad market and industry factors may seriously harm the market price of our ordinary shares, regardless of our operating performance.
Investors may not be able to resell their shares following periods of volatility.
In addition, the volatility of the market price of our share especially
when market price is perceived to be very low may stimulate hostile activities against us such as capital markets’ “activists”
trying to influence our operations and hostile takeover attempts by competitors or other potential stakeholders. This may cause a significant
distraction of management attention in executing against our plans and adversely impact our business and financial results.
Moreover, the market prices of equity securities of companies
that have a significant presence in Israel may also be affected by the changing security situation in the Middle East and particularly
in Israel. As a result, these companies may experience volatility in their share prices and/or difficulties in raising additional funds
required to effectively operate and grow their businesses. Thus, market and industry-wide fluctuations and political, economic and military
conditions in the Middle East may adversely affect the trading price of our ordinary shares, regardless of our actual operating performance.
24
Further, as a result of the volatility of our stock price, we could
be subject, and are currently subject, to securities litigation, which could result in substantial costs and divert management’s
attention and Company resources from our business. On January 6, 2015, the Company was served with a motion to approve a purported class
action, naming the Company, its CEO and its directors as defendants, which was filed with the District Court of Tel-Aviv, was based on
Israeli law and alleges breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements
during the period between July and October 2014. The plaintiff seeks specified compensatory damages in a sum of up to $75,000,000, as
well as attorneys’ fees and costs. Interim proceedings were held with respect to the application of the US Securities Act of 1933
and the Securities Exchange Act of 1934, as amended, and the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995, following a judgment issued by the Israeli Supreme Court stating that Israeli companies whose shares are dually traded in Israel
and in certain foreign stock exchange, will be subject to the listing rules in the foreign jurisdiction. To date, after a rehearing proceedings
it was ruled that U.S. law will apply also in our case, which was returned to the first judicial instance and will be adjudicated as a
class claim under U.S. law. The Court further held that the Company’s claims based upon the statute of limitations should also be
adjudicated under U.S. law. On March 20, 2022, following the court’s decision, the Plaintiff filed to the first judicial instance,
an amended class action claim, based on provisions of US law. The Company is required to submit its Statement of Defense, by June 26,
2022. (see below in Item 8. “FINANCIAL INFORMATION” – Legal Proceedings”).
If we sell ordinary shares in future financings,
shareholders may experience immediate dilution and, as a result, our share price may decline.
In
order to raise additional capital, we may at any time offer additional ordinary shares or other securities convertible into or exchangeable
for our ordinary shares at prices that may not be the same as the price paid for our ordinary shares by our shareholders. On April 23,
2020, we filed a shelf registration statement on Form F-3 with the SEC which allows us to offer and sell, from time to time, in one or
more offerings, our ordinary shares, rights, warrants, debt securities and units comprising any combination of these securities with an
aggregate offering price of up to U.S.$150 million (the “Shelf Registration Statement”). The price per share at which we sell
additional ordinary shares, or securities convertible or exchangeable into ordinary shares, in future transactions, including under the
Shelf Registration Statement, may be higher or lower than the price per share paid by our existing shareholders. If we issue ordinary
shares or securities convertible into ordinary shares, our shareholders would experience additional dilution and, as a result, our share
price may decline.
In addition, as opportunities present themselves, we may enter
into financing or similar arrangements in the future, including the issuance of debt or equity securities with or without additional securities
convertible or exchangeable into ordinary shares. Whether or not we issue additional shares at a discount, any issuance of ordinary shares
will, and any issuance of other equity securities may, result in additional dilution of the percentage ownership of our shareholders and
could cause our share price to decline. New investors could also gain rights, preference and privileges senior to those of our shareholders,
which could cause the price of our ordinary shares to decline. Debt securities may also contain covenants that restrict our operational
flexibility or impose liens or other restrictions on our assets, which could also cause the price of our ordinary shares to decline.
Risks Relating to Operations in Israel
Conditions in the Middle East and in Israel
may adversely affect our operations.
Our headquarters, a substantial part of our research and development
facilities and some of our contract manufacturers’ facilities are located in Israel. Accordingly, we are directly influenced by
the political, economic and military conditions affecting Israel. Specifically, we could be adversely affected by:
| • |
hostilities involving Israel; |
| • |
the interruption or curtailment of trade between Israel and its present trading partners; |
| • |
a downturn in the economic or financial condition of Israel; and |
| • |
a full or partial mobilization of the reserve forces of the Israeli army. |
Since its establishment in 1948, Israel has been subject to a number
of armed conflicts that have taken place between it and its Middle Eastern neighbors. While Israel has entered into peace agreements with
Egypt, Jordan, UAE, Bahrain, Morocco and Sudan, it has no peace arrangements with any other neighboring or other Arab countries.
25
Further, all efforts to improve Israel’s relationship with
the Palestinians have failed to result in a peaceful solution, and there have been numerous periods of hostility, acts of terror against
Israeli civilians, as experienced recently once again in Israel, as well as civil insurrection of Palestinians in the West Bank and the
Gaza Strip.
Israel is engaged, from time to time, in armed conflicts with Hamas
(a militia group and political party controlling the Gaza Strip). These conflicts have involved missile strikes against civilian targets
in the south and center parts of Israel, most recently in May 2021.
Over the years, this state of hostility, varying from time to time
in intensity and degree, has led to security and economic problems for Israel.
In addition, relations between Israel and Iran continue to be hostile,
due to the fact that Iran is perceived by Israel as sponsor of Hamas and Hezbollah (a Shia Islamist political party and militant group
based in Lebanon), maintains a military presence in Syria, and is viewed as a strategic threat to Israel in light of its nuclear
program. Air bombing attacks on what is perceived to be Iranian facilities, assets and weapons supplies in Syria and the assassinations
of certain Iran’s senior generals which to Iran belief is associated to Israel, has contributed to the tension in the region and
further intensified the hostility between Iran and Israel and between Israel and Hezbollah, which is positioned alongside Israel’s
northern border.
All of the above raise a concern as to the stability in the region,
which may affect the political and security situation in Israel and therefore could adversely affect our business, financial condition
and results of operations.
Furthermore, the continued conflict with the Palestinians is disrupting
some of Israel’s trading activities. Certain Muslim countries, as well as certain companies and organizations around the world,
continue to participate in a boycott of Israeli brands and others doing business with Israel and Israeli companies. The boycott, restrictive
laws, policies or practices directed towards Israel or Israeli businesses could, individually or in the aggregate, have a material adverse
effect on our business in the future, for example by way of sales opportunities that we could not pursue or from which we will be precluded.
In addition, should the BDS Movement, the movement for boycotting, divesting and sanctioning Israel and Israeli institutions (including
universities) and products become increasingly influential in the United States and Europe, this may also adversely affect our business
and financial condition. Further deterioration of Israel’s relations with the Palestinians or countries in the Middle East could
expand the disruption of international trading activities in Israel, may materially and negatively affect our business conditions, could
harm our results of operations. and adversely affect the Company’s share price.
Our business may also be affected by the obligation of personnel
to perform military service. Our employees who are Israeli citizens are generally subject to a periodical obligation to perform reserve
military service, until they reach the age of 40 (or older, for reservists with certain occupations). During times of a military conflict,
these employees may be called to active duty for longer periods of time. In response to the increase in violence and terrorist activity
in the past years, there have been periods of significant call-ups for military reservists and it is possible that there will be further
military reserve duty call-ups in the future. In case of further regional instability such employees, who may include one or more of our
key employees, may be absent for extended periods of time which may materially adversely affect our business.
Furthermore, our Company’s insurance does not cover loss
arising out of events related to the security situation in the Middle East. While the Israeli government generally covers the reinstatement
value of direct damages caused by acts of war or terror attacks, we cannot be certain that such coverage will be maintained.
We can give no assurance that the political, economic and security
situation in Israel will not have a material adverse effect on our business in the future.
We received grants from the IIA that may require
us to pay royalties and restrict our ability to transfer technologies or know-how outside of Israel.
In prior years we have received government grants from the Israel
Innovation Authority (the “IIA”) for the financing of a significant portion of our
research and development expenditures in Israel. Unless otherwise agreed by IIA, we must nevertheless continue to comply with the requirements
of the Israeli Law for the Encouragement of Industrial Research and Development, 1984 and regulations promulgated thereunder (the “R&D
Law”) with respect to technologies that were developed using such grants (the “Financed
Know-How”), including an obligation to repay such grants from consideration received from sales of products which are based
on the Financed Know-How, if and when such sales occur and if applicable in accordance with the grant plan or under the agreements entered
into between the Company and IIA.
26
In accordance with certain grant plans, in addition to the obligation
to pay royalties to the IIA, the R&D Law requires that products which incorporate Financed Know-How be manufactured in Israel, and
prohibits the transfer of Financed Know-How and any right derived therefrom to third parties, unless otherwise approved in advance by
the IIA. Such prior approval may be subject to payment of increased royalties. Although such restrictions do not apply to the export from
Israel of the Company’s products developed with such Financed Know-How, they may prevent us from engaging in transactions involving
the sale, outsource or transfer of such Financed Know-How or of manufacturing activities with respect to any product or technology based
on Financed Know-How, outside of Israel, which might otherwise be beneficial to us. Furthermore, the consideration available to our shareholders
in a transaction involving the transfer outside of Israel of Financed Know-How (such as a merger or similar transaction) may be reduced
by any amounts that we are required to pay to the IIA.
For more information regarding the restrictions imposed by the
R&D Law and regarding grants received by us from the IIA, please see Item 4. “INFORMATION ON THE COMPANY- B. Business Overview
- The Israel Innovation Authority.”
The tax benefits to which we are currently
entitled from our approved enterprise program, require us to satisfy specified conditions, which, if we fail to meet, would deny
us from these benefits in the future. Further, if such tax benefits are reduced or eliminated in the future, we may be required to
pay increased taxes.
The Company has certain capital investment programs that have been
granted approved enterprise status by the Israeli government (the “Approved Programs”), pursuant to Israel’s Law for
the Encouragement of Capital Investments, 1959 (the “Encouragement Law”). When we begin to generate taxable income from these
approved enterprise programs, the portion of our income derived from these programs will be tax exempt for a period of two years. The
benefits available to an approved enterprise program are dependent upon the fulfillment of conditions stipulated under the Encouragement
Law and in the certificates of approval or in rulings obtained from the Israeli Tax Authorities. If we fail to comply with these
conditions, in whole or in part, we may be required to pay additional taxes for the period(s) in which we benefited from the tax exemption
and would likely be denied these benefits in the future. The amount by which our taxes would increase will depend on the difference between
the then-applicable corporate tax rate and the rate of tax, if any, that we would otherwise pay as an approved enterprise, and on the
amount of any taxable income that we may earn in the future.
In addition, the Israeli government may reduce, or eliminate in
the future, tax benefits available to approved enterprise programs. Our Approved Programs and the resulting tax benefits may not continue
in the future at their current levels or at any level. The termination or reduction of these tax benefits would likely increase our tax
liability. The amount, if any, by which our tax liability would increase will depend upon the rate of any tax increase, the amount of
any tax rate benefit reduction, and the amount of any taxable income that we may earn in the future. For a description of legislation
regarding “Preferred Enterprise” see Item 10. “ADDITIONAL INFORMATION”.
Being a foreign private issuer exempts us from
certain SEC requirements and Nasdaq Rules, which may result in less protection than is afforded to investors under rules applicable to
domestic issuers.
We are a “foreign private issuer” within the meaning
of rules promulgated by the SEC. As such, we are exempt from certain provisions under the Exchange Act applicable to U.S. public companies,
including:
| • |
The rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form
8-K; |
| • |
The sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of securities registered
under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives
as well as disclosure of the compensation determination process; |
| • |
The provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
|
| • |
The sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing
insider liability for profit realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase,
of the issuer’s equity securities within less than six months). |
27
In addition, we are permitted to follow certain home country corporate
governance practices and laws in lieu of certain Nasdaq Rules applicable to U.S. domestic issuers. For instance, we have relied on the
foreign private issuer exemption with respect to shareholder approval requirements for equity-based incentive plans for our employees
and the requirement to have a formal charter for our Compensation Committee. Following our home country governance practices rather than
the Nasdaq Rules that would otherwise apply to a U.S. domestic issuer, may provide less protection to investors. For the list of the specific
exemptions that we have chosen to adopt, please see “Item 16G. CORPORATE GOVERNANCE”.
We may lose our status as a foreign private
issuer, which would increase our compliance costs and could negatively impact our operations results.
We may lose our foreign private issuer status if (a) a majority
of our outstanding voting securities are either directly or indirectly owned of record by residents of the United States and (b) one or
more of (i) a majority of our executive officers or directors are United States citizens or residents, (ii) more than 50% of our assets
are located in the United States or (iii) our business is administered principally in the United States. In such case, we would be required
to, among other things, file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more extensive
than the forms available to a foreign private issuer, follow U.S. proxy disclosure requirements, including the requirement to disclose,
under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis, modify certain
of our policies to comply with accepted governance practices associated with U.S. domestic issuers and we would lose our ability to rely
upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers,
as described in the previous risk factor above. All of the above would cause us to incur substantial additional internal and external
costs, including for outside legal and accounting support.
It may be difficult to enforce a U.S. judgment
against us or our officers and directors, or to assert U.S. securities laws claims in Israel.
We are incorporated under the laws of the State of Israel. Service
of process upon our directors and officers, almost all of whom reside outside the United States, may be difficult to obtain within the
United States. Furthermore, because the majority of our assets and investments, and almost all of our directors and officers are located
outside the United States, any judgment obtained in the United States against us or any of them may not be collectible within the United
States.
Additionally, it may be difficult for an investor, to assert U.S.
securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation
of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli
court agrees to hear such a claim, it is not certain if Israeli law or U.S. law will be 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 by an expert witness, 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 that addresses
the matters described above.
Your rights and responsibilities as a shareholder
will be governed by Israeli law which differs in some respects from the rights and responsibilities of shareholders of U.S. companies.
Since we are incorporated under Israeli law, the rights and responsibilities
of our shareholders are governed by our Articles of Association as in effect from time to time (the “Articles
of Association”), and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities
of shareholders in United States-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith
and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain
from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters,
such as an amendment to a company’s articles of association, an increase of a company’s authorized share capital, a merger
of a company and approval of interested party transactions that require shareholder approval. A shareholder also has a general duty to
refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses
the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in a company,
or has another power with respect to a company, has a duty to act in fairness towards such company. Israeli law does not define the substance
of this duty of fairness and there is limited case law available to assist us in understanding the nature of this duty or the implications
of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are
not typically imposed on shareholders of U.S. corporations.
28
Provisions of Israeli law may delay, prevent,
or make undesirable an acquisition of all or significant portion of our shares or assets.
Israeli corporate law regulates mergers and acquisitions and requires
that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to
certain conditions), which may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us.
Further, Israeli tax considerations may make potential transactions undesirable to us, or to some of our shareholders, if the country
of residence of such shareholder does not have a tax treaty with Israel (thus not granting relief from payment of Israeli taxes). With
respect to mergers, Israeli tax law provides tax deferral in certain circumstances but makes the deferral contingent on the fulfillment
of numerous conditions, including a holding period of two years from the date of the transaction, during which certain sales and dispositions
of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is
limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See “Item
10.B. - Mergers and Acquisitions under Israeli Law”.
In addition, in accordance with the Israeli Restrictive Trade Practices
Law, 1988 (the “Economic Competition Law”), and the R&D Law, to which we are subject due to our receipt of grants from
the IIA, a change in control in the Company (such as a merger or similar transaction) may be subject to certain regulatory approvals in
certain circumstances. For more information regarding such required approvals please see Item 4. “INFORMATION ON THE COMPANY - B.
Business Overview - The Israel Innovation Authority”.
In addition, as a corporation incorporated under the laws of the
State of Israel, we are subject to the Economic Competition Law and the regulations promulgated thereunder, under which we may be required
in certain circumstances to obtain the approval of the Israel Competition Authority in order to consummate a merger or a sale of all or
substantially all of our assets.
These provisions of Israeli law could have the effect of delaying
or preventing a change in control and may make it more difficult for a third party to acquire us, even if doing so would be beneficial
to our shareholders, and may also adversely affect the price that investors may be willing to pay in the future for our ordinary shares.
ITEM 4. INFORMATION ON THE
COMPANY
A. History and Development of
the Company
We were incorporated
under the laws of the State of Israel on July 23, 1996 as Giganet Ltd. We changed our name to Ceragon Networks Ltd. on September 6, 2000.
We operate under the Israeli Companies Law, our registered office is located at Nitzba City, Plot 300, Bldg. A, 7th floor, POB 112, Rosh
Ha’Ayin 4810002, and our telephone number is +972-3-543-1000. Our web address is www.ceragon.com. Information contained on our website
does not constitute a part of this annual report.
Our agent for service of process in the United States is Ceragon
Networks, Inc., our wholly owned U.S. subsidiary and North American headquarters, located at 851 International Parkway, Suite 1340, Richardson,
Tx 75081.
B. Business
Overview
We are the leading wireless transport specialist company in terms
of unit shipments and global distribution of our business, providing innovative high capacity wireless connectivity solutions to global
markets across various industries, mainly wireless (mobile) networks service providers.
Wireless transport is a means for connecting mobile network sites
(e.g. cellular base stations in various architectures) to the rest of the network. It carries information to and from the cellular base
stations. It is used when high-speed wireline connectivity to telecom sites (typically fiber optics) is not available or rapid development
is required. According to market research, about 45% of global telecom sites are connected to the rest of the network via wireless transport.
Ceragon’s innovative technology related to the transition
from Wireless SDH to Wireless IP, and the further transition to compact multi-core all-outdoor wireless backhaul solutions, assisted in
positioning Ceragon as a leader in the global wireless transport market, and we expect that it would have potentially positioned us to
benefit from new wireless generation transitions such as the current 5G evolution.
29
In preparation for the transition from 4G to 5G technologies, we
have begun planning the roll-out of new 5G-supporting products. In 2019, we introduced the market-first “disaggregated wireless
transport” architecture, which allows operators to significantly simplify 5G network deployment and maintenance, as well as reduce
of capital and operating expenses. Currently, we are investing in a new chipset which incorporates 8-cores (Octa-core) in a chipset to
be incorporated in products expected to be introduced in 2024.
The term ‘wireless transport’ refers to various types
of network connectivity signaling and network protocols which vary in speeds and include (i) backhaul - used in 4G, 5G and earlier generations
of mobile networks to send data packets between the network and the base-stations and between the base-stations to other network elements,
and (ii) fronthaul - used in 4G and 5G networks to send radio signal values between building blocks of the base station, which can be
separated from another across geographic site locations to achieve network efficiencies in some network scenarios.
Wireless transport offers network operators a cost-efficient alternative
to wire-line connectivity between network nodes at different sites, mainly fiber optics. Support for high broadband speeds and very large
numbers of devices, means that all value-added services can be supported, while the high reliability of wireless systems provide for lower
maintenance costs. Because they require no trenching, wireless transport links can also be set up much faster and at a fraction of the
cost of fiber solutions. On the operator’s side, this translates into an increase in operational efficiency and faster time-to-market,
as well as a shorter timetable to achieving new revenue streams.
We provide wireless transport solutions and services that
enable cellular operators and other service providers to build new networks and evolve networks towards 4G and 5G services. The services
provided over these networks are: voice, mobile and fixed broadband, Industrial/Machine-to-Machine (M2M), Internet of Things (IoT) connectivity,
public safety and other mission critical services. We also provide our solutions for wireless backhaul to other vertical markets such
as Internet service providers, public safety, utilities, oil and gas offshore drilling platforms, as well as maritime communications.
Our wireless transport solutions use microwave and millimeter-wave radio technologies to transfer large amounts of telecommunication traffic
between wireless 5G, 4G, 3G and other cellular base station technologies (distributed, or centralized with dispersed remote radio heads)
and the core of the service provider’s network. We are also a member of industry consortiums of companies, which attempt to better
define future technologies in ICT (Information and Communication Technologies) markets, such as Open Networking Foundation (ONF), Metro
Ethernet Forum (MEF), European Telecommunications Standards Institute (ETSI), Telecom Infra Project (TIP) and others.
In addition to providing our solutions, we also offer our customers
a comprehensive set of turn-key services, including advanced network and radio planning, site survey, solutions development, network rollout,
maintenance, wireless transport network audit and optimization, and training. To enable delivery of turn-key solutions to our customers,
in addition to providing roll-out services, we have partnered with other third party providers of technologies complementary to our own.
Our offering includes technologies such as: Unlicensed Point-to-Point, Private LTE, Licensed/unlicensed Point-to-Multipoint, IP/MPLS and
others. This allows us to better cover our customers’ end-to-end needs and increases the level of stickiness with these customers.
Our services include powerful project management tools that streamline deployments of complex wireless networks, thereby reducing time
and costs associated with network set-up and allowing a fast time-to-revenue. Our experienced teams can deploy hundreds of wireless transport
links every week, and our rollout project track record includes hundreds of thousands of links already installed and operational with
a variety of industry-leading operators.
Designed for any network scenario, including risk-free flexible
migration from current and legacy network technologies and architectures to evolving standards and network transport scenarios, our solutions
provide ultra-high speed connectivity at any distance, be it a few kilometers or tens of kilometers, and even longer, over any available
spectrum (or combinations of available spectrum bands) and in any site and network architecture. Our solutions support all wireless access
technologies, including 5G-NR NSA, 5G-NR SALTE, HSPA, EV-DO, CDMA, W-CDMA, WIFI and GSM as well as Tetra, P.25 and LMR for critical communications.
These solutions allow wireless service providers to cost-effectively and seamlessly evolve their networks from a monolithic base-station
architecture to an open RAN architecture, utilizing vertical and horizontal disaggregation, allowing them extra flexibility, scalability
and efficiency, thereby meeting the increasing demand of a growing number of connections of any type for consumers and enterprises with
growing needs for mobile and other multimedia services, and a growing number of machines or IoT devices such as street surveillance devices
or meters.
We also provide our solutions to other non-carrier vertical markets
such as oil and gas companies, public safety organizations, businesses and public institutions, broadcasters, energy utilities and others
that operate their own private communications networks. Our solutions are deployed by more than 460 service providers of all sizes, as
well as in more than 1,500 private networks, in more than approximately 140 countries.
30
Wireless Transport; Short-haul, Long-haul and Small Cells Transport
Today’s cellular networks are predominantly based on 4G technologies.
These networks constantly undergo expansion of coverage, densification with additional sites to cater to higher demands for speeds and
to make more services available per given area. However, 189 service providers in 74 countries have now launched 5G services . These
investments in 5G radio network infrastructure, and consequently, associated wireless transport, are expected to gradually increase during
the next several years. In order to allocate spectrum resources for 4G and 5G, some operators are shutting down their 2G and/or 3G network
(a “network sunset”) in order to re-allocate radio access network frequency bands to 4.5 and 5G services. These market dynamics
of network expansion and densification, have resulted in higher demand for wireless transport capacity, at increased density, accommodating
sophisticated services over the network at far higher volume than available up to recent years. Such services include the many 5G use
cases, which among others include enhanced mobile broadband, mission critical services, IoT & Industrial IoT (Industry 4.0, or “IIoT”),
Gigabit broadband to homes, multi Gigabits services to enterprises and more.
The wireless transport market is divided into two main market segments.
The first is a market segment in which operators invest resources and efforts to select the best wireless transport solution that will
meet their wireless transport needs, in terms of the ability to improve their business operational efficiency, services reliability and
their customers’ (subscribers’) quality of experience. This market segment is referred to as “best-of-breed”.
The other market segment is characterized by operators that do not select the wireless transport solution, since this decision is made
by a network’s solution provider retained by the operator. This network solution provider delivers an end-to-end solution and the
equipment required to operate the entire network, including the wireless transport equipment. Operators in this segment of the market
rely on the network solution providers to choose wireless transport as part of the full end-to-end solution while often compromising on
performance and optimization of the network and other resources, as see it as a solution which does not play a primary role within the
end-to-end network rollout considerations. This segment of the market is referred to as “bundled-deals”.
Ceragon serves the “best-of-breed” segment of the market
and specializes in a range of solutions, which to the Company’s belief, provide high value for our customers including:
| • |
Short-haul solutions, which typically provide a wireless link capacity of up to 2 Gbps per link for backhaul, and/or a link capacity
of up to 20Gbps for fronthaul. These solutions are available for distances of several hundred feet to 10 miles. Short-haul links are deployed
in access applications (macro cells and small cells and distributed cells) wirelessly connecting the individual base-stations or base-station
element (i.e. a “central unit”, a “distributed unit” or a “radio unit”) towers to the core network.
Short-haul solutions are also used in a range of non-carrier “vertical” applications such as state and local government, public
safety, education and off-shore communication for oil and gas platforms. |
| • |
Long-haul solutions, which typically provide a capacity of up to 20 Gbps, are used in the “highways” of the telecommunication
backbone network. These links are used to carry services at distances of 10 to 50 miles, and, using the right planning, configuration
and equipment, can also bridge distances of 100 miles. Long-haul solutions are also used in a range of non-carrier “vertical”
applications such as broadcast, state and local government, public safety, utilities and offshore communication for oil and gas platforms.
|
Ceragon has, on more than one occasion, been the first to introduce
new products and features to the market, including the first solution for wireless transmission for evolving cellular networks, providing
155 Mbps at 38 GHz in 1996 and numerous microwave and millimeter-wave technology innovations thereafter. Since 2008, Ceragon has invested
in pioneering the multicore™ technology focusing on addressing the multiple wireless transport challenges of 4G and 5G services.
This technology is at the core of Ceragon’s in-house developed chipsets for wireless transport, now in their Fourth generation,
which enable Ceragon to design and offer vertically integrated solutions. This vertical integration enables Ceragon to provide higher
flexibility, better performance, and improved time-to-market. With the first products based on multicore™ technology introduced
to the market in 2013, Ceragon has enabled dual-core radios and far advanced capabilities, such as Line-of-Sight Multiple Input Multiple
Output (LoS MIMO), which allows efficient use of spectrum where congestion of frequencies exist, Advanced Frequency Reuse (AFR), which
allows massive network densification and Advanced Space Diversity, which eliminates the use of multiple antennas in various network scenarios,
thereby accelerating network deployment and reducing total cost of ownership.
31
In 2019, Ceragon introduced the market-first “disaggregated
wireless transport” architecture, which allows operators to significantly simplify 5G network deployment and maintenance, as well
as reduce capital and operating expenses.
Ceragon is currently investing in a new chipset which incorporates
8-cores (Octa-core) in a chipset, expected to be available in 2022, offering industry-leading performance and capacity.
Industry Background
The market demand for wireless transport is being generated primarily
by cellular operators, wireless broadband service providers, businesses and public institutions that operate private networks. This market
is fueled by the continuous customer growth in developing countries, and the explosion in mobile data usage in developed countries. The
year 2020 brought with it a mass exodus to the online world and created an urgent need for more network capacity, pushing operators and
service providers to accelerate their 5G plans. In 2021 we found ourselves at the cusp of a global wireless generation transition
– from 4G to 5G.
The main catalyst for the wireless transport evolution has been
the huge increase in data and video consumption across the globe. This evolution generates higher capacity and cost-efficient architectures,
based on IP/Ethernet technologies in a developing set of network scenarios and architectures.
| • |
In 4G, the fronthaul transport network connects Remote Radio Heads (RRHs) to distant centralized/cloud Baseband Units (BBUs), while
backhaul connects BBUs back to 4G Evolved Packet Core (EPC). In 5G, the New Radios (NR) are connected to the BBU, which can be disaggregated
into a Central Unit (CU) and a Distributed Unit (DU). The new midhaul interconnects the CU to the DU via a new, standardized 3GPP interface.
|
| • |
With help from organizations such as the operator-led O-RAN Alliance, 5G fronthaul and midhaul network interface specifications are
open and defined in a structured format. This allows MNOs to purchase RUs, DUs, CUs, and the associated transport networks between them,
from anyone. We believe that this presents new market opportunities for Ceragon’s leading wireless transport solutions with our
open network architecture. |
Rapid subscriber and connections growth and the proliferation of
advanced end devices, driven mainly by video content, have significantly increased the amount of traffic that must be carried over a cellular
operator’s transport infrastructure. COVID-19 has further accelerated this trend. As a result, existing transport capacity is heavily
strained, creating a bottleneck that hinders service delivery and quality. The proliferation of industrial, security and metering devices
through IoT technologies, and implementation of new 5G network architectures is also expected to increase the total capacity and coverage
that is needed to be transported throughout networks and put additional strain on network capacity, requiring even higher capacity wireless
backhaul and fronthaul connectivity.
With the growth in adoption of 4G and the accelerated pace of adoption
of 5G, which require even higher network speeds and wireless backhaul capacity, in particular, cellular operators are seeking strategies,
using new technologies, which will allow further business growth, to facilitate quick and cost-efficient enablement of new services for
more connected subscribers (either human or machine). Among those are Software Defined Networks (SDN) and Network Function Virtualization
(NFV) technologies, which are key for network slicing.
Network
slicing is a network engineering model in which the physical network is providing resources to numerous virtual networks on top, whereas
each virtual network delivers a specific set of performance characteristics for a specific service, or set of services, sharing common
requirements. For example, a network slice that is tasked with delivering ultra-high bandwidth for mission critical multimedia services
(voice and video) to law enforcement agencies, requires a different amount of network resources ensuring prioritized capacity and minimal
delay variation, whereas a different network slice support video streaming service for mobile entertainment. SDN and NFV technologies
are designed to support network slicing models and its implementation, for high quality subscriber experience, by simplifying service
creation and orchestration through simple network traffic engineering rules and tools, as well as enable end-to-end network resources
optimization across all network domains, including the wireless transport domain, for increased operational efficiency. Network resources
optimization is expected to be achieved, in part, by the use of SDN technologies with wireless transport optimization applications, which
will exploit network intelligence gathered by SDN controllers within the network.
32
The wireless transport domain of the network will require adaptation
to these industry trends by enabling far higher capacities, with ultra-low latency for high service quality, simple service creation and
optimization to cope with the influx of a thousand-fold increase in the number of services compared to 4G networks, and a high degree
of wireless resources optimization (spectrum and other) that will be incorporated within the wireless transport network infrastructure.
Cellular Operators
In order to address the strain on backhaul and fronthaul capacity,
cellular operators have a number of alternatives, including leasing existing fiber lines, laying new fiber optic networks or deploying
wireless solutions. Leasing existing lines requires a significant increase in operating expenses and, in some cases, requires the wireless
service provider to depend on a direct competitor. Laying new fiber-optic lines is capital and labor-intensive and these lines cannot
be rapidly deployed. The deployment of high capacity and ultra-high capacity point-to-point wireless links represents a scalable, flexible
and cost-effective alternative for expanding backhaul and fronthaul capacity. Supporting data rates of 1 Gbps and above (backhaul) and
10Gbps and above (fronthaul) over a single radio unit, wireless transport solutions enable cellular operators to add capacity only as
required while significantly reducing upfront and ongoing backhaul and fronthaul costs.
Some of today’s backhaul networks, primarily in emerging
markets, still employ circuit switched (or TDM) solutions - whether T1/E1 or high-capacity SDH/SONET. These networks, originally designed
to carry voice-only services, have a limited bandwidth capacity and offer a no cost-efficient scalability model. The surge in mobile data
usage, fueled by anticipation and adoption of advanced releases of 4G and 5G services, drives operators to accelerate and finalize the
migration of their networks to a more flexible, feature-rich and cost optimized IP network architecture. Additionally, the surge in data
usage in densely populated areas drives operators to explore new network architectures that utilize a variety of small-cell technologies
requiring the deployment of dense wireless transport network in various microwave and millimeter-wave spectral bands. As operators intensify
4G services availability and transition to 5G services, all of which are IP-based wireless access technologies, they look for ways to
benefit from IP technology in their transport network while maintaining support for their primary legacy services. The progression that
is expected in 5G networks rollout over the next several years, will broaden cellular operators’ assessment of the growing
role the wireless backhaul and fronthaul may take in their network in 2-3 years’ time, as reaching the small cells with more fiber
is expected to become a significant challenge, both physically and economically.
In order to ensure the success of these network strategies, as
well as preparedness to broaden and 5G technologies adoption, operators require solutions that can support their legacy transport technology
(TDM) while providing all the advanced IP capabilities and functionalities and the capabilities to address any 4G & 5G network architecture.
Our solutions, which support any network architecture for backhaul and fronthaul, and include both all-IP as well as hybrid (IP and TDM
service connectivity) products, offer operators a simple and quick network modernization plan capable of evolving with the transition
to 5G services.
Wireless Broadband Service Providers
For wireless broadband service providers, which offer alternate
high data access, high-capacity backhaul is essential for ensuring continuous delivery of rich media service across their high-speed data
networks. If the backhaul network and its components do not satisfy the wireless broadband service providers’ need for cost-effectiveness,
resilience, scalability or ability to supply enough capacity, then the efficiency and productivity of the network may be seriously compromised.
While both wireless and wire-line technologies can be used to build these backhaul systems, many broadband service providers opt for wireless
point-to-point microwave solutions. This is due to a number of advantages of the technology including: rapid installation, support for
high-capacity data traffic, scalability and lower cost-per-bit compared to wire-line alternatives.
Other Vertical Markets
Many large businesses and public institutions require private high
bandwidth communication networks to connect multiple locations. These private networks are typically built using IP-based communications
infrastructure. This market includes educational institutions, utility companies, oil and gas industry, broadcasters, state and local
governments, public safety agencies, maritime customers and defense contractors. These customers continue to invest in their private communications
networks for numerous reasons, including security concerns, the need to exercise control over network service quality and redundant network
access requirements. As data traffic on these networks rises, we expect that businesses and public institutions will continue to invest
in their communications infrastructure, including backhaul equipment. Like wireless service providers, customers in this market demand
a highly reliable, cost-effective backhaul solution that can be easily installed and scaled to their bandwidth requirements. Approximately
20% of our business is associated with private network operators.
33
Wireless vs. Fiber Transport
Though fiber-based networks can easily support the rapid growth
in bandwidth demands, they carry high initial deployment costs and take longer to deploy than wireless. Certainly, where fiber is available
within several hundred feet of the operator’s point of presence, with ducts already in place, and when there are no regulatory issues
that prohibit the connection – fiber can become the operator’s preferred route. In other scenarios, high-capacity wireless
connectivity using microwave and millimeter-wave technologies (wireless transport), is significantly more cost efficient. Wireless transport
is taking a significant role in 4G network densification and is expected to take a significant role in the transition to 5G rollout as
a result of ease and the speed of deployment. In fact, in most cases the return-on-investment from fiber installations can only be expected
in the long term, making it hard for operators to achieve lower costs per bit and earn profits in a foreseeable future.
Wireless microwave and millimeter-wave transport solutions on the other hand are capable
of delivering high bandwidth, carrier-grade network services. Our wireless transport solutions are suitable for all capacities, carrying
multi Gbps of the operators’ traffic over a single radio connection (or “link”). Unlike fiber, wireless solutions can
be set up quickly and are more cost efficient on a per-bit basis from the outset. In many countries, microwave and millimeter-wave links
are deployed as alternative routes to fiber, ensuring on-going communication in case of fiber-cuts and network failures, as well as enabling
the deployment of small cells or distributed cells, as very often fiber is not available or too costly and time consuming to bring to
where small cells are required.
Licensed vs. License-exempt Wireless Backhaul
Licensed wireless transport:
Service providers select the optimal available transmission frequency based on the rainfall intensity in the transmission area and the
desired transmission range. The regulated, or licensed, microwave bands (4-42GHz) and millimeter-wave bands (71-86GHz) are allocated by
government licensing authorities for high-capacity wireless transmissions. The license grants the licensee the exclusive use of that spectrum
for a specific use thereby eliminating any interference issues. A licensed microwave or millimeter-wave spectrum is typically the choice
of leading operators around the world because it matches the bandwidth and interference protection they require. Our licensed spectrum
products operate across the entire span of the licensed microwave and millimeter-wave spectrum described herein, from 4GHz microwave to
86GHz, delivering multi Gbps per link and are scalable and versatile to meet all radio access networks, small cells, private networks
and long-haul radio transmission paths requirements.
License-exempt wireless transport:
Service providers also select license-exempt spectrum in order to provide high speed connectivity to businesses, campuses (often regarded
as a wireless backhaul) and serve cellular small cells with wireless backhaul connectivity, without regulatory approval for spectrum.
License exempt spectrum can be categorized into two main categories:
1) 57 – 66GHz millimeter-wave band, known as the v-band spectrum and operating at very wide channel bandwidths, up to 2,000MHz and
capable of delivering 10Gbps bi-directional capacity (FDD). The use of v-band spectrum requires the existence of a line of sight between
the sites, allows the achievement of high availability connectivity because of the narrow beam characteristics of the radio signal and
provides the highest capacity when operating in a point-to-point communication mode. Additional V-band solutions include point-to-multipoint
and mesh networks architectures which provide up to 4Gbps aggregate capacity and their primary use is for access services to end-users
with limited capacity of backhaul operating within the access service spectrum (in-band backhaul); and 2) sub 6GHz license-exempt spectrum,
operating at narrow channel bandwidths of up to 80MHz and delivering up to 500Mbps bi-directional capacity (FDD), typically in point-to-multipoint
network architecture. The use of sub 6GHz spectrum allows for non, or near, line of sight connectivity between the sites and facilitates
an economic and flexible rollout model, at the expense of achieving modest capacity, as specified above. License exempt V-band and sub
6GHz bands are more vulnerable to interference as a result of the uncoordinated use of the spectrum.
We provide a range of license-exempt solutions to provide service
providers and private network owners with the solutions that best fit their service and connectivity needs; we provide high availability
point-to-point multi Gbps solutions with very low latency for enterprises, campuses and small cells, operating in the license-exempt millimeter-wave
V-band spectrum. For those who require modest capacity connectivity of very few hundreds of Mbps per site, we offer third-party equipment
vendor solutions operating at license exempt sub 6GHz point-to-multipoint and point-to-point near/non line of sight wireless connectivity
that allow them to make reasonable concessions between capacity and latency, service availability and total cost of ownership of the rollout.
34
Industry Trends and Developments
| • |
Sudden and wide widespread surge in network traffic in 2020 and 2021 emerging from COVID-19 pandemic continues to cause global change
to the way business and individuals access information for work and leisure. The result of national lock-ins for large parts of the population
brings many businesses to exercise company-wide work-from-home with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is a sudden and sharp increase in home broadband demand, while today’s home broadband networks are not designed
for such usage patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result,
service providers are required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate
that the increase in network traffic which service providers are experiencing today amidst the pandemic will remain and even increase,
as companies and employees adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions
of the world population, young and elderly alike, use highly visual remote communication tools and high volume communication transactions.
|
| • |
5G will enable operators to enhance their services portfolio with more use cases such
as enhanced mobile broadband (eMBB) delivering gigabit broadband, as well as address new market segments such as IoT & IIoT and mission
critical applications with URLLC (Ultra Reliable Low Latency Communications) and mMTC (Massive Machine Type Communications) services.
Those services, combined with new network architectures will require higher capacity, lower latency networks and in particular higher
transport capacity, far denser macro cells and small/distributed cells grids and the implementation of network virtualization technologies
and architectures, namely network slicing using SDN. Our wireless transport solutions resolve both higher capacity, lower latency and
network densification requirements with advanced capabilities, based on our multicore™ technology for microwave narrowband spectrum
(up to 224Mhz) and the use of wider bands in millimeter-wave spectrum, up to 2,000MHz. Network virtualization requirements are addressed
with layer 3 capabilities and SDN support. |
| • |
Software Defined Networking (SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and may be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
| • |
The emergence of distributed cells presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements. |
| • |
The introduction of a disaggregated model for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. |
35
| • |
The network sharing business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained. |
| • |
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading,
or “modernizing” existing cell-sites to fit new services with a lower total cost of
ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance,
capacity and service support. For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace
costly antennas, which are already deployed. In doing so, we help our customers to reduce the time and the costs associated with network
upgrades. The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue. |
| • |
A growing market for non-mobile backhaul applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale. |
| • |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and eventually 5G services. |
| • |
Subscriber growth continues mainly in emerging markets such as India, Africa and Latin America.
|
Our Solutions
We offer a broad product portfolio of innovative, field-proven,
high capacity wireless transport solutions, which incorporate our unique multicore™ technology. Our multicore™ technology
is a key element in our differentiation within the wireless transport market, serving the “best-of-breed” market segment.
Our multicore™ technology is comprised of a high order of digital signal carriers embedded in modems having multiple baseband cores,
designed for microwave and millimeter-wave communications, and RF integrated circuits (RFIC), which support the entire available microwave
and millimeter-wave spectrum. We integrate our multicore™ technology SoCs into sub-systems and complete wireless transport solutions
that deliver high value for our customers. With our approach to solutions, from system-on-a-chip design, all the way to solutions design,
we enable cellular operators, other wireless service providers, public safety organizations, utility companies and private network owners
to effectively obtain a range of benefits:
| • |
Increase business operational efficiency by reducing network related expenses. Our customers
are able to obtain the required capacity with one-quarter of the spectrum needed otherwise, double network capacity without adding more
equipment simply by remotely expanding wireless link capacity, significantly reduce energy related expenses by utilizing our energy efficient
products, use smaller antennas thereby reducing telecommunication tower leasing costs, and improve their staff productivity with the use
of a single wireless transport platform for their long-haul, short-haul and small/distributed cells transport needs. We offer a range
of solutions for quick and simple modernization of wireless networks to 4G and 5G, which significantly contribute to our customers’
ability to modernize and expand their services. |
Our wireless transport solutions are offered across the widest
range of frequencies - from 4GHz microwaves to 86GHz millimeter-waves. This provides our customer more flexibility in deploying its wireless
transport infrastructure, as it enables the customer to select the spectrum available in the customer’s market, from a wider range
of frequencies. Any transport network topology is supported to enable high network availability and resiliency, including ring, mesh,
tree and chain topologies.
36
| • |
Enhance service portfolio, quality of experience and reach. Our multicore™ technology
allows our customers to introduce new services (e.g. 5G use cases), to improve subscriber (user) quality of experience generated from
the voice, data and multimedia services that they provide to their customers and to extend their network and services reach in order to
address new markets. |
| • |
Ensure peace of mind. Our solutions utilize the latest in microwave and millimeter-wave technology,
incorporated in-house developed System-on-Chips (baseband and RF integrated circuits), and use the latest advances in SMT (Surface-mount
technologies) based manufacturing – allowing our customers to benefit from the highest service availability across their Ceragon-based
wireless transport network. |
We provide our customers with future solutions already built-in
to their Ceragon-installed base. We invest a significant amount of effort in designing and providing solutions, which are not only backward
compatible with our earlier product generations, but also allow our customers to reuse the radio units and antennas of their Ceragon links
installed base, thereby replacing only the low labor-consuming indoor (sheltered) units - thus benefiting from the latest wireless transport
performance of our latest technology across their Ceragon-installed base. Moreover, our solutions support multiple technologies within
the same wireless transport equipment, providing our customers with high flexibility in network transition from legacy connectivity to
4G and 5G connectivity and architectures, at their desired pace of transition - while achieving long-term operational efficiency, high
service quality and availability.
Design to Cost. We see increasing demand for smaller systems with
low power consumption and a cost structure that fits today’s business environment in the diverse markets, seeking wireless transport
solutions. We believe that this complicated puzzle can only be solved through vertical integration from system to chip level. Our strategy
to drive performance up while driving cost down is achieved through our investment in modem and RF (radio frequency) integrated circuit
(IC) design. Our advanced chipsets, which are already in use in hundreds of thousands of units in the field, integrate all the radio functionality
required for high-end microwave and millimeter-wave systems. By owning the technology and controlling the complete system design, we achieve
a very high level of vertical integration and cost structure and control over the timing of introducing certain capabilities, which is
not available to vendors relying on off-the-shelf chipsets. This, in turn, yields systems that have superior performance when compared
with systems which use off-the-shelf chipsets component available from the other single source, due to our ability to closely integrate
and fine-tune the performance of all the radio components. By significantly reducing the number of components in the system and simplifying
its design, we have made our solutions easier to manufacture, and further allow ourselves to offer derivative products at different price
and performance configurations aligned to our customers’ demands. We have introduced automated testing that allows us to speed up
production while lowering the costs for electronic manufacturing services manufacturers. Thus, we believe we are able to achieve one of
the lowest per-system cost positions in the industry and can offer our customers further savings through compact, low power consumption
designs – which is becoming a key parameter in the ability of operators to deploy their networks, while meeting operational efficiency
targets, and at the same time [care for][promote a?] more “green” environment by reducing energy consumption and environmental
pollution caused thereby.
As an example, our IP-20C, which is a complete wireless backhaul
node, can quadruple the link capacity over a single frequency channel when compared to the capacity that can be achieved over the same
single frequency channel by other vendors’ single channel solutions. This IP-20C node has nearly the same footprint as our older
generation RFU-C which is a single-channel radio unit that Ceragon provides, and is not a full system, but only the RF module of the product.
This achievement could not have been possible without our full control of the entire design and production process.
Strategic Partnerships.
Ceragon maintains strategic partnerships with third party solution vendors and network integrators. Through these relationships Ceragon
develops interoperable ecosystems, enabling operators and private networks to profitably evolve mobile networks by using complementary
transport alternatives. In some cases, we have entered into a strategic alliance with a potential competitor that nevertheless, choose
our technology for its future products, acknowledging that we propose the “best-of-breed” cutting edge technology.
Our Products
Our portfolio of products utilizes microwave and millimeter-wave
radio technologies that provide our customers with a wireless connectivity that dynamically adapts to weather conditions and optimizes
range and efficiency for a given frequency channel bandwidth. Our products are typically sold as a complete system comprised of some or
all of the following four components: an outdoor unit, an indoor unit, a compact high-performance antenna and a network management system.
We offer all-packet microwave and millimeter-wave radio links, with optional migration from TDM to Ethernet. Our products include integrated
networking functions for both TDM, Ethernet and IP/MPLS.
37
We offer our products in four configurations: All-outdoor, split-mount,
all-indoor, and disaggregated transport.
| • |
All-outdoor solutions combine the functionality of both the indoor and outdoor units in a single, compact device. This weather-proof
enclosure is fastened to an antenna, eliminating the need for rack space or sheltering, as well as the need for air conditioning, and
is more environmentally friendly due to its lower footprint and power consumption. |
| • |
Split-mount solutions consist of: |
| ➢ |
Indoor units which are used to process and manage information transmitted to and from the outdoor unit, aggregate multiple transmission
signals and provide a physical interface to wire-line networks. |
| ➢ |
Outdoor units or Radio Frequency Units (RFU), which are used to control power transmission, and provide an interface between antennas
and indoor units. They are contained in compact weather-proof enclosures fastened to antennas. Indoor units are connected to outdoor units
by standard coaxial or Cat-5 baseband cables. |
| • |
All-indoor solutions refer to solutions in which the entire system (indoor unit and RFU) reside in a single rack inside a transmission
equipment room. A waveguide connection transports the radio signals to the antenna mounted on a tower. All indoor equipment is typically
used in long-haul applications. |
| • |
Disaggregated wireless transport solutions offer a single radio suitable for all-outdoor, a split-mount scenario, and a networking
unit, which provides versatile and scalable hardware options based on merchant routing silicon and also provides routing capabilities
(L3) that are radio technologies aware. |
| • |
Pointing accuracy solutions for high movement environments. These are advanced microwave radio systems for use on moving rigs/vessels
where the antenna is stabilized in one or two axes, azimuth or azimuth/elevation. |
| • |
Antennas are used to transmit and receive microwave radio signals from one side of the wireless link to the other. These devices
are mounted on poles typically placed on rooftops, towers or buildings. We rely on third party vendors to supply this component.
|
| • |
End-to-End Network Management. Our network management system uses standard management protocol to monitor and control managed devices
at both the element and network level and can be easily integrated into our customers’ existing network management systems.
|
The IP-20 Platform provides
a wide range of solutions for any configuration requirement and diverse networking scenarios. Composed of high-density multi-technology
nodes and integrated radio units of multiple radio technologies ranging from 4GHz and up to 86GHz, it offers ultra-high capacity of multiple
Gbps with flexibility in accommodating for every site providing high performance terminals for all-indoor, split-mount and all-outdoor
configurations. The IP-20 platform supports carrier-ethernet services and is MEF 2.0 certified.
The IP-50 Platform provides
disaggregated wireless transport using a single type of radio in microwave or millimeter-wave for all configuration and installation scenarios
and IP/MPLS and segment routing capabilities over merchant silicon hardware options.
38
IP-20 All-outdoor solutions:
|
Product |
Frequency range |
Application |
Networking & transport technologies
|
|
IP-20C |
6-42GHz, dual-carrier |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
|
IP-20C-HP |
4-11GHz, dual-carrier |
Longhaul |
Carrier Ethernet |
|
IP-20S |
6-42GHz |
Shorthaul, enterprise |
Carrier Ethernet |
|
IP-20E |
71-86GHz |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
|
IP-20V |
57-66GHz |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
IP-20 Split-mount / all-indoor solutions:
|
Product |
Frequency range |
Application |
Networking & transport technologies
|
|
IP-20N / IP-20A |
4-86GHz |
Shorthaul, Long-haul |
Carrier Ethernet, TDM |
|
IP-20F |
4-86GHz |
Shorthaul |
Carrier Ethernet, TDM |
|
IP-20G |
6-42GHz |
Shorthaul |
Carrier Ethernet, TDM |
IP-50 disaggregated solutions:
|
Product |
Frequency range |
Application |
Networking & transport technologies
|
|
IP-50E |
71-86GHz |
Shorthaul, Fronthaul, Enterprise access |
IP/MPLS, CE |
|
IP-50C |
6-42GHz, dual-carrier |
Shorthaul |
IP/MPLS, CE |
|
IP-50FX |
6-86GHz |
Shorthaul |
IP/MPLS, CE |
|
IP-50S |
6-42GHz |
Shorthaul |
IP/MPLS, CE |
As wireless transport capacity needs grow, the wireless transport
network blueprint evolves to supporting more radio carriers in one box (2 carriers, instead of 1) as a basic configuration with the IP-20C
product, or even 4+0 (a link utilizing 4-carriers in a carrier-aggregation configuration) in all-outdoor configuration with layer-1 carrier
aggregation to support growing capacity needs at minimal foot print with the IP-50C product. Ceragon’s multicore™ technology
covers all network scenarios and site configurations wherever All-outdoor, Split-mount, or All-indoor. Various multicore™ radio
units can be used with IP-20N,IP-20F or IP-50FX products, such as RFU-D and the RFU-D-HP, or IP-50C and IP-50E in the disaggregated solution
(i.e. can be used as a stand-alone, all-outdoor radio or in a split-mount configuration, connected to the IP-50FX).
In addition to the IP-20 and the IP-50 Platforms, Ceragon
provides the PointLink portfolio that offers a tailored solution for oil and gas and other maritime offshore applications.
Our network management system (NMS) can be used to monitor network
element status, provide statistical and inventory reports, download software and configuration to elements in the network, and provide
end-to-end service management across the network. Our NMS solutions support all our microwave and millimeter-wave products through a single
user interface.
SDN (Software Defined Network) solution
As the mobile industry progresses towards the 5G era, SDN is becoming
more important for operators. SDN allows the operators to have a complete, multi-technology, multi-vendor view of their network and apply
optimization and predictive maintenance instructions in real time. The SDN concepts and values fit well the openness and disaggregation
principles our customers are seeking. We offer our customers a wide variety of SDN supporting products and tools:
| • |
SDN Controller – Ceragon’s SDN Master is a complete controller supporting SDN
protocols that can monitor and control Ceragon’s products in an SDN environment. The SDN Master can work as a ‘standalone’
controller, or as part of an SDN solution managed by a higher level SDN controller offered by a third-party vendor (sometimes referred
to as an SDN Orchestrator), allowing full flexibility to our customers. |
| • |
SDN support in our wireless transport products - all Ceragon IP-20 and IP-50 products support
the needed SDN protocols allowing the operator to manage these products with Ceragon SDN controllers but also with third party SDN controllers,
again, allowing full flexibility to our customers. |
39
| • |
SDN applications – Software (SW) tools with significant impact on our customers’
TCO (total cost of ownership), network availability, and fast network rollout. These applications enable operators to increase their network
efficiency and effectiveness with operational optimization and automatization capabilities. With the SDN technology, Ceragon SW solutions
are entering into the cloud domain allowing multiple open and flexible deployment scenarios for our customers. Currently, Ceragon is developing
and enhancing those and other SW tools in order to expand our offering also to stand-alone SW solutions and services either as on-premise,
remote or SaaS services. |
| • |
IP-100 Platform - Ceragon is currently investing in a new chipset which incorporates 8-cores
(Octa-core) in a chipset expected to be taped-out in 2022, offering industry-leading performance and capacity. We are already designing
the first IP-100 products using that chipset that will significantly increase our wireless transport products capabilities in terms of
higher capacity, lower latency, lower physical size and power consumption and more. These capabilities will make the IP-100 platform the
optimize choice for existing and new use cases in the 5G mobile market. The IP-100 platform will expand Ceragon products coverage beyond
the MW bands, V-Band and E-Band range (4-86 GHz) and will include W-band (up to 110 GHz) and D-band (up to 170 GHz) products. |
Our IP-based network products use native IP technology. Our hybrid
products use our hybrid concept, which allows them to transmit both native IP and native circuit-switched TDM traffic simultaneously over
a single radio link. Native IP refers to systems that are designed to transport IP-based network traffic directly rather than adapting
IP-based network traffic to existing circuit-switched systems require vis versa. This approach increases efficiency and decreases latency.
Our products provide effectively seamless migration to gradually evolve the network from an all circuit-switched and hybrid concept to
an all IP-based packet.
As telecommunication networks and services become more demanding,
there is an increasing need to match the indoor units’ advanced networking capabilities with powerful and efficient radio units.
Our outdoor RFUs are designed with sturdiness, power, simplicity and compatibility in mind. As such, they provide high-power transmission
for both short and long distances and can be assembled and installed quickly and easily. The RFUs can operate with different Ceragon indoor
units, according to the desired configuration, addressing any network need be it cellular, backbone, rural or private backhaul networks.
Our Services
We are responsible for installing most of the links we ship. We
offer complete solutions and services for the design and implementation of telecommunication networks, as well as the expansion or integration
of existing ones. We have a global projects and services group that operates alongside our products groups. Under this group we offer
our customers a comprehensive set of turn-key services including: advanced network and radio planning, site survey, solutions development,
installation, network auditing and optimization, maintenance, training and more. Our services include utilization of powerful project
management tools in order to streamline deployments of complex wireless networks, thereby reducing time and costs associated with network
set-up, and allowing faster time to revenue. Our experienced teams can deploy hundreds of “wireless transport links” every
week, and our rollout project track-record includes hundreds of thousands of links already installed and in operation with a variety of
Tier 1 operators.
We are committed to providing high levels of service and implementation
support to our customers. Our sales and network field engineering services personnel work closely with customers, system integrators and
others to coordinate network design and ensure successful deployment of our solutions.
We support our products with documentation and training courses
tailored to our customers’ varied needs. We have the capability to remotely monitor the in-network performance of our products and
to diagnose and address problems that may arise. We help our customers to integrate our network management system into their existing
internal network operations control centers.
Currently, in the pursuit of our new strategy to diversify and
expend our offering to include, among other things, WISPs (wireless internet services), private networks, software based solutions and
disaggregated cell-site routing, we are developing and enhancing those and other SW tools that have been used by us for networks planning,
commissioning, monitoring, optimization and maintenance, to be included in our services offering as a stand-alone SW solutions and services
either as on-premise, remote or SaaS.
40
Our Customers
We have sold our products, directly and through a variety of channels,
to over 460 service providers and more than 1,500 private network customers in more than approximately 140 countries. Our
principal customers are wireless service providers that use our products to expand transport network capacity, reduce transport costs
and support the provision of advanced telecommunications services. In 2021, we continued to maintain our position as the number one wireless
transport specialist, in terms of unit shipments and global distribution of our business. While most of our sales are direct, we do reach
a number of these customers through OEM or distributor relationships. We also sell systems to large enterprises and public institutions
that operate their own private communications networks through system integrators, resellers and distributors. Our customer base is diverse
in terms of both size and geographic location.
In 2021, customers from the Europe region contributed 16% of total
yearly revenue. Our sales in Latin America and Africa in 2021 were 19% and 8% of yearly revenue, respectively. Our sales in Asia Pacific
(excluding India), North America and India in 2021 were 11%, 16% and 30%, respectively.
The following table summarizes the distribution of our revenues
by region, stated as a percentage of total revenues for the years ended December 31, 2019, 2020 and 2021:
|
Year Ended December 31, |
||||||||||||
|
Region |
2019 |
2020 |
2021 |
|||||||||
|
North America |
15 |
% |
14 |
% |
16 |
% | ||||||
|
Europe |
15 |
% |
17 |
% |
16 |
% | ||||||
|
Africa |
9 |
% |
9 |
% |
8 |
% | ||||||
|
India |
17 |
% |
24 |
% |
30 |
% | ||||||
|
APAC (excluding India) |
19 |
% |
18 |
% |
11 |
% | ||||||
|
Latin America |
25 |
% |
18 |
% |
19 |
% | ||||||
Sales and Marketing
We sell our products through a variety of channels, including direct
sales, OEMs, resellers, distributors and system integrators. Our sales and marketing staff, including services and supporting functions,
includes approximately 648 employees in many countries worldwide, who work together with local agents, distributors and OEMs to expand
our business.
We are a supplier to various key OEMs which together accounted
for approximately 5% of our revenues in 2021. System integrators, distributors and resellers accounted for approximately 18% of our revenues
for 2021. We are focusing our efforts on direct sales, which accounted for approximately 77% of our revenues for 2021. We also plan
to develop additional strategic relationships with equipment vendors, global and local system integrators, distributors, resellers, networking
companies and other industry suppliers with the goal of gaining greater access to our target markets.
Marketing plays an important role in promoting Ceragon’s
products, solutions and services, and ultimately establishing its leadership and differentiation in the market. Ceragon’s key marketing
activities include the following:
| • |
Proactively planning and executing marketing campaigns and developing content as well as communications material to promote the Ceragon
products, solutions and services to customers and prospects over the entire course of the sales-cycle. Activities include advertising,
e-mail, press releases, newsletters, marketing collateral (white papers, e-books, brochures, case studies, etc.), blogs, promotional videos
and more. This content is produced and written with search engine optimization in mind to ensure Ceragon high ranking in customer organic
search results. |
| • |
Organizing and running exhibitions, seminars and events. This goes far beyond the mere planning the logistics of the event, but customizing
messaging for target audience, creating event materials, such as displays, presentations, animated videos, demos, and most importantly
promoting the event to customers and prospects to ensure successful attendance and secure customer meetings. |
Following the outbreak of the COVID-19 pandemic, we have developed
remote marketing tools such as webinars, live-demos, remote seminars and enhanced the use of digital tools and remote marketing activities.
41
Manufacturing and Assembly
Our manufacturing process consists of materials planning and procurement,
assembly of indoor units and outdoor units, final product assurance testing, quality control and packaging and shipping. With the goal
of streamlining all manufacturing and assembly processes, we have implemented an outsourced, just-in-time manufacturing strategy that
relies on contract manufacturers to manufacture and assemble circuit boards and other components used in our products and to assemble
and test indoor units and outdoor units for us. The use of advanced supply chain techniques has enabled us to increase our manufacturing
capacity, reduce our manufacturing costs and improve our efficiency.
We outsource most of our manufacturing operations to major contract
manufacturers in Israel and Singapore, and currently explore the establishment of additional manufacturing lines and RMA centers in the
Philippines and India, respectively. Most of our warehouse operations are outsourced to subcontractors in Israel, the Netherlands, the
United States and Singapore. The raw materials (components) for our products come primarily from the United States, Europe and Asia Pacific.
We comply with standards promulgated by the International Organization
for Standardization and have received certification under the ISO 9001, ISO 14001, ISO 27001 and OHSAS 18001 standards. These standards
define the procedures required for the manufacture of products with predictable and stable performance and quality, as well as environmental
guidelines for our operations and safety assurance.
Our activities in Europe require that we comply with European Union
Directives with respect to product quality assurance standards and environmental standards including the “RoHS” (Restrictions
of Hazardous Substances) Directive.
Additionally, we apply and maintain a conflict mineral policy with
respect to the sourcing of metal parts containing tin, tungsten, tantalum and gold, also referred to as 3TG, in addition to other
trade compliance policies.
Research and Development
We place considerable emphasis on research and development to improve
and expand the capabilities of our existing products, to develop new products, with particular emphasis on equipment for increasing the
transmitted capacity and effective bandwidth utilization, and to lower the cost of producing both existing and future products. We intend
to continue to devote a significant portion of our personnel and financial resources to research and development. As part of our product
development process, we maintain close relationships with our customers to identify market needs and to define appropriate product specifications.
In addition, we intend to continue to comply with industry standards and we are full members of the European Telecommunications Standards
Institute in order to participate in the formulation of European standards.
Our research and development activities are conducted mainly at
our facilities in Tel Aviv, Israel, but also at our subsidiaries in Greece and Romania. As of December 31, 2021, our research, development
and engineering staff consisted of 229employees globally. Our research and development team include highly specialized engineers and technicians
with expertise in the fields of millimeter-wave design, modem and signal processing, data communications, system management and networking
solutions.
Our research and development department provide us with the ability
to design and develop most of the aspects of our proprietary solutions, from the chip-level, including both application specific integrated
circuits, or ASICs and RFICs, to full system integration. Our research and development projects currently in process include extensions
to our leading IP-based networking product lines and development of new technologies to support future product concepts. In addition,
our engineers continually work to redesign our products with the goal of improving their manufacturability and testability while reducing
costs.
To further expand global business footprint, Ceragon has recently
entered into an agreement with a leading industry partner. The agreement calls for a development program, wherein the companies will leverage
Ceragon’s experience and unique capabilities in microwave and millimeter-wave communications, to develop baseband technologies,
which will further accelerate innovation and deliver premium cutting-edge solutions for 5G wireless transport.
42
Intellectual Property
To safeguard our proprietary technology, we rely on a combination
of patent, copyright, trademark and trade secret laws, confidentiality agreements and other contractual arrangements with our customers,
third-party distributors, consultants and employees, each of which affords only limited protection. We have a policy which requires all
of our employees to execute employment agreements which contain confidentiality provisions.
To date, we have 19 patents granted in the United States and other
foreign jurisdictions including the EPO (European Patent Office) and 2 patent applications pending in the United States and other foreign
jurisdictions including the EPO.
We have registered trademarks as follows:
| • |
for the standard character mark Ceragon Networks in Canada; |
| • |
for the standard character mark CERAGON, national registrations in Morocco, Malaysia, Indonesia (under the name of Ceragon Networks
AS), Japan, Israel, Mexico, the United States, South Africa, the Philippines, Argentina, Venezuela, Peru, Canada, Nigeria, Brazil and
Colombia, United Kingdom and India, and International Registration (protection granted in Australia, Iceland, Bosnia & Herzegovina,
Korea, Switzerland, Croatia, Norway, Russia, China, Ukraine, CTM (European Union), Turkey, Singapore, Macedonia, Egypt, Kenya and Vietnam);
|
| • |
for our design mark for FibeAir in the United States, Israel, United Kingdom and the European Union; |
| • |
for the standard character mark FibeAir in the United States; and |
| • |
for the standard character mark CeraView in Israel, United Kingdom and the European Union. |
Competition
The market for wireless equipment is rapidly evolving, fragmented,
highly competitive and subject to rapid technological change. We expect competition, which may differ from region to region, to persist
in the future - especially if rapid technological developments occur in the broadband wireless equipment industry or in other competing
high-speed access technologies.
We compete with a number of wireless equipment providers worldwide
that vary in size and in the types of products and solutions they offer. Our primary competitors include large wireless equipment manufacturers
referred to as generalists, such as Huawei Technologies Co., Ltd., L.M. Ericsson Telephone Company, NEC Corporation, Nokia and ZTE Corporation.
In addition to these primary competitors, a number of other smaller wireless transport equipment suppliers, including Aviat Networks Inc.,
SIAE Microelectronica S.p.A, and Intracom telecom, offer and develop products that compete with our products.
We also expect consolidation pressure to continue as the wireless
equipment market continues to be highly competitive and, as a result, we face price pressures. We expect to continue to be a leader in
the “best-of-breed” market segment of the wireless transport market in terms of market share, technology and innovation, providing
significant value to our customers.
Further market dynamics may drive some operators, which seek “best-of-breed”
solutions, to seek “bundled” network solutions from the generalists. This trend may put an additional strain on our competitiveness.
We believe we compete favorably based on:
| • |
The diversification of our technologies and capabilities, which allows flexible vertical integration options, including the development
of the core technology – RFIC and modems, including SoC (System on Chip); |
| • |
our focus and active involvement in shaping next generation standards and technologies, which deliver best customer value;
|
| • |
our product performance, reliability and functionality, which assist our customers to achieve the highest value; |
| • |
the range and maturity of our product portfolio, including the ability to provide solutions in every widely available microwave and
millimeter-wave licensed and license-exempt frequency, as well as our ability to provide both IP and circuit switch solutions and therefore
to facilitate a migration path for circuit-switched to IP-based networks; |
43
| • |
our deign to cost structure; |
| • |
our time-to-market advantage, due to having our own technology and our own chipsets; |
| • |
our focus on high-capacity, point-to-point microwave and millimeter-wave technologies, which allows us to quickly adapt to our customers’
evolving needs; |
| • |
the range of rollout services offering for faster deployment of an entire network and reduced total cost of ownership; |
| • |
our support and technical service, experience and commitment to high quality customer service, and |
| • |
our ability to expand to other vertical markets such as oil and gas and public safety, by drawing upon the capabilities of our technologies
and solutions. |
The Israel Innovation Authority.
The government of Israel encourages research and development projects
in Israel through the IIA, formerly known as the Israeli Office of Chief Scientist, pursuant to the provisions of the R&D Law
and subject thereto. We received grants from the IIA for several projects and may receive additional grants in the future.
Under the terms of certain IIA plans, a company may be required
to pay royalties ranging between 3% to 6% of the revenues generated from its products or services incorporating know-how developed
with, or are a derivative of, funds received from the IIA (“IIA Products”), until 100%
of the dollar value of the grant is repaid (plus LIBOR interest applicable to grants received on or after January 1, 1999).
The R&D Law requires that the manufacturing of IIA Products
be carried out in Israel, unless the IIA provides its approval to the contrary. Such approval may only be granted under various conditions
and entails repayment of increased royalties equal to up to 300% of the total grant amount, plus applicable interest, depending on the
extent of the manufacturing that is to be conducted outside of Israel. In any case, IIA Products manufactured abroad carry an increase
of 1% in the royalty rate.
The R&D Law also provides that know-how (and its derivatives)
developed with, or that is a derivative of, funds received from the IIA and any right derived therefrom may not be transferred to third
parties, unless such transfer was approved in accordance with the R&D Law. The research committee operating under the IIA may approve
the transfer of know-how between Israeli entities, provided that the transferee undertakes all the obligations in connection with the
R&D grant as prescribed under the R&D Law. In certain cases, such research committee may also approve a transfer of know-how outside
of Israel, in both cases subject to the receipt of certain payments, calculated according to a formula set forth in the R&D Law, in
amounts of up to six (6) times the total amount of the IIA grants, plus applicable interest (in case of transfer outside of Israel), and
three (3) times of such total amount, plus applicable interest, (in case sufficient R&D activity related to the know how remains in
Israel). Such approvals are not required for the sale or export of any products resulting from such R&D activity.
Further, the R&D Law imposes reporting requirements on certain
companies with respect to changes in the ownership of a grant recipient. The grant recipient, its controlling shareholders, and foreign
interested parties of such companies must notify the IIA of any change in control of the grant’s recipient or the holdings of the
“means of control” of the recipient that result in an Israeli or a non-Israeli becoming an interested party directly in the
recipient. The R&D Law also requires the new interested party to undertake to comply with the R&D Law. For this purpose, “control”
means the ability to direct the activities of a company (other than any ability arising solely from serving as an officer or director
of the company), including the holding of 25% or more of the “means of control”, if no other shareholder holds 50% or more
of such “means of control.” “Means of control” refers to voting rights or the right to appoint directors or the
chief executive officer. An “interested party” of a company includes a holder of 5% or more of its outstanding share capital
or voting rights, its chief executive officer and directors, someone who has the right to appoint its chief executive officer or at least
one director, and a company with respect to which any of the foregoing interested parties owns 25% or more of the outstanding share capital
or voting rights or has the right to appoint 25% or more of the directors. Accordingly, in certain cases, any non-Israeli who acquires
5% or more of our ordinary shares may be required to notify the IIA that it has become an interested party and to sign an undertaking
to comply with the R&D Law. In addition, the rules of the IIA may require additional information or representations with respect to
such events.
44
In December 2006, we entered into an agreement with IIA (then the
Office of the Chief Scientist at the Ministry of Economy) to conclude our research and development grant programs sponsored by the IIA.
Under the agreement, we were obligated to repay the IIA approximately $11.9 million in outstanding grants, in six semiannual installments
from 2007 through 2009. During the second quarter of 2008, we paid the IIA approximately $7.4 million to retire all the debt remaining
from this agreement. Nevertheless, we continue to be subject to the obligations and restrictions under the R&D Law and the IIA regulations,
including regarding transfer of know-how and manufacturing outside of Israel, in respect to these grants.
Generic Program Grants.
In each of 2013 and 2014 we received approval for a new R&D grant from the IIA in amounts of approximately $0.7 million and $0.9 million
respectively, under a generic program (the “Generic Plan”). Additionally, and under such plan, in 2015 we received approval
for new R&D grants in the amount of approximately $0.6 million, and in 2016, 2017 and 2018 we received approval for grants in a total
amount for the three years, of approximately $1.4 million. In 2019 and 2020 we received approval for additional grants under the Generic
Plan, in the frame of which we expect to receive a total amount of approximately $ 1.3 million. The Generic Plan requires us to comply
with the requirements of the R&D Law in the same manner applicable to previous grants, provided, however, that the obligation to pay
royalties on sales of products based on technology or know how developed with the Generic Plan may apply, under certain conditions, to
a recipient of the technology or knowhow developed with the Generic Plan, to the extent such is sold and/or transferred, while the Company’s
self-sales of its products without such transfer, do not bear royalty payment obligations. In addition, we may manufacture part of the
products developed under the program outside of Israel, up to the percentages declared in our applications for such grants.
Magnet Program Grants.
In March 2014, we participated in two “Magnet” Consortium Programs (the “Magnet Programs”) sponsored by the IIA.
Under the Magnet Programs, which is intended to support innovative generic industry-oriented technologies, we cooperated with additional
companies and research institutes. In the years 2016, 2017 and 2018 we received an approval from the IIA for a sum of $3.8 million in
the aggregate, under the Magnet Programs. The R&D Law applies to the Magnet Programs, including the restrictions on transfer of know
how or manufacturing outside of Israel, as described above. In addition, certain restrictions resulting from Magnet Programs’ internal
agreements between the consortium members may apply.
Other Plans and Programs.
In 2020 we joined as a member to an Industrial consortium called
“WIN – Wireless Intelligent Networks Consortium” under a MAGNET consortium. In the framework of this project we (Ceragon
only) received an approval for a grant of approximately $0.6 million for the period from March 2020 until September 2021. In May 2021
we received, under the second stage of the plan, an additional amount of $0.6 million (and, in the aggregate, grant of $1.2 million)
under the MAGNET consortium.
In 2020 we signed with Ariel University a Research and License
Agreement under the MAGNETON Plan. In the framework of this project the IIA approved to grant us an amount of $0.3 million for the year
2020. In 2021 the IIA approved, under the second stage of the plan, an additional amount of $0.3 million for the year 2021.
In 2021 we submitted an application under the Promoting Applies
Research in Academia (NOFAR). Under this project, we support a development plan of Ariel University and fund 10% of this plan (the IIA
grants the other 90%). Under this plan, we will not get any grant from the IIA.
In March 2022 we submitted an application together with Bar-Ilan
University under the MAGNETON Plan. If this application is approved, we are expected to receive an amount of approximately $0.5 million
for the whole two years project.
In addition, we are currently planning to submit two additional
applications under the MAGNETON Plan, one with Tel-Aviv University and second with the Technion, under which and if these applications
are approved, we are expected to receive an amount of approximately $0.5 million for each project.
The WIN, MAGNETON and NOFAR programs do not bear royalty payment
obligations to the IIA, but may be subject to certain commercial arrangements among the participants thereof.
45
The publication of the LIBOR is scheduled to cease throughout a
period commencing December 31, 2021 and ending upon June 30, 2023. Consequently, throughout that term, alternative interests will be applied
on, among other things, the grants that the Company received from the IIA. While the effect that the replacement of the LIBOR interest
will have on the Company remains uncertain as of the date of this annual report on Form 20-F, as the IIA has not yet published the alternative
interest that will be applied by it, the Company assesses that such change will not have a material effect on its operations and financial
condition in light of the common interests in the market.
C. Organizational
Structure
We are an Israeli company that commenced operations in 1996. The
following is a list of our significant subsidiaries:
|
Company |
Place of Incorporation |
Ownership Interest |
|||
|
Ceragon Networks, Inc. |
New Jersey |
100 |
% | ||
|
Ceragon Networks (India) Private Limited |
India |
100 |
% |
D. Property,
Plants and Equipment
Our corporate headquarters and principal administrative, finance
and operations departments is located at Nitsba Park at Rosh Ha’Ain, Israel, at which we hold a leased facility of approximately 66,600
square feet of office space and approximately 5,800 square feet of warehouse space.
We also lease the following space at the following properties:
| • |
in the United States, we lease approximately 8,200 square feet of office and warehouse space in Richardson, Texas, expiring March
2024. |
| • |
in India, we lease approximately 9,800 square feet of office space in New Delhi, expiring in December 2024. |
• in Romania, we lease
approximately 20,000 square feet of office and space in Bucharest, expiring in November 2023.
We also lease space for other local subsidiaries to conduct pre-sales
and marketing activities in their respective regions.
| ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion and analysis should be read in conjunction
with our consolidated financial statements, the notes to those financial statements, and other financial data that appear elsewhere
in this annual report. In addition to historical information, the following discussion contains forward-looking statements based
on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly
from those projected in such forward-looking statements due to a number of factors, including those set forth in “Risk Factors”
and elsewhere in this annual report. Our consolidated financial statements are prepared in conformity with U.S. GAAP.
46
For a discussion of our results of operations for the year ended December 31, 2019,
including a year-to-year comparison between 2020 and 2019, and a discussion of our liquidity and capital resources for the year ended
December 31, 2019, refer to Item 5. “Operating and Financial Review and Prospects” in our Annual Report on Form
20-F for the year ended December 31, 2020.
A.
Operating Results
Overview
We are the number one wireless transport specialist in terms of
unit shipments and global distribution of our business. We provide wireless transport solutions that enable cellular operators and other
wireless service providers to serve a broad range of use-cases, including mobile broadband, fixed broadband, Industrial and other IoT
services. Our solutions use microwave and millimeter wave technology to transfer large amounts of telecommunication traffic between base
stations and small/distributed-cells and the core of the service provider’s network.
We also provide our solutions to other non-carrier vertical markets
such as oil and gas companies, public safety network operators, businesses and public institutions, broadcasters, energy utilities and
others that operate their own private communications networks. Our solutions are deployed by more than 460 service providers, as well
as more than 1,500 private network owners, in over approximately 140 countries.
Industry Trends
Market trends have placed, and will continue to place, pressure
on our products. Our objective is to continue to meet the demand for our solutions while at the same time increasing our profitability.
We seek to achieve this objective by constantly reviewing and improving our execution in, among others, development, manufacturing and
sales and marketing. Set forth below is a more detailed discussion of the trends affecting our business:
| • |
Sudden and wide widespread surge in network traffic in 2020 and 2021 emerging from COVID-19 pandemic continues to cause global change
to the way business and individuals access information for work and leisure. The result of national lock-ins for large parts of the population
brings many businesses to exercise company-wide work-from-home with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is a sudden and sharp increase in home broadband demand, while today’s home broadband networks are not designed
for such usage patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result,
service providers are required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate
that the increase in network traffic which service providers are experiencing today amidst the pandemic will remain and even increase,
as companies and employees adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions
of the world population, young and elderly alike, use highly visual remote communication tools and high volume communication transactions.
|
| • |
5G will enable operators to enhance their services portfolio with more use cases such
as enhanced mobile broadband (eMBB) delivering gigabit broadband, as well as address new market segments such as IoT & IIoT and mission
critical applications with URLLC (Ultra Reliable Low Latency Communications) and mMTC (Massive Machine Type Communications) services.
Those services, combined with new network architectures will require higher capacity, lower latency networks and in particular higher
transport capacity, far denser macro cells and small/distributed cells grids and the implementation of network virtualization technologies
and architectures, namely network slicing using SDN. Our wireless transport solutions resolve both higher capacity, lower latency and
network densification requirements with advanced capabilities, based on our multicore™ technology for microwave narrowband spectrum
(up to 224Mhz) and the use of wider bands in millimeter-wave spectrum, up to 2,000MHz. Network virtualization requirements are addressed
with layer 3 capabilities and SDN support. |
| • |
OPEN RAN transforms Radio Access Network (RAN) technology from design to operation of the network. OPEN RAN creates the possibility
of an open RAN environment, with interoperability between different vendors over defined interfaces. |
47
In a legacy mobile network ecosystem, RAN is proprietary where
a single vendor provides proprietary radio hardware, software, and interface to enable the mobile network to function.
| • |
RAN ecosystem is evolving towards proving the competitive landscape of RAN supplier ecosystem and network operators embracing the
transformation. Opening up RAN horizontally brings in a new range of low-cost radio players, and it gives mobile operators a choice to
optimize deployment options for specific performance requirements at a much better cost. |
This trend is expected to increase the size of Best-of-Breed segment
(on the account of the end-to-end market segment) that Ceragon is focusing on.
| • |
Software Defined Networking (SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and may be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
| • |
The emergence of distributed cells presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements. |
| • |
The introduction of a disaggregated model for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. |
| • |
The network sharing business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained. |
| • |
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading,
or “modernizing” existing cell-sites to fit new services with a lower total cost of
ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance,
capacity and service support. For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace
costly antennas, which are already deployed. In doing so, we help our customers to reduce the time and the costs associated with network
upgrades. The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue. |
| • |
A growing market for non-mobile backhaul applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale. |
| • |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and eventually 5G services. |
48
| • |
Subscriber growth continues mainly in emerging markets such as India, Africa and Latin America.
|
We
are also experiencing pressure on our sale prices as a result of several factors:
| • |
Increased competition. Our target market is characterized by vigorous, worldwide competition for market share and rapid technological
development. These factors have resulted in aggressive pricing practices and downward pricing pressures and growing competition.
|
| • |
Regional pricing pressures. A significant portion of our sales derives from India, in response to the rapid build-out of cellular
networks in that country. For the years ended December 31, 2020 and 2021, 23.6% and 29.6%, respectively, of our revenues were earned in
India. Sales of our products in these markets are generally at lower gross margins in comparison to other regions. Recently, network operators
have started to share parts of their network infrastructure through cooperation agreements, which may adversely affect demand for network
equipment. |
| • |
Transaction size. Competition for larger equipment orders is increasingly intensifying due to the fact that the number of large equipment
orders in any year is limited. Consequently, we generally experience greater pricing pressure when we compete for larger orders as a result
of this increased competition and demand from purchasers for greater volume discounts. As an increasing portion of our revenues is derived
from large orders, we believe that our business will be more susceptible to these pressures. |
As
we continue to focus on operational improvements, these price pressures may have a negative impact on our gross margins.
As we continue to adjust our geographic footprint, we are increasingly
engaged in supplying installation and other services for our customers, often in emerging markets. In this context, we may act as the
prime contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services
required for these projects, or we may provide such services and equipment for projects handled by system integrators. In such cases,
we typically bear the risks of loss and damage to our products until the customer has issued an acceptance certificate upon successful
completion of acceptance tests. If our products are damaged or stolen, or if the network we install does not pass the acceptance tests,
the end user or the system integrator, as the case may be, could delay payment to us and we would incur substantial costs, including fees
owed to our installation subcontractors, increased insurance premiums, transportation costs and expenses related to repairing or manufacturing
the products. Moreover, in such a case, we may not be able to repossess the equipment, thus suffering additional losses. Also, these projects
are rollout projects, which involve fixed-price contracts. We assume greater financial risks on fixed-price projects, which routinely
involve the provision of installation and other services, versus short-term projects, which do not similarly require us to provide services
or require customer acceptance certificates in order for us to recognize revenue. In addition, as most of our deliveries occur before
we are able to collect the consideration for such projects, it poses further financial and customer credit risk, as well as liquidity
risks of such customers.
In 2020, revenues decreased due to the impact of COVID-19 on our
business, especially in Latin America. We were also impacted to a lesser extent by revenue decreases in APAC, North America and Africa,
and revenue increases in India and Europe. In 2021, revenues increased all over the world, except for Asia-Pacific & Middle East,
which experienced major decrease in revenues and in lesser extent in Africa. The increase in revenues was mainly in India, North America
and Latin America and in lesser extent in Europe.
In addition, the COVID-19 pandemic has adversely affected the industry
trend, while creating macro-economic uncertainty and disruption in the business and financial markets. Many countries around the world,
including Israel, have been taking measures designated to limit the spread of the COVID-19, including the closure of workplaces, restricting
travel, prohibiting assembling, closing international borders and quarantining populated areas. Such measures dramatically affect our
ability and the ability of other vendors, suppliers, operators and industries in this market to conduct their business effectively, including,
but not limited to adverse effect on employees health, increase in lead times and shipping costs, a slowdown of manufacturing, commerce,
delivery, work, travel, collect payments and other activities which are essential and critical for maintaining on-going business activities.
There is still uncertainty around the spread of new variants of COVID-19 and volatility in the pandemic dispersion, the relaxation of
protective measures and duration of the limitation on the ability to travel, sell, distribute and install products and other disruptions
to our operations, all of which would have a negative impact on the market trend detailed above. In addition, the duration of these effects
has macro and micro negative effects on the financial markets and global economy which might adversely affect our business.
49
Results of Operations
Revenues. We generate revenues
primarily from the sale of our products, and, to a lesser extent, services. The final price to the customer may largely vary based on
various factors, including but not limited to the size of a given transaction, the geographic location of the customer, the specific application
for which products are sold, the channel through which products are sold, the competitive environment and the results of negotiation.
Cost of Revenues. Our cost
of revenues consists primarily of the prices we pay contract manufacturers for the products they manufacture for us, the costs of off
the shelf parts, accessories and antennas, the costs of our manufacturing facilities, estimated warranty costs, costs related to management
of our manufacturing facilities, supply chain and shipping, as well as inventory write-off costs and amortization of intangible assets.
In addition, we pay salaries and related costs to our employees and fees to subcontractors relating to installation services with respect
to our products.
Significant Expenses
Research and Development Expenses,
net. Our research and development expenses, net of government grants, consist primarily of salaries and related costs for research
and development personnel, subcontractors’ costs, costs of materials and depreciation of equipment. All of our research and development
costs are expensed as incurred, except for development expenses, which are capitalized in accordance with ASC 985-20 and ASC 350-40. We
believe that continued investment in research and development is essential to attaining our strategic objectives.
Sales and Marketing Expenses.
Our sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, trade show
and exhibit expenses, travel expenses, commissions and promotional materials.
General and Administrative Expenses.
Our general and administrative expenses consist primarily of compensation and related costs for executive, finance, information system
and human resources personnel, professional fees (including legal and accounting fees), insurance, provisions for credit loss (doubtful
debts) and other general corporate expenses.
Financial expenses and others,
net. Our financial expenses and others, net, consists primarily of gains and losses arising from the re-measurement of transactions
and balances denominated in non-dollar currencies into dollars, gains and losses from our currency hedging activity, interest paid on
bank loans, other fees and commissions paid to banks, actuarial losses and other expenses.
Taxes. Our taxes on income
(benefit) consist of current corporate tax expenses in various locations and changes in tax deferred assets and liabilities, as well as
reserves for uncertain tax positions.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the U.S (“U.S. GAAP”). These accounting principles require management to
make certain estimates, judgments and assumptions based upon information available at the time they are made, historical experience and
various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect
the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues
and expenses during the periods presented.
Our management believes the accounting policies that affect its
more significant judgments and estimates used in the preparation of its consolidated financial statements and which are the most critical
to aid in fully understanding and evaluating our reported financial results include the following:
| • |
Revenue recognition; |
50
| • |
Inventory valuation; and |
| • |
Provision for credit loss (doubtful debts). |
Revenue recognition We
generate revenues from selling products and services to end users, distributors, system integrators and original equipment manufacturers
(“OEM”). The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products
or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following
five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction
price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance
obligation is satisfied.
The Company considers customer purchase orders, which in some
cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise
to transfer tangible products, software products and licenses, network roll-out, professional services and customer support, each of which
are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price
is subject to any variable consideration, to determine the net consideration which the Company expects to receive. As the Company’s
standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction
price to each distinct performance obligation, based on their relative standalone selling price. Revenue from tangible products is recognized
when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied).
The revenues from customer support and extended warranty is recognized
ratably over the contract period and the costs associated with these contracts are recognized as incurred. Revenues from network roll-out
and professional services are recognized when the Company's performance obligation is satisfied, usually upon customer acceptance.
The Company accounts for rebates and stock rotations provided to
customers as variable consideration, based on historical analysis of credit memo data, rebate plans and stock rotation arrangements, as
a deduction from revenue in the period in which the revenue is recognized.
Inventory valuation. Our
inventories are stated at the lower of cost or realizable net value. Cost is determined by using the moving average cost method. At each
balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes an analysis of
slow-moving items and sales levels by product and projections of future demand. If needed, we write off inventories that are considered
obsolete or excessive. If future demand or market conditions are less favorable than our projections, additional inventory write-offs
may be required and would be reflected in cost of revenues in the period the revision is made.
Provision for credit loss.
We are exposed to credit losses primarily through sales to customers. Our provision for credit loss methodology is developed using historical
collection experience, current and future economic and market conditions and a review of the current balances status. The estimate of
amount of trade receivable that may not be collected is based on the geographic location of the trade receivable balances, aging of the
trade receivable balances, the financial condition of customers and the Company’s historical experience with customers in similar
geographies. Additionally, a specific provision is recorded for customers that have a higher probability of default.
Impact of recently adopted accounting standards
In November
2021, the FASB issued ASU 2021-10, ASC Topic 832 “Disclosures by Business Entities about Government Assistance”. The standard
require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution
accounting model by analogy: (1) Information about the nature of the transactions and the related accounting policy used to account for
the transactions; (2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts
applicable to each financial statement line item; and (3) Significant terms and conditions of the transactions, including commitments
and contingencies. The standard will become effective for fiscal years beginning after December 15, 2021. The Company is currently assessing
the impact of the adoption of this standard on its consolidated financial statements.
51
Comparison of Period to Period Results of Operations
The following table presents consolidated statement of operations
data for the periods indicated as a percentage of total revenues.
|
Year Ended December 31 |
||||||||
|
2020 |
2021 |
|||||||
|
Revenues |
100 |
% |
100 |
% | ||||
|
Cost of revenues |
71.2 |
69.6 |
||||||
|
Gross profit |
28.8 |
30.4 |
||||||
|
Operating expenses: |
||||||||
|
Research and development, net |
11.8 |
10.1 |
||||||
|
Sales and marketing |
12.6 |
11.5 |
||||||
|
General and administrative |
7.3 |
7.1 |
||||||
|
Total operating expenses |
31.7 |
28.7 |
||||||
|
Operating income (loss) |
(2.9 |
) |
1.7 |
|||||
|
Financial expenses and others, net |
2.2 |
3.0 |
||||||
|
Taxes on income |
1.0 |
3.8 |
||||||
|
Equity loss in affiliates |
0.4 |
- |
||||||
|
Net loss |
(6.5 |
) |
(5.1 |
) | ||||
Year ended December 31, 2020 compared to year
ended December 31, 2021 -
Revenues. Revenues totaled
$290.8 million in 2021 as compared to $262.9 million in 2020, an increase of $27.9 million, or 10.6%. Revenues in Latin America increased
to $54.6 million in 2021, from $46.7 million in 2020. Revenues in APAC decreased to $32.0 million in 2021, from $47.7 million in 2020.
Revenues in North America increased to $47.5 million in 2021, from $38.2 million in 2020. Revenues in Africa decreased to $23.2 million
in 2021, from $23.5 million in 2020. Revenues in Europe increased to $47.4 million in 2021, from $44.8 million in 2020. Revenues in India
increased to $86.1 million in 2021 from $62.0 million in 2020.
Cost of Revenues. Cost
of revenues totaled $202.4 million in 2021 as compared to $187.2 million in 2020, an increase of $15.2 million, or 8.1%, attributed mainly
due to:
| • |
Increase of $9.2 million relates to higher material costs, primarily due to higher volume of revenues as well as increased cost of
some components; |
| • |
Increase of $3.3 million due to higher shipping and storage costs. |
| • |
Increase of $2.2 million in services costs primarily due to the Orocom project. |
| • |
Increase of $0.2 million relates to travel expenses. |
| • |
Gross Profit. Gross profit as a percentage of revenues increased to 30.4% in 2021 from 28.8%
in 2020. This increase is mainly attributed to higher revenues which was partially offset by increased cost of some components and increased
shipping costs as a result of COVID-19 environment. |
Research and Development Expenses, Net.
Our net research and development expenses totaled $29.5 million in 2021 as compared to $31.0 million in 2020, resulting in a decrease
of $1.5 million, or 4.8%. The decrease was mainly as a result of $1.8 million intangibles write-off in 2020 and $1.2 million in
salaries and related expenses offset by an increase due to $0.7 million of depreciation expenses, increase of $0.5 million in other research
and development expenses and $0.3 million in IIA (Israel Innovation Authority) grants.
Our research and development efforts are a key element of our strategy
and are essential to our success. We intend to maintain or slightly increase our commitment to research and development, and an increase
or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and
development expenditures. As a percentage of revenues, research and development expenses decreased to 10.1% in 2021 compared to 11.8%
in 2020.
52
Sales and Marketing Expenses.
Sales and marketing expenses totaled $33.5 million in 2021 as compared to $33.0 million in 2020, an increase of $0.5 million, or 1.5%.
This increase was primarily attributed to an increase of $0.7 million in commission expenses, an increase of $0.4 in others sales and
marketing expenses, an increase of $0.2 in direct sales and marketing expenses, an increase of $0.2 in software and hardware maintenance
expenses and increase of $0.2 in consultancy expenses, offset by a decrease of $0.7 relates to forgiveness of Paycheck Protection Program
loan, a decrease of $0.2 million in travel costs and decrease of $0.2 million in salary and related expenses. As a percentage of revenues,
sales and marketing expenses were 11.5% in 2021 compared to 12.6% in 2020.
General and Administrative Expenses.
General and administrative expenses totaled $20.6 million in 2021 as compared to $19.2 million in 2020, an increase of $1.4 million, or
7.3%. The increase was primarily due to an increase of $0.8 million for retired CEO compensation, an increase of $0.6 million in share
based compensation, an increase of $0.5 million in other general and administrative expenses, an increase of $0.4 million in depreciation
expenses, an increase of $0.3 million in lawsuits expenses and increase of $0.3 million in software and hardware maintenance expenses,
an increase of $0.2 million related to consultants' fees, offset by a decrease of $1.8 million related to credit losses expenses. As a
percentage of revenues, general and administrative expenses were 7.1% in 2021, compare to 7.3% in 2020.
Financial expenses and others,
Net. Financial expenses and others, net totaled $8.6 million in 2021 as compared to $5.9 million in 2020, an increase of $2.7 million,
or 45.8%. This increase was mainly attributable to an increase of $1.4 related to exchange rate differences, an increase of $0.8 million
resulting from bank guaranties returned to the Company in 2020, an increase of $0.4 million of bank commissions and increase of $0.2 million
in interest expenses. As a percentage of revenues, financial expenses and others, net, were 3.0% in 2021 compared to 2.2% in 2020.
Taxes on income. Tax expenses
were $11.0 million in 2021 as compared to tax expenses of $2.6 million in 2020, resulting in an increase of $8.4 million. This increase
was mainly attributable to an increase of $8.8 million due to recognition of full valuation allowance for deferred tax assets, an increase
of $0.2 million in taxes exposures reserves, offset by $0.6 million in our current taxes on income.
Net loss. In 2021, the
Company had $14.8 million in net loss as compared to net loss of $17.1 million in 2020. As a percentage of revenues, net loss was 5.1%
in 2021 compared to net loss of 6.5% in 2020. The decrease was attributable primarily to higher revenues and higher gross profit, partially
offset by higher financial expenses and others, net and higher taxes on income.
Impact of Currency Fluctuations
The majority of our revenues are denominated in U.S. dollars, and
to a lesser extent, in INR (Indian Rupee), Euro, and in other currencies. Our cost of revenues is primarily denominated in U.S. dollars
as well, while a major part of our operating expenses are in New Israeli Shekel (NIS), and to a lesser extent, in Indian INR (Indian Rupee),
Euro, NOK (Norwegian Kroner), BRL (Brazilian Real) and other currencies. We anticipate that a material portion of our operating expenses
will continue to be in NIS.
Fluctuation in the exchange rates between any of these currencies
(other than U.S. dollars) and the U.S. dollar could significantly impact our results of operations as well as the comparability of these
results in different periods. Even in cases where our revenues or our expenses in a certain currency are relatively modest, high volatility
of the exchange rates with the U.S. dollar can still have a significant impact on our results of operations. For example, in recent years
we have suffered a significant adverse impact on our financial results due to fluctuation in the exchange rates of the U.S. dollar compared
to the VEB (Venezuelan Bolivar), NGN (Nigerian Naira) and the ARS (Argentine Peso). We partially reduce this currency exposure by entering
into hedging transactions. The effects of foreign currency re-measurements are reported in our consolidated statements of operations.
For a discussion of our hedging transactions, please see Item 11.” QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK”.
Transactions and balances in currencies other than U.S. dollars
are re-measured into U.S. dollars according to the principles in ASC Topic 830, “Foreign Currency Matters.” Gains and losses
arising from re-measurement are recorded as financial income or expense, as applicable.
53
Effects of Government Regulations and Location on the Company’s
Business
For a discussion of the effects of governmental regulation and
our location in Israel on our business, see Item 3. “KEY INFORMATION” – Risk Factors – “Risks Relating to
Operations in Israel”.
Additionally, due to the nature of our global presence and operations,
we are subject to the law and jurisdiction in the countries where our branches or subsidiaries are located or in which we conduct our
operations. For a discussion of the effects of governmental regulation and our global spread and operation of our business, see Item 3.
“KEY INFORMATION” – Risk Factors – “We are subject to complex and evolving regulatory requirements that
may be difficult and expensive to comply with and that could adversely impact our business, results of operations and financial condition”,
“As part of our business are located throughout Europe, we are exposed to the negative impact of invasion of Ukraine by Russia on
the European markets in which we operate and on our operations”, “Our international operations expose us to the risk of fluctuations
in currency exchange rates and restrictions related to foreign currency exchange controls” and “Due to the volume of
our sales in emerging markets, we are susceptible to a number of political, economic and regulatory risks that could have a material
adverse effect on our business, reputation, financial condition and results of operations”.
| B. |
Liquidity and Capital Resources |
Since our initial public offering in August 2000, we have financed
our operations primarily through the proceeds of that initial public offering, follow-on offerings and grants from the IIA.
In March 2013, the Company was provided with the revolving Credit
Facility (as defined in Exhibit 4.4 of ITEM 19) by four financial institutions.
The Credit Facility was renewed and amended several times during
the past years according to Company’s needs and financial position.
On June 2021, the Credit Facility was amended to extend the term
of the Credit Facility for one year, until June 30, 2022. This amendment also included an increase from $20 million to $35 million
of the allowed factoring facility attributed to a certain customer, which puts the total allowed factoring facility of the Company to
$100 million. The bank guarantees credit lines of $70 million have remained unchanged and the Credit Facility for loans of $50 million
has also remained unchanged. In addition, the Company has a $5 million credit facility from other financial institutions. The June 2021
amendment also includes a change in the Credit Facility agreement related to the definition of tangible common equity to exclude the long-term
lease of the Company’s offices in Rosh Ha’Ayin, Israel, from the tangible common equity. The Credit Facility was last amended
in January 2022 to clarify that the term ‘credit,’ as defined in the Credit Facility, also applies to overdraft facilities
which may be extended to the Company by the banks which are parties to the Credit Facility and also included certain additional conforming
amendments.
As of December 31, 2021, we utilized $11.8 million of the $50 million
credit line available for short term loans. In addition, the Company has a $5 million credit facility from other financial institutions.
As of December 31, 2021, the Company has utilized $3 million of the $5 million available credit facility from other financial institution.
During 2021, the credit lines carry interest rates in the range of Libor+2.1% and Libor+2.5%.
The
Credit Facility is secured by a floating charge over all of our assets as well as several customary fixed charges on specific assets.
Repayment under the Credit Facility can be accelerated by the financial
institutions in certain events of default including insolvency events, failure to comply with financial covenants or an event in which
a current or future shareholder acquires control (as defined under the Israel Securities Law) of the Company.
The Credit
Facility contains financial and other covenants requiring that the Company maintains, among other things, minimum shareholders' equity
value and financial assets, a certain ratio between its shareholders' equity (excluding total intangible assets) and the total value of
its assets (excluding total intangible assets) on its balance sheet, a certain ratio between its net financial debt to each of our working
capital and accounts receivable. As of December 31, 2021 and 2020, we met all of our covenants.
54
As of December 31, 2021, we had approximately $17.1 million in
cash and cash equivalents.
In 2021, our $15.0 million in cash used in operating activities
was affected by the following principal factors:
| • |
our net loss of $14.8 million; |
| • |
$18.1 million increase in trade and other accounts receivable and prepaid expenses; |
| • |
$11.9 million increase in inventories; |
| • |
$4.6 million decrease in operating lease liability; and |
| • |
$0.4 million accrued severance pay and pensions, net. |
These
factors were offset mainly by:
| • |
$12.2 million of depreciation and amortization expenses; |
| • |
$8.3 million increase in deferred tax assets, net; |
| • |
$5.7 million decrease in operating lease right-of-use assets; |
| • |
$4.3 million increase in trade payables, other accounts payable and accrued expenses; |
| • |
$2.6 million share-based compensation expenses; |
| • |
$1.7 million increase in deferred revenues paid in advance; and |
| • |
$0.1 million loss from sale of property and equipment, net. |
In 2020, our $17.2 million in cash provided by operating activities was affected by
the following principal factors:
| • |
$12.9 million of depreciation and amortization expenses; |
| • |
$9.9 million decrease in inventories; |
| • |
$3.9 million increase in trade payables, other accounts payable and accrued expenses; |
| • |
$3.0 million increase in deferred revenues paid in advance; |
| • |
$2.7 million decrease in trade and other receivables, net; |
| • |
$1.7 million share-based compensation expenses; and |
| • |
$0.5 million accrued severance pay and pensions, net. |
These
factors were offset mainly by:
| • |
our net loss of $17.1 million; and |
| • |
$0.2 million increase in deferred tax assets, net. |
Net cash used in investing activities was approximately $9.4 million
for the year ended December 31, 2021, as compared to net cash used in investing activities of approximately $6.5 million for the year
ended December 31, 2020. In the year ended December 31, 2021, our purchase of property and equipment amounted to $9.4 million in addition
to purchase of intangible assets of $0.2 million and proceeds from sale of property and equipment $0.2. In the year ended December 31,
2020, our purchase of property and equipment amounted to $6.1 million in addition to purchase of intangible assets of $0.4 million.
Net cash provided by financing
activities was approximately $14.5 million for the year ended December 31, 2021, as compared to approximately $7.4 million net cash used
in financing activities for the year ended December 31, 2020. In the year ended December 31, 2021, our net cash provided by financing
activities was primarily due to proceeds of a bank loan of $9.8 million and proceeds from share options exercise of $4.7 million. In the
year ended December 31, 2020, our net cash used in financing activities was primarily due to our repayment of a bank loan of $8.6 million
offset by proceeds from share option exercises of $1.2 million.
55
For more details concerning the Company’s commitments, please
see below ITEM 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS; Liquidity and Capital Resources.” –
Our material
cash requirements as of December 31, 2021, and any subsequent interim period, primarily include our capital expenditures, lease obligations
and purchase obligations.
Our
capital expenditures primarily consist of purchases of manufacturing equipment, computers and peripheral equipment, office furniture and
equipment. Our capital expenditures were $11.6 million in 2019, $6.1 million in 2020 and $9.4 million in 2021. We will continue to make
capital expenditures to meet the expected growth of our business.
Our
lease obligations consist of the commitments under the lease agreements for offices and warehouses for our facilities worldwide, as well
as car leases. Our facilities are leased under several lease agreements with various expiration dates. Our leasing expense were $5.7 million
in 2019, $5.5 million in 2020 and $5.0 million in 2021.
Our
purchase obligations consist primarily of commitments for our operating activities and working capital needs. Our operating expenses
were $89.5 million in 2019, $83.2 million in 2020 and $83.6 million in 2021. As of December 31, 2021, the Company has an outstanding
inventory purchase orders with its suppliers in the amount of $ 63,859.
Our
capital requirements are dependent on many factors, including working capital requirements to finance the business activity of the Company,
and the allocation of resources to research and development, marketing and sales activities. We plan on continuing to raise capital as
we may require, subject to changes in our business activities.
We believe that current working capital, cash and cash equivalent
balances together with the Credit Facility available with the four financial institutions, will be sufficient for our expected requirements
through at least the next 12 months.
| C. |
Research and Development |
We place considerable emphasis on research and development to improve
and expand the capabilities of our existing products, to develop new products (with particular emphasis on equipment for emerging IP-based
networks) and to lower the cost of producing both existing and future products. We intend to continue to devote a significant portion
of our personnel and financial resources to research and development. As part of our product development process, we maintain close relationships
with our customers to identify market needs and to define appropriate product specifications. In addition, we intend to continue to comply
with industry standards and, in order to participate in the formulation of European standards, we are full members of the European Telecommunications
Standards Institute.
Our research and development activities are conducted mainly at
our facilities in Rosh Ha’Ayin, Israel, and also at our subsidiaries in Greece and Romania. As of December 31, 2021, our research,
development and engineering staff consisted of 229 employees globally. Our research and development team include highly specialized engineers
and technicians with expertise in the fields of millimeter-wave design, modem and signal processing, data communications, system management
and networking solutions.
Our research and development department provide us with the ability
to design and develop most of the aspects of our proprietary solutions, from the chip-level, including both ASICs and RFICs, to full system
integration. Our research and development projects currently in process include extensions to our leading IP-based networking product
lines and development of new technologies to support future product concepts. In addition, our engineers continually work to redesign
our products with the goal of improving their manufacturability and testability while reducing costs.
56
Intellectual Property
For a description of our intellectual property see Item 4. “INFORMATION
ON THE COMPANY – B. Business Overview - Intellectual Property”.
| D. |
Trend Information |
For a description of the trend information relevant to us see discussions
in Parts A and B of Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS”.
| E. |
Critical Accounting Estimates – see Item 5 “Critical Accounting Policies and
Estimates” above. |
Effect of Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies, in Notes to the Consolidated
Financial Statements in Item 8 of Part II of this Report, for a full description of recent accounting pronouncements, including the expected
dates of adoption and estimated effects on financial condition and results of operations, which is incorporated herein by reference.
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. |
Directors and Senior Management |
The following table lists the name, age and position of each of our current directors
and executive officers:
|
Name |
Age |
Position |
||||
|
Zohar Zisapel |
73 |
Chairman of the Board of Directors | ||||
|
Shlomo Liran(1)
|
71 |
Director | ||||
|
Yael Langer |
57 |
Director | ||||
|
Rami Hadar (1)
|
58 |
Director | ||||
|
Ilan Rosen (1)
|
65 |
Director | ||||
|
David (Dudi) Ripstein (1)
|
55 |
Director | ||||
|
Ira Palti |
64 |
Director | ||||
|
Doron Arazi (2)
|
58 |
Chief Executive Officer | ||||
|
Ran Vered |
44 |
Chief Financial Officer | ||||
|
Oz Zimerman |
58 |
Executive Vice President, Marketing & Corporate Development | ||||
|
Guy Toibin |
49 |
Executive Vice President Chief Information Officer (CIO), IT | ||||
|
Muki Bourla |
47 |
Executive Vice President Global Delivery | ||||
|
Zvi Maayan |
54 |
Executive Vice President, General Counsel & Corporate Secretary | ||||
|
Michal Goldstein |
50 |
Executive Vice President, Global Human Resources | ||||
|
Ram Prakash Tripathi |
54 |
Regional President, India | ||||
|
Adrian Hipkiss |
55 |
Regional President, Europe and Oil & Gas | ||||
|
Mario Querner |
59 |
Regional President, Asia-Pacific and Africa | ||||
|
Ulik Broida (3)
|
54 |
Executive Vice President Products | ||||
|
Ronen Rotstein (4)
|
45 |
Regional President, North America | ||||
|
Carlos Alvarez (5)
|
46 |
Regional President, Latin America | ||||
| (1) |
Independent Director. |
| (2) |
Commenced service on July 17, 2021. |
| (3) |
Commenced service on April 2021. Also started serving as Executive Vice President Products in February 2022. |
| (4) |
Commenced service as a Regional President, North America, on February 2022. |
| (5) |
Commenced service on December 1, 2021. |
57
Set forth
below is a biographical summary of each of the above-named directors and executive officers.
Zohar Zisapel has served
as the Chairman of our Board of Directors since we were incorporated in July 1996. Mr. Zisapel also serves as a director of RADCOM Ltd.,
a public company traded on Nasdaq. Mr. Zisapel founded or invested in many companies in the fields of Communications, Cyber Security and
Automotive and serves as chairman or director of many private companies. Mr. Zisapel received a B.Sc. and a M.Sc. in electrical engineering
from the Technion, Haifa Institute of Technology (“Technion”) and an M.B.A. from the Tel Aviv University.
Shlomo Liran has served
as our director since August 2015, after gaining experience in senior management positions, including in the telecommunication industry. In
October 2016 Mr. Liran was appointed as the CEO of Spuntech Industries Ltd. From July 2014 until January 2015, Mr. Liran served as the
Chief Executive Officer of Hadera Paper Ltd. From 2010 to 2013, Mr. Liran served as the Chief Executive Officer of Avgol Nonwovens Ltd.
During the years 2008 and 2009 Mr. Liran served as the Chief Executive Officer of Ericsson Israel Ltd., and from 2004 to 2007 he served
as Chief Executive Officer of TRE (Scandinavian cellular network) in Sweden and in Denmark. From 2000 to 2003, he served as Chief Executive
Officer of YES Satellite Multi-Channel TV. Prior to that, Mr. Liran spent thirteen years in Strauss as CEO (1995-2000), General Manager
of the Dairy Division (1991-1995) and VP Operations (1987-1991). Mr. Liran holds a B.Sc. in Industrial Engineering from the Technion,
an M. Eng. System Analysis from University of Toronto, Canada and an AMP-ISMP advanced management program from the Harvard Business School. Mr.
Liran is one of our independent directors and is considered a “financial expert” for the purposes of the Nasdaq Rules.
Yael Langer has served as our director since
December 2000. Ms. Langer served as our general counsel from July 1998 until December 2000. Ms. Langer is General Counsel and Secretary
of RAD Data Communications Ltd. and other companies in the RAD-BYNET group. From December 1995 to July 1998, Ms. Langer served as
Assistant General Counsel to companies in the RAD-BYNET group. From September 1993 until July 1995, Ms. Langer was a member of the legal
department of Poalim Capital Markets and Investments Ltd. Ms. Langer received an LL.B. from the Hebrew University in Jerusalem.
Ilan Rosen has served as
our director since July 2021. Mr. Rosen currently serves as Managing Director in HarbourVest Partners LLC, a global private equity firm
with more than 700 employees, that manages about $75B worth of investments in various private equity strategies around the globe. Mr.
Rosen additionally serves as a board member of the “Nazareth District Water and Sewage municipal authority LTD” since 2019.
From 1997-2012 Mr. Rosen served as Chairman of the Board of Tdsoft LTD which later merged into VocalTec. In the years 1996-2003 Mr. Rosen
served as VP of Investments at Teledata Communications, where he was an active Chairman of various Teledata Subsidiaries. From 1993-1996
he served as the CEO of Adsha Development Ltd.. From 1989-1993 Mr. Rosen worked as a Senior Investment Manager at the Bank Hapoalim Investment
Company. In the years 1985-1989 he worked as an economic consultant at A. Twerski Economic Consulting. Mr. Rosen holds a B.Sc. (cum laude)
in Mechanical Engineering from Tel Aviv University in 1979 and an MBA from Tel Aviv University in 1986.
David Ripstein has served
as our director since July 2021. Mr. Ripstein has three decades of experience in senior management positions in Israel’s telecommunications
industry and Israel Defense Force technology and intelligence units. Since 2017, Mr. Ripstein is serving as the President and Chief Executive
Officer of GreenRoad Technologies Ltd., a global leader in fleet safety telematics. In 2016 Mr. Ripstein served the CEO of Spotoption
Technologies a fintech software provider. From 2000-2015, Mr. Ripstein served in various positions in RADCOM, a Nasdaq-traded (RDCM) provider
of service assurance solutions, first for six years as a General Manger and then for nine years as its President & Chief Executive
Officer. Prior to Radcom, Mr. Ripstein co-founded two technology startups and served for 10 years as the head of a large R&D engineering
group within the Israel Defense Forces- Intelligence Unit. Mr. Ripstein holds a B.Sc. in Electrical Engineering from the Technion.
58
Rami Hadar has served as
our director since July 2021. Mr. Hadar serves as a Managing Partner in Claridge Israel, as well as serves on the board of its portfolio
companies: AlgoSec, Gigaspaces, Cloudify, Shopic and D-Fend. In the years 2006 to 2014, Mr. Hadar served as CEO and board member of Allot
Communications. Early in his career Mr. Hadar co-founded and served as the CEO of CTP Systems (micro cellular networks) until its acquisition
by DSP Communications. Mr. Hadar continued with DSPC’s executive management team for two years, and subsequently the company was
acquired by Intel. Thereafter, Mr. Hadar co-founded Ensemble Communications, a pioneer in the broadband wireless space and the WiMax standard,
where he served as Executive Vice President, Sales and Marketing. Following that, Mr. Hadar served as CEO of Native Networks where he
was instrumental in orchestrating the company’s ultimate acquisition by Alcatel. Hadar holds a B.Sc. in Electrical Engineering from
the Technion
Ira Palti has served as
a Director since June 2018 and served as President and Chief Executive Officer from August 2005 to July 2021. From January 2003 to August
2005, Mr. Palti was Chief Executive Officer of Seabridge Ltd., a Siemens company that is a global leader in the area of broadband services
and networks. Prior to joining Seabridge, he was the Chief Operating Officer of VocalTec Communications Ltd., responsible for sales, marketing,
customer support and product development. Among the positions he held before joining VocalTec was founder of Rosh Intelligent Systems,
a company providing software maintenance and AI diagnostic solutions and one of the first startups in Israel. Mr. Palti received a B.Sc.
in mathematics and computer science (magna cum laude) from the Tel Aviv University.
Doron Arazi has served
as our Chief Executive Officer since July 2021. He rejoined Ceragon after taking a year and a half break where he served as CFO of privately
held software companies in the Cyber and Telecom spaces. Mr. Arazi originally joined the company in 2014 as Executive Vice President and
Chief Financial Officer, and in 2016 was appointed Deputy CEO, while continuing to carry the role of Chief Financial Officer. Prior to
joining Ceragon, Mr. Arazi managed the business relationship with a U.S. Tier 1 mobile operator in Amdocs and was responsible for hundreds
of employees. Prior to Amdocs, Mr. Arazi looked after the financial and growth activities of other high-tech companies in the telecommunications
sector, including serving as CFO of Allot Communications and VP of Finance at Verint. Mr. Arazi is a CPA and holds a B.A. degree in Economics
and Accounting as well as an MBA degree focusing on Finance and Insurance, both from the Tel Aviv University.
Ran Vered has served as
our Chief Financial Officer since April 2019. Having over 20 years of experience as a financial executive, Mr. Vered has extensive experience
with publicly traded companies, as well as global organizations. Prior to joining Ceragon, Mr. Vered served as head of accounting and
taxes at Check Point Software Technologies since 2018, and as CFO at Radcom since 2016. His career also included various financial positions
at Amdocs, the latest of which was Director of Finance for the EMEA Division. Prior to 2009, Mr. Vered was co-founder and CFO of an investment
fund, deputy corporate controller at Nur Macroprinters and served as an auditor for KPMG. Mr. Vered holds an M.B.A. in Finance from Tel
Aviv University and a B.A. in Business Administration and Accounting from the College of Management and is certified in Israel as a CPA.
Oz Zimerman has served
as our Executive Vice President Marketing & Corporate Development since January 2021 . He joined the company in March 2013
as Executive Vice President Corporate Development. Oz brings with him over 25 years of global executive business experience in sales,
marketing and business development. From 2008 to 2012, Mr. Zimerman was Corporate Vice President Marketing and Business Development at
DSP Group (DSPG), where he penetrated world leading consumer electronic customers, acquired new technologies, and managed relations with
top executives decision makers at world leading service providers. Prior to joining DSP Group, Oz was Vice President Channels Sales, Business
Development and Strategic Marketing at ECI Telecom, where he defined and implemented exceptional and innovative pricing approach generating
sharp sales increase. Prior to his work at ECI, he was Engagement Manager at Shaldor, a leading management consulting firm. Mr. Zimerman
holds a B.Sc. in Industrial Engineering & Management from NYU University (summa cum laude) and a Master’s degree in Business
Administration & Industrial Engineering from Columbia University.
59
Ulik Broida has served
as our Vice President of Products since January 2019 and following Mr. Yaniv’s end of tenure in March 2021 has joined Ceragon’s
executive management team as Executive Vice President Solutions Management starting in April 2021. In February 2022, Mr. Broida also assumed
the role of Executive Vice President Products. Mr. Broida is responsible for product strategy, innovation and product management, and
leads the company’s Product Management and Global Sales Engineering teams to ultimately support global sales in delivering value
to service providers and mission critical private networks worldwide. Mr. Commencing in February 2022, Mr. Broida also leads the products
research and development from inception and design using innovative, cutting-edge technologies, all the way to high volume production.
Mr. Broida brings over 21 years of experience in strategic marketing and product strategy in the Telecom and IIOT industry. Prior to joining
Ceragon, Mr. Broida served as the VP Marketing at mPrest, where he was responsible for product management, marketing, and business development.
He served as Vice President of Marketing and Business Development at RAD from 2013 to 2016 and held numerous additional VP product management
roles in Wavion (2010-2013), NICE (2006-2010), Alvarion (2000-2006). Mr. Broida holds a B.Sc in electrical engineering from the Technion,
Israel’s Institute of Technology, and a Master’s degree in Business Administration from the Tel Aviv University.
Guy Toibin has served as
our Chief Information Officer since 2017. Mr. Toibin joined Ceragon after four years with Swiss-based “Eden Springs Group”,
where he held the role of Group CIO and Corporate Project Management Officer (PMO). Mr. Toibin led the successful integration of Eden
Springs and Nestle Waters Direct Inc. which made the Eden Group the leading water and coffee company in Europe. Prior to his tenure at
Eden Springs, Mr. Toibin established Information Technology Organizations that became enablers for Business Units to meet and exceed their
goals in high-tech companies such as Retalix (NCR), Verint Systems Inc., and Comverse Technology. Mr. Toibin is a Certified Public Accountant
(CPA), holds a B.A. in Economics and Accounting and a Masters of Law (LLM) from Bar-Ilan University.
Muki Bourla has served
as our Executive Vice-President, Global Delivery since January 2020. In this role, Mr. Bourla is responsible for lifecycle delivery execution,
from production through turn-key deployment, customer support and additional value-added services. Commencing in 2022, Mr. Burla also
assumed responsibilities in engineering and quality assurance, while bridging the way from R&D to designed-to-cost mass production.
Mr. Bourla brings more than 20 years of operational and business leadership, including vast international and cross-cultural experience,
working with diverse customer base. Between 2009 and 2014, as part of his 15-year career at Ericsson, Mr. Bourla was based in Europe where
he successfully led large scale multidisciplinary turnkey projects, system integration programs, services business development and complicated
transformations, with an innovative, result oriented and proactive approach to targets, opportunities and challenges. Mr. Bourla holds
a B.Sc. in Industrial and Management Engineering and an MBA in Business Management from Ben-Gurion University.
Zvi Maayan has served as
our Executive Vice-President, General Counsel and Corporate Secretary since November 2019. Mr. Maayan joined Ceragon after a long and
successful career at the Israel Aerospace Industries (“IAI”), where his most recent position was Executive Vice President
Business Development & Subsidiaries. In this position Mr. Maayan was in charge of IAI’s M&A, strategic cooperation, joint
venture activities, open innovation, spinoff and carveout transactions, as well as asset management of IAI’s subsidiaries portfolio.
From 2008 to 2015 Mr. Maayan worked at Elbit Imaging Ltd. (TASE, NASDAQ: EMITF) (“EI”), where his latest position was Executive
Vice-President, General Counsel and executive committee member. In this position he led highly complex cross-border large scale international
transactions. From 2011 to 2015 Mr. Maayan served as an executive committee member at the Real Estate Division of Israel-America Chamber
of Commerce. In his earlier career, Mr. Maayan was a senior associate in numerous leading law firms specializing in commercial and civil
law, international commerce, banking, financing, bankruptcy, biopharmaceutical industry, real estate and litigation. Mr. Maayan is a graduate
of the Bar-Ilan University (LL.B., LL.M., cum laude).
Michal Goldstein has
served as our Executive Vice-President, of Human Resources since March 2020. Previous to this appointment, Ms. Goldstein served
as the Chief Human Resources Officer of Contentsquare, a privately held global software company. Prior to Contentsquare, Ms. Goldstein
was Vice President of Human Resources Centers of Excellence at NICE Systems (Nasdaq), as well as served in various Human Resources Business
Partner positions at Amdocs, where she spent twelve years, including three years in the company’s Silicon Valley office. Ms. Goldstein
has a background in Organizational Development and Consulting and holds a B.A in Psychology from the University of Haifa, Israel, and
an M.Sc. in Organizational Psychology from the University of Nottingham, UK.
60
Ram Prakash Tripathi has
served as our Regional President, India since 2002. Prior to joining Ceragon, Mr. Tripathi held senior managerial positions at several
companies including Stratex and Reliance and has over 20 years of experience in the telecommunications industry. Mr. Tripathi holds a
B.Sc. in Electronics & Communication Engineering from the Dr. Babasaheb Ambedkar University, in Aurangabad, Maharashtra, India.
Adrian Hipkiss has served
as our Regional President, Europe and Kinetics (formerly named “Oil & Gas”) since January 2020, and following Mr. Yaniv’s
end of tenure will also assume responsibility of global 5G business development. With over thirty years of experience, Mr. Hipkiss most
recently served as Vice President of Enterprise business at Tata Communications and previously as Managing Director of ShoreTel Europe
helping businesses drive digital transformation agendas. Prior to this, Mr. Hipkiss led multinational and international businesses within
the service provider, communications and technology sectors. Mr. Hipkiss holds a Business Administration and Management degree from the
Wednesbury Business School.
Mario Querner has served
as our Regional President, Asia-Pacific since October 2016 and additionally Africa since January 2020. Mr. Querner has over 25 years of
international business experience in telecommunications and media, working in Europe and Asia. Prior to joining Ceragon, Mr. Querner held
the position of Vice President of Asia-Pacific at Newtec, a leading provider for satellite telecommunication solutions. From 2011 to 2013,
Mr. Querner served as Head of Region, South East Asia at ECI (optical transmission networks). From 2009 to 2011 he was the Head of Sales
at Technicolor, formerly Thomson, in charge of APAC-EMEA for Digital Home Solutions. From 1999 to 2009, Mr. Querner held several management
positions at Alcatel-Lucent, the last of which was Managing Director and Country Senior Officer in Indonesia. Mr. Querner has a degree
in Electrical Engineering from the University of Applied Science in Braunschweig/Wolfenbuettel (Germany) and a degree in Business Administration
from the Brunel University (United Kingdom).
Ronen Rotstein has served
as our Regional President, North America since 2022. Mr. Rotstein joined Ceragon in 2015, and most recently he was responsible for Ceragon
Business Finance teams across the Americas, while leading the Group’s operations in North America. Prior to that Mr. Rotstein held
various Finance and Operations positions In Asia, Europe and North America Mr. Rotstein brings over 20 years of international business
and finance experience. Prior to joining Ceragon, he held senior finance positions with Amdocs, and before that was a consultant with
PwC in Israel and the UK. He holds a Bachelor’s degree in Accounting from the Tel-Aviv University.
Carlos Alvarez has served
as our Regional President, Latin America since December 2021. Mr. Alvarez has over 24 years of business experience in telecommunications
working across Latin America Region. Mr. Alvarez most recently served as General Manager at TimweTech helping businesses drive digital
marketing and fintech strategies. Prior to this, Mr. Alvarez served as Vice President of Caribbean and Latin America region at Amdocs
leading the OSS/BSS business. His career also included various positions at Alcatel-Lucent/Nokia, the latest of which was Global Account
Manager for the CALA Division. Mr. Alvarez holds an M.B.A. from IESA and has a degree in Electronical Engineering from the UNET in Venezuela.
Arrangements Involving Directors and Senior
Management
There are no arrangements or understandings of which we are aware
relating to the election of our current directors or the appointment of current executive officers in our Company. In addition, there
are no family relationships among any of the individuals listed in this Section A (Directors and Senior Management).
| B. |
Compensation |
| a) |
Aggregate Executive Compensation |
During 2021, the aggregate compensation paid by us or accrued on
behalf of all persons listed in Section A above (Directors and Senior Management), and other directors and executive officers who served
as such during the year 2021, including Mr. Shai Yaniv who ceased to serve in his position on March 31, 2021, Mr. Amit Ancikovsky who
ceased to serve in his position on June 30, 2021 and Mr. Erez Schwartz who ceased to serve in his position on February 2022, consisted
of approximately $3.9 million in salary, fees, bonuses, commissions and directors’ fees and approximately $0.7 million in amounts
set aside or accrued to provide pension, retirement or similar benefits, but excluding amounts expended for automobiles made available
to our officers, expenses (including business travel, professional and business association dues and expenses) reimbursed to our officers
and other fringe benefits commonly reimbursed under local practices or paid by companies in Israel (all the amounts were translated
to USD based on exchange rate as of December 31, 2021).
61
We have a performance-based
bonus plan, which includes our executive officers. The plan is based on our overall performance, the particular unit performance, and
individual performance. A non-material portion of the performance objectives of our executive officers are qualitative. The measurable
performance objectives can change year over year, and are a combination of financial parameters, such as revenues, booking, gross profit,
regional operating profit, operating income, net income and collection. The plan of our executive officers is reviewed and approved by
our Compensation Committee and Board of Directors annually (and with respect to our CEO, also by our shareholders), as are any bonus payments
to our executive officers made under such plan.
Cash Compensation
Our directors, other than Mr. Palti, are compensated in accordance with regulations promulgated under the Companies Law concerning the
remuneration of external directors (the “Remuneration Regulations”), as amended by
the Israeli Companies Regulations (Relief for Companies with Shares Registered for Trade in a Stock Exchange Outside of Israel) (the “Foreign
Listed Regulations”). Each of them is entitled to a cash compensation in accordance with the “fixed” amounts
of the annual and participation fees, as set forth in the Remuneration Regulations, based on the classification of the Company according
to the amount of its capital, and to reimbursement of travel expenses for participation in a meeting, which is held outside of the director’s
place of residence; currently – the sum of NIS 68,982 (approximately $21,720) (based on the NIS/USD exchange ratio as published
by the Bank of Israel on March 31, 2022 (the “Exchange Ratio”) as an annual fee, the
sum of NIS 2,568 (approximately $809, based on the Exchange Ratio) as an in-person participation fee, NIS 1,541 (approximately $485, based
on the Exchange Ratio) for conference call participation and NIS 1,284 (approximately $404, based on the Exchange Ratio) for written resolutions.
As the above-mentioned amounts are within the range between the fixed amounts set forth in the Remuneration Regulations and the maximum
amounts set forth in the Foreign Listed Regulations, they are exempt from shareholder approval, in accordance with the Israeli Companies
Regulations (Relief from Related Party Transactions) – 2000 (the “Relief Regulations”).
These cash amounts are subject to an annual adjustment for changes in the Israeli consumer price index and to an annual adjustment in
accordance with the classification of the Company according to the size of its capital. The above-mentioned cash compensation is in line
with the Company’s compensation policy, which was most recently revised and adopted by our shareholders on July 20, 2020 (the “Compensation
Policy”), according to which each of the Company’s non-executive directors is entitled to receive cash fees which include
annual and participation fees. For more information, please see “Remuneration of Directors”
and “The Share Option Plan” below and Note 14 to our consolidated financial statements
included as Item 18 in this annual report.
Equity Compensation.
In addition to the cash fees, as remuneration for their contribution and efforts as directors of the Company, and in line with the limitations
set forth in our Compensation Policy with respect to equity-based compensation for non-executive directors, our directors, other than
Mr. Palti, receive annual equity grants with respect to their three-year terms of service as directors, which was last approved to them
by our shareholders on June 12, 2018, the date of the Company’s 2018 Annual General Meeting of Shareholders (the “2018
AGM”), as follows:
(i) Zohar Zisapel, our Chairman of the Board of Directors, received
150,000 options to purchase 150,000 Ordinary Shares, 50,000 of which were granted on the date of the 2018 AGM, an additional 50,000 were
granted upon the first anniversary of the 2018 AGM (i.e., on June 12, 2019), and the remaining 50,000 were granted upon the second anniversary
of the 2018 AGM (i.e., on June 12, 2020). In addition, Mr. Zisapel received options to purchase 150,000 Ordinary Shares, 50,000 of which
were granted on the date of the 2021 annual general meeting of the Company’s shareholders, which took place on July 19, 2021 (the
“2021 AGM”), 50,000 will be granted upon the first anniversary of the 2021 AGM (i.e.,
on July 19, 2022), and the remaining 50,000 will be granted upon the second anniversary of the 2021 AGM (i.e., on July 19, 2023);(ii)
each of Yael Langer, Shlomo Liran, Avi Eizenman, Avi Berger and Meir Sperling, directors of the Company, received options to purchase
50,000 Ordinary Shares, one-third of which (16,667 options) were granted on the date of the 2018 AGM, an additional one third (16,667
options) were granted upon the first anniversary of the 2018 AGM (i.e., on June 12, 2019), and the remaining 16,666 options were granted
on the second anniversary of the 2018 AGM (i.e., on June 12, 2020);
(iii) each of Yael Langer, Ilan Rosen, Rami Hadar and David Ripstein,
directors of the Company, received options to purchase 50,000 Ordinary Shares, one-third of which (16,667 options) were granted on the
date of the 2021 AGM, an additional one third (16,667 options) will be granted upon the first anniversary of the 2021 AGM (i.e., on July
19, 2022), and the remaining 16,666 options will be granted on the second anniversary of the 2021 AGM (i.e., on July 19, 2023), provided
he or she are still directors of the Company at the time of such grant; and
(iv) Ira Palti, who served as a Director since June 2018 and as
President and Chief Executive Officer from August 2005 to July 2021, has received under his retirement agreement as approved by our Compensation
Committee, Board of Directors and shareholders, options to purchase 70,000 Ordinary Shares, under the following terms: the options were
granted on the date of the 2021 AGM (the “Grant Date”) with an exercise price
equal to the average closing price of the Company’s Ordinary Shares on the Nasdaq Global Select Market for the thirty (30) consecutive
trading days immediately preceding the Grant Date. The Options become fully vested on July 3, 2022.
62
Other than the options granted to Mr. Palti under his retirement
agreement which are subject to different terms as set forth above, the options granted each year vested on the date of grant and their
exercise price is equal to the average closing price of the Company’s shares on the Nasdaq Global Select Market for the period equal
to 30 consecutive trading days immediately preceding the date of grant. These options will expire 6 years after their date of grant, and
were granted under the Company’s Amended and Restated Share Option and RSU Plan and under the Capital Gains Route of Section 102(b)(2)
of the Israeli Income Tax Ordinance (the “Ordinance”), except for the options granted
to Zohar Zisapel, Chairman of the Board of Directors, which were granted under the Regular Employment Income Route of Section 3(i) of
the Ordinance.
During his tenure as the Company’s President and CEO, the
Company did not pay Mr. Ira Palti, any compensation, in cash or equity, in connection with his service as a director of the Company. Under
Mr. Palti’s retirement agreement which was approved by the shareholders at the 2021 AGM (the “Retirement
Agreement”), among other things, Mr. Palti will also not be eligible to such compensation or remuneration, in cash or equity,
at least until the first anniversary of the 2021 AGM. Under Mr. Palti’s current employment agreement, Mr. Palti is entitled to a
12-month notice period, which commenced on July 4, 2021 (the “Notice Period”). According
to his agreement, Mr. Palti is entitled to all of his terms of employment during the Notice Period. Accumulated vacation days will
be used until the end of the Notice Period. Further, in accordance with his current employment agreement and Israeli law, the Company
will also release Mr. Palti’s compensation component from his managers’ insurance policy/pension fund/combination of the two,
and will supplement his severance pay in cash, in accordance with his last salary, at the end of the Notice Period; it being clarified
that the above-mentioned payments include only what Mr. Palti is entitled to receive in accordance with his employment agreement and under
Israeli law.
During the Notice Period, Mr. Palti will remain in employment relationship
with the Company, and will continue to be subject to duties imposed on executives under Israeli law, such as the duty of care and the
duty of loyalty. He will also remain subject to all other obligations imposed under his employment agreement, such as non-compete, non-solicitation
and confidentiality obligations. In addition, despite the fact that he will no longer serve as Chief Executive Officer, during the Notice
Period he will remain at the disposal of the Company by supporting the new Chief Executive Officer, assisting him and the Company as shall
be required in order to ensure that the transition of office is carried out as smoothly and as successfully as possible.
At the AGM 2021, following the Compensation Committee and the Board
of Directors’ recommendation, our shareholders have approved the grant of an annual cash bonus for the Notice Period. Such annual
cash bonus shall be calculated based on the average of the actual annual cash bonus payments received by Mr. Palti during the years 2017
through 2021 (inclusive), and is estimated to be in a sum of approximately $200,000 (assuming the actual bonus payment for 2021 will represent
the On-Target Bonus), representing approximately 7.5 monthly base salaries, which is well below the Maximum Payment Cap. For clarification,
the aggregate of all discretionary payments to be made to Mr. Palti in connection with his cessation of service as Chief Executive Officer,
as detailed above, are expected to represent up to approximately 19.5 monthly-based salaries, which may be slightly above the 18 monthly-based
salaries, the limit set forth under the Compensation Policy on severance payments, but well below the 24 monthly-based salaries cap, representing
ISS’s policy on such payments.
On February 7, 2022, our Board of Directors further approved that
the remaining balance of the amounts due to Mr. Palti for the remaining 6-month Notice Period, will be divided into and paid in 24 consecutive
monthly installments in a manner that shall assure that the Company shall not incur any extra or additional cost as a result from the
change. The extension of the payment term shall not likewise extend the Share Options exercise period and those shall expire in accordance
with its original terms of the grant and currently existing arrangements. During that period, Mr. Palti’s non-compete obligations
and management consulting obligations shall remain valid and effective throughout the said extended payment term.
During 2021, we granted to our directors and members of our
senior management detailed in Section 6A, in the aggregate, options to purchase 1,190,335 ordinary shares, with an exercise price that
ranges from $3.12 to $3.70 per share. During 2021, no restricted share units (“RSUs”)
were granted to our directors and members of our senior management detailed in Section 6A. As of December 31, 2021, there were a total
of 2,987,500 outstanding options to purchase ordinary shares and 18,568 RSUs that were held by our directors and senior management detailed
in Section 6A.
63
b) Individual
Compensation of Office Holders
The following information describes the compensation of our five
most highly compensated “officer holders” (as such term is defined in the Companies Law); with respect to the year ended December
31, 2021. The five individuals for whom disclosure is provided are referred to herein as “Covered Office Holders.” All amounts
specified below are in terms of cost to the Company, translated to USD based on exchange rate as of December 31, 2021, and are based on
the following components:
| • |
Salary Costs. Salary Costs include gross salary, benefits and perquisites, including those mandated by applicable law which may include,
to the extent applicable to each Covered Office Holder’s, payments, contributions and/or allocations for pension, severance, car
or car allowance, medical insurance and risk insurance (e.g., life, disability, accidents), phone, convalescence pay, relocation, payments
for social security, and other benefits consistent with the Company’s guidelines. |
| • |
Performance Bonus Costs. Performance Bonus Costs represent bonuses granted to the Covered Office Holder’s with respect to the
year ended December 31, 2021, paid in accordance with the Covered Office Holder’s performance of targets as set forth in his bonus
plan, as well as a proportionate amount of a retention bonus that is related to the reported year, and approved by the Company’s
Compensation Committee and Board of Directors. |
| • |
Equity Costs represent the expense recorded in our financial statements for the year ended December 31, 2021, with respect to equity-based
compensation granted in 2021 and in previous years. For assumptions and key variables used in the calculation of such amounts see note
2s of our audited consolidated financial statements. |
| • |
Ira Palti – CEO until July 17, 2021. Salary Costs - $376,506; Performance Bonus Costs
- $0; Equity Costs - $256,977. |
| • |
Doron Arazi – CEO commencing July 17, 2021. Salary Costs - $212,231; Performance Bonus Costs - $0;
Equity Costs - $197,429. |
| • |
Adrian Hipkiss – Regional President of Europe and Oil & Gas. Salary Costs - $322,885; Performance
Bonus Costs - $158,941; Equity Costs - $76,541. |
| • |
Erez Schwartz - Executive Vice President of Products until February 2022. Salary Costs - $306,589; Performance
Bonus Costs - $0; Equity Costs - $64,511.
|
| • |
Mario Querner - Regional President, Asia-Pacific and Africa. Salary Costs - $254,563; Performance
Bonus Costs - $42,676 Equity Costs - $93,874. |
Compensation Policy
Under
the Companies Law, we are required to adopt a compensation policy, which sets forth company policy regarding the terms of office and employment
of office holders, including compensation, equity awards, severance and other benefits, exemption from liability and indemnification.
Such compensation policy should take into account, among other things, providing proper incentives to office holders, management of risks
by the Company, the office holder’s contribution to achieving corporate objectives and increasing profits, and the function of the
office holder.
Our Compensation Policy is designed to balance between the importance
of incentivizing office holders to reach personal targets and the need to assure that the overall compensation meets our Company’s
long-term strategic performance and financial objectives. The Compensation Policy provides our Compensation Committee and Board of Directors
with adequate measures and flexibility to tailor each of our office holder’s compensation package based, among other matters, on
geography, tasks, role, seniority and capability. Moreover, the Policy is intended to motivate our office holders to achieve ongoing targeted
results in addition to high-level business performance in the long term, without encouraging excessive risk taking.
The Compensation Policy and any amendments thereto must be approved
by the board of directors, after considering the recommendations of the compensation committee, and by a special majority of our shareholders
which should include (i) at least a majority of the shareholders who are not controlling shareholders and who do not have a personal interest
in the matter, present and voting (abstentions are disregarded), or (ii) the non-controlling shareholders and shareholders who do not
have a personal interest in the matter who were present and voted against the matter hold two percent or less of the aggregate voting
power in the company (“Special Majority”). The Compensation Policy must be reviewed
from time to time by the board and must be re-approved or amended by the board of directors and the shareholders no less than every three
years. If the Compensation Policy is not approved by the shareholders, the compensation committee and the board of directors may nonetheless
approve the policy, following further discussion of the matter and for detailed reasons.
64
Our Compensation Policy was originally approved by our shareholders
in 2012 and was revised and adopted by our shareholders at the Company’s annual general meeting for the year 2020, which was held
on July 20, 2020.
| C. |
Board Practices |
Corporate Governance Practices
We are incorporated in Israel and therefore are generally subject
to various corporate governance practices under the Companies Law, relating to matters such as external directors, audit committee , compensation
committee, internal auditor and approvals of interested parties’ transactions. These matters are in addition to the ongoing listing
conditions under the Nasdaq Rules and other relevant provisions of U.S. securities laws. Under applicable Nasdaq Rules, a foreign private
issuer (such as the Company) may generally follow its home country rules of corporate governance in lieu of the comparable Nasdaq Rules,
except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. See Item
3. “KEY INFORMATION – Risk Factors – Risks Relating to Operation in Israel - Being
a foreign private issuer exempts us from certain SEC requirements and Nasdaq Rules, which may result in less protection than is afforded
to investors under rules applicable to domestic issuers.” For information regarding home country rules followed by us see
Item 16G. “CORPORATE GOVERNANCE”.
General Board Practices
Under the Company’s Articles of Association, the Board of
Directors is to consist of not less than five (5) and not more than nine (9) directors, unless otherwise determined by a resolution of
the Company's shareholders. Our Board of Directors presently consists of seven (7) members. The Board of Directors retains all the powers
in managing our Company that are not specifically granted to the shareholders. For example, for whatever purposes it deems fit, the Board
may decide to borrow money or may set aside reserves out of our profits.
The Board of Directors may pass a resolution when a quorum is present,
and by a vote of at least a majority of the directors present when the resolution is put to vote. A quorum is defined as at least a majority
of the directors then in office who are lawfully entitled to participate in the meeting but not less than two directors. The Chairman
of the Board is elected and removed by the board members. Minutes of the Board meetings are recorded and kept at our offices.
The Board of Directors may, subject to the provisions of the Companies
Law, appoint a committee of the Board and delegate to such committee all or any of the powers of the Board, as it deems appropriate. Notwithstanding
the foregoing and subject to the provisions of the Companies Law, the Board may, at any time, amend, restate or cancel the delegation
of any of its powers to any of its committees. Our Board of Directors has appointed a Corporate Audit Committee under the Companies Law,
a Financial Audit Committee under Nasdaq Rules, a Compensation Committee and a Nomination Committee.
Our Articles of Association provide that any director may appoint
as an alternate director, by written notice to us, any individual who is qualified to serve as director and who is not then serving as
a director or alternate director for any other director. An alternate director has all of the rights and obligations of a director, excluding
the right to appoint an alternate for himself. Currently no alternate directors serve on our Board.
Terms and Skills of Directors
Our directors are generally elected at the annual general meeting
of shareholders for a term ending on the date of the third annual general meeting following the general meeting at which they were elected,
unless earlier terminated in the event of such director’s death, resignation, bankruptcy, incapacity or removal. Accordingly, Messrs.
Meir Sperling, Avi Berger and Avi Eizenman, served until the date of the 2021 AGM at which they retired from our Board. In addition, Mr.
Meir Sperling and Mr. Avi Berger, served as external directors until we opted out of the external director rules in accordance with the
exemption provided under the Foreign Listed Regulations. 2021 AGM, Messrs. Rami Hadar, Ilan Rosen and David Ripstein were elected to serve
as directors. Information regarding the period during which each of our directors has served in that office can be found above under
the heading “Directors and Senior Management”.
65
According to the Companies Law, a person who does not possess the
skills required and the ability to devote the appropriate time to the performance of the office of director in a company, taking into
consideration, among other things, the special requirements and size of that company, shall neither be appointed as a director nor serve
as a director in a public company. A public company shall not convene a general meeting the agenda of which includes the appointment of
a director, and a director shall not be appointed, unless the candidate has submitted a declaration that he or she possesses the skills
required and the ability to devote the appropriate time to the performance of the office of director in the company, that sets forth the
aforementioned skills and further states that the limitations set forth in the Companies Law regarding the appointment of a director do
not apply in respect of such candidate.
A director who ceases to possess any qualification required under
the Companies Law for holding the office of director or who becomes subject to any ground for termination of his/her office must inform
the company immediately and his/her office shall terminate upon such notice.
Independent Directors
Under the Nasdaq Rules, the majority of our directors are required
to be independent. The independence criteria under the Nasdaq Rules excludes, among others, any person who is: (i) a current or former
(at any time during the past three years) employee of the company or its affiliates; or (ii) an immediate family member of an executive
officer (at any time during the past three years) of the company or its affiliates.
In addition, under the Companies Law, an “independent director”
is either an external director or a director appointed or classified as such who meets the same non-affiliation criteria as an external
director, as determined by the company’s audit committee, and who has not served as a director of the company for more than nine
consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the
consecutive nature of such director’s service. However, as our shares are listed on the Nasdaq Global Select Market, we may also,
in accordance with the Foreign Listed Regulations, classify directors who qualify as independent directors under the relevant non-Israeli
rules, as “independent directors” under the Companies Law. In addition, the Foreign Listed Regulations provide that “independent
directors” may be elected for additional terms that do not exceed three years each, beyond the nine consecutive years, permitted
under the Companies Law, provided that, if the director is being re-elected for an additional term or terms beyond the nine consecutive
years (i) the audit committee and board of directors must determine that, in light of the director’s expertise and special contribution
to the board of directors and its committees, the re-election for an additional term is to the company’s benefit; (ii) the director
must be re-elected by the required majority of shareholders and subject to the terms specified in the Companies Law.
Currently, four of our serving directors - Messrs. Shlomo Liran,
Ilan Rosen, Rami Hadar and David Ripstein – qualify and serve as independent directors under the Nasdaq Rules.
External Directors
Under the Companies Law, Israeli public companies are generally
required to appoint at least two external directors. Each committee of a company’s board of directors, which is authorized to exercise
the board of directors’ authorities, is required to include at least one external director, and the corporate audit and compensation
committees must include all of the external directors. The Foreign Listed Regulations allow us, as a company whose shares are traded on
Nasdaq, and does not have a controlling shareholder (within the meaning of the Companies Law) to exempt ourselves from the requirement
to have external directors on our Board of Directors and from related requirements imposed by the Companies Law concerning the composition
of the audit and compensation committees, provided that we continue to comply with the relevant U.S. securities laws and Nasdaq Rules
applicable to U.S. domestic issuers, regarding the independence of the Board and the composition of the audit and compensation committee.
An external director who was elected to serve as such prior to
the date on which the company opted to comply with the applicable U.S. securities laws and Nasdaq Rules governing the appointment of independent
directors and the composition of the audit and compensation committees, as set forth above, may continue to serve out his/her term as
a non-external director on the company’s board of directors until the earlier of (i) the end of his/her three year term, or (ii)
the second annual general meeting following the company’s decision to comply with the said applicable rules, without any further
action on the part of the company or its shareholders. Such director may be elected to the board of directors by the company’s shareholders,
but he/she would now be elected as a “regular” director (not an external director) and his/her election would be no different
than the election of any other director.
66
On August 12, 2019, our Board of Directors resolved that commencing
on the day following the date of the 2019 Annual General Meeting of Shareholders, the Company would follow the exemption from the requirement
to have external directors on our Board, provided that it continues to meet the requisite requirements for said relief and unless the
Board of Directors determines otherwise.
Financial and Accounting
Expertise. Pursuant to the Companies Law and regulations promulgated
thereunder, the board of directors of a publicly traded company is required to make a determination as to the minimum number of directors
who must have financial and accounting expertise based, among other things, on the type of company, its size, the volume and complexity
of the company’s activities and the number of directors. A director with “accounting and financial expertise” is a director
whose education, experience and skills qualify him or her to be highly proficient in understanding business and accounting matters, thoroughly
understand the Company’s financial statements and stimulating discussion regarding the manner in which financial data is presented.
Currently, Mr. Shlomo Liran, who chairs the Financial Audit Committee,
is one of our independent directors and considered a “financial expert” for the purposes of the Nasdaq Rules. Mr. Shlomo Liran
as well as Messrs. Zohar Zisapel, Iran Rosen, Rami Hadar and David Ripstein satisfy the qualifications set forth for “accounting
and financial expertise” as defined under the Companies Law.
Remuneration of Directors
Directors’ remuneration is generally consistent with our
compensation policy for office holders (see below) and generally requires the approval of the Compensation Committee, the Board of Directors
and the shareholders (in that order).
Notwithstanding the above, under special circumstances, the compensation
committee and the board of directors may approve an arrangement that deviates from our compensation policy, provided that such arrangement
is approved by a Special Majority .
According to the Remuneration Regulations, directors who are being
compensated in accordance with such regulations are generally entitled to an annual fee, a participation fee for board or committee meetings
and reimbursement of travel expenses for participation in a meeting which is held outside of the director’s place of residence.
The minimum, fixed and maximum amounts of the annual and participation fees are set forth in the Remuneration Regulations, and are based
on the classification of the Company according to the size of its capital. Remuneration of a director who is compensated in accordance
with the Remuneration Regulations, in an amount which is less than the fixed annual fee or the fixed participation fee, requires the approval
of the Compensation Committee, the Board of Directors and the shareholders (in that order). A company may compensate a director (who is
compensated in accordance with the Remuneration Regulations) in shares or rights to purchase shares, other than convertible debentures
which may be converted into shares, in addition to the annual and the participation fees, and the reimbursement of expenses, subject to
certain limitations set forth in the Remuneration Regulations.
Additionally, according to the Relief Regulations, shareholders’
approval for directors’ compensation and employment arrangements is not required if both the compensation committee and the board
of directors resolve that either (i) the directors’ compensation and employment arrangements are solely for the benefit of the company
or (ii) the remuneration to be paid to any such director does not exceed the maximum amounts set forth in the Foreign Listed Regulations.
Further, according to the Relief Regulations, shareholders’ approval for directors’ compensation and employment arrangements
is not required if (i) both the compensation committee and the board of directors resolve that such terms are not more beneficial than
the former terms, or are essentially the same in their effect, and are in line with the company’s compensation policy; and (ii)
such terms are brought for shareholder approval at the next general meeting of shareholders.
Neither we nor any of our subsidiaries have entered into a service
contract with any of our current directors that provides for benefits upon termination of their service as directors.
For a full discussion of the remuneration paid to our directors
see above in “B. Compensation a) Aggregate Executive Compensation”.
67
Committees of the Board of Directors
Financial Audit Committee
In accordance with the rules of the SEC under the Exchange Act
and under Nasdaq Rules, we are required to have an audit committee consisting of at least three directors, each of whom (i) is independent;
(ii) does not receive any compensation from the Company (other than directors’ fees); (iii) is not an affiliated person of the Company
or any of its subsidiaries; (iv) has not participated in the preparation of the Company’s (or subsidiary’s) financial statements
during the past three years; and (v) is financially literate and one of whom has been determined by the board to be a financial expert.
The duties and responsibilities of the Financial Audit Committee include: (i) recommending the appointment of the Company’s independent
auditor to the Board of Directors, determining its compensation and overseeing the work performed by it; (ii) pre-approving all services
of the independent auditor; (iii) overseeing our accounting and financial reporting processes and the audits of our financial statements;
and (iv) handling complaints relating to accounting, internal controls and auditing matters. Nonetheless, under the Companies Law, the
appointment of the Company’s independent auditor requires the approval of the shareholders and its compensation requires the approval
of our Board of Directors.
As of the date hereof, Messrs. Shlomo Liran, Ilan Rosen and David
Ripstein serve on our Financial Audit Committee, each of whom has been determined by the Board to meet the Nasdaq Rules and SEC standards
described above, and with Mr. Liran serving as chairman of such committee and as its financial expert. See Item 16A. “AUDIT COMMITTEE
FINANCIAL EXPERT” below. We have adopted an Audit Committee charter as required under the Nasdaq Rules.
Corporate Audit Committee
We maintain a Corporate Audit Committee which is our audit committee
for the purposes of the Companies Law; the duties and responsibilities of our Corporate Audit Committee include: (i) identifying of irregularities
and deficiencies in the management of our business, in consultation with the internal auditor and our independent auditor, and suggesting
appropriate courses of action to amend such irregularities; (ii) reviewing and approving certain transactions and actions of the Company,
including the approval of related party transactions that require approval by the audit committee under the Companies Law; defining whether
certain acts and transactions that involve conflicts of interest are material or not and whether transactions that involve interested
parties are extraordinary or not, and to approve such transactions; (iii) establishing procedures to be followed with respect to related
party transactions with a “controlling shareholder” (where such are not extraordinary transactions), which may include, where
applicable, the establishment of a competitive process for such transaction, under the supervision of the audit committee, or individual,
or other committee or body selected by the audit committee, in accordance with criteria determined by the audit committee; (iv) determining
procedures for approving certain related party transactions with a “controlling shareholder”, which were determined by the
audit committee not to be extraordinary transactions, but which were also determined by the audit committee not to be negligible transactions;
(v) recommending the appointment of the internal auditor and its compensation to the Board of Directors; (vi) examining the performance
of our internal auditor and whether it is provided with the required resources and tools necessary for him to fulfill its role, considering,
inter alia, the Company’s size and special needs; (vii) examining the independent auditor’s
scope of work as well as his fees and providing its recommendations to the appropriate corporate organ; (viii) overseeing the accounting
and financial reporting processes of the Company; (ix) setting procedures for handling complaints made by the Company’s employees
in connection with management deficiencies and the protection to be provided to such employees; and (x) performing such other duties that
are or will be designated solely to the audit committee in accordance with the Companies Law and the Company’s Articles of Association.
The Corporate Audit Committee composition requirements referred
to under Section 115 of the Companies Law are not applicable to the Company as the Board of Directors, as part of its decision to opt
out of the requirement to appoint external directors, as provided for under the Foreign Listed Regulations, also adopted relief from such
composition requirements on the basis that the Company complies, and will continue to comply, with the relevant U.S. securities laws and
Nasdaq Rules applicable to U.S. domestic issuers, regarding the independence of the Board and the composition of the audit and compensation
committees.
As of the date hereof, Messrs. David Ripstein, Shlomo Liran and
Ilan Rosen serve on our Corporate Audit Committee, each of whom has been determined by the Board to meet the Nasdaq Rules and SEC standards
described under the Financial Audit Committee section above, and Mr. Ripstein serves as its chairman.
68
Compensation Committee
Under the Nasdaq Rules, the compensation payable to our executive
officers must be determined or recommended to the board for determination either by a majority of the independent directors on the board,
in a vote in which only independent directors participate, or by a compensation committee consisting of at least two independent directors
(as defined under the Nasdaq Rules). Each compensation committee member must also be deemed by our Board of Directors to meet the enhanced
independence requirements for members of the compensation committee under the Nasdaq Rules, which requires, among other things, that our
Board of Directors consider the source of each such committee member’s compensation in considering whether he or she is independent.
According to the Companies Law, the compensation committee shall include all the external directors, which shall consist of the majority
of its members. As indicated above, we opted out of the external director rules in accordance with the exemption provided under the Foreign
Listed Regulations. Nonetheless, as our Board has decided to opt out of the requirement to elect external directors and to adopted relief
from the audit and compensation composition requirements under the Companies Law, we are subject to the relevant U.S. securities laws
and Nasdaq Rules applicable to U.S. domestic issuers regarding the independence of the Board and the composition of the audit and compensation
committees.
According to the Companies Law, the board of directors of any Israeli
public company must appoint a compensation committee, which is responsible for: (i) making recommendations to the Board of Directors with
respect to the approval of the compensation policy (see below) and any extensions thereto; (ii) periodically reviewing the implementation
of the compensation policy and providing the Board of Directors with recommendations with respect to any amendments or updates thereto;
(iii) reviewing and resolving whether or not to approve arrangements with respect to the terms of office and employment of office holders;
and (iv) determining whether or not to exempt under certain circumstances a transaction with a candidate for CEO, who is not affiliated
with the Company or its controlling shareholders, from shareholder approval, and provided that the terms approved are consistent with
the compensation policy. Under the Companies Law, the Compensation Committee may need to seek the approval of the Board of Directors and
the shareholders for certain compensation-related decisions. See “Item 6 - Directors, Senior Management and Employees – B.
Compensation”.
In addition, our Compensation Committee administers our Amended
and Restated Share Option and RSU Plan. The Board has delegated to the Compensation Committee the authority to grant options and RSUs
under this plan and to act as the share incentive committee pursuant to this plan, provided that such grants are within the framework
determined by the Board, and that the grant of equity compensation to our office holders is also approved by our board.
The Compensation Committee composition requirements referred to
under Section 118A of the Companies Law are not applicable to the Company as the Board of Directors, as part of its decision to opt out
of the requirement to appoint external directors, as provided for under the Foreign Listed Regulations, also adopted relief from such
composition requirements on the basis that the Company complies, and will continue to comply, with the relevant U.S. securities laws and
Nasdaq Rules applicable to U.S. domestic issuers, regarding the independence of the Board and the composition of the audit and compensation
committees.
Messrs. Ilan Rosen, Shlomo Liran and Rami Hadar serve on our Compensation
Committee, each of whom meets the above-mentioned qualification requirements set forth under the Nasdaq Rules, and Mr. Rosen serves as
its chairman.
Nomination Committee
The Nasdaq Rules require that director nominees be selected or
recommended for the board’s selection either by a nomination committee composed solely of independent directors, or by a majority
of independent directors, in a vote in which only independent directors participate, subject to certain exceptions. Currently, Messrs.
Shlomo Liran, Ilan Rosen, Rami Hadar and David Ripstein, our independent directors, serve as members of our Nomination Committee, which
recommends director nominees for our Board’s approval.
69
Approval of Office Holders Terms of Employment
The terms of office and employment of office holders (other than
directors and the CEO) require the approval of the compensation committee and then of the board of directors, provided such terms are
in accordance with the company’s compensation policy. If terms of employment of such office holder are not in accordance with the
compensation policy, then shareholder approval is also required following the approval of the compensation committee and board of directors
after having taken into account the various policy considerations and mandatory requirements set forth in the Companies Law with
respect to office holders’ compensation. However, in special circumstances the compensation committee and then the board of directors
may nonetheless approve such terms of office and employment, even if they were not approved by the shareholders, following a further discussion
and for detailed reasoning. In addition, the Relief Regulations provide that non-material changes to the terms of office of office holders
who are subordinated to the company’s CEO will require only CEO approval, provided that the company’s compensation policy
includes a reasonable range for such non-material changes.
The terms of office and employment of a CEO, regardless of whether
such terms conform to the company’s compensation policy, must be approved by the compensation committee, the board of directors
and then by a Special Majority .
Notwithstanding the above, in special circumstances the compensation
committee and then the board of directors may nonetheless approve compensation for the CEO, even if such compensation was not approved
by the shareholders, following a further discussion and for detailed reasoning. In addition, under certain circumstances, a company’s
compensation committee may exempt the terms of office and employment of a candidate for the position of CEO from shareholders’ approval,
provided that the candidate is not a director and that the terms of office are compliant with the company’s compensation policy.
Amendment of existing terms of office and employment of office
holders who are not directors, including chief executive officers, require the approval of the compensation committee only, if the compensation
committee determines that the amendment is not material.
The terms of office and employment of directors, regardless of
whether such terms conform to the company’s compensation policy, must be approved by the compensation committee, the board of directors
and then by the shareholders, and, in case that such terms are inconsistent with the company’s compensation policy, such shareholders’
approval must be obtained by the Special Majority with respect to the CEO.
However, and as referred to above with respect to remuneration
of directors, according to the Relief Regulations, a company’s compensation committee and board of directors are permitted to approve
terms of office and employment of a CEO or of a director, without convening a general meeting of shareholders, provided however, that
such terms: (i) are not more beneficial than the former terms, or are essentially the same in their effect; (ii) are in line with the
company’s compensation policy; and (iii) are brought for shareholder approval at the next general meeting of shareholders. In addition,
a company's compensation committee and board of directors are permitted to approve the terms of office of a director, without convening
a general meeting of shareholders, provided that such terms are only beneficial to the company or that such terms are in compliance with
the terms set forth in the Remuneration Regulations.
Approval of Certain Transactions with Related
Parties
The Companies Law requires the approval of the corporate audit
committee or the compensation committee, thereafter, the approval of the board of directors and in certain cases the approval of the shareholders,
in order to effect specified actions and extraordinary transactions such as the following:
| • |
transactions with office holders and third parties, where an office holder has a personal interest in the transaction; |
| • |
employment terms of office holders; and |
| • |
extraordinary transactions with controlling parties, and extraordinary transactions with a third party where a controlling party
has a personal interest in the transaction, or any transaction with the controlling shareholder or his relative regarding terms of service
provided directly or indirectly (including through a company controlled by the controlling shareholder) and terms of employment (for a
controlling shareholder who is not an office holder). A “relative” is defined in the Companies Law as spouse, sibling, parent,
grandparent, descendant, spouse’s descendant, sibling or parent and the spouse of any of the foregoing. |
70
Further, such extraordinary transactions with controlling shareholders
require the approval of the corporate audit committee or the compensation committee, the board of directors and the majority of the voting
power of the shareholders present and voting at the general meeting of the company (not including abstentions), provided that either:
| • |
the majority of the shares of shareholders who have no personal interest in the transaction and who are present and voting, not taking
into account any abstentions, vote in favor; or |
| • |
shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent
of the aggregate voting rights in the company. |
The Companies Law extends the disclosure requirements applicable
to an office holder (as detailed below) to a controlling shareholder in a public company. Any shareholder participating in the vote on
approval of an extraordinary transaction with a controlling shareholder must inform the company prior to the voting whether or not he
or she has a personal interest in the approval of the transaction, and if he or she fails to do so, his or her vote will be disregarded.
Further, such extraordinary transactions as well as any transactions
with a controlling shareholder or his relative concerning terms of service or employment need to be re-approved once every three years,
provided however that with respect to certain such extraordinary transactions the corporate audit committee may determine that a longer
duration is reasonable given the circumstances related thereto and such extended period has been approved by the shareholders.
In accordance with the Relief Regulations, certain defined types
of extraordinary transactions between a public company and its controlling shareholder(s) are exempt from the shareholder approval requirements.
The approval of the corporate audit committee, followed by the
approval of the board of directors and the shareholders, is required to effect a private placement of securities, in which either: (i)
20% or more of the company’s outstanding share capital prior to the placement is offered, and the payment for which (in whole or
in part) is not in cash, in tradable securities registered in a stock exchange or not under market terms, and which will result in: (a)
an increase of the holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights;
or (b) will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share
capital or voting rights; or (ii) a person will become a controlling shareholder of the company.
A “controlling party” is defined in the Israeli Securities
Law and in the Companies Law, for purposes of the provisions governing related party transactions, as a person with the ability to direct
the actions of a company but excluding a person whose power derives solely from his or her position as a director of the company or any
other position with the company, and with respect to approval of transactions with related parties also
a person who holds 25% or more of the voting power in a public company if no other shareholder owns more than 50% of the voting power
in the company, and provided that two or more persons holding voting rights in the company, who each have a personal interest in the approval
of the same transaction, shall be deemed to be one holder for the purpose of evaluating their holdings with respect to approvals of transactions
with related parties.
Compensation committee approval is also required (and thereafter,
the approval of the board of directors and in certain cases – the approval of the shareholders) to approve the grant of an exemption
from the responsibility for a breach of the duty of care towards the company, for the provision of insurance and for an undertaking to
indemnify any office holder of the company; see below under “Exemption, Insurance and Indemnification
of Directors and Officers”.
The Company has adopted a Related Parties Transactions Policy which
was last reviewed and updated by the Corporate Audit Committee and the Board of Directors on February 7, 2022, that, among other things,
reflects the approval procedures as required under law and sets criteria for the classification of proposed transactions as Extraordinary
Transaction (or Exceptional Transaction), Ordinary Transactions and Ordinary Transactions that are insignificant ones.
71
Duties of Office Holders and Shareholders
Duties of Office Holders
Fiduciary Duties. The Companies
Law imposes a duty of care and a duty of loyalty on all office holders of a company, including directors. 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, and requires office holders to use reasonable means to obtain (i) information regarding the business advisability of a
given action brought for the office holders’ approval or performed by the office holders by virtue of their position, and (ii) all
other information of importance pertaining to the aforesaid actions. The duty of loyalty includes avoiding any conflict of interest between
the office holder’s position in the company and his personal affairs, avoiding any competition with the company, avoiding the exploitation
of any business opportunity of the company in order to receive personal advantage for himself or others, and revealing to the company
any information or documents relating to the company’s affairs which the office holder has received due to his position as an office
holder.
The company may approve an action by an office holder from which
the office holder would otherwise have to refrain due to its violation of the office holder’s duty of loyalty if: (i) the office
holder acts in good faith and the act or its approval is not to the detriment of the company, and (ii) the office holder discloses the
nature of his or her interest in the transaction to the company a reasonable time prior to the company’s approval.
Each person listed in the table above under “Directors and
Senior Management” is considered an office holder under the Companies Law.
Disclosure of Personal Interests
of an Office Holder. The Companies Law requires that an office holder of a company promptly disclose any personal interest that
he or she may have, and all related material information and documents known to him or her relating to any existing or proposed transaction
by the company. 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 siblings, parents and descendants and the
spouses of any of these people, or any corporation in which the office holder: (i) holds at least 5% of the company’s outstanding
share capital or voting rights; (ii) is a director or chief executive officer; or (iii) has the right to appoint at least one director
or the chief executive officer. An extraordinary transaction is defined as a transaction that is either: (i) not in the ordinary course
of business; (ii) not on market terms; or (iii) likely to have a material impact on the company’s profitability, assets or liabilities.
In the case of a transaction which is not an extraordinary transaction,
after the office holder complies with the above disclosure requirements, only board approval is required unless the articles of association
of the company provide otherwise. The transaction must not be adverse to the company’s interest. If a transaction is an extraordinary
transaction, or concerns the terms of office and employment, then, in addition to any approval stipulated by the articles of association,
it must also be approved by the company’s audit committee (or with respect to terms of office and employment, by the compensation
committee) and then by the board of directors, and, under certain circumstances, by shareholders of the company.
A person with a personal interest in any matter may not generally
be present at any audit committee, compensation committee or board of directors meeting where such matter is being considered, and if
he or she is a member of the committee or a director, he or she may not generally vote on such matter at the applicable meeting.
Duties of Shareholders
Under the Companies Law, a shareholder has a duty to: (i) act in
good faith toward the company and other shareholders; and (ii) refrain from abusing his or her power in the company, including, among
other things, voting in a general meeting of shareholders with respect to the following matters: (a) any amendment to the articles of
association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) approval of interested party transactions
which require shareholders’ approval.
In addition, any controlling shareholder, or any shareholder who
knows that it possesses power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a
company’s articles of association, has the power to appoint or prevent the appointment of an office holder in the company, is under
a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty but states that the remedies
generally available upon a breach of contract, will also apply in the event of a breach of the duty of fairness, taking into account such
shareholder’s position.
72
Exemption, Insurance and Indemnification of
Directors and Officers
The Companies Law provides that companies like ours may indemnify
their officers and directors and purchase an insurance policy to cover certain liabilities, if provisions for that purpose are included
in their articles of association.
Our Articles of Association allow us to indemnify and insure our
office holders to the fullest extent permitted by law.
Office Holders’ Exemption
Under the Companies Law, an Israeli company may not exempt an office
holder from liability for a breach of his or her duty of loyalty, but may exempt in advance an office holder from his or her liability
to the company, in whole or in part, for a breach of his or her duty of care (except in connection with distributions), provided that
the articles of association allow it to do so. Our Articles of Association allow us to exempt our office holders to the fullest extent
permitted by law.
Office Holders’ Insurance
Our Articles of Association provide that, subject to the provisions
of the Companies Law, we may enter into a contract for the insurance of all or part of the liability imposed on our office holder in respect
of an act or omission performed by him or her in his or her capacity as an office holder, regarding each of the following:
| • |
a breach of his or her duty of care to us or to another person; |
| • |
a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume
that his or her act would not prejudice our interests; |
| • |
monetary liabilities or obligations imposed upon him or her in favor of another person; and/or |
| • |
any other event, occurrence or circumstance in respect of which we may lawfully insure an office holder. |
Without derogating from the aforementioned, subject to the provisions
of the Companies Law and the Israeli Securities Law, we may also enter into a contract to insure an office holder, in respect of expenses,
including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted
against such office holder or payment required to be made to an injured party, pursuant to certain provisions of the Israeli Securities
Law.
Office Holder’s Indemnification
Our Articles of Association provide that, subject to the provisions
of the Companies Law and the Israeli Securities Law, we may indemnify any of our office holders for an obligation or expense specified
below, imposed on or incurred by the office holder in respect of an act or omission performed in his or her capacity as an office holder,
as follows:
| • |
a financial liability imposed on him or her in favor of another person by any judgment, including a settlement or an arbitration
award approved by a court. |
| • |
reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or
proceeding instituted against him by a competent authority which concluded without the filing of an indictment against him and without
the imposition of any financial liability in lieu of criminal proceedings, or which concluded without the filing of an indictment against
him but with the imposition of a financial liability in lieu of criminal proceedings concerning a criminal offense that does not require
proof of criminal intent or in connection with a financial sanction (the phrases “proceeding concluded without the filing of an
indictment” and “financial liability in lieu of criminal proceeding” shall have the meaning ascribed to such phrases
in section 260(a)(1a) of the Companies Law); |
| • |
reasonable litigation expenses, including attorneys’ fees, expended by an office holder or charged to the office holder by
a court, in a proceeding instituted against the office holder by the Company or on its behalf or by another person, or in a criminal charge
from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of an offense that does
not require proof of criminal intent; |
73
| • |
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative
proceeding instituted against such office holder, or payment required to be made to an injured party, pursuant to certain provisions of
the Securities Law; and/or |
| • |
any other event, occurrence or circumstance in respect of which we may lawfully indemnify an office holder. |
The Company may undertake to indemnify an office holder as aforesaid:
(a) prospectively, provided that, in respect of the first act (financial liability) the undertaking is limited to events which in the
opinion of the Board of Directors are foreseeable in light of the Company’s actual operations when the undertaking to indemnify
is given, and to an amount or criteria set by the Board of Directors as reasonable under the circumstances, and further provided that
such events and amount or criteria are set forth in the indemnification undertaking; and (b) retroactively.
Limitations on Insurance and Indemnification
The Companies Law provides that a company may not exempt or indemnify
an office holder nor 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 or her duty of loyalty, except that the company may enter into an insurance contract or indemnify
an office holder if 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 or her duty of care, if such breach was intentional or reckless, but unless such breach was
solely negligent; |
| • |
any act or omission intended to derive an illegal personal benefit; or |
| • |
any fine, civil fine, financial sanction or monetary settlement in lieu of criminal proceedings imposed on such office holder.
|
In addition, under the Companies Law, exemption and indemnification
of, and procurement of insurance coverage for, our office holders must be approved by our Compensation Committee and our Board of Directors
and, with respect to an office holder who is CEO or a director, also by our shareholders. However, according to the Relief Regulations,
shareholders’ and Board approvals for the procurement of such insurance coverage are not required if the insurance policy is approved
by our Compensation Committee and: (i) the terms of such policy are within the framework for insurance coverage as approved by our shareholders
and set forth in our Compensation Policy; (ii) the premium paid under the insurance policy is at fair market value; and (iii) the insurance
policy does not and may not have a substantial effect on the Company’s profitability, assets or obligations.
Our Insurance and Indemnification
Indemnification letters, covering indemnification and insurance
of those liabilities imposed under the Companies Law and the Israeli Securities Law, as discussed above, were granted to each of our present
office holders and were approved for any future office holders.
In addition, in accordance with the Compensation Policy, we are
currently entitled to hold directors’ and officers’ liability insurance policy for the benefit of our office holders, with
insurance coverage of up to $45 million and with an annual premium of up to $2,000,000, plus an additional annual premium of up to $300,000
for claims associated with M&A transactions.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons, we have been advised that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
74
Administrative
Enforcement
As detailed above, under the Israeli Securities Law, a company
cannot obtain insurance against or indemnify a third party (including its officers and/or employees) for any administrative procedure
and/or monetary fine (other than for payment of damages to an injured party). The Israeli Securities Law permits insurance and/or indemnification
for expenses related to an administrative procedure, such as reasonable legal fees, provided that it is permitted under the company’s
articles of association.
We have adopted and implemented an internal enforcement plan to reduce our exposure
to potential breaches of sections in the Companies Law and in the Israeli Securities Law applicable to us. Our Articles of Association
and letters of indemnification permit, among others, insurance and/or indemnification as contemplated under the Israeli Securities Law
(see “Exemption, Insurance and Indemnification of Directors and Officers” above).
Internal Auditor
Under the Companies Law, the board of directors of a public company
must appoint an internal auditor proposed by the corporate audit committee (see under “Committees
of the Board of Directors” – “Corporate Audit Committee”, above).
The internal auditor may be an employee of the company but may not be an interested party, an office holder or a relative of the foregoing,
nor may the internal auditor be the company’s independent accountant or its representative. The role of the internal auditor is
to examine, among other things, whether the company’s actions comply with applicable law, integrity and orderly business procedure.
The internal auditor has the right to request that the chairman of the corporate audit committee convene a corporate audit committee meeting,
and the internal auditor may participate in all corporate audit committee meetings. The internal auditor’s tenure cannot be terminated
without his or her consent, nor can he or she be suspended from such position unless the board of directors has so resolved after hearing
the opinion of the corporate audit committee and after providing the internal auditor with the opportunity to present his or her position
to the board of directors and to the corporate audit committee.
We have appointed the firm of Chaikin, Cohen, Rubin & Co.,
Certified Public Accountants (Isr.) as our internal auditor. Our internal auditor meets the independence requirements of the Companies
Law, as detailed above.
D. Employees
As of December 31, 2021, we had 1,006 employees worldwide. Among
our employees, 229 were employed in research, development and engineering, 648 in sales and marketing including services and supporting
functions, 29 in management and administration and 100 in operations. Out of our employees, 291 were based in Israel, 37 were based in
the United States, 258 were based in EMEA (not including Israel), 193 were based in Latin America and -227 were based in Asia Pacific
(including India).
In addition, as of December 31, 2021 we employed 339 Services Contractors,
mainly supporting the projects we have won in the regions. . Most of the costs of these employees were included in the cost of revenues
in our financial statement.
We and our Israeli employees are not parties to any collective
bargaining agreements. However, with respect to such employees, we are subject to Israeli labor laws, regulations and extension
orders signed by the Israeli Ministry of Labor, Social Affairs and Social Services, as are in effect from time to time. Generally, we
provide our employees with benefits and working conditions above the legally required minimums.
Israeli applicable law requires severance pay upon the dismissal,
retirement or death of an employee or termination without due cause. In addition, applicable extension orders require every employee in
Israel (except for specific circumstances) has a pension insurance policy, which includes, inter alia,
death and disability insurance coverage. The amounts contributed by us to the severance component in the employees’ pension insurance
are in lieu of the severance pay due to them. Israeli applicable law requires us and our employees to make payments to the National Insurance
Institute, which is similar to the U.S. Social Security Administration. Such amounts also include payments by the employee for mandatory
health insurance.
75
Substantially all our employment agreements include employees’
undertakings with respect to non-competition, assignment to us of intellectual property rights developed in the course of employment and
confidentiality. However, it should be noted that the enforceability of non-competition undertakings is rather limited under the local
laws in certain jurisdictions, including Israel.
To date, we have not experienced labor-related work stoppages and
believe that our relations with our employees are good.
The employees of our other subsidiaries are subject to local labor
laws and regulations that vary from country to country. In certain locations such as Brazil and Norway we are a party to collective bargaining
agreements.
Share Ownership
The following table sets forth certain information regarding the
ordinary shares owned, and stock options held, by our directors and senior management as of March 27, 2022. The percentage of outstanding
ordinary shares is based on 84,001,666 ordinary shares outstanding as of March 27, 2022 that consists, for the purpose of the below calculation
and presentation, ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days of March
27, 2022.
|
Name |
Number of Ordinary Shares(1)
|
Percentage of Outstanding
Ordinary Shares |
Number of Stock Options
Held(2) |
Exercise price of Options
|
Number of RSUs Held(2)
|
|||||||||||||||
|
Zohar Zisapel(3)
|
7,117,174 |
8.44 |
300,000 |
$ |
2.02 – 3.70 |
- |
||||||||||||||
|
Ira Palti |
612,500 |
0.72 |
720,000 |
$ |
2.41 – 9.01 |
- |
||||||||||||||
|
All directors and senior management as a group consisting of 20 people(4)
|
8,302,190 |
9.72 |
2,886,563 |
$ |
2.02 – 9.01 |
10,469 |
||||||||||||||
| (1) |
Consists of ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days of March
27, 2022. |
| (2) |
Each stock option is exercisable into one ordinary share and expires between 6 and 10 years from the date of its grant. Of the number
of stock options listed, 300,000, 612,500 and 1,495,064 options, are vested or shall become vested within 60 days of March 27, 2022 for
Mr. Zisapel, Mr. Palti and all directors and senior management as a group, respectively. No RSUs are expected to vest within 60 days of
March 27, 2022. |
| (3) |
The number of ordinary shares held by Zohar Zisapel includes (i) 3,594,986 ordinary shares held by Zohar Zisapel; (ii) 300,000 ordinary
shares issuable upon the exercise of options granted to Mr. Zisapel, exercisable as of March 27, 2022 or within 60 days thereafter; (iii)
1,101,245 ordinary shares are held of record by Lomsha Ltd., an Israeli company controlled by Mr. Zisapel; (iv) 18,717 ordinary shares
are held by RAD Data Communications Ltd., an Israeli company of which Mr. Zisapel is a principal shareholder and a director; and (v) 2,102,226
Ordinary Shares are held by Michael and Klil Holdings (93) Ltd., an Israeli company controlled by Mr. Zisapel. The number of ordinary
shares beneficially held by Zohar Zisapel is based on a Schedule 13D/A filed by Mr. Zisapel with the SEC on February 16, 2021. |
| (4) |
Each of the directors and senior management other than Messrs. Zohar Zisapel and Ira Palti, beneficially owns less than 1% of the
outstanding ordinary shares as of March 27, 2022 (including options held by each such person and which are vested or shall become vested
within 60 days of March 27, 2022) and have therefore not been separately listed. |
76
Stock Option Plan
The Amended and Restated Share Option and RSU
Plan
In September 2003, our shareholders approved and adopted our 2003
share option plan, designed to grant options pursuant to Section 102 or 3(i) of the Ordinance, and to be a “qualified plan”
as defined by U.S. tax law. Our worldwide employees, directors, consultants and contractors are eligible to participate in this plan.
Our Compensation Committee of our Board of Directors administers the plan. Generally, options granted under this plan expire between six
to ten years from the date of grant. In addition, our Board of Directors has sole discretion to determine, in the event of a transaction
with another corporation, as defined in the plan, that each option shall either: (i) be substituted for an option to purchase securities
of the other corporation; (ii) be assumed by the other corporation; or (iii) automatically vest in full. In the event that all or substantially
all of the issued and outstanding share capital of the company shall be sold, each option holder shall be obligated to participate in
the sale and to sell his/her options at the price equal to that of any other share sold.
In September 2010, our Board of Directors amended the share option
plan so as to enable the grant of RSUs pursuant to such plan.
In December 2012, our Board of Directors extended the Plan for
an additional ten-year period through December 31, 2022 (which was amended on August 10, 2014, as indicated below) (the “Amended
and Restated Share Option and RSU Plan”, or the “Plan”). The Plan has
been approved by the Israeli Tax Authority as required by applicable law but not as an Incentive Stock Option “qualified plan”
as defined by U.S. tax law. The following tables present information regarding option and RSU grants under the Plan, plus
additional options and RSUs from former plans that have not yet expired as of December 31, 2021.
|
Cumulative Ordinary Shares
Reserved for Option and RSU Grants |
Remaining Reserved Shares
Available for Option and RSU Grants |
Options and RSUs Outstanding
|
Weighted Average Exercise
Price |
|||||||||||
|
27,895,688 |
(1) |
2,568,136 |
(2) |
5,886,125 |
(3) |
$ |
3.40 |
(4) | ||||||
| (1) |
Total of 2,979,437 relates to RSU grants and 24,916,251 relates to all options grants under all the Company’s Share Option
and RSU plans commencing in 2003. |
| (2) |
Total under all grants approved by the Board under all Company’s Share Option and RSU plans commencing in 2003. |
| (3) |
Total of 699,679 relates to RSUs outstanding and 5,186,446 relates to options outstanding, under all the Company’s Share Option
and RSU plans commencing in 2003. |
| (4) |
Weighted average price refers only to options (option plans before 2012 have already expired) |
The following table presents certain option and RSU grant information
concerning the distribution of options and RSUs (granted under all Company’s Share Option and RSU plans commencing in 2003 and under
the Plan) among directors and employees of the Company as of December 31, 2021:
|
Options and RSUs Outstanding
|
Unvested Options and RSUs
|
|||||||
|
Directors and senior management |
3,006,068 |
1,590,448 |
||||||
|
All other grantees |
2,880,057 |
1,953,278 |
||||||
Amendment of the Plan
Subject to applicable law, our Board of Directors may amend the
Plan, provided that any action by our Board of Directors which will alter or impair the rights or obligations of an option holder requires
the prior consent of that option holder. Our board last amended the Plan in August 2014, extending the authority originally granted to
our Compensation Committee to provide grantees, in their notice of grant, with a “Double Trigger” acceleration mechanism upon
the occurrence of certain events.
77
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Major Shareholders
The following table sets forth stock ownership information as of
March 27, 2022 (unless otherwise noted below) with respect to each person who is known by us to be the beneficial owner of more than 5%
of our outstanding ordinary shares, based on information provided to us by the holders or disclosed in public filings with the SEC.
Except where otherwise indicated, and except pursuant to community
property laws, we believe, based on information furnished by such owners, that the beneficial owners of the ordinary shares listed below
have sole investment and voting power with respect to such shares. The shareholders listed below do not have any different voting rights
from any of our other shareholders. We know of no arrangements which would, at a subsequent date, result in a change in control of our
company.
Total shares beneficially owned in the table below include shares
that may be acquired upon the exercise of options that are exercisable within 60 days. The shares that may be issued under these options
are treated as outstanding only for purposes of determining the percent owned by the person or group holding the options but not for the
purpose of determining the percentage ownership of any other person or group. Each of our directors and officers who is also a director
or officer of an entity listed in the table below disclaims ownership of our ordinary shares owned by such entity.
|
Name |
Number of Ordinary Shares(2)
|
Percentage of Outstanding Ordinary Shares(1)
|
||||||
|
Zohar Zisapel (3)
|
7,117,174 |
8.47 |
% | |||||
|
Joseph D. Samberg (4)
|
12,980,000 |
15.45 |
% | |||||
| (1) |
Based on 84,001,666 ordinary shares outstanding as of March 27, 2022, excluding options to purchase ordinary shares which are
vested or shall become vested within 60 days of March 27, 2022. |
| (2) |
Consists of ordinary shares and options to purchase ordinary shares, which are vested or shall become vested within 60 days as of
March 27,2022. |
| (3) |
(i) 3,594,986 ordinary shares held by Zohar Zisapel; (ii) 300,000 ordinary shares issuable upon the exercise of options granted to
Mr. Zisapel exercisable as of March 27, 2022 or within 60 days thereafter; (iii) 1,101,245 ordinary shares are held of record by Lomsha
Ltd., an Israeli company controlled by Mr. Zisapel; (iv) 18,717 ordinary shares are held by RAD Data Communications Ltd., an Israeli company
of which Mr. Zisapel is a principal shareholder and a director. Mr. Zisapel and his brother, Mr. Yehuda Zisapel, and Ms. Nava Zisapel,
have shared voting and dispositive power with respect to the ordinary shares held by RAD Data Communications Ltd.; and (v) 2,102,226 Ordinary
Shares are held by Michael and Klil Holdings (93) Ltd., an Israeli company controlled by Mr. Zisapel. The number of ordinary shares beneficially
held by Zohar Zisapel is based on a Schedule 13D/A filed by Mr. Zisapel with the SEC on February 16, 2021. |
| (4) |
Joseph D. Samberg’s address is 1091 Boston Post Road, Rye, NY 10580. |
As of March 27, 2022, approximately 97% of our ordinary shares
were registered for trade and held in the United States and there were 28 record holders with addresses in the United States. These
numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial
holders reside due to the fact that many of these ordinary shares were held of record by brokers or other nominees (including one U.S.
nominee company, CEDE & Co., which held approximately 97% of our outstanding ordinary shares as of said date).
Related Party Transactions
Zohar Zisapel, the Chairman of our Board of Directors and a principal
shareholder of our company, beneficially owns 8.47% of our ordinary shares as of December 31, 2021. However, Zohar and Yehuda Zisapel,
and Ms. Nava Zisapel, have shared voting and dispositive power with respect to the ordinary shares held by RAD Data Communications Ltd.
78
Zohar Zisapel is the Chairman of the board of, in a few of which
he holds shares in, RADWIN Ltd., RADIFLOW Ltd., Hailo Technologies Ltd., Zohar Properties, Klil and Michael Properties (1992) Ltd, RUN
Rad Unlimited Networking Ltd., Tupaia Ltd., Carteav Ltd. and Hi Auto Ltd. He also serves as a director in the following companies,
in a few of which he holds shares: RADCOM Ltd., NUANCE HEARING Ltd., RAD Data Communications Ltd., Packetlight Networks Ltd., CyberInt
Technologies Ltd., DriveU Tech Ltd., and Cylus Ltd., Cloud Cyber Security Ltd. (d/b/a Talon Cyber Security) and several other private
holdings and real estate. Zohar Zisapel also holds more that 5% of the shares of the following companies: Satixfy Ltd., Nucleix Ltd.,
Vascular Grafts Solutions Ltd., Vectorious Ltd., Sanoculis Ltd., Innoviz Ltd. and Varada Ltd. The above list does not constitute a complete
list of Zohar Zisapel’s holdings
Some of the companies referred to above are known as the “RAD-BYNET
Group”, a group of independent companies. Members of the RAD-BYNET Group sometimes share expenses with us, on an as-needed basis,
for information systems infrastructure, administrative services, medical insurance, as well as in connection with logistics services,
such as transportation and cafeteria facilities - all by arm’s length transactions. In addition, the Company purchases certain equipment,
other services, software and licenses from members of the RAD-BYNET Group. The aggregate amount of such purchases and shared expenses
in 2021 was approximately $2.7 million.
We, as well as other companies of the RAD-BYNET Group, may market
through the same distribution channels. In addition, the Company markets and sells some products of other members of the RAD-BYNET Group,
which are complementary to our products, while some members of the RAD-BYNET Group market and sell part of our products, which are complimentary
to their products. Certain products of members of the RAD-BYNET Group may be used in place of (and thus may be deemed to be competitive
with) our products.
Ms. Yael Langer, one of our directors, acts as general counsel
for several RAD-BYNET Group companies and serves as a director in RADWARE Ltd.
We generally ascertain the market prices for goods and services
that can be obtained at arms’ length from unaffiliated third parties before entering into any transaction with a related party.
In addition, all of our related-party transactions with members of the RAD-BYNET Group are approved in accordance with the Company’s
Related Party Policy and applicable law. Such policy provides, among other things, that the board of directors may, from time to time,
set criteria for routine/insignificant transactions which are not an extraordinary transaction. A proposed transaction that shall satisfy
the criteria for routine/insignificant transactions, shall be deemed as classified as an ordinary transaction by the corporate audit committee
and as pre-approved by the board A proposed transaction that satisfies the criteria for routine/insignificant transactions, is deemed
to be classified as an ordinary transaction by the corporate audit committee and as pre-approved by the board. As a result, we believe
that the terms of the transactions in which we have engaged, and are currently engaged with other members of the RAD-BYNET Group are beneficial
to us and no less favorable to us than terms, which might be available to us from unaffiliated third parties. Any future transaction
and arrangement with entities in which our office holders may have a personal interest will require approval by our Corporate Audit Committee,
our Board of Directors and, if applicable, our shareholders.
Lease Arrangements
Until 30 June 2021, we have leased space in properties located at Ziv Towers, 24 Raul
Wallenberg St., Tel Aviv, Israel (approximately 57,000 square feet of office space and approximately 9,000 square feet of warehouse space).
At the beginning of April 2021, our headquarters relocated to its current facilities in Nitzba City, Plot 300, Bldg. A, 7th floor,
Rosh Ha’Ayin, Israel which are leased from a third party, all as detailed in “Item 4.D. – Property, Plants and Equipment”.
We gradually vacated the space at Ziv Towers over 2020 and 2021.
Supply Arrangement
We purchase products from certain RAD-BYNET Group companies, which
we integrate into our products or product offerings. The aggregate purchase price of these components in 2021 was approximately $0.2 million.
Sales Arrangement
We sell products through RAD-BYNET Group companies, which they
integrate into their products or product offerings. The aggregate selling price of these components in 2021 was approximately $0.4 million.
79
Registration Rights
In connection with the private placement of preferred shares before
our initial public offering in August 2000, several of our shareholders were granted registration rights with respect to ordinary shares
that were converted from preferred shares immediately prior to the completion of our initial public offering. The registration rights
were granted to each of:
| • |
the holders of the ordinary shares resulting from the conversion of such preferred shares; and |
| • |
Yehuda Zisapel and Zohar Zisapel. |
Under the registration rights agreement, each of these shareholders
has the right to have its ordinary shares included in certain of our registration statements.
| ITEM 8. |
FINANCIAL INFORMATION |
Consolidated Statements and Other Financial Information
The annual financial statements required by this Item are found
at the end of this annual report, beginning on Page F-1.
Export Sales
In 2021, our sales to end users located outside of Israel amounted
to $289.2 million, or 99.4% of our $290.8 million revenues for this year.
Legal Proceedings
On January 6, 2015 the Company was served with a motion (the “Motion”)
to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants. The Motion was filed
with the District Court of Tel-Aviv (the “Court”). The purported class action alleges
breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements. The plaintiff seeks
specified compensatory damages in a sum of up to $75 million, as well as attorneys’ fees and costs.
The Company filed its defense on June 21, 2015, which was followed
by disclosure proceedings. The plaintiff filed his reply to the Company’s defense by April 2, 2017. A preliminary hearing was held
on May 22, 2017, in the framework of which the Court set dates for response to the Company’s above-mentioned requests as well as
dates for evidence hearings.
In May 2017, the Company filed two requests: the first, requesting
to dismiss the plaintiff’s response to the Company’s defense, or, alternatively, to allow the Company to respond to it; the
second, to precede a ruling with regards to the legal question of the governing law. On July 17, 2017, the Court issued its decision in
the first request, denying the requested dismissal of plaintiff’s response to the Company’s defense, but allowing the Company
to respond to it; on July 29, 2017, the Court issued its decision in the second request, and denied it. The Company filed its response
on September 18, 2017.
On October 2, 2017, the plaintiff filed a request to summon two
of the Company’s officers (Company’s Chairman, Mr. Zisapel and Company's Chief Executive Officer, Mr. Palti), and eventually,
only the company’s CEO was summoned. The first evidence hearing took place on November 2, 2017 and the second and final evidence
hearing took place on January 8, 2018.
Summaries were filed by the plaintiff on March 21, 2018 and the
Company filed its summaries on June 12, 2018. The plaintiff filed their reply summaries on September 5, 2018. On October 4, 2018, an interim
decision regarding dual listed companies, which corresponds with the Company’s arguments in this case, was rendered by the Supreme
Court of Israel. This Supreme Court decision upholds two recent rulings of District Court of Tel-Aviv (Economic Department), which determined
that all securities litigation regarding dual listed companies should be decided only in accordance with US law (the “Supreme Court
Decision”). In light of this, on October 15, 2018, the plaintiff asked the Court to add a plea to his summaries. The Court has approved
plaintiff’s request and gave to the defendants the right to reply. In accordance, the Company’s response was submitted on
December 4, 2018. Plaintiff’s reply to Company’s response was submitted on December 26, 2018.
80
On April 14, 2019, the Court rendered a decision resolving that
according to Supreme Court Decision, examination of the legal questions standing in the basis of the Motion, should be based upon US law.
Therefore, the Court allowed the plaintiff to amend its Motion within 45 days, so that it would include an expert opinion regarding US
law, and an argument regarding US law implementation in the specific circumstances. The Court also decided that amendment of the Motion
is subject to plaintiff’s payment of 40,000 NIS to the Company.
On September 23, 2019, the plaintiff filed an amended motion (the
“Amended Motion”), which included an expert opinion regarding US federal law and lengthy
arguments that were added on top of the original Motion specifically in reference to discovery proceedings and evidence hearings that
were held as part of the original Motion. Therefore, on September 25, 2019, the Court rendered a decision pointing out that the Amended
Motion seemed to include the plaintiff’s summaries, and so ordered the plaintiff to clarify whether he was willing to relinquish
submitting any additional summaries regarding the evidence that was heard in the original Motion.
On October 2, 2019, plaintiff responded, alleging that since the
Amended Motion did not include any new facts, there was no need to submit additional summaries regarding the evidence that was heard to
this point. On December 30, 2019, the Company submitted a motion to dismiss the Amended Motion. The Company alleged that the Amended Motion
included new causes of action, and specifically that the addition of legal causes of action according to US Federal law, could not be
filed due to the specific statute of limitations. On January 20, 2020, the plaintiff filed its response. Also, the Court accepted the
Company’s request to submit its response to the Amended Motion after a decision in the Company’s motion to dismiss was rendered.
On February 24, 2020, the Court issued a decision, according to
which, the Motion would be decided upon the current Court documents, unless either of the parties filed a request to hold a hearing in
the matter. Neither party requested to hold such a hearing.
On May 27, 2021, the Court ruled to certify the Motion as a class
action, while applying Israeli Law (the “Ruling”). According to the Ruling, the class action shall include several causes
of action according to the Israeli Securities Act and the Israeli Torts Ordinance, concerning the alleged misleading statements in the
Company’s SEC filings. The Ruling also addressed the size of the alleged aggrieved shareholders who may be included and be represented
in the class action.
On June 9, 2021, the Court issued a decision suggesting that the
parties refer the case to a mediation procedure.
The Company believed that the Ruling was erroneous and that the
Company has strong defense arguments, and therefore, on September 12, 2021, filed a motion for a rehearing on behalf of the Company and
its directors in order to revert the Ruling (the “Rehearing Motion”).
On October 20, 2021, the plaintiff submitted his response to the
Rehearing Motion and the Company submitted its reply to the plaintiff’s response on November 23, 2021. In light of the fact that
the Ruling applied and was based upon Israeli Law (instead of the relevant foreign law), the Tel Aviv Stock Exchange filed a motion requesting
the Court allow it to join the proceedings as Amicus Curiae, in order to express its principle opinion that the applicable law, in so
far as dual listed companies are concerned, is the foreign law, as well as regarding the negative implications of the Court’s application
of Israeli law on dual listed companies.
Without delaying or derogating from the Rehearing Motion, the Company
agreed to the Court’s suggestion that the parties refer the case to a mediation procedure, and designated the former Judge B. Arnon
as a mediator. After several mediation meetings were held, the mediation process ended without reaching a settlement.
On January 3, 2022, a hearing was held in court on the Rehearing
Motion before the Honorable Justices K. Kabub, R. Ronen and T. Avrahami. Following the hearing, on January 25, 2022, the Attorney General
joined the proceedings of the Rehearing Motion and submitted his position in collaboration with the Securities Authority. The Attorney
General’s principle position as outlined, was that the applicable law in so far as dual listed companies are concerned is the foreign
law, in our case – U.S. law.
On January 27, 2022, a judgment was rendered in the Rehearing Motion.
The Court ruled that the Ruling was erroneous as it applied Israeli Law, instead of foreign law, and held accordingly that U.S. law will
apply. The Court further held that the case will be returned to the first judicial instance and will be adjudicated as a class claim under
U.S. law. The Court further held that the Company’s claims based upon the statute of limitations should also be adjudicated under
U.S. law.
81
On March 20, 2022, following the court’s decision, the Plaintiff
filed to the first judicial instance an amended class action claim, based on provisions of US law. The Company is required to submit its
Statement of Defense by June 26, 2022.
The Company believes that it has a strong defense against the allegations
referred to in the class action, that U.S law presents a higher bar for plaintiffs in comparison to Israeli law in proving claims regarding
misleading representations to investors, and that the Court should deny it. However, bearing in mind that the class action will be adjudicated
under US law, and in light of the fact that Ceragon has not yet filed its Statement of Defense, the Company’s attorneys cannot assess,
at this preliminary stage, the chances of acceptance of the class action.
We are not a party to any other material legal proceedings.
Dividends
We have never declared or paid any dividend on our ordinary shares
except for the share dividend that was paid as a result of a 250-for-1 share recapitalization that took place immediately prior to our
initial public offering. To date, we do not anticipate paying any dividends on our ordinary shares in the future. We currently intend
to retain all future earnings to finance our operations and to expand our business. Under our Credit Facility, we undertook not to distribute
dividends (unless certain terms are met) without the lenders’ prior written consent.
Significant Changes
See Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS
- Liquidity and Capital Resources” for a description of the June 2021 and January 2022 amendments to the credit facility.
| ITEM 9. |
THE OFFER AND LISTING |
Offer and Listing Details
Our ordinary shares are listed on the Nasdaq Global Select Market
under the symbol “CRNT”.
ITEM 10. ADDITIONAL
INFORMATION
Memorandum and Articles of Association – General
A description of our Memorandum and Articles of Association was
previously provided in our registration statement on Form F-1 (Registration Statement 333-12312) filed with the SEC on August 3, 2000,
and is incorporated herein by reference. The Memorandum and Articles of Association - as amended in October 2007, September 2011, December
2012, July 2014 and September 2016 - were previously provided in our annual reports on Form 20-F for the years 2007, 2011, 2012, 2014
and 2016, respectively, and are incorporated herein by reference.
In July 2014, we revoked our Memorandum pursuant to procedures
provided by Israeli law; a detailed description of such procedure was previously provided in our annual report on Form 20-F for the year
2014 and is incorporated herein by reference.
Articles of Association
Objects and purposes
Our registration number with the Israeli Registrar of Companies
is 51-235244-4. Our purpose as set forth in article 1 to our Articles of Association is to engage, directly or indirectly, in any lawful
undertaking or business whatsoever.
82
Meetings of Shareholders, Quorum and Voting Rights
According to the Companies Law and our Articles of Association,
an annual general meeting of our shareholders shall be held once every calendar year, provided it is within a period of not more than
fifteen (15) months after the preceding annual general meeting. Our Board of Directors may, whenever it deems fit, convene a special general
meeting at such time and place as may be determined by the board, and, pursuant to the Companies Law, must convene a meeting upon the
demand of: (a) two directors or one quarter of the directors in office; or (b) the holder or holders of: (i) 5% or more of the Company’s
issued share capital and one percent 1% or more of its voting rights; or (ii) 5% or more of the Company’s voting rights. If the
Board of Directors does not convene a meeting upon a valid demand of any of the above then the persons who made the demand, and in the
case of shareholders, part of such demanding shareholders holding at least half of the voting rights of such demanding shareholders, may
convene a meeting of the shareholders to be held within three months of the demand. Alternatively, upon petition by the individuals making
the demand, a court may order that a meeting be convened.
The Chairman of the Board of Directors, or any other director or
office holder of the Company who may be designated for this purpose by the Board of Directors, shall preside as Chairman at every general
meeting of the Company. If there is no such Chairman, or if at any meeting such Chairman is not present within fifteen (15) minutes after
the time fixed for holding the meeting or is unwilling to act as Chairman, the members present shall choose someone of their number to
be Chairman. The office of Chairman shall not, by itself, entitle the holder thereof to vote at any general meeting nor shall it entitle
such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a shareholder or proxy
of a shareholder if, in fact, he is also a shareholder or such proxy).
Pursuant to the Companies Law and the regulations promulgated pursuant
to the Companies Law and governing the terms of notice and publication of shareholder meetings of public companies, shareholder meetings
generally require prior notice of not less than 21 days, and not less than 35 days in certain cases. Pursuant to the Articles of Association,
we are not required to deliver or serve notice of a general meeting or of any adjournments thereof to any shareholder. However, subject
to applicable law and stock exchange rules and regulations, we will publicize the convening of a general meeting in any manner reasonably
determined by us, and any such publication shall be deemed duly made, given and delivered to all shareholders on the date on which it
is first made, posted, filed or published in the manner so determined by us in our sole discretion.
The function of the general meeting is to elect directors, receive
and consider the profit and loss account, the balance sheet and the ordinary reports and accounts of the directors and auditors, appoint
auditors, approve certain interested party transactions requiring general meeting approval as provided in the Companies Law, approve the
Company’s merger, exercise of the powers of the Board of Directors if the Board of Directors is unable to exercise its powers and
the exercise of any of its powers is vital for our proper management, approve amendments of our Articles of Association and transact any
other business which under our Articles of Association or applicable law may be transacted by the shareholders of the Company in a general
meeting.
Under our Articles of Association, the quorum required for a meeting
of shareholders consists the presence, in person or by proxy, of at least two shareholders holding shares conferring in the aggregate
twenty five percent (25%) or more of the voting power of the Company. If within half an hour from the time appointed for the meeting a
quorum is not present, the meeting, if convened by the Board of Directors upon the demand of shareholders or upon the demand of less than
50% of the directors then in office or directly by such shareholders or directors, shall be cancelled. If a meeting is otherwise called
and no quorum is present within half an hour from the time appointed for such meeting it shall stand adjourned to the same day in the
following week at the same time and place or to such other day, time and place as the Chairman of the meeting may determine with the consent
of the holders of a majority of the voting power represented at the meeting in person or by proxy and voting on the question of adjournment.
At the adjourned meeting, the required quorum consists of any two shareholders.
Subject to the provisions of the Articles of Association, holders
of fully paid ordinary shares have one vote for each ordinary share held by such shareholder of record, on all matters submitted to a
vote of shareholders. Shareholders may vote in person, by proxy or by proxy card. 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. As our ordinary
shares do not have cumulative voting rights in the election of directors, the holders of the majority of the shares present and voting
at a shareholders meeting generally have the power to elect all of our directors, and the election of external directors also whose election
requires a special majority vote of our shareholders which should include (i) at least a majority of the shareholders who are not controlling
shareholders and who do not have a personal interest in the matter, present and voting, other than personal interest which is not as a
result of the voting shareholder’s relationship with the controlling shareholders (abstentions are disregarded), or (ii) the non-controlling
shareholders and shareholders who do not have a personal interest in the matter (as detailed in section (i) above) who were present and
voted against the matter hold two percent or less of the aggregate voting power in the company.
83
Unless otherwise prescribed in our Articles of Association and/or
under the Companies Law, shareholders resolutions are deemed adopted if approved by the holders of a majority of the voting power represented
at the meeting in person, by proxy or by proxy card, and voting on the matter.
Share Ownership Restrictions
The ownership or voting of ordinary shares by non-residents of
Israel is not restricted in any way by the Articles of Association or the laws of the State of Israel, except that citizens of countries
that are in a state of war with Israel may not be recognized as owners of ordinary shares.
Transfer of Shares
Our ordinary shares which have been fully paid-up are transferable
by submission of a proper instrument of transfer together with the certificate of the shares to be transferred and such other evidence
of title, as the Board of Directors may require, unless such transfer is prohibited by another instrument or by applicable securities
laws.
Modification of Class Rights
Pursuant to our Articles of Association, if at any time the share
capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by our Articles of Association,
may be modified or abrogated by the Company, by shareholders resolution, subject to the requirement that such resolution is also approved
by a majority of the holders of the shares of such applicable class, who are present and voting at a separate general meeting of the holders
of the shares of such class.
Dividends
Under the Companies law, dividends may be distributed only out
of profits available for dividends as determined by the Companies Law, provided that there is no reasonable concern that the distribution
will prevent the Company from being able to meet its existing and anticipated obligations when they become due. If the company does not
meet the profit requirement, a court may nevertheless allow the company to distribute a dividend, as long as the court is convinced that
there is no reasonable concern that such distribution will prevent the company from being able to meet its existing and anticipated obligations
when they become due. Pursuant to our Articles of Association, no dividend shall be paid otherwise than out of the profits of the Company.
Generally, under the Companies Law, the decision to distribute dividends and the amount to be distributed is made by a company’s
board of directors.
Our Articles of Association provide that our Board of Directors,
may, subject to the Companies Law, from time to time, declare and cause the Company to pay such dividends as may appear to the Board of
Directors to be justified by the profits of our Company. Subject to the rights of the holders of shares with preferential, special or
deferred rights that may be authorized in the future, our profits which shall be declared as dividends shall be distributed according
to the proportion of the nominal (par) value paid up or credited as paid up on account of the shares held at the date so appointed by
the Company and in respect of which such dividend is being paid, without regard to the premium paid in excess of the nominal (par) value,
if any. The declaration of dividends does not require Shareholders’ approval.
To date, we have not declared or distributed any dividend and we
currently do not intend to pay cash dividends on our ordinary shares in the foreseeable future; see above under Item 8. “FINANCIAL
INFORMATION – Dividends.”
Liquidation Rights
In the event of our winding up or liquidation or dissolution, subject
to applicable law, our assets available for distribution among the shareholders shall be distributed to the holders of ordinary shares
in proportion to the amount paid up or credited as paid up on account of the nominal value of the shares held by them respectively and
in respect of which such distribution is being made, without regard to any premium paid in excess of the nominal value, if any. This liquidation
right may be affected by the grant of limited or preferential rights as to liquidation to the holders of a class of shares that may be
authorized in the future.
84
Mergers and Acquisitions under Israeli Law
In general, a merger of a company, that was incorporated before
the enactment of the Companies Law, requires the approval of the holders of a majority of 75% of the voting power represented at the annual
or special general meeting in person or by proxy or by a written ballot, as shall be permitted, and voting thereon in accordance with
the provisions of the Companies Law. However, in accordance with our Articles of Association, a shareholder resolution approving a merger
(as defined in the Companies law) of the Company shall be deemed adopted if approved by the holders of a majority of the voting power
represented at the meeting in person or by proxy and voting thereon. 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 the requisite proposal for the merger has been filed by each party with the Israeli
Registrar of Companies; and (ii) 30 days have passed since the merger was approved by the shareholders of each party.
The Companies Law also provides that, an acquisition of shares
in a public company must be made by means of a tender offer: (a) if there is no existing shareholder, or a group of shareholders
holding shares together, in the company holding shares conferring 25% or more of the voting rights at the general meeting (a “control
block”), and as a result of the acquisition the purchaser would become a holder of a control block; or (b) if there is no existing
shareholder, or a group of shareholders holding shares together, in the company holding shares conferring 45% or more of the voting rights
at the general meeting and as a result of the acquisition the purchaser would become a holder of 45% or more of the voting rights at the
general meeting. Notwithstanding, the abovementioned requirements do not apply if the acquisition was: (1) made by way of a private placement
that received shareholders’ approval (which includes an explicit approval that the purchaser will become, as a result of such acquisition,
a holder of a “control block,” or of 45% or more of the voting power in the company, and unless there is already a holder
of a “control block” or of 45% or more of the voting power in the company, respectively); (2) was from a holder of a “control
block” in the company and resulted in the acquirer becoming a holder of a “control block”; or (3) was from a holder
of 45% or more of the voting power in the company and resulted in the acquirer becoming a holder of 45% or more of the voting power in
the company. The tender offer must be extended to all shareholders, but the offeror 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 offeror; and (ii) the number of shares acquired in the offer exceeds
the number of shares whose holders objected to the offer.
Under the Companies Law, a person may not acquire shares in a public
company if, after the acquisition, the acquirer will hold more than 90% of the shares or more than 90% of any class of shares of that
company, unless a tender offer is made to purchase all of the shares or all of the shares of the particular class. The Companies Law also
generally provides that as long as a shareholder in a public company holds more than 90% of the company’s shares or of a class of
shares, that shareholder shall be precluded from purchasing any additional shares. The full tender offer shall be accepted and all the
shares that the acquirer offered to purchase (i.e. all of the shares not owned by the acquirer) will be transferred to it if (i) the shareholders
who declined or do not respond to the tender offer hold less than 5% of the company’s outstanding share capital or of the relevant
class of shares and the majority of offerees who do not have a personal interest in accepting the tender offer accepted the offer, or
(ii) the shareholders who declined or do not respond to the tender offer hold less than 2% of the company’s outstanding share
capital or of the relevant class of shares. The Companies Law provides that a shareholder that had his or her shares so transferred, whether
he or she accepted the tender offer or not, has the right, within six months from the date of acceptance of the tender offer, to petition
the court to determine that the tender offer was for less than fair value and that the fair value should be paid as determined by the
court. However, the acquirer may provide in its offer that shareholders who accept the tender offer will not be entitled to such 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.
Furthermore, certain provisions of other Israeli laws may have
the effect of delaying, preventing or making more difficult an acquisition of or merger with us; see Item 3. “KEY INFORMATION”
- Risk Factors – “Risks
Relating to Operations in Israel” - Provisions
of Israeli law may delay, prevent or make undesirable an acquisition of all or significant portion of our shares or assets”.
Material Contracts
None.
85
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.
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
or Articles of Association or by the laws of the State of Israel.
Taxation
The following is a short summary of the tax environment to which
shareholders may be subject. The following is not intended, and should not be construed, as legal or professional tax advice and is not
exhaustive of all possible tax considerations. Each individual should consult his or her own tax or legal advisor.
This summary is based on the current provisions of tax law and,
except for the foregoing, does not anticipate any possible changes in law, whether by legislative, regulatory, administrative or judicial
action. Holders 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.
General Corporate Tax Structure in Israel
The corporate tax rate in 2021 was 23%.
However, the effective tax rate payable by a company that derives
income from an approved enterprise, or preferred enterprise as discussed further below, may be considerably lower. See “The Law
for the Encouragement of Capital Investments, 1959” (the “Investment Law”) below.
The Law for the Encouragement of Capital Investments, 1959
In general, the Investment Law is intended to provide tax benefits
to Industrial Enterprises who undertake significant export activities leading to the economic competitiveness of the country. The Investment
Law underwent several amendments in recent years as will be detailed below, however, benefits which were granted under prior versions
of the law remain intact and may be applied to the extent the company who obtained such benefits continues to comply with the respective
requirements and has not waived such benefits.
Tax Benefits before the 2005 amendment
The Investment Center has granted approved enterprise status to
three investment programs at our former facility in Tel Aviv and we have derived and expect to continue to derive a substantial portion
of our income from these programs. We have elected the alternative track of benefits under these approved enterprise programs. The portion
of our income derived from these approved enterprise programs will be exempt from tax for a period of two years commencing in the first
year in which there is taxable income. The period of tax benefits for our approved enterprise programs has not yet commenced, because
we have yet to realize approved taxable income.
The benefit period starts with the first year the enterprise earns
taxable income, provided that 14 years have not passed since the approval was granted and 12 years have not passed since the enterprise
began operating. As of January 1st, 2021, the 14 years
period have passed for the three approved programs. The respective benefit period has not yet begun, as no taxable income was generated.
Tax Benefits under the 2005 Amendment
On April 1, 2005, an amendment to the Investments Law (the “Amendment”)
came into force. The Amendment includes revisions to the criteria for investments qualified to receive tax benefits as an approved enterprise.
The Amendment applies to new investment programs and investment programs commencing after 2004, and does not apply to investment programs
approved prior to December 31, 2004, whose benefits will remain as they were on the date of such approval. However, a company that was
granted benefits according to section 51 of the Investments Law (prior to the amendment) would not be allowed to choose a new tax year
as a year of election (as described below) under the new amendment for a period of 2 years from the company’s previous year of commencement
under the old Investments Law.
86
As of December 31, 2021 the tax benefits under the amendment expired
and the Company is no longer entitled to these tax benefits.
Tax Benefits under the 2017 Amendment
The 2017 Amendment was enacted as part of the Economic Efficiency
Law that was published on December 29, 2016 and is effective as of January 1, 2017. The 2017 Amendment provides new tax benefits for two
types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under
the Investment Law.
The 2017 Amendment provides that a technology company satisfying
certain conditions will qualify as a “Preferred Technology Enterprise” and will thereby enjoy a reduced corporate tax rate
of 12% on income that qualifies as “Preferred Technology Income”, as defined in the Investment Law. The tax rate is further
reduced to 7.5% for a Preferred Technology Enterprise located in development Zone A.
Dividends distributed by a Preferred Technology Enterprise paid
out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be
provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority (“ITA”)
allowing such a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. If such
dividends are distributed to a foreign company (holding at least 90% of the share capital) and other conditions are met, the withholding
tax rate will be 4%.
The Company did not apply the 2017 Amendment. The Company may change
its position in the future.
Tax Benefits and Grants for Research and Development
Israeli tax law allows, under specific conditions, a tax deduction
in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, for the
year in which they are incurred if:
| • |
the expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
| • |
the research and development is for the promotion or development of the company; and |
| • |
the research and development is carried out by or on behalf of the company seeking the deduction. |
However, the amount of such deductible expenses shall be reduced
by the sum of any funds received through government grants for the finance of such scientific research and development projects. Expenditures
not so approved are deductible over a three-year period if the R&D is for the promotion or development of the company.
Tax Benefits under the Law for the Encouragement of Industry (Taxes),
1969
According to the Law for the Encouragement of Industry (Taxes),
1969, generally referred to as the Industry Encouragement Law, an industrial company is a company incorporated and resident in Israel,
at least 90% of the income of which, in a given tax year, determined in Israeli currency exclusive of income from specified government
loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined
as an enterprise whose major activity in a given tax year is industrial production activity.
Under the Industry Encouragement Law, industrial companies are
entitled to the following preferred corporate tax benefits, among others:
| • |
deduction of purchases of know-how, patents and the right to use a patent over an eight-year period for tax purposes; |
| • |
deduction over a three-year period of specified expenses incurred with the issuance and listing of shares on the Tel Aviv Stock Exchange
or on a recognized stock exchange outside of Israel (including Nasdaq); |
87
| • |
the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies;
and |
| • |
accelerated depreciation rates on equipment and buildings. |
Eligibility for benefits under the Industry Encouragement 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. We cannot assure you that we will continue to qualify as an industrial company or that
the benefits described above will be available to us in the future.
Israeli Capital Gains Tax on Sales of Shares
Israeli law 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 of Israeli
resident 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 (and subject to the receipt in advance of a valid certificate from the ITA
allowing such exemption). The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the
total capital gain that is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase
in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the
date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Generally, the tax rate applicable to capital gains derived from
the sale of securities, listed on a stock market , is 25% for Israeli individuals. Additionally, if such individual 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 jointly with others, at least 10% of any “means of control” in the company. “means of control”
- including, among other things, the right to receive profits of the Company, voting rights, the right to receive the Company’s
liquidation proceeds and the right to appoint a director) the tax rate is increased to 30%. Israeli companies are subject to the regular
corporate tax rate (currently, 23%) on capital gains derived from the sale of securities.
Furthermore, beginning on January 1, 2013, an additional tax liability
at the rate of 2% was added to the applicable tax rate on the annual taxable income of the individuals (whether any such individual is
an Israeli resident or non-Israeli resident) exceeding NIS 803,520 (in 2016) (hereinafter: “Added Tax”). Effective January
1, 2017 the Added Tax rate has increased to 3% and the taxable income threshold was reduced to NIS 640,000 (amount is linked to the annual
change in the Israeli consumer price index and was NIS 647,640 in 2021).
Generally, 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 in Israel or outside of Israel (including
Nasdaq) subject to meeting certain conditions. However, non-Israeli corporations will not be entitled to such exemption if an Israeli
resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable
to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
Persons paying consideration for shares, including purchasers of
shares, Israeli securities dealers effecting a transaction, or a financial institution through which securities being sold are held, are
required, to withhold tax upon the sale of publicly traded securities at a rate of 25% for individuals and at the corporate tax
rate (currently, 23%) for corporations. However, the sale of shares may be exempt from Israeli capital gain tax under the provisions of
the Israeli Income Tax Ordinance or the provisions of an applicable tax treaty, subject to the receipt in advance of a valid certificate
from ITA allowing for such exemption no tax will be withheld.
Under the convention between the United States and Israel concerning
taxes on income, as amended (the “U.S.-Israel Tax Treaty”), generally, Israeli capital gains tax will not apply to the sale,
exchange or disposition of ordinary shares by a person who:
| • |
holds the ordinary shares as a capital asset; |
| • |
qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty; and |
| • |
is entitled to claim the benefits available to the person by the U.S.-Israel tax treaty. |
88
However, this exemption will not apply, among other cases, if (i)
the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month
period preceding the sale, exchange or disposition, subject to specified conditions, (ii) the capital gains from such sale, exchange or
disposition can be allocated to a permanent establishment in Israel or (iii) such person is an individual and was present in Israel for
a period or periods of 183 days or more in the aggregate during the relevant tax year. In this case, the sale, exchange or disposition
would be subject to Israeli tax, to the extent applicable. However, under the U.S.-Israel tax treaty, the treaty U.S. resident would be
permitted to claim a credit for the taxes against the U.S. federal income tax imposed on the sale, exchange or disposition, subject to
the limitations in U.S. laws applicable to foreign tax credits.
Israeli Taxation of Dividends Distributed to Non-Resident Holders
of Our Shares
Non-residents of Israel are subject to income tax on income accrued
or derived from sources in Israel. These sources of income include passive income, including dividends, royalties and interest, as well
as non-passive income from services provided in Israel. On distributions of dividends income tax is withheld at source at the following
rates: 25%, increased to 30% for a shareholder that is considered a significant shareholder, as defined above, at the time of the distribution
or at any time during the 12-month period preceding such distribution. However, if such shares are registered with a nominee company
(as such term is used in the Israeli Securities Law, 5728-1968). Such dividends will be subject to Israeli withholding tax at a
rate of 25% whether the recipient is a substantial shareholder or not. The distribution of dividends to non-Israeli residents (either
individuals or corporations) from income derived from an Approved Enterprises or Benefited Enterprises or a Preferred Enterprise, in each
case during the applicable benefits period is subject to withholding tax at a rate of 20%, ; unless a lower rate is provided in a treaty
between Israel and the shareholder’s country of residence (subject to the receipt in advance of a valid tax certificate from the
ITA allowing for a reduced tax rate). According to the U.S.-Israel Tax Treaty, the tax withholding rate on dividends distributed by an
Israeli corporation to a U.S. individual and a U.S. corporation is 25%. If the U.S. company holds 10% or more of the voting power of the
Israeli company during the part of the tax year which precedes the date of payment of the
dividend and during the whole of the preceding tax year and certain other conditions are met, the tax withholding rate is reduced to 12.5%.
Dividends received by such U.S. company distributed from income generated by an Approved Enterprise, a Benefited Enterprise, or a Preferred
Enterprise, are subject to withholding tax at a rate of 15%. However, these provisions do not apply if the company generates certain amounts
of passive income. The aforementioned rates under the U.S.-Israel Treaty will not apply if the dividend income was derived through a permanent
establishment of the U.S. resident in Israel.
Israeli Transfer Pricing Regulations
On November 29, 2006, Income Tax Regulations (Determination of
Market Terms), 2006, promulgated under Section 85A of the Israeli Income Tax Ordinance, came into effect (the “TP Regs”).
Section 85A of the Tax Ordinance and the TP Regulations generally requires that all cross-border transactions carried out between related
parties be conducted on an arm’s length principle basis and will be taxed accordingly. The TP Regulations have not had a material
effect on the Company.
U.S. Federal Income Tax Considerations
Subject to the limitations described below, the following discussion
summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares to a U.S. holder
that owns our ordinary shares as a capital asset (generally, for investment). A U.S. holder is a holder of our ordinary shares that is
for U.S. federal income tax purposes:
| • |
an individual citizen or resident of the United States; |
| • |
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United
States or under the laws of the United States, any political subdivision thereof or the District of Columbia; |
| • |
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| • |
a trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all of its substantial decisions or (ii) that has in effect a valid election under applicable U.S.
Treasury Regulations to be treated as a U.S. person. |
89
If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of the entity and an equity owner in such entity will
generally depend on the status of the equity owner and the activities of the entity. Such an equity owner or entity should consult its
own tax advisor as to its tax consequences.
Certain aspects of U.S. federal income taxes relevant to a holder
of our ordinary shares (other than a partnership) that is not a U.S. holder (a “Non-U.S. holder”) are also discussed below.
This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations, and administrative and judicial
decisions as of the date of this annual report, all of which are subject to change, possibly on a retroactive basis. This discussion does
not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder in light of such holder’s
individual circumstances. In particular, this discussion does not address the potential application of the U.S. federal income tax consequences
to U.S. holders that are subject to special treatment, including U.S. holders that:
| • |
are broker-dealers or insurance companies; |
| • |
have elected mark-to-market accounting; |
| • |
are tax-exempt organizations or retirement plans; |
| • |
are grantor trusts; |
| • |
are S corporations; |
| • |
are certain former citizens or long-term residents of the United States; |
| • |
are financial institutions; |
| • |
hold ordinary shares as part of a straddle, hedge or conversion transaction with other investments; |
| • |
acquired their ordinary shares upon the exercise of employee stock options or otherwise as compensation; |
| • |
are real estate investment trusts or regulated investment companies; |
| • |
own directly, indirectly or by attribution at least 10% of our shares (by vote or value); or |
| • |
have a functional currency that is not the U.S. dollar. |
This discussion is not a comprehensive description of all the tax
considerations that may be relevant to each person’s decision to purchase our ordinary shares. For example, this discussion does
not address any aspect of state, local or non-U.S. tax laws, the possible application of the alternative minimum tax or United States
federal gift or estate taxes.
Each holder of our ordinary shares is advised to consult his or
her own tax advisor with respect to the specific tax consequences to him or her of purchasing, owning or disposing of our ordinary shares,
including the applicability and effect of federal, state, local and foreign income and other tax laws to his or her particular circumstances.
Taxation of Distributions Paid on Ordinary Shares
Subject to the discussion below under “Tax Consequences if
We Are a Passive Foreign Investment Company,” a U.S. holder will be required to include in gross income as dividend income the amount
of any distribution paid on our ordinary shares, including any non-U.S. taxes withheld from the amount paid, to the extent the distribution
is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess
of earnings and profits will be applied against and will reduce the U.S. holder’s tax basis in its ordinary shares and, to the extent
in excess of that basis, will be treated as gain from the sale or exchange of ordinary shares. The dividend portion of such distribution
generally will not qualify for the dividends received deduction otherwise available to corporations.
90
Dividends that are received by U.S. holders that are individuals,
estates or trusts will be taxed at the rate applicable to long-term capital gains (currently a maximum rate of 20%), provided that such
dividends meet the requirements of “qualified dividend income.” Subject to the holding period and risk-of-loss requirements
discussed below generally, dividends paid by a non-U.S. corporation that is not a PFIC (as discussed below) will generally be qualified
dividend income if either the stock with respect to which the dividend is paid is readily tradable on an established securities market
in the United States (such as the Nasdaq Global Select Market) or such corporation is eligible for the benefits of an income tax treaty
with the IRS determines is satisfactory and which includes an exchange of information program. The IRS has determined that the U.S.-Israel
income tax treaty is satisfactory for this purpose and includes an exchange of information program. Dividends that fail to meet such requirements,
and dividends received by corporate U.S. holders, are taxed at ordinary income tax rates. No dividend received by a U.S. holder will be
a qualified dividend if (1) the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days
during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for
this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual
obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to
buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical
securities) or (2) the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect
to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were
to be PFIC (as such term is defined in the Code) for any year, dividends paid on our ordinary shares in such year or in the following
year would not be qualified dividends. In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account
in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so;
in such case the dividend will be taxed at ordinary income tax rates.
Distributions of current or accumulated earnings and profits paid
in foreign currency to a U.S. holder (including any non-U.S. taxes withheld from the distributions) will generally be includible in the
income of a U.S. holder in a dollar amount calculated by reference to the exchange rate on the date of the distribution. A U.S. holder
that receives a foreign currency distribution and converts the foreign currency into dollars after the date of distribution may have foreign
exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally
be U.S. source ordinary income or loss.
U.S. holders generally will have the option of claiming the amount
of any non-U.S. income taxes withheld at source either as a deduction from gross income or as a dollar-for-dollar credit against their
U.S. federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not
claim a deduction for the amount of the non-U.S. income taxes withheld, but the amount may be claimed as a credit against the individual’s
U.S. federal income tax liability. The amount of non-U.S. income taxes that may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by each holder. These limitations include rules which limit
foreign tax credits allowable for specific classes of income to the U.S. federal income taxes otherwise payable on each such class of
income. The total amount of allowable foreign tax credits in any year generally cannot exceed the pre-credit U.S. tax liability for the
year attributable to non-U.S. source taxable income. Distributions of our current or accumulated earnings and profits generally will be
non-U.S. source passive income for U.S. foreign tax credit purposes.
A U.S. holder will be denied a foreign tax credit for non-U.S.
income taxes withheld from a dividend received on the ordinary shares (1) if the U.S. holder has not held the ordinary shares for at least
16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date with respect to such dividend or (2) to
the extent the U.S. holder is under an obligation to make related payments with respect to positions in substantially similar or related
property. Any days during which a U.S. holder has substantially diminished its risk of loss on the ordinary shares are not counted toward
meeting the required 16-day holding period.
Taxation of the Disposition of Ordinary Shares
Subject to the discussion below under “Tax Consequences if
We Are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition of our ordinary shares (other than in
certain non-recognition transactions), a U.S. holder will recognize capital gain or loss in an amount equal to the difference between
the U.S. holder’s basis in the ordinary shares, which is usually the cost to the U.S. holder of the ordinary shares, and the amount
realized on the disposition. Capital gain from the sale, exchange or other disposition of ordinary shares held more than one year will
be long-term capital gain and may, in the case of non-corporate U.S. holders, be subject to a reduced rate of taxation (long-term capital
gains are currently taxable at a maximum rate of 20% for U.S. holders that are individuals, estates or trusts). Gain or loss recognized
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. The deductibility of a capital loss recognized on the sale, exchange or other disposition of ordinary shares
may be subject to limitations.
91
A U.S. holder that uses the cash method of accounting calculates
the dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. holder that uses the accrual
method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign
currency gain or loss. An accrual method U.S. holder may avoid realizing such foreign currency gain or loss by electing to use the settlement
date to determine the proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a U.S. holder that
receives foreign currency upon disposition of ordinary shares and converts the foreign currency into dollars after the settlement date
or trade date (whichever date the U.S. holder is required to use to calculate the value of the proceeds of sale) may have foreign exchange
gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be
U.S. source ordinary income or loss.
Net Investment Income Tax
Certain non-corporate U.S. holders may also be subject to an additional
3.8% tax on all or a portion of their “net investment income,” which may include dividends on, or capital gains recognized
from the disposition of, our ordinary shares, subject to certain limitations and exceptions. U.S. holders are urged to consult their own
tax advisors regarding the implications of the Net Investment income tax on their investment in our ordinary shares.
Tax Consequences if We Are a Passive Foreign Investment Company
For U.S. federal income tax purposes, we will be classified as
a passive foreign investment company, or PFIC, for any taxable year in which, after applying certain look-through rules, either (i) 75%
or more of our gross income is passive income or (ii) at least 50% of the average value of our total assets (determined on a quarterly
basis) for the taxable year produce, or are held for the production of, passive income. For this purpose, cash is considered to be an
asset which produces passive income. Passive income includes dividends, interest, royalties, rents, annuities and the excess of gains
over losses from the disposition of certain assets which produce passive income.
Based on our income, assets, activities and market capitalization,
we do not believe that we were a PFIC for the taxable year ended December 31, 2021. However, there can be no assurances that the IRS will
not challenge this conclusion. If we were not a PFIC for 2021, U.S. holders who acquired our ordinary shares in 2021 will not be subject
to the PFIC rules described below (regardless of whether we were a PFIC in any prior year) unless we are classified as a PFIC in future
years. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of our future income,
assets, activities and market capitalization, including fluctuations in the price of our ordinary shares, which are relevant to this determination
If we are a PFIC, a U.S. holder of our ordinary shares could be
subject to increased tax liability upon the sale or other disposition (including gain deemed recognized if the ordinary shares are used
as security for a loan) of its ordinary shares or upon the receipt of distributions that are treated as “excess distributions”,
which could result in a reduction in the after-tax return to such U.S. holder. In general, an excess distribution is the amount of distributions
received during a taxable year that exceed 125% of the average amount of distributions received by a U.S. holder in respect of the ordinary
shares during the preceding three taxable years, or if shorter, during the U.S. holder’s holding period prior to the taxable year
of the distribution. Under these rules, the distributions that are excess distributions and any gain on the disposition of ordinary shares
would be allocated ratably over the U.S. holder’s holding period for the ordinary shares. The amount allocated to the current taxable
year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated
to each of the other taxable years would be subject to tax at the highest marginal rate in effect for the applicable class of taxpayer
for that taxable year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such
other taxable years. The tax liability with respect to the amount allocated to taxable years prior to the year of the disposition or distribution
cannot be offset by net operating losses. In addition, holders of stock in a PFIC may not receive a “step-up” in basis on
shares acquired from a decedent. Furthermore, if we are a PFIC, each U.S. holder generally will be required to file an annual report with
the IRS.
92
As an alternative to the tax treatment described above, a U.S.
holder could elect to treat us as a “qualified electing fund” (“QEF”), in which case the U.S. holder would be
required to include in income, for each taxable year that we are a PFIC, its pro rata share of our ordinary earnings as ordinary income
and its pro rata share of our net capital gains as capital gain, subject to a separate election to defer payment of taxes where such deferral
is subject to an interest charge. We may supply U.S. holders that make a request in writing with the information needed to report income
and gain under a QEF election, if we are a PFIC. Any income inclusion will be required whether or not such U.S. holder owns our ordinary
shares for an entire taxable year or at the end of our taxable year. The amount so includible will be determined without regard to our
prior year losses or the amount of cash distributions, if any, received from us. Special rules apply if a U.S. holder makes a QEF election
after the first year in its holding period in which we are a PFIC. A U.S. holder’s basis in its ordinary shares will increase by
any amount included in income and decrease by any amounts distributed to the extent such amounts were previously taxed under the QEF rules.
So long as a U.S. holder’s QEF election is in effect beginning with the first taxable year in its holding period in which we were
a PFIC, any gain or loss realized by such holder on the disposition of its ordinary shares held as a capital asset ordinarily would be
capital gain or loss. Such capital gain or loss ordinarily would be long-term if such U.S. holder had held such ordinary shares for more
than one year at the time of the disposition. The QEF election is made on a shareholder-by-shareholder basis, applies to all ordinary
shares held or subsequently acquired by an electing U.S. holder and can be revoked only with the consent of the IRS.
As an alternative to making a QEF election, a U.S. holder of PFIC
stock which is “marketable stock” (e.g., “regularly traded” on the Nasdaq Global Select Market) may in certain
circumstances avoid certain of the tax consequences generally applicable to holders of stock in a PFIC by electing to mark the stock to
market as of the beginning of such U.S. holder’s holding period for the ordinary shares. As a result of such election, in any taxable
year that we are a PFIC, a U.S. holder generally would be required to report gain or loss to the extent of the difference between the
fair market value of the ordinary shares at the end of the taxable year and such U.S. holder’s tax basis in its ordinary shares
at that time. Any gain under this computation, and any gain on an actual disposition of the ordinary shares in a year in which we are
a PFIC, would be treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of the ordinary shares
in a year in which we are a PFIC, generally would be treated as ordinary loss to the extent of the cumulative net-mark-to-market gain
previously included. Any remaining loss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual
disposition of ordinary shares generally would be capital loss. A U.S. holder’s tax basis in its ordinary shares is adjusted annually
for any gain or loss recognized under the mark-to-market election. There can be no assurances that there will be sufficient trading volume
with respect to the ordinary shares in order for the ordinary shares to be considered “regularly traded” or that our ordinary
shares will continue to trade on the Nasdaq Global Select Market. Accordingly, there are no assurances that the ordinary shares will be
marketable stock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis,
applies to all ordinary shares held or subsequently acquired by an electing U.S. holder and can only be revoked with consent of the IRS
(except to the extent the ordinary shares no longer constitute “marketable stock”).
The U.S. federal income tax consequences to a U.S. holder if we
were to be classified as a PFIC in 2021or any previous taxable year are complex. A U.S. holder should consult with his or her own advisor
regarding those consequences, as well as regarding whether he or she should make either of the elections described above.
Tax Consequences for Non-U.S. Holders of Ordinary Shares
Except as described in “Information Reporting and Back-up
Withholding” below, a non-U.S. holder of our ordinary shares 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, unless, in the case of U.S. federal income taxes:
| • |
the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, in the
case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in
the case of an individual, the item is attributable to a fixed place of business in the United States; or |
| • |
the non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, and certain other conditions are met. |
93
Information Reporting and Back-up Withholding
U.S. holders generally are subject to information reporting requirements
with respect to dividends on, or proceeds from the disposition of, our ordinary shares. In addition, a U.S. holder may be subject, under
certain circumstances, to backup withholding with respect to dividends paid on, or proceeds from the disposition of, our ordinary shares
unless the U.S. holder provides proof of an applicable exemption or correct taxpayer identification number, and otherwise complies with
the applicable requirements of the backup withholding rules. A U.S. holder of our ordinary shares who provides an incorrect taxpayer identification
number may be subject to penalties imposed by the IRS. Amounts withheld under the backup withholding rules are not an additional tax and
may be refunded or credited against the U.S. holder’s U.S. federal income tax liability, provided the required information is timely
furnished to the IRS.
Non-U.S. holders generally are not subject to information reporting
or back-up withholding with respect to dividends paid in the United States on, or proceeds from the disposition of, our ordinary shares,
provided that the non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or establishes another exemption
from the information reporting or back-up withholding requirements.
Certain U.S. holders (and to the extent provided in IRS guidance,
certain non-U.S. holders) who hold interests in “specified foreign financial assets” (as defined in Section 6038D of the Code)
are generally required to file an IRS Form 8938 as part of their U.S. federal income tax returns to report their ownership of such specified
foreign financial assets, which may include our ordinary shares, if the total value of those assets exceed certain thresholds. Substantial
penalties may apply to any failure to timely file IRS Form 8938. In addition, in the event a holder that is required to file IRS Form
8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder
for the related tax year may not close until three years after the date that the required information is filed. Holders should consult
their own tax advisors regarding their tax reporting obligations.
Documents on Display
We are subject to the informational requirements of the Exchange
Act applicable to foreign private issuers and fulfill these requirements by filing reports with the SEC. These reports include certain
financial and statistical information about us, and may be accompanied by exhibits.
The SEC maintains an Internet website at http://www.sec.gov that
contains reports, proxy statements, information statements and other information regarding issuers that file electronically with the SEC
filed through the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
You may also visit us on the Internet at www.ceragon.com. However,
information contained on our website does not constitute a part of this annual report.
ITEM 11. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not use derivative financial instruments for trading purposes.
Accordingly, we have concluded that there is no material market risk exposure of the type contemplated by Item 11, and that no quantitative
tabular disclosures are required. We are exposed to certain other types of market risks, as described below.
Foreign Currency Risk
As the majority of our revenues and cost of revenues, as well as
a significant portion of our operating expenses, are in U.S. dollars, we have determined that our functional currency is the U.S. dollar.
However, a significant portion of our revenues, costs of revenue as well as a major portion of our operating expenses are denominated
in other currencies, mainly in NIS, INR, EUR, BRL, ARS and NOK. As our financial results are reported in U.S. dollars, fluctuations in
the exchange rates between the U.S. dollar and applicable non-dollar currencies may have an effect on our results of operations. In order
to reduce such effect, we hedge a portion of certain cash flow transactions denominated in non-dollar currencies as well as a portion
of certain monetary items in the balance sheet, such as trade receivables and trade payables, denominated in non-dollar currencies. The
following sensitivity analysis illustrates the impact on our non-dollar net monetary assets assuming an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables held constant. At December 31, 2021, a 10% strengthening of the
U.S. dollar versus other currencies would have resulted in a decrease of approximately $2.4 million in our net monetary assets position,
while a 10% weakening of the dollar versus all other currencies would have resulted in an increase of approximately $3.0 million in our
net monetary assets position.
94
The counter-parties to our hedging transactions are major financial
institutions with high credit ratings. As of December 31, 2021, we had outstanding forward like contracts in the amount of $76.1 million
for a period of up to twelve months.
We do not invest in interest rate derivative financial instruments.
| ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. |
Not applicable.
PART II
| ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
None.
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
None
| ITEM 15. |
CONTROLS AND PROCEDURES |
| (a) |
Disclosure Controls and Procedures |
The Company performed an evaluation of the effectiveness of its
disclosure controls and procedures that are designed to provide reasonable assurance that the material financial and non-financial information
required to be disclosed to the SEC is recorded, processed, summarized and reported timely. Based on the Company’s evaluation, the
Company’s management, including the CEO and CFO, has concluded that the Company’s disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report are effective in reaching such
reasonable assurance. Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures
will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth
in the Company’s reports.
| (b) |
Management’s Annual Report on Internal Control Over Financial Reporting |
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company.
The Company performed an evaluation of the effectiveness of
its internal control over financial reporting that is designed by, or under the supervision of, the Company’s principal executive
and principal financial officers, and effected by the Company’s Board of Directors, management and other personnel, 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 and includes those policies and procedures that:
| (i) |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company; |
| (ii) |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and |
| (iii) |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. |
95
Under the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December
31, 2021 based on the framework for Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (COSO). Based on our assessment under that framework and the criteria established therein, our
management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021 in providing
reasonable assurance regarding the reliability of the Company’s financial reporting. Notwithstanding the foregoing, there can be
no assurance that the Company’s financial reporting controls and procedures will detect or uncover all failures of persons within
the Company to do all the required activities properly, which may impact the fair presentation of the financial statements of the Company
otherwise required to be set forth in the financial reports.
(c) Attestation Report of Independent
Registered Public Accounting Firm
Kost, Forer, Gabbay & Kasierer, a Member of Ernst & Young
Global, our independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control
over financial reporting, appearing under Item 18: “FINANCIAL STATEMENTS” on pages F-3 – F-4, and such report is incorporated
herein by reference.
| (d) |
Changes in Internal Controls Over Financial Reporting |
There were no changes in the Company’s internal control over
financial reporting that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
| ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
The Company’s Board of Directors has determined that Mr.
Shlomo Liran is the audit committee financial expert. Mr. Liran is an independent director under the Nasdaq Rules. In addition, the Company’s
Board of Directors has determined that each of Messers. Rami Hadar, Ilan Rosen and David Ripstein is qualified as a financial expert and
is an independent director under the Nasdaq Rules.
ITEM 16B.
CODE OF ETHICS
In November 2003, the Company’s Board of Directors adopted
a Code of Ethics that applies to the CEO, chief financial officer and controller. In October 2008, we amended our Code of Ethics in order
to update it and expand its applicability to additional senior officers. In December 2009, we combined the Code of Ethics together with
certain Standards of Business Conduct to strengthen the Company’s Ethics and Compliance Program. In October 2014, and again in December
2016, we amended and expanded the Company’s Ethics and Compliance Program, in order to strengthen certain provisions thereunder.
In July 2020, we updated the reference to the Company’s Chairman of the Corporate Audit Committee due to the replacement of Mr.
Berger by Mr. Ripstein. A copy of the Company’s updated Code of Ethics may be obtained, without charge, upon a written request addressed
to the Company’s investor relations department, Nitzba City, Plot 300, Bldg. A, 7th floor, POB 112, Rosh Ha’Ayin 4810002,
Israel (Telephone no. +972-3-543-1000) (e-mail: ir@ceragon.com). In addition, it is also available on the Internet at www.ceragon.com.
However, information contained on our website does not constitute a part of this annual report.
96
| ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Fees Paid to Independent Auditors
The following table sets forth, for each of the years indicated,
the fees billed by Kost, Forer, Gabbay & Kasierer, a member firm of Ernst & Young Global, our auditors, and the percentage of
each of the fees out of the total amount billed by them.
|
Year Ended December 31, |
||||||||||||||||
|
2020 |
2021 |
|||||||||||||||
|
Services Rendered |
Fees |
Percentages |
Fees |
Percentages |
||||||||||||
|
Audit Fees (1)
|
$ |
714,000 |
94 |
% |
$ |
678,000 |
93 |
% | ||||||||
|
Audit related fees (2)
|
$ |
- |
- |
$ |
8,500 |
1 |
% | |||||||||
|
Tax Fees (3)
|
$ |
43,000 |
6 |
% |
$ |
45,000 |
6 |
% | ||||||||
|
Total |
$ |
757,000 |
100 |
% |
$ |
731,500 |
100 |
% | ||||||||
| (1) |
Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can reasonably provide. |
| (2) |
Audit related fees principally relates to assistance with audit services and consultation |
| (3) |
Tax fees relate to tax compliance, planning and advice |
Policies and Procedures
Our Financial Audit Committee is in charge of a policy and procedures
for approval of audit and non-audit services rendered by our independent auditors. The policy requires the Financial Audit Committee’s
approval of the scope of the engagement of our independent auditor. The policy prohibits retention of the independent auditors to perform
the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also considers
whether proposed services are compatible with the independence of the public auditors.
All of the fees listed in the table above were approved by our Financial Audit Committee.
| ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
| ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
There were no purchases of our ordinary shares by affiliates during the year ended
December 31, 2021.
| ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
97
ITEM 16G.
CORPORATE GOVERNANCE
The Nasdaq Rules provide that foreign private issuers may follow
home country practice in lieu of certain Nasdaq Rules, subject to certain exceptions and except to the extent that such exemptions would
not be contrary to U.S. federal securities laws, so long as the foreign private issuer: (i) provides a written statement from an independent
counsel in its home country certifying that the company’s practices are not prohibited by the home country law; and (ii) discloses
that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC. The
practices we currently follow in lieu of Nasdaq Rules are described below:
| - |
Compensation Committee Charter: We have opted out of the requirement to adopt and
file a compensation committee charter as set forth in Nasdaq Rule 5605(d)(1). Instead, our Compensation Committee conducts itself in accordance
with provisions governing the establishment (but not the composition) and the responsibilities of a compensation committee as set forth
in the Companies Law and as further stipulated in our Compensation Policy. |
| - |
Shareholder Approval: We have opted out of the requirement for shareholder approval
of stock option plans and other equity-based compensation arrangements as set forth in Nasdaq Rule 5635. Nevertheless, as required under
the Companies Law, shareholder voting procedures are followed for the approval of equity-based compensation of certain office holders
or employees, such as our CEO and members of our Board of Directors. Equity based compensation arrangements with other office holders
are approved by our Compensation Committee and our Board of Directors, provided they are consistent with our Compensation Policy, and
in special circumstances in deviation therefrom, taking into account certain considerations as set forth in the Companies Law. |
| - |
Annual General Meetings of Shareholders: We have opted out of the requirement for
conducting annual meetings as set forth in Nasdaq Rule 5620(a), which requires Ceragon to hold its annual meetings of shareholders within
twelve months of the end of its fiscal year end. Instead, Ceragon is following home country practice and law in this respect. The Companies
Law requires that an annual meeting of shareholders be held every year, and not later than 15 months following the last annual meeting
(see in Item 10.B above –”Additional Information –Voting, Shareholders’ Meetings and Resolutions”).
|
| - |
Quorum at General Meetings of Shareholders: We have opted out of the requirement
set under Rule 5620(c) of the Nasdaq Rules, which requires the presence of two or more shareholders holding at least 33 1/3%, and in lieu
follow our home country practice and Israeli law, according to which the quorum for any shareholders meeting will be the presence (in
person or by Proxy) of two or more shareholders holding at least 25% of the voting rights in the aggregate - within half an hour from
the time set for opening the meeting. |
| - |
Distribution of Annual Reports: We have chosen to follow our home country practice
in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating to an issuer’s furnishing of its annual report to shareholders.
Specifically, we file annual reports on Form 20-F, which contain financial statements audited by an independent accounting firm, electronically
with the SEC, and also post a copy on our website. |
| ITEM 16H. |
MINE SAFETY DISCLOSURE |
Not Applicable.
PART III
| ITEM 17. |
FINANCIAL STATEMENTS |
Not applicable.
| ITEM 18. |
FINANCIAL STATEMENTS |
The Consolidated Financial Statements and related notes thereto
required by this item are contained on pages F-2 through F-48 hereof.
|
Index to Consolidated Financial Statements |
Page |
|
Reports of Independent Registered Public Accounting Firm |
F-2 - F-5 |
|
Consolidated Balance Sheets |
F-6 - F-7 |
|
Consolidated Statements of Operations |
F-8 |
|
Consolidated Statements of Comprehensive Income (loss) |
F-9 |
|
Consolidated Statements of Changes in Shareholders’ Equity |
F-10 |
|
Consolidated Statements of Cash Flows |
F-11 - F-12 |
|
Notes to Consolidated Financial Statements |
F-13 - F-48 |
98
| ITEM 19. |
EXHIBITS |
| 1.1 |
| 2.1 |
| 4.1 |
| 4.2 |
| 4.3 |
| 4.4 |
| 4.5 |
| 4.6 |
| 4.7 |
| 4.8 |
| 4.9 |
| 4.10 |
| 4.11 |
| 4.12 |
| 4.13 |
| 4.14 |
| 4.15 |
| 4.16 |
| 4.17 |
| 8.1 |
| 12.1 |
| 12.2 |
| 13.1 |
| 15.1 |
| 101 |
Inline XBRL Instance Document |
| 101 |
SCH Inline XBRL Taxonomy Extension Schema Document |
| 101 |
CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101 |
DEF Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101 |
LAB Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101 |
PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
(1) Previously filed as exhibit 1.2 to the Company’s Annual Report on Form 20-F
for the year ended December 31, 2016 and incorporated herein by reference.
(2) Previously filed as exhibit 4.4 to the Company’s Annual Report on Form 20-F
for the year ended December 31, 2012 and incorporated herein by reference.
(3) Previously furnished as exhibit 99.3 in a Report on Form 6-K which exhibit was
incorporated by reference into the Company’s Registration Statement on Form F-3 (No. 333-183316), and incorporated herein by reference.
(4) Previously filed as exhibits 4.6, 4.7 and 4.8 to the Company’s Annual Report
on Form 20-F for the year ended December 31, 2014 and incorporated herein by reference.
(5) Previously filed as exhibits 4.9 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2015 and incorporated herein by reference.
(6) Previously filed as exhibit 4.10 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2016 and incorporated herein by reference.
(7) Previously filed as exhibit 4.11 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2016 and incorporated herein by reference.
(8) Previously filed as exhibits 4.12 and 4.13 to the Company’s Annual Report
on Form 20-F for the year ended December 31, 2017 and incorporated herein by reference.
(9) Previously filed as exhibit 4.13 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2019 and incorporated herein by reference.
(10) Previously filed as exhibit 4.12 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2020 and incorporated herein by reference.
(11) Previously filed as exhibit 4.13 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2020 and incorporated herein by reference.
(12) Previously filed as exhibit 4.14 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2020 and incorporated herein by reference.
(13) Previously filed as exhibit 8.1 to the Company’s Annual Report on Form
20-F for the year ended December 31, 2020 and incorporated herein by reference.
99
SIGNATURE
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CERAGON NETWORKS LTD.
| By: | /s/ Doron Arazi. | |
|
Name: |
Doron Arazi |
|
|
Title: |
President and Chief Executive Officer |
Date: May 2, 2022
100
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
IN U.S. DOLLARS
INDEX
|
|
|
|
|
Page |
|
F-2 – F-5 |
(PCAOB ID:
|
F-6 – F-7 | |
|
F-8 | |
|
F-9 | |
|
F-10 | |
|
F-11 – F-12 | |
|
F-13 – F-48 |
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Ceragon Networks Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ceragon Networks Ltd. and subsidiaries (the "Company") as of December 31, 2020 and 2021, and the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 2, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F - 2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
Inventory valuation | ||
|
| ||
|
Description of the Matter |
The Company’s inventories totaled $61.4 million as of December 31, 2021. As explained in Note 2 to the consolidated financial statements, the Company assesses the value of all inventories, including raw materials finished goods and spare parts, in each reporting period. Reserves for potentially obsolete inventory are made based on management’s analysis of inventory aging, future sales forecasts, and market conditions.
Auditing the valuation of obsolete inventory reserves involved subjective auditor judgment because management’s estimate relies on significant assumptions such as the future salability of the inventory, the assessment by inventory age, future usage and market demand for the Company’s products. | |
|
| ||
|
How we Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s obsolete inventory reserve process. This included management’s assessment of the assumptions and data underlying the obsolete inventory valuation. Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data that management used to value obsolete inventory. We performed inquiries of appropriate non-financial personnel including operational employees, regarding obsolete inventory items and other factors to corroborate management’s assertions regarding qualitative judgments about obsolete inventories. We also compared the cost of on-hand inventories to customer demand forecasts and historical sales and evaluated adjustments to sales forecasts for specific product considerations such as technological changes or alternative uses. We also assessed the historical accuracy of management estimates by comparing the forecasted sales to actual utilization of inventory. |
KOST FORER GABBAY & KASIERER
A Member of EY Global
We have served as the Company's auditor since 2002
Tel-Aviv, Israel
May 2, 2022
F - 3
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Ceragon Networks Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Ceragon Networks Ltd. and subsidiaries' internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the "COSO criteria"). In our opinion, Ceragon Networks Ltd. and subsidiaries' (the "Company") maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2021, and the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021 and the related notes and our report dated May 2, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
F - 4
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A Member of EY Global
May 2, 2022
F - 5
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
|
|
|
December 31, | ||||||||
|
Note |
|
|
2020 |
|
2021 |
| |||||
|
| |||||||||||
|
ASSETS | |||||||||||
|
| |||||||||||
|
CURRENT ASSETS: | |||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
| |||||||
|
Trade receivables (net of allowance for credit losses of $ |
10 |
|
| ||||||||
|
Other accounts receivable and prepaid expenses |
3 |
|
| ||||||||
|
Inventories |
4 |
|
| ||||||||
|
| |||||||||||
|
Total current assets |
|
| |||||||||
|
| |||||||||||
|
NON-CURRENT ASSETS: | |||||||||||
|
Trade receivables (net of allowance for credit losses of $ |
10 |
|
| ||||||||
|
Deferred tax assets |
15d |
|
- | ||||||||
|
Severance pay and pension fund |
|
| |||||||||
|
Operating lease right-of-use assets |
13 |
|
| ||||||||
|
Other non-current assets |
|
| |||||||||
|
| |||||||||||
|
PROPERTY AND EQUIPMENT, NET |
5 |
|
| ||||||||
|
| |||||||||||
|
INTANGIBLE ASSETS, NET |
6 |
|
| ||||||||
|
| |||||||||||
|
Total long-term assets |
|
| |||||||||
|
| |||||||||||
|
Total assets |
$ |
|
$ |
| |||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
|
|
|
|
|
December 31, | ||||||
|
|
|
Note |
|
|
2020 |
|
2021 |
| |||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
|
Trade payables |
|
|
|
|
$ |
|
|
$ |
|
| |
|
Deferred revenues |
|
16 |
|
|
|
|
|
|
|
| |
|
Short-term loans |
|
8 |
|
|
|
|
|
|
|
| |
|
Operating lease liabilities |
|
13 |
|
|
|
|
|
|
|
| |
|
Other accounts payable and accrued expenses |
|
7 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
| |
|
Accrued severance pay and pensions |
|
|
|
|
|
|
|
|
|
| |
|
Deferred revenues |
|
16 |
|
|
|
|
|
|
|
| |
|
Operating lease liabilities |
|
13 |
|
|
|
|
|
|
|
| |
|
Other long-term payables |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total long-term liabilities |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
COMMITMENTS AND CONTINGENT LIABILITIES |
|
12 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
SHAREHOLDERS' EQUITY: |
|
14 |
|
|
|
|
|
|
|
| |
|
Share capital - |
|
|
|
|
|
|
|
|
|
| |
|
Ordinary shares of NIS |
|
|
|
|
|
|
|
|
|
| |
|
Authorized: |
|
|
|
|
|
|
|
|
|
| |
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
| |
|
Treasury shares at cost – |
|
|
|
|
|
( |
) |
|
( |
) | |
|
Accumulated other comprehensive loss |
|
|
|
|
|
( |
) |
|
( |
) | |
|
Accumulated deficit |
|
|
|
|
|
( |
) |
|
( |
) | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total shareholders' equity |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities and shareholders' equity |
|
|
|
|
$ |
|
|
$ |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)
|
Year ended December 31, | |||||||||||||||
|
Note |
2019 |
2020 |
2021 | ||||||||||||
|
| |||||||||||||||
|
Revenues |
16 |
$ |
|
$ |
|
$ |
| ||||||||
|
Cost of revenues |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Gross profit |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Operating expenses: | |||||||||||||||
|
Research and development, net |
|
|
| ||||||||||||
|
Sales and marketing |
|
|
| ||||||||||||
|
General and administrative |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Total operating expenses |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Operating income (loss) |
|
( |
) |
| |||||||||||
|
Financial expenses and others, net |
18 |
|
|
| |||||||||||
|
| |||||||||||||||
|
Income (loss) before taxes on income |
|
( |
) |
( |
) | ||||||||||
|
| |||||||||||||||
|
Taxes on income |
15c |
|
|
| |||||||||||
|
Equity loss in affiliates |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
|
| |||||||||||||||
|
Net loss per share: | |||||||||||||||
|
| |||||||||||||||
|
Basic and diluted net loss per share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
|
Weighted average number of ordinary shares used in computing basic and diluted net loss per share |
|
|
| ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
Other comprehensive income (loss): | ||||||||||||
|
| ||||||||||||
|
Change in foreign currency translation adjustment |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
Cash flow hedges: | ||||||||||||
|
Change in net unrealized gains |
|
|
| |||||||||
|
Amounts reclassified into net loss |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
Net change |
|
|
( |
) | ||||||||
|
| ||||||||||||
|
Other comprehensive income (loss), net |
|
|
( |
) | ||||||||
|
| ||||||||||||
|
Total of comprehensive loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share and per share data)
|
Ordinary shares |
|
|
Share capital |
|
|
Additional paid-in capital |
|
|
Treasury shares at cost |
|
|
Accumulated other comprehensive loss |
|
|
Accumulated deficit |
|
|
Total shareholders' equity | ||||||||||
|
| ||||||||||||||||||||||||||||
|
Balance as of January 1, 2019 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||
|
| ||||||||||||||||||||||||||||
|
Exercise of options and vesting of RSU’s |
|
|
|
- |
- |
- |
| |||||||||||||||||||||
|
Share-based compensation expense |
- |
- |
|
- |
- |
- |
| |||||||||||||||||||||
|
Other comprehensive income, net |
- |
- |
- |
- |
|
- |
| |||||||||||||||||||||
|
Net loss |
- |
- |
- |
- |
- |
( |
) |
( |
) | |||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Balance as of December 31, 2019 |
|
|
|
( |
) |
( |
) |
( |
) |
| ||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Cumulative effect of adoption of ASU Topic 326 |
- |
- |
- |
- |
- |
( |
) |
( |
) | |||||||||||||||||||
|
Exercise of options and vesting of RSU’s |
|
|
|
- |
- |
- |
| |||||||||||||||||||||
|
Share-based compensation expense |
- |
- |
|
- |
- |
- |
| |||||||||||||||||||||
|
Other comprehensive income, net |
- |
- |
- |
- |
|
- |
| |||||||||||||||||||||
|
Net loss |
- |
- |
- |
- |
- |
( |
) |
( |
) | |||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Balance as of December 31, 2020 |
|
|
|
( |
) |
( |
) |
( |
) |
| ||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Exercise of options and vesting of RSU’s |
|
|
|
- |
- |
- |
| |||||||||||||||||||||
|
Share-based compensation expense |
- |
- |
|
- |
- |
- |
| |||||||||||||||||||||
|
Other comprehensive loss, net |
- |
- |
- |
- |
( |
) |
- |
( |
) | |||||||||||||||||||
|
Net loss |
- |
- |
- |
- |
- |
( |
) |
( |
) | |||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Balance as of December 31, 2021 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31, | |||||||||||||
|
2019 |
2020 |
2021 | |||||||||||
|
Cash flows from operating activities: | |||||||||||||
|
Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
|
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||
|
Depreciation and amortization |
|
|
| ||||||||||
|
Loss from sale of property and equipment |
|
|
| ||||||||||
|
Share-based compensation expense |
|
|
| ||||||||||
|
Decrease (increase) in accrued severance pay and pensions, net |
|
|
( |
) | |||||||||
|
Decrease (increase) in trade receivables, net |
|
|
( |
) | |||||||||
|
Increase in other accounts receivable and prepaid expenses (including other long-term assets) |
( |
) |
( |
) |
( |
) | |||||||
|
Decrease in operating lease right-of-use assets |
|
|
| ||||||||||
|
Decrease (increase) in inventories |
( |
) |
|
( |
) | ||||||||
|
Increase (decrease) in trade payables |
( |
) |
|
| |||||||||
|
Increase in deferred revenues |
|
|
| ||||||||||
|
Decrease (increase) in deferred tax assets, net |
( |
) |
( |
) |
| ||||||||
|
Decrease in operating lease liability |
( |
) |
( |
) |
( |
) | |||||||
|
Increase (decrease) in other accounts payable and accrued expenses (including other long-term liabilities) |
( |
) |
|
( |
) | ||||||||
|
| |||||||||||||
|
Net cash provided by (used in) operating activities |
( |
) |
|
( |
) | ||||||||
|
| |||||||||||||
|
Cash flows from investing activities: | |||||||||||||
|
Purchase of property and equipment |
( |
) |
( |
) |
( |
) | |||||||
|
Proceeds from sale of property and equipment |
|
|
| ||||||||||
|
Purchase of intangible assets |
( |
) |
( |
) |
( |
) | |||||||
|
Proceeds from bank deposits |
|
|
| ||||||||||
|
| |||||||||||||
|
Net cash used in investing activities |
( |
) |
( |
) |
( |
) | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 11
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
Cash flows from financing activities: | ||||||||||||
|
| ||||||||||||
|
Proceeds from (repayment of) bank credits and loans, net |
|
( |
) |
| ||||||||
|
Proceeds from exercise of stock options |
|
|
| |||||||||
|
| ||||||||||||
|
Net cash provided by (used in) financing activities |
|
( |
) |
| ||||||||
|
| ||||||||||||
|
Translation adjustments on cash and cash equivalents |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
Increase (decrease) in cash and cash equivalents |
( |
) |
|
( |
) | |||||||
|
| ||||||||||||
|
Cash and cash equivalents at the beginning of the year |
|
|
| |||||||||
|
| ||||||||||||
|
Cash and cash equivalents at the end of the year |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Supplemental disclosure of cash flow information: | ||||||||||||
|
| ||||||||||||
|
Cash paid for income taxes |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Cash paid for interest on bank loans |
$ |
|
$ |
|
$ |
| ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 12
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 1:-GENERAL
Ceragon Networks Ltd. ("the Company") is a global innovator and leading solutions provider of wireless transport. The Company helps operators and other service providers worldwide increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul and fronthaul solutions. The Company’s unique multicore technology and disaggregated approach to wireless transport provides highly reliable, fast to deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate, and labor resources. It enables increased productivity, as well as simple and quick network modernization. The Company delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization to achieve the highest value for its customers.
The Company sells its products through a direct sales force, systems integrators, distributors and original equipment manufacturers.
The Company’s wholly owned subsidiaries provide research and development, marketing, manufacturing, distribution, sales and technical support to the Company’s customers worldwide.
As to principal markets and major customers, see notes 17b and 17c.
F - 13
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES
a.Basis of presentation:
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”).
b.Use of estimates:
The preparation of financial statements, in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
The duration, scope and effects of the ongoing COVID-19 pandemic, government and other third party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of intangibles, fair values of stock-based awards, inventory write-off, warranty provision, income taxes, contingent liabilities, and incremental credit losses on receivables, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event.
c.Financial statements in U.S. dollars:
A majority of the revenues of the Company and certain of its subsidiaries are generated in U.S. dollars (“dollars”). In addition, a substantial portion of the Company’s and certain of its subsidiaries’ costs is incurred in dollars. Since management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate and considers the non-U.S. subsidiaries to be a direct, integral extension of the parent company’s operations, the dollar is its functional and reporting currency.
Accordingly, amounts in currencies other than U.S dollars have been re-measured in accordance with ASC topic 830, “Foreign Currency Matters” (“ASC 830”) as follows:
Monetary balances - at the exchange rate in effect on the balance sheet date. Consolidated statements of operations items - average exchange rates prevailing during the year.
All exchange gains and losses from the re-measurement mentioned above are reflected in the statement of operations in financial expenses and others, net.
F - 14
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The financial statements of the Company’s Brazilian subsidiary, whose functional currency is not the dollar, have been re-measured and translated into dollars. All amounts on the balance sheets have been translated into the dollar using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of operations have been translated into the dollar using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
d.Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries (“the Group”). Intercompany balances and transactions including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.
e.Cash equivalents:
Cash equivalents include short-term unrestricted, highly liquid investments that are readily convertible to cash and with original maturities of three months or less, at acquisition.
f.Inventories:
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued products, and for market prices lower than cost, if any.
The Company periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions) and the age of the inventory. At the point of the loss recognition, a new lower cost basis for that inventory is established. In addition, if required, the Company records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Company’s future demands forecast consistent with its valuation of excess and obsolete inventory.
Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues in the related arrangements were not recognized.
Cost is determined for all types of inventory using the moving average cost method plus indirect costs.
F - 15
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g.Long-term trade receivables:
Long-term trade receivables, with payment terms in excess of one year that are considered collectible, are recorded at their estimated present values.
h.Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:
|
% | |
|
| |
|
Computers, manufacturing and peripheral equipment |
|
|
Office, furniture and equipment |
Mainly |
|
Leasehold improvements |
Over the shorter of the term of the lease or useful life of the asset |
i.Impairment of long-lived assets:
The Company’s long-lived assets are reviewed for impairment in accordance with ASC topic 360,” Property Plant and Equipment”, (“ASC 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During 2019, 2020 and 2021,
j.Income taxes:
The Company account for income taxes in accordance with ASC topic 740, “Income Taxes”, (“ASC 740”). This Statement prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and for carry forward losses deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized. For more information see note 15d.
The Company accounts for uncertain tax positions in accordance with ASC No. 740, “Income Taxes”, (“ASC 740”). ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than
F - 16
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.Intangible assets, net:
Intangible assets consist of technology and incurred software development costs capitalized in accordance with ASC 985-20, “Software - Costs of Software to be Sold, Leased, or Marketed”.
Intangible assets that are considered to have definite useful life are amortized using the straight-line basis over their estimated useful lives.
l.Revenue recognition:
The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise to transfer tangible products, network roll-out, professional services and customer support, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. Revenue from tangible products is recognized at a point in time when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied).
The revenues from customer support and extended warranty is recognized ratably over the contract period and the costs associated with these contracts are recognized as incurred. Revenues from network roll-out and professional services are recognized when the Company’s performance obligation is satisfied, usually upon customer acceptance.
The Company accounts for rebates and stock rotations provided to customers as variable consideration, based on historical analysis of credit memo data, rebate plans and stock rotation arrangements, as a deduction from revenue in the period in which the revenue is recognized.
F - 17
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m.Research and development expenses, net:
Research and development expenses, net of government grants, are charged to the statement of operations as incurred, except for development expenses which were capitalized in accordance with ASC 985-20 “Software – Costs of Software to be Sold, Leased, or Marketed” (see j above).
n.Warranty costs:
The Company generally offers a standard limited warranty, including parts and labor for an average period of
The Company recorded income (expenses) from decrease (increase) of warranty provision for the years ended December 31, 2019, 2020 and 2021 in the amount of $
o.Derivative instruments:
The Company has instituted a foreign currency cash flow hedging program using foreign currency forward and option contracts (“derivative instruments”) in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These transactions are designated as cash flow hedges, as defined under ASC topic 815, “Derivatives and Hedging”.
ASC 815 requires companies to recognize all of their derivative instruments as either assets or liabilities in the financial statements at fair value. The Company measured the fair value of the contracts in accordance with ASC topic 820, “Fair value Measurement and Disclosures” at Level 2 (see also note 2t). The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge.
F - 18
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments that don’t meet the definition of a hedge, the changes in the fair value are included immediately in earnings in “Financial expenses and others, net”, in each reporting period.
The Company’s cash flow hedging program is to hedge against the risk of overall changes in cash flows resulting from forecasted foreign currency of salary and rent payments during the year. The Company hedges portions of its forecasted expenses denominated in NIS with forward exchange contracts.
p.Concentrations of credit risk:
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables.
The majority of the Company’s cash and cash equivalents are maintained in U.S. dollar. Generally, these cash and cash equivalents may be redeemed upon demand. Management believes that the financial institutions that hold the Company’s and its subsidiaries’ cash and cash equivalents are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these assets.
The Company’s trade receivables are geographically diversified and derived from sales to customers all over the world. The Company and its subsidiaries generally do not require collateral; however, in certain circumstances, the Company and its subsidiaries may require letters of credit, additional guarantees or advance payments.
The Company and its subsidiaries perform ongoing credit evaluations of their customers and insure certain trade receivables under credit insurance policies.
q.Transfers of financial assets:
ASC 860 “Transfers and Servicing”, (“ASC 860”), establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. The Company’s arrangements are such that the underlying conditions are met for the transfer of financial assets to qualify for accounting as a sale. The transfers of financial assets are typically performed by the factoring of receivables to two financial institutions.
F - 19
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
As of December 31, 2020, and 2021, the Company sold trade receivables to several different financial institutions in a total net amount of $
During the years ended on December 31, 2019, 2020 and 2021, the Company recorded amounts of $
r.Severance pay:
The Company’s severance pay liability for its Israeli employees is calculated pursuant to Israel’s Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability for all of its employees in Israel is covered by monthly deposits with pension funds, insurance policies and an accrual. The value of the funds deposited into pension funds and insurance policies is recorded as an asset - severance pay fund - in the Company’s balance sheet.
The severance pay fund includes the deposited funds and accumulated adjustments to the Israeli Consumer Price Index up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel’s Severance Pay Law or labor agreements. The value of the deposited funds in insurance policies, is based on the cash surrendered value of these policies and includes profits / losses.
Starting April 2009, the Company’s agreements with new employees in Israel are under section 14 of the Severance Pay Law -1963. The Company’s contributions for severance pay shall replace its severance obligation, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.
As of December 2020 and 2021, accrued severance pay amounted to $
The Company accounts for its obligations for pension and other postretirement benefits in accordance with ASC 715, “Compensation - Retirement Benefits”. For more information refer to note 11.
F - 20
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s.Accounting for stock-based compensation:
ASC topic 718, “Compensation - Stock Compensation”, (“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 estimates the fair value of stock options granted under ASC 718 using the binomial model with the following assumptions for 2019, 2020 and 2021:
|
December 31, | ||||||
|
2019 |
2020 |
2021 | ||||
|
| ||||||
|
Dividend yield |
|
|
| |||
|
Volatility |
|
|
| |||
|
Risk free interest |
|
|
| |||
|
Early exercise multiple |
|
|
| |||
Risk-free interest rates are based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life of the options; volatility of price of the Company’s shares based upon actual historical stock price movements. The Early exercise factor is representing the value of the underlying stock as a multiple of the exercise price of the option which, if achieved, results in exercise of the option.
Early exercise multiple is based on actual historical exercise activity. The expected term of the options granted is derived from output of the option valuation model and represents the period of time that options granted are expected to be outstanding.
The Company recognizes compensation expense using the accelerated method for all awards ultimately expected to vest. Estimated forfeitures are based on historical pre-vesting forfeitures and on management’s estimates. ASC topic 718 requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
t.Fair value of financial instruments:
The Company applies ASC 820, “Fair Value Measurements and Disclosures”. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
F - 21
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 -Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 -Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
The following methods and assumptions were used by the Company and its subsidiaries in estimating their fair value disclosures for financial instruments.
The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable, trade payables, and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
The derivative instruments are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
F - 22
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
u.Comprehensive income:
The Company accounts for comprehensive income in accordance with ASC topic 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders.
The components of accumulated other comprehensive income - (“AOCI”) were as follows:
|
Unrealized Gains (Losses) on Cash Flow Hedges |
Foreign Currency Translation Adjustments |
Total | ||||||||||
|
| ||||||||||||
|
Balance as of January 1, 2021 |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
| ||||||||||||
|
Other comprehensive income before reclassifications |
|
( |
) |
| ||||||||
|
Amounts reclassified from AOCI |
( |
) |
|
( |
) | |||||||
|
| ||||||||||||
|
Other comprehensive loss |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
Balance as of December 31, 2021 |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
The effects on net loss of amounts reclassified from AOCI for the year ended December 31, 2021 derive from realized gains on cash flow hedges, included in operating expenses.
v.Treasury shares:
The Company repurchased its ordinary shares on the open-market and holds such shares as Treasury shares. The Company presents the cost of repurchased treasury shares as a reduction of shareholders’ equity.
w.Basic and diluted net earnings per share:
Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during the year, in accordance with ASC topic 260, “Earnings Per Share” (“ASC 260”).
The total weighted average number of shares related to the outstanding options and RSU’s excluded from the calculations of diluted net earnings per share due to their anti-dilutive effect was
F - 23
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
x.Equity method investment
Investments in companies that are not controlled but over which the Company can exercise significant influence are presented using the equity method of accounting.
y.Reclassifications:
Certain prior period amounts have been reclassified in order to conform to the current period presentation.
z.Impact of recently issued Accounting Standards:
In November 2021, the FASB issued ASU 2021-10, ASC Topic 832 “Disclosures by Business Entities about Government Assistance”. The standard require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) Information about the nature of the transactions and the related accounting policy used to account for the transactions (2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item (3) Significant terms and conditions of the transactions, including commitments and contingencies. The standard will become effective for fiscal years beginning after December 15, 2021. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
NOTE 3:-OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
| ||||||||
|
Government authorities |
$ |
|
$ |
| ||||
|
Deferred charges and prepaid expenses |
|
| ||||||
|
Deposits receivable |
|
| ||||||
|
Advances to suppliers |
|
| ||||||
|
Hedging asset |
|
| ||||||
|
Other |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
F - 24
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 4:-INVENTORIES
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
| ||||||||
|
Raw materials |
$ |
|
$ |
| ||||
|
Work in progress |
|
| ||||||
|
Finished products |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
During the years ended December 31, 2019, 2020 and 2021, the Company recorded inventory write-offs for excess inventory and slow-moving inventory in a total amount of $
As of December 31, 2021, the Company has an outstanding inventory purchase orders with its suppliers in the amount of $
NOTE 5:-PROPERTY AND EQUIPMENT, NET
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
Cost: | ||||||||
|
Computers, manufacturing, peripheral equipment |
$ |
|
$ |
| ||||
|
Office furniture and equipment |
|
| ||||||
|
Leasehold improvements |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
Accumulated depreciation: | ||||||||
|
Computers, manufacturing, peripheral equipment |
|
| ||||||
|
Office furniture and equipment |
|
| ||||||
|
Leasehold improvements |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
| ||||||||
|
Depreciated cost |
$ |
|
$ |
| ||||
Depreciation expenses for the years ended December 31, 2019, 2020 and 2021 were $
Changes of property and equipment not resulted in cash outflows as of December 31, 2019, 2020 and 2021 amounted to $
F - 25
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 6:-INTANGIBLE ASSETS, NET
Intangible assets:
The following table sets forth the components of intangible assets:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
Original amounts: | ||||||||
|
Technology |
$ |
|
$ |
| ||||
|
Software development costs |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
| ||||||||
|
Accumulated amortization: | ||||||||
|
Software development costs |
|
| ||||||
|
| ||||||||
|
Net amounts: | ||||||||
|
Technology |
|
| ||||||
|
Software development costs |
|
| ||||||
|
| ||||||||
|
Intangible assets, net |
$ |
|
$ |
| ||||
Technology includes mainly perpetual software licenses to be used in the Company’s research and development activities. During 2021, the Company purchased $
NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
December 31, | |||||||||
|
2020 |
2021 | ||||||||
|
| |||||||||
|
Employees and payroll accruals |
$ |
|
$ |
| |||||
|
Provision for warranty costs |
|
| |||||||
|
Government authorities |
|
| |||||||
|
Accrued expenses |
|
| |||||||
|
Advanced payments from customers |
|
| |||||||
|
Hedging Liability |
|
| |||||||
|
Other |
|
| |||||||
|
| |||||||||
|
$ |
|
$ |
| ||||||
F - 26
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 8:- CREDIT LINES
In March 2013, the Company was provided with a revolving Credit Facility by four financial institutions. The Credit Facility was renewed and amended several times during the past years according to Company’s needs and financial position.
In June 2021, the Company signed the latest amendment to the agreement in the frame of which the Credit Facility was extended by additional 1 year, till
As of December 31, 2021, the Company has utilized $
The Credit Facility is secured by a floating charge over all Company assets as well as several customary fixed charges on specific assets.
Repayment could be accelerated by the financial institutions in certain events of default including in insolvency events, failure to comply with financial covenants or an event in which a current or future shareholder acquires control (as defined under the Israel Securities Law) of the Company.
The credit agreement contains financial and other covenants requiring that the Company maintains, among other things, minimum shareholders’ equity value and financial assets, a certain ratio between its shareholders’ equity (excluding total intangible assets) and the total value of its assets (excluding total intangible assets) on its balance sheet, a certain ratio between its net financial debt to each of its working capital and accounts receivable. As of December 31, 2020 and 2021, the Company met all of its covenants.
NOTE 9:- DERIVATIVE INSTRUMENTS
The Company enters into foreign currency forward and option contracts with financial institutions to protect against the exposure to changes in exchange rates of several foreign currencies that are associated with forecasted cash flows and existing assets and liabilities. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
F - 27
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)
The fair value of derivative contracts in the consolidated balance sheets at December 31, 2020 and December 31, 2021 were as follows:
|
Other accounts receivable and prepaid expenses |
Other accounts payable and accrued expenses | |||||||
|
December 31, 2020 | ||||||||
|
Derivatives designated as hedging instruments: | ||||||||
|
Currency forward contracts |
$ |
|
$ |
| ||||
|
Derivatives not designated as hedging instruments: | ||||||||
|
Currency forward and option contracts |
|
| ||||||
|
| ||||||||
|
Total derivatives |
$ |
|
$ |
| ||||
|
Other accounts receivable and prepaid expenses |
Other accounts payable and accrued expenses | |||||||
|
December 31, 2021 | ||||||||
|
Derivatives designated as hedging instruments: | ||||||||
|
Currency forward contracts |
$ |
|
$ |
( |
) | |||
|
Derivatives not designated as hedging instruments: | ||||||||
|
Currency forward and option contracts |
|
( |
) | |||||
|
| ||||||||
|
Total derivatives |
$ |
|
$ |
( |
) | |||
The notional amounts for derivatives contracts were as follows:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
Derivatives designated as hedging instruments: | ||||||||
|
Currency forward contracts |
$ |
|
$ |
| ||||
|
Derivatives not designated as hedging instruments: | ||||||||
|
Currency forward and option contracts |
$ |
|
$ |
| ||||
The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is up to 12 months.
F - 28
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)
The effect of derivative contracts on the consolidated statements of operations for the year ended December 31, 2020 and 2021 was as follows:
|
Year ended December 31, | |||||||||
|
2020 |
2021 | ||||||||
|
| |||||||||
|
Operating income |
$ |
|
$ |
| |||||
|
| |||||||||
|
Financial income (expenses) |
$ |
( |
) |
$ |
| ||||
NOTE 10:- CREDIT LOSSES
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, based on a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption in the total of $700.
The Company is exposed to credit losses primarily through sales to customers. The Company’s expected loss allowance methodology for trade receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status.
The estimate of amount of trade receivable that may not be collected is based on the geographic location of the trade receivable balances, aging of the trade receivable balances, the financial condition of customers and the Company’s historical experience with customers in similar geographies.
Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
Balance, at beginning of Period |
$ |
|
$ |
| ||||
|
Cumulative effect of adoption of ASU Topic 326 |
|
| ||||||
|
Provision for expected credit losses |
|
| ||||||
|
Amounts written off charged against the allowance and others |
( |
) |
( |
) | ||||
|
| ||||||||
|
Balance, at end of period |
$ |
|
$ |
| ||||
F - 29
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 11:- PENSION LIABILITIES, NET
The Norwegian subsidiary Ceragon Networks AS (formerly “Nera Networks AS”) has defined contribution schemes and four unfunded pension plans.
Under the defined contributions scheme Ceragon Networks AS makes a payment to the insurance company who administer the fund on behalf of the employee. Ceragon Networks AS has no liabilities relating to such schemes after the payment to the insurance company. As of December 31, 2021, all active employees are in this scheme. The contribution and the corresponding social security taxes are recognized as payroll expenses in the period to which the employee’s services are rendered. The defined pension contribution schemes meet the requirements of the law on compulsory occupational pension.
Defined benefit scheme was stopped for admission from December 1, 2007, and persons that were employed after that date were automatically entered into the defined contribution scheme. The schemes give right to defined future benefits. These are mainly dependent on the number of qualifying employment years, salary level at pension age, and the amount of benefits from the national insurance scheme. The commitment related to the pension scheme is covered through an insurance company.
AFP-scheme - in force from 1 January 2011, the AFP-scheme is a defined benefit multi-enterprise scheme, but is recognized in the accounts as a defined contribution scheme until reliable and sufficient information is available for the group to recognize its proportional share of pension cost, pension liability and pension funds in the scheme. Ceragon Networks AS’s liabilities are therefore not recognized as liability in the balance sheet.
The liabilities in respect of Ceragon Networks AS’s unfunded pension plans together represent 100% of the PBO (Projected Benefit Obligation) of the entire group.
The following tables provide a reconciliation of the changes in the plans’ benefits obligation for the year ended December 31, 2020 and 2021, and the statement of funds status as of December 31, 2020 and 2021:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
| ||||||||
|
Change in projected benefit obligation | ||||||||
|
Projected benefit obligation at beginning of year |
|
| ||||||
|
Interest cost |
|
| ||||||
|
Expenses paid |
( |
) |
( |
) | ||||
|
Exchange rates differences |
|
( |
) | |||||
|
Actuarial loss |
|
| ||||||
|
| ||||||||
|
Projected benefit obligation at end of year |
$ |
|
$ |
| ||||
F - 30
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 11:- PENSION LIABILITIES, NET (Cont.)
The assumptions used in the measurement of the Company’ benefits obligations as of December 31, 2020 and 2021 are as follows:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
Weighted-average assumptions | ||||||||
|
Discount rate |
|
% |
|
% | ||||
|
Rate of compensation increase |
|
% |
|
% | ||||
The amounts reported for net periodic pension costs and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The Company reviews historical trends, future expectations, current market conditions and external data to determine the assumptions. The discount rate is the covered bond. For purposes of calculating the 2021 net periodic benefit cost and the 2021 benefit obligation, the Company has used a discount rate of
The following table provides the components of net periodic benefits cost for the years ended December 31, 2019, 2020 and 2021:
|
December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
Components of net periodic benefit cost | ||||||||||||
|
Service cost |
$ |
|
$ |
|
$ |
| ||||||
|
Interest cost |
|
|
| |||||||||
|
| ||||||||||||
|
Net periodic benefit cost |
$ |
|
$ |
|
$ |
| ||||||
Benefit payments are expected to be paid as follows:
|
December 31, |
| |||
|
2021 |
| |||
|
|
| |||
|
|
| |||
|
2022 |
|
| ||
|
2023 |
|
| ||
|
2024 |
|
| ||
|
2025 |
|
| ||
|
2026 and thereafter |
|
| ||
|
|
| |||
|
$ |
|
| ||
Regarding the policy for amortizing actuarial gains or losses for pension and post-employment plans, the Company has chosen to charge the actuarial gains or losses to statement of operations.
Interest cost and actuarial gain or losses are presented in financial expenses and others, net.
For the years ended December 31, 2019, 2020 and 2021, an actuarial loss of $
F - 31
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Leases
See Note 13 “Leases” for lease related commitments as of December 31, 2021.
b.During 2019, 2020 and 2021, the Company received several grants from the Israeli Innovation Authority (“IIA”). The grants require the Company to comply with the requirements of the Research and Development Law, however, the Company is not obligated to pay royalties on sales of products based on technology or know how developed from the grants. In a case involving the transfer of technology or know how developed from the grants outside of Israel, the Company may be required to pay royalties related to past sales of products based on the technology or the developed know how. The Company recorded income from IIA grants for the years ended December 31, 2019, 2020 and 2021 in the amount of $
c.Paycheck Protection Program Loan:
In May 2020, the Company received $
d.Charges and guarantees:
As of December 31, 2020 and 2021, the Company provided guarantees in an aggregate amount of $
e.Litigations:
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
On January 6, 2015 the Company was served with a motion to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants. The motion was filed with the District Court of Tel-Aviv (the “Court”). The purported class action alleges breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements. The plaintiff seeks specified compensatory damages in a sum of up to $
F - 32
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
The Company filed its defense on June 21, 2015, which was followed by disclosure proceedings.
The plaintiff filed his reply to the Company’s defense by April 2, 2017. A preliminary hearing was held on May 22, 2017, in the framework of which the court set dates for response to the Company’s above-mentioned requests as well as dates for evidence hearings.
In May 2017, the Company filed two requests: the first, requesting to dismiss the plaintiff’s response to the Company’s defense, or, alternatively, to allow the Company to respond to it; the second, to precede a ruling with regards to the legal question of the governing law. On July 17, 2017, the court issued its decision in the first request, denying the requested dismissal of plaintiff’s response to the Company’s defense, but allowing the Company to respond to it; on July 29, 2017, the Court issued its decision in the second request, and denied it. The Company filed its response on September 18, 2017.
On October 2, 2017, the plaintiff filed a request to summon two of the Company’s officers (Company’s Chairman, Mr. Zisapel and Company’s Chief Executive Officer, Mr. Palti). The first evidence hearing took place on November 2, 2017 and the second and final evidence hearing took place on January 8, 2018. Summaries were filed by the plaintiff on March 21, 2018 and the Company filed its summaries on June 12, 2018. The plaintiff filed their reply summaries on September 5, 2018.
On October 4, 2018, an interim decision regarding dual listed companies, which corresponds with the Company’s arguments in this case, was rendered by the Supreme Court of Israel. This Supreme court decision upholds two recent rulings of District Court of Tel-Aviv (Economic Department), which determined that all securities litigation regarding dual listed companies should be decided only in accordance with US law (herein after: “Supreme Court Decision”).
In light of this, on October 15, 2018, the plaintiff asked from court to add a plea to his summaries. The court has approved plaintiff’s request and gave to the defendants the right to reply. In accordance, the Company’s response was submitted on December 4, 2018. Plaintiff’s reply to Company’s response was submitted on December 26, 2018.
On April 14, 2019 the court rendered a decision resolving that according to Supreme Court Decision, examination of the legal questions standing in the basis of the Motion, should be based upon US law. Therefore, the court allowed the plaintiff to amend its Motion within 45 days, so that it would include an expert opinion regarding US law, and an argument regarding US law implementation in the specific circumstances. The Court also decided that amendment of the Motion is subject to plaintiff’s payment of
On September 23, 2019, the plaintiff filed an amended Motion (“the Amended Motion”), which includes an expert opinion regarding US federal law and lengthy arguments that were added on top of the original Motion, specifically, in reference to discovery proceedings and evidence hearings that were held as part of the original Motion.
F - 33
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
Therefore, on September 25, 2019, the Court rendered a decision pointing out that the Amended motion seems to include the plaintiff’s summaries, and so ordered the plaintiff to clarify whether he is willing to relinquish submitting any additional summaries regarding the evidence that were heard in the original Motion.
On October 2, 2019, plaintiff responded, alleging that since the Amended Motion does not include any new facts, there is no need in submitting additional summaries regarding the evidence that were heard to this point.
On December 30, 2019 the Company submitted a motion to dismiss the Amended Motion. The Company alleged that the Amended Motion includes new causes of action, and specifically that the addition of legal causes of action according to US Federal law, cannot be filed due to the specific statute of limitations.
On January 20, 2020, the plaintiff filed its response. Also, the Court accepted the Company’s request to submit its response to the Amended Motion after a decision in the Company’s motion to dismiss will be rendered.
On February 24, 2020 the court issued a decision, according to which, the Motion will be decided upon the current court documents, unless either of the parties will file a request to hold a hearing in the matter.
On May 27, 2021, the Court ruled to certify the Motion as a class action, while applying Israeli Law (the “Ruling”). According to the Ruling, the class action shall include several causes of action according to the Israeli Securities Act and the Israeli Torts Ordinance, concerning the alleged misleading statements in the Company’s SEC filings. The Ruling has addressed also the size of the alleged aggrieved shareholders who may be included and be represented in the class action.
On June 9, 2021 the Court issued a decision suggesting that the parties will refer the case to a mediation procedure.
The Company believed that the Ruling is erroneous and that the Company has strong defense arguments, and therefore, on September 12, 2021, filed a motion for a rehearing on behalf of the Company and its directors in order to revert the Ruling (the “Rehearing Motion”).
On October 20, 2021, the Plaintiff submitted his response to the Rehearing Motion and the Company submitted its reply to the Plaintiff’s response on November 23, 2021. In light of the fact that the Ruling applied and was based upon Israeli Law (instead of the relevant foreign law), the Tel Aviv Stock Exchange filed a motion requesting the court to allow it to join the proceedings as Amicus Curiae, in order to express its principle opinion that the applicable law, in so far as dual listed companies are concerned, is the foreign law, as well as regarding the negative implications of the court’s application of Israeli law on dual listed companies.
F - 34
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
Meanwhile, and without delaying or derogating from the Rehearing Motion, the Company agreed to the Court’s suggestion that the parties will refer the case to a mediation procedure. After several mediation meetings were held, the mediation process ended without reaching a settlement.
On January 3, 2022 a hearing was held in court in the Rehearing Motion. Following the hearing, on January 25, 2022, the Attorney General joined the proceedings of the Rehearing Motion and submitted his position in collaboration with the Securities Authority. The Attorney General’s principle position as outlined, was that the applicable law in so far as dual listed companies are concerned is the foreign law, and in Ceragon case - US law.
On January 27, 2022, a judgment was rendered in the Rehearing Motion. The court ruled that the Ruling was erroneous as it applied Israeli Law, instead of foreign law, and held accordingly that the law that will apply is US law. The court further held that the case will be returned to the first judicial instance and will be adjudicated as a class claim under the US law. The court further held that the Company’s claims based upon the Statute of Limitations should also be adjudicated under the US law.
On March 20, 2022, following the court's decision, the Plaintiff filed to the first judicial instance, an amended class action claim, based on provisions of US law. The Company is required to submit its Statement of Defense, by June 26, 2022.
The Company believes that it has strong defense against the allegations referred to in the claim and that U.S law presents a higher bar for plaintiffs in comparison to Israeli law in proving claims regarding misleading representations to investors, and that the Court should deny it. However, bearing in mind that the class action will be adjudicated under US law, and in light of the fact that Ceragon has not yet filed its Statement of Defense, the Company’s attorneys were reluctant to asses, at this preliminary stage, the chances of the class action to be accepted.
NOTE 13:-LEASES
The Company`s leases include offices and warehouses for its facilities worldwide, as well as car leases, which are all classified as operating leases. Certain leases include renewal options that are under the Company`s sole discretion. The renewal options were included in the right of use (“ROU”) and liability calculation if it was reasonably certain that the Company will exercise the option.
F - 35
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 13:-LEASES (Cont.)
The components of lease expense and supplemental cash flow information related to leases for the years ended December 31, 2020 and 2021 were as follows:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Components of lease expense | ||||||||||||
|
Operating lease cost |
$ |
|
$ |
|
$ |
| ||||||
|
Short-term lease |
$ |
|
$ |
|
$ |
| ||||||
|
Total lease expenses |
$ |
|
$ |
|
$ |
| ||||||
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Supplemental cash flow information | ||||||||||||
|
Cash paid for amounts included in the measurement of lease liabilities |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets |
$ |
|
$ |
|
$ |
| ||||||
For the year ended December 31, 2021, the weighted average remaining lease term is approximately
Maturities of lease liabilities as of December 31, 2021 were as follows:
|
2022 |
| ||
|
2023 |
| ||
|
2024 |
| ||
|
2025 |
| ||
|
2026 and thereafter |
| ||
|
Total operating lease payments |
| ||
|
Less: imputed interest |
| ||
|
Present value of lease liability |
|
F - 36
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:-SHAREHOLDERS' EQUITY
The ordinary shares of the Company are traded on the Nasdaq Global Select Market, under the symbol “CRNT”.
a.General:
The ordinary shares entitle their holders to receive notice to participate and vote in general meetings of the Company, the right to share in distributions upon liquidation of the Company, and to receive dividends, if declared.
b.Stock options plans:
1.In 2003, the Company adopted a share option plan which has been extended or replaced from time to time, including on September 6, 2010, December 2012 and August 2014. To date, the plan that is currently in effect is the Amended and Restated Share Option and RSU Plan as amended August 10, 2014 (the “Plan”). Under the Plan, options and RSUs may be granted to officers, directors, employees and consultants of the Company or its subsidiaries. The options vest primarily over
2.The following table summarizes the activities for the Company’s stock options for the year ended December 31, 2021:
|
|
Year ended December 31, 2021 | |||||||||||||||
|
|
Number of options |
Weighted average exercise price |
Weighted average remaining contractual term (in years) |
Aggregate intrinsic value | ||||||||||||
|
| ||||||||||||||||
|
Outstanding at beginning of year |
|
$ |
|
|
$ |
| ||||||||||
|
Granted |
|
| ||||||||||||||
|
Exercised |
( |
) |
| |||||||||||||
|
Forfeited or expired |
( |
) |
| |||||||||||||
|
| ||||||||||||||||
|
Outstanding at end of the year |
|
$ |
|
|
$ |
| ||||||||||
|
| ||||||||||||||||
|
Options exercisable at end of the year |
|
$ |
|
|
$ |
| ||||||||||
|
| ||||||||||||||||
|
Vested and expected to vest |
|
$ |
|
|
$ |
| ||||||||||
F - 37
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:-SHAREHOLDERS' EQUITY (Cont.)
The weighted average fair value of options granted during 2019, 2020 and 2021 was $
The intrinsic value of options exercised during the years ended December 31, 2019, 2020 and 2021 was $
The following table summarizes the activities for the Company’s RSUs for the year ended December 31, 2021:
|
Year ended December 31, 2021 | ||||||||
|
Number of RSUs |
Aggregate intrinsic value | |||||||
|
| ||||||||
|
Unvested at beginning of year |
|
$ |
| |||||
|
Granted |
| |||||||
|
Vested |
( |
) | ||||||
|
Forfeited |
( |
) | ||||||
|
| ||||||||
|
Unvested at end of the year |
|
$ |
| |||||
|
| ||||||||
|
Vested and expected to vest |
|
$ |
| |||||
The weighted average fair value at grant date of RSUs granted during 2019, 2020 and 2021 was $
As of December 31, 2021, the total unrecognized estimated compensation cost related to non-vested stock options and RSU`s granted prior to that date was $
The following is a summary of the Company’s stock options and RSUs granted separated into ranges of exercise price:
|
Exercise price (range) |
|
|
Options and RSUs outstanding as of December 31, 2021 |
|
|
Weighted average remaining contractual life (years) for outstanding options |
|
|
Weighted average exercise price |
|
|
Options and RSUs exercisable as of December 31, 2021 |
|
|
Weighted average remaining contractual life (years) for exercisable options |
|
|
Weighted average exercise price | |||||||
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ | |||||||
|
| |||||||||||||||||||||||||
|
RSUs |
|
|
|
- |
- |
| |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| |||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||
F - 38
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:-SHAREHOLDERS' EQUITY (Cont.)
The total equity-based compensation expense related to all of the Company’s equity-based awards, recognized for the years ended December 31, 2019, 2020 and 2021, was comprised as follows:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Cost of revenues |
$ |
|
$ |
|
$ |
| ||||||
|
Research and development, net |
|
|
| |||||||||
|
Sales and marketing |
|
|
| |||||||||
|
General and administrative |
|
|
| |||||||||
|
| ||||||||||||
|
Total share-based compensation expenses |
$ |
|
$ |
|
$ |
| ||||||
c.Dividends:
In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. The Company does not intend to pay cash dividends in the foreseeable future.
NOTE 15:-TAXES ON INCOME
a.Israeli taxation:
1.Measurement of taxable income:
The Company has elected to file its tax return under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, starting tax year 2003, results of operations in Israel are measured in terms of earnings in U.S. dollars.
2.Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Law”):
According to the Law, the Company is entitled to various tax benefits by virtue of the “Approved Enterprise” status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are:
According to the provisions of the Law, the Company has chosen to enjoy the “Alternative” track. Under this track, the Company is tax exempt in the first
F - 39
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
Generally, a company that is Abundant in Foreign Investment is entitled to an extension of the benefits period by an additional five years
The tax benefits under the Approved Enterprise are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published and the letters of approval for the investments in the approved enterprises. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest.
The Company has three capital investment programs that have been granted Approved Enterprise status, under the Law.
As of December 31, 2021, the
Income from sources other than the “Approved Enterprise” during the benefit period will be subject to the tax at the regular tax rate.
The Company believes it will continue to enjoy its current tax benefits in accordance with the provisions of the Investment Law prior to the 2005 Amendment.
In December 2016, the Knesset passed an additional amendment to the Law which provides for additional benefits to Preferred Technological Enterprises by reducing the tax rate on preferred Technological Enterprise income (as such is defined in Amendment 73) to
3.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident and located in Israel, at least
Management believes that the Company is currently qualified as an “industrial company” under the Encouragement Law and, as such, enjoys tax benefits, including: (1) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equal amounts over
F - 40
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any Governmental authority. No assurance can be given that the Israeli tax authorities will agree that the Company qualifies, or, if the Company qualifies, that the Company will continue to qualify as an industrial company or that the benefits described above will be available to the Company in the future.
4.Tax rates:
Taxable income of Israeli companies was subject to tax at the rate -
The effective tax rate payable by a company which is taxed under the Investment Law may be considerably lower (see also note 15.a2 above). Israeli corporations are generally taxed at the corporate income tax rate on their capital gains.
The Company’s tax assessments through 2015 tax year are considered final.
b.Income taxes for non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their respective counties of residence.
c.The income tax expense for the years ended December 31, 2019, 2020 and 2021 consisted of the following:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Current |
$ |
|
$ |
|
$ |
| ||||||
|
Deferred |
( |
) |
( |
) |
| |||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
|
| ||||||||||||
|
Domestic (Israel) |
$ |
|
$ |
|
$ |
| ||||||
|
Foreign |
|
|
| |||||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
F - 41
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
d.Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
Deferred tax assets: | ||||||||
|
| ||||||||
|
Net operating loss carry forward |
$ |
|
$ |
| ||||
|
Temporary differences mainly relating to Research and Development, reserves and allowances |
|
| ||||||
|
| ||||||||
|
Deferred tax asset before valuation allowance |
|
| ||||||
|
Valuation allowance |
( |
) |
( |
) | ||||
|
| ||||||||
|
Deferred tax asset, net |
$ |
|
$ |
| ||||
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized in each tax jurisdiction. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded valuation allowance amounting $
e.Net operating loss carry forward and capital loss:
As of December 31, 2021, the Company has accumulated net operating losses and capital loss for Israeli income tax purposes in the amount of approximately $
As of December 31, 2021, the Company’s Norwegian subsidiary had a net operating loss carry forward of approximately $
As of December 31, 2021, the Company’s Brazilian subsidiary had a net operating loss carryforward of approximately $
F - 42
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
f.Income (Loss) before taxes is comprised as follows:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Domestic |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
Foreign |
|
|
| |||||||||
|
| ||||||||||||
|
$ |
|
$ |
( |
) |
$ |
( |
) | |||||
g.Reconciliation of the theoretical tax expense to the actual tax expense:
Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statements of operations is as follows:
|
Year ended December 31, | ||||||||||||
|
2019 |
|
2020 |
2021 |
| ||||||||
|
Income (loss) before taxes as reported in the consolidated statements of operations |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
| ||||||||||||
|
Statutory tax rate |
|
% |
|
% |
|
% | ||||||
|
| ||||||||||||
|
Theoretical tax expenses (income) on the above amount at the Israeli statutory tax rate |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
Non-deductible expenses and other permanent differences |
|
( |
) |
( |
) | |||||||
|
Non-deductible expenses related to employee stock options |
|
|
| |||||||||
|
Deferred tax assets on losses and other temporary differences for which valuation allowance was provided, net |
|
|
| |||||||||
|
Other |
|
|
| |||||||||
|
| ||||||||||||
|
Actual tax expense (benefit) |
$ |
|
$ |
|
$ |
| ||||||
F - 43
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
h.A reconciliation of the beginning and ending balances of unrecognized tax benefits related to uncertain tax positions is as follows:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
| ||||||||
|
Beginning balance |
$ |
|
$ |
| ||||
|
Decreases in tax positions for prior years |
( |
) |
( |
) | ||||
|
Increases related to tax positions taken during prior years |
|
| ||||||
|
Increase related to tax positions taken during the current year |
|
| ||||||
|
| ||||||||
|
Ending balance |
$ |
|
$ |
| ||||
The Company has further accrued $
NOTE 16:-REVENUES
The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations have been performed. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.
The following table presents the significant changes in the deferred revenue balance during the year ended December 31, 2021:
|
Year ended December 31, 2020 |
Year ended December 31, 2021 | |||||||
|
| ||||||||
|
Balance, beginning of the period |
$ |
|
$ |
| ||||
|
New performance obligations |
|
| ||||||
|
Reclassification to revenue as a result of satisfying performance obligations |
( |
) |
( |
) | ||||
|
| ||||||||
|
Balance, end of the period |
|
| ||||||
|
Less: long-term portion of deferred revenue |
|
| ||||||
|
Current portion, end of period |
$ |
|
$ |
| ||||
F - 44
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 16:-REVENUES (Cont.)
Remaining performance obligations represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable contracts that will be recognized as revenue in future periods. The following table represents the remaining performance obligations as of December 31, 2021, which are expected to be satisfied and recognized in future periods:
|
2022 |
2023 |
2024 and thereafter | ||||||||||
|
Unsatisfied performance obligations |
|
|
| |||||||||
The Company elected to apply the optional exemption under ASC 606 paragraph 10-50-14(a) not to disclose the remaining performance obligations that relate to contracts with an original expected duration of one year or less.
NOTE 17:-SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
a.The Company applies ASC topic 280, “Segment Reporting”, (“ASC 820”). The Company operates in
b.The following tables present total revenues for the years ended December 31, 2019, 2020 and 2021 and long-lived assets as of December 31, 2020 and 2021:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
Revenues: | ||||||||||||
|
| ||||||||||||
|
North America |
$ |
|
$ |
|
$ |
| ||||||
|
Europe |
|
|
| |||||||||
|
Africa |
|
|
| |||||||||
|
Asia-Pacific and Middle East |
|
|
| |||||||||
|
India |
|
|
| |||||||||
|
Latin America |
|
|
| |||||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
Long-lived assets, net:
|
December 31, | ||||||||
|
2020 |
2021 |
| ||||||
|
| ||||||||
|
Israel |
$ |
|
$ |
| ||||
|
Others |
|
| ||||||
|
Total long-lived assets, net (*) |
$ |
|
$ |
| ||||
|
(*) |
Long-lived assets are comprised of property and equipment, net and operating lease right-of-use assets. |
F - 45
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 17:-SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
c.Major customer data as a percentage of total revenues:
In 2021, the Company had revenues from two customers that represent two a group of affiliated companies equaling
NOTE 18:-SELECTED STATEMENTS OF OPERATIONS DATA
a.Financial expenses and others, net:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Financial income: | ||||||||||||
|
Interest on deposits |
$ |
|
$ |
|
$ |
| ||||||
|
Foreign currency translation differences and derivatives |
|
|
| |||||||||
|
Others |
|
|
| |||||||||
|
| ||||||||||||
|
|
|
| ||||||||||
|
Financial expenses: | ||||||||||||
|
Bank charges and interest on loans |
( |
) |
( |
) |
( |
) | ||||||
|
Foreign currency translation differences and derivatives |
( |
) |
( |
) |
( |
) | ||||||
|
Others |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
( |
) |
( |
) |
( |
) | |||||||
|
| ||||||||||||
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
F - 46
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 18:-SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
b.Net income (loss) per share:
The following table sets forth the computation of basic and diluted net earnings per share:
|
Year ended December 31, | ||||||||||||
|
2019 |
|
2020 |
2021 |
| ||||||||
|
Numerator: | ||||||||||||
|
Numerator for basic and diluted net loss per share - loss available to shareholders of Ordinary shares |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
| ||||||||||||
|
Denominator: | ||||||||||||
|
Denominator for basic and diluted net loss per share - adjusted weighted average number of Ordinary shares |
|
|
| |||||||||
NOTE 19:-RELATED PARTY BALANCES AND TRANSACTIONS
a.Related party balances and transactions are with related companies and principal shareholder. Yehuda Zisapel is a shareholder of the Company. Zohar Zisapel is the Chairman of the Board of Directors of the Company and also a principal shareholder of the Company. Yehuda and Zohar Zisapel are brothers who do not have a voting agreement between them. Jointly or severally, they are also founders, directors and principal shareholders of several other companies that are known as the RAD-BYNET group.
Members of the RAD-BYNET group provide the Company on an as-needed basis with information systems infrastructure, administrative services, medical insurance, as well as in connection with logistics services, the Company reimburses each company for its costs in providing these services. The aggregate amount of these expenses was approximately $
The Company leases its offices in Israel from real estate holding companies controlled by Yehuda and Zohar Zisapel. The leases of facility expired end of March 2021, except for warehouse which its lease was expired on December 2021.
The aggregate amount of rent and maintenance expenses related to these properties were approximately $
F - 47
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 19:-RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
The Company has an OEM arrangement with RADWIN, a member of RAD-BYNET group, according to which the Company purchases RADWIN products that are then resold to the Company’s customers. In addition, the Company purchases certain inventory components from other members of the RAD-BYNET group, which are integrated into its products. The aggregate purchase price of these components was approximately $
The Company purchases certain property and equipment from members of the RAD-BYNET group, the aggregate purchase price of these assets was approximately $
As part of the operating agreements with Orocom for the Pronatel project in Peru, the Company had two seats in Orocom’s board of directors out of four seats, as well as other protective rights in Orocom. As a result, Orocom and its shareholders were defined as “related companies” of Ceragon. As of December 31, 2021, the Company has no seats in Orocom’s board of directors and following the return of the guarantees in the beginning of 2020, the Company’s protective rights in Orocom were revoked. As a result of the above Orocom and its shareholders are not defined as “related companies” of Ceragon.
b.Transactions with related parties:
|
Year ended December 31, | ||||||||||||
|
2019 |
2020 |
2021 | ||||||||||
|
| ||||||||||||
|
Revenues |
$ |
|
$ |
|
$ |
| ||||||
|
Cost of revenues |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Research and development expenses |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Sales and marketing expenses |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
General and administrative expenses |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Purchase of property and equipment |
$ |
|
$ |
|
$ |
| ||||||
Balances with related parties:
|
December 31, | ||||||||
|
2020 |
2021 | |||||||
|
| ||||||||
|
Trade payables, other accounts payable and accrued expenses |
$ |
|
$ |
| ||||
|
Trade Receivables |
$ |
|
$ |
| ||||
F - 48