(Name, Telephone, E-mail and/or Facsimile Number
and Address of Company Contact Person)
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: As
of December 31, 2021, there were 14,155,186 ordinary shares outstanding, NIS 0.20 par value per share.
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
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 (§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.
If an emerging growth company that prepares its
financial statements in accordance with U.S. GAAP, indicate by checkmark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange
Act. ☐
†The term “new or revised financial
accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification
after April 5, 2012.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as
issued by the International Accounting Standards Board ☐
If “Other” has been checked in response
to the previous question, indicate by check mark which financial statement item the registrant elected to follow.
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Except for the historical
information contained herein, the statements contained in this annual report on Form 20-F, or this Annual Report, are forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding future events and our future results
that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, or the Exchange Act. These statements are based on current expectations, estimates, forecasts and projections about the
industries in which we operate and the beliefs and assumptions of our management.
As used in this Annual Report,
the terms “we,” “us,” “our,” “RADCOM” and the “Company” mean RADCOM Ltd.
and its subsidiaries, unless otherwise indicated.
References herein to our
“solutions” or “solution” are intended to refer to our products and related services as the context requires.
We have registered with the
United States Patent and Trademark Office, or USPTO, and hold the trademark “RADCOM” in the United States. All other trademarks
and trade names appearing in this Annual Report are owned by their respective holders.
This Annual Report contains
express or implied “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995
and other U.S. Federal securities laws.
In some cases, forward-looking
statements are identified by terminology such as “may,” “will,” “could,” “should,” “expects,”
“plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,”
“potential,” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially
from those projected. These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other
factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different
from those anticipated by the forward-looking statements. The forward-looking statements contained in this Annual Report are subject
to risks and uncertainties, including those discussed under “Item 3.D—Risk Factors” and in our other filings with the
Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to
(and expressly disclaim any such obligation to) update or revise any of the forward-looking statements, whether as a result of new information,
future events or otherwise, after the date of this Annual Report.
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
| B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
| C. | REASONS FOR THE OFFER AND
USE OF PROCEEDS |
Not applicable.
Investing in our ordinary
shares involves a high degree of risk. You should carefully consider the risks described below before investing in our ordinary shares.
Our business, operating
results and financial condition could be seriously harmed due to any of the following risks, among others. If we do not successfully
address the risks to which we are subject, we could experience a material adverse effect on our business, results of operations and financial
condition and our share price may decline. We cannot assure you that we will successfully address any of these risks.
Risks Related to Our Business and Our Industry
Our
business is dependent on a limited number of significant customers and the loss of a significant customer could materially adversely
affect our results of operations.
Our business is dependent
on a limited number of significant customers. For example, our three largest customers accounted for approximately 88% of our revenue
in fiscal year 2021. The loss of any significant customer, a significant decrease in business from any such customer, or a reduction
in customer revenue due to adverse changes in the terms of our contractual arrangements, market conditions, customer circumstances or
other factors could have a material adverse effect on our results of operations and financial condition. Revenue from individual customers
may fluctuate from time to time based on the commencement, scope and completion of projects or other engagements, the timing and magnitude
of which may be affected by market or other conditions.
We may lose significant
market share as a result of intense competition in the market for our existing and future solutions.
Many companies compete with
us in the market for service assurance and Customer Experience Management and Service Operations
Center that provide cloud-native, software-based, virtualized network solutions. We expect that competition will increase
in the future, both with respect to solutions that we currently offer and solutions that we are developing. Moreover, manufacturers
of data communications and telecommunications equipment with whom we partner or may partner, may in the future incorporate into their
products capabilities similar to ours, thus reducing the demand for our solutions. Some of our existing and potential competitors have
substantially greater resources, including financial, technological, engineering, manufacturing, and marketing and distribution capabilities,
and several of them may enjoy greater market recognition than us. We may not be able to compete effectively with our competitors. A
failure to do so could adversely affect our revenues and profitability.
The pace at which we grow
our business depends on our current and potential customers’ internal processes and decisions regarding the transition to 5G or
to fully virtualized networks and our ability to secure new customers. Our expectations regarding the pace of 5G rollout may not materialize.
The pace of transition to
5G and timeframe for reaching a mature infrastructure for 5G is dependent on CSPs’ internal decisions regarding 5G technology implementation,
timing, nature of virtualization and budgeting. Such decisions may be affected by the overall pace of 5G deployment in the industry as
well as by other technology trends such as the transition to fully virtualized cloud-native networks. Our ability to grow our business
is further dependent on our ability to secure new customers. To the extent that CSPs will not choose our solution, the pace in which
we could grow of our business may be adversely affected.
The pace at which we deploy
our solutions is directly affected by the pace of CSPs’ internal processes and the pace of maturation of the 5G market. To the
extent that CSPs require more time to reach the decision to virtualize, decide to delay virtualization while the market develops, elect
not to deploy 5G, or to delay the transition to fully virtualized cloud-native networks our sales cycles may lengthen, and the growth
of our business may be adversely affected.
We believe that most of the
industry’s leading CSPs will rollout 5G networks which will in turn promote the adoption of cloud-native, software-based, virtualized
network solutions. Our expectation is that the market for our solutions will materialize and gain momentum as a result. However, our
expectations may not be correct, and the actual pace of cloud-native, software-based, virtualized network transformation and/or 5G rollout
may take longer than we anticipate or may not occur at all. If the demand for cloud-native, software-based, virtualized network does
not continue to grow or the 5G rollout does not materialize, our business, financial condition and results of operations may suffer.
Disruptions to our information
technology, or IT, systems due to system failures or cybersecurity attacks may impact our operations, result in sensitive customer information
being compromised, which would negatively materially adversely affect our reputation and business.
We believe that an appropriate
IT infrastructure is important in order to support our daily operations and the growth of our business. If we experience difficulties
in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify
our management information systems or respond to changes in our business needs, we may not be able to effectively manage our business,
and we may fail to meet our reporting obligations. Additionally, if our current business continuity plan, back-up storage arrangements
and our disaster recovery plan are not operated as planned, we may not be able to effectively recover our information system in the event
of a crisis, which may materially adversely affect our business and results of operations.
In the current environment,
there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions,
industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in
government agencies have increased in recent years, and security industry experts and government officials have warned about the risks
of hackers and cyberattacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of
technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly
provide access to systems or data. Although we have invested in measures to reduce these risks, we can provide no assurance that our
current IT systems are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar
threats. Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt our IT system to accommodate
these changes. We have experienced and expect to continue to experience attempted cyberattacks of our IT networks. Although none of these
attempted cyberattacks has had a material adverse effect on our operations or financial condition thus far, we cannot guarantee that
any such incidents will not have a material adverse effect on our operations or financial condition in the future. Furthermore, a cyberattack
that bypasses our IT security systems, causing an IT security breach, could lead to a material disruption of our information systems,
the loss of business information and loss of service to our customers. Additionally, we have access to sensitive customer information
in the ordinary course of business. If a significant data breach occurs and we lose customer information, our reputation may be materially
and adversely affected, our customers’ confidence in us may be diminished, or we may be subject to legal claims, any of which may
contribute to the loss of customers and have a material adverse effect on our business and result of operations. In addition, the continued
worldwide threat of terrorism and heightened security in response to such threat may cause further disruptions and create further uncertainties
or may otherwise materially adversely affect our business. To the extent that such disruptions or uncertainties result in delays or cancellations
of customer orders, or in theft, destruction, loss, misappropriation or release of our confidential data or our intellectual property,
our business and results of operations could be materially and adversely affected.
A reduction in some CSPs’
revenues and profitability could lead to decreased investment in capital equipment and infrastructure which may, in turn, affect our
revenues and results of operations. A continued slowdown in our customers’ investment in capital equipment and infrastructure might
materially and adversely affect our revenues and results of operations.
Our future success is dependent
upon the continued growth of the telecommunications industry as well as the specific sectors that we target, which currently include,
among others, 5G, Internet of Things, or IoT, 4G cellular, Triple Play networks and Voice over Long Term Evolution, or VoLTE. During
the last few years, some of the CSPs have experienced a reduction in their revenues from subscribers and lower profitability, which affected
their investment budgets. This trend may continue. The global telecommunications industry and various sectors within the industry are
evolving rapidly and it is difficult to predict its potential growth rate or future trends in technology development. Our future success
also depends upon the increased utilization of our solutions by next-generation network operators and specifically virtualized cloud-native
networks on private and public clouds, who may not adopt our technology.
During the last few years,
developments in the telecommunications industry have had a material effect on our existing and/or potential customers and may continue
to have such an effect in the future. Such developments include changes in general global economic conditions, industry consolidation,
emergence of new competitors, commoditization of voice services, regulatory changes, and changes in the plans of CSPs to shift, transform
and adapt their network operations to rollout 5G networks and cloud-native virtualized networks. Over the last few years, the telecommunications
industry has experienced financial pressures that have caused many in the industry to reduce investment in capital intensive projects,
and in some cases, have led to restructurings. While the transformation of network operations to cloud-native virtualized networks arise
out of the desire of CSPs to reduce network infrastructure expense, thus creating opportunities for us, it also creates a downward pressure
on the prices of our solutions.
The market for our solutions
is characterized by rapidly changing technology and we may be materially adversely affected if we do not respond promptly and effectively
to such changes.
The telecommunications industry
is characterized by rapidly changing technology, network infrastructure, and customer requirements and by evolving industry standards
and frequent new product introductions. These changes require us to constantly adapt and improve our solutions to meet changing industry
requirements. If we are unable to stay ahead of industry trends or to timely and successfully complete the development of solutions supporting
new standards and technologies such as 5G, our business may be affected as new requirements could reduce or shift the market for our
solutions or require us to develop new solutions. Additionally, because new or enhanced telecommunications and data communications-related
products developed by other companies could be incompatible with our solutions, our timely access to information concerning changes in
technology, in customer requirements, and in industry standards, as well as our ability to anticipate such changes and develop and market
new and enhanced solutions successfully and on a timely basis, will be significant factors in our ability to remain competitive.
Our
future success will depend on our ability to develop and maintain long-term relationships with our customers and to meet their expectations
in providing solutions and related services.
We believe that our future
success will depend to a significant extent on our ability to develop and maintain long-term relationships with successful CSPs who have
the financial and other resources required to invest in significant ongoing network intelligence solutions. Our business and our results
of operations could be adversely affected if we are unable to develop sustainable customer relationships, or to meet customers’
expectations in providing solutions and related services.
We may enter into long-term
sales agreements with large customers. Such agreements may prove unprofitable as our costs and product mix shift over the terms of the
agreements.
We may enter from time to
time into long-term sales agreements with large customers. We may be required under such agreements to sell our solutions at fixed prices
over the terms of the agreements. The costs we incur in fulfilling the agreements may vary substantially from our initial cost estimates.
Any cost overruns that we cannot pass on to our customers could adversely affect our results of operations. In the future, we may also
be required under such agreements to sell solutions that we may otherwise wish to discontinue, thereby diverting our resources from developing
more profitable or strategically important solutions.
Our large customers have
substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our business.
Large CSPs have substantial
purchasing power and leverage in negotiating contractual arrangements with us. These customers may require us to develop additional features
and may impose penalties on us for failure to deliver such features on a timely basis, or failure to meet performance standards. As we
seek to increase our sales to large CSPs, we may be required to agree to unfavorable terms and conditions which may decrease our revenues
and/or increase the time it takes to convert orders into revenues and could result in an adverse effect on our business, financial condition
and results of operations. Similarly, some of our contracts may contain change in control provisions which may have an adverse effect
on our business and results if exercised following a change in control transaction or, in the alternative, may act as an impediment to
certain change in control transactions.
Our strategy to focus
most of our sales efforts on Tier 1, Greenfield Operators and other leading CSPs in the North American, European and select other markets
may not be successful.
We believe that the significant
share of cloud-native, software-based, virtualized networks and 5G deployment activity is expected to take place in North America, Europe,
selected CSPs in Asia-Pacific and selected CSPs in developing markets such as Latin America. We have accordingly enhanced our presence
and focused our sales and marketing resources in these markets. While we focus our sales and marketing resources in such selected markets,
we cannot assure the selection of our solutions by tier 1, CSPs that build new networks from scratch, or Greenfield Operators, or other
leading CSPs operating in such markets and therefore we may not be successful in expanding our business as we plan.
We have a history of quarterly
fluctuations and unpredictability in our results of operations and expect these fluctuations to continue. This may cause our share
price to fluctuate or to decline.
We have experienced, and
in the future may also experience, significant fluctuations in our quarterly results of operations. Factors that may contribute
to fluctuations in our quarterly results of operations including,
| ● | the variation in size and timing of individual purchases by
our customers and the relatively long sales cycles for our solutions; |
| ● | the request for longer payment terms from us or long-term
financing of customers’ purchases from us, as well as additional conditions tied to such payment terms; |
| ● | competitive conditions in our markets; |
| ● | the timing of the introduction and market acceptance of new
solutions or enhancements by us and by our customers, competitors and suppliers; |
| ● | changes in the level of operating expenses relative to revenues; |
| ● | quality problems and supply interruptions; |
| ● | changes in global or regional economic conditions or in the
telecommunications industry; |
| ● | delays in or cancellation of projects by customers; |
| ● | changes in the product mix; |
| ● | the size and timing of approval of grants from the Government
of Israel; and |
| ● | foreign currency exchange rates. |
Our costs of revenues consist
of variable costs, which include labor and related costs, including costs incurred in software development customization for projects
and deployment costs, the use of hardware, inventory write-offs, packaging, importation taxes, shipping and handling costs, license fees
for software components of third parties, warranty expenses, allocation of overhead expenses, subcontractors’ expenses, royalties
to the Israel Innovation Authority, or IIA, and share-based compensation. A major part of our costs of sales is relatively variable and
determined based on our anticipated revenues. We believe, therefore, that quarter-to-quarter comparisons of our operating results may
not be a reliable indication of future performance.
Our revenues in any quarter
generally have been, and may continue to be, derived from a relatively small number of orders with relatively high average revenues per
order. Therefore, the loss of any order or a delay in closing a transaction could have a significant impact on our quarterly revenues
and results of operations.
In addition, we may experience
a delay in generating or recognizing revenues for several reasons, including revenue recognition accounting requirements. In many cases,
we cannot recognize revenue from an order prior to customer acceptance, which may take multiple months from the commencement of the engagement
and in some extreme cases may take more than twelve months. Therefore, a major part of the revenue for any fiscal quarter may be derived
from a backlog of orders under delivery and may not correlate to the customer’s order date or the delivery date.
Our revenues for a specific
quarter may also be difficult to predict and may be affected if we experience a non-linear sales pattern. We generally experience
significantly higher levels of sales orders towards the end of a quarter as a result of customers submitting their orders late in the
quarter. Furthermore, orders received towards the end of the quarter are usually not delivered within the same quarter and are usually
only recognized as revenue at a later stage. If our revenues in any quarter remain level or decline in comparison to any prior quarter,
our financial results for that quarter could be adversely affected.
Due to the factors described
above, as well as other unanticipated factors, our results of operations in future quarters could fail to meet the guidance we may from
time to time give to the public or the expectations of public market analysts or investors. If this occurs, the price of our ordinary
shares may be adversely affected.
We expect our gross margins
to vary over time and we may not be able to sustain or improve upon our recent levels of gross margin which may have a material adverse
effect on our future profitability.
We may not be able to sustain
or improve upon our recent levels of gross margin. Our gross margins may be adversely affected by numerous factors, including, increased
price competition, local taxes which may be incurred for direct sales, increased industry consolidation among our customers, which may
lead to decreased demand for and downward pricing pressure on our solutions, changes in our customer mix, geographic, product mix, distribution
channels, increases in costs such as employment costs or third-party service or component costs, losses on customer contracts, and increases
in warranty costs. Further deterioration in gross margins, due to these or other factors, may have a material adverse effect on our business,
financial condition and results of operations.
Our sales derived from
emerging market countries may be materially adversely affected by economic, exchange rates, regulatory and political developments in
those countries.
We plan to continue to generate
revenue from various emerging market countries which represent a portion of our existing business and our expected growth. Economic or
political turmoil in these countries could materially adversely affect our revenues and results of operations. Our investments in emerging
market countries may also be subject to risks and uncertainties, including unfavorable taxation treatment, exchange rates, challenges
in protecting our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or unexpected changes
in, regulation as well as other unforeseeable operational risks.
Most of our customers
usually require a detailed and comprehensive evaluation process before they order our solutions. Our sales process may be subject to
delays that could significantly decrease our revenues and result in the eventual cancellations of some sale opportunities.
We derive all of our revenues
from the sale of solutions and related services for CSPs. As common practice in our industry, our solutions generally undergo a lengthy
evaluation process before we can sell them. In recent years, our customers have been conducting a more stringent and detailed evaluation
of our solutions and decisions are subject to additional levels of internal review. As a result, the sales cycle may be longer than anticipated.
Multiple factors affect the length of the approval and evaluation process, including among others, the time involved for our customers
to determine and announce their specifications, the time required for our customers to process approvals for purchasing decisions, the
technological priorities and budgets of our customers and the complexity of the solutions involved, and the need for our customers to
obtain or comply with any required regulatory approvals. If customers delay project approval or extend anticipated decision-making
timelines, or if continued delays result in the eventual cancellation of any sale opportunities, it may have an adverse effect on our
ability to sell our solutions, which will materially adversely affect our business, financial condition and results of operations.
We have experienced periods
of growth of our business. If we cannot adequately manage our business, our results of operations may suffer.
We cannot be sure that our
systems, procedures and managerial controls will be adequate to support our operations. Any delay in implementing, or transitioning to,
new or enhanced systems, procedures or controls may adversely affect our ability to record and report financial and management information
on a timely and accurate basis. We believe that significant growth may require us to hire additional personnel.
Our non-competition agreements
with our employees and consultants may not be enforceable under applicable law. If any of these employees leaves us and joins a
competitor, such competitor could benefit from the expertise our former employee gained while working for us.
We generally enter into non-competition
agreements with our key employees and consultants. These agreements prohibit those employees and consultants, while they work for us
and for a specified length of time after they cease to work for or provide services to us, from directly competing with us or working
for our competitors for a limited period. Under applicable law, we may be unable to enforce these agreements or any part thereof against
our employees and consultants, including our Israeli employees and consultants. If we cannot enforce our non-competition agreements against
our Israeli (or any other) employees, then we may be unable to prevent our competitors from benefiting from the expertise of these former
employees, which could impair our business, results of operations and ability to capitalize on our proprietary information.
Our business could be
harmed if we were to lose the services of one or more members of our senior management team, or if we are unable to attract and retain
qualified personnel.
Our future growth and success
depend to an extent upon the continuing services of our executive officers and other key employees including our Chief Executive Officer,
Eyal Harari, our Chief Operating Officer, Hilik Itman, and our Chief Technology Officer, Rami Amit. Competition for qualified management
and other high-level telecommunications industry personnel is intense, and we may not be successful in attracting and retaining qualified
personnel. If we lose the services of any key employees, we may not be able to manage our business successfully or to achieve our business
objectives.
Competition for highly
skilled technical and other personnel is intense, and as a result we may fail to attract, recruit and retain qualified employees, which
could materially and adversely impact our business, financial condition and results of operations.
In order for us to successfully
compete and grow, we must attract, recruit, retain and develop personnel with requisite qualifications to provide expertise across the
entire spectrum of our intellectual capital and business needs.
Our principal research and
development as well as significant elements of our marketing and general and administrative activities are conducted at our headquarters
in Israel, where we face significant competition. While there has been intense competition for qualified human resources in the Israeli
high-tech industry historically, the industry experienced record growth and activity in 2021, both at the earlier stages of venture capital
and growth equity financings, and at the exit stage of initial public offerings and mergers and acquisitions. This growth in activity
has caused a sharp increase in job openings in both Israeli high-tech companies and Israeli research and development centers of foreign
companies, and intensification of competition between these employers to attract qualified employees in Israel. As a result, the high-tech
industry in Israel has experienced significant levels of employee attrition and is currently facing a severe shortage of skilled human
capital, including research and development, marketing, operations and customer service professionals. Although we also engage a talented
team in the United States, India and Romania to benefit from the significant pool of talent that is available in such markets, we have
also witnessed increased competition in those markets as well during the last year.
Many of the companies with
which we compete for qualified personnel have significant resources, and we may not succeed in recruiting additional experienced or professional
personnel, retaining personnel or effectively replacing current personnel who may depart with qualified or effective successors. In addition,
due to the reasons outlined above, our employees may be increasingly targeted for recruitment by competitors and other companies in the
technology industry, which may make it more difficult for us to retain employees and may increase retention costs. Training of new employees
with no prior relevant experience could be time-consuming and require significant resources.
In addition, as a result
of the intense competition for qualified human resources, the high-tech market has also experienced and may continue to experience significant
increases in the levels of salaries and other compensation. Accordingly, our efforts to attract, retain and develop personnel may also
result in significant additional expenses, which could adversely affect our profitability. Furthermore, in making employment decisions,
particularly in the high-technology industry, job candidates often consider the value of the equity they are to receive in connection
with their employment. Employees may be more likely to leave us if the shares they own or the shares underlying their equity incentive
awards have significantly appreciated or significantly decreased in value. In light of the foregoing, there can be no assurance that
qualified employees will remain in our employ or that we will be able to attract and retain qualified personnel in the future and failure
to do so could have a material adverse effect on our business, financial condition and results of operations.
A regional or global health
pandemic, including COVID-19, could severely affect our business, results of operations and financial condition due to impacts from
remote work arrangements, actions taken to contain the disease or treat its impact and the speed and extent of the recovery.
A regional or global health
pandemic, depending upon its duration and severity, could have a material adverse effect on our business. For example, the COVID-19 pandemic
has had numerous effects on the global economy and governmental authorities around the world have implemented measures to reduce the
spread of COVID-19. These measures, including shutdowns and “shelter-in-place” orders suggested or mandated by governmental
authorities or otherwise elected by companies as a preventive measure, have adversely affected workforces, economies and financial markets,
and, along with decreased consumer spending, have led to an economic downturn in many markets.
As a result of the COVID-19
pandemic, as near-term measures, we have transitioned many of our employees to remote working arrangements. The transition has had little
impact on our employee productivity and has not caused any interruption to our business. Due to the uncertainty of COVID-19, we will
continue to assess the situation, including abiding by any government-imposed restrictions globally. The transition to remotely
working of many of our personnel could have a negative impact on the execution of our business plans and operations. If a natural disaster,
power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult
or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may
also result in consumer privacy, IT security and fraud concerns as well as increase our exposure to potential wage and hour issues.
Although we believe that
COVID-19 will not have a material impact on our operations going forward, we are unable to accurately predict such impact due to uncertainties
that will be dictated by the length of time that the pandemic and related disruptions continue, the impact of governmental regulations
that might be imposed in response to the pandemic and overall changes in consumer behavior. Such orders or restrictions have and are
continuing to result in temporary store closures, work stoppages, slowdowns and delays, travel restrictions and cancellation of events,
among other effects, any of which may negatively impact workforces globally, and as a result, may adversely affect our operations. As
infections may continue to become more widespread, we could experience a severe negative impact on our business, financial condition
and results of operations. Specifically, the COVID-19 pandemic may lead to a global economic downturn and could affect the rollout of
5G networks, which could lead to decreased demand across all of our services. There can be no assurance that the analysis that we have
undertaken or remedial measures that have been enacted will enable us to avoid part or all of any impact from the spread of COVID-19
or its consequences, including downturns in business sentiment generally or in our sector in particular. In addition, the impact
of COVID-19 may cause delays to all future development, marketing and sales operations due to, among others, travel restrictions.
To the extent the COVID-19
pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described
in this “Risk factors” section.
The complexity and scope
of the solutions we provide to larger CSPs is increasing. Larger projects entail greater operational risk and an increased chance of
failure.
The complexity and scope
of the solutions we provide to larger CSPs is increasing. The larger and more complex such projects are, the greater the operational
risks associated with such projects. These potential risks include failure to successfully deliver our solution, failure to fully integrate
our solutions with third party products and complex environments in the CSP’s network, and our dependence on subcontractors and
partners for the successful and timely completion of such projects. Failure to complete a larger project successfully could expose us
to potential contractual penalties, claims for breach of contract and in extreme cases, to cancellation of the entire project, and may
result in difficulty in collecting payment and recognizing revenues from such project.
We could be subject to
claims under our warranties and extended maintenance and support agreements which may affect our financial condition.
Our solutions are complex
and may sometimes contain undetected errors which can delay introductions or necessitate redesign. Failures in networks in
which our solutions are deployed arising out of our solutions may result in customer dissatisfaction, contractual claims and, potentially,
liability claims being filed against us. Our warranties require us to correct any errors or defects in our solutions. The warranty period
we provide for our services is mostly for one year but could be extended either in the initial purchase of our solution or after the
initial warranty period ends through the purchase of extended support and maintenance. Moreover, under the warranty and extended maintenance
agreements, we need to meet certain service levels and if we fail to meet them, we may be exposed to penalties. Any failure of a
network in which our solutions are deployed (whether or not our solutions are the cause) and any customer claims against us, along with
any associated negative publicity, could result in the loss of, or delay in, market acceptance of our solutions and harm to our business.
We incorporate open-source
technology in our solutions which may expose us to liability and have a material impact on our product development and sales.
Some of our solutions utilize
open-source technologies. These technologies are licensed to us under varying license structures. These licenses pose a potential risk
to our solution in the event they are inappropriately integrated. If we have not, or do not in the future, properly integrate software
that is subject to such licenses into our solutions or if we utilize open-source software that is subject to licensing terms that are
incompatible with our use, we may be required to disclose our own source code to the public or may lose rights to our solutions. Any
such requirement to disclose or grant rights in our source code or other confidential information related to our solutions could, therefore,
materially adversely affect our competitive advantage and impact our business, financial condition and results of operations.
We depend on limited sources
for key components and if we are unable to obtain these components when needed we may experience delays in delivering our solutions.
We currently obtain key components
of our software solutions from a limited number of suppliers. With some of our suppliers, we do not have long-term supply contracts.
Therefore, we may be subject to delays in delivery, which could interrupt and delay delivery and result in cancellations of orders. In
addition suppliers could increase component prices significantly and with immediate effect we may not be able to locate alternatives
for such components, and suppliers could discontinue the supply or support of such components which may require us to modify our solutions,
and cause delays in delivery, increased development costs and increased solution prices. All of the above may materially adversely affect
our competitive advantage and impact our business, financial condition and results of operations.
Our proprietary technology
is difficult to protect and unauthorized use of our proprietary technology by third parties may impair our ability to compete effectively.
Our success and ability to
compete depend in large part upon protecting our proprietary technology. We rely upon a combination of contractual rights, software
licenses, trade secrets, copyrights, non-disclosure agreements and technical measures to establish and protect our intellectual property
rights in our solutions and technologies. In addition, we sometimes enter into non-competition, non-disclosure and confidentiality
agreements with our employees, distributors, sales representatives and certain suppliers with access to sensitive information. We
currently have three registered patents and five pending patent applications. However, these measures may not be adequate to protect
our technology from third-party infringement. Additionally, effective intellectual property protection may not be available in every
country in which we offer, or intend to offer, our solutions.
We may expand our business
or enhance our technology through partnerships and acquisitions that could result in diversion of resources and extra expenses. This
could disrupt our business and adversely affect our financial condition.
Part of our growth strategy
may be to selectively pursue partnerships and acquisitions that provide us access to complementary technologies and accelerate our penetration
into new markets. The negotiation of acquisitions, investments or joint ventures, as well as the integration of acquired or jointly developed
businesses or technologies, could divert our management’s time and resources. Acquired businesses, technologies or joint ventures
may not be successfully integrated with our solutions and operations. We may not realize the intended benefits of any acquisition, investment
or joint venture and we may incur future losses from any acquisition, investment or joint venture.
In addition, acquisitions
could result in, among other things, substantial cash expenditures, potentially dilutive issuances of equity securities, the incurrence
of debt and contingent liabilities, a decrease in our profit margins, and amortization of intangibles and potential impairment of goodwill.
If we implement our growth
strategy by acquiring other businesses, and this disrupts our operations, our business, financial condition and results of operations
could be adversely affected. As of the date of this Annual Report, we have not proceeded with such acquisitions.
Because we received grants
from the IIA, we are subject to ongoing restrictions.
We have received an aggregate
of $48.4 million in royalty-bearing grants for certain research and development activities pursuant to an incentive program. Accordingly,
we are obligated to pay royalties to the IIA on revenues from products developed pursuant to the program or deriving therefrom. In addition,
under the terms of the program our ability to transfer any resulting know-how, especially to parties outside of Israel, is subject to
certain terms and conditions. The Law for the Encouragement of Research, Development and Technological Innovation in the Industry, 1984-5744,
or the R&D Law, generally requires a grant recipient and its controlling shareholders to notify the IIA of changes in the ownership
of the recipient company and to undertake to the IIA to observe the laws governing the grant programs. We are committed to pay royalties
with respect to aforesaid grants until 100% of the U.S. dollar-linked grant plus annual London Interbank Offered Rate, or LIBOR, interest
is repaid. Nonetheless, the amount of royalties that we may be required to pay, may be higher in certain circumstances, such as when
the manufacturing activity or know how is transferred outside of Israel. The United Kingdom’s Financial Conduct Authority, which
regulates the LIBOR, announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after
2021. In September 2021, the Bank of Israel, which determines annual interest rates, published a directive which stated that annual interest
at a variable rate linked to the LIBOR rate for loans in U.S. dollars will be replaced by the Secured Overnight Financing Rate, or the
SOFR, in June 2023. While it is not currently possible to determine precisely whether, or to what extent, the replacement of LIBOR with
SOFR would affect us, and given that, as of the date of this Annual Report, the IIA has not yet published the alternative interest that
will be applied on the grants that the Company received from the IIA, the implementation of SOFR (if so implied) may increase our financial
liabilities to the IIA. Management continues to monitor the status and discussions regarding SOFR. We are not yet able to reasonably
estimate the expected impact.
Additionally, in May 2010,
we received a notice from the IIA regarding alleged miscalculations in the amount of royalties paid by us to the IIA for the years 1992
through 2009 and the revenues on which the Company must pay royalties. During 2011, we reviewed with the IIA these alleged miscalculations.
We believe that all royalties due to the IIA from the sale of products developed with funding provided by the IIA during such years were
properly paid or were otherwise accrued as of December 31, 2021. However, we cannot be sure that the IIA will accept our arguments mentioned
above, which, if not accepted, may result in the expenditure of financial resources.
We may be subject to claims
of infringement of third-party intellectual property which may have an adverse effect on our business.
Third parties may from time
to time assert against us infringement claims or claims that we have violated a patent or infringed a copyright, trademark or other proprietary
right belonging to them. If such infringement were found to exist, we might be required to modify our products or intellectual
property or to obtain a license or right to use such technology or intellectual property. Any infringement claim, even if
not meritorious, could result in the expenditure of significant financial and managerial resources.
Zohar Zisapel and Yehuda
Zisapel beneficially own, in the aggregate, approximately 22.5% of our ordinary shares and therefore have significant influence over
the outcome of matters requiring shareholder approval including the election of directors.
As of March 25, 2022, Zohar
Zisapel, a member of our Board of Directors, and Yehuda Zisapel, who are brothers, may be deemed to beneficially own an aggregate of
3,240,591 ordinary shares, including options exercisable for 21,450 ordinary shares that are exercisable within 60 days of March 25,
2022, representing approximately 22.5% of our outstanding ordinary shares. As a result, despite the fact that each one of
them, to our knowledge, operates independently from the other with respect to his respective shareholding of our shares, Zohar Zisapel
and Yehuda Zisapel have significant influence over the outcome of various actions that require shareholder approval including the election
of our directors. In addition, Zohar Zisapel and Yehuda Zisapel may be able to delay or prevent a transaction in which shareholders
might receive a premium over the prevailing market price for their shares and prevent changes in control or in management.
We engage in transactions
and may compete with companies controlled by Zohar Zisapel and Yehuda Zisapel, which may result in potential conflicts.
We are engaged in, and expect
to continue to be engaged in, numerous transactions with companies controlled by Zohar Zisapel and/or Yehuda Zisapel. We believe
that such transactions are beneficial to us and are generally conducted upon terms that are no less favorable to us than would be available
from unaffiliated third parties. Nevertheless, these transactions may result in a conflict of interest between what is best for
us and the interests of the other parties in such transactions. Furthermore, in some cases we may compete, or buy third party components
from other companies who compete, with companies controlled by Zohar Zisapel and/or Yehuda Zisapel. For more information, see “Item
7.B-Major Shareholders and Related Party Transactions—Related Party Transactions” and “Item 10.B-Fiduciary Duties of
Shareholders.”
We incurred net losses
in the past and may not achieve or sustain profitability in the future.
In 2021, 2020 and 2019, we
incurred net losses of approximately $5.3 million, $4 million and $6.8 million respectively. We may continue to incur losses in the future
or may be unable to sustain profitability, which could materially affect our cash and liquidity and could adversely affect the value
and market price of our shares.
Our international presence
exposes us to risks associated with varied and changing political, cultural, legal and economic conditions worldwide and if we fail to
adapt appropriately to the challenges associated with operating internationally the expected growth of our business may be impeded, and
our operating results may be affected.
While we are headquartered
in Israel, approximately 94% of our sales in 2021 and 96% of our sales both in 2020 and in 2019 were generated outside of Israel. Our
international sales will be limited if we cannot continue to establish and maintain relationships with international distributors and
resellers, set up additional foreign operations, expand international sales channel management, hire additional personnel, develop relationships
with international CSPs and operate adequate after-sales support internationally.
Even if we are able to successfully
further expand our international operations, we may not be able to maintain or increase international market demand for our solutions.
Our international operations are subject to a number of risks, including:
| ● | legal, language and cultural
differences in the conduct of business; |
| ● | challenges in staffing and managing foreign operations due
to the limited number of qualified candidates and due to employment laws and business practices in foreign countries; |
| ● | our inability to comply with import/export, environmental
and other trade compliance and other regulations of the countries in which we do business including additional labor laws, particularly
in Brazil and India, together with unexpected changes in such regulations; |
| ● | insufficient measures to ensure that we design, implement,
and maintain adequate controls over our financial processes and reporting in the future; |
| ● | our failure to adhere to laws, regulations, and contractual
obligations relating to customer contracts in various countries; |
| ● | our inability to maintain a competitive list of distributors
and resellers for indirect sales; |
| ● | economic and political instability in foreign market, including
tariffs and other trade barriers (such as in response to the Russia and Ukraine conflict); |
| ● | wars, acts of terrorism and political unrest (including the
current conflict between Russia and Ukraine); |
| ● | lack of integration of foreign operations; |
| ● | variations in effective income tax rates among countries where
we conduct business; |
| ● | potential foreign and domestic tax consequences and withholding
taxes that limit the repatriation of earnings; |
| ● | technology standards that differ from those on which our solutions
are based, which could require expensive redesign and retention of personnel familiar with those standards; |
| ● | laws and business practices favoring local competitors; |
| ● | longer accounts receivable payment cycles and possible difficulties
in collecting payments; and |
| ● | failure to meet certification requirements. |
Any of these factors could
harm our international operations and have an adverse effect on our business, operating efficiency, results of operations, financial
performance and financial condition. The continuing weakness in foreign economies could have a significant negative effect on our future
operating results.
Because our revenues are
generated primarily in foreign currencies (mostly in U.S. dollars but also in other currencies), but a significant portion of our expenses
are incurred in New Israeli Shekels, our results of operations may be seriously harmed by currency fluctuations.
We sell in markets throughout
the world and most of our revenues are generated in U.S. dollars. We also generate revenues in Euro, Brazilian real, or BRL, and other
currencies. Our financing activities are also made in U.S. dollars. Accordingly, we consider the U.S. dollar to be our functional currency.
However, a significant portion of our expenses is in NIS, mainly related to employee expenses. Therefore, fluctuations in exchange rates
between the NIS and the U.S. dollar as well as between other currencies and the U.S. dollar may have an adverse effect on our results
of operations and financial condition. As of today, we have not entered into any hedging transactions in order to mitigate these risks.
Moreover, as our revenues
are currently denominated primarily in U.S. dollars, devaluation in the local currencies of our customers relative to the U.S. dollar
could cause customers to default on payment. Also, as a portion of our revenues is denominated in BRL, devaluation in this currency may
cause financial expenses related to our intercompany short-term balances. In the future, additional revenues may be denominated in currencies
other than U.S. dollars, thereby exposing us to gains and losses on non-U.S. currency transactions.
We incur expenses in different
currencies, including U.S. dollars and NIS, but our financial statements are denominated in U.S. dollars. U.S. dollars is our functional
currency and is the currency that represents the principal economic environment in which we operate. As a result, we are affected by
foreign currency exchange fluctuations through both translation risk and transaction risk. As a result, we are exposed to the risk that
the NIS may appreciate relative to the dollar, or, if the NIS instead devalues relative to the dollar, that the inflation rate in Israel
may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such
event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely
affected.
Risks Related to our Ordinary Shares
Wide fluctuations in the
market price of our ordinary shares could adversely affect us and our shareholders.
Between January 1, 2021,
and March 25, 2022, our ordinary shares closing price on the Nasdaq Capital Market, or the Nasdaq, was as high as $14.70 and as low as
$8.93 per share. As of March 25, 2022, the closing price of our ordinary shares on Nasdaq was $12.40 per share. The market price
of our ordinary shares has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response
to numerous factors, including the other risks identified in this “Item 3.D—Risk Factors”.
In addition, the stock market
in general, and the market for Israeli and technology companies in particular, has been highly volatile. Many of these factors are
beyond our control and may materially adversely affect the market price of our ordinary shares, regardless of our performance. Shareholders
may not be able to resell their ordinary shares following periods of volatility because of the market’s adverse reaction to such
volatility.
The trading volume of
our shares is relatively low, and it may remain low in the future.
Our shares have been traded
at low volumes in the past and may be traded at low volumes in the future for reasons related or unrelated to our performance. This low
trading volume may result in lesser liquidity and lower than expected market prices for our ordinary shares, and our shareholders may
not be able to resell their shares for more than they paid for them. This low trading volume may also result in greater share price volatility
as result of short trading activities or the acquisition or disposition of shares by any single larger or institutional shareholder.
Risks Related to Our Location in Israel
Provisions of Israeli
law may make it easy for our shareholders to demand that we convene a shareholders meeting, and/or allow shareholders to convene a shareholder
meeting without the consent of our management, which may disrupt our management’s ability to run our company.
Section 63(b) of the Companies
Law may allow any one or more of our shareholders holding at least 5% of our voting rights to demand that we convene an extraordinary
shareholders meeting. Also, in the event that we choose not to convene an extraordinary shareholders meeting pursuant to such a request,
Sections 64-65 of the Companies Law provide, among others, that such shareholders may independently convene an extraordinary shareholders
meeting within three months (or under court’s ruling) and require us to cover the costs, within reason, and as a result thereof,
our directors might be required to repay us such costs. If our shareholders decide to exercise these rights in a way inconsistent with
our management’s strategic plans, our management’s ability to run our company may be disrupted, and this process may entail
significant costs to us.
Security, political and
economic instability in the Middle East may harm our business.
We are incorporated under
the laws of the State of Israel, and our principal offices and research and development facilities are located in Northern Israel. Accordingly,
security, political and economic conditions in the Middle East in general, and in Israel in particular, may directly affect our business.
Any armed conflicts, political instability, terrorism, cyberattacks or any other hostilities involving Israel or the interruption or
curtailment of trade between Israel and its present trading partners could affect adversely our operations. Ongoing and revived hostilities
in the Middle East or other Israeli political or economic factors, could harm our operations and solution development and cause any future
sales to decrease.
Finally, many Israeli citizens
are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of
40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may
be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military
reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such
call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business,
prospects, financial condition and results of operations.
We currently benefit from
government programs that may be discontinued or reduced.
We currently receive grants
under Government of Israel programs. In order to maintain our eligibility for these programs, we must continue to meet specific
conditions and pay royalties with respect to grants received. In addition, some of these programs restrict our ability to
develop particular products outside of Israel or to transfer particular technology. If we fail to comply with these conditions in
the future, the benefits received could be canceled and we could be required to refund any payments previously received under these programs.
Additionally, these programs may be discontinued or curtailed in the future. If we do not receive these grants in the future,
we will have to allocate funds to product development at the expense of other operational costs. If the Government of Israel discontinues
or curtails these programs, our business, financial condition and results of operations could be materially adversely affected. For
more information, see “Item 4.B—Information on the Company—Business Overview—Israel Innovation Authority.”
Provisions of Israeli
law may delay, prevent or make difficult a merger or acquisition of us, which could prevent a change of control and depress the market
price of our shares.
The Israeli Companies Law,
5759-1999, or the Israeli Companies Law, regulates acquisitions of shares through tender offers, requires special approvals for transactions
involving shareholders holding 25% or more of the company’s capital, and regulates other matters that may be relevant to these
types of transactions. 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. These provisions may limit
the price that investors may be willing to pay in the future for our ordinary shares. Furthermore, Israeli tax considerations may make
potential transactions undesirable to us or to some of our shareholders.
It may be difficult
to effect service of process, assert U.S. securities laws claims and enforce U.S. judgments in Israel against us or our directors,
officers and auditors named in this Annual Report.
We were incorporated in Israel.
All our directors reside outside of the United States, and most of our assets are located outside of the United States. Therefore, a
judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal
securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be
difficult to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions
instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect
to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States
securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli
court agrees to hear a claim, it may determine that Israeli law and not United States law is applicable to the claim. If United States
law is found to be applicable, the content of applicable United States law must be proven as a fact by expert witnesses, 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. As a result of the difficulty associated with enforcing a judgment against
us in Israel, you may not be able to collect any damages awarded by either a United States or foreign court.
As a foreign private issuer
whose shares are listed on the Nasdaq, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.
As a foreign private issuer
whose shares are listed on the Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain
requirements of the Nasdaq Stock Market Rules including requirements regarding compensation of officers, shareholder approval for certain
dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result
in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest
in the company and certain acquisitions of the stock or assets of another company) and other matters.
Accordingly, our shareholders
may not be afforded the same protection as provided under Nasdaq’s corporate governance rules. For more information, see “Item
16G—Corporate Governance”.
General Risk Factors
Natural disasters and
other events beyond our control could harm our business.
Natural disasters or other
catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have
a negative effect on us. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics
such as the recent spread of the coronavirus, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical
instability, war, the effects of climate change (such as drought, wildfires, increased storm severity and sea level rise) and other events
beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible
for us to deliver our solutions and services to our customers, could decrease demand for our solutions and services, and could cause
us to incur substantial expense.
Global economic conditions
may adversely affect our business.
Changes in global economic
conditions could have a negative impact on business around the world and on the telecommunications sector. Conditions may be depressed,
or may be subject to deterioration, which could lead to a reduction in consumer and customer spending overall and may in turn have an
adverse impact on sales of our solutions. A disruption in the ability of our significant customers to access liquidity could cause
serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in their orders of our
solutions and the inability or failure on their part, to meet their payment obligations to us, any of which could have an adverse effect
on our business, financial condition, results of operations and liquidity. In addition, any disruption in the ability of our customers
to access liquidity could require us to assume greater credit risk relating to our receivables or could limit our ability to collect
receivables related to purchases by affected customers. As a result, we may have to defer recognition of revenues, our reserves for doubtful
accounts and write-offs of accounts receivable may increase and we may incur losses.
Certain privacy and data
security laws and regulations may affect the use of our solutions.
Our solutions and their use
may be subject to certain laws and regulations regarding privacy and data security including United States federal and state laws and
European privacy laws. Generally, attention to privacy and data security requirements is increasing worldwide and is resulting in increased
regulation.
Such regulations may impose
significant penalties for non-compliance, such as the penalties proposed under the European data protection regulations, or GDPR. The
GDPR further implemented through binding guidance by the European Data Protection Board (and supplemented by national laws in individual
European Union member states), imposes more stringent data protection compliance requirements and provides for more significant penalties
for noncompliance in Europe. The GDPR created additional compliance obligations applicable to our business and users, which could cause
us to change our business practices, and increases financial penalties for noncompliance (including possible fines of up to the greater
of €20 million and 4% of our global annual turnover for the preceding financial year for the most serious violations, as well as
the right to compensation for financial or non-financial damages claimed by any individuals under Article 82 of the GDPR). Compliance
with the GDPR is an ongoing process.
Additionally, California
passed the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020. The CCPA provides new data privacy rights
for consumers and new operational requirements for companies. California voters also passed the California Privacy Rights Act, or CPRA
into law on November 3, 2020, which will not take substantial effect until January 1, 2023. The CPRA will significantly modify the CCPA,
including adding new privacy rights and increasing regulation on online advertising. Additionally, the CCPA, eventually the CPRA, and
other legal and regulatory changes are making it easier for certain individuals to opt-out of having their personal data processed and
disclosed to third parties through various opt-out mechanisms, which could result in an increase to our operational costs to ensure compliance
with such legal and regulatory changes.
Use of our solutions could
be subject to such regulations, which could significantly increase the cost of implementing our solutions and impact our ability to compete
in the marketplace. Such regulations could also impose additional data security requirements which will impact the cost of developing
new solutions and limit the return we can expect to achieve on past and future investments in our solutions.
Our international sales
and operations are subject to complex laws relating to foreign corrupt practices and bribery, among many other subjects. A violation
of, or change in, these laws could adversely affect our business, financial condition or results of operations.
Our operations in countries
outside the United States are subject, among others, to the Foreign Corrupt Practices Act of 1977 as amended from time to time, or FCPA,
which prohibits U.S. companies or foreign companies whose shares traded on a U.S. stock exchange, or their agents and employees, from
providing anything of value to a foreign public official, as defined in the FCPA, for the purposes of influencing any act or decision
of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity,
or obtain any unfair advantage. We have internal control policies and procedures with respect to the FCPA. However, we cannot assure
that our policies and procedures will always protect us from reckless or criminal acts that may be committed by our employees or agents.
Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have
a material adverse effect on our business, results of operations and financial condition. In addition, investigations by governmental
authorities as well as legal, social, economic and political issues in countries where we operate could have a material adverse effect
on our business and results of operations. We are also subject to the risks that our employees or agents outside of the United States
may fail to comply with other applicable laws. The costs of complying with these and similar laws may be significant and may require
significant management time and focus. Any violation of these or similar laws, intentional or unintentional, could have a material adverse
effect on our business, financial condition or results of operations.
Any inability to comply
with Section 404 of the Sarbanes-Oxley Act of 2002 regarding effective internal control procedures may negatively impact the report on
our financial statements to be provided by our independent auditors.
Pursuant to rules of the
U.S. Securities and Exchange Commission, or SEC, adopted pursuant to Section 404, or Section 404, of the Sarbanes-Oxley Act of 2002,
or the Sarbanes-Oxley Act, we are required to include in our annual report a report of management on our internal control over financial
reporting including an assessment by management of the effectiveness of our internal control over financial reporting. In addition,
because we are an accelerated filer under the SEC rules, our independent registered public accounting firm is required to attest to and
report on the effectiveness of our internal control over financial reporting. Our management or our auditors may conclude that our
internal control over financial reporting is not effective. Such conclusion could result in a loss of investor confidence in the reliability
of our financial statements, which could negatively impact the market price of our shares. Further, our auditors or we may identify material
weaknesses or significant deficiencies in our assessments of our internal control over financial reporting. Failure to maintain
effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities and could have
an adverse effect on our business, financial condition and results of operations, and on investor confidence in our reported financial
information.
If we determine that we are
not in compliance with Section 404, we may be required to implement new internal controls and procedures and re-evaluate our financial
reporting. We may experience higher than anticipated operating expenses as well as third party advisory fees during the implementation
of these changes and thereafter. Further, we may need to hire additional qualified personnel in order to comply with Section 404.
If we are unable to implement these changes effectively or efficiently, it could have a material adverse effect on our business, financial
condition, results of operations, financial reporting or financial results and could result in our conclusion that our internal controls
over financial reporting are not effective.
We may choose to raise
funds from time to time. If adequate financing is not available on terms favorable to us or to our shareholders, our operations and growth
strategy may be affected.
We may choose to raise funds
from time to time in connection with our operations and growth strategy. We do not know whether additional financing will be available
when needed, or whether it will be available on terms favorable to us. Any such financings may dilute the ownership of existing
shareholders and could adversely affect the market price of our ordinary shares. In addition, if adequate financing is not available
on terms favorable to us or to our shareholders, our operations and growth strategy may be affected.
ITEM 4. INFORMATION ON THE COMPANY
| A. | HISTORY AND DEVELOPMENT OF
THE COMPANY |
Both our legal and commercial
name is RADCOM Ltd., and we are an Israeli company. We were incorporated in 1985 under the laws of the State of Israel and commenced
operations in 1991. The principal legislation under which we operate is the Israeli Companies Law. Our principal executive offices
are located at 24 Raoul Wallenberg Street, Tel Aviv 69719, Israel, and our telephone and fax numbers are 972-3-645-5055 and 972-3-647-4681,
respectively. Our website is www.radcom.com. Information on our website and other information that can be accessed through
it are not part of, or incorporated by reference into, this Annual Report.
In 1993, we established a
wholly-owned subsidiary in the United States, currently named RADCOM, Inc., or RADCOM US. In 1996, we incorporated a wholly-owned subsidiary
in Israel, RADCOM Investments (96) Ltd., or RADCOM Investments, located at our office in Tel Aviv, Israel. In 2010, we established
a wholly-owned subsidiary in Brazil, RADCOM do Brasil Comercio, Importacao e Exportacao Ltda., or RADCOM Brazil. In 2012, we incorporated
a wholly-owned subsidiary in India, RADCOM Trading India Private Limited, or RADCOM India.
In the years ended December
31, 2021, 2020 and 2019, our capital expenditures were approximately $437,000, $427,000, and $699,000, respectively, and were spent primarily
on computers and electronic equipment. We have no current significant commitments for capital expenditures.
For more information, the
SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding
us that has been filed electronically with the SEC.
Overview
We are a leading provider
of 5G ready cloud-native network intelligence and service assurance solutions for CSPs. Our solutions support CSPs in their transition
to virtualization and 5G networks, delivering dynamic, on-demand service assurance and network troubleshooting for real time customer
and service insights.
The 5G telecommunications
infrastructure introduces a transformational approach for the design of a new network core and an Open-RAN (a standard for cellular radio-access
networks) solution, which is a fully cloud-native, software-based, virtualized network architecture. This new core network architecture
uses building blocks, or containers, to enable a wide range of new services envisioned using 5G. The new 5G network is designed in an
agile approach, which virtualizes entire classes of network functions into containers, which may dynamically create various services. The
new cloud-native nature of the core network is designed to consolidate and deliver the components needed to support fully virtualized
networks, utilizing standard technologies that run on high-volume services and switch and storage hardware to virtualize network functions.
The fully cloud native approach is a key enabler of the coming 5G telecommunications infrastructure, which drives a major change in the
way CSPs design and build their new 5G networks. Such a major change drives the need to assure that it is done safely and with the right
set of tools.
By using this software design
approach, we were able to deploy our system on Rakuten Cloud Platform, or RCP, Amazon Web Services, or AWS, and Microsoft Azure. This
also proved to be a very efficient approach, as we are already starting to see operators moving to a hybrid approach of private and public
cloud, which requires the solution to be very dynamic in deployment options.
We offer an advanced 5G network
intelligence portfolio of solutions for large scale networks, providing operators with a smart, efficient and on-demand approach to network
intelligence that meets the challenges of assuring the customer experience and service quality in the 5G era. Our solutions leverage
the move to an all container based architecture and the use of Kubernetes (an open-source system for automating deployment, scaling,
and management of containerized applications) for the orchestration of the complete solution. This new approach is based on moving the
whole design to a Kubernetes-based micro-service architecture, such that it can be deployed on multiple types of clouds, both private
and public. Our solution allows CSPs to have an in depth understanding of their customer experience, receive insights and effectively
troubleshoot the network performance. RADCOM ACE, our recently launched 5G network intelligence solution, is built to ensure that the
transition of CSPs’ customers to the 5G network is seamless. RADCOM ACE is explicitly designed to deliver automated, containerized
5G assurance for end-to-end network intelligence (from the radio access network, or RAN to the network core), delivering AI-driven insights
for 5G network operations, which we believe to be the cornerstone to CSPs’ customer experience strategy. RADCOM ACE is comprised
of our RADCOM Network Visibility, RADCOM Service Assurance, and RADCOM Network Insights.
| ● | RADCOM Network Insights: Provides a smart end-to-end
view of the service quality and customer experience for 5G Stand Alone, or SA, and Non-Stand Alone, or NSA, enhanced by Artificial Intelligence
or AI-driven insights and includes our advanced AI-Based capabilities. |
| ● | RADCOM Service Assurance: A fully containerized assurance
solution that smartly collects and correlates data via multiple sources (RADCOM Probes, Network Events, event detail records and Network
Packets) for full visibility of the 5G network from end to end (i.e. from RAN to Core). RADCOM Service Assurance solution supports 5G
networks as well as the legacy technologies such as 4G, 3G and 2G). |
| ● | RADCOM Network Visibility: Provides advanced packet
broker capabilities for smart traffic distribution, filtering, and load balancing across multiple clouds and domains. |
We specialize in solutions
for next-generation mobile and fixed networks, including 5G, Long Term Evolution, or LTE, VoLTE, Voice over Wifi, or VoWifi, IP Multimedia
Subsystem, or IMS, Voice over IP, or VoIP, and Universal Mobile Telecommunication Service or UMTS.
Our solution portfolio enables
CSPs that are deploying 5G networks as well as CSPs that are evaluating or migrating their 4G, 3G and 2G legacy networks to fully virtualized
cloud-native networks to have one platform that covers their entire network, from 5G, 4G, and 2G, providing fully virtualized cloud-native
network intelligence and service assurance.
Our solution is deployed at
multiple operators (CSPs) globally, such as AT&T, Beeline, Globe, Rakuten and Telefonica and has received wide industry recognition,
winning a Frost & Sullivan Product Differentiation Innovation Awards three times, winning multiple TMC Labs Innovation Awards and
winning the Technology Marketing Corp. Award for NFV Innovation.
By developing and adapting
our solutions to meet the industry’s most stringent requirements we have expanded our customer base to include new opportunities
and markets while expanding our footprint with existing customers by supporting them in their transition to cloud-native virtualized network
environments and 5G network. As new and existing customers seek to manage their existing networks while evaluating and deploying cloud-native
virtualized network container-based architectures, we believe that we are well positioned with our advanced cloud-native network intelligence
solutions and our growing industry track record to provide both CSPs that are deploying 5G networks and CSPs that are evaluating or migrating
their 4G, 3G and 2G legacy networks to fully virtualized cloud-native networks with one complete platform to cover their entire network
intelligence needs, including 5G, 4G, 3G, and 2G.
CSPs across the globe use
our solutions to deliver high quality services, reduce churn, manage network performance, analyze traffic and enhance customer care. Our
solutions incorporate cutting edge technologies and a vast knowledge gained in our advanced work with some of the most technologically
innovative CSPs in the industry. Our carrier-grade solutions support both mobile and fixed networks and scale to terabit data bandwidths
to enable big data analytics.
Our technological leadership
was reinforced by Rakuten Mobile’s 2019 selection of our solutions as their “eyes to the network” in support of their
launch of the world’s first end-to-end cloud-native virtualized network. Using our solutions, Rakuten monitors its entire network
end-to-end, including the world’s first fully virtualized RAN.
During 2020, we entered into
one of the industry’s first 5G network intelligence contract with Rakuten for its recently launched NSA 5G service and upcoming
SA 5G service, expected to be launched during 2022.
During 2021, we announced
partnerships with AWS and Microsoft Azure through which we are offering our RADCOM ACE solution with real-time subscriber analytics and
advanced troubleshooting for both telecom operators that are rolling out 5G, Internet of Things, and edge services and operators already
running 4G and VoLTE networks.
Our solutions portfolio enables
CSPs to smoothly transition their networks to cloud-native virtualized networks and 5G networks. It provides a unified, multi-functional,
cloud-native and containerized portfolio of network visibility, service assurance, and network insights that seamlessly integrates into
an operator’s virtualized environment. Our solutions portfolio will also enable one of the key future targets, which is to automate
processes, save on cost and manage the network based on correlated network and subscriber key performance indicators, or KPIs, rather
than based on just performance indicators. Our solution has built-in AI and Machine Learning, or ML capabilities to increase the benefits
of the network intelligence solution. By deploying cloud-native network intelligence solutions with built-in AI/ML, the CSP can utilize
the data already collected through our containerized probes. Our solutions further deliver specialized capabilities for virtualized infrastructure
and next-generation networks, such as 5G networks, and allow CSPs to monitor and proactively improve quality of experience for their
subscribers.
The key benefits of our solutions
are:
| ● | advanced cloud native, software-based, containerized architecture; |
| ● | dynamic multi-functional solution for 5G network intelligence; |
| ● | ability to correlate session information and provide an end-to-end
view of the customer experience and network quality; |
| ● | ability to derive customer experience based on monitoring
the mobile user data, when such data is almost all encrypted, using ML and heuristic based approach |
| ● | a set of tools enabling network engineers to troubleshoot
network issues and drill all the way from key performance indicators, KPIs to network data; |
| ● | AI-driven insights for real-time analysis and deciphering
of encrypted traffic to enable it; |
| ● | fully containerized end-to-end solution for network intelligence
from the RAN to the core; |
| ● | real time analysis of Open-RAN data on the entire network |
| ● | support for multiple protocols for end-to-end network coverage; |
| ● | scalability for next-generation services; |
| ● | improved customer retention; |
| ● | reduced subscriber churn rates; |
| ● | improved service availability and quality; |
| ● | on-demand monitoring capabilities as well as increased operational
efficiency and lower costs; |
| ● | the existence of both network-wide views and drilldown to
an individual subscriber level and down to each session; |
| ● | support for the largest scale multi-market networks for over
30 years; |
| ● | empowers operators with real-time intelligence of network
performance to assure customers’ experience; |
In December 2015, we were
selected by AT&T for its next-generation virtualized network environment. AT&T’s deployment represents the first NFV networks
of scale in the industry and since then, we have been working with AT&T, in its continuing efforts to transition to a full NFV network.
From 2016 until 2018, we improved
our cloud-native virtualized network capabilities while working on one of the world’s first and biggest virtual networks. We also
continued the development and enhancement of our solutions to meet the complicated needs of monitoring virtualized networks and to offer
a smart mediation layer which allows us to offer a full end-to-end customer and service view which addresses CSPs’ requirements
for a smart network intelligence solution, including for 5G networks.
We also launched our Network
Visibility solution to allow CSPs to gain more visibility into their network. RADCOM Network Visibility offers an integrated cloud-native
solution with advanced packet broker capabilities that ensure intelligent traffic distribution, smart load balancing, and intelligent
sampling for full end-to-end visibility across the network. RADCOM Network Visibility helps to distribute network traffic from multiple
cloud environments to service assurance probes, security tools, and other systems. During such period we increased our development efforts,
focusing on enhancing automation and analytics capabilities and offering containerized solutions so as to maintain our technological leadership.
Our continued and increased
investment in research and development was validated in 2019 by our renewed engagement with AT&T, when we entered into a multi-year
engagement continuing our relationship and expanding the integration of our solutions into AT&T’s network.
In May 2019, we entered into
a multi-year agreement with Rakuten to provide our Network Intelligence solution for Rakuten’s unique and innovative mobile network.
Rakuten’s network is considered the world’s first fully virtualized, end-to-end cloud-native mobile network that adopts 5G
systems architecture from launch. Rakuten chose RADCOM Network Intelligence because of its ability to monitor the entire end-to-end network,
including the world’s first fully virtualized RAN.
In April 2020 we announced
that we successfully supported Rakuten’s commercial launch of the world’s first fully virtualized mobile network. Our solution
helped Rakuten to launch its new virtualized network and ensured the delivery of superior customer experience. Our solutions are tightly
integrated across Rakuten’s distributed telecommunications cloud to assure the highest service quality is delivered to customers
for voice, video, VoLTE and data services from the mobile edge up to the network core.
In August 2020, we announced
the launch of RADCOM ACE. RADCOM ACE is an automated, containerized, end-to-end assurance solution for 5G networks, built based on our
cloud-native expertise and designed so CSPs can manage their networks in a more dynamic and agile way. RADCOM ACE is built to ensure that
5G services continuously run at optimal quality, while at the same time improving the operators’ operational efficiency through
automation.
In October 2020, we entered
into a new multi-year agreement with Rakuten to provide our RADCOM ACE solution for Rakuten’s recently launched 5G NSA service and
future 5G SA service launch, which is expected to be deployed during 2021, or the Rakuten 5G Agreement. We believe that the Rakuten 5G
Agreement is the first 5G assurance contract in our industry and is a testimony to the significant investment in product development we
have been making over the last few years as well as a market validation to our ability to monitor the entire end-to-end network, providing
superior insights.
In May 2021, we announced
an additional order from a Top-Tier Latin America operator, selected for our 4G and 5G capabilities. This order expands our deployment
at this top-tier operator to its mobile network and covers assurance for this top-tier operator’s 4G network, such as the operator’s
cloud-based VoLTE offering, and we expect them to expand our solutions to their 5G network in the future.
During 2022, We expect to
continue our investment in research and development and to increase our sales and marketing efforts. We intend to leverage our success
with industry leading customers as we seek to engage with other CSPs that are looking to manage existing networks while evaluating their
transition to the cloud-native architectures and 5G network. We are targeting Tier 1, Greenfield Operators and CSPs who are deploying
5G virtualized networks as well as CSPs who are evaluating or migrating their 4G, 3G and 2G networks to fully virtualized cloud-native
networks and are searching for a cutting-edge network intelligence solution that can cover their entire network needs.
Industry Background
Our Customers and the
Market for Our Solutions
We operate in a large market
that is undergoing significant transformation with significant potential for growth, which is evidenced by the evolution of the networks
and transition to 5G networks all over the world. Such transition contains new technological challenges, which require a new approach
in order to be solved. The customers in our market consist primarily of mobile and fixed CSPs who are responsible for providing mobile
and fixed telecommunications services. Our solutions are used by multiple divisions within a CSP’s organization, including engineering,
operations, marketing, management and customer care departments.
CSPs face many challenges
in managing their network, from the rapid growth in mobile data traffic to complexities in managing services that are delivered across
multiple vendor technologies. These challenges are intensified by the increased traffic growth and the emergence of new technologies and
services, such as machine to machine, IoT and 5G. Deploying a cloud-native, virtualized network intelligence and network intelligence
solution is an essential part of a CSP’s network, derived by the need to manage huge amounts of various network elements and services
from multiple vendors and technologies. In addition, CSPs are facing strong competition both from other CSPs and from over-the-top (OTT)
players who are offering more and more similar services. In order to fight for their customers’ satisfaction, CSPs will need to
gain deeper insight into customer behavior, enabling them to tailor processes based on customer preferences.
In the early stages, 5G is
expected to deliver enhanced mobile broadband with higher data speeds (up to twenty times faster than 4G) as well as better coverage for
use cases such as Fixed Wireless Access. Over time, SA 5G is expected to enable new use cases such as autonomous cars, remote control
of critical infrastructure/machinery, smart-grid control, industrial automation, robotics, drone control, and remote telehealth services
which will be empowered by an ultra-reliable, low latency network (up to ten times that of 4G).
While CPSs are preparing for
the adoption of 5G technologies, they continue to operate their 4G, 3G and 2G networks and search for superior solutions that will enable
them full end-to-end network visibility. Our solution offering is built on years of industry experience, is 5G ready and support the CSPs
entire network offerings. Our solution is built to ensure that both CPSs who are deploying 5G virtualized networks and CSPs who are evaluating
or migrating their 4G, 3G and 2G networks to fully virtualized cloud-native networks, will benefit from our cutting-edge network intelligence
solution that covers their entire network visibility and service assurance needs.
With the new 5G network being
fully virtualized and cloud-native, network functions will run as stateless, container-based, virtual network functions. Being fully virtualized
will make CSPs more agile and faster to innovate and deliver new services. Containerization means that individual services will be updated
with minimal impact on other services. This fully virtualized cloud-native design will enable CSPs to reduce costs, accelerate the introduction
of new services, and deliver faster iterations to their network and services. As a result of this fully virtualized cloud-native infrastructure,
CSPs are redesigning their network and core network architectures, using web-based standards to create a dynamic, open, scalable, and
modular platform to deliver their 5G services while utilizing cutting edge cloud-native network intelligence technology to cover their
4G, 3G and 2G legacy networks.
The ability to assure the
diverse 5G service types on a cloud-native, fully virtualized containerized platform is fundamental to the success of CSPs. 5G introduces
many new interfaces, protocols, and technologies into the cloud core. As result, a dynamic, cloud-native service assurance such as ours
is supporting automated, closed-loop service optimization that enables CSPs to meet service level assurance across multiple service types
as well as deliver end-to-end services that meet a unified network policy.
Our Strategy
Our objective is to be the
worldwide market leader for 5G network intelligence solutions while maintaining our leadership by providing end-to-end network visibility.
We believe our leadership and innovation around cloud-native fully virtualized network intelligence solutions is one of our core competencies
and will be advantageous to us as these types of solutions are expected to play a key role in the deployment of 5G networks. We plan to
increase our sales by leveraging our unparalleled experienced gained from implementing some of largest, most advanced virtualized network
deployments to date, where we are providing complete end-to-end network visibility from the RAN to the network core.
We offer our solutions and
expertise to existing tier 1 and innovative CSPs worldwide, which are evaluating or migrating their 4G, 3G and 2G networks to fully virtualized
cloud-native networks. We plan to maintain our technical advantage over competitors by further investing in enhancing the analytics and
automation capabilities of our cloud-native fully virtualized solutions to meet the evolving needs of 5G networks.
Key elements of our strategy
include:
| ● | Focusing our network and customer experience insight capabilities
to enhance the business value of our solution. RADCOM Network Insights is intended to meet the need for an automated end-to-end network
intelligence solution. In addition to standard reporting and dashboards, this solution offers advanced capabilities, which allow CSPs
to gain real-time insights, discern trends, and develop forecasts that will allow them to improve core operations, enhance the customer
experience, and improve efficiency. With our RADCOM Network Visibility solution, we provide end-to-end network visibility from virtual
tapping point to network insights. |
| ● | Targeting Tier 1, Greenfield
Operators and other CSPs worldwide, who are evaluating or migrating to cloud-native, virtualized networks and to 5G networks as well
as providing solutions for legacy networks. The introduction of 5G networks is expected to drive a greater transition to cloud-native
network intelligence solutions. We believe that our solutions are significantly more advanced than competitors’ offerings and that
we are better positioned than competitors who lack the experience deploying in virtualized environments or do not offer true cloud-native
solutions that can be deployed at large scale. In order to transition to cloud-native virtualized networks and 5G networks, CSPs generally
need to replace or upgrade their network intelligence solutions with software that can support both their legacy networks as well as
their future cloud-native virtualized network architectures, including 5G use cases. Our solution, which monitors both legacy and next-generation
networks, ensures a smooth migration and enables CSPs to future-proof their investment in a network intelligence solution. With our advanced
deployment with customers such as AT&T and Rakuten, and our position as a 5G assurance leader, we believe we are well positioned
to leverage our vast experience in true cloud-native and fully virtualized network intelligence in order to successfully expand our deployment
base to other CSPs as we focus our sales and marketing activities on tier 1, galaxy (multi-carrier) and innovative operators and other
operators seeking to monitor their legacy 4G, 3G and 2G networks while preparing for the future deployment of 5G. |
| ● | Targeting innovative CSPs deploying fully virtualized,
cloud-based networks. The introduction of new technologies and 5G network architecture allows innovative CSPs to deploy fully virtualized
networks. These virtualized networks, which are the basis for 5G, require fully virtualized, containerized network intelligence
and other solutions such as those in our RADCOM ACE portfolio of solutions. Building on our experience with Rakuten, the world’s
first CSP to deploy a fully virtualized network, we intend to target innovative CSPs seeking to upgrade their networks or to deploy new
networks in a fully virtualized environment, targeting 5G deployments. We believe that our key role in Rakuten’s innovative
and unique deployment, and our work on their 5G deployment, places us at an advantage as we seek to engage with other CSPs looking to
deploy similar networks. |
| ● | Entering into multi-year contracts providing for recurring
revenues. We aim to leverage our offering to CSPs through long term multi-year sales models, which will allow them to meet
their system planning needs through term licensing, operational services, managed services, annual maintenance and support and software
upgrade packages. Such multi-year contracts also provide us with the ability to add new capabilities over-time to ensure that the CSPs
are always benefitting from our most-up to date cutting-edge software solutions. |
Products and Solutions
RADCOM’s 5G solution
includes RADCOM ACE and RADCOM Network Visibility working together to provide an end-to-end view of the network.
RADCOM ACE
RADCOM ACE, our 5G network
intelligence solution, is an automated, containerized 5G assurance platform for end-to-end network visibility, built based on our cloud-native
expertise and designed to allow CSPs to manage their networks in a more dynamic and agile way, which can run on private and public clouds
such as AWS, RCP and Azure. RADCOM ACE is built to ensure that 5G services continuously run at optimal quality, while at the same time
improving the operators’ operational efficiency through automation and rapidly enhancing time to market for new services and innovations.
RADCOM ACE is the culmination of our significant product investment over the last few years and reinforced by customer feedback to enable
a new way of monitoring 5G services that ensures a high-quality customer experience as operators transition to 5G. RADCOM ACE embeds RADCOM
Service Assurance and RADCOM Insights as detailed below.
RADCOM Service Assurance
RADCOM Service Assurance is
a cloud-native, 5G-ready, fully containerized service assurance solution that runs on private and public cloud (such as AWS, RCP and Azure),
which allows CSPs to gain end-to-end network visibility and customer experience insights across all networks. RADCOM Service Assurance
delivers a real-time, high performance, and automated solution that is critical in providing operators customer insights in today’s
top-tier, high-capacity networks.
Our patented technology enables
RADCOM Service Assurance to efficiently collect data from multiple sources (network events, event detail records and packets) and smartly
correlates them into RADCOM Network Insights, driven by AI. This is the key to 5G monitoring. RADCOM’s solution is designed
to provide network intelligence from the RAN to the core. Built using a dynamic, modular, and stream-based microservices architecture,
RADCOM Service Assurance can process large volumes of streaming data at lightning speed with very low latency.
RADCOM Service Assurance offers
the service provider full end-to-end visibility of the network across technologies. RADCOM Service Assurance monitors multiple types of
services such as voice, video and data, employing numerous tools and network performance and measurement methodologies to continuously
analyze service performance and provide customer experience quality metrics. RADCOM Service Assurance offers users a full array of analysis
and troubleshooting tools, delivering a comprehensive, integrated network service view that facilitates performance monitoring, fault
detection and network and service troubleshooting from tapping point to network insights. RADCOM Service Assurance displays performance
and quality measurements from both the signaling and the user planes, based on a broad range of passive software-based probes, which are
installed on standard, non-proprietary third-party hardware that function together with RADCOM Service Assurance to deliver essential
functionality.
RADCOM Service Assurance consists
of a powerful and user-friendly central management module and a broad range of passive software-based probes used to gather transmission
quality data from various types of networks and services, including 5G, VoIP, UMTS, LTE, IMS data and others.
RADCOM Service Assurance provides
an advanced set of service assurance monitoring applications: network troubleshooting, network quality monitoring, service quality monitoring,
customer quality of service monitoring, and customer service level agreements monitoring.
RADCOM Service Assurance is
designed to enable CSPs to succeed in their efforts to address significant technology challenges, including:
| ● | deployment of next-generation networks such as 5G; |
| ● | migration to and integration of new network architectures; |
| ● | delivery of advanced, complex services such as VoIP IMS and
video quality analytics; and |
| ● | proactive management and quality assurance for all data sessions
and calls on existing and next-generation service providers’ production networks. |
CSPs use RADCOM Service Assurance
for a wide array of use cases, such as:
Customer and Service Assurance
| ● | Troubleshooting – enables CSPs to “drill
down” to identify the source of specific problems, using tools ranging from call or session tracing to a full decoding of the call
flow. |
| ● | Performance monitoring – allows CSPs to analyze
and optimize network component performance levels and customer experience with the goal of identifying faults before they compromise
the customer’s experience. |
| ● | Fault detection – automatic fault detection and
service KPIs alert CSPs to network problems as they arise. |
| ● | Mediation – generates call detail records needed
to feed the solutions’ smart mediation layer as well as third-party operations support systems and other solutions. |
Roaming and Interconnect Analysis
RADCOM Service Assurance is
used by CSPs to monitor their roaming and interconnect traffic. By identifying problematic links, CSPs avoid revenue loss, detect problems
with specific roaming partners, and manage interconnection KPIs.
RADCOM Network Insights
As part of RADCOM ACE, RADCOM
Network Insights takes the data which has been collected and analyzed by RADCOM Service Assurance and applies cutting edge AI and ML techniques
to provide automated anomaly detection and root cause analysis to rapidly resolve customer-impacting issues proactively. RADCOM Network
Insights covers a wide range of use cases that provide the operator with an end-to-end understanding of the service quality and customer
experience. Also, RADCOM Network Insights offers next-generation tools for network optimization and root-cause analysis, such as call
tracing and in-depth packet analysis.
RADCOM Network Insights provides
CSPs with real-time actionable business and marketing insights, which are customer centric while still maximizing revenue streams across
the organization. These rich, actionable network insights, allows operators to fully visualize their networks and improve the service
and customer experience, provide customer impact analysis, and proactively handle issues to fully understand the customer experience and
offer an improved Quality of Experience, or QoE, and a reduced customer churn, which is of particular importance in transitioning to cloud-native,
software-based, virtualized network environments and 5G networks.
RADCOM’s Network
Insights solution takes a proactive approach to handling network issues. By using both internal probe-based data and certain external
data feeds, RADCOM has the network intelligence to know which data to extract in order to provide the actionable insights required. Key
network monitoring metrics can be fed into RADCOM’s key quality indicators and converted to Quality of Service. Combined with customer
resource management feeds and legacy third-party probe data, the solution enables operators to assess the QoE for the subscriber and make
proactive decisions.
RADCOM Network Insights’
sophisticated tools are delivered via a powerful data virtualization suite. This enables the CSP to pinpoint necessary data for actionable
insights which are required to improve the CSP’s customers QoE and therefore to improve the CSP’s capital efficiency.
RADCOM Network Visibility
RADCOM Network Visibility
can be delivered together with RADCOM ACE or as a standalone solution for an integrated cloud-native solution.
RADCOM Network Visibility
virtualizes the traditional network packet broker. Utilizing its advanced smart load balancing capabilities, RADCOM Network Visibility
cost effectively provides operators with end-to-end network visibility for cloud-native, software-based, virtualized network environments
and 5G networks. Working in unison with RADCOM Service Assurance, RADCOM Network Visibility is fully automated under the under European Telecommunications Standards
Institute compliant virtualized network environments orchestration for onboarding and configuration and provides operators with on-demand
capabilities, auto-scaling, and auto-healing as well as seamless upgrades.
RADCOM Network Visibility
offers operators an integrated cloud-native visibility solution that ensures intelligent traffic distribution, load balancing and full
end-to-end visibility across virtual networks, and provides advanced packet broker capabilities, like packet de-duplication, secure socket
layer decryption and packet slicing. As a cloud-native solution, RADCOM Network Visibility has no dedicated hardware limitations and can
be dynamically deployed and scaled efficiently with a cloud-native distributed approach to high scale packet brokering.
RADCOM Network Visibility
enables CSPs to virtually, intelligently and efficiently:
| ● | manage, scale and load balance the network traffic; |
| ● | automate and synchronize visibility and assurance, onboarding
and configuration; |
| ● | distribute traffic between probes without having to duplicate
traffic and waste network resources; |
| ● | load balance Mobility Management Entity (MME)/IMS traffic
with deciphering support; |
| ● | filter and analyze traffic with application-based routing; |
| ● | save network and bandwidth resources by filtering traffic
at the tapping point; and |
| ● | utilize a unified and centralized management solution. |
RADCOM Network Visibility
plays a critical role in managing network performance and aggregating live data from the network, performing session-aware load balancing
and filtering before carefully optimizing the traffic flow to virtual probes. Under a unified management solution, RADCOM Network Visibility
is deployed and configured with a simple drop and drag graphic user interface that provides operators with direct interfaces to a suite
of troubleshooting tools and with a single point of access to multiple resources. This approach can deliver significant cost savings as
operators can analyze traffic before it reaches the service assurance tools. Furthermore, with powerful filtering capabilities, this solution’s
visibility layer can identify and manage specific data, thus significantly saving on the use of network resources by filtering the amount
of data delivered to RADCOM Service Assurance.
Sales and Marketing Organization
We mainly sell directly to
customers throughout the world through our executives and sales representatives in North America, Europe, Latin America, Asia Pacific
and Israel, which are supported by local representatives and subcontractors in the local markets. During 2021, these direct sales were
made mainly in North America, South America and Asia. In North America, we operate through RADCOM US, which sells our solutions to end-users
directly and provides support to customers in the North American market. Our solutions are sold to end-users in North America either
by RADCOM US or by us. In Brazil, we operate through RADCOM Brazil, which primarily sells our solutions to end-users in the Brazilian
market directly. In India, we operate through RADCOM India, which primarily provides customer support and development services worldwide.
Elsewhere, our solutions are primarily sold through our sales representatives in Europe, Latin America, the Commonwealth of Independent States,
Asia Pacific and Israel, and supported by local representatives and subcontractors in the local market.
In territories in which we
do not have direct presence, we expanded our outreach by entering into agreements with local distributors and value-added resellers. In
2021, we signed agreements with new distributors to penetrate new geographical markets and engage with new customers, and to better serve
our target markets. We continue to search for more of these channels to expand our outreach further. In certain territories, our distributors
and resellers serve as part of our sales, marketing and support teams as our local representatives, helping to sell, deploy and service
our solutions, offer technical support in the end-user’s native language, and attend to customer needs during local business hours.
Geographic Markets:
The table below indicates
the approximate breakdown of our revenue by territory, based on the location of the end-customer:
| |
Year ended December 31, (in millions of U.S. dollars) | | |
Year ended December 31, (in percentages) | |
| |
2021 | | |
2020 | | |
2019 | | |
2021 | | |
2020 | | |
2019 | |
North America | |
| 21.8 | | |
| 20.3 | | |
| 14.5 | | |
| 54.1 | | |
| 54.0 | | |
| 43.9 | |
Asia | |
| 14.7 | | |
| 15.2 | | |
| 14.1 | | |
| 36.5 | | |
| 40.4 | | |
| 42.7 | |
Latin America | |
| 1.1 | | |
| 0.2 | | |
| 2.7 | | |
| 2.7 | | |
| 0.5 | | |
| 8.2 | |
EMEA (including Israel) | |
| 2.7 | | |
| 1.9 | | |
| 1.7 | | |
| 6.7 | | |
| 5.1 | | |
| 5.2 | |
Total revenues | |
| 40.3 | | |
| 37.6 | | |
| 33.0 | | |
| 100 | % | |
| 100 | % | |
| 100 | % |
Competition
The market for our solutions
is competitive, and we expect that competition will continue in the future, both with respect to solutions that we are currently offering
and solutions that we are developing. Our principal competitors include NetScout System Inc., Infovista S.A. (acquired Empirix Inc.),
Elisa Oyj (acquired Polystar), Anritsu Corporation, Viavi Solutions Inc. and EXFO Inc. In
addition to these competitors, we expect competition from established and emerging communications, network management and test equipment
companies, as well as traditional players in the network intelligence space such as Huawei, Ericsson and Nokia. Many of our competitors
have substantially greater resources than we have, including financial, technological, engineering, manufacturing, marketing and distribution
capabilities, and some of them may enjoy greater market recognition than we do. Furthermore, the transition to cloud-virtualized network
solutions could possibly open the market to new competitors or bring in competitors from adjacent markets, including network core providers.
For more information, see “Item 3.D—Risk Factors— Risks Related to Our Business and Our Industry.”
We believe that we are differentiated
from our competitors due to:
| ● | our recognized class-leading, cloud-native 5G-ready service
assurance solutions; |
| ● | our experience deploying and scaling cloud-native solutions
with Tier 1 CSPs such as AT&T; |
| ● | our telecom domain expertise and knowhow of key members of
our company in advanced software development; |
| ● | our experience deploying our solutions on the world’s
first fully virtualized network and expansion to 5G NSA and SA; |
| ● | our advanced technology offering a fully containerized end-to-end
solution for service assurance from the RAN to the core; |
| ● | our multi-technology correlation capabilities that can support
all major technologies – 5G, 4G, LTE, IMS, VoLTE, VoIP and legacy 3G - within the same solution; |
| ● | our cloud-native solutions provide cost-efficiency, rapid
deployment times and agility in development; |
| ● | our proven flexibility and responsiveness in a dynamic customer
and technology environment; and |
| ● | our subscription-based pricing
model which allows for planning of expenses with “no surprises”. |
Our solutions are deployed
with leading and innovative CSPs such as AT&T and Rakuten. We believe that we are positioned to be one of the most advanced leaders
in cloud-native 5G network intelligence solutions for CSPs deploying 5G networks on private and public cloud (such as RCP, AWS and Azure).
In addition, we believe that our solutions are also the most advanced for CSPs that are evaluating or migrating their 4G, 3G and 2G networks
to fully virtualized cloud-native networks (such as RCP, AWS and Azure).
Customer Service and Support
We believe that providing
a high level of customer service and support to end-users is essential to our success, and it is our goal to establish RADCOM as an industry
leader in customer satisfaction. Investments that we are making to achieve this goal include:
| ● | Enhancement of support: We are dedicated to the provision
of timely, effective and professional support for all our customers. On-call support is provided by our direct sales/support force as
well as by our representatives, distributors, and Original Equipment Manufacturer, or OEM, partners. In addition, we routinely contact
our customers to solicit feedback and promote full usage of our solutions. We may provide our customers with a free warranty period which
includes bug-fixing and a warranty on our solutions. After the initial warranty period, we offer extended warranties which
can be purchased for multi-year periods. Generally, the cost of the extended warranty is an annual maintenance fee based on a percentage
of the overall cost of the solutions. |
| ● | Customer-oriented product development: With the goal
of continuously enhancing our customer relationships, we meet regularly with customers, and use the feedback from these discussions to
improve our solutions and guide our R&D roadmap. |
| ● | Regional technical support: As the sale of a system
and solutions requires a high level of technical skills, we decided to enhance our support with local experts located in our regional
offices. This strategy is advantageous in terms of the time zone, culture and language. For example, through our U.S., Japan, Brazil
and India offices we established local support teams responsible for first level engagements with customers (tier 1). |
| ● | Support of our sales representatives: We provide a
high level of pre- and post-sale technical support to our sales representatives in the field. We use a broad range of channels to deliver
this support, including technical training, marketing material and others. |
Seasonality of Our Business
Orders of our products are
affected by numerous reasons, including general market and economic conditions, overall industry consolidation, the pace of adoption of
new technologies, the effects of the COVID-19 pandemic and CSPs budgets and multi-year roadmap. Although this results in fluctuations
in our revenues from quarter to quarter, such fluctuations are not subject to any clear seasonality or consistent seasonal patterns.
Headquarters and Development Facilities
Our corporate office and main
development facilities are located in Tel Aviv, Israel. and consist primarily of our corporate units such as legal, finance and operation
as well as software development, testing, quality control and installation units.
Research and Development
The industry in which we compete
is subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new product introductions
and enhancements. As a result, our success depends in part upon our ability to continue to enhance our existing solutions and to
develop and introduce new solutions that improve performance and reduce total costs on a cost-effective and timely basis.
During 2021 and 2020, we invested
significant amounts in research and development in order to maintain our technological leadership and to meet the current and future needs
of the world’s most advanced CSPs. We believe that the widescale rollout of 5G will bring with it a larger wave of network virtualization
by CSPs. Through our research and development efforts, we believe that we are well positioned to offer state of the art technologies and
capabilities to CSPs. Accordingly, we increased our investments in the development of enhanced automation, containerized deployment capabilities
as well as in advanced ML based techniques to better identify network anomalies and analyze the increased network traffic that is expected
following the roll-out of 5G networks. In parallel, we continued to enhance and develop both our cloud native virtualized network and
5G solutions to offer greater value and benefit to our current and potential customers.
We expect to continue this
significant investment in 2022 as we develop new features and new solution offerings to meet the requirements of transition to 5G networks.
Israel Innovation Authority
We have received royalty-bearing
grants from the IIA for certain research and development activities pursuant to an incentive program, in an aggregate amount of $48.4
million, calculated from our inception through December 31, 2021, which are subject to provisions of the R&D Law and the regulations
promulgated thereunder.
In addition, we have filed
numerous applications, and in the future may continue to file additional applications, for grants from the IIA pursuant to the R&D
Law. Grants received under such programs are repaid through mandatory royalty payments based on revenues generated from products developed
pursuant to such programs or deriving therefrom. The receipt of such grants is contingent upon our ability to comply with certain applicable
requirements and conditions specified in the R&D Law and under the applicable program. As of December 31, 2021, royalties at a rate
of 3% are due on revenues from sales of products and related services that incorporate know-how developed, in whole or in part, within
the framework of projects funded by the IIA.
Below is a description of
our obligations in connection with the grants received from the IIA under the R&D Law:
Local Manufacturing Obligations
The terms of the grants under
the R&D Law require that we manufacture the products developed with these grants in Israel (but do not restrict the sale of products
that incorporate the know-how). Under the regulations promulgated under the R&D Law, the products may be manufactured outside Israel
by us or by another entity only if prior approval is received from the IIA (such approval is not required for the transfer of up to 10%
of the manufacturing capacity in the aggregate, in which case a notice must be provided to the IIA and not objected to by the IIA within
30 days of such notice).
Know-How and Know-How Transfer Limitation
| ● | The R&D Law provides that the IIA is authorized to determine
the ownership requirements of know-how developed under an approved research and development program and/or rights associated with such
know-how including intellectual property, which is not the product that was developed under such program, or the Funded Know-How. |
| ● | The R&D Law further provides that Funded Know-How may
not be transferred to any third parties, unless certain requirements are met, as determined in each project separately. |
| ● | Among others, the IIA may determine that certain Funded Know-How
can be transferred to third parties in Israel only if such transferee company will also be subject to the same terms and conditions that
were levied upon the transferor company under the R&D Law prior to the transfer of such know-how. |
| ● | The IIA may approve the transfer of Funded Know-How from Israel
to abroad, generally, in the following cases: (a) the grant recipient pays to the IIA up to 600% of the total amount of the grants and
interest in consideration for such Funded Know-How ; (b) if the grant recipient receives an alternative know-how from a third party in
exchange for its Funded Know-How, subject to certain requirements, among which the alternative know-how will generate higher revenues
than the Funded Know-How for the company; (c) if such transfer of Funded Know-How arises in connection with certain types of cooperation
in research and development activities; or (d) if such transfer of know-how arises in connection with a liquidation by reason of insolvency
or receivership of the grant recipient and the Funded Know-How is sold for a lower price than the amount of funds invested in it, in
which case the payment set forth in (a) may be reduced. |
| ● | Approval to manufacture products outside of Israel or consent
to the transfer of Funded Know-How, if requested, is within the discretion of the IIA. Furthermore, the IIA may impose certain conditions
on any arrangement under which it permits us to transfer Funded Know-How or manufacturing out of Israel. |
| ● | Approval of transfer of Funded Know-How to another Israeli
company may be granted only if the recipient abides by the provisions of the R&D law and related regulations, including the restrictions
on the transfer of know-how and manufacturing rights outside of Israel. |
Change In Control
The R&D Law generally
imposes reporting requirements with respect to certain changes in the ownership of a grant recipient. The R&D Law requires the grant
recipient and its controlling shareholders or the foreign interested party of such grant recipient to notify the IIA of any change in
control of the recipient or a change in the holdings of the means of control of the grant recipient that results in a non-Israeli citizen
or non-Israeli resident or corporation incorporated in Israel becoming an interested party directly in the grant recipient, and requires
the new interested party to undertake to the IIA to comply with the R&D Law. In addition, the IIA may require additional information
or representations in respect of such events. For R&D Law purposes, “control” is defined as the ability to direct the
activities of a corporation except the ability that stems from serving as an officer or director of the company. A person is presumed
to have control if such person holds 50% or more of the means of control of a company. “Means of control” generally refers
to voting rights in a company’s shareholders meeting 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, any non-Israeli who acquires 5% or more of our ordinary shares will 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.
Amendment No. 7 to the R&D
Law became effective on January 1, 2016 and established the formation of the IIA in place of the Office of the Chief Scientist. Accordingly,
pursuant to Amendment No. 7, it is expected that the IIA may establish new guidelines and/or amend the existing guidelines regarding the
R&D Law and/or regulations thereunder. Consequently, Amendment No. 7 creates uncertainty with respect to the terms of our existing
and/or future IIA programs and incentives as we do not know what guidelines will be adopted by the IIA or will be amended by it.
Since we commenced operations,
we have received royalty-bearing grants from the IIA. As of December 31, 2021, our total contingent liability to the IIA in respect of
grants received including accumulated interest and net of accumulated royalties paid was approximately $53.3 million.
In May 2010, we received a
notice from the IIA regarding alleged miscalculations in the amount of royalties paid by us to the IIA for the years 1992 through 2009.
See “Item 3.D. —Risk Factors—Risks related to our Business and Our Industry”.
Proprietary Rights
To protect our rights to our
intellectual property, we rely upon a combination of trademarks, contractual rights, trade secret law, copyrights, non-disclosure agreements
and technical measures to establish and protect our proprietary rights in our solutions and technologies. We own registered trademarks
for the name RADCOM and for the name Omni-Q®. We currently have one registered patent and five pending patent applications
in the United States. In addition, we usually enter into non-disclosure and confidentiality agreements with our employees,
distributors, sales representatives and with suppliers and sub-contractors who have access to sensitive information.
Employees
Our total headcount as of
December 31, 2021, was 278 including employees and contractors. See “Item 6.D—Directors, Senior Management and Employees—Employees.”
We consider our relations
with our employees to be good and we have never experienced a strike or work stoppage. Except for employees located in Brazil, none
of our employees are represented by labor unions.
Although we are not a party
to a collective bargaining agreement in Israel, we are subject to certain provisions of collective bargaining agreements among the General
Federation of Labor in Israel, or the Histadrut, and the Coordinating Bureau of Economic Organizations (including the Industrialists’
Association), or the CBEO, that are applicable to our Israeli employees by virtue of expansion orders of the MOE, including transportation
allowance, annual recreation allowance, the lengths of the workday and workweek and mandatory general insurance pension. In addition,
we may be subject to the provisions of the extension order applicable to the Metal, Electricity, Electronics and Software Industry. Israeli
labor laws are applicable to all our employees in Israel. These provisions and laws principally concern the length of the workday,
minimum wages for workers, procedures for dismissing employees, determination of severance pay, leaves of absence (such as annual vacation
or maternity leave), sick pay and other conditions of employment.
In Israel, we follow a general
practice, which is the contribution of funds on behalf of most of our employees to an individual insurance policy known as “Managers
Insurance” or a pension fund. The contribution rates towards such Managers’ Insurance are above and beyond the
legal requirement. This policy provides a combination of savings plan, disability insurance and severance pay benefits to the insured
employee. It provides for payments to the employee upon retirement or death and accumulates funds on account of severance pay,
if any, to which the employee may be legally entitled upon termination of employment. Each participating employee contributes an
amount equal to up to 7% of such employee’s base salary, and we contribute between 15.3% and 19.1% of the employee’s base
salary. Pursuant to changes to Israeli law as well as collective bargaining agreements entered into by the Histadrut and the CBEO,
the amounts that we are required to contribute may increase from time to time.
Our employment agreements
with new employees in Israel are in accordance with Section 14 of the Israeli Severance Pay Law – 1963, or the Israeli Severance
Pay Law, which provides that our contributions to severance pay fund shall cover our entire severance obligation. Upon termination, the
release of the contributed amounts from the fund to the employee shall relieve us from any further severance obligation and no additional
payments shall be made by us to the employee. As a result, the related obligation and amounts deposited on behalf of such obligation are
not stated on the balance sheet, as we are legally released from severance obligation to employees once the amounts have been deposited,
and we have no further legal ownership on the amounts deposited.
We also provide employees
of RADCOM with an Education Fund, to which each participating employee contributes an amount equal to 2.5% of such employee’s base
salary and we contribute an amount equal to 7.5% of the employee’s base salary (generally up to a certain ceiling provided in the
Israeli Income Tax Regulations). Israeli employees and employers also are required to pay pre-determined sums which include
a contribution to national health insurance to the Israel National Insurance Institute, which provides a range of social security benefits.
In the United States, we provide
benefits in the form of health, dental, vision and disability coverage and matching 401(k) plan contributions, in an average amount equal
to approximately 19.1% of the employee’s base salary.
In Brazil, we provide benefits
in the form of health coverage, including health, vision and dental coverage, in an amount that varies from 3% - 13% of the employee’s
base salary.
In India, we provide benefits
in form of health coverage, education fund, house rent allowance and health insurance fund, in an amount equal to 28% of the employee’s
salary.
| C. | ORGANIZATIONAL STRUCTURE |
Our subsidiaries are: (1)
RADCOM US, which conducts the sales, marketing, and customer support of our products in North America; (2) RADCOM Investments (96) Ltd,
for the purpose of making various investments, including the purchase of securities; (3) RADCOM Brazil, which conducts the sales, marketing
and customer support of our products in Brazil; and (4) RADCOM India, which primarily provides, customer support and development services
worldwide. The following is a list of our subsidiaries, each of which is wholly owned:
Name of Subsidiary |
|
Jurisdiction of Incorporation |
RADCOM, Inc. |
|
New Jersey |
RADCOM Investments (96) Ltd |
|
Israel |
RADCOM do Brasil Comercio, Importacao Exportacao Ltda |
|
Brazil |
RADCOM Trading India Private Limited |
|
India |
|
D. |
PROPERTY, PLANTS AND EQUIPMENT |
We currently lease an aggregate
of approximately 22,830 square feet of office space in Tel Aviv, Israel, from affiliates of our principal shareholders. This space includes
our development facilities, which consist primarily of programming, documenting, quality control, testing and bug fixing, as well as from
time to time, installation of software components on third party hardware.
In 2021, we paid to affiliates
of our principal shareholders aggregate annual lease and maintenance payments in the sum of approximately $707,000 for our Tel Aviv offices. We
may, in the future, lease additional space from affiliated parties.
We also lease an aggregate
of approximately 5,946 square feet of office space in Paramus, New Jersey, from an affiliate of our principal shareholder. In 2021, our
aggregate annual lease payments for such premises were approximately $123,000.
We also lease an aggregate
of approximately 484 square feet of office space in Brazil and 5,809 square feet in India. The aggregate annual lease and maintenance
payments for those premises in 2021 were approximately $5,000 and $95,000.
We believe that our offices
and facilities are adequate for our current needs and that suitable additional or substitute space will be available when needed.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
The following discussion of
our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related
notes included elsewhere in this Annual Report.
Overview
We provide cloud-native, virtualized
network and 5G-ready network intelligence solutions for CSPs. Our world leading, innovative solutions are well-positioned to fulfill the
CSPs’ ongoing needs to monitor their networks (fixed and mobile) and assure the delivery of a quality service to their subscribers;
both on cloud-native virtualized network and non-virtual networks.
General
Our discussion and analysis
of our financial condition and results of operation are based upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. Our operating and financial review and prospects should be read in conjunction with our financial statements,
accompanying notes thereto and other financial information appearing elsewhere in this Annual Report.
We commenced operations in
1991. Since then, we have focused on developing and enhancing our products, building our worldwide direct and indirect distribution network
and establishing and expanding our sales, marketing, and customer support infrastructures.
Most of our revenues are generated
in U.S. dollars and the financing activities are made in U.S. dollars. Accordingly, we consider the U.S. dollar to be our functional currency
and our consolidated financial statements are prepared in dollars.
As we evaluate our growth
prospects and manage our operations for the future, we believe that the deployments of 5G by leading CSPs will drive our
growth.
We followed the below sales
strategy in 2021 in order to expand our sales pipeline and revenues:
| ● | We focused on leveraging our implementations with AT&T,
Rakuten and other customers to expand our value proposition to additional carriers; |
| ● | We expanded our business with our key existing customers; |
| ● | We continued our investment in our sales and marketing resources
and have expanded our reach through the engagement of local representatives; |
| ● | We invested in marketing campaigns globally to enhance our
market positioning and open new opportunities; |
| ● | We increased our investment in research and development to
maintain our recognized technological leadership in cloud-based, 5G solutions, to meet the requirements of our customers, and to develop
new product offerings and capabilities; |
| ● | We invested in our professional services team and resources
to meet our customers’ deployment, customization and support requirements and to allow us to successfully deliver multiple proof
of concept demonstrations to potential new customers; and |
| ● | We pursued strategic partnerships, including OEM partnerships,
and teaming agreements. |
Revenues. In general,
our revenues derive from sales of our products or solutions, fixed-price projects, and sales of services which primarily include extended
warranty, support services and managed services. Revenues consist of gross sales, less discounts and refunds, when applicable.
Cost of revenues.
Cost of revenues, consisting of salaries and related expenses derive primarily from employees engaged in managed services and
ongoing customer support, solution deployment and software development customization activities. Cost of revenues also consists of
the use of hardware, inventory write-offs, importation taxes, shipping and handling costs, license fees for software components of
third parties, hardware warranty expenses, allocation of overhead expenses, subcontractors’, royalties to the IIA and
share-based compensation. As part of our plan to reduce product cost and improve flexibility, we shifted during the last few years
to a model whereby we install our software-based solutions on standard, non-proprietary third-party hardware that functions together
with our software to deliver the product’s essential functionality.
Our gross profit is affected
by several factors, including the introduction of new products, price erosion due to increasing competition, the bargaining power of larger
clients, the number of employees that we have in operations, deployment, software development customization, managed services and customer
support, integration of third-party software components into our own, product mix, and exchange rate fluctuations.
Research and Development
expenses, Net. Research and development expenses, net consist primarily of salaries and related expenses, including share-based
compensation, payments for subcontractors and overhead expenses. Overhead expenses consist of a variety of costs, including rent,
office and associated expenses. The R&D expenses have been partially offset by royalty-bearing grants from the IIA.
Sales and Marketing expenses,
Net. Sales and marketing expenses, net consist primarily of salaries and related expenses, including share-based compensation,
commissions and fees to third party representatives, advertising, trade shows, promotional expenses, domestic and international travels,
web site maintenance, and overhead expenses, net of grants received from the MOE.
General and Administrative
Expenses. General and administrative expenses consist primarily of salaries and related expenses including share-based compensation,
professional fees (which include legal, audit and other consulting fees), bad debt expenses, other general corporate expenses and overhead
expenses.
Financial Income, Net. Financial
income, net, consists primarily of interest earned on bank deposits, bank charges, and gains or losses from the exchange rate differences
of monetary balance sheet items denominated in non-U.S. dollar currencies.
Summary of Our Financial Performance for
the Fiscal Year Ended 2021 Compared to the Fiscal Year Ended 2020
For the year ended December
31, 2021, our revenues were approximately $40.3 million, compared to approximately $37.6 million in 2020, reflecting an increase of approximately
7.2%. We were provided approximately $2 million in cash from operating activities during 2021, compared to approximately $0.05 million
used in 2020. Our net loss for the year ended December 31, 2021, was approximately $5.3 million, compared to a net loss of approximately
$4 million in 2020.
As of December 31, 2021, our
cash and cash equivalents and short-term bank deposits totaled approximately $70.6 million, compared with cash and cash equivalents of
approximately $69 million as of December 31, 2020.
Our 2021 net losses include
non-cash expenses due to share-based compensation of approximately $3.4 million, compared to $2.2 million in 2020.
Reportable Segments
Management receives sales
information by customers and by geographical regions. Research and development, sales and marketing, and general and administrative
expenses are reported on a combined basis only (i.e., they are not allocated to product groups or geographical regions). Because
a measure of operating profit or loss by product groups or geographical regions is not presented to management due to shared resources,
we have concluded that we operate in one reportable segment.
Results for the Year Ended December 31,
2021, compared to Year Ended December 31, 2020
The following table sets forth,
for the periods indicated, certain financial data expressed as a percentage of revenues:
| |
Year ended December 31, | |
| |
2021 | | |
2020 | |
Revenues | |
| 100 | % | |
| 100 | % |
Cost of revenues | |
| 28.4 | | |
| 28.6 | |
Gross profit | |
| 71.6 | | |
| 71.4 | |
Operating expenses: | |
| | | |
| | |
Research and development | |
| 50.5 | | |
| 51.1 | |
Less royalty-bearing participation | |
| 1.3 | | |
| 3.6 | |
Research and development, net | |
| 49.2 | | |
| 47.5 | |
Sales and marketing | |
| 25.7 | | |
| 25.9 | |
General and administrative | |
| 10.4 | | |
| 10.2 | |
Total operating expenses | |
| 85.3 | | |
| 83.6 | |
Operating loss | |
| (13.6 | ) | |
| (12.2 | ) |
Financial income, net | |
| 0.9 | | |
| 2.2 | |
Loss before taxes on income | |
| (12.8 | ) | |
| (10.0 | ) |
Taxes on income | |
| (0.3 | ) | |
| (0.6 | ) |
Net loss | |
| (13.1 | ) | |
| (10.6 | ) |
Revenues
| |
Year Ended December 31, (in millions of U.S. dollars) | |
| |
2021 | | |
2020 | |
Products | |
| 15.3 | | |
| 17.8 | |
Services | |
| 25.0 | | |
| 19.8 | |
Total Revenues | |
| 40.3 | | |
| 37.6 | |
Revenues. In
2021, our revenues increased by approximately $2.7 million, or approximately 7.2%, compared to 2020 due to an increase of approximately
$5.2 million in services revenues, offset by a decrease of approximately $2.5 million in product revenues. The increase in services revenues
relates mainly to an increase in revenues in North America and Asia. The decrease in product revenues relates to Asia.
Revenues per geographic region, based on the location of the end-customer
| |
Year Ended December 31, (in millions of U.S. dollars) | | |
Year Ended December 31, (as percentages) | |
| |
2021 | | |
2020 | | |
2021 | | |
2020 | |
North America | |
| 21.8 | | |
| 20.3 | | |
| 54.1 | | |
| 54.0 | |
Asia | |
| 14.7 | | |
| 15.2 | | |
| 36.5 | | |
| 40.4 | |
Latin America | |
| 1.1 | | |
| 0.2 | | |
| 2.7 | | |
| 0.5 | |
EMEA (including Israel) | |
| 2.7 | | |
| 1.9 | | |
| 6.7 | | |
| 5.1 | |
Total revenues | |
| 40.3 | | |
| 37.6 | | |
| 100 | % | |
| 100 | % |
In 2021, our three largest
customers amounted to approximately 88% of our total consolidated revenues. In 2020 our three largest customers amounted to approximately
93% our total consolidated revenues.
Cost of Revenues and Gross Profit
| |
Year Ended December 31, (in millions of U.S. dollars) | |
| |
2021 | | |
2020 | |
Products | |
| 5.5 | | |
| 5.4 | |
Services | |
| 5.9 | | |
| 5.4 | |
Total cost of revenues | |
| 11.4 | | |
| 10.8 | |
Gross profit | |
| 28.9 | | |
| 26.8 | |
Cost of Revenues.
During 2021, our gross profit as a percentage of revenues, calculated to include variable costs such as salaries and related
expenses was approximately 71.6% compared to approximately 71.4% in 2020.
Our cost of revenues for 2021
includes an expense of approximately $0.2 million for share-based compensation, as compared to approximately $106,000 for share-based
compensation in 2020.
The following table provides
the operating costs and expenses of the Company in 2021 and 2020 as well as the percentage change of such expenses in 2021 as compared
to 2020.
| |
Year ended December 31, (in millions of U.S. dollars) | | |
% Change | |
| |
2021 | | |
2020 | | |
2021 vs. 2020 | |
Research and development | |
| 20.3 | | |
| 19.2 | | |
| 5.7 | |
Less royalty-bearing participation | |
| 0.5 | | |
| 1.3 | | |
| (61.5 | ) |
Research and development, net | |
| 19.8 | | |
| 17.9 | | |
| 10.6 | |
Sales and marketing | |
| 10.4 | | |
| 9.7 | | |
| 7.2 | |
General and administrative | |
| 4.2 | | |
| 3.8 | | |
| 10.5 | |
Total operating expenses | |
| 34.4 | | |
| 31.4 | | |
| 9.6 | |
Research and Development
Expenses. Research and development expenses, gross, increased from approximately $19.2 million in 2020 to approximately $20.3 million
in 2021. As a percentage of total revenues, research and development expenses, gross, decreased from approximately 51.1% in 2020 to approximately
50.5% in 2021. The increase in our gross research and development expenses is attributable mostly to the strengthening of the New Israeli
Shekel during 2021 and to an increase in share-based compensation expenses in 2021 compared to 2020. As of December 31, 2021, our total
research and development headcount, including contractors, was 142, compared to 144 employees and contractors as of December 31, 2020.
Our research and development costs included an expense of approximately $1,368,000 for share-based compensation in 2021, as compared to
approximately $879,000 for share-based compensation in 2020.
We believe that our research
and development efforts are a key element of our strategy and are essential to our success. An increase or a decrease in our total revenues
would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which
could affect our operating margin.
Sales and Marketing
Expenses. Sales and marketing expenses increased from approximately $9.7 million in 2020 to approximately $10.4 million in 2021.
The increase in our sales and marketing expenses is mainly related to an increase in the global sales headcount. As a percentage of
total revenues, sales and marketing expenses were 25.7% in 2021, with no significant change from 25.8% in 2020. Our sales and
marketing expenses included an expense of approximately $865,000 for share-based compensation in 2021, as compared to approximately
$536,000 for share-based compensation in 2020.
General and Administrative
Expenses. General and administrative expenses increased from approximately $3.8 million in 2020 to approximately $4.2 million
in 2021. The increase in our general and administrative expenses is mainly attributed to an increase in share-based compensation expenses
in 2021 compared to 2020. As a percentage of total revenues, general and administrative expenses were 10.4% in 2021, with no significant
change from 10.2% in 2020. Our general and administrative expenses included approximately $916,000 for share-based compensation in 2021,
as compared to approximately $648,000 for share-based compensation in 2020.
Financial Income, Net. In
2021, the financial income, net, was approximately $0.4 million, as compared to financial income, net, of approximately $0.8 million in
2020. The decrease in our financial income, net is related to a negative impact of currency exchange rates and a decrease in interest
income from short-term bank deposits.
Taxes
on Income. In 2021, we recorded tax expenses of approximately $124,000 as compared to tax expenses of approximately $220,000
in 2020. Tax expenses are comprised from tax expenses of RADCOM India and RADCOM US, as well as withholding taxes that were deducted by
our customers.
Comparison of Financial Data for Year Ended December 31, 2020,
compared with Year Ended December 31, 2019
For a discussion of the financial
data for the year ended December 31, 2020, compared with the year ended December 31, 2019, see “Item 5.A. —Operating and Financial
Review and Prospects—Operating Results—Summary of Our Financial Performance for the Fiscal Year Ended 2020 Compared to the
Fiscal Year Ended 2019” included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2020, filed with the SEC
on March 25, 2021.
Impact of Inflation and Foreign Currency
Fluctuations
Most of our revenues are generated
in U.S. dollars and the financing activities are made in U.S. dollars. We also generate revenues in BRLs, euros and other currencies;
however, we consider the U.S. dollar to be our functional currency. In the future additional revenues may be denominated in currencies
other than U.S. dollars.
Since a significant portion
of our expenses is in NIS, as we pay our Israeli employees’ salaries in NIS, the dollar cost of our operations is influenced by
the exchange rates between the NIS and the U.S. dollar. Fluctuations in exchange rates between the U.S. dollar, the BRL, euro, and
other currencies in which we generate revenue, and the U.S. dollar, may also have an effect on our results of operations. With respect
to our Brazilian subsidiary, the functional currency has been determined to be their local currency. Assets and liabilities are translated
at year-end exchange rates and statements of income items are translated at average exchange rates prevailing during the year. Such translation
adjustments are recorded as a separate component of accumulated other comprehensive loss in shareholders’ equity.
Because exchange rates between
the NIS and the U.S. dollar fluctuate continuously, exchange rate fluctuations will have an impact on our profitability and period-to-period
comparisons of our results. The effects of foreign currency re-measurements of financial assets and liabilities are reported
in our financial statements as financial income or expense. Based on our budget for 2022, we expect that an increase of NIS 0.10 to the
exchange rate of the NIS to U.S. dollar will decrease our expenses expressed in dollar terms by approximately $650,000 per fiscal year
and vice versa.
Effective Corporate Tax Rate
As of January 1, 2018, Israeli
resident companies were generally subject to corporate tax at the rate of 23%. Israeli resident companies are generally subject to capital
gains tax at the corporate tax rate. We do not generate taxable income in Israel, as we have historically incurred operating losses resulting
in carry forward losses for tax purposes totaling approximately $38.4 million and an additional $1.3 million of capital loss as of December
31, 2021. We believe that we will be able to carry forward these tax losses to future tax years. We do not expect to pay taxes in Israel,
on our incomes from operations, until we utilize our carry forward tax losses. We may be required to pay taxes on our passive income,
if any. For more information on taxation, see “Item 10.E — Taxation.”
Our effective corporate tax
rate may exceed the Israeli tax rate. Our U.S. and Brazilian subsidiaries will generally be subject to applicable federal, state,
local and foreign taxation, and we may also be subject to taxation in the other foreign jurisdictions in which we own assets, have employees
or conduct business activities.
We recorded a valuation allowance
of approximately $14.3 million on December 31, 2021, for all of our deferred tax assets. Based on the weight of available evidence,
we believe it is more likely than not that all of our deferred tax assets will not be realized.
|
B. |
LIQUIDITY AND CAPITAL RESOURCES |
We have financed our operations
through cash generated from operations, the proceeds from our private and public offerings, proceeds from the exercise of options and
warrants and royalty-bearing participation from the IIA and others. Cash and cash equivalents and short-term bank deposits on December
31, 2021, and 2020, were approximately $70.6 and $69 million, respectively.
We believe that our existing
capital resources and cash flows from operations will be adequate to satisfy our expected liquidity requirements through the next twelve
months. Without derogating from the foregoing estimate regarding our existing capital resources and cash flows from operations, we may
decide to raise additional funds in 2022. We believe that, if required, we will be able to raise additional capital or reduce discretionary
spending to provide the required liquidity beyond the next twelve months.
Net Cash Provided by (Used
in) Operating Activities. Net cash provided by operating activities was approximately $2 million in 2021 compared to net cash used
in operating activities of approximately $0.05 million in 2020.
The positive net cash flow
in 2021 was primarily due to share-based and restricted share compensation expenses of approximately $3.4 million, a decrease in trade
receivables of approximately $2.4 million, an increase in trade payable of approximately $1.0 million, an increase in other liabilities
and accrued expenses of approximately $0.7 million, and depreciation of $0.5 million. This was partially offset by net loss of approximately
$5.3 million, an increase in inventories of approximately $0.4 million and an increase in deferred revenue and advances from customers
of approximately $0.4 million.
The negative net cash flow
in 2020 was primarily due to net loss of approximately $4 million, an increase in trade receivables of approximately $1.7 million, a decrease
in trade payables of approximately $0.8 million, a decrease in accrued interest on short-term bank deposits of approximately $0.4 million
and a decrease in operating lease right-of-use assets and liabilities, net and effect of exchange rate differences of approximately $0.3
million. This was partially offset by an increase in deferred revenue and advances from customers of approximately $2.3 million, share-based
and restricted share compensation expenses of approximately $2.2 million, a decrease in inventories of approximately $0.8 million, depreciation
of approximately $0.7 million, an increase in other liabilities and accrued expenses of approximately $0.5 million and an increase in
employees and payroll accruals of approximately $0.3 million.
The trade receivables and
days of sales outstanding are primarily impacted by payment terms, variations in the levels of shipment in the quarter, and collections
performance. Trade receivables for 2021 decreased to approximately $10 million from approximately $12.4 million in 2020.
The increase in inventories
in 2021 was mainly due to an increase in inventory delivered to customers for which revenue criteria have not been met and recognized.
Net Cash Provided by (Used
in) Investing Activities. Our investing activities generally consist of the purchase of equipment and investment in short-term
bank deposits. Net cash used in investing activities in 2021 was approximately $3.5 million, compared to net cash provided by investing
activities in 2020 of $7.6 million. In 2021, we invested approximately $58.6 million in a short-term bank deposit, received approximately
$55.5 million from the maturity of a short-term bank deposit and invested approximately $0.4 million for the purchase of equipment. In
2020, we received approximately $63.1 million from the maturity of a short-term bank deposit, invested approximately $55.1 million in
a short-term bank deposits and invested approximately $0.4 million for the purchase of equipment.
Net Cash provided by (Used
in) Financing Activities. In 2021 and in 2020, there was no net cash provided by or used in financing activities.
Investments
We may in the future undertake
hedging or other similar transactions or invest in market risk-sensitive instruments, if our management determines that it is necessary
to offset risks such as foreign currency and interest rate fluctuations.
Impact of Related Party Transactions
We have entered into a number
of lease agreements with the RAD-BYNET Group (as described under “Item 7.B-Major Shareholders and Related Party Transactions-Related
Party Transactions”). The pricing of the transactions with respect to such leases was determined based on negotiations
between the parties. Members of our audit committee of the Board of Directors, or the Audit Committee, Board of Directors and management
reviewed the pricing of the leases and confirmed that these leases were not different from terms that could have been obtained from unaffiliated
third parties. We believe, however, that due to the affiliation between us and the RAD-BYNET Group, we have greater flexibility on
certain issues than what may be available from unaffiliated third parties.
We have also entered into
a number of limited term engagements with Matrix IT Ltd. or its affiliated companies (as described under “Item 7.B-Major Shareholders
and Related Party Transactions-Related Party Transactions”), or Matrix, for certain software and/or services used in connection
with the development of our solutions. Members of our Board of Directors and management reviewed the pricing of such agreements and confirmed
that these agreements were not different from terms that could have been obtained from unaffiliated third parties. As of January 1, 2022,
Matrix is no longer considered as a related party.
For more information, see
“Item 7.B—Major Shareholders and Related Party Transactions—Related Party Transactions” below.
Government Grants and Related Royalties
The Government of Israel,
through the IIA, encourages research and development projects pursuant to the R&D Law and the regulations promulgated thereunder. We
may receive grants from the IIA at the rates that range from 20% to 50% of the research and development expenses, as prescribed by the
research committee of the IIA in accordance with the R&D Law. We recorded such grants from the IIA in the total amount of approximately
$0.5 million in 2021 and $1.3 million in 2020. Pursuant to the specific terms of these grants, we are obligated to pay royalties of 3%
of the revenues generated by sales of products (and certain related services) funded with these grants. In the event that a project
funded by the IIA does not result in the development of a product which generates revenues, we would not be obligated to repay the grants
we received for the product’s development. Royalty expenses relating to the IIA grants included in the cost of revenues for
years ended December 31, 2021 and 2020 were approximately $1.2 million and $1.1 million, respectively. The total grants regarding projects
that we have received from the IIA as of December 31, 2021 were approximately $48.4 million. For projects authorized as a research
and development program under the R&D Law since January 1, 1999, the repayment interest rate is LIBOR. As of December 31, 2021, the
accumulated interest was approximately $23.5 million, the accumulated royalties paid to the IIA were approximately $18.6 million and our
total amount of contingent liability to the IIA in respect of grants received was, according to our records, approximately $53.3 million.
The United Kingdom’s Financial Conduct Authority, which regulates the LIBOR, announced in July 2017 that it will no longer persuade
or require banks to submit rates for LIBOR after 2021. In September 2021, the Bank of Israel, which determines annual interest rates,
published a directive which stated that annual interest at a variable rate linked to the LIBOR rate for loans in U.S. dollars will be
replaced by the SOFR, in June 2023. As of the date of this Annual Report, the IIA has not yet published the alternative interest that
will be applied on 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, 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. For additional information, see “Item
4.B—Information on the Company—Business Overview—Israel Innovation Authority.”
We are obligated to pay to
the MOE, royalties of 3% on the increased sales in the target market, with respect to the year during which the grant was approved (2012
for India, and 2014 for China), over a period of five years but not more than the total linked amount of the grant received. During 2018,
the Company paid an aggregate amount of $9,000 of royalties to the MOE. No royalties were required to be paid during 2021. For additional
information, see “Item 4.B—Information on the Company—Business Overview—Israel Innovation Authority.”
We are also obligated to pay
royalties to the BIRD Foundation, with respect to sales of products based on technology resulting from research and development funded
by the BIRD Foundation. Royalties to the BIRD Foundation are generally payable at the rate of 5% of the sales of such products, up
to 150% of the grant received, linked to the United States Consumer Price Index. As of December 31, 2021, we had a contingent
obligation to pay the BIRD Foundation aggregate royalties in the amount of approximately $423,000. For additional information, see “Item
4.B—Information on the Company—Business Overview—Binational Industrial Research and Development Foundation.”
|
C. |
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. |
See “Item 4.B—Information
on the Company—Business Overview—Research and Development,” “Item 4.B—Information on the Company—Business
Overview—Proprietary Rights”, and “Item 5—Operating and Financial Review and Prospects—Research and Development”
and “Item 5.A—Operating and Financial Review and Prospects—Operating Results”.
During 2021, we saw more deployments
of 5G SA by CSPs, but still at initial phases of operation. According to industry research, about 20% of the market is trailing 5G
networks so we expect that the number of 5G SA deployments will grow during 2022, although the pace of such growth is still unknown.
CSPs are continuing to invest in 5G networks and more devices have become commercially available despite the global COVID-19 pandemic
and economic disruption. We saw the mobile industry continuing to allocate 5G spectrum and the investment in 5G SA networks in both trials
and live deployments.
The COVID-19 global pandemic
did not have a significant impact on our operations during the year ended on December 31, 2021. Although there is still some uncertainty
as to the global effects of the COVID-19 pandemic, which could affect our future sales cycles, based on our current visibility we believe
that telecom market will continue to remain resilient and that the COVID-19 pandemic will not have a material impact on the next phases
of rollout of 5G. During 2021, as was the case during 2020, our top priority has been the health and welfare of our employees,
customers and vendors. We continued to efficiently facilitate secure work-from-home arrangements for all employees, allowing them
to continue our product development activities and to support our customers and sales processes without interruption. We continued
and will continue to follow local and regional guidelines regarding safe distancing and stay-at-home policies.
For more information regarding
the possible impact of COVID-19 on our results of operations, see Item “Item 3.D—Risk Factors — Risks Related to Our
Business and Our Industry — A regional or global health pandemic, including COVID-19, could severely affect our business, results
of operations and financial condition due to impacts from remote work arrangements, actions taken to contain the disease or
treat its impact and the speed and extent of the recovery.”
5G networks and services are
much more complex and dynamic than traditional networks. They use cloud-native technologies such as containers and microservices to enable
automation and simplification and to reduce operating costs. These technological advancements may result in potential increased interest
by CSPs in our solutions.
We consider customer experience
as another driver for CSPs to invest in solutions that enable them to better monitor and proactively offer resolution and upgrade of quality
of service.
As services become more technologically
complex and their volumes increase, service quality becomes an issue that must be addressed to allow for end-to-end visibility across
the different network areas. Our automated network intelligence solutions address this need by providing end-to-end network visibility
from RAN to core, enabling CSPs to monitor their networks end-to-end as they start and progress with 5G deployments.
|
E. |
CRITICAL ACCOUNTING ESTIMATES |
Critical Accounting Policies and Estimates
The preparation of Consolidated
Financial Statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that
affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 of the Notes to the Consolidated Financial
Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.
The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require
significant judgments, assumptions, and estimations used in the preparation of the Consolidated Financial Statements, and actual results
could differ materially from the amounts reported based on these policies.
Revenue recognition.
We recognize revenues in accordance
with ASC No. 606, “Revenue from Contracts with Customers”. As such, we identify a contract with a customer, identify the performance
obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract
and recognize revenues when (or as) performance obligations are satisfied as follows:
|
a) |
Identify the contract with a customer: |
We generally consider either
agreements or purchase orders, which in some cases are governed by master agreements, to be contracts with customers. In evaluating the
contract with a customer, we analyze the customer’s intent and ability to pay the amount of promised consideration (credit risk)
and consider the probability of collecting substantially all of the consideration.
|
b) |
Identify the performance obligations in the contract: |
At a contract’s inception,
we assess the goods or services promised in a contract with a customer and identify the performance obligations.
The main performance obligations
would generally include:
License for our software solutions
(which may include significant customization), professional services, managed services, service type warranty and post-contract customer
support, each of which are distinct.
|
c) |
Determine the transaction price: |
The transaction price is the
amount of consideration to which we are entitled in exchange for transferring promised goods or services to a customer, excluding amounts
collected on behalf of third parties.
We don’t usually grant
our customers with a right to return the products sold. However, in some cases, the arrangements may include refunds, liquidated damages,
penalties or other damages if we fail to deliver future goods or services or if the goods or services fail to meet certain specifications
to acceptance criteria. All of the above are accounted for as variable considerations, which may be considered as adjustments to the transaction
price.
We include estimated amounts
in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when
the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether
to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information
(historical, current and forecasted) that is reasonably available.
As our standard payment terms
are less than one year, the contracts have no significant financing component. In instances of contracts where revenue recognition differs
from the timing of invoicing, we have determined that those contracts generally do not include a significant financing component. The
primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services,
not to receive or provide financing.
|
d) |
Allocate the transaction price to the performance obligations in the contract: |
Our selling price is highly
variable. Each contract is different by its scope and price. The transaction price is allocated to the separate performance obligations
on a relative standalone selling price basis. The standalone selling prices of software licenses are typically estimated using the residual
approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold
on a standalone basis or on a cost basis. The transaction price is allocated to the separate performance obligations on a relative standalone
selling price basis.
|
e) |
Recognize revenue when a performance obligation is satisfied: |
Revenue is recognized when
or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control is either transferred
over time or at a point in time, which affects the revenue recognition schedule.
Products. Revenues
from sales of software solutions which include customer acceptance or software licenses only are recognized at a point in time of the
acceptance of the solution or the point in time the software license is delivered.
Services. Revenues
related to managed services, service type warranty and post-contract customer support are recognized over time on a straight-line basis.
Projects. Revenues
from the software solutions which include software license with significant customization are usually recognized over time during the
customization period based on Person Months, or PM, incurred to date in ratio to total estimated PM which represent an input method that
best depicts the transfer of control over the performance obligation to the customer. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.
Deferred revenues represent
unrecognized fees collected as well as other advances and payments received from customers, for which revenue has not yet been recognized.
Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be
recognized.
We record unbilled receivables
from contracts when the revenue recognized exceeds the amount billed to the customer.
We capitalize an asset for
the incremental costs of obtaining a contract whenever such expenses are expected to be recovered. Capitalized costs derive primarily
from sales commissions or incentives granted to employees and partners. Our contracts with customers include performance obligations related
to products and services, some of which are satisfied at a point in time and others over time. Commission costs related to performance
obligations satisfied at a point in time are expensed at the time of sale, which is when revenue is recognized. Commission costs related
to long-term service contracts and performance obligations satisfied over time are deferred and recognized on a systematic basis that
is consistent with the transfer of the products or services to which the asset relates. Amortization expense is included in sales and
marketing expenses in the accompanying consolidated statements of income (loss).
Share-based compensation.
Our accounts for share-based compensation are in accordance with ASC 718 “Compensation – Stock-based Compensation”,
or ASC 718, which requires us to estimate the fair value of share-based payment awards on the grant date using an option-pricing model.
We recognize compensation
expenses for the value of our awards over the requisite service period of each of the awards. For graded vesting awards subject to service
conditions only, we use the straight-line attribution method. We estimate expected forfeitures.
We selected the Black-Scholes
option-pricing model as the most appropriate fair value method for our stock options awards. This option-pricing model requires several
assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was
calculated based upon actual historical stock price movements over the most recent periods ending on the grant date, equal to the expected
option term, as management believes that this is the best indicator of future volatility. The expected term was generated by running the
Monte Carlo model pursuant to which historical post-vesting forfeitures and suboptimal exercise factor is estimated by using historical
option exercise information. The suboptimal exercise factor is the ratio by which the stock price must increase over the exercise price
before employees are expected to exercise their stock options. The expected term of the options granted is derived from the output of
the options valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest
rate is based on the yield from U.S. treasury bonds with an equivalent term to the expected life of the options. The Company estimates
expected forfeitures. Historically the Company has not paid dividends and in addition has no plans in the foreseeable future to pay dividends,
and therefore use an expected dividend yield of zero in the option pricing model.
Determining the fair value
of share-based awards at the grant date requires the exercise of judgment.
Other than a grant of 35,100
options to purchase our ordinary shares granted to our director, Zohar Zisapel, no other options to purchase ordinary shares (other than
RSUs) were granted by us during the years ended December 31, 2021, 2020 and 2019.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
| A. | DIRECTORS AND SENIOR MANAGEMENT |
The following table lists our current
directors and executive officers:
Name |
|
Age |
|
Position |
Rachel (Heli) Bennun |
|
68 |
|
Executive Chairman of our Board of Directors |
Matty Karp (1)(4)(5) |
|
72 |
|
Director |
Mirella Kuvent (1)(2)(4) |
|
61 |
|
Director |
Oren Most (1)(3)(4)(5) |
|
71 |
|
Director |
Yaron Ravkaie |
|
53 |
|
Director |
Rami Schwartz (1)(5) |
|
64 |
|
Director |
Zohar Zisapel |
|
73 |
|
Director |
Eyal Harari |
|
45 |
|
Chief Executive Officer |
Hadar Rahav |
|
34 |
|
Chief Financial Officer |
Hilik Itman |
|
50 |
|
Chief Operating Officer |
Rami Amit |
|
56 |
|
Chief Technology Officer and Head of Product |
(1) |
Independent Director, under Nasdaq Stock Market Rules, or the Nasdaq Listing Rules. |
(2) |
Chairman of Audit Committee. |
(3) |
Chairman of Compensation Committee. |
(4) |
Audit Committee Member. |
(5) |
Compensation Committee Member. |
Ms. Rachel (Heli) Bennun
has served as a director since December 2012 and was appointed as the Executive Chairman of our Board of Directors in September 2015.
In addition, Ms. Bennun has served as a consultant to the Company’s management since January 2012. Ms. Bennun has also served as
a director of Electreon Wireless (TASE:ELWS) since March 2021. Ms. Bennun has over 25 years of professional experience in hi-tech companies.
Ms. Bennun co-founded Arel Communications & Software Ltd. (formerly Nasdaq: ARLC) in 1988, a company focused on offering integrated
video, audio and data-enabled conferencing solutions, including real time Interactive Distance Learning, and served as CEO, CFO, and director,
leading the company to its initial public offering on Nasdaq in 1994. Ms. Bennun also co-founded ArelNet Ltd. (formerly TASE: ARNT), a
pioneer in the field of Voice over IP, and served as CEO and as a director, leading the company to its initial public offering on TASE
and until its acquisition by Airspan Network Inc. Ms. Bennun has also served as CEO and director of OrganiTech USA, Inc. (PINK: ORGT),
a pioneer in the cleantech industry. Ms. Bennun holds a M.Sc. and a B.Sc. in Industrial and Management Engineering from Ben-Gurion University.
Mr. Matty Karp has
served as a director since December 2009. From 1996 to 2015, he was the managing partner of Concord Ventures, an Israeli venture capital
fund focused on Israeli early-stage technology companies, which he co-founded in 1997. From 2007 to 2008, he served as the Chairman of
Israel Growth Partners Acquisition Corp. From 1994 to 1999, he served as the Chief Executive Officer of Kardan Technologies, a technology
investment company, and continued to serve as a director until October 2001. From 1994 to 1997, he served as the President of Nitzanim
Venture Fund, an Israeli venture capital fund focused on early-stage high technology companies. From 1987 to 1994, he served in numerous
positions at Elbit Systems Ltd. (Nasdaq and TASE: ESLT). Mr. Karp has served as a director of a number of companies, including: Elta Ltd.;
Galileo Technology, which was acquired by Marvell Technology Group (Nasdaq: MRVL); Accord Networks which was acquired by Polycom (Nasdaq:
PLCM); Saifun Semiconductors, which merged with Spansion, and El Al Israel Airlines (TASE: ELAL). Mr. Karp received a B.Sc., cum laude,
in Electrical Engineering from the Technion - Israel Institute of Technology and is a graduate of the Harvard Business School Advanced
Management Program.
Ms. Mirella Kuvent
has served as a director since July 2019. Ms. Kuvent served as an external director and member of the risk management and audit committees
for Diners Club Israel Ltd. and Diners Finance Ltd from 2018 until 2021. Ms. Kuvent has also served as an external director to Ham-Let
(Israel Canada) Ltd. from 2007 to 2013 and for the Company for the Reconstruction and Development of the Jewish Quarter in the Old City
of Jerusalem Ltd. from 2014 to 2017 and has been a member of finance committees, audit committees and compensation committees, having
also served as chair of an audit committee. Ms. Kuvent also has extensive experience in senior commercial, marketing and business development
roles with technology companies offering solutions to communications services providers as well as with a large communication services
company. Ms. Kuvent holds a B.A. in business administration from Fundação Getúlio Vargas and an M.B.A. from the Hebrew
University of Jerusalem.
Mr. Oren Most has served
as a director since July 2019. Mr. Most is the founder and former president of Golan Telecom, Ltd., an Israeli cellular operator. Mr.
Most has also served in executive positions with several private and public companies including as President and Chief Executive Officer
of Gilat Satellite Networks Ltd. (Nasdaq and TASE: GILT) and as Founder and Deputy Chief Executive Officer of Cellcom (Israel) Ltd. Mr.
Most has also served as director for several public and private corporations. Mr. Most holds a B.A. in Sociology & Anthropology, Film
& Television from the Tel Aviv University and an M.B.A. from New York University.
Mr. Yaron Ravkaie has
served as a director since January 2020. Mr. Ravkaie is the chief executive officer of Teridion Technologies Ltd., having assumed that
role in January 2020. Mr. Ravkaie previously served as the Company’s chief executive officer from January 2016 through December
2019. Prior to joining RADCOM, Mr. Ravkaie served during 2015 as the Chief Business Officer of RR
Media Ltd. (Nasdaq: RRM). Prior to serving at RR Media Ltd., and between 1998 and 2015, Mr. Ravkaie served in various roles with
Amdocs Ltd. (Nasdaq: DOX), including as the President of the Mobile Financial Services Division, President of the AT&T division, and
other director and vice president roles. Mr. Ravkaie served for nine years in information systems, industrial engineering and logistics
with the Israeli Air Force as a Major. Mr. Ravkaie holds an M.B.A. from the University of Beersheba and a B.Sc. in Industrial Engineering
& Management from the Technion, Haifa.
Mr.
Rami Schwartz has served as a director since July 2019. Mr. Schwartz has over 20 years’ experience in leadership positions in
the technology and enterprise software fields. Mr. Schwartz currently serves as the Managing Director of the Portland Trust Israel and
as an Advisory Board Member to AlgoSec. Mr. Schwartz previously served in senior positions, including as business group president, founder,
Chief Executive Officer and Active Chairman, with several public and private companies including Amdocs. Mr. Schwartz also served as Chief
of System Development for the Israeli Air Force. Mr. Schwartz holds a B.Sc. in math and computer science form the Hebrew University of
Jerusalem.
Mr. Zohar Zisapel,
a co-founder of our Company, has served as a director since our inception in 1985 and served as our Chairman of the Board from inception
until September 2015. Mr. Zisapel is the Chairman of Ceragon Networks Ltd. (Nasdaq: CRNT) and serves as chairman or director of several
private companies in the in the areas of communications, cyber security and automotive. Mr. Zisapel holds a B.Sc. and a M.Sc. in Electrical
Engineering from the Technion - Israel Institute of Technology and an M.B.A. from Tel-Aviv University.
Mr. Eyal Harari,
our Chief Executive Officer, joined us in November 2000 as a software R&D group manager and was appointed to his current position
effective January 1, 2020, having previously served as Chief Executive Officer of RADCOM US and as our Chief Operating Officer. Before
joining RADCOM, Mr. Harari served in the Communication, Computers & Electronics Corps of the Israel Defense Forces, managing large-scale
software projects. Mr. Harari received a B.A. in Computer Science from the Open University of Tel Aviv and holds an M.B.A.
from Tel-Aviv University and an LL.M. in Business Law from Bar Ilan University.
Ms. Hadar Rahav has
served as our Chief Financial Officer since January 2022. Ms. Rahav joined us in May 2020 as our Head of Global Finance. Prior to joining
our Company, Ms. Rahav served as Corporate Director of Finance at TAT Technologies Ltd. (Nasdaq: TATT; TASE: TATT.TA) from 2018 until
2020, and as Corporate Controller at Electra Consumer Products (1970) Ltd. (ECP.TA) from 2015 until 2018. Before 2018, Ms. Rahav served
in various positions with Ernst & Young Israel. Ms. Rahav holds a BA (cum laude) in Business Management Accounting and Risk Management
from the College of Management and Academic Studies, Rishon Le-Zion and is certified in Israel as a CPA.
Mr. Hilik Itman, our
Chief Operating Officer joined us in June 1997 as a software engineer and was appointed to his current position in January 2020, having
most recently served as the Company’s Vice President of Research and Development. Mr. Itman led the R70S software development and
led the MaveriQ development during the company’s transition from hardware-based products, to software-based probe products. Mr.
Itman holds a B.A. in Mathematics and Computer Science from the Open University.
Mr. Rami Amit, our
Chief Technology Officer and Head of Product, joined us in February 2017. Prior to joining RADCOM, Mr. Amit served from 2013 to 2017 as
director of engineering in the Cisco NFV Business Unit, which included worldwide deployments by many tier 1 customers. Mr. Amit was a
major contributor to the vision of the evolution to virtualization in that space. Prior to his time at Cisco Mr. Amit was Chief Technology
Officer for Jungo, a leading software provider, founded Surf&Call Solutions, which was later acquired by CosmoCom and was the first
employee of the VoIP industry pioneer, VocalTec, in which he is considered as one of the early inventors of VoIP, building the first ever
VoIP gateway shown in public in the mid-1990s and leading many of the VoIP technologies used today on a daily basis. Mr. Amit holds a
B.Sc. in electrical engineering from Tel Aviv University.
Ms. Bennun is the life partner
of Mr. Zohar Zisapel. Otherwise, there are no family relationships between any of the directors or executive officers named above.
Name and Principal Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Equity-Based Compensation ($)(1) | | |
All Other Compensation ($)(2) | | |
Total ($) | |
Eyal Harari, CEO | |
| 2021 | | |
| 300,000 | | |
| 154,189 | | |
| 358,953 | | |
| 40,040 | | |
| 853,182 | |
Hilik Itman, COO | |
| 2021 | | |
| 263,023 | | |
| 113,840 | | |
| 274,389 | | |
| 57,000 | | |
| 708,252 | |
Rami Amit, CTO and Head of Product | |
| 2021 | | |
| 270,208 | | |
| 105,346 | | |
| 157,662 | | |
| 57,000 | | |
| 590,216 | |
Amir Hai, Former CFO | |
| 2021 | | |
| 174,021 | | |
| 39,492 | | |
| 54,193 | | |
| 52,459 | | |
| 320,165 | |
Rachel (Heli) Bennun, Executive Chairman of our Board of Directors | |
| 2021 | | |
| 92,866 | | |
| 40,000 | | |
| 90,553 | | |
| 26,225 | | |
| 249,644 | |
| (1) | Equity based compensation includes
the cost of non-cash share-based compensation of the Company in 2021. The grants awarded during 2021 and 2022 were for a vesting term
of up to 4 years. |
| (2) | All other compensation includes
social benefits and car leasing costs. |
The bonus paid to our CEO
is based on a formula which takes into consideration independent measurable and non-measurable components and which was approved by Board
of Directors in accordance with the Compensation Policy and the CEO’s amended terms of employment approved by general meeting of
our shareholders on July 8, 2021.
The bonus and commission payments
made to our other officers are based on the achievements of goals and objectives that are set and communicated at the beginning of each
year and which are made in accordance with our Compensation Policy, as approved by our shareholders from time to time and most recently
on July 11, 2019, as amended on July 8, 2021.
The aggregate direct remuneration
paid to all our directors and executive officers as a group for the year ended December 31, 2021, was approximately $1.9 million
in salaries, bonus, commissions and directors’ fees. This amount includes approximately $0.2 million that was set aside or accrued
to provide pension, retirement or similar benefits. These amounts do not include the expense of share-based compensation as per ASC 718.
During 2021, our office holders,
as such term is defined in the Israeli Companies Law, 1999, or Office Holders, who are not directors, received, in the aggregate, 65,000
restricted share units, or RSUs, under our 2013 Share Option Plan, or the 2013 Plan. The RSUs have a vesting schedule of four years over
equal annual installments commencing as of the date of the grant. Further information regarding the options and RSU grants to our directors
is detailed below.
As of December 31, 2021,
our current directors and officers, as a group, held options to purchase an aggregate of 103,102 ordinary shares of the Company and 232,901
RSUs that were granted under our 2013 Plan.
Our directors are reimbursed
for expenses and receive cash and equity compensation, which terms are detailed below.
The cash compensation currently
paid to our independent directors as approved by a resolution of our shareholders in the annual general meeting held on July 9, 2020 (other
than to our Executive Chairman, as of September 10, 2015) is an annual fee of NIS 52,000 (currently equivalent to approximately $15,672)
and a per meeting attendance fee of NIS 2,000 (currently equivalent to approximately $603). In addition, upon his or her election or re-election,
each of our non-executive directors receives a grant of 11,000 RSU or the equivalent in options to purchase ordinary shares, vesting over
a period of three years.
Share Option Plans
On April 3, 2013, our Board
of Directors adopted the 2013 Plan. The 2013 Plan expires on April 2, 2023. Under the 2013 Plan, we may grant options to purchase our
ordinary shares, restricted shares and RSUs to our employees, directors, consultants and contractors. As of March 25, 2022, we have granted
1,273,902 options and 2,198,298 RSUs under the 2013 Plan. In addition, we granted 60,000 RSUs to our CEO in February 2022, which are pending
shareholders’ approval. Options and RSUs granted under our 2013 Plan generally vest over a period of between one and four years,
with expiration term for options of five to seven years from the date of grant, subject to the discretion of our Board of Directors, which
has the authority to deviate from such parameters in respect of specific grants. The 2013 Plan is administered either by our Board of
Directors or, subject to applicable law, by our Compensation Committee, which has the discretion to make all decisions relating to the
interpretation and operation of the 2013 Plan, including determining who will receive an option award and the terms and conditions of
the option awards. In November 2021, our board of directors resolved to increase the number of outstanding shares reserved under the 2013
Plan by an additional 1,500,000 ordinary shares to an aggregate of 1,342,991] ordinary shares.
We measure the compensation
expense for all share-based payments (including employee stock options) at fair value, in accordance with ASC 718. We recorded an expense
of approximately $3.4 million for share-based compensation plans during 2021. In February 2022 and During 2021, we granted 298,000 and
782,350 RSUs, respectively, which will result in ongoing accounting charges that will significantly reduce our net income. See Notes 2(n)
and 11(b) of the Notes to the Consolidated Financial Statements for further information.
As of March 25, 2022, there
were 77,149 outstanding options to purchase ordinary shares and 1,041,614 unvested RSUs under our 2013 Plan.
Pursuant to Rule 5615(a)(3)
of the Nasdaq Listing Rules, we follow our home country practice in lieu of the Nasdaq Listing Rules with respect to the approvals required
for the establishment and for material amendments to our share option plans. Consequently, we have adopted share option plans and material
amendments thereto by action of our board of directors, without shareholder approval. See also “Item 16G—Corporate Governance.”
Compensation
Policy
On June 5, 2019, our Compensation
Committee and Board of Directors approved our compensation policy for our Executive Officers and Directors, and our shareholders approved
the compensation policy on July 11, 2019. On July 8, 2021, our shareholders approved an amendment to our compensation policy. We plan
to submit the compensation policy for the reapproval of our shareholders in our 2022 annual shareholders meeting. See “Item 6.C—Directors,
Senior Management and Employees—Board Practices—Compensation Committee.”
Terms of Office
Our current Board of Directors
is comprised of Rachel (Heli) Bennun (Executive Chairman), and our non-executive directors, Matty Karp, Mirella Kuvent, Oren Most, Yaron
Ravkaie, Rami Schwartz, and Zohar Zisapel. Our directors are elected by the shareholders at the annual general meeting of the shareholders,
except in certain cases where directors are appointed by the Board of Directors and their appointment is later ratified at the first meeting
of the shareholders thereafter. All of our directors were elected in by our shareholders in our annual general meeting. The
terms of office of Mr. Schwartz and Mr. Most will expire on our 2024 annual general meeting. The terms of office of Mr. Zisapel, Mr. Ravkaie
and Ms. Kuvent will expire on our 2023 annual general meeting. The terms of office of Ms. Bennun and Mr. Karp will expire on our 2022
annual general meeting. None of our directors have service contracts with the Company relating to their service as a director, and none
of the directors will receive benefits upon termination of their position as a director. For a description of our compensation of directors
see “Item 6.B—Directors, Senior Management and Employees—Compensation.”
External Directors
Under the Israeli Companies
Law, a public company incorporated under the laws of the State of Israel must appoint at least two External Directors; however, pursuant
to an exemption provided under section 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading
on a Stock Market Outside of Israel), 5760-2000, or the Exemption, a public company with securities listed on certain foreign exchanges,
including Nasdaq, that satisfies the applicable foreign country laws and regulations that apply to companies organized in that country
relating to the appointment of independent directors and composition of audit and compensation committees and has no controlling shareholder
is exempt from the requirement to elect External Directors or comply with the audit committee and compensation committee composition requirements
under the Companies Law.
On July 31, 2019, our Board
adopted the Exemption. As a result of the adoption of the Exemption, the terms of office of any External Directors serving at the time
of such adoption were shortened to the earlier to occur of the remainder of their three-year term as External Director or the term ending
on the second annual general meeting following the adoption of the Exemption. As a result, the terms of office of Mr. Schwartz and Mr.
Most were shortened.
Audit Committee
The current members of our
Audit Committee are Mirella Kuvent, Matty Karp and Oren Most. Ms. Kuvent is the Chairman of the Audit Committee. Our Board of Directors
has determined that each of the members of our Audit Committee is independent within the meaning of the Nasdaq Listing Rules. Our Board
of Directors has also determined that Oren Most is an “Audit Committee Financial Expert” as defined in Item 407(d)(5)(ii)
of Regulation S-K under the Exchange Act and that he has the requisite experience under Nasdaq Listing Rules.
Our Audit Committee operates
under a written charter that is posted on our website.
As stated in our Audit Committee
charter, the Audit Committee assists our Board of Directors in fulfilling its responsibility for oversight of the quality and integrity
of our accounting, auditing and financial reporting practices and financial statements, and the “independence” requirements
and performance of our independent auditors. The Audit Committee also has the authority and responsibility to oversee our independent
auditors, to recommend for shareholder approval the appointment and, where appropriate, the replacement of our independent auditors, and
to pre-approve audit engagement fees and all permitted non-audit services and fees.
Under the Companies Law and
the Nasdaq Listing Rules, our Audit Committee is responsible for, among others (i) determining whether there are deficiencies in the business
management practices of our Company, including in consultation with our internal auditor or the independent auditor, and making recommendations
to the Board to improve such practices, (ii) determining whether to approve certain related party transactions (including transactions
in which an Office Holder has a personal interest) and whether such transaction should be deemed as material or extraordinary, (iii) where
the Board approves the working plan of the internal auditor, to examine such working plan before its submission to the Board and propose
amendments thereto, (iv) examining our internal controls and internal auditor’s performance, including whether the internal auditor
has sufficient resources and tools to dispose of its responsibilities, (v) examining the scope of our auditor’s work and compensation
and submitting a recommendation with respect thereto to our Board or shareholders, depending on which of them is considering the appointment
of our auditor, and (vi) establishing procedures for the handling of employee complaints as to the management of our business and the
protection to be provided to such employees. In compliance with regulations promulgated under the Israeli Companies Law, our Audit Committee
also approves our financial statements, thereby fulfilling the requirement that a board committee provide such approval.
Compensation Committee
The current members of our
Compensation Committee are Oren Most, Matty Karp and Rami Schwartz. Mr. Most is the Chairman of the Compensation Committee. Our Board
of Directors has determined that each of the members of our Compensation Committee is independent within the meaning of the Nasdaq Listing
Rules.
The Compensation Committee operates under a charter
that is posted on our website.
As stated in our Compensation
Committee Charter and as provided under the Israeli Companies Law and the Nasdaq Listing Rules, our Compensation Committee is responsible
for (i) proposing Office Holder compensation policies to the Board, (ii) proposing necessary revisions to any compensation policy and
examining its implementation, (iii) determining whether to approve transactions with respect to compensation of Office Holders, (iv) determining,
in accordance with Office Holder compensation policies, whether to exempt an engagement with an unaffiliated nominee for the position
of chief executive officer from requiring shareholder approval, and (v) administration of our share option plan.
Subject to the provisions
of the Israeli Companies Law, compensation of executive officers is generally determined and approved by our Compensation Committee and
our Board of Directors. Shareholder approval is generally required when (i) approval by our Board of Directors and our Compensation Committee
is not consistent with our Compensation Policy which was last adopted by annual meeting of shareholders on July 11, 2019, or (ii) the
compensation is that of our Chief Executive Officer. In special circumstances, our Compensation Committee and Board may approve the compensation
of an executive officer (other than a director, a chief executive officer or a controlling shareholder) or approve the compensation policy
despite shareholder objection. Additionally, under certain circumstances, our Compensation Committee may exempt an engagement with a nominee
for the position of chief executive officer from requiring shareholders’ approval or may otherwise postpone such shareholders’
approval.
A director or executive officer
may not be present when the Board discusses or votes upon the terms of his or her compensation, unless the chairman of the Board determines
that he or she should be present to present the transaction that is subject to approval. The Chief Executive Officer may not be present
during voting or deliberations regarding his or her compensation.
The Israeli Companies Law
provides that our compensation policy must serve as the basis for the decisions concerning the financial terms of employment or engagement
of Office Holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment
or engagement. The compensation policy must be approved (or reapproved) not longer than every three years, and relate to certain factors,
including advancement of the company’s objective, business plan and its long-term strategy and creation of appropriate incentives
for Office Holders. It must also consider, among other things, the company’s risk management, size and nature of its operations.
The compensation policy must furthermore consider the following additional factors:
| ● | the knowledge, skills, expertise and accomplishments of the
relevant Office Holder; |
| ● | the Office Holder’s roles and responsibilities and prior
compensation agreements with him or her; |
| ● | the relationship between the terms offered and the average
compensation of the other employees of the company, including those employed through human resource companies; |
| ● | the impact of disparities in salary upon work relationships
in the company; |
| ● | the possibility of reducing variable compensation at the discretion
of the Board of Directors or the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation;
and |
| ● | as to severance compensation, the period of service of the
Office Holder, the terms of his or her compensation during such service period, the company’s performance during that period of
service, the person’s contributions towards the company’s achievement of its goals and the maximization of its profits and
the circumstances under which the person is leaving the company. |
| The | compensation policy must also include the following principles: |
| ● | the link between variable compensation and long-term performance
and measurable criteria; |
| ● | the relationship between variable and fixed compensation,
and the ceiling for the value of variable compensation; |
| ● | the conditions under which a director or executive would be
required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate
and was required to be restated in the company’s financial statements; |
| ● | the minimum holding or vesting period for variable, equity-based
compensation; and |
| ● | maximum limits for severance compensation. |
On June 5, 2019, our Compensation
Committee and Board of Directors approved an amended compensation policy for Executive Officers and Directors, and our shareholders approved
such compensation policy on July 11, 2019. On July 8, 2021, our shareholders approved an amendment to our Compensation Policy. We plan
to submit the Compensation Policy for the reapproval of our shareholders in our 2022 annual shareholders meeting, as required under the
Israeli Companies Law.
Internal Auditor
Under the Israeli Companies
Law, the board of directors of a public company must also appoint an internal auditor proposed by the audit committee. The duty of
the internal auditor is to examine, among other things, whether the company’s conduct complies with applicable law and orderly business
procedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an Office Holder or an affiliate,
or a relative of an interested party, an Office Holder or affiliate, nor may the internal auditor be the company’s independent accountant
or its representative. An interested party is defined in the Israeli Companies Law as a 5% or greater shareholder, any person or
entity that has the right to designate at least one director or the general manager of the company and any person who serves as a director
or as a general manager.
Ms. Sharon Cohen, who is a
partner at Brightman Almagor Zohar & Co., a member of Deloitte, serves as our internal auditor.
Exculpation, Indemnification and Insurance
of Directors and Officers
We have agreed to exculpate
and indemnify our Office Holders to the fullest extent permitted under the Israeli Companies Law. We have also purchased a directors and
officers liability insurance policy. For information regarding exculpation, indemnification and insurance of directors and
officers under applicable law and our articles of association, see “Item 10.B—Additional Information—Memorandum and
Articles of Association.”
Management Employment Agreements
We maintain written employment
agreements with all our employees. These agreements provide, among other matters, for monthly salaries, our contributions to Managers’
Insurance and an Education Fund and severance benefits. Most of our agreements with our key employees are subject to termination
by either party upon the delivery of notice of termination as provided therein.
Nominating Committee
Our Board of Directors does
not currently have a nominating committee. However, independent directors do retain oversight over director nominations, and in accordance
with the requirements of the Nasdaq Listing Rules, our director nominees will either be selected
for or recommended to the Board of Directors by a majority of the independent directors of
the Board of Directors.
Our total headcount as of
December 31, 2021, was 278, compared to 276 in 2020 and 282 in 2019, including full-time and part-time employees and contractors, broken
down geographically and by function as follows:
| |
Research
and Development | | |
Sales,
Marketing
and
Customer Support | | |
Operations | | |
Administration
and Management | | |
Total Headcount | |
Israel | |
| 95 | | |
| 33 | | |
| 3 | | |
| 13 | | |
| 144 | |
India | |
| 13 | | |
| 34 | | |
| 0 | | |
| 2 | | |
| 49 | |
United States | |
| 0 | | |
| 19 | | |
| 0 | | |
| 2 | | |
| 21 | |
Brazil | |
| 0 | | |
| 8 | | |
| 0 | | |
| 1 | | |
| 9 | |
Other | |
| 34 | | |
| 21 | | |
| 0 | | |
| 0 | | |
| 55 | |
Total | |
| 142 | | |
| 115 | | |
| 3 | | |
| 18 | | |
| 278 | |
We consider our relations
with our employees to be good and we have never experienced a strike or work stoppage. Except for employees located in Brazil, none of
our employees are represented by labor unions.
For more information, see
“Item 4.B—Information on the Company—Business Overview—Employees.”
For
information regarding the share ownership of directors and officers, see Item 7.A. “Major Shareholders and Related Party Transactions—Major
Shareholders.” For information as to our equity incentive plan, see Item 6.B. “Director,
Senior Management and Employees—B. Compensation—Share Option Plan.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
The following table sets forth
information with respect to the beneficial ownership of our ordinary shares as of March 25, 2022, by:
| ● | each person or entity known
by us to own beneficially more than 5% of our outstanding ordinary shares; |
| ● | each of our directors and executive
officers individually; and |
| ● | all of our executive officers
and directors as a group. |
The beneficial ownership of
ordinary shares is determined in accordance with the SEC rules and generally includes any ordinary shares over which a person exercises
sole or shared voting or investment power. For purposes of the table below, we deem shares subject to options that are currently exercisable
or exercisable within 60 days of March 25, 2022, and restricted share units, or RSUs, that shall vest within 60 days of March 25, 2022,
to be outstanding and to be beneficially owned by the person holding the options or restricted share units for the purposes of computing
the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership
of any other person. The percentage of shares beneficially owned is based on 14,427,717 ordinary shares outstanding as of March 25, 2022.
The information presented
below is based on information provided to us by the directors, officers, and shareholders or disclosed in public filings with the SEC.
The voting rights of our major shareholders do not differ from the voting rights of other holders of our ordinary shares.
Except for Mr. Zohar Zisapel,
none of our executive officers or directors beneficially owns 1% or more of our outstanding ordinary shares.
As of March 25, 2022, our
ordinary shares had a total of 16 holders of record, of which 9 were registered with addresses in the United States. We believe that the
number of beneficial owners of our shares is substantially greater than the number of record holders, because a large portion of our ordinary
shares is held of record in broker “street name”.
Name | |
Number of Ordinary Shares beneficially owned(1) | | |
Percentage of Outstanding Ordinary Shares beneficially owned(2) | |
Principal Shareholders | |
| | |
| |
Zohar Zisapel | |
| 2,895,782 | (3) | |
| 20.0 | % |
Yelin Lapidot Holdings Management Ltd. | |
| 1,629,243 | (4) | |
| 11.3 | % |
Lynrock Lake LP | |
| 1,004,454 | (5) | |
| 7.0 | % |
| |
| | | |
| | |
Directors and Officers, except for Zohar Zisapel | |
| | | |
| | |
Rachel (Heli) Bennun | |
| * | | |
| * | |
Matty Karp | |
| * | | |
| * | |
Mirella Kuvent | |
| * | | |
| * | |
Oren Most | |
| * | | |
| * | |
Yaron Ravkaie | |
| * | | |
| * | |
Rami Schwartz | |
| * | | |
| * | |
Eyal Harari | |
| * | | |
| * | |
Hadar Rahav | |
| * | | |
| * | |
Hilik Itman | |
| * | | |
| * | |
Rami Amit | |
| * | | |
| * | |
| |
| | | |
| | |
All directors and executive officers as a group, except for Zohar Zisapel (10 persons) | |
| 180,247 | (6) | |
| 1.3 | % |
| (1) | Except as otherwise noted and
subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to all
ordinary shares listed as owned by such person. Shares beneficially owned include shares that may be acquired pursuant to
options to purchase ordinary shares that are exercisable within 60 days of March 25, 2022. |
| (2) | The percentage of outstanding
ordinary shares is based on 14,427,717 ordinary shares outstanding as of March 25, 2022. In determining the percentage owned by
each person, ordinary shares for each person includes ordinary shares that may be acquired by such person pursuant to options to purchase
ordinary shares that are exercisable within 60 days of March 25, 2022. The number of outstanding ordinary shares does not include
5,189 ordinary shares held by RADCOM US, a wholly owned subsidiary and 30,843 ordinary shares that were repurchased by us. |
| (3) | Includes (i) 2,332,185 ordinary
shares held by Mr. Zohar Zisapel, (ii) 299,416 ordinary shares held by Michael & Klil Holdings (93) Ltd or Klil, an Israeli company,
wholly owned by Mr. Zohar Zisapel, (iii) 242,731 ordinary shares held by Lomsha Ltd. or Lomsha, an Israeli company wholly owned by Mr.
Zohar Zisapel, and (iv) 21,450 ordinary shares issuable upon exercise of options, currently exercisable or exercisable within 60 days
of March 25, 2022. Mr. Zohar Zisapel’s brother, Mr. Yehuda Zisapel, may be deemed the beneficial owner of 344,809 ordinary shares.
Additionally, Mr. Zohar Zisapel’s life partner and Executive Chairman of the Company’s Board of Directors, Ms. Heli Bennun,
holds 15,502 ordinary shares, and 1,832 RSUs which shall vest within 60 days of March 25, 2022. Mr. Zohar Zisapel disclaims beneficial
ownership of the ordinary shares held by Mr. Yehuda Zisapel and by Ms. Heli Bennun. This information is based on information provided
to the Company by Mr. Zohar Zisapel. |
| (4) | Based on a Schedule 13G/A filed
with the SEC on February 7, 2022. Includes 781,250 Ordinary Shares beneficially owned by mutual funds managed by Yelin Lapidot Mutual
Funds Management Ltd. and 847,993 Ordinary Shares beneficially owned by provident funds managed by Yelin Lapidot Provident Funds Management
Ltd, each of which a wholly-owned subsidiary of Yelin Lapidot Holdings Management Ltd. (each a “Yelin Lapidot Holder”).
Each of Dov Yelin and Yair Lapidot owns 24.4% of the share capital and 25.0% of the voting rights of Yelin Lapidot Holdings Ltd. The
address of each of the Yelin Lapidot Holders and each of Messrs. Yelin and Lapidot is 50 Dizengoff St., Dizengoff Center, Gate 3, Top
Tower, 13th floor, Tel Aviv 64332, Israel. Each of the Yelin Lapidot Holders and Messrs. Yelin and Lapidot and is a resident of Israel. |
| (5) | Based
on a Schedule 13G filed with the SEC on February 14, 2022. Includes 1,004,454 Ordinary Shares
held by Lynrock Lake LP (the “Investment Manager”), the investment manager
of Lynrock Lake Master. Pursuant to an investment management agreement, the Investment Manager
has been delegated full voting and investment power over securities of the Issuer held by
Lynrock Lake Master. Cynthia Paul, the Chief Investment Officer of the Investment Manager
and Sole Member of Lynrock Lake Partners LLC, the general partner of the Investment Manager,
may be deemed to exercise voting and investment power over securities of the Issuer held
by Lynrock Lake Master. The address of each of Cynthia Paul, Lynrock Lake Partners LLC, and
Lynrock Lake LP is 2 International Drive, Suite 130 Rye Brook, NY 10573. |
| (6) | Each of the directors and executive
officers not separately identified in the above table beneficially owns less than 1% of our outstanding ordinary shares, including options
held by each such party, which are vested or shall become vested within 60 days of March 25, 2022, and have, therefore, not been separately
disclosed. The number of shares is comprised of 162,365 ordinary shares, 8,000 ordinary shares issuable upon exercise of options exercisable
within 60 days of March 25, 2022, and 9,882 RSUs that will vest within 60 days of March 25, 2022. |
Significant Changes
in Percentage Ownership by Major Shareholders
To
our knowledge, the significant changes in the percentage of ownership held by our major shareholders during the past three years
have been the decrease in the percentage of ownership held by Raging Capital Management, LLC under 5% as of 2020 and the
increase in the percentage of ownership held by Lynrock Lake LP above 5% as of 2021.
| B. | RELATED PARTY TRANSACTIONS |
RAD-BYNET Group
Mr. Zohar Zisapel, a member
of our Board of Directors, is the Chairman of the board of Ceragon Networks Ltd., RADWIN Ltd., RADIFLOW Ltd., Hailo, HiAuto Ltd.
and Innoviz Ltd. and director in the following companies: Nuance Hearing Ltd., RAD Data Communications Ltd., RAD-Bynet Properties and
Assets (1981) Ltd., Packetlight Networks Ltd., CyberInt Technologies Ltd., Armis Security Ltd., Cylus Ltd. and several other private holdings,
real estate and medical devices companies. The above list does not constitute a complete list of Mr. Zohar Zisapel’s holdings.
In some of these companies his brother, Mr. Yehuda Zisapel is also a director.
Mr. Yehuda Zisapel (brother
of Mr. Zohar Zisapel) serves also as director in additional companies, including: RADWARE Ltd., Bynet Data Communications Ltd., Bynet
Electronics Ltd., Bynet Semech (Outsourcing) Ltd., Bynet Systems Applications Ltd., Ab-Net Communications Ltd., BYNET Software Systems
Ltd., Internet Binat Ltd., SecurityDam Ltd., Binat Business Ltd. and several other private holdings, real estate and medical devices companies.
The above list does not constitute a complete list of Mr. Yehuda Zisapel’s holdings.
Some of the above companies
may be suppliers/distributors/consumers of RADCOM products or may render additional services by arm’s length transactions or share
logistical arrangements with the Company. Some of the above companies are known as the “RAD-BYNET Group.”
Ms. Rachel (Heli) Bennun,
who is the Executive Chairman of our Board of Directors, is Mr. Zohar Zisapel’s life partner.
We and other members of the
RAD-BYNET Group also market certain of our products through the same distribution channels. Certain products of members of
the RAD-BYNET Group are complementary to, and may be used in connection with, products of ours, and others of such products may be used
in place of (and thus may be deemed to be competitive with) our products.
Supplier and Service Provider Arrangements
We purchase certain personnel,
administrative, Dev-Ops, Research and Development and IT products and services from members of the RAD-BYNET group, on terms that are
either beneficial to us or are no less favorable than terms that might be available to us from unrelated third parties, based on quotes
we received from unrelated third parties.
Members of the RAD-BYNET group
may provide to us, for which we pay on market terms and rates. The aggregate amount of such purchases was approximately $479,000 in 2021.
Office Leases
We currently lease office
premises in Tel Aviv, Israel and in Paramus, New Jersey, from private companies controlled by Mr. Yehuda Zisapel and his wife, Ms. Nava
Zisapel, and Mr. Zohar Zisapel. When these agreements were signed, the lease payments were at fair market prices based on quotes we received
from third parties for similar space. Historically, we have had some additional flexibility to change the leased space, which
we might not have had with unrelated third parties. The aggregate amount of lease and maintenance payments was approximately
$830,000 in 2021.
We believe that the terms
of the transactions in which we have entered and are currently engaged with other members of the RAD-BYNET Group are beneficial to us
and no less favorable to us than terms that might be available to us from unaffiliated third parties. All future transactions and
arrangements (or modifications of existing ones) with members of the RAD-BYNET Group in which our Office Holders have a personal interest
or which raise issues of such Office Holders’ fiduciary duties will require approval by our Board of Directors and, in certain circumstances,
approval of our Audit Committee and shareholders under the Israeli Companies Law.
Matrix IT Ltd.
Mr. Amir Hai, our former Chief
Financial Officer, served as a member of the board and Chairman of the Audit Committee of Matrix IT Ltd., or Matrix., an Israeli technology
company offering a broad array of project and technology services. Among other things, Matrix is a certified distributor of the Red Hat
OpenStack platform. The Company, from time to time, has entered and expects to continue to enter into certain limited term engagements
with Matrix or its affiliated companies in connection with specific development projects, the use of the Red Hat OpenStack platform or
the outsourcing of certain developments services from Infinity Labs, a Matrix affiliated company. The terms of the transactions in which
we have entered and are currently engaged with Matrix and/or its affiliates are believed to be no less favorable to us than terms that
might be available to us from unrelated third parties. In 2021, we purchased products and services from Matrix and its affiliates as a
related party in the amount of approximately $121,000. Future transactions and arrangements (or modifications of existing ones)
with Matrix or its affiliated companies will not require approval by our board of directors since Mr. Hai is no longer an office holder
in our Company.
| C. | INTERESTS OF EXPERTS AND
COUNSEL |
Not applicable.
ITEM 8. FINANCIAL INFORMATION
| A. | CONSOLIDATED STATEMENTS AND
OTHER FINANCIAL INFORMATION |
Our consolidated financial
statements and other financial information, which can be found at the end of this Annual Report beginning on page F-1, are incorporated
herein by reference.
Export Sales
In 2021 and 2020, the amount
of our export sales was approximately $37.9 million and $36.1 million respectively, which represented 94% of our total sales and 96% of
our total sales respectively.
Legal Proceedings
We are currently not, and
have not been in the recent past, a party to any legal proceedings which may have or have had in the recent past material effects on our
financial position or profitability. However, we have been in the past, and may be from time to time in the future, named as a defendant
in certain routine litigation incidental to our business.
Dividend Policy
We have never declared or
paid any cash dividends on our ordinary shares. We currently intend to retain any future earnings to finance operations and
to expand our business and, therefore, do not expect to pay any cash dividends in the foreseeable future.
Except as otherwise disclosed
below and/or in this Annual Report, there has been no significant change affecting our financial statements since December 31, 2021.
ITEM 9. THE OFFER AND LISTING
| A. | OFFER AND LISTING DETAILS |
Our ordinary shares are traded
on the Nasdaq Capital Market under the symbol “RDCM.”
Not applicable.
Our ordinary shares are traded
on the Nasdaq Capital Market.
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
Not applicable.
| B. | MEMORANDUM AND ARTICLES OF
ASSOCIATION |
Copies of our Memorandum and
Articles of Association are attached as Exhibit 1.1 and Exhibit 1.2, respectively, to this Annual Report. The information called for by
this Item is set forth in Exhibit 2.2 to this Annual Report and is incorporated by reference into this Annual Report.
On March 29, 2019, we entered
into a series of agreements with AT&T relating to the sale of our solutions and services to AT&T. The AT&T agreements include:
| ● | Software and Professional Services Agreement, or the
AT&T SPSA – a three-year framework agreement with two additional one-year options which establishes general terms and conditions
for the delivery of products and services. Such terms include, among others, terms relating to ordering procedures; AT&T site, privacy,
and security requirements; terms related to the licensing of intellectual property to AT&T; change in control provisions permitting
AT&T’s termination of the agreement under certain circumstances; intellectual property infringement indemnity; insurance requirements;
and limitations of liability. The SPSA provides the structure pursuant to which the parties may enter into supplemental agreements for
purposes of effectuating specific orders. With regard to such orders, the terms of any supplemental agreements take precedence over the
terms of the SPSA. |
| ● | Supplement Agreement, or the AT&T Supplement Agreement
– a three-year agreement with two additional one-year options governing the sale of our solutions and related professional services
to AT&T. The Supplement Agreement provides the detailed technical scope for our solutions and the prices applicable to such solutions.
Pursuant to the Supplement Agreement, AT&T has committed to issue certain orders related to the continuing enhancement of existing
solutions for the first two years of the agreement and to the expansion of license use rights during the first year of the agreement
and retains options to issue certain additional orders over the three-year term of the agreement. |
| ● | Supplemental Support & Maintenance Agreement –
a three-year agreement for our performance of support and maintenance services for our solutions deployed on AT&T’s network.
This agreement defines the technical aspects of support including error severity levels, response times, and method of interface, as
well as the annual fee for such services. |
Additionally, we have entered
and from time to time may enter into additional SOWs with AT&T providing for additional products and or services complementary to
the services provided under AT&T SPSA and AT&T Supplement Agreement.
We entered into a series of
agreements with Rakuten relating to the sale of our solutions and services to Rakuten. The Rakuten Agreements include:
| ● | Master Software and Professional Services Agreement,
or MSPSA – a multi-year framework agreement effective May 21, 2019, establishing general terms and conditions for the delivery
of software and services. Such terms include, among others, terms relating to ordering procedures, intellectual property, confidentiality,
indemnity, and limitations of liability. The MSPSA provides the structure pursuant to which the parties may enter into additional statements
of work, or SOWs, for purposes of effectuating specific orders. The SOWs establish the scope of services, technical specifications,
and certain other terms with regard to each particular order. The terms of any SOWs take precedence over the terms of the MSPSA. |
| ● | Rakuten Managed Services Agreement, or the Rakuten
Managed Services Agreement – a multi-year agreement effective May 22, 2019, governing the delivery of our solution and services
as a managed service to Rakuten and providing the detailed technical scope for the managed services and the prices applicable to such
services. Rakuten Managed Services Agreement establishes a multi-year commitment with certain additional renewal periods. |
| ● | Rakuten 5G NSA/SA Managed
Services Agreement, or the Rakuten 5G NSA/SA Managed Services Agreement – a multi-year agreement effective as of August 31,
2020, governing the delivery of our solution and services as a managed service to Rakuten’s 5G NSA and SA network, providing the
detailed technical scope for the managed services and the prices applicable to such services. The Rakuten 5G NSA/SA Managed Services
Agreement establishes a multi-year commitment with certain additional renewal periods. |
Additionally, we have entered
and from time to time may enter into additional SOWs with Rakuten providing for additional products and or services complementary to the
services provided under Rakuten Managed Services Agreement and the Rakuten 5G NSA/SA Managed Services Agreement.
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 our ordinary shares, except for the obligation upon 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 and from time to time.
Israeli Tax Considerations
The following is a summary
of certain tax consequences applicable to companies incorporated in Israel, with special reference to its effect on us, as well as a summary
of Israeli government programs that benefit us. The following also contains a discussion of material Israeli tax consequences concerning
the ownership and disposition of our ordinary shares.
This summary does not discuss
all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. To the extent that the discussion is based on tax legislation
which has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion
will be accepted by the appropriate tax authorities or the courts. The discussion below is subject to change, including due to amendments
under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, possibly with a retroactive
effect, which changes could affect the tax consequences described below. The discussion is not intended, and should not be construed,
as legal or professional tax advice and is not exhaustive of all possible tax considerations.
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, including, in particular, the effect of any foreign state or local taxes.
General Corporate Tax Structure
Starting 2018 and thereafter,
the taxable income of the Company is subject to the Israeli corporate tax at the rate of 23%.
Tax benefits under the Law for the Encouragement
of Capital Investments, 1959, or the Encouragement of Capital Investments Law:
In August 2013, the Israeli
Parliament enacted the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013
which includes Amendment 71 thereto, or Amendment 71. Per Amendment 71, the tax rate on preferred income from a preferred enterprise in
2014-2016 will be 9% in certain areas in Israel designated as Development Area A and 16% in other areas. In 2017, the tax rate for Development
Area A was reduced to 7.5%.
We may claim the tax benefits
offered by Amendment 71 in our tax returns, provided that our facilities meet the criteria for tax benefits set out by the amendment.
We are also entitled to approach the Israeli Tax Authorities for a pre-ruling regarding their eligibility for benefits under Amendment
71 (and in some cases are required to apply for such approval).
In December 2016, the Israeli
Parliament enacted the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years),
2016 which includes Amendment 73 thereto, or Amendment 73. Amendment 73, which came into effect in January 2017, prescribes special tax
tracks for Preferred Technological Enterprises, granting such enterprises a corporate tax rate of 7.5% in Development Area A and 12% in
other areas, and setting a corporate tax rate of 6% for enterprises that qualify as a Special Preferred Technological Enterprise.
Under Amendment 73, dividends
distributed to individuals or non-Israeli shareholders by a Preferred Technological Enterprise or a Special Preferred Technological Enterprise,
paid out of income that qualifies as “Preferred Technological Income,” are generally subject to tax at the rate of 20% or
such lower rate as may be provided in an applicable tax treaty, which, in each case, will be withheld at source (non-Israeli shareholders
are required to present, in advance of payment, a valid withholding certificate from the Israel Tax Authority allowing for such 20% tax
rate or lower treaty rate). However, dividends distributed to an Israeli company are not subject to tax (although, if such dividends are
subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided
in an applicable tax treaty, will apply. If such dividends are distributed to a foreign corporation or corporations (holding directly
at least 90% in the Preferred Company which owns the Preferred Technological Enterprise or holding indirectly such 90% in the Preferred
Company which owns the Preferred Technological Enterprise, subject to certain conditions) and other conditions are met, the applicable
withholding tax rate will be 4%, or such lower rate as may be provided in an applicable tax treaty (in each case, subject to the receipt
in advance of a valid withholding certificate from the Israel Tax Authority).
In order to be eligible for
the reduced tax rates, a company must meet certain criteria as set forth in Amendment 73 including that R&D expenses and employee
level remain at a certain rate.
We have yet to claim the tax
benefits offered under Amendment 73 and accordingly such reduced taxes were not considered in the computation of the deferred taxes and
valuation allowance as of December 31, 2021.
Capital Gains Tax on Sales of Our Ordinary Shares
Generally, as to Israeli residents,
the Israeli tax law imposes a capital gains tax on the gain from the sale of any capital assets by Israeli residents, whether such gain
was sourced in Israel or abroad. As to non-Israeli residents, the Israeli tax law generally imposes a capital gains tax on the sale of
assets, including shares, by non-Israeli residents, if those assets are either (a) located in Israel; (b) located outside of Israel and
are a direct or indirect right to an asset or inventory located in Israel; (c) are shares or rights to shares in an Israeli resident corporation;
or (d) are rights in a foreign resident corporation (non-Israeli corporation) that holds, directly or indirectly, assets located in Israel,
unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides
otherwise. Under the Israeli Income Tax Ordinance [New Version], 1961, there is a distinction between a real gain and inflationary surplus.
The inflationary surplus is equal to the increase in the purchase price of the relevant asset attributable to the increase in the Israeli
consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale.
The real gain is the excess of the total capital gain over the inflationary surplus. Inflationary surplus is currently not subject to
tax in Israel.
The tax rate applicable to
real gain derived by an Israeli individual from the sale of shares which had been purchased after January 1, 2012, whether listed on a
stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” at the time of sale
or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. A “substantial shareholder”
is generally a person who holds, alone or together with a family relative or with a person who is not a relative where the person has
a permanent cooperation agreement with such non-relative, directly or indirectly, at least 10% of any of the “means of control”
of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive
officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source
of such right. Real capital gain derived by corporations will be generally subject to a corporate tax, currently at a rate of 23%.
Moreover, capital gains derived
by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary business income, are
taxed in Israel at ordinary income rates (for fiscal year 2022, up to 50% for individuals and for Israeli resident corporations, the corporate
tax rate is 23%).
Non-Israeli resident shareholders
are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares
purchased after January 1, 2009, provided that such gains were not derived from a permanent establishment or business activity of such
shareholders in Israel (and certain other conditions are fulfilled). However, non-Israeli “body of persons” (as defined in
the Ordinance, which includes corporate entities, partnerships, and other entities) will not be entitled to the foregoing exemptions if
an Israeli resident (i) has a controlling interest of more than 25% in such non-Israeli body of persons or (ii) is the beneficiary of
or is entitled to 25% or more of the revenues or profits of such non-Israeli body of persons, whether directly or indirectly.
Regardless of whether shareholders
may be liable for Israeli income tax on the sale of our ordinary shares, the payment of the consideration may be subject to withholding
of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital
gains in order to avoid withholding at source at the time of sale.
U.S.-Israel Tax Treaty
Pursuant to the Convention
between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended (the “U.S.-Israel
Tax Treaty”), the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares as a capital asset,
(ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the
benefits afforded to such resident by the U.S.-Israel Tax Treaty, generally will not be subject to Israeli capital gains tax unless either
(a) such resident holds, directly or indirectly, shares representing 10% or more of the voting power of a company during any part of the
12-month period preceding such sale, exchange or disposition, subject to certain conditions, (b) the capital gains from such sale, exchange
or disposition can be allocated to a permanent establishment in Israel, under certain terms, (c) the capital gain arising from such sale,
exchange or disposition is attributed to real estate located in Israel; (d) the capital gain arising from such sale, exchange or disposition
is attributed to royalties, or (e) such resident is an individual and was present in Israel for 183 days or more during the relevant taxable
year. In the event that the exemption shall not be available, the sale, exchange or disposition of ordinary shares would be subject to
such Israeli capital gains tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such residents may be permitted to
claim a credit for such taxes against U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the
limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to state or local taxes.
In some instances where our
shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the
withholding of Israeli tax at source. However, where a shareholder is exempt from Israeli taxation as described in the “Item 10.E—Additional
Information—Taxation—Capital Gains Tax on Sales of Our Ordinary Shares”, such exemption takes precedence over the U.S.-Israel
Tax Treaty.
Taxation of Non-Residents on Dividends
Non-Israeli residents are
generally subject to Israeli withholding income tax on the receipt of dividends paid on our Shares at the rate of 25% (or 30% for individuals,
if such individual is a Substantial Shareholder at the time receiving the dividend or on any date in the 12 months preceding such date),
which tax will be withheld at source, unless a tax certificate is obtained from the Israeli Tax Authority authorizing withholding-exempt
remittances or a reduced rate of tax pursuant to an applicable tax treaty. Such dividends are generally subject to Israeli withholding
tax at a rate of 25% so long as the shares are registered with a nominee company (whether the recipient is a Substantial Shareholder or
not). If the dividend is distributed from preferred income from a preferred enterprise, the tax rate is 20% (non-Israeli shareholders
are required to present, in advance of payment, a valid withholding certificate from the Israel Tax Authority allowing for such tax rate).
However, a reduced tax rate
may be provided under an applicable tax treaty. For example, under the U.S.-Israel Tax Treaty, Israeli withholding tax on dividends paid
to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid out of the profits of an
Approved Enterprise, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the outstanding shares
of the voting stock of the paying corporation throughout the paying corporation’s taxable year in which the dividend is paid and
during the whole of its prior taxable year (if any) and not more than 25% of the gross income of the paying corporation for such prior
taxable year (if any) consists certain interest or dividends, the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.
The aforementioned rates under the U.S.-Israel Tax Treaty will not apply if the dividend income was derived through or attributed to a
permanent establishment of the U.S. recipient in Israel. A valid withholding certificate from the Israel Tax Authority allowing for such
reduced treaty tax rates must be presented in advance of payment.
A non-Israeli resident who
receives dividends from which tax was withheld is generally exempt from the duty to file tax returns in Israel in respect of such income,
provided that (i) such income was not generated from business conducted in Israel by such non-Israeli resident; (ii) the non-Israeli resident
has no other taxable sources of income in Israel with respect to which a tax return is required to be filed, and (iii) the non-Israeli
resident is not liable to Surtax (as explained below).
Israeli Surtax
Individuals who are subject
to income tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional
tax at a rate of 3% on annual income (including, but not limited to, income derived from dividends, interest and capital gains) exceeding
NIS 663,240 for 2022, which amount is linked to the annual change in the Israeli consumer price index.
Estate and Gift Tax
Israeli law presently does
not impose estate or gift taxes.
United States Federal Corporate Income Tax
Considerations
RADCOM US is taxed under United
States federal and state tax rules. Income tax is calculated at a federal tax rate of 21% rate.
United States Federal Income Tax Considerations
for U.S. Holders
Subject to the limitations
described herein, the following discussion summarizes certain U.S. federal income tax consequences to a U.S. Holder of our ordinary shares. A
“U.S. Holder” means a holder of our ordinary shares who is:
| ● | an individual who is a citizen
or resident of the United States for U.S. federal income tax purposes; |
| ● | 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 or 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, in general,
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. |
Unless otherwise specifically
indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. Holder, or a Non-U.S. Holder. This
discussion considers only U.S. Holders that will own our ordinary shares as capital assets (generally, for investment) and does not purport
to be a comprehensive description of all of the tax considerations that may be relevant to each U.S. Holder’s decision to purchase
our ordinary shares.
This discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended, or the Code, current and proposed Treasury Regulations promulgated
thereunder, and administrative and judicial decisions as of the date hereof, 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 alternative minimum tax or 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 financial institutions; |
| ● | hold our ordinary shares as
part of a straddle, “hedge” or “conversion transaction” with other investments; |
| ● | acquired our ordinary shares
upon the exercise of employee stock options or otherwise as compensation; |
| ● | own directly, indirectly or
by attribution at least 10% of our voting power or value; |
| ● | have a functional currency that
is not the U.S. dollar; |
| ● | are certain former citizens
or long-term residents of the United States; or |
| ● | are real estate investment trusts
or regulated investment companies. |
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 partnership
and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such
a partner or partnership should consult its own tax advisor as to its tax consequences.
In addition, this discussion
does not address any aspect of state, local or non-United States laws or the possible application of United States federal gift or estate
tax.
Each holder of our ordinary
shares is advised to consult such person’s own tax advisor with respect to the specific tax consequences to such person of purchasing,
holding or disposing of our ordinary shares, including the applicability and effect of federal, state, local and foreign income tax and
other tax laws to such person’s particular circumstances.
Taxation of U.S. Holders
of Ordinary Shares
Taxation of Distributions
Paid on Ordinary Shares. A U.S. Holder, other than certain U.S. Holders that are U.S. corporations (as excluded from the
definition of U.S. Holder, above), will be required to include in gross income as ordinary 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 such
earnings and profits will be applied against and will reduce the U.S. Holder’s basis in our ordinary shares and, to the extent in
excess of such basis, will be treated as gain from the sale or exchange of our ordinary shares. The dividend portion of such
distributions generally will not qualify for the dividends received deduction available to corporations.
Subject to the discussion
below under “Medicare Tax” 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, provided that such dividends meet the requirements of “qualified dividend income.” For
this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if certain holding period and other
requirements are met and either (i) the stock of the non-U.S. corporation with respect to which the dividends are paid is readily tradable
on an established securities market in the U.S. (e.g., Nasdaq) or (ii) the non-U.S. corporation is eligible for benefits of a comprehensive
income tax treaty with the United States, which includes an information exchange program and is determined to be satisfactory by the U.S.
Secretary of the Treasury. The IRS has determined that the U.S.-Israel income tax treaty is satisfactory for this purpose. Dividends
that fail to meet such requirements, and dividends received by corporate U.S. Holders, are taxed at ordinary income rates. No
dividend received by a U.S. Holder will be a qualified dividend (i) if 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 (ii) to the extent that 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.
Distributions of current or
accumulated earnings and profits paid in foreign currency to a U.S. Holder (including any non-U.S. taxes withheld therefrom) will generally
be includible in the income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution
is received. A U.S. Holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars
subsequent to receipt may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency
against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
U.S. Holders, other than certain
U.S. Holders that are corporations (as excluded from the definition of U.S. Holder, above), may 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 such 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 taxable year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. These
limitations include, among others, rules that limit foreign tax credits allowable with respect to specific classes of income to the U.S.
federal income taxes otherwise payable with respect to each such class of income. A U.S. Holder will be denied a foreign tax
credit with respect to non-U.S. income tax withheld from a dividend received on the ordinary shares if such 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 to the extent such U.S. Holder is under an obligation to make related payments with respect to 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. Distributions of current or accumulated earnings
and profits generally will be foreign source passive income for United States foreign tax credit purposes.
Taxation of the Disposition
of Ordinary Shares. Upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder will recognize capital
gain or loss in an amount equal to the difference between such U.S. Holder’s basis in such ordinary shares, which is usually the
cost of such shares, and the amount realized on the disposition. A U.S. Holder that uses the cash method of accounting calculates
the U.S. dollar value of the proceeds received on the sale as of the date that the sale settles, while 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,” unless such U.S.
Holder has elected to use the settlement date to determine its proceeds of sale. Subject to the discussion below under “Medicare
Tax,” capital gain from the sale, exchange or other disposition of ordinary shares held more than one year is long-term capital
gain and is eligible for a reduced rate of taxation for individuals. Gains recognized by a U.S. Holder on a sale, exchange
or other disposition of ordinary shares generally will be treated as United States source income for U.S. foreign tax credit purposes. A
loss recognized by a U.S. Holder on the sale, exchange or other disposition of ordinary shares generally is allocated to U.S. source income. The
deductibility of a capital loss recognized on the sale, exchange or other disposition of ordinary shares is subject to limitations. A
U.S. Holder that receives foreign currency upon disposition of ordinary shares and converts the foreign currency into U.S. dollars subsequent
to the settlement date or trade date (whichever date the taxpayer was 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 U.S.
dollar, which will generally be U.S. source ordinary income or loss.
Medicare Tax. Certain
non-corporate U.S. holders will be subject to an additional 3.8% Medicare 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. U.S. Holders are urged to consult
their own tax advisors regarding the implications of the additional Medicare tax on their investment in our ordinary shares.
Taxation for Non-U.S.
Holders of Ordinary Shares
Except as described in “—Information
Reporting and Backup 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/or the proceeds from the disposition of, our ordinary shares, unless, in the case
of U.S. federal income taxes:
| ● | such 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, such item is attributable to a permanent establishment or, in the case of an individual, 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. |
Information Reporting
and Backup Withholding
U.S. Holders (other than exempt
recipients, such as corporations) generally are subject to information reporting requirements with respect to dividends paid on, or proceeds
from the disposition of, our ordinary shares. U.S. Holders are also generally subject to backup withholding (currently at a rate
of 24%) on dividends paid on, or proceeds from the disposition of, our ordinary shares unless the U.S. Holder provides IRS Form W-9 or
otherwise establishes an exemption.
Non-U.S. Holders generally
are not subject to information reporting or backup withholding with respect to dividends paid on, or upon the proceeds from the disposition
of, our ordinary shares, provided that such Non-U.S. Holder provides its taxpayer identification number, certifies to its foreign status,
or otherwise establishes an exemption.
The amount of any backup withholding
may be allowed as a credit against a U.S. or Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to
a refund, provided that certain required information is furnished to the IRS.
Certain individuals who are
U.S. Holders may be required to file a Form 8938 to report their ownership of specified foreign financial assets, which may include our
ordinary shares, if the total value of those assets exceed certain thresholds. U.S. Holders are urged to consult their tax advisors regarding
their tax reporting obligations, including the requirement to file a Form 8938.
| F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
Not applicable.
We are required to file reports
and other information with the SEC under the Exchange Act and the regulations thereunder applicable to foreign private issuers. We are
subject to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligation with respect
to such requirements by filing reports with the SEC. You may read and copy any document we file with the SEC without charge on the
SEC’s website (www.sec.gov). We generally make available on our own website (www.radcom.com) our annual reports as well as other
information. However, as an Israeli publicly traded company, we do not send copies of our annual reports to our shareholders. We
will mail out copies of our annual financial statements only to those shareholders that submit a written request for such statements. See
also “Item 10.B—Additional Information—Memorandum and Articles of Association” and “Item 16G—Corporate
Governance.” Information contained on our website is not a part of this Annual Report.
Any statement contained in
this Annual Report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as
an exhibit to this Annual Report, the contract or document is deemed to modify the description contained in this Annual Report. We urge
you to review the exhibits themselves for a complete description of the contract or document.
As a foreign private issuer,
we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors
and principal shareholders are exempt from reporting and “short-swing” profit recovery provisions contained in Section 16
of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements
with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. A
copy of each report submitted in accordance with applicable United States law is available for public review at our principal executive
offices.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are exposed to a variety
of risks, including changes in interest rates affecting primarily the interest received on short-term deposits and foreign currency fluctuations.
We may in the future undertake hedging or other similar transactions or invest in market, risk-sensitive instruments if our management
determines that it is necessary to offset these risks.
Interest Rate Risk
Our exposure to market risks
regarding changes in interest rates relates primarily to our cash, cash equivalents, and short-term bank deposits and to loans we may
take that are based on a floating/fixed interest rate. Our cash and cash equivalents and short-term bank deposits are held mainly in U.S.
dollars with financial banks and bear annual average interest range of approximately 0.09%-2.75%. For the purposes of specific risk analysis,
we use a sensitivity analysis to determine the impact that market risk exposure may have on the financial income derived from our cash
and cash equivalents. The potential loss to us over one year that would result from a hypothetical change in our annual average range
interest rates of 10% is not material.
Foreign Currency Exchange Risk
Our financial results may
be negatively impacted by foreign currency fluctuations. Our foreign operations are generally transacted through our U.S. and Brazil subsidiaries
and through our representatives and distributors. Typically, these sales and related expenses are denominated in U.S. dollars, BRLs or
in euros for European countries, while a significant portion of our expenses are denominated in NIS. Because our financial results are
reported in U.S. dollars, our results of operations may be adversely impacted by fluctuations in the rates of exchange between the U.S.
dollar and other currencies, mainly the NIS and BRL. Based on our budget for 2022, we expect that (i) an increase of ten percent (10%)
in the exchange rate of the NIS to U.S. dollar will decrease our operating expenses expressed in dollar terms by approximately 1.9 million
per year and vice versa and (ii) an increase of ten percent (10%) in the exchange rate of the BRL to U.S. dollar will decrease our operating
expenses expressed in dollar terms by approximately 80,000 per year and vice versa.
See also “Item 5.A—Operating
and Financial Review and Prospects—Operating Results—Impact of Inflation and Currency Fluctuations.”
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
We have responded to Item
18 in lieu of this item.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial
statements and the report of independent registered public accounting firm in connection therewith are filed as part of this Annual Report,
as noted below:
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
INDEX
- - - - - - - - - - - -
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
|
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com |
Report of Independent Registered Public Accounting
Firm
To the Shareholders and Board of Directors of RADCOM
Ltd.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of RADCOM Ltd. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020 the related
consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years
in the period ended December 31, 2021 and the related notes (collectively referred to as the “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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2021, in conformity with 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 March 29, 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.
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.
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
|
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com |
Revenue Recognition
Description of
the Matter |
As explained in Note 2.l. to the consolidated
financial statements, the Company generates revenues mainly from selling software products, maintenance and managed services. The
Company enters into contracts with customers that include combinations of products and services, which are generally distinct and
recognized as separate performance obligations. The transaction price is then allocated to the distinct performance obligations based
on their standalone selling price (“SSP”) and revenue is recognized when control of the distinct performance obligation
is transferred. For example, license revenue is recognized at a point in time, while maintenance and managed services revenue is
recognized over time.
Auditing the Company’s recognition
of revenue was complex and involved a high degree of auditor judgment due to the effort to evaluate i) the identification and determination
of whether products and services are considered distinct performance obligations that should be accounted for separately versus together,
such as software licenses and related services and ii) the determination of SSP for each distinct performance obligation and whether
it depicts the amount that the Company expects to receive in exchange for the related product and/or service |
|
|
How We
Addressed the
Matter in Our
Audit |
We obtained an understanding, evaluated
the design and tested the operating effectiveness of internal controls related to the identification of distinct performance obligations
and determination of stand-alone selling prices for each distinct performance obligation. Our audit procedures also included, among others,
selecting a sample of customer contracts and reading contract source documents for each selection, including the executed contract and
purchase order and evaluating the appropriateness of management’s application of significant accounting policies on the contracts.
We tested management’s identification of significant terms for completeness, including the identification and determination of
distinct performance obligations. We also evaluated the reasonableness of management’s estimate of SSP for products and services
and tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognition. |
/s/
KOST FORER GABBAY & KASIERER |
KOST
FORER GABBAY & KASIERER |
A Member of Ernst & Young Global |
We have served as the Company’s
auditor since 2009.
Tel-Aviv, Israel |
March 29, 2022 |
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel |
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com |
Report of Independent Registered Public Accounting
Firm
To the Shareholders and Board of Directors of RADCOM
Ltd.
Opinion on Internal Control over Financial
Reporting
We have audited RADCOM
Ltd. and its 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, RADCOM Ltd. and its 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, 2021 and 2020 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 March
29, 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.
Definition and Limitations of Internal Control
Over Financial Reporting
A company’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ KOST FORER GABBAY & KASIERER KOST FORER GABBAY & KASIERER |
A Member of Ernst & Young Global |
|
Tel-Aviv, Israel |
March 29, 2022 |
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
| |
December 31, | |
| |
2021 | | |
2020 | |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash and cash equivalents | |
$ | 11,948 | | |
$ | 13,548 | |
Short-term bank deposits | |
| 58,621 | | |
| 55,413 | |
Trade receivables, net | |
| 10,031 | | |
| 12,446 | |
Inventories | |
| 931 | | |
| 540 | |
Other accounts receivable and prepaid expenses | |
| 1,964 | | |
| 1,437 | |
Total current assets | |
| 83,495 | | |
| 83,384 | |
| |
| | | |
| | |
NON- CURRENT ASSETS: | |
| | | |
| | |
| |
| | | |
| | |
Severance pay fund | |
| 3,840 | | |
| 3,814 | |
Other long-term receivables | |
| 1,258 | | |
| 2,185 | |
Property and equipment, net | |
| 1,260 | | |
| 1,311 | |
Operating lease right-of-use assets | |
| 1,808 | | |
| 2,945 | |
Total non-current assets | |
| 8,166 | | |
| 10,255 | |
Total
assets | |
$ | 91,661 | | |
$ | 93,639 | |
The accompanying notes are an integral part of
the consolidated financial statements.
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
| |
December 31, | |
| |
2021 | | |
2020 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | |
| |
| |
| | |
| |
CURRENT LIABILITIES: | |
| | |
| |
Trade payables | |
$ | 2,651 | | |
$ | 1,592 | |
Employees and payroll accruals | |
| 4,422 | | |
| 4,414 | |
Deferred revenues and advances from customers | |
| 2,700 | | |
| 3,149 | |
Current maturities of lease liabilities | |
| 1,045 | | |
| 1,028 | |
Other liabilities and accrued expenses | |
| 5,428 | | |
| 4,721 | |
Total current liabilities | |
| 16,246 | | |
| 14,904 | |
| |
| | | |
| | |
NON-CURRENT LIABILITIES: | |
| | | |
| | |
Accrued severance pay | |
| 4,335 | | |
| 4,473 | |
Operating lease liabilities | |
| 894 | | |
| 2,008 | |
Other liabilities and accrued expenses | |
| 32 | | |
| 235 | |
Total non-current liabilities | |
| 5,261 | | |
| 6,716 | |
| |
| | | |
| | |
Total liabilities | |
$ | 21,507 | | |
$ | 21,620 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
SHAREHOLDERS’ EQUITY: | |
| | | |
| | |
Share capital: | |
| | | |
| | |
Ordinary Shares of NIS 0.20 par value: Authorized: 20,000,000 shares at December 31, 2021 and 2020; 14,191,218 and 13,967,488 shares issued and 14,155,186 and 13,931,456 shares outstanding at December 31, 2021 and 2020, respectively | |
$ | 669 | | |
$ | 657 | |
Additional paid-in capital | |
| 143,473 | | |
| 140,129 | |
Accumulated other comprehensive loss | |
| (2,620 | ) | |
| (2,662 | ) |
Accumulated deficit | |
| (71,368 | ) | |
| (66,105 | ) |
Total shareholders’ equity | |
| 70,154 | | |
| 72,019 | |
Total liabilities and shareholders’ equity | |
$ | 91,661 | | |
$ | 93,639 | |
The accompanying notes are an integral part of
the consolidated financial statements.
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except share and per share data
| |
Year ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Revenues: | |
| | |
| | |
| |
Products | |
$ | 15,336 | | |
$ | 17,742 | | |
$ | 16,382 | |
Services | |
| 24,946 | | |
| 19,820 | | |
| 16,300 | |
Projects | |
| - | | |
| - | | |
| 328 | |
| |
| | | |
| | | |
| | |
| |
| 40,282 | | |
| 37,562 | | |
| 33,010 | |
| |
| | | |
| | | |
| | |
Cost of revenues: | |
| | | |
| | | |
| | |
Products | |
| 5,543 | | |
| 5,340 | | |
| 4,811 | |
Services | |
| 5,880 | | |
| 5,418 | | |
| 5,022 | |
Projects | |
| - | | |
| - | | |
| 84 | |
| |
| | | |
| | | |
| | |
| |
| 11,423 | | |
| 10,758 | | |
| 9,917 | |
| |
| | | |
| | | |
| | |
Gross profit | |
| 28,859 | | |
| 26,804 | | |
| 23,093 | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Research and development | |
| 20,347 | | |
| 19,199 | | |
| 18,578 | |
Less - royalty-bearing participation | |
| 537 | | |
| 1,358 | | |
| 1,838 | |
| |
| | | |
| | | |
| | |
Research and development, net | |
| 19,810 | | |
| 17,841 | | |
| 16,740 | |
| |
| | | |
| | | |
| | |
Sales and marketing | |
| 10,358 | | |
| 9,709 | | |
| 10,514 | |
General and administrative | |
| 4,184 | | |
| 3,836 | | |
| 3,674 | |
| |
| | | |
| | | |
| | |
Total operating expenses | |
| 34,352 | | |
| 31,386 | | |
| 30,928 | |
| |
| | | |
| | | |
| | |
Operating loss | |
| (5,493 | ) | |
| (4,582 | ) | |
| (7,835 | ) |
| |
| | | |
| | | |
| | |
Financial income, net | |
| 354 | | |
| 810 | | |
| 1,172 | |
| |
| | | |
| | | |
| | |
Loss before taxes on income | |
| (5,139 | ) | |
| (3,772 | ) | |
| (6,663 | ) |
| |
| | | |
| | | |
| | |
Taxes on income | |
| (124 | ) | |
| (220 | ) | |
| (169 | ) |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (5,263 | ) | |
$ | (3,992 | ) | |
$ | (6,832 | ) |
| |
| | | |
| | | |
| | |
Basic and diluted net loss per Ordinary Share | |
$ | (0.37 | ) | |
$ | (0.29 | ) | |
$ | (0.50 | ) |
| |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Weighted average number of Ordinary Share used in computing basic and diluted net loss per Ordinary Share | |
| 14,124,404 | | |
| 13,927,788 | | |
| 13,779,885 | |
The accompanying notes are an integral part of
the consolidated financial statements.
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
Net loss | |
$ | (5,263 | ) | |
$ | (3,992 | ) | |
$ | (6,832 | ) |
| |
| | | |
| | | |
| | |
Other comprehensive income (loss): | |
| | | |
| | | |
| | |
Foreign
currency translation adjustments | |
| 42 | | |
| (28 | ) | |
| (22 | ) |
Total other comprehensive
loss | |
| 42 | | |
| (28 | ) | |
| (22 | ) |
Comprehensive loss | |
$ | (5,221 | ) | |
$ | (4,020 | ) | |
$ | (6,854 | ) |
The accompanying notes are an integral part of
the consolidated financial statements.
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars in thousands, except share and per share data
| |
Number of
shares | | |
Share
capital
amount | | |
Additional paid-in
capital | | |
Accumulated other comprehensive
loss | | |
Accumulated
deficit | | |
Total
shareholders’
equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance as of January 1, 2019 | |
| 13,699,727 | | |
$ | 643 | | |
$ | 135,730 | | |
$ | (2,612 | ) | |
$ | (55,281 | ) | |
$ | 78,480 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share-based compensation and RSUs | |
| - | | |
| - | | |
| 2,228 | | |
| - | | |
| - | | |
| 2,228 | |
Exercise of options into Ordinary Shares | |
| 2,250 | | |
| | * | |
| 16 | | |
| - | | |
| - | | |
| 16 | |
RSUs vested | |
| 84,176 | | |
| 5 | | |
| (5 | ) | |
| - | | |
| - | | |
| - | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,832 | ) | |
| (6,832 | ) |
Other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| (22 | ) | |
| - | | |
| (22 | ) |
Balance as of December 31, 2019 | |
| 13,786,153 | | |
$ | 648 | | |
$ | 137,969 | | |
$ | (2,634 | ) | |
$ | (62,113 | ) | |
$ | 73,870 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share-based compensation and RSUs | |
| - | | |
| - | | |
| 2,169 | | |
| - | | |
| - | | |
| 2,169 | |
RSUs vested | |
| 145,303 | | |
| 9 | | |
| (9 | ) | |
| - | | |
| - | | |
| - | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,992 | ) | |
| (3,992 | ) |
Other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| (28 | ) | |
| - | | |
| (28 | ) |
Balance as of December 31, 2020 | |
| 13,931,456 | | |
$ | 657 | | |
$ | 140,129 | | |
$ | (2,662 | ) | |
$ | (66,105 | ) | |
$ | 72,019 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share-based compensation and RSUs | |
| - | | |
| - | | |
| 3,356 | | |
| - | | |
| - | | |
| 3,356 | |
RSUs vested | |
| 223,730 | | |
| 12 | | |
| (12 | ) | |
| - | | |
| - | | |
| - | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,263 | ) | |
| (5,263 | ) |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| 42 | | |
| - | | |
| 42 | |
Balance as of December 31, 2021 | |
| 14,155,186 | | |
$ | 669 | | |
$ | 143,473 | | |
$ | (2,620 | ) | |
$ | (71,368 | ) | |
$ | 70,154 | |
*) | Represents an amount lower than $1. |
The accompanying notes are an integral part of the consolidated financial statements.
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| |
Year ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Cash flows from operating activities: | |
| | |
| | |
| |
| |
| | |
| | |
| |
Net loss | |
$ | (5,263 | ) | |
$ | (3,992 | ) | |
$ | (6,832 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | | |
| | |
Depreciation | |
| 540 | | |
| 699 | | |
| 752 | |
Share-based compensation | |
| 3,356 | | |
| 2,169 | | |
| 2,228 | |
Change in: | |
| | | |
| | | |
| | |
Severance pay, net | |
| (164 | ) | |
| 120 | | |
| 81 | |
Trade receivables, net | |
| 2,412 | | |
| (1,653 | ) | |
| 9,303 | |
Other account receivables and prepaid expenses | |
| 289 | | |
| 114 | | |
| (1,753 | ) |
Inventories | |
| (410 | ) | |
| 811 | | |
| (1,135 | ) |
Trade payables | |
| 1,017 | | |
| (773 | ) | |
| 998 | |
Employees and payroll accruals | |
| 16 | | |
| 314 | | |
| 717 | |
Other liabilities and accrued expenses | |
| 724 | | |
| 530 | | |
| 2,694 | |
Deferred revenue and advances from customers | |
| (411 | ) | |
| 2,267 | | |
| 562 | |
Net effect of exchange rate differences and other on operating lease right-of-use assets and liabilities | |
| 40 | | |
| (297 | ) | |
| 388 | |
Accrued interest on short-term bank deposits | |
| (144 | ) | |
| (359 | ) | |
| (1,163 | ) |
Net cash provided by (used in) operating activities | |
| 2,002 | | |
| (50 | ) | |
| 6,840 | |
| |
| | | |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Net proceeds from (investment in) short-term bank deposits | |
| (3,064 | ) | |
| 8,026 | | |
| (61,917 | ) |
Purchase of property and equipment | |
| (437 | ) | |
| (427 | ) | |
| (699 | ) |
Net cash provided by (used in) investing activities | |
| (3,501 | ) | |
| 7,599 | | |
| (62,616 | ) |
| |
| | | |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Exercise of options into Ordinary Shares | |
| - | | |
| - | | |
| 16 | |
Net cash provided by financing activities | |
$ | - | | |
$ | - | | |
$ | 16 | |
| |
| | | |
| | | |
| | |
Foreign currency translation adjustments on cash and cash equivalents | |
$ | (101 | ) | |
$ | (202 | ) | |
$ | (27 | ) |
| |
| | | |
| | | |
| | |
Increase (decrease) in cash and cash equivalents | |
| (1,600 | ) | |
| 7,347 | | |
| (55,787 | ) |
Cash and cash equivalents at beginning of the year | |
| 13,548 | | |
| 6,201 | | |
| 61,988 | |
Cash and cash equivalents at end of the year | |
$ | 11,948 | | |
$ | 13,548 | | |
$ | 6,201 | |
RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
| |
Year ended December 31, |
|
|
|
| |
2021 | | |
2020 | | |
2019 |
|
(a) |
|
Non-cash investing activities: | |
| | |
| |
|
|
|
|
|
| |
| | |
| |
|
|
|
|
|
Purchase of property and equipment | |
$ | 55 | | |
$ | 36 | | |
$47 |
|
|
|
Net increase (decrease) in operating lease right-of-use assets | |
$ | 117 | | |
$ | (1,492 | ) | $ |
1,133 |
|
(b) |
|
Cash paid during the year for: | |
| | | |
| | |
|
|
|
|
|
Taxes on income | |
$ | 82 | | |
$ | 128 | |
$ |
118 |
|
The accompanying notes are an integral part of
the consolidated financial statements.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1: - GENERAL
| a. | RADCOM
Ltd. (the “Company”), an Israeli corporation, is a leading provider of 5G ready cloud-native, network intelligence and service
assurance solutions for telecom operators (“CSP”). The Company’s solutions support CSPs in their transition to virtualization
and 5G networks, delivering dynamic, on-demand service assurance and network troubleshooting for real time customer and service insights
The Company’s solutions include RADCOM Service Assurance, a cloud-native, 5G-ready, fully virtualized service assurance solutions
which allows telecom operators to gain end-to-end network visibility and customer experience insights across all networks; RADCOM Network
Visibility, a cloud-native network packet broker and filtering solution that allows CSPs to manage network traffic at scale across multiple
cloud environments and control the visibility layer to perform dynamic, on-demand analysis of select datasets; and RADCOM Network Insights,
a business intelligence solution offering smart insights for multiple use cases, enabled by data captured and correlated through RADCOM
Network Visibility and RADCOM Service Assurance. The Company specializes in solutions for next-generation mobile and fixed networks,
including 5G, Long Term Evolution (“LTE”), Voice over LTE (“VoLTE”), Voice over Wifi (“VoWifi”),
IP Multimedia Subsystem (“IMS”), Voice over IP (“VoIP”), and Universal Mobile Telecommunication Service (“UMTS”).
The Company’s shares (the “Ordinary Shares”) are listed on the Nasdaq Capital Market under the symbol “RDCM”. |
The Company has wholly-owned subsidiaries
in the United States and Brazil, that are primarily engaged in the sales, marketing, deployment and customer support of the Company’s
products in United States and Brazil. The Company also has a wholly-owned subsidiary in India, that primarily provides customer support
and development services worldwide.
| b. | The Company depends on a limited number of customers for
selling its solution. Such customers accounted for 88% of the Company’s revenues for the year ended December 31, 2021. If these
customers become unable or unwilling to continue to buy the Company’s solution, it could adversely affect the Company’s results
of operations and financial position (see also Note 12b). |
The loss of any
major customer, a significant decrease in business from any such customer or a reduction in customer revenue due to adverse changes in
the market, economic or competitive conditions or other factors could have a material adverse effect on the Company’s business,
results of operations and financial condition.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES
The consolidated
financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).
The preparation
of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions.
The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available
at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
| b. | Financial statements in U.S. dollars (“$” “dollar” or “dollars”): |
Most of the revenues
of the Company and its subsidiaries, other than the Company’s subsidiary in Brazil, are denominated in U.S. dollars. Financing activities
are made in U.S. dollars. Therefore, the Company’s management believes that the currency of the primary economic environment in which
the operations of the Company and its subsidiaries are conducted is the dollar, which is used as the functional currency.
Transactions and
balances originally denominated in dollars are presented at their original amounts. Transactions and balances in other currencies are
re-measured into dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) No. 830 “Foreign Currency Matters.”
Other than in the
Company’s subsidiary in Brazil, all exchange gains and losses from
re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the consolidated statement of operations
when they arise.
Amounts in the
financial statements representing the dollar equivalent of balances denominated in other currencies do not necessarily represent their
real or economic value and such amounts may not necessarily be exchangeable for dollars.
For the Company’s
subsidiary in Brazil whose functional currency is the BRL, 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 exchange rate on the respective dates on which those elements are recognized. The resulting translation adjustments
are reported as a component of accumulated other comprehensive income in shareholders’ equity.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| c. | Principles of consolidation: |
The consolidated
financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances
have been eliminated in consolidation.
| d. | Cash and cash equivalents: |
The Company considers
all highly liquid deposit instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.
| e. | Short-term bank deposits: |
Short-term bank
deposits are deposits with maturities of more than three months but less than one year and which do not meet the definition of cash equivalents .
Such deposits include annual interest rates ranging between 0.56%-1.6% resulting in accrued interest of $144 and
$359 as of December 31, 2021 and 2020, respectively. The deposits are presented according to their terms.
Trade receivables are recorded and
carried at the original invoiced amount which was recognized as revenues less an allowance for credit losses. The Company grants credit
to customers without generally requiring collateral or security. The Company makes estimates of expected credit losses based upon its
assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers,
current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its
ability to collect from customers. The estimated credit loss allowance is recorded as general and administrative expenses on the Company’s
consolidated statements of income (loss). Allowance for credit losses as of December 31, 2020 and 2021, amounted to $5 for both years.
| g. | Concentration of credit risk: |
Financial instruments
that may subject the Company to significant concentration of credit risk consist mainly of cash and cash equivalents, short-term bank
deposits, severance pay fund and trade receivables.
Cash and cash equivalents
are maintained with major financial institutions mainly in Israel. Assets held for severance benefits are maintained with major insurance
companies and financial institutions in Israel. Such deposits are not insured. However, management believes that such financial institutions
are financially sound and, accordingly, low credit risk exists with respect to these investments.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Inventories are
stated at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing
the inventories to their present location and condition. Inventory write-offs are provided to cover technological obsolescence, excess
inventories and discontinued products.
Inventory write-off
is measured as the difference between the cost of the inventory and net realizable value based upon assumptions about future demand and
is charged to the cost of revenues. At the point of the loss recognition, a new, lower-cost basis for that inventory is established,
and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
The total inventory
write-offs during the year ended December 31, 2020 amounted to $14.
No inventory write-offs
were recorded during the years ended December 31, 2021 and 2019.
| i. | Property and equipment: |
Property and equipment
are stated at cost less accumulated depreciation. Maintenance and repairs are charged to operations as incurred.
Depreciation is
calculated on the straight-line method over the estimated useful lives of the assets.
Annual rates
of depreciation are as follows:
| |
| % | |
| |
| | |
Computers and electronic equipment | |
| 15 - 33 | |
Office furniture and equipment | |
| 6 - 20 | |
Leasehold improvements | |
| At the shorter of the lease period or useful life of the leasehold improvement | |
| j. | Impairment of long-lived assets: |
The Company’s long-lived
assets are reviewed for impairment in accordance with ASC 360, “Property, plants and equipment”, whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used
is assessed by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the
asset. If such asset is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount
of the asset exceeds its fair value. During the years ended December 31, 2021, 2020 and 2019, no impairment losses were identified.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Under ASC 842, “Leases”
(“ASC 842”), the Company determines if an arrangement is a lease at inception. The Company’s assessment is based on: (1) whether
the contract includes an identified asset, (2) whether the Company obtains substantially all of the economic benefits from the use of
the asset throughout the period of use, and (3) whether the Company has the right to direct how and for what purpose the identified asset
is used throughout the period.
The Company elected the package of
practical expedients permitted under the standard related to treating lease and non-lease components as a single lease component for
all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be
excluded from the operating lease right-of-use (“ROU”) assets and operating lease liabilities.
ROU assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. ROU assets and operating lease liabilities are recognized at commencement date based on the present value of
remaining lease payments over the lease term. For this purpose, the Company consider only payments that are fixed and determinable at
the time of commencement. The Company uses its incremental borrowing rate based on the information available at the commencement date
to determine the present value of the lease payments.
Several of the Company’s leases
include options to extend the lease and some have termination options that are factored into the Company’s determination of the
lease payments when appropriate. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the
lease when it is reasonably certain that the Company will exercise such options. The Company’s lease agreements do not contain
any material residual value guarantees.
Operating lease expenses are
recognized on a straight-line basis over the lease term. For all short-term leases which are less than 12 months and existing
short-term leases of those assets in transition, the Company does not recognize operating lease ROU assets or operating lease
liabilities, but recognizes lease expenses over the lease term on a straight-line basis.
See Note 9 for
further information on leases.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company’s solution is sold to
customers directly, through resellers and to lesser extent through distributors. Sales through resellers are considered final sales per
revenue recognition criteria.
The Company recognizes revenues in
accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). As such, the Company identifies a contract
with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction
price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation
as follows:
| a) | Identify the contract with a customer: |
The Company generally considers either agreements or purchase orders, which in some cases are governed by master agreements, to be contracts
with customers. In evaluating the contract with a customer, the Company analyzes the customer’s intent and ability to pay the amount
of promised consideration and considers the probability of collecting substantially all of the consideration.
| b) | Identify the performance obligations
in the contract: |
At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the
performance obligations.
The main performance obligations would generally include:
License for the Company’s software solutions, professional services, managed services, service type warranty and post-contract customer
support, each of which are distinct.
| c) | Determine the transaction price: |
The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or
services to a customer, excluding amounts collected on behalf of third parties.
Generally, the Company doesn’t grant
its customers a right to return the products sold. However, in some cases, the arrangements may include refunds, liquidated damages,
penalties or other damages if the Company fails to deliver future goods or services or if the goods or services fail to meet certain
specifications to acceptance criteria. All of the above are accounted for as variable considerations, which may result in an adjustment
to the transaction price.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company includes estimated amounts
in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when
the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination
of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance
and all information (historical, current and forecasted) that is reasonably available.
The Company uses the practical expedient and does not assess the existence
of a significant financing component when the difference between payment and revenue recognition is a year or less. As the period of time
between delivery and payment for most of the Company's contracts is less than one year, these contracts are not assessed for a significant
financing component. In other contracts, the Company determined that those contracts generally do not include a significant financing
component, as the primary purpose of the invoicing terms for these contracts is to provide customers with simplified and predictable ways
of purchasing the Company's products and services, not to receive or provide financing.
| d) | Allocate the transaction price to the
performance obligations in the contract: |
The Company’s selling
price is highly variable. Each contract is different by its scope and price. The standalone selling prices of software licenses
are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable
transactions when these services are sold on a standalone basis or on a cost basis. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price basis.
| e) | Recognize revenue when a performance
obligation is satisfied: |
Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer.
Control is either transferred over time or at a point in time.
Products: Revenues from software
solutions which include customer acceptance or software license only contracts, are recognized at a point in time of the acceptance of
the solution or the point in time the software license is delivered.
Services: Revenues related
to managed services, maintenance, support and post-contract customer support are recognized over time on a straight-line basis. Professional
services revenues are recognized as services are performed.
Projects: Revenues from software
solutions which include software licenses with significant customization are usually recognized over time during the customization period
based on Man Months (“MM”) incurred to date in ratio to total estimated MM which represent an input method that best depicts
the transfer of control over the performance obligation to the customer.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Deferred revenues represent unrecognized
fees collected as well as other advances and payments received from customers, for which revenue has not yet been recognized. Deferred
revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized.
See also Note 3 for additional revenue
recognition disclosures.
Cost of revenues
is comprised of cost of third-party hardware and software license fees, maintenance fees related to such third-party hardware and software,
employees’ salaries and related costs, shipping and handling costs, subcontractors, inventory write-offs, indirect taxes, importation
taxes and royalties to the Israel Innovation Authority (the “IIA”).
| n. | Share-based compensation: |
The Company accounts
for share-based compensation in accordance with ASC 718, “Compensation — Stock Compensation”, which requires companies
to estimate the fair value of share-based payment awards on the grant date using an option-pricing model.
The Company recognizes
compensation expenses for the value of its awards over the requisite service period of each of the awards. For graded vesting awards
subject to service conditions only, the Company uses the straight-line attribution method. The Company estimates expected forfeitures.
The Company selected
the Black-Scholes option-pricing model as the most appropriate fair value method for its share-options awards. The option-pricing model
requires a number of assumptions, of which the most significant are the expected share price volatility and the expected option term.
Expected volatility was calculated based upon actual historical share price movements over the most recent periods ending on the grant
date, equal to the expected option term. The expected term was generated by running the Monte Carlo model pursuant to which historical
post-vesting forfeitures and suboptimal exercise factor are estimated by using historical option exercise information. The suboptimal
exercise factor is the ratio by which the share price must increase over the exercise price before employees are expected to exercise
their share options. The expected term of the options granted is derived from the output of the options valuation model and represents
the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. Treasury
zero-coupon bonds with an equivalent term to the expected term of the options. Historically the Company has not paid dividends and in
addition has no foreseeable plans to pay dividends, and therefore uses an expected dividend yield of zero in the option-pricing model
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
No options were
granted in 2021 and 2019. The fair value for options granted in 2020 is estimated at the date of grant with the following weighted average
assumptions:
| |
2020 | |
| |
| |
Dividend yield | |
| 0% | |
Expected exercise factor | |
| 2.67 | |
Expected volatility | |
| 41.92%-45.21% | |
Risk-free interest | |
| 0.25%-0.27% | |
Expected life (in years) | |
| 4.32-4.75 | |
Change in Accounting Principle
- Share-based Compensation
In 2021, the Company elected to change its accounting policy for recognizing
share-based compensation expense for graded vesting share awards subject to service conditions only by applying the straight-line attribution
method instead of the accelerated attribution method and using an estimated forfeiture rate of awards expected to be forfeited for each
award rather than account for the forfeitures as they occur. The change in the recognition of share-based compensation expense represents
a change in accounting principle which the Company believes to be preferable because the straight-line attribution method is the predominant
method used in its industry and because estimating forfeitures will result in a more accurate attribution of share-based compensation
expense since the Company has accumulated during the last few years sufficient historical experience to make a reasonable estimate of
the forfeiture pattern of its employees.
A change in accounting principle requires retrospective application,
if material. The impact of the change in the accounting policy described above to the Company's time-based awards was immaterial to prior
periods and to the year ended December 31, 2021. As a result, the Company has accounted for the cumulative effect of this change in its
consolidated results for the year ended December 31, 2021. The effect of the new policy was a decrease in net loss of $141,
or $0.01 per share (basic and diluted), for the year ended December 31, 2021.
| o. | Research and development costs: |
Research and development
costs are charged to the statement of operations as incurred except for royalty-bearing participation from the IIA as described in Note
2p.
ASC 985-20, “Software
- Costs of Computer Software to be Sold, Leased or Otherwise Marketed”, requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological
feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models
and the point at which the products are ready for general release have been insignificant. Therefore, all research and development costs
have been expensed.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company receives
royalty-bearing grants, which represent participation of the IIA in approved programs for research and development. These amounts are
recognized on the accrual basis as a reduction of research and development costs as such costs are incurred. Royalties to the IIA are
recorded under cost of revenues, when the related sales are recognized (see also Note 8a1).
During the years
2012 to 2017, the Company also received grants from the Israeli Ministry of Economy (the “MOE”), up to 50% of relevant marketing
expenses. These grants were presented as a reduction of marketing expenses (see also Note 8a2).
| q. | Income (loss ) per share: |
Basic and diluted
income (loss) per Ordinary Share is presented in conformity with ASC 260, “Earnings Per Share”, for all years presented. Basic
income (loss) per Ordinary Share is computed by dividing net income (loss) for each reporting period by the weighted average number of
Ordinary Shares outstanding during the period.
Diluted income
(loss) per Ordinary Share is computed by dividing net income (loss) for each reporting period by the weighted average number of Ordinary
Shares outstanding during the period plus any additional Ordinary Shares that would have been outstanding if potentially dilutive securities
had been exercised during the period, calculated under the treasury stock method.
Certain securities
were not included in the computation of diluted income (loss) per share since they were anti-dilutive. The total weighted average number
of shares related to the outstanding options and restricted share units (“RSUs”) excluded from the calculation of diluted
net income (loss) per share was, 956,356, 877,195 and 802,159 for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company accounts for income taxes in accordance with ASC 740, "Income
Taxes". Deferred tax asset and liability account balances are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the consolidated statement of operations in the period that includes the enactment date. Deferred
tax assets and liabilities are classified as noncurrent on the balance sheet.
The Company provides
a full valuation allowance to reduce deferred tax assets to the extent it believes it is more likely than not that such benefits will
be realized.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| s. | Income tax uncertainties: |
In
accordance with ASC 740, the Company recognizes the effect of income tax positions only if those positions are more likely than not to
be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% of the amount likely to be
realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. When applicable,
the Company accounts for interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December
31, 2021 and 2020, no liability for unrecognized tax benefits was recorded.
The
Company’s liability for severance pay is recorded mainly with respect to its Israeli employees and is calculated pursuant to Israeli
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. After completing one full year of employment, the Company’s Israeli employees are entitled to one month’s salary
for each year of employment or a portion thereof. The Company’s liability is partially provided by monthly deposits with severance
pay funds, insurance policies and by an accrual. The liability for employee severance pay benefits included on the balance sheet represents
the total liability for such severance benefits, while the assets held for severance benefits included on the balance sheet represent
the current redemption value of the Company’s contributions made to severance pay funds and to insurance policies.
The
carrying value of deposited funds includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn
only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements.
Effective
January 1, 2012, the Company’s agreements with new employees in Israel are in accordance with section 14 of the Severance Pay Law
– 1963, which provides that the Company’s contributions to the severance pay fund shall cover its entire severance obligation.
Upon termination, the release of the contributed amounts from the fund to the employee shall relieve the Company from any further severance
obligation and no additional payments shall be made by the Company to the employee. As a result, the related obligation and amounts deposited
on behalf of such obligation are not recorded as part of the balance sheet, as the Company is legally released from its severance obligation
to employees once the amounts have been deposited, and the Company has no further legal ownership of the amounts deposited.
Severance
expenses for the years ended December 31, 2021, 2020 and 2019 amounted to $922, $1,195, and $1,150, respectively.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| u. | Fair value of financial instruments: |
The
Company follows the provisions of ASC No. 820, “Fair Value Measurement”, which defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date.
In
determining a 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 an asset or liability, based
on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect assumptions that market
participants would use in pricing an asset or liability, based on the best information available under given circumstances.
The
hierarchy is broken down into three levels, based on the observability of inputs and assumptions, as follows:
Level
1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
Level
2 - Other inputs that are directly or indirectly observable in the marketplace.
Level
3 - Unobservable inputs which are supported by little or no market activity.
The
financial instruments of the Company consist mainly of cash and cash equivalents, short-term bank deposits, trade receivables, trade
payables and other liabilities and accrued expenses. The fair values of the Company cash and cash equivalents, account receivables, and
account payables approximate their carrying amounts due to their short-term nature.
From
time to time, the Company may be 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. The Company’s estimations and related accruals
if any are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel
and other information and events relating to a particular matter.
| w. | Comprehensive income (loss): |
The
Company accounts for comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income”, which establishes standards
for the reporting and displays 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 Company determined that its only item of other comprehensive income relates to foreign currency translation
adjustment and gains or losses on intercompany foreign currency transactions that are of a long-term investment nature in connection
with its subsidiary in Brazil.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| x. | Recently issued and adopted accounting standards: |
In December 2019, the FASB issued Accounting Standards Update (“ASU”)
No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2020-12”), which simplifies
the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods, and interim periods within those years, beginning
after December 15, 2020. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.
| y. | Recently issued accounting standards: |
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance
(Topic 832): Disclosure by Business Entities about Government Assistance (ASU 2021-10), which improves the transparency of government
assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2) the
accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. This guidance is effective
for financial statements issued for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company will adopt
this standard on January 1, 2022. The Company does not expect that the adoption of this standard will result in a material impact on the
Company's consolidated financial statements.
NOTE
3: - REVENUES
Revenue
is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control
is either transferred over time or at a point in time, which affects the revenue recognition schedule.
Costs
to obtain contracts:
The
Company capitalizes an asset for the incremental costs of obtaining a contract whenever such expenses are expected to be recovered. Capitalized
costs derive primarily from sales commissions or incentives granted to employees and partners. The Company’s contracts with customers
include performance obligations related to products and services, some of which are satisfied at a point in time and others over time.
Commission costs related to performance obligations satisfied at a point in time are expensed at the time of sale, which is when revenue
is recognized. Commission costs related to long-term service contracts and performance obligations satisfied over time are deferred and
recognized on a systematic basis that is consistent with the transfer of the products or services to which the asset relates. Amortization
expense is included in sales and marketing expenses in the accompanying consolidated statements of income (loss).
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
3: - REVENUES (Cont.)
Deferred
commission costs capitalized are periodically reviewed for impairment. As of December 31, 2021 and 2020, the deferred commission costs
capitalized included within other long-term receivables in the consolidated balance sheets were $1,052 and $1,994, respectively. During
the year ended December 31, 2021, the Company recorded new contract acquisition assets in the amount of $248 and amortized $1,190 of
capitalized contract acquisition costs into sales and marketing expense. No impairment losses were recognized during such period.
Contract
balances:
The
Company receives payments from customers based upon contractual payment schedules. Trade receivables are recorded when the right to consideration
becomes unconditional, and an invoice is issued to the customer. Unbilled receivables include amounts related to the Company’s
contractual right to consideration for completed performance obligations not yet invoiced. As of December 31, 2021 and 2020, unbilled
receivables balances amounted to $1,457 and $2,570, respectively and are included within trade receivables balance in the Company’s
balance sheets.
As
of December 31, 2021, the Company had $39,927 of remaining performance obligations not yet satisfied or partly satisfied related to
revenues. The Company expects to recognize approximately 67% of this amount as revenues during the next 12 months and the rest thereafter.
During
the year ended December 31, 2021, the Company recognized $2,333 that was included in deferred revenues (short-term contract liability)
balance on January 1, 2021.
For
disaggregation of revenues please see Note 12b.
NOTE
4: - INVENTORIES
| |
December
31, | |
| |
2021 | | |
2020 | |
| |
| | | |
| | |
Finished
products (*) | |
$ | 931 | | |
$ | 540 | |
| (*) | Includes amounts of $570 and $399 as of December 31, 2021 and 2020, respectively, with respect to inventory delivered to customers for which control has not been transferred. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
5: - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
| |
December
31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Governmental
authorities | |
$ | 340 | | |
$ | 252 | |
Prepaid expenses | |
| 1,593 | | |
| 1,135 | |
Others | |
| 31 | | |
| 50 | |
| |
| | | |
| | |
| |
$ | 1,964 | | |
$ | 1,437 | |
NOTE
6: - PROPERTY AND EQUIPMENT, NET
Composition
of assets, grouped by major classification, is as follows:
| |
December
31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Cost: | |
| | |
| |
Computers
and electronic equipment | |
$ | 4,235 | | |
$ | 3,806 | |
Office
furniture and equipment | |
| 404 | | |
| 392 | |
Leasehold
improvements | |
| 297 | | |
| 277 | |
| |
| | | |
| | |
| |
| 4,936 | | |
| 4,475 | |
Accumulated depreciation: | |
| | | |
| | |
Computers
and electronic equipment | |
| 3,399 | | |
| 2,945 | |
Office
furniture and equipment | |
| 179 | | |
| 151 | |
Leasehold
improvements | |
| 98 | | |
| 68 | |
| |
| | | |
| | |
| |
| 3,676 | | |
| 3,164 | |
| |
| | | |
| | |
| |
$ | 1,260 | | |
$ | 1,311 | |
Depreciation
expenses for the years ended December 31, 2021, 2020 and 2019 amounted to $540, $699 and $752, respectively.
NOTE
7: - OTHER CURRENT LIABILITIES AND ACCRUED EXPENSES
| |
December
31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Royalties - IIA
payable | |
$ | 1,026 | | |
$ | 986 | |
Accrued commissions | |
| 1,040 | | |
| 2,018 | |
Accrued
expenses | |
| 3,362 | | |
| 1,717 | |
| |
| | | |
| | |
| |
$ | 5,428 | | |
$ | 4,721 | |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
8: - COMMITMENTS AND CONTINGENCIES
| 1. | The
Company receives research and development grants from the IIA. In consideration for the research
and development grants received from the IIA, the Company has undertaken to pay royalties
as a percentage of revenues from products developed from research and development projects
financed. If the Company does not generate sales of products developed with funds provided
by the IIA, the Company is not obligated to pay royalties or repay the grants. |
Royalties
are payable at the rate of 3% from the time of commencement of sales of all of the Company’s products until the cumulative amount
of the royalties paid equals 100% of the dollar-linked amounts of the grants received, plus interest at LIBOR.
As
of December 31, 2021, the Company’s total commitment with respect to royalty-bearing participation received or accrued, net
of royalties paid or accrued, amounted to $53,288. The total research and development grants that the Company has received from the IIA
as of December 31, 2021 were $48,403. The accumulated interest as of December 31, 2021, was $23,489 and the accumulated royalties
paid to the IIA were $18,604.
Royalty
expenses relating to the IIA grants included in cost of revenues during the years ended December 31, 2021, 2020 and 2019 were $1,209,
$1,127, and $990, respectively.
In
May 2010, the Company received a notice from the IIA regarding alleged miscalculations of the amount of royalties paid by the Company
to the IIA for the years 1992-2009 and the revenues basis on which the Company had to pay royalties. The Company believes that all royalties
due to the IIA from the sale of products developed with funding provided by the IIA during such years were properly paid or were otherwise
accrued. During 2011, the Company reviewed with the IIA the alleged miscalculations. The Company assessed the merits of the aforesaid
arguments raised by the IIA and recorded a liability for an estimated loss.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
8: - COMMITMENTS AND CONTINGENCIES (Cont.)
| 2. | In April 2012 and in April 2014, the MOE approved the Company’s application for participation in funding the setting up of the Company’s India subsidiary and China branch as part of a designated grants plan for setting up and establishing a marketing agency in India and China. The grant was intended to cover up to 50% from the costs of the office establishment, logistics expenses and hiring employees and consultants in India and China, based on the approved budget for the plan over a period of three years. The Company is currently in the process of winding down its operations at the China office. The total marketing grants received by the Company from the MOE during the years 2012 to 2017 were in the amount of $668. No further grants are expected to be received from such plans. |
The
Company is obligated to pay to the MOE royalties of 3% on the increased sales in the target market, with respect to the year during which
the grant was approved over a period of five years, but not more than the total linked amount of the grant received.
No
royalties were paid to the MOE during the years ended December 31, 2019, 2020 and 2021.
| 3. | According to the Company’s agreements with the Israel-U.S Bi-National Industrial Research and Development Foundation (“BIRD-F”), the Company is required to pay royalties at a rate of 5% of sales of products developed with funds provided by the BIRD-F, up to an amount equal to 150% of the BIRD-F’s grant, linked to the United States CPI relating to such products. The last funds from the BIRD-F were received in 1996. In the event the Company does not generate sales of products developed with funds provided by the BIRD-F, the Company is not obligated to pay royalties or repay the grants. |
The
total research and development funds that the Company has received from the BIRD-F were $340 (CPI linked amount of $627). According to
the above, as of December 31, 2021, the total royaltyies commitment the Company may be required to pay is an amount of up to $941
out of which $518 was paid by the Company in previous years. The remaining commitment with respect to royalty-bearing participation received,
net of royalties paid or accrued, amounted to $423 as of December 31, 2021.
Since
2003, the Company has not generated sales of products developed with the funds provided by the BIRD-F. Therefore, the Company has not
been obligated to pay royalties or repay the grant since such date.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
8: - COMMITMENTS AND CONTINGENCIES (Cont.)
As of December 31, 2021, the Company issued a bank guarantee to the
Israeli Customs Authority that amounted to $40, which will expire on April 30, 2022.
NOTE
9: - LEASES
The
Company has entered into various operating lease agreements for certain of its offices and car leases with original lease periods expiring
between 2021 and 2028. Most of the lease agreements include one or more options to renew. The Company does not assume renewals in determination
of the lease term unless the renewals are deemed to be reasonably assured at lease commencement.
In
December 2020, the Company’s lease of its offices in Israel was amended. The amendment included a decrease in rental space and
price per meter, as a result of the amendment, the operating lease right of use decreased by $1,717 and the operating lease liability
decreased by $2,233, the Company recorded a foreign currency exchange gain of $484 and a termination gain within operating income of
$32.
Lease
payments included in the measurement of the operating lease liability comprise the following: the fixed non-cancelable lease payments
and payments for optional renewal periods where it is reasonably certain the renewal period will be exercised. The Company’s lease
agreements do not contain any material residual value guarantees or material restrictive covenants.
As
of December 31, 2021, the Company’s assessment for the remaining lease term range between 0.9 years to 6.3 years, including options
to extend part of the lease agreements for an additional 2 years and up to 5 years.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
9: - LEASES (Cont.)
The
following table represents the weighted-average remaining lease term and discount rate:
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Weighted average
remaining lease term | |
| 1.84 years | | |
| 2.20 years | |
| |
| | | |
| | |
Weighted average discount
rate | |
| 4.92 | % | |
| 4.46 | % |
The
components of lease expense for the year ended December 31, 2021 were as follows:
| |
Year
ended | | |
Year
ended | |
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
| | |
| |
Operating lease | |
$ | 1,173 | | |
$ | 1,223 | |
Short-term
lease | |
| 5 | | |
| 6 | |
Total
lease expense | |
$ | 1,178 | | |
$ | 1,229 | |
Cash
paid for amounts included in the measurement of operating lease liabilities was $1,125 and $1,184 during the years ended December 31,
2021 and 2020, respectively.
The
following is a schedule, by years, of maturities of lease liabilities as of December 31, 2021:
| |
Operating
Leases | |
| |
| |
2022 | |
| 1,014 | |
2023 | |
| 340 | |
2024 | |
| 208 | |
2025 | |
| 129 | |
2026
and thereafter | |
| 302 | |
| |
| | |
Total
operating lease payments | |
$ | 1,993 | |
| |
| | |
Less:
imputed interest | |
| 54 | |
| |
| | |
Present
value of lease liabilities | |
$ | 1,939 | |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
10: - TAXES ON INCOME
Taxable
income of the Company is subject to the Israeli corporate tax at the rate of 23% for all years presented.
Tax
benefits under the Law for the Encouragement of Capital Investments, 1959 (“the Law”):
In
August 2013, the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which
includes Amendment 71 to the Law (“Amendment 71”) was enacted. Per Amendment 71, the tax rate on preferred income from a
preferred enterprise in 2014-2016 will be 9% in certain areas in Israel (“Development Area A”) and 16% in other areas. In
2017, the tax rate at Development Area A was reduced to 7.5%.
The
Company may claim the tax benefits offered by Amendment 71 in its tax returns, provided that its facilities meet the criteria for tax
benefits set out by Amendment 71. A company is also granted a right to approach the Israeli Tax Authorities for a pre-ruling regarding
its eligibility for benefits under Amendment 71 (and in some cases is required to apply for such approval).
In
December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years),
2016 which includes Amendment 73 to the Law (“Amendment 73”) was published. Amendment 73, which came into effect in January
2017, prescribes special tax tracks for technological enterprises, granting such enterprises a tax rate of 7.5% (in Development Area
A) and 12% (in other areas).
Under
Amendment 73, any dividends distributed to “foreign companies”, as defined in such law, by companies having over 90% foreign
(i.e., non-Israeli) ownership, deriving from income from the technological enterprises will be subject to tax at a rate of 4%.
In
order to comply with the new track determined in Amendment 73, a company must meet certain criteria defined within law (among others
R&D expenses and employees at a certain rate).
The
Company has yet to claim the above-mentioned tax benefits offered and accordingly such reduced taxes were not considered in the computation
of the deferred taxes and valuation allowance as of December 31, 2021.
In
accordance with the tax laws, tax returns submitted up to and including the 2016 tax year can be regarded as final. As of December
31, 2021, no final tax assessments have been received for such years.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
10: - TAXES ON INCOME (Cont.)
Tax
loss carryforward:
As
of December 31, 2021, the Company’s estimated tax loss carryforward and capital loss were $38,362 and $1,283, respectively.
Such losses can be carried forward indefinitely to offset any future taxable income of the Company.
The
Company’s research and development expenses carryforward for tax purposes in Israel amounted to approximately $14,029.
U.S.
subsidiary:
| 1. | The U.S. subsidiary is taxed under United States federal and state tax rules. Income tax is calculated based on a U.S. federal tax rate of 21%. |
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law making significant changes to U.S. income tax law. Changes include,
but are not limited to, a U.S. federal corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31,
2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax
on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
| 2. | The U.S. subsidiary’s estimated federal tax loss carryforward amounted to $2,328 as of December 31, 2021. Such losses are available to offset any future U.S. taxable income of the U.S. subsidiary and will expire in the years 2022-2026 for federal tax purposes. |
| 3. | The
U.S. subsidiary has not received final tax assessments since incorporation. In accordance
with the tax laws, tax returns submitted up to and including the 2016 tax year can be
regarded as final. |
Brazilian
subsidiary:
| 1. | The Brazilian subsidiary is taxed under Brazilian tax rules. Income tax is calculated based on a 34% rate. |
| 2. | The Brazilian subsidiary’s tax loss carryforward amounted to $2,740 as of December 31, 2021, for tax purposes. Tax losses may be carried forward indefinitely but can only be offset up to 30% of the subsidiary’s taxable income for a tax period. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
10: - TAXES ON INCOME (Cont.)
| 3. | The
Brazilian subsidiary has not received final tax assessments since incorporation. In accordance
with the tax laws, tax returns submitted up to and including the 2016 tax year can be
regarded as final. |
Indian
subsidiary:
| 1. | The Indian subsidiary is taxed under Indian tax rules. Income tax is calculated based on a 25% rate. |
| 2. | The
Indian subsidiary has not received final tax assessments since incorporation. In accordance
with the tax laws, tax returns submitted up to and including the 2018 tax year can be
regarded as final. |
Deferred
taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
| |
December
31 | |
| |
2021 | | |
2020 | |
Deferred tax assets: | |
| | | |
| | |
Carryforward
tax losses | |
$ | 10,540 | | |
$ | 10,391 | |
Research
and development | |
| 3,227 | | |
| 2,862 | |
Accrued
social benefits and other | |
| 505 | | |
| 567 | |
| |
| 14,272 | | |
| 13,820 | |
Less
- valuation allowance | |
| (14,272 | ) | |
| (13,820 | ) |
Net
deferred tax assets | |
$ | - | | |
$ | - | |
The
net change in the total valuation allowance for the year ended December 31, 2021 was an increase of $452. In assessing the realization
of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in
which those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning
strategies in making this assessment. In consideration of the Company’s accumulated losses and the uncertainty of its ability to
utilize its deferred tax assets in the future, management currently believes that it is more likely than not that the Company will not
realize its deferred tax assets and accordingly recorded a valuation allowance to fully offset all the deferred tax assets.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
10: - TAXES ON INCOME (Cont.)
| d. | Taxes
on income are mainly comprised from state tax accrual with regards to the U.S. subsidiary,
withholding taxes that were deducted by the Company’s customers as well as tax expenses
of the Indian subsidiary. |
| e. | The
components of income (loss) before income taxes are as follows: |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
Domestic | |
$ | (6,030 | ) | |
$ | (4,271 | ) | |
$ | (7,107 | ) |
Foreign | |
| 891 | | |
| 499 | | |
| 444 | |
| |
| | | |
| | | |
| | |
Loss
before income taxes | |
$ | (5,139 | ) | |
$ | (3,772 | ) | |
$ | (6,663 | ) |
| f. | Reconciliation
of the theoretical tax benefit and the actual tax expense: |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
Loss
before income taxes, as reported in the statements of operations | |
$ | (5,139 | ) | |
$ | (3,772 | ) | |
$ | (6,663 | ) |
| |
| | | |
| | | |
| | |
Statutory
tax rate in Israel | |
| 23 | % | |
| 23 | % | |
| 23 | % |
| |
| | | |
| | | |
| | |
Theoretical
tax benefit | |
$ | (1,182 | ) | |
$ | (868 | ) | |
$ | (1,532 | ) |
| |
| | | |
| | | |
| | |
Increase
(decrease) in income taxes resulting from: | |
| | | |
| | | |
| | |
Tax
rate differential on foreign subsidiaries | |
| (31 | ) | |
| (50 | ) | |
| 12 | |
Non-deductible
expenses and other permanent differences | |
| 631 | | |
| 393 | | |
| 473 | |
Differences
in taxes arising from foreign currency exchange, net | |
| 69 | | |
| 257 | | |
| 42 | |
Changes
in carry forward tax losses and other temporary differences for which valuation allowance was provided | |
| 481 | | |
| 310 | | |
| 910 | |
Other | |
| 156 | | |
| 178 | | |
| 264 | |
| |
| | | |
| | | |
| | |
Income
taxes | |
$ | 124 | | |
$ | 220 | | |
$ | 169 | |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
10: - TAXES ON INCOME (Cont.)
| g. | Accounting
for uncertainty in income taxes: |
For
the years ended December 31, 2021, 2020 and 2019 the Company did not have any unrecognized tax benefits and no interest and penalties
related to unrecognized tax benefits have been accrued. The Company does not expect that its position related to unrecognized tax benefits
will change significantly within the next 12 months.
NOTE
11: - SHAREHOLDERS’ EQUITY
| a. | The number of Ordinary Shares outstanding at December 31, 2021, and 2020 does not include 5,189 Ordinary Shares issued, which are held by a subsidiary, and 30,843 Ordinary Shares issued which are held by the Company. |
Ordinary
Shares confer all rights to their holders, e.g. voting, equity and receipt of dividends.
| 1. | The
Company has granted options under an option plan as follows: |
| a) | The
2013 Share Option Plan: |
On
April 3, 2013, the Company approved a new share option plan (the “2013 Share Option Plan”). The 2013 Share Option Plan provides
for the grant of options to purchase Ordinary Shares to provide incentives to employees, directors, consultants and contractors of the
Company. In accordance with Section 102 of the Income Tax Ordinance (New Version) - 1961, the Company’s Board of Directors (the
“Board”) elected the “Capital Gains Route”.
On
February 19, 2015, the Board adopted an amendment to the 2013 Share Option Plan pursuant to which the Company may grant options to purchase
its Ordinary Shares and RSUs to its employees, directors, consultants and contractors. The 2013 Share Option Plan expires on April 2,
2023.
| b) | During the year ended December 31, 2019, the Company’s Board approved the grant of 388,020 RSUs to certain employees and officers of the Company. Such RSUs have vesting schedules of four years, commencing as of the date of grant. |
| c) | During the year ended December 31, 2020, the Company’s Board approved the grant of 340,000 RSUs and 35,100 options to certain employees, officers and directors of the Company. Such Options and RSUs have vesting schedules of 2-4 years, commencing as of the date of grant. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
11: - SHAREHOLDERS’ EQUITY (Cont.)
| d) | During the year ended December 31, 2021, the Company’s Board approved the grant of 782,350 RSUs to certain employees and officers of the Company. Such RSUs have vesting schedules of 2-4 years, commencing as of the date of grant. |
As
of December 31, 2021, the total number of shares reserved under the 2013 Share Option Plan, is 3,950,000, out of which 1,544,676 Ordinary
Shares are still available for future grants under the 2013 Share Option Plan as of that date.
| 2. | Stock
options for the year ended December 31, 2021 under the Company’s plans are as follows: |
| |
Number
of
options | | |
Weighted
average
exercise
price | | |
Weighted
average
remaining
contractual
term (in
years) | | |
Aggregate
intrinsic
value | |
| |
| | |
| | |
| | |
| |
Outstanding
as of January 1, 2021 | |
| 305,839 | | |
| 14.21 | | |
| 1.33 | | |
| 98 | |
Granted | |
| - | | |
| - | | |
| | | |
| | |
Exercised | |
| - | | |
| - | | |
| | | |
| | |
Expired
and forfeited | |
| (166,159 | ) | |
| 12.40 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding
as of December 31, 2021 | |
| 139,680 | | |
| 16.36 | | |
| 1.20 | | |
| 181 | |
Vested
and expected to vest at December 31, 2021 | |
| 139,680 | | |
| 16.36 | | |
| 1.20 | | |
| 181 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable
as of December 31, 2021 | |
| 121,155 | | |
| 17.70 | | |
| 0.85 | | |
| 85 | |
The
aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the deemed fair value of the
Company’s Ordinary Shares on the last day of fiscal 2021 and the exercise price, multiplied by the number of in-the-money options)
that would have been received by the option holders had all option holders exercised their options on December 31, 2021. This amount
is impacted by the changes in the fair market value of the Company’s Ordinary Shares.
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
11: - SHAREHOLDERS’ EQUITY (Cont.)
| 3. | As
of December 31, 2021, stock options under the 2013 Share Option Plan are as follows: |
| |
Options
outstanding at
December 31, 2021 | | |
Options
exercisable at
December 31, 2021 | |
Exercise
price | |
Number
outstanding | | |
Weighted
average exercise price | | |
Weighted
average remaining contractual life | | |
Number
exercisable | | |
Weighted
average exercise price | | |
Weighted
average remaining contractual life | |
$ | |
| | |
$ | | |
In
years | | |
| | |
$ | | |
In
years | |
| |
| | |
| | |
| | |
| | |
| | |
| |
7.60 | |
| 35,100 | | |
| 7.60 | | |
| 3.52 | | |
| 16,575 | | |
| 7.60 | | |
| 3.53 | |
18.90 | |
| 60,002 | | |
| 18.90 | | |
| 0.10 | | |
| 60,002 | | |
| 18.90 | | |
| 0.10 | |
19.85 | |
| 44,578 | | |
| 19.85 | | |
| 0.87 | | |
| 44,578 | | |
| 19.85 | | |
| 0.87 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 139,680 | | |
| | | |
| | | |
| 121,155 | | |
| | | |
| | |
| 4. | RSUs
for the year ended December 31, 2021 under the Company’s 2013 Share Option Plan are
as follows: |
| |
Number
of
RSUs | | |
Weighted
average
remaining
contractual
term (in
years) | | |
Aggregate
intrinsic
value | |
| |
| | |
| | |
| |
Outstanding as
of January 1, 2021 | |
| 551,175 | | |
| 1.51 | | |
$ | 5,732 | |
Granted | |
| 782,350 | | |
| | | |
| | |
Vested | |
| (223,730 | ) | |
| | | |
| | |
Cancelled | |
| (60,866 | ) | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Outstanding
as of December 31, 2021 | |
| 1,048,929 | | |
| 1.54 | | |
$ | 13,689 | |
| 5. | The weighted average fair value of options granted during the year ended December 31, 2020 was $3.41 per share. No options were granted during the years ended December 31, 2021 and 2019. |
| 6. | The weighted average fair values of RSUs granted during the years ended December 31, 2021, 2020 and 2019 were $11.36, $9.31 and $7.86 per share, respectively. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
11: - SHAREHOLDERS’ EQUITY (Cont.)
| 7. | The
following table summarizes the allocation of the Company’s share-based compensation
within the statements of operations: |
| |
Year
ended December 31, | |
| |
2021
(*) | | |
2020
(*) | | |
2019
(*) | |
| |
| | |
| | |
| |
Cost of revenues | |
$ | 207 | | |
$ | 106 | | |
$ | 204 | |
Research and development,
net | |
| 1,368 | | |
| 879 | | |
| 729 | |
Sales and marketing | |
| 865 | | |
| 536 | | |
| 638 | |
General
and administrative | |
| 916 | | |
| 648 | | |
| 657 | |
| |
| | | |
| | | |
| | |
| |
$ | 3,356 | | |
$ | 2,169 | | |
$ | 2,228 | |
| (*) | Including $3,271, $2,107 and $1,887 of compensation cost related to RSUs for the years ended December 31, 2021, 2020 and 2019, respectively. |
| 8. | As of December 31, 2021, there are $6,749 of total unrecognized costs related to non-vested share-based compensation and RSUs that are expected to be recognized over a weighted average period of 1.00 years. |
NOTE
12: - SELECTED STATEMENTS OF OPERATIONS DATA
| a. | The Company applies ASC 280, “Segment Reporting”. The Company operates in one reportable segment (see also Note 1 for a brief description of the Company’s business). |
| b. | The
following tables present total revenues for the years ended December 31, 2021, 2020 and 2019
and long lived assets, net as of December 31, 2021 and 2020 by geographic regions: |
| 1. | Revenues
by geographic region are as follows: |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
North America | |
$ | 21,777 | | |
$ | 20,323 | | |
$ | 14,500 | |
Asia* | |
| 14,686 | | |
| 15,190 | | |
| 14,146 | |
Latin America | |
| 1,071 | | |
| 223 | | |
| 2,653 | |
EMEA
(including Israel) | |
| 2,748 | | |
| 1,826 | | |
| 1,711 | |
| |
| | | |
| | | |
| | |
| |
$ | 40,282 | | |
$ | 37,562 | | |
$ | 33,010 | |
| (*) | Includes Japan and the Philippines which accounted for more than 10% of Company’s revenues in all years presented. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
12: - SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
Total
revenues are attributed to geographic areas are based on the location of the end-customer.
In
2021, 2020 and 2019, the amount of export revenues represented 94%, 96% and 96%, respectively, of the Company’s total revenues.
| 2. | Major
customer data as a percentage of total revenues: |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
A | |
| 52 | | |
| 53 | | |
| 41 | |
B | |
| 26 | | |
| 29 | | |
| 22 | |
C | |
| 10 | | |
| 11 | | |
| 20 | |
| |
| | | |
| | | |
| | |
| |
| 88 | % | |
| 93 | % | |
| 83 | % |
| 3. | Long-lived
assets by geographic areas: |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Israel | |
$ | 1,730 | | |
$ | 2,633 | |
United States | |
| 885 | | |
| 1,049 | |
Other | |
| 453 | | |
| 574 | |
| |
| | | |
| | |
Total
long-lived assets (1) | |
$ | 3,068 | | |
$ | 4,256 | |
| (1) | Long-lived
assets are comprised of property and equipment, net and operating lease right-of use. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
12: - SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
| |
Years
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
Financial Income: | |
| | | |
| | | |
| | |
Interest
income | |
$ | 666 | | |
$ | 1,133 | | |
$ | 1,775 | |
Foreign
currency exchange gain | |
| 250 | | |
| 878 | | |
| 338 | |
| |
| 916 | | |
| 2,011 | | |
| 2,113 | |
Financial expenses: | |
| | | |
| | | |
| | |
Bank
charges | |
| (15 | ) | |
| (15 | ) | |
| (16 | ) |
Foreign
currency exchange loss | |
| (547 | ) | |
| (1,186 | ) | |
| (925 | ) |
| |
| (562 | ) | |
| (1,201 | ) | |
| (941 | ) |
| |
$ | 354 | | |
$ | 810 | | |
$ | 1,172 | |
| d. | Net
loss per Ordinary Share: |
The
following table sets forth the computation of basic and diluted net income (loss) per Ordinary Share:
| |
Years
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Numerator: | |
| | |
| | |
| |
| |
| | |
| | |
| |
Numerator
for basic net loss per Ordinary Share | |
$ | (5,263 | ) | |
$ | (3,992 | ) | |
$ | (6,832 | ) |
| |
| | | |
| | | |
| | |
Effect
of dilutive securities: | |
| | | |
| | | |
| | |
Share-based
compensation granted | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | |
Numerator
for dilutive net loss per Ordinary Share | |
$ | (5,263 | ) | |
$ | (3,992 | ) | |
$ | (6,832 | ) |
| |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Denominator
for dilutive net loss per Ordinary Share - weighted average number of Ordinary Shares | |
| 14,124,404 | | |
| 13,927,788 | | |
| 13,779,885 | |
| |
| | | |
| | | |
| | |
Effect
of dilutive securities: | |
| | | |
| | | |
| | |
Share-based
compensation granted | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | |
Denominator
for diluted net loss per Ordinary
Share - adjusted weighted average number of
Ordinary Shares | |
| 14,124,404 | | |
| 13,927,788 | | |
| 13,779,885 | |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
13: - RELATED PARTY BALANCES AND TRANSACTIONS
| a. | The
Company carries out transactions with related parties as detailed below. |
| 1. | Certain premises occupied by the Company and its U.S. subsidiary are rented from related parties in which Mr. Zohar Zisapel holds an interest (see also Note 9). The aggregate net amounts of lease and related maintenance expenses were $830, $863 and $912 in 2021, 2020 and 2019, respectively. Following the adoption of ASC 842 commencing January 1, 2019, the Company also recorded operating lease right-of use assets and operating lease liabilities related to such lease and maintenance expenses which are presented in Note 13e below. |
| 2. | Mr. Zisapel also holds an interest in and serves as director for various entities known as the RAD-BYNET Group. Certain entities within the RAD-BYNET Group provide the Company and its U.S. subsidiary with administrative and IT services. The aggregate amounts of administrative and IT services provided were $33, $30 and $49 in 2021, 2020 and 2019, respectively. Such amounts expensed by the Company are disclosed in Note 13f below as part of “Expenses” and “Capital expenses”. |
| 3. | From time to time, the Company purchases certain products and services from members of the RAD-BYNET Group. No such purchases were made in 2019, however, in 2021 and 2020, the aggregate amounts of such purchases were approximately $446 and $52, respectively. Such amounts expensed by the Company are disclosed in Note 13f below as part of “Expenses”. |
| b. | The executive chairman of the Board, Ms. Rachel (Heli) Bennun (the “Executive Chairman”) is, among other things, Mr. Zisapel’s significant other. The Executive Chairman is entitled to a fixed monthly salary. During the years ended December 31, 2021, 2020 and 2019 the Company recorded salary expenses with respect to the Executive Chairman in the amount of $119, $112 and $108, respectively. Such amounts expensed by the Company are disclosed in Note 13f below as part of “Expenses”. |
| c. | The Company’s former Chief Financial Officer is a member of the board of directors and chairman of the audit committee of Matrix IT Ltd. (“Matrix”). Accordingly, as of October 2019, Matrix is considered a related party. The Company has entered into certain limited term engagements with Matrix or its affiliated companies in connection with specific development projects and/or use of software platform. The aggregate services provided by Matrix or its affiliates, as a related party, amounted to $121, $67 and $288 during the years ended December 31, 2021, 2020 and 2019, respectively. Such amount expensed by the Company is disclosed in Note 13f below as part of “Expenses”. |
RADCOM LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE
13: - RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
| d. | Balances
with related parties: |
| |
December
31, | |
| |
2021 | | |
2020 | |
Assets: | |
| | |
| |
| |
| | |
| |
Other
accounts receivable and prepaid | |
$ | 165 | | |
$ | - | |
Operating
lease right-of-use assets | |
$ | 1,303 | | |
$ | 1,997 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Trade
payables | |
$ | 194 | | |
$ | 76 | |
Other
liabilities and accrued expenses | |
$ | 88 | | |
$ | 49 | |
Operating
lease liabilities - current | |
$ | 778 | | |
$ | 671 | |
Operating
lease liabilities – non-current | |
$ | 615 | | |
$ | 1,352 | |
| e. | Transactions
with related parties: |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
| | |
| |
| |
| | |
| | |
| |
Expenses (1): | |
| | |
| | |
| |
| |
| | |
| | |
| |
Cost
of revenues | |
$ | 189 | | |
$ | 215 | | |
$ | 320 | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Research
and development, net | |
$ | 1,083 | | |
$ | 653 | | |
$ | 829 | |
Sales
and marketing | |
$ | 194 | | |
$ | 191 | | |
$ | 172 | |
General
and administrative | |
$ | 212 | | |
$ | 206 | | |
$ | 211 | |
| |
| | | |
| | | |
| | |
Capital
expenses | |
$ | 29 | | |
$ | - | | |
$ | 12 | |
| (1) | Including utilities expenses charged to the related party and reimbursed by the Company. |
NOTE
14: - SUBSEQUENT EVENTS
During
February 2022, the Company’s Board approved the grant of 298,000 RSUs to certain employees and officers of the Company. Such RSUs
have vesting schedules of 2-4 years, commencing as of the date of grant.
- - - - - - - - - - - -
ITEM 19. EXHIBITS
The exhibits filed with or incorporated into this
Annual Report are listed below.
Exhibit No. |
|
Description |
|
|
|
1.1 |
|
Memorandum of Association, as amended (incorporated herein by reference to the (i) Registration Statement on Form F-1 of RADCOM Ltd. (File No. 333-05022), filed with the SEC on June 12, 1996, (ii) Form 6-K of RADCOM Ltd., filed with the SEC on April 1, 2008 and (iii) Exhibit 99.2 to Form 6-K of RADCOM Ltd., filed with the SEC on November 23, 2015). |
|
|
|
1.2 |
|
Amended and Restated Articles of Association, as amended (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2016, filed with the SEC on March 30, 2017). |
|
|
|
2.1 |
|
Form of ordinary share certificate (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2012, filed with the SEC on April 22, 2013). |
|
|
|
2.2 |
|
Description of rights of the Company’s Ordinary Shares (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2019, filed with the SEC on March 31, 2020). |
|
|
|
4.1 |
|
2013 Share Option Plan, as amended (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2014, filed with the SEC on March 26, 2015). |
|
|
|
4.2 |
|
RADCOM Compensation Policy for Executive Officers and Directors, as amended on July 11, 2019. and on July 8, 2021 (incorporated herein by reference to the Form 6-K of RADCOM Ltd., filed with the SEC on June 3, 2021). |
|
|
|
4.3 |
|
Software and Professional Services Agreement, dated March 29, 2019, by and between AT&T Services, Inc. and the Company (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2018, filed with the SEC on April 18, 2019). * |
|
|
|
4.4 |
|
Supplement Agreement, dated March 29, 2019, by and between AT&T Services, Inc. and the Company (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2018, filed with the SEC on April 18, 2019). * |
|
|
|
4.5 |
|
Supplemental Support & Maintenance Agreement, dated March 29, 2019, by and between AT&T Services, Inc. and the Company (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2018, filed with the SEC on April 18, 2019). * |
4.6 |
|
Master Software and Professional Services Agreement, dated May 21, 2019, by and between Rakuten Mobile, Inc. and the Company (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2019, filed with the SEC on March 31, 2020).* |
|
|
|
4.7 |
|
Rakuten Managed Services Agreement, dated May 22, 2019, by and between Rakuten Mobile, Inc. and the Company (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2019, filed with the SEC on March 31, 2020).* |
|
|
|
4.8 |
|
Rakuten 5G NSA/SA Managed Services Agreement, dated October 23, 2019, by and between Rakuten Mobile, Inc. and the Company (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2020, filed with the SEC on March 25, 2021).* |
|
|
|
8.1 |
|
List of Subsidiaries (incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2018, filed with the SEC on April 18, 2019). |
|
|
|
12.1 |
|
Certification of the Chief Executive Officer pursuant
to Rule 13a-14(a) (filed herewith). |
|
|
|
12.2 |
|
Certification of the Chief Financial Officer pursuant
to Rule 13a-14(a) (filed herewith). |
|
|
|
13.1 |
|
Certification of the Chief Executive Officer pursuant
to Rule 13a-14(b) (furnished herewith). |
|
|
|
13.2 |
|
Certification of the Chief Financial Officer pursuant
to Rule 13a-14(b) (furnished herewith). |
|
|
|
15.1 |
|
Consent of Kost Forer Gabbay & Kasierer, a member of Ernst and
Young Global, dated March 29, 2022 (filed herewith). |
|
|
|
101 |
|
The following financial information from RADCOM Ltd.’s
Annual Report on Form 20-F for the year ended December 31, 2021 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated
Statements of Operations for the years ended December 31, 2021, 2020 and 2019; (ii) Consolidated Statement of Comprehensive Income
(Loss) for the years ended December 31, 2021, 2020, and 2019 (iii) Consolidated Balance Sheets at December 31, 2021 and 2020; (iv)
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020, and 2019; (v) Consolidated
Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019; and (vi) Notes to Consolidated Financial Statements
(filed herewith). |
|
|
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104 |
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Cover Page Interactive Data File. (Formatted as Inline
XBRL and contained in Exhibit 101). |
* |
Certain identified information in the exhibit has been excluded from
the exhibit because it is both (i) not material and (ii) would likely cause competitive harm to RADCOM if publicly disclosed. |