UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20–F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20212022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to _______________

OR____________

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report _____________

Commission file number 000-31215

MIND C.T.I. LTDLTD..

(Exact name of Registrant as specified in its charter

and translation of Registrant’s name into English)

ISRAEL

(Jurisdiction of incorporation or organization)

2 HaCarmel Street, Yoqneam, 2066724, Israel

(Address of principal executive offices)

Ran Mendelaw
Arie Abramovich

c/o MIND C.T.I. Ltd.

2 HaCarmel Street

Yoqneam, 2066724, Israel

Tel: +972-4-9936666
+972-4-9936666

investor@mindcti.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2021,2022, the Registrant had outstanding 20,057,32620,124,326 Ordinary Shares, nominal value NIS 0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the

registrant has elected to follow. Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No

Unless the context requires otherwise, “MIND”, “us”, “we”, “our company”, “the company”, “the Company” and “our” refer to MIND C.T.I. Ltd. and its subsidiaries.

Table of Contents

FORWARD LOOKING STATEMENTS AND SUMMARY RISK FACTORS

Statements in this Annual Report concerning our business outlook or future economic performance; anticipated revenues, expenses or other financial items; introductions and advancements in development of products, and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined under the United States Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those stated in such statements. Factors that could cause or contribute to such differences include, but are not limited to, those set forth under “Risk Factors” in this Annual Report as well as those discussed elsewhere in this Annual Report and in our other filings with the Securities and Exchange Commission. The following is a summary of some of the principal risks we face:

We may be unable to compete effectively in the marketplace;

We may fail to attract and retain qualified personnel;

Our backlog, revenues and operating results may vary significantly from quarter to quarter;

Our acquisition strategy could divert resources and disrupt our business;

We may not be successful in integrating acquisitions;

We may not adequately enhance our products and services and introduce new products and features to retain our customers and attract new ones;

Our products could be affected by cyber security breaches;

Our products may fail to comply with or to enable our customers and channel partners to comply with applicable privacy and other laws and regulations;

We may be unable to manage our international operations effectively;

Our Israeli tax benefits may be discontinued or reduced;

Our business may be negatively affected by exchange rate fluctuations;

We may lose the services of key personnel;

We may become subject to claims of intellectual property infringement;

Our use of “open source”“open-source” software tools may be subject to IP infringement claims or subject our derivative works or products to unintended consequences; 

We are subject to ongoing costs and risks associated with being a public company, including potential lawsuits;

System disruptions and failures may result in customer dissatisfaction and customer loss;

The market segment of small to medium size communication service providers may fails to grow;

We may lose existing customers or the use of our products may decline;

Our billing software and the systems into which it is integrated may contain undetected errors;

We may be unable to attract new messaging customers in a cost-effective manner;

We may be unable to increase adoption of our messaging products by enterprises;

We rely on network service providers for our messaging services;

We may have to lower our prices for messaging products;

We may have defects or errors in our messaging products;

We face a risk of litigation resulting from customer misuse of our messaging software to send unauthorized messages;

System disruptions and failures may result in customer dissatisfaction and customer loss;

Changes to regulations or technology vendor rules may prevent us from using some services; and

Our articles of association may be amended to include forum selection clauses for certain claims brought under the U.S. securities laws or under Israeli law.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. [Reserved][Reserved]

B.  Capitalization and Indebtedness

Not applicable.

C.  Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

We believe that the occurrence of any one or some combination of the following factors would have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to our Business and Industry

If we are unable to compete effectively in the marketplace, we may suffer a decrease in market share, revenues and profitability.

All the markets we operate in are significantly fragmented and highly competitive. The principal competitive factors in our market include completeness of offering, global reach, ease of integration, product features, platform scalability, reliability, security and performance, brand awareness and reputation, the strength of sales and marketing efforts, customer support, as well as the cost of deploying and using our products.

Some of our competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, larger budgets and significantly greater resources than we do. In addition, they have the operating flexibility to bundle competing products and services at little or no perceived incremental cost, including offering them at a lower price as part of a larger sales transaction. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices, with greater depth than our products or in different geographies. Our current and potential competitors may develop and market new products and services with comparable functionality to our products, and this could lead to us having to decrease prices in order to remain competitive.

With the introduction of new products and technologies and new market entrants, we expect competition to intensify in the future. Some of our competitors have lower list prices than ours, which may be attractive to certain customers even if those products have different or lesser functionality. Pricing pressures and increased competition could result in reduced revenue, reduced margins, increased losses, any of which could harm our business, results of operations and financial condition.

If we fail to attract and retain qualified personnel, we will not be able to implement our business strategy or operate our business effectively.

Our products require sophisticated software development, sales, professional services and technical customer support. Our success depends on our ability to attract, train, motivate and especially retain highly skilled personnel within each of these areas of expertise. Qualified personnel in these areas are in great demand worldwide and are likely to remain a limited resource. We cannot assure you that we will be able to retain the skilled employees we require. In addition, the resources required to retain such personnel may adversely affect our operating margins. The failure to retain qualified personnel may harm our business. In particular, we maintain a large engineering and support center in Iasi, Romania and have encountered many successful attempts from other technology companies to recruit our employees after we have trained them. If this phenomenon continues and increases, we may not be able to retain the highly skilled personnel we require to implement our business strategy and operate our business effectively. If we significantly raise the salaries of our Romanian employees, our results of operations will be harmed.

Our backlog, revenues and operating results may vary significantly from quarter to quarter.

Our results of operations, including the levels of our revenues, cost of revenues, gross margins and operating expenses, have fluctuated from quarter to quarter in the past and may continue to vary significantly in the future. These fluctuations are a result of a variety of factors, many of which are outside of our control, may be difficult to predict and may or may not fully reflect the underlying performance of our business. Our operating results may vary significantly from quarter to quarter due to a number of factors, including the following:

Due to all of the foregoing, we cannot predict revenues for any future quarter with any significant degree of accuracy. Accordingly, we believe that period-to-period comparisons of our operating results are not necessarily meaningful, and you should not rely upon them as indications of future performance. Accordingly, in the event of a revenue shortfall, we may not be able to mitigate the negative impact on our income (loss)operating results and margins in the short term. If we fail to meet or exceed the expectations of investors, we could face costly lawsuits, including securities class action suits.

In future quarters, our operating results may be below the expectations of public market analysts and investors, and as a result, the price of our ordinary shares may fall.

We seek to expand our business through acquisitions, which could result in diversion of resources and extra expenses and which may involve other risks that could disrupt our business and harm our financial condition.

It is part of our strategy to pursue acquisitions of business, products and technologies, or the establishment of joint venture arrangements in order to offer new products or services or otherwise enhance our market position or strategic strengths, and we are actively evaluating potential acquisition opportunities. The negotiation of potential acquisitions or joint ventures, as well as the integration of an acquired or jointly developed business, technology or product, could cause diversion of management’s attention from the day-to-day operation of our business. This could impair our relationships with our employees, customers, distributors, resellers and marketing allies. Future acquisitions could result in:

In addition, we have limited experience with respect to negotiating an acquisition and operating an acquired business. Due to the multiple risks and difficulties associated with any acquisition, there can be no assurance that we will be successful in achieving our expected strategic, operating and financial goals for any such acquisition. If future acquisitions disrupt our operations, our business may suffer.

We may not be successful in the integration of our acquisitions.

We cannot assure you that we have identified, or will be able to identify, all material adverse issues related to the integration of our acquisitions, such as significant defects in the internal control policies of companies that we have acquired. In addition, our acquisitions could lead to difficulties in integrating acquired personnel and operations and in retaining and motivating key personnel from these businesses, while maintaining our corporate culture. In some instances, we may need to depend on the seller of an acquired business to provide us with certain transition services in order to meet the needs of our customers. Any failure to properly integrate and retain personnel, to recognize significant defects in the internal control policies of acquired companies or to scale and adapt our internal control policies and our reporting systems and procedures, and any interruptions of transition services, may require a significant amount of time and resources to address and may harm our company.

If we do not continually enhance our products and service offerings, introduce new products and features and adopt and monetize new technologies and methodologies in the marketplace, we may have difficulty retaining existing customers and attracting new customers.

We believe that our future success will depend, to a significant extent, upon our ability to enhance our existing products and services, to introduce new products, services and features to meet the requirements of our customers, and to adopt and leverage new technologies and methodologies such as cloud, microservices-based architecture in a rapidly developing and evolving market. We devote significant resources to refining and expanding our base software modules and to developing our products, services and development methodologies and tools. In some instances, we rely on cooperative relationships with third parties to assist us in delivering certain products and services to our customers. Our present or future products, services and technology may not satisfy the evolving needs of the communications industry or of other industries that we serve. If we are unable to anticipate or respond adequately to such needs, due to resource, technological or other constraints, our business and results of operations could be harmed.

If our security measures for our software, hardware, services or cloud offerings are compromised and as a result, our data, our customers’ data or our IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may be perceived as vulnerable, which may materially affect our business and result in potential legal liability.

Our products and services, including our cloud offerings, store, retrieve, and manage our customers’ information and data, as well as our own data. We have a reputation for secure and reliable product offerings and related services, and we have invested a great deal of time and resources in protecting the integrity and security of our products, services and the internal and external data that we manage. Despite our efforts to implement network security measures, we cannot guarantee that our systems are fully protected from vulnerabilities related to IT-related viruses, worms and other malicious software programs, attacks, break-ins and similar disruptions from unauthorized tampering by computer hackers and others. Such cybersecurity incident could include an attempt to gain unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Security measures in our products and services may be penetrated or bypassed by computer hackers and others who may gain unauthorized access to our or our customers’ or partners’ software, hardware, cloud offerings, networks, data or systems. They may use a wide variety of methods, which may include developing and deploying malicious software to attack our products third-party data, products or services incorporated into our own. Data may also be accessed or modified improperly as a result of customer, partner or employee error or malfeasance and third parties may attempt to fraudulently induce customers, partners, employees or suppliers into disclosing sensitive information such as usernames, passwords or other information in order to gain access to our data or IT systems or our customers’ or partners’ data or IT systems. Any of the foregoing occurrences could create system disruptions and cause shutdowns or denials of service or compromise data, including personal or confidential information, of us, our partners or our customers.

If a cyber attackcyber-attack or other security incident (for example phishing, advanced persistent threats, or social engineering) were to result in unauthorized access to, or deletion of, and/or modification and/or exfiltration of our customers’ data, other external data or our own data or our IT systems or if the services we provide to our customers were disrupted, customers could lose confidence in the security and reliability of our products and services, including our cloud offerings, and perceive them not to be secure. This in turn could lead to fewer customers using our products and services and result in reduced revenue and earnings. The costs we would incur to address and fix these security incidents would increase our expenses. These risks will increase as we continue to grow our cloud and network offerings and store and process increasingly large amounts of data, including personal information and our customers’ confidential information and data and other external data, and host or manage parts of our customers’ businesses in cloud-based IT environments.

Any of the events described above could cause our customers to make claims against us for damages allegedly resulting from a security breach or service disruption, which could adversely affect our business, results of operation and financial condition.

Our products and platform and our business are subject to a variety of European and international laws and regulations, including those regarding privacy, data protection and information security, and our customers may be subject to regulations related to the handling and transfer of certain types of sensitive and confidential information. Any failure of our products to comply with or enable our customers and channel partners to comply with applicable laws and regulations would harm our business, results of operations and financial condition.

We and our customers that use our products may be subject to privacy and data protection-related laws and regulations that impose obligations in connection with the collection, processing and use of personal data, financial data, health or other similar data. The U.S. federal and various state and foreign governments have adopted or proposed limitations on, or requirements regarding, the collection, distribution, use, security and storage of personally identifiable information of individuals. The U.S. Federal Trade Commission and numerous state attorneys general are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination of data, and to the security measures applied to such data.

Similarly, many foreign countries and governmental bodies, including the European Union, or the EU, member states, have laws and regulations concerning the collection and use of personally identifiable information obtained from individuals located in the EU or by businesses operating within their jurisdiction, which are often more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personally identifiable information that identifies or may be used to identify an individual, such as names, telephone numbers, email addresses and, in some jurisdictions, IP addresses and other online identifiers.

For example, the General Data Protection Regulation, or GDPR, took effect in the European Union on May 25, 2018. The GDPR enhances data protection obligations for businesses and requires service providers (data processors) processing personal data on behalf of customers to cooperate with European data protection authorities, implement security measures and keep records of personal data processing activities. Noncompliance with the GDPR can trigger fines equal to or greater of €20 million or 4% of global annual revenues. There are also additional EU laws and regulations (and member states implementations thereof) which govern the protection of consumers and of electronic communications. If our efforts to comply with GDPR or other applicable EU laws and regulations are not successful, we may be subject to penalties and fines that would adversely impact our business and results of operations, and our ability to conduct business in the EU could be significantly impaired.

As well, we continue to see jurisdictions imposing data localization laws, which require personal information, or certain subcategories of personal information to be stored in the jurisdiction of origin. These regulations may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant additional costs.

The uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of compliance, delay or reduce demand for our services, restrict our ability to offer services in certain locations, impact our customers’ ability to deploy our solutions in certain jurisdictions, or subject us to sanctions, by national data protection regulators, all of which could harm our business, financial condition and results of operations.

Additionally, although we endeavor to have our products and platform comply with applicable laws and regulations, these and other obligations may be modified, they may be interpreted and applied in an inconsistent manner from one jurisdiction to another, and they may conflict with one another, other regulatory requirements, contractual commitments or our internal practices.

We also may be bound by contractual obligations relating to our collection, use and disclosure of personal, financial and other data or may find it necessary or desirable to join industry or other self-regulatory bodies or other privacy or data protection-related organizations that require compliance with their rules pertaining to privacy and data protection.

We expect that there will continue to be new proposed laws, rules of self-regulatory bodies, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine the impact such future laws, rules, regulations and standards may have on our business. Moreover, existing U.S. federal and various state and foreign privacy and data protection-related laws and regulations are evolving and subject to potentially differing interpretations, and various legislative and regulatory bodies may expand current or enact new laws and regulations regarding privacy and data protection-related matters. Because global laws, regulations and industry standards concerning privacy and data security have continued to develop and evolve rapidly, it is possible that we or our products or platform may not be, or may not have been, compliant with each such applicable law, regulation and industry standard and compliance with such new laws or to changes to existing laws may impact our business and practices, require us to expend significant resources to adapt to these changes, or to stop offering our products in certain countries. These developments could adversely affect our business, results of operations and financial condition.

Any failure or perceived failure by us, our products or our platform to comply with new or existing U.S., EU or other foreign privacy or data security laws, regulations, policies, industry standards or legal obligations, or any security incident that results in the unauthorized access to, or acquisition, release or transfer of, personally identifiable information or other customer data may result in governmental investigations, inquiries, enforcement actions and prosecutions, private litigation, fines and penalties, adverse publicity or potential loss of business.

Because our revenues are generated in numerous countries, our results of operations could suffer if we are unable to manage international operations effectively.

Our sales are made in many countries, with different legislation and complex taxation rules and in many states in the United States. Managing our existing international operations and additional international markets requires significant management attention and financial resources. Our ability to penetrate some international markets may be limited due to different technical standards, protocols and requirements for our products in different markets. In addition, conducting our business internationally subjects us to a number of risks, including:

We currently benefit from Israeli tax benefits that may be discontinued or reduced.

We have derived benefits from various programs, including Israeli tax benefits relating to our “Approved and Preferred Enterprise” programs, and starting in 2017, we have derived benefits relating to the “Preferred Technological Enterprise” program under the Israel Law for the Encouragement of Capital Investment, 1959.

To be eligible for tax benefits as a “Preferred Technological Enterprise,” we must continue to meet certain conditions. Should it be determined that our Preferred Technological Enterprise programs have not met, or do not meet, the statutory conditions, our income taxes will increase.

Additional tax liabilities could materially adversely affect our results of operations and financial condition.

As a global corporation, we are subject to income and other taxes both in Israel and in various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid or accrued is subject to our interpretation of applicable laws in the jurisdictions in which we do business. From time to time, we are subject to income and other tax audits in various jurisdictions, the timings of which are unpredictable. While we believe we comply with applicable tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed additional taxes, there could be a material adverse effect on our results of operations and financial condition.

Our business may be negatively affected by exchange rate fluctuations.

Approximately 55%52% of our revenues are denominated in Euro, and approximately 40%44% in U.S. dollars, or dollar. Approximately 20%22% of our expenses are incurred in New Israeli Shekel, or NIS, and approximately 73%69% in Euro or linked to the Euro. At the same time, the majority of our cash reserves and investments are denominated in dollars, and our financial statements are demonimateddenominated in dollars. As a result, we may be negatively affected by fluctuations in the exchange rates between the Euro or the NIS and the dollar. We cannot predict any future trends in the rate of devaluation or appreciation of the NIS or of the Euro against the dollar. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. We may choose to limit these exposures by entering into hedging transactions. However, hedging transactions may not enable us to avoid exchange-related losses, and our business may be harmed by exchange rate fluctuations.

We depend on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, our business may be harmed.

The success of our business depends in large part upon the continuing contributions of our senior management, specifically on the managerial and technical skills of our founder, President and Chief Executive Officer, Ms. Monica Iancu, and other members of our senior management. If either Ms. Iancu or other members of the senior management team are unable or unwilling to continue their employment with us, our business may be harmed.

If we become subject to a claim of intellectual property infringement, our business may be materially adversely affected.

If anyone asserts a claim against us relating to proprietary technology or information, we might seek to license the claimant’s intellectual property or to develop non-infringing technology. We might not be able to obtain a license on commercially reasonable terms or on any terms. Alternatively, our efforts to develop non-infringing technology could be unsuccessful. Our failure to obtain the necessary licenses or other right or to develop non-infringing technology could prevent us from selling our software and could therefore seriously harm our business.

We use certain “open source”“open-source” software tools that may be subject to intellectual property infringement claims or that may subject our derivative works or products to unintended consequences, possibly impairing our product development plans, interfering with our ability to support our clients or requiring us to allow access to the source code of our products or necessitating that we pay licensing fees. 

Certain of our products contain open sourceopen-source code and we may use more open sourceopen-source code in the future. In addition, certain third-party software that we embed in our products contains open sourceopen-source code. Open sourceOpen-source code is code that is covered by a license agreement that permits the user to liberally use, copy, modify and distribute the software without cost, provided that users and modifiers abide by certain licensing requirements. The original developers of the open sourceopen-source code provide no warranties on such code. 

As a result of the use of open sourceopen-source software, we could be subject to suits by parties claiming ownership of what they believe to be their proprietary code or we may incur expenses in defending claims alleging non-compliance with certain open sourceopen-source code license terms. In addition, third-party licensors do not provide intellectual property protection with respect to the open sourceopen-source components of their products, and we may be unable to be indemnified by such third-party licensors in the event that we or our customers are held liable in respect of the open sourceopen-source software contained in such third-party software. If we are not successful in defending against any such claims that may arise, we may be subject to injunctions and/or monetary damages or be required to remove the open sourceopen-source code from our products. Such events could disrupt our operations and the sales of our products, which would negatively impact our revenues and cash flow. 

Moreover, under certain conditions, the use of open sourceopen-source code to create derivative code may obligate us to make the resulting derivative code available to others at no cost. The circumstances under which our use of open sourceopen-source code would compel us to offer derivative code at no cost are subject to varying interpretations. If we are required to publicly disclose the source code for such derivative products or to license our derivative products that use an open sourceopen-source license, our previously proprietary software products may be available to others without charge. If this happens, our customers and our competitors may have access to our products without cost to them, which could harm our business. Certain open sourceopen-source licenses require as a condition to use, modification or distribution of such open sourceopen-source that proprietary software incorporated into, derived from or distributed with such open sourceopen-source be disclosed or distributed in source code form, be licensed for the purpose of making derivative works or be redistributable at no charge. The foregoing may under certain conditions be interpreted to apply to our software, depending upon the use of the open sourceopen-source and the interpretation of the applicable open sourceopen-source licenses.

We monitor our use of open sourceopen-source code to avoid subjecting our products to conditions we do not intend. The use of open sourceopen-source code, however, may ultimately subject some of our products to unintended conditions so that we are required to take remedial action that may divert resources away from our development efforts.

We are subject to ongoing costs and risks associated with being a public company, including potential lawsuits.

As an Israeli company subject to U.S. federal securities laws, we spend a significant amount of management time and resources to comply with laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, Securities and Exchange Commission, or SEC, regulations, Nasdaq listing rules and the Israeli Companies Law, 1999, or the Companies Law, or the Israeli Companies Law”. In connection with our compliance with Section 404 and the other applicable provisions of the Sarbanes-Oxley Act of 2002, our management and other personnel devote a substantial amount of time to assure that we continue to comply with these requirements. There is no guarantee that these efforts will result in management assurance that our internal control over financial reporting is adequate in future periods. If our internal controls are found to be ineffective in future periods, it could harm our operations, financial reporting or financial results.

Since we are a public company in the United States, the cost of our directors’ and officers’ liability insurance has significantly increased over recent years, as a result of which we have decided not to renew suchpurchase minimal coverage insurance. Instead, ourOur directors and officers rely on indemnification agreements provided by us. Accordingly, any lawsuits against our directors and officers could result in expensive legal expenses, settlements and judgments that we would be required to bear, which would harm our financial condition.

Risks Relating to our Billing and Related Services Business

System disruptions and failures may result in customer dissatisfaction, customer loss or both, which could materially and adversely affect our reputation and business.

Our billing systems are an integral part of our customers’ business operations. The continued and uninterrupted performance of these systems for our customers is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide services to them.

Our ability to serve our customers depends on our ability to protect our systems and infrastructure against damages and unexpected adverse events. We also depend on various cloud providers and co-location datacenter providers which provide us environments, tools and applications on which we provide our products. Although we maintain insurance that we believe is appropriate for our business and industry, such coverage may not be sufficient to compensate for any significant losses that may occur as a result of any of these events. In addition, we have experienced systems outages and service interruptions in the past, none of which has had a material adverse effect on us. However, a prolonged system-wide outage or frequent outages could cause harm to our customers and to our reputation and reduce the attractiveness of our services significantly, which could result in decreased demand for our products and services and could cause our customers to make claims against us for damages allegedly resulting from an outage or interruption. Any damage or failure that interrupts or delays our operations could result in material harm to our business and expose us to material liabilities.

The customer base for our billing and customer care products is characterized by small to medium size communication service providers, or CSPs. If this market segment fails to grow, the demand for our billing and customer care software would diminish substantially.

Our billing and customer care products target small to medium size carriers. Our growth in this field depends on continued growth of carriers of this size. We cannot be certain that carriers of this size will be able to successfully compete with large CSPs. If this market segment fails to grow, the demand for our billing and customer care software would diminish substantially and our business would suffer. In addition, there may never be significant demand for new billing and customer care software by providers of telecom services.

If we experience loss of one or more existing billing customers, we may suffer a decrease in revenues, reputation and profitability.

A significant part of our revenues is derived from our existing customer base, maintenance agreements, customizations and additional professional services. Small service providers may be acquired by larger carriers and replace our solutions with the buyer’s existing billing platform, cease operations due to lack of funding, or terminate their relationship with us due to their financial condition, loss of market share and competitive pricing, as occurred with customers of ours over the years. If one or more customers cease using our solutions or services due to replacements or any other reason, our business and results of operations would suffer.

From time to time, our billing software and the systems into which it is integrated contain undetected errors. This may cause us to experience a significant decrease in market acceptance and use of our software products and we may be subject to warranty and other liability claims.

From time to time, our billing software, as well as the systems into which it is integrated, contains undetected errors. Because of this integration, it can be difficult to determine the source of the errors. Also, from time to time, hardware systems we resell contain certain defects or errors. As a result, and regardless of the source of the errors, we could experience one or more of the following adverse results:

In addition, we may be subject to claims based on errors in our software or mistakes in performing our services. Our licenses and agreements generally contain provisions such as disclaimers of warranties and limitations on liability for special, consequential and incidental damages, designed to limit our exposure to potential claims. However, not all of our contracts contain these provisions and we cannot assure you that the provisions that exist will be enforceable. In addition, while we maintain product liability and professional indemnity insurance, we cannot assure you that this insurance will provide sufficient, or any, coverage for these claims. A product liability or professional indemnity claim, whether or not successful, could adversely affect our business by damaging our reputation, increasing our costs, and diverting the attention of our management team.

Risks Relating to our Messaging Business

Our messaging business depends on customers increasing their use of our messaging products, and any loss of customers or decline in their use of our products could materially and adversely affect our business, results of operations and financial condition.

Our ability to grow our mobile messaging business and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing messaging customers and to have them increase their usage of our messaging platform. If our customers do not increase their use of our messaging products, then our revenue may decline and our results of operations may be harmed. Messaging customers are charged based on the usage of our products. Most of these customers do not have long-term contractual financial commitments to us and, therefore, they may reduce or cease their use of our products at any time without penalty or termination charges. Messaging customers may terminate or reduce their use of our products for any number of reasons, including if they are not satisfied with our products, the value proposition of our products or our ability to meet their needs and expectations. We cannot accurately predict customers’ usage levels, and the loss of customers or reductions in their usage levels of our products may each have a negative impact on our business, results of operations and financial condition. If a significant number of messaging customers cease using, or reduce their usage of our products, it could harm our operations, financial reporting or financial results.

If we are unable to attract new messaging customers in a cost-effective manner, then our business, results of operations and financial condition would be adversely affected.

In order to grow our messaging business, we must continue to attract new customers in a cost-effective manner. We use a variety of marketing channels to promote our messaging products and platform, such as regional customer events and telemarketing campaigns. We will incur marketing expenses before we are able to recognize any revenue that the marketing initiatives may generate, and these expenses may not result in increased revenue or brand awareness. We may make significant expenditures and investments in new marketing campaigns, and we cannot guarantee that any such investments will lead to the cost-effective acquisition of additional customers. If we are unable to maintain effective marketing programs, then our ability to attract new customers could be materially and adversely affected, our marketing expenses could increase substantially and our results of operations may suffer.

If we are unable to increase adoption of our messaging products by enterprises, our business, results of operations and financial condition may be adversely affected.

Our ability to increase the customer base of our messaging business, especially among enterprises, and achieve broader market acceptance of our messaging products will depend, in part, on our ability to effectively organize, focus and train our sales and marketing personnel.

As we seek to increase the adoption of our messaging products by enterprises, we expect to incur higher costs and longer sales cycles. In the enterprise market segment, the decision to adopt our products may require the approval of multiple technical and business decision makers, including security, compliance, procurement, operations and IT. In addition, while enterprise customers may quickly deploy our products on a limited basis before they will commit to deploying our products at scale, they often require extensive education about our products and significant customer support time, engage in protracted pricing negotiations and seek to secure readily available development resources. In addition, sales cycles for enterprises are inherently more complex and less predictable, and some enterprise customers may not use our products enough to generate revenue amounts that justify our cost to acquire such customers. In addition, these complex and resource intensive sales efforts could place additional strain on our product and engineering resources. Further, enterprises, including some of our customers, may choose to develop their own messaging solutions that do not include our products. They also may demand reductions in pricing as their usage of our products increases, which could have an adverse impact on our gross margin. As a result of our limited experience selling and marketing messaging products to enterprises, our efforts to sell to these potential customers may not be successful. If we are unable to increase the messaging revenue that we derive from enterprises, then our business, results of operations and financial condition may be adversely affected.

To deliver our messaging products, we rely on network service providers for our messaging services.

We currently interconnect with network service providers around the world to enable the use by our customers of our messaging products over their networks. We expect that we will continue to rely heavily on network service providers for these services going forward. Our reliance on network service providers has reduced our operating flexibility, ability to make timely service changes and control quality of service. In addition, the fees that we are charged by network service providers may change daily or weekly, while we do not typically change our customers’ pricing as rapidly.

Furthermore, many of these network service providers do not have long-term committed contracts with us and may terminate their agreements with us without notice or restriction. If a significant portion of our network service providers stop providing us with access to their infrastructure, fail to provide these services to us on a cost-effective basis, cease operations or otherwise terminate these services, the delay caused by qualifying and switching to other network service providers could be time consuming and costly and could adversely affect our business, results of operations and financial condition. Further, if problems occur with our network service providers, it may cause errors or poor-quality communications with our products, and we could encounter difficulty identifying the source of the problem. The occurrence of errors or poor quality communications on our messaging products, whether caused by our platform or a network service provider, may result in the loss of our existing customers or the delay of adoption of our products by potential customers and may adversely affect our business, results of operations and financial condition.

We may have to lower our prices for messaging products or change our pricing model from time to time.

We charge our customers based on their use of our messaging products. We expect that we may need to change our pricing from time to time. In the past we have sometimes reduced our prices either for individual customers in connection with long-term agreements or for a particular product. One of the challenges to our pricing is that the fees that we pay to network service providers over whose networks we transmit communications can vary daily or weekly and are affected by volume and other factors that may be outside of our control and difficult to predict. This can result in us incurring increased costs that we may be unable or unwilling to pass through to our customers, which could adversely impact our business, results of operations and financial condition.

Further, as competitors introduce new messaging products or services that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing. As we expand internationally, we also must determine the appropriate price to enable us to compete effectively internationally. Moreover, enterprises, which are a primary focus for our direct sales efforts for our messaging products, may demand substantial price concessions. In addition, if the mix of products sold changes, including for a shift to IP-based products, then we may need to, or choose to, revise our pricing. As a result, in the future we may be required or choose to reduce our prices or change our pricing model, which could adversely affect our business, results of operations and financial condition.

Defects or errors in our messaging products could diminish demand for these products, harm our business and results of operations and subject us to liability.

Our customers use our messaging products for important aspects of their businesses, and any errors, defects or disruptions to our products and any other performance problems with our products could damage our customers’ businesses and, in turn, hurt our brand and reputation. We provide regular updates to our messaging products, which may contain undetected errors, failures, vulnerabilities and bugs when first introduced or released. Real or perceived errors, failures or bugs in our products could result in negative publicity, loss of or delay in market acceptance of our messaging platform, loss of competitive position, lower customer retention or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from defects or disruptions in our products. As a result, our reputation and our brand could be harmed, and our business, results of operations and financial condition may be adversely affected.

We face a risk of litigation resulting from customer misuse of our messaging software to send unauthorized messages in violation of applicable laws.

The actual or perceived improper sending of messages with our messaging software may subject us to potential risks, including liabilities or claims relating to consumer protection laws. For example, the U.S. Telephone Consumer Protection Act of 1991 restricts telemarketing and the use of automatic SMS text messages without proper consent. The scope and interpretation of the laws that are or may be applicable to the delivery of messages are continually evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face direct liability.

In addition, if our customers’ use of our messaging products will not adhere to privacy regulations and messaging rules, they and us may be blocked from sending more messages through specific channels and may be fined for such conduct. Our failure to prevent such infringements could have a material adverse effect on our business.

System disruptions and failures may result in customer dissatisfaction, customer loss or both, which could materially and adversely affect our reputation and business.

We provide real time messaging services to our customers. The continued and uninterrupted performance of these services for our customers is critical to our success. Customers may become dissatisfied by any service failure that interrupts their business, which could lead them to stop using our messaging services. This could materially and adversely affect our reputation and business.

Changes to regulations or technology vendor rules could materially and adversely affect our business.

We use messaging technologies and products, such as SMS and WhatsApp, to deliver messages from our customers to consumers. Changes in rules and regulations may prevent us from using some services, which may block our ability to grow our services and have a material adverse effect on our business.

Risks Relating to our Ordinary Shares

Our share price has fluctuated and could continue to fluctuate significantly.

The market for our ordinary shares, as well as the prices of shares of other technology companies, has been volatile. The price of our ordinary shares has fluctuated significantly over the years.

We do not control these matters and any of them may adversely affect our share price. In addition, trading in shares of companies listed on the Nasdaq Global Market in general and trading in shares of technology companies in particular has been subjected to extreme price and volume fluctuations that have been unrelated or disproportionate to operating performance. These broad market and industry factors may depress our share price, regardless of our actual operating results. Given the likely volatility that exists for our ordinary shares, sales of a substantial number of our ordinary shares could cause the market price of our ordinary shares to decline.

If we are characterized as a passive foreign investment company, our U.S. shareholders will be subject to adverse tax consequences.

If, for any taxable year, either (i) 75% or more of our gross income is passive income; or (ii) 50% or more of our assets, averaged over the year and generally determined based upon value, including cash (even if held as working capital), produce or are held to produce passive income, we may be characterized as a “passive foreign investment company”, or PFIC for United States federal income tax purposes. For this determination, passive income includes dividends, interest, royalties, rents, annuities and the excess of gain over losses from the disposition of assets that produce passive income.

As a result of our cash position and the value of our assets, we may be deemed to be a PFIC for U.S. federal income tax purposes.

If we are characterized as a PFIC, our shareholders who are residents of the United States will be subject to adverse U.S. tax consequences. Our treatment as a PFIC could result in a reduction in the after-tax return to shareholders resident in the United States and may cause a reduction in the value of our shares. If we were to be treated as a PFIC, our shareholders will be required, absent certain elections, to pay an interest charge together with tax calculated at the then prevailing highest tax rates on ordinary income on certain “excess distributions” including any gain on the sale of Ordinary Shares. The consequences of holding shares in a PFIC are described below under “Additional Information - United States Federal Income Tax Consequences - Passive Foreign Investment Companies.” Prospective investors should consult with their own tax advisors with respect to the tax consequences applicable to them of investing in our Ordinary Shares.

At our upcoming annual meeting of shareholders, we plan to propose an amendment to ourOur articles of association adding a forum selection clause providingprovide that unless we consent to an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any claims arising under the Securities Act of 1933, as amended, or the Securities Act, which may limit the ability of our shareholders to initiate litigation against us or increase the cost thereof.

We plan to propose an amendment to ourOur articles of association to provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any claims arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions, and accordingly, both state and federal courts have jurisdiction to entertain such claims. While the proposed federal forum provision in our amended and restated articles woulddoes not restrict the ability of our shareholders to bring claims under the Securities Act, we recognize that it may limit shareholders’ ability to bring a claim in the judicial forum that they find favorable and may increase certain litigation costs, which may discourage the filing of claims under the Securities Act against the Company, its directors and officers. However, the enforceability of similar forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provision that we propose to add to our articles of association. If a court were to find the choice of forum provision contained in our articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations.

Risks Relating to Our Location in Israel

Potential political, economic and military conditions concerning Israel may harm our operating results.

Most of our senior management is located in Israel. Accordingly, our operating results are directly influenced by economic, political and military conditions in and relating to Israel. Since the establishment of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). In addition, Iran has threatened to attack Israel and is believed to be developing nuclear weapons. Iran is also believed to have a strong influence among parties hostile to Israel in areas that neighbor Israel, such as the Syrian government, Hamas in Gaza and Hezbollah in Lebanon. Any armed conflicts or political instability in the region, including an increase in the degree of violence between Israel and the Palestinians, could negatively affect business conditions and harm our results of operations. Furthermore, several countries, companies and trade groups restrict business with Israel and Israeli companies, and additional countries, companies and trade groups may restrict doing business with Israel and Israeli companies for political reasons. These restrictive laws and policies may seriously harm our operating results, financial condition or the expansion of our business. In addition, critics of the proposed judicial reforms in Israel warn that such reforms, if not moderated prior to enactment, may weaken Israel’s democratic institutions and therefore harm its economy. The situation in Israel or the region could adversely affect our operations if our customers and/or strategic alliespartners believe that instability in the region could affect our ability to fulfill our commitments.

It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities laws claims in Israel.

We are incorporated in the State of Israel. Substantially most of our executive officers and directors are nonresidents of the United States, and a substantial portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for a shareholder, or any other person or entity, to collect a judgment obtained in the United States against us or any of these persons, or to effect service of process upon these persons in the United States.

We have been informed by our legal counsel in Israel that it may be difficult to bring original actions in Israel to enforce civil liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing these matters.

Subject to specified time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil matter, including judgments based upon the civil liability provisions of the U.S. securities laws and including a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:

Provisions of Israeli law and our articles of association may delay, prevent or make difficult a change of control and therefore may depress the price of our stock.

Some of the provisions of our articles of association and Israeli law could, together or separately:

In particular, our articles of association provide that our board of directors will be divided into three classes that serve staggered three-year terms and authorize our board of directors to adopt protective measures to prevent or delay a coercive takeover, including without limitation the adoption of a “Shareholder Rights Plan.” In addition, Israeli corporate law regulates mergers and acquisitions of shares through tender offers, requires approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions. See Item 10.B “Memorandum and Articles of Associations - Mergers and Acquisitions under Israeli Law.” Furthermore, Israeli tax law treats stock-for-stock acquisitions between an Israeli company and a foreign company less favorably than does U.S. tax law. For example, Israeli tax law may subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for stock swap.

At our upcoming annual meeting of shareholders, we plan to propose an amendment to ourOur articles of association adding aprovide that the competent courts of Tel Aviv, Israel are the exclusive forum selection clause for substantially all disputes between us and our shareholders under the Companies Law and the Securities Law, which could limit our shareholders’ ability to bring claims and proceedings against us, our directors, officers and other employees.

We plan to propose an amendment to ourOur articles of association to provide that the competent courts of Tel Aviv, Israel are the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to the Company or to our shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law, 1968, or the Securities Law. This proposed exclusive forum provision is intended to applyapplies to claims arising under Israeli law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive forum provision woulddoes not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us, our directors, officers and employees.

Item 4. Information on the Company

A. History and Development of the Company.

General

Our name is MIND C.T.I. Ltd. for both legal as well as commercial purposes. We were incorporated under the laws of the State of Israel on April 6, 1995 as a company with limited liability, and we are subject to the Israeli Companies Law and the regulations promulgated thereunder. Our principal executive offices are located at 2 HaCarmel Street, Yoqneam 2066724, Israel. Our telephone number is +972 4 993 6666. Our agent in the United States is MIND Software, Inc. and its principal offices are located at 10306 Eaton Pl., Suite 300, Fairfax, VA 22030, USA.

Principal Capital Expenditures

During 2019,2022, 2021 and 2020, and 2021, the aggregate cash amount of our capital expenditures was $52$130 thousand, $68$82 thousand, and $82$68 thousand, respectively. These expenditures were mainly for the purchase of equipment and licenses for software tools to be used by our engineering teams. We currently have no material commitments for capital expenditures.

B.  Business Overview

Overview

We develop, manufacture, market and implement convergent billing and customer care software solutions for communication service providers, including traditional wireline and wireless, voice over IP, or VoIP, broadband IP network operators, wireless internet service providers, or WISPs, LTE operators, cable operators and mobile virtual network operators, or MVNOs.

Our convergent billing and customer care solution supports multiple services, including voice, data and content services as well as prepaid, postpaid and pay-in-advance payment models in a single platform. It includes a powerful workflow engine to support the implementation of business processes, such as subscriber registration, order management, trouble ticket and debt collection, providing a high level of customization to our customer operation flows.

It also includes an integral point of sale (POS) solution that extends our offering to cover all dealer, store and cashier management and sales cycle related activities. Our solution is built upon a multi-layered architecture supporting real-time distributed processing, achieving high performance, scalability and high availability.

MINDBill can be installed on-premises or in a cloud environment.

As part of our offering, we provide professional services, primarily to our billing and customer care customers, consisting of turnkey project delivery, customer support and maintenance services, integration, customizations and project management. Our professional services also include enhanced support options, known as managed services, which are performed from our offices. These managed services include performing day to day billing operational tasks.

In addition to our billing and customer care solutions, we offer unified communications analytics solutions and call accounting systems, which we call PhonEX ONE. PhonEX ONE is used by organizations around the world for call accounting, telecom expense management, traffic analysis and fraud detection. PhonEX ONE delivers a full-management solution including real-time and historical data dashboards, providing in-depth analysis of every session type specific to unified communications as well as traditional/VoIP PBXs, for monitoring and optimizing telephony communication networks and unified communications platforms. The flexible and scalable architecture of PhonEX ONE meets the needs of large enterprises, supporting an unlimited number of extensions, users and sites, it provides full functionality through a web browser, based on Microsoft SQL database and the advanced ASP.NET technology.

In addition, from 2019, following the acquisitions of Message Mobile GmbH, or Message Mobile and GTX GmbH, or GTX, we offer enterprise messaging services and wholesale messaging services and mobile payment services.

Our enterprise mobile messaging platform enables enterprises to easily communicate with clients and partners via text / SMS, instant messaging or voice. The platform may be integrated with the customers’ CRM or marketing automation platforms. The messaging services are used by businesses for direct communication with their customers for several reasons, such as customer care, notifications, appointments, OTPs (one-time passwords) and marketing.

Our wholesale mobile messaging business offers wholesale messaging services and messaging termination services on our software platform. The software is designed to provide advanced routing functionality enabling us to offer competitive wholesale and termination prices to other aggregators and service providers. The payment for the wholesale and termination services is based on volume (number of messages) and is being calculated and paid every month. In most cases, there are long-term contracts with other aggregators for the wholesale and termination services, but the prices are being negotiated ad-hoc based on demand.

Our mobile payment services to businesses are offered over a proprietary software platform. These services allow consumers (end users) to pay for their purchases via their mobile phone bill. The billing process is operated by us and is activated by the consumers either via a mobile message transaction (SMS) or via an online process (online billing).Market Opportunity

Our Market Opportunity

Billing and Customer Care Industry

Billing and customer care are critical to telecommunications service providers as they enable them to manage customer relations, track and bill for usage, and launch, deploy and charge new services and bundles, marketing programs and rate plans. The need for comprehensive billing solutions is driven by the market trend that requires service providers to introduce new services, to be innovative in creating new product offerings and to optimize business processes for maximum efficiency. We provide tier 2 and tier 3 service providers with flexible, easy to deploy, truly convergent and scalable billing solutions.

From time to time, telecommunications service providers initiate searches for billing solutions to replace existing ones in order to offer additional services, reduce costs and improve service. In addition, our existing customers occasionally consider adding new modules that we developed to their existing platform, replacing other vendors or migrating to a newer version with up-to-date technology and enhanced functionality.

Also,Also, from time to time, new providers surface and introduce new offering to the market or try to attract a specific targeted customer base. They build new infrastructure or resell traffic and initiate searches for billing solutions.

Mobile Messaging

The global messaging market, via SMS and IP messaging, is growing, with new use cases added every year and enterprises moving their operation and marketing activities from traditional mail and email channels to mobile messaging technologies. Application to person, or A2P, messaging continues to grow as the most effective way for businesses to engage with consumers and is also believed to be the most trusted form of communication. Our Communications Platform as a Service, or CPaaS, provides simple APIs with well-defined ways to easily integrate messaging into the enterprise’s legacy systems (such as CRM) or our own applications. Our platform helps our customers to reduce costly in-house development and the need to negotiate complex commercial agreements with service providers.

Our Strategy

Our objective is to be a leader in the market for convergent billing and customer care software for tier 2 and tier 3 service providers, to increase our presence in mobile messaging and to remain as profitable as possible in an increasingly competitive environment.

We introduced our billing and customer care software in 1997. We believe that our customer base, high customer satisfaction and our reputation for offering high quality, reliable platform provide us with brand name recognition. We continually invest in research and development to enhance our products with additional modules to address the digitalization of the telecom industry.

The key elements of our strategy to increase our presence in mobile messaging include:

Billing and Customer Care Solutions

The key functionalities of our billing and customer care solutions are as follows:

Enterprise Software

Our enterprise product, known as PhonEX ONE, is used by corporations for telecom expense management, call accounting, traffic analysis and fraud detection. It allows organizations to more effectively manage their telecommunications resources. PhonEX ONE is a call management system that collects, records and stores all call information and enables:

PhonEX ONE can be installed on-premises or in a cloud environment.

Some of its major advantages are:

Mobile Messaging

Following the acquisition of Message Mobile and GTX in 2019, we offer messaging and payment solutions to enterprise and wholesale customers. We plan to expand the range of services we offer and the technological vehicles used to deliver them to our customers, and to increase the rate of new customer acquisition by facilitating self-registration and on-boarding for new customers, and by offering competitive pricing and quality services.

Technology

Technology

Our software products are based on an open architecture, which was developed using industry standard API that enables it to readily integrate with other software applications. These application program interfaces create an object-oriented, multi-layered architecture that support a distributed environment. Our object-oriented technology enables the design and implementation of software utilizing reusable business objects rather than complex procedural codes. We implement our software in a distributed configuration. This allows further customization and solution adjustment based on modules to be installed on different servers to support the system’s scalability and security. We utilize a business processes workflow environment that facilitates the implementation of tailored and automated business processes to fit our customers’ unique business rules.

We believe that our technology allows us to offer products with the following benefits:

Our messaging and payment services are based on our modern, cloud-based messaging platforms developed by our subsidiaries in Germany.

Sales and Marketing

We conduct our sales and marketing activities primarily directly. We also work with appointed distributors and resellers throughout the world.

Our marketing programs are focused on creating awareness, interest and preference for our products and services. We engage in a variety of marketing activities, including:

Principal Markets

The following table shows our revenues for each of the past three years classified by type of revenue and geographic region.

Customers

Billing and Customer Care Solutions

Our billing and customer care solutions have been installed for a large base of customers worldwide, including:

Enterprise Software

Our enterprise software products have been installed for a large base of customers worldwide, including international banking firms, global technology leaders, government agencies and other thousands of small to very large organizations.

Messaging and Payment Services

Our messaging and payment solutions are used by more than 100 enterprise customers, mostly in Germany.

Competition

Billing and Customer Care Solutions

Competition in the market for billing and customer care software is intense and we expect competition to continue to be strong.

We believe that our competitive advantage is based on:

Some of our competitors have greater financial, technical, sales, marketing and other resources and greater name recognition than we do. Some of our competitors have lower cost structure and compete with us on pricing. Current and potential competitors have established, and may establish in the future, cooperative relationships among themselves or with third parties to increase their ability to address the needs of prospective customers. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share and their solutions could achieve greater market acceptance than our solutions.

Enterprise Software

Our competitors in the market for enterprise software products are mainly local companies. To compete effectively, companies must be able to offer adequate technical support and ongoing product development. In addition, multinational companies prefer call accounting systems that can be installed at their various offices throughout the world, and therefore require call accounting products that are multilingual and support the local telecommunication requirements. The principal factors upon which we compete are scalability, ease of use, being certified by major IP switch vendors and the multi-lingual and multi-currency nature of our system.

Messaging and Payment

Our competition in the messaging and payment market comes from a few international companies, such as Sinch AB and CM.com, and from many small, local service providers in Germany. Our competitive advantage is based on a combination of technology and service – our ability and will to tailor our services to the needs of enterprise customers.

C.  Organizational Structure

Set forth below is a list of our significant subsidiaries:

D.  Property, Plant and Equipment

Our headquarters are located in Yoqneam, Israel, approximately 50 miles north of Tel Aviv. We lease approximately 5,800 square feet at our Yoqneam headquarters and approximately 3,000 square feet in Luneburg, Germany. We also lease approximately 15,5507,900 square feet in Iasi, Romania and approximately 7,400 square feet in Suceava, Romania. The offices in Iasi and Suceava are used primarily for software development and for customer support.

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and the related notes included elsewhere in this annual report. The following discussion contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in certain circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified under “Forward-Looking Statements and Summary Risk Factors” and under “Risk Factors” elsewhere in this annual report.

Overview

Overview

We were incorporated in Israel in 1995 and started providing our enterprise software products in that year. In 1997, we introduced our billing and customer care software for Voice over IP. We have enhanced our billing solutions since then to support multiple IP services, wireless and wireline carriers and triple play (voice, data and content) service providers. Following the acquisitions completed during 2019 (see below), we, together with our subsidiaries, also provide enterprise and wholesale messaging, communication and payment solutions.

On March 25, 2019, we acquired Message Mobile GmbH, a leading provider of enterprise messaging, communication and payment solutions, based in Germany, with more than 15 years’ experience in the mobile industry. Its messaging platform enables enterprises to easily communicate with clients and partners via text / SMS, voice and instant messaging services like WhatsApp, Facebook Messenger and Telegram. Message Mobile also offers mobile payment solutions that use phone bill charging for a wide range of applications, such as mobile parking payment.

On September 25, 2019, we acquired GTX GmbH, a company based in Germany offering global SMS services for B-2-B customers, providing business partners a robust and easy-to-use system to send SMS messages to end-users at the best possible quality and attractive pricing, acting as a one-stop-platform for clients aiming to extend their messaging activities on different channels, e.g., WhatsApp, Chatbot on Messenger and Rich Communication Services (RCS).

In 2021, 46%2022, 54% of our total revenues were derived from providing our billing and customer care software, 46%35% of our total revenues were derived from enterprise messaging and payment solutions and 8%11% of our total revenues were derived from providing our enterprise software. In 2021,2022, services represented 94%97% of our total revenues and license fees represented 6%3% of our total revenues.

In 2019,2022, one customer accounted for approximately 12% of our total revenues. In 2021and 2020, and 2021, no customer accounted for more than 10% of our total revenues. We expect to continue to derive sizeable revenues from a small number of changing customers.

Consolidation in the telecom markets was not favorable to us in the last years, and we closed fewer deals than in previous years. Accordingly, we expect challenges in maintaining our revenues and our profitability levels in the near term.

Our dividend policy is to declare a dividend distribution once per year, in the approximate amount of our EBITDA for the preceding year plus net financial income (expenses) minus taxes on income, subject to specific board of directors’ approval and applicable law. Since 2003, our cash dividends amount to approximately $5.30$5.54 per share (including the dividend declared in 2022March 2023 in respect of 2021)2022). The amount per share that we distributed in 2020each of 2022 and 2021 was $0.24 and $0.26, respectively, and a dividend of $0.26$0.24 per share was declared in March 2022.2023. The board of directors’ decision to approve the annual distribution is based, among other factors, on our cash position at that time, potential acquisitions and future cash needs. Our board of directors may decide to discontinue the dividend distribution in whole or in part at any time.

In previous reporting periods (until the year ended on December 31, 2018), we operated in one reportable segment (billing and related services). Following the acquisition of Message Mobile on March 25, 2019 (see above), management determined that we operate since that date in two reportable segments, the second one being messaging.

Revenues. In the billing and related services segment, we are paid license fees by our customers for the right to use our products, based on (i) traffic volume, which is measured by factors such as number of subscribers, and (ii) the functionality of the system, based on application modules that are added to the software. In relation to our professional services, other than maintenance services and managed services, we mainly quote a fixed price based on the type of service offered, estimated direct labor costs and the expenses that we will incur to provide these services. We also provide Agile development teams that perform solution enhancements, each dedicated for a period of time to a specific customer, for a fixed cost per person per month. Fees for maintenance services are based on a percentage of the solution fee and are paid annually, quarterly or monthly. Fees for managed services are primarily based on the number of subscribers or customers business volume and are paid monthly.

We primarily use two business models when we sell our solutions in the billing and related services segment, the license model and the managed services model. In the license model, the customer pays a one-time implementation fee, a one-time license fee for a perpetual license limited by the traffic metrics chosen by the customer, and additional fees to expand the chosen traffic metrics limitation. In addition, we are paid maintenance fees to renew periodically the maintenance agreement at the customer discretion. In the managed services model, the customer pays a one-time implementation fee, a monthly fee that includes a periodic license (right to use), maintenance and services fees, calculated by the metrics chosen by the customer (mainly, number of subscribers).

In the messaging segment, revenues are derived from customers using our messaging software platform, when the messaging service has been rendered, i.e., the messages are delivered to recipient.

We also offer payment solutions where our customer can enable their customers (the end users) to pay for goods or services by charging their mobile phone account. For these services we are entitled to a share of the processed transactions/payment.

We provide a revenue breakdown for our billing and customer care software, our messaging and payment solutions and our enterprise call management software. We believe that this information provides a better understanding of our performance and allows investors to make a more informed judgment about our business.

Cost of Revenues. In the billing and related services segment, the cost of revenues consists primarily of direct labor costs and overhead expenses related to software installation and maintenance. Cost of revenues also includes, among other things, software license fees to third parties, primarily Oracle, hardware, travel expenses and shipping costs.

In the messaging segment, the cost of revenues consists primarily of fees paid to network providers. Our arrangements with the network service providers require us to pay fees based on the volume of text messages sent, as well as telephone numbers acquired by us to service our customers.

Research and Development Expenses. Our research and development expenses consist primarily of compensation, overhead and related costs for research and development personnel and depreciation of equipment. Research and development costs related to software products are expensed as incurred until the “technological feasibility” of the product has been established. Because of the relatively short time period between “technological feasibility” and product release, no software development costs have been capitalized. We expect to continue to make investments in research and development.

Selling and Marketing Expenses. Our selling and marketing expenses consist primarily of compensation, overhead and related costs, for sales and marketing personnel, the operation of international sales offices, sales commissions, marketing programs, public relations, promotional materials, travel expenses, trade shows and exhibition expenses.

General and Administrative Expenses. Our general and administrative expenses consist primarily of compensation, overhead and related costs for executives and administrative personnel, professional fees, directors’ fees, insurance, provisions for doubtful accounts and other general corporate expenses.

Financial Income, Net. Our financial income, net consists mainly of interest earned on bank deposits and short-term investments, gains and losses from the change in value and realization of marketable securities, gains and losses from the conversion of monetary balance sheet items denominated in non-dollar currencies into dollars, net of financing costs, and bank charges.

Taxes on Income. See “Corporate Tax Rate” below.

A. Operating Results

The following discussion of our results of operations for the years ended December 31, 20202022 and 2021, including the percentage data in the following table, is based upon our statements of operations contained in our consolidated financial statements for those years, and the related notes thereto, included in Item 18:18:  

Comparison of the Year Ended December 31, 20212022 to the Year Ended December 31, 20202021

Revenues

Total revenues increaseddecreased from $23.4 million in 2020 to $26.3 million in 2021 to $21.5 million in 2022, mainly attributable to an increasea decrease in revenues in our messaging segment, from $8.7$12.0 million in 20202021 to $12.0$7.7 million in 2021.2022. This decrease is mainly due to unusual growthhigher revenues in 2021 that was primarily attributed to the high messages volumes in Q2 and Q3 of 2021, related to specific COVID-19 regulations in Germany. This exceptional increase wasGermany that were temporary in nature and doesdid not represent a trend.

Revenues from our billing and customer care solutions for service providers decreased from $12.1 million in 2021 to $11.5 million in 2022. The decrease was primarily attributed to the loss of one large customer and the lower revenues from our new customers. We expect a future trend of market decline due to shrinking relevant telecom markets and strong competition.

Revenues from our enterprise products increased slightly from $2.2 million in 2021 to $2.3 million in 2022. The increase was primarily attributed to a few major upgrades to the latest version at existing customers. Nevertheless, we continue to expect that this market will generally decline.

Revenues from our billing and customer care solutions for service providers increasedlicenses decreased from $12.0$1.5 million in 20202021 to $12.1$0.6 million in 2021.2022. The increasedecrease was primarilymainly attributed to the fact that in 2021 we received a one-time large increase in license revenues, based on an increase in the number of subscribers at two customers, but we expect a future trend of market decline due to shrinking relevant telecom markets and strong competition.

Revenues from our enterprise products decreased from $2.7 million in 2020 to $2.2 million in 2021. The decrease was primarily due to the trend of market decline, strong competition and the effect of the COVID-19 pandemic. We expect that the trend of market decline will continue.

Revenues from licenses increased from $1.4 million in 2020 to $1.5 million in 2021. The increase was attributed to the increase in our revenues from billing and customer care.customers. Revenues from services increaseddecreased from $22.0$24.8 million in 20202021 to $ 24.820.9 million in 2021,2022, primarily as a result of the increasedecrease in revenues in our messaging segment discussed above.

The following table presents the geographic distribution of our revenues:

Our revenues in the Americas decreased from $10.4 million in 2020 to $9.4 million in 2021.2021 to $8.5 million in 2022. The decrease was primarily due to the reduced budgets allocated by CSPs to replace or upgrade their billing solutions and the loss of a few customers in this area. We expendexpect this trend to continue.

Our revenues in Europe significantly increaseddecreased from $11.7 million in 2020 to $14.7 million in 2021.2021 to $11.3 million in 2022. The increasedecrease was primarily attributed to the increasedecrease in revenues in our messaging segment.segment, offset by an increase in revenues from our billing segment resulting mainly from the sales of upgrades to the latest version to two existing customers. The percentage of total revenues in Europe significantly increaseddecreased from 50.2% in 2020 to 55.8% in 2021 to 52.8% in 2022, due to the same reason.

Our revenues in Israel increaseddecreased from $0.9 million in 2020 to $1.4 million in 2021 to $0.8 million in 2022, mainly due to the one-time sale of licenses to one of our customers in Israel during 2021.

Cost of Revenues

Cost of Revenues

Total cost of revenues in 2021 increased2022 decreased by $1.3$2.4 million, or 11.7%19.3%, compared with 2020,2021, primarily due to the increasedecrease in revenues in our messaging segment, which generated cost of revenues of approximately $9.0$6.6 million during 20212022 and cost of revenues of approximately $6.8$9.0 million in 2020, offset by the decrease in expenses related to our billing segment.2021.

Gross profit as a percentage of total revenues increased from 52.3% in 2020 to 52.7% in 2021.2021 to 53.4% in 2022. The increase was primarily attributed to the increase in license revenues and thesignificant decrease in expenses related to theour messaging segment, which operates with lower gross margins than our billing segment.

Operating Expenses

Research and Development. The increasedecrease in our research and development expenses by 2.1%13.6% in 2021,2022 compared to 2020,2021 was primarily due to an increasea decrease in personnel expenses. Research and development expenses as a percentage of total revenues decreasedincreased from 17.0%15.4% in 20202021 to 15.416.2 % in 2021,2022, due to the significant increasedecrease in total revenues, attributed tooffset by the messaging segment and the fact thatdecrease in research and development in the messaging segment represents a lower percentage of revenues in comparison to our billing segment.expenses.

Selling and Marketing Expenses. Selling and marketing expenses increaseddecreased from $1.0 million in 2020 to $1.4 million in 2021 to $1.0 million in 2022, mainly attributable to an increasea decrease in commissions and personnel expenses. Selling and marketing expenses as a percentage of total revenues increaseddecreased from 4.2% in 2020 to 5.3% in 2021 to 4.5% in 2022, mainly due to the above-mentioned increase.decrease.

General and Administrative Expenses. General and administrative expenses decreased from $1.8 million in 2020 to $1.6 million in 2021 to $1.5 million in 2022, mainly due to a decrease in administrative personnel expenses, partially offset by an increase in professional services expenses incurred in 2021.expenses. General and administrative expenses as a percentage of revenues decreasedincreased from 7.8% in 2020 to 6.1% in 2021 to 7.1% in 2022, mainly due to the significant decrease in expenses as mentioned above and an increase in total revenues.

Impairment of Goodwill. No impairment of goodwill was required following the annual assesmentassessment performed during 2020each of 2021 and 2021.2022.

Financial Income, net. In 2022, financial income consisted of interest income on short-term bank deposits and marketable securities in the aggregate amount of $262 thousand, together with interest income on a long-term balance with a customer in the amount of $58 thousand, offset by a loss from currency exchange rate fluctuations in the aggregate amount of $99 thousand, interest on tax assessments in the aggregate amount of $60 thousand, realized and unrealized loss from marketable securities in the aggregate amount of $45 thousand and bank charges in an aggregate amount of $23 thousand. In 2021, financial income consisted of interest income on short-term bank deposits and income on marketable securities in the aggregate amount of $112 thousand, offset by loss from currency exchange rate fluctuations in the aggregate amount of $8 thousand, and bank charges in an aggregate amount of $49 thousand. In 2020, financial income consisted of interest income on short-term bank deposits and marketable securities in the aggregate amount of $255 thousand and gains from currency exchange rate fluctuations in the aggregate amount of $147 thousand, offset by bank charges in an aggregate amount of $23 thousand.

Taxes on Income.Taxes on income are comprised of current and deferred taxes. On a regular basis, we estimate our actual current tax exposures and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred taxes, which are included in our consolidated balance sheet. In 2022, our taxes on income in the amount of $330 thousand included taxes on income, mainly in Israel, in the amount of $335 thousand and a decrease in deferred taxes in the amount of $7 thousand, offset by a refund in Germany in the amount of $39 thousand. In 2021, our taxes on income in the amount of $936 thousand included taxes on income, mainly in Israel and in Germany, in the amount of $992 thousand ($687 thousand in Israel and $305 thousand in Germany) and an increase in deferred taxes in the amount of $96 thousand. In 2020, our taxes on income in the amount of $459 thousand included taxes on income, mainly in Israel, in the amount of $420 thousand and a decrease in deferred taxes in the amount of $59 thousand.

For a comparison of the year ended December 31, 20202021 to the year ended December 31, 2019,2020, please refer to Item 5 in our annual report on Form 20-F for the year ended December 31, 2020,2021, filed with the SEC on March 18, 2021.April 11, 2022.

Our Functional Currency

The currency of the primary economic environment in which we operate is the dollar. Although 55%52% of our revenues are denominated in Euro, approximately 40%44% of our revenues are denominated in dollars and the vast majority of our cash reserves and investments are denominated in dollars. Thus, the functional currency of the Company and certain subsidiaries is the dollar.

The Company and certain subsidiaries’ transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with Accounting Standards Codification, or ASC, 830, “Foreign Currency Matters”. All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of income as financial income or expenses, as appropriate.

For those subsidiaries whose functional currency has been determined to be a non-dollar currency, assets and liabilities are translated at year-end exchange rates, and statement of operation’s items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity.

Impact of Foreign Currency Fluctuations on Results of Operations

The dollar revenues and cost of our operations may be significantly influenced by currency fluctuations.

The weakening of the dollar in in relation to the Euro and the NIS would have a negative effect on our profitability because we incur a significant portion of our expenses, mainly personnel expenses, in Euro and NIS.

The weakening of the Euro in relation to the dollar would have a negative effect on our revenues because we incur a significant portion of our revenues in Euro.

Because exchange rates between the NIS and the Euro to the dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic devaluations would have an impact on our revenues, profitability and period-to-period comparisons of our results. The effects of foreign currency remeasurements are reported in our consolidated financial statements in current operations.

B.  Liquidity and Capital Resources

Since our inception, we have financed our operations mainly through cash generated by operations. We supplemented this source by two private rounds of equity financing, the first in 1997 (with a follow-on in 1999) and the second in 2000 and our initial public offering in 2000, which raised total net proceeds in the amount of $44.3 million.

As of December 31, 2021,2022, we had $4.2$5.2 million in cash and cash equivalents and $14.1$12.0 million in short-term bank deposits, and our working capital was $15$15.1 million. In our opinion, our working capital is sufficient for our requirements for the foreseeable future.

The majority of our cash and cash equivalents and our deposits are denominated in dollars.

Net Cash Provided by Operating Activities. Net cash provided by operating activities in 2022 was $4.6 million, attributable to our net income of $5.3 million, non-cash related items, net, in the amount of $0.5 million, a net decrease in operating assets and liabilities items in the amount of $1.3 million. Net cash provided by operating activities in 2021 was $6.9 million, attributable to our net income of $5.9 million, non-cash related items, net, in the amount of $0.3 million, a net increase in operating assets and liabilities items in the amount of $0.6million. Net cash provided by operating activities in 2020 was $6.5 million, attributable to our net income of $5.4 million, non-cash related items, net, in the amount of $0.3 million, a net increase in operating assets and liabilities items in the amount of $0.8$0.6 million.

The increasedecrease in net cash provided by operating activities of $0.4$2.3 million from 2021 to 2022 reflects mainly the decrease of $1.9 million in 2020operating assets and liabilities items from 2021 to 2021 reflects mainly an increase2022 and the decrease of $0.6 million in our net income from 20202021 to 2021, partially offset by a decrease of $0.2 million in operating assets and liabilities items from 2020 to 2021.2022.

Net Operating Working Capital

As of December 31, 2021,2022, net operating working capital was $15.0$15.1 million, compared with $14.0$15.0 million as of December 31, 2020.2021. The increase of $1.0$0.2 million is mainly due to an increasea decrease in tax and other accruals, offset by a decrease in our cash balances as a result of the net cash flows provided by our operating activities during 2021 of $6.9 million, offset by a dividend of $4.8 million paid to our shareholders in March 2021.position.

Cash Deposits

As of December 31, 2021,2022, we had approximately $ 14.0$12.0 million in bank deposits with maturities of between three and twelve months.

Marketable Securities

As of December 31, 2021,2022, we held marketable securities of approximately $210$174 thousand.

Net Cash Used in Investing Activities. In 2022, we decreased our investments in short-term bank deposits by $2.0 million. In 2021, we increased our investments in short-term bank deposits by $6.9 million, and we decreased our investments in marketable securities by $1.4 million. In 2020, we increased our investments in short-term bank deposits by $0.4 million, and we decreased our investments in marketable securities by $0.5 million.

Net Cash Used in Financing Activities. In each of 2022 and 2021, our financing activities used $5.2 million due to a cash dividend of $5.2 million. In 2020, our financing activities used $4.8 million due to a cash dividend of $4.8 million.

Capital Expenditures. The aggregate cash amount of our capital expenditures was $130 thousand and $82 thousand in 2022 and $68 thousand in 2021, and 2020, respectively. These expenditures were principally for the purchase of equipment, mainly for the upgrade of our hosted platform that services the messaging segment, vehicles and for our engineering teams. Although we have no material commitments for capital expenditures, we anticipate an increase in capital expenditures if we purchase or merge with companies or purchase assets in order to obtain complementary technology and to expand our product offerings, customer base and geographical presence.

Cash Dividends. Since 2003, we have distributed aggregate cash dividends of $5.30$5.54 per share to our shareholders, including $0.24 per share in March 2020 and $0.26 per share in March 2021, $0.26 per share in April 2022 and the dividend of $0.26$0.24 per share that we declared in March 2022.2023. For information about our dividend policy, please see Item 8 “Financial Information - Dividend Policy.”

C.  Research and Development, Patents and Licenses, etc.

We believe that investment in research and development is essential for maintaining and expanding our technological expertise in the market for billing and customer care software and to our strategy of being a leading provider of new and innovative convergent billing products. Our customers provide significant feedback for product development and innovation.

We have invested significant time and resources to create a structured process for undertaking research and product development. We believe that the method that we use for our product development and testing is well suited for identifying market needs, addressing the activities required to release new products, and bringing development projects to market successfully. Our product development activities also include the release of new versions of our products. Although we expect to develop new products internally, we may, based upon timing and cost considerations, acquire or license technologies or products from third parties.

We invested in research and development $3.4 million (or 16.2% of total revenues) in 2022 and $4.1 million (or 15% of total revenues) in 2021 and $4 million (or 17% of total revenues)2021. The decrease in 2020. The increase in 20212022 was mainly due to an increasea decrease in personnel expenses. Our engineering department comprised approximately 10382 employees as of December 31, 2021.2022.

D.  Trend Information

Our billing and customer care solutions target tier 2 and tier 3 service providers. Some service providers seek solutions that are implemented upon a native cloud architecture. However, we have not developedyet completed the development of our native cloud-based solutions, and this has harmed our competitive position.

Service providers are facing many challenges, including the need to reduce cost and offer new services. Wireline telephony is diminishing. Mobile operators, after incurring high investment expenses in deploying 5G networks, need to monetize on the high-speed connectivity and rich content offering. Subscribers expect customer support, uninterrupted service and full digitalization, while telcos seek ways to reduce workforce and increase profitability. Our solutions address those challenges as it enables them to rapidly deploy all types of services for prepaid and postpaid, residential and business customers. Our solution reduces the Total Cost of Ownership (TCO) with its end-to-end capabilities, its built-in mediation, provisioning, point-of-sale and automated business processes. MIND enhanced its solutions with eCommerce, Mobile App and Self-service modules that enable high quality service with Omnichannel architecture.

There is a need to replace outdated billing systems that are not secure due to old technologies and that require high costs to operate. Most telcos in our relevant segment are reluctant to heavily invest in transformation projects, and are turning to low cost point-solutions.low-cost solutions. This buying behavior results in lower demand for our comprehensive and sophisticated end-to-end solutions.

Accordingly, we had fewerour new customers in 2021, providing2022 provided lower initial proceeds. Also, the telecommunication market is undergoing consolidation and intensifying competition, and we have lost a few customers. We expect that these trends will negatively impact our revenues and profitability in 2022.2023.

The trend we expect in the messaging business is companies turning to Application to Person (A2P) messaging to reach and engage with their target audience in a reliable, fast and secure way. Essentially, A2P messaging allows an application to send a message (typically SMS or IP Messaging). Examples of these types of messages include bank alerts, shipping notifications from online stores, appointment reminders, promotional and loyalty program notifications and two-factor authentication one-time passcodes for account security.

E.  Critical Accounting Estimates

Our discussion and analysis of our consolidated financial statements of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. On a regular basis, we evaluate and may revise our estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent. Actual results could differ materially from the estimates under different assumptions or conditions.

Our most significantGoodwill impairment assessment is a critical accounting estimate. As a result of our acquisitions, our goodwill represents the excess of the consideration paid or transferred. Goodwill is subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. When we perform such analysis, we determine the fair value of a reporting unit, using discounted cash flows. In such analysis we apply assumptions that market participants would consider in determining the fair value of each reporting unit and the fair value of the identifiable assets and liabilities of the reporting units, as applicable.

Another critical accounting policy is revenue recognition. We have customer contracts in the Billing and Related Services segment where revenue is recognized over the term of the contracts (“over time”),time, as our performance does not create an asset with an alternative use and we have an enforceable right to payment, including a reasonable profit. We use labor hours incurred to measure progress towards completion of these contracts. The extent of progress towards completion is measured based on the total labor hours incurred compared to the total estimated labor hours for completion of the contracts. Our determination of revenue to be recognized for these contracts accounted for over time requires management to make significant estimates of the total labor hours needed to complete the contracts, including updates to those estimates throughout the life of the contracts. The estimate of the total number of hours to complete a project is inherently a matter of judgment and depends upon the complexity of the work being undertaken, the customization being made to software and the customer environment being interfaced to. The updates of the existing estimates isare not expected to have a significant impact on our financial condition or results of operations.

F.  [Reserved]

Item 6. Directors, Senior Management and Employees

A.  Directors and Senior Management

The following table sets forth certain information regarding our directors and executive officers as of the date of filing of this Annual Report:

The background of each of our directors and executive officers is as follows:

Monica Iancu.Ms. Iancu founded MIND and has been President and Chief Executive Officer of our company since inception and, until April 6, 2012, also served as the Chairperson. Ms. Iancu holds a B.Sc. degree in Computer Science and a Master’s degree in Telecommunications (with expertise in Voice and Data Integration over the Ethernet) from the Technion, Israel Institute of Technology.

Ran MendelawArie Abramovich. . Mr. MendelawAbramovich rejoined MIND in August 2021December 2022 as Chief Financial Officer, bringing over 18 years of experience in accounting, financial management and public companies. RanOfficer. Prior to rejoining MIND, Arie served as Corporate Assistant Controller at Albaad Massuot Yitzhak Ltd. (TASE: ALBA). From 2020 until 2021, Arie served as MIND’s CFO from May 2018 until June 2019. For two years before 2018, he served as a group controller in a public industrial company – Tadir-Gan Precision Products 1993 Ltd. (TASE: TDGN). PriorAssistant Controller and prior to that he served for ten years as senior managerSenior Accountant at PwC Israel.KPMG from 2017 until 2020. Mr. MendelawAbramovich holds a B.A. degree in Accounting and Economics from HaifaThe Jerusalem School for Business Administration, Hebrew University, and he is a Certified Public Accountant in Israel.

Gilad Parness. MrMr. Parness has served as our Vice President of Sales since June 2020. He joined MIND in 2004 as a team leader in MINDBill Support. Mr. Parness was promoted to Support Manager and later to Director Professional Services, leading the Sentori support team in 2007. In 2009 he joined our Sales and Account Management and in 2014 was promoted to Vice President of Enterprise Solutions leading the engineering, the support and the sales teams. Mr. Parness also serves as Executive Director of Message Mobile GmbH and GTX GmbH. Mr. Parness holds a Practical Engineer degree from Tel Chai College.

Oren Tanhum. Mr. Tanhum has served as our Vice President of Professional Services since 2016. He joined MIND in July 1997 as a software engineer and was involved in the development of all versions of our billing platform. Throughout his almost 20 years with us, he has been promoted in the R&D organization, filling leadership roles at various levels. Mr. Tanhum holds a B.A. degree in Mathematics and Computer Science from Haifa University.

Shoval Cohen Nissan. Mr. Cohen Nissan has served as our IT Manager since December 1998 and was promoted to Vice President of IT in 2016. Mr. Cohen Nissan leads the planning and management of the supporting infrastructure company-wide and the implementation of network security at the corporate level. He also acts as Purchasing Manager for our internal needs and customer solutions. Mr. Cohen Nissan holds a Practical Engineering degree from Braude College.

Victor Balteanu.Victor Balteanu has served as our VP Engineering since November 2020. He joined MIND in 2002 as a testing engineer. Between 2004 and 2006, he served as Subject Matter Expert at Amdocs (NASDAQ:DOX) and in 2006, he returned to MIND as a software developer. He was promoted within the organization to Team Leader in 2007, Group Leader in 2013 and Director of Engineering in 2019. Mr. Balteanu holds a B.A. degree in Automatic Control and Industrial Informatics from Gheorghe Asachi​Asachi Technical University of Iași.

Marian Scurtu.Marian Scurtu joined MIND in 2001 as a support engineer. Throughout his over 20 years with us he has been involved in the delivery of more than 40 projects around the world, filling various leadership roles including Project Manager and Program Manager. He was promoted to VP Customer Success in January 2022. Marian holds a B.Sc. degree in Computer Science from Gheorghe Asachi​Asachi Technical University of Iași and an M.B.A. from Alexandru Ioan Cuza University of Iasi.

Liviu Serea. Mr. Serea has served as General Manager of our Romania office since January 2001. Before joining MIND, for over five years Mr. Serea managed a local company involved in hardware assembly, distribution and support. Mr. Serea holds a M.Sc. degree in Electronics and Telecommunications from the Politechnic Institute of Iasi.

Meir Nissensohn. Mr. Nissensohn has served as our Chairman of the Board since 2020 and as a director of our company since 2014. Mr. Nissensohn served as the Chairman of the Board of Directors and Chief Executive Officer of IBM Israel Ltd. from 1996 to 2012, having joined IBM Israel as a computer programmer in 1969. Since his retirement from IBM, he serves in several Boards of Directors and is involved in various business initiatives. Mr. Nissensohn holds a B.Sc. in Industrial Engineering from the Technion – Israeli Institute of Technology, and an M.B.A. from Tel Aviv University.

Joseph Tenne. Mr. Tenne has served as an independenta director of our company since August 2014. Since May 2017, Mr. Tenne has servedserves as a financial consultant toexecutive at Itamar Medical Ltd. (NASDAQ and TASE), a NASDAQ-listed company thatwhich was acquired bysold in 2021 to ZOLL Medical Corporation, in December 2021.and from 2014 to 2017 he served as its Vice President Finance and CFO. Mr. Tenne serves as a director at AudioCodes Ltd. (NASDAQ and TASE: AUDC), at OPC Energy Ltd. (TASE: OPCE), at Highcon Systems Ltd. (TASE: HICN), at ElectReonElectreon Wireless Ltd. (TASE: ELWS), and at Sapir Corp Ltd. (TASE: SPIR). From 2014 to 2017, Mr. Tenne served as the CFO and VP Finance of Itamar Medical Ltd. From 2005 to 2013, Mr. Tenne served as the CFO of Ormat Technologies, Inc. (NYSE(NYSE). From 2003 to 2004, Mr. Tenne served as the CFO of Treofan Germany GmbH & Co. KG, a German private company. Mr. Tenne served as a director at Enzymotec Ltd. from 2013 to 2018, at Orbotech Ltd. from 2014 to 2019 and TASE: ORA).at Ratio Oil Exploration (Finance) from 2005 to 2021. From 1997 to 2003, Mr. Tenne was a partner in PwC Israel.Kesselman & Kesselman, Certified Public Accountants in Israel and a member of PricewaterhouseCoopers International Limited (PwC Israel). Mr. Tenne holds a B.A. degree in Accounting and Economics and an M.B.A. degree from Tel Aviv University. Mr. TenneUniversity, and he is also a Certified Public Accountant in Israel.

Itay Barzilay.Mr. Barzilay has served as a director of our company since May 2020. Since 2019 Mr. Barzilay has served as the CFO of Personetics. From 2010 to 2019, Mr. Barzilay held a number of finance leadership positions at Amdocs and most recently served as Vice President Finance for Amdocs Technology & Media and for Amdocs Global Services (NASDAQ: DOX). From 2008 to 2010, Mr. Barzilay was the CFO of MIND. From 2004 to 2008, Mr. Barzilay served in several finance management roles with Avaya. Mr. Barzilay is a Certified Public Accountant, holds a BA in Accounting and Economics from Tel Aviv University and an MBA from NYU’s Stern School of Business.

Amnon Neubach. Mr. Neubach had served as an external director of our company from 2001 until 2014 and rejoined our board of directors in 2021. Mr. Neubach served as Chairman of the Tel Aviv Stock Exchange Ltd. from 2014 to 2021. Mr. Neubach has served in various privately held companies and public companies as a director, a member of executive committees and in some as chairman of the board. Mr. Neubach holds a B.A. degree in Economics and Business Administration and an M.A. degree in Economics, both from Bar Ilan University.

To the best of our knowledge, there are no family relationships between any of the directors or members of senior management named above. To the best of our knowledge, there is no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.management.

B.  Compensation of Directors and Executive Officers

The aggregate direct remuneration paid to all persons who served in the capacity of director or executive officer during 20212022 was $1.5$1.6 million, including $0.1 million that was set aside for pension and retirement benefits. This does not include amounts expensed by us for automobiles made available to our officers or expenses, including business, travel, professional and business association dues and expenses, reimbursed to officers, and do not include equity-based compensation expenses.

During 2021,2022, we granted to our executive officers under our option plans options to purchase 20,000106,000 ordinary shares at exercise price of $0.003 per share. All these options expire in 2026.2027.

The table below outlines the compensation granted to our five most highly compensated office holders during or with respect to the year ended December 31, 2021.2022. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”

Summary Compensation Table

On June 24, 2013, at our 2013 annual general meeting of shareholders, our shareholders approved a new compensation policy for directors and officers. In accordance with the Companies Law, the compensation terms of office holders of public companies are required to be determined in accordance with a compensation policy that is reviewed and approved at least one every three years. The compensation policy for directors and officers was updated and re-approved by our shareholders at our 2016, 2017, 2018 and 2019 annual general meetings.

On May 4, 2017, our board of directors resolved that each of our external directors will be entitled to receive an annual fee of $13,200 and a participation fee of $680 per meeting. On August 9, 2017, payment in the same amounts to each of our non-executive directors was approved by our shareholders. At the meeting our shareholders also approved that the remuneration of those of our external directors who our Board classifies as “expert external directors” (as such term is defined in the Israeli Companies Law) will be 20% more than the remuneration of non-expert external directors.

C.  Board Practices

Board of Directors

Our board is divided into three classes of directors, denominated Class I, Class II and Class III. The term of Class I will expire in 2022,2025, Class II in 2023 and Class III in 2024. Monica Iancu is a member of Class I, Itay Barzilay and Joseph Tenne are members of Class II and Meir Nissensohn and Amnon Neubach are members of Class III. At each annual general meeting of shareholders, directors will be elected by a simple majority of the votes cast for a three-year term to succeed the directors whose terms then expire. There is no legal limit on the number of terms that may be served by directors.

Pursuant to regulations that took effect in April 2016, a Nasdaq-listed company that does not have a controlling shareholder is entitled to opt out of the provisions of the Companies Law requiring at least two external directors and certain related requirements, so long as the company complies with the SEC regulations and Nasdaq listing rules regarding independent directors and the composition of the audit and compensation committees. In May 2016, our board of directors decided to adopt this relief, subject to the shareholder approval of related amendments to our articles of association, which occurred in August 2016.

Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting experience, as defined in the regulations, which our board of directors should have. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require one director with the requisite financial and accounting expertise.

Audit Committee

Audit Committee

Under the Companies Law, our board of directors is required to appoint an audit committee, comprised of at least three directors. The members of the audit committee must satisfy certain independence standards under the Companies Law. Our audit committee consists of Mr. Joseph Tenne (Chairman of the audit committee), Mr. Itay Barzilay, Mr. Amnon Neubach and Mr. Meir Nissensohn.

Under the Companies Law, the roles of the audit committee include examining flaws in the management of the company’s business, in consultation with the internal auditor and the company’s independent accountants, suggesting remedial measures, approving specified related party transactions, establishing whistleblower procedures and assessing the company’s internal audit system and the performance of its internal auditor. The approval of the audit committee is required to effect specified actions and transactions with office holders, controlling shareholders and entities in which they have a personal interest.

The Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, the chief business manager, a vice president and any officer that reports directly to the chief executive officer.

Under the Nasdaq rules, our audit committee assists the board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices and financial statements and the independence qualifications and performance of our independent auditors. Our audit committee also has the authority and responsibility to oversee our independent auditors, to recommend for shareholder approval the appointment and, where appropriate, replacement of our independent auditors and to pre-approve audit engagement fees and all permitted non-audit services and fees. We have adopted an audit committee charter, which sets forth the qualifications, powers and responsibilities of our audit committee.

Our audit committee also serves as (i) our compensation committee, as described below, and (ii) our nominations committee, authorized to recommend all director nominees for the selection of the board of directors, provided that no such recommendation is required in cases, if any, where the right to nominate a director legally belongs to a third party. In its capacity as our compensation committee, the audit committee is authorized to, among other things, review, approve and recommend to our board of directors base salaries, incentive bonuses, including the specific goals and amounts, stock option grants, employment agreements, and any other benefits, compensation or arrangements of our office holders.

Under the Companies Law, at least once every three years our compensation committee is required to propose for shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria, to review, from time to time, modifications to the compensation policy and examine its implementation and to approve the actual compensation terms of office holders prior to approval thereof by the board of directors. If the shareholders do not approve a proposed compensation policy, the board of directors is entitled to approve it if the compensation committee and the board of directors, after re-evaluating the proposed policy, conclude that approving the policy is in the company’s best interests.

At our 2022 annual general meeting, the shareholders did not approve the renewal of our compensation policy that was approved by our shareholders at our 2019 annual general meeting. Our board of directors subsequently re-evaluated the policy, after receiving the compensation committee’s recommendation on the matter, and resolved that the renewal of the existing compensation policy is in our company’s best interests.

All the members of our audit committee are “independent directors” under the Nasdaq rules and meet the additional qualifications for membership on an audit committee and a compensation committee under applicable law.

Internal Auditor

Internal Auditor

Under the Companies Law, the board of directors must appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether the company’s actions comply with the law and orderly business procedure. The internal auditor must satisfy certain independence standards. Ms. Dana Gottesman-Erlich, C.P.A., partner of the accounting firm of BDO Israel, serves as our internal auditor.

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Fiduciary Duties of Office Holders

The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means to obtain:

The duty of loyalty of an office holder includes a duty to:

Disclosure of Personal Interest of an Office Holder

The Companies Law requires that an office holder of a company disclose to the company any personal interest that he may have and all related material information known to him, in connection with any existing or proposed transaction by the company. The disclosure is required to be made promptly and, in any event, no later than the board of directors meeting in which the transaction is first discussed. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:

Under Israeli law, an extraordinary transaction is a transaction:

Approval of Related Party Transactions

Once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest. A transaction that is adverse to the company’s interest may not be approved.

If the transaction is an extraordinary transaction, approval of both the audit committee and the board of directors is required. Under specific circumstances, shareholder approval may also be required.

Office Holder Compensation

In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company’s compensation policy. In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder generally must be approved separately by the compensation committee, the board of directors and the shareholders of the company, in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.

Disclosure of Personal Interests of a Controlling Shareholder

Under the Companies Law, the disclosure requirements, which apply to an office holder, also apply to a controlling shareholder of a public company. For this purpose, a controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest (other than compensation matters, which are discussed above under “Office Holder Compensation”), require the approval of the audit committee, the board of directors and the shareholders of the company, in that order. Except under specific circumstances, such a transaction needs to be re-approved in accordance with the foregoing procedure once in every three years. The shareholder approval must be by a majority of the shares voted on the matter, provided that either:

Shareholders generally have the right to examine any document in the company’s possession pertaining to any matter that requires shareholder approval. If this information is made public in Israel or elsewhere, we will file the information with the SEC in the United States.

For information concerning the direct and indirect personal interests of an office holder and principal shareholders in specified transactions with us, see Item 7.B “Related Party Transactions.”

Executive Officers

Our executive officers are appointed by our board of directors and serve at the discretion of our board of directors. We maintain written employment agreements with our executive officers. Each agreement terminates upon 30 days’ written notice and provides for standard terms and conditions of employment. All of our executive officers have agreed not to compete with us for 12 months (or 24 months in the case of Monica Iancu) following the termination of their employment with us. Monica Iancu is entitled to severance pay upon termination of her employment by either her or us (other than by us for cause) and to receive, during each month of the six-month period following termination of her employment by us, or by her for cause, an amount of salary and benefits equal to her former monthly salary and other benefits. Under Israeli case law, the non-competition undertakings of employees may not be enforceable.

D.  Employees

In the years ended December 31, 2019,2022, 2021, and 2020 and 2021, our total number of employees was 214,153, 160, and 188 and 160, respectively. The numbers and breakdowns of our employees as of the end of the past three years are set forth in the following table:

E.  Share Ownership

As of AprilMarch 1, 2022,2023, Monica Iancu beneficially owned 3,316,625, or 16.5% of our ordinary shares. None of our other directors or members of senior management beneficially owns 1% or more of our ordinary shares.

We have established stock option plans to provide for the issuance of options to our directors, officers and employees. Our most recent share incentive plan was adopted by our shareholders at our 2011 annual general meeting, or the 2011 Share Incentive Plan.Plan was extended in 2022 for an additional ten years. Under the 2011 Share Incentive Plan, our ordinary shares and/or options to purchase our ordinary shares may be issued from time to time to our directors, officers, employees, consultants and contractors at exercise prices and on other terms and conditions as determined by our board of directors. Our board of directors determines the exercise price and the vesting period of options granted. Unless otherwise is determined by our Board, any award granted under the 2011 Share Incentive Plan will have a four-year vesting schedule, such that 50% of the award will vest on the second anniversary of the commencement date and 25% of the award will vest on each of the third and fourth anniversaries of the commencement date.

As of AprilMarch 1, 2022,2023, options to purchase 392,500452,500 ordinary shares were outstanding and options for 2,315,2902,335,290 ordinary shares had been exercised. The options vest over four years, primarily commencing on the date of grant. Generally, options not previously exercised will expire five years after they are granted. Our board of directors elected the capital gains treatment afforded under Section 102 of the Israeli Income Tax Ordinance [New Version], 1961, or the Tax Ordinance, in respect of options and ordinary shares awarded to our Israeli employees under our option or share incentive plans after January 1, 2003. Accordingly, gains derived from options awarded to our Israeli employees and held by a trustee for two years from the date of grant, will generally be taxed as capital gains at a rate of 25%, and we will generally not be entitled to recognize an expense for the award of such options.

On September 2, 2021, Ms. Iancu adopted a Rule 10b5-1 Sale Plan in order to establish a systematic program by which Oppenheimer & Co. Inc. is instructed to sell on Nasdaq up to 1,800,000 ordinary shares held by her pursuant to the guidelines set forth therein. As of March 1, 2022,2023, no shares were sold under this plan.

Item 7. Major Shareholders and Related Party Transactions

A.  Major Shareholders

The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of AprilMarch 1, 2022,2023, unless otherwise specified, by each person who is known to own beneficially 5% or more of the outstanding ordinary shares.