As filed with the Securities and Exchange Commission on April 29, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31 , 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
Commission file number 0-30862
________________________________
CERAGON NETWORKS LTD .
(Exact Name of Registrant as Specified in Its Charter)
________________________________
(Jurisdiction of Incorporation or Organization)
Nitzba City, Plot 300, Bldg. A, 7th floor,
POB 112, Rosh Ha’Ayin4810002,
(Address of Principal Executive Offices)
Zvi Maayan (+972 ) 3-543-1643 (tel.), (+972) 3-543-1600 (fax), Nitzba City, Plot 300, Bldg. A, 7th floor, POB 112, Rosh Ha’Ayin4810002,
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
Ordinary Shares, Par Value NIS 0.01 |
CRNT |
Nasdaq Global Select Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report 83,931,596 Ordinary Shares, NIS 0.01 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☒ |
Non-accelerated filer ☐ | |
| |||
Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
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PART II |
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PART III |
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references to “Ceragon,” the “Company,” “us,” “we,” “our” and the “registrant”
refer to Ceragon Networks Ltd., an Israeli company, and its consolidated subsidiaries; |
• |
references to “ordinary shares,” “our shares” and similar expressions refer to our Ordinary Shares, NIS 0.01
nominal (par) value per share; |
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references to “dollars,” “U.S. dollars” and “$” are to United States Dollars; |
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references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency; |
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references to the “Companies Law” are to Israel’s Companies Law, 5759-1999; |
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references to the “SEC” are to the United States Securities and Exchange Commission; and |
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references to the "Nasdaq Rules" are to the rules of the Nasdaq Global Select Market. |
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. |
KEY INFORMATION |
• |
the effect of the global shortage in components and semiconductors and other commodities, on our supply chain, manufacturing capacity
and ability to timely deliver our products, predominantly due to the global increase in demand for supply of electronic components while
production capacity remains limited, which has and may continue to have an adverse effect on the lead-time for our components and their
prices, adversely impacting our revenue and gross margins and our ability to timely supply our products; |
• |
the impact of the transition to 5G technologies on our revenues if such transition is developed differently than we anticipated,
either in terms of technology, use-case timeline or otherwise; |
• |
the effect of the concentration of a major portion of our business on large mobile operators around the world from which we derive
a significant portion of our ordering, that due to their significant weight compared to the then overall ordering by other customers at
the same point of time, coupled with inconsistent ordering pattern and volume of business directed to us (which may deviate as a result
of parameters such as buying decisions, price lists, roll-out strategy, local market conditions, regulatory environment, etc.), creates
high volatility with respect to our financial results and results of operations, which could adversely affect our revenues; |
• |
competition from other wireless transport equipment providers and from other communication solutions that compete with our high-capacity
point-to-point wireless products; |
• |
the current effect of the COVID-19 pandemic (“COVID-19”) on the global markets, on the markets in which we operate and
on our business and operations; |
• |
risks related to the rapid change in the markets for our products and in related technologies and operational concepts development;
|
• |
sensitivity to changes in demand in the wireless communication market domain and market segment at which we have focused our business
until recently, and related risks if this segment should experience a decline in demand, while our new offering that is aimed to include,
among other things, also WISPs (wireless internet services), private networks, software based solutions and disaggregated cell-site routing,
will take time to mature and have a significant impact on our results that could compensate for the aforementioned risk; |
• |
risks relating to entering new business domains and models, predominantly by an increased focus on services and software solutions
as well as increasing our market share in small operators and private networks, that neither succeed nor develop as we anticipate could
result in a negative impact on our business and financial results; |
• |
risks relating to failure to attract or retain qualified and skilled “talents” and personnel and the intense competition
for such “talents” and personnel. |
• |
increased breaches of network or information technology security along with an increase in cyber-attack activities, which is enhanced,
among other things, as a result from the application of remote operation mode (associated with COVID-19 and current labor market trends)
and changes in privacy and data protection laws increases the risk that we shall be subject to cyber-attacks that could have an adverse
effect on our business; |
• |
difficulties in predicting our gross margin as it is exposed to significant fluctuations as a result of potential changes in the
various geographical locations where we generate revenues; |
• |
difficulties in predicting our operating results and revenue, which may vary significantly from quarter to quarter and from our expectations
for any specific period; |
• |
the high volatility in the supply needs of our customers which can lead to delivery issues due to long lead time and availability
of components and manufacturing power; |
• |
reliance on third-party manufacturers, suppliers and service providers, which may disrupt the proper and timely management of deliveries
of our products; |
• |
our engagement in providing installation or rollout projects for our customers, which are long-term projects that are subject
to inherent risks, including early delivery of our products with delayed payment terms, delays or failures in acceptance testing
procedures, credit risks associated with our customers and their ability to manage the projects to a timely collection from their end
customer, their dependency on other suppliers for the completion of such projects and reaching payment milestones, our dependency
on the prime contractor’s performance and ability to pursue and manage the execution of the project and to collect the proceeds
due thereunder in cases where we serve as a subcontractor to such primes, and other risks that are beyond our control; |
• |
risks relating to macro and micro adverse effects on the global and European markets in which we operate due to the invasion of Ukraine
by Russia, such as, among others, cancellation or suspension of orders placed by Russian customers or for Russian end-users, disruption
of delivery of raw materials, oil and gas, goods, and supplies’ price increases, disruption to deliveries, shipping and transportation,
imposition of sanctions and embargoes, loss of business, cyber-attacks, commodity shortages and other effects that could have an adverse
effect on us, our business, suppliers and customers; |
• |
risks related to fluctuations in currency exchange rates and restrictions related to foreign currency exchange controls;
|
• |
the occurrence of international, political, regulatory or economic events in emerging economies in Latin America, India, Asia Pacific
and Africa, where a majority of our sales are made; and |
• |
the effect of global economic trends such as rising inflation, rising interest rates, commodity price increases/fluctuations, commodity
shortages, and exposure to economic slowdown in China. |
• |
Increase in shipment and logistical costs and delivery time. COVID-19 presents various challenges
to global shipment and delivery of goods, products and materials, resulting in continuous growth in shipment costs, shortage in vehicles
and available shipping time slots, conjunction and cul-de-sac in sea ports, which are slowing down the delivery timetables and endanger
the timely performance of projects and contractual delivery obligations. Such increased costs cannot always be reflected in the prices
for our products, which causes erosion in our margins. In addition, we may suffer from cancellation of orders or termination of agreements,
and imposition of penalties for late deliveries. |
• |
Disruptions to our Marketing and Sales activities. Disruptions or restrictions may also be
imposed on our marketing and sales operations, including on our ability to interact with existing and new customers. |
• |
Adverse effects on employees’ health, working routines and teamwork. COVID-19 could
continue to endanger or harm the health of our employees, including key employees, which could in turn harm our ability to function fully
and effectively. |
• |
Damage to significant customers. COVID-19 has had and could continue to have an adverse effect
on our business as a result of the materialization of any of the above or similar risks with respect to our significant customers. Our
business has been and could further be impacted negatively if there is a prolonged impact of COVID-19 in countries from which we generate
a significant portion of our business. For example, this may cause and to some extent has caused a freeze of procurement budgets, cancellation,
suspension or reduction in new equipment purchases from us, failure by our customers in meeting their obligations under purchase orders
already issued, postponement or cancellation of rollout projects for wireless networks, or the inability to pursue network development
towards 5G, and consequently, postponement in the transition to 5G technologies and in the introduction of our new products and capabilities.
|
• |
Difficulties in debt collection. COVID-19 may cause delays in billing and in collection of
amounts due from our customers, and in satisfying revenue recognition procedures, including as a result of financial difficulties and
insolvencies of major customers, which could lead to slowing the payment of their obligations to us or even discharging those obligations,
or due to inability to surrender or receive payment documents such as acceptance certificates which sometimes require on-site acceptance
tests that depend on our or our subcontractors’ ability to arrive to the respective sites. |
• |
Damage to our competitive position in the market. Since we focus on certain elements
of wireless communication networks and not on the entire end-to-end offering up to the end-users’ end points (as further detailed
below), we may not benefit from certain conditions resulting from COVID-19, as opposed to other players in the market. For example, we
did not benefit from the growth in demand for bandwidth and Wi-Fi connectivity due to the increased need for remote applications, as did
the WISPs (Wireless Internet Service Providers). |
• |
The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers.
Consequently, these shortages could delay the manufacture of our products and shipments to our customers. |
• |
The component suppliers could discontinue the manufacture or supply of components used in our systems. In such an event, we or our
contract manufacturers may be unable to develop alternative sources for the components necessary to manufacture our products, which could
force us to redesign our products or buy a large stock of the component into inventory before it is discontinued. Any such redesign of
our products would likely interrupt the manufacturing process and could cause delays in our product shipments. Moreover, a significant
modification in our product design may increase our manufacturing costs and bring about lower gross margins. In addition, we may be exposed
to excess inventory of such component, which we will have to write-down in case the demand is not as high as we anticipated at the time
of buying these components. |
• |
The component suppliers may significantly increase component prices at any time and particularly if demand for certain components
increases dramatically in the global market which would have an adverse effect on the Company’s business. |
• |
The component suppliers may significantly increase the time to produce and deliver their components at any time resulting in an immediate
effect, as evidenced recently with respect to the semiconductors foundry industry. These lead time increases would delay our products’
delivery timetable and could expose us to shortage in supply or late supplies that may trigger penalties, orders cancellation and losing
some of our customers. |
• |
The component suppliers may refuse or be unable to further supply such component for various reasons, including, among other things,
their prioritization, focus, regulations, force majeure events or financial situation. |
• |
unexpected or inconsistent changes in regulatory requirements, including security regulations, licensing and allocation processes;
|
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unexpected changes in or imposition of tax, tariffs, customs levies or other barriers and restrictions; |
• |
fluctuations in foreign currency exchange rates; |
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restrictions on currency and cash repatriation; |
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the burden of complying with a variety of foreign laws, including foreign import restrictions which may be applicable to our products;
|
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difficulties in protecting intellectual property; |
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laws and business practices favoring local competitors; |
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collection delays and uncertainties; |
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business interruptions resulting from geopolitical actions, including war and acts of terrorism, or natural disasters, emergence
of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including for example, the
COVID-19 outbreak); |
• |
requirements to do business in local currency; |
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requirements to manufacture or purchase locally, including the possible transfer of knowhow and intellectual property licenses; and
|
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judicial systems that do not apply the principals of natural justice with regard to disputes with foreign nationals. |
• |
new generations of products replacing older ones, including changes in products because of technological advances and cost reduction
measures; and |
• |
the need of our contract manufacturers to order raw materials that have long lead times and our inability to estimate exact amounts
and types of items thus needed, especially regarding the frequencies in which the final products ordered will operate. |
• |
we may not be able to discover, or the target company may fail to provide us with, all relevant information and documents in relation
to the transaction, which could lead to a failure to achieve the objectives of acquisition and to a substantial loss; |
• |
we may fail to reveal that the due diligence materials and documents provided contain untrue statements of material facts or omit
to state a material fact necessary to make the statements therein not misleading, hence fail to achieve the objectives of acquisition
and suffer a substantial loss; |
• |
we may fail to correctly assess the due diligence investigation findings, establish a correct investment thesis or establish a correct
post-merger integration plan; |
• |
the process of integrating an acquired business including, for example, the operations, systems, technologies, products, and personnel
of the combined companies, particularly companies with large and widespread operations and/or complex products, may be prolonged due to
unforeseen difficulties; |
• |
the implementation of the transaction may distract and divert management’s attention from the normal daily operations of our
business; |
• |
we may sustain and record significant expenditure and costs associated with outstanding transactions that either did not or will
not materialize or would fail to achieve its objectives; |
• |
there will be increased expenses associated with the transaction, and we may need to use a substantial portion of our cash resources
or incur debt in order to cover such expenses; expenses which the combined revenues of the merged companies may not be sufficient to offset;
|
• |
we may generate negative cash flow as a result of such transaction, which may require fund raising that may not be available for
us; |
• |
we may incur unexpected accounting and other expenses associated with the transaction, such as tax expenses, write offs, amortization
expenses related to intangible assets, restructuring costs, litigation costs or such other costs derived from the acquisition; |
• |
the transaction may harm our business as currently conducted (for example, there may be a temporary loss of revenues, we may experience
loss of current key employees, customers, resellers, vendors and other business partners or companies with whom we engage today or which
relate to any acquired company); |
• |
we may be required to issue ordinary shares as part of the transaction, which would dilute our current shareholders; |
• |
we may need to assume material liabilities of the merged entity; |
• |
the failure to successfully complete the integration associated with the transaction (including integrating any acquired technology
into our products), which may cause new markets we were aiming for not to materialize or in which competitors may have a stronger market
position; or |
• |
we may fail to effectively obtain the technological improvement. |
• |
announcements of technological innovations or new commercial products by us or by our competitors; |
• |
competitors’ positions and other events related to our market; |
• |
changes in the Company’s estimations regarding forward looking statements and/or announcement of actual results that vary significantly
from such estimations; |
• |
the announcement of corporate transactions, merger and acquisition activities or other similar events by companies in our field or
industry; |
• |
changes and developments effecting our field or industry; |
• |
period to period fluctuations in our results of operations; |
• |
changes in financial estimates by securities analysts; |
• |
our earnings releases and the earnings releases of our competitors; |
• |
our ability to show and accurately predict revenues; |
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our need to raise additional funds and the success or failure thereof; |
• |
other announcements, whether by the Company or others, referring to the Company’s financial condition, results of operations
and changes in strategy; |
• |
changes in senior management or the board of directors; |
• |
the general state of the securities markets (with a particular emphasis on the technology and Israeli sectors thereof); |
• |
the general state of the credit markets, the volatility of which could have an adverse effect on our investments; |
• |
developments concerning material proprietary rights, including material patents; |
• |
whether we or our competitors receive or are denied regulatory approvals; and |
• |
global macroeconomic developments, including in connection with the COVID-19 outbreak, components shortage, Russia-Ukraine war, and
other occurrences. |
• |
hostilities involving Israel; |
• |
the interruption or curtailment of trade between Israel and its present trading partners; |
• |
a downturn in the economic or financial condition of Israel; and |
• |
a full or partial mobilization of the reserve forces of the Israeli army. |
• |
The rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form
8-K; |
• |
The sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of securities registered
under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives
as well as disclosure of the compensation determination process; |
• |
The provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
|
• |
The sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing
insider liability for profit realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase,
of the issuer’s equity securities within less than six months). |
• |
Short-haul solutions, which typically provide a wireless link capacity of up to 2 Gbps per link for backhaul, and/or a link capacity
of up to 20Gbps for fronthaul. These solutions are available for distances of several hundred feet to 10 miles. Short-haul links are deployed
in access applications (macro cells and small cells and distributed cells) wirelessly connecting the individual base-stations or base-station
element (i.e. a “central unit”, a “distributed unit” or a “radio unit”) towers to the core network.
Short-haul solutions are also used in a range of non-carrier “vertical” applications such as state and local government, public
safety, education and off-shore communication for oil and gas platforms. |
• |
Long-haul solutions, which typically provide a capacity of up to 20 Gbps, are used in the “highways” of the telecommunication
backbone network. These links are used to carry services at distances of 10 to 50 miles, and, using the right planning, configuration
and equipment, can also bridge distances of 100 miles. Long-haul solutions are also used in a range of non-carrier “vertical”
applications such as broadcast, state and local government, public safety, utilities and offshore communication for oil and gas platforms.
|
• |
In 4G, the fronthaul transport network connects Remote Radio Heads (RRHs) to distant centralized/cloud Baseband Units (BBUs), while
backhaul connects BBUs back to 4G Evolved Packet Core (EPC). In 5G, the New Radios (NR) are connected to the BBU, which can be disaggregated
into a Central Unit (CU) and a Distributed Unit (DU). The new midhaul interconnects the CU to the DU via a new, standardized 3GPP interface.
|
• |
With help from organizations such as the operator-led O-RAN Alliance, 5G fronthaul and midhaul network interface specifications are
open and defined in a structured format. This allows MNOs to purchase RUs, DUs, CUs, and the associated transport networks between them,
from anyone. We believe that this presents new market opportunities for Ceragon’s leading wireless transport solutions with our
open network architecture. |
• |
Sudden and wide widespread surge in network traffic in 2020 and 2021 emerging from COVID-19 pandemic continues to cause global change
to the way business and individuals access information for work and leisure. The result of national lock-ins for large parts of the population
brings many businesses to exercise company-wide work-from-home with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is a sudden and sharp increase in home broadband demand, while today’s home broadband networks are not designed
for such usage patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result,
service providers are required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate
that the increase in network traffic which service providers are experiencing today amidst the pandemic will remain and even increase,
as companies and employees adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions
of the world population, young and elderly alike, use highly visual remote communication tools and high volume communication transactions.
|
• |
5G will enable operators to enhance their services portfolio with more use cases such
as enhanced mobile broadband (eMBB) delivering gigabit broadband, as well as address new market segments such as IoT & IIoT and mission
critical applications with URLLC (Ultra Reliable Low Latency Communications) and mMTC (Massive Machine Type Communications) services.
Those services, combined with new network architectures will require higher capacity, lower latency networks and in particular higher
transport capacity, far denser macro cells and small/distributed cells grids and the implementation of network virtualization technologies
and architectures, namely network slicing using SDN. Our wireless transport solutions resolve both higher capacity, lower latency and
network densification requirements with advanced capabilities, based on our multicore™ technology for microwave narrowband spectrum
(up to 224Mhz) and the use of wider bands in millimeter-wave spectrum, up to 2,000MHz. Network virtualization requirements are addressed
with layer 3 capabilities and SDN support. |
• |
Software Defined Networking (SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and may be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
• |
The emergence of distributed cells presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements. |
• |
The introduction of a disaggregated model for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. |
• |
The network sharing business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained. |
• |
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading,
or “modernizing” existing cell-sites to fit new services with a lower total cost of
ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance,
capacity and service support. For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace
costly antennas, which are already deployed. In doing so, we help our customers to reduce the time and the costs associated with network
upgrades. The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue. |
• |
A growing market for non-mobile backhaul applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale. |
• |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and eventually 5G services. |
• |
Subscriber growth continues mainly in emerging markets such as India, Africa and Latin America.
|
• |
Increase business operational efficiency by reducing network related expenses. Our customers
are able to obtain the required capacity with one-quarter of the spectrum needed otherwise, double network capacity without adding more
equipment simply by remotely expanding wireless link capacity, significantly reduce energy related expenses by utilizing our energy efficient
products, use smaller antennas thereby reducing telecommunication tower leasing costs, and improve their staff productivity with the use
of a single wireless transport platform for their long-haul, short-haul and small/distributed cells transport needs. We offer a range
of solutions for quick and simple modernization of wireless networks to 4G and 5G, which significantly contribute to our customers’
ability to modernize and expand their services. |
• |
Enhance service portfolio, quality of experience and reach. Our multicore™ technology
allows our customers to introduce new services (e.g. 5G use cases), to improve subscriber (user) quality of experience generated from
the voice, data and multimedia services that they provide to their customers and to extend their network and services reach in order to
address new markets. |
• |
Ensure peace of mind. Our solutions utilize the latest in microwave and millimeter-wave technology,
incorporated in-house developed System-on-Chips (baseband and RF integrated circuits), and use the latest advances in SMT (Surface-mount
technologies) based manufacturing – allowing our customers to benefit from the highest service availability across their Ceragon-based
wireless transport network. |
• |
All-outdoor solutions combine the functionality of both the indoor and outdoor units in a single, compact device. This weather-proof
enclosure is fastened to an antenna, eliminating the need for rack space or sheltering, as well as the need for air conditioning, and
is more environmentally friendly due to its lower footprint and power consumption. |
• |
Split-mount solutions consist of: |
➢ |
Indoor units which are used to process and manage information transmitted to and from the outdoor unit, aggregate multiple transmission
signals and provide a physical interface to wire-line networks. |
➢ |
Outdoor units or Radio Frequency Units (RFU), which are used to control power transmission, and provide an interface between antennas
and indoor units. They are contained in compact weather-proof enclosures fastened to antennas. Indoor units are connected to outdoor units
by standard coaxial or Cat-5 baseband cables. |
• |
All-indoor solutions refer to solutions in which the entire system (indoor unit and RFU) reside in a single rack inside a transmission
equipment room. A waveguide connection transports the radio signals to the antenna mounted on a tower. All indoor equipment is typically
used in long-haul applications. |
• |
Disaggregated wireless transport solutions offer a single radio suitable for all-outdoor, a split-mount scenario, and a networking
unit, which provides versatile and scalable hardware options based on merchant routing silicon and also provides routing capabilities
(L3) that are radio technologies aware. |
• |
Pointing accuracy solutions for high movement environments. These are advanced microwave radio systems for use on moving rigs/vessels
where the antenna is stabilized in one or two axes, azimuth or azimuth/elevation. |
• |
Antennas are used to transmit and receive microwave radio signals from one side of the wireless link to the other. These devices
are mounted on poles typically placed on rooftops, towers or buildings. We rely on third party vendors to supply this component.
|
• |
End-to-End Network Management. Our network management system uses standard management protocol to monitor and control managed devices
at both the element and network level and can be easily integrated into our customers’ existing network management systems.
|
Product |
Frequency range |
Application |
Networking & transport technologies
|
IP-20C |
6-42GHz, dual-carrier |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
IP-20C-HP |
4-11GHz, dual-carrier |
Longhaul |
Carrier Ethernet |
IP-20S |
6-42GHz |
Shorthaul, enterprise |
Carrier Ethernet |
IP-20E |
71-86GHz |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
IP-20V |
57-66GHz |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
Product |
Frequency range |
Application |
Networking & transport technologies
|
IP-20N / IP-20A |
4-86GHz |
Shorthaul, Long-haul |
Carrier Ethernet, TDM |
IP-20F |
4-86GHz |
Shorthaul |
Carrier Ethernet, TDM |
IP-20G |
6-42GHz |
Shorthaul |
Carrier Ethernet, TDM |
• |
SDN Controller – Ceragon’s SDN Master is a complete controller supporting SDN
protocols that can monitor and control Ceragon’s products in an SDN environment. The SDN Master can work as a ‘standalone’
controller, or as part of an SDN solution managed by a higher level SDN controller offered by a third-party vendor (sometimes referred
to as an SDN Orchestrator), allowing full flexibility to our customers. |
• |
SDN support in our wireless transport products - all Ceragon IP-20 and IP-50 products support
the needed SDN protocols allowing the operator to manage these products with Ceragon SDN controllers but also with third party SDN controllers,
again, allowing full flexibility to our customers. |
• |
SDN applications – Software (SW) tools with significant impact on our customers’
TCO (total cost of ownership), network availability, and fast network rollout. These applications enable operators to increase their network
efficiency and effectiveness with operational optimization and automatization capabilities. With the SDN technology, Ceragon SW solutions
are entering into the cloud domain allowing multiple open and flexible deployment scenarios for our customers. Currently, Ceragon is developing
and enhancing those and other SW tools in order to expand our offering also to stand-alone SW solutions and services either as on-premise,
remote or SaaS services. |
• |
IP-100 Platform - Ceragon is currently investing in a new chipset which incorporates 8-cores
(Octa-core) in a chipset expected to be taped-out in 2022, offering industry-leading performance and capacity. We are already designing
the first IP-100 products using that chipset that will significantly increase our wireless transport products capabilities in terms of
higher capacity, lower latency, lower physical size and power consumption and more. These capabilities will make the IP-100 platform the
optimize choice for existing and new use cases in the 5G mobile market. The IP-100 platform will expand Ceragon products coverage beyond
the MW bands, V-Band and E-Band range (4-86 GHz) and will include W-band (up to 110 GHz) and D-band (up to 170 GHz) products. |
Year Ended December 31, |
||||||||||||
Region |
2019 |
2020 |
2021 |
|||||||||
North America |
15 |
% |
14 |
% |
16 |
% | ||||||
Europe |
15 |
% |
17 |
% |
16 |
% | ||||||
Africa |
9 |
% |
9 |
% |
8 |
% | ||||||
India |
17 |
% |
24 |
% |
30 |
% | ||||||
APAC (excluding India) |
19 |
% |
18 |
% |
11 |
% | ||||||
Latin America |
25 |
% |
18 |
% |
19 |
% |
• |
Proactively planning and executing marketing campaigns and developing content as well as communications material to promote the Ceragon
products, solutions and services to customers and prospects over the entire course of the sales-cycle. Activities include advertising,
e-mail, press releases, newsletters, marketing collateral (white papers, e-books, brochures, case studies, etc.), blogs, promotional videos
and more. This content is produced and written with search engine optimization in mind to ensure Ceragon high ranking in customer organic
search results. |
• |
Organizing and running exhibitions, seminars and events. This goes far beyond the mere planning the logistics of the event, but customizing
messaging for target audience, creating event materials, such as displays, presentations, animated videos, demos, and most importantly
promoting the event to customers and prospects to ensure successful attendance and secure customer meetings. |
• |
for the standard character mark Ceragon Networks in Canada; |
• |
for the standard character mark CERAGON, national registrations in Morocco, Malaysia, Indonesia (under the name of Ceragon Networks
AS), Japan, Israel, Mexico, the United States, South Africa, the Philippines, Argentina, Venezuela, Peru, Canada, Nigeria, Brazil and
Colombia, United Kingdom and India, and International Registration (protection granted in Australia, Iceland, Bosnia & Herzegovina,
Korea, Switzerland, Croatia, Norway, Russia, China, Ukraine, CTM (European Union), Turkey, Singapore, Macedonia, Egypt, Kenya and Vietnam);
|
• |
for our design mark for FibeAir in the United States, Israel, United Kingdom and the European Union; |
• |
for the standard character mark FibeAir in the United States; and |
• |
for the standard character mark CeraView in Israel, United Kingdom and the European Union. |
• |
The diversification of our technologies and capabilities, which allows flexible vertical integration options, including the development
of the core technology – RFIC and modems, including SoC (System on Chip); |
• |
our focus and active involvement in shaping next generation standards and technologies, which deliver best customer value;
|
• |
our product performance, reliability and functionality, which assist our customers to achieve the highest value; |
• |
the range and maturity of our product portfolio, including the ability to provide solutions in every widely available microwave and
millimeter-wave licensed and license-exempt frequency, as well as our ability to provide both IP and circuit switch solutions and therefore
to facilitate a migration path for circuit-switched to IP-based networks; |
• |
our deign to cost structure; |
• |
our time-to-market advantage, due to having our own technology and our own chipsets; |
• |
our focus on high-capacity, point-to-point microwave and millimeter-wave technologies, which allows us to quickly adapt to our customers’
evolving needs; |
• |
the range of rollout services offering for faster deployment of an entire network and reduced total cost of ownership; |
• |
our support and technical service, experience and commitment to high quality customer service, and |
• |
our ability to expand to other vertical markets such as oil and gas and public safety, by drawing upon the capabilities of our technologies
and solutions. |
Company |
Place of Incorporation |
Ownership Interest |
|||
Ceragon Networks, Inc. |
New Jersey |
100 |
% | ||
Ceragon Networks (India) Private Limited |
India |
100 |
% |
• |
in the United States, we lease approximately 8,200 square feet of office and warehouse space in Richardson, Texas, expiring March
2024. |
• |
in India, we lease approximately 9,800 square feet of office space in New Delhi, expiring in December 2024. |
ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
• |
Sudden and wide widespread surge in network traffic in 2020 and 2021 emerging from COVID-19 pandemic continues to cause global change
to the way business and individuals access information for work and leisure. The result of national lock-ins for large parts of the population
brings many businesses to exercise company-wide work-from-home with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is a sudden and sharp increase in home broadband demand, while today’s home broadband networks are not designed
for such usage patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result,
service providers are required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate
that the increase in network traffic which service providers are experiencing today amidst the pandemic will remain and even increase,
as companies and employees adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions
of the world population, young and elderly alike, use highly visual remote communication tools and high volume communication transactions.
|
• |
5G will enable operators to enhance their services portfolio with more use cases such
as enhanced mobile broadband (eMBB) delivering gigabit broadband, as well as address new market segments such as IoT & IIoT and mission
critical applications with URLLC (Ultra Reliable Low Latency Communications) and mMTC (Massive Machine Type Communications) services.
Those services, combined with new network architectures will require higher capacity, lower latency networks and in particular higher
transport capacity, far denser macro cells and small/distributed cells grids and the implementation of network virtualization technologies
and architectures, namely network slicing using SDN. Our wireless transport solutions resolve both higher capacity, lower latency and
network densification requirements with advanced capabilities, based on our multicore™ technology for microwave narrowband spectrum
(up to 224Mhz) and the use of wider bands in millimeter-wave spectrum, up to 2,000MHz. Network virtualization requirements are addressed
with layer 3 capabilities and SDN support. |
• |
OPEN RAN transforms Radio Access Network (RAN) technology from design to operation of the network. OPEN RAN creates the possibility
of an open RAN environment, with interoperability between different vendors over defined interfaces. |
• |
RAN ecosystem is evolving towards proving the competitive landscape of RAN supplier ecosystem and network operators embracing the
transformation. Opening up RAN horizontally brings in a new range of low-cost radio players, and it gives mobile operators a choice to
optimize deployment options for specific performance requirements at a much better cost. |
• |
Software Defined Networking (SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and may be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
• |
The emergence of distributed cells presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements. |
• |
The introduction of a disaggregated model for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. |
• |
The network sharing business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained. |
• |
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading,
or “modernizing” existing cell-sites to fit new services with a lower total cost of
ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance,
capacity and service support. For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace
costly antennas, which are already deployed. In doing so, we help our customers to reduce the time and the costs associated with network
upgrades. The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue. |
• |
A growing market for non-mobile backhaul applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale. |
• |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and eventually 5G services. |
• |
Subscriber growth continues mainly in emerging markets such as India, Africa and Latin America.
|
• |
Increased competition. Our target market is characterized by vigorous, worldwide competition for market share and rapid technological
development. These factors have resulted in aggressive pricing practices and downward pricing pressures and growing competition.
|
• |
Regional pricing pressures. A significant portion of our sales derives from India, in response to the rapid build-out of cellular
networks in that country. For the years ended December 31, 2020 and 2021, 23.6% and 29.6%, respectively, of our revenues were earned in
India. Sales of our products in these markets are generally at lower gross margins in comparison to other regions. Recently, network operators
have started to share parts of their network infrastructure through cooperation agreements, which may adversely affect demand for network
equipment. |
• |
Transaction size. Competition for larger equipment orders is increasingly intensifying due to the fact that the number of large equipment
orders in any year is limited. Consequently, we generally experience greater pricing pressure when we compete for larger orders as a result
of this increased competition and demand from purchasers for greater volume discounts. As an increasing portion of our revenues is derived
from large orders, we believe that our business will be more susceptible to these pressures. |
• |
Revenue recognition; |
• |
Inventory valuation; and |
• |
Provision for credit loss (doubtful debts). |
Year Ended December 31 |
||||||||
2020 |
2021 |
|||||||
Revenues |
100 |
% |
100 |
% | ||||
Cost of revenues |
71.2 |
69.6 |
||||||
Gross profit |
28.8 |
30.4 |
||||||
Operating expenses: |
||||||||
Research and development, net |
11.8 |
10.1 |
||||||
Sales and marketing |
12.6 |
11.5 |
||||||
General and administrative |
7.3 |
7.1 |
||||||
Total operating expenses |
31.7 |
28.7 |
||||||
Operating income (loss) |
(2.9 |
) |
1.7 |
|||||
Financial expenses and others, net |
2.2 |
3.0 |
||||||
Taxes on income |
1.0 |
3.8 |
||||||
Equity loss in affiliates |
0.4 |
- |
||||||
Net loss |
(6.5 |
) |
(5.1 |
) |
• |
Increase of $9.2 million relates to higher material costs, primarily due to higher volume of revenues as well as increased cost of
some components; |
• |
Increase of $3.3 million due to higher shipping and storage costs. |
• |
Increase of $2.2 million in services costs primarily due to the Orocom project. |
• |
Increase of $0.2 million relates to travel expenses. |
• |
Gross Profit. Gross profit as a percentage of revenues increased to 30.4% in 2021 from 28.8%
in 2020. This increase is mainly attributed to higher revenues which was partially offset by increased cost of some components and increased
shipping costs as a result of COVID-19 environment. |
B. |
Liquidity and Capital Resources |
• |
our net loss of $14.8 million; |
• |
$18.1 million increase in trade and other accounts receivable and prepaid expenses; |
• |
$11.9 million increase in inventories; |
• |
$4.6 million decrease in operating lease liability; and |
• |
$0.4 million accrued severance pay and pensions, net. |
• |
$12.2 million of depreciation and amortization expenses; |
• |
$8.3 million increase in deferred tax assets, net; |
• |
$5.7 million decrease in operating lease right-of-use assets; |
• |
$4.3 million increase in trade payables, other accounts payable and accrued expenses; |
• |
$2.6 million share-based compensation expenses; |
• |
$1.7 million increase in deferred revenues paid in advance; and |
• |
$0.1 million loss from sale of property and equipment, net. |
• |
$12.9 million of depreciation and amortization expenses; |
• |
$9.9 million decrease in inventories; |
• |
$3.9 million increase in trade payables, other accounts payable and accrued expenses; |
• |
$3.0 million increase in deferred revenues paid in advance; |
• |
$2.7 million decrease in trade and other receivables, net; |
• |
$1.7 million share-based compensation expenses; and |
• |
$0.5 million accrued severance pay and pensions, net. |
• |
our net loss of $17.1 million; and |
• |
$0.2 million increase in deferred tax assets, net. |
C. |
Research and Development |
D. |
Trend Information |
E. |
Critical Accounting Estimates – see Item 5 “Critical Accounting Policies and
Estimates” above. |
ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. |
Directors and Senior Management |
Name |
Age |
Position |
||||
Zohar Zisapel |
73 |
Chairman of the Board of Directors | ||||
Shlomo Liran(1)
|
71 |
Director | ||||
Yael Langer |
57 |
Director | ||||
Rami Hadar (1)
|
58 |
Director | ||||
Ilan Rosen (1)
|
65 |
Director | ||||
David (Dudi) Ripstein (1)
|
55 |
Director | ||||
Ira Palti |
64 |
Director | ||||
Doron Arazi (2)
|
58 |
Chief Executive Officer | ||||
Ran Vered |
44 |
Chief Financial Officer | ||||
Oz Zimerman |
58 |
Executive Vice President, Marketing & Corporate Development | ||||
Guy Toibin |
49 |
Executive Vice President Chief Information Officer (CIO), IT | ||||
Muki Bourla |
47 |
Executive Vice President Global Delivery | ||||
Zvi Maayan |
54 |
Executive Vice President, General Counsel & Corporate Secretary | ||||
Michal Goldstein |
50 |
Executive Vice President, Global Human Resources | ||||
Ram Prakash Tripathi |
54 |
Regional President, India | ||||
Adrian Hipkiss |
55 |
Regional President, Europe and Oil & Gas | ||||
Mario Querner |
59 |
Regional President, Asia-Pacific and Africa | ||||
Ulik Broida (3)
|
54 |
Executive Vice President Products | ||||
Ronen Rotstein (4)
|
45 |
Regional President, North America | ||||
Carlos Alvarez (5)
|
46 |
Regional President, Latin America |
(1) |
Independent Director. |
(2) |
Commenced service on July 17, 2021. |
(3) |
Commenced service on April 2021. Also started serving as Executive Vice President Products in February 2022. |
(4) |
Commenced service as a Regional President, North America, on February 2022. |
(5) |
Commenced service on December 1, 2021. |
B. |
Compensation |
a) |
Aggregate Executive Compensation |
• |
Salary Costs. Salary Costs include gross salary, benefits and perquisites, including those mandated by applicable law which may include,
to the extent applicable to each Covered Office Holder’s, payments, contributions and/or allocations for pension, severance, car
or car allowance, medical insurance and risk insurance (e.g., life, disability, accidents), phone, convalescence pay, relocation, payments
for social security, and other benefits consistent with the Company’s guidelines. |
• |
Performance Bonus Costs. Performance Bonus Costs represent bonuses granted to the Covered Office Holder’s with respect to the
year ended December 31, 2021, paid in accordance with the Covered Office Holder’s performance of targets as set forth in his bonus
plan, as well as a proportionate amount of a retention bonus that is related to the reported year, and approved by the Company’s
Compensation Committee and Board of Directors. |
• |
Equity Costs represent the expense recorded in our financial statements for the year ended December 31, 2021, with respect to equity-based
compensation granted in 2021 and in previous years. For assumptions and key variables used in the calculation of such amounts see note
2s of our audited consolidated financial statements. |
• |
Ira Palti – CEO until July 17, 2021. Salary Costs - $376,506; Performance Bonus Costs
- $0; Equity Costs - $256,977. |
• |
Doron Arazi – CEO commencing July 17, 2021. Salary Costs - $212,231; Performance Bonus Costs - $0;
Equity Costs - $197,429. |
• |
Adrian Hipkiss – Regional President of Europe and Oil & Gas. Salary Costs - $322,885; Performance
Bonus Costs - $158,941; Equity Costs - $76,541. |
• |
Erez Schwartz - Executive Vice President of Products until February 2022. Salary Costs - $306,589; Performance
Bonus Costs - $0; Equity Costs - $64,511.
|
• |
Mario Querner - Regional President, Asia-Pacific and Africa. Salary Costs - $254,563; Performance
Bonus Costs - $42,676 Equity Costs - $93,874. |
C. |
Board Practices |
• |
transactions with office holders and third parties, where an office holder has a personal interest in the transaction; |
• |
employment terms of office holders; and |
• |
extraordinary transactions with controlling parties, and extraordinary transactions with a third party where a controlling party
has a personal interest in the transaction, or any transaction with the controlling shareholder or his relative regarding terms of service
provided directly or indirectly (including through a company controlled by the controlling shareholder) and terms of employment (for a
controlling shareholder who is not an office holder). A “relative” is defined in the Companies Law as spouse, sibling, parent,
grandparent, descendant, spouse’s descendant, sibling or parent and the spouse of any of the foregoing. |
• |
the majority of the shares of shareholders who have no personal interest in the transaction and who are present and voting, not taking
into account any abstentions, vote in favor; or |
• |
shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent
of the aggregate voting rights in the company. |
• |
a breach of his or her duty of care to us or to another person; |
• |
a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume
that his or her act would not prejudice our interests; |
• |
monetary liabilities or obligations imposed upon him or her in favor of another person; and/or |
• |
any other event, occurrence or circumstance in respect of which we may lawfully insure an office holder. |
• |
a financial liability imposed on him or her in favor of another person by any judgment, including a settlement or an arbitration
award approved by a court. |
• |
reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or
proceeding instituted against him by a competent authority which concluded without the filing of an indictment against him and without
the imposition of any financial liability in lieu of criminal proceedings, or which concluded without the filing of an indictment against
him but with the imposition of a financial liability in lieu of criminal proceedings concerning a criminal offense that does not require
proof of criminal intent or in connection with a financial sanction (the phrases “proceeding concluded without the filing of an
indictment” and “financial liability in lieu of criminal proceeding” shall have the meaning ascribed to such phrases
in section 260(a)(1a) of the Companies Law); |
• |
reasonable litigation expenses, including attorneys’ fees, expended by an office holder or charged to the office holder by
a court, in a proceeding instituted against the office holder by the Company or on its behalf or by another person, or in a criminal charge
from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of an offense that does
not require proof of criminal intent; |
• |
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative
proceeding instituted against such office holder, or payment required to be made to an injured party, pursuant to certain provisions of
the Securities Law; and/or |
• |
any other event, occurrence or circumstance in respect of which we may lawfully indemnify an office holder. |
• |
a breach by the office holder of his or her duty of loyalty, except that the company may enter into an insurance contract or indemnify
an office holder if the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|
• |
a breach by the office holder of his or her duty of care, if such breach was intentional or reckless, but unless such breach was
solely negligent; |
• |
any act or omission intended to derive an illegal personal benefit; or |
• |
any fine, civil fine, financial sanction or monetary settlement in lieu of criminal proceedings imposed on such office holder.
|
Name |
Number of Ordinary Shares(1)
|
Percentage of Outstanding
Ordinary Shares |
Number of Stock Options
Held(2) |
Exercise price of Options
|
Number of RSUs Held(2)
|
|||||||||||||||
Zohar Zisapel(3)
|
7,117,174 |
8.44 |
300,000 |
$ |
2.02 – 3.70 |
- |
||||||||||||||
Ira Palti |
612,500 |
0.72 |
720,000 |
$ |
2.41 – 9.01 |
- |
||||||||||||||
All directors and senior management as a group consisting of 20 people(4)
|
8,302,190 |
9.72 |
2,886,563 |
$ |
2.02 – 9.01 |
10,469 |
(1) |
Consists of ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days of March
27, 2022. |
(2) |
Each stock option is exercisable into one ordinary share and expires between 6 and 10 years from the date of its grant. Of the number
of stock options listed, 300,000, 612,500 and 1,495,064 options, are vested or shall become vested within 60 days of March 27, 2022 for
Mr. Zisapel, Mr. Palti and all directors and senior management as a group, respectively. No RSUs are expected to vest within 60 days of
March 27, 2022. |
(3) |
The number of ordinary shares held by Zohar Zisapel includes (i) 3,594,986 ordinary shares held by Zohar Zisapel; (ii) 300,000 ordinary
shares issuable upon the exercise of options granted to Mr. Zisapel, exercisable as of March 27, 2022 or within 60 days thereafter; (iii)
1,101,245 ordinary shares are held of record by Lomsha Ltd., an Israeli company controlled by Mr. Zisapel; (iv) 18,717 ordinary shares
are held by RAD Data Communications Ltd., an Israeli company of which Mr. Zisapel is a principal shareholder and a director; and (v) 2,102,226
Ordinary Shares are held by Michael and Klil Holdings (93) Ltd., an Israeli company controlled by Mr. Zisapel. The number of ordinary
shares beneficially held by Zohar Zisapel is based on a Schedule 13D/A filed by Mr. Zisapel with the SEC on February 16, 2021. |
(4) |
Each of the directors and senior management other than Messrs. Zohar Zisapel and Ira Palti, beneficially owns less than 1% of the
outstanding ordinary shares as of March 27, 2022 (including options held by each such person and which are vested or shall become vested
within 60 days of March 27, 2022) and have therefore not been separately listed. |
Cumulative Ordinary Shares
Reserved for Option and RSU Grants |
Remaining Reserved Shares
Available for Option and RSU Grants |
Options and RSUs Outstanding
|
Weighted Average Exercise
Price |
|||||||||||
27,895,688 |
(1) |
2,568,136 |
(2) |
5,886,125 |
(3) |
$ |
3.40 |
(4) |
(1) |
Total of 2,979,437 relates to RSU grants and 24,916,251 relates to all options grants under all the Company’s Share Option
and RSU plans commencing in 2003. |
(2) |
Total under all grants approved by the Board under all Company’s Share Option and RSU plans commencing in 2003. |
(3) |
Total of 699,679 relates to RSUs outstanding and 5,186,446 relates to options outstanding, under all the Company’s Share Option
and RSU plans commencing in 2003. |
(4) |
Weighted average price refers only to options (option plans before 2012 have already expired) |
Options and RSUs Outstanding
|
Unvested Options and RSUs
|
|||||||
Directors and senior management |
3,006,068 |
1,590,448 |
||||||
All other grantees |
2,880,057 |
1,953,278 |
ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Name |
Number of Ordinary Shares(2)
|
Percentage of Outstanding Ordinary Shares(1)
|
||||||
Zohar Zisapel (3)
|
7,117,174 |
8.47 |
% | |||||
Joseph D. Samberg (4)
|
12,980,000 |
15.45 |
% |
(1) |
Based on 84,001,666 ordinary shares outstanding as of March 27, 2022, excluding options to purchase ordinary shares which are
vested or shall become vested within 60 days of March 27, 2022. |
(2) |
Consists of ordinary shares and options to purchase ordinary shares, which are vested or shall become vested within 60 days as of
March 27,2022. |
(3) |
(i) 3,594,986 ordinary shares held by Zohar Zisapel; (ii) 300,000 ordinary shares issuable upon the exercise of options granted to
Mr. Zisapel exercisable as of March 27, 2022 or within 60 days thereafter; (iii) 1,101,245 ordinary shares are held of record by Lomsha
Ltd., an Israeli company controlled by Mr. Zisapel; (iv) 18,717 ordinary shares are held by RAD Data Communications Ltd., an Israeli company
of which Mr. Zisapel is a principal shareholder and a director. Mr. Zisapel and his brother, Mr. Yehuda Zisapel, and Ms. Nava Zisapel,
have shared voting and dispositive power with respect to the ordinary shares held by RAD Data Communications Ltd.; and (v) 2,102,226 Ordinary
Shares are held by Michael and Klil Holdings (93) Ltd., an Israeli company controlled by Mr. Zisapel. The number of ordinary shares beneficially
held by Zohar Zisapel is based on a Schedule 13D/A filed by Mr. Zisapel with the SEC on February 16, 2021. |
(4) |
Joseph D. Samberg’s address is 1091 Boston Post Road, Rye, NY 10580. |
• |
the holders of the ordinary shares resulting from the conversion of such preferred shares; and |
• |
Yehuda Zisapel and Zohar Zisapel. |
ITEM 8. |
FINANCIAL INFORMATION |
ITEM 9. |
THE OFFER AND LISTING |
• |
the expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
• |
the research and development is for the promotion or development of the company; and |
• |
the research and development is carried out by or on behalf of the company seeking the deduction. |
• |
deduction of purchases of know-how, patents and the right to use a patent over an eight-year period for tax purposes; |
• |
deduction over a three-year period of specified expenses incurred with the issuance and listing of shares on the Tel Aviv Stock Exchange
or on a recognized stock exchange outside of Israel (including Nasdaq); |
• |
the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies;
and |
• |
accelerated depreciation rates on equipment and buildings. |
• |
holds the ordinary shares as a capital asset; |
• |
qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty; and |
• |
is entitled to claim the benefits available to the person by the U.S.-Israel tax treaty. |
• |
an individual citizen or resident of the United States; |
• |
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United
States or under the laws of the United States, any political subdivision thereof or the District of Columbia; |
• |
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
• |
a trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all of its substantial decisions or (ii) that has in effect a valid election under applicable U.S.
Treasury Regulations to be treated as a U.S. person. |
• |
are broker-dealers or insurance companies; |
• |
have elected mark-to-market accounting; |
• |
are tax-exempt organizations or retirement plans; |
• |
are grantor trusts; |
• |
are S corporations; |
• |
are certain former citizens or long-term residents of the United States; |
• |
are financial institutions; |
• |
hold ordinary shares as part of a straddle, hedge or conversion transaction with other investments; |
• |
acquired their ordinary shares upon the exercise of employee stock options or otherwise as compensation; |
• |
are real estate investment trusts or regulated investment companies; |
• |
own directly, indirectly or by attribution at least 10% of our shares (by vote or value); or |
• |
have a functional currency that is not the U.S. dollar. |
• |
the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, in the
case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in
the case of an individual, the item is attributable to a fixed place of business in the United States; or |
• |
the non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, and certain other conditions are met. |
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. |
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
ITEM 15. |
CONTROLS AND PROCEDURES |
(a) |
Disclosure Controls and Procedures |
(b) |
Management’s Annual Report on Internal Control Over Financial Reporting |
(i) |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company; |
(ii) |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and |
(iii) |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. |
(d) |
Changes in Internal Controls Over Financial Reporting |
ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Year Ended December 31, |
||||||||||||||||
2020 |
2021 |
|||||||||||||||
Services Rendered |
Fees |
Percentages |
Fees |
Percentages |
||||||||||||
Audit Fees (1)
|
$ |
714,000 |
94 |
% |
$ |
678,000 |
93 |
% | ||||||||
Audit related fees (2)
|
$ |
- |
- |
$ |
8,500 |
1 |
% | |||||||||
Tax Fees (3)
|
$ |
43,000 |
6 |
% |
$ |
45,000 |
6 |
% | ||||||||
Total |
$ |
757,000 |
100 |
% |
$ |
731,500 |
100 |
% |
(1) |
Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can reasonably provide. |
(2) |
Audit related fees principally relates to assistance with audit services and consultation |
(3) |
Tax fees relate to tax compliance, planning and advice |
ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
- |
Compensation Committee Charter: We have opted out of the requirement to adopt and
file a compensation committee charter as set forth in Nasdaq Rule 5605(d)(1). Instead, our Compensation Committee conducts itself in accordance
with provisions governing the establishment (but not the composition) and the responsibilities of a compensation committee as set forth
in the Companies Law and as further stipulated in our Compensation Policy. |
- |
Shareholder Approval: We have opted out of the requirement for shareholder approval
of stock option plans and other equity-based compensation arrangements as set forth in Nasdaq Rule 5635. Nevertheless, as required under
the Companies Law, shareholder voting procedures are followed for the approval of equity-based compensation of certain office holders
or employees, such as our CEO and members of our Board of Directors. Equity based compensation arrangements with other office holders
are approved by our Compensation Committee and our Board of Directors, provided they are consistent with our Compensation Policy, and
in special circumstances in deviation therefrom, taking into account certain considerations as set forth in the Companies Law. |
- |
Annual General Meetings of Shareholders: We have opted out of the requirement for
conducting annual meetings as set forth in Nasdaq Rule 5620(a), which requires Ceragon to hold its annual meetings of shareholders within
twelve months of the end of its fiscal year end. Instead, Ceragon is following home country practice and law in this respect. The Companies
Law requires that an annual meeting of shareholders be held every year, and not later than 15 months following the last annual meeting
(see in Item 10.B above –”Additional Information –Voting, Shareholders’ Meetings and Resolutions”).
|
- |
Quorum at General Meetings of Shareholders: We have opted out of the requirement
set under Rule 5620(c) of the Nasdaq Rules, which requires the presence of two or more shareholders holding at least 33 1/3%, and in lieu
follow our home country practice and Israeli law, according to which the quorum for any shareholders meeting will be the presence (in
person or by Proxy) of two or more shareholders holding at least 25% of the voting rights in the aggregate - within half an hour from
the time set for opening the meeting. |
- |
Distribution of Annual Reports: We have chosen to follow our home country practice
in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating to an issuer’s furnishing of its annual report to shareholders.
Specifically, we file annual reports on Form 20-F, which contain financial statements audited by an independent accounting firm, electronically
with the SEC, and also post a copy on our website. |
ITEM 16H. |
MINE SAFETY DISCLOSURE |
ITEM 17. |
FINANCIAL STATEMENTS |
ITEM 18. |
FINANCIAL STATEMENTS |
Index to Consolidated Financial Statements |
Page |
Reports of Independent Registered Public Accounting Firm |
F-2 - F-5 |
Consolidated Balance Sheets |
F-6 - F-7 |
Consolidated Statements of Operations |
F-8 |
Consolidated Statements of Comprehensive Income (loss) |
F-9 |
Consolidated Statements of Changes in Shareholders’ Equity |
F-10 |
Consolidated Statements of Cash Flows |
F-11 - F-12 |
Notes to Consolidated Financial Statements |
F-13 - F-48 |
ITEM 19. |
EXHIBITS |
1.1 |
2.1 |
4.1 |
4.2 |
4.3 |
4.4 |
4.5 |
4.6 |
4.7 |
4.8 |
4.9 |
4.10 |
4.11 |
4.12 |
4.13 |
4.14 |
4.15 |
4.16 |
4.17 |
8.1 |
12.1 |
12.2 |
13.1 |
15.1 |
101 |
Inline XBRL Instance Document |
101 |
SCH Inline XBRL Taxonomy Extension Schema Document |
101 |
CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101 |
DEF Inline XBRL Taxonomy Extension Definition Linkbase Document |
101 |
LAB Inline XBRL Taxonomy Extension Labels Linkbase Document |
101 |
PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
By: | /s/ Doron Arazi. | |
Name: |
Doron Arazi |
|
Title: |
President and Chief Executive Officer |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
IN U.S. DOLLARS
INDEX
|
|
|
Page |
F-2 – F-5 |
(PCAOB ID: 1281)
F-6 – F-7 | |
F-8 | |
F-9 | |
F-10 | |
F-11 – F-12 | |
F-13 – F-48 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Ceragon Networks Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ceragon Networks Ltd. and subsidiaries (the "Company") as of December 31, 2020 and 2021, and the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 2, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventory valuation | ||
| ||
Description of the Matter |
The Company’s inventories totaled $61.4 million as of December 31, 2021. As explained in Note 2 to the consolidated financial statements, the Company assesses the value of all inventories, including raw materials finished goods and spare parts, in each reporting period. Reserves for potentially obsolete inventory are made based on management’s analysis of inventory aging, future sales forecasts, and market conditions.
Auditing the valuation of obsolete inventory reserves involved subjective auditor judgment because management’s estimate relies on significant assumptions such as the future salability of the inventory, the assessment by inventory age, future usage and market demand for the Company’s products. | |
| ||
How we Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s obsolete inventory reserve process. This included management’s assessment of the assumptions and data underlying the obsolete inventory valuation. Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data that management used to value obsolete inventory. We performed inquiries of appropriate non-financial personnel including operational employees, regarding obsolete inventory items and other factors to corroborate management’s assertions regarding qualitative judgments about obsolete inventories. We also compared the cost of on-hand inventories to customer demand forecasts and historical sales and evaluated adjustments to sales forecasts for specific product considerations such as technological changes or alternative uses. We also assessed the historical accuracy of management estimates by comparing the forecasted sales to actual utilization of inventory. |
KOST FORER GABBAY & KASIERER
A Member of EY Global
We have served as the Company's auditor since 2002
Tel-Aviv, Israel
May 2, 2022
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Ceragon Networks Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Ceragon Networks Ltd. and subsidiaries' internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the "COSO criteria"). In our opinion, Ceragon Networks Ltd. and subsidiaries' (the "Company") maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2021, and the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021 and the related notes and our report dated May 2, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KOST FORER GABBAY & KASIERER
A Member of EY Global
Tel-Aviv, Israel
May 2, 2022
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
|
|
December 31, | ||||||||
Note |
|
|
2020 |
|
2021 |
| |||||
| |||||||||||
ASSETS | |||||||||||
| |||||||||||
CURRENT ASSETS: | |||||||||||
Cash and cash equivalents |
$ |
27,101 |
$ |
17,079 | |||||||
Trade receivables (net of allowance for credit losses of $6,189 and $7,470 at December 31, 2020 and 2021, respectively) |
10 |
107,388 |
107,826 | ||||||||
Other accounts receivable and prepaid expenses |
3 |
14,755 |
17,179 | ||||||||
Inventories |
4 |
50,627 |
61,398 | ||||||||
| |||||||||||
Total current assets |
199,871 |
203,482 | |||||||||
| |||||||||||
NON-CURRENT ASSETS: | |||||||||||
Trade receivables (net of allowance for credit losses of $ 0 and $ 1,117 at December 31, 2020 and 2021, respectively) |
10 |
- |
10,484 | ||||||||
Deferred tax assets |
15d |
8,279 |
- | ||||||||
Severance pay and pension fund |
6,059 |
5,648 | |||||||||
Operating lease right-of-use assets |
13 |
6,780 |
20,233 | ||||||||
Other non-current assets |
13,565 |
17,059 | |||||||||
| |||||||||||
PROPERTY AND EQUIPMENT, NET |
5 |
31,748 |
29,383 | ||||||||
| |||||||||||
INTANGIBLE ASSETS, NET |
6 |
6,117 |
6,274 | ||||||||
| |||||||||||
Total long-term assets |
72,548 |
89,081 | |||||||||
| |||||||||||
Total assets |
$ |
272,419 |
$ |
292,563 |
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
|
|
|
|
December 31, | ||||||
|
|
Note |
|
|
2020 |
|
2021 |
| |||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| |||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| |||
Trade payables |
|
|
|
|
$ |
63,722 |
|
$ |
69,436 |
| |
Deferred revenues |
|
16 |
|
|
|
3,492 |
|
|
3,384 |
| |
Short-term loans |
|
8 |
|
|
|
5,979 |
|
|
14,800 |
| |
Operating lease liabilities |
|
13 |
|
|
|
3,183 |
|
|
4,359 |
| |
Other accounts payable and accrued expenses |
|
7 |
|
|
|
24,048 |
|
|
23,704 |
| |
|
|
|
|
|
|
|
|
|
|
| |
Total current liabilities |
|
|
|
|
|
100,424 |
|
|
115,683 |
| |
|
|
|
|
|
|
|
|
|
|
| |
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
| |
Accrued severance pay and pensions |
|
|
|
|
|
11,601 |
|
|
10,799 |
| |
Deferred revenues |
|
16 |
|
|
|
7,495 |
|
|
9,275 |
| |
Operating lease liabilities |
|
13 |
|
|
|
3,840 |
|
|
17,210 |
| |
Other long-term payables |
|
|
|
|
|
2,933 |
|
|
2,445 |
| |
|
|
|
|
|
|
|
|
|
|
| |
Total long-term liabilities |
|
|
|
|
|
25,869 |
|
|
39,729 |
| |
|
|
|
|
|
|
|
|
|
|
| |
COMMITMENTS AND CONTINGENT LIABILITIES |
|
12 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
SHAREHOLDERS' EQUITY: |
|
14 |
|
|
|
|
|
|
|
| |
Share capital - |
|
|
|
|
|
|
|
|
|
| |
Ordinary shares of NIS 0.01 par value - |
|
|
|
|
|
|
|
|
|
| |
Authorized: 120,000,000 shares at December 31, 2020 and 2021; Issued: 85,184,889 and 87,413,119 shares at December 31, 2020 and 2021, respectively; Outstanding: 81,703,366 and 83,931,596 shares at December 31, 2020 and 2021, respectively |
|
|
|
|
|
218 |
|
|
224 |
| |
Additional paid-in capital |
|
|
|
|
|
420,958 |
|
|
428,244 |
| |
Treasury shares at cost – 3,481,523 ordinary shares at December 31, 2020 and 2021 |
|
|
|
|
|
(20,091 |
) |
|
(20,091 |
) | |
Accumulated other comprehensive loss |
|
|
|
|
|
(8,068 |
) |
|
(9,507 |
) | |
Accumulated deficit |
|
|
|
|
|
(246,891 |
) |
|
(261,719 |
) | |
|
|
|
|
|
|
|
|
|
|
| |
Total shareholders' equity |
|
|
|
|
|
146,126 |
|
|
137,151 |
| |
|
|
|
|
|
|
|
|
|
|
| |
Total liabilities and shareholders' equity |
|
|
|
|
$ |
272,419 |
|
$ |
292,563 |
|
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)
Year ended December 31, | |||||||||||||||
Note |
2019 |
2020 |
2021 | ||||||||||||
| |||||||||||||||
Revenues |
16 |
$ |
285,583 |
$ |
262,881 |
$ |
290,766 | ||||||||
Cost of revenues |
188,741 |
187,236 |
202,389 | ||||||||||||
| |||||||||||||||
Gross profit |
96,842 |
75,645 |
88,377 | ||||||||||||
| |||||||||||||||
Operating expenses: | |||||||||||||||
Research and development, net |
26,793 |
30,997 |
29,473 | ||||||||||||
Sales and marketing |
39,469 |
33,021 |
33,509 | ||||||||||||
General and administrative |
23,278 |
19,199 |
20,589 | ||||||||||||
| |||||||||||||||
Total operating expenses |
89,540 |
83,217 |
83,571 | ||||||||||||
| |||||||||||||||
Operating income (loss) |
7,302 |
(7,572 |
) |
4,806 | |||||||||||
Financial expenses and others, net |
18 |
6,521 |
5,923 |
8,625 | |||||||||||
| |||||||||||||||
Income (loss) before taxes on income |
781 |
(13,495 |
) |
(3,819 |
) | ||||||||||
| |||||||||||||||
Taxes on income |
15c |
2,476 |
2,618 |
11,009 | |||||||||||
Equity loss in affiliates |
649 |
979 |
- | ||||||||||||
| |||||||||||||||
Net loss |
$ |
(2,344 |
) |
$ |
(17,092 |
) |
$ |
(14,828 |
) | ||||||
| |||||||||||||||
Net loss per share: | |||||||||||||||
| |||||||||||||||
Basic and diluted net loss per share |
$ |
(0.03 |
) |
$ |
(0.21 |
) |
$ |
(0.18 |
) | ||||||
Weighted average number of ordinary shares used in computing basic and diluted net loss per share |
80,296,581 |
81,149,687 |
83,414,831 |
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Net loss |
$ |
(2,344 |
) |
$ |
(17,092 |
) |
$ |
(14,828 |
) | |||
Other comprehensive income (loss): | ||||||||||||
| ||||||||||||
Change in foreign currency translation adjustment |
(360 |
) |
(929 |
) |
(325 |
) | ||||||
| ||||||||||||
Cash flow hedges: | ||||||||||||
Change in net unrealized gains |
1,797 |
1,752 |
346 | |||||||||
Amounts reclassified into net loss |
(895 |
) |
(225 |
) |
(1,460 |
) | ||||||
| ||||||||||||
Net change |
902 |
1,527 |
(1,114 |
) | ||||||||
| ||||||||||||
Other comprehensive income (loss), net |
542 |
598 |
(1,439 |
) | ||||||||
| ||||||||||||
Total of comprehensive loss |
$ |
(1,802 |
) |
$ |
(16,494 |
) |
$ |
(16,267 |
) |
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share and per share data)
Ordinary shares |
|
|
Share capital |
|
|
Additional paid-in capital |
|
|
Treasury shares at cost |
|
|
Accumulated other comprehensive loss |
|
|
Accumulated deficit |
|
|
Total shareholders' equity | ||||||||||
| ||||||||||||||||||||||||||||
Balance as of January 1, 2019 |
80,089,658 |
$ |
214 |
$ |
415,408 |
$ |
(20,091 |
) |
$ |
(9,208 |
) |
$ |
(226,755 |
) |
$ |
159,568 | ||||||||||||
| ||||||||||||||||||||||||||||
Exercise of options and vesting of RSU’s |
573,147 |
1 |
601 |
- |
- |
- |
602 | |||||||||||||||||||||
Share-based compensation expense |
- |
- |
2,053 |
- |
- |
- |
2,053 | |||||||||||||||||||||
Other comprehensive income, net |
- |
- |
- |
- |
542 |
- |
542 | |||||||||||||||||||||
Net loss |
- |
- |
- |
- |
- |
(2,344 |
) |
(2,344 |
) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of December 31, 2019 |
80,662,805 |
215 |
418,062 |
(20,091 |
) |
(8,666 |
) |
(229,099 |
) |
160,421 | ||||||||||||||||||
| ||||||||||||||||||||||||||||
Cumulative effect of adoption of ASU Topic 326 |
- |
- |
- |
- |
- |
(700 |
) |
(700 |
) | |||||||||||||||||||
Exercise of options and vesting of RSU’s |
1,040,561 |
3 |
1,234 |
- |
- |
- |
1,237 | |||||||||||||||||||||
Share-based compensation expense |
- |
- |
1,662 |
- |
- |
- |
1,662 | |||||||||||||||||||||
Other comprehensive income, net |
- |
- |
- |
- |
598 |
- |
598 | |||||||||||||||||||||
Net loss |
- |
- |
- |
- |
- |
(17,092 |
) |
(17,092 |
) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of December 31, 2020 |
81,703,366 |
218 |
420,958 |
(20,091 |
) |
(8,068 |
) |
(246,891 |
) |
146,126 | ||||||||||||||||||
| ||||||||||||||||||||||||||||
Exercise of options and vesting of RSU’s |
2,228,230 |
6 |
4,724 |
- |
- |
- |
4,730 | |||||||||||||||||||||
Share-based compensation expense |
- |
- |
2,562 |
- |
- |
- |
2,562 | |||||||||||||||||||||
Other comprehensive loss, net |
- |
- |
- |
- |
(1,439 |
) |
- |
(1,439 |
) | |||||||||||||||||||
Net loss |
- |
- |
- |
- |
- |
(14,828 |
) |
(14,828 |
) | |||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of December 31, 2021 |
83,931,596 |
$ |
224 |
$ |
428,244 |
$ |
(20,091 |
) |
$ |
(9,507 |
) |
$ |
(261,719 |
) |
$ |
137,151 |
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31, | |||||||||||||
2019 |
2020 |
2021 | |||||||||||
Cash flows from operating activities: | |||||||||||||
Net loss |
$ |
(2,344 |
) |
$ |
(17,092 |
) |
$ |
(14,828 |
) | ||||
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization |
9,691 |
12,861 |
12,246 | ||||||||||
Loss from sale of property and equipment |
- |
- |
82 | ||||||||||
Share-based compensation expense |
2,053 |
1,662 |
2,562 | ||||||||||
Decrease (increase) in accrued severance pay and pensions, net |
271 |
488 |
(418 |
) | |||||||||
Decrease (increase) in trade receivables, net |
4,533 |
9,345 |
(11,150 |
) | |||||||||
Increase in other accounts receivable and prepaid expenses (including other long-term assets) |
(2,086 |
) |
(6,661 |
) |
(6,976 |
) | |||||||
Decrease in operating lease right-of-use assets |
5,348 |
5,121 |
5,713 | ||||||||||
Decrease (increase) in inventories |
(9,475 |
) |
9,919 |
(11,908 |
) | ||||||||
Increase (decrease) in trade payables |
(15,933 |
) |
1,953 |
5,883 | |||||||||
Increase in deferred revenues |
4,150 |
2,988 |
1,672 | ||||||||||
Decrease (increase) in deferred tax assets, net |
(258 |
) |
(173 |
) |
8,279 | ||||||||
Decrease in operating lease liability |
(5,114 |
) |
(5,112 |
) |
(4,620 |
) | |||||||
Increase (decrease) in other accounts payable and accrued expenses (including other long-term liabilities) |
(3,767 |
) |
1,946 |
(1,556 |
) | ||||||||
| |||||||||||||
Net cash provided by (used in) operating activities |
(12,931 |
) |
17,245 |
(15,019 |
) | ||||||||
| |||||||||||||
Cash flows from investing activities: | |||||||||||||
Purchase of property and equipment |
(11,592 |
) |
(6,077 |
) |
(9,383 |
) | |||||||
Proceeds from sale of property and equipment |
- |
- |
200 | ||||||||||
Purchase of intangible assets |
(3,274 |
) |
(412 |
) |
(212 |
) | |||||||
Proceeds from bank deposits |
1,002 |
- |
- | ||||||||||
| |||||||||||||
Net cash used in investing activities |
(13,864 |
) |
(6,489 |
) |
(9,395 |
) |
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
Cash flows from financing activities: | ||||||||||||
| ||||||||||||
Proceeds from (repayment of) bank credits and loans, net |
14,600 |
(8,621 |
) |
9,800 | ||||||||
Proceeds from exercise of stock options |
602 |
1,237 |
4,730 | |||||||||
| ||||||||||||
Net cash provided by (used in) financing activities |
15,202 |
(7,384 |
) |
14,530 | ||||||||
| ||||||||||||
Translation adjustments on cash and cash equivalents |
(49 |
) |
(210 |
) |
(138 |
) | ||||||
| ||||||||||||
Increase (decrease) in cash and cash equivalents |
(11,642 |
) |
3,162 |
(10,022 |
) | |||||||
| ||||||||||||
Cash and cash equivalents at the beginning of the year |
35,581 |
23,939 |
27,101 | |||||||||
| ||||||||||||
Cash and cash equivalents at the end of the year |
$ |
23,939 |
$ |
27,101 |
$ |
17,079 | ||||||
| ||||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
| ||||||||||||
Cash paid for income taxes |
$ |
3,833 |
$ |
3,003 |
$ |
1,995 | ||||||
| ||||||||||||
Cash paid for interest on bank loans |
$ |
1,796 |
$ |
1,137 |
$ |
1,280 |
The accompanying notes are an integral part of the consolidated financial statements.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 1:-GENERAL
Ceragon Networks Ltd. ("the Company") is a global innovator and leading solutions provider of wireless transport. The Company helps operators and other service providers worldwide increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul and fronthaul solutions. The Company’s unique multicore technology and disaggregated approach to wireless transport provides highly reliable, fast to deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate, and labor resources. It enables increased productivity, as well as simple and quick network modernization. The Company delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization to achieve the highest value for its customers.
The Company sells its products through a direct sales force, systems integrators, distributors and original equipment manufacturers.
The Company’s wholly owned subsidiaries provide research and development, marketing, manufacturing, distribution, sales and technical support to the Company’s customers worldwide.
As to principal markets and major customers, see notes 17b and 17c.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES
a.Basis of presentation:
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”).
b.Use of estimates:
The preparation of financial statements, in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
The duration, scope and effects of the ongoing COVID-19 pandemic, government and other third party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of intangibles, fair values of stock-based awards, inventory write-off, warranty provision, income taxes, contingent liabilities, and incremental credit losses on receivables, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event.
c.Financial statements in U.S. dollars:
A majority of the revenues of the Company and certain of its subsidiaries are generated in U.S. dollars (“dollars”). In addition, a substantial portion of the Company’s and certain of its subsidiaries’ costs is incurred in dollars. Since management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate and considers the non-U.S. subsidiaries to be a direct, integral extension of the parent company’s operations, the dollar is its functional and reporting currency.
Accordingly, amounts in currencies other than U.S dollars have been re-measured in accordance with ASC topic 830, “Foreign Currency Matters” (“ASC 830”) as follows:
Monetary balances - at the exchange rate in effect on the balance sheet date. Consolidated statements of operations items - average exchange rates prevailing during the year.
All exchange gains and losses from the re-measurement mentioned above are reflected in the statement of operations in financial expenses and others, net.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The financial statements of the Company’s Brazilian subsidiary, whose functional currency is not the dollar, have been re-measured and translated into dollars. All amounts on the balance sheets have been translated into the dollar using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of operations have been translated into the dollar using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
d.Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries (“the Group”). Intercompany balances and transactions including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.
e.Cash equivalents:
Cash equivalents include short-term unrestricted, highly liquid investments that are readily convertible to cash and with original maturities of three months or less, at acquisition.
f.Inventories:
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued products, and for market prices lower than cost, if any.
The Company periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions) and the age of the inventory. At the point of the loss recognition, a new lower cost basis for that inventory is established. In addition, if required, the Company records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Company’s future demands forecast consistent with its valuation of excess and obsolete inventory.
Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues in the related arrangements were not recognized.
Cost is determined for all types of inventory using the moving average cost method plus indirect costs.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g.Long-term trade receivables:
Long-term trade receivables, with payment terms in excess of one year that are considered collectible, are recorded at their estimated present values.
h.Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:
% | |
| |
Computers, manufacturing and peripheral equipment |
6 – 33 |
Office, furniture and equipment |
Mainly 15 |
Leasehold improvements |
Over the shorter of the term of the lease or useful life of the asset |
i.Impairment of long-lived assets:
The Company’s long-lived assets are reviewed for impairment in accordance with ASC topic 360,” Property Plant and Equipment”, (“ASC 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During 2019, 2020 and 2021, no impairment losses have been recognized.
j.Income taxes:
The Company account for income taxes in accordance with ASC topic 740, “Income Taxes”, (“ASC 740”). This Statement prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and for carry forward losses deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized. For more information see note 15d.
The Company accounts for uncertain tax positions in accordance with ASC No. 740, “Income Taxes”, (“ASC 740”). ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company elected to classify interest expenses and penalties recognized in the financial statements as income taxes. For more information see note 15h.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.Intangible assets, net:
Intangible assets consist of technology and incurred software development costs capitalized in accordance with ASC 985-20, “Software - Costs of Software to be Sold, Leased, or Marketed”.
Intangible assets that are considered to have definite useful life are amortized using the straight-line basis over their estimated useful lives.
l.Revenue recognition:
The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise to transfer tangible products, network roll-out, professional services and customer support, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. Revenue from tangible products is recognized at a point in time when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied).
The revenues from customer support and extended warranty is recognized ratably over the contract period and the costs associated with these contracts are recognized as incurred. Revenues from network roll-out and professional services are recognized when the Company’s performance obligation is satisfied, usually upon customer acceptance.
The Company accounts for rebates and stock rotations provided to customers as variable consideration, based on historical analysis of credit memo data, rebate plans and stock rotation arrangements, as a deduction from revenue in the period in which the revenue is recognized.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m.Research and development expenses, net:
Research and development expenses, net of government grants, are charged to the statement of operations as incurred, except for development expenses which were capitalized in accordance with ASC 985-20 “Software – Costs of Software to be Sold, Leased, or Marketed” (see j above).
n.Warranty costs:
The Company generally offers a standard limited warranty, including parts and labor for an average period of 1-3 years for its products. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
The Company recorded income (expenses) from decrease (increase) of warranty provision for the years ended December 31, 2019, 2020 and 2021 in the amount of $654, $178 and $(417) respectively. As of December 31, 2020 and 2021, the warranty provision was $1,274 and $1,691 respectively.
o.Derivative instruments:
The Company has instituted a foreign currency cash flow hedging program using foreign currency forward and option contracts (“derivative instruments”) in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These transactions are designated as cash flow hedges, as defined under ASC topic 815, “Derivatives and Hedging”.
ASC 815 requires companies to recognize all of their derivative instruments as either assets or liabilities in the financial statements at fair value. The Company measured the fair value of the contracts in accordance with ASC topic 820, “Fair value Measurement and Disclosures” at Level 2 (see also note 2t). The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments that don’t meet the definition of a hedge, the changes in the fair value are included immediately in earnings in “Financial expenses and others, net”, in each reporting period.
The Company’s cash flow hedging program is to hedge against the risk of overall changes in cash flows resulting from forecasted foreign currency of salary and rent payments during the year. The Company hedges portions of its forecasted expenses denominated in NIS with forward exchange contracts.
p.Concentrations of credit risk:
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables.
The majority of the Company’s cash and cash equivalents are maintained in U.S. dollar. Generally, these cash and cash equivalents may be redeemed upon demand. Management believes that the financial institutions that hold the Company’s and its subsidiaries’ cash and cash equivalents are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these assets.
The Company’s trade receivables are geographically diversified and derived from sales to customers all over the world. The Company and its subsidiaries generally do not require collateral; however, in certain circumstances, the Company and its subsidiaries may require letters of credit, additional guarantees or advance payments.
The Company and its subsidiaries perform ongoing credit evaluations of their customers and insure certain trade receivables under credit insurance policies.
q.Transfers of financial assets:
ASC 860 “Transfers and Servicing”, (“ASC 860”), establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. The Company’s arrangements are such that the underlying conditions are met for the transfer of financial assets to qualify for accounting as a sale. The transfers of financial assets are typically performed by the factoring of receivables to two financial institutions.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
As of December 31, 2020, and 2021, the Company sold trade receivables to several different financial institutions in a total net amount of $21,993 and $36,047, respectively. Control and risk of those trade receivables were fully transferred in accordance with ASC 860.
During the years ended on December 31, 2019, 2020 and 2021, the Company recorded amounts of $506, $575 and $905, respectively, as financial expense related to its factoring arrangements.
r.Severance pay:
The Company’s severance pay liability for its Israeli employees is calculated pursuant to Israel’s Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability for all of its employees in Israel is covered by monthly deposits with pension funds, insurance policies and an accrual. The value of the funds deposited into pension funds and insurance policies is recorded as an asset - severance pay fund - in the Company’s balance sheet.
The severance pay fund includes the deposited funds and accumulated adjustments to the Israeli Consumer Price Index up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel’s Severance Pay Law or labor agreements. The value of the deposited funds in insurance policies, is based on the cash surrendered value of these policies and includes profits / losses.
Starting April 2009, the Company’s agreements with new employees in Israel are under section 14 of the Severance Pay Law -1963. The Company’s contributions for severance pay shall replace its severance obligation, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.
As of December 2020 and 2021, accrued severance pay amounted to $9,282 and $8,453 respectively. Severance expense for the years ended December 31, 2019, 2020 and 2021, amounted to approximately $2,336, $2,538 and $1,906, respectively.
The Company accounts for its obligations for pension and other postretirement benefits in accordance with ASC 715, “Compensation - Retirement Benefits”. For more information refer to note 11.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s.Accounting for stock-based compensation:
ASC topic 718, “Compensation - Stock Compensation”, (“ASC 718”), requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.
The Company estimates the fair value of stock options granted under ASC 718 using the binomial model with the following assumptions for 2019, 2020 and 2021:
December 31, | ||||||
2019 |
2020 |
2021 | ||||
| ||||||
Dividend yield |
0% |
0% |
0% | |||
Volatility |
53% - 65% |
60% - 85% |
66% - 87% | |||
Risk free interest |
1.2% - 2.7% |
0.1% - 1.0% |
0.1% - 1.3% | |||
Early exercise multiple |
1.3 - 2.3 |
1.5 - 1.6 |
1.55 |
Risk-free interest rates are based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life of the options; volatility of price of the Company’s shares based upon actual historical stock price movements. The Early exercise factor is representing the value of the underlying stock as a multiple of the exercise price of the option which, if achieved, results in exercise of the option.
Early exercise multiple is based on actual historical exercise activity. The expected term of the options granted is derived from output of the option valuation model and represents the period of time that options granted are expected to be outstanding.
The Company recognizes compensation expense using the accelerated method for all awards ultimately expected to vest. Estimated forfeitures are based on historical pre-vesting forfeitures and on management’s estimates. ASC topic 718 requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
t.Fair value of financial instruments:
The Company applies ASC 820, “Fair Value Measurements and Disclosures”. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 -Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 -Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
The following methods and assumptions were used by the Company and its subsidiaries in estimating their fair value disclosures for financial instruments.
The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable, trade payables, and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
The derivative instruments are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
u.Comprehensive income:
The Company accounts for comprehensive income in accordance with ASC topic 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders.
The components of accumulated other comprehensive income - (“AOCI”) were as follows:
Unrealized Gains (Losses) on Cash Flow Hedges |
Foreign Currency Translation Adjustments |
Total | ||||||||||
| ||||||||||||
Balance as of January 1, 2021 |
$ |
1,845 |
$ |
(9,913 |
) |
$ |
(8,068 |
) | ||||
| ||||||||||||
Other comprehensive income before reclassifications |
346 |
(325 |
) |
21 | ||||||||
Amounts reclassified from AOCI |
(1,460 |
) |
- |
(1,460 |
) | |||||||
| ||||||||||||
Other comprehensive loss |
(1,114 |
) |
(325 |
) |
(1,439 |
) | ||||||
| ||||||||||||
Balance as of December 31, 2021 |
$ |
731 |
$ |
(10,238 |
) |
$ |
(9,507 |
) |
The effects on net loss of amounts reclassified from AOCI for the year ended December 31, 2021 derive from realized gains on cash flow hedges, included in operating expenses.
v.Treasury shares:
The Company repurchased its ordinary shares on the open-market and holds such shares as Treasury shares. The Company presents the cost of repurchased treasury shares as a reduction of shareholders’ equity.
w.Basic and diluted net earnings per share:
Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during the year, in accordance with ASC topic 260, “Earnings Per Share” (“ASC 260”).
The total weighted average number of shares related to the outstanding options and RSU’s excluded from the calculations of diluted net earnings per share due to their anti-dilutive effect was 3,473,312, 4,204,381 and 1,695,149 for the years ended December 31, 2019, 2020 and 2021, respectively.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
x.Equity method investment
Investments in companies that are not controlled but over which the Company can exercise significant influence are presented using the equity method of accounting.
y.Reclassifications:
Certain prior period amounts have been reclassified in order to conform to the current period presentation.
z.Impact of recently issued Accounting Standards:
In November 2021, the FASB issued ASU 2021-10, ASC Topic 832 “Disclosures by Business Entities about Government Assistance”. The standard require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) Information about the nature of the transactions and the related accounting policy used to account for the transactions (2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item (3) Significant terms and conditions of the transactions, including commitments and contingencies. The standard will become effective for fiscal years beginning after December 15, 2021. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
NOTE 3:-OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31, | ||||||||
2020 |
2021 | |||||||
| ||||||||
Government authorities |
$ |
5,726 |
$ |
9,022 | ||||
Deferred charges and prepaid expenses |
5,743 |
6,214 | ||||||
Deposits receivable |
504 |
279 | ||||||
Advances to suppliers |
230 |
256 | ||||||
Hedging asset |
1,937 |
852 | ||||||
Other |
615 |
556 | ||||||
| ||||||||
$ |
14,755 |
$ |
17,179 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 4:-INVENTORIES
December 31, | ||||||||
2020 |
2021 | |||||||
| ||||||||
Raw materials |
$ |
19,764 |
$ |
22,581 | ||||
Work in progress |
194 |
423 | ||||||
Finished products |
30,669 |
38,394 | ||||||
| ||||||||
$ |
50,627 |
$ |
61,398 |
During the years ended December 31, 2019, 2020 and 2021, the Company recorded inventory write-offs for excess inventory and slow-moving inventory in a total amount of $4,836, $2,919 and $1,907, respectively that have been included in cost of revenues.
As of December 31, 2021, the Company has an outstanding inventory purchase orders with its suppliers in the amount of $63,859. The commitments are due primarily within one year.
NOTE 5:-PROPERTY AND EQUIPMENT, NET
December 31, | ||||||||
2020 |
2021 | |||||||
Cost: | ||||||||
Computers, manufacturing, peripheral equipment |
$ |
125,097 |
$ |
133,465 | ||||
Office furniture and equipment |
1,959 |
2,341 | ||||||
Leasehold improvements |
1,564 |
1,460 | ||||||
| ||||||||
128,620 |
137,266 | |||||||
Accumulated depreciation: | ||||||||
Computers, manufacturing, peripheral equipment |
94,294 |
105,300 | ||||||
Office furniture and equipment |
1,500 |
1,578 | ||||||
Leasehold improvements |
1,078 |
1,005 | ||||||
| ||||||||
96,872 |
107,883 | |||||||
| ||||||||
Depreciated cost |
$ |
31,748 |
$ |
29,383 |
Depreciation expenses for the years ended December 31, 2019, 2020 and 2021 were $9,555, $10,668 and $11,845 respectively.
Changes of property and equipment not resulted in cash outflows as of December 31, 2019, 2020 and 2021 amounted to $1,058, $1,562 and $1,058 respectively.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 6:-INTANGIBLE ASSETS, NET
Intangible assets:
The following table sets forth the components of intangible assets:
December 31, | ||||||||
2020 |
2021 | |||||||
Original amounts: | ||||||||
Technology |
$ |
3,767 |
$ |
4,325 | ||||
Software development costs |
2,879 |
2,879 | ||||||
| ||||||||
6,646 |
7,204 | |||||||
| ||||||||
Accumulated amortization: | ||||||||
Software development costs |
529 |
930 | ||||||
| ||||||||
Net amounts: | ||||||||
Technology |
3,767 |
4,325 | ||||||
Software development costs |
2,350 |
1,949 | ||||||
| ||||||||
Intangible assets, net |
$ |
6,117 |
$ |
6,274 |
Technology includes mainly perpetual software licenses to be used in the Company’s research and development activities. During 2021, the Company purchased $558 technology, out of which $350 was not resulted in cash flow outflows as of December 31, 2021. Some of the software license agreements provide a commitment of the Company for royalties payments upon future sales of the related developed products. Software development costs are amortized over 7 years. Amortization expenses for the years ended December 31, 2019, 2020 and 2021 amounted to $136, $393 and $401 respectively.
NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, | |||||||||
2020 |
2021 | ||||||||
| |||||||||
Employees and payroll accruals |
$ |
12,617 |
$ |
11,799 | |||||
Provision for warranty costs |
1,274 |
1,691 | |||||||
Government authorities |
1,612 |
2,223 | |||||||
Accrued expenses |
2,879 |
2,403 | |||||||
Advanced payments from customers |
4,351 |
5,044 | |||||||
Hedging Liability |
281 |
313 | |||||||
Other |
1,034 |
231 | |||||||
| |||||||||
$ |
24,048 |
$ |
23,704 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 8:- CREDIT LINES
In March 2013, the Company was provided with a revolving Credit Facility by four financial institutions. The Credit Facility was renewed and amended several times during the past years according to Company’s needs and financial position.
In June 2021, the Company signed the latest amendment to the agreement in the frame of which the Credit Facility was extended by additional 1 year, till June 30, 2022. Furthermore, an amendment signed earlier in 2021, includes an increase of $20,000 to $35,000 in the allowed factoring facility attributed to a certain customer, which puts the total allowed factoring facility of the Company on $100,000. The bank guarantees credit lines of $70,000 have remained unchanged. In addition, the Credit Facility for loans of $50,000 has remained unchanged. In addition, the Company has $5,000 credit facility from other financial institutions. The amendment also includes a change in the Credit Facility agreement related to the definition of tangible common equity (to exclude the long-term lease of the Company’s offices from the tangible common equity).
As of December 31, 2021, the Company has utilized $11,800 of the $ 50,000 available under the Credit Facility for short term loans. In addition, as of December 31, 2021, the Company has utilized $3,000 of the $5,000 available credit facility from other financial institution. During 2021, the credit lines carry interest rates in the range of Libor+2.1% and Libor+2.5%.
The Credit Facility is secured by a floating charge over all Company assets as well as several customary fixed charges on specific assets.
Repayment could be accelerated by the financial institutions in certain events of default including in insolvency events, failure to comply with financial covenants or an event in which a current or future shareholder acquires control (as defined under the Israel Securities Law) of the Company.
The credit agreement contains financial and other covenants requiring that the Company maintains, among other things, minimum shareholders’ equity value and financial assets, a certain ratio between its shareholders’ equity (excluding total intangible assets) and the total value of its assets (excluding total intangible assets) on its balance sheet, a certain ratio between its net financial debt to each of its working capital and accounts receivable. As of December 31, 2020 and 2021, the Company met all of its covenants.
NOTE 9:- DERIVATIVE INSTRUMENTS
The Company enters into foreign currency forward and option contracts with financial institutions to protect against the exposure to changes in exchange rates of several foreign currencies that are associated with forecasted cash flows and existing assets and liabilities. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)
The fair value of derivative contracts in the consolidated balance sheets at December 31, 2020 and December 31, 2021 were as follows:
Other accounts receivable and prepaid expenses |
Other accounts payable and accrued expenses | |||||||
December 31, 2020 | ||||||||
Derivatives designated as hedging instruments: | ||||||||
Currency forward contracts |
$ |
1,847 |
$ |
2 | ||||
Derivatives not designated as hedging instruments: | ||||||||
Currency forward and option contracts |
90 |
279 | ||||||
| ||||||||
Total derivatives |
$ |
1,937 |
$ |
281 |
Other accounts receivable and prepaid expenses |
Other accounts payable and accrued expenses | |||||||
December 31, 2021 | ||||||||
Derivatives designated as hedging instruments: | ||||||||
Currency forward contracts |
$ |
743 |
$ |
(12 |
) | |||
Derivatives not designated as hedging instruments: | ||||||||
Currency forward and option contracts |
109 |
(301 |
) | |||||
| ||||||||
Total derivatives |
$ |
852 |
$ |
(313 |
) |
The notional amounts for derivatives contracts were as follows:
December 31, | ||||||||
2020 |
2021 | |||||||
Derivatives designated as hedging instruments: | ||||||||
Currency forward contracts |
$ |
35,089 |
$ |
41,832 | ||||
Derivatives not designated as hedging instruments: | ||||||||
Currency forward and option contracts |
$ |
31,207 |
$ |
34,304 |
The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is up to 12 months.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)
The effect of derivative contracts on the consolidated statements of operations for the year ended December 31, 2020 and 2021 was as follows:
Year ended December 31, | |||||||||
2020 |
2021 | ||||||||
| |||||||||
Operating income |
$ |
225 |
$ |
1,460 | |||||
| |||||||||
Financial income (expenses) |
$ |
(894 |
) |
$ |
304 |
NOTE 10:- CREDIT LOSSES
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, based on a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption in the total of $700.
The Company is exposed to credit losses primarily through sales to customers. The Company’s expected loss allowance methodology for trade receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status.
The estimate of amount of trade receivable that may not be collected is based on the geographic location of the trade receivable balances, aging of the trade receivable balances, the financial condition of customers and the Company’s historical experience with customers in similar geographies.
Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:
December 31, | ||||||||
2020 |
2021 | |||||||
Balance, at beginning of Period |
$ |
4,236 |
$ |
6,198 | ||||
Cumulative effect of adoption of ASU Topic 326 |
700 |
- | ||||||
Provision for expected credit losses |
1,636 |
3,087 | ||||||
Amounts written off charged against the allowance and others |
(374 |
) |
(698 |
) | ||||
| ||||||||
Balance, at end of period |
$ |
6,198 |
$ |
8,587 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 11:- PENSION LIABILITIES, NET
The Norwegian subsidiary Ceragon Networks AS (formerly “Nera Networks AS”) has defined contribution schemes and four unfunded pension plans.
Under the defined contributions scheme Ceragon Networks AS makes a payment to the insurance company who administer the fund on behalf of the employee. Ceragon Networks AS has no liabilities relating to such schemes after the payment to the insurance company. As of December 31, 2021, all active employees are in this scheme. The contribution and the corresponding social security taxes are recognized as payroll expenses in the period to which the employee’s services are rendered. The defined pension contribution schemes meet the requirements of the law on compulsory occupational pension.
Defined benefit scheme was stopped for admission from December 1, 2007, and persons that were employed after that date were automatically entered into the defined contribution scheme. The schemes give right to defined future benefits. These are mainly dependent on the number of qualifying employment years, salary level at pension age, and the amount of benefits from the national insurance scheme. The commitment related to the pension scheme is covered through an insurance company.
AFP-scheme - in force from 1 January 2011, the AFP-scheme is a defined benefit multi-enterprise scheme, but is recognized in the accounts as a defined contribution scheme until reliable and sufficient information is available for the group to recognize its proportional share of pension cost, pension liability and pension funds in the scheme. Ceragon Networks AS’s liabilities are therefore not recognized as liability in the balance sheet.
The liabilities in respect of Ceragon Networks AS’s unfunded pension plans together represent 100% of the PBO (Projected Benefit Obligation) of the entire group.
The following tables provide a reconciliation of the changes in the plans’ benefits obligation for the year ended December 31, 2020 and 2021, and the statement of funds status as of December 31, 2020 and 2021:
December 31, | ||||||||
2020 |
2021 | |||||||
| ||||||||
Change in projected benefit obligation | ||||||||
Projected benefit obligation at beginning of year |
2,368 |
2,510 | ||||||
Interest cost |
52 |
38 | ||||||
Expenses paid |
(201 |
) |
(170 |
) | ||||
Exchange rates differences |
50 |
(85 |
) | |||||
Actuarial loss |
241 |
219 | ||||||
| ||||||||
Projected benefit obligation at end of year |
$ |
2,510 |
$ |
2,512 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 11:- PENSION LIABILITIES, NET (Cont.)
The assumptions used in the measurement of the Company’ benefits obligations as of December 31, 2020 and 2021 are as follows:
December 31, | ||||||||
2020 |
2021 | |||||||
Weighted-average assumptions | ||||||||
Discount rate |
1.70 |
% |
1.90 |
% | ||||
Rate of compensation increase |
2.25 |
% |
2.75 |
% |
The amounts reported for net periodic pension costs and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The Company reviews historical trends, future expectations, current market conditions and external data to determine the assumptions. The discount rate is the covered bond. For purposes of calculating the 2021 net periodic benefit cost and the 2021 benefit obligation, the Company has used a discount rate of 1.90%. The rate of compensation increase is determined by the Company, based upon its long-term plans for such increases.
The following table provides the components of net periodic benefits cost for the years ended December 31, 2019, 2020 and 2021:
December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
Components of net periodic benefit cost | ||||||||||||
Service cost |
$ |
12 |
$ |
- |
$ |
- | ||||||
Interest cost |
47 |
52 |
38 | |||||||||
| ||||||||||||
Net periodic benefit cost |
$ |
59 |
$ |
52 |
$ |
38 |
Benefit payments are expected to be paid as follows:
Regarding the policy for amortizing actuarial gains or losses for pension and post-employment plans, the Company has chosen to charge the actuarial gains or losses to statement of operations.
Interest cost and actuarial gain or losses are presented in financial expenses and others, net.
For the years ended December 31, 2019, 2020 and 2021, an actuarial loss of $361, $241 and $219 respectively, was recognized in “finance expenses and others, net”.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Leases
See Note 13 “Leases” for lease related commitments as of December 31, 2021.
b.During 2019, 2020 and 2021, the Company received several grants from the Israeli Innovation Authority (“IIA”). The grants require the Company to comply with the requirements of the Research and Development Law, however, the Company is not obligated to pay royalties on sales of products based on technology or know how developed from the grants. In a case involving the transfer of technology or know how developed from the grants outside of Israel, the Company may be required to pay royalties related to past sales of products based on the technology or the developed know how. The Company recorded income from IIA grants for the years ended December 31, 2019, 2020 and 2021 in the amount of $801, $996 and $691, respectively.
c.Paycheck Protection Program Loan:
In May 2020, the Company received $979 in proceeds from an approved loan under the Paycheck Protection Program. Interest accrued on outstanding principal balance at a rate of 1%, computed on a simple interest basis. The loan principal and accrued interest is eligible for forgiveness provided that (i) the Company uses the loan proceeds exclusively for allowed costs including payroll, employee group health benefits, rent and utilities and (ii) employee and compensation levels are maintained. The loan is presented under “short term loans” in the consolidated balance sheet as of December 31, 2020. The Company submitted application for forgiveness that was approved in May 2021.
d.Charges and guarantees:
As of December 31, 2020 and 2021, the Company provided guarantees in an aggregate amount of $45,847 and $37,236 (including bank guarantee disclosed in Note 12e), respectively, with respect to tender offer guarantees, financial guarantees, warranty guarantees and performance guarantees to its customers.
e.Litigations:
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
On January 6, 2015 the Company was served with a motion to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants. The motion was filed with the District Court of Tel-Aviv (the “Court”). The purported class action alleges breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements. The plaintiff seeks specified compensatory damages in a sum of up to $75,000 as well as attorneys’ fees and costs.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
The Company filed its defense on June 21, 2015, which was followed by disclosure proceedings.
The plaintiff filed his reply to the Company’s defense by April 2, 2017. A preliminary hearing was held on May 22, 2017, in the framework of which the court set dates for response to the Company’s above-mentioned requests as well as dates for evidence hearings.
In May 2017, the Company filed two requests: the first, requesting to dismiss the plaintiff’s response to the Company’s defense, or, alternatively, to allow the Company to respond to it; the second, to precede a ruling with regards to the legal question of the governing law. On July 17, 2017, the court issued its decision in the first request, denying the requested dismissal of plaintiff’s response to the Company’s defense, but allowing the Company to respond to it; on July 29, 2017, the Court issued its decision in the second request, and denied it. The Company filed its response on September 18, 2017.
On October 2, 2017, the plaintiff filed a request to summon two of the Company’s officers (Company’s Chairman, Mr. Zisapel and Company’s Chief Executive Officer, Mr. Palti). The first evidence hearing took place on November 2, 2017 and the second and final evidence hearing took place on January 8, 2018. Summaries were filed by the plaintiff on March 21, 2018 and the Company filed its summaries on June 12, 2018. The plaintiff filed their reply summaries on September 5, 2018.
On October 4, 2018, an interim decision regarding dual listed companies, which corresponds with the Company’s arguments in this case, was rendered by the Supreme Court of Israel. This Supreme court decision upholds two recent rulings of District Court of Tel-Aviv (Economic Department), which determined that all securities litigation regarding dual listed companies should be decided only in accordance with US law (herein after: “Supreme Court Decision”).
In light of this, on October 15, 2018, the plaintiff asked from court to add a plea to his summaries. The court has approved plaintiff’s request and gave to the defendants the right to reply. In accordance, the Company’s response was submitted on December 4, 2018. Plaintiff’s reply to Company’s response was submitted on December 26, 2018.
On April 14, 2019 the court rendered a decision resolving that according to Supreme Court Decision, examination of the legal questions standing in the basis of the Motion, should be based upon US law. Therefore, the court allowed the plaintiff to amend its Motion within 45 days, so that it would include an expert opinion regarding US law, and an argument regarding US law implementation in the specific circumstances. The Court also decided that amendment of the Motion is subject to plaintiff’s payment of 40,000 NIS to the Company.
On September 23, 2019, the plaintiff filed an amended Motion (“the Amended Motion”), which includes an expert opinion regarding US federal law and lengthy arguments that were added on top of the original Motion, specifically, in reference to discovery proceedings and evidence hearings that were held as part of the original Motion.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
Therefore, on September 25, 2019, the Court rendered a decision pointing out that the Amended motion seems to include the plaintiff’s summaries, and so ordered the plaintiff to clarify whether he is willing to relinquish submitting any additional summaries regarding the evidence that were heard in the original Motion.
On October 2, 2019, plaintiff responded, alleging that since the Amended Motion does not include any new facts, there is no need in submitting additional summaries regarding the evidence that were heard to this point.
On December 30, 2019 the Company submitted a motion to dismiss the Amended Motion. The Company alleged that the Amended Motion includes new causes of action, and specifically that the addition of legal causes of action according to US Federal law, cannot be filed due to the specific statute of limitations.
On January 20, 2020, the plaintiff filed its response. Also, the Court accepted the Company’s request to submit its response to the Amended Motion after a decision in the Company’s motion to dismiss will be rendered.
On February 24, 2020 the court issued a decision, according to which, the Motion will be decided upon the current court documents, unless either of the parties will file a request to hold a hearing in the matter.
On May 27, 2021, the Court ruled to certify the Motion as a class action, while applying Israeli Law (the “Ruling”). According to the Ruling, the class action shall include several causes of action according to the Israeli Securities Act and the Israeli Torts Ordinance, concerning the alleged misleading statements in the Company’s SEC filings. The Ruling has addressed also the size of the alleged aggrieved shareholders who may be included and be represented in the class action.
On June 9, 2021 the Court issued a decision suggesting that the parties will refer the case to a mediation procedure.
The Company believed that the Ruling is erroneous and that the Company has strong defense arguments, and therefore, on September 12, 2021, filed a motion for a rehearing on behalf of the Company and its directors in order to revert the Ruling (the “Rehearing Motion”).
On October 20, 2021, the Plaintiff submitted his response to the Rehearing Motion and the Company submitted its reply to the Plaintiff’s response on November 23, 2021. In light of the fact that the Ruling applied and was based upon Israeli Law (instead of the relevant foreign law), the Tel Aviv Stock Exchange filed a motion requesting the court to allow it to join the proceedings as Amicus Curiae, in order to express its principle opinion that the applicable law, in so far as dual listed companies are concerned, is the foreign law, as well as regarding the negative implications of the court’s application of Israeli law on dual listed companies.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
Meanwhile, and without delaying or derogating from the Rehearing Motion, the Company agreed to the Court’s suggestion that the parties will refer the case to a mediation procedure. After several mediation meetings were held, the mediation process ended without reaching a settlement.
On January 3, 2022 a hearing was held in court in the Rehearing Motion. Following the hearing, on January 25, 2022, the Attorney General joined the proceedings of the Rehearing Motion and submitted his position in collaboration with the Securities Authority. The Attorney General’s principle position as outlined, was that the applicable law in so far as dual listed companies are concerned is the foreign law, and in Ceragon case - US law.
On January 27, 2022, a judgment was rendered in the Rehearing Motion. The court ruled that the Ruling was erroneous as it applied Israeli Law, instead of foreign law, and held accordingly that the law that will apply is US law. The court further held that the case will be returned to the first judicial instance and will be adjudicated as a class claim under the US law. The court further held that the Company’s claims based upon the Statute of Limitations should also be adjudicated under the US law.
On March 20, 2022, following the court's decision, the Plaintiff filed to the first judicial instance, an amended class action claim, based on provisions of US law. The Company is required to submit its Statement of Defense, by June 26, 2022.
The Company believes that it has strong defense against the allegations referred to in the claim and that U.S law presents a higher bar for plaintiffs in comparison to Israeli law in proving claims regarding misleading representations to investors, and that the Court should deny it. However, bearing in mind that the class action will be adjudicated under US law, and in light of the fact that Ceragon has not yet filed its Statement of Defense, the Company’s attorneys were reluctant to asses, at this preliminary stage, the chances of the class action to be accepted.
NOTE 13:-LEASES
The Company`s leases include offices and warehouses for its facilities worldwide, as well as car leases, which are all classified as operating leases. Certain leases include renewal options that are under the Company`s sole discretion. The renewal options were included in the right of use (“ROU”) and liability calculation if it was reasonably certain that the Company will exercise the option.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 13:-LEASES (Cont.)
The components of lease expense and supplemental cash flow information related to leases for the years ended December 31, 2020 and 2021 were as follows:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Components of lease expense | ||||||||||||
Operating lease cost |
$ |
5,624 |
$ |
5,484 |
$ |
4,869 | ||||||
Short-term lease |
$ |
75 |
$ |
43 |
$ |
100 | ||||||
Total lease expenses |
$ |
5,699 |
$ |
5,527 |
$ |
4,969 |
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Supplemental cash flow information | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities |
$ |
5,718 |
$ |
5,489 |
$ |
4,843 | ||||||
| ||||||||||||
Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets |
$ |
8,346 |
$ |
1,773 |
$ |
19,166 |
For the year ended December 31, 2021, the weighted average remaining lease term is approximately eight years, and the weighted average discount rate is 5 percent. The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.
Maturities of lease liabilities as of December 31, 2021 were as follows:
2022 |
4,452 | ||
2023 |
3,740 | ||
2024 |
2,778 | ||
2025 |
2,396 | ||
2026 and thereafter |
12,326 | ||
Total operating lease payments |
25,692 | ||
Less: imputed interest |
4,123 | ||
Present value of lease liability |
21,569 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:-SHAREHOLDERS' EQUITY
The ordinary shares of the Company are traded on the Nasdaq Global Select Market, under the symbol “CRNT”.
a.General:
The ordinary shares entitle their holders to receive notice to participate and vote in general meetings of the Company, the right to share in distributions upon liquidation of the Company, and to receive dividends, if declared.
b.Stock options plans:
1.In 2003, the Company adopted a share option plan which has been extended or replaced from time to time, including on September 6, 2010, December 2012 and August 2014. To date, the plan that is currently in effect is the Amended and Restated Share Option and RSU Plan as amended August 10, 2014 (the “Plan”). Under the Plan, options and RSUs may be granted to officers, directors, employees and consultants of the Company or its subsidiaries. The options vest primarily over four years, subject to certain exceptions. The options expire between to ten years from the date of grant. The Plan expires in December 2022. The maximum number of shares which may be issued under Options granted pursuant to the Plan is twenty million (20,000,000). The Company needs to reserve, and the Board of Directors has reserved, sufficient authorized but unissued Shares for purposes of the Plan subject to adjustments as provided in the Plan. Since the last amendment in 2014, the Company has issued approximately 7,650,000 options under the Plan.
2.The following table summarizes the activities for the Company’s stock options for the year ended December 31, 2021:
|
Year ended December 31, 2021 | |||||||||||||||
|
Number of options |
Weighted average exercise price |
Weighted average remaining contractual term (in years) |
Aggregate intrinsic value | ||||||||||||
| ||||||||||||||||
Outstanding at beginning of year |
6,238,729 |
$ |
3.52 |
3.17 |
$ |
2,654 | ||||||||||
Granted |
1,902,868 |
3.72 | ||||||||||||||
Exercised |
(2,098,957 |
) |
2.25 | |||||||||||||
Forfeited or expired |
(856,194 |
) |
7.75 | |||||||||||||
| ||||||||||||||||
Outstanding at end of the year |
5,186,446 |
$ |
3.40 |
4.01 |
$ |
534 | ||||||||||
| ||||||||||||||||
Options exercisable at end of the year |
2,342,399 |
$ |
3.57 |
2.75 |
$ |
370 | ||||||||||
| ||||||||||||||||
Vested and expected to vest |
4,664,666 |
$ |
3.41 |
3.87 |
$ |
508 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:-SHAREHOLDERS' EQUITY (Cont.)
The weighted average fair value of options granted during 2019, 2020 and 2021 was $1.39, $1.06 and $2.25, respectively.
The intrinsic value of options exercised during the years ended December 31, 2019, 2020 and 2021 was $626, $770 and $5,519, respectively.
The following table summarizes the activities for the Company’s RSUs for the year ended December 31, 2021:
Year ended December 31, 2021 | ||||||||
Number of RSUs |
Aggregate intrinsic value | |||||||
| ||||||||
Unvested at beginning of year |
309,986 |
$ |
862 | |||||
Granted |
588,466 | |||||||
Vested |
(129,380 |
) | ||||||
Forfeited |
(69,393 |
) | ||||||
| ||||||||
Unvested at end of the year |
699,679 |
$ |
1,805 | |||||
| ||||||||
Vested and expected to vest |
493,881 |
$ |
1,274 |
The weighted average fair value at grant date of RSUs granted during 2019, 2020 and 2021 was $2.79, $2.11 and $4.07, respectively.
As of December 31, 2021, the total unrecognized estimated compensation cost related to non-vested stock options and RSU`s granted prior to that date was $ 4,563, which is expected to be recognized over a weighted average period of approximately one year.
The following is a summary of the Company’s stock options and RSUs granted separated into ranges of exercise price:
Exercise price (range) |
|
|
Options and RSUs outstanding as of December 31, 2021 |
|
|
Weighted average remaining contractual life (years) for outstanding options |
|
|
Weighted average exercise price |
|
|
Options and RSUs exercisable as of December 31, 2021 |
|
|
Weighted average remaining contractual life (years) for exercisable options |
|
|
Weighted average exercise price | |||||||
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ | |||||||
| |||||||||||||||||||||||||
RSUs 0.0 |
699,679 |
- |
0.00 |
- |
- |
0.00 | |||||||||||||||||||
0.01-2.00 |
154,389 |
1.17 |
1.45 |
141,239 |
0.92 |
1.42 | |||||||||||||||||||
2.01-4.00 |
4,460,682 |
4.39 |
3.05 |
1,760,845 |
3.35 |
2.78 | |||||||||||||||||||
4.01-6.00 |
281,375 |
3.31 |
4.41 |
150,315 |
1.80 |
4.57 | |||||||||||||||||||
6.01-8.00 |
15,000 |
0.75 |
6.21 |
15,000 |
0.75 |
6.21 | |||||||||||||||||||
8.01-10.00 |
275,000 |
0.40 |
9.00 |
275,000 |
0.40 |
9.00 | |||||||||||||||||||
| |||||||||||||||||||||||||
5,886,125 |
2,342,399 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:-SHAREHOLDERS' EQUITY (Cont.)
The total equity-based compensation expense related to all of the Company’s equity-based awards, recognized for the years ended December 31, 2019, 2020 and 2021, was comprised as follows:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Cost of revenues |
$ |
71 |
$ |
110 |
$ |
289 | ||||||
Research and development, net |
366 |
243 |
236 | |||||||||
Sales and marketing |
708 |
545 |
700 | |||||||||
General and administrative |
908 |
764 |
1,337 | |||||||||
| ||||||||||||
Total share-based compensation expenses |
$ |
2,053 |
$ |
1,662 |
$ |
2,562 |
c.Dividends:
In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. The Company does not intend to pay cash dividends in the foreseeable future.
NOTE 15:-TAXES ON INCOME
a.Israeli taxation:
1.Measurement of taxable income:
The Company has elected to file its tax return under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, starting tax year 2003, results of operations in Israel are measured in terms of earnings in U.S. dollars.
2.Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Law”):
According to the Law, the Company is entitled to various tax benefits by virtue of the “Approved Enterprise” status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are:
According to the provisions of the Law, the Company has chosen to enjoy the “Alternative” track. Under this track, the Company is tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%-25% for the remaining benefit period. The benefit period under Approved Enterprise starts with the first year the benefited enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and 12 years have not passed since the enterprise began operating.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
Generally, a company that is Abundant in Foreign Investment is entitled to an extension of the benefits period by an additional five years
The tax benefits under the Approved Enterprise are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published and the letters of approval for the investments in the approved enterprises. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest.
The Company has three capital investment programs that have been granted Approved Enterprise status, under the Law.
As of December 31, 2021, the 14 years have passed for the three Approved Enterprise programs.
Income from sources other than the “Approved Enterprise” during the benefit period will be subject to the tax at the regular tax rate.
The Company believes it will continue to enjoy its current tax benefits in accordance with the provisions of the Investment Law prior to the 2005 Amendment.
In December 2016, the Knesset passed an additional amendment to the Law which provides for additional benefits to Preferred Technological Enterprises by reducing the tax rate on preferred Technological Enterprise income (as such is defined in Amendment 73) to 12% (the “Amendment”). This Amendment came into effect in May 2017 when the Minister of Finance promulgated the regulations for its implementation. The Company has evaluated the effect of the adoption of the Amendment on its financial statements, and as of the date of the approval of the financial statements, the Company did not apply the Amendment. The Company may change its position in the future.
3.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident and located in Israel, at least 90% of the income of which in a given tax year exclusive of income from specified Government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.
Management believes that the Company is currently qualified as an “industrial company” under the Encouragement Law and, as such, enjoys tax benefits, including: (1) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equal amounts over three years.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any Governmental authority. No assurance can be given that the Israeli tax authorities will agree that the Company qualifies, or, if the Company qualifies, that the Company will continue to qualify as an industrial company or that the benefits described above will be available to the Company in the future.
4.Tax rates:
Taxable income of Israeli companies was subject to tax at the rate - 23% in the years 2019, 2020 and 2021.
The effective tax rate payable by a company which is taxed under the Investment Law may be considerably lower (see also note 15.a2 above). Israeli corporations are generally taxed at the corporate income tax rate on their capital gains.
The Company’s tax assessments through 2015 tax year are considered final.
b.Income taxes for non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their respective counties of residence.
c.The income tax expense for the years ended December 31, 2019, 2020 and 2021 consisted of the following:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Current |
$ |
2,734 |
$ |
2,641 |
$ |
2,181 | ||||||
Deferred |
(258 |
) |
(23 |
) |
8,828 | |||||||
| ||||||||||||
$ |
2,476 |
$ |
2,618 |
$ |
11,009 | |||||||
| ||||||||||||
Domestic (Israel) |
$ |
781 |
$ |
839 |
$ |
8,844 | ||||||
Foreign |
1,695 |
1,779 |
2,165 | |||||||||
| ||||||||||||
$ |
2,476 |
$ |
2,618 |
$ |
11,009 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
d.Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31, | ||||||||
2020 |
2021 | |||||||
Deferred tax assets: | ||||||||
| ||||||||
Net operating loss carry forward |
$ |
65,641 |
$ |
64,353 | ||||
Temporary differences mainly relating to Research and Development, reserves and allowances |
28,429 |
21,472 | ||||||
| ||||||||
Deferred tax asset before valuation allowance |
94,070 |
85,825 | ||||||
Valuation allowance |
(85,791 |
) |
(85,825 |
) | ||||
| ||||||||
Deferred tax asset, net |
$ |
8,279 |
$ |
- |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized in each tax jurisdiction. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded valuation allowance amounting $85,791 and $85,825 as of December 31, 2020 and 2021 respectively.
e.Net operating loss carry forward and capital loss:
As of December 31, 2021, the Company has accumulated net operating losses and capital loss for Israeli income tax purposes in the amount of approximately $187,927 and $8,139, respectively. The net operating losses and capital loss may be carried forward and offset against taxable income in the future for an indefinite period.
As of December 31, 2021, the Company’s Norwegian subsidiary had a net operating loss carry forward of approximately $25,264 that can be carried forward. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.
As of December 31, 2021, the Company’s Brazilian subsidiary had a net operating loss carryforward of approximately $31,131 that can be carried forward. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period. The offset is limited to a maximum 30% of the annual taxable income.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
f.Income (Loss) before taxes is comprised as follows:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Domestic |
$ |
(2,171 |
) |
$ |
(24,192 |
) |
$ |
(5,430 |
) | |||
Foreign |
2,952 |
10,697 |
1,611 | |||||||||
| ||||||||||||
$ |
781 |
$ |
(13,495 |
) |
$ |
(3,819 |
) |
g.Reconciliation of the theoretical tax expense to the actual tax expense:
Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statements of operations is as follows:
Year ended December 31, | ||||||||||||
2019 |
|
2020 |
2021 |
| ||||||||
Income (loss) before taxes as reported in the consolidated statements of operations |
$ |
781 |
$ |
(13,495 |
) |
$ |
(3,819 |
) | ||||
| ||||||||||||
Statutory tax rate |
23 |
% |
23 |
% |
23 |
% | ||||||
| ||||||||||||
Theoretical tax expenses (income) on the above amount at the Israeli statutory tax rate |
$ |
180 |
$ |
(3,104 |
) |
$ |
(878 |
) | ||||
Non-deductible expenses and other permanent differences |
519 |
(111 |
) |
(1,602 |
) | |||||||
Non-deductible expenses related to employee stock options |
472 |
383 |
590 | |||||||||
Deferred tax assets on losses and other temporary differences for which valuation allowance was provided, net |
977 |
5,318 |
12,326 | |||||||||
Other |
328 |
132 |
573 | |||||||||
| ||||||||||||
Actual tax expense (benefit) |
$ |
2,476 |
$ |
2,618 |
$ |
11,009 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
h.A reconciliation of the beginning and ending balances of unrecognized tax benefits related to uncertain tax positions is as follows:
December 31, | ||||||||
2020 |
2021 | |||||||
| ||||||||
Beginning balance |
$ |
2,492 |
$ |
2,421 | ||||
Decreases in tax positions for prior years |
(708 |
) |
(538 |
) | ||||
Increases related to tax positions taken during prior years |
184 |
59 | ||||||
Increase related to tax positions taken during the current year |
453 |
425 | ||||||
| ||||||||
Ending balance |
$ |
2,421 |
$ |
2,367 |
The Company has further accrued $15 due to interest and penalty related to uncertain tax positions as of December 31, 2021.
NOTE 16:-REVENUES
The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations have been performed. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.
The following table presents the significant changes in the deferred revenue balance during the year ended December 31, 2021:
Year ended December 31, 2020 |
Year ended December 31, 2021 | |||||||
| ||||||||
Balance, beginning of the period |
$ |
7,999 |
$ |
10,987 | ||||
New performance obligations |
5,210 |
6,329 | ||||||
Reclassification to revenue as a result of satisfying performance obligations |
(2,222 |
) |
(4,657 |
) | ||||
| ||||||||
Balance, end of the period |
10,987 |
12,659 | ||||||
Less: long-term portion of deferred revenue |
7,495 |
9,275 | ||||||
Current portion, end of period |
$ |
3,492 |
$ |
3,384 |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 16:-REVENUES (Cont.)
Remaining performance obligations represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable contracts that will be recognized as revenue in future periods. The following table represents the remaining performance obligations as of December 31, 2021, which are expected to be satisfied and recognized in future periods:
2022 |
2023 |
2024 and thereafter | ||||||||||
Unsatisfied performance obligations |
- |
550 |
8,725 |
The Company elected to apply the optional exemption under ASC 606 paragraph 10-50-14(a) not to disclose the remaining performance obligations that relate to contracts with an original expected duration of one year or less.
NOTE 17:-SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
a.The Company applies ASC topic 280, “Segment Reporting”, (“ASC 820”). The Company operates in one reportable segment (see Note 1 for a brief description of the Company’s business). The total revenues are attributed to geographic areas based on the location of the end customer.
b.The following tables present total revenues for the years ended December 31, 2019, 2020 and 2021 and long-lived assets as of December 31, 2020 and 2021:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
Revenues: | ||||||||||||
| ||||||||||||
North America |
$ |
42,474 |
$ |
38,165 |
$ |
47,505 | ||||||
Europe |
42,439 |
44,832 |
47,382 | |||||||||
Africa |
25,614 |
23,497 |
23,165 | |||||||||
Asia-Pacific and Middle East |
53,948 |
47,677 |
32,008 | |||||||||
India |
49,748 |
62,047 |
86,088 | |||||||||
Latin America |
71,360 |
46,663 |
54,618 | |||||||||
| ||||||||||||
$ |
285,583 |
$ |
262,881 |
$ |
290,766 |
Long-lived assets, net:
December 31, | ||||||||
2020 |
2021 |
| ||||||
| ||||||||
Israel |
$ |
28,312 |
$ |
42,192 | ||||
Others |
10,216 |
7,424 | ||||||
Total long-lived assets, net (*) |
$ |
38,528 |
$ |
49,616 |
(*) |
Long-lived assets are comprised of property and equipment, net and operating lease right-of-use assets. |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 17:-SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
c.Major customer data as a percentage of total revenues:
In 2021, the Company had revenues from two customers that represent two a group of affiliated companies equaling 18.77% and a single customer equaling 11.37% of total revenues. In 2020, the company had revenues from a single customer that represents group of affiliated companies equaling 22.1% of total revenues. In 2019, the Company had revenues from two customers that represent two groups of affiliated companies equaling 14.0% and 11.8% of total revenues.
NOTE 18:-SELECTED STATEMENTS OF OPERATIONS DATA
a.Financial expenses and others, net:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Financial income: | ||||||||||||
Interest on deposits |
$ |
111 |
$ |
79 |
$ |
160 | ||||||
Foreign currency translation differences and derivatives |
190 |
1,330 |
571 | |||||||||
Others |
- |
807 |
- | |||||||||
| ||||||||||||
301 |
2,216 |
731 | ||||||||||
Financial expenses: | ||||||||||||
Bank charges and interest on loans |
(3,787 |
) |
(4,130 |
) |
(4,650 |
) | ||||||
Foreign currency translation differences and derivatives |
(2,627 |
) |
(3,716 |
) |
(4,449 |
) | ||||||
Others |
(408 |
) |
(293 |
) |
(257 |
) | ||||||
| ||||||||||||
(6,822 |
) |
(8,139 |
) |
(9,356 |
) | |||||||
| ||||||||||||
$ |
(6,521 |
) |
$ |
(5,923 |
) |
$ |
(8,625 |
) |
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 18:-SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
b.Net income (loss) per share:
The following table sets forth the computation of basic and diluted net earnings per share:
Year ended December 31, | ||||||||||||
2019 |
|
2020 |
2021 |
| ||||||||
Numerator: | ||||||||||||
Numerator for basic and diluted net loss per share - loss available to shareholders of Ordinary shares |
$ |
(2,344 |
) |
$ |
(17,092 |
) |
$ |
(14,828 |
) | |||
| ||||||||||||
Denominator: | ||||||||||||
Denominator for basic and diluted net loss per share - adjusted weighted average number of Ordinary shares |
80,296,581 |
81,149,687 |
83,414,831 |
NOTE 19:-RELATED PARTY BALANCES AND TRANSACTIONS
a.Related party balances and transactions are with related companies and principal shareholder. Yehuda Zisapel is a shareholder of the Company. Zohar Zisapel is the Chairman of the Board of Directors of the Company and also a principal shareholder of the Company. Yehuda and Zohar Zisapel are brothers who do not have a voting agreement between them. Jointly or severally, they are also founders, directors and principal shareholders of several other companies that are known as the RAD-BYNET group.
Members of the RAD-BYNET group provide the Company on an as-needed basis with information systems infrastructure, administrative services, medical insurance, as well as in connection with logistics services, the Company reimburses each company for its costs in providing these services. The aggregate amount of these expenses was approximately $2,242, $1,801 and $2,677 in 2019, 2020 and 2021, respectively.
The Company leases its offices in Israel from real estate holding companies controlled by Yehuda and Zohar Zisapel. The leases of facility expired end of March 2021, except for warehouse which its lease was expired on December 2021.
The aggregate amount of rent and maintenance expenses related to these properties were approximately $1,936, $2,099 and $894 in 2019, 2020 and 2021, respectively.
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 19:-RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
The Company has an OEM arrangement with RADWIN, a member of RAD-BYNET group, according to which the Company purchases RADWIN products that are then resold to the Company’s customers. In addition, the Company purchases certain inventory components from other members of the RAD-BYNET group, which are integrated into its products. The aggregate purchase price of these components was approximately $152, $83 and $305 for the years ended December 31, 2019, 2020 and 2021, respectively.
The Company purchases certain property and equipment from members of the RAD-BYNET group, the aggregate purchase price of these assets was approximately $46, $274 and $175 for the years ended December 31 2019, 2020 and 2021, respectively.
As part of the operating agreements with Orocom for the Pronatel project in Peru, the Company had two seats in Orocom’s board of directors out of four seats, as well as other protective rights in Orocom. As a result, Orocom and its shareholders were defined as “related companies” of Ceragon. As of December 31, 2021, the Company has no seats in Orocom’s board of directors and following the return of the guarantees in the beginning of 2020, the Company’s protective rights in Orocom were revoked. As a result of the above Orocom and its shareholders are not defined as “related companies” of Ceragon.
b.Transactions with related parties:
Year ended December 31, | ||||||||||||
2019 |
2020 |
2021 | ||||||||||
| ||||||||||||
Revenues |
$ |
6,745 |
$ |
5,843 |
$ |
394 | ||||||
Cost of revenues |
$ |
1,659 |
$ |
4,715 |
$ |
1,125 | ||||||
| ||||||||||||
Research and development expenses |
$ |
1,248 |
$ |
1,245 |
$ |
608 | ||||||
| ||||||||||||
Sales and marketing expenses |
$ |
763 |
$ |
731 |
$ |
617 | ||||||
| ||||||||||||
General and administrative expenses |
$ |
1,002 |
$ |
913 |
$ |
1,527 | ||||||
| ||||||||||||
Purchase of property and equipment |
$ |
46 |
$ |
274 |
$ |
175 |
Balances with related parties:
December 31, | ||||||||
2020 |
2021 | |||||||
| ||||||||
Trade payables, other accounts payable and accrued expenses |
$ |
925 |
$ |
376 | ||||
Trade Receivables |
$ |
13,117 |
$ |
78 |
F - 48
By and between: |
The entities enumerated in Appendix 1 of the Financing Agreement
|
in their function as financiers (the “Financiers”) |
of the first part
|
And: |
Bank Hapoalim Ltd.
|
(“Bank Hapoalim”) |
of the second part
|
And: |
Ceragon Networks Ltd.
|
(the “Borrower”) |
of the third part
|
Whereas: |
on March 14, 2013 the Borrower entered into a financing agreement with the Financiers, inclusive of its appendices and attachments, as amended and as shall be amended from time to time (the “Financing
Agreement”) in and under which, inter alia, the Borrower was provided with the “credit”; and
|
Whereas: |
the Borrower approached the Financiers and requested to draw up various amendments to the Financing Agreement, as set forth below in this Amendment Document; and
|
Whereas: |
in reliance on the correctness of the declarations and representations of the Borrower in the Financing Agreement and in this Amendment Document, as set forth below, and performance of all its undertakings as set forth in the Financing
Agreement as amended in this Amendment Document, the Financiers accepted the Borrower’s request, all subject and pursuant to the terms and conditions of the Financing Agreement and this Amendment Document.
|
1. |
General
|
1.1 |
The preamble to this Amendment Document constitutes an integral part hereof. All terms mentioned heretofore and hereinafter in this Amendment Document shall have the meaning given to them in the Financing Agreement, unless explicitly
stated otherwise.
|
1.2 |
For the avoidance of doubt, it is agreed that this Amendment Document constitutes part of the Credit Documents, as defined in section 2 of the Financing Agreement.
|
1.3 |
In addition to any declaration, representation or undertaking of the Borrower in the “Credit Documents” (as this term is defined in the Financing Agreement) or in any other agreement or document delivered or to be delivered to the
Financiers in connection with the credit or in connection with the security, and without prejudicing or derogating from any of the foregoing (except as required from this Amendment Document), the Borrower declares, confirms and undertakes to
the Financiers and office holders as follows:
|
1.3.1 |
the Borrower fully and accurately performed and is continuing to perform all the provisions of the Financing Agreement;
|
1.3.2 |
all the Borrower’s representations set forth in the Financing Agreement (with the exception of those set forth in sections 15.1.2, 15.1.3(a), 15.1.5, 15.1.6, 15.1.10, 15.1.11 and 15.1.16) remain in effect and are correct and complete as of
the date of signature of this Amendment Document;
|
1.3.3 |
(a) the Borrower obtained all the decisions, agreements, authorizations, permits and approvals required under its documents of incorporation, under the provisions of any law and at the instruction of any authority whatsoever in connection
with making this Amendment Document or in connection with the Financing Agreement and its appendices; (b) there is no need to adopt decisions or provide any additional consents or approvals; (c) all measures and acts required were taken to
lawfully approve its entering into this Amendment Document; (d) all the Borrower’s undertakings under, within or in connection with this Amendment Document or the Financing Agreement or the other Credit Documents are lawful, in existence,
valid, binding and enforceable against it according to their terms.
|
2. |
Permitted Factoring Transaction
|
2.1 |
Section 16.16 of the Financing Agreement shall be amended so that in subsection B, the amount “$15 million (Fifteen Million US Dollars)” shall be replaced by the amount “$35 million (Thirty-Five Million US Dollars)”.
|
3. |
Payments
|
3.1 |
The Borrower undertakes to pay: (a) Bank Hapoalim in its function as Credit Manager, and also (b) each Financier by means of the Credit Manager, a special one-time and agreed payment in connection with amendment of the Financing Agreement,
all as set forth in the cover letter to be signed concurrently with signature of this Amendment Document by the Borrower.
|
3.2 |
Any payment as stated above shall be deemed final and absolute, and shall not be returned to the Borrower for any reason whatsoever.
|
4. |
Miscellaneous
|
4.1 |
On the date of signature of this Amendment Document the Borrower shall deliver to the Financiers (by means of the Manager) a detailed report in respect of all the permitted factoring transactions performed by it immediately prior to the
signature of this Amendment Document, in the detail to satisfy the Financiers.
|
4.2 |
Unless explicitly determined otherwise in this Amendment Document, the conditions and undertakings set forth in this Amendment Document do not derogate or prejudice or alter any other undertaking of the Borrower to the Financiers or the
validity of any security whatsoever provided in favor of the Security Trustee for the Financiers according to and under the Financing Agreement or the other Credit Documents or any other document or agreement delivered or to be delivered to
the Financiers or any office holder in connection with the credit, and they shall continue to remain in full and binding effect, including any provisions relating to the rights of the Financiers to make the credit immediately payable, all
pursuant and subject to the terms and conditions of the Credit Documents.
|
4.3 |
This Amendment Document, unless explicitly stated herein otherwise, is in addition to and shall not derogate from, alter or prejudice the provisions of the Financing Agreement and the Amendment Documents, and except as explicitly stated in
this Amendment Document, all rights of the Financiers and the Borrower under the Financing Agreement, the Amendment Documents and under the provisions of any law, are saved absolutely.
|
4.4 |
This Amendment Document may be signed by the Parties to it in one copy or several separate copies by any of the Parties, which shall jointly constitute one document.
|
__________________________
Ceragon Networks Ltd.
|
( - )
___________________________
Bank Hapoalim Ltd.
(as Financier, in its position as Credit Manager and in its position as Security Trustee)
|
___________________________________
First International Bank of Israel Ltd.
(as Financier)
|
|
________________________
HSBC Bank PLC
(as Financier)
|
|
___________________________
Bank Leumi Le-Israel B.M.
(as Financier)
|
___________________________
Date
|
________________________
Attorney signature and stamp
|
By and between: |
The entities enumerated in Appendix 1 of the Financing Agreement
|
in their function as financiers (the “Financiers”) |
of the first part
|
And: |
Bank Hapoalim Ltd.
|
(“Bank Hapoalim”) |
of the second part
|
And: |
Ceragon Networks Ltd.
|
(the “Borrower”) |
of the third part
|
Whereas: |
on March 14, 2013 the Borrower entered into a financing agreement with the Financiers, inclusive of its appendices and attachments, as amended and as shall be amended from time to time (the “Financing
Agreement”) in and under which, inter alia, the Borrower was provided with the “credit”; and
|
Whereas: |
the Borrower approached the Financiers and requested to draw up various amendments to the Financing Agreement, as set forth below in this Amendment Document; and
|
Whereas: |
in reliance on the correctness of the declarations and representations of the Borrower in the Financing Agreement and in this Amendment Document, as set forth below, and performance of all its undertakings as set forth in the Financing
Agreement as amended in this Amendment Document, the Financiers accepted the Borrower’s request, all subject and pursuant to the terms and conditions of the Financing Agreement and this Amendment Document.
|
1. |
General
|
1.1 |
The preamble to this Amendment Document constitutes an integral part hereof. All terms mentioned heretofore and hereinafter in this Amendment Document shall have the meaning given to them in the Financing Agreement, unless explicitly
stated otherwise.
|
1.2 |
For the avoidance of doubt, it is agreed that this Amendment Document constitutes part of the Credit Documents, as defined in section 2 of the Financing Agreement.
|
1.3 |
In addition to any declaration, representation or undertaking of the Borrower in the “Credit Documents” (as this term is defined in the Financing Agreement) or in any other agreement or document delivered or to be delivered to the
Financiers in connection with the credit or in connection with the security, and without prejudicing or derogating from any of the foregoing (except as required from this Amendment Document), the Borrower declares, confirms and undertakes to
the Financiers and office holders as follows:
|
1.3.1 |
the Borrower fully and accurately performed and is continuing to perform all the provisions of the Financing Agreement;
|
1.3.2 |
all the Borrower’s representations set forth in the Financing Agreement (with the exception of those set forth in sections 15.1.2, 15.1.3(a), 15.1.5, 15.1.6, 15.1.10, 15.1.11 and 15.1.16) remain in effect and are correct and complete as of
the date of signature of this Amendment Document;
|
1.3.3 |
(a) the Borrower obtained all the decisions, agreements, authorizations, permits and approvals required under its documents of incorporation, under the provisions of any law and at the instruction of any authority whatsoever in connection
with making this Amendment Document or in connection with the Financing Agreement and its appendices; (b) there is no need to adopt decisions or provide any additional consents or approvals; (c) all measures and acts required were taken to
lawfully approve its entering into this Amendment Document; (d) all the Borrower’s undertakings under, within or in connection with this Amendment Document or the Financing Agreement or the other Credit Documents are lawful, in existence,
valid, binding and enforceable against it according to their terms.
|
2. |
Extension of Final Payment Date
|
2.1 |
Starting on the date of signature of this Amendment Document, section 2 of the Financing Agreement shall be amended so that the existing definition of “Final Payment Date” therein shall be deleted
and shall be replaced by the following:
|
“Final Payment Date” |
means June 30, 2022.”
|
3. |
Replacement of Appendix 16.28.5 of the Financing Agreement
|
3.1 |
Starting on the date of signature of this Amendment Document, section 16.28.5 of the Financing Agreement shall be amended so that Appendix 16.28.5 of the Financing Agreement shall be replaced by the Appendix
16.28.5 attached to this Amendment Document.
|
4. |
Amendment of Financial Covenant
|
4.1 |
Starting on the date of signature of this Amendment Document, the following sentence shall be added at the end of section 16.26.1:
|
5. |
Permitted Factoring Transaction
|
5.1 |
Starting on the date of signature of this Amendment Document, section 16.16 of the Financing Agreement shall be amended in such manner that in subsection A, the words “pursuant to the transaction with the Reliance Jio Infocomm group of
June 17, 2013” shall be deleted.
|
5.2 |
The remaining provisions of the section shall remain unchanged.
|
6. |
Payments
|
6.1 |
The Borrower undertakes to pay: (a) Bank Hapoalim in its function as Credit Manager, and also (b) each Financier by means of the Credit Manager, a special one-time and agreed payment in connection with amendment of the Financing Agreement,
all as set forth in the cover letter to be signed concurrently with signature of this Amendment Document by the Borrower.
|
6.2 |
Any payment as stated above shall be deemed final and absolute, and shall not be returned to the Borrower for any reason whatsoever.
|
7. |
Miscellaneous
|
7.1 |
Unless explicitly determined otherwise in this Amendment Document, the conditions and undertakings set forth in this Amendment Document do not derogate or prejudice or alter any other undertaking of the Borrower to the Financiers or the
validity of any security whatsoever provided in favor of the Security Trustee for the Financiers according to and under the Financing Agreement or the other Credit Documents or any other document or agreement delivered or to be delivered to
the Financiers or any office holder in connection with the credit, and they shall continue to remain in full and binding effect, including any provisions relating to the rights of the Financiers to make the credit immediately payable, all
pursuant and subject to the terms and conditions of the Credit Documents.
|
7.2 |
This Amendment Document, unless explicitly stated herein otherwise, is in addition to and shall not derogate from, alter or prejudice the provisions of the Financing Agreement and the Amendment Documents, and except as explicitly stated in
this Amendment Document, all rights of the Financiers and the Borrower under the Financing Agreement, the Amendment Documents and under the provisions of any law, are saved absolutely.
|
7.3 |
This Amendment Document may be signed by the Parties to it in one copy or several separate copies by any of the Parties, which shall jointly constitute one document.
|
__________________________
Ceragon Networks Ltd.
|
( - )
___________________________
Bank Hapoalim Ltd.
(as Financier, in its position as Credit Manager and in its position as Security Trustee)
|
___________________________________
First International Bank of Israel Ltd.
(as Financier)
|
|
________________________
HSBC Bank PLC
(as Financier)
|
|
___________________________
Bank Leumi Le-Israel B.M.
(as Financier)
|
___________________________
Date
|
________________________
Attorney signature and stamp
|
By and between: |
The entities enumerated in Appendix 1 of the Financing Agreement
|
in their function as financiers (the “Financiers”) |
of the first part
|
And: |
Bank Hapoalim Ltd.
|
(“Bank Hapoalim”) |
of the second part
|
And: |
Ceragon Networks Ltd.
|
(the “Borrower”) |
of the third part
|
Whereas: |
on March 14, 2013 the Borrower entered into a financing agreement with the Financiers, inclusive of its appendices and attachments, as amended and as shall be amended
from time to time (the “Financing Agreement”) in and under which, inter alia, the Borrower was provided with the “credit”; and
|
Whereas: |
the Borrower approached the Financiers and requested to draw up various amendments to the Financing Agreement, as set forth below in this Amendment Document; and
|
Whereas: |
in reliance on the correctness of the declarations and representations of the Borrower in the Financing Agreement and in this Amendment Document, as set forth below,
and performance of all its undertakings as set forth in the Financing Agreement as amended in this Amendment Document, the Financiers accepted the Borrower’s request, all subject and pursuant to the terms and conditions of the Financing
Agreement and this Amendment Document.
|
1. |
General
|
1.1 |
The preamble to this Amendment Document constitutes an integral part hereof. All terms mentioned heretofore and hereinafter in this Amendment Document shall have the
meaning given to them in the Financing Agreement, unless explicitly stated otherwise.
|
1.2 |
For the avoidance of doubt, it is agreed that this Amendment Document constitutes part of the Credit Documents, as defined in section 2 of the Financing Agreement.
|
1.3 |
In addition to any declaration, representation or undertaking of the Borrower in the “Credit Documents” (as this term is defined in the Financing Agreement) or in any
other agreement or document delivered or to be delivered to the Financiers in connection with the credit or in connection with the security, and without prejudicing or derogating from any of the foregoing (except as required from this
Amendment Document), the Borrower declares, confirms and undertakes to the Financiers and office holders as follows:
|
1.3.1 |
the Borrower fully and accurately performed and is continuing to perform all the provisions of the Financing Agreement;
|
1.3.2 |
all the Borrower’s representations set forth in the Financing Agreement (with the exception of those set forth in sections 15.1.2, 15.1.3(a), 15.1.5, 15.1.6, 15.1.10,
15.1.11, 15.1.12 and 15.1.16) remain in effect and are correct and complete as of the date of signature of this Amendment Document;
|
1.3.3 |
(a) the Borrower obtained all the decisions, agreements, authorizations, permits and approvals required under its documents of incorporation, under the provisions of
any law and at the instruction of any authority whatsoever in connection with making this Amendment Document or in connection with the Financing Agreement and its appendices; (b) there is no need to adopt decisions or provide any additional
consents or approvals; (c) all measures and acts required were taken to lawfully approve its entering into this Amendment Document; (d) all the Borrower’s undertakings under, within or in connection with this Amendment Document or the
Financing Agreement or the other Credit Documents are lawful, in existence, valid, binding and enforceable against it according to their terms.
|
2. |
Amendment of Financing Agreement
|
2.1 |
Updating the definition of [the] “Additional Permitted Credit”. The
definition of [the] “Additional Permitted Credit” in section 2 of the Financing Agreement shall be amended in the following manner:
|
2.3.1 |
After the words “current loan account lines of credit” in the first line shall be added the words “(with the exception of current loan account lines of credit provided
and/or to be provided by any of the Financiers and which constitute part of the Credit)”.
|
2.1.2 |
After the words “and current loan account lines of credit” in the ninth line shall be added the words “(which were provided not by any of the Financiers)”.
|
2.2 |
Updating the definition of “Interest Period”. The definition of “Interest
Period” in section 2 of the Financing Agreement shall be amended so that the words “longer than one month and shorter” in the sixth line shall be deleted and replaced by the word “shorter”.
|
2.3 |
Updating section 3.4 of the Financing Agreement. Section 3.4 of the Financing
Agreement shall be amended in the following manner:
|
2.3.1 |
After the words “credit card lines of credit” in the second line of the second paragraph shall be added the words “and current loan account lines of credit”.
|
2.3.2 |
After the words “credit cards” in the third line of the second paragraph shall be added the words “and current loan account lines of credit”.
|
2.3.3 |
After the words “credit card lines of credit” in the sixth line of the second paragraph shall be added the words “and current loan account lines of credit”.
|
2.4 |
Updating section 3.6.1.5 of the Financing Agreement. Section 3.6.1.5 of the
Financing Agreement shall be amended so that the words “for another period, provided that the period is longer than one month and shorter than six months” shall be deleted, and shall be replaced by the words “for another period, provided that
the period is shorter than six months”.
|
2.5 |
Updating section 3.6.1.6 of the Financing Agreement. Section 3.6.1.6 of the
Financing Agreement shall be amended so that the words “longer than a month but” shall be deleted.
|
2.6 |
Updating section 3.7.2 of the Financing Agreement. Section 3.7.2 of the
Financing Agreement shall be amended so that at the beginning of the section, after the words “by a loan for a period” shall be added the word “until (inclusive)”.
|
2.7 |
Updating section 3.10 of the Financing Agreement. The final paragraph of
section 3.10 of the Financing Agreement which commences with the word “Nothing” and ending with the word “this” shall be deleted and replaced by the following paragraph:
|
2.8 |
The addition of section 3.11 of the Financing Agreement. After section 3.10
of the Financing Agreement shall be added section 3.11 of the Financing Agreement, in the following wording:
|
“3.11 |
It is hereby clarified that the Financiers may provide their share of the credit by means of current loan account lines of creditand that in such case:
|
3.11.1 |
The provisions of sections 3.6.1.1, 3.6.1.2, 3.6.1.3, 3.6.1.4, 3.6.1.5, 3.6.1.6, 3.6.2, 3.7 and 3.8 of this Agreement shall not apply in relation to the current loan
account lines of credit.
|
3.11.2 |
The following provisions shall apply in respect to current loan account lines of credit:
|
3.11.2.1 |
Every current loan account line of credit shall be provided for a period of up to one year and shall end at the latest on the final date of payment; the Borrower may
cancel the current loan account line of credit provided to it at any time.
|
3.11.2.2 |
The interest on the current loan account line of credit shall be determined upon consent between the Borrower and the Financier providing it, provided that it shall not
exceed the Loan Interest.
|
3.11.2.3 |
The interest payment date in respect of the current loan account line of credit shall be determined upon consent between the Borrower and the Financier providing it.
|
3.11.2.4 |
Withdrawal from a current loan account line of credit is not limited by a minimum amount.
|
3.11.2.5 |
The current loan account line of credit provided shall be determined upon consent between the Borrower and the Financier providing it, but shall not exceed at any time
– the Financier’s share of the credit minus the other credit components utilized by the Borrower at the Financier in question.
|
2.9 |
Replacement of Appendix 3.6.1.1 of the Financing Agreement. Appendix 3.6.1.1
of the Financing Agreement shall be replaced by Appendix 3.6.1.1 of this Amendment Document.
|
3. |
Miscellaneous
|
3.1 |
Unless explicitly determined otherwise in this Amendment Document, the conditions and undertakings set forth in this Amendment Document do not derogate or prejudice or
alter any other undertaking of the Borrower to the Financiers or the validity of any security whatsoever provided in favor of the Security Trustee for the Financiers according to and under the Financing Agreement or the other Credit Documents
or any other document or agreement delivered or to be delivered to the Financiers or any office holder in connection with the credit, and they shall continue to remain in full and binding effect, including any provisions relating to the
rights of the Financiers to make the credit immediately payable, all pursuant and subject to the terms and conditions of the Credit Documents.
|
3.2 |
This Amendment Document, unless explicitly stated herein otherwise, is in addition to and shall not derogate from, alter or prejudice the provisions of the Financing
Agreement and the Amendment Documents, and except as explicitly stated in this Amendment Document, all rights of the Financiers and the Borrower under the Financing Agreement, the Amendment Documents and under the provisions of any law, are
saved absolutely.
|
3.3 |
This Amendment Document may be signed by the Parties to it in one copy or several separate copies by any of the Parties, which shall jointly constitute one document.
|
( - ) ( - )
__________________________
Ceragon Networks Ltd.
|
___________________________
Bank Hapoalim Ltd.
(as Financier, in its position as Credit Manager and in its position as Security Trustee)
|
___________________________________
First International Bank of Israel Ltd.
(as Financier)
|
|
________________________
HSBC Bank PLC
(as Financier)
|
|
___________________________
Bank Leumi Le-Israel B.M.
(as Financier)
|
March 23, 2022
___________________________
Date
|
Zvi Maayan, Adv.
Attorney license no. 19688
( - )
________________________
Attorney signature and stamp
|
4. |
We hereby request that you provide us, on ___________ / by no later than _________ (hereinafter, the “Withdrawal Date”) with a loan in the amount of ________________ (_________________) US Dollars2 (hereinafter, the “Withdrawal Amount”)3 for a period of 4: month / two months / three months / six months / another period of5: _________ (hereinafter, the “Loan Period”), which shall bear variable interest at the rate of LIBOR6 (for a period of _________) with an additional rate of __% per annum (subject only
to your having provided us with the Withdrawal Amount in our account at your bank on the requested Withdrawal Date constituting your approval of the aforesaid interest rate7) with an Interest Period of:8 month / three
months / six months / another period of: ____________ (hereinafter, the “Interest Period”).
|
1 |
The Withdrawal Application must be delivered to the Financier by registered mail, fax or in any other manner to be agreed with the Financier. If on the date of
submission of the Application an original copy of the Application is not delivered, the Financier must be furnished with an original copy of the Withdrawal Application by registered mail by no later than 7 (seven) business days after the
date of this Withdrawal Application.
|
2 |
In the event it is agreed in advance and in writing with the relevant Financier that the loan will be provided in New Israeli Shekels or in foreign currency which is
not US dollars, the currency name shall be altered.
|
3 |
Please specify an amount of not less than 200,000 (Two Hundred Thousand) US dollars.
|
4 |
Please choose the relevant loan period.
|
5 |
Another loan period may be chosen, if the prior written consent of the relevant Financier is granted, provided that the period is shorter than six months.
|
6 |
In the event it is agreed in advance and in writing with the relevant Financier that the loan will be provided in New Israeli Shekels, “LIBOR” shall be replaced by
the quoted basic interest rate - “Prime”.
|
7 |
It is hereby clarified, for the avoidance of doubt only, that nothing in this Withdrawal Application shall derogate from the provisions of the Financing Agreement in
relation to withdrawal of loans.
|
8 |
The Interest Period in relation to a loan shall be one month; however, (a) in relation to loans for a period of three months an Interest Period of three months may be
chosen, (b) in relation to loans for a period of six months, an Interest Period of three months or six months may be chosen, (c) in relation to loans for a period which is longer than three months but shorter than six months (not including
six months), another Interest Period may be chosen, if the Financier’s prior written consent was given for this.
|
5. |
The nominal annual interest rate as of ____________ is __%.
|
6. |
The adjusted annual interest rate as of ____________ is __%.
|
7. |
The nominal annual arrearage interest rate as of _________ is __%.
|
8. |
The adjusted annual arrearage interest rate as of _________ is __%.
|
9. |
We hereby declare and undertake the following:
|
9.1 |
The Withdrawal Date is a business day during the availability period;
|
9.2 |
The Withdrawal Amount requested does not exceed the unutilized balance of the line of credit of the loans at the Financier;
|
9.3 |
The Loan Period does not terminate after the final date of payment;
|
9.4 |
No event of default occurred (without taking into account cure and/or waiting periods, if any are granted under the provisions of the Financing Agreement), which was
not remedied by the date of this Withdrawal Application and no event of default shall occur (without taking into account cure and/or waiting periods, if any are granted under the provisions of the Financing Agreement) in consequence of
provision of the loan under this Withdrawal Application;
|
9.5 |
All the representations set forth in section 15 of the Financing Agreement, with the exception of those set forth in sections 15.1.2, 15.1.3(a), 15.1.5, 15.1.6,
15.1.10, 15.1.11, 15.1.16, 15.1.25, and 15.1.28 to 15.1.30 of the Finance Agreement are correct and accurate, as of the Withdrawal Date.
|
10. |
Every term not defined in this Withdrawal Application shall have the meaning given to it in the Financing Agreement.
|
11. |
Our application is being submitted pursuant to the provisions of the Financing Agreement and constitutes a Credit Document, as this agreement term is defined in the
Financing Agreement.
|
1. |
I have reviewed this annual report on Form 20-F of Ceragon Networks Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for,
the periods presented in this report;
|
4. |
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
(d) |
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
|
5. |
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or
persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report
financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|
1. |
I have reviewed this annual report on Form 20-F of Ceragon Networks Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for,
the periods presented in this report;
|
4. |
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
(d) |
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
|
5. |
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or
persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report
financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
(1) |
Registration Statement (Form F-3 No. 333-237809) of Ceragon Networks Ltd. and
|
(2) |
Registration Statements (Form S-8 No. 333-117849, 333-136633, 333-158983, 333-164064, 333-173480, 333-187953, 333-204090, 333-231529, 333-237509 and 333-259877)
pertaining to securities to be offered to employees in employee benefit plans of Ceragon Networks Ltd.;
|
/s/KOST FORER GABBAY & KASIERER
|
|
Tel-Aviv
|
KOST FORER GABBAY & KASIERER
|
May 2, 2022
|
A Member of EY Global
|