A. [RESERVED.]
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Investing in our ordinary
shares involves a high degree of risk. You should carefully consider the risks described below before investing in our ordinary shares.
Our business, operating results and financial condition could be seriously harmed due to any of the following risks, among others. If
we do not successfully address the risks to which we are subject, we could experience a material adverse effect on our business, results
of operations and financial condition and our share price may decline. We cannot assure you that we will successfully address any of
these risks.
Risks Related to Our
Business and Our Industry
Our
business is dependent on a limited number of significant customers and the loss of a significant customer could materially adversely affect
our results of operations.
Our business is dependent
on a limited number of significant customers. For example, our three largest customers accounted for approximately 88% of our revenue
in fiscal year 2024. The loss of any significant customer, a significant decrease in business from any such customer, or a reduction in
customer revenue due to adverse changes in the terms of our contractual arrangements, market conditions, customer circumstances or other
factors could have a material adverse effect on our results of operations and financial condition. Revenue from individual customers may
fluctuate from time to time based on the commencement, scope and completion of projects or other engagements, the timing and magnitude
of which may be affected by market or other conditions.
We may lose significant
market share as a result of intense competition in the market for our existing and future solutions.
Several companies
compete with us in the market for service assurance and Customer Experience Management that offer cloud-native, software-based,
automated service assurance solutions. We expect that competition will increase in the future, both with respect to solutions
that we currently offer and solutions that we are developing. Moreover, manufacturers of data communications and
telecommunications networks with whom we partner or may partner, may in the future incorporate into their products capabilities
similar to ours, thus reducing the demand for our solutions. Some of our existing and potential competitors have substantially
greater resources, including financial, technological, engineering, manufacturing, and marketing and distribution capabilities, and
several of them may enjoy greater market recognition than us. We may not be able to compete effectively with our
competitors. A failure to do so could adversely affect our revenues and profitability.
1
The pace at which we grow
our business depends on our current and potential customers’ internal processes and decisions regarding the transition to 5G or
to deploy new assurance systems and our ability to secure new customers. Our expectations regarding the pace of 5G rollout may not materialize.
The pace of transition to
5G and timeframe for reaching a mature infrastructure for 5G is dependent on CSPs’ internal decisions regarding 5G technology implementation,
timing, and budgeting. Such decisions may be affected by the overall pace of 5G deployment in the industry as well as by other technology
trends such as the transition to fully virtualized cloud-native networks. Our ability to grow our business is further dependent on our
ability to secure new customers. To the extent that CSPs will not choose our solution, the pace in which we could grow our business may
be adversely affected.
The pace at which we deploy
our solutions is directly affected by the pace of CSPs’ internal processes and the pace of maturation of the 5G market. To the extent
that CSPs elect not to deploy 5G, or to delay the transition to cloud-native 5G networks our sales cycles may lengthen, and the growth
of our business may be adversely affected.
We believe that most of the
industry’s leading CSPs will rollout 5G networks which will in turn promote the adoption of cloud-native, software-based, assurance
solutions. Our expectation is that the market for our solutions will materialize and gain momentum as a result. However, our expectations
may not be correct, and the actual pace of cloud-native, network transformation and/or 5G rollout may take longer than we anticipate or
may not occur at all. If the demand for cloud-native, software-based networks does not continue to grow or the 5G rollout does not materialize,
our business, financial condition and results of operations may suffer.
Disruptions to our IT systems
due to system failures or cybersecurity attacks may impact our operations,
which would negatively materially adversely affect our reputation and business.
We believe that an appropriate
IT infrastructure is important in order to support our daily operations and the growth of our business. If we experience difficulties
in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify
our management information systems or respond to changes in our business needs, we may not be able to effectively manage our business,
and we may fail to meet our reporting obligations. Additionally, if our current business continuity plan, back-up storage arrangements
and our disaster recovery plan are not operated as planned, we may not be able to effectively recover our information system in the event
of a crisis, which may materially adversely affect our business and results of operations.
In the current
environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists,
state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological errors. High-profile security
breaches at other companies and in government agencies have increased in recent years, and security industry experts and government
officials have warned about the risks of hackers and cyberattacks targeting businesses such as ours. Computer hackers and others
routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees,
customers, or others to disclose information or unwittingly provide access to systems or data. Although we have invested in measures
to reduce these risks, we can provide no assurance that our current IT systems are fully protected against third-party intrusions,
viruses, hacker attacks, information or data theft or other similar threats. Legislative or regulatory action in these areas is also
evolving, and we may be unable to adapt our IT system to accommodate these changes. We have experienced and expect to continue to
experience attempted cyberattacks of our IT networks. Although none of these attempted cyberattacks has had a material adverse
effect on our operations or financial condition thus far, we cannot guarantee that any such incidents will not have a material
adverse effect on our operations or financial condition in the future. Furthermore, a cyberattack that bypasses our IT security
systems, causing an IT security breach, could lead to a material disruption of our information systems, the loss of business
information and loss of service to our customers. Additionally, we have access to sensitive customer information in the ordinary
course of business. If a significant data breach occurs and we lose customer information, our reputation may be materially and
adversely affected, our customers’ confidence in us may be diminished, or we may be subject to legal claims, any of which may
contribute to the loss of customers and have a material adverse effect on our business and result of operations. In addition, the
continued worldwide threat of terrorism and heightened security in response to such threat may cause further disruptions and create
further uncertainties or may otherwise materially adversely affect our business. To the extent that such disruptions or
uncertainties result in delays or cancellations of customer orders, or in theft, destruction, loss, misappropriation or release of
our confidential data or our intellectual property, our business and results of operations could be materially and adversely
affected.
2
A reduction in some CSPs’
revenues and profitability could lead to decreased investment in capital equipment and infrastructure which may, in turn, affect our revenues
and results of operations. A continued slowdown in our customers’ investment in capital equipment and infrastructure might materially
and adversely affect our revenues and results of operations.
Our future success is dependent
upon the continued growth of the telecommunications industry as well as the specific sectors that we target, which currently include,
among others, 5G, Internet of Things, or IoT, 4G cellular, Voice over Long Term Evolution, or VoLTE, Private Networks and Roaming. During
the last few years, some of the CSPs have experienced a reduction in their revenues from subscribers and lower profitability, which affected
their investment budgets. This trend may continue. The global telecommunications industry and various sectors within the industry are
evolving rapidly and it is difficult to predict its potential growth rate or future trends in technology development. Our future success
also depends upon the increased utilization of our solutions by next-generation network operators and specifically cloud-native networks
on private and public clouds, who may not adopt our technology.
During the last few years,
developments in the telecommunications industry have had a material effect on our existing and/or potential customers and may continue
to have such an effect in the future. Such developments include changes in general global economic conditions, industry consolidation,
emergence of new competitors, commoditization of voice services, regulatory changes, and changes in the plans of CSPs to shift, transform
and adapt their network operations to rollout 5G networks and cloud-native networks. Over the last few years, the telecommunications industry
has experienced financial pressures that have caused many in the industry to reduce investment in capital intensive projects, and in some
cases, have led to restructurings. While the transformation of network operations to cloud-native networks arise out of the desire of
CSPs to reduce network infrastructure expense, thus creating opportunities for us, it also creates a downward pressure on the prices of
our solutions.
The market for our solutions
is characterized by rapidly changing technology and we may be materially adversely affected if we do not respond promptly and effectively
to such changes.
The telecommunications industry
is characterized by rapidly changing technology, network infrastructure, and customer requirements and by evolving industry standards
and frequent new product introductions. In addition, the nature of 5G deployments enables new services to be introduced, which may require
additional and costly development. These changes require us to constantly adapt and improve our solutions to meet changing industry requirements.
If we are unable to stay ahead of industry trends or to timely and successfully complete the development of solutions supporting new standards
and technologies such as 5G, our business may be affected as new requirements could reduce or shift the market for our solutions or require
us to develop new solutions. Additionally, because new or enhanced telecommunications and data communications-related products developed
by other companies could be incompatible with our solutions, our timely access to information concerning changes in technology, in customer
requirements, and in industry standards, as well as our ability to anticipate such changes and develop and market new and enhanced solutions
successfully and on a timely basis, will be significant factors in our ability to remain competitive.
We may enter into long-term
sales agreements with large customers. Such agreements may prove unprofitable as our costs and product mix shift over the terms of the
agreements.
We may enter from time to
time into long-term sales agreements with large customers. We may be required under such agreements to sell our solutions at fixed prices
over the terms of the agreements. The costs we incur in fulfilling the agreements may vary substantially from our initial cost estimates.
Any cost overruns that we cannot pass on to our customers could adversely affect our results of operations. In the future, we may also
be required under such agreements to sell solutions that we may otherwise wish to discontinue, thereby diverting our resources from developing
more profitable or strategically important solutions.
3
Our large customers
have substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our
business.
Large CSPs have substantial
purchasing power and leverage in negotiating contractual arrangements with us. These customers may require us to develop additional features
and may impose penalties on us for failure to deliver such features on a timely basis, or failure to meet performance standards. As we
seek to increase our sales to large CSPs, we may be required to agree to unfavorable terms and conditions which may decrease our revenues
and/or increase the time it takes to convert orders into revenues and could result in an adverse effect on our business, financial condition
and results of operations. Similarly, some of our contracts may contain change in control provisions which may have an adverse effect
on our business and results if exercised following a change in control transaction or, in the alternative, may act as an impediment to
certain change in control transactions.
Our strategy to focus most
of our sales efforts on Tier 1, Greenfield Operators and other leading CSPs in the North American, European, Japan and selected other
markets may not be successful.
We believe that the significant
share of cloud-native, software-based and 5G deployment activity is expected to continue to take place in North America, Europe, Japan,
selected CSPs in Asia-Pacific and selected CSPs in Latin America. We have accordingly enhanced our presence and focused our sales and
marketing resources in some of these markets. While we focus our sales and marketing resources in such selected markets, we cannot assure
the selection of our solutions by Tier 1 CSPs, CSPs that build new networks from scratch, or Greenfield Operators, or other leading CSPs
operating in such markets and therefore we may not be successful in expanding our business as we plan.
Quarterly fluctuations
and unpredictability in our results of operations may cause our share price to fluctuate or to decline.
We have experienced, and in
the future may also experience, significant fluctuations in our quarterly results of operations. Factors that may contribute to fluctuations
in our quarterly results of operations including,
● the variation in size and timing of individual purchases by our customers and the relatively long sales cycles for our solutions;
● the request for longer payment terms from us or long-term financing of customers’ purchases from us, as well as additional conditions tied to such payment terms;
● competitive conditions in our markets;
● the timing of the introduction and market acceptance of new solutions or enhancements by us and by our customers, competitors and suppliers;
● changes in the level of operating expenses relative to revenues;
● quality problems and supply interruptions;
● changes in global or regional economic conditions or in the telecommunications industry;
● delays in or cancellation of projects by customers;
● changes in the product mix;
● the size and timing of approval of grants from the Government of Israel; and
● foreign currency exchange rates.
4
Our costs of revenues consist
of variable costs, which include labor and related costs, including costs incurred in software development customization for projects
and deployment costs, the use of hardware, inventory write-offs, packaging, importation taxes, shipping and handling costs, license fees
for software components of third parties, warranty expenses, allocation of overhead expenses, subcontractors’ expenses, royalties
to the IIA, and share-based compensation. A major part of our costs of sales is relatively variable and determined based on our anticipated
revenues. We believe, therefore, that quarter-to-quarter comparisons of our operating results may not be a reliable indication of future
performance.
Our revenues in any quarter
generally have been, and may continue to be, derived from a relatively small number of orders with relatively high average revenues per
order. Therefore, the loss of any order or a delay in closing a transaction could have a significant impact on our quarterly revenues
and results of operations.
In addition, we may experience
a delay in generating or recognizing revenues for several reasons, including revenue recognition accounting requirements. In many cases,
we cannot recognize revenue from an order prior to customer acceptance, which may take multiple months from the commencement of the engagement
and in some extreme cases may take more than twelve months. Therefore, a major part of the revenue for any fiscal quarter may be derived
from a backlog of orders under delivery and may not correlate to the customer’s order date or the delivery date.
Our revenues for a specific
quarter may also be difficult to predict and may be affected if we experience a non-linear sales pattern. We generally experience
significantly higher levels of sales orders towards the end of a quarter as a result of customers submitting their orders late in the
quarter. Furthermore, orders received towards the end of the quarter are usually not delivered within the same quarter and are usually
only recognized as revenue at a later stage. If our revenues in any quarter remain level or decline in comparison to any prior quarter,
our financial results for that quarter could be adversely affected.
Due to the factors described
above, as well as other unanticipated factors, our results of operations in future quarters could fail to meet the guidance we may from
time to time give to the public or the expectations of public market analysts or investors. If this occurs, the price of our ordinary
shares may be adversely affected.
Our gross margins may vary
over time and we may not be able to sustain or improve upon our recent levels of gross margin which may have an adverse effect on our
future profitability.
We may not be able to sustain
or improve upon our recent levels of gross margin. Our gross margins may be adversely affected by numerous factors, including, increased
price competition, local taxes which may be incurred for direct sales, increased industry consolidation among our customers, which may
lead to decreased demand for and downward pricing pressure on our solutions, changes in our customer mix, geographic, product mix, distribution
channels, increases in costs such as employment costs or third-party service or component costs, losses on customer contracts, and increases
in warranty costs. Further deterioration in gross margins, due to these or other factors, may have a material adverse effect on our business,
financial condition and results of operations.
Current market conditions,
including inflation and recessionary pressures could affect our growth and profitability.
The recent inflation rates,
geopolitical issues, increase in energy costs, interest rates, unstable global conditions and changes in currency exchange rates have
led to global economic instability. Such changes, and their impact on the global macro-economic environment, may result in a slow in the
level of investments made by CSPs, including, the transition of CSPs to 5G, which can impact our business, operating results, and financial
condition.
5
Our sales derived from
emerging market countries may be materially adversely affected by economic, exchange rates, regulatory and political developments in those
countries.
We plan to continue to generate
revenue from various emerging market countries which represent a relatively small portion of our existing business and our expected growth.
Economic or political turmoil in these countries could materially adversely affect our revenues and results of operations. Our investments
in emerging market countries may also be subject to risks and uncertainties, including unfavorable taxation treatment, exchange rates,
challenges in protecting our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or unexpected
changes in, regulation as well as other unforeseeable operational risks.
Most of our customers usually
require a detailed and comprehensive evaluation process before they order our solutions. Our sales process may be subject to delays that
could significantly decrease our revenues and result in the eventual cancellations of some sale opportunities.
As common practice in our
industry, our solutions generally undergo a lengthy evaluation process before we can sell them. In recent years, our customers have been
conducting a more stringent and detailed evaluation of our solutions and decisions are subject to additional levels of internal review.
As a result, the sales cycle may be longer than anticipated. Multiple factors affect the length of the approval and evaluation process,
including among others, the time involved for our customers to determine and announce their specifications, the time required for our
customers to process approvals for purchasing decisions, the technological priorities and budgets of our customers and the complexity
of the solutions involved, and the need for our customers to obtain or comply with any required regulatory approvals. If customers
delay project approval or extend anticipated decision-making timelines, or if continued delays result in the eventual cancellation of
any sale opportunities, it may have an adverse effect on our ability to sell our solutions, which will materially adversely affect our
business, financial condition and results of operations.
We have experienced periods
of growth of our business. If we cannot adequately manage our business, our results of operations may suffer.
We cannot be sure that our
systems, procedures and managerial controls will be adequate to support our operations. Any delay in implementing, or transitioning to,
new or enhanced systems, procedures or controls may adversely affect our ability to record and report financial and management information
on a timely and accurate basis. We believe that significant growth may require us to hire additional personnel.
Our non-competition agreements
with our employees and consultants may not be enforceable under applicable law. If any of these employees leaves us and joins a competitor,
such competitor could benefit from the expertise our former employee gained while working for us.
We generally enter into non-competition
agreements with our key employees and consultants. These agreements prohibit those employees and consultants, while they work for us and
for a specified length of time after they cease to work for or provide services to us, from directly competing with us or working for
our competitors for a limited period. Under applicable law, we may be unable to enforce these agreements or any part thereof against our
employees and consultants, including our Israeli employees and consultants. If we cannot enforce our non-competition agreements against
our Israeli (or any other) employees, then we may be unable to prevent our competitors from benefiting from the expertise of these former
employees, which could impair our business, results of operations and ability to capitalize on our proprietary information.
Our business could be harmed
if we were to lose the services of one or more members of our senior management team, or if we are unable to attract and retain qualified
personnel.
Our future growth and success
depend to an extent upon the continuing services of our executive officers and other key employees including our Chief Executive Officer,
Benjamin (Benny) Eppstein, Chief Operating Officer, Hilik Itman, and our Chief Technology Officer, Rami Amit. Competition for qualified
management and other high-level telecommunications industry personnel is intense, and we may not be successful in attracting and retaining
qualified personnel. If we lose the services of any key employees, we may not be able to manage our business successfully or to achieve
our business objectives.
6
We experience competition
for highly skilled technical and other personnel, and as a result we may fail to attract, recruit and retain qualified employees, which
could materially and adversely impact our business, financial condition and results of operations.
We compete in a market marked
by rapidly changing technologies and an evolving competitive landscape. In order for us to successfully compete and grow, we must
attract, recruit, retain and develop personnel with requisite qualifications to provide expertise across the entire spectrum of our intellectual
capital and business needs.
Our principal research and
development as well as significant elements of our marketing and general and administrative activities are conducted at our headquarters
in Israel, where we face competition on skilled personnel. Although we also engage a talented team in the United States, India and Romania
to benefit from the significant pool of talent that is available in such markets, we have also witnessed increased competition in those
markets as well in recent years.
Many of the companies with
which we compete for qualified personnel have significant resources, and we may not succeed in recruiting additional experienced or professional
personnel, retaining personnel or effectively replacing current personnel who may depart with qualified or effective successors.
In addition, as a result of
the competition for qualified human resources, the high-tech market has also experienced and may experience in the future significant
increases in the levels of salaries and other compensation. Accordingly, our efforts to attract, retain and develop personnel may also
result in significant additional expenses, which could adversely affect our profitability. Furthermore, in making employment decisions,
particularly in the high-technology industry, job candidates often consider the value of the equity they are to receive in connection
with their employment. Employees may be more likely to leave us if the shares they own or the shares underlying their equity incentive
awards have significantly decreased in value. In light of the foregoing, there can be no assurance that qualified employees will remain
in our employ or that we will be able to attract and retain qualified personnel in the future and failure to do so could have a material
adverse effect on our business, financial condition and results of operations.
The complexity and scope
of the solutions we provide to larger CSPs is increasing. Larger projects entail greater operational risk and an increased chance of failure.
The complexity and scope of
the solutions we provide to larger CSPs is increasing. The larger and more complex such projects are, the greater the operational risks
associated with such projects. These potential risks include failure to successfully deliver our solution, failure to fully integrate
our solutions with third party products and complex environments in the CSP’s network, and our dependence on subcontractors and
partners for the successful and timely completion of such projects. Failure to complete a larger project successfully could expose us
to potential contractual penalties, claims for breach of contract and in extreme cases, to cancellation of the entire project, and may
result in difficulty in collecting payment and recognizing revenues from such project and may also harm our reputation.
Cyber-attacks on our customers’
networks involving our products could have an adverse effect on our business.
Maintaining the security
of our products which are installed with our customers is a critical issue for us, therefore we invest resources and technologies to
better protect our assets. However, security researchers, criminal hackers and other third parties regularly develop new techniques
to penetrate computer and network security measures. Cyber-attacks, or other breaches of security on our customers’ networks,
may be initiated at any network location or device including initiation through our products. Although we maintain high levels of
cyber-security aware development processes, we cannot assure that such attacks, or other breaches of security through our products,
will fail and therefore may negatively affect our customers’ business. While we maintain insurance coverage for some of these
events, we cannot be certain that our coverage will be adequate for liabilities actually incurred. In addition, these events could
also result in damage to our reputation which will further negatively impact our business.
7
More and more CSPs require
us to perform a product hardening in order to prevent security vulnerabilities via our products that may result in security breaches in
our customers’ data. Although we dedicate substantial efforts to improve our development processes in order to address the customers’
security requirements, we may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in
existing controls, programs, systems and procedures, and we may not be able to fully comply with such requirements, which may cause cancellation
of contracts or damages as well as loss of reputation and claims by our CSP customers and may have an adverse effect on our business and
financial results. See Item “16.K Cybersecurity” for additional information.
We could be subject to
claims under our warranties and extended maintenance and support agreements which may affect our financial condition.
Our solutions are complex
and may sometimes contain undetected errors which can delay introductions or necessitate redesign. Failures in networks in
which our solutions are deployed arising out of our solutions may result in customer dissatisfaction, contractual claims and, potentially,
liability claims being filed against us. Our warranties require us to correct any errors or defects in our solutions. The warranty period
we provide for our services is mostly for one year but could be extended either in the initial purchase of our solution or after the initial
warranty period ends through the purchase of extended support and maintenance. Moreover, under the warranty and extended maintenance agreements,
we need to meet certain service levels and if we fail to meet them, we may be exposed to penalties. Any failure of a network in which
our solutions are deployed (whether or not our solutions are the cause) and any customer claims against us, along with any associated
negative publicity, could result in the loss of, or delay in, market acceptance of our solutions and harm to our business.
We incorporate open-source
technology in our solutions which may expose us to liability and have a material impact on our product development and sales.
Some of our solutions utilize
open-source technologies. These technologies are licensed to us under varying license structures. These licenses pose a potential risk
to our solution in the event they are inappropriately integrated. If we have not, or do not in the future, properly integrate software
that is subject to such licenses into our solutions or if we utilize open-source software that is subject to licensing terms that are
incompatible with our use, we may be required to disclose our own source code to the public or may lose rights to our solutions. Any such
requirement to disclose or grant rights in our source code or other confidential information related to our solutions could, therefore,
materially adversely affect our competitive advantage and impact our business, financial condition and results of operations.
Our use of AI, GenAI, ML,
data analytics and similar tools and technologies, or, collectively, AI and Related Tools, as well as applications, features, and functionality
that we may introduce in the future, may result in difficulties, including with product development and integration and accuracy of the
results and may otherwise not prove efficient or profitable, may not be widely or timely accepted by our customers or the market, may
enhance intellectual property, cybersecurity, operational and technological risks, or may otherwise adversely impact our business or operations,
or subject us to possible litigation.
As we continue to
diversify our product offerings, we may utilize AI and Related Tools in connection with our business and in our solutions. We have
begun to include GenAI capabilities through our RADCOM ACE portfolio and as part of our RADCOM AIM (AI Framework). Given the short
time that has elapsed since GenAI became commercially viable, and the rapid pace of change in the GenAI space, we have limited
experience with GenAI and may experience any number of difficulties including with respect to product development and integration
with our existing offerings and IT systems, or accuracy of the results. Additionally, there are significant risks involved in
utilizing AI and Related Tools and no assurance can be provided that the usage of such AI and Related Tools will enhance our
business, the business of our customers, or assist us in being more efficient or profitable. Further, AI and Related Tools may have
errors or inadequacies that are not easily detectable. For example, certain AI and Related Tools may utilize historical telecom
related data in their analytics. To the extent that such historical data is not indicative of the current or future conditions in
the sector, or the AI and Related Tools fail to filter biases in the underlying data or collection methods, the usage of AI and
Related Tools may lead us or our customers to make determinations on behalf of our products or our customers’ business that
are based on such flawed data, including decisions, that may have an adverse effect. If AI and Related Tools are incorrectly
designed or the data used to train them is incomplete, inadequate or biased in some way, use of AI and Related Tools may
inadvertently reduce efficiency or cause unintentional or unexpected outputs that are incorrect, do not match our or our
customers’ business goals, do not comply with our or our customers’ policies or interfere with the performance of our or
our customers’ products, services, business and reputation.
8
Additionally, there can be
no assurance that any GenAI or other AI and Related Tool solutions we develop will be adopted by the market, or be profitable or viable.
Our limited experience with respect to GenAI offerings could limit our ability to successfully bring new GenAI and other AI and Related
Tool solutions and offerings to market or adapt to market changes. If we are unsuccessful in developing, integrating and offering GenAI
and other AI and Related Tool solutions, our business, results of operations and financial condition could be adversely affected.
In addition, the use of AI
and Related Tools may enhance intellectual property, cybersecurity, operational and technological risks. The technologies underlying AI
and Related Tools and their use cases are subject to a variety of laws, including intellectual property, privacy, consumer protection
and federal equal opportunity laws. If we do not have sufficient rights to use the data on which AI and Related Tools rely, we may incur
liability through the violation of such laws, third-party privacy or other rights or contracts to which we are a party. Furthermore, the
technologies underlying AI and Related Tools are complex and rapidly developing, and as a result, it is not possible to predict all of
the legal, operational or technological risks related to the use of AI and Related Tools. Moreover, AI and Related Tools are the subject
of evolving review by various governmental and regulatory agencies, including the SEC, and the U.S. Federal Trade Commission and European
Union regulatory bodies, and changes in laws, rules, directives and regulations governing the use of AI and Related Tools may adversely
affect the ability of our business to use AI and Related Tools.
Our proprietary technology
is difficult to protect and unauthorized use of our proprietary technology by third parties may impair our ability to compete effectively.
Our success and ability to
compete depend in large part upon protecting our proprietary technology. We rely upon a combination of contractual rights, software
licenses, trade secrets, copyrights, non-disclosure agreements and technical measures to establish and protect our intellectual property
rights in our solutions and technologies. In addition, we sometimes enter into non-competition, non-disclosure and confidentiality
agreements with our employees, distributors, sales representatives and certain suppliers with access to sensitive information. We
currently have nine registered patents and one pending patent application. However, these measures may not be adequate to protect our
technology from third-party infringement. Additionally, effective intellectual property protection may not be available in every
country in which we offer, or intend to offer, our solutions.
We may expand our business
or enhance our technology through partnerships and acquisitions that could result in diversion of resources and extra expenses. This could
disrupt our business and adversely affect our financial condition.
Part of our growth strategy may be to selectively pursue partnerships
and acquisitions, such as our acquisition of Continual Ltd., or Continual, that provide us access to complementary technologies and accelerate
our penetration into new markets. The negotiation of acquisitions, investments or joint ventures, as well as the integration of acquired
or jointly developed businesses or technologies, could divert our management’s time and resources. Acquired businesses, technologies
or joint ventures may not be successfully integrated with our solutions and operations. We may not realize the intended benefits of any
acquisition, investment or joint venture and we may incur future losses from any acquisition, investment or joint venture.
In addition,
acquisitions could result in, among other things, substantial cash expenditures, potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, a decrease in our profit margins, and amortization of intangibles and
potential impairment of goodwill.
If the implementation of our
growth strategy by acquiring other businesses will result in operational disruption, our business, financial condition and results of
operations could be adversely affected.
9
Because we received grants
from the IIA, we are subject to ongoing restrictions.
We have received an aggregate
of $50.2 million in royalty-bearing grants for certain research and development activities pursuant to an incentive program. Accordingly,
we are obligated to pay royalties to the IIA on revenues from products developed pursuant to the program or deriving therefrom. In addition,
under the terms of the program our ability to transfer any resulting know-how, especially to parties outside of Israel, is subject to
certain terms and conditions. The Law for the Encouragement of Research, Development and Technological Innovation in the Industry, 1984-5744,
or the Innovation Law, generally requires a grant recipient and its controlling shareholders to notify the IIA of changes in the ownership
of the recipient company and to undertake to the IIA to observe the laws governing the grant programs. We are committed to pay royalties
with respect to aforesaid grants until 100% of the U.S. dollar-linked grant plus annual London Interbank Offered Rate, or LIBOR, interest
is repaid, or, as outlined below, according to Secured Overnight Financing Rate, or the SOFR. Nonetheless, the amount that we may be required
to pay to the IIA, may be higher in certain circumstances, such as when the manufacturing activity or know how is transferred outside
of Israel. In September 2021, the Bank of Israel, which determines annual interest rates, published a directive which stated that annual
interest at a variable rate linked to the LIBOR rate for loans in U.S. dollars will be replaced by SOFR, in June 2023. Pursuant to the
latest IIA regulations, grants received from the IIA before June 30, 2017, bear an annual interest rate that applied at the time of the
approval of the applicable IIA filing, and that interest rate will apply to all of the funding received under that IIA approval. Grants
received from the IIA after June 30, 2017, bear an annual interest rate based on the 12-month LIBOR, until December 31, 2023, and as of
January 1, 2024, bear an annual interest rate based on the 12-month SOFR, or at an alternative rate published by the Bank of Israel, with
the addition of 0.72%. Grants approved after January 1, 2024 will bear the higher of (i) the 12 months SOFR interest rate, plus 1%, or
(ii) a fixed annual interest rate of 4%.
We may be subject to claims
of infringement of third-party intellectual property which may have an adverse effect on our business.
Third parties may from time
to time assert against us infringement claims or claims that we have violated a patent or infringed a copyright, trademark or other proprietary
right belonging to them. If such infringement were found to exist, we might be required to modify our products or intellectual
property or to obtain a license or right to use such technology or intellectual property. Any infringement claim, even if not
meritorious, could result in the expenditure of significant financial and managerial resources.
Prior to 2023 we incurred
net losses and we may not sustain profitability in the future.
In 2024, and 2023 we achieved
net income of approximately $7 million and $3.7 million, respectively while in 2022, we incurred net loss of approximately $2.3 million.
We may be unable to sustain profitability or may again incur losses in the future, which could materially affect our cash and liquidity
and could adversely affect the value and market price of our ordinary shares.
Our international presence
exposes us to risks associated with varied and changing political, cultural, legal and economic conditions worldwide and if we fail to
adapt appropriately to the challenges associated with operating internationally the expected growth of our business may be impeded, and
our operating results may be affected.
While we are headquartered
in Israel, approximately 89% of our sales in 2024, 96% of our sales in 2023 and 97% of our sales in 2022 were generated outside of Israel.
Our international sales will be limited if we cannot continue to establish and maintain relationships with international distributors
and resellers, set up additional foreign operations, expand international sales channel management, hire additional personnel, develop
relationships with international CSPs and operate adequate after-sales support internationally.
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Even if we are able to successfully
further expand our international operations, we may not be able to maintain or increase international market demand for our solutions.
Our international operations are subject to a number of risks, including:
● legal, language and cultural differences in the conduct of business;
● challenges in staffing and managing foreign operations due to the limited number of qualified candidates and due to employment laws and business practices in foreign countries;
● our inability to comply with import/export, environmental and other trade compliance and other regulations of the countries in which we do business including additional labor laws, particularly in Brazil and India, together with unexpected changes in such regulations;
● insufficient measures to ensure that we design, implement, and maintain adequate controls over our financial processes and reporting in the future;
● our failure to adhere to laws, regulations, and contractual obligations relating to customer contracts in various countries;
● our inability to maintain a competitive list of distributors and resellers for indirect sales;
● economic and political instability in foreign market, including tariffs and other trade barriers (such as in response to the Russia and Ukraine conflict);
● wars, acts of terrorism and political unrest (including the current conflict between Russia and Ukraine);
● lack of integration of foreign operations;
● currency fluctuations;
● variations in effective income tax rates among countries where we conduct business;
● potential foreign and domestic tax consequences and withholding taxes that limit the repatriation of earnings;
● technology standards that differ from those on which our solutions are based, which could require expensive redesign and retention of personnel familiar with those standards;
● laws and business practices favoring local competitors;
● longer accounts receivable payment cycles and possible difficulties in collecting payments; and
● failure to meet certification requirements.
Any of these factors could
harm our international operations and have an adverse effect on our business, operating efficiency, results of operations, financial performance
and financial condition. The continuing weakness in certain foreign economies could have a significant negative effect on our future operating
results.
Our business may be affected
by sanctions, export controls and similar measures targeting Russia and other countries and territories in connection with the military
conflict between Russia and Ukraine.
We conduct our business
in compliance with applicable economic and trade sanctions laws and regulations, including those administered and enforced by the
U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce,
and other relevant governmental authorities. Accordingly, our business may be adversely affected by sanctions, export controls and
similar measures targeting Russia and other countries and territories in response to Russia’s military conflict in Ukraine,
including by indefinite suspension of operations in Russia, dealings with Russian entities, preventing us from performing existing
contracts, recognizing revenue, pursuing new business opportunities or receiving payment for products already supplied or services
already performed with customers. Depending on the extent and breadth of sanctions, export controls and other measures that may be
imposed in connection with the conflict in Ukraine, it is possible that our business and results of operations could be adversely affected.
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Because our revenues are
generated primarily in foreign currencies (mostly in U.S. dollars but also in other currencies), but a significant portion of our expenses
are incurred in New Israeli Shekels, our results of operations may be seriously adversely affected by currency fluctuations.
We sell in markets throughout
the world and most of our revenues are generated in U.S. dollars. We also generate revenues in Euro, Brazilian real, and other currencies.
Our financing activities are also made in U.S. dollars. Accordingly, we consider the U.S. dollar to be our functional currency. However,
a significant portion of our expenses is in NIS, mainly related to employee expenses. Therefore, fluctuations in exchange rates between
the NIS and the U.S. dollar as well as between other currencies and the U.S. dollar may have an adverse effect on our results of operations
and financial condition. As of March 19, 2025, we have not entered into any hedging transactions in order to mitigate these risks.
Moreover, as our revenues
are currently denominated primarily in U.S. dollars, devaluation in the local currencies of our customers relative to the U.S. dollar
could cause customers to default on payment. Also, as a portion of our revenues is denominated in Brazilian real, devaluation in this
currency may cause financial expenses related to our intercompany short-term balances. In the future, additional revenues may be denominated
in currencies other than U.S. dollars, thereby exposing us to gains and losses on non-U.S. currency transactions.
We incur expenses in different
currencies, including U.S. dollars and NIS, but our financial statements are denominated in U.S. dollars. U.S. dollars is our functional
currency and is the currency that represents the principal economic environment in which we operate. As a result, we are affected by foreign
currency exchange fluctuations through both translation risk and transaction risk. As a result, we are exposed to the risk that the NIS
may appreciate relative to the dollar, or, if the NIS instead devalues relative to the dollar, that the inflation rate in Israel may exceed
such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the
dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected.
Risks Related to our Ordinary Shares
Wide fluctuations in the
market price of our ordinary shares could adversely affect us and our shareholders.
Between January 1, 2024,
and March 19, 2025, our ordinary shares’ closing price on the Nasdaq Capital Market, or the Nasdaq, was as high as $15.40 and as
low as $7.71 per share. As of March 19, 2025, the closing price of our ordinary shares on Nasdaq was $12.68 per share. The market
price of our ordinary shares has been and is likely to continue to be volatile and could be subject to wide fluctuations in response
to numerous factors, including the other risks identified in this “Item 3.D—Risk Factors”.
In addition, the stock market
in general, and the market for Israeli and technology companies in particular, has been highly volatile. Many of these factors are
beyond our control and may materially adversely affect the market price of our ordinary shares, regardless of our performance. Shareholders
may not be able to resell their ordinary shares following periods of volatility because of the market’s adverse reaction to such
volatility.
The trading volume of our
shares is relatively low, and it may remain low in the future.
Our shares have been traded
at low volumes in the past and may be traded at low volumes in the future for reasons related or unrelated to our performance. This low
trading volume may result in lesser liquidity and lower than expected market prices for our ordinary shares, and our shareholders may
not be able to resell their shares for more than they paid for them. This low trading volume may also result in greater share price volatility
as result of short trading activities or the acquisition or disposition of shares by any single larger or institutional shareholder.
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Risks Related to Our Location in Israel
Security, political and
economic instability in the Middle East in general, and in Israel in particular may harm our business.
We are incorporated under
the laws of the State of Israel, and our principal offices and research and development facilities are located in Central Israel. Accordingly,
security, political and economic conditions in the Middle East in general, and in Israel in particular, may directly affect our business.
Any armed conflicts, political instability, terrorism, cyberattacks or any other hostilities involving Israel or the interruption or curtailment
of trade between Israel and its present trading partners could affect adversely our operations. Ongoing and revived hostilities in the
Middle East or other Israeli political or economic factors, could harm our operations and solution development and cause any future sales
to decrease.
In
October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian
and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s
border with the Gaza Strip and in other areas within the State of Israel. Following the attack, Israel’s security cabinet declared
war against Hamas.
Since the commencement of these events, there have been continued hostilities
along Israel’s northern border with the Hezbollah terror organization, with Iran, the Houthis in Yemen and on other fronts with
various extremist groups in the region, such as various rebel militia groups in Syria and Iraq. In October 2024, Israel began limited
ground operations against Hezbollah in Lebanon, and in November 2024, a ceasefire was brokered between Israel and Hezbollah, which has
not been continuously upheld. It is possible that hostilities with Iran, Hezbollah, the Houthis and terrorist groups in Syria will escalate,
and that other terrorist organizations, including Palestinian military organizations in the West Bank, will join the hostilities. Iran,
who launched direct attacks on Israel involving drones and missiles, is also believed to have a strong influence among extremist groups
in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthis in Yemen and various rebel militia groups in Syria and Iraq. These
situations may potentially escalate in the future to more violent events which may affect Israel and us. Any hostilities, armed conflicts,
terrorist activities involving Israel or the interruption or curtailment of trade between Israel and its trading partners, or any political
instability in the region could adversely affect business conditions and our results of operations and could make it more difficult for
us to raise capital and could adversely affect the market price of our ordinary shares. An escalation of tensions or violence might result
in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations
in Israel and our business.
Since the war broke out on October 7, 2023, our operations have
not been adversely affected by this situation, and we have not experienced disruptions to our business operations. As such, our product
and business development activities remain on track. However, the intensity and duration of Israel’s current war against Hamas is
difficult to predict at this stage, as are such war’s economic implications on our business and operations and on Israel’s
economy in general. If the hostilities continue or expand to other fronts our operations may be adversely affected.
Furthermore, many Israeli citizens are obligated to perform several
days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are
military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty for substantial
periods of time. In response to the October attack and the ensuing war that followed along with the increases in terrorist activity, the
Israeli army has exercised significant call-ups of military reservists, for substantial periods. It is possible that there will be additional
military reserve duty call-ups in the future. As of March 19, 2025, none of our employees or executive management has been called to service.
Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could
materially adversely affect our business, prospects, financial condition and results of operations.
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In addition, commencing
in 2023, the Israeli government pursued extensive changes to Israel’s judicial system. This sparked extensive political debate
and protests. In response to the foregoing developments, many individuals, organizations and institutions, both within and outside of
Israel, have voiced concerns that the proposed changes may negatively impact the business environment in Israel, including due to reluctance
of foreign investors to invest or transact business in Israel, increased currency fluctuations, downgrades in credit rating, increased
interest rates, increased volatility in security markets, and other changes in the Israeli macroeconomic conditions. To the extent that
the Israeli government would further pursue such extensive changes to Israel’s judicial system and any of these negative developments
do occur, they may have an adverse effect on our business, our results of operations and our ability to hire and preserve our employees
and to raise additional funds, if deemed necessary by our management and board of directors.
Provisions of Israeli law
may make it easy for our shareholders to demand that we convene a shareholders meeting, and/or allow shareholders to convene a shareholder
meeting without the consent of our management, which may disrupt our management’s ability to run our company.
Section 63(b) of the Israeli
Companies Law, 5759-1999, or the Israeli Companies Law, together with Section 7B of the Israeli Companies Regulations (Relief for Public
Companies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000, or the Relief Regulations, may allow any one
or more of our shareholders holding at least 10% of our voting rights to demand that we convene an extraordinary shareholders meeting.
Also, in the event that we choose not to convene an extraordinary shareholders meeting pursuant to such a request, Sections 64-65 of the
Israeli Companies Law provide, among others, that such shareholders may independently convene an extraordinary shareholders meeting within
three months (or under court’s ruling) and require us to cover the costs, within reason, and as a result thereof, our directors
might be required to repay us such costs. If our shareholders decide to exercise these rights in a way inconsistent with our management’s
strategic plans, our management’s ability to run our company may be disrupted, and this process may entail significant costs to
us.
We currently benefit from
government programs that may be discontinued or reduced.
We currently receive grants
under Government of Israel programs. In order to maintain our eligibility for these programs, we must continue to meet specific conditions
and pay royalties with respect to grants received. In addition, some of these programs restrict our ability to develop particular
products outside of Israel or to transfer particular technology. If we fail to comply with these conditions in the future, the benefits
received could be canceled and we could be required to refund any payments previously received under these programs. Additionally, these
programs may be discontinued or curtailed in the future. If we do not receive these grants in the future, we will have to allocate funds
to product development at the expense of other operational costs. If the Government of Israel discontinues or curtails these programs,
our business, financial condition and results of operations could be materially adversely affected. For more information, see
“Item 4.B—Information on the Company—Business Overview—Israel Innovation Authority.”
Provisions of Israeli law
may delay, prevent or make difficult a merger or acquisition of us, which could prevent a change of control and depress the market price
of our shares.
The Israeli Companies Law,
regulates acquisitions of shares through tender offers, requires special approvals for transactions involving shareholders holding 25%
or more of the company’s capital, and regulates other matters that may be relevant to these types of transactions. These provisions
of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our shareholders. These provisions may limit the price that investors may be willing
to pay in the future for our ordinary shares. Furthermore, Israeli tax considerations may make potential transactions undesirable to us
or to some of our shareholders.
It may be difficult to
effect service of process, assert U.S. securities laws claims and enforce U.S. judgments in Israel against us or our directors, officers
and auditors named in this Annual Report.
We were incorporated in
Israel. All but one of our directors reside outside of the United States, and most of our assets are located outside of the United
States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability
provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by
an Israeli court. It also may be difficult to effect service of process on these persons in the United States or to assert U.S.
securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other
person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a
claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum in
which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not
United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United
States law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described
above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any
damages awarded by either a United States or foreign court.
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As a foreign private issuer
whose shares are listed on the Nasdaq, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.
As a foreign private issuer
whose shares are listed on the Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain
requirements of the Nasdaq Stock Market Rules including requirements regarding compensation of officers, related party transactions, shareholder
approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, an issuance
that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20%
or more interest in the company and certain acquisitions of the stock or assets of another company), and other matters.
Accordingly, our shareholders
may not be afforded the same protection as provided under Nasdaq’s corporate governance rules. For more information, see “Item
16G—Corporate Governance”.
General Risk Factors
Natural disasters and other
events beyond our control could harm our business.
Natural disasters or other
catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have
a negative effect on us. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics
such as the recent spread of the coronavirus, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical
instability, war, such as the recent war between Israel and the terrorist organization Hamas and the hostilities between Israel and the
terrorist organizations Hezbollah and the Houthis and Iran, the effects of climate change (such as drought, wildfires, increased storm
severity and sea level rise) and other events beyond our control. Although we maintain crisis management and disaster response plans,
such events could make it difficult or impossible for us to deliver our solutions and services to our customers, could decrease demand
for our solutions and services, and could cause us to incur substantial expense.
Global economic conditions
may adversely affect our business.
Changes in global
economic conditions could have a negative impact on business around the world and on the telecommunications sector. Conditions may
be depressed, or may be subject to deterioration, which could lead to a reduction in consumer and customer spending overall and may
in turn have an adverse impact on sales of our solutions. A disruption in the ability of our significant customers to access
liquidity could cause serious disruptions or an overall deterioration of their businesses, which could lead to a significant
reduction in their orders of our solutions and the inability or failure on their part, to meet their payment obligations to us, any
of which could have an adverse effect on our business, financial condition, results of operations and liquidity. In addition,
any disruption in the ability of our customers to access liquidity could require us to assume greater credit risk relating to our
receivables or could limit our ability to collect receivables related to purchases by affected customers. As a result, we may have
to defer recognition of revenues, our reserves for doubtful accounts and write-offs of accounts receivable may increase and we may
incur losses.
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Certain privacy and data
security laws and regulations may affect the use of our solutions.
Our solutions and their use
may be subject to certain laws and regulations regarding privacy and data security including United States federal and state laws and
European privacy laws. Generally, attention to privacy and data security requirements is increasing worldwide and is resulting in increased
regulation.
Such regulations may impose
significant penalties for non-compliance, such as the penalties proposed under the European data protection regulations, or GDPR. The
GDPR imposes through binding guidance by the European Data Protection Board (and supplemented by national laws in individual European
Union member states), stringent data protection compliance requirements and provides for significant penalties for noncompliance in Europe.
The GDPR created additional compliance obligations applicable to our business and users, which could cause us to change our business practices,
and increases financial penalties for noncompliance (including possible fines of up to the greater of €20 million and 4% of our global
annual turnover for the preceding financial year for the most serious violations, as well as the right to compensation for financial or
non-financial damages claimed by any individuals under Article 82 of the GDPR). Compliance with the GDPR is an ongoing process.
Additionally, in California
the Consumer Privacy Act, or CCPA, provides for data privacy rights for consumers and operational requirements for companies. Further,
the California Privacy Rights Act, or CPRA, significantly modified the CCPA, including providing for additional privacy rights and increasing
regulation on online advertising. Additionally, the CCPA, the CPRA, and other legal and regulatory changes are making it easier for certain
individuals to opt-out of having their personal data processed and disclosed to third parties through various opt-out mechanisms, which
could result in an increase to our operational costs to ensure compliance with such legal and regulatory changes.
Use of our solutions
could be subject to such regulations, which could significantly increase the cost of implementing our solutions and impact our ability
to compete in the marketplace. Such regulations could also impose additional data security requirements which will impact the cost of
developing new solutions and limit the return we can expect to achieve on past and future investments in our solutions.
Our international sales
and operations are subject to complex laws relating to foreign corrupt practices and bribery, among many other subjects. A violation of,
or change in, these laws could adversely affect our business, financial condition or results of operations.
Our operations in countries
outside the United States are subject, among others, to the Foreign Corrupt Practices Act of 1977 as amended from time to time, or FCPA,
which prohibits U.S. companies or foreign companies whose shares traded on a U.S. stock exchange, or their agents and employees, from
providing anything of value to a foreign public official, as defined in the FCPA, for the purposes of influencing any act or decision
of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity,
or obtain any unfair advantage. We have internal control policies and procedures with respect to the FCPA. However, we cannot assure that
our policies and procedures will always protect us from reckless or criminal acts that may be committed by our employees or agents. Violations
of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material
adverse effect on our business, results of operations and financial condition. In addition, investigations by governmental authorities
as well as legal, social, economic and political issues in countries where we operate could have a material adverse effect on our business
and results of operations. We are also subject to the risks that our employees or agents outside of the United States may fail to comply
with other applicable laws. The costs of complying with these and similar laws may be significant and may require significant management
time and focus. Any violation of these or similar laws, intentional or unintentional, could have a material adverse effect on our business,
financial condition or results of operations.
Any inability to comply
with Section 404 of the Sarbanes-Oxley Act of 2002 regarding effective internal control procedures may negatively impact the report on
our financial statements to be provided by our independent auditors.
Pursuant to rules of the SEC,
adopted pursuant to Section 404, or Section 404, of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, we are required to include
in our annual report a report of management on our internal control over financial reporting including an assessment by management of
the effectiveness of our internal control over financial reporting. In addition, because we are an accelerated filer under the SEC
rules, our independent registered public accounting firm is required to attest to and report on the effectiveness of our internal control
over financial reporting. Our management or our auditors may conclude that our internal control over financial reporting is not effective.
Such conclusion could result in a loss of investor confidence in the reliability of our financial statements, which could negatively impact
the market price of our shares. Further, our auditors or we may identify material weaknesses or significant deficiencies in our assessments
of our internal control over financial reporting. Failure to maintain effective internal control over financial reporting could result
in investigation or sanctions by regulatory authorities and could have an adverse effect on our business, financial condition and results
of operations, and on investor confidence in our reported financial information.
If we determine that we are
not in compliance with Section 404, we may be required to implement new internal controls and procedures and re-evaluate our financial
reporting. We may experience higher than anticipated operating expenses as well as third party advisory fees during the implementation
of these changes and thereafter. Further, we may need to hire additional qualified personnel in order to comply with Section 404.
If we are unable to implement these changes effectively or efficiently, it could have a material adverse effect on our business, financial
condition, results of operations, financial reporting or financial results and could result in our conclusion that our internal controls
over financial reporting are not effective.
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