We are a leading international provider of comprehensive physical,
video, and access control security products and solutions. We offer comprehensive solutions for critical sites, which leverage our
broad portfolio of homegrown PIDS (Perimeter Intrusion Detection Systems), advanced VMS (Video Management Software) with
native IVA (Intelligent Video Analytics) security solutions, as well as access control products and technologies.
Based on our multi-decade industry experience and interaction with
customers, we have developed a comprehensive set of solutions and products, optimized for perimeter, outdoor, and general security applications.
Our broad portfolio of critical infrastructure protection and site protection technologies includes a variety of smart barriers and fences,
fence mounted sensors, virtual gates, buried and concealed detection systems, and sophisticated sensors for sub-surface intrusion such
as to secure pipelines, as well as advanced video analytics software and video management systems. We have successfully installed customized
solutions and products in more than 100 countries worldwide.
On June 30, 2021, we completed the sale of our Integration Solution
Division to Aeronautics Ltd., a subsidiary of RAFAEL Advanced Defense Systems Ltd., in a share and asset purchase agreement for a total
consideration of $35 million in cash, on a cash-free, debt-free basis. As part of the acquisition, Aeronautics acquired our facility
in Yehud, Israel.
Following the sale of the Integrated Solutions (Project) Division,
we changed our name to Senstar Technologies Ltd. (formerly known as Magal Security Systems Ltd.) and focused our business on providing
comprehensive physical, video and access control security products and solutions, with development and manufacturing facilities located
in Canada and sales and support offices in the US, EMEA, China and APAC regions as well as in Canada.
Our ordinary shares are traded on the NASDAQ Global Market
under the symbol “SNT”. Our website is www.senstartechnologies.com.
The information on our website is not incorporated by reference into this annual report. As used in this annual report, the terms
“we,” “us,” “our,” and “Senstar” mean Senstar Technologies Ltd. and its subsidiaries,
unless otherwise indicated.
AIMETIS SYMPHONY, FIBERPATROL, FLARE, FLEXPI, FLEXZONE, OMNITRAX,
PINPOINTER, SENNET, SENSTAR, SENTIENT, ULTRAWAVE and XFIELD are registered trademarks.
ARMOURFLEX, ENTERPRISE MANAGER, INTELLI-FLEX, INTELLIFIBER, LM100,
NETWORK MANAGER, STARLED, STARNET, SENSTAR CARE, SENSTAR logo, SENSTAR SYMPHONY, and SENSTAR SAFE SPACES, and all other marks used to
identify particular products and services associated with our businesses are trademarks. Any other trademarks and trade names appearing
in this annual report are owned by their respective holders.
Our consolidated financial statements appearing in this annual
report are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
All references in this annual report to “dollars” or “$” are to U.S. dollars, all references to “NIS”
are to New Israeli Shekels and all references to “CAD” are to Canadian dollars.
Statements made in this annual report concerning the contents of
any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of
all of their terms. If we filed any of these documents as an exhibit to this annual report or to any registration statement or annual
report that we previously filed, you may read the document itself for a complete description of its terms.
This Annual Report on Form 20-F contains various “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and within the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements
reflect our current view with respect to future events and financial results. Forward-looking statements usually include the verbs,
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“projects,” “understands” and other verbs suggesting uncertainty. We remind readers that forward-looking
statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks
that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different
from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We
undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events. We have attempted to identify additional significant uncertainties
and other factors affecting forward-looking statements in the Risk Factors section which appears in Item 3.D “Key Information --
Risk Factors.”
PART I
| ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
|
B. |
Capitalization and Indebtedness. |
Not applicable.
|
C. |
Reasons for the Offer and Use of Proceeds. |
Not applicable.
Investing in our ordinary shares involves a high degree of risk and uncertainty.
You should carefully consider the risks and uncertainties described below before investing in our ordinary shares. If any of the
following risks actually occurs, our business, prospects, financial condition and results of operations could be harmed. In that
case, the value of our ordinary shares could decline, and you could lose all or part of your investment. These risks include, but are
not limited to, the following:
Risks Related to Macroeconomic Conditions
|
• |
Our operations have been negatively impacted by the Coronavirus pandemic. |
|
• |
Our operations have been negatively impacted by the global supply-chain challenges. |
|
• |
Our business, financial condition, results of operations, and cash flow may in the future be negatively impacted by challenging global
economic conditions. |
Risks Related to Our Business and Our Industry
|
• |
While we were profitable in 2021, we have incurred major losses in past years and may not operate profitably in the future.
|
|
• |
Our operating results may fluctuate from quarter to quarter and year to year. |
|
• |
Our financial results may be significantly affected by currency fluctuations. |
|
• |
We may make additional acquisitions in the future that could disrupt our operations and harm our operating results. |
|
• |
Our revenues depend in great measure on government procurement procedures and practices. A substantial decrease in our end-user's
budgets would adversely affect our results of operations. |
|
• |
Because competition in our industry is intense, our business, operating results and financial condition may be adversely affected.
|
|
• |
Our business involves significant risks and uncertainties that may not be covered by indemnities or insurance. |
|
• |
The markets for our products may be affected by changing technology, requirements, standards and products, and we may be adversely
affected if we do not respond promptly and effectively to these changes. |
|
• |
Increasing scrutiny and changing expectations with respect to our ESG policies may impose additional costs on us or expose us to
additional risks. |
|
• |
Our failure to retain and attract personnel could harm our business, operations and product development efforts. |
|
• |
We face risks associated with doing business in international markets. |
|
• |
Our failure to comply with anti-corruption laws and regulations could adversely affect our reputation, business, financial condition
and results of operations. |
|
• |
We may be vulnerable to physical and electronic security breaches and cyber-attacks which could disrupt our operations and have a
material adverse effect on our financial performance and operating results. |
|
• |
We may not be able to protect our proprietary technology and unauthorized use of our proprietary technology by third parties may
impair our ability to compete effectively. |
|
• |
Claims that our products infringe upon the intellectual property of third parties may require us to incur significant costs, enter
into licensing agreements or license substitute technology. |
|
• |
Undetected defects in our products may increase our costs and harm the market acceptance of our products. |
|
• |
If suppliers terminate our arrangements with them, or amend them in a manner detrimental to us, we may experience delays in production
and implementation of our products and our business may be adversely affected. |
|
• |
We currently benefit from government programs and tax benefits that may be discontinued or reduced in the future, which would increase
our future tax expenses. |
|
• |
We may fail to maintain effective internal control over financial reporting, which could result in material misstatements in our
financial statements. |
|
• |
We may be adversely affected by regulations and market expectations related to sourcing and our supply chain, including conflict
minerals. |
Risks Relating to Our Ordinary Shares
|
• |
Volatility of the market price of our ordinary shares could adversely affect our shareholders and us. |
|
• |
We may not pay additional dividends in the future. |
|
• |
As a foreign private issuer whose shares are listed on the NASDAQ Global Market, we may follow certain home country corporate governance
practices instead of certain NASDAQ requirements. |
|
• |
We may in the future be classified as a passive foreign investment company, or PFIC, which would subject our U.S. investors to adverse
tax rules. |
Risks Relating to Our Location in Israel
|
• |
Political, economic and military instability in Israel may negatively affect our business condition, harm our results of operations
and adversely affect our share price. |
|
• |
The rights and responsibilities of the shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities
of shareholders under U.S. law. |
|
• |
Provisions of Israeli law may delay, prevent or make difficult a change of control and therefore depress the price of our shares.
|
|
• |
Our shareholders generally may have difficulties enforcing a U.S. judgment against us, our executive officers and directors and some
of the experts named in this annual report or asserting U.S. securities law claims in Israel. |
Risks Related to Macroeconomic Conditions
Our operations have been negatively impacted by the Coronavirus
pandemic.
International health epidemics from communicable diseases, such
as the Coronavirus pandemic (Covid-19), have impacted our operations and may continue doing so in the future. Prior to the sale of our
Integrated Solutions (Projects) division on June 30, 2021, the impact of Covid-19 on our operations primary related to our ability to
execute and deliver projects, thus affecting the operations of our previously owned Integrated Solutions Division, as well causing a slowdown
in product and software orders in certain territories. We continue to assess the impact of the Covid-19 pandemic on our operations, including
on our employees, customers, suppliers, and logistics/transport providers. Despite the widespread lockdowns and working from home initiatives
in the territories in which we operated during 2021, we were able to continue production in our Canadian facilities throughout 2021. Our
ability to continue or resume operations from our offices and manufacturing facilities are dependent on the Covid-19 status in the territories
in which we operate. For example, lockdowns to various degrees were announced in Ottawa, Canada and Germany in 2021, limiting our ability
to resume work from our offices at these locations.
In addition, we are evaluating the possible impact of governmental
actions being taken to curtail the spread of the virus, such as instructions regarding quarantine of individuals, restrictions on holding
large-scale events, workplace restrictions and international travel. We also are monitoring the impact of the pandemic on our industry
and on governmental priorities worldwide, as well as its macro-economic implications. We cannot presently estimate the ongoing impact
of Covid-19 on our company, but the continued spread of that disease could partially or fully prevent our employees, customers, suppliers
and other business partners from conducting normal activities, potentially resulting in cessation, reduction or delay of business either
voluntarily or by governmental mandate and could have a material adverse effect on our business, financial condition, results of operations
and cash flow.
Our operations have been negatively impacted by the global supply-chain challenges.
Our operations have been negatively affected by the worldwide shortage
of various materials and sub-components required to produce certain of our products. This negative effect increased in the second half
of 2021. We are monitoring the impact of the supply chain shortage against our ongoing and forecasted manufacturing requirements, while
implementing various procurement methodologies to meet current and forecasted demand for our products. Our ability to continue meeting
the demand for our products is dependent among others, on our ability to maintain an effective procurement plan support from our suppliers,
and when needed establish a contractual relationship with alternative suppliers. Our failure to do so, or continued increases in goods
prices, could have a material adverse effect on our business.
Our business, financial condition, results of operations, and cash
flow may in the future be negatively impacted by challenging global economic conditions.
Future disruptions and volatility in global financial markets and
declining customer and business confidence could lead to decreased levels of spending. These macroeconomic developments could negatively
impact our business, which depends on the general economic environment and levels of sales. As a result, we may not be able to maintain
our existing customer relationships or attract new customers. We are unable to predict the likelihood of the occurrence, duration, or
severity of such disruptions in the credit and financial markets and adverse global economic conditions. Any general or market-specific
economic downturn could have a material adverse effect on our business, financial condition, results of operations, and cash flow.
Additionally, natural disasters, such as earthquakes, hurricanes,
tornadoes, floods, and other adverse weather and climate conditions; public health crises, such as pandemics and epidemics, including
the ongoing COVID-19 pandemic; political crises, such as terrorist attacks, war, and other political instability, such as the invasion
of Ukraine by Russia and the conflict in the region; or other catastrophic events, whether occurring in North America or globally, have
and could continue to disrupt our operations or the operations of one or more of our suppliers and vendors. To the extent any of these
events occur, our business and results of operations could be adversely affected.
If tariffs or other restrictions are placed by the United States
or Canada on imports from China or other emerging markets, or any related countermeasures are taken, our business, financial condition,
results of operations and growth prospects may be harmed. Tariffs may increase our cost of goods, which could result in lower gross margin
on certain of our products. If we raise prices to account for any such increase in costs of goods, the competitiveness of the affected
products could potentially be reduced. In either case, increased tariffs on imports from China or other countries could materially and
adversely affect our business, financial condition and results of operations. Trade restrictions and sanctions implemented by the United
States or other countries could materially and adversely affect our business, financial condition and results of operations.
Risks Related to Our Business and Our Industry
While we were profitable in 2021, we have incurred major losses
in past years and may not operate profitably in the future.
While we reported an operating profit from continuing operations
of $1.1 million and net income attributable to our shareholders of $6.4 million in the year ended December 31, 2021, we have incurred
losses in the past. We may not be able to sustain profitable operations in the future due to a number of factors, including the
recent outbreak of the novel Coronavirus pandemic (Covid-19), which has negatively impacted our operations. If we do not generate
sufficient cash from operations, we will be required to obtain financing or reduce our level of expenditure or cash balance. Such
financing may not be available in the future, or, if available, may not be on terms favorable to us. If adequate funds are not available
to us, our business, results of operations and financial condition will be materially and adversely affected.
Our operating results may fluctuate from quarter to quarter and year to year.
Our sales and operating results may vary significantly from quarter
to quarter and from year to year in the future. Our operating results are characterized by a seasonal pattern, with a higher volume
of revenues towards the end of the year and lower revenues in the first part of the year. In addition, our operating results are
affected by a number of factors, many of which are beyond our control. Factors contributing to these fluctuations include the following:
|
• |
changes in customers’ or potential customers’ budgets as a result of, among other things, government funding and procurement
policies; |
|
• |
changes in demand for our existing products and services; |
|
• |
our long and variable sales cycle; |
|
• |
our ability to maintain sales volumes at a level sufficient to cover fixed manufacturing and operating costs; |
|
• |
the timing of the introduction and market acceptance of new products, product enhancements and new applications. |
Our expense levels are based, in part, on expected future sales.
If the level of sales in a particular quarter does not meet expectations, we may be unable to adjust operating expenses quickly enough
to compensate for the shortfall of sales, and our results of operations may be adversely affected. Due to these and other factors,
we believe that quarter to quarter and year to year comparisons of our past operating results may not be meaningful. You should
not rely on our results for any quarter or year as an indication of our future performance. Our operating results in future quarters
and years may be below expectations, which would likely cause the price of our ordinary shares to fall. Moreover, the presentation of
our 2021 and historical results in this report differs from previous annual reports, as it excludes the results of our previously owned
Integrated Solutions (Projects) division, sold to Aeronautics Ltd.
Our financial results may be significantly affected by currency fluctuations.
Most of our sales are made in North America, APAC and Europe.
Our revenues are primarily denominated in Dollars, Euros and NIS while a portion of our expenses, primarily labor expenses, is incurred
in New Israeli Shekels and Canadian Dollars. As a result, fluctuations in rates of exchange between the dollar and non-dollar currencies
may affect our operating results and financial condition. The dollar cost of our operations in Canada may be adversely affected
by the appreciation of the CAD against the dollar. Further, the dollar cost of our operations in Israel may be adversely affected by the
appreciation of the NIS against the dollar. In addition, the value of our non-dollar revenues could be adversely affected by the depreciation
of the dollar against such currencies. Our financial expenses may also be adversely affected by the depreciation of a currency in which
we maintain our monetary assets.
We recorded foreign exchange losses, net of $1 million, $1 million
and $1.3 million in the years ended December 31, 2021, 2020 and 2019, respectively. This is due to the adjustment of monetary assets and
liabilities, denominated in currencies, other than the functional currency of the operational entities in the group. At the end of each
period, a change in currency valuation of monetary assets and liabilities is recorded as a non-cash financial expense or income. The Israeli
Shekel depreciated by 3.3%, 7.0% and 7.8% against the U.S. dollar in 2021, 2020 and 2019, respectively. We may incur exchange losses in
the future which may materially affect our operating results.
We may make acquisitions in the future that could disrupt our operations
and harm our operating results.
We have made a number of acquisitions in the past and may continue
to do so in the future. Future acquisitions by us could result in potentially dilutive issuances of our equity securities, the incurrence
of debt and contingent liabilities and amortization expenses related to identifiable intangible assets, any of which could materially
adversely affect our operating results and financial position. Acquisitions also involve other risks, including risks inherent in
entering markets in which we have limited or no prior experience.
Mergers and acquisitions of companies are inherently risky and
subject to many factors outside of our control and no assurance can be given that our future acquisitions will be successful and will
not adversely affect our business, operating results, or financial condition. In the future, we may seek to acquire or make strategic
investments in complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third
parties in order to expand our business. Failure to manage and successfully integrate such acquisitions could materially harm our business
and operating results. Prior acquisitions have resulted in a wide range of outcomes, from successful introduction of new products technologies
and professional services to a failure to do so. Even when an acquired company has previously developed and marketed products, there
can be no assurance that new product enhancements will be made in a timely manner or that pre-acquisition due diligence will have identified
all possible issues that might arise with respect to such products. If we acquire other businesses, we may face difficulties, including:
|
• |
Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired businesses or enterprises;
|
|
• |
Diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and
more widespread operations resulting from acquisitions; |
|
• |
Integrating financial forecasting and controls, procedures and reporting cycles; |
|
• |
Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have
stronger market positions; |
|
• |
Insufficient revenue to offset increased expenses associated with acquisitions; and |
|
• |
The potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following
and continuing after announcement of acquisition plans. |
Our revenues depend in great measure on government procurement
procedures and practices. A substantial decrease in our end-users’ budgets would adversely affect our results of operations.
Our products are primarily sold to governmental agencies, governmental
authorities and government-owned companies, many of which have complex and time-consuming procurement procedures. A substantial
period of time often elapses from the time we begin marketing a product until we actually sell that product to a particular end-user.
In addition, our sales to governmental agencies, authorities and companies are directly affected by these customers’ budgetary constraints
and the priority given in their budgets to the procurement of our products. A decrease in governmental funding for our end-users’
budgets would adversely affect our results of operations. This risk is heightened during periods of global economic slowdown.
Accordingly, governmental purchases of our systems, products and
services may decline in the future as the governmental purchasing agencies may terminate, reduce or modify contracts or subcontracts if:
|
• |
their requirements or budgetary constraints change; |
|
• |
they cancel multi-year contracts and related orders if funds become unavailable; |
|
• |
they shift spending priorities into other areas or for other products; or |
Any such event may have a material adverse effect on us.
Because competition in our industry is intense, our business, operating
results and financial condition may be adversely affected.
The global market for security, safety, site management solutions
and products is highly fragmented and intensely competitive. We compete principally in the market for perimeter intrusion detection
systems, or PIDS, Video Management Software, or VMS, Intelligent Video Analytics, or IVA. Some of our competitors and potential
competitors have greater research, development, financial and personnel resources, including governmental support, as well as established
greater penetration into certain vertical markets or geographical market segments. We cannot assure you that we will be able to compete
effectively relative to our competitors or continue to develop and market new products effectively. Continued competitive pressures could
cause us to lose significant market share or erode profitability margins.
Our business involves significant risks and uncertainties that
may not be covered by indemnity or insurance.
A significant portion of our business relates to designing, developing,
and manufacturing advanced security, systems and products. New technologies may be untested or unproven. Failure of some of these
products and services could result in extensive loss of life or property damage. Accordingly, we also may incur liabilities that are unique
to our products and services. In some, but not all circumstances, we may be entitled to certain legal protections or indemnifications
from our customers, either through regulatory protections, contractual provisions or otherwise. The amount of insurance coverage that
we maintain may not be adequate to cover all claims or liabilities, and it is not possible to obtain insurance to protect against all
operational risks and liabilities.
Substantial claims resulting from an accident, failure of our products
or services, or other incident, or liability arising from our products and services in excess of any indemnity and our insurance coverage
(or for which indemnity or insurance is not available or not obtained) could adversely impact our financial condition, cash flows, or
operating results. Any accident, even if fully indemnified or insured, could negatively affect our reputation among our customers and
the public, and make it more difficult for us to compete effectively. It also could affect the cost and availability of adequate insurance
in the future.
The markets for our products may be affected by changing technology,
requirements, standards and products, and we may be adversely affected if we do not respond promptly and effectively to these changes.
The markets for our products may be affected by evolving technologies,
changing industry standards, changing regulatory environments, new product introductions and changes in customer requirements. The
introduction of products embodying new technologies and the emergence of new industry standards and practices can render existing products
obsolete and unmarketable. Our future success will depend on our ability to enhance our existing products and to develop and introduce,
on a timely and cost-effective basis, new products and product features that keep pace with technological developments and emerging industry
standards. In the future:
|
• |
we may not be successful in developing and marketing new products or product features that respond to technological change or evolving
industry standards; |
|
• |
we may experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products
and features; or |
|
• |
our new products and product features may not adequately meet the requirements of the marketplace and achieve market acceptance.
|
If we are unable to respond promptly and effectively to changing technologies and
market requirements, we will be unable to compete effectively in the future.
Increasing scrutiny and changing expectations from investors, lenders,
customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may impose additional
costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny
relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices
and in recent years have placed increasing importance on the implications and social cost of their investments. The increased focus and
activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation
as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder
expectations and standards, which are evolving, or if we are perceived to have not responded appropriately to the growing concern for
ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial
condition and the price of our company’s shares could be materially and adversely affected.
Our failure to retain and attract personnel could harm our business,
operations and product development efforts.
Our products require sophisticated research and development, marketing
and sales and technical customer support. Our success depends on our ability to attract, train and retain qualified research and
development, marketing and sales and technical customer support personnel. Competition for personnel in all of these areas is intense
and we may not be able to hire adequate personnel to achieve our goals or support the anticipated growth in our business. Competition
may be amplified by evolving restrictions on immigration, travel, or availability of visas for skilled technology workers. If we fail
to attract and retain qualified personnel, our business, operations and product development efforts would suffer.
We face risks associated with doing business in international markets.
A large portion of our sales is to markets outside of Israel and
Canada. For the years ended December 31, 2021, 2020 and 2019 approximately 93.3%, 93.1% and 92.7% respectively, of our revenues
were derived from sales to markets outside of Israel and Canada. A key component of our strategy is to continue to expand in such
international markets. Our international sales efforts are affected by costs associated with the shipping of our products and risks
inherent in doing business in international markets, including:
|
• |
different and changing regulatory requirements in the jurisdictions in which we currently operate or may operate in the future;
|
|
• |
fluctuations in foreign currency exchange rates; |
|
• |
export restrictions, tariffs and other trade barriers; |
|
• |
difficulties in staffing, managing and supporting foreign operations; |
|
• |
difficulties in collecting accounts receivable; |
|
• |
political and economic changes, hostilities and other disruptions in regions where we currently sell our products or may sell our
products in the future; and |
|
• |
seasonal changes in business activity. |
Negative developments in any of these areas in one or more countries
could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulty in collecting receivables,
and a higher cost of doing business, any of which could adversely affect our business, results of operations or financial condition.
Our international operations require us to comply with anti-corruption
laws and regulations of various governments and different international jurisdictions, and our failure to comply with these laws and regulations
could adversely affect our reputation, business, financial condition and results of operations.
Doing business on a worldwide basis requires us and our subsidiaries
to comply with the laws and regulations of various governments and different international jurisdictions, and our failure to successfully
comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors,
officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular,
as a company registered with the Securities and Exchange Commission, or the SEC, we are subject to the regulations imposed by the Foreign
Corrupt Practices Act, or FCPA. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing
official decisions or obtaining or retaining business or otherwise obtaining favorable treatment and requires companies to maintain adequate
record-keeping and internal accounting practices to accurately reflect the transactions of the company. As part of our business, we deal
with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of
the FCPA. If our efforts to screen third-party agents and detect cases of potential misconduct fail, we could be held responsible for
the noncompliance of these third parties under applicable laws and regulations, which may have a material adverse effect on our reputation
and our business, financial condition and results of operations. In addition, some of the international locations in which we operate
lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk
of violating anti-corruption laws. We have established policies and procedures designed to assist us and our personnel to comply with
applicable U.S. and international laws and regulations. However, there can be no assurance that our policies and procedures will effectively
prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our
reputation, business, financial condition and results of operations.
We may be vulnerable to physical and electronic security breaches
and cyber-attacks which could disrupt our operations and have a material adverse effect on our financial performance and operating results.
A party who is able to compromise the security measures on our
networks or the security of our infrastructure could, among other things, misappropriate our proprietary information and the personal
information of our customers and employees, cause interruptions or malfunctions in our or our customers’ operations, cause delays
or interruptions to our ability to meet customer needs, cause us to breach our legal, regulatory or contractual obligations, create an
inability to access or rely upon critical business records or cause other disruptions in our operations. These breaches may result from
human errors, equipment failure, or fraud or malice on the part of employees or third parties. Our exposure to cybersecurity threats and
negative consequences of cybersecurity breaches will likely increase as we store increasing amounts of customer data. Additionally, as
we increasingly market the security features in our data centers, our data centers may be targeted by computer hackers seeking to compromise
data security.
We have experienced and defended against certain threats to our
systems and security (such as phishing attempts), none have had a material adverse effect on our business or operations to date. However,
we could incur significant costs in order to investigate and respond to future attacks, to respond to evolving regulatory oversight requirements,
to upgrade our cybersecurity systems and controls, and to remediate security compromise or damage. In response to past threats and attacks,
we have implemented further controls and planned for other preventative actions to further strengthen our systems against future attacks.
However, we cannot assure you that such measures will provide absolute security, that we will be able to react in a timely manner, or
that our remediation efforts following past or future attacks will be successful. Consequently, our financial performance and results
of operations would be materially adversely affected.
In the event of a breach resulting in loss of data, such as personally
identifiable information or other such data protected by data privacy or other laws, we may be liable for damages, fines and penalties
for such losses under applicable regulatory frameworks despite not handling the data. Furthermore, if a high-profile security breach or
cyber-attack occurs with respect to another provider of mission-critical data center facilities, our customers and potential customers
may lose trust in the security of these business models generally, which could harm our reputation and brand image as well as our ability
to retain existing customers or attract new ones. In addition, the regulatory framework around data custody, data privacy and breaches
varies by jurisdiction and is an evolving area of law. We may not be able to limit our liability or damages in the event of such a loss.
We may not be able to protect our proprietary technology 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 have 5 patents and have 2 patent applications pending. We also rely on a combination of trade secret and
copyright law and confidentiality, non-disclosure and assignment-of-inventions agreements to protect our proprietary technology.
It is our policy to protect our proprietary rights in our products and operations through contractual obligations, including confidentiality
and non-disclosure agreements with certain employees, distributors and agents, suppliers and subcontractors. These measures may
not be adequate to protect our technology from third-party infringement, and our competitors may independently develop technologies that
are substantially equivalent or superior to ours. Additionally, our products may be sold in foreign countries that provide less
protection to intellectual property than that provided under U.S., Canadian or Israeli laws.
Claims that our products infringe upon the intellectual property
of third parties may require us to incur significant costs, enter into licensing agreements or license substitute technology.
Third parties may in the future assert infringement claims against
us or claims asserting that we have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging to
them. Any infringement claim, even one without merit, could result in the expenditure of significant financial and managerial resources
to defend against the claim. In addition, we purchase components for our products from independent suppliers. Certain of these
components contain proprietary intellectual property of these independent suppliers. Third parties may in the future assert claims
against our suppliers that such suppliers have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging
to them. If such infringement by our suppliers or us were found to exist, a party could seek an injunction preventing the use of
their intellectual property. Moreover, a successful claim of product infringement against us or a settlement could require us to
pay substantial amounts or obtain a license to continue to use such technology or intellectual property. Infringement claims asserted
against us could have a material adverse effect on our business, operating results and financial condition.
Undetected defects in our products may increase our costs and harm
the market acceptance of our products.
Despite our regular quality assurance testing, the development,
enhancement and implementation of our complex systems entail substantial risks of product defects or failures. Undetected errors
or “bugs” may be found in existing or new products, resulting in delays, loss of revenues, warranty expense, loss of market
share, failure to achieve market acceptance, adverse publicity, product returns, loss of competitive position or claims against us by
customers. Any such problems could be costly to remedy and could cause interruptions, delays, or cessation of our product sales, which
could cause us to lose existing or prospective customers and could negatively affect our results of operations. Moreover, the complexities
involved in implementing our systems entail additional risks of performance failures. We may encounter substantial difficulties
due to such complexities which could have a material adverse effect upon our business, financial condition and results of operations.
If suppliers terminate our arrangements with them, or amend them
in a manner detrimental to us, we may experience delays in production and implementation of our products and our business may be adversely
affected.
We acquire most of the components utilized in our products, from
a limited number of suppliers. We may not be able to obtain such items from these suppliers in the future or we may not be able
to obtain them on satisfactory terms. Temporary disruptions of our manufacturing operations would result if we were required to
obtain materials from alternative sources, which may have an adverse effect on our financial results.
We currently benefit from government programs and tax benefits
that may be discontinued or reduced in the future, which would increase our future tax expenses.
We benefit from tax credits pursuant to the Scientific
Research and Experimental Development Tax Incentive Program in Canada, and from research grant programs such as the “Industrial
Research Assistance Program” (IRAP).
If we fail to comply with the conditions imposed by the Canadian
tax program in the future, the benefits we receive could be cancelled and we could be required to refund any payments previously received
under these programs, including any accrued interest, or pay increased taxes or royalties. Canadian research grant programs are
dependent on the Government’s continued commitment to support R&D, on availability of funding, and may be more difficult to
realize or may not be available in the future. Such a result would adversely affect our results of operations and financial condition.
If the Canadian government resolve to end these programs and benefits,
our business, financial condition, results of operations and net income could be materially adversely affected.
We may fail to maintain effective internal control over financial
reporting, which could result in material misstatements in our financial statements.
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and
our executives and directors. Our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 governing
internal controls and procedures for financial reporting have resulted in increased general and administrative expense and a diversion
of management time and attention, and we expect these efforts to require the continued commitment of significant resources. Section 404
of the Sarbanes-Oxley Act requires management’s annual review and evaluation of our internal control over financial reporting in
connection with the filing of the annual report on Form 20-F for each fiscal year. We may identify material weaknesses or significant
deficiencies in our internal control over financial reporting. Failure to maintain effective internal control over financial reporting
could result in material misstatements in our financial statements. Any such failure could also adversely affect the results of
our management’s evaluations and annual auditor reports regarding the effectiveness of our internal control over financial reporting.
We have documented and tested our internal control systems and procedures in order for us to comply with the requirements of Section 404.
While our assessment of our internal control over financial reporting resulted in our conclusion that as of December 31, 2021, our internal
control over financial reporting was effective, we cannot predict the outcome of our testing in future periods. If we fail to maintain
the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting. Failure to maintain effective internal control over financial reporting could result in investigation
or sanctions by regulatory authorities and could have a material adverse effect on our operating results, investor confidence in our reported
financial information and the market price of our ordinary shares.
We may be adversely affected by regulations and market expectations
related to sourcing and our supply chain, including conflict minerals.
The SEC has adopted disclosures and reporting requirements for
companies whose products contain certain minerals and their derivatives, namely tin, tantalum, tungsten, or gold, known as conflict
minerals. Companies must report annually whether or not such minerals originate from the Democratic Republic of Congo (DRC) and adjoining
countries. These requirements could adversely affect the sourcing, availability, and pricing of materials used in the manufacturing of
our products. In addition, we have incurred additional costs to comply with the disclosure requirements, including cost related to determining
the source of any of the relevant minerals used in our products. Since our supply chain is complex, due diligence procedures we have implemented
to understand the origins of the minerals we use in our operations may not enable us to ascertain with sufficient certainty the origins
for these minerals or determine that these minerals are DRC conflict free, which may harm our reputation. We may also face difficulties
in satisfying customers who may require that our products be certified as DRC conflict free, which could harm our relationships with these
customers and/or lead to a loss of revenue. These requirements also could have the effect of limiting the pool of suppliers from which
we source these minerals, and we may be unable to obtain conflict-free minerals at prices similar to the past, which could increase our
costs and adversely affect our manufacturing operations and our profitability.
Future laws, regulations, or customers may make additional demands
on supply chain transparency. These demands can include more transparency into the activities of our suppliers with regard to human rights
and sustainable sourcing. We have significant protections in place to ensure we partner with responsible suppliers, but increased demands
may cause us to incur increased supply chain costs. If we cannot satisfy customers' demands, we may lose business, and if we cannot meet
new regulatory requirements, we may have to alter our sourcing at increased expense.
Risks Relating to Our Ordinary Shares
Volatility of the market price of our ordinary shares could adversely
affect our shareholders and us.
The market price of our ordinary shares has been, and is likely
to be, highly volatile and could be subject to wide fluctuations in response to numerous factors, including the following:
|
• |
actual or anticipated variations in our quarterly operating results or those of our competitors; |
|
• |
announcements by us or our competitors of technological innovations or new and enhanced products; |
|
• |
developments or disputes concerning proprietary rights; |
|
• |
introduction and adoption of new industry standards; |
|
• |
changes in financial estimates by securities analysts; |
|
• |
market conditions or trends in our industry; |
|
• |
changes in the market valuations of our competitors; |
|
• |
announcements by us or our competitors of significant acquisitions; |
|
• |
entry into strategic partnerships or joint ventures by us or our competitors; |
|
• |
additions or departures of key personnel; |
|
• |
political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events; and
|
|
• |
other events or factors in any of the countries in which we do business, including those resulting from war, incidents of terrorism,
natural disasters or responses to such events. |
In addition, the stock market in general, and the market for Israeli
companies and homeland security 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. In the past, following
periods of market volatility, shareholders have often instituted securities class action litigation relating to the stock trading and
price volatility of the company in question. If we were involved in any securities litigation, it could result in substantial cost to
us to defend and divert resources and the attention of management from our business.
The FIMI partnerships owned approximately 42.3% of our outstanding
ordinary shares as of April 24, 2022. For as long as FIMI has a controlling interest in our company, it will have the ability to
exercise a controlling influence over our business and affairs, including any determinations with respect to potential mergers or other
business combinations involving us, our acquisition or disposition of assets, our incurrence of indebtedness, our issuance of any additional
ordinary shares or other equity securities, our repurchase or redemption of ordinary shares and our payment of dividends. Because the
interests of FIMI may differ from the interests of our other shareholders, actions taken by FIMI with respect to us may not be favorable
to our other shareholders.
We may not pay additional dividends in the future.
While we have historically retained our earnings to finance operations
and expand our business, on December 7, 2020, we announced a cash distribution in the amount of US$1.079 per share (approximately US$
25 million in the aggregate) which was paid on December 28, 2020, and, following the completion of the sale of our Integration Solutions
Division and court approval, we announced on August 16, 2021 a cash distribution in the amount of $1.725 per share (approximately $40
million in the aggregate), which was paid on September 22, 2021. We have not determined whether we will continue to make distributions
in the future or refrain from similar distributions, whether in a form of capital reduction or dividend distribution. According
to the Israeli Companies Law, a company may distribute dividends out of its profits (as defined by the Israeli Companies Law), provided
that there is no reasonable concern that such dividend distribution will prevent the company from paying all its current and foreseeable
obligations, as they become due, or otherwise upon the permission of the court (as occurred in connection with the 2021 dividend). The
declaration of dividends is subject to the discretion of our board of directors, requires a shareholders approval and would depend on
various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board
of directors. You should not rely on an investment in our company if you require dividend income from your investment.
As a foreign private issuer whose shares are listed on the NASDAQ
Global Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements. We follow
Israeli law and practice instead of NASDAQ rules regarding the director nomination process, compensation of executive officers and the
requirement that our independent directors have regularly scheduled meetings at which only independent directors are present.
As a foreign private issuer listed on the NASDAQ Global Market,
we may also follow home country practice with regards to, among other things, the composition of the board of directors and quorum at
shareholders’ meetings. In addition, we may follow home country practice instead of the NASDAQ requirement to obtain 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). A foreign private issuer that
elects to follow a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent
counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s
laws. In addition, a foreign private issuer must disclose in its annual reports filed with the SEC, each such requirement that it
does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our
shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.
We may be classified as a passive foreign investment company, or
PFIC, which would subject our U.S. investors to adverse tax rules.
U.S. holders of our Ordinary Shares may face income tax risks.
Based on the composition of our income, assets (including the value of our goodwill, going-concern value or any other unbooked intangibles,
which may be determined based on the price of the ordinary shares), and operations, we believe we will not be classified as a “passive
foreign investment company”, or PFIC, for the 2021 taxable year. However, because PFIC status is based on our income, assets and
activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our current taxable
year or future taxable years until after the close of the applicable taxable year. Moreover, we must determine our PFIC status annually
based on tests that are factual in nature, and our status in the current year and future years will depend on our income, assets and activities
in each of those years and, as a result, cannot be predicted with certainty as of the date hereof. Furthermore, fluctuations in the market
price of our ordinary shares may cause our classification as a PFIC for the current or future taxable years to change because the aggregate
value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, generally will be determined
by reference to the market price of our shares from time to time (which may be volatile). The IRS or a court may disagree with our determinations,
including the manner in which we determine the value of our assets and the percentage of our assets that are passive assets under the
PFIC rules. Therefore, there can be no assurance that we will not be a PFIC for the current taxable year or for any future taxable year.
Our treatment as a PFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below under Item 10E. “Additional
Information – Taxation”) of our Ordinary Shares and would likely cause a reduction in the value of such shares. A foreign
corporation will be treated as a PFIC for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable
year consists of certain types of “passive income,” or (2) at least 50% of the average value of the corporation’s gross
assets produce, or are held for the production of, such “passive income.” For purposes of these tests, “passive income”
includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties
that are received from unrelated parties in connection with the active conduct of a trade or business. If we are treated as a PFIC, U.S.
Holders of Ordinary Shares would be subject to a special adverse U.S. federal income tax regime with respect to the income derived by
us, the distributions they receive from us, and the gain, if any, they derive from the sale or other disposition of their Ordinary Shares.
U.S. Holders should carefully read Item 10E. “Additional Information – Taxation” for a more complete discussion of the
U.S. federal income tax risks related to owning and disposing of our Ordinary Shares.
Risks Relating to Our Location in Israel
Political, economic and military instability in Israel may negatively
affect our business condition, harm our results of operations and adversely affect our share price.
We are incorporated under the laws of Israel and our principal
executive offices, are located in the State of Israel. As a result, political, economic and military conditions affecting Israel
indirectly influence us.
Conflicts in North Africa and the Middle East, including in Lebanon
and Syria which border Israel, have resulted in continued political uncertainty and violence in the region. Efforts to improve
Israel’s relationship with the Palestinian Authority have failed to result in a permanent solution, and there have been numerous
periods of hostility in recent years. In addition, relations between Israel and Iran continue to be seriously strained, especially
with regard to Iran’s nuclear program. Such instability may affect the local and global economy, could negatively affect business
conditions and, therefore, could adversely affect our operations. To date, these matters have not had any material effect on our business
and results of operations; however, the regional security situation and worldwide perceptions of it are outside our control and there
can be no assurance that these matters will not negatively affect us in the future.
Over the past several years there have also been calls in Europe
and elsewhere to reduce trade with Israel. Restrictive laws, policies or practices directed towards Israel or Israeli businesses
may have an adverse impact on our operations, our financial results or the expansion of our business.
The rights and responsibilities of the shareholders are governed
by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.
We are incorporated under Israeli law. The rights and responsibilities
of holders of our ordinary shares are governed by our Memorandum of Association and Articles of Association and by Israeli law.
These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations.
In particular, a shareholder of an Israeli company has a duty to act in good faith in exercising his or her rights and fulfilling his
or her obligations toward the company and other shareholders and to refrain from abusing his power in the company, including, among other
things, in voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable
in shareholder votes on, among other things, amendments to a company’s articles of association, increases in a company’s authorized
share capital, mergers and interested party transactions requiring shareholder approval. In addition, a controlling shareholder
of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who has
the power to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company.
However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding
the implications of these provisions that govern shareholder behavior.
Provisions of Israeli law may delay, prevent or make difficult
a change of control and therefore depress the price of our shares.
Some of the provisions of Israeli law could discourage potential
acquisition proposals, delay or prevent a change in control and limit the price that investors might be willing to pay in the future for
our ordinary shares. Israeli Companies law regulates mergers and acquisitions of shares through tender offers, requires approvals for
transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions. Furthermore,
Israel tax law treats stock-for-stock acquisitions between an Israeli company and a foreign company less favorably than does U.S. tax
law. For example, Israeli tax law may subject a shareholder who exchanges his ordinary shares for shares in a foreign corporation to immediate
taxation or to taxation before his investment in the foreign corporation becomes liquid. These provisions may adversely affect the price
of our shares.
Our shareholders generally may have difficulties enforcing a U.S.
judgment against us, our executive officers and directors and some of the experts named in this annual report or asserting U.S. securities
law claims in Israel.
We are incorporated in Israel and all of our executive officers
and directors named in this annual report reside outside the United States. Service of process upon them may be difficult to effect within
the United States. Furthermore, since substantially all of our assets and all of our directors and officers are located outside the United
States, any judgment obtained in the United States against us or these individuals may not be collectible within the United States and
may not be enforced by an Israeli court. It also may be difficult for you to assert U.S. securities law claims in original actions instituted
in Israel.
There is doubt as to the enforceability of civil liabilities under
the Securities Act and the Securities Exchange Act in original actions instituted in Israel. However, subject to certain time limitations
and other conditions, Israeli courts may enforce final judgments of U.S. courts for liquidated amounts in civil matters, including judgments
based upon the civil liability provisions of those and similar acts.
| ITEM 4. |
Information on the Company |
|
A. |
History and Development of the Company. |
We were incorporated under the laws of the State of Israel on March 27,
1984 under the name Magal Security Systems Ltd. On September 30, 2021, we changed our name to Senstar Technologies Ltd. We are a public
limited liability company under the Israeli Companies Law, 5759-1999, and operate under this law and associated legislation. Our
principal executive offices are located near Tel Aviv, Israel, at Gibor Sport Tower, 7 Menachem Begin Road, Ramat Gan 5268102, Israel
and our telephone number is +972-74-794-5200. Our agent for service of process in the United States is Senstar Inc., 13800 Coppermine
Road, Second Floor, Herndon, Virginia 20171. Our website address is www.senstartechnologies.com.
The information on our website is not incorporated by reference into this annual report.
On June 30, 2021, we completed the sale of our Integration Solutions
Division to Aeronautics Ltd., a subsidiary of RAFAEL Advanced Defense Systems Ltd., in a share and asset purchase agreement. We
received $35 million in cash at closing on a cash-free, debt-free basis subject to post-closing working capital and other customary adjustments.
As part of the acquisition, Aeronautics acquired our facility in Yehud, Israel.
Following the sale of the Integrated Solutions (Projects) division,
we continue to operate our Senstar Products Division, with development and manufacturing facilities located in Canada and sales and support
offices in the U.S., EMEA, APAC, and People’s Republic of China regions.
We are a leading international provider of products and solutions
for physical security. We commenced operations in 1969 as a department of Israel Aircraft Industries Ltd., specializing in perimeter security
systems and have delivered products, tailor-made solutions and turnkey projects to thousands of satisfied customers in over 100 countries
in some of the world’s most demanding locations.
We offer broad portfolio of homegrown Perimeter Intrusion Detection
Systems (PIDS), Video Management Software (VMS) combined with Electronic Access Control (EAC), and Intelligent Video Analytics (IVA).
Our strategy is to increase our revenues from our Products segment,
which includes our PIDS, VMS and IVA products by (i) focusing our efforts on our strategic verticals; (ii) locating new channels to promote
and market our products; (iii) investing in research and development thus maintaining technology leadership; (iv) entering into OEM agreements
which will increase our offerings for the verticals on which we focus; and (v) acquiring new technologies relevant to our target
verticals independently or through mergers and acquisitions.
In April 2018, we completed the acquisition of a 55% controlling
interest in ESC BAZ Ltd. an Israeli-based company, focused on the development and manufacturing of military-grade smart security video
observation and surveillance systems, and in December 2020, we acquired the remaining 45% interest. We sold ESC BAZ Ltd in connection
with the sale of our Integrated Solutions (Projects) division in June 2021.
In April 2016, we acquired Aimetis, a Canadian-based company, which
specializes in advanced video analytics software and intelligent IP video management software (VMS). In July 2017 we amalgamated our two
Canadian subsidiaries. Following the amalgamation, the company maintained the name Senstar Corporation.
In April 2014, we acquired a U.S. based fiber-optic technology
company which provides advanced solutions for sensing, security, and communication. In January 2013, we purchased CyberSeal Ltd., an Israeli
cyber security company whose products and services complement our physical security products and services. We sold Cyberseal
Ltd. in connection with the sale of our Integrated Solutions (Projects) division in June 2021.
Our continuing capital expenditures for property and equipment
for the years ended December 31 2021, 2020 and 2019 were approximately $0.6 million, $0.4 million and 0.2 million, respectively.
Overview and Strategy
We develop, manufacture, market and sell comprehensive lines of
perimeter intrusion detection sensors, physical barriers, video analytics and video management systems, as well as security video observation
and surveillance systems to high profile customers. Our systems are used in more than 100 countries to protect sensitive facilities,
including national borders, military bases, power plants, airports, seaports, prisons, industrial sites, large retailer organizations,
banks, oil and gas facilities, sporting events including athlete villages and stadiums, and municipalities from intrusion, terror, crime,
sabotage or vandalism to infrastructure, assets and personnel. Our primary objective is to become a leading international provider of
security products and solutions.
The sale of our Integrated Solutions (Projects) division, supports
our strategy of prioritizing opportunities to provide technologically-rich products, solutions and related services in our key verticals
of energy, logistics, critical infrastructure and correctional facilities. Operating as a pure product solutions company will increase
visibility into our future performance and provide us with incremental opportunities to deliver additional value to our different stakeholders.
As a standalone business, our Products division has a track record of growth and profitability. Post-divestiture, we continued our growth
agenda to leverage our Products division success and scale our business to capture a meaningful share of new market opportunities.
Based on our decades of experience and interaction with customers,
we have developed a comprehensive set of solutions and products, optimized for perimeter, outdoor and general security applications.
Our portfolio of mission critical infrastructure and site protection technologies includes a variety of smart fences and barriers, fence
mounted sensors, fence mounted sensors with perimeter lighting, virtual (volumetric) fences and gates, buried and concealed detection
systems and tunneling sensors to secure prisons, bank vaults and pipelines. We deliver comprehensive IP technology and traditional
closed-circuit television, or CCTV, solutions, supported by our own advanced Video Management Software, or VMS solutions, which include
Video Motion Detection, or VMD and Intelligent Video Analytics, or IVA.
Since the addition of Aimetis’ products and expertise, we
were able to address new markets and offer solutions incorporating advanced video analytics and VMS for physical indoor and outdoor security
applications. In addition, we were able to expand our overall solutions, offer a wider range of products in addition to our PIDS solutions,
and address new markets.
Post-divestiture of our Integrated Solutions (Project) Division,
we anticipate that our business will grow organically. We plan to leverage Senstar’s industry-leading position in the security
sector as a technology platform to optimize future strategic acquisitions and achieve incremental growth in our global markets. To achieve
this objective, we are implementing a business strategy incorporating the following key elements:
|
• |
Leverage existing customer relationships. We believe that we have the capability to offer
certain of our customers a comprehensive security package. As part of our product development process, we seek to maintain close
relationships with our customers to identify market needs and to define appropriate product specifications. We intend to expand
the depth and breadth of our existing customer relationships while initiating similar new relationships. Our VMS offering is an excellent
opportunity to revisit our existing customers. |
|
• |
Refine and broaden our product portfolio. We have identified the security needs of
our customers and intend to enhance our current products’ capabilities, develop new products, acquire complementary technologies
and products and enter into OEM agreements with third parties in order to meet those needs. |
|
• |
Develop and enhance our presence in verticals which we have identified as strategic. We intend
to enhance our presence in our target vertical markets: critical infrastructure, correctional facilities (mainly in the USA), logistics
and energy (among other, oil and gas terminals as well as oil and gas pipelines infrastructure).
Many if not all of the verticals are highly regulated and require unique security solutions. As a solution provider with a wide selection
of security technologies and products we believe that we can offer a comprehensive security solution that meets the standards required
by the applicable regulations. |
|
• |
Enhance our presence in emerging markets. We intend to enhance our presence in emerging markets
such as China in order to increase our exposure to small and medium-size business opportunities. |
|
• |
Strengthen our presence in existing markets. We intend to increase our marketing
efforts in our existing markets mainly in North America, the European Union, and APAC region and to acquire or invest in complementary
businesses and joint ventures. |
Emerging Opportunities
We believe that the proliferation of digital communication and
information technology into the security market provides us with the opportunity to consolidate safety and site management with security
applications. Cities and municipalities, air and seaports, chemical factories, green energy plants and distribution facilities,
oil and gas terminals and pipeline infrastructure, large logistics warehouses, and critical infrastructure sites are currently utilizing
the benefits of this approach to security management. This integration allows users to share diverse sensors (such as cameras and
intrusion detection sensors), IT systems, traffic management tools and other resources and feed them into a single command and control
platform. Users from different departments within organizations can now share the same information, allowing for improved communication
and coordination, whether it is a routine operation or crisis situation. We believe that we are well positioned and are in the forefront
of this emerging market opportunity.
Products and Services
General
Our principal physical (PIDS), VMS and EAC products and solutions
include:
|
• |
Perimeter Intrusion Detection Systems (PIDS), fence mounted, buried and free standing; |
|
• |
PIDS fence sensor with intelligent perimeter LED based lighting; |
|
• |
Common Operating Platform for VMS, including IVA applications, PIDS applications and EAC systems; |
|
• |
EAC (Electronic Access Control) systems; |
|
• |
Security Thermal Imaging Observation & Surveillance systems (OEM); |
|
• |
Pipeline security, third party interference (TPI); and |
|
• |
Life safety/duress alarm systems. |
Perimeter
security products enable customers to monitor, limit and control access by unauthorized personnel to specific regions or areas.
High-end perimeter products are sophisticated in nature and are used for correctional facilities, borders, nuclear and conventional power
plants, air and seaports, military installations, logistics centers and other high-security installations.
Our line of perimeter security products utilizes sophisticated
sensor devices to detect and locate intruders and identify the nature of intrusions. Our perimeter security products have been installed
along tens of thousands of kilometers of borders and facility boundaries throughout the world, including more than 600 correctional institutions
and prisons in the United States and several other countries.
Our line of outdoor perimeter security products consists of the
following:
|
• |
Fence mounted detection systems – “microphonic” wire sensors, fiber optic sensors and electronic ranging sensors;
|
|
• |
Buried sensors – buried coaxial cable volumetric sensors and buried fiber sensors to secure pipelines, borders and critical
assets against intrusion by targets on the surface and excavation; |
|
• |
Electrical field disturbance sensors (volumetric); |
|
• |
Hybrid perimeter intrusion detection and intelligent lighting system. |
Fence Mounted Detection Systems
We offer various types of detection systems. The adaptability of
these systems to a wide range of pre-existing barrier structures makes these products viable and effective alternatives for cost-conscious
customers. Our detection devices are most effective when installed on common metal fabric perimeter systems, such as chain link
or welded mesh. Once attached to the fence, each sensor detects vibrations in the underlying structures. The sensor system’s
built-in electro-mechanical filtering combines with system input from a weather analysis component to minimize the rate of alarms from
wind, hail or other sources of nuisance vibrations.
FlexZone, our latest coaxial cable based fence mounted ranging
sensor can pinpoint intrusions to within ±3 m (±10 ft); it provides long physical cable lengths (up to 600 m (1,968 ft) per
processor) configurable through software to many smaller virtual zones for site operations. Power and data between processors is supported
through the sensor cable significantly reducing the requirement for supporting infrastructure. A novel wireless gate sensor module is
available with FlexZone providing an accelerometer based gate sensor integrated via wireless communications into a FlexZone network eliminating
the need to have sensor cables attached to sliding gates.
FiberPatrol, our advanced FP1150 product is a perimeter intrusion
detection system that can be fence-mounted, buried, or deployed in a wall-top configuration. Featuring long distance ranging to 80 Km
(50 mi) via a fence mounted fiber optic cable detects and locates fence cut and climb events with an accuracy of approximately 4m (13
ft). Released in 2019 our latest FP400 product zone-based fiber optic cable PIDS solution replaces the IntelliFiber product line.
Its advanced features include the processing of 4 detection zones from a single remote processor with an alarm given for each zone independently
with up to 300 m (984 ft) per zone.
Buried Sensors
Omnitrax is a fifth generation covert outdoor perimeter security
intrusion detection sensor that generates an invisible radar detection field around buried sensor cables. The exact location of
an intruder is identified within approximately one meter when an intruder disturbs the detection field. Targets are detected by
their conductivity, size and movement and the digital processor is able to filter out nuisance alarms that could be caused by environmental
conditions and small animals.
FiberPatrol, our advanced FP1150 product featuring long distance
ranging fiber optic cable based detection technology in a single rack mount unit is also offered as a buried solution detecting surface
intrusion and to protect pipelines, as well as providing Data Conduit protection against sabotage or accidental third party interference
(TPI) for example by manual or machine excavation. FiberPatrol has the capability to protect distances of up to 80 Km (50 mi) or up to
100 Km (62 mi) for Pipeline TPI and Data Conduit protection with a single indoor processor.
Electro-static Field Disturbance Sensors
Terrain following volumetric sensors detect intrusions without
requiring an intruder to touch the sensor. They can be installed on buildings, free-standing posts, existing fences, walls or rooftops,
and will sense changes in the electrostatic field when events, such as intruders penetrating through the wires takes place. The
system’s tall, narrow, well contained detection zone allows the sensor to be installed in almost any application and minimizes nuisance
alarms caused by nearby moving objects. Our flagship product is X-Field; it consists of a set of four to as many as eight parallel
field generating and sensing wires that form a volumetric detection height as much as 6m (20 ft) in height for free standing and wall
applications and up to 7.3m (24 ft) for fence installations.
Microwave Products
Ultrawave is our K-band all digital bi-static microwave beam perimeter
intrusion detection system designed for reliable operation in extreme outdoor environments. Coverage distance range from 5 meters
to 200 meters (16 to 656 ft). Older generations of X band microwaves are retired but still supported.
Hybrid Perimeter Intrusion Detection and Intelligent Lighting
System
The Senstar LM100 is the world’s first 2-in-1 perimeter intrusion
detection and intelligent lighting system. Combining high performance LED lighting with accelerometer-based vibration sensors, the LM100
deters potential intruders by detecting and illuminating them at the fence line.
Video Products
VMS / IVA Solutions - Senstar Symphony Common Operating Platform
The Senstar Symphony Common Operating Platform with Sensor Fusion
Engine or "Senstar Symphony", which is an evolution of our Senstar Symphony 7, is a modular solution for security management and data
intelligence. In addition to being an open, highly scalable video management system with built-in video analytics, it includes full-featured
access control and perimeter intrusion detection modules. We believe that what truly sets Senstar Symphony apart from other systems is
its sensor fusion engine. By intelligently combining low-level sensor data with video analytics, the sensor fusion engine achieves the
highest levels of performance, far beyond that of the individual devices. Senstar Symphony seamlessly incorporates sensor fusion, event
algorithms, and rule-based actions to provide unmatched capabilities, flexibility, and performance.
Senstar Symphony’s Sensor Fusion Engine synthesizes data
from separate systems to generate actionable information. More than just a simple Boolean logic integration, the sensor fusion engine
accesses low level data to intelligently characterize potential risks. Data synthesis enables the system to achieve levels of performance
that exceed those of the individual sensors. For security applications, this has direct, practical benefits, namely the ability to maximize
the strengths of individual sensor technologies while avoiding their shortcomings. When signal response data from outdoor sensors is synthesized
with video analytic data, nuisance alarms generated by wind, debris, or background activity are virtually eliminated while maintaining
the system’s high probability of detection.
The Senstar Symphony Common Operating Platform includes a full-featured
Windows®-based client, a HTML5-client web client, a thin client hardware appliance, and mobile apps (iOS and Android). With Senstar
Symphony’s camera-based licensing scheme, our customers and end-users can install and use as many clients as they need. The Windows®
client includes on-screen camera hotlinks, a full-featured alarm console that integrates alarms with video feeds and sensor data, timeline
view, and intuitive graphical maps with precise alarm location data. Senstar Symphony installs on standard commercial off-the-shelf hardware
and supports thousands of network devices as well as ONVIF profiles S and T (H.265 and metadata). Senstar Symphony integrates with a wide
variety of security and access control products, while its RESTful API and TCP/IP listener services enable it to interact with virtually
any network-based device.
The Senstar Symphony Common Operating Platform is highly
scalable, easy to set up and use, and can be used in both single server installations and multi-server deployments. Senstar Symphony can
meet any business requirements, both today and in years to come. Functionality sets including video management, video analytics, security
management, access control, and data intelligence can be used individually, added when needed, or combined together as a complete integrated
solution. It is a highly cost-effective solution, licensed per security device (camera, door, or sensor), so that our customers only license
what they need. All managed devices report to a shared rules and alarms management system, enabling operators to perform site security
or operational functions from a ‘single pane of glass’.
The Senstar Symphony solution offers web-based administrator capabilities,
centralized cloud management, native analytics applications which include motion tracking, auto-PTZ (pan–tilt–zoom) tracking,
people counting, and high security and server and storage failover reducing the need for costly Microsoft clustering and extra servers.
We intend to expand the Symphony product line over time to address a broad new market of applications.
Our intelligent video analytics (IVA) transforms IP video into
more than a passive monitoring tool with video analytics that are seamlessly incorporated into Senstar Symphony 7. Each video analytic
is specially designed for physical security and business intelligence applications, providing value across many vertical markets.
Our intelligent video analytics (IVA) capabilities include:
|
• |
Face Recognition - Senstar Symphony-based video analytic identifies known and unknown individuals. Using a combination of patented
2D to 3D pose correction technology, this analytic is designed for fast, reliable identification under real-world challenges, including
lighting, angles, facial hair, pose, glasses and other occlusions, motion, crowds, and expression. |
|
• |
Automatic License Plate Recognition - Senstar Symphony-based video analytic reads license plates and other vehicle markings, and
seamlessly integrates the data into the site’s security and operational processes. The analytic can be used for automating vehicle
access systems such as gates and other barriers, flag vehicle in/out times in surveillance footage, notifying customer management systems
of client arrivals, and track vehicles crossing toll and border checkpoints. |
|
• |
Outdoor People and Vehicle Tracking - a Senstar Symphony-based video analytic optimized for detecting and monitoring the movement
of vehicles and people in outdoor environments. Typical applications include perimeter intrusion detection, parking lot monitoring, public
safety, and wrong-way detection. The analytic retains its extremely high tracking and object classification accuracy even in the presence
of challenging weather and lighting conditions. Organizations can use tracked events to trigger alarms and direct operators to specific
concerns, making it the perfect addition to any video surveillance system. |
|
• |
Left and Removed Item Detection - Monitor changes in an environment to detect when objects are added or removed from a scene. Set
alarms to notify security staff when an item has been removed from an area or left unattended for a designated amount of time. This solution
designed for use in airports, train stations, and other public spaces. |
|
• |
Indoor People Tracking - Detect and track people moving within the frame of a camera. Alarms can be set when unauthorized entry into
an area is detected and dwell times can be tracked and recorded for the detection of unwanted loitering. Heat maps can also be created
in retail stores and public spaces to determine areas of highest traffic and interest. |
|
• |
Crowd Detection - Real-time occupancy estimation for indoor and outdoor deployments, ideal for monitoring public spaces, event venues,
and capacity restricted environments. Crowd Detection also offers numerous business intelligence applications. |
|
• |
PTZ Auto-Tracking (Auto PTZ) - Auto PTZ can automatically control a PTZ camera, enabling it to zoom in and follow moving people and
vehicles within the field of the camera. This is designed for use in outdoor perimeter monitoring and provides a closer look at people
and vehicles for future forensic purposes. |
Hardware solutions supporting our VMS software products are an
“R series” of preconfigured servers, “E series” of physical appliances for smaller applications and a novel POE
powered "Thin Client device for convenient network access for monitors or other applications.
|
• |
The Senstar E5000 Physical Security Appliance (PSA) - is a complete security management system in a box. Available in two models,
it combines compact, purpose-built hardware with Senstar Symphony Common Operating Platform and is ideal for sites where vibration and
extreme temperatures are difficult to manage, including remote utility and energy infrastructure, as well as space-constrained environments.
|
|
• |
The Senstar Thin Client - is a simple and cost-effective device designed to display 1080p video from 30+ network video camera manufacturers
via ONVIF Profile S, as well as from the Senstar Symphony VMS or any RTSP-compatible video source. The device is ideal for space-constrained
environments due to its compact design while its web-based interface makes it easy to configure and manage. |
|
• |
The R-Series Operator Station - complements the R-Series Network Video Recorders (NVR). Featuring Dell hardware, the Operator Station
is ideal for customers looking for a preconfigured, validated video surveillance client. The R001 model is optimized for everyday video
monitoring applications and supports up to three displays. |
Senstar Life SafetyTM
Senstar Safe Spaces™ is an all-in-one video analytics solution
to help businesses operate safely amidst COVID-19. Consisting of the Senstar Edge Platform, a simple plug-and-play, stand-alone device
with embedded software, Senstar Safe Spaces uses network cameras to verify if health and safety protocols are being followed. Face Mask
Detection, Physical Distancing, Sanitization Station Monitoring, and Occupancy Counting.
Other Products
Life Safety / Duress Alarm Systems
Our products include high reliability, personal, portable duress
alarm systems to protect personnel in prisons. These products identify individuals in distress and can pinpoint the location of
the distress signal with an indoor-to-outdoor and floor-to-floor accuracy unmatched by any other product.
PAS is another personal alarm system that uses an ultrasonic based
emergency notification system. The system, sold mainly to jails and prisons in the United States, allows individuals moving throughout
a facility to quickly indicate the location of an indoor crisis situation.
Command and Control Systems
The development of communication and IT technology has significantly
affected the security market. Multiple security systems and technologies, sometimes supplied by different vendors, can now be integrated
into a unified command and control system. We offer three types of command and control systems:
|
• |
Senstar Symphony Common Operating Platform - Video, Security and Data Intelligence Platform with Sensor Fusion Engine; |
|
• |
StarNet 2 – feature-rich Security Management System (SMS) optimized for the management and operation of perimeter protection
and intrusion detection systems. Organized around a visual, map-based interface, StarNet 2 provides a streamlined user experience for
operators handling everything from daily routines to crisis situations, enabling organizations to reduce reaction times, improve efficiency
and safeguard personnel, our security management system, or SMS, was launched in the latter part of 2015 and replaces the legacy StarNet
1000; and |
|
• |
Network Manager - a middleware (software) package interfacing between our family of PIDS sensors and any command and control solution,
be it our own system or an external third party application. It is provided to integrators with a full software development kit to enable
fast integration of our PIDS into any other SMS and physical security information system. It offers an entry level operator display
system called the Alarm Information Module (AIM), typically for management of a single PIDS sensor. |
Marketing, Sales and Distribution
We believe that our reputation as a leading global vendor of sophisticated
security products and our global presence provides us and our sales representatives with access to decision-makers in all of our main
four verticals: energy, corrections, critical infrastructure and logistics.
Our sales efforts focus on:
|
• |
PIDS products are sold indirectly through system integrators and distribution channels. Due to the sophistication of our products,
we often need to approach end-users directly and be in contact with system integrators; however, sales are directed through third-parties.
Our sales team is trained on cross-selling PIDS, VMS, IVA and EAC. |
|
• |
VMS and IVA. Video management system software and Intelligent Video Applications licenses, the associated maintenance and support
services, are sold primarily through locally based distributor partners. Some key accounts are managed directly with the end-users. Our
sales team is trained on cross-selling PIDS, VMS, IVA and EAC. |
In addition to our global corporate office in Israel and our principal
facilities in Canada, the United States and Germany, we have sales and technical support offices China, the Philippines and other countries.
Customers
The following table shows the geographical breakdown of our consolidated
revenues with respect to our continuing operations for the three years ended December 31, 2021, 2020 and 2019:
| |
|
Year ended in December 31, |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
15,902 |
|
|
$ |
17,520 |
|
|
$ |
17,251 |
|
|
Europe |
|
|
8,913 |
|
|
|
9,052 |
|
|
|
11,004 |
|
|
APAC |
|
|
8,387 |
|
|
|
5,267 |
|
|
|
6,476 |
|
|
South and Latin America |
|
|
1,296 |
|
|
|
1,322 |
|
|
|
391 |
|
|
Israel |
|
|
317 |
|
|
|
- |
|
|
|
- |
|
|
Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Installation, Support and Maintenance
Our systems are generally installed by an integrating partner or
in some cases by the customer after appropriate training, depending on the size of the specific project and the location of the customer’s
facilities, as well as prior experience with our systems. We generally provide our customers with training on the use and maintenance
of our systems, which we conduct either on-site or at our facilities. In addition, some of our local perimeter security products customers
have signed maintenance contracts with us. The life expectancy of a high-security perimeter system is approximately ten years. Consequently,
many miles of perimeter systems need to be replaced each year.
We also provide services, maintenance and support on an “as
needed” basis, as well as on a subscription basis, through the Senstar Care Program - our
multi-year maintenance and support program. During the years ended December 31, 2021, 2021 and 2019, we derived approximately 15.4%, 14.0%
and 15.4% of our total Products revenues, respectively, from maintenance and services.
Research and Development; Royalties
We place considerable emphasis on research and development to improve
our existing products and technology and to develop new products and technology. We believe that our future success will depend
upon our ability to enhance our existing products and technology and to introduce on a timely basis new commercially viable products and
technology addressing the needs of our customers. We intend to continue to devote a significant portion of our personnel and financial
resources to research and development. As part of our product development process, we seek to maintain close relationships with
our customers to identify market needs and to define appropriate product specifications. Our development activities are a direct
result of the input and guidance we receive from our marketing personnel during our annual meetings with such personnel. In addition,
the heads of research and development for each of our development centers discussed below meet annually to identify market needs for new
products.
We have centralized all our development centers in Canada, in Carp
near Ottawa and Waterloo near Toronto, each of which develops products and technologies based on its area of expertise. Our development
center in Israel was part of the assumed assets under the assets and shares purchase agreement of our Integrated Solutions (Projects)
division sold to Aeronautics.
Our research and development expenses relating to our continuing
Products' segment operations during 2021, 2020 and 2019 were $3.9 million, $4 million and $5.1 million, respectively. In addition
to our own research and development activities, we also acquire know-how from external sources. We cannot assure you that any of
our research and development projects will yield profitable results in the future.
Manufacturing and Supply
Our manufacturing operations consist of engineering, fabricating,
assembly, quality control, final testing and shipping of finished products. Substantially all of our manufacturing operations are
currently performed at our facilities in Canada. In 2018 we launched a “Made in USA” version of our FlexZone product to better
serve our US - based partners and customers. See Item 4D. “Information on the Company – Property, Plants and Equipment.”
Although we had to occasionally adjust our manufacturing routine
due to restrictions resulting from the Covid-19 pandemic, such as mandatory quarantines, social distancing, and an occasional absence
of our manufacturing workforce, we managed to continue manufacturing and make deliveries of our products to our customers throughout 2021.
Nevertheless, a potential increase of the Covid-19 pandemic-related quarantines and social distancing requirements, and the inability
of our workforce to continue or quickly resume manufacturing after periods of absence, may disrupt our manufacturing operations, resulting
in an adverse effect on our financial results.
We acquire most of the components utilized in our products, and
certain services from a limited number of suppliers and subcontractors. Supply chain disruptions were exacerbated in 2021 as major
shipping ports and manufacturing facilities in Asia have been affected by outbreaks of the Covid-19 variants, either closing or reducing
capacity. The disruption to global supply chains has led to longer supplier delivery times and an increase in material prices. Despite
the supply chain said disruptions we were able to source the needed material and sub-components to continue manufacturing and deliveries
to our customers, We cannot assure you that we will continue to be able to obtain such items from our suppliers on satisfactory terms.
Alternative sources of supply may be difficult to obtain. therefore, temporary disruptions of our manufacturing operations would result
if we were required to obtain materials from alternative sources, which may have an adverse effect on our financial results. We
also maintain an inventory of systems and spare parts in order to enable us to overcome potential temporary supply shortages until an
alternate source of supply is available. Nevertheless, temporary disruptions of our manufacturing operations would result if we
were required to obtain materials from alternative sources, which may have an adverse effect on our financial results.
Competition
PIDS Sensors. The
principal factors affecting competition in the market for security systems are a system’s high probability for detection and low
probability of false and nuisance alarms. We believe that a manufacturer’s reputation for reliable equipment is a major competitive
advantage, and that such a reputation will usually be based on the performance of the manufacturer’s installed systems. Additional
competitive factors include quality of customer support, maintenance and price.
The PIDS market is very fragmented. Our
most frequently encountered competitors include Southwest Microwave Inc., AVA (formerly named Future Fibre Technologies Pty. Ltd.), Fibersensys
Inc. (an Optex Company), CIAS Elettronica Srl, Vitaprotech, and Gallagher (New Zealand).
We believe that our principal competitors for our pipeline security
products (FiberPatrol) are: AVA, Optasense, a Luna Innovations company, Omnisens SA, and Fotech Solutions Ltd.
The video management software market is well developed internationally
with several large manufacturers. Our most frequently encountered competitors are Genetec Inc., Avigilon Corp., Milestone Systems
A/S, and SeeTec GmbH.
We also face indirect competition from competing technologies such
as ground based radar and thermal cameras as PIDS sensors with principal competitors being, SpotterRF, Navtech, FLIR, SightLogix and PureTech.
Some of our competitors and potential competitors have greater
research, development, financial and personnel resources, including governmental support, or more extensive business experience than we
do. We cannot assure you that we will be able to maintain the quality of our products relative to those of our competitors or continue
to develop and market new products effectively.
Intellectual Property Rights
Following the sale of our Integrated Solutions (Projects) division,
we have 5 patents and have 2 patent reinstatement applications pending in the U.S. and have obtained licenses to use proprietary technologies
developed by third parties. We cannot assure you:
|
• |
that patents will be issued from any pending applications, or that the claims allowed under any patents will be sufficiently broad
to protect our technology; |
|
• |
that any patents issued or licensed to us will not be challenged, invalidated or circumvented; or |
|
• |
as to the degree or adequacy of protection any patents or patent applications may or will afford. |
In addition, we claim proprietary rights in various technologies,
know-how, trade secrets and trademarks relating to our principal products and operations. We cannot assure you as to the degree
of protection these claims may or will afford. It is our policy to protect our proprietary rights in our products and operations
through contractual obligations, including confidentiality and non-disclosure agreements with certain employees and distributors.
We cannot assure you as to the degree of protection these contractual measures may or will afford. Although we are not aware that
we are infringing upon the intellectual property rights of others, we cannot assure you that an infringement claim will not be asserted
against us in the future. We believe that our success is less dependent on the legal protection that our patents and other proprietary
rights may or will afford than on the knowledge, ability, experience and technological expertise of our employees. We cannot provide
any assurance that we will be able to protect our proprietary technology. The unauthorized use of our proprietary technology by
third parties may impair our ability to compete effectively. We could become subject to litigation regarding intellectual property
rights, which could seriously harm our business.
AIMETIS SYMPHONY, FIBERPATROL, FLARE, FLEXPI, FLEXZONE, OMNITRAX,
PINPOINTER, SENNET, SENSTAR, SENTIENT, ULTRAWAVE and XFIELD are registered trademarks.
ARMOURFLEX, ENTERPRISE MANAGER, INTELLI-FLEX, INTELLIFIBER, LM100,
NETWORK MANAGER, STARLED, STARNET, SENSTAR CARE, SENSTAR logo, SENSTAR SYMPHONY and SENSTAR SAFE SPACES and all other marks used to identify
particular products and services associated with our businesses are trademarks (unregistered). Any other trademarks and trade names
appearing in this annual report are owned by their respective holders.
Government Regulations
At present, none of our products require a permit or license for
export. We cannot assure that we will receive all the required permits and licenses for which we may apply in the future. Furthermore,
solicitations for procurements by governmental purchasing agencies are usually governed by laws, regulations and procedures relating to
procurement integrity, including avoiding conflicts of interest and corruption in the procurement process.
In addition, antitrust laws and regulations in countries in which
we operate may require governmental approvals for transactions that are considered to limit competition. Such transactions may include
cooperative agreements for specific programs or areas, as well as mergers and acquisitions.
|
C.
|
Organizational Structure. |
We have wholly owned and majority-owned active subsidiaries that
operate world-wide. Set forth below are our significant subsidiaries.
|
|
|
Country of Incorporation/Organization |
|
|
|
Senstar Corporation |
|
Canada |
|
100% |
|
Senstar Inc. |
|
United States (Delaware) |
|
100% |
|
Senstar GmbH. |
|
Germany |
|
100% |
|
D.
|
Property, Plants and Equipment. |
We own a 33,000 square foot facility in Carp, Ontario, Canada.
Approximately 9,000 square feet are devoted to administrative, marketing and management functions, and approximately 8,000 square feet
are used for engineering, system integration and customer service. We use the remaining area of approximately 16,000 square feet
for production operations, including cable manufacturing, assembly, testing, warehousing, shipping and receiving. We own an additional
182,516 square feet of vacant land adjacent to this property, which is being held for future expansion. We also lease 358,560 square
feet of land near this facility for use as an outdoor sensor test and demonstration site for our products including the Omnitrax buried
cable intrusion detection system, the X-Field volumetric system, the FlexZone microphonic fence detection system, Flash and Flare, and
various perimeter monitoring and control systems. The lease expense for this site is approximately $3,500 per year plus taxes under
a lease that expires in November 2024.
We lease office space in Waterloo, Canada, which houses our video
management software operations. We also lease other sites world-wide. The aggregate annual rent for such offices was approximately $255,000
in 2021.
Following the sale of our offices in Yehud, Israel in connection
to the sale of our Integrated Solutions (Projects) division, we lease office space in Ramt-Gan, Israel which houses our corporate operations.
The annual rent for this space is approximately $50,000 per year under a lease that expires in November 2023
We believe that our facilities are suitable and adequate for our
current operations and the foreseeable future.
ITEM 4A.
Unresolved Staff Comments
Not applicable.
| ITEM 5. |
Operating and Financial Review and Prospects |
The following discussion of our results of
operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes thereto
included elsewhere in this annual report. This discussion contains forward‑looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these forward‑looking statements as a result of certain factors,
including, but not limited to, those set forth in Item 3.D. “Key Information–Risk Factors.”
Overview
Historically, we had two operating segments, which also represented
our reportable segments and reporting units. Magal Integrated Solutions (“Projects” segment) and Senstar Product division
(“Products” segment). On June 30, 2021, the Projects segment was sold. Therefore, the results of the Projects segment were
classified as discontinued operations in our consolidated statements of operations and thus excluded from both continuing operations and
segment results for all periods presented. Accordingly, we are now have one reportable segment with the change reflected in all periods
presented.
Our consolidated revenues for the years ended December 31, 2021,
2020 and 2019 for our continuing operations were approximately $34.9 million, $33.4 million and 35.1 million, respectively.
Products (PIDS, VMS, IVA
and EAC)
We sell our products worldwide. Our products include Video Management
Software (VMS), Intelligent Video Analytics (IVA) and PIDS products. The PIDS, VMS and IVA activities offer an unmatched portfolio of
PIDS technologies, as well as, integrated intelligent video management solutions for security surveillance and business intelligence applications
worldwide.
Business Challenges/Areas of Focus
Our primary business challenges and areas of focus include:
|
• |
continuing the growth of revenues and profitability of our perimeter security systems and video management systems lines of products;
|
|
• |
enhancing the introduction and recognition of our new products; |
|
• |
penetrating new markets and strengthening our presence in existing markets; |
|
• |
strengthening our presence in our strategic verticals; |
|
• |
succeeding in selling our comprehensive PIDS, VMS and EAC products as a combined solution. |
Our business is subject to the effects of general global economic
conditions. If general economic conditions or economic conditions in key markets will be uncertain or weaken further, demand for
our products could be adversely affected.
Key Performance Indicators and Sources of
Revenues
Our management believes that our revenues and operating income
are the two key performance indicators for our business.
The increase in revenues from Products in 2021 compared to 2020,
presented a partial recovery from the Covid-19 crisis, which continued to impact our operations in 2021. The continuing impact represents
a shift in governmental expenditures from HLS related projects towards addressing the crisis caused by the spread of the pandemic, and
various travel and social distancing restrictions that reduced the volume of related security-related projects globally.
Key Factors Affecting Our Business
Our operations and the operating metrics discussed below have been,
and will likely continue to be affected by certain key factors as well as certain historical events and actions. The key factors affecting
our business and results of operations include among others, reliance on public sector projects,
and competition. For further discussion of the factors affecting our results of operations, see “Risk Factors.”
Growth Strategy
During 2021 and following the divestiture of our Integrated Solutions
(Projects) division, we continued our recent strategic growth plan focusing on the sale of our Senstar products and solutions. Pursuant
to the plan, we streamlined our product sales activity in our three main regions, the Americas (including LATAM), EMEA, and APAC. In 2021,
we addressed the Chinese market with the establishment of Senstar China. We are continuing to focus on our strategic verticals: critical
infrastructure, Energy (oil and gas), logistics and correctional facilities (mainly in the US). We intend to continue to expand our sales
to these verticals through allocation of resources and funds, including the acquisition of complementary technologies that will increase
our offerings to these targeted verticals.
If we are successful in the implementation of our strategic plan,
we may be required to hire additional employees in order to meet customer demands. If we are unable to attract or retain qualified employees,
our business could be adversely affected.
We may not be able to implement our growth strategy plan
and may not be able to successfully expand our business activity and increase our sales. Our failure to successfully integrate the
operations of an acquired business or to retain key employees of acquired businesses and integrate and manage our growth may have a material
adverse effect on our business, financial condition, results of operation or prospects. We may not be able to realize the anticipated
benefits of any acquisition. Moreover, future acquisitions by us could result in potentially dilutive issuances of our equity securities,
the incurrence of debt and contingent liabilities and amortization expenses related to identifiable intangible assets, any of which could
materially adversely affect our operating results and financial position. Acquisitions also involve other risks, including risks
inherent in entering markets in which we have no or limited prior experience.
Reliance on government contracts
Our products are primarily sold to end-users such as governmental
agencies, governmental authorities, and government-owned companies, many of which have complex and time-consuming procurement procedures.
A substantial period of time often elapses from the time we begin marketing a product until we actually sell that product to a particular
customer. In addition, our sales to governmental agencies', authorities' and companies' projects are directly affected by these
end-users budgetary constraints and the priority given in their budgets to the procurement of our products. A decrease in governmental
funding for our end-users’ budgets would adversely affect our results of operations. This risk is heightened during periods
of global economic slowdown. Accordingly, governmental purchases of our systems, products and services may decline in the future if governmental
purchasing agencies terminate, reduce or modify contracts.
Competition
The global market for safety, security, video management, site
management solutions and products is highly fragmented and intensely competitive. It is characterized by changing technology, new
product introductions and changing customer requirements. We compete principally in the market for perimeter intrusion detection
systems, or PIDS and video management systems. Some of our competitors and potential competitors have greater research, development,
financial and personnel resources, including governmental support. We cannot assure you that we will be able to maintain the quality
of our products relative to those of our competitors or continue to develop and market new products effectively. Continued competitive
pressures could cause us to lose significant market share.
Functional Currency and Financial Statements
in U.S. Dollars
While our functional currency in Israel is the NIS, our reporting
currency is the U.S. dollar. Translation adjustments resulting from translating our financial statements from NIS and other local
operation currencies to the U.S. dollar are reported as a separate component in shareholders’ equity.
The first step in the translation process is to identify the functional
currency for each entity included in the financial statements. The accounts of each entity are then “re-measured” in
its functional currency. All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected
in the statement of operations as financial income or expenses, as appropriate. Non-monetary assets and liabilities denominated in foreign
currency and measured at cost are translated at the exchange rate at the date of the transaction.
After the re-measurement process is complete the financial statements
are translated into our reporting currency, which is the U.S. dollar, using the current rate method. Equity accounts are translated
using historical exchange rates. All other balance sheet accounts are translated using the exchange rates in effect at the balance
sheet date. Statement of operations amounts have been translated using the average exchange rate for the year. The resulting
translation adjustments are reported as a component of shareholders’ equity. For the years ended December 31, 2021, 2020 and 2019,
our foreign currency translation adjustments totaled $9.7 million, $9.1 million and $5.9 million respectively. We recorded foreign exchange
losses, net of $1 million, $1 million and $1.3 million in the years ended December 31, 2021, 2020 and 2019, respectively. The losses were
exacerbated as a result of our higher cash balances during the years. The majority of those balances were denominated in USD and were
translated into NIS, which depreciated by 3.3%, 7.0% and 7.8% against the U.S. dollar in 2021, 2020 and 2019, respectively.
Concentrations of credit risk
Financial instruments that are potentially subject to concentrations
of credit risk consist principally of cash and cash equivalents, short and long-term bank deposits, unbilled accounts receivable, trade
receivables, long-term trade receivables and long-term loans.
As of December 31, 2021, $13,616 of our cash and cash equivalents
and restricted cash and deposits were invested in major Israeli and U.S. banks, and approximately $12,787 were invested in other banks,
mainly with the Royal Bank of Canada, Deutsche Bank, Natwest Bank and BBVA Bancomer. Cash and cash equivalents deposited with U.S. banks
or other banks may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits maybe redeemed
upon demand and therefore bear low risk.
The trade receivables and the unbilled accounts receivable of our
company and our subsidiaries are derived from sales to large and solid organizations located mainly the United States, Canada, and Europe.
We perform ongoing credit evaluations of our customers and to date have generally not experienced any material losses. An allowance
for credit losses is recognized with respect to those amounts that we have determined to be doubtful of collection. In certain circumstances,
we may require letters of credit, other collateral or additional guarantees. During the years ended December 31, 2021, 2020 and
2019 we recorded $0.1 million, $0.1 million and $0.1 million of expenses related to credit losses, respectively. As of December
31, 2021, our allowance for credit losses amounted to $0.1 million.
We have no significant off-balance sheet concentration of credit
risks, such as foreign exchange contracts or foreign hedging arrangements, except derivative instruments, which are detailed below.
Recent Developments
The ongoing COVID-19 pandemic has had an adverse effect on our
industry and the markets in which we operate. The COVID-19 outbreak has impacted the verticals in which our customers operate and has
resulted in a slowdown in our business with some of our customers. We have experienced postponed orders and suspended decision making
in the markets that are likely to be negatively affected by COVID-19. Further, the guidance of social distancing and the requirements
to work from home in key territories such as Canada, Germany, the USA and other countries, in addition to greatly reduced travel globally,
has resulted in a substantial curtailment of business activities, which has affected and is likely to continue to affect our ability to
conduct fieldwork as well as deliver products and services, thus, delaying some of the revenues expected in 2021 to a later date. We are
unable at this time to estimate the extent of the effect of COVID-19 on our business. In order to mitigate the impact of COVID-19
on our business, we have adopted a plan to reduce expenses and have enacted cost-savings measures. In addition, we have benefitted from
approximately $1 million in subsidies from the Canada Emergency Wage Subsidy program.
Most of our administrative functions can be performed remotely.
Our ability to collect money, pay bills, handle customer communications, schedule production, and order raw materials necessary for our
production has not been materially impacted. To date we have not experienced a significant change in the timeliness of payments of our
invoices and our cash position remains stable.
We had to occasionally adjust our manufacturing routine due to
restrictions resulting from the Covid-19 pandemic, such as mandatory quarantines, social distancing, and an occasional absence of our
manufacturing workforce. We had managed to continue manufacturing and deliveries of our products to our customers throughout 2021. Nevertheless,
a potential increase of the Covid-19 pandemic-related quarantines and social distancing requirements, and the inability of our workforce
to continue or quickly resume manufacturing after periods of absence, may disrupt our manufacturing operations, resulting in an adverse
effect on our financial results
Supply chain disruptions have been exacerbated in 2021 as major
shipping ports and manufacturing facilities in Asia have been affected by outbreaks of the Covid-19 variants, either closing or reducing
capacity. The disruption to global supply chains has led to longer supplier delivery times and an increase in material prices.
The following table presents certain financial data expressed as
a percentage of revenues for the periods indicated for the continuing operations:
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
11 |
% |
|
|
12 |
% |
|
|
14 |
% |
|
Selling and marketing, net
|
|
|
29 |
% |
|
|
26 |
% |
|
|
29 |
% |
|
General and administrative
|
|
|
20 |
% |
|
|
19 |
% |
|
|
16 |
% |
|
Operating income |
|
|
3 |
% |
|
|
9 |
% |
|
|
2 |
% |
|
Financial (expenses), net |
|
|
(3 |
)% |
|
|
(3 |
)% |
|
|
(3 |
)% |
|
Income (loss) before income taxes |
|
|
- |
|
|
|
6 |
% |
|
|
(2 |
)% |
|
Taxes on income (tax benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020 (for continuing
operations)
Revenues. Revenues
from continuing operations increased by 4.7% to $34.9 million for the year ended December 31, 2021 from $33.4 million for the year
ended December 31, 2020. The increase relates to some recovery in our business which was impacted by the COVID-19 pandemic.
Cost of revenues. Cost
of revenues increased by 15.0% to $12.9 million for the year ended December 31, 2021 from $11.2 million for the year ended December 31,
2020. Cost of revenues as a percentage of revenues increased to 37.0% in 2021 from 33.7% in 2020, primarily due to our revenue mix and
some increases in the material costs.
Research and development expenses,
net. Research and development expenses, net slightly decreased by 0.9% to $3.9 million for the year ended December 31,
2021 from $4.0 million for the year ended December 31, 2020.
Selling and marketing expenses.
Selling and marketing expenses increased by 16.1% to $10.0 million for the year ended December 31, 2021 from $8.6 million for the
year ended December 31, 2020, primarily due to the increase in revenues, travel and marketing activities in 2021. Selling and marketing
expenses as a percentage of revenues increased to 28.6% in 2021 from 25.8% in 2020. The increase is driven mainly by the increase in travel,
sales related expenses and marketing activities.
General and administrative expenses.
General and administrative expenses increased by 7.6% to $7 million for the year ended December 31, 2021 from $6.5 million for the year
ended December 31, 2020. The increase is mainly due to the increase in operation and some one-time costs. General and administrative expenses
amounted to 20% and 19.4% of revenues in 2021 and 2020, respectively.
Operating income.
We had operating income of $1.1 million for the year ended December 31, 2021 compared to operating income of $3.1 million for the year
ended December 31, 2020. The decrease in operating income was primarily attributable to the reduction in gross margins due to revenues
mix and increase in materials costs, as well as operating expenses increase, mainly from sales related expenses, travel and marketing
costs.
Financial (expenses), net.
Our financial expenses, net, for the year ended December 31, 2021 was $1 million compared to financial expenses, net of $1 million
for the year ended December 31, 2020. The financial expenses in 2021 as well as in 2020 were primarily attributable to foreign
exchange loss, net.
Income taxes.
We recorded tax expenses of $2.3 million in the year ended December 31, 2021 compared to tax expenses of $1.8 million in the year
ended December 31, 2020, primarily due to a different geographical mix of pre-tax profitability as well as due to provisions for uncertain
tax positions.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019 (for continuing
operations)
Revenues. Revenues
from continuing operations decreased by 5.1% to $33.4 million for the year ended December 31, 2020 from $35.1 million for the year
ended December 31, 2019. The decrease relates mainly to the impact of the COVID-19 pandemic.
Cost of revenues. Cost
of revenues decreased by 16.3% to $11.2 million for the year ended December 31, 2020 from $13.4 million for the year ended December 31,
2019. Cost of revenues as a percentage of revenues decreased to 33.7% in 2020 from 38.2% in 2020, primarily due to our revenue mix and
due to subsidies granted to our Canadian subsidiary under the Canada Emergency Wage Subsidy program.
Research and development expenses,
net. Research and development expenses, net decreased by 22% to $4 million for the year ended December 31, 2020 from
$5.1 million for the year ended December 31, 2019.
Selling and marketing expenses.
Selling and marketing expenses decreased by 16.3% to $8.6 million for the year ended December 31, 2020 from $10.3 million for the
year ended December 31, 2019, primarily due to the decrease in revenues, travel and marketing activities in 2020. Selling and marketing
expenses as a percentage of revenues, decreased to 25.8% in 2020 from 29.3% in 2019. The decrease is driven mainly by the reduction in
travel, as well as due to subsidies granted to our Canadian subsidiary.
General and administrative expenses.
General and administrative expenses increased by 12.9% to $6.5 million for the year ended December 31, 2020 from $5.7 million for the
year ended December 31, 2019. The increase is mainly driven by increased legal costs, partially offset by subsidies granted to our Canadian
subsidiary. General and administrative expenses amounted to 19.4% and 16.3% of revenues in 2020 and 2019, respectively.
Operating income.
We had operating income of $3.1 million for the year ended December 31, 2020 compared to operating income of $0.6 million for the year
ended December 31, 2019. The increase in operating income was primarily attributable to the costs reductions, including the non-recurring
subsidy, granted to our Canadian subsidiary under the Canada Emergency Wage Subsidy program.
Financial (expenses), net.
Our financial expenses, net, for the year ended December 31, 2020 was $1 million compared to financial expenses, net of $1.1 million
for the year ended December 31, 2019. The financial expenses in 2020 as well as in 2019 were primarily attributable to foreign
exchange loss, net.
Income taxes.
We recorded tax expenses of $1.8 million in the year ended December 31, 2020 compared to tax expenses of $0.3 million in the year
ended December 31, 2019, primarily due to a different geographical mix of pre-tax profitability as well as due to provisions for uncertain
tax positions.
Seasonality
Our operating results are characterized by a seasonal pattern,
with a higher volume of revenues towards the end of the year and lower revenues in the first part of the year. This pattern, which is
expected to continue, is mainly due to two factors:
|
• |
our customers are mainly budget-oriented organizations with lengthy decision processes, which tend to mature late in the year; and
|
|
• |
due to harsh weather conditions in certain areas in which we operate during the first quarter of the calendar year, certain projects
and services are put on hold and consequently revenues are delayed. |
Our revenues are partly dependent on government procurement procedures
and practices therefore our revenues and operating results are subject to substantial periodic variations.
Impact of Currency Fluctuations on Results of Operations, Liabilities
and Assets
We sell most of our products in North America, Europe and APAC.
Our financial results, which are reported in U.S. dollars, are affected by changes in foreign currency. Our revenues are primarily
denominated in U.S. dollars and Euros, while a portion of our expenses, primarily labor expenses, is incurred in NIS and CAD. Additionally,
certain assets, especially cash, trade receivables and other accounts receivables, as well as part of our liabilities are denominated
in NIS and CAD. As a result, fluctuations in rates of exchange between the U.S. dollar and non-U.S. dollar currencies may affect
our operating results and financial condition. The dollar cost of our operations in Israel may be adversely affected by the appreciation
of the NIS against the U.S. dollar. The dollar cost of our operations in Canada may be adversely affected by the appreciation of the CAD
against the U.S. dollar. In addition, the value of our non-U.S. dollar revenues could be adversely affected by the depreciation
of the U.S. dollar against such currencies.
The appreciation of the NIS, the CAD and the Euro in relation to
the U.S. dollar has the effect of increasing the U.S. dollar value of any unlinked assets and the U.S. dollar amounts of any unlinked
liabilities and increasing the U.S. dollar value of revenues and expenses denominated in other currencies. Conversely, the depreciation
of the NIS, the CAD and the Euro in relation to the U.S. dollar has the effect of reducing the U.S. dollar value of any of our liabilities
which are payable in New Israeli Shekel, Canadian dollars and Euro (unless such costs or payables are linked to the U.S. dollar).
Such depreciation also has the effect of decreasing the U.S. dollar value of any asset that is denominated in NISs, CADs and Euros or
receivables payable in NIS, CAD and Euro (unless such receivables are linked to the U.S. dollar). In addition, the U.S. dollar value
of revenues and expenses denominated in NIS, CAD or Euro would increase. Because foreign currency exchange rates fluctuate continuously,
exchange rate fluctuations may have an impact on our profitability and period-to-period comparisons of our results. The effects
of foreign currency re-measurements are reported in our consolidated financial statements in current operations.
The following table presents the rate of devaluation or appreciation of the NIS against
the dollar. These metrics provide insight on the impact of currency fluctuations on our financial results.
|
|
|
NIS devaluation (appreciation)
rate % |
| |
|
|
|
2017 |
|
(9.8) |
|
2018 |
|
8.1 |
|
2019 |
|
(7.8) |
|
2020 |
|
(7.0) |
|
2021 |
|
(3.3) |
The U.S. dollar cost of our operations in Canada is influenced
by the exchange rate between the U.S. dollar and the CAD. In 2021, 2020 and 2019 the CAD appreciated against the U.S. dollar by
0.1%, 2.1% and 4.4%, respectively.
In 2021, 2020 and 2019, foreign currency fluctuations had a negative
impact on our results of operations as we recorded foreign exchange loss, net of $1 million, $1 million and $1.3 million, respectively.
We expect that our results of operations will continue to be affected by currency fluctuations in the future.
Conditions in Israel
We are incorporated under the laws of State of Israel. See
Item 3D “Key Information – Risk Factors – Risks Relating to Our Location in Israel” for a description of governmental,
economic, fiscal, monetary and political policies or factors that have materially affected or could materially affect our operations.
Effective Corporate Tax Rate
The Israeli corporate tax rate has been 23% since 2018.
Our effective corporate tax rate may substantially exceed the Israeli
tax rate since our U.S.-based subsidiaries will generally be subject to applicable federal, state, local and foreign taxation, and we
may also be subject to taxation in the other foreign jurisdictions in which we own assets, have employees or conduct activities.
Because of the complexity of these local tax provisions, it is not possible to anticipate the actual combined effective corporate tax
rate, which will apply to us.
As of December 31, 2021, we had a net deferred tax liability of
$0.4 million, of which $0.7 million in domestic deferred tax liability offset by $0.3 million in foreign deferred tax asset. We
had total estimated available operating tax loss carryforwards of $9.7 million with respect to our operations in Israel to offset against
future taxable income. We have recorded a full valuation allowance for such carryforward tax losses due to the uncertainty of their future
realization. As of December 31, 2021, our subsidiaries outside of Israel had estimated total available carryforward operating tax losses
of $4.6 million, of which $3.6 million was attributable to our U.S. subsidiaries (federal only), which may be used as an offset against
future taxable income for periods ranging between 1 and 20 years. Utilization of U.S. net operating losses may be subject to a substantial
annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state tax law
provisions. The annual limitation may result in the expiration of net operating losses before utilization.
Trade Relations
Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the International Finance Corporation. Israel is a member of
the World Trade Organization and is a signatory to the General Agreement on Tariffs and Trade. Israel is also a member of the Organization
for Economic Co-operation and Development, or the OECD, an international organization whose members are governments of mostly developed
economies. The OECD’s main goal is to promote policies that will improve the economic and social well-being of people around
the world. In addition, Israel has been granted preferences under the Generalized System of Preferences from the United States,
Australia, Canada and Japan. These preferences allow Israel to export products covered under such programs either duty-free or at
reduced tariffs.
|
B.
|
Liquidity and Capital Resources |
Cash and cash equivalents amounted to $26.4 million at December 31,
2021 compared to $24.5 million at December 31, 2020. The increase in cash and cash equivalents is primarily due to net cash
provided by operating activities as well as investing activities which was offset by net cash used in financing activities. Our cash and
cash equivalents, short and long-term bank deposits are held in various banks, mainly in U.S. dollars, Euros, NIS and CAD.
From our inception until our initial public offering in March 1993,
we financed our activities mainly through cash flow from operations. In March 1993, we received proceeds of $9.8 million from
our initial public offering of 1,380,000 ordinary shares. Subsequently, we made follow-on public offerings, in February 1997
(of 2,085,000 ordinary shares) and in April 2005 (of 1,700,000 ordinary shares), in which we raised $9.4 million and $14.9 million, respectively.
To allow us to begin to implement a new strategic plan, on September 8, 2010, a company affiliated with our former principal shareholder,
provided us with a bridge loan of $10.0 million. To repay the loan and to raise permanent capital for general working capital purposes
including facilitating the implementation of our new business strategy, in July and August 2011 we raised $16.2 million from a rights
offering of 5,273,274 ordinary shares and a private placement of 150,000 of our ordinary shares.
In October 2016, we completed a rights offering in which we received
gross proceeds of approximately $23.8 million from the sale of 6,170,386 ordinary shares. Our controlling shareholders, FIMI V Funds
purchased 3,392,869 ordinary shares including through an exercise of over-subscription rights.
In 2016, we paid approximately $12.1 million, (including $0.8 million
placed in escrow to secure potential indemnity obligations and net of cash acquired) in consideration of our acquisition of Aimetis in
2016, and approximately $0.4 million (net of $2.4 million of acquired cash) in consideration of our acquisition of a majority interest
in ESC BAZ Ltd. in 2018.
In connection with our acquisition of CyberSeal, we issued warrants
to purchase 898,203 of our ordinary shares at an exercise price of $4.16 per share to CyberSeal's former owners. Of such warrants,
60,000 warrants were exercised in 2017. In October 2018, we agreed to purchase the remaining 838,203 warrants from the warrant holders
for an aggregate consideration of $375,000. Under Israeli law, the consummation of such transaction was subject to court approval, which
was granted on January 16, 2019. The closing of the purchase of the warrants occurred in March 2019.
On December 7, 2020, following receipt of the required court approval
under Israeli law, we announced a cash distribution in the amount of US$1.079 per share (approximately US$ 25 million in the aggregate)
which was paid on December 28, 2020. On December 31, 2020 we paid approximately $1.9 million in consideration for the remaining
45% interest in ESC BAZ.
On August 16, 2021, following the completion of the sale of our
Integration Solution Division and the receipt of the required court approval under Israeli law, we announced a cash distribution in the
amount of US$1.725 per share (approximately US$40 million in the aggregate) which was paid on September 22, 2021.
We expect that our total research and development expenses in 2022
will be approximately $5 million. Our research and development plan for 2022 covers development of new and innovative products,
as well as the improvement of existing technologies.
We believe that our cash and cash equivalents, bank facilities,
bank deposits and our expected cash flows from operations will be sufficient to meet our ongoing cash requirements through 2022.
However, our liquidity could be negatively affected by a decrease in demand for our products, including the impact of potential reductions
in customer purchases that may result from the current general economic climate.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
(in thousands) |
|
|
Net cash provided by (used in) operating activities |
|
|
6,029 |
|
|
|
2,317 |
|
|
|
(4,523 |
) |
|
Net cash provided by (used in) investing activities |
|
|
31,725 |
|
|
|
16,220 |
|
|
|
(4,779 |
) |
|
Net cash provided by (used in) financing activities |
|
|
(39,683 |
) |
|
|
(28,785 |
) |
|
|
178 |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
981 |
|
|
|
2,828 |
|
|
|
2,089 |
|
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
(948 |
) |
|
|
(7,420 |
) |
|
|
(7,035 |
) |
|
Cash, cash equivalents and restricted cash at the beginning of the year, including cash attributable to
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at the end of the year, including cash attributable to discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Cash, cash equivalents, and restricted cash attributable to discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities in the years ended December
31, 2021 and 2020 was approximately $6.0 million and $2.3 million, respectively, compared to net cash used in operating activities of
approximately $4.5 million in the year ended December 31, 2019.
Net cash provided by operating activities in the year ended December
31, 2021 was primarily attributable to our profit in 2021, as well as $1.9 million of depreciation and amortization expenses, a decrease
of $11.1 million in trade receivables, a decrease of $2.6 million in unbilled receivables and a decrease of $1.4 million in deferred income
taxes. This was offset in part by the gain on divestiture of the Integrated Solutions Division of $14.9 million, a decrease of $0.8 million
in trade payables, an increase of $0.7 million in inventories, a decrease of $0.5 million in customer advances, changes in accrued severance
pay, net of $0.3 million and a decrease of $0.2 million in other accounts payable and accrued expenses and deferred revenues.
Net cash provided by operating activities in the year ended December
31, 2020 was primarily attributable to our profit in 2020, as well as $2.0 million of depreciation and amortization expenses, an increase
of $1.9 million in trade payables, an increase of $1.8 million in other accounts payable and accrued expenses and deferred revenues, a
decrease of $0.9 million in deferred income taxes and a decrease of $0.8 million in inventories. This was offset in part by an increase
of $2.1 million in unbilled receivables, an increase of $1.6 million in trade receivables, a decrease of $1.5 million in customer advances
and an increase of $0.5 million in other accounts receivables and prepaid expenses.
Net cash used in operating activities in the year ended December
31, 2019 was primarily attributable to a decrease of $5.1 million in customer advances, an increase of $4 million in trade receivables,
an increase of $2.3 million in unbilled receivables, a decrease of $1.3 million in trade payables and an increase of $0.6 million in deferred
income taxes. This was offset in part by 2019 profit, as well as $2.1 million of depreciation and amortization expenses, a decrease of
$2.1 million in inventories, an increase of $1 million in other accounts payable and accrued expenses and deferred revenues and an increase
of $0.7 million in accrued interest and exchange differences on short-term and other long-term liabilities.
Net cash provided by investing activities of approximately $31.7
million and $16.2 million in the years ended December 31, 2021 and 2020, respectively, compared to net cash used in investing activities
was approximately $4.8 million in the year ended December 31, 2019.
In the year ended December 31, 2021, our net cash provided by investing
activities was primarily attributable to the divestiture of the Integrated Solutions Division for $32.6 million. This was offset in part
by purchase of property and equipment for $0.8 million.
In the year ended December 31, 2020, our net cash provided by investing
activities was primarily attributable to sale of short-term bank deposits of $17.0 million. This was offset in part by purchase of property
and equipment for $0.8 million.
In the year ended December 31, 2019, our net cash used in investing
activities was primarily attributable to investment in short-term deposits of $3.1 million, investment in technology of $0.9 million and
the purchase of property and equipment for $0.8 million.
Net cash used in financing activities of approximately $39.7 million
and $28.8 million in the years ended December 31, 2021 and 2020, respectively, compared to net cash provided by financing activities was
$0.2 million in the year ended December 31, 2019.
In the year ended December 31, 2021, our net cash used in financing
activities was attributable to cash distribution to Company’s shareholders of $40.1 million. This was offset in part by the proceeds
from the issuance of shares upon exercise of options of $0.4 million.
In the year ended December 31, 2020, our net cash used in financing
activities was attributable to the cash distribution to our company’s shareholders of $25 million, a dividend to redeemable non-controlling
interests of $1.9 million and the purchase of redeemable non-controlling interests of $1.9 million.
In the year ended December 31, 2019, our net cash provided by financing
activities was attributable to issuance of shares upon exercise of options of $0.5 million. This was offset in part by our purchase of
outstanding warrants for $0.4 million.
For our continuing operations, we had capital expenditures for
property and equipment of approximately $0.6 million, $0.4 million and $0.2 million, in the years ended December 31, 2021 and 2020 and
$2019, respectively. We estimate that our capital expenditures for 2022 will total approximately $0.6 million. We expect to
finance these expenditures primarily from our cash and cash equivalents and our operating cash flows. However, the actual amount
of our capital expenditures will depend on a variety of factors, including general economic conditions and changes in the demand for our
products.
Credit Lines and Other Debt
As of December 31, 2021, we had credit lines with Bank Leumi Le-Israel
B.M., or Bank Leumi, and Union Bank of Israel Ltd., or Union Bank, totaling $12.5 million in the aggregate (of which $10.7 million is
reserved exclusively for guarantees, out of which $5.5 million was available as of December 31, 2021). Our credit lines at Bank
Leumi and Union Bank have no restrictions as to our use of the credit. We are not under any obligation to maintain financial ratios
or other terms in respect of our credit lines. In addition, as of December 31, 2021, our foreign subsidiary had credit lines with the
Royal Bank of Canada of $0.6 million in the aggregate, of which $0.5 million was available at December 31, 2021.
As of December 31, 2021, our outstanding balances under our credit
lines in Israel consisted of several bank performance, advance payment and bid guarantees totaling approximately $5.2 million, at an annual
cost of 0.65%-1%. As of December 31, 2021, the outstanding balances under the credit lines of our subsidiary consisted of several
bank performance, advance payment and bid guarantees totaling approximately $0.1 million, at an annual cost of approximately 1.7%.
We have no significant off-balance sheet concentration of credit
risks, such as foreign exchange contracts or foreign hedging arrangements, except derivative instruments, which are detailed below.
|
C.
|
Research and Development, Patents and Licenses.
|
Government Grants
We participate in programs sponsored by the Industrial Research
Assistance Program (IRAP) in Canada. During 2021, 2020 and 2019 our Canadian subsidiary did not receive any grants with respect to such
programs.
Investment Tax Credit
Our Canadian subsidiary is eligible for investment tax credits
for its research and development activities and for certain current expenditures. For the years ended December 31, 2021, 2020 and
2019, our Canadian subsidiary recognized $152,000, $151,000 and $180,000, respectively, of investment tax credits.
In addition, as of December 31, 2021, our U.S. subsidiary had available
investment tax credits of approximately $189,000 to reduce future federal and state income taxes payable. These credits will expire
in 2022 through 2025 in the U.S. As of December 31, 2021, our subsidiaries made a full valuation allowance in respect of such investment
tax credits.
Our 2021 results were impacted by a decrease in revenues from project
customers and by the decrease in revenues from products customers due to the impact of the Covid-19 pandemic whereas the guidance of social
distancing and the requirements to work from home in key territories such as USA, Canada, Germany, and other countries, in addition to
greatly reduced travel globally, has resulted in a substantial curtailment of business activities. The COVID-19 outbreak has impacted
verticals in which our customers operate (such as: oil and gas) and has resulted in a slowdown, postponement and sometime cancelation
of projects.
We had to occasionally adjust our manufacturing routine due to
restrictions resulting from the Covid-19 pandemic by Ontario the public health department, such as mandatory quarantines, social distancing,
and an occasional absence of our manufacturing workforce, we had managed to continue manufacturing and deliveries of our products to our
customers throughout 2021. Nevertheless, a potential increase of the Covid-19 pandemic-related quarantines and social distancing requirements,
and the inability of our workforce to continue or quickly resume manufacturing after periods of absence, may disrupt our manufacturing
operations, resulting in an adverse effect on our financial results.
Our operations were negatively affected by the worldwide shortage
of various materials and sub-components required to produce certain of our PIDS products. This negative effect increased in the second
half of 2021. We are monitoring the supply chain shortage, vs our ongoing and forecasted manufacturing requirements, while implementing
various procurement methodologies to meet current and forecasted demand for our products. However, our ability to continue meeting the
demand for our products is dependent among others, on our ability to maintain an effective procurement plan support from our suppliers,
and when needed establish a contractual relationship with alternative suppliers.
|
E.
|
Critical Accounting Estimates. |
The preparation of financial
statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates and the use of different assumptions would likely
result in materially different results of operations. Critical accounting policies are those that are both most important to the
portrayal of our financial position and results of operations and require management’s most difficult, subjective or complex judgments.
Although not all of our significant accounting policies require management to make difficult, subjective or complex judgments or estimates,
the following policies and estimates are those that we deem most critical
Explanation of Key Income
Statement Items
Cost of revenues.
Our cost of revenues for perimeter products consists of component and material costs, direct labor costs, subcontractor costs,
shipping expenses, overhead related to manufacturing and depreciation. Our cost of revenues for Video Security sales consists primarily
of direct labor costs, some component, material and subcontractor costs and overhead related to those sales.
In the past, our gross margin was affected by the proportion of
our revenues generated from our Products and Projects segments. Historically, our revenues from Products (our remaining operating
segment following the sale of the Integrated Solutions (Projects) division to Aeronautics Ltd.) generally had higher gross margins than
our Projects revenues.
Research and
development expenses, net. Research and development expenses, net consists primarily of expenses for on-going research and
development activities and other related costs.
Selling and
marketing expenses. Selling and marketing expenses consist primarily of commission payments, compensation and related expenses
of our sales teams, attendance at trade shows and advertising expenses and related costs for facilities and equipment.
General and
administrative expenses. Our general and administrative expenses consist primarily of salary and related costs associated
with our executive and administrative functions, public company related expenses, legal and accounting expenses, allowances for credit
losses and bad debts and other miscellaneous expenses. Staff costs include direct salary costs and related costs, such as severance
pay, social security and retirement fund contributions, vacation and other pay.
Depreciation
and Amortization and impairment of goodwill. The amount of depreciation and amortization
attributable to our Products segment for the years ended December 31, 2021, 2020 and 2019 were approximately $1.5 million, $1.2 million
and 1.3 million, respectively.
Financial Expenses,
Net. Financial expenses, net include exchange rate differences arising from changes
in the value of monetary assets and monetary liabilities stated in currencies other than the functional currency of each entity, currency
transactions as well as interest income on our cash and cash equivalents and short term investments.
Revenue Recognition
We recognize revenues from continuing operations in accordance
with ASC No. 606, "Revenue from Contracts with Customers" ("ASC No. 606"). As such, we identify a contract with a customer, identify the
performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation
in the contract and recognize revenues when (or as) we satisfy a performance obligation.
Following the sale of the Integrated Solution Division, we generate
our revenues mainly from: (1) sales of security products; (2) services and maintenance, which are performed either on a fixed-price basis
or as time-and-materials based contracts; and (3) software license fees and related services.
We enter into contracts that can include combinations of products
and services, which are generally capable of being distinct and accounted for as separate performance obligations. The perpetual license
is distinct as the customer can derive the economic benefit of the software without any professional services, updates or technical support.
The transaction price is determined based on the consideration
to which we will be entitled in exchange for transferring goods or services to the customer. We do not grant a right of return to our
customers.
In instances of contracts where revenue recognition differs from
the timing of invoicing, we generally determined that those contracts do not include a significant financing component. We use the practical
expedient and do not assess the existence of a significant financing component when the difference between payment and revenue recognition
is a year or less.
Maintenance and support agreements provide customers with rights
to unspecified software product updates, if and when available. These services grant the customers online and telephone access to technical
support personnel during the term of the service. We recognize maintenance and support services revenues ratably over the term of the
agreement, usually one year.
We generate revenues from the sales of its software products user
licenses as well as from maintenance, support, consulting and training services.
As required by ASC 606, following the determination of the performance
obligations in the contract, we allocate the total transaction price to each performance obligation in an amount based on the estimated
relative standalone selling prices of the promised license fees or services underlying each performance obligation. Standalone selling
price is the price at which we would sell a promised license or service separately to a customer.
Inventories
Inventories are stated at the lower of cost or market value.
We periodically evaluate the quantities on hand relative to historical and projected sales volumes, current and historical selling prices
and contractual obligations to maintain certain levels of parts. Based on these evaluations, inventory write-offs are provided to
cover risks arising from slow-moving items, discontinued products, excess inventories, market prices lower than cost and adjusted revenue
forecasts. Cost is determined as follows:
|
• |
Raw materials, parts and supplies – using the “first-in, first-out” method. |
|
• |
Work-in-progress and finished products – on the basis of direct manufacturing costs with the addition of allocable indirect
manufacturing costs. |
During the years ended December 31, 2021, 2020 and 2019 we recorded
inventory write-offs from continuing operations in the amounts of $0.1 million, $0.0 million and $0.2 million respectively. Such
write-offs were included in cost of revenues.
Income taxes
We account for income taxes in accordance with ASC 740 “Income
Taxes.” This statement prescribes the use of the liability method whereby deferred tax asset and liability account balances
are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance, if necessary,
to reduce deferred tax assets to their estimated realizable value.
As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves
estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for
tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and
we must establish a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Increases in the valuation allowance result in additional expense to be reflected within the tax provision in the consolidated statement
of income.
As of December 31, 2021, we had a net deferred tax liability of
$0.4 million, of which $0.7 million in domestic deferred tax liability offset by $0.3 million in foreign deferred tax asset. We
had total estimated available operating tax loss carryforwards of $9.7 million with respect to our operations in Israel. Our non-Israeli
subsidiaries had estimated total available operating tax loss carryforwards of $4.6 million, of which $3.6 million was attributable to
our U.S. subsidiaries (federal only), which may be used as an offset against future taxable income for periods ranging between 1 and 20
years. As of December 31, 2021, we recorded a partial valuation allowance on these carryforward tax losses due to the uncertainty
of their future realization. Utilization of U.S. net operating losses may be subject to a substantial annual limitation due to the “change
in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result
in the expiration of net operating losses before utilization.
Goodwill
Goodwill and certain other purchased intangible assets have been
recorded as a result of acquisitions. Goodwill represents the excess of the purchase price in a business combination over the fair value
of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is subject to an impairment test.
ASC No. 350, "Intangible-Goodwill and other" requires goodwill
to be tested for impairment at least annually and, in certain circumstances, between annual tests. The accounting guidance gives the option
to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers
events and circumstances that might indicate that a reporting unit's fair value is less than its carrying amount. If it is determined,
as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, a quantitative test is performed. Alternatively, ASC No. 350 permits an entity to bypass the qualitative assessment for any reporting
unit and proceed directly to performing the quantitative goodwill impairment test
If the carrying value of a reporting unit exceeds its fair value,
we should recognize an impairment of goodwill for the amount of this excess. We perform an annual impairment test during the fourth quarter
of each fiscal year, or more frequently if impairment indicators are present.
As of June 30, 2021, as a result of the sale of the Projects segment,
we began operating as one operating segment with a single reporting unit.
In 2020 and 2019, we operated as two operating segments, each comprised
of one reporting unit. For the purposes of impairment testing of goodwill, we identified two reporting units to which goodwill relates:
(1) Products reporting unit which comprises the Products segment and; (2) ESC BAZ reporting unit within the Projects segment.
For the years ended December 31, 2021, 2020 and 2019, no impairment
losses were identified.
Intangible assets
Our intangible assets are comprised of patents, acquired technology,
customer relations and backlog. Intangible assets are amortized over their useful lives using a method of amortization that reflects the
pattern in which the economic benefits of the intangible assets are consumed or otherwise used up, in accordance with ASC 350, “Intangibles
– Goodwill and Other.”
For the years ended December 31, 2021, 2020 and 2019, no impairment
losses were identified.
Impairment of long-lived assets
Our long-lived assets (assets group) to be held or used, including
right of use assets and intangible assets that are subject to amortization, are reviewed for impairment in accordance with ASC 360, "Property,
Plant, and Equipment" whenever events or changes in circumstances indicate that the carrying amount of a group of assets may not be recoverable.
Recoverability of a group of assets to be held and used is measured by a comparison of the carrying amount of the group to the future
undiscounted cash flows expected to be generated by the group. If such group of assets is considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. For the years ended December
2021, 2020 and 2019, we did not record any impairment charges attributable to long-lived assets.
| ITEM 6. |
Directors, Senior Management and Employees |
|
A.
|
Directors and Senior Management. |
Set forth below are the name, age, principal position and a biographical description
of each of our directors and executive officers:
|
|
|
|
|
|
|
Gillon Beck |
|
60 |
|
Chairman of the Board of Directors |
|
Ron Ben-Haim |
|
52 |
|
Director |
|
Jacob Berman |
|
73 |
|
Director |
|
Avraham Bigger (1)(2)
|
|
76 |
|
Director |
|
Limor Steklov (1)(2)
|
|
51 |
|
External Director |
|
Moshe Tsabari (1)(2)
|
|
68 |
|
External Director |
|
Dror Sharon |
|
56 |
|
Chief Executive Officer |
|
Tomer Hay |
|
45 |
|
Chief Financial Officer |
|
Doron Kerbel |
|
50 |
|
Vice President – General Counsel and Company Secretary |
|
Fabien Haubert |
|
47 |
|
Vice President & Managing Director of Senstar - Head of the Product Division
|
____________
(1) Member of our Audit Committees.
(2) Member of our Compensation Committee
Gillon Beck has served as a director and Executive
Chairman of our board of directors since September 2014. Since 2003, Mr. Beck has been a Senior Partner at FIMI Opportunity Funds, the
controlling shareholder of Senstar, as well as a Director of the FIMI Opportunity Funds’ General Partners and SPV companies. In
addition, Mr. Beck currently serves as Chairman of the Board of ImageSat NV, Emet Computing Ltd. (TASE), Gal-Shvav Ltd, Bet Shemesh Engines
Ltd. (TASE: BSEN), Inrom Industries Ltd., Bird Aerosystems Ltd, and is a director of Rafa Laboratories Ltd., Simplivia Ltd., Orbit Technologies
Ltd (TASE: ORBI), Carmel Forge Ltd., AITECH Ltd, Stern Engineering Ltd., Utron Ltd. ( TASE) and Unitronics (1989) (RG) Ltd
(TASE: UNIT). During the past five years, Mr. Beck had served as a member of the Board of Directors of the following public companies:
Overseas Commerce Ltd (TASE: OVRS), Ham-Let Ltd., Inrom Construction Ltd. From 1999 to 2003, Mr. Beck served as Chief Executive Officer
and President of Arad Ltd. (TASE Mr. Beck received a Bachelor of Science degree (Cum Laude) in Industrial Engineering in 1990 from the
Technion – Israel Institute of Technology, and a Master of Business Administration in Finance in 1992 from Bar-Ilan University.
Ron Ben-Haim has
served as a director since September 2014. Mr. Ben-Haim has been a partner in FIMI Opportunity Funds since 2006. Mr. Ben-Haim currently
serves on the boards of directors of Poliram Plastic Industries Ltd., Aitech Rugged Group, Inc., Inrom Industries Ltd., Simplivia
Healthcare, Ltd., Gal-Shvav, Ltd., Orbit Technologies, Ltd. (TASE:ORBI), G1 Security Solutions Ltd (TASE:GOSS) and TAT Technologies, Ltd.
(TASE, NASDAQ:TATT). Mr. Ben Haim formerly served as a member of the boards of directors of the following public companies: Hadera Paper
Ltd., Overseas Commerce, Ltd., Inrom Construction Industries Ltd., Medtechnica, Ltd., Tadir-Gan (Precision Products) 1993, Ltd., Ginegar
Plastic Products, Ltd., Raval Acs, Ltd., Merhav Ceramic and Building Materials Center, Ltd. and Ophir Optronics, Ltd. Mr. Ben Haim was
previously with Compass Advisers, LLP, an investment banking firm based in New York and in Tel Aviv and with the Merrill Lynch Mergers
and Acquisitions group in New York. Prior to Merrill Lynch, Mr. Ben-Haim worked at Teva Pharmaceuticals in production management. Mr.
Ben-Haim holds a B.Sc. degree in industrial engineering from the Tel Aviv University and an M.B.A. degree from New York University. On
26 April 2022, Mr. Ben-Haim informed the Company of his resignation from the Company Board, effective 27 April 2022.
Jacob Berman has served
as a director since November 2013. Since November 2014 until March 2019, Mr. Berman had served as the chairman of the board of directors
of Israel Discount Bank of New York and acted as a member of our audit committee and compensation committee between September 2014 and
December 2014. Mr. Berman is the President and founder of JB Advisors, Inc., a New York based financial advisory firm with extensive experience
in international private banking, real estate investment counseling, and commercial/retail banking since 2002. Mr. Berman was the
founder, President and CEO of the Commercial Bank of New York.
Avraham Bigger has served
as a director since September 2014. Mr. Bigger has been, since 2010, the owner and a member of the Board of Directors of Bigger
Investments Ltd. Mr. Bigger currently serves as the chairman of the board of PCB Technologies Ltd. and of the board at Recha, board member
at MCA (car import and distributor), international board member of the Weitzman Science Institute and a board member of the Israel Nature
and Heritage Foundation. He formerly served as the Chief Executive Officer and Chairman of the Board of Directors of Adama Ltd. (formerly)
Makhteshim Agam Industries Ltd.), Chairman of the Boards of Directors of Supersol Ltd. (TASE:SAE), Caniel Beverages & Caniel Packaging
Industries Ltd., the Edmond Benjamin de Rothschild Caesarea Foundation and as managing director of Paz Oil Company Ltd. (TASE:PZOL) and
Israel General Bank (U Bank). Mr. Bigger also served as a member of the Boards of Directors of Bank Leumi Le-Israel Ltd. (TASE:LUMI),
First International Bank of Israel Ltd. (TASE:FIBI), Strauss Group Ltd. (formerly known as Strauss-Elite Ltd.) (TASE:STRS), Partner Communications
Company Ltd. (TASE, NASDAQ:PTNR), Cellcom Israel Ltd. (TASE, NYSE:CEL), El-Al Israel Airlines Ltd., Migdal Insurance and various
private companies. Mr. Bigger received a Bachelor of Economics degree and an M.B.A. degree, both from the Hebrew University of Jerusalem.
Limor Steklov has served
as an external director since August 2019. Ms. Steklov serves as the CFO of TNT Express Worldwide (Israel) Ltd. Ms. Steklov has extensive
experience in business partnering, combining business and financial visions, leading economic and business analytics, leading worldwide/local
projects, creating effective and efficient processes, and leading, coaching, motivating and mentoring large finance teams. Ms. Steklov
currently serves as a board member of the parent company of FEDEX Israel. Ms. Steklov holds a B.A. degree in economics and accountancy
from College of Management – Academic Studies (COMAS) in Rishon LeZion and a M.A. degree in law from Bar-Ilan University.
Moshe Tsabari has served
as an external director since December 2014. Since 2018 Mr. Tsabari has served as EVP for innovation at ICTS Europe S.A. which is
part of Groupe Sofinord S.A. Until 2018 Mr. Tsabari was the owner and had served as the joint CEO of GME Trust, a company that advises
on crisis management and improvement of work processes, in Israel and worldwide. Since 2005, Mr. Tsabari has served as the owner
and director of Osher – Training & Consulting Ltd. From 2006 to 2011 Mr. Tsabari served as a senior partner in the International
Company for Defense and Rescue Ltd. and in QG Company, two companies that are engaged in the provision of consultancy and training projects
in the security field in Israel. In addition, Mr. Tsabari is the founder of the International Institute for Researching the Arab
World, is a former director in Links Aviation and is the former CEO of SYS-TRY, an electronic equipment development company. Prior
to that, Mr. Tsabari served for 15 years, until 2004, in the Israeli Security Agency (ISA) in a number of positions, including Director
of Personal in the Human Resources Division, Director of Security Assistance Division (rank in both positions equivalent to Major General)
and Head of the Operations Division (rank equivalent to Brigadier). Mr. Tsabari holds a B.Sc. degree in Geodetic Engineering, a
M.A. degree in Industrial and Management Engineering and a PhD degree in Science, all from the Technion – The Israeli Institute
of Technology. In addition, Mr. Tsabari is an A.M.P. graduate from the Wharton School of the University of Pennsylvania.
Dror Sharon has served as
our Chief Executive Officer since June 24, 2018, following a six years career as President and CEO of Controp Precision Technology Ltd.,
a company specializing in developing, manufacturing and selling electro optical and precision motion control systems for the global defense
and homeland security (HLS) markets. Prior to that, Mr. Sharon served in various positions at Opgal Optronics Ltd., the last four years
as its President and CEO. Mr. Sharon holds an MBA degree from Derby University, United Kingdom and a B.Sc. degree in Mechanical Engineering
(Dean’s award of excellence) from the Technion -Israel Institute of Technology, Haifa, Israel.
Tomer Hay has served as
Chief Financial Officer since July 2021. Mr. Hay joined the Company in 2012 as Corporate Controller and progressed to the position of
VP Finance before his appointment as CFO. As VP Finance, Mr. Hay was responsible for the Company’s financial reporting, analysis,
controls and tax matters. In addition, he was actively involved in strategic processes, including M&A and restructuring. Prior to
joining the Company, Mr. Hay had a successful career within the high-tech sector at Ernst and Young Israel, ending as Senior Audit Manager.
Mr. Hay brings over 18 years of professional experience and knowledge of financial management of NASDAQ-listed companies engaged in the
tech sector. Mr. Hay is a certified public accountant in Israel and holds a B.A. degree in Accounting and Economics from Tel-Aviv University.
Doron Kerbel has served
as our General Counsel since July 2015. Prior to joining Senstar, Mr. Kerbel had served for more than eight years as legal counsel
at Elbit Systems Ltd. (NASDAQ: ESLT) Aerospace Division. Mr. Kerbel has extensive experience in advising on variety of commercial
legal issues, mergers and acquisitions as well as (private finance initiatives) PFI and BOT (Build Operate Transfer) projects, both locally
and internationally. Prior to his work at Elbit Systems, Mr. Kerbel was an associate lawyer at M. Firon & Co. and Senior Legal
Counsel for International Law at the Israeli Embassy to the Netherlands. Mr. Kerbel holds a LL.B. degree from the Interdisciplinary
Center (IDC) Herzliya and a LL.M. degree (with distinction) from the International Law School, University of Amsterdam.
Fabien Haubert joined our
company in February 2018 as Vice President Sales – EMEA Region, based in Paris, France. Mr. Haubert’s most recent experience
(February 2014 – February 2018) was with UK based CCTV solution provider Indigo Vision located in Edinburgh where he was Regional
Director – EMEA South. Previous to his four years at Indigo he worked with several companies in the VMS, IP CCTV, intrusion,
access control and integration areas since 2002. He has extensive experience in sales management with past responsibility for the
EMEA region. Mr. Haubert has a technical background with a Master of Science degree in Electronics Engineering (Ecole Supérieure
d’Ingénieurs en Electrontechnique et Electronique) as well as a Master of Strategy and Engineering of International business
(Ecole Supérieure des Sciences Economiques et Commerciales). He speaks French, English, Spanish, and Italian and has a working
knowledge of Dutch.
The terms of office of Messrs. Beck, Berman, Ben-Haim and Bigger
will expire at our 2022 annual general meeting of shareholders. The terms of our external directors, Mr. Tsabari and Ms. Steklov,
expire at our 2023 and 2022 annual general meetings, respectively.
Compensation of Directors and Executive Officers
The aggregate compensation costs on behalf of our directors and
executive officers as a group during 2021 consisted of approximately $3.2 million in salary, fees, bonus, equity based compensation, commissions
and directors’ fees, but excluding dues for professional and business associations, business travel and other expenses commonly
reimbursed or paid by companies. As of December 31, 2021, the aggregate amount set aside or accrued for pension, retirement and vacation
or similar benefits for our directors and executive officers was approximately $0.2 million. In addition, we provide automobiles
to our executive officers at our expense.
We pay our directors an annual fee of NIS 90,000 (approximately
$28,000) and a fee of NIS 4,000 (approximately $1,200) for each board or committee meeting that they attend. Such amounts are linked
to the Israeli consumer price index, or CPI, and are updated on a semi-annual basis and accordingly, are adjusted to reflect changes in
the CPI in February and August, each year. In addition, we pay to our Executive Chairman a monthly payment of NIS 15,000 (approximately
$4,600). Our executive Chairman is also entitled to a director fees paid to all of our directors as described above. In addition,
Mr. Beck is entitled to annual cash bonus of $30,000 payable in the event our net profit pursuant to our annual audited and consolidated
financial statement exceeds $5,000,000.
As of December 31, 2021, our directors and executive officers as
a group, then consisting of 10 persons, held options to purchase an aggregate of 526,000 ordinary shares, having exercise prices ranging
from $1.9 to $3.28 and expiration dates ranging from 2021 to 2028. Generally, the options vest over a two to four year period.
See this Item 6E. “Directors, Senior Management and Employees – Share Ownership – Stock Option Plans.”
Compensation of Senior Office Holders – Israel Companies
Law Disclosure
The table below sets forth the compensation paid to our five most
highly compensated senior office holders (as defined in the Israeli Companies Law) during the year ended December 31, 2021 (which include
one former senior officer), in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports),
1970. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
|
Information Regarding
the Covered Executive(1)
(dollars in thousands)
|
|
Name
and Principal Position(2) |
Base Salary |
Benefits and
Perquisites(3)
|
Variable Compensation(4)
|
Equity-Based
Compensation(5)
|
Total |
|
Dror Sharon –
Chief Executive Officer |
338
|
160
|
510
|
98
|
1,106
|
|
Brian Rich – Former
President and CTO of Senstar Corporation (6) |
144
|
272
|
50
|
-
|
466
|
|
Yaacov (Kobi) Vinokur
– Former Chief Financial Officer (7) |
180
|
78
|
214
|
(22)
|
450
|
|
Doron Kerbel - Vice
President General Counsel and Company Secretary |
152
|
68
|
189
|
16
|
425
|
|
Fabien Haubert –Vice
President & Managing Director of Senstar - Head of the Product Division |
191
|
44
|
76
|
26
|
337
|
|
(1) |
All amounts reported in the table are
in terms of cost to our company, as recorded in our financial statements. |
|
(2) |
All current Covered Executives listed
in the table are full-time employees. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into
U.S. dollars at the average conversion rate for the year ended December 31, 2021. |
|
(3) |
Amounts reported in this column include
benefits and perquisites or on account of such benefits and perquisites, including those mandated by applicable law. Such benefits and
perquisites may include, to the extent applicable to each executive, payments, contributions and/or allocations for savings funds, pension,
severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence
pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent with our guidelines. |
|
(4) |
Amounts reported in this column refer to Variable Compensation
such as commission, incentive and bonus payments as recorded in our financial statements for the year ended December 31, 2021. |
|
(5) |
Amounts reported in this column represent
the expense recorded in our financial statements for the year ended December 31, 2021. |
|
(6) |
Mr. Rich resigned effective December 31,
2021. |
|
(7) |
Mr. Vinokur resigned effective November
30, 2021. |
Pursuant to the Israeli Companies Law, we have adopted a compensation
policy and are required to follow certain approval requirements with respect to the compensation of our directors and executive officers. See
below “Board of Directors – Compensation Committee” and Item 10. Additional Information –– Office Holders.
We follow Israeli law and practice instead of the requirements
of the NASDAQ Stock Market Rules regarding the compensation of our chief executive office and other executive officers. See Item
16G. “Corporate Governance.”
Introduction
According to the Israeli Companies Law and our articles of association,
the management of our business is vested in our board of directors. The board of directors may exercise all powers and may take
all actions that are not specifically granted to our shareholders. Our executive officers are responsible for our day-to-day management.
The executive officers have individual responsibilities established by our chief executive officer and board of directors. Executive
officers are appointed by and serve at the discretion of the board of directors, subject to any applicable agreements.
Election of Directors
Our articles of association provide for a board of directors of
not less than three and not more than 11 members, as may be determined from time to time at our annual general meeting. Our board
of directors is currently composed of six (6) directors.
Our directors (except the external directors, as detailed below),
are elected by our shareholders at our annual general meeting and hold office until the next annual general meeting. All the members
of our board of directors (except the external directors), may be reelected upon completion of their term of office. Our annual
general meetings of shareholders are held at least once every calendar year, but not more than 15 months after the last preceding annual
general meeting. In the intervals between our annual general meetings of shareholders, the board of directors may from time to time
appoint a new director to fill a casual vacancy or to add to their number, and any director so appointed will remain in office until our
next annual general meeting of shareholders and may be re-elected.
Under the Israeli Companies Law, our board of directors is required
to determine the minimum number of directors who must have “accounting and financial expertise,” as such term is defined in
regulations promulgated under the Israeli Companies Law. Our board of directors has determined that at least one director must have
“accounting and financial expertise.” Our board of directors has further determined that Ms. Limor Steklov has the requisite
“accounting and financial expertise.”
We do not follow the requirements of the NASDAQ Stock Market Rules
regarding the nomination process of directors, and instead, we follow Israeli law and practice, in accordance with which our directors
are recommended by our board of directors for election by our shareholders. See Item 16G. “Corporate Governance.”
External and Independent Directors
External directors.
The Israeli Companies Law requires Israeli companies with shares that have been offered to the public in or outside of Israel to appoint
at least two external directors. The Israeli Companies Law provides that a person may not be appointed as an external director if
the person, or the person’s relative, partner, employer or an entity under that person’s control, has or had during the two
years preceding the date of appointment any affiliation with the company, or any entity controlling, controlled by or under common control
with the company. The term “relative” means a spouse, sibling, parent, grandparent, child or child of spouse or spouse
of any of the above as well as a sibling, brother, sister or parent of the foregoing relatives. In general, the term “affiliation”
includes an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an
office holder. Furthermore, if the company does not have a controlling shareholder or a shareholder holding at least 25% of the voting
rights, “affiliation” also includes a relationship, at the time of the appointment, with the chairman of the board, the chief
executive officer, a substantial shareholder or the most senior financial officer of such company. Regulations promulgated under the Israeli
Companies Law include certain additional relationships that would not be deemed an “affiliation” with a company for the purpose
of service as an external director. In addition, no person may serve as an external director if the person’s position or other activities
create or may create a conflict of interest with the person’s responsibilities as director or may otherwise interfere with the person’s
ability to serve as director or if such person is an employee of the Israel Securities Authority or of an Israeli stock exchange.
If, at the time an external director is appointed, all current members of the board of directors are of the same gender, then that external
director must be of the other gender. A director of one company may not be appointed as an external director of another company
if a director of the other company is acting as an external director of the first company at such time.
At least one of the elected external directors must have “accounting
and financial expertise” and any other external director must have “accounting and financial expertise” or “professional
qualification,” as such terms are defined by regulations promulgated under the Israeli Companies Law.
The external directors are elected by shareholders at a general
meeting. The shareholders voting in favor of their election must include at least a majority of the shares voted by shareholders
other than controlling shareholders or shareholders who have a personal interest in the election of the external director (unless such
personal interest is not related to such persons relationship with the controlling shareholder) present and voting at such meeting (excluding
abstentions). This majority requirement will not be required if the total number of shares of such non-controlling shareholders
and disinterested shareholders who vote against the election of the external director represent 2% or less of the voting rights in the
company.
In general, under the Israeli Companies Law, external directors
serve for a three-year term and may be reelected to two (2) additional three-year terms. However, Israeli companies listed on certain
stock exchanges outside Israel, including The NASDAQ Global Market, such as our company, may appoint an external director for additional
terms of not more than three years subject to certain conditions. Such conditions include the determination by the audit committee
and board of directors, that in view of the director’s professional expertise and special contribution to the company’s board
of directors and its committees, the appointment of the external director for an additional term is in the best interest of the company.
External directors can be removed from office only by the same special percentage of shareholders that can elect them, or by a court order,
and then only if the external directors cease to meet the statutory qualifications with respect to their appointment or if they violate
their fiduciary duty to the company.
Pursuant to the Israeli Companies Law, external directors up for
re-election are nominated either by the board of directors or by any shareholder(s) holding at least 1% of the voting rights in the company.
If the board of directors proposed the nominee, the reelection must be approved by the shareholders in the same manner required to appoint
external directors for an initial term, as described above. If such reelection is proposed by shareholders, such reelection requires the
approval of the majority of the shareholders voting on the matter, and satisfaction of all of the following requirements: (i) In calculating
the majority votes, the votes of the controlling shareholders and other shareholders that have personal interest in such reelection (unless
such personal interest is not related to such persons relationship with the controlling shareholder) as well as abstentions are not included;
(ii) the votes of the non-controlling shareholders in favor of the reelection and of the shareholders who do not have personal interest
in the reelection (unless such personal interest is not related to such person’s relationship with the controlling shareholder)
is greater than 2% of the voting rights in the company; and (iii) the external director is not, at the time of such reelection, a related
shareholder or competitor or a relative thereof and does not have any affiliation to any related shareholder, competitor or any relative
thereof during the two years prior to such re-election. A related shareholder or a competitor are defined as the shareholder proposing
the reelection, any substantial shareholder (within the meaning of the Israeli Companies Law) if at the time of reelection either such
shareholder, its controlling shareholder or any company controlled by either of them has business relations with the company or that either
such shareholder, its controlling shareholder or a company controlled by either of them is a competitor of the company.
Each committee of the board of directors that is authorized to
exercise powers vested in the board of directors must include at least one external director and the audit committee must include all
the external directors. An external director is entitled to compensation as provided in regulations adopted under the Israeli Companies
Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service.
Ms. Steklov and Mr. Tsabari serve as our external directors under
the Israeli Companies Law. Ms. Steklov’s first term will expire in 2022 and Mr. Tsabari’s third term will expire in
2023.
Independent Directors.
Pursuant to the Israeli Companies Law, a director may be qualified as an independent director if such director is either (i) an external
director; or (ii) or a director who is appointed or classified as such, and who meets the qualifications of an external director (other
than the professional qualifications/accounting and financial expertise requirement), who the audit committee has confirmed meets the
external director qualifications, and who has not served as a director for more than nine consecutive years (with any period of up to
two years during which such person does not serve as a director not being viewed as interrupting a nine-year period).
In general, NASDAQ Stock Market Rules require that the board of
directors of a NASDAQ-listed company has a majority of independent directors and that its audit committee has at least three members and
be comprised only of independent directors, each of whom satisfies the “independence” requirements of NASDAQ and the SEC.
However, foreign private issuers, such as our company, may follow certain home country corporate governance practices instead of certain
requirements of the NASDAQ Stock Market Rules. On June 30, 2006, we provided NASDAQ with a notice that instead of maintaining a
majority of independent directors, we follow Israeli law, under which we are required to appoint at least two external directors, within
the meaning of the Israeli Companies Law, to our board of directors. In addition, in accordance with the rules of the SEC and NASDAQ,
our audit committee is composed of three independent directors, as defined in the rules of the SEC and NASDAQ. At present the majority
of our directors satisfy the independence requirements of NASDAQ and the SEC.
Our board of directors has determined that our external directors,
Ms. Steklov and Mr. Tsabari, qualify as independent directors under the requirements of the SEC and NASDAQ. Our board of directors
has further determined that Messrs. Bigger and Berman also qualify as independent directors under the requirements of the SEC and NASDAQ.
Audit Committee under Israeli Law
Under the Israeli Companies Law, the board of directors of any
public company must establish an audit committee, or the Israeli Audit Committee. The Israeli Audit Committee must consist of at
least three directors and must include all of the external directors, the majority of which must be independent directors. The Israeli
Audit Committee may not include the chairman of the board of directors; any director employed by the company or providing services to
the company on an ongoing basis (other than as a director); a controlling shareholder or any of the controlling shareholder’s relatives;
and any director who is employed by, or rendered services to, the controlling shareholder or an entity controlled by the controlling shareholder,
or a director whose main livelihood is from the controlling shareholder. Any person who is not permitted to be a member of the Israeli
Audit Committee may not be present in the meetings of the Israeli Audit Committee unless the chairman of the Israeli Audit Committee determines
that such person’s presence is necessary in order to present a specific matter. However, an employee who is not a controlling
shareholder or relative of a controlling shareholder may participate in the audit committee’s discussions but not in any vote, and
at the request of the Israeli Audit Committee, the secretary of the company and its legal counsel may be present during the meeting. The
chairman of the Israeli Audit Committee must be an external director.
The role of the Israeli Audit Committee, pursuant to the Israeli Companies Law, includes:
|
• |
monitoring deficiencies in the management of the company, including in consultation
with the independent auditors or the internal auditor, and to advise the board of directors on how to correct such deficiencies. If the
audit committee finds a material deficiency, it will hold at least one meeting regarding such material deficiency, with the presence of
the internal auditor or the independent auditors but without the presence of the senior management of the company. However, a member of
the company’s senior management can participate in the meeting in order to present an issue which is under his or her responsibility;
|
|
• |
determining, on the basis of detailed arguments, whether to classify certain engagements
or transactions as material or extraordinary, as applicable, and therefore as requiring special approval under the Israeli Companies Law.
The audit committee may make such determination according to principles and guidelines predetermined on an annual basis; |
|
• |
determining if transactions (excluding extraordinary transactions) with a controlling
shareholder, or in which a controlling shareholder has a personal interest, are required to be rendered pursuant to a competitive procedure;
|
|
• |
deciding whether to approve engagements or transactions that require the Israeli Audit
Committee approval under the Israeli Companies Law; |
|
• |
determining the approval procedure of non-extraordinary transactions, following classification
as such by the Israeli Audit Committee, including whether such specific non-extraordinary transactions require the approval of the Israeli
Audit Committee; |
|
• |
examining and approving the annual and periodical working plan of the internal auditor;
|
|
• |
overseeing the company’s internal auditing and the performance of the internal
auditor; confirm that the internal auditor has sufficient tools and resources at his disposal, considering, among other matters, the special
requirements of the company and its size; |
|
• |
examining the scope of work of the independent auditor and its pay, and bringing such
recommendations on these issue before the Board; |
|
• |
determining the procedure of addressing complaints of employees regarding shortcomings
in the management of the company and ensure the protection of employees who have filed such complaints; |
|
•
|
determining with respect to transactions with the controlling shareholder or in which
such controlling shareholder has personal interest, whether such transactions are extraordinary or not, an obligation to conduct competitive
process under supervisions of the audit committee or determination that prior to entering into such transactions the company shall conduct
other process as the audit committee may deem fit, all taking into account the type of the company; and |
|
•
|
determining the manner of approval of transactions with the controlling shareholder
or in which it has personal interest which (i) are not negligible transactions (pursuant to the committee’s determination) and (ii)
are not qualified by the Israeli Audit Committee as extraordinary transactions. |
Our Israeli Audit Committee is currently composed of Ms. Steklov
and Messrs. Bigger and Tsabari. Both Ms. Steklov and Mr. Tsabari satisfy the “independence” requirements of the Israeli Companies
Law. Our board of directors has determined that Ms. Steklov has the requisite accounting and financial expertise to serve as our
audit committee financial expert. Ms. Steklov also serves as the chairperson of our Israeli Audit Committee. The Israeli Audit Committee
meets at least once each quarter.
Audit Committee under U.S. Laws and Regulations
The NASDAQ Stock Market Rules require us to establish an audit
committee consisting of at least three members, each of whom must be financially literate and satisfy the respective ‘‘independence’’
requirements of the SEC and NASDAQ and one of whom has accounting or related financial management expertise. Such audit committee
is established for the primary purpose of assisting the Board in overseeing the:
|
• |
integrity of the Company’s financial statements; |
|
• |
independent auditor’s qualifications, independence and performance; |
|
• |
Company’s financial reporting processes and accounting policies; performance
of the Company’s internal audit function; and |
|
• |
Company’s compliance with legal and regulatory requirements. |
Ms. Steklov and Messrs. Bigger and Tsabari satisfy the respective
“independence” requirements of the SEC and NASDAQ. Our board of directors has determined that Ms. Steklov has the requisite
accounting and financial expertise to serve as our Audit Committee financial expert and that both Mr. Bigger and Mr. Tsabari are financially
literate, having a basic understanding of financial controls and reporting. The U.S. Audit Committee meets at least once each quarter.
Mr. Bigger serves as chairperson of our U.S. Audit Committee for purposes of compliance with U.S. law and regulations.
Compensation Committee
Pursuant to the Israeli Companies Law, each publicly traded company
is required to establish a compensation committee which must be comprised of at least three directors, including all of the external directors.
The additional members of the compensation committee must be directors that receive compensation in accordance with the provisions and
limitations set forth in the regulations promulgated under the Israeli Companies Law with respect to external directors. An external director
shall serve as the chairman of the compensation committee. Under the Israeli Companies Law, the external directors shall constitute a
majority of the compensation committee. Similar to the rules that apply to the audit committee, the compensation committee may not include
the chairman of the board, or any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder,
or any director providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular
basis, or any director whose primary income is dependent on a controlling shareholder, and may not include a controlling shareholder or
any of its relatives. Individuals who are not permitted to be compensation committee members may not participate in the committee’s
meetings other than to present a particular issue; provided, however, that an employee that is not a controlling shareholder or relative
may participate in the committee’s discussions but not in any vote, and the company’s legal counsel and corporate secretary
may participate in the committee’s discussions and votes if requested by the committee.
The compensation committee is responsible for (i) recommending
the compensation policy to the board of directors for its approval (and subsequent approval by shareholders) and (ii) duties related to
the compensation policy and to the approval of the terms of engagement of office holders, including: recommending whether a compensation
policy should continue in effect, if the then-current policy has a term of greater than three (3) years (approval of either a new compensation
policy or the continuation of an existing compensation policy must in any case occur every three years), recommending to the board of
directors periodic updates to the compensation policy, assessing implementation of the compensation policy; determining whether the compensation
terms of a proposed new Chief Executive Officer of the company need not be brought to approval of the shareholders; and determining whether
to approve transactions concerning the terms of engagement and employment of the company’s officers and directors that require compensation
committee approval under the Israeli Companies Law or the company’s compensation plans and policies.
Our compensation committee is currently composed of Ms. Steklov
and Messrs. Bigger and Tsabari. Mr. Tsabari serves as the chairperson of our Compensation Committee. The composition and function of the
Compensation Committee comply with the requirements of the Israeli Companies Law and NASDAQ Stock Market Rules.
Israeli Regulations
In March 2016, the Israeli Companies Law Regulations were amended
to reduce certain duplicative regulatory burden to which Israeli companies publicly traded on NASDAQ are subject to.
Generally, pursuant to the new regulations, an Israeli company
traded on NASDAQ that does not have a “controlling shareholder” (as defined in the Israeli Companies Law) will be able to
elect not to appoint External Directors to its Board of Directors and not to comply with the Audit Committee and Compensation Committee
composition and chairman requirements of the Israeli Companies Law (as described above under); provided, the company complies with the
applicable NASDAQ independent director requirements and the NASDAQ Audit Committee and Compensation Committee composition requirements.
Since our largest shareholder, the limited partnerships managed by FIMI FIVE 2012 Ltd.,
are deemed to be a “controlling shareholder” under the Israeli Companies Law, we are not currently eligible to benefit from
the relief provided by these new amended Israeli regulations.
Internal Auditor
Under the Israeli Companies Law, the board of directors of a publicly
traded company must appoint an internal auditor nominated by the audit committee. The role of the internal auditor is to examine
whether the company’s actions comply with the law, integrity and orderly business practice. Under the Israeli Companies Law,
the internal auditor may not be an interested party, an office holder, or an affiliate, or a relative of an interested party, office holder
or affiliate, nor may the internal auditor be the company’s independent accountant or its representative. KPMG serves as our
Internal Auditor.
Directors’ Service Contracts
There are no arrangements or understandings between us and any
of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment
or service as directors of our company or any of our subsidiaries.
Chairman of the Board
Under the Israeli Companies Law, the general manager of a company
(or a relative of the general manager) may not serve as the chairman of the board of directors, and the chairman of the board of directors
(or a relative of the chairman of the board of directors) may not serve as the general manager, unless approved by the shareholders by
a special majority vote prescribed by the Israeli Companies Law. The shareholder vote cannot authorize the appointment for a period of
longer than three years, which period may be extended from time to time by the shareholders with a similar special majority vote.
The chairman of the board of directors shall not hold any other position with the company (except as general manager if approved in accordance
with the above procedure) or in any entity controlled by the company, other than as chairman of the board of directors of a controlled
entity, and the company shall not delegate to the chairman duties that, directly or indirectly, make him or her subordinate to the general
manager.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Office Holders
The Israeli Companies Law codifies the fiduciary duties that “office
holders,” including directors and executive officers, owe to a company. An “office holder” is defined in the Israeli
Companies Law as a director, general manager, chief business manager, deputy general manager, vice general manager, other manager directly
subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions without regard
to such person’s title. An office holder’s fiduciary duties consist of a duty of care and a fiduciary duty. The duty
of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the
same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the appropriateness of a given
action brought for his approval or performed by him by virtue of his position and (ii) all other information of importance pertaining
to the foregoing actions. The fiduciary duty includes (i) avoiding any conflict of interest between the office holder’s position
in the company and any other position he holds or his personal affairs, (ii) avoiding any competition with the company’s business,
(iii) avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others, and
(iv) disclosing to the company any information or documents relating to the company’s affairs that the office holder has received
due to his position as an office holder.
Disclosure of Personal Interests of an Office Holder; Approval
of Transactions with Office Holders
The Israeli Companies Law requires that an office holder promptly,
and no later than the first board meeting at which such transaction is considered, disclose any personal interest that he or she may have
and all related material information known to him or her and any documents in their position, in connection with any existing or proposed
transaction by us. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary
course of business, other than on market terms, or likely to have a material impact on the company’s profitability, assets or liabilities,
the office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents,
descendants, spouse’s descendants and the spouses of any of the foregoing, or by any corporation in which the office holder or a
relative is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director
or the general manager.
Some transactions, actions and arrangements involving an office
holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided
for in a company’s articles of association, however, a transaction that is adverse to the company’s interest may not be approved.
In some cases, such a transaction must be approved by the audit committee and by the board of directors itself, and under certain circumstances
shareholder approval may also be required. A director who has a personal interest in a transaction that is considered at a meeting of
the board of directors or the audit committee may not be present during the board of directors or audit committee discussions and may
not vote on the transaction, unless the transaction is not an extraordinary transaction or the majority of the members of the board or
the audit committee have a personal interest, as the case may be. In the event the majority of the members of the board of directors or
the audit committee have a personal interest, then the approval of the general meeting of shareholders is also required.
Approval of a Compensation Policy for Office Holders
The Israeli Companies Law and the regulations adopted thereunder
require the compensation committee to adopt a policy for director and office holders. In adopting the compensation policy, the compensation
committee must consider factors such as the office holder’s education, experience, past compensation arrangements with the company,
and the proportional difference between the person’s cost of compensation and the average cost of compensation of the company’s
employees.
The compensation policy must be approved at least once every three
years at the company’s general meeting of shareholders, and is subject to the approval of a majority vote of the votes of the shareholders
present and voting at a shareholders’ meeting, provided that either: (i) such majority includes at least a majority of the votes
of all shareholders who are not controlling shareholders and do not have a personal interest in the approval of the compensation
policy, present and voting at such meeting (excluding abstentions); or (ii) the total number of ordinary shares of non-controlling shareholders
and shareholders who do not have a personal interest in the approval of the compensation policy, voting against the resolution does not
exceed 2% of the aggregate voting rights in the company. Our compensation policy was last approved by the shareholders in November 2020.
The Board may approve the compensation policy even if such policy
was not approved by the shareholders, provided that the compensation committee and the board of directors resolve, based on detailed consideration
of the compensation policy that approval of the policy, is in the best interest of the company, despite the fact that it was not approved
at the shareholders’ meeting.
The compensation policy serves as the basis for decisions concerning
the financial terms of employment or engagement of officer holders, including exculpation, insurance, indemnification or any monetary
payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including
advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives
for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations.
The compensation committee must also consider among others, the ratio between the cost of terms offered to the relevant director or office
holder and the average and median cost of compensation of the other employees of the company, including those employed through manpower
companies, the effect of disparities in salary upon work relationships in the company, the possibility of reducing variable compensation
at the discretion of the board of directors; the possibility of setting a limit on the exercise value of non-cash variable compensation;
and as to severance compensation (in excess of those promulgated by applicable labor law), the period of service of the director or office
holder, the terms of his or her compensation during such service period, the company’s performance during that period of service,
the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances
under which the person is leaving the company.
The compensation policy must also include the link between variable
compensation and long-term performance and measurable criteria, the relationship between variable and fixed compensation, and the upper
limit for the value of variable compensation, the conditions under which a director or an office holder would be required to repay compensation
paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated
in the company’s financial statements, the minimum holding or vesting period for variable, equity-based compensation whilst referring
to appropriate a long-term perspective based incentives; and maximum limits for severance compensation.
Once a compensation policy is properly adopted, the Israeli Companies
Law requires the compensation policy to be approved by the company’s compensation committee, with subsequent approval of the board
of directors. In addition, compensation of the directors and the chief executive officer is also subject to the approval of the shareholders
at a general meeting. The approval of the compensation of the chief executive officer that complies with the compensation policy is subject
to the same majority requirements as the approval of a transaction between a company and its controlling shareholder. Where the
director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply. The
terms of employment of the company’s directors and executive officers must satisfy the requirements of the compensation policy in
respect of matters relating to compensation. Any deviations from the compensation policy in respect of the compensation of the office
holders require the approval of the compensation committee, the board of directors and the shareholders. If the deviation is with respect
to the compensation of the chief executive office then such approval must be made by the majority of the shareholders provided that such
majority includes the majority of the votes of the non-controlling shareholder and other shareholders who have personal interest in the
proposal (unless such personal interest is not related to the controlling shareholder) present and voting (excluding abstention). Such
special majority is not required if the number of votes of the non-controlling shareholders and shareholder who do not have personal interest
in the proposal as previously mentioned is lower than 2% of the aggregate voting rights in the company.
Under the Israeli Companies Law, all arrangements as to compensation
of office holders who are not directors require the approval of the compensation committee prior, and in addition, to the approval of
the board of directors. However, if the Company duly adopts a compensation plan for its office holders, the approval of the board
of directors is not required if the new arrangement only modifies an existing arrangement and the compensation committee determines that
such modification is not material. Generally, the compensation of the CEO must be approved by the compensation committee, the board
of directors and by the majority of the shareholders provided that either: (i) such majority includes a majority of the total votes of
shareholders who are not controlling shareholders and do not have a Personal Interest in the approval of the compensation policy and who
participate in the voting, in person, by proxy or by written ballot, at the meeting (abstentions not taken into account); or (ii) the
total number of votes of shareholders mentioned in (i) above that are voted against the approval of the compensation policy do not represent
more than 2% of the total voting rights in the company. The compensation of office holders who are directors must be approved by
the compensation committee, board of directors and simple majority vote of the shareholders.
External directors of the company are prohibited from receiving,
directly or indirectly, any compensation from the company, other than for their services as external directors pursuant to the provisions
and limitations set forth in regulations promulgated under the Israeli Companies Law, which compensation is determined prior to their
appointment and may not be changed throughout the term of their service as external directors (except for certain exceptions set forth
in such regulations).
Disclosure of Personal Interests of a Controlling Shareholder;
Approval of Transactions with Controlling Shareholders
Pursuant to the Israeli Companies Law, the disclosure requirements
regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company.
A controlling shareholder is a shareholder who has the ability to direct the activities of a company, but excludes a shareholder whose
power derives solely from its position on the board of directors or any other position at the company. A person is presumed to be a “controlling
shareholder” if it holds or controls, by itself or together with others, one half or more of any one of the “Means of Control”
of the company. “Means of Control” is defined as any one of the following: (i) the right to vote at a General Meeting of the
company, or (ii) the right to appoint directors of the company or its chief executive officer. For the purpose of related party translations,
under the Israeli Companies Law, a controlling shareholder is also a shareholder who holds 25% or more of the voting rights if no other
shareholder who holds more than 50% of the voting rights. For this purpose, the holdings of all shareholders who have a personal interest
in the same transaction will be aggregated. Certain shareholders also have a duty of fairness toward the company. These shareholders include
any controlling shareholder, together with any shareholder who knows that it has the power to determine the outcome of a shareholder vote
and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or exercise any other
rights available to it under the company’s articles of association with respect to the company. The Israeli Companies Law does not
define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also
apply in the event of a breach of the duty of fairness.
An extraordinary transaction between a public company and a controlling
shareholder, or in which a controlling shareholder has a personal interest, including a private placement in which the controlling shareholder
has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling
shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s
receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding
his or her terms of employment, require the approval of a company’s audit committee (or compensation committee with respect to compensation
arrangements), board of directors and shareholders, in that order. Such transaction must be elected by a majority vote of the Ordinary
Shares present and voting at a shareholders’ meeting, provided that either: (i) such majority includes at least a majority of votes
held by all shareholders who do not have a personal interest in such transaction, present and voting at such meeting (excluding abstentions);
or (ii) the total number of votes of shareholders who do not have a personal interest in such transaction voting against the approval
of the transaction, does not exceed 2% of the aggregate voting rights in the company.
Pursuant to the Israeli Companies Law, the audit committee of the
company should determine in connection with such transaction if it requires rendering pursuant to a competitive procedure or pursuant
to other proceedings. See “Audit Committee” above.
To the extent that any such transaction with a controlling shareholder
or his relative is for a period extending beyond three years, shareholder approval is required once every three years, unless, in respect
to certain transactions, the audit committee determines that the longer duration of the transaction is reasonable under the circumstances.
Pursuant to regulations promulgated pursuant to the Israeli Companies
Law, a transaction with a controlling shareholder that would otherwise require approval of the shareholders is exempt from shareholders’
approval if each of the audit committee and the board of directors determine that the transaction meets certain criteria that are set
out in specific regulations promulgated under the Israeli Companies Law. Under these regulations, a shareholder holding at least 1% of
the issued share capital of the company may require, within 14 days of the publication of such determination, that despite such determination
by the audit committee and the board of directors, such transaction will require shareholder approval under the same majority requirements
that otherwise apply to such transactions.
The Israeli Companies Law provides that an acquisition of shares
in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater
shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder of the company. Similarly,
the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result
of the acquisition the purchaser would hold greater than a 45% interest in the company, unless there is another shareholder holding more
than a 45% interest in the company. These requirements do not apply if, in general, (i) the acquisition was made in a private placement
that received shareholder approval, (ii) was from a 25% or greater shareholder of the company which resulted in the acquirer becoming
a 25% or greater shareholder of the company, if there is not already a 25% or greater shareholder of the company, or (iii) was from a
shareholder holding a 45% interest in the company which resulted in the acquirer becoming a holder of a 45% interest in the company if
there is not already a 45% or greater shareholder of the company.
If, as a result of an acquisition of shares, the acquirer will
hold more than 90% of a public company’s outstanding shares or a class of shares, the acquisition must be made by means of a tender
offer for all of the outstanding shares or a class of shares. If less than 5% of the outstanding shares are not tendered in the tender
offer, all the shares that the acquirer offered to purchase will be transferred to the acquirer. If more than 5% of the outstanding
shares are not tendered in the tender offer, then the acquirer may not acquire shares in the tender offer that will cause his shareholding
to exceed 90% of the outstanding shares. The Israeli Companies Law provides for appraisal rights if any shareholder files a request
in court within six months following the consummation of a full tender offer. However, in the event of a full tender offer, the
offeror may determine that any shareholder who accepts the offer will not be entitled to appraisal rights. Such determination will
be effective only if the offeror or the company has timely published all the information that is required to be published in connection
with such full tender offer pursuant to all applicable laws.
Exculpation, Indemnification and Insurance of Directors and Officers
Exculpation of Office Holders.
The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of
his or her fiduciary duty. If permitted by its articles of association, a company may exculpate in advance an office holder from
his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care. However, a company
may not exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care in the event
of distributions.
Office Holders’ Insurance.
Israeli law provides that a company may, if permitted by its articles of association, enter into a contract to insure its office holders
for liabilities incurred by the office holder with a respect to an act performed in his or her capacity as an office holder, as a result
of: (i) a breach of the office holder’s duty of care to the company or another person; (ii) a breach of the office holder’s
fiduciary duty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that the act would
not prejudice the company’s interests; and (iii) a financial liability imposed upon the office holder in favor of another person.
Indemnification of Office Holders.
Under Israeli law a company may, if permitted by its articles of association, indemnify an office holder for acts performed by the office
holder in such capacity for (i) a monetary liability imposed upon the office holder in favor of another person by any court judgment,
including a settlement or an arbitration award approved by a court; (ii) reasonable litigation expenses, including attorney’s fees,
actually incurred by the office holder as a result of an investigation or proceeding instituted against him by a competent authority,
provided that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition
of any monetary liability in lieu of criminal proceedings, or concluded without the filing of an indictment against the office holder
and a monetary liability was imposed on him or her in lieu of criminal proceedings with respect to a criminal offense that does not require
proof of criminal intent; and (iii) reasonable litigation expenses, including attorneys’ fees, actually incurred by the office holder
or imposed upon the office holder by a court: in an action, suit or proceeding brought against the office holder by or on behalf of the
company or another person, or in connection with a criminal action in which the office holder was acquitted, or in connection with a criminal
action in which the office holder was convicted of a criminal offence that does not require proof of criminal intent.
Israeli law provides that a company’s articles of association
may permit the company to (a) indemnify an office holder retroactively, following a determination to this effect made by the company after
the occurrence of the event in respect of which the office holder will be indemnified; and (b) undertake in advance to indemnify an office
holder, except that with respect to a monetary liability imposed on the office holder by any judgment, settlement or court-approved arbitration
award, the undertaking must be limited to types of occurrences, which, in the opinion of the company’s board of directors, are,
at the time of the undertaking, foreseeable due to the company’s activities and to an amount or standard that the board of directors
has determined is reasonable under the circumstances.
Limitations on Exculpation, Insurance
and Indemnification. The Israeli Companies Law provides that neither a provision of the articles of association permitting
the company to enter into a contract to insure the liability of an office holder, nor a provision in the articles of association or a
resolution of the board of directors permitting the indemnification of an office holder, nor a provision in the articles of association
exculpating an office holder from duty to the company shall be valid, where such insurance, indemnification or exculpation relates to
any of the following: (i) a breach by the office holder of his fiduciary duty unless, with respect to insurance coverage or indemnification,
the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; (ii) a breach
by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the breach was committed only
negligently; (iii) any act or omission done with the intent to unlawfully yield a personal benefit; or (iv) any fine or forfeiture imposed
on the office holder.
Pursuant to the Israeli Companies Law, exculpation of, procurement
of insurance coverage for, and an undertaking to indemnify or indemnification of, our office holders must be approved by our audit committee
and board of directors and, if the office holder is a director, also by our shareholders.
Our articles of association allow us to insure, indemnify and exempt
our office holders to the fullest extent permitted by Israeli law. We maintain a directors’ and officers’ liability
insurance policy with a per claim and aggregate coverage limit of $20 million, including legal costs incurred in Israel. In addition,
our audit committee, board of directors and shareholders resolved to indemnify our office holders, pursuant to a standard indemnification
agreement that provides for indemnification of office holders up to an aggregate amount of 25% the company's equity, according to our
latest consolidated financial statements prior to the date that the indemnity was given. To date, we have provided letters of indemnification
to all of our officers and directors.
Board Diversity
While we do not have a formal policy on diversity, our Board considers
diversity to include the skill set, background, reputation, type and length of business experience of our board members, as well as a
particular nominee’s contribution to that mix. Although there are many other factors, the Board seeks individuals with experience
in the defense industry, sales and marketing, legal and accounting skills and board experience. Nasdaq’s Board Diversity Rule requires
companies listed on Nasdaq to publicly disclose board-level diversity statistics using a standardized template by the later of August
8, 2022 or our 2022 proxy statement.
We consider our employees the most valuable asset of our company.
We offer competitive compensation and comprehensive benefits to attract and retain our employees. The remuneration and rewards include
retention through share-based compensation and performance-based bonuses.
We believe that an engaged workforce is key to maintaining our
ability to innovate. We have steadily increased our workforce and have been successful in integrating our new employees and keeping our
employees engaged. Investing in our employees’ career growth and development is an important focus for us. We offer learning opportunities
and training programs including workshops, guest speakers and various conferences to enable our employees to advance in their chosen professional
paths.
We are committed to providing a safe work environment for our employees.
We have taken necessary precautions in response to the recent COVID-19 outbreak, including offering employees flexibility to work
from home, mandatory social distancing requirements in the workplace (such as adding more space between workspaces) and health monitoring
for our employees, daily office disinfection and sanitization, provision of hand sanitizer and face masks to all employees, and improvement
and optimization of our telecommuting system to support remote work arrangements.
As of December 31, 2021 following the divestiture of our Integrated
Solutions (Projects) division, we employed 160 full-time employees, of whom 24 were employed in general management and administration,
55 were employed in selling and marketing, 46 were employed in production, customers' support and maintenance and 35 were employed in
engineering and research and development. Of such full-time employees, 107 were located in Canada, 22 were in the United States
and 31 were in various other countries.
As of December 31, 2020, prior to the divestiture of our Integrated
Solutions (Projects) division, we employed 394 full-time employees, of whom 57 were employed in general management and administration,
77 were employed in selling and marketing, 17 were employed in projects management, 181 were employed in production, installation and
maintenance, and 62 were employed in engineering and research and development. Of such full-time employees, 157 were located in
Israel, 116 were in Canada, 24 were in the United States and 97 were in various other countries.
As of December 31, 2019, prior to the divestiture of our Integrated
Solutions (Projects) division, we employed 421 full-time employees, of whom 59 were employed in general management and administration,
80 were employed in selling and marketing, 18 were employed in projects management, 195 were employed in production, installation and
maintenance, and 69 were employed in engineering and research and development. Of such full-time employees, 161 were located in
Israel, 123 were in Canada, 25 were in the United States and 112 were in various other countries.
We generally provide our employees with benefits and working conditions
beyond the required minimums. Each of our subsidiaries provides a benefits package and working conditions which we believe are competitive
with other companies in their field of operations.
The following table sets forth certain information regarding the
ownership of our ordinary shares by our directors and executive officers as of April 24, 2022.
|
|
|
Number of Ordinary Shares Owned (1)
|
|
|
Percentage of Outstanding Ordinary Shares (2)
|
|
|
Gillon Beck (3)
|
|
|
- |
|
|
|
- |
|
|
Ron Ben-Haim (3)
|
|
|
- |
|
|
|
- |
|
|
Jacob Berman |
|
|
13,750 |
|
|
|
* |
|
|
Avraham Bigger |
|
|
- |
|
|
|
- |
|
|
Limor Steklov |
|
|
- |
|
|
|
- |
|
|
Moshe Tsabari |
|
|
- |
|
|
|
- |
|
|
Dror Sharon (4)
|
|
|
240,000 |
|
|
|
1 |
% |
|
Tomer Hay |
|
|
- |
|
|
|
* |
|
|
Doron Kerbel (5)
|
|
|
16,000 |
|
|
|
* |
|
|
Fabien Haubert (6)
|
|
|
24,000 |
|
|
|
* |
|
|
All directors and executive officers as a group (10 persons)
(7) |
|
|
293,750 |
|
|
|
1.3 |
|
_______________
* Less than 1%
| (1) |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities. Ordinary shares relating to options or convertible debenture notes currently exercisable or exercisable within
60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, the persons named in the table
above have sole voting and investment power with respect to all shares shown as beneficially owned by them. |
| (2) |
The percentages shown are based on 23,309,987 ordinary shares issued and outstanding as of April 24, 2022. |
| (3) |
Does not include any ordinary shares held by the FIMI Funds. |
| (4) |
Includes 240,000 ordinary shares issuable upon the exercise of currently exercisable options. |
| (5) |
Includes 16,000 ordinary shares issuable upon the exercise of currently exercisable options. |
| (6) |
Includes 24,000 ordinary shares issuable upon the exercise of currently exercisable options. |
| (7) |
Includes 280,000 ordinary shares issuable upon the exercise of currently exercisable options. |
Share Option Plans
2010 Israeli Share Option Plan
In June 2010, we adopted our 2010 Israeli Share Option Plan, or
the 2010 Plan. Under the 2010 Plan, stock options to purchase 510,575 ordinary shares may be granted to our employees, officers,
directors and consultants of our company and subsidiaries. In addition, an aggregate 498,384 ordinary shares that remained available
for future option grants under the 2003 Plan and any ordinary shares that become available in the future under the 2003 Plan as a result
of expiration, cancellation or relinquishment of any option were rolled over to the 2010 Plan. In June 2013, our shareholders approved
an increase to the number of ordinary shares available for issuance under the 2010 Plan by additional 500,000 shares. The 2010 Plan had
an original term of ten years, which was extended in August 2020 for an additional 5 years, on which date our board of directors had also
increased and set the number of ordinary shares available for issuance under the 2010 Plan to 1,200,000.
The 2010 Plan is designed to allow the grantees to benefit from
the tax benefits under Section 102 of the Israeli Income Tax Ordinance [New Version],
1961. Our Board of Directors has resolved that all options that will be granted to Israeli residents under the 2010 Plan will be
taxable under the “capital gains route.” Pursuant to this route, the profit realized by an employee is taxed as a capital
gain (25%) if the options or underlying shares are held by a trustee for at least 24 months from their date of the grant or issuance.
Any difference between the exercise price of the options and the average price of the company’s shares during the 30 trading
days before the date of grant of the options will be treated as ordinary income and will be taxed according to the employee’s
marginal tax rates plus social contribution. If the underlying shares are sold before the elapse of such period, the profit is re-characterized
as ordinary income. As of December 31, 2021, options to purchase 620,000 ordinary shares were outstanding under the 2010 Plan, exercisable
at an average exercise price of $2.777 per share. During 2021, 105,000 options were awarded under the 2010 Plan. Options to purchase 137,668
ordinary shares were exercised during 2021.
