Annual Report for Fiscal Year Ending December 31, 2025 (Form 20-F)

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

Overview

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

On March 25, 2019, we acquired Message Mobile, a leading provider of enterprise messaging, communication and payment solutions, based in Germany, with more than 15 years' experience in the mobile industry. Its messaging platform enables enterprises to easily communicate with clients and partners via text message / SMS, voice and instant messaging services like WhatsApp, Facebook Messenger and Telegram.

On September 25, 2019, we acquired GTX, a company based in Germany offering global SMS services for B-2-B customers, providing business partners a robust and easy-to-use system to send SMS messages to end-users at the best possible quality and attractive pricing, acting as a one-stop-platform for clients aiming to extend their messaging activities on different channels, e.g., WhatsApp, Chatbot on Messenger and Rich Communication Services (RCS). In 2023, GTX was merged with Message Mobile to form one legal entity that operates in the messaging segment.

On January 9, 2025, we acquired aurenz, a leading provider of UC analytics and call accounting solutions in Germany. Founded in 1983, aurenz maintains a leading position in the field of call accounting and, in recent years, in UC analytics. aurenz's solutions provide essential added value for unified communication systems, easily and quickly integrating into every UC implementation. aurenz prides itself on delivering outstanding service to ensure seamless installations and integrations. During 2025, aurenz did not meet its anticipated performance objectives, largely as a result of delays in a significant government project.

In 2025, 50% of our total revenues were derived from providing our billing and customer care software, 35% of our total revenues were derived from enterprise messaging and 15% of our total revenues were derived from providing our enterprise software. In 2025, services represented 96% of our total revenues and license fees represented 4% of our total revenues.

In 2025, 2024 and 2023, one customer accounted for approximately 15%, 11% and 12% of our total revenues, respectively. We expect to derive a greater portion of our revenues from a small number of changing customers.

Consolidation in the telecom markets was not favorable to us in the last years, and we lost a few customers each year and, at the same time, closed fewer deals and at lower values than in previous years. Accordingly, we expect we will not be able to maintain our revenues and our profitability levels in the near term.

Until and including 2025, our dividend policy was to declare a dividend distribution once per year, in the approximate amount of our EBITDA for the preceding year plus net financial income minus taxes on income, subject to specific board of directors' approval and applicable law. Since 2003, our cash dividends amount to approximately $6.0 per share. The amount per share that we distributed in 2025, 2024 and 2023 was $0.22, $0.24, and $0.24, respectively. In 2025, our board of directors decided to discontinue dividend distributions and to change the Company's capital return policy to a share repurchase program. In 2025, we repurchased shares in the amount of $130 thousand. See Item 16E for more information about our share repurchase program.

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

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

In the messaging segment, revenues are derived from customers using our messaging software platform, when the messaging service has been rendered, i.e., the messages are delivered to recipients. All the revenues in the messaging segment are recognized as services revenues.

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

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

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

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

Selling and Marketing Expenses. Our selling and marketing expenses consist primarily of payroll, overhead and related costs, for sales and marketing personnel, sales commissions, marketing programs, promotional materials, travel expenses and trade shows expenses.

General and Administrative Expenses. Our general and administrative expenses consist primarily of payroll, overhead and related costs for executives and administrative personnel, professional fees, directors' fees, insurance, costs related to being a public company, allowance for credit losses and other general corporate expenses.

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

Taxes on Income. See "Corporate Tax Rate" below.

The following discussion of our results of operations for the years ended December 31, 2025 and 2024, including the percentage data in the following table, is based upon our statements of operations contained in our consolidated financial statements for those years, and the related notes thereto, included in Item 18:

Comparison of the Year Ended December 31, 2025 to the Year Ended December 31, 2024

Revenues

Total revenues decreased by $2.0 million, or 9.3%, from $21.4 million in 2024 to $19.4 million in 2025, due to a decrease in revenues both in our messaging segment from $7.8 million in 2024 to $6.9 million in 2025 and in our billing and customer care segment from $13.6 million in 2024 to $12.6 million in 2025 (which include revenues of $1.5 million from our newly acquired subsidiary, aurenz, which was acquired in the first quarter of 2025).

Revenues from services decreased by $2.0 million from $20.7 million in 2024 to $18.7 in 2025, primarily due to the decrease in revenues as discussed above. Revenues from licenses were $0.7 million in each of 2024 and 2025.

Revenues from our billing and customer care solutions for service providers decreased by $2.2 million from $11.8 million in 2024 to $9.6 million in 2025. The decrease was primarily due to the shrinking relevant telecom markets and loss of a few customers. We expect a future trend of revenue decline due to shrinking relevant telecom markets and strong competition, a decrease in revenues from an existing customer, the loss of a few customers and a decrease in maintenance revenues.

Revenues from our messaging segment decreased by $0.9 million from $7.8 million in 2024 to $6.9 million in 2025 due to a decline in the volume of messages used by customers.

Revenues from our enterprise products increased by $1.1 million from $1.9 million in 2024 to $3.0 million in 2025. The increase was primarily attributed to the newly acquired subsidiary, aurenz, offset by a decrease in maintenance revenues from existing customers, including a decrease of $0.4 million due to the loss of one significant customer in 2024. We continue to expect that this market will generally decline.

The following table presents the geographic distribution of our revenues:

Our revenues in the Americas decreased from $8.5 million in 2024 to $6.7 million in 2025. The decrease was primarily due to the loss of a few customers in this region during 2025. We expect this trend to continue.

Our revenues in Europe were $11.4 million in each 2024 and 2025. The inclusion of the revenues of the newly acquired subsidiary, aurenz, was offset by the decrease in our messaging segment revenues.

Our revenues in Israel decreased from $1.0 million in 2024 to $0.9 million in 2025, mainly due to the completion of follow-on orders for customizations to two of our customers in Israel in 2024.

Cost of Revenues

Total cost of revenues in 2025 decreased by $1.2 million, or 10.9%, compared with 2024, primarily due to (i) the decrease in revenues in our messaging segment, which generated cost of revenues of $5.8 million in 2025 and $6.8 million in 2024 and a (ii) the decrease in cost of revenues in the billing and related services segment, which is attributed to an infrequent high cost of third-party hardware and licenses supplied as part of our solutions to a customer in 2024, offset by the inclusion of the results of the newly acquired subsidiary, aurenz.

Gross profit as a percentage of total revenues increased from 49.9% in 2024 to 51.0% in 2025, primarily attributed to the above-mentioned supplied third-party hardware and licenses.

Operating Expenses

Research and Development. The increase in our research and development expenses by 19.4% in 2025 compared to 2024 was primarily due to the inclusion of the personnel expenses of the newly acquired subsidiary, aurenz. Research and development expenses as a percentage of total revenues increased from 15.8% in 2024 to 20.8% in 2025, due to the abovementioned decrease in revenues.

Selling and Marketing Expenses. Selling and marketing expenses increased from $1.3 million in 2024 to $1.5 million in 2025, mainly due to an increase in personnel costs and the inclusion of the results of the newly acquired subsidiary, aurenz. Selling and marketing expenses as a percentage of total revenues increased from 6.0% in 2024 to 7.5% in 2025, mainly due to the abovementioned decrease in revenues.

General and Administrative Expenses. General and administrative expenses increased from $1.7 million in 2024 to $2.3 million in 2025, mainly due to the change in the provision for credit losses and a one-time cost related to the acquisition of aurenz and the inclusion of its results. General and administrative expenses as a percentage of total revenues increased from 7.8% in 2024 to 11.9% in 2025, mainly due to the abovementioned increase in expenses and decrease in revenues.

Impairment of Goodwill. No impairment of goodwill was required following the annual assessment performed during each of 2024 and 2025.

Financial Income, net.In 2025, financial income mainly consisted of interest income on short-term bank deposits (including cash equivalents) and on marketable securities in the amount of $475 thousand and gains from currency exchange rate fluctuations in the amount of $255 thousand, offset by bank charges in the amount of $33 thousand. In 2024, financial income mainly consisted of interest income on short-term bank deposits (including cash equivalents) and on marketable securities in the amount of $750 thousand, offset by losses from currency exchange rate fluctuations in the amount of $159 thousand and by bank charges in the amount of $24 thousand.

Taxes on Income.Taxes on income are comprised of current and deferred taxes. On a regular basis, we estimate our actual current tax exposures and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred taxes, which are included in our consolidated balance sheet. In 2025, our taxes on income in the amount of $163 thousand included current taxes on income, mainly in Israel, in the amount of $202 thousand, offset by deferred taxes income in the amount of $99 thousand. In 2024, our taxes on income in the amount of $334 thousand included current taxes on income, mainly in Israel, in the amount of $252 thousand, offset by deferred taxes in the amount of $43 thousand.

For a comparison of the year ended December 31, 2024 to the year ended December 31, 2023, please refer to Item 5 in our annual report on Form 20-F for the year ended December 31, 2024, filed with the SEC on March 18, 2025.

Our Functional Currency

The currency of the primary economic environment in which we operate is the dollar. Although 58% of our revenues are denominated in Euro, approximately 37% of our revenues are denominated in dollars and the vast majority of our cash reserves and investments are denominated in dollars. Thus, the functional currency of the Company and certain subsidiaries is the dollar.

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

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

Impact of Foreign Currency Fluctuations on Results of Operations

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

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

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

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

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

As of December 31, 2025, we had $8.1 million in cash and cash equivalents and $5.4 million in short-term bank deposits and marketable securities, and our working capital was $11.9 million. In our opinion, our working capital is sufficient for our requirements for the foreseeable future.

The majority of our cash and cash equivalents, our short-term bank deposits and marketable securities are denominated in dollars.

Net Cash Provided by Operating Activities. Net cash provided by operating activities in 2025 was $4.0 million, attributable to our net income of $2.6 million, non-cash related items, net, in the amount of $0.4 million and an increase in operating assets and liabilities items in the amount of $1.0 million. Net cash provided by operating activities in 2024 was $4.1 million, attributable to our net income of $4.6 million, non-cash related items, net, in the amount of $0.4 million, offset by a net decrease in operating assets and liabilities items in the amount of $1.0 million.

Net Operating Working Capital

As of December 31, 2025, net operating working capital was $11.9 million, compared to $15.6 million as of December 31, 2024. The decrease of $3.7 million is mainly due to a decrease of $2.2 million in our cash position and $0.8 million in accounts receivable and an increase of $1.1 million in deferred revenues, offset by a decrease of $0.2 million in accounts payable and an increase of $0.2 million in prepaid expenses.

Cash Deposits

As of December 31, 2025, we had approximately $5.2 million in bank deposits with maturities of between three and twelve months.

Marketable Securities

As of December 31, 2025, we held marketable securities of approximately $200 thousand.

Net Cash Provided by Investing Activities. In 2025, we provided cash of $5.9 million from the redemption of short-term bank deposits, offset by $1.5 million which was used for the acquisition of a subsidiary (net of existing cash in the acquired subsidiary pre-acquisition). In 2024, we provided cash of 2.4 million from the redemption of short-term bank deposits.

Net Cash Used in Financing Activities. In 2025, our financing activities included a cash dividend of $4.5 million and repurchase of shares in the amount of $130 thousand. In 2024, our financing activities included a cash dividend of $4.9 million.

Capital Expenditures. The aggregate cash amount of our capital expenditures was $27 thousand and $10 thousand in 2025 and 2024, respectively. These expenditures were principally for the purchase of equipment, mainly for the upgrade of our hosted platform that services the messaging segment, and electronic equipment for our engineering teams. Although we have no material commitments for capital expenditures, we anticipate an increase in capital expenditures if we purchase or merge with companies or purchase assets in order to obtain complementary technology and to expand our product offerings, customer base and geographical presence.

Share Repurchase Program and Cash Dividends. Since 2003, we have distributed aggregate cash dividends of $6.0 per share to our shareholders. During 2025, we acquired an aggregate of 117,998 of our ordinary shares for approximately $130 thousand. For information about our dividend policy, please see Item 8, "Financial Information - Dividend Policy."

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

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

We invested in research and development $4.1 million (or 20.8% of our total revenues) in 2025 and $3.4 million (or 15.8% of our total revenues) in 2024. The increase in 2025 was mainly due to an increase in personnel expenses due to the inclusion of the personnel expenses of the newly acquired subsidiary, aurenz. Our engineering department comprised approximately 85 employees as of December 31, 2025.

Communication network service providers are facing many challenges, including the need to reduce costs and offer new services. In addition, rapid advances in artificial intelligence are increasing competitive and financial pressure on service providers to improve operational efficiency and leverage AI capabilities across their organizations. At the same time, the use of wireline telephony is diminishing. Mobile operators, after incurring high investment expenses in deploying 5G networks, need to monetize high-speed connectivity and rich content offerings. Subscribers expect customer support, uninterrupted service and full digitalization, while telcos seek ways to reduce workforce and increase profitability. Our solutions address these challenges by enabling service providers to rapidly deploy all types of services for prepaid and postpaid, residential and business customers. Separately, we are developing new AI-enabled tools and capabilities intended to help service providers further improve efficiency and operations; however, these AI-enabled tools and capabilities are still under development.

There is a need to replace outdated billing systems that are not secure due to old technologies and that require high costs to operate. Most telcos in our relevant segment are reluctant to heavily invest in transformation projects and are turning to low-cost solutions. This buying behavior results in lower demand for our comprehensive and sophisticated end-to-end solutions, and we had no new customers in 2024 or 2025.

Our billing and customer care solutions target tier 2 and tier 3 service providers. Some service providers seek solutions implemented on a native cloud architecture. Although we made major progress this year in the development and transition of our solutions towards a native cloud architecture, we have not yet completed our native cloud readiness, which we expect to complete in 2026. This has harmed our competitive position.

The telecommunication market is undergoing consolidation and intensifying competition, and we have lost a few customers during each of the last few years. We expect that these trends will continue to negatively impact our revenues and profitability in 2026.

The current trend in messaging goes beyond traditional A2P SMS to conversational and omnichannel messaging, where companies reach their target groups via SMS, RCS/RBM, and messaging apps such as WhatsApp. While A2P SMS continues to form the basis for reliable, fast, and secure delivery - for example, for OTPs, banking, and shipping notifications - customers today increasingly expect interactive and dialogue-oriented communication. Companies are therefore increasingly relying on rich messaging and WhatsApp Business to not only provide information, but also enable direct conversation, service processes, and commerce. At the same time, automation and high security standards are becoming increasingly important. Messaging is thus evolving from a pure notification channel to a central platform for digital customer interaction. Therefore, we continue to enhance our platform to support the latest channels and features.

Our discussion and analysis of our consolidated financial statements of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. On a regular basis, we evaluate and may revise our estimates. Actual results could differ materially from the estimates under different assumptions or conditions.

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

Another critical accounting policy is revenue recognition. We have customer contracts in the billing and related services segment where revenue is recognized over time, as our performance does not create an asset with an alternative use and we have an enforceable right to payment, including a reasonable profit. Our determination of revenue to be recognized for these contracts accounted for over time requires management to make significant estimates of the total labor hours needed to complete the contracts, including updates to those estimates throughout the life of the contracts. The updates of the existing estimates are not expected to have a significant impact on our financial condition or results of operations.