Selected
Financial Data
The following selected financial data has been
derived from our audited consolidated financial statements for the periods,
which have been prepared in accordance with United States GAAP. Our audited
consolidated financial statements include, in the opinion of management, all
adjustments necessary to fairly present the financial position and results of
operations of our company for those periods.
Our selected consolidated statements of operations data for the years
ended December 31, 2001, 2002 and 2003 and our selected consolidated balance
sheet data as of December 31, 2002 and 2003 have been derived from our
consolidated financial statements, included elsewhere in this report. Our selected balance sheet data for the
years ended December 31, 1999, 2000 and 2001 have been derived from our
consolidated financial statements not included in this report. Our historical financial data prior to the
acquisition of the shares of Franz Kalff in 2001 is not necessarily indicative
of our future operating results or financial condition.
The
financial data set forth below should be read in conjunction with our
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this annual report.
3
Statement
of Operations Data
Year ended
December 31,
1999
2000
2001
2002
2003
(United
States dollars in thousands, except per share data)
Sales
-
-
8,235
*
8,704
12,493
Cost of Sales
-
-
6,322
6,708
9,649
Gross Profit
-
-
1913
1,996
2,844
Selling and marketing expenses
-
-
(575
)*
(655
)
(946
)
General and administrative expenses
294
(751
)
(1762
)
(1,471
)
(1,949
)
Operating loss
(294
)
(751
)
(424
)
(130
)
(51
)
Other income
40
50
362
257
1,045
Impairment on long-term investment
-
(2,079
)
(1,390
)
--
--
Financial income (expenses), net
-
285
(284
)
(191
)
(10
)
Income (loss) before taxes on income
(254
)
(2,495
)
(1,736
)
(64
)
984
Taxes on income
-
-
88
378
195
Gain (loss) from continuing operations before
extraordinary items
(254
)
(2,495
)
(1,824
)
(442
)
789
Discontinued operations:
Loss
from segment’s
operations
(954
)
-
-
-
--
Gain
(loss) from disposal of
segment
4,812
-
-
-
--
Net
gain (loss) from
discontinued
operations.
3,858
-
-
-
-
Income (loss) before extraordinary items
3,604
(2,495
)
(1,824
)
(442
)
789
Extraordinary items
1,220
-
-
--
--
Equity in earnings of an affiliate
--
--
--
--
481
Net income (loss)
4,824
(2,495
)
(1,824
)
(442
)
1,270
Net earnings (loss) per share - basic and
diluted
1.01
(0.21
)
(0.13
)
(0.03
)
0.09
Weighted average number of shares used in
computing basic net earnings (loss) per share
4,772
11,862
13,521
13,600
13,600
Weighted average number of shares used in
computing diluted net earning (loss) per shares
4,772
11,862
13,521
13,600
13,600
* Reclassified.
Balance Sheet Data
December
31,
1999
2000
2001
2002
2003
(United
States dollars in thousands)
Working capital
1,580
952
872
1,468
3,934
Total assets
2,372
6,130
12,926
14,414
16,732
Total liabilities
2,854
966
7,576
8,864
9,364
Shareholders’ equity (deficiency)
(482
)
5,164
5,350
5,550
7,368
4
Risk Factors
This
annual report and statements that we may make from time to time may contain
forward-looking information. There can
be no assurance that actual results will not differ materially from our
expectations, statements or projections.
Factors that could cause actual results to differ from our expectations,
statements or projections include the risks and uncertainties relating to our
business described below.
General
Risks Affecting our Business
We have limited funds and may not be able to raise
additional funds to develop our business, which could force us to discontinue
our operations
.
We are a holding company and we
currently have limited funds. In addition, our ability to control the
generation of revenue from our operating companies is limited since we hold a
controlling interest in only one of our operating companies. Furthermore, we
may not be able to attract investors to purchase our securities in future
financings.
Since we are unable to control the operations of our
portfolio companies in which we hold only partial interests, we cannot directly
control the value of our business
.
As a holding company our assets are comprised of equity
securities and may also include in the future debt securities of other
companies. Therefore, the value of our shares is influenced by the value of the
interests that we hold in other companies. If the value of these interests
decline, so could the value of our ordinary shares. Our ability to direct the operations of the companies in which we
hold partial interests is limited. In addition, the value of these companies
could fluctuate due to market conditions, levels of trading and prices on the
Tel Aviv Stock Exchange and other conditions over which we have no control.
We may not be able to successfully implement our development
and growth plans, and as a result, the market price of our ordinary shares
could decline
.
As of the date of this report, we primarily hold direct and indirect
interests in four active companies. We plan to acquire additional interests in
operating companies and businesses, in technology and other fields. We believe
that our success is dependent not only upon the success of the companies in
which we already hold interests but also upon our ability to successfully
implement our development plans. The
market price of our ordinary shares has been volatile and if the companies in
which we hold an interest are not successful or if we are unable to accomplish
our development goals, the market price of our shares could decline. A decline in the value of our company would
prevent us from being financially able to acquire interests in other technology
companies and prevent us from implementing our development and growth plans,
further devaluing the price of our ordinary shares.
Our controlling shareholders may sell a substantial amount
of their shares or cease their direct participation in the development of our
business and we may be unable to successfully locate future investments
.
Our controlling shareholders actively
participate and direct our fundraising and investment activity. In the event
that our controlling shareholders sell their controlling block of our ordinary
shares, there is a risk that without their expertise we would be unable to
succeed in our business plans as we could be unable to identify future
profitable investments.
5
If we are deemed to be an investment company, we will be
subject to certain restrictions that may prevent us from conducting our
business as currently conducted
.
We may incur significant costs and suffer other adverse consequences
if we are deemed to be an investment company under the United States Investment
Company Act of 1940, as amended. A
company may be deemed to be an investment company if it owns investment
securities with a value exceeding 40% of its total assets, subject to certain
exclusions. Investment companies are
subject to registration under, and compliance with, the United States
Investment Company Act of 1940 unless a particular exclusion or safe harbor
exemption applies. If we were to be
deemed an investment company, we would become subject to the requirements of
the United States Investment Company Act of 1940. As a consequence, we would be prohibited from engaging in
business, offering for sale, selling or issuing our securities by the use of
the mails or any means or instrumentality of interstate commerce and might be
subject to civil and criminal penalties for noncompliance. In addition, our
contracts with our affiliates might be voidable.
In 2000, following the
sale of all of our past operating activities and the purchase of the assets of
Silverboim Technology (1999) Ltd., we became exposed to the risk of being
deemed an investment company. On March
23, 2000, our board of directors resolved that we conduct our business
activities, absent exemptive or other relief from the Securities and Exchange
Commission, in a manner that does not cause us to be deemed an investment
company requiring registration under the United States Investment Company Act
of 1940. We strive to and believe that
we currently meet certain “safe harbor” requirements under the United States
Investment Company Act of 1940, so that we are not deemed an investment
company. However, there is a risk that
we could fail to meet the “safe harbor” requirements and be deemed an
investment company in the future.
Moreover, because we would like to avoid investment company status in
the future, we may also be unable to freely purchase investment securities in
additional companies that may be important to our operating strategy.
We must successfully manage and integrate transactions.
We
hope to expand through the acquisition of additional interests in operating
companies and businesses in technology and other fields. There is no assurance
that we will successfully complete future acquisitions. In addition, some of
our intended acquisitions may be of interests in early-stage companies with
limited operating histories and limited or no revenues. We may not be able to successfully develop
these young companies or generate meaningful revenues from acquisitions of such
interests. Any failure in managing and
integrating future acquisitions would cause us to be unsuccessful in achieving
our goals and could reduce the value of our investments and our ordinary share market
price.
If we are characterized as a passive foreign investment
company for U.S. federal income tax purposes, our U.S. shareholders may suffer
adverse tax consequences
.
Generally, if for any taxable year 75% or more of our gross
income is passive income, or at least 50% of our assets are held for the
production of, or produce, passive income, we may be characterized as a passive
foreign investment company for U.S. federal income tax purposes. If we are
characterized as a passive foreign investment company, our U.S. shareholders
may suffer adverse tax consequences, including having gains realized on the
sale of our shares taxed at ordinary income rates, rather than the capital gain
rate. A determination that we are a passive foreign investment company could
have an adverse effect on the price and marketability of our shares. We
continue to monitor whether we are a passive foreign investment company. See
“Item 10. Additional Information – Taxation – Passive Foreign Investment
Companies”.
6
The Office of the Israeli Chief Scientist could require us
to pay back previously granted funds, which could affect our profitability
. In the past we received approximately $4.4
million in grants from the Office of the Israeli Chief Scientist for projects
relating to research and development. Because we discontinued operations and/or
sold all of our operating businesses and research projects, there is a risk
that the Office of the Israeli Chief Scientist will require us to repay some or
all of the grants previously received plus interest, which could affect our
profitability. Edco Technologies 1993
Ltd., formerly Associative Computing Ltd., which we sold in 2003, received $0.3
million in grants from the Israeli Chief Scientist. Upon sale of substantially all of its assets to NeoMagic Israel
Ltd., NeoMagic Israel Ltd. undertook to pay any royalties owed by Edco
Technologies to the Israeli Chief Scientist with respect to grants received by
Associative Computing. In the event
that NeoMagic Israel Ltd. or its parent, NeoMagic Corporation, fails to comply
with the requirements of the law or fails to pay royalties, there is a risk
that the Israeli Chief Scientist will require Edco Technologies to pay any
royalties owed. Although we sold our shares in Edco Technologies, we agreed to
indemnify the purchaser of Edco Technologies for any obligation to pay such
royalties.
Specific
Risks Related to
Acquisitions
If we are unable to repay the loan we took from Bank
Hapoalim in order to finance our acquisition of Franz Kalff by our wholly owned
subsidiar y and insurance company investments, we could be forced to
discontinue our operations
.
The share capital of Franz Kalff was purchased by Mersa Holding
B.V., our wholly owned subsidiary, on January 24, 2001 from Gilex Holdings
B.V. For the purpose of this transaction,
Mersa borrowed from us an aggregate amount of $8.4 million, $6.3 million in
cash and in addition we issued Gilex 1.2 million ordinary shares valued at the
time at $2.1 million. On January 18, 2001, in order to finance the loan to
Mersa we took a loan from Bank Hapoalim in a principal amount in Euro equal to
approximately $5.5 million. In December
2002, Franz Kalff sold its land in a leaseback transaction for the aggregate
amount of $3,500,000. The amount of $ 3,500,000 (net the initial lease payment)
was distributed to Mersa and Mersa transferred most of the amount to Robomatix,
which we used to repay Bank Hapoalim. We also borrowed approximately $2,000,000
in connection with our investments in Israel Land Development Insurance Company
Ltd., and ICIC – The Israel Credit Insurance Company Ltd., two private Israeli
insurance companies. Subsequently, in June 2004 we sold our shares in ICIC –
The Israel Credit Insurance Company, and repaid a portion of the loan to Bank
Hapoalim. The remainder of our loan from Bank Hapoalim is repayable through
November 2008. Under the loan agreement, Bank Hapoalim has a security interest
in all of our assets, whether now owned or later acquired, including payments
received from Mersa and the shares we hold in Israel Land Development Insurance
Company Ltd. Therefore, if we are unable to repay the loan, Bank Hapoalim would
be entitled foreclose on our assets in order to recover any balance still owed
under the loan, which could force us to discontinue operations. See “Item 4:
Information on the Company – History and Development – Recent Principal Capital
Expenditures” and “Item 4: Information
on the Company – Recent Capital Expenditures.”
7
As long as there is a balance due on the loan that we took
from Bank Hapoalim, we will not be able to utilize any revenues generated by
Franz Kalff, which could impair our ability to grow
.
Our loan agreement with Bank Hapoalim
provides that subject to the requirements of the law and the ordinary course of
business of Mersa, we will use our best efforts to cause Mersa to pay
dividends. Payments of dividends, management fees or any other amount paid to
us by Mersa will be deposited in our bank account and will be used to repay our
loan to Bank Hapoalim. Therefore, even
if we receive funds from Mersa, we will not be able to utilize these funds
until the balance on our loan from Bank Hapoalim is repaid. This lack of liquidity could impair our
ability to grow if we are not able to raise funds from other resources. See “Item 4: Information on the Company –
History and Development – Recent Principal Capital Expenditures.”
If Franz Kalff loses any of its customers, its revenues may
decline and it may have difficulty fulfilling its obligations
.
Franz Kalff markets and sells its
products to retail stores and car manufacturers. Its revenues from sales to its five largest customers constitute
approximately 58% of its total revenues in 2003. If Franz Kalff’s business relations with one or more of these
five customers is terminated, Franz Kalff’s sales revenues could decline. In
the event that its revenues decline significantly, Franz Kalff could have
difficulty fulfilling its financial obligations, including the payment of its
annual rent. See “Item 4: Information on the Company – Business Overview.”
If Franz Kalff is unable to maintain a competitive edge, it
may not continue to be profitable
.
The market for first aid kits is a competitive market and is
expected to become even more competitive if the members of the European Union
adopt legislation that would require car owners to keep a first aid kit in
every car. If Franz Kalff is unable to maintain its current competitive edge
and to develop its business in order to succeed in the European market it may
not continue to be profitable in the future. See “Item 4: Information on the
Company – Business Overview.”
If damages are caused by its products, Franz Kalff could be
subject to liability, which may damage its reputation and reduce its
profitability
.
Franz Kalff could be subject to liability for damages caused by its
products. Product liability claims are
common as a result of failures of products in the first aid kit industry. Franz Kalff is insured against product
liability and to our knowledge, no product liability claims were raised against
Franz Kalff in the past. However, in
the event that such claims are brought against Franz Kalff, it could cause our
reputation to be tarnished and orders of our products to be cancelled or
reduced. See “Item 4: Information on
the Company – Business Overview.”
Fluctuations in interest rates and the currency exchange
rate could result in a material increase in the expenses incurred in connection
with the loans that we took from Bank Hapoalim
.
The loans we took from Bank Hapoalim in
order to finance our acquisitions and investments may be denominated in
different currencies and linked to variable interest rates, such as the EUROBOR
and indexes. Upward fluctuations in the insurance rates or in the value of the
currency, in which the loans are denominated, could result in a material
increase in expenses incurred in connection with the loan and, consequently, a
decrease in liquidity and an inability to grow our business according to our
business plan.
8
We have stopped purchasing insurance for
manufacturing defects in products that we manufactured in the past
.
We could be held liable for manufacturing
defects in products that we or our subsidiaries manufactured in the past.
Although, to the best of our knowledge, no claims of manufacturing defects have
been raised as of the date of this report and use of these products is limited,
there is still a risk that such claims will be raised in the future and we
could be forced to pay out significant sums of money to satisfy claims. See
“Item 4: Information on the Company – History and Development.”
Risks
Related to the Public Market for Our Ordinary Shares
There is only a limited public market for our ordinary
shares, which limits the liquidity of our ordinary shares and may make it
difficult to sell our ordinary shares
.
Currently, the only public market for our ordinary shares is the
over-the-counter bulletin board. The
over-the-counter bulletin board generally has a more limited trading market
than other stock markets. Furthermore, there are very few transactions in connection
with our ordinary shares and there is a large gap between the bid and ask
prices. There can be no assurance that a broad public market for our ordinary
shares will develop in the future. These factors make it difficult for our
shareholders to sell our ordinary shares which could sustain their low
value. See “Item 9: The Offer and
Listing – Price History and Market Information.”
Since there is a limited public market for our ordinary
shares, future issuance of equity or equity-linked securities could result in a
decrease of the value of our ordinary shares
.
If a broader public market for our ordinary
shares does not develop, subsequent issuance of equity or equity-linked
securities could saturate the market and depress the value of our ordinary
shares.
Since ownership of our ordinary shares is concentrated, our
principal shareholders have a significant affect on important decisions
regarding our business and they may be able to prevent takeover attempts that
could be advantageous to other shareholders and our other shareholders’ ability
to affect our activities could be limited
.
As
of June 14 2004, Silverboim Holdings Ltd. beneficially owned approximately
55.59% of our share capital and Gilex Holdings B.V. beneficially owned 14.81%
of our share capital. Silverboim
Holdings also provides us with management and consulting services. Therefore,
Silverboim Holdings and Gilex may be able to significantly affect important
decisions regarding our business, as well as prevent corporate transactions
such as mergers, consolidations or a sale of substantially all of our assets,
which might be favorable from our standpoint or that of other
shareholders. The ability of our other
shareholders to affect our activities could be limited. See “Item 7: Major
Shareholders and Related Party Transactions.”
Risks
Related to our Operations in Israel
Security, political and economic instability in Israel may
harm our business.
We are incorporated under the laws of the
State of Israel and our offices are located in Israel. In addition, we have
holdings in Israeli companies. Accordingly, we are directly affected by
economic, political and military conditions in Israel. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have taken place between Israel and
its Arab neighbors and a state of hostility, varying from time to time in
intensity and degree, has led to security and economic problems for
Israel. There has been an increase in
hostilities, civil unrest, terrorist activities and military action, which
began in September 2000 and which have continued with varying levels of
severity into 2004. This or any future instability could result in our
inability to maintain or develop our business.
In addition, certain countries, companies and other organizations
continue to boycott Israeli firms and others doing business in Israel or with
Israeli companies. Furthermore,
Israel’s economy is currently suffering from a recession. Although the
government has proposed a significant economic plan, there is uncertainty as to
the effectiveness of the plan and the timing of any economic recovery.
9
If a substantial number of our officers and directors were
called for military duty, our management resources, and as a result, our
operations, could be compromised
.
If our chief executive officer or a substantial number of our
directors were called for military duty, our management resources, and as a
result, our operations, could be compromised.
All nonexempt male adult citizens of Israel are obligated to perform military
reserve duty and may be called for active duty under emergency circumstances.
As of the date of this report, our chief executive officer and most of our
directors are subject to military reserve duty.
Service of process and enforcement of judgments on our
officers and directors may be impossible
.
Our officers and directors reside
outside of the United States.
Therefore, even if our shareholders were able to obtain a judgment
against us or any of our officers and directors in the United States, this
judgment could be difficult, both legally and financially, to enforce. Our shareholders may not be able to enforce
civil actions under United States securities laws if they file a lawsuit in
Israel. If a foreign judgment is
enforced by an Israeli court, it will be payable in Israeli currency.
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