UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F
For the fiscal year ended December 31, 2021
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report...........
Commission file number 0-28884
ELTEK LTD.
(Exact name of Registrant as specified in its charter
and translation of Registrant's name into English)
(Jurisdiction of incorporation or organization)
20 Ben Zion Gelis Street, Sgoola Industrial Zone, Petach Tikva 4927920, Israel
(Address of principal executive offices)
Ron Freund, +972-3-9395025 (phone), +972-3- 9342584 (fax)
20 Ben Zion Gelis Street, Sgoola Industrial Zone, Petach Tikva 4927920, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Ordinary Shares, NIS 3.00 Nominal Value |
ELTK |
NASDAQ Capital Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to section 15(d) of the act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
5,840,357 Ordinary Shares, nominal value NIS 3.00 per share (as of December 31, 2021)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Emerging growth company ☐ |
Non-accelerated filer ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ |
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ☐ No ☒
1 | ||
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
1 | |
OFFER STATISTICS AND EXPECTED TIMETABLE |
1 | |
KEY INFORMATION |
1 | |
A. |
[RESERVED] |
1 |
B. |
Capitalization and Indebtedness |
1 |
C. |
Reasons for the Offer and Use of Proceeds |
1 |
D. |
Risk Factors |
1 |
INFORMATION ON THE COMPANY |
23 | |
A. |
History and Development of the Company |
23 |
B. |
Business Overview |
24 |
C. |
Organizational Structure |
29 |
D. |
Property, Plants and Equipment |
30 |
UNRESOLVED STAFF COMMENTS |
30 | |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
30 | |
A. |
Operating Results |
30 |
B. |
Liquidity and Capital Resources |
35 |
C. |
Research and Development, Patents and Licenses |
38 |
D. |
Trend Information |
38 |
E. |
Critical Accounting Estimates |
38 |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
39 | |
A. |
Directors and Senior Management |
39 |
B. |
Compensation |
42 |
C. |
Board Practices |
43 |
D. |
Employees |
51 |
E. |
Share Ownership |
52 |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
54 | |
A. |
Major Shareholders |
54 |
B. |
Related Party Transactions |
54 |
C. |
Interests of Experts and Counsel |
57 |
FINANCIAL INFORMATION | 57 | |
A. |
Consolidated Statements and Other Financial Information | 57 |
B. |
Significant Changes | 58 |
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. |
KEY INFORMATION |
A. |
Reserved |
B. |
Capitalization and Indebtedness
Not applicable. |
C. |
Reasons for the Offer and Use of Proceeds
Not applicable. |
D. |
Risk Factors |
• |
We have a history of operating losses and may not be able to achieve and sustain long term profitable operations. We may not
have sufficient resources to fund our operations in the future. |
• |
We may require additional capital in the future, which may not be available to us. |
• |
The spread of novel strain of coronavirus, COVID-19, may adversely affect our business operations and financial condition.
|
• |
We are dependent on one-of-a-kind machinery that may malfunction and may not be easily replaced. |
• |
Because competition in the PCB market is intense, our business, operating results and financial condition may be adversely affected.
|
• |
Rapid changes in the Israeli and international electronics industries and recessionary pressures may adversely affect our business.
|
• |
Our products and product components need to meet certain industry standards. |
• |
Key customers account for a significant portion of our revenues. The loss of a key customer would have an adverse impact on our business
results. |
• |
We are dependent upon a select number of suppliers for timely delivery of key raw materials and the loss of one or more of these
suppliers or delays in supply of these raw materials would adversely affect our manufacturing ability. If these suppliers delay
or discontinue the manufacture or supply of these raw materials, we may experience delays in production and shipments, increased costs
and cancellation of orders for our products. |
• |
Our results of operations may be adversely affected by currency fluctuations. |
• |
Unfavorable national and global economic conditions could adversely affect our business, operating results and financial condition.
|
• |
We are subject to environmental laws and regulations. Compliance with those laws and regulations requires us to incur costs and we
are subject to fines or other sanctions for non-compliance. |
• |
We have in the past been, and currently are, subject to claims and litigation relating to environmental matters. If we are
found to be in violation of environmental laws, we could be liable for damages and costs of remediation and may be subject to a halt in
production, which may adversely affect our business, operating results and financial condition. |
• |
We may fail to be in compliance with financial covenants in our loan agreements. |
• |
We may not succeed in our efforts to expand our activity in the U.S. and other foreign markets. If we are unsuccessful, our
future revenues and profitability would be adversely affected. |
• |
We may be subject to the requirements of the National Industrial Security Program Operating Manual for our facility security clearance,
which is a prerequisite to our ability to work on classified contracts for the U.S. government. |
• |
We may encounter difficulties with our international operations and sales that may have a material adverse effect on our sales and
profitability. |
• |
Compliance with the conditions of a new business permit issued to us in 2018, if required, may be costly. We may become subject to
certain sanctions, including significant fines, criminal proceedings and in an unlikely event an order shutting down our factory.
|
• |
Damage to our manufacturing facilities due to fire, natural disaster, or other events could materially adversely affect our business,
financial condition, and results of operations. |
• |
Our quarterly operating results fluctuate significantly. Results of operations in any period should not be considered indicative
of the results to be expected for any future period. |
• |
Our products and related manufacturing processes are often highly complex and therefore we may be delayed in product shipments. Our
products may at times contain manufacturing defects, which may subject us to product liability and warranty claims. Our operating margins
may be affected as a result of price increases for our principal raw materials. |
• |
Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our
Environmental, Social and Governance policies may impose additional costs on us or expose us to additional risks. |
• |
We compete with PCB manufacturers in Asia whose manufacturing costs are lower than ours. |
• |
We may fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act of 2002, which 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 are required to comply with “conflict minerals” rules which impose costs on us, may make our supply chain more complex,
and could adversely impact our business. |
• |
Increased regulation associated with climate change and greenhouse gas emissions could impose significant additional costs on operations.
|
• |
Obstacles in our transition to a new enterprise resource planning system may adversely affect our business and results of operations
and the effectiveness of our internal control over financial reporting. |
• |
Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our
business. |
• |
Technological change may adversely affect the market acceptance of our products. |
• |
The measures we take in order to protect our intellectual property may not be effective or sufficient. |
• |
Claims that our products infringe upon the intellectual property of third parties may require us to incur significant costs.
|
• |
If our workforce will be represented by a labor union we could incur additional costs or experience work stoppages as a result of
the renegotiation of our labor contracts. |
• |
From time to time, we may be named as a defendant in actions involving the alleged violation of labor laws
related to employment practices, wages and benefits. |
• |
Under current Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors
from benefiting from the expertise of some of our former employees. |
• |
We depend on key personnel for the success of our business. |
• |
Our ability to have access to insurance programs for directors and officers may be curtailed,
which may adversely affect our ability to retain and attract directors and officers. |
• |
Our share price has been volatile in the past and may continue to be susceptible to significant market price and volume fluctuations
in the future. |
• |
The voting interest of Mr. Nissan, individually and through Nistec Golan, our controlling shareholder, may conflict with the interests
of other shareholders. |
• |
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. |
• |
We do not expect to distribute dividends in the foreseeable future. |
• |
Political, economic and military instability in Israel may disrupt our operations and negatively affect our business condition, harm
our results of operations and adversely affect our share price. |
• |
Our results of operations may be negatively affected by the obligation of our personnel to perform military reserve service.
|
• |
Service and enforcement of legal process on us and our directors and officers may be difficult to obtain. |
• |
Provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which could prevent a change of control and
therefore impact the price of our shares. |
• |
The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities
of shareholders under U.S. law. |
• |
The termination or reduction of tax and other incentives that the Israeli government provides to domestic companies may increase
the costs involved in operating a company in Israel. |
• |
the impact of possible recessionary environments or economic instability in multiple foreign markets; |
• |
changes in regulatory requirements and complying with a wide variety of foreign laws; |
• |
tariffs and other trade barriers; |
• |
the imposition of exchange or price controls or other restrictions on the conversion of foreign currencies; and |
• |
difficulties and costs of staffing and managing foreign operations. |
• |
the size and timing of significant orders and their fulfillment; |
• |
demand for our products and the mix of products purchased by our customers; |
• |
competition from lower priced manufacturers; |
• |
fluctuations in foreign currency exchange rates, primarily the NIS against the Dollar and the Euro; |
• |
manufacturing yield; |
• |
plant utilization; |
• |
availability of raw materials; |
• |
plant or line shutdowns to repair or replace malfunctioning manufacturing equipment; |
• |
the length of our sales cycles; |
• |
changes in our strategy; |
• |
the number of working days in the quarter; |
• |
changes in seasonal trends; and |
• |
general domestic and international economic and political conditions. |
• |
retain our executive officers and key technical personnel; |
• |
attract and retain additional qualified personnel to provide technological depth and support to enhance existing products and develop
new products; and |
• |
attract and retain highly skilled operations, marketing and financial personnel. |
• |
quarterly variations in our operating results; |
• |
operating results that vary from the expectations of securities analysts and investors; |
• |
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
|
• |
announcements of technological innovations or new products by us or our competitors; |
• |
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments; |
• |
changes in the status of our intellectual property rights; |
• |
announcements by third parties of significant claims or proceedings against us; |
• |
announcements by governmental or regulatory authorities of significant investigations or proceedings against us; |
• |
additions or departures of key personnel; |
• |
changes in our cost structure due to factors beyond our control, such as new laws or regulations relating to environmental matters
and employment; |
• |
future sales of our ordinary shares; |
• |
our involvement in litigation; |
• |
general stock market price and volume fluctuations; |
• |
changes in the prices of our products and services; and |
• |
devaluation of the dollar against the NIS. |
ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Year Ended December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
Revenues |
100 |
% |
100 |
% |
100 |
% | ||||||
Cost of revenues |
(79.6 |
) |
(78.9 |
) |
(82.7 |
) | ||||||
Gross profit |
20.4 |
21.1 |
17.3 |
|||||||||
Research and development expenses |
(0.2 |
) |
- |
- |
||||||||
Selling, general and administrative expenses
|
(14.4 |
) |
(12.8 |
) |
(13.3 |
) | ||||||
Operating profit |
5.8 |
8.3 |
4.0 |
|||||||||
Financial expenses, net |
(1.4 |
) |
(0.9 |
) |
(1.3 |
) | ||||||
Other income (loss), net |
0.1 |
(0.1 |
) |
2.7 |
||||||||
Profit before income tax expense |
4.5 |
7.3 |
5.4 |
|||||||||
Income tax benefit (expense) |
10.4 |
(0.2 |
) |
(0.2 |
) | |||||||
Net profit |
14.9 |
7.1 |
5.2 |
Three months period ended |
||||||||||||||||
Year ended December 31, |
March 31, 2021 |
June 30, 2021 |
September 30, 2021 |
December 31, 2021 |
||||||||||||
($ in thousands) |
||||||||||||||||
Revenues |
7,205 |
9,132 |
7,965 |
9,521 |
||||||||||||
Cost of revenues |
(6,063 |
) |
(6,743 |
) |
(6,555 |
) |
(7,565 |
) | ||||||||
Gross profit |
1,142 |
2,389 |
1,410 |
1,956 |
||||||||||||
Selling, general and administrative |
||||||||||||||||
Expenses |
1,000 |
1,332 |
1,228 |
1,310 |
||||||||||||
R&D expenses, net |
- |
10 |
45 |
23 |
||||||||||||
Operating profit |
142 |
1,047 |
137 |
623 |
||||||||||||
Financial income (expenses), net |
104 |
(84 |
) |
(121 |
) |
(387 |
) | |||||||||
Other income (loss), net |
(2 |
) |
- |
44 |
(1 |
) | ||||||||||
Profit before income tax expense |
244 |
963 |
60 |
235 |
||||||||||||
Income tax (expense) |
(15 |
) |
(35 |
) |
(14 |
) |
3,601 |
|||||||||
Net Profit |
229 |
928 |
46 |
3,836 |
Year Ended December 31, |
||||||||||||||||||||
2021 |
2020 |
2019 |
2018 |
2017 |
||||||||||||||||
Dollar |
(3.27 |
)% |
(6.97 |
)% |
(7.79 |
)% |
8.10 |
% |
(9.83 |
)% | ||||||||||
Euro |
(10.76 |
)% |
1.7 |
% |
(9.63 |
)% |
3.35 |
% |
2.69 |
% |
Year ended December 31, |
2021 |
2020 |
2019 |
|||||||||
($ in thousands) |
||||||||||||
Net cash provided by operating activities
|
3,875 |
3,252 |
2,578 |
|||||||||
Net cash used in investing activities
|
(1,647 |
) |
(1,140 |
) |
(806 |
) | ||||||
Net cash provided by (used in) financing activities |
2,124 |
814 |
(1,132 |
) | ||||||||
Effect of translation adjustments |
196 |
181 |
(4 |
) | ||||||||
Net increase in cash and cash equivalents |
4,548 |
3,107 |
636 |
|||||||||
Cash and cash equivalents at beginning of year |
4,735 |
1,628 |
992 |
|||||||||
Cash and cash equivalents at end of year
|
9,283 |
4,735 |
1,628 |
ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
Name |
Age |
Position |
Yitzhak Nissan (3)
|
72 |
Chairman of the Board of Directors |
Mordechai Marmorstein (1)(2)
|
75 |
Director |
David Rubner(4) |
82 |
Director |
Erez Meltzer(4) |
64 |
Director |
Gad Dovev(1)(2)(3)(4)
|
75 |
External Director |
Ilana Lurie (1)(2)(3)(4)
|
49 |
External Director |
Name |
Age |
Position |
Eli Yaffe |
67 |
Chief Executive Officer |
Ron Freund |
57 |
Chief Financial Officer |
Yitzhak Zemach |
46 |
Director of Operations |
Oriel Sallary |
59 |
VP Sales and Marketing |
Sagi Balter |
41 |
VP Process Engineering |
Shmuel Meidan |
61 |
VP Quality Assurance |
Salaries, fees,
commissions and bonuses |
Pension, retirement
and similar benefits | ||
All directors and executive officers as a group (consisting of 12 persons)
|
$1.7 million (1)(3)
|
$407,000(2)(3)
|
(1) |
During the year ended December 31, 2021, we paid each of our directors an annual fee of approximately $9,100 and an attendance
fee of $290 per meeting. These fees are included in the above amount. |
(2) |
The benefits amount includes expenses for automobiles and other benefits that we provide to certain of our executive officers.
|
(3) |
The amounts indicated above include payments made to the Company's former CFO, Mt. Alon Mualem, which resigned effective January
1, 2022. |
Name of Officer |
Position of Officer |
Compensation for services (USD)(1)
| ||||||||||||||||||||||||||||||||||||||
Base salary |
Benefits and Perquisites
(2) |
Equity-
Based (3)
|
Total compensation |
|||||||||||||||||||||||||||||||||||||
Yitzhak Nissan (4)
|
Chairman of the Board |
334,345 |
- |
- |
334,345 |
|||||||||||||||||||||||||||||||||||
Eli Yaffe |
Chief Executive Officer |
312,737 |
287,381 |
87,354 |
687,472 |
|||||||||||||||||||||||||||||||||||
Alon Mualem (5) |
Chief Financial Officer |
143,088 |
106,797 |
14,035 |
263,920 |
|||||||||||||||||||||||||||||||||||
Yitzhak Zemach |
VP Operations |
134,847 |
93,061 |
18,209 |
246,117 |
|||||||||||||||||||||||||||||||||||
Oriel Sallary |
Vice President of Worldwide Sales and Marketing |
123,178 |
65,927 |
2,216 |
191,321 |
|
(1) |
Cash compensation amounts denominated in NIS were converted into U.S. dollars at the rate of NIS 3.23 per
$1.00 (the average exchange rate in 2021). |
|
(2) |
Amounts reported in this column include benefits and perquisites, including those mandated by applicable
law. Such benefits and perquisites may include, to the extent applicable, bonuses, car related expenses, managers’ insurance and
pension funds, payments to the National Insurance Institute, advanced education funds, medical insurance, vacation allowance and other
customary benefits. Bonuses represent accrued but not yet paid bonus payments for 2021, based on several criteria, including revenues,
profit, employees’ safety, yield and on time deliveries. |
(3) |
Represents the equity-based compensation expenses recorded in the company’s consolidated financial
statements for the year ended December 31, 2021 based on the options’ grant date fair value in accordance with accounting guidance
for equity-based compensation. | |
(4) |
Paid to Nistec as management fees. | |
(5) |
Mr. Mualem resigned as our CFO effective January 1, 2022. |
(i) |
the board of directors proposed the nominee and his appointment was approved by the shareholders in the manner required to appoint
external directors for their initial term; |
(ii) |
a shareholder holding 1% or more of the voting rights proposed the nominee, and the nominee is approved by a majority of the votes
cast by the shareholders of the company on the matter, excluding the votes of controlling shareholders and those who have a personal interest
in the matter as a result of their relationship with any controlling shareholder and excluding abstentions, provided that the aggregate
votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their
relationship with the controlling shareholders voted in favor of the reelection of the nominee constitute more than 2% of the voting rights
in the company, and provided further that at the time of such nomination or in the two years preceding such nomination, such external
director or his relative are neither the shareholder who proposed such nomination, or a shareholder holding 5% or more of the company's
issued share capital or voting power, in each case who, or whose controlling shareholder or any entity controlled by them (i) has business
relations with the company, or (ii) is a competitor of the company; or |
(iii) |
such external director nominates himself or herself for each such additional term and his or her election is approved at a shareholders
meeting by the same disinterested majority as required for the election of an external director nominated by a 1% or more shareholder
(as described above). |
i. |
a monetary obligation imposed on the office holder in favor of another person pursuant to a judgment, including a judgment given
in settlement or an arbitrator's award that has been approved by a court; |
ii. |
reasonable litigation expenses, including advocates’ professional fees, incurred by the office holder pursuant to an investigation
or a proceeding commenced against the office holder by a competent authority and that was terminated without an indictment and without
having a monetary charge imposed on the office holder in exchange for a criminal procedure (as such terms are defined in the Israeli Companies
Law), or that was terminated without an indictment but with a monetary charge imposed on the office holder in exchange for a criminal
procedure in a crime that does not require proof of criminal intent or in connection with a financial sanction; |
iii. |
reasonable litigation expenses, including advocates’ professional fees, incurred by the office holder or which the office holder
is ordered to pay by a court, in proceedings filed against the office holder by the company or on its behalf or by another person, or
in a criminal indictment in which the office holder is acquitted, or in a criminal indictment in which the office holder is convicted
of an offence that does not require proof of criminal intent; |
iv. |
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder as a result of a proceeding instituted
against such office holder in relation to (A) infringements that may result in imposition of financial sanction pursuant to the provisions
of Chapter H'3 under the Israeli Securities Law or (B) administrative infringements pursuant to the provisions of Chapter H'4 under the
Israeli Securities Law or (C) infringements pursuant to the provisions of Chapter I'1 under the Israeli Securities Law; and |
v. |
payments to an injured party of infringement under Section 52ND(a)(1)(a) of the Israeli Securities Law. |
Name |
Number of Ordinary Shares Beneficially Owned |
Percentage of Outstanding Ordinary Shares (2)
|
||||||
Yitzhak Nissan (1)
|
4,065,912 |
69.5 |
% | |||||
All executive officers and directors as a group (12 persons)
(3) |
4,209,566 |
72.02 |
% |
ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Name |
Number of Ordinary Shares
Beneficially Owned (1)
|
Percentage
of
Ownership (2)
|
||||||
Nistec Golan Ltd. (3)
|
3,891,596 |
66.53 |
% | |||||
Yitzhak Nissan (3)
|
174,316 |
2.98 |
% |
(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 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, and subject to community property
laws where applicable, 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 5,849,678 ordinary shares issued and outstanding as of March 16, 2022. |
(3) |
Based on a Schedule 13D/A filed on February 16, 2021. In addition, Nistec Ltd. transferred its shares to Nistec Golan in December
2018. Nistec Golan is an Israeli private company controlled by Yitzhak Nissan. Accordingly, Mr. Nissan may be deemed to be the beneficial
owner of the ordinary shares held directly by Nistec. |
• |
Mr. Nissan will receive reimbursement of travel expenses (other than food and beverage expenses) while traveling internationally
on behalf of our company, provided that such reimbursement shall not exceed an aggregate amount of NIS 10,000 per calendar quarter.
|
• |
Mr. Nissan will receive reimbursement of food and beverage expenses while traveling internationally on behalf of our company, against
receipts, in accordance with the Israeli Income Tax Regulations (Deduction of Certain Expenses) 5732-1972. |
i. |
The extension of the Amended PCB Purchase Procedure with Nistec Ltd.; |
ii. |
The extension of the amended general engagement terms, processes and restrictions of the Soldering and Assembly Services Procedure with
Nistec Ltd.; |
iii. |
The extension of the procedure under which we and Nistec Ltd. may jointly acquire certain services related to employees social
activities, marketing services and insurance. |
ITEM 8. |
FINANCIAL INFORMATION |
ITEM 9. |
THE OFFER AND LISTING |
ITEM 10. |
ADDITIONAL INFORMATION |
• |
broker-dealers; |
• |
financial institutions or financial services entities; |
• |
certain insurance companies; |
• |
investors liable for alternative minimum tax; |
• |
regulated investment companies, real estate investment trusts, or grantor trusts; |
• |
dealers or traders in securities, commodities or currencies; |
• |
tax-exempt organizations; |
• |
retirement plans; |
• |
S corporations: |
• |
pension funds; |
• |
certain former citizens or long-term residents of the United States; |
• |
non-resident aliens of the United States or taxpayers whose functional currency is not the U.S. dollar; |
• |
persons who hold ordinary shares through partnerships or other pass-through entities; |
• |
persons who acquire their ordinary shares through the exercise or cancellation of employee stock options or otherwise as compensation
for services; |
• |
direct, indirect or constructive owners of investors that actually or constructively own at least 10% of the total combined voting
power of our shares or at least 10% of our shares by value; or |
• |
investors holding ordinary shares as part of a straddle, appreciated financial position, a hedging transaction or conversion transaction.
|
• |
an individual who is a citizen or a resident of the United States; |
• |
a corporation or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or
under the laws of the United States or any political subdivision thereof; |
• |
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
• |
a trust if the trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court within
the United States is able to exercise primary supervision over the trust’s administration and (2) one or more U.S. persons have
the authority to control all of the substantial decisions of the trust. |
ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS |
ITEM 15. |
CONTROLS AND PROCEDURES |
• |
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of our company; |
• |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with
authorizations of management and directors of our company; and |
• |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our company’s
assets that could have a material effect on our financial statements. |
ITEM 16. |
[RESERVED] |
ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT
|
ITEM 16B. |
CODE OF ETHICS |
ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Services Rendered. |
2021 |
2020 |
||||||
Audit (1)
|
$ |
75,800 |
$ |
70,000 |
||||
Audit Related Fees |
21,700 |
27,500 |
||||||
Tax (2)
|
5,500 |
5,000 |
||||||
All other Fees (3)
|
- |
5,600 |
||||||
Total |
$ |
103,000 |
$ |
108,100 |
(1) |
Audit fees relate to audit services provided for each of the years shown in the table, including fees associated with the annual
audit, consultations on various accounting issues and audit services provided in connection with statutory or regulatory filings.
|
(2) |
Tax fees relate to services performed regarding tax compliance. |
(3) |
Other fees are fees for professional services other than audit or tax related fees. |
ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
ITEM 16F. |
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
ITEM 16G. |
CORPORATE GOVERNANCE |
• |
The requirement to maintain a majority of independent directors, as defined under the NASDAQ Stock Market Rules. Instead, we
follow Israeli law and practice which requires that we appoint at least two external directors, within the meaning of the Israeli Companies
Law, to our board of directors. We have the mandated three independent directors, within the meaning of the rules of the SEC and
NASDAQ, on our audit committee. See Item 6C. “Directors, Senior Management and Employees - Board Practices - External and
Independent Directors.” |
• |
The requirements regarding the directors’ nominations process. Under Israeli law and practice, our board of directors
is authorized to recommend to our shareholders director nominees for election. See Item 6C. –
“Directors, Senior Management and Employees - Board Practices - Election of Directors.” |
• |
The requirement regarding the quorum for any meeting of shareholders. Instead, we follow Israeli law and practice which provides
that, unless otherwise provided by a company’s articles of association, the quorum required for a general meeting of shareholders
is at least two shareholders present who hold, in the aggregate, 25% of the company’s voting rights. Our articles of association
provide that the quorum required for a shareholder meeting consists of at least two shareholders present in person or represented by proxy
who hold or represent, in the aggregate, at least 33% of the voting rights of the issued share capital. See Item 10B. “Additional
Information - Memorandum and Articles of Association- Annual and Extraordinary Meetings of Shareholders.” |
ITEM 16H. |
MINE SAFETY DISCLOSURE |
ITEM 16I. |
DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
ITEM 17. |
FINANCIAL STATEMENTS |
ITEM 18. |
FINANCIAL STATEMENTS |
Reports of Independent Registered Public Accounting Firms |
F-2 |
Consolidated Balance Sheets |
F-5 |
|
|
Consolidated Statements of Comprehensive Income (loss) |
F-7 |
|
|
Consolidated Statements of Changes in Shareholders’ Equity |
F-8 |
|
|
Consolidated Statements of Cash Flows |
F-9 |
|
|
Notes to the Consolidated Financial Statements |
F-11 |
ITEM 19. |
EXHIBITS |
Exhibit |
|
Description |
|
|
|
101.INS |
|
Inline XBRL Instance Document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.PRE |
|
Inline XBRL Taxonomy Presentation Linkbase Document. |
101.CAL |
|
Inline XBRL Taxonomy Calculation Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Label Linkbase Document. |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document. |
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
(1) |
Filed as Exhibit 1.1 to our registration statement on Form F-1, registration number 333-229740, as amended,
and incorporated herein by reference. |
(2) |
Included in Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on September
12, 2013 and incorporated herein by reference. |
(3) |
Filed as Exhibit 2.1 to our registration statement on Form F-1, registration number
333-229740, as amended, and incorporated herein by reference. |
(4) |
Included as Exhibit B to Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on October 31,
2019 and incorporated herein by reference. |
(5) |
Included as Exhibit A to Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on October 31,
2019 and incorporated herein by reference. |
(6) |
Filed as Exhibit 4.11 to our Annual Report on Form 20-F for the year ended December 31, 2014, and incorporated
herein by reference. |
(7) |
Filed as Exhibit 4.12 to our Annual Report on Form 20-F for the year ended December 31, 2014, and incorporated
herein by reference. |
(8) |
Filed as Exhibit 4.13 to our Annual Report on Form 20-F for the year ended December 31, 2014, and incorporated
herein by reference. |
(9) |
Filed herewith. |
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
IN U.S. DOLLARS
INDEX
(Firm Name: Brightman Almagor Zohar & Co / PCAOB ID No. 1197)
(Firm Name: KOST FORER GABBAY & KASIERER / PCAOB ID No. 1281)
F - 5 | |
F - 7 | |
F - 8 | |
F - 9 - F - 10 | |
F - 11 - F - 39 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ELTEK LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Eltek Ltd. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, shareholders' equity, and cash flows, for the two years ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the two years ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventories – Write-offs of Excess and Obsolete Inventories – Refer to Notes 2G and 4 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company’s inventories are stated at weighted average cost and accumulated actual costs, subject to lower of cost or net realizable value. The Company periodically evaluates the inventory 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. For the year ended December 31, 2021, the Company recorded inventory write-offs in the amount of $530,000 for excess and obsolete inventory.
We identified the excess and obsolescence write offs as a critical audit matter because of the significant judgments management makes to estimate these write offs as well as the efforts invested in the audit. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of the excess and obsolescence write offs.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimate of the Company’s excess and obsolete write offs included the following procedures, among others:
•
We obtained an understanding of the process and assumptions used by management to develop the inventory excess and obsolete write offs, through inquiries of the Company's personnel and evaluation of the Company's methodology for determining inventory that is excess or obsolete.
•
We evaluated the assumptions used by the Company to define what is considered aged inventory by assessing historical trends in the Company’s product life cycle as well as evaluating the underlying calculations applied to the aged inventory.
•
For a sample of inventory items with an associated write off for excess and obsolescence, we evaluated whether the write-off for each selection was reasonable by obtaining and evaluating evidence of past usage and aging of the inventory item.
•
We tested the accuracy of the Company’s inventory valuation calculations utilizing its defined methodology and evaluated the completeness, accuracy, and relevance of the underlying data used in management's estimate.
•
We compared management’s prior-year inventory reserve estimate to the amount of inventory written off or otherwise disposed of during the current year to consider potential bias in the determination of the inventory reserves.
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
March 23, 2022
We have served as the Company's auditor since 2020.
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel |
Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ELTEK LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income, shareholders' equity and cash flows of Eltek Ltd. and subsidiaries (the Company) for the year ended December 31, 2019, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company's operations and its cash flows for the year ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Adoption of New Accounting Standard
As discussed in Note 1t to the consolidated financial statements, the company has changed its method for accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Kost Forer Gabbay & Kasierer
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company's auditor since 2014.
Tel-Aviv, Israel
April 27, 2020
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31, | ||||||||||||
Note |
2021 |
2020 | ||||||||||
| ||||||||||||
ASSETS | ||||||||||||
| ||||||||||||
CURRENT ASSETS: | ||||||||||||
| ||||||||||||
Cash and cash equivalents |
|
|
3 |
|
|
|
9,283 |
|
|
|
4,735 |
|
Trade receivables (net of allowance for doubtful accounts of $173 and $214 at December 31, 2021 and December 31, 2020, respectively) |
2f |
7,021 |
9,062 | |||||||||
Inventories |
4 |
4,893 |
3,704 | |||||||||
Other accounts receivable and prepaid expenses |
5 |
1,384 |
1,319 | |||||||||
| ||||||||||||
Total current assets |
22,581 |
18,820 | ||||||||||
| ||||||||||||
LONG-TERM ASSETS: | ||||||||||||
| ||||||||||||
Severance pay fund |
10 |
66 |
64 | |||||||||
Restricted deposit |
226 |
62 | ||||||||||
Long-term tax receivables |
18 |
1,013 |
- | |||||||||
Deferred tax asset, net |
18 |
2,550 |
- | |||||||||
Operating lease right-of-use assets |
11 |
8,979 |
8,948 | |||||||||
12,834 |
9,074 | |||||||||||
| ||||||||||||
Property and equipment, net |
6 |
7,368 |
7,263 | |||||||||
| ||||||||||||
Total long-term assets |
20,202 |
16,337 | ||||||||||
| ||||||||||||
Total assets |
42,783 |
35,157 |
The accompanying notes are an integral part of these consolidated financial statements.
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31, | ||||||||||||
Note |
2021 |
2020 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
| ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
| ||||||||||||
Short-term credit and current maturities of long-term debt |
7 |
708 |
676 | |||||||||
Trade payables |
4,044 |
4,452 | ||||||||||
Other accounts payable and accrued expenses |
8 |
3,577 |
3,831 | |||||||||
Short-term operating lease liabilities |
11 |
931 |
742 | |||||||||
| ||||||||||||
Total current liabilities |
9,260 |
9,701 | ||||||||||
| ||||||||||||
LONG-TERM LIABILITIES: | ||||||||||||
| ||||||||||||
Long-term debt, excluding current maturities |
9 |
3,921 |
1,495 | |||||||||
Accrued severance pay |
10 |
344 |
338 | |||||||||
Deferred tax liabilities, net |
18 |
- |
84 | |||||||||
Long-term operating lease liabilities |
11 |
8,186 |
8,272 | |||||||||
| ||||||||||||
Total long-term liabilities |
12,451 |
10,189 | ||||||||||
| ||||||||||||
COMMITMENTS AND CONTINGENT LIABILITIES |
12 |
- |
- | |||||||||
| ||||||||||||
SHAREHOLDERS' EQUITY: | ||||||||||||
Share capital - | ||||||||||||
Ordinary shares of NIS 3.0 par value – Authorized: 10,000,000 shares at December 31, 2021 and December 31, 2020; Issued and outstanding: 5,840,357 shares at December 31, 2021 and December 31, 2020 |
5,296 |
5,296 | ||||||||||
Additional paid-in capital |
22,846 |
22,846 | ||||||||||
Foreign currency translation adjustments |
3,716 |
3,153 | ||||||||||
Capital reserves |
1,287 |
1,084 | ||||||||||
Accumulated deficit |
(12,073 |
) |
(17,112 |
) | ||||||||
| ||||||||||||
Total shareholders' equity |
13 |
21,072 |
15,267 | |||||||||
| ||||||||||||
Total liabilities and shareholders' equity |
42,783 |
35,157 |
The accompanying notes are an integral part of these consolidated financial statements.
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands (except per share data)
Year ended December 31, | ||||||||||||||||
Note |
2021 |
2020 |
2019 | |||||||||||||
|
|
|
|
| ||||||||||||
Revenues |
15b |
|
33,823 |
|
36,707 |
|
|
34,794 | ||||||||
Cost of revenues |
(26,926 |
) |
(28,969 |
) |
(28,787 |
) | ||||||||||
| ||||||||||||||||
Gross profit |
6,897 |
7,738 |
6,007 | |||||||||||||
| ||||||||||||||||
Operating expenses: | ||||||||||||||||
Research and development, net |
(78 |
) |
(2 |
) |
(16 |
) | ||||||||||
Selling, general and administrative |
(4,870 |
) |
(4,704 |
) |
(4,604 |
) | ||||||||||
| ||||||||||||||||
Operating income |
1,949 |
3,032 |
1,387 | |||||||||||||
Financial expenses, net |
16 |
(488 |
) |
(337 |
) |
(440 |
) | |||||||||
Other income (expenses), net |
17 |
41 |
(16 |
) |
923 | |||||||||||
| ||||||||||||||||
Income before income taxes |
1,502 |
2,679 |
1,870 | |||||||||||||
Income tax benefit (expenses), net |
18 |
3,537 |
(71 |
) |
(77 |
) | ||||||||||
| ||||||||||||||||
Net income |
5,039 |
2,608 |
1,793 | |||||||||||||
| ||||||||||||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments |
563 |
674 |
139 | |||||||||||||
| ||||||||||||||||
Total comprehensive income |
5,602 |
3,282 |
1,932 | |||||||||||||
| ||||||||||||||||
Basic and diluted income per ordinary share attributable to Eltek Ltd. shareholders |
14 |
0.86 |
0.58 |
0.48 |
The accompanying notes are an integral part of these consolidated financial statements.
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share data)
Company's shareholders | ||||||||||||||||||||||||||||
Ordinary shares |
Amount |
Additional paid-in capital |
Accumulated other comprehensive income |
Capital reserves |
Accumulated deficit |
Total | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of January 1, 2019 |
2,028,552 |
1,985 |
17,270 |
2,340 |
800 |
(21,513 |
) |
882 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Issuance of shares in rights offering, net |
2,351,716 |
1,979 |
1,313 |
- |
- |
- |
3,292 | |||||||||||||||||||||
Share-based compensation |
- |
- |
- |
- |
141 |
- |
141 | |||||||||||||||||||||
Transaction with controlling shareholder |
- |
- |
- |
- |
22 |
- |
22 | |||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation adjustments |
- |
- |
- |
139 |
- |
- |
139 | |||||||||||||||||||||
Net income |
- |
- |
- |
- |
- |
1,793 |
1,793 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of December 31, 2019 |
4,380,268 |
3,964 |
18,583 |
2,479 |
963 |
(19,720 |
) |
6,269 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Issuance of shares in rights offering, net |
1,460,089 |
1,332 |
4,263 |
- |
- |
- |
5,595 | |||||||||||||||||||||
Share-based compensation |
- |
- |
- |
- |
121 |
- |
121 | |||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation adjustments |
- |
- |
- |
674 |
- |
- |
674 | |||||||||||||||||||||
Net income |
- |
- |
- |
- |
- |
2,608 |
2,608 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of December 31, 2020 |
5,840,357 |
5,296 |
22,846 |
3,153 |
1,084 |
(17,112 |
) |
15,267 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||
Share-based compensation |
- |
- |
- |
- |
203 |
- |
203 | |||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation adjustments |
- |
- |
- |
563 |
- |
- |
563 | |||||||||||||||||||||
Net income |
- |
- |
- |
- |
- |
5,039 |
5,039 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||
Balance as of December 31, 2021 |
5,840,357 |
5,296 |
22,846 |
3,716 |
1,287 |
(12,073 |
) |
21,072 |
The accompanying notes are an integral part of these consolidated financial statements.
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income |
5,039 |
2,608 |
1,793 | |||||||||
| ||||||||||||
Adjustments required to reconcile net income to net cash flows provided by operating activities: | ||||||||||||
Depreciation |
1,781 |
1,592 |
1,508 | |||||||||
Gain on sale of property and equipment |
- |
(2 |
) |
- | ||||||||
Exchange rate of long term loans |
- |
2 |
(38 |
) | ||||||||
Share-based compensation |
203 |
121 |
141 | |||||||||
Transaction with controlling shareholder |
- |
- |
22 | |||||||||
Changes in deferred income tax assets, net |
(2,550 |
) |
33 |
45 | ||||||||
Increase in long-term tax receivables |
(1,013 |
) |
- |
- | ||||||||
Increase (decrease) in employee severance benefits, net |
(5 |
) |
47 |
36 | ||||||||
Decrease (increase) in trade receivables, net |
2,260 |
(956 |
) |
(1,277 |
) | |||||||
Decrease (increase) in operating lease right-of-use assets |
261 |
(5,868 |
) |
1,385 | ||||||||
Increase (decrease) in operating lease liabilities |
(195 |
) |
5,942 |
(1,388 |
) | |||||||
Decrease (increase) in other receivables and prepaid expenses |
(18 |
) |
(556 |
) |
598 | |||||||
Decrease (increase) in inventories |
(1,023 |
) |
290 |
175 | ||||||||
Increase (decrease) in trade payables |
(451 |
) |
(449 |
) |
107 | |||||||
Increase (decrease) in other liabilities and accrued expenses |
(414 |
) |
448 |
(529 |
) | |||||||
| ||||||||||||
Net cash provided by operating activities |
3,875 |
3,252 |
2,578 | |||||||||
| ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property and equipment |
(1,535 |
) |
(1,082 |
) |
(931 |
) | ||||||
Restricted deposit |
(156 |
) |
(58 |
) |
- | |||||||
Proceeds from disposals of property and equipment and repayment from insurance |
44 |
- |
125 | |||||||||
| ||||||||||||
Net cash used in investing activities |
(1,647 |
) |
(1,140 |
) |
(806 |
) | ||||||
| ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Short-term bank credit, net |
(377 |
) |
(1,600 |
) |
(4,181 |
) | ||||||
Repayment of short-term loan from shareholder |
- |
(3,661 |
) |
561 | ||||||||
Issuance of shares in rights offering, net |
- |
5,594 |
3,298 | |||||||||
Repayment of long-term loans |
(301 |
) |
(183 |
) |
(891 |
) | ||||||
Proceeds from long-term loans |
3,063 |
1,141 |
558 | |||||||||
Repayment of property and equipment payables |
(261 |
) |
(477 |
) |
(477 |
) | ||||||
| ||||||||||||
Net cash provided by (used in) financing activities |
2,124 |
814 |
(1,132 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
U.S. dollars in thousands
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Effect of exchange rate on cash and cash equivalents |
196 |
181 |
(4 |
) | ||||||||
| ||||||||||||
Increase in cash and cash equivalents |
4,548 |
3,107 |
636 | |||||||||
Cash and cash equivalents at the beginning of the year |
4,735 |
1,628 |
992 | |||||||||
| ||||||||||||
Cash and cash equivalents at end of the year |
9,283 |
4,735 |
1,628 | |||||||||
| ||||||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES: | ||||||||||||
| ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest |
29 |
163 |
232 | |||||||||
Income taxes |
57 |
37 |
43 | |||||||||
| ||||||||||||
Non-cash activities: | ||||||||||||
Purchase of property and equipment in credit |
221 |
666 |
350 | |||||||||
Right-of-use asset recognized with corresponding lease liability |
- |
- |
377 |
The accompanying notes are an integral part of these consolidated financial statements.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-DESCRIPTION OF BUSINESS AND GENERAL
a.General:
-Eltek Ltd. ("the Company") was established in Israel in 1970, and its ordinary shares have been publicly traded on the NASDAQ Capital Market ("NASDAQ") since 1997. Eltek Ltd. and its subsidiaries (Eltek USA Inc. and Eltek Europe GmbH) are collectively referred to as "the Company". As of December 31, 2021, Eltek Europe GmbH is inactive.
-The Company manufactures, markets and sells custom made printed circuit boards ("PCBs"), including high density interconnect, flex-rigid and multi-layered boards. The principal markets of the Company are in Israel, Europe and North America.
-The Company markets its products mainly to the medical technology, defense and aerospace, industrial, telecom and networking equipment industries, as well as to contract electronic manufacturers.
-The Company is controlled by Nistec Golan Ltd ("Nistec Golan"). Nistec Golan is controlled indirectly by Mr. Yitzhak Nissan, who owns, indirectly through Nistec Holdings Ltd., all of the shares of Nistec Ltd and Nistec Golan (Nistec Holdings Ltd. and/or any of its subsidiaries are referred to as "Nistec").
b.Financial covenants:
The Company is required to maintain certain financial covenants, including: (i) adjusted shareholders' equity (excluding certain intangible and other assets) equal to the greater of $4.5 million or 17% of its consolidated total assets; and (ii) a debt service ratio of 1.5. Debt service ratio is defined as the ratio of EBITDA to current maturities of long-term debt plus interest expenses. The compliance with the financial covenants is measured annually based on the Company’s annual audited financial statements. As of December 31, 2021 and 2020, the Company was in compliance with these covenants.
c.Business risks and condition:
-The Company’s business is subject to numerous risks including, but not limited to, the impact of currency exchange rates (mainly NIS/US$), the Company's ability to implement its sales and manufacturing plans, the impact of competition from other companies, the Company's ability to receive regulatory clearance or approval to market its products, changes in regulatory environment, domestic and global economic conditions and industry conditions, and compliance with environmental laws and regulations.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-DESCRIPTION OF BUSINESS AND GENERAL (CONT.)
As of December 31, 2021, the Company's working capital amounted to $13.3 million and its accumulated deficit amounted to approximately $12.1 million. The Company's liquidity position, as well as its operating performance, may be negatively affected by other financial and business factors, many of which are beyond its control.
-The coronavirus, also known as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures may have an adverse impact on global economic conditions as well as on the Company's business activities specifically related to possible raw materials shortage, employees' isolation requirements and change in customers' demand for the Company's products. The extent to which the coronavirus may impact the Company's business activities will depend on future developments, such as the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Israel and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time.
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.Basis of presentation:
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), followed on a consistent basis.
The Company sells goods directly and through its US subsidiary that function as distributor. The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.
B.Functional and reporting currency:
The Company’s functional currency is the New Israeli Shekel ("NIS"). Transactions denominated in foreign currencies are translated into NIS using the prevailing exchange rates at the date of the transaction. Gains and losses from the translation of foreign currency transactions are recorded in financial income or expenses.
In accordance with ASC 830, assets and liabilities are translated to the reporting currency using the exchange rate at the end of the year. Revenues and expenses are translated into the reporting currency using the average exchange rate for each quarter. Translation adjustments are reported separately as a component of accumulated other comprehensive income.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The functional currency of the Company's foreign subsidiaries is the local currency in which each subsidiary operates. The financial statements of the foreign subsidiaries are translated into Eltek Ltd.'s functional currency as follows:
1.Assets and liabilities are translated according to the exchange rate on the consolidated balance sheet date including goodwill arising from the acquisition of the subsidiary.
2.Income and expense items are translated according to the weighted average exchange rate on a quarterly basis.
3.The resulting exchange rate differences are classified as a separate item in shareholders' equity.
C.Exchange rates and linkage bases:
1.Balances linked to the Israeli Consumer Price Index ("CPI"), are recorded pursuant to contractual linkage terms of the specific assets and liabilities.
2.Details of the CPI (2016 base) and the representative exchange rates are as follows:
Exchange rate |
Exchange rate | |||||||||||
Israeli CPI |
of one US dollar |
of one Euro | ||||||||||
Points |
NIS |
NIS | ||||||||||
| ||||||||||||
December 31, 2021 |
103.9 |
3.110 |
3.520 | |||||||||
December 31, 2020 |
101.1 |
3.215 |
3.944 | |||||||||
December 31, 2019 |
101.8 |
3.456 |
3.878 |
% | ||||||||||||
| ||||||||||||
December 31, 2021 |
2.8 |
(3.3 |
) |
(10.8 |
) | |||||||
December 31, 2020 |
(0.7 |
) |
(7.0 |
) |
1.7 | |||||||
December 31, 2019 |
0.6 |
(7.8 |
) |
(10.0 |
) |
D.Use of estimates:
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires the management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, allowance for doubtful accounts, deferred tax assets, inventory write-offs, other contingencies and share-based compensation costs. Actual results could differ from these estimates.
E.Cash and cash equivalents:
Cash and cash equivalents are highly-liquid investments which include short-term bank deposits with an original maturity of three months or less from deposit date and which are not restricted by a lien.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F.Trade accounts receivable:
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio.
The allowance for doubtful accounts receivable is calculated on the basis of specific identification of customer balances, and a general allowance according to the Company's policy. The allowance is determined based on management's estimate of the aged receivable balance considered uncollectible, based on historical experience, aging of the receivable and information available about specific customers, including their financial condition and volume of their operations.
The activity in the allowance for doubtful accounts is as follows:
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Opening balance |
214 |
227 |
170 | |||||||||
Provision for doubtful accounts |
3 |
81 |
71 | |||||||||
Customers write-offs/collection during the year |
(52 |
) |
(111 |
) |
(31 |
) | ||||||
Foreign currency translation adjustments |
8 |
17 |
17 | |||||||||
| ||||||||||||
Closing balance |
173 |
214 |
227 |
G.Inventories:
Inventories are recorded at the lower of cost or net-realizable value. Cost is determined on the weighted average basis for raw materials. For work in progress and finished goods, the cost is determined pursuant to calculation of accumulated actual direct and indirect costs.
The Company periodically evaluates the inventory 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.
H.Severance pay:
The Company's liability for its Israeli employees severance pay is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date (the "Shut Down Method"). Employees are entitled to one month's salary for each year of employment or a portion thereof.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Company has an approval from the Israeli Ministry of Labor and Social Welfare, pursuant to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which the Company's current deposits in the pension fund and/or with the insurance company exempt it from any additional severance obligations to the employees for whom such depository payments were made.
For certain non-management employees, the Company deposits 72% of its liability for severance obligations with a pension fund for such employees. Assets held for employees' severance payments represent contributions to insurance policies and deposits to a central severance pay fund and are recorded at their current redemption value.
I.Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation and impairment losses. Depreciation is computed by the straight-line method over the estimated useful lives of the assets at the following annual rates:
% | ||
| ||
Machinery and equipment |
5-33 | |
Leasehold improvements |
6-33 | |
Motor vehicles |
10-15 | |
Office furniture and equipment |
6-15 |
Machinery and equipment purchased under capital lease arrangements are recorded at the present value of the minimum lease payments at lease inception. Such assets and leasehold improvements are depreciated and amortized respectively, using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
Impairment of long-lived assets:
The Company's 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. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third‑party independent appraisals, as considered necessary. During the years ended December 2021, 2020 and 2019, the Company did not record any impairment charges attributable to long-lived assets.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
K.Income taxes:
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes." This ASC prescribes the use of the liability method whereby deferred tax assets 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. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
The Company establishes reserves for uncertain tax positions based on an evaluation of whether the tax position is “more likely than not” to be sustained upon examination. The Company records interest and penalties pertaining to its uncertain tax positions in the financial statements as income tax expense.
L.Accounting for share-based compensation:
The Company accounts for share-based compensation in accordance with ASC 718, "Compensation-Stock Compensation".
ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the share-based payment award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statement.
In the fourth quarter of 2021, the Company changed its policy for recognizing share-based compensation expense for graded-vesting awards with service conditions only, from the accelerated attribution method to the straight-line attribution method. The Company views these awards as single awards and believes that the straight-line attribution method more accurately reflects the pattern of service provided by its employees versus the accelerated attribution method which significantly front loads the share-based compensation expense and does not appropriately match the expense with the services provided. In addition, based on analysis, the Company believes the straight-line attribution method for share-based compensation expense for service condition-only awards is the predominant method used by its peers in the industry and other Israeli companies applying US GAAP. The Company has concluded that the straight-line attribution method for share-based compensation is a preferable accounting policy in accordance with ASC 250, Accounting Changes and Error Corrections and has applied this change prospectively. The impact from the change in accounting policy for periods prior to January 1, 2021 was immaterial.
During the years ended December 31, 2021, 2020 and 2019, the Company recognized share-based compensation expenses related to employee share options in the amounts of $203, $121 and $141, respectively.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Company calculates the fair value of share options on the date of grant using the Black Scholes option pricing model, whereas the fair value of restricted share units is based on the closing market value of the underlying shares at the date of grant, and the expense is recognized over the requisite service period of each individual grant using the straight-line attribution method. Forfeitures are accounted for as they occur.
The Black-Scholes option-pricing model requires the Company to make several assumptions, including the value of the Company's ordinary shares, expected volatility, expected term, risk-free interest rate and expected dividends. The Company evaluates the assumptions used to value option awards upon each grant of share options.
Expected volatility was calculated based on actual historical stock price movements. The expected option term was calculated based on the simplified method, which uses the midpoint between the vesting date and the contractual term, as the Company does not have sufficient historical data to develop an estimate based on participant behavior. The risk-free interest rate was based on the U.S. treasury bonds yield with an equivalent term. The Company has not paid dividends and has no foreseeable plans to pay dividends. The assumptions used to determine the fair value of the share-based awards are management’s best estimates and involve inherent uncertainties and the application of judgment.
The following assumptions were used in the B&S option pricing model for the three year period ended December 31, 2021:
2021 |
2020 |
2019 | ||||
| ||||||
Dividend yield |
0% |
0% |
0% | |||
Expected volatility |
76%-79% |
86% |
76% | |||
Risk-free interest |
0.7%-1.3% |
0.51% |
1.47% | |||
Expected term |
6.25 years |
7 years |
7 years | |||
Forfeiture rate |
0% |
0% |
0% |
M.Revenue recognition:
The Company generates its revenues mainly from sales of custom-made PCBs. The Company also generates a limited amount of revenues from a financed R&D project.
Revenues from the Company's contracts with customers are recognized using the five-step model in ASC 606 - "Revenue from Contracts with Customers" ("ASC 606"). At first, the Company determines if an agreement with a customer is considered to be a contract to the extent it has a commercial substance, it is approved in writing by both parties, all rights and obligations including payment terms are identifiable, the agreement between the parties creates enforceable rights and obligations, and collectability in exchange for goods that will be transferred to the customer is considered as probable. The Company then assesses the transaction price for a contract in order to determine the consideration the Company expects to receive for satisfying the performance obligations called for in the contract.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
For the Company's financed R&D project, where the Company's performance does not create an asset with an alternative use, the Company recognizes revenue over performance time because of continuous transfer of control to the customer. For these performance obligations that are satisfied over time, the Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation. The Company believes that costs incurred as a portion of total estimated costs is an appropriate measure of progress towards satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort and the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion, contract revenues and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights regarding services to be provided and received by the parties to the contracts, the consideration to be exchanged, the manner, and the terms of settlement, including in cases of termination for convenience. Project costs include mainly related labor.
Estimated gross profit from the project may change due to changes in estimates resulting from differences between actual performance and original forecasts. Such changes in estimated gross profit are recorded in results of operations when they are reasonably determinable by management, on a cumulative catch-up basis.
Revenues for performance obligations that are not recognized over time are recognized at the point in time when control is transferred to the customer (which is generally upon delivery) and include mainly revenues from the sales of custom-made PCBs. The Company generally does not provide a right of return to its customers. For performance obligations that are satisfied at a point in time, the Company evaluates the point in time when the customer can direct the use of, and obtain the benefits from, the products. Shipping and handling costs are not considered performance obligations and are included in cost of revenues as incurred.
Unbilled accounts receivables
In certain Company contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met. Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $378,000 and $206,000 as of December 31, 2021 and 2020, respectively, and are included in the accounts receivable balance.
N.Earnings per ordinary share:
Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earnings Per Share." Certain of the Company's outstanding
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
share options have been excluded from the calculation of the diluted earnings per share because such options are anti-dilutive.
O.Concentration of credit risk:
Financial instruments that may subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. Cash is deposited with major financial institutions in Israel, Europe and the United States.
The Company performs ongoing credit evaluations of the financial condition of its customers. The risk of collection associated with trade receivables is reduced by the large number and geographical dispersion of the Company's customer base, and the Company's policy of obtaining credit evaluations of the financial condition of certain customers, requiring collateral or security with respect to certain receivables, or purchase of insurance for certain other receivables.
P.Research and development costs:
Research and development costs incurred in the process of developing product improvements or new products, are charged to expenses as incurred.
Q.Commitments and contingencies:
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
R.Fair value measurements:
ASC 820, "Fair Value Measurement and Disclosure" clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 |
- |
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
|
|
Level 2 |
- |
Significant other observable inputs based on market data obtained from sources independent of the reporting entity. |
|
| |
Level 3 |
- |
Unobservable inputs which are supported by little or no market activity. |
As of December 31, 2021, 2020 and 2019, the Company did not have any derivative instruments, measured at fair value on a recurring or nonrecurring basis.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
S.Comprehensive income (loss):
The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income". ASC 220 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity (deficiency) during the period except those resulting from investments by, or distributions to, shareholders.
The Company has determined that its items of comprehensive income (loss) relate to unrealized gain (loss) from foreign currency translation adjustments.
The total accumulated other comprehensive income, net was comprised as follows:
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Foreign currency translation adjustments |
563 |
674 |
139 | |||||||||
| ||||||||||||
Total accumulated other comprehensive income |
563 |
674 |
139 |
T.Leases:
In accordance with ASU No. 2016-02, Leases (ASC 842), the Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset.
ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. ROU assets are initially measured at amounts, which represent the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The lease liability is initially measured based on the discounted present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The implicit rate within the operating leases is generally not reasonably determinable, therefore, the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate for collateralized borrowing with similar terms and payments and in economic environments where the leased asset is located.
Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
U.Impact of recently issued and adopted accounting standards:
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard was effective for the Company beginning January 1, 2021 and was applied on a modified retrospective basis. This standard did not have a material impact on the Company's financial statements and disclosures.
V.New accounting pronouncements not yet effective:
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued Accounting Standards Update 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. We plan to adopt ASU 2020-04 and ASU 2021-01 when LIBOR is discontinued. We are currently evaluating the potential impact of adopting this guidance, but do not expect it to have a material impact on our consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
W.Reclassifications:
Certain amounts in the notes to prior years consolidated financial statements have been reclassified to conform with current year presentation. The reclassification had no effect on previously reported consolidated balance sheets, consolidated statements of comprehensive income (loss) and consolidated statements of cash flows.
NOTE 3:-CASH AND CASH EQUIVALENTS
December 31, | ||||||||
2021 |
2020 | |||||||
| ||||||||
Denominated in U.S. dollars |
4,541 |
3,920 | ||||||
Denominated in NIS |
2,546 |
166 | ||||||
Denominated in Euro |
2,196 |
649 | ||||||
| ||||||||
9,283 |
4,735 |
NOTE 4:-INVENTORIES
December 31, | ||||||||
2021 |
2020 | |||||||
| ||||||||
Raw materials |
2,667 |
1,821 | ||||||
Work-in-progress |
1,867 |
1,348 | ||||||
Finished goods |
359 |
535 | ||||||
| ||||||||
4,893 |
3,704 |
During the years ended December 31, 2021, 2020 and 2019, the Company recorded inventory write-offs in the amounts of $530, $588 and $788, respectively. Such write-offs were included in cost of revenues.
NOTE 5:-OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31, | ||||||||
2021 |
2020 | |||||||
| ||||||||
Prepaid expenses |
586 |
619 | ||||||
Receivables from government authorities |
576 |
568 | ||||||
Receivables from employees |
9 |
6 | ||||||
Others |
213 |
126 | ||||||
| ||||||||
1,384 |
1,319 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 6:-PROPERTY AND EQUIPMENT, NET
December 31, | ||||||||
2021 |
2020 | |||||||
Cost: | ||||||||
Machinery and equipment |
43,174 |
40,268 | ||||||
Leasehold improvements |
10,144 |
9,656 | ||||||
Motor vehicles |
84 |
81 | ||||||
Office furniture and equipment |
912 |
869 | ||||||
| ||||||||
54,314 |
50,874 | |||||||
Accumulated depreciation: | ||||||||
Machinery and equipment |
(36,463 |
) |
(33,892 |
) | ||||
Leasehold improvements |
(9,701 |
) |
(8,991 |
) | ||||
Motor vehicles |
(61 |
) |
(56 |
) | ||||
Office furniture and equipment |
(721 |
) |
(672 |
) | ||||
| ||||||||
(46,946 |
) |
(43,611 |
) | |||||
| ||||||||
Depreciated cost |
7,368 |
7,263 |
Depreciation expense for the years ended December 31, 2021, 2020 and 2019 were $1,781, $1,591 and $1,508, respectively.
NOTE 7:-SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM DEBT
Banks:
Annual interest rate at | ||||||||||||
December 31, |
December 31, | |||||||||||
2021 |
2021 |
2020 | ||||||||||
| ||||||||||||
In NIS bears interest rate of Prime+0.85% |
2.45% |
- |
373 | |||||||||
Long-term debt from banks in NIS bears interest of Prime+1.5% to Prime+1.75% |
3.1% - 3.35% |
708 |
303 | |||||||||
| ||||||||||||
708 |
676 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, | ||||||||
2021 |
2020 | |||||||
| ||||||||
Accrued payroll including amounts due to government authorities |
1,077 |
994 | ||||||
Provision for vacation and other employee benefits |
1,664 |
1,872 | ||||||
Accrued expenses |
355 |
441 | ||||||
Provision for contingent liabilities (Note 12c) |
97 |
117 | ||||||
Other liabilities |
384 |
407 | ||||||
| ||||||||
3,577 |
3,831 |
NOTE 9:-LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES
Annual interest rate at | ||||||||||||
December 31, |
December 31, | |||||||||||
2021 |
2021 |
2020 | ||||||||||
Linkage terms: | ||||||||||||
NIS |
3.1% - 3.35% |
4,644 |
1,659 | |||||||||
Euro |
- |
206 | ||||||||||
4,644 |
1,865 | |||||||||||
Less - current maturities |
(723 |
) |
(370 |
) | ||||||||
| ||||||||||||
3,921 |
1,495 |
Minimum future payments as of December 31, 2021 due under the long-term (includes liabilities associated with equipment purchasing) debts are as follows:
Long-term debt includes liabilities associated with equipment purchases in the amounts of $11 and $206 as of December 31, 2021 and 2020, respectively, and current maturities of long-term debt of $15 and $67 as of December 31, 2021 and 2020, respectively. The current maturities are classified to the trade payable balance as of December 31, 2021 and 2020, respectively.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:-EMPLOYEE SEVERANCE BENEFITS
Under Israeli law and labor agreements, the Company is required to make severance and pension payments to retired, dismissed or resigned employees.
a.The Company has an approval from the Israeli Ministry of Labor and Social Welfare, pursuant to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which the Company's current deposits in the pension fund and/or with the insurance company exempt it from any additional severance obligations to the employees for whom such depository payments were made.
b.The Company's employees participate in a pension plan or individual insurance policies that are purchased by them. The Company's liability for severance obligations for the employees employed for one year or more is discharged by making regular deposits with a pension fund or the insurance policies. Under Israeli law, there is no liability for severance pay in respect of employees who have not completed one year of employment. The amount deposited with the pension fund or the insurance policies is based on salary components as prescribed in the employment agreement. The custody and management of the amounts so deposited are independent of the Company and accordingly, such amounts funded and related liabilities are not reflected in the balance sheet.
For non-management employees, the Company deposits 72% of its liability for severance obligations with a pension fund for such employees, and upon completion of one year of employment with the Company, it makes a one-time deposit with the pension fund for the remaining balance. The Company deposited to individual severance fund according to section 14 of the Israeli severance pay law $710 and $708 in 2021 and 2020, respectively.
c.Expenses (income) recorded in respect of the unfunded liability for employee severance payments for the years ended December 31, 2021, 2020, and 2019 were $5, $57 and $(20), respectively.
NOTE 11:-LEASES
The Company entered into operating leases primarily for offices and motor vehicles. The leases have remaining lease terms of up to 5.2 years, some of which may include options to extend the leases for up to an additional 5 years. On June 30, 2020, the Company signed a new agreement for its current office and manufacturing facilities lease which originally was to end in 2022. The new agreement is for five years starting in 2022 with an option to extend the lease by another five years until 2032. The Company treated the new agreement as an extension and a modification of its current operating lease as it does not grant the Company any additional right of use. In addition, the Company is of the opinion that it is reasonably certain that it will exercise the additional five years option starting in 2027. Accordingly, the Company re-measured the lease liability based on the remaining lease term as of the modification date using the incremental borrowing rate at the effective date of the modification.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-LEASES (CONT.)
The Company also elected the practical expedient (by class of underlying asset) to not separate lease and non-lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for its leased motor vehicles.
a.The components of operating lease costs were as follows:
Year ended December 31, | ||||||||||
|
2021 |
2020 |
2019 | |||||||
Operating lease cost |
1,397 |
1,260 |
1,245 | |||||||
Sublease income |
- |
- |
(17 |
) | ||||||
Total net lease costs |
1,397 |
1,260 |
1,228 |
b.Supplemental balance sheet information related to operating leases is as follows:
As of December 31, | |||||||
|
2021 |
2020 | |||||
Operating lease ROU assets |
8,979 |
8,948 | |||||
Operating lease liabilities, current |
931 |
742 | |||||
Operating lease liabilities, long-term |
8,186 |
8,272 | |||||
Weighted average remaining lease term (in years) |
3.90 |
3.99 | |||||
Weighted average discount rate |
5.23 |
% |
5.30 |
% |
c.Future lease payments under operating leases as of December 31, 2021, are as follows:
As of December 31, 2021 | ||||
| ||||
2022 |
1,411 | |||
2023 |
1,295 | |||
2024 |
1,147 | |||
2025 |
1,108 | |||
2026 -2032 |
6,987 | |||
| ||||
Total undiscounted lease payments |
11,948 | |||
Less: imputed interest |
(2,831 |
) | ||
| ||||
Present value of lease liabilities |
9,117 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Pledges:
1.The Company has pledged certain items of its equipment and the rights to any insurance claims on such items to secure its debts to banks, as well as placed floating liens on all of its remaining assets in favor of the banks.
2.The Company has also pledged machines to secure its indebtedness to certain suppliers that provided financing for such equipment.
b.Indemnification agreement:
The Company entered into indemnification agreements with each of its directors and officers and undertook to enter into the same agreement with future directors and officers. Such indemnification amount will not exceed: (i) the value of 25% of the Company’s net equity according to the audited or reviewed financial statement known at the time the request for indemnification was submitted; or (ii) $3,000,000, whichever is greater.
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 duty of loyalty. If permitted by its articles of association, a company may exculpate in advance an officer 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 with respect to distributions.
The Company's articles of association allow it to exculpate any office holder from his or her liability for breach of duty of care, to the maximum extent permitted by law, before or after the occurrence giving rise to such liability.
c.Contingent Liabilities:
Environmental Related Matters
In connection with the change of control of the Company that resulted from Nistec’s acquisition of a controlling stake in the Company, Israeli law required the Company to obtain a new business permit in order to continue operating its business. The Company submitted an application for this permit and received a permit until 2099. The new permit is subject to certain conditions, especially certain conditions imposed by the Israeli Ministry of Environmental Protection. Compliance with these conditions may be costly.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
In March 2019, representatives of the Ministry of Environmental Protection inspected the Company’s premises and as a result issued a warning of a breach of the Clean Air Law, 5768-2008 and a warning of a breach of the Hazardous Materials Law (1993). The Company was invited to a hearing at the Ministry during August 2019. During May 2020 and July 2020, representatives of the Ministry inspected the premises again. In September 2020 the Ministry issued a warning related to an alleged breach of the Clean Air Law, the Hazardous Materials Law (1993), the Water Law and the Business Permit Law. The Company attended another hearing at the Ministry on November 9, 2020. Following that hearing, the district manager issued a protocol stating that he will recommend that the Ministry impose fines on the Company. The Company requested that the district manager and Ministry reconsider the district manager’s decision, taking into account the corrective measures the Company has taken. On August 2021 the Company received a letter from the Ministry and was asked about the Company's sales turnover in order to decide the amount of the fine that will be imposed for the breach of the Hazardous Materials Law (1993).
The Company recorded a provision according to its legal advisor's opinion.
Employee related matters
In May 2008, June 2019 and November 2019, lawsuits were filed by three employees alleging that they had suffered personal injuries during their employment and they are seeking aggregate financial compensation of approximately $ 121 for past damages and additional amounts for future lost income, pain and suffering as the court may determine.
In January 2011 and December 2019, five additional employees notified the Company that they allegedly suffered personal injuries during their employment with the Company. Of these five employees, two are seeking compensation of $1.7 million and the others did not state their claim amount.
The above-mentioned claims were submitted to the Company’s insurance company, which informed the Company that it is reviewing the statements of claim without prejudicing its rights to deny coverage.
During the period February 2019 through October 2020, two former employees filed law suits seeking additional payments in connection with their employment with the Company and subsequent termination. The aggregate amount claimed in the two law suits is approximately $345. The Company recorded a provision according to its legal advisor's opinion.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:-SHAREHOLDERS' EQUITY
Share Option Plan:
The Company’s 2018 Share Incentive Plan (the "Plan") authorizes the grant of options to purchase shares and restricted shares units (“RSUs”) to officers, employees, directors and consultants of the Company and its subsidiaries. Awards granted under the Plan to participants in various jurisdictions may be subject to specific terms and conditions for such grants as may be approved by the Company’s board from time to time.
Each option granted under the Plan is exercisable for a period of ten years from the date of the grant of the option or the expiration dates of the option plan. The options primarily vest gradually over four years of employment.
During 2019, 62,662 options were granted (including an adjustment to options previously granted to reflect the dilutive effect of the Company's 2019 rights offering) under the Plan and no options were exercised. During 2020, 16,014 options were granted (including an adjustment to options previously granted to reflect the dilutive effect of the Company's 2020 rights offering) under the Plan and no options were exercised. During 2021, 270,200 options were granted under the Plan and no options were exercised. The total fair value of the options granted is being recognized over a four year vesting period.
As of December 31, 2021, options to purchase 404,733 ordinary shares were outstanding under the Plan, exercisable at an average exercise price of $5.24 per share. The share-based compensation expense related to employees' equity-based awards, recognized during 2021, 2020 and 2019 was $203, $121 and $141, respectively.
In December 2021, the Company's Compensation Committee and Board of Directors, as applicable, approved the grant of an additional 13,000 options with an exercise price of $4.18 to an officer.
A summary of employee option activity under the Plan as of December 31, 2021 and changes during the year ended December 31, 2021 are as follows:
Number of options |
Weighted- average exercise price |
Weighted- average remaining contractual life (in months) |
Aggregate intrinsic value (in thousands) | |||||||||||||
| ||||||||||||||||
Outstanding at January 1, 2021 |
134,533 |
4.55 |
96 |
108 | ||||||||||||
Granted |
270,200 |
5.59 |
114 |
- | ||||||||||||
Exercised |
- |
- |
- |
- | ||||||||||||
Forfeited |
- |
- |
- |
- | ||||||||||||
| ||||||||||||||||
Outstanding at December 31, 2021 |
404,733 |
5.24 |
105 |
14 | ||||||||||||
| ||||||||||||||||
Exercisable at December 31, 2021 |
120,048 |
4.51 |
92 |
10 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:-SHAREHOLDERS' EQUITY (CONT.)
The weighted-average fair value of options granted during the years ended December 31, 2021, 2020 and 2019 were $5.59, $4.35 and $5.12, respectively. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing share price on the last trading day of the fourth quarter of fiscal 2021 and 2020 and the exercise price, multiplied by the number of in-the-money options). This amount changes based on the fair market value of the Company's share. As of December 31, 2021, there was approximately $943 of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Company's share option plans. This cost is expected to be recognized over a period of up to 3.75 years.
NOTE 14:-BASIC AND DILUTED NET EARNINGS PER SHARE
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
Numerator: | ||||||||||||
Profit attributable to Eltek Ltd shareholders |
5,039 |
2,608 |
1,793 | |||||||||
| ||||||||||||
Denominator: | ||||||||||||
Denominator for basic profit per share weighted-average number of shares outstanding |
5,840,357 |
4,495,329 |
3,734,189 | |||||||||
Effect of diluting securities: | ||||||||||||
Employee share options |
28,205 |
5,815 |
128 | |||||||||
| ||||||||||||
Denominator for diluted profit per share - adjusted weighted average shares and assumed exercises |
5,868,562 |
4,501,144 |
3,734,317 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-ENTITY WIDE DISCLOSURES
a.Customers who accounted for over 10% of the total consolidated revenues:
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Customer A - Sales of manufactured products |
21.2 |
% |
18.9 |
% |
19.5 |
% | ||||||
Customer B - Sales of manufactured products |
7.9 |
% |
11.6 |
% |
11.5 |
% |
b.Revenues by geographic areas:
Israel |
18,965 |
20,792 |
19,659 | |||||||||
North America |
6,686 |
6,009 |
6,434 | |||||||||
Netherlands |
4,198 |
3,808 |
2,898 | |||||||||
India |
1,825 |
3,292 |
3,809 | |||||||||
Others |
2,149 |
2,806 |
1,994 | |||||||||
| ||||||||||||
33,823 |
36,707 |
34,794 |
NOTE 16:-FINANCIAL EXPENSES, NET
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Interest on long-term bank loans |
30 |
16 |
19 | |||||||||
Bank charges and short-term credit |
45 |
178 |
287 | |||||||||
Foreign exchange loss, net |
413 |
127 |
105 | |||||||||
Other financing expenses, net |
- |
16 |
29 | |||||||||
| ||||||||||||
488 |
337 |
440 |
NOTE 17:-OTHER INCOME (LOSS), NET
During 2021, the Company had other income, net of $41, mainly attributable to compensation received relating to an insurance claim.
During 2018, the Company incurred water damage to major equipment in its production facility. The Company replaced a damaged machine with a new machine shortly thereafter, utilizing a $500 advance payment received from its insurance company. The advance payment was recorded in 2018 as a reduction in the cost of acquiring the new machine and as an offset to some of the loss incurred as a result of the damage. During May 2019, the Company received an additional payment of approximately $1.0 million from the insurance company, relating to the losses that occurred as a result of this event.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-TAXES ON INCOME
a.Tax laws applicable to the Company:
The Law for the Encouragement of Capital Investments, 1959:
According to the Law, companies are entitled to various tax benefits by virtue of the "preferred enterprise" status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are:
Tax benefits and reduced tax rates:
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 68):
In January 2011, the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), was enacted. The Amendment prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income under its status as a preferred company with a preferred enterprise. Commencing from the 2011 tax year, the Company can elect (without possibility of reversal) to apply the Amendment in a certain tax year and from that year and thereafter, it will be subject to the amended tax rates. The tax rates under the Amendment are: 2011 and 2012 - 15% (in development area A - 10%) and in 2013 - 12.5% (in development area A - 7%).
The Company elected to transition to the preferred enterprise track starting from the 2012 tax year and submitted its final decision to the tax authorities. The deferred tax balances were adjusted accordingly on said date.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):
On August 5, 2013, the Knesset issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consists of Amendment 71 to the Law for the Encouragement of Capital Investments ("the Amendment"). According to the Amendment, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16% (in development area A - 9%).
The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20%.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73):
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments ("the Amendment") was published. According to the Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-TAXES ON INCOME (CONT.)
Accelerated depreciation:
By virtue of the Law, the Company is eligible for deduction of accelerated depreciation on equipment used by the approved enterprise from the first year of the asset's operation.
Conditions for the entitlement to the benefits:
The above benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published thereunder and the letters of approval for the investments in the approved enterprises, as above. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. The managements believe that the Company is meeting the aforementioned conditions.
The Law for the Encouragement of Industry (Taxation), 1969:
The Company has the status of an "industrial company", as defined by this law. According to this status and by virtue of regulations published thereunder, the Company is entitled to claim a deduction of accelerated depreciation on equipment used in industrial activities, as determined in the regulations issued under the Inflationary Law. The Company is also entitled to amortize a patent or rights to use a patent or intellectual property that are used in the enterprise's development or advancement, to deduct issuance expenses for shares listed for trading, and to file consolidated financial statements under certain conditions.
b.Tax rates applicable to the Company:
1.The Israeli corporate income tax rate is 23%.
As the Company has the status of a preferred enterprise, the income tax rate applied is 16%.
A company is taxable on its real capital gains at the corporate income tax rate in the year of sale.
2.The tax rates of the Company's non-Israeli subsidiaries is 21%.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-TAXES ON INCOME (CONT.)
c.Carryforward losses for tax purposes:
As of December 31, 2021 the Company's carryforward operating losses for tax purposes were approximately $20.4 million. Carryforward capital losses for tax purposes were approximately $11.1 million.
The Company's carryforward losses for tax purposes and tax credits carryforward do not have expiration dates.
d.Income tax assessments:
The Company files its income tax return in Israel. Eltek Europe files its income tax returns in Germany and Eltek USA files its income tax return in the United States.
In Israel, the Company has received final tax assessments through the 1995 tax year. Assessments through the 2016 tax year are considered final due to statute of limitations. The Israeli tax returns of the Company may be audited by the Israeli Tax Authorities for the tax years beginning in 2017.
Eltek Europe has received final tax assessments through the 2013 tax year. The tax returns of Eltek Europe remain subject to audit for the tax years beginning in 2014. The tax returns of Eltek USA remain subject to audit for the tax years beginning in 2012.
e.Profit before tax and taxes on income included in the consolidated statements of comprehensive income:
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Income before income tax expense: | ||||||||||||
Israel |
1,330 |
2,504 |
1,741 | |||||||||
Foreign jurisdictions |
172 |
175 |
129 | |||||||||
| ||||||||||||
1,502 |
2,679 |
1,870 | ||||||||||
| ||||||||||||
Current tax expense: | ||||||||||||
Israel |
- |
- |
- | |||||||||
Foreign jurisdictions |
57 |
38 |
32 | |||||||||
| ||||||||||||
57 |
38 |
32 | ||||||||||
| ||||||||||||
Deferred taxes (income) expenses: | ||||||||||||
Israel |
(3,594 |
) |
33 |
45 | ||||||||
| ||||||||||||
(3,594 |
) |
33 |
45 | |||||||||
| ||||||||||||
Income tax (benefit) expense, net |
(3,537 |
) |
71 |
77 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-TAXES ON INCOME (CONT.)
f.Reconciliation of the theoretical income tax benefit to the actual income tax expense:
A reconciliation of the theoretical income tax benefit, assuming all income is taxable at the statutory rates applicable in Israel, and the actual income tax expense, is as follows:
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Income before income tax expense as reported in the consolidated statements of comprehensive income |
1,502 |
2,679 |
1,870 | |||||||||
| ||||||||||||
Statutory tax rates |
23 |
% |
23 |
% |
23 |
% | ||||||
| ||||||||||||
Theoretical tax expense calculated |
345 |
616 |
430 | |||||||||
| ||||||||||||
Losses and other items for which a valuation allowance was provided (released) |
(3,563 |
) |
419 |
(38 |
) | |||||||
Realization of carryforward tax losses for which valuation allowance was provided |
(261 |
) |
(692 |
) |
(250 |
) | ||||||
Tax benefit arising from "Preferred enterprises" |
(93 |
) |
(303 |
) |
(109 |
) | ||||||
Foreign tax rate differential in subsidiaries |
17 |
(3 |
) |
22 | ||||||||
Non-deductible items and others |
18 |
34 |
22 | |||||||||
| ||||||||||||
Total |
(3,882 |
) |
(545 |
) |
(353 |
) | ||||||
| ||||||||||||
Income tax (benefit) expense |
(3,537 |
) |
71 |
77 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-TAXES ON INCOME (CONT.)
g.Deferred tax assets and liabilities:
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
December 31, | ||||||||
2021 |
2020 | |||||||
Deferred tax assets: | ||||||||
| ||||||||
Net operating loss carryforwards (in Israel) |
3,265 |
3,284 | ||||||
Capital loss carryforwards (in Israel) |
2,549 |
2,485 | ||||||
Long-term tax receivables |
- |
1,171 | ||||||
Reserves and other |
252 |
251 | ||||||
| ||||||||
Total gross deferred taxes |
6,066 |
7,191 | ||||||
| ||||||||
Less valuation allowance |
(2,549 |
) |
(6,195 |
) | ||||
| ||||||||
Deferred tax assets, net |
3,517 |
996 | ||||||
| ||||||||
Deferred tax liabilities: | ||||||||
Undistributed income of subsidiaries |
(290 |
) |
(263 |
) | ||||
Property and equipment |
(677 |
) |
(817 |
) | ||||
| ||||||||
Total deferred tax liabilities |
(967 |
) |
(1,080 |
) | ||||
| ||||||||
Net deferred tax assets (liabilities) |
2,550 |
(84 |
) |
The Company has net operating loss carryforward for tax purposes of approximately $20.4 million, which may be carried forward indefinitely. For the year ended December 31, 2020 the Company established a valuation allowance for deferred tax assets (see above) as it was unable to conclude that it is more-likely-than-not that such deferred tax assets will be realized. As of December 31, 2021 the Company concluded that realization of net deferred assets is more likely than not as required by ASC 740. The Company considered both positive and negative factors. Positive factors include the Company's profit before tax for 2021 and cumulative positive taxable income in recent years, the fact that losses are indefinite in expiration and to a lesser extent, projections for taxable income in the near term. Negative factors considered include the Company's operating losses in earlier years. Weighing all the above, the Company concluded that it is more likely than not that taxable income will be generated and released entirely the valuation allowance related to the accumulated losses and long-term tax receivables.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-TAXES ON INCOME (CONT.)
h.Accounting for uncertainty in income taxes:
For the twelve-month periods ended December 31, 2021, 2020 and 2019, the Company did not have any unrecognized tax positions and thus, no interest and penalties related to unrecognized tax positions were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next twelve-month months.
NOTE 19:- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments at December 31, 2021 and 2020, consisted of cash and cash equivalents, bank deposits, trade and other accounts receivable, other current assets, short-term credit provided by financial institutions, and trade and other payables. The carrying amounts of all the aforementioned financial instruments, at face value or cost-plus accrued interest, approximate fair value due to the short maturity of these instruments linked to the Israeli central bank rate.
These Consolidated Financial Statements do not include any nonrecurring fair value measurements relating to assets and liabilities for which the Company has adopted the provisions of ASC Topic 820.
NOTE 20:-RELATED PARTY BALANCES AND TRANSACTIONS
Nistec, the controlling shareholder of the Company, is also a customer of the Company. The Company sells products to Nistec, pays management fees to Nistec, purchases certain services from Nistec and shares certain expenses with Nistec, for services that it acquires jointly with Nistec. The Company's transactions with Nistec were carried out on an arm's-length basis.
a.Balances with related parties:
December 31, | ||||||||
2021 |
2020 | |||||||
| ||||||||
Trade accounts receivable |
289 |
92 | ||||||
Trade accounts payable |
34 |
61 |
b.Transactions with related parties:
Year ended December 31, | ||||||||||||
2021 |
2020 |
2019 | ||||||||||
| ||||||||||||
Revenues |
682 |
514 |
226 | |||||||||
Purchases, general and administrative expenses |
334 |
314 |
323 | |||||||||
Interest on loans from controlling shareholder |
- |
102 |
121 |
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-RELATED PARTY BALANCES AND TRANSACTIONS (CONT.)
PCB purchases by Nistec - Nistec purchases PCBs from the Company solely to provide assembled boards to its customers. The Company sells to Nistec based on its standard pricing, which may be subject to a discount of up to ten percent (10%). Should the order be for PCBs imported by the Company, the quote reflects the actual price of such PCBs, plus a mark-up of at least twenty percent (20%). Should the order be for PCBs from excess inventory of an original order, the quote will reflect the standard price of such PCBs, with a discount of up to fifty percent (50%) of the price actually paid for such PCBs in the original order (the “Excess Inventory Discount”). The Excess Inventory Discount will apply only to orders from excess inventory of the first original order of a specific PCB (i.e., should a second order of a specific PCBs generate any excess inventory, and Nistec would like to purchase such excess, the Excess Inventory Discount will not be applied to such purchase).
Soldering and assembly services - The Company may acquire soldering services and/or purchasing services from Nistec. Nistec’s pricing for its soldering services will be its standard pricing (the “Pricing”), less a five percent (5%) discount. Nistec may charge for Purchasing Services in accordance with the actual costs of the orders, plus a fourteen and a quarter (14.25%) commission, which reflects a five percent (5%) discount, as compared to the commission charged to third parties by Nistec for similar services. Prices of services not included in the Pricing will be negotiated by the parties in good faith (without participation of Mr. Nissan, the Company's controlling shareholder and CEO, or any of his relatives). Nistec standard procedures govern manufacturer warranties and restrictions regarding defective assembled products. In addition to requesting Nistec to provide the Company with a quote for soldering and assembly services, in the event that the Company requires design and/or design services for production of PCBs, it may ask Nistec to provide it with a quote for such services. Nistec may charge for design and/or design services in accordance its standard pricing for such services, less a five percent (5%) discount. The Company’s purchases of services under the Soldering, Assembly and Design Services Procedure may not exceed NIS 300 per annum.
Insurance expenditures - The Company may share with Nistec costs of insurance consulting and insurance premiums in the event the Company determines that a joint insurance policy with Nistec will reduce the Company’s costs as compared to purchasing insurance separately. Insurance expenditures will be divided between the Company and Nistec as follows: (i) insurance consulting services costs will be divided in proportion to the insurance premiums paid by the Company and Nistec in the preceding year; (ii) the joint insurance premiums will be divided in the proportions indicated by the insurer for each of the Company and Nistec had they purchased the insurance separately. The Company will solicit updated insurance proposals at least bi-annually. The decision to enter into such a joint insurance policy with Nistec will be subject to the approval of the Audit Committee and the Board of Directors of the Company.
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-RELATED PARTY BALANCES AND TRANSACTIONS (CONT.)
Employees social activities - The Company may purchase social activities for the benefit of its employees together with Nistec. The cost of such activities will be divided between the Company and Nistec in accordance with the ratio of the number of Company's employees and Nistec employees to whom the applicable activity was directed, regardless of actual participation.
Marketing activities - The Company may purchase services together with Nistec. Marketing costs will be divided between the Company and Nistec as follows: (i) to the extent the portion of the marketing material applicable to the Company can be quantified, costs will be divided accordingly; (ii) in the event that such costs cannot be quantified, each of Nistec and the Company will bear 50% of the marketing costs.
Managements fees- In September 2019, the Company's Audit Committee, Compensation Committee and Board of Directors, as applicable, approved the terms of the amended Management Agreement. This amended Management Agreement was approved by the Company's shareholders in the annual general meeting, held on December 5, 2019. Nistec is entitled to a monthly management fee of NIS 90 ($28).
Subject to Company’s reimbursement policy approved by the Audit Committee on May 15, 2016, Mr. Nissan will receive reimbursement of travel expenses (other than food and beverage expenses) while traveling internationally on behalf of the Company, provided that such reimbursement will not exceed an aggregate amount of NIS 10 per calendar quarter.
Mr. Nissan will be reimbursed for food and beverage expenses while traveling internationally on behalf of the Company, against receipts, in accordance with the Israeli Income Tax Regulations (Deduction of Certain Expenses) 1972.
In addition, the Company's shareholders in the annual general meetings held on December 5, 2019 and October 29, 2020 approved the following:
a.The extension of the Directors and Officers Indemnity Agreement with Mr. Yitzhak Nissan.
b.The extension of the Exculpation Letter for an additional three (3) year period
c.The application of the Company’s directors and officers liability insurance policy with respect to Mr. Yitzhak Nissan
d.The revised terms of employment of Yitzhak Nissan's daughter who is employed by the Company as a special project manager.
Loans and guarantees from Nistec - see Note 1.
S I G N A T U R E S
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
ELTEK LTD. | ||
| ||
By: |
/s/ Eli Yaffe | |
Name: |
Eli Yaffe | |
Title: |
Chief Executive Officer | |
| ||
| ||
By: |
/s/ Ron Freund | |
Name: |
Ron Freund | |
Title: |
Chief Financial Officer |
Dated: March 23, 2022
• |
the merger does not require the alteration of the memorandum or articles of association of the acquiring company;
|
• |
the acquiring company would not issue more than 20% of the voting rights thereof to the shareholders of the target company in the course of the merger and no person will become, as a result of the merger, a controlling shareholder of the
acquiring company, on a fully diluted basis;
|
• |
neither the target company, nor any shareholder that holds 25% of the means of control of the target company is a shareholder of the acquiring company and there is no person that holds 25% or more of the means of control in both companies.
|
1. |
I have reviewed this annual report on Form 20-F of Eltek Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for,
the periods presented in this report;
|
4. |
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
(d) |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
|
5. |
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or
persons performing the equivalent function):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report
financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|
1. |
I have reviewed this annual report on Form 20-F of Eltek Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for,
the periods presented in this report;
|
4. |
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
(d) |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
|
5. |
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent function):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report
financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|