Eltek Ltd 6-K, filed Aug 13, 2020
Eltek Ltd (ELTK)
6-K
2020-08-13
For: 2020-06-30
View Original
Added on
April 09, 2026
About this 6-K
Eltek Ltd filed this 6-K on August 13, 2020.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2020
Commission file number 000-28884
Eltek Ltd.
(Name of Registrant)
Sgoola Industrial Zone, Petach Tikva, Israel
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of
Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(7): ☐
This Form 6-K is being incorporated by reference into the Registrant’s Form S-8 Registration Statements File Nos. 333-130611 and
333-123559.
Eltek Ltd.
EXPLANATORY NOTE
The following exhibits are attached:
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
Eltek Ltd.
(Registrant)
|
|||
|
|
By:
|
/s/ Alon Mualem | |
| Name: Alon Mualem | |||
| Title: Chief Financial Officer | |||
Dated: August 13, 2020
Exhibit 99.1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis which follows contains forward-looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our earnings, projected growth and forecasts, and similar matters which are not historical facts. We remind
shareholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the
forward-looking statements.
The interim condensed consolidated financial statements appearing elsewhere in this report should be read in conjunction with the
consolidated financial statements and notes thereto included in our Annual Report on Form 20-F for the year ended December 31, 2019. The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the operating
results for the full fiscal year.
Overview
We manufacture and supply technologically advanced custom made
circuitry solutions for use in sophisticated and compact electronic products. We provide specialized services and are a solution provider in the printed circuit board (“PCB”) business, mainly in Israel, Europe, North America and Asia. PCBs are
platforms that conduct an electric current among active and passive microelectronics components, microprocessors, memories, resistors and capacitors and are integral parts of the products produced by high‑technology industries. PCBs are
constructed from a variety of base raw materials. PCBs can be double-sided or multi-layered and made of rigid, flexible, flex-rigid or high-frequency materials. Photolithographic type processes transfer the images of the electrical circuit onto the
layers, and chemical processes etch these lines on the boards. Our focus is on short run quick-turnaround, prototype, pre-production and low to medium volume runs of
high-end PCB products for high growth, advanced electronics applications, mainly flex-rigid PCBs. We also act as an agent for the importation of PCBs from Southeast Asia when customers require high volume production runs, although such activity was
not significant in recent years.
Discussion of Critical Accounting Policies and Estimations
We have identified the policies below as critical to the understanding of our consolidated financial statements. The application of these
policies requires management to make estimates and assumptions that affect the valuation of assets and expenses during the reporting period. There can be no assurance that actual results will not differ from these estimates.
The significant accounting policies described in Note 1 of our consolidated financial statements, which we believe to be most important to
fully understand and evaluate our financial condition and results of operation under U.S. GAAP, are discussed below.
Revenue Recognition. We recognize
revenues when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sale price is fixable or determinable. Revenues
generated from continual projects are recognized over a period of time according to their completion proportion.
Inventories. Inventories are
recorded at the lower of cost or market value. Cost is determined on the weighted average basis for raw materials. For work in progress and finished goods, the cost is determined based on calculation of accumulated actual direct and indirect costs.
Allowance for doubtful accounts receivable.
The allowance for doubtful accounts receivable is calculated on the basis of specific identification of customer balances. 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 the volume of their operations.
Fixed assets. Assets are recorded
at cost. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. 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 in Value of Assets.
Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the asset or asset group to the undiscounted future net cash flows expected to be generated by the asset or the asset group. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Use of estimates. The preparation
of the consolidated financial statements in accordance with U.S. GAAP requires us 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. Actual results could differ from these estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed
assets, allowance for doubtful accounts, valuation of derivatives, deferred tax assets, inventory, income tax uncertainties and other contingencies.
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. Recoveries of environmental remediation costs from third parties that are probable of realization are separately recorded as assets, and are not offset against the related environmental
liability.
Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial
feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of expected future expenditures for environment remediation obligations are not discounted to their present value.
Explanation of Key Income Statement Items
Revenues. Our revenues are mainly
derived from sales of PCBs, including high density interconnect, flex-rigid and multi-layered boards. The principal markets of the Company are in Israel, Europe and North America.
Cost of Revenues. Cost of revenues
consists primarily of salaries, raw materials, subcontractor expenses, related depreciation costs, inventories write-downs and overhead allocated to cost of revenues activities.
Research and Development Expenses, net. Research
and development expenses consist primarily of expenses in connection with our participation in the Printel program, a consortium within the framework of the MAGNET program of the Israeli Innovation Authority.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses consist
primarily of salaries and related expenses for executive and for selling, and marketing personnel, marketing activities, accounting, legal, administrative personnel, professional fees, provisions for doubtful accounts and other general corporate
expenses.
Financial Expenses, Net. Financial
expenses consist of interest and bank expenses, interest on loans, and currency re-measurement losses. Financial income consists of interest on cash and cash equivalent balances and currency re-measurement gains.
Recent accounting pronouncements
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses on
Financial Instruments,” which requires that expected credit losses relating to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the
amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Also, for
available-for-sale debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption by the
Company of the new guidance did not have a material impact on the Company’s consolidated financial statements. Our condensed consolidated financial statements for the six months ended June 30, 2020 are presented under the new standard, while
comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
In February 2016, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The standard
requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets
or inventory. In July 2018, the FASB issued amendments in ASU 2018-11, which provide another transition method in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and
recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements. We adopted the standard as of
January 1, 2019, using a modified retrospective transition approach and elected to use the effective date as the date of initial application. As a result of the adoption of Topic 842 on January 1, 2019, we recorded operating lease right of use
(“ROU”) assets of $3.26 million and operating lease liabilities of $3.25 million. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact the Company’s beginning retained earnings, or its prior year
consolidated statements of income and statements of cash flows.
Recent Events - Impact of COVID-19
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019
and has now spread globally. This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery,
prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The impact of this outbreak has adversely affected the
economies of many nations and the entire global economy and may impact us in ways that cannot necessarily be foreseen.
To date, the effects of the pandemic have not materially affected our company’s operations, which have been deemed an “essential
enterprise” by the Israeli government and we are striving to operate as normal.. Most of the work is still preformed at our production facility in Israel. Some of our employees are quarantined and in some cases are working remotely, due to safety
concerns. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production and order raw materials necessary for production has not been materially impacted. To date, the Company has not experienced a
significant change in sales or in the timeliness of payments of invoices. Our cash position remains stable with approximately $3.4 million of cash and cash equivalents as of July 31, 2020.
The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our
company and could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect our operating results.
Results of Operations
Revenues. Our revenues for the six months ended June 30, 2020 increased by $1.0 million, or 5.9%, to $17.9 million from $16.9 million for the six months ended June 30, 2019. The increase in
revenues is primarily attributable to increased revenues in the Israeli defense market.
Cost of Revenues. Cost of revenues
increased by 0.7% to $14.2 million for the six months ended June 30, 2020 from $14.1 million for the six months ended June 30, 2019. The increase in our cost of revenues is attributable to the increase of 5.9% in revenues, which increase was
mitigated by continuous cost reductions and operational efficiencies.
Gross Profit. Our gross profit
increased to $3.7 million or 20.6% for the six months ended June 30, 2020 from $2.8 million, or 16.6% for the six months ended June 30, 2019. The increase in our gross profit in 2020 was mainly attributable to the decrease in cost of revenues.
Our operating expenses were $2.3 million for the six months ended June 30, 2020 as compared to $2.4 million for the six months ended June
30, 2019.
Financial Expenses, Net. We had net financial expenses of $139,000 in first six months of 2020 compared to net financial expenses of $263,000 in the first six months of 2019. The decrease in
financial expenses is primarily attributable to the decrease in our financial liabilities and the impact of such decrease on interest expenses and by a decrease of finance expenses attributable to the NIS exchange rate on outstanding Dollar and Euro
denominated balances.
Other Income, Net. Other expenses
were nil in first six months of 2020 compared to other income, net of $877,000 in the first six months of 2019 which was primarily due to the receipt of an insurance
payment during 2019 associated with a claim for damages to one of our manufacturing machines.
Net Profit. Our net profit for
first six months of 2020 was $1.2 million compared to net profit of $1.0 million in the first six months of 2019.
Liquidity and Capital Resources
Historically, we have financed our operations through cash generated by operations, shareholder loans, long-term and short-term bank loans,
borrowings under available credit facilities and the proceeds from our initial public offering in 1997 (approximately $5.8 million). In August 2013, we entered into a definitive investment agreement with Nistec pursuant to which Nistec purchased
706,531 of our ordinary shares (approximately 34.8% of our issued share capital on a fully diluted basis) in consideration of $4.2 million. On the same date, Nistec purchased 317,888 of our ordinary shares from Merhav M.N.F. Ltd. As a result of these
transactions, which closed on November 1, 2013, Nistec acquired 50.5% of our issued share capital on a fully diluted basis.
In March 2019, we issued subscription rights to the holders of our ordinary shares to purchase up to an aggregate of 3,380,920 shares. We
raised $3.4 million in gross proceeds from this offering. We used the proceeds of the offering to reduce our outstanding debt under our lines of credit by NIS 6.0 million (approximately $1.7 million), as well as for working capital and other general
corporate purposes, including investment in equipment.
As of June 30, 2020, our cash position (cash and cash equivalents) totaled $3.4 million compared to $1.6 million in cash and cash
equivalents as of December 31, 2019. As of June 30, 2020, we had working capital (excluding short term credit from a related party) of $4.6 million as compared to working capital (excluding short term credit from a related party) of $2.2 million as
of December 31, 2019.
As of June 30, 2020, we had revolving lines of credit aggregating NIS 11.6 million ($3.3 million) with our banks and from a non-banking
financial institution, of which $1.3 million was utilized as of such date, and $1.8 million of long-term loans (including current maturities) from banks and fixed assets suppliers. In addition, we had shareholders’ loans in the amount of NIS 10.0
million ($2.9 million) not including accrued interest. As of December 31, 2019, we were in compliance with our banks' covenants. These credit facilities may not remain available to us in the future. Furthermore, under certain circumstances the banks
may require us to accelerate or make immediate payment in full of our credit facilities. All of our assets are pledged as security for our liabilities to our banks, whose consents are required for any future pledge of such assets.
As of August 12, 2020, the aggregate principal amount of the loans from Nistec was NIS 10 million (approximately $2.9 million). Nistec has
agreed that a loan of NIS 5 million will become due on May 1, 2021 and a loan of NIS 5 million will become due on November 30, 2021.
During the year ended December 31, 2019, we invested approximately $931,000 in new equipment and the expansion of our facilities and infrastructure. In the first half of 2020, we invested approximately $454,000 for
computerization, leasehold improvements and small fixed equipment.
To the extent that the funds generated from our operations and our existing capital resources are insufficient to fund our operating,
financial and capital investment requirements, we will need to raise additional funds through public or private financing or other sources. Additional financing may not be available on commercially reasonable terms, if at all. If adequate funds are
not available on terms acceptable to us, we may be required to delay, scale back or eliminate certain aspects of our operations, and our business, financial condition and results of operations would be materially adversely affected.
Net cash provided by operating activities for the first six months of 2020 was $2.9 million as compared to net cash provided by operating
activities of $1.3 million during the first six months of 2019. This was primarily due to the net profit of $1.2 million incurred during this period, depreciation of fixed assets of $786,000, decrease in inventories of $248,000 and increase in other
accounts payables and accrued expenses in amount of $538,000.
Net cash used by investing activities during the first six
months of 2020 was $512,000. This was primarily due to the purchase of computerization, leasehold improvements and small fixed equipment. Net cash used by investing
activities during the first six months of 2019 was $250,000.
Net cash used in financing activities during the first six months of 2020 was $607,000, mainly reflecting decrease in short term credit and
loans, compared to cash used in financing activities of $190,000 during the first six months of 2019.
Our working capital requirements and cash flow provided by our operating and financing activities are likely to vary greatly from quarter
to quarter, depending on the following factors: (i) the timing of orders and deliveries; (ii) net profit in the period; (iii) the purchase of new equipment; (iv) the build‑up of inventories; (v) the payment terms offered to our customers; (vi) the
payment terms offered by our suppliers; (vii) the repayment of existing lines of credit and loans; (vii) the spread of coronavirus, Covid-19, may affect our business, operations and financial condition; and (viii) approval of the current or
additional lines of credit and long-term loans from banks.
Corporate Tax Rate
Israeli companies were generally subject to corporate tax at a rate of 24% in 2017. The corporate tax in Israel, as of January 1, 2018,
decreased to 23%.
Impact of Currency Fluctuation and of Inflation
A significant portion of the cost of our Israeli operations, primarily personnel and facility-related, is incurred in NIS. Therefore, our
NIS related costs, as expressed in Dollars, are influenced by the exchange rate between the Dollar and the NIS. In addition, if the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the Dollar, or if the
timing of such devaluations were to lag considerably behind inflation, our cost as expressed in Dollars may increase. NIS linked balance sheet items, may also create foreign exchange gains or losses, depending upon the relative Dollar values of the
NIS at the beginning and end of the reporting period, affecting our net income and earnings per share. Although we may use hedging techniques, we may not be able to eliminate the effects of currency fluctuations. Therefore, exchange rate
fluctuations could have a material adverse impact on our operating results and share price.
Exhibit 99.2
ELTEK LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2020
IN U.S. DOLLARS
UNAUDITED
INDEX
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Page
|
|
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F-2 - F-3
|
|
|
F-4
|
|
|
F-5 – F-6
|
|
|
F-7
|
|
|
F-8 - F-23
|
ELTEK LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
|
June 30,
|
December 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Unaudited
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents (Note 2)
|
3,407
|
1,628
|
||||||
|
Trade accounts receivable (net of allowance for doubtful accounts of
$175 and $227 as of June 30, 2020 and December 31, 2019, respectively)
|
7,307
|
7,480
|
||||||
|
Inventories (Note 3)
|
3,474
|
3,735
|
||||||
|
Other accounts receivable and prepaid expenses
|
484
|
675
|
||||||
|
Total current assets
|
14,672
|
13,518
|
||||||
|
LONG-TERM ASSETS:
|
||||||||
|
Restricted deposits
|
58
|
-
|
||||||
|
Severance pay fund
|
59
|
60
|
||||||
|
Operating lease right of use assets
|
2,029
|
2,490
|
||||||
|
Total long-term assets
|
2,146
|
2,550
|
||||||
|
PROPERTY AND EQUIPMENT, NET
|
6,407
|
6,761
|
||||||
|
Total assets
|
23,225
|
22,829
|
||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
F - 2
ELTEK LTD. AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
June 30,
|
December 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Unaudited
|
||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Short-term credit and current maturities of long-term debt (Note 4)
|
1,303
|
2,120
|
||||||
|
Short-term credit from related party
|
2,885
|
3,472
|
||||||
|
Trade payables
|
3,983
|
4,673
|
||||||
|
Other accounts payable and accrued expenses
|
3,653
|
3,118
|
||||||
|
Short-term operating lease liabilities
|
1,141
|
1,383
|
||||||
|
Total current liabilities
|
12,965
|
14,766
|
||||||
|
LONG-TERM LIABILITIES:
|
||||||||
|
Long-term debt, excluding current maturities (Note 5)
|
1,468
|
387
|
||||||
|
Accrued severance pay
|
307
|
268
|
||||||
|
Deferred tax liabilities
|
57
|
45
|
||||||
|
Long-term operating lease liabilities
|
872
|
1,094
|
||||||
|
Total long-term liabilities
|
2,704
|
1,794
|
||||||
|
SHAREHOLDERS' EQUITY:
|
||||||||
|
Share capital -
|
||||||||
|
Ordinary shares, NIS 3.0 par value; Authorized: 10,000,000 shares; Issued and outstanding 4,380,268 shares
|
3,964
|
3,964
|
||||||
|
Additional paid-in capital
|
18,583
|
18,583
|
||||||
|
Foreign currency translation adjustments
|
2,479
|
2,479
|
||||||
|
Capital reserves
|
1,006
|
963
|
||||||
|
Accumulated deficit
|
(18,476
|
)
|
(19,720
|
)
|
||||
|
Total shareholders' equity
|
7,556
|
6,269
|
||||||
|
Total liabilities and shareholders' equity
|
23,225
|
22,829
|
||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
F - 3
ELTEK LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands (except share and per share data)
|
Six months ended
June 30,
|
Three months ended
June 30,
|
Year ended
December 31,
|
||||||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
2019
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||||||
|
Revenues
|
17,949
|
16,934
|
8,792
|
8,198
|
34,794
|
|||||||||||||||
|
Cost of revenues
|
(14,246
|
)
|
(14,139
|
)
|
(6,892
|
)
|
(6,942
|
)
|
(28,787
|
)
|
||||||||||
|
Gross profit
|
3,703
|
2,795
|
1,900
|
1,256
|
6,007
|
|||||||||||||||
|
Operating (expenses) income:
|
||||||||||||||||||||
|
Research and development, net
|
2
|
-
|
4
|
-
|
(16
|
)
|
||||||||||||||
|
Selling, general and administrative
|
(2,284
|
)
|
(2,355
|
)
|
(1,095
|
)
|
(1,249
|
)
|
(4,604
|
)
|
||||||||||
|
Operating profit
|
1,421
|
440
|
809
|
7
|
1,387
|
|||||||||||||||
|
Financial expenses, net
|
(139
|
)
|
(263
|
)
|
(83
|
)
|
(78
|
)
|
(440
|
)
|
||||||||||
|
Other income, net (Note 6)
|
-
|
877
|
-
|
871
|
923
|
|||||||||||||||
|
Income before taxes on income
|
1,282
|
1,054
|
726
|
800
|
1,870
|
|||||||||||||||
|
Taxes on income
|
(38
|
)
|
(22
|
)
|
(22
|
)
|
(10
|
)
|
(77
|
)
|
||||||||||
|
Net income
|
1,244
|
1,032
|
704
|
790
|
1,793
|
|||||||||||||||
|
Other comprehensive income (loss):
|
||||||||||||||||||||
|
Foreign currency translation adjustments
|
-
|
(1
|
)
|
169
|
9
|
139
|
||||||||||||||
|
Total comprehensive income
|
1,244
|
1,031
|
873
|
799
|
1,932
|
|||||||||||||||
|
Basic and diluted income per Ordinary share attributable to Eltek Ltd. shareholders
|
0.28
|
0.33
|
0.16
|
0.19
|
0.48
|
|||||||||||||||
|
Weighted average number of Ordinary shares used to compute basic and diluted income per Ordinary share attributable to Eltek Ltd. Shareholders
|
4,380,268
|
3,088,110
|
4,380,268
|
4,147,667
|
3,734,317
|
|||||||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
F - 4
ELTEK LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands (except share and per share data)
|
Number
of shares |
Ordinary
Shares
|
Additional
paid-in capital
|
Accumulated
other
comprehensive
income (loss)
|
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
|
|||||||||||||||||||||
|
Stock-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
|
||||||||||||||||||||
|
Stock-based compensation
|
-
|
-
|
-
|
-
|
43
|
-
|
43
|
|||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
-
|
1,244
|
1,244
|
|||||||||||||||||||||
|
Balance as of June 30, 2020 (unaudited)
|
4,380,268
|
3,964
|
18,583
|
2,479
|
1,006
|
(18,476
|
)
|
7,556
|
||||||||||||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
F - 5
ELTEK LTD. AND ITS SUBSIDIARIES
INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share and per share data)
|
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 Share capital in rights offering, net
|
2,351,716
|
1,979
|
1,313
|
-
|
-
|
-
|
3,292
|
|||||||||||||||||||||
|
Stock-based compensation
|
-
|
-
|
-
|
-
|
62
|
-
|
62
|
|||||||||||||||||||||
|
Transaction with controlling shareholder
|
-
|
-
|
-
|
-
|
29
|
-
|
29
|
|||||||||||||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||||||
|
Net income
|
-
|
-
|
-
|
-
|
-
|
1,032
|
1,032
|
|||||||||||||||||||||
|
Foreign currency translation adjustments
|
-
|
-
|
-
|
(1
|
)
|
-
|
-
|
(1
|
)
|
|||||||||||||||||||
|
Balance as of June 30, 2019 (unaudited)
|
4,380,268
|
3,964
|
18,583
|
2,339
|
891
|
(20,481
|
)
|
5,296
|
||||||||||||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
F - 6
ELTEK LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
|
Six months ended
June 30,
|
Year ended
December 31,
|
|||||||||||
|
2020
|
2019
|
2019
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
1,244
|
1,032
|
1,793
|
|||||||||
|
Adjustments to reconcile income to net cash flows provided by operating activities:
|
||||||||||||
|
Depreciation
|
786
|
748
|
1,508
|
|||||||||
|
Revaluation of long-term loans
|
4
|
(24
|
)
|
(38
|
)
|
|||||||
|
Stock based compensation
|
43
|
62
|
141
|
|||||||||
|
Transaction with controlling shareholder
|
-
|
29
|
22
|
|||||||||
|
Accrued severance pay, net
|
40
|
(9
|
)
|
36
|
||||||||
|
Decrease (increase) in operating lease right-of-use assets
|
449
|
(3
|
)
|
1,385
|
||||||||
|
Decrease in operating lease liabilities
|
(453
|
)
|
(6
|
)
|
(1,388
|
)
|
||||||
|
Decrease (increase) in trade receivables, net
|
149
|
(1,598
|
)
|
(1,277
|
)
|
|||||||
|
Decrease in other accounts receivables and prepaid expenses
|
187
|
879
|
598
|
|||||||||
|
Decrease (increase) in inventories
|
248
|
(114
|
)
|
175
|
||||||||
|
Increase (decrease) in trade payables
|
(370
|
)
|
194
|
107
|
||||||||
|
Increase in deferred tax liabilities
|
12
|
-
|
45
|
|||||||||
|
Increase (decrease) in other accounts payables and accrued expenses
|
538
|
132
|
(529
|
)
|
||||||||
|
Net cash provided by operating activities
|
2,877
|
1,322
|
2,578
|
|||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(454
|
)
|
(250
|
)
|
(931
|
)
|
||||||
|
Restricted deposits
|
(58
|
)
|
-
|
-
|
||||||||
|
Proceeds from disposals of property and equipment and repayment from insurance
|
-
|
-
|
125
|
|||||||||
|
Net cash used in investing activities
|
(512
|
)
|
(250
|
)
|
(806
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Short- term bank credit, net
|
(765
|
)
|
(3,394
|
)
|
(4,181
|
)
|
||||||
|
Proceeds from short- term shareholder loan
|
-
|
555
|
561
|
|||||||||
|
Repayment of short- term shareholder loan
|
(571
|
)
|
-
|
-
|
||||||||
|
Issuance of share capital in rights offering, net
|
-
|
3,298
|
3,298
|
|||||||||
|
Repayment of long-term loans
|
(108
|
)
|
(455
|
)
|
(891
|
)
|
||||||
|
Proceeds from long-term loans
|
1,141
|
-
|
558
|
|||||||||
|
Repayment of property and equipment payables
|
(304
|
)
|
(194
|
)
|
(477
|
)
|
||||||
|
Net cash used in financing activities
|
(607
|
)
|
(190
|
)
|
(1,132
|
)
|
||||||
|
Effect of exchange rate on cash and cash equivalents
|
21
|
(37
|
)
|
(4
|
)
|
|||||||
|
Increase in cash and cash equivalents
|
1,779
|
845
|
636
|
|||||||||
|
Cash and cash equivalents at beginning of the period
|
1,628
|
992
|
992
|
|||||||||
|
Cash and cash equivalents at end of the period
|
3,407
|
1,837
|
1,628
|
|||||||||
|
Supplemental cash flow information:
|
||||||||||||
|
Interest
|
95
|
90
|
232
|
|||||||||
|
Non-cash activities:
|
||||||||||||
|
Purchase of property and equipment on credit
|
141
|
65
|
350
|
|||||||||
|
Right-of-use asset recognized with corresponding lease liability
|
153
|
-
|
377
|
|||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
F - 7
ELTEK LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES
|
| a. |
General:
|
| - |
Eltek Ltd. ("the Company") was organized in Israel in 1970, and its 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".
|
| - |
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, as well as to contract electronic manufacturers, among other industries.
|
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").
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. Due to these conditions and other financial and business factors, the Company's liquidity position, as well as its operating performance, was negatively
affected. As a result, in the past, including the year ended December 31, 2018, the Company incurred net losses and suffered negative cash flows from its operating activities. In the six month ended June 30, 2020 and in the year ended
December 31, 2019 the Company recorded net income of $1.2 million and $1.8 million, respectively, compared to a loss of $2.6 million in the year ended December 31, 2018. As of June 30, 2020, the Company's working capital amounted to $1.7
million and its accumulated deficit amounted to approximately $18.5 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.
|
|
|
| - |
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has spread globally. This outbreak has resulted in travel restrictions, closed international
borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs,
defaults and other significant economic impacts, as well as general concern and uncertainty. The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact the company in ways
that cannot necessarily be foreseen.
|
F - 8
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
|
To date, the effects of the pandemic have not materially affected the Company’s operations, which have been deemed an “essential enterprise” by the Israeli government and the Company is
striving to operate as normal.
Some of the Company’s employees are quarantined and in some cases are working remotely, due to safety concerns. Most of the work is still preformed from the Company's
production facility. The Company’s ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order raw materials necessary for production has not been materially impacted. To date, the
Company has not experienced a significant change in sales or in the timeliness of payments of invoices and its cash position remains stable with approximately $3.4 million of cash and cash equivalents as of July 31, 2020.
The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for the Company and could adversely
affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the Company’s operating results.
Loans and credit lines:
|
| - |
In June 2017, due to continued losses and the Company's limited ability to obtain additional loans from the banks, the Company obtained a loan of NIS 5.0 million (approximately $ 1.4 million) from Nistec (the “First Loan”). The terms of
the loan were amended in April 2018, with retroactive effect as of June 2017.
In July 2017, the Company obtained a line of credit dedicated to a specific project of up to NIS 4.5 million (approximately $1.3 million) from Bank Hapoalim,
guaranteed by Nistec Ltd., for a period of up to one year. In July 2018 Bank Hapoalim extended the dedicated line of credit and in January 2019 the Company reduced the line of credit to NIS 2.25 million (approximately $ 620). During April
2020, Bank Hapoalim approved the increase of this line of credit back to NIS 4.5 million (approximately $1.3 million) and made this facility available for use for any purpose.
In November 2017, the Company obtained a loan of NIS 3 million (approximately $ 840) from Mizrahi-Tefahot Bank, guaranteed by Nistec. In April 2019, the Company
repaid the debt owed to the bank from the proceeds of the rights offering.
In March 2018, the Company obtained another loan from Nistec of NIS 4.0 million (approximately $ 1.2 million) (the “Second Loan”). In July 2018, in accordance with a
commitment letter provided by Nistec, the Company obtained another loan from Nistec of NIS 1.0 million (approximately $ 290) (the “Third Loan,” and together with the First Loan and the Second Loan, the “Loans”).
|
F - 9
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
The Company and Nistec have entered into term and interest provisions of the Loans aggregating NIS 10 million (approximately $ 2.9 million). On December 5, 2019, at the Annual
General Meeting of the Company's shareholders approved (following the approval of the Company's Audit Committee and Board of Directors) the execution of an Interest Agreement with Nistec Golan. Under the terms of the Interest Agreement, the Loans
bear interest, as follows:
| 1. |
Interest Amount:
|
| a. |
A total aggregate principal loan amount of NIS 5 million (the “First Half of the Loans”) bear interest of Prime + 1%, as of September 26, 2019 and until January 7, 2020. As of January 8, 2020, and until repaid,
the First Half of the Loans shall bear annual interest of Prime + 1.75%.
|
| b. |
A total aggregate principal loan amount of NIS 5 million (the “Second Half of the Loans”) bear annual interest of Prime + 1.75%, as of January 1, 2019, and until repaid in full.
|
| 2. |
Payment Schedule: the interest is paid on the 10th day of each quarter, for the interest accumulated in the three (3) months prior to such payment date (except with respect to the first interest payment). The first interest payment was
paid on January 10, 2020, for 2019.
|
| 3. |
Late Fees: Any amount not paid by the Company when due, will bear an annual interest of Prime + 3%, unless the Company has not paid the applicable interest amount due to its requirement to avoid any going concern qualifications, in which
event the applicable interest (i.e., Prime+ 1.75) will continue to apply.
|
In August 2018, the Company obtained a credit facility of NIS 7 million (approximately $ 2.0 million) from a non-banking financial institution. In October 2019, this credit
facility, which is guaranteed by Nistec, was reduced to NIS 6 million (approximately $ 1.7 million). In March 2020, the non-banking financial institution
informed the Company that due to the coronavirus outbreak, its insurance carrier put on hold any future activity until further notice and therefore this facility may not be available to the Company going forward.
In January 2019, Nistec provided the Company with an additional loan of NIS 2.0 million (approximately $580), due on April 30, 2019. However, the Company exercised an option to
extend the term of the loan until May 1, 2020 as approved by Company's Audit Committee that determined that such extension was required for the Company’s orderly operations. The loan was repaid to Nistec on May 1, 2020.
F - 10
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
In addition, during January 2019 Nistec guaranteed NIS 2.0 million (approximately $580) of the Company's existing debt to Bank Leumi, which was due to be repaid by April 30,
2019. During March 2019 and as part of the rights offering (described below) the Company's Audit Committee and Board of Directors authorized the Company to repay the debt owed to Bank Leumi from the proceeds of the rights offering.
On July 2019 the Company obtained a long term loan of NIS 2.0 million (approximately $580) from Bank Leumi.
As of June 30, 2020, the total principal amounts of the loans received by the Company from Nistec (as described above) was NIS 10 million (approximately $2.9 million), which
will become due on or after May 1, 2021. In August 2020, Nistec provided the Company with a letter of commitment that NIS 5 million (approximately $ 1.4 million) of the Loans will become due on May 1, 2021 and an additional NIS 5 million
(approximately $ 1.4 million) will become due on November 30, 2021. Nistec has also agreed that in the event that the guarantees that it provided to banks and to a non-banking institution will be exercised, the amount due to Nistec as a result of the
exercise of the guarantee will be due on November 30, 2021.
On June 30, 2020 the Company obtained a long term loan of NIS 4 million (approximately $ 1.2 million) from Mizrahi-Tefahot Bank, under the Coronavirus government loans plan.
This loan, which is guaranteed by Nistec, is for 5 years, with a one year grace period and interest is waived during the first year. The loan principal and interest will be repaid over 48 monthly instalments starting the 13th month and bearing an
annual interest of Prime + 1.5%. As part of this loan grant, the Company deposited an amount of $58 in a restricted deposit.
| - |
In April 2019 the Company completed a rights offering in which,69.6% of the Company’s shareholders participated and which provided gross proceeds of $3.4 million (before deducting expenses related to the offering). The Company used the
net proceeds from this offering to repay a NIS 3.0 million (approximately $870) loan from Mizrahi Bank (guaranteed by Nistec), repay a NIS 2.0 million (approximately $580) line of credit from Bank Leumi (for which Nistec provided a
guarantee) and a NIS 1.0 million (approximately $290) line of credit from Bank Hapoalim. The remainder of the proceeds was used for working capital and other general corporate purposes, including investment in plant and equipment.
|
Financial covenants:
In April 2014, the Company signed a new financial undertakings letter with one bank and in May 2014 with another bank. Under these undertakings 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, 2019, the Company was in compliance with these covenants.
F - 11
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
|
The Company believes that in the event that its business condition for the second half of 2020 will significantly worsen, it will not meet the above-mentioned financial covenants.
The Company's management believes that its current business plans and the commitments from Nistec will enable the Company to continue to operate for a period of at
least one year from the date of the approval of these financial statements. In the event the Company will not be successful in generating sufficient cash from its current operations, the Company may be required to obtain additional
financing from external sources. There is no assurance that such financing will be obtained.
|
| b. |
Basis of presentation:
|
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The consolidated financial statements include the accounts of the Company and its subsidiaries.
The Company sells goods through its subsidiaries that function as distributors. All intercompany transactions and balances were eliminated in consolidation. 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.
| c. |
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. Actual results could differ
from these estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowance for doubtful accounts, deferred tax assets, inventory, income tax uncertainties and other contingencies.
F - 12
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
| d. |
Unaudited interim financial statements:
|
The accompanying consolidated balance sheet as of June 30, 2020, consolidated statements of income and comprehensive income (loss) for the three and six months ended June 30,
2020 and 2019 and the consolidated statements of cash flows for the three and six months ended June 30, 2020 and 2019 are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial information. In the preparation of the consolidated financial statements, the Company applied the significant accounting policies, on a consistent basis to the audited consolidated annual
financial statements of the Company as of December 31, 2019 except as detailed in note 1g (accounting pronouncements adopted in 2020).
In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair
presentation of the Company's consolidated financial position as of June 30, 2020, and the Company's consolidated cash flows and results of operations for the three and six months ended June 30, 2020 and 2019.
The balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements as of such date but does not include all of the information and
footnotes required by U.S. generally accepted accounting principles for a complete set of financial statements.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2019 included
in the Company's Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission ("SEC") on April 27, 2020 and Form 20-F/A filed with the SEC on May 21, 2020.
F - 13
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
| e. |
Recently Issued and Adopted Accounting Pronouncements
|
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses on Financial Instruments,” which requires that
expected credit losses relating to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for
available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Also, for available-for-sale debt securities with unrealized
losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption by the Company of the new guidance did not have a material
impact on the Company’s consolidated financial statements.
The condensed consolidated financial statements for the six months ended June 30, 2020 are presented under the new standard, while comparative periods
presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
F - 14
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
CASH AND CASH EQUIVALENTS
|
|
June 30,
|
December 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Unaudited
|
||||||||
|
Denominated in U.S. dollars
|
1,263
|
1,034
|
||||||
|
Denominated in NIS
|
1,583
|
129
|
||||||
|
Denominated in Euro
|
561
|
465
|
||||||
|
3,407
|
1,628
|
|||||||
| NOTE 3:- |
INVENTORIES
|
|
June 30,
|
December 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Unaudited
|
||||||||
|
Raw materials
|
1,861
|
1,860
|
||||||
|
Work in progress
|
1,349
|
1,607
|
||||||
|
Finished goods
|
264
|
268
|
||||||
|
3,474
|
3,735
|
|||||||
| NOTE 4:- |
SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM DEBT
|
Banks:
|
Interest
|
|||||||||||
|
June 30,
|
June 30,
|
December 31,
|
|||||||||
|
2020
|
2020
|
2019
|
|||||||||
|
%
|
Unaudited
|
||||||||||
|
In NIS bears interest rate of Prime+0.85% to Prime+2.7%
|
2.45% - 4.30%
|
851
|
1,326
|
||||||||
|
Short term credit from others
|
4.15%
|
|
308
|
612
|
|||||||
|
Long-term debt from banks in NIS bears interest of Prime rate
|
2.6%
|
144
|
182
|
||||||||
|
1,303
|
2,120
|
||||||||||
F - 15
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 5:- |
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES
|
Others:
|
Interest
|
|||||||||||
|
June 30,
|
June 30,
|
December 31,
|
|||||||||
|
2020
|
2020
|
2019
|
|||||||||
|
Linkage terms:
|
%
|
Unaudited
|
|||||||||
|
U.S. dollar
|
3.5% - 5%
|
|
128
|
381
|
|||||||
|
NIS - fix interest rate
|
5% - 5.5%
|
|
1,655
|
664
|
|||||||
|
1,783
|
1,045
|
||||||||||
|
Less - current maturities (trade payables)
|
(315
|
)
|
(658
|
)
|
|||||||
|
1,468
|
387
|
||||||||||
Minimum future payments at June 30, 2020 due under the long-term debt are as follows:
|
Long-term loan
|
||||
|
First year
|
316
|
|||
|
Second year
|
420
|
|||
|
Third year
|
428
|
|||
|
Fourth year
|
317
|
|||
|
Fifth year
|
302
|
|||
|
1,783
|
||||
Long-term debt includes liabilities associated with equipment purchases in the amounts of $171 and $477 and current maturities of long-term debt of $171 and $477 at June 30, 2020
and December 31, 2019, respectively. The current maturities are classified in the trade payable balance as of June 30, 2020 and December 31, 2019, respectively.
As to pledges securing the loans, see Note 7a.
| NOTE 6:- |
OTHER INCOME
|
The Company had other income, net of $877 in first six months of 2019, primarily as a result of the receipt of an insurance payment associated with a claim for damages incurred
during 2018 to one of the Company's manufacturing machines.
F - 16
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 7:- |
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. |
Operating leases:
|
| 1. |
The Company leases substantially all of its factory premises, machines and vehicles under operating leases. The Company's leases have original lease periods expiring between 2020 and 2024.
|
| 2. |
Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement.
|
| 3. |
The aggregated present value of lease agreements is recorded as a long-term asset titled ROU assets. The corresponding lease liabilities are split between operating lease liabilities within current liabilities and operating lease
liabilities within long-term liabilities.
|
| c. |
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 officer 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 officer 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. The Company provided an exculpation letter to each of its directors and officers, and agreed to provide the same to future officers.
F - 17
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 7:- |
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
| d. |
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 requires it 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 for Environmental Protection. Compliance with these conditions may be costly.
In October 2015, the Company filed an application for an emissions permit with the Ministry. In January 2016, the Company received a notice of non-compliance from the Ministry,
stating that the application was incomplete and that the Company is in breach of the Clean Air Law, 5768-2008 and the Licensing of Businesses Law, 5728-1968. The Company submitted amended application and conducted discussions with the Ministry
throughout 2016 and 2017. The Company received the emissions permit in July 2017.
In March 2019, representatives of the Ministry, 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
Hazardous Materials Law (1993). The Company was invited to a hearing at the Ministry during August 2019. The Company believes that during the hearing and after presenting to the Ministry the correction made for some of the findings, the issue will be
resolved but there can be no assurance that our standpoint will be accepted.
Employee related matters
In May 2008, June 2019 and November 2019, lawsuits were filed by three of our employees alleging that they had suffered personal injuries during her employment and they are
seeking aggregate financial compensation of approximately $ 113 for past damages and additional amounts for future lost income, pain and suffering as the court may determine.
Five other employees notified the Company in January 2011 and December 2019, that they allegedly suffered personal injuries during their employment with the Company. Of these
five employees, two are seeking compensation of $1,614 and the others did not state their claim amount.
The above-mentioned claims were submitted to the insurance company, which informed the Company that it is reviewing the statements of claim without prejudicing its rights to
deny coverage.
During the period January 2016 through February 2019, two former employees filed law suits seeking additional payments in connection with their employment with the Company and
subsequent termination. In September 2019 a decision was entered in one of the labor suits, and a provision was recorded accordingly. On October 2019, both the Company and this former employee appealed the Labor Court’s decision and in July 2020 both
the Company and this former employee agreed to withdraw their appeal with no further claims. The aggregate amount claimed in the remaining suit is approximately $ 212. The Company recorded a provision according to its legal advisor's opinion.
F - 18
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 8:- |
SHAREHOLDERS' EQUITY
|
Authorized, issued and outstanding share capital in historical terms is as follows:
|
Authorized
|
Issued and outstanding
|
|||||
|
June 30,
|
||||||
|
2020 and
|
||||||
|
December 31,
|
June 30,
|
December 31,
|
||||
|
2019
|
2020
|
2019
|
||||
|
Number of shares
|
||||||
|
Ordinary shares of par value NIS 3.0 each
|
10,000,000
|
4,380,268
|
4,380,268
|
|||
| NOTE 9:- |
SEGMENT INFORMATION
|
| a. |
Customers who accounted for over 10% of the total consolidated revenues:
|
|
Six months ended
June 30,
|
Three months ended
June 30,
|
Year ended
December 31,
|
||||||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
2019
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||||||
|
Customer A - sales of manufactured products
|
17.2
|
%
|
17.0
|
%
|
17.1
|
%
|
18.1
|
%
|
19.5
|
%
|
||||||||||
| b. |
Revenues by geographic areas:
|
|
Six months ended
June 30,
|
Three months ended
June 30,
|
Year ended
December 31,
|
||||||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
2019
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||||||
|
Israel
|
10,172
|
9,144
|
4,964
|
4,756
|
19,659
|
|||||||||||||||
|
North America
|
3,163
|
3,606
|
1,644
|
1,431
|
6,434
|
|||||||||||||||
|
The Netherlands
|
1,788
|
1,562
|
874
|
596
|
2,898
|
|||||||||||||||
|
Europe
|
617
|
605
|
405
|
268
|
1,129
|
|||||||||||||||
|
India
|
1,110
|
1,809
|
426
|
545
|
3,809
|
|||||||||||||||
|
Others
|
1,099
|
208
|
479
|
602
|
865
|
|||||||||||||||
|
17,949
|
16,934
|
8,792
|
8,198
|
34,794
|
||||||||||||||||
F - 19
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 10:- |
TAXES ON INCOME
|
| a. |
Deferred tax assets and liabilities:
|
The Company recorded a full valuation allowance for deferred tax assets with respect to its deferred tax assets in Israel due to uncertainty about its ability to utilize such
losses in the future. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected taxable income, and tax-planning strategies in making this assessment.
| b. |
Reconciliation of the theoretical income tax (expense) benefit to the actual income tax expense:
|
For the six months period ended June 30, 2020 the main differences between the theoretical tax expenses (statutory tax rate of 23%) and the actual tax expenses are tax benefit
arising from "Beneficiating and Preferred enterprises" and realization of carryforward tax losses for which valuation allowance was provided.
| NOTE 11:- |
RELATED PARTY BALANCES AND TRANSACTIONS
|
Nistec, a related party 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 its related parties were carried out on an arm's-length basis.
| a. |
Balances with related parties:
|
|
June 30,
|
December 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Unaudited
|
||||||||
|
Trade accounts receivable
|
126
|
47
|
||||||
|
Trade accounts payable
|
35
|
115
|
||||||
|
Controlling shareholder loans (*)
|
2,885
|
3,472
|
||||||
| (*) See also Note 1(a). | ||||||||
| b. |
Transactions with related parties:
|
|
Six months ended
June 30,
|
Three months ended
June 30,
|
Year ended
December 31,
|
||||||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
2019
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||||||
|
Revenues
|
216
|
98
|
123
|
51
|
226
|
|||||||||||||||
|
Purchases, selling, general and administrative expenses
|
161
|
231
|
81
|
150
|
323
|
|||||||||||||||
|
Interest from Loans from controlling shareholder
|
54
|
31
|
26
|
16
|
121
|
|||||||||||||||
F - 20
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 11:- |
RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
|
PCB purchases by Nistec - Nistec purchases PCBs from the Company solely to provide assembled
boards to its customers and not for re-sale. The Company's quote is based on its standard price list, and 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 price list (the “Price List”), 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 Price List 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 price list 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.
F - 21
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 11:- |
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 and Mr.
Nissan receive the following compensation:
| a. |
Eltek pays Nistec monthly managements fees of NIS 90 ($26).
|
| b. |
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 shall not exceed an aggregate amount of NIS 10 per calendar quarter.
|
| c. |
Mr. Nissan is entitled to receive reimbursement of 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 meeting, held on December 5, 2019 approved the following:
| a. |
The extension of the Directors and Officers Indemnity Agreement with Mr. Yitzhak Nissan.
|
| b. |
The extension of the Exculpation Letter with Mr. Nissan for an additional three (3) year period
|
| c. |
The application of the Company’s directors and officers liability insurance policy with respect to Mr. Nissan
|
| d. |
The revised terms of employment of Mr. Nissan's daughter, who is employed by the Company as special project manager.
|
Loans and guarantees from Nistec - see Note 1.
F - 22
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- STOCK BASED COMPENSATION
The Company's 2018 Share Incentive Plan (the "Plan") authorized the grant of options to purchase shares and restricted shares unites
("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.
As of June 30, 2020 the Company granted to its employees and officers 133,519 options to acquire 133,519 Ordinary shares under the
Plan. Total fair value of the options granted was $418 to be recognized over a four years vesting period. The stock-based compensation expense related to employees' equity-based awards, recognized during the six months ended June 30, 2020 and 2019
was $43 and $62, respectively.
F - 23