Page
|
||
Prospectus
Summary
|
1
|
|
Risk
Factors
|
6
|
|
Cautionary
Note Regarding Forward-Looking Statements
|
21
|
|
Use
Of Proceeds
|
21
|
|
Dividend
Policy
|
21
|
|
Exchange
Rate Information
|
22
|
|
Current
Outstanding Share Capital
|
23
|
|
Capitalization
|
23
|
|
Price
Range Of Ordinary Shares
|
24
|
|
Selected
Consolidated Financial Data
|
25
|
|
Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operations
|
27
|
|
Business
|
48
|
|
Management
|
69
|
|
Certain
Relationships And Related Party Transactions
|
80
|
|
Principal
Shareholders
|
81
|
|
Description
Of Share Capital
|
82
|
|
Selling
Shareholders
|
85
|
|
Plan
Of Distribution
|
88
|
|
Memorandum
And Articles Of Association
|
89
|
|
Description
Of Ordinary Shares
|
93
|
|
Shares
Eligible For Future Sale
|
97
|
|
Conditions
In Israel
|
99
|
|
Taxation
|
101
|
|
Enforceability
Of Civil Liabilities
|
106
|
|
Legal
Matters
|
107
|
|
Experts
|
107
|
|
Where
You Can Find More Information
|
107
|
|
Index
|
F-1
|
·
|
Smart
card technology integration
know-how;
|
·
|
High
security solution integration;
|
·
|
Proprietary
smart card technologies and
products;
|
·
|
Expertise
in multi-application smart cards;
and
|
·
|
Extensive
experience with the government ID
market.
|
·
|
A
horizontal smart card technology provider and integrator with the
ability
to respond to complex security and multi-application smart card system
challenges; and
|
·
|
A
provider of a combination of unique and traditional smart cards and
complementary smart card-related products, which, as applicable,
will be
sold “off-the-shelf” as complete
solutions.
|
·
|
Biometrics
Visa.
The biometric visa system is built on our proprietary platform technology
and is tailored to meet the customer’s specific requirements. The
integrated system captures the fingerprints of each visa applicant
and
stores the images on a chip integrated in each visa, enabling automatic
and positive identification of the person each time the visa is used.
This
end-to-end solution meets all ICAO standards for visas and
passports.
|
·
|
Smart
Disaster Site Management System - SmartDSMS.
SmartDSMS is a comprehensive solution for facilitating the authentication
and flow of on-site personnel in disaster recovery operations. Built
on
our patented DynaGate technology, the wireless mobile units are
specifically designed to monitor the movement of credentialed individuals
throughout the disaster area.
|
·
|
Vend-EZ.
The Vend-EZ enables vending machines with a smart card reader and
a
specialized controller to support smart transactions with Contactless
Smart Cards.
|
Ordinary
shares which may be sold by selling shareholders
|
6,791,126
ordinary
shares, including 1,871,772 ordinary shares issuable upon exercise
of
warrants.
|
|
Ordinary
shares to be outstanding after the offering
|
25,153,932
ordinary shares. (1)
|
|
Use
of proceeds
|
We
will not receive any proceeds from the sales described in this prospectus.
We will bear the expenses related to the registration of the ordinary
shares.
|
|
OTC
Bulletin Board Symbol
|
SPCBF.OB
|
|
Euronext
Brussels Symbol
|
SUP
|
(1)
|
The
number of ordinary shares to be outstanding after this offering is
calculated based upon the number of ordinary shares issued and outstanding
as of December 15, 2005, assuming the exercise of warrants to purchase
1,721,772 ordinary shares issuable upon exercise of warrants held
by the
selling shareholders and assuming the exercise of warrants to purchase
150,000 ordinary shares issuable upon exercise of warrants held by
certain
consultants, and does not include, as of December 15, 2005: (a) 3,457,199
ordinary shares reserved for issuance upon exercise of outstanding
options
at a weighted average exercise price of $0.97 per share; or (b) 1,000,000
ordinary shares authorized for option grants to employees and officers
under our option plan, which remain subject to all required approvals
under Israeli law; or (c) 1,167,445 ordinary shares issuable upon
exercise
of warrants held by the selling shareholders from the private placement
completed in 2004 or (d) 49,677 ordinary shares issuable upon exercise
of
warrants held by advisors of the Company in regard to the private
placement completed in 2004.
|
·
|
all
references to “New Shekels” or “NIS” are to the lawful currency of
Israel;
|
·
|
all
references to “Euros,” “EUR,” “(euro),” or “€” are to the
lawful currency of the European Union;
and
|
·
|
all
references to “dollars” or “$” are to the lawful currency of the United
States.
|
Year
Ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Summary
Of Statement Of Operations:
|
(in
thousands of U.S. dollars)
|
|||||||||
Revenues
|
$
|
8,027
|
$
|
7,244
|
$
|
7,344
|
||||
Cost
of Revenues
|
1,830
|
3,102
|
3,730
|
|||||||
Gross
Profit
|
6,197
|
4,142
|
3,614
|
|||||||
Operating
Expenses:
|
||||||||||
Research
and Development
|
1,334
|
918
|
845
|
|||||||
Selling
and Marketing
|
2,828
|
3,026
|
2,445
|
|||||||
General
and Administrative
|
1,988
|
1,829
|
1,955
|
|||||||
Total
Operating Expenses
|
6,150
|
5,773
|
5,245
|
|||||||
Operating
Income (Loss)
|
47
|
(1,631
|
)
|
(1,631
|
)
|
|||||
Financial
Expenses, Net
|
(35
|
)
|
(233
|
)
|
(214
|
)
|
||||
Other
Income (Expenses), Net
|
6,203
|
(83
|
)
|
(27
|
)
|
|||||
Income
(Loss) before Income taxes
|
6,215
|
(1,947
|
)
|
(1,872
|
)
|
|||||
Share
in Loss of an Affiliated Company and impairment, Net of
taxes
|
(38
|
)
|
(48
|
)
|
—
|
|||||
Net
Income (Loss) from continuing operations
|
6,177
|
(1,995
|
)
|
(1,872
|
)
|
|||||
Loss
from discontinued operations
|
(427
|
)
|
—
|
—
|
||||||
Net
income (loss)
|
$
|
5,750
|
$
|
(1,995
|
)
|
$
|
(1,872
|
)
|
||
Per
Share Data:
|
||||||||||
Basic
and Diluted earning (loss) from continuing operations.
|
$
|
0.49
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Basic
and Diluted loss from discontinued operations
|
$
|
(0.04
|
)
|
$
|
—
|
$
|
—
|
|||
Basic
and Diluted earning (loss) per share
|
$
|
0.45
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Summary
Of Balance Sheet Data:
|
||||||||||
Cash
and Cash Equivalents
|
$
|
4,567
|
$
|
1,729
|
$
|
2,894
|
||||
Short
term deposit and restricted cash deposits
|
53
|
2,060
|
1,482
|
|||||||
Marketable
debt securities
|
609
|
117
|
—
|
|||||||
Trade
receivables (net of allowance for doubtful accounts of $3,333
and $3,347
as of December 31, 2003 and 2004, respectively)
|
2,202
|
1,808
|
1,463
|
|||||||
Inventories
|
3,144
|
3,236
|
2,165
|
|||||||
Total
Current Assets
|
11,092
|
9,881
|
9,254
|
|||||||
Total
Assets
|
13,756
|
12,685
|
13,938
|
|||||||
Total
Current Liabilities
|
3,468
|
4,450
|
4,259
|
|||||||
Accrued
Severance Pay
|
362
|
436
|
564
|
|||||||
Total
Shareholders’ Equity
|
$
|
9,497
|
$
|
7,612
|
$
|
9,115
|
Summary
of Consolidated Financial Data
|
|||||||||||||
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
Unaudited
|
Unaudited
|
||||||||||||
(in
thousands of U.S. Dollars, except per share data)
|
|||||||||||||
2004
|
2005
|
2004
|
2005
|
||||||||||
Summary
of Statement of Operations:
|
|||||||||||||
Revenues
|
1,407
|
2,069
|
3,891
|
6,857
|
|||||||||
Cost
of Revenues
|
797
|
1,106
|
2,361
|
3,568
|
|||||||||
Gross
Profit
|
610
|
963
|
1,530
|
3,289
|
|||||||||
Operating
Expenses:
|
|||||||||||||
Research
and Development
|
241
|
232
|
618
|
958
|
|||||||||
Selling
and Marketing
|
586
|
711
|
1,715
|
2,450
|
|||||||||
General
and Administrative
|
439
|
729
|
1,383
|
2,229
|
|||||||||
Restructuring
Expenses
|
—
|
—
|
—
|
496
|
|||||||||
Settlement
expenses
|
—
|
129
|
—
|
129
|
|||||||||
Total
Operating Expenses
|
1,266
|
1,801
|
3,716
|
6,262
|
|||||||||
Operating
Loss
|
(656
|
)
|
(838
|
)
|
(2,186
|
)
|
(2,973
|
)
|
|||||
Financial
Expenses, Net
|
(40
|
)
|
(12
|
)
|
(117
|
)
|
(6
|
)
|
|||||
Other
Income (Expenses), Net
|
33
|
—
|
(20
|
)
|
(6
|
)
|
|||||||
Net
loss
|
$
|
(663
|
)
|
$
|
(850
|
)
|
$
|
(2,323
|
)
|
$
|
(2,985
|
)
|
|
Per
Share Data:
|
|||||||||||||
Basic
and Diluted loss per share
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
$
|
(0.17
|
)
|
$
|
(0.16
|
)
|
|
Summary
of Balance Sheet Data:
|
|||||||||||||
Cash
and Cash Equivalents
|
2,374
|
410
|
2,374
|
410
|
|||||||||
Bank
deposit
|
1,405
|
1,074
|
1,405
|
1,074
|
|||||||||
Trade
receivables
|
2,073
|
1,195
|
2,073
|
1,195
|
|||||||||
Inventories
|
2,890
|
2,397
|
2,890
|
2,397
|
|||||||||
Total
Current Assets
|
9,557
|
5,892
|
9,557
|
5,892
|
|||||||||
TOTAL
ASSETS
|
12,485
|
10,064
|
12,485
|
10,064
|
|||||||||
Total
Current Liabilities
|
4,077
|
2,739
|
4,077
|
2,739
|
|||||||||
Accrued
Severance Pay
|
491
|
584
|
491
|
584
|
|||||||||
Total
Shareholders’ Equity
|
7,837
|
6,505
|
7,837
|
6,505
|
·
|
the
frequent need to compete against companies or teams of companies
with more
financial and marketing resources and more experience than we have
in
bidding on and performing major
contracts;
|
·
|
the
need to compete against companies or teams of companies that may
be
long-term, entrenched incumbents for a particular contract we are
competing for and which have, as a result, greater domain expertise
and
established customer relations;
|
·
|
the
need to compete on occasion to retain existing contracts that have
in the
past been awarded to us on a sole-source
basis;
|
·
|
the
substantial cost and managerial time and effort necessary to prepare
bids
and proposals for contracts that may not be awarded to
us;
|
·
|
the
need to accurately estimate the resources and cost structure that
will be
required to service any fixed-price contract that we are awarded;
and
|
·
|
the
expense and delay that may arise if our competitors protest or challenge
new contract awards made to us pursuant to competitive bidding or
subsequent contract modifications, and the risk that any of these
protests
or challenges could result in the resubmission of bids on modified
specifications, or in termination, reduction or modification of the
awarded contract.
|
·
|
increased
collection risks;
|
·
|
trade
restrictions;
|
·
|
export
duties and tariffs;
|
·
|
uncertain
political, regulatory and economic
developments;
|
·
|
inability
to protect our intellectual property rights;
|
·
|
very
aggressive competitors;
|
·
|
lower
gross margins in commercial sales in Hong Kong and
China;
|
·
|
business
development in Hong Kong and China is time consuming and risky due
to the
uncertain political, regulatory and legal environment; and
|
·
|
currency
issues.
|
·
|
bank
credit and debit card systems, which in most countries have traditionally
relied on magnetic stripe cards as their principal
technology;
|
·
|
computer
equipment, which must include smart card readers as standard equipment
if
the use of smart cards for Internet and other applications is to
become
common;
|
·
|
widely
used digital signature information technology security
systems;
|
·
|
national
identity card programs, which are considering smart cards with biometric
technology;
|
·
|
government
issued passports and ID cards which include contactless smart card
chips,
which has been recently recommended as the new standard by International
Committee of Aviation
Organizations;
|
·
|
transportation
applications using cards as method of payment;
and
|
·
|
access
control in such fields as education and health
care.
|
·
|
the
cost, performance and reliability of our products and services compared
to
the products and services of our
competitors;
|
·
|
customers’
perception of the benefits of smart card
solutions;
|
·
|
public
perceptions of the intrusiveness of these solutions and the manner
in
which organizations use the information
collected;
|
·
|
public
perceptions regarding the confidentiality of private
information;
|
·
|
customers’
satisfaction with our products and services;
and
|
·
|
marketing
efforts and publicity regarding our products and
services.
|
·
|
long
customer sales cycles;
|
·
|
reduced
demand for our products and
services;
|
·
|
price
reductions, new competitors, or the introduction of enhanced products
or
services from new or existing
competitors;
|
·
|
changes
in the mix of products and services we or our distributors
sell;
|
·
|
contract
cancellations, delays or amendments by
customers;
|
·
|
the
lack of government demand for our products and services or the lack
of
government funds appropriated to purchase our products and
services;
|
·
|
unforeseen
legal expenses, including litigation
costs;
|
·
|
expenses
related to acquisitions;
|
·
|
other
non-recurring financial charges;
|
·
|
the
lack of availability or increase in cost of key components and
subassemblies; and
|
·
|
the
inability to successfully manufacture in volume, and reduce the price
of,
certain of our products that may contain complex designs and
components.
|
·
|
to
continue to improve our operations, financial and management controls,
reporting systems and procedures;
|
·
|
to
train, motivate and manage our employees;
and
|
·
|
as
required, to install new management information
systems.
|
·
|
the
rules under the Exchange Act requiring the filing with the SEC of
quarterly reports on Form 10-Q or current reports on Form
8-K;
|
·
|
the
sections of the Exchange Act regulating the solicitation of proxies,
consents or authorizations in respect of a security registered under
the
Exchange Act;
|
·
|
the
provisions of Regulation FD aimed at preventing issuers from making
selective disclosures of material
information;
|
·
|
the
sections of the Exchange Act requiring insiders to file public reports
of
their stock ownership and trading activities and establishing insider
liability for profits realized from any “short-swing” trading transaction
(i.e., a purchase and sale, or sale and purchase, of the issuer’s equity
securities within less than six
months);
|
Year
|
Exchange
Rate
At
End of Period
|
Average
Rate (1)
|
High
|
Low
|
|||||||||
2000
|
4.040
|
4.068
|
4.200
|
3.970
|
|||||||||
2001
|
4.416
|
4.220
|
4.416
|
4.041
|
|||||||||
2002
|
4.737
|
4.736
|
4.991
|
4.437
|
|||||||||
2003
|
4.379
|
4.512
|
|
4.924
|
4.283
|
||||||||
2004
|
4.308
|
4.483
|
4.634
|
4.308
|
Period
|
Exchange
Rate
At
End of Period
|
Average
Rate (1)
|
High
|
Low
|
|||||||||
Three
(3) Months Ended September 30, 2005
|
4.598
|
4.556
|
4.61
|
4.475
|
|||||||||
Nine
(9) Months Ended September 30, 2005
|
4.598
|
4.458
|
4.61
|
4.299
|
Period
|
High
|
Low
|
|||||
July
2005
|
4.61
|
4.525
|
|||||
August
2005
|
4.559
|
4.475
|
|||||
September
2005
|
4.598
|
4.478
|
|||||
October
2005
|
4.653
|
4.59
|
|||||
November
2005
|
4.741
|
4.64
|
|||||
December
2005
|
4.662
|
4.579
|
As
of
|
|||||||
December
31, 2004
(in thousands) |
September
30, 2005
(in thousands) |
||||||
(Audited)
|
(Unaudited)
|
||||||
Liabilities:
|
|||||||
Total
bank debt, including current portion
|
1,022
|
1,018
|
|||||
Warrants
|
-
|
-
|
|||||
Shareholders’
equity:
|
|||||||
Ordinary
shares, NIS 0.01 per share, 26,500,000 authorized on December 31,
2004,
and 40,000,000 authorized on September 30, 2005, 17,703,199 outstanding
on
December 31, 2004, and 18,362,806 outstanding on September 30,
2005
|
51
|
53
|
|||||
Additional
paid-in capital
|
29,094
|
29,551
|
|||||
Accumulated
deficit
|
(20,114
|
)
|
(23,099
|
)
|
|||
Deferred
compensation
|
(59
|
)
|
(14
|
)
|
|||
Receipt
on account of shares
|
143
|
14
|
|||||
Deficit
|
|||||||
Total
shareholders’ equity
|
$
|
9,115
|
$
|
6,505
|
Number
of
ordinary share |
Share
Capital
(In
thousands)
|
Number
Of
Warrant Shares |
Number
Of Options* |
||||||||||
As
of September
30, 2005
|
18,362,806
|
$
|
53
|
1,317,445
|
3,457,199
|
||||||||
Issuance
of shares and warrants in Private Placements
|
4,919,354
|
$
|
11
|
1,721,772
|
-
|
||||||||
Issuance
of warrants
|
49,677
|
-
|
|||||||||||
Pro
Forma as of December 15, 2005
|
23,282,160
|
$
|
64
|
3,088,894
|
3,457,199
|
NasdaqEurope/Euronext
|
OTC-BB
|
||||||||||||
High
|
Low
|
High
|
Low
|
||||||||||
December
31, 2004
|
$2.62
|
$1.94
|
$2.65
|
$2.14
|
|||||||||
December
31, 2003
|
$0.75
|
$0.28
|
-
|
-
|
|||||||||
December
31, 2002
|
$0.56
|
$0.10
|
|
-
|
-
|
||||||||
December
31, 2001
|
$1.60
|
$0.25
|
-
|
-
|
|||||||||
December
31, 2000
|
$6.95
|
$1.80
|
-
|
-
|
NasdaqEurope/Euronext
|
OTC-BB
|
||||||||||||
Quarter
ended:
|
High
|
Low
|
High
|
Low
|
|||||||||
Fourth
quarter 2005
|
$0.79
|
$0.53
|
$0.89
|
$0.56
|
|||||||||
Third
quarter 2005
|
$0.83
|
$0.73
|
$0.95
|
$0.66
|
|||||||||
Second
quarter 2005
|
$2.22
|
$0.75
|
$2.25
|
$0.65
|
|||||||||
First
quarter 2005
|
$2.79
|
$1.92
|
|
$2.56
|
$2.20
|
|
|||||||
Fourth
quarter 2004
|
$2.66
|
$0.82
|
$2.65
|
$2.14
|
|||||||||
Third
quarter 2004
|
$1.04
|
|
$0.79
|
-
|
-
|
||||||||
Second
quarter 2004
|
$1.20
|
$0.62
|
-
|
-
|
|||||||||
First
quarter 2004
|
$0.73
|
$0.54
|
-
|
-
|
NasdaqEurope/Euronext
|
OTC-BB
|
||||||||||||
High
|
Low
|
High
|
Low
|
||||||||||
December
2005
|
$0.60
|
$0.53
|
$0.70
|
$0.56
|
|||||||||
November
2005
|
$0.70
|
$0.60
|
$0.74
|
$0.61
|
|||||||||
October
2005
|
$0.79
|
$0.66
|
$0.89
|
$0.70
|
|||||||||
September
2005
|
$0.82
|
$0.73
|
$0.95
|
$0.66
|
|||||||||
August
2005
|
$0.83
|
$0.77
|
$0.82
|
$0.68
|
|||||||||
July
2005
|
$0.83
|
$0.73
|
$0.77
|
$0.71
|
Year
Ended December 31,
|
||||||||||||||||
2000
|
2001
|
2002
|
2003
|
2004
|
||||||||||||
Summary
Of Statement Of Operations:
|
(in
thousands of U.S. dollars,)
|
|||||||||||||||
Revenues
|
$
|
3,062
|
$
|
6,889
|
$
|
8,027
|
$
|
7,244
|
$
|
7,344
|
||||||
Cost
of Revenues
|
1,756
|
2,574
|
1,830
|
3,102
|
3,730
|
|||||||||||
Gross
Profit
|
1,306
|
4,315
|
6,197
|
4,142
|
3,614
|
|||||||||||
Operating
Expenses:
|
||||||||||||||||
Research
and Development
|
2,477
|
1,225
|
1,334
|
918
|
845
|
|||||||||||
Selling
and Marketing
|
4,180
|
4,628
|
2,828
|
3,026
|
2,445
|
|||||||||||
General
and Administrative
|
3,385
|
3,604
|
1,988
|
1,829
|
1,955
|
|||||||||||
Total
Operating Expenses
|
10,042
|
9,457
|
6,150
|
5,773
|
5,245
|
|||||||||||
Operating
Income (Loss)
|
(8,736
|
)
|
(5,142
|
)
|
47
|
(1,631
|
)
|
(1,631
|
)
|
|||||||
Financial
Income (Expenses), Net
|
744
|
123
|
(35
|
)
|
(233
|
)
|
(214
|
)
|
||||||||
Other
Income (Expenses), Net
|
(1,688
|
)
|
(241
|
)
|
6,203
|
(83
|
)
|
(27
|
)
|
|||||||
Income
(Loss) before Income taxes
|
(9,680
|
)
|
(5,260
|
)
|
6,215
|
(1,947
|
)
|
(1,872
|
)
|
|||||||
Income
Taxes
|
2
|
—
|
—
|
—
|
—
|
|||||||||||
Share
in Earnings (Loss) of an Affiliated Company and impairment, Net of
taxes
|
19
|
—
|
(38
|
)
|
(48
|
)
|
—
|
|||||||||
Net
Income (Loss) from continuing operations
|
(9,663
|
)
|
(5,260
|
)
|
6,177
|
(1,995
|
)
|
(1,872
|
)
|
|||||||
Income
(Loss) from discontinued operations
|
1,276
|
1,288
|
(427
|
)
|
—
|
—
|
||||||||||
Net
income (loss)
|
$
|
(10,939
|
)
|
$
|
(6,548
|
)
|
$
|
5,750
|
$
|
(1,995
|
)
|
$
|
(1,872
|
)
|
||
Per
Share Data:
|
||||||||||||||||
Basic
and Diluted loss from continuing operations.
|
$
|
(0.76
|
)
|
$
|
(0.42
|
)
|
$
|
0.49
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Basic
and Diluted earning (loss) from discontinued operations
|
$
|
(0.1
|
)
|
$
|
(0.1
|
)
|
$
|
(0.04
|
)
|
$
|
—
|
$
|
—
|
|||
Basic
and Diluted earning (loss) per share
|
$
|
(0.86
|
)
|
$
|
(0.52
|
)
|
$
|
0.45
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Summary
Of Balance Sheet Data:
|
||||||||||||||||
Cash
and Cash Equivalents
|
$
|
8,565
|
$
|
274
|
$
|
4,567
|
$
|
1,729
|
$
|
2,894
|
||||||
Short
term deposit and restricted cash deposits
|
—
|
100
|
53
|
2,060
|
1,482
|
|||||||||||
Marketable
debt securities
|
—
|
—
|
609
|
117
|
—
|
|||||||||||
Trade
receivables (net of allowance for doubtful accounts of $3,333 and
$3,347
as of December 31, 2003 and 2004, respectively)
|
161
|
573
|
2,202
|
1,808
|
1,463
|
|||||||||||
Inventories
|
2,832
|
3,777
|
3,144
|
3,236
|
2,165
|
|||||||||||
Total
Current Assets
|
12,887
|
6,006
|
11,092
|
9,881
|
9,254
|
|||||||||||
Total
Assets
|
15,219
|
8,531
|
13,756
|
12,685
|
13,938
|
|||||||||||
Total
Current Liabilities
|
4,016
|
4,226
|
3,468
|
4,450
|
4,259
|
|||||||||||
Accrued
Severance Pay
|
858
|
442
|
362
|
436
|
564
|
|||||||||||
Total
Shareholders’ Equity
|
$
|
10,345
|
$
|
3,863
|
$
|
9,497
|
$
|
7,612
|
$
|
9,115
|
Summary
of Consolidated Financial Data
|
|||||||||||||
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
Unaudited
|
Unaudited
|
||||||||||||
(in
thousands of U.S. Dollars, except per share data)
|
|||||||||||||
2004
|
2005
|
2004
|
2005
|
||||||||||
Summary
of Statement of Operations:
|
|||||||||||||
Revenues
|
1,407
|
2,069
|
3,891
|
6,857
|
|||||||||
Cost
of Revenues
|
797
|
1,106
|
2,361
|
3,568
|
|||||||||
Gross
Profit
|
610
|
963
|
1,530
|
3,289
|
|||||||||
Operating
Expenses:
|
|||||||||||||
Research
and Development
|
241
|
232
|
618
|
958
|
|||||||||
Selling
and Marketing
|
586
|
711
|
1,715
|
2,450
|
|||||||||
General
and Administrative
|
439
|
729
|
1,383
|
2,229
|
|||||||||
Restructuring
Expenses
|
—
|
—
|
—
|
496
|
|||||||||
Settlement
expenses
|
—
|
129
|
—
|
129
|
|||||||||
Total
Operating Expenses
|
1,266
|
1,801
|
3,716
|
6,262
|
|||||||||
Operating
Loss
|
(656
|
)
|
(838
|
)
|
(2,186
|
)
|
(2,973
|
)
|
|||||
Financial
Expenses, Net
|
(40
|
)
|
(12
|
)
|
(117
|
)
|
(6
|
)
|
|||||
Other
Income (Expenses), Net
|
33
|
—
|
(20
|
)
|
(6
|
)
|
|||||||
Net
loss
|
$
|
(663
|
)
|
$
|
(850
|
)
|
$
|
(2,323
|
)
|
$
|
(2,985
|
)
|
|
Per
Share Data:
|
|||||||||||||
Basic
and Diluted loss per share
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
$
|
(0.17
|
)
|
$
|
(0.16
|
)
|
|
Summary
of Balance Sheet Data:
|
|||||||||||||
Cash
and Cash Equivalents
|
2,374
|
410
|
2,374
|
410
|
|||||||||
Bank
deposit
|
1,405
|
1,074
|
1,405
|
1,074
|
|||||||||
Trade
receivables
|
2,073
|
1,195
|
2,073
|
1,195
|
|||||||||
Inventories
|
2,890
|
2,397
|
2,890
|
2,397
|
|||||||||
Total
Current Assets
|
9,557
|
5,892
|
9,557
|
5,892
|
|||||||||
TOTAL
ASSETS
|
12,485
|
10,064
|
12,485
|
10,064
|
|||||||||
Total
Current Liabilities
|
4,077
|
2,739
|
4,077
|
2,739
|
|||||||||
Accrued
Severance Pay
|
491
|
584
|
491
|
584
|
|||||||||
Total
Shareholders’ Equity
|
7,837
|
6,505
|
7,837
|
6,505
|
·
|
Revenue
recognition
|
·
|
Allowance
for doubtful accounts
|
·
|
Inventory
valuation
|
·
|
Impairment
of long-lived assets
|
·
|
Contingencies
|
·
|
Stock-based
compensation
|
·
|
We
recognize revenue from products generally upon shipment, unless contract
terms call for a later date, net of an allowance for estimated returns,
provided persuasive evidence of an arrangement exists, collection
is
probable, the fee is fixed or determinable, vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement
and assuming only inconsequential or perfunctory performance obligations
remain. Revenue from some data security hardware products contains
embedded software. However, the embedded software is considered incidental
to the hardware product sale. We also act as a reseller of third-party
hardware and software applications. Generally, we recognize such
revenue
upon shipment of the hardware or software application, unless contract
terms call for a later date, provided that all other conditions above
have
been met.
|
·
|
Service
revenue includes payments under support and upgrade contracts and
consulting fees. We recognize support and upgrade revenue ratably
over the
term of the contract, which typically is twelve months. Consulting
revenue
primarily relates to installation, integration and training services
performed on a time-and-materials or fixed-fee basis under separate
service arrangements. Fees from consulting are recognized as services
are
performed.
|
·
|
Revenues
from arrangements that involve the delivery of multiple deliverables
such
as products, services or rights to use asset, are recognized in accordance
with EITF Issue No. 00-21 “Revenue Arrangements with Multiple
Deliverables”. For such arrangements, each element of the contract is
accounted as a separate unit if the delivered items has value to
the
customer on a standalone basis and there is objective and reliable
evidence of the fair value of the undelivered
items.
|
·
|
Revenues
from long-term contracts are recognized pursuant to the percentage
of
completion method. We measure the percentage of completion based
on output
criteria, such as the number of units delivered or based on contract
milestones as applicable to each contract. Provisions for estimated
losses
on incomplete contracts are made during the period in which such
losses
are first identified, in the amount of the estimated loss on the
entire
contract. Cost estimates on percentage-of-completion contracts are
reviewed periodically with adjustments recorded in the period in
which the
revisions are made. The complexity of the estimation process and
factors
relating to the assumptions, risks and uncertainties inherent with
the
application of the percentage-of-completion method of accounting
affect
the amounts of revenue and related expenses reported in our consolidated
financial statements. A number of internal and external factors can
affect
our estimates, including labor rates, availability of qualified personnel
and project requirement and/or scope changes. Billings on uncompleted
contracts may be less than or greater than the revenues recognized
and are
recorded as either unbilled receivable (an asset) or deferred revenue
(a
liability) in the consolidated financial statements.
|
·
|
The
allowance for doubtful accounts is determined with respect to specific
debts that the Company has determined to be doubtful of
collection.
|
Year
ended December 31,
|
Quarter
ended September 30,
|
Quarter
ended September 30,
|
Nine
months ended September 30,
|
Nine
months ended September 30,
|
||||||||||||||||||
2002
|
2003
|
2004
|
2004
|
2005
|
2004
|
2005
|
||||||||||||||||
Revenues
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
||||||||
Cost
of revenues
|
22.8
|
42.8
|
50.8
|
56.6
|
53.4
|
60.7
|
52.0
|
|||||||||||||||
Gross
profit
|
77.2
|
57.2
|
49.2
|
43.4
|
46.6
|
39.3
|
48.0
|
|||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||
Research
and development
|
16.6
|
12.7
|
11.5
|
17.1
|
11.2
|
15.9
|
14.0
|
|||||||||||||||
Selling
and marketing, net
|
35.2
|
41.8
|
33.3
|
41.6
|
34.3
|
44.1
|
35.7
|
|||||||||||||||
General
and administrative
|
24.8
|
25.2
|
26.6
|
31.2
|
35.2
|
35.5
|
32.5
|
|||||||||||||||
Restructuring
Expenses
|
-
|
-
|
-
|
-
|
--
|
-
|
7.2
|
|||||||||||||||
Settlement
expenses
|
-
|
-
|
-
|
-
|
6.2
|
-
|
1.9
|
|||||||||||||||
Total
operating expenses
|
76.6
|
79.7
|
71.4
|
89.9
|
86.9
|
95.5
|
91.3
|
|||||||||||||||
Operating
loss
|
(0.6
|
)
|
(22.5
|
)
|
(22.2
|
)
|
(46.5
|
)
|
(40.3
|
)
|
(56.2
|
)
|
(43.3
|
)
|
||||||||
Financial
expenses, net
|
(0.4
|
)
|
(3.2
|
)
|
(2.9
|
)
|
(2.8
|
)
|
(0.6
|
)
|
(3.0
|
)
|
-
|
|||||||||
Other
income (expenses), net
|
77.3
|
(1.1
|
)
|
(0.3
|
)
|
2.3
|
--
|
(0.5
|
)
|
-
|
||||||||||||
Income
(loss) before income taxes
|
77.5
|
(26.8
|
)
|
(25.5
|
)
|
(47.0
|
)
|
(40.9
|
)
|
(59.7
|
)
|
(43.3
|
)
|
|||||||||
Equity
in losses of affiliates and impairment, net of taxes
|
(0.5
|
)
|
(0.7
|
)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
Net
income (loss) from continuing operations
|
77.0
|
(27.5
|
)
|
(25.5
|
)
|
(47.0
|
)
|
(40.9
|
)
|
(59.7
|
)
|
(43.3
|
)
|
|||||||||
Loss
from discontinued operations
|
5.3
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Net
income (loss)
|
71.7
|
(27.5
|
)
|
(25.5
|
)
|
(47.0
|
)
|
(40.9
|
)
|
(59.7
|
)
|
(43.3
|
)
|
·
|
Smart
ID technologies;
|
·
|
High
security solution integration;
|
·
|
Expertise
in multi-application smart cards, integration know-how;
and
|
·
|
Extensive
experience with the government ID
market.
|
·
|
Vend-EZ(TM)
and Smart DSMS
|
Total
|
2005
|
2006
|
2007
|
2008
|
2009
and Beyond
|
||||||||||||||
Long-term
debt obligations
|
$
|
187,000
|
$
|
187,000
|
—
|
—
|
—
|
—
|
|||||||||||
Capital
(finance) lease obligations
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
Operating
lease obligations
|
$
|
337,000
|
$
|
270,000
|
$
|
67,000
|
—
|
—
|
—
|
||||||||||
Unconditional
purchase obligations
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
Total
contractual cash obligations
|
$
|
524,000
|
$
|
457,000
|
$
|
67,000
|
—
|
—
|
—
|
·
|
Smart
card technology integration
know-how;
|
·
|
High
security solution integration;
|
·
|
Proprietary
smart card technologies and
products;
|
·
|
Expertise
in multi-application smart cards;
and
|
·
|
Extensive
experience with the government ID
market.
|
·
|
A
horizontal smart card technology provider and integrator with the
ability
to respond to complex security and multi-application smart card system
challenges; and
|
·
|
A
provider of a combination of unique and traditional smart cards and
complementary smart card-related products, which, as applicable,
will be
sold “off-the-shelf” as complete
solutions.
|
·
|
Biometrics
Visa.
The biometric visa system is built on our proprietary platform technology
and is tailored to meet the customer’s specific requirements. The
integrated system captures the fingerprints of each visa applicant
and
stores the images on a chip integrated in each visa, enabling automatic
and positive identification of the person each time the visa is used.
This
end-to-end solution meets all ICAO standards for visas and
passports.
|
·
|
Smart
Disaster Site Management System - SmartDSMS.
SmartDSMS is a comprehensive solution for facilitating the authentication
and flow of on-site personnel in disaster recovery operations. Built
on
our patented DynaGate technology, the wireless mobile units are
specifically designed to monitor the movement of credentialed individuals
throughout the disaster area.
|
·
|
Vend-EZ.
The Vend-EZ enables vending machines with a smart card reader and
a
specialized controller to support smart transactions with Contactless
Smart Cards.
|
·
|
Our
ID and smart card division provides ID solutions for governments
and
contactless smart card production facilities for the governmental
markets;
and
|
·
|
Our
commercial marketing division focuses on our commercial applications
such
as SmartGate 2400, Power Reader and EduGate in the United States
and Asia
Pacific.
|
·
|
Smart
Inlay for ePassport. Our
smart inlay is flexible, highly durable and uses an operating system
fully
compatible with the ICAO and International
Organization for Standardization (“ISO”) standards. Our inlay passed
several extensive tests that exceed the normal use of a passport
with
embedded technology. Our ePassport inlay can be included in the front
or
back cover, in the middle page or adjoining the personalization page.
|
·
|
Manufacturing.
Our
innovative high-volume “ePASS PRO” manufacturing systems are designed to
provide an automatic and flexible solution for producing smart inlays
for
electronic passports. The system can incorporate changes of chip,
design
and material. The universal chip module system allows us to utilize
almost
any chip on the market today. As part of the production system, we
employ
a variety of testing methods to assure high quality and reliability
for
our products.
|
·
|
Chip
and Operating System Technology. We
supply a chip with a proven operating system, which conforms to ISO
and
ICAO standards. We offer features such as memory capacity of up to
72KB
and fast write/read time.
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Geographic
market:
|
(in
thousands of U.S. dollars)
|
|||||||||
Europe
|
$
|
5,237
|
$
|
3,308
|
$
|
3,218
|
||||
Asia
Pacific
|
1,942
|
2,067
|
2,433
|
|||||||
Africa
|
—
|
536
|
899
|
|||||||
United
States
|
581
|
828
|
386
|
|||||||
Israel
|
229
|
460
|
320
|
|||||||
Other
|
38
|
45
|
88
|
|||||||
$
|
8,027
|
$
|
7,244
|
$
|
7,344
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Product
category:
|
(in
thousands of U.S. dollars)
|
|||||||||
Raw
materials and equipment
|
$
|
4,879
|
$
|
4,196
|
$
|
5,552
|
||||
SPPL
1000
|
2,080
|
2,471
|
1,210
|
|||||||
License
fee
|
446
|
—
|
—
|
|||||||
Maintenance
|
622
|
577
|
582
|
|||||||
$
|
8,027
|
$
|
7,244
|
$
|
7,344
|
As
of December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Research,
Development & Manufacturing
|
25
|
21
|
28
|
|||||||
Marketing
and Sales
|
15
|
27
|
27
|
|||||||
Administration
|
11
|
11
|
12
|
|||||||
Total
|
51
|
59
|
67
|
|||||||
December
31,
|
|||||||
2003
|
2004
|
||||||
Cost:
|
(In
thousands of U.S. dollars)
|
||||||
Computers
and peripheral equipment
|
$
|
2,281
|
$
|
4,380
|
|||
Office
furniture and equipment
|
408
|
471
|
|||||
Leasehold
improvements
|
1,107
|
1,147
|
|||||
3,796
|
5,998
|
||||||
Accumulated
depreciation:
|
|||||||
Computers
and peripheral equipment
|
1,412
|
1,547
|
|||||
Office
furniture and equipment
|
192
|
218
|
|||||
Leasehold
improvements
|
516
|
592
|
|||||
2,120
|
2,357
|
||||||
Depreciated
cost
|
$
|
1,676
|
$
|
3,641
|
|||
Name
|
Age
|
Position
|
|||||
Eli
Rozen
|
51
|
Director, Chairman of the Board | |||||
Avi
Landman
|
51
|
Director | |||||
Menachem
Meron
|
76
|
Director retired on June 19, 2005 | |||||
Avi
Elkind
|
52
|
External Director | |||||
Michal
Brikman
|
35
|
External Director | |||||
Daniel
Spira
|
51
|
Director |
Name
|
Age
|
Position
|
||
Avi
Schechter
|
40
|
Chief
Executive Officer and President
|
||
Eli
Basson
|
44
|
Vice
President IPS (Int’l Project Solutions) Division
|
||
Eyal
Tuchman
|
37
|
Vice
President, Chief Financial Officer
|
||
Moshe
Wolfson
|
53
|
Vice
President, Sales
|
||
Gali
Gana
|
40
|
Internal
Auditor
|
Name
|
Options
to Purchase
Ordinary Shares Awarded during Year Ended December 31, 2004 |
Exercise
Price
|
Expiration
Date
|
||||
Avi
Schechter
|
150,000
310,000
300,000
|
$
0.42
$
0.85
$
2.52
|
March
27, 2014
October
3, 2014
November
6, 2014
|
||||
Eyal
Tuchman
|
75,000
125,000
150,000
|
$
0.42
$
0.85
$
2.52
|
March
27, 2014
October
3, 2014
November
6, 2014
|
||||
Eli
Basson
|
75,000
120,000
100,000
|
$
0.52
$
0.85
$
2.52
|
March
27, 2014
October
3, 2014
November
6, 2014
|
||||
Moshe
Wolfson
|
50,000
75,000
75,000
|
$
0.42
$
0.85
$
2.52
|
March
27, 2014
October
3, 2014
November
6, 2014
|
Name
and Position
|
Securities
Acquired on Exercise (#)
|
Aggregate
Value Realized ($)
|
Unexercised
Options/SARs at FY-End (#) Exercisable/
Unexercisable
|
Value
of Unexercised in-the-money Options/SARs at FY-End ($)Exercisable/
Unexercisable (1)
|
|||||||||
Avi
Schechter—President, Chief Executive Officer
|
—
|
—
|
900,000
|
$922,700
|
|||||||||
Eyal
Tuchman—Vice President, Chief Financial Officer
|
—
|
—
|
400,000
|
$386,250
|
|||||||||
Eli
Basson—Vice President, Research and Development and Chief Operating
Officer
|
—
|
—
|
300,922
|
$294,523
|
|||||||||
Moshe
Wolfson—Vice President Sales
|
—
|
—
|
200,000
|
$187,750
|
(1)
|
Based
on the closing price of our ordinary shares on the OTC Bulletin Board
of
$2.18 on December 31, 2004 minus the exercise price multiplied by
the
number of option.
|
Name
|
Position
|
|
Eli
Rozen
|
Director
(since 1988)
Chairman
of the Board (since 2000)
|
|
Avi
Landman
|
Director
(since 1988)
|
|
Menachem
Meron
|
Director
(July 25, 2000 through June 19, 2005)
|
|
Avi
Elkind
|
External
Director (since 2000)
|
|
Michal
Brikman
|
External
Director (since 2004)
|
|
Daniel
Spira
|
Director
(since July 28, 2005)
|
Name
|
Ordinary
Shares held directly and beneficially
|
%
of Outstanding Ordinary Shares as of December 15,
2005
|
Options
outstanding as of December 15, 2005
|
Exercise
Price
|
Expiration
date
|
|||||||||||
Eli
Rozen
|
3,271,340
|
(1)
|
13.55
|
%
|
645,981
300,000
|
(9)
(9)
|
$
0.42
$
0.85
|
January
27, 2013
January
11, 2015
|
||||||||
Avi
Landman
|
2,429,098
|
(2)
|
10.39
|
%
|
50,000
50,000
|
$
0.42
$
0.85
|
January
27, 2013
January
11, 2015
|
|||||||||
Avi
Elkind
|
50,000
|
(3)
|
*
|
50,000
|
$
0.42
|
June
30, 2013
|
||||||||||
Avi
Schechter
|
780,000
|
(4)
|
2.10
|
70,000
150,000
310,000
300,000
|
$
0.42
$
0.42
$
0.85
$
2.52
|
March
17, 2012
April
25, 2014
October
3, 2014
November
6, 2014
|
||||||||||
Eyal
Tuchman
|
355,000
|
(5)
|
*
|
30,000
75,000
125,000
150,000
|
$
0.42
$
0.42
$
0.85
$
2.52
|
June
20, 2012
April
25, 2014
October
3, 2014
November
6, 2014
|
||||||||||
Eli
Basson
|
300,922
|
(6)
|
*
|
5,922
75,000
120,000
100,000
|
$
0.42
$
0.52
$
0.85
$
2.52
|
March
17, 2012
April
25, 2014
October
3, 2014
November
6, 2014
|
||||||||||
Moshe
Wolfson
|
168,333
|
(7)
|
*
|
35,000
75,000
75,000
|
$
0.42
$
0.85
$
2.52
|
March
27, 2014
October
3, 2014
November
6, 2014
|
||||||||||
Michal
Brikman
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Daniel
Spira
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Gali
Gana
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Directors
and Named Executive Officers as a group
|
7,354,693
|
(8)
|
28.43
|
%
|
—
|
—
|
—
|
*
|
Indicates
less than 1% beneficial ownership.
|
(1) |
Includes
(a) 2,425,359 shares held directly by Eli Rozen, and (b) options
to
purchase 845,981 ordinary shares which are exercisable as of or will
be
exercisable within 60 days of December
15, 2005, of which 679,315 ordinary shares are held by Finel Architecture
and Engineering Ltd., a company owned solely by Mr. Rozen
(“Finel”).
|
(2) |
Includes
(a) 2,345,764 ordinary shares held by Avi Landman, of which 500,000
shares
are held by Ashland Investments LLC, a limited liability company
solely
owned by Mr. Landman (“Ashland”), and (b) options to purchase 83,334
ordinary shares which are exercisable as of or will be exercisable
within
60 days of December 15, 2005.
|
(3) |
Includes
options to purchase 50,000 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(4) |
Includes
options to purchase 780,000 ordinary
shares which are exercisable as of or will be exercisable within
60 days
of December 15, 2005.
|
(5) |
Includes
options to purchase 355,000 ordinary
shares which are exercisable as of or will be exercisable within
60 days
of December 15, 2005.
|
(6) |
Includes
options to purchase 300,922 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(7) |
Includes
options to purchase 168,333 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(8) |
Includes
options to purchase 2,583,570 ordinary shares which are exercisable
as of
or will be exercisable within 60 days of December 15,
2005.
|
(9) |
Includes
options to purchase 695,981 ordinary shares held by Finel outstanding
as
of December
15, 2005.
|
Year
ended December 31
|
|||||||||||||||||||
2002
|
2003
|
2004
|
|||||||||||||||||
Number
of
options
|
Weighted
average exercise price
|
Number
of options
|
Weighted
average exercise price
|
Number
of options
|
Weighted
average exercise price
|
||||||||||||||
Outstanding
at beginning of year
|
543,495
|
$5.19
|
880,712
|
$2.88
|
1,534,514
|
$1.17
|
|||||||||||||
Granted
|
443,081
|
$0.42
|
1,005,981
|
$0.42
|
2,030,000
|
$1.23
|
|||||||||||||
Exercised
|
—
|
—
|
(200,533
|
)
|
$0.42
|
—
|
$
—
|
||||||||||||
Canceled
and forfeited
|
(105,864
|
)
|
$4.41
|
(151,646
|
)
|
$0.72
|
(212,137
|
)
|
$5.03
|
||||||||||
Outstanding
at end of year
|
880,712
|
$2.88
|
1,534,514
|
$1.17
|
3,352,377
|
$0.97
|
|||||||||||||
Exercisable
at end of year
|
462,655
|
$4.32
|
1,113,580
|
$1.44
|
1,681,360
|
$0.58
|
Exercise
price
|
Options
outstanding as of December 31, 2004
|
Weighted
average remaining contractual life (years)
|
Weighted
average exercise price
|
Options
exercisable as of December 31, 2004
|
Weighted
average exercise price
|
|||||||||||
$
0.42 - $ 1
|
2,692,115
|
8.75
|
$0.55
|
1,650,343
|
$0.50
|
|||||||||||
$
2
- $ 2.52
|
640,000
|
9.02
|
$2.50
|
12,000
|
$2.00
|
|||||||||||
$
4.00 - $ 5.62
|
13,690
|
3.45
|
$4.89
|
12,445
|
$4.98
|
|||||||||||
$
9.64
|
6,572
|
1.14
|
$9.64
|
6,572
|
$9.64
|
|||||||||||
3,352,377
|
8.76
|
$0.97
|
1,681,360
|
$0.58
|
·
|
As
of the date of the general meeting, increase the compensation to
a sum of
NIS 30,000 per month.
|
·
|
Upon
the termination of the current car leasing period, upgrade the car
provided to Mr. Landman to any car that has a leasing price of up
to NIS
4,200 (excluding tax) per month.
|
·
|
Grant
Mr. Landman a one-time bonus of NIS 130,000 including
VAT.
|
·
|
each
of our directors and executive officers individually,
and
|
·
|
all
of our executive officers and directors as a
group:
|
Name
of Beneficial Owner
|
Number
of Shares
Beneficially
Owned
|
%
of Shares Outstanding
|
|||||
Jacob
Hassan (1)
|
2,346,358
|
10.07
|
%
|
||||
Eli
Rozen
|
3,271,340
|
(2)
|
13.55
|
%
|
|||
Avi
Landman
|
2,429,098
|
(3)
|
10.39
|
%
|
|||
Special
Situations Fund III, L.P
|
4,932,667
|
(4)
|
20.20
|
%
|
|||
Special
Situations Cayman Fund, L.P
|
1,242,510
0
|
(5)
|
5.27
|
%
|
|||
Avi
Elkind
|
50,000
|
(6)
|
|
* | |||
Avi
Schechter
|
780,000
|
(7)
|
3.24
|
%
|
|||
Eyal
Tuchman
|
355,000
|
(8)
|
1.5
|
%
|
|||
Eli
Basson
|
300,922
|
(9)
|
1.27
|
%
|
|||
Moshe
Wolfson
|
168,333
|
(10)
|
|
* | |||
Michal
Brikman
|
—
|
—
|
|||||
Daniel
Spira
|
—
|
—
|
|||||
Gali
Gana
|
—
|
—
|
|||||
Directors
and Named Executive Officers as a group
|
7,354,693
|
(11)
|
28.43
|
%
|
*
|
Indicates
less than 1% beneficial ownership.
|
(1)
|
Mr.
Hassan’s address is 21 Shnat Hayovel, Hod Hasharon,
Israel.
|
(2)
|
Includes
(a) 2,425,359 shares held directly by Eli Rozen, and (b) options
to
purchase 845,981 ordinary shares which are exercisable as of or will
be
exercisable within 60 days of December 15, 2005, of which 679,315
ordinary
shares are held by Finel Architecture and Engineering Ltd., a company
owned solely by Mr. Rozen
(“Finel”).
|
(3) |
Includes
(a) 2,345,764 ordinary shares held by Avi Landman, of which 500,000
shares
are held by Ashland Investments LLC, a limited liability company
solely
owned by Mr. Landman (“Ashland”), and (b) options to purchase 83,334
ordinary shares which are exercisable as of or will be exercisable
within
60 days of December 15,
2005.
|
(4)
|
Includes
warrants to purchase 1,129,032 ordinary shares which are exercisable
as of
or will be exercisable within 60 days of December 15, 2005. Special
Situations Fund III, L.P.’s address is 527 Madison Avenue, Suite 2600, New
York, New York 10022.
|
(5)
|
Includes
warrants to purchase 282,258 ordinary shares which are exercisable
as of
or will be exercisable within 60 days of December 15, 2005. Special
Situations Cayman Fund, L.P.’s address is 527 Madison Avenue, Suite 2600,
New York, New York
10022.
|
(6)
|
Includes
options to purchase 50,000 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(7)
|
Includes
options to purchase 780,000 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(8)
|
Includes
options to purchase 355,000 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(9)
|
Includes
options to purchase 300,922 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(10)
|
Includes
options to purchase 168,333 ordinary shares which are exercisable
as of or
will be exercisable within 60 days of December 15,
2005.
|
(11)
|
Includes
options to purchase 2,583,570 ordinary shares which are exercisable
as of
or will be exercisable within 60 days of December 15,
2005.
|
·
|
4,919,354
ordinary shares issued in connection with a private placement completed
on
December 9, 2005;
|
·
|
1,721,772
ordinary shares issuable upon the exercise of warrants having an
exercise
price of $0.60 per share that were issued in connection with a private
placement completed on December 9,
2005;
|
·
|
25,000
ordinary shares issuable upon the exercise of warrants having an
exercise
price of $0.85 per share and 25,000 ordinary shares issuable upon
the
exercise of warrants having an exercise price of $0.89 per share
that were
issued to Goldhar
Corporate Finance Ltd
as
a portion of the placement agent fee in connection with a private
placement completed during September 2004 and as a consultant’s fee,
respectively.
|
·
|
100,000
ordinary shares issuable upon the exercise of warrants having an
exercise
price of $0.85 per share that were issued to Elie Hausman as a portion
of
a consultant’s fee.
|
Name of Selling Shareholder |
Shares
Beneficially Owned Before The
offering
|
Shares
offered
|
Shares
Beneficially Owned After
The offering |
|||||||
Oded
Haim Peer
22
Hermon Street, Hashmonaim, Israel
|
435,484
|
(1)
|
435,484
|
(1)
|
—
|
|||||
Orpaz
Zeev
41
Ben Zvi Street, Givatayim, Israel
|
21,774
|
(2)
|
21,774
|
(2)
|
—
|
|||||
Rachl
Horowitz
P.O.B.
1676, Hashmonaim 73127, Israel
|
326,612
|
(3)
|
326,612
|
(3)
|
—
|
|||||
Yehuda
Jason Laufer
9-09
Fairhaven Place, Fairlawn, NJ 07410
|
21,774
|
(4)
|
21,774
|
(4)
|
—
|
|||||
Yehuda
Shvager
13
Haggeffen Street, Hashmonaim, Israel
|
43,548
|
(5)
|
43,548
|
(5)
|
—
|
|||||
Itzik
Babayuv
5
Shachaf Street, Hod Hasharon, Israel 45351
|
239,515
|
(6)
|
239,515
|
(6)
|
—
|
|||||
Abraham
Grinfeld
13
Barlev Street, Kiryat Ono Israel
|
108,871
|
(7)
|
108,871
|
(7)
|
—
|
|||||
Special
Situations Fund III, L.P.
527
Madison Avenue, Suite 2600, New York, New York 10022
|
4,932,667
|
(8)
|
4,354,838
|
(8)
|
577,829
|
|||||
Special
Situations Cayman Fund, L.P.
527
Madison Avenue, Suite 2600, New York, New York 10022
|
1,242,510
|
(9)
|
1,088,710
|
(9)
|
153,800
|
|||||
Goldhar
Corporate Finance Ltd - 20 Linkolen St., Tel-Aviv, Israel
|
50,000
|
(10)
|
50,000
|
(10)
|
||||||
Elie
Hausman - 600 West End Avenue New York, NY 10024
|
100,000
|
(11)
|
100,000
|
(11)
|
(1)
|
Includes
112,903 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(2)
|
Includes
5,645 ordinary shares underlying warrants which are exercisable as
of
December 15, 2005.
|
(3)
|
Includes
84,677 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(4)
|
Includes
5,645 ordinary shares underlying warrants which are exercisable as
of
December 15, 2005.
|
(5)
|
Includes
11,290 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(6)
|
Includes
62,096 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(7)
|
Includes
28,226 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(8)
|
Includes
1,129,032 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(9)
|
Includes
282,258 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(10)
|
Includes
50,000 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
(11)
|
Includes
100,000 ordinary shares underlying warrants which are exercisable
as of
December 15, 2005.
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales effected after the date the registration statement of which
this
Prospectus is a part is declared effective by the
SEC;
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
·
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per share;
and
|
·
|
a
combination of any such methods of
sale.
|
·
|
any
amendment to the articles of
association;
|
·
|
an
increase of the company’s authorized share
capital;
|
·
|
a
merger; or
|
·
|
approval
of interested party transactions which require shareholder
approval.
|
·
|
a
breach of duty of care towards us or any other
person,
|
·
|
a
breach of fiduciary obligations towards us, provided that the office
holder acted in good faith and had reasonable grounds to assume that
his
or her act would not be to our detriment,
or
|
·
|
a
financial liability imposed on him or her in favor of another
person.
|
·
|
a
monetary liability imposed on him or her in favor of another person
pursuant to a judgment, including a settlement judgment or an arbitrator
award approved by a, and
|
·
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office
holder or imposed on him or her by a court, in a proceeding brought
against him by or on our behalf or by another person, or in a criminal
proceeding from which he or she were acquitted, or in a criminal
proceeding in which he or she were convicted for a criminal offense
that
does not require evidence of criminal mens
rea.
|
·
|
a
breach by the office holder of his or her duty of loyalty towards
the
company unless, with respect to insurance
and indemnification
coverage, the office holder acted in good faith and had a reasonable
basis
to believe that the act would not prejudice the
company;
|
·
|
a
breach by the office holder of his or her duty of care if the breach
was
done intentionally or recklessly,
except if done merely negligently;
|
·
|
any
act or omission done with the intent to derive an illegal personal
benefit; or
|
·
|
any
fine levied against the office
holder.
|
·
|
there
is a limitation on the acquisition of any level of control of the
company;
or
|
·
|
the
acquisition of any level of control must be by means of a tender
offer to
the public.
|
·
|
1%
of the then outstanding shares of our ordinary shares;
or
|
·
|
the
average weekly trading volume in our ordinary shares on the
Over-the-Counter Bulletin Board during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such
sale;
|
Ø
|
Where
a company’s equity, as calculated under the Inflationary Adjustments Law,
exceeds the depreciated cost of its fixed assets (as defined in the
Inflationary Adjustments Law), a deduction from taxable income is
permitted equal to the above excess multiplied by the applicable
annual
rate of inflation. The maximum deduction permitted in any single
tax year
is 70% of taxable income, with the unused portion permitted to be
carried
forward, linked to the Israeli consumer price
index.
|
Ø
|
Where
a company’s depreciated cost of fixed assets exceeds its equity, then the
excess multiplied by the applicable annual rate of inflation is added
to
taxable income.
|
Ø
|
Subject
to specified limitations, depreciation deductions on fixed assets
and
losses carried forward are adjusted for inflation based on the change
in
the consumer price index.
|
Ø
|
that
the Approved Enterprise’s revenues from any single country not exceed 75%
of the Approved Enterprise’s total revenues; or
|
Ø
|
that
25% of the Approved Enterprise’s revenues during the benefits period be
derived from sales into a single country with a population of at
least 12
million.
|
1. |
The
individual deducts interest expenses and linkage
differentials.
|
2. |
The
seller is a "significant shareholder" at the date of the sale of
the
securities or at any time during the 12-month period preceding the
sale. A
"significant shareholder" is defined in general as shareholder who
holds,
either directly or indirectly, alone or together with another, at
least
10% of any form of a means of control in a company. The term "together
with another" means together with a relative, or together with someone
who
is not a relative with which the individual, either directly or
indirectly, has a regular cooperative agreement regarding the affairs
of
the company.
|
·
|
the
judgments are obtained after due process before a court of competent
jurisdiction, according to the laws of the state in which the judgment
is
given and the rules of private international law currently prevailing
in
Israel;
|
·
|
the
foreign court is not prohibited by law from enforcing judgments of
Israeli
courts;
|
·
|
adequate
service of process has been effected and the defendant has had a
reasonable opportunity to be heard and to present his
evidence;
|
·
|
the
judgments and the enforcement of the civil liabilities are not contrary
to
the law, public policy, security or sovereignty of the State of
Israel;
|
·
|
the
judgments were not obtained by fraud and do not conflict with any
other
valid judgment in the same matter between the same
parties;
|
·
|
an
action between the same parties in the same matter is not pending
in any
Israeli court at the time the lawsuit is instituted in the foreign
court;
and
|
·
|
the
obligations under the judgment are enforceable according to the laws
of
the State of Israel.
|
PAGE
|
||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
CONSOLIDATED
BALANCE SHEETS
|
F-4
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F-6
|
|
STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY
|
F-7
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F-8
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-10
|
Certified Public Accountants |
![]() |
Fahn
Kanne & Co.
Certified Public Accountants (Isr.) |
December
31,
|
|||||||
2003
|
2004
|
||||||
ASSETS
|
|||||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
1,729
|
$
|
2,894
|
|||
Restricted
cash deposits
|
1,363
|
1,129
|
|||||
Short-term
deposit
|
697
|
353
|
|||||
Marketable
debt securities
|
117
|
-
|
|||||
Trade
receivables (net of allowance for doubtful accounts of $ 3,333 and
$
3,347 as of December 31, 2003 and 2004, respectively)
|
1,808
|
1,463
|
|||||
Other
accounts receivable and prepaid expenses
|
931
|
1,250
|
|||||
Inventories
|
3,236
|
2,165
|
|||||
Totalcurrent
assets
|
9,881
|
9,254
|
|||||
INVESTMENTS
AND LONG-TERM RECEIVABLES:
|
|||||||
Long-term
trade receivables
|
364
|
247
|
|||||
Investment
in an affiliated company
|
275
|
275
|
|||||
Severance
pay fund
|
333
|
428
|
|||||
Total
long-term investments
|
972
|
950
|
|||||
PROPERTY
AND EQUIPMENT, NET
|
1,676
|
3,641
|
|||||
INTANGIBLE
ASSETS
|
156
|
93
|
|||||
Total
assets
|
$
|
12,685
|
$
|
13,938
|
December
31,
|
|||||||
2003
|
2004
|
||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Short-term
bank credit and current maturities of long-term loan
|
$
|
2,131
|
$
|
1,022
|
|||
Trade
payables
|
1,166
|
1,135
|
|||||
Employees
and payroll accruals
|
331
|
357
|
|||||
Accrued
expenses and other liabilities
|
822
|
1,745
|
|||||
Totalcurrent
liabilities
|
4,450
|
4,259
|
|||||
LONG-TERM
LIABILITIES:
|
|||||||
Long-term
loan, net of current maturities
|
187
|
-
|
|||||
Accrued
severance pay
|
436
|
564
|
|||||
Total
long-term liabilities
|
623
|
564
|
|||||
COMMITMENTS
AND CONTINGENT LIABILITIES
|
|||||||
SHAREHOLDERS’
EQUITY:
|
|||||||
Share
capital:
Ordinary
shares of NIS 0.01 par value -
|
|||||||
Authorized:
26,500,000 shares as of December 31, 2003 and 2004;
|
|||||||
Issued
and outstanding: 12,906, 872 and 17,703,199 shares as of December
31, 2003
and 2004, respectively
|
40
|
51
|
|||||
Additional
paid-in capital
|
25,814
|
29,094
|
|||||
Deferred
stock compensation
|
-
|
(59
|
)
|
||||
Receipt
on account of shares
|
-
|
143
|
|||||
Accumulated
deficit
|
(18,242
|
)
|
(20,114
|
)
|
|||
Total
shareholders’ equity
|
7,612
|
9,115
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
12,685
|
$
|
13,938
|
Year
ended
December
31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Revenues
|
$
|
8,027
|
$
|
7,244
|
$
|
7,344
|
||||
Cost
of revenues
|
1,830
|
3,102
|
3,730
|
|||||||
Gross
profit
|
6,197
|
4,142
|
3,614
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development
|
1,334
|
918
|
845
|
|||||||
Selling
and marketing
|
2,828
|
3,026
|
2,445
|
|||||||
General
and administrative
|
1,988
|
1,829
|
1,955
|
|||||||
Total
operating expenses
|
6,150
|
5,773
|
5,245
|
|||||||
Operating
income (loss)
|
47
|
(1,631
|
)
|
(1,631
|
)
|
|||||
Financial
expenses, net
|
(35
|
)
|
(233
|
)
|
(214
|
)
|
||||
Other
income (expenses), net
|
6,203
|
(83
|
)
|
(27
|
)
|
|||||
Income
(loss) before income taxes
|
6,215
|
(1,947
|
)
|
(1,872
|
)
|
|||||
Share
in losses of affiliates and impairment of investment in an affiliated
company, net of taxes
|
(38
|
)
|
(48
|
)
|
-
|
|||||
Net
income (loss) from continuing operations
|
6,177
|
(1,995
|
)
|
(1,872
|
)
|
|||||
Loss
from discontinued operations, net
|
(427
|
)
|
-
|
-
|
||||||
Net
income (loss)
|
$
|
5,750
|
$
|
(1,995
|
)
|
$
|
(1,872
|
)
|
||
Net
earnings (loss) per share:
|
||||||||||
Basic
and diluted earnings (loss) from continuing operations
|
$
|
0.49
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Basic
and diluted loss from discontinued operations
|
$
|
(0.04
|
)
|
$
|
-
|
$
|
-
|
|||
Basic
and diluted net earnings (loss) per share
|
$
|
0.45
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Weighted
average number of Ordinary shares outstanding
|
12,706,339
|
12,718,426
|
14,590,346
|
Ordinary
shares
|
||||||||||||||||||||||||||||
|
|
Number
of Shares
|
|
Share
capital |
|
Additional
paid-in
capital
|
|
Deferred
stock
compensation
|
|
Accumulated
other comprehensive income (loss) |
Accumulated
Deficit
|
Receipt
on account of shares
|
Total
comprehensive
income
(loss)
|
Total
shareholders’
equity
|
||||||||||||||
Balance
as of January 1, 2002
|
12,706,339
|
$
|
40
|
$
|
25,949
|
$
|
(245
|
)
|
$
|
116
|
$
|
(21,997
|
)
|
$
|
-
|
$
|
3,863
|
|||||||||||
Forfeiture
of stock options held by Inksure’s employees
|
-
|
-
|
(219
|
)
|
219
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||
Functional
currency adjustment due to sale of Inksure
|
-
|
-
|
-
|
-
|
(116
|
)
|
-
|
-
|
$
|
(116
|
)
|
(116
|
)
|
|||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
-
|
5,750
|
-
|
5,750
|
5,750
|
|||||||||||||||||||
Total
comprehensive income
|
$
|
5,634
|
||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Balance
as of December 31, 2002
|
12,706,339
|
40
|
25,730
|
(26
|
)
|
-
|
(16,247
|
)
|
-
|
9,497
|
||||||||||||||||||
Exercise
of stock options
|
200,533
|
*)
-
|
84
|
-
|
-
|
-
|
-
|
84
|
||||||||||||||||||||
Amortization
of stock compensation
|
-
|
-
|
-
|
26
|
-
|
-
|
-
|
26
|
||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,995
|
)
|
-
|
$
|
(1,995
|
)
|
(1,995
|
)
|
|||||||||||||||
Total
comprehensive loss
|
$
|
(1,995
|
)
|
|||||||||||||||||||||||||
Balance
as of December 31, 2003
|
12,906,872
|
40
|
25,814
|
-
|
-
|
(18,242
|
)
|
-
|
7,612
|
|||||||||||||||||||
Deferred
stock compensation
|
-
|
-
|
68
|
(68
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Conversion
of loan to ordinary shares, net
|
60,000
|
1
|
24
|
-
|
-
|
-
|
-
|
25
|
||||||||||||||||||||
Issuance
of shares in a private placement, net
|
4,029,415
|
9
|
2,451
|
-
|
-
|
-
|
-
|
2,460
|
||||||||||||||||||||
Exercise
of warrant
|
706,912
|
1
|
737
|
-
|
-
|
-
|
-
|
738
|
||||||||||||||||||||
Receipt
on account of share to be allotted
|
-
|
-
|
-
|
-
|
-
|
-
|
143
|
143
|
||||||||||||||||||||
Amortization
of stock compensation
|
-
|
-
|
-
|
9
|
-
|
-
|
-
|
9
|
||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,872
|
)
|
-
|
$
|
(1,872
|
)
|
(1,872
|
)
|
|||||||||||||||
Total
comprehensive loss
|
$
|
(1,872
|
)
|
|||||||||||||||||||||||||
Balance
as of December 31, 2004
|
17,703,199
|
$
|
51
|
$
|
29,094
|
$
|
(59
|
)
|
$
|
-
|
$
|
(20,114
|
)
|
$
|
143
|
$
|
9,115
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
income (loss)
|
$
|
5,750
|
$
|
(1,995
|
)
|
$
|
(1,872
|
)
|
||
Loss
from discontinued operations
|
427
|
-
|
-
|
|||||||
Net
income (loss) from continuing operations
|
6,177
|
(1,995
|
)
|
(1,872
|
)
|
|||||
Adjustments
to reconcile net income / loss to net cash used in operating
activities:
|
||||||||||
Depreciation
and amortization
|
442
|
371
|
338
|
|||||||
Share
in losses of affiliates
|
38
|
-
|
-
|
|||||||
Accrued
severance pay
|
(6
|
)
|
74
|
128
|
||||||
Amortization
of deferred stock compensation
|
-
|
26
|
9
|
|||||||
Decline
in market value below cost of marketable debt securities
|
-
|
52
|
7
|
|||||||
Decrease
(increase) in trade receivables
|
(2,061
|
)
|
30
|
(398
|
)
|
|||||
Increase
in other accounts receivable and prepaid expenses
|
(244
|
)
|
(239
|
)
|
(403
|
)
|
||||
Decrease
(Increase) in inventories
|
(217
|
)
|
(92
|
)
|
814
|
|||||
Increase
(decrease) in trade payables
|
(330
|
)
|
450
|
(31
|
)
|
|||||
Decrease
in employees and payroll accruals
|
(275
|
)
|
73
|
51
|
||||||
Increase
(decrease) in accrued expenses and other liabilities
|
881
|
(912
|
)
|
747
|
||||||
Loss
on sale of property and equipment
|
209
|
5
|
1
|
|||||||
Accumulated
interest on marketable debt securities
|
(1
|
)
|
-
|
-
|
||||||
Gain
on issuance of subsidiary’s shares and sale of subsidiary’s
shares
|
(6,423
|
)
|
-
|
-
|
||||||
Accumulated
interest on long-term loan
|
-
|
2
|
-
|
|||||||
Write-off
of investment in an affiliate
|
-
|
48
|
-
|
|||||||
Net
cash used in operating activities
|
(1,810
|
)
|
(2,107
|
)
|
(609
|
)
|
||||
Adjustments
to reconcile net loss to net cash used in operating
activities
from
discontinued operations
|
375
|
-
|
-
|
|||||||
Net
cash used in operating activities from discontinued
operations
|
(52
|
)
|
-
|
-
|
||||||
Net
cash used in operating activities of continuing operations
|
(1,862
|
)
|
(2,107
|
)
|
(609
|
)
|
||||
Cash
flows from investing activities:
|
||||||||||
Proceeds
from sale of property and equipment
|
14
|
2
|
1
|
|||||||
Purchase
of property and equipment
|
(73
|
)
|
(87
|
)
|
(1,088
|
)
|
||||
Increase
in severance pay fund
|
(14
|
)
|
(45
|
)
|
(95
|
)
|
||||
Proceeds
from (investments in) restricted cash deposits, net
|
(319
|
)
|
(1,044
|
)
|
234
|
|||||
Proceeds
from disposal of (investments in) short term deposits, net
|
100
|
(697
|
)
|
344
|
||||||
Proceeds
from sale of subsidiary and issuance of shares in a subsidiary
|
6,212
|
-
|
-
|
|||||||
Investment
in marketable debt securities
|
(908
|
)
|
-
|
-
|
||||||
Proceeds
from maturity of marketable debt securities
|
362
|
440
|
110
|
|||||||
Realization
of investment in a subsidiary
|
(58
|
)
|
-
|
-
|
||||||
Acquisition
of intangible assets
|
-
|
(70
|
)
|
(37
|
)
|
|||||
Net
cash provided by (used in) investing activities
|
5,316
|
(1,501
|
)
|
(531
|
)
|
|||||
Cash
flows from financing activities:
|
||||||||||
Short-term
bank credit, net
|
(192
|
)
|
1,196
|
(1,122
|
)
|
|||||
Issuance
of share capital through a private placement, net of issuance
costs
|
-
|
-
|
3,517
|
|||||||
Proceed
from exercise of options
|
-
|
-
|
84
|
|||||||
Long-term
loan received
|
850
|
250
|
400
|
|||||||
Principal
repayment of long-term loan
|
(64
|
)
|
(410
|
)
|
(574
|
)
|
||||
Net
cash provided by (used in) financing activities from discontinued
operations
|
(20
|
)
|
-
|
-
|
||||||
Net
cash provided by financing activities
|
574
|
1,036
|
2,305
|
|||||||
Increase
(decrease) in cash and cash equivalents
|
4,028
|
(2,572
|
)
|
1,165
|
||||||
Less
- increase (decrease) in cash and cash equivalents from discontinued
operations
|
(1
|
)
|
-
|
-
|
||||||
Cash
and cash equivalents at the beginning of the year
|
274
|
4,301
|
1,729
|
|||||||
Cash
and cash equivalents at the end of the year
|
$
|
4,301
|
$
|
1,729
|
$
|
2,894
|
Year
ended
December
31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||||
Transfer
of inventory to property and equipment
|
$
|
789
|
$
|
-
|
$
|
1,117
|
||||
Transfer
of trade receivable to inventory
|
$
|
-
|
$
|
-
|
$
|
860
|
||||
Conversion
of loan to ordinary shares
|
$
|
-
|
$
|
-
|
$
|
25
|
||||
Receivables
on account of shares
|
$
|
-
|
$
|
84
|
$
|
-
|
||||
Accrued
issuance costs
|
$
|
-
|
$
|
-
|
$
|
176
|
||||
Supplemental
disclosure of cash flow information:
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
60
|
$
|
135
|
$
|
128
|
Year
ended
December
31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Revenues
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
Operating
expenses:
|
||||||||||
Research
and development
|
132
|
-
|
-
|
|||||||
Selling
and marketing, net
|
46
|
-
|
-
|
|||||||
General
and administrative
|
-
|
-
|
-
|
|||||||
Total
operating loss
|
178
|
-
|
-
|
|||||||
Financial
income
|
-
|
-
|
-
|
|||||||
Other
expenses
|
249
|
-
|
-
|
|||||||
Net
loss
|
$
|
427
|
$
|
-
|
$
|
-
|
%
|
||
Computers
and peripheral equipment
|
33
|
|
Office
furniture and equipment
|
6
-
15
|
|
Leasehold
improvements
|
Over
the shorter of the term of the lease or the life of the
asset
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Net
income (loss) from continuing operations as reported
|
$
|
6,177
|
$
|
(1,995
|
)
|
$
|
(1,872
|
)
|
||
Deduct:
Stock based compensation expenses determined under fair value
based
method
|
256
|
280
|
766
|
|||||||
Add:
stock based compensation expenses included in reported net income
(loss)
|
-
|
26
|
9
|
|||||||
Pro
forma net income (loss) from continuing operations
|
$
|
5,921
|
$
|
(2,249
|
)
|
$
|
(2,629
|
)
|
||
Basic
and diluted net earnings (loss) per share from continuing operations
as
reported
|
$
|
0.49
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Pro
forma basic and diluted net earnings (loss) from continuing
operations
|
$
|
0.47
|
$
|
(0.17
|
)
|
$
|
(0.18
|
)
|
||
Net
loss from discontinuing operations as reported
|
$
|
(427
|
)
|
$
|
-
|
$
|
-
|
|||
Deduct:
Stock based compensation expenses determined under fair value
based
method
|
-
|
-
|
-
|
|||||||
Add:
stock based compensation expenses included in reported net income
(loss)
|
-
|
-
|
-
|
|||||||
Pro
forma net loss from discontinuing operations
|
$
|
(427
|
)
|
$
|
-
|
$
|
-
|
|||
Pro
forma basic and diluted loss from discontinuing operations
|
$
|
(0.04
|
)
|
$
|
-
|
$
|
-
|
|||
Net
income (loss) as reported
|
$
|
5,750
|
$
|
(1,995
|
)
|
$
|
(1,872
|
)
|
||
Deduct:
Stock based compensation expenses determined under fair value
based
method
|
256
|
280
|
766
|
|||||||
Add:
stock based compensation expenses included in reported net income
(loss)
|
-
|
26
|
9
|
|||||||
Pro
forma net income (loss)
|
$
|
5,494
|
$
|
(2,249
|
)
|
$
|
(2,629
|
)
|
||
Basic
and diluted net earnings (loss) per share as reported
|
$
|
0.45
|
$
|
(0.15
|
)
|
$
|
(0.13
|
)
|
||
Pro
forma basic and diluted loss per share
|
$
|
0.43
|
$
|
(0.17
|
)
|
$
|
(0.18
|
)
|
Amortized
cost
|
Unrealized
gains
(losses)
|
Estimated
fair
value
|
|||||||||||||||||
2003
|
2004
|
2003
|
2004
|
2003
|
2004
|
||||||||||||||
Corporate
obligations
|
$
|
117
|
$
|
-
|
$
|
(12
|
)
|
$
|
-
|
$
|
105
|
$
|
-
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Prepaid
expenses
|
$
|
378
|
$
|
773
|
|||
Authorities
|
79
|
192
|
|||||
Advance
payment to suppliers
|
96
|
-
|
|||||
Others
|
378
|
285
|
|||||
$
|
931
|
$
|
1,250
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Raw
materials, parts and supplies
|
$
|
1,662
|
$
|
1,305
|
|||
Finished
products
|
1,574
|
860
|
|||||
$
|
3,236
|
$
|
2,165
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Cost:
|
|||||||
Computers
and peripheral equipment
|
$
|
2,281
|
$
|
4,380
|
|||
Office
furniture and equipment
|
408
|
471
|
|||||
Leasehold
improvements
|
1,107
|
1,147
|
|||||
3,796
|
5,998
|
||||||
Accumulated
depreciation:
|
|||||||
Computers
and peripheral equipment
|
1,412
|
1,547
|
|||||
Office
furniture and equipment
|
192
|
218
|
|||||
Leasehold
improvements
|
516
|
592
|
|||||
2,120
|
2,357
|
||||||
Depreciated
cost
|
$
|
1,676
|
$
|
3,641
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Customer-related
intangible assets
|
$
|
70
|
$
|
56
|
|||
Capitalized
software production costs, net (see Note 2n)
|
86
|
-
|
|||||
Patent
- registration expenses
|
-
|
37
|
|||||
$
|
156
|
$
|
93
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Banks
|
$
|
628
|
$
|
454
|
|||
Less
- current maturities of long-term loans
|
441
|
454
|
|||||
$
|
187
|
$
|
-
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Customer
advances
|
$
|
166
|
$
|
1,162
|
|||
Deferred
revenues
|
437
|
180
|
|||||
Accrued
expenses
|
171
|
397
|
|||||
Other
|
48
|
6
|
|||||
$
|
822
|
$
|
1,745
|
2005
|
$
|
270
|
||
2006
|
67
|
|||
$
|
337
|
a. |
Tax
benefits under the Israeli Law for the Encouragement of Capital
Investments, 1959 (“the law”):
|
December
31,
|
|||||||
2003
|
2004
|
||||||
Operating
loss carryforward
|
$
|
3,130
|
$
|
3,648
|
|||
Reserves
and allowances
|
791
|
798
|
|||||
Net
deferred tax asset before valuation allowance
|
3,921
|
4,446
|
|||||
Valuation
allowance
|
(3,921
|
)
|
(4,446
|
)
|
|||
Net
deferred tax asset
|
$
|
-
|
$
|
-
|
|||
Deferred
income taxes consist of the following:
|
|||||||
Domestic
|
$
|
3,726
|
$
|
4,069
|
|||
Valuation
allowance
|
(3,726
|
)
|
(4,069
|
)
|
|||
Foreign
|
195
|
377
|
|||||
Valuation
allowance
|
(195
|
)
|
(377
|
)
|
|||
|
$ | - |
$
|
-
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Domestic
|
$
|
5,614
|
$
|
(1,902
|
)
|
$
|
(1,446
|
)
|
||
Foreign
|
601
|
(45
|
)
|
(426
|
)
|
|||||
$
|
6,215
|
$
|
(1,947
|
)
|
$
|
(1,872
|
)
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Income
(loss) from continuing operations before taxes on income, as reported
in
the consolidated statements of operations
|
$
|
6,215
|
$
|
(1,947
|
)
|
$
|
(1,872
|
)
|
||
Statutory
tax rate in Israel
|
36
|
%
|
36
|
%
|
35
|
%
|
||||
Theoretical
tax expenses (benefit)
|
$
|
2,237
|
$
|
(701
|
)
|
$
|
(655
|
)
|
||
Carryforward
losses and other deferred taxes for which a full valuation allowance
was
recorded
|
(2,348
|
)
|
375
|
525
|
||||||
Differences
in Taxes resulting from approved enterprise benefits and from rate
applicable to foreign subsidiary and others
|
111
|
326
|
130
|
|||||||
Actual
income tax
|
$
|
-
|
$
|
-
|
$
|
-
|
Year
ended December 31
|
|||||||||||||||||||
2002
|
2003
|
2004
|
|||||||||||||||||
Number
of
options
|
Weighted
average exercise price
|
Number
of
options
|
Weighted
average exercise price
|
Number
of
options
|
Weighted
average exercise price
|
||||||||||||||
Outstanding
at beginning of year
|
543,495
|
$
|
5.19
|
880,712
|
$
|
2.88
|
1,534,514
|
$
|
1.17
|
||||||||||
Granted
|
443,081
|
$
|
0.42
|
1,005,981
|
$
|
0.42
|
2,030,000
|
$
|
1.23
|
||||||||||
Exercised
|
-
|
$
|
-
|
(200,533
|
)
|
$
|
0.42
|
-
|
$
|
-
|
|||||||||
Canceled
and forfeited
|
(105,864
|
)
|
$
|
4.41
|
(151,646
|
)
|
$
|
0.72
|
(212,137
|
)
|
$
|
5.03
|
|||||||
Outstanding
at end of year
|
880,712
|
$
|
2.88
|
1,534,514
|
$
|
1.17
|
3,352,377
|
$
|
0.97
|
||||||||||
Exercisable
at end of year
|
462,655
|
$
|
4.32
|
1,113,580
|
$
|
1.44
|
1,681,360
|
$
|
0.58
|
Exercise
price
|
Options
outstanding
as of December 31, 2004 |
Weighted
average
remaining
contractual
life (years)
|
Weighted
average
exercise
price
|
Options
exercisable
as
of
December
31, 2004
|
Weighted
average
exercise
price
|
|||||||||||
$
0.42 - $ 1
|
2,692,115
|
8.75
|
$
|
0.55
|
1,650,343
|
$
|
0.50
|
|||||||||
$
2
- $ 2.52
|
640,000
|
9.02
|
$
|
2.50
|
12,000
|
$
|
2
|
|||||||||
$
4.00 - $ 5.62
|
13,690
|
3.45
|
$
|
4.89
|
12,445
|
$
|
4.98
|
|||||||||
$
9.64
|
6,572
|
1.14
|
$
|
9.64
|
6,572
|
$
|
9.64
|
|||||||||
3,352,377
|
8.76
|
$
|
0.97
|
1,681,360
|
$
|
0.58
|
Year
ended December 31,
|
|||||||||||||||||||
2002
|
2003
|
2004
|
|||||||||||||||||
Total
|
Long-lived
|
Total
|
Long-lived
|
Total
|
Long-lived
|
||||||||||||||
revenues
|
assets
|
revenues
|
assets
|
revenues
|
assets
|
||||||||||||||
Europe
|
$
|
5,237
|
$
|
-
|
$
|
3,308
|
$
|
-
|
$
|
3,218
|
$
|
-
|
|||||||
Asia
Pacific
|
1,942
|
58
|
2,067
|
28
|
2,433
|
20
|
|||||||||||||
Africa
|
-
|
-
|
536
|
-
|
899
|
||||||||||||||
United
States
|
581
|
-
|
828
|
1
|
386
|
65
|
|||||||||||||
Israel
|
229
|
1,822
|
460
|
1,647
|
320
|
3,556
|
|||||||||||||
Other
|
38
|
-
|
45
|
-
|
88
|
||||||||||||||
$
|
8,027
|
$
|
1,880
|
$
|
7,244
|
$
|
1,676
|
$
|
7,344
|
$
|
3,641
|
||||||||
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Raw
materials and equipment
|
$
|
4,879
|
$
|
4,196
|
$
|
5,552
|
||||
SPPL
1000
|
2,080
|
2,471
|
1,210
|
|||||||
License
fee
|
446
|
-
|
-
|
|||||||
Maintenance
|
622
|
577
|
582
|
|||||||
$
|
8,027
|
$
|
7,244
|
$
|
7,344
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Customer
A
|
26
|
%
|
27
|
%
|
-
|
|||||
Customer
B
|
19
|
%
|
16
|
%
|
22
|
%
|
||||
Customer
C
|
16
|
%
|
-
|
-
|
||||||
Customer
D
|
12
|
%
|
12
|
%
|
17
|
%
|
||||
Customer
E
|
*)
-
|
11
|
%
|
10
|
%
|
|||||
Customer
F
|
-
|
-
|
16
|
%
|
Year
ended December 31,
|
||||||||||
2002
|
2003
|
2004
|
||||||||
Financial
expenses:
|
||||||||||
Interest,
bank charges and fees
|
$
|
(119
|
)
|
$
|
(207
|
)
|
$
|
(194
|
)
|
|
Foreign
currency translation
|
-
|
(98
|
)
|
(48
|
)
|
|||||
Total
financial expenses
|
(119
|
)
|
(305
|
)
|
(242
|
)
|
||||
Financial
income:
|
||||||||||
Foreign
currency translation
|
50
|
-
|
-
|
|||||||
Interest
|
34
|
72
|
28
|
|||||||
Total
financial income
|
84
|
72
|
28
|
|||||||
Net
total
|
$
|
(35
|
)
|
$
|
(233
|
)
|
$
|
(214
|
)
|
Loss
on sale of property and equipment, net
|
$
|
(209
|
)
|
$
|
(5
|
)
|
$
|
(1
|
)
|
|
Decline
in market value of held-to-maturity securities
|
-
|
(52
|
)
|
(7
|
)
|
|||||
Gain
on issuance of subsidiary’s shares and sale of subsidiary’s
shares
|
6,423
|
-
|
-
|
|||||||
Other
|
(11
|
)
|
(26
|
)
|
(19
|
)
|
||||
$
|
6,203
|
$
|
(83
|
)
|
$
|
(27
|
)
|
•
|
As
of the date of the approval of the General Meeting, to increase the
consideration set forth in the said agreement to an amount of NIS
30,000
(approximately $ 7 as of December 31, 2004), per
month.
|
•
|
Upon
the termination of the current car leasing period, to upgrade the
car
provided to Mr. Landman to any car whose leasing price is up to NIS
4,200
(approximately $ 1 as of December 31, 2004), (excluding tax) per
month.
|
•
|
To
grant Mr. Landman a one-time bonus of NIS 130,000 (approximately
$ 30 as
of December 31, 2004), including
VAT.
|