AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 2004
REGISTRATION NO. 333-( )
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM F-3
REGISTRATION STATEMENT
-UNDER
THE SECURITIES ACT OF 1933
______________________
E-SIM LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF ISRAEL NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
______________________
19 HARTUM STREET
JERUSALEM 91450, ISRAEL
972-2-587-0770
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
E-SIM INC.
225 S. LAKE AVENUE, SUITE 300,
PASADENA, CA 91101
PHONE (626) 584-7810
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
____________________________________
COPIES OF COMMUNICATIONS TO:
CLIFFORD M.J. FELIG, ADV. ZVI NIXON, ADV.
MEITAR LIQUORNIK GEVA & LESHEM BRANDWEIN ELCHANAN LANDAU LAW OFFICES
16 ABBA HILLEL STREET 38 KEREN HAYESSOD STREET
RAMAT GAN 52506, ISRAEL JERUSALEM 92149, ISRAEL
972-3-610-3100 972-2-561-8845
__________________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
_____________________________
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
- --------------------------------- ------------ -------------- ------------------ ----------------
Ordinary shares, nominal value
NIS 0.1 11,624,618 $0.32(1) $3,719,878 (1) $ 472
Ordinary shares, nominal value NIS
0.1, issuable upon exercise of
warrants (2) 6,111,112 $0.54 (3) $3,300,000 (3) $ 418
Ordinary shares, nominal value NIS
0.1, issuable upon exercise of
warrants (2) 1,255,938 $0.75 (3) $ 941,954 (3) $ 119
Ordinary shares, nominal value NIS
0.1, issuable upon conversion of
loans (2) 220,000 $0.80 (3) $ 176,000 (3) $ 22
Ordinary shares, nominal value NIS
0.1, issuable upon conversion of
loans (2) 75,000 $0.85 (3) $ 63,750 (3) $ 8
Ordinary shares, nominal value NIS
0.1, issuable upon conversion of
loans (2) 55,336 $4.00 (3) $ 221,344 (3) $ 28
Total 19,342,004 $0.43547 (4) $ 8,422,926 $ 1,067
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
based on the average of the reported high and low prices of the ordinary
shares on the Over-The-Counter Bulletin Board on July 27, 2004.
(2) Pursuant to Rule 416 of the Securities Act of 1933, an additional number of
ordinary shares are being registered that may be issued pursuant to the
anti-dilution and transactional adjustment provisions of the warrants.
(3) Calculated pursuant to Rule 457(g) under the Securities Act of 1933.
(4) Calculated pursuant to Rule 457(g) under the Securities Act of 1933, based
on a weighted average conversion price of $0.43547 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NO
SELLING SHAREHOLDER MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED JULY 30, 2004
PROSPECTUS
e-SIM Ltd.
up to 19,342,004 Ordinary Shares
This prospectus relates to the resale, from time to time, by the selling
shareholders identified in this prospectus of up to 19,342,004 of our ordinary
shares. We are registering 4,975,000 ordinary shares that were issued by us in
May and June 2004 in two private placement transactions and 48,750 ordinary
shares issuable upon approval by our board of directors as a finder's fee with
respect to the consummation of such private placements; 6,600,868 ordinary
shares that have been issued by us previously (i) to an investor, (ii) to two
lenders (whose ordinary shares were issued upon the conversion of a loan) and
(iii) to an Israeli bank that provided certain loans to us; 7,367,050 ordinary
shares that are issuable upon the exercise of warrants (including 12,188
ordinary shares underlying warrants issuable upon approval by our board of
directors as a finder's fee with respect to the consummation of the private
placements mentioned above); and 350,336 ordinary shares issuable upon the
conversion of debentures previously issued by us to two Israeli banks that
provided certain loans to us and a loan extended to us previously by another
lender.
We will pay all expenses of registering the foregoing ordinary shares. We
will not receive any proceeds from the sale of ordinary shares by the selling
shareholders, but we will receive the proceeds from the exercise of the
warrants.
You should read both this prospectus and any prospectus supplement,
together with the additional information described under the heading
"Incorporation of Certain Documents by Reference" before you decide to invest in
our ordinary shares.
Our ordinary shares are traded on the Over the Counter Bulletin Board,
referred to as the OTCBB, under the symbol "ESIM.OB." On July 29, 2004, the last
reported sale price of our ordinary shares on the OTCBB was $0.34 per share.
INVESTING IN OUR ORDINARY SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE PURCHASING OUR ORDINARY SHARES.
________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________________
The date of this prospectus is , 2004.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT.
WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS
NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THEN.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS 1
THE COMPANY 1
THE OFFERING 2
RISK FACTORS 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 18
WHERE YOU CAN FIND MORE INFORMATION 18
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 19
USE OF PROCEEDS 20
SELLING SHAREHOLDERS 20
PLAN OF DISTRIBUTION 28
VALIDITY OF SECURITIES 31
EXPERTS 31
ENFORCEABILITY OF CIVIL LIABILITIES 32
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
United States Securities and Exchange Commission, or the SEC, utilizing a
"shelf" registration process. Under this shelf process, the selling shareholders
may offer up to a total of 19,342,004 ordinary shares, from time to time, in one
or more offerings in any manner described under the section in this prospectus
entitled "Plan of Distribution."
Unless the context otherwise requires, all references in this prospectus to
"e-SIM," "we," "our," "our company," "us" and the "Company" refer to e-SIM Ltd.
and its consolidated subsidiaries.
All references in this prospectus to "ordinary shares" refer to our
ordinary shares, par value 0.1 NIS per share.
All references in this prospectus to "dollars" or "$" are to United States
dollars.
All references in this prospectus to "shekels" or "NIS" are to New Israeli
Shekels.
THE COMPANY
Our commercial and legal name is e-SIM Ltd. We were incorporated in the
State of Israel in 1989 and commenced operation in 1991 as a software
development and consultation company. We are subject to the Israeli Companies
Law 1999 - 5759, or the Companies Law. The address of our principal executive
office is 19 Hartum Street, Jerusalem, 91450 and our telephone number is
972-2-587-0770. Our U.S. agent is our subsidiary, e-SIM Inc., with an address at
225 S. Lake Avenue, Suite 300, Pasadena, California 91101, telephone (626)
584-7810. Our web site address is www.esim.com. The information contained on, or
linked from, our web site does not constitute part of this prospectus.
We offer a line of man machine interface, or MMI, solutions for wireless
platform vendors, handset manufacturers and mobile carriers. Based on our
proprietary technology, our MMI solutions, tools and services allow our
customers to more easily and quickly develop the MMI of a new handset that they
intend to introduce.
Until recently, the handset industry was vertically integrated, so that the
leading handset vendors controlled all aspects of the industry, including the
technology assets, engineering capabilities, production, branding, distribution
and support. This market is now evolving such that the different stages of the
development, production and sales process are being conducted by different
companies. In the current wireless handset market, platform vendors, who are
usually semi-conductor manufacturers, often provide the handsets' main
electronic and software components to wireless handset manufacturers in the form
of a standardized platform known as a reference platform. These vendors are
interested in providing their manufacturing customers with a full reference
platform that has been tested and which integrates a variety of components that
the manufacturer can customize and develop in a rapid and simple manner to
commence manufacturing. Our MMI reference design and the accompanying
customization and development tools can be part of the reference platform, thus
providing platform vendors with a modular, customizable, pre-integrated MMI
solution which they can, in turn, provide to their customers. This modular,
customizable, pre-integrated MMI solution can add value to the platform vendors'
product, differentiate them from platform vendors who do not have a comparable
MMI solution and assist the quick and effective deployment of their platform in
the market with little risk.
1
While our main efforts are now dedicated to the expansion of our business
in the wireless handset markets, we continue our traditional business of
providing simulation-based technology for use in the design, development,
documentation, promotion, customer support and training of other interactive
electronics products and systems. Our RapidPLUS product line allows our
customers to use on-screen, graphically accurate and behaviorally complete
simulations they created of their products, which we call either LiveProducts
and LiveManuals, to help improve these products, reduce the time and cost
involved in bringing them to market, effectively train sales and support
personnel, reduce the cost and complexity of customer support, and provide a
low-cost and efficient method of reaching target consumers.
THE OFFERING
In May and June 2004, we entered into share purchase agreements with
certain investors pursuant to which we issued 4,975,000 of our ordinary shares
at a price per share of $0.50 and warrants to purchase 1,243,750 of our ordinary
shares at $0.75 per share, for an aggregate purchase price of $2,487,500. In
connection with the consummation of the foregoing transactions, we agreed to
issue 48,750 ordinary shares and warrants to purchase 12,188 ordinary shares at
an exercise price of $0.75 per share as finder's fees, which issuance is subject
to the approval of our board of directors. Each of the warrants is immediately
exercisable in full and has a five-year term. We did not receive any independent
consideration for our issuance of the warrants to the investors who purchased
our ordinary shares and to the finders, but we will receive the proceeds from
the exercise of the warrants. We agreed with the investors in the foregoing
transactions to register for public resale all of the ordinary shares issued to
them in the private placements and all of the ordinary shares issuable to them
upon exercise of the warrants. This prospectus has been prepared, and the
registration statement of which this prospectus is a part has been filed with
the SEC, to satisfy our obligations to the investors in the foregoing
transactions.
In addition, this prospectus and the registration statement of which this
prospectus is a part have been prepared to register an additional 6,600,868
ordinary shares and 6,111,112 ordinary shares underlying warrants currently held
by an investor in and certain lenders to our company and 350,336 ordinary shares
underlying debentures issued by us to two Israeli banks that had previously
extended to us certain loans and a loan extended to us by another lender, as
more fully described under "Selling Shareholders".
Investing in our ordinary shares involves risks. You should carefully
consider the information under "Risk Factors" beginning on page 3 and the other
information included or incorporated by reference in this prospectus before
investing in our ordinary shares.
2
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS TOGETHER WITH THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN OUR ORDINARY SHARES. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND
UNCERTAINTIES THAT WE ARE PRESENTLY NOT AWARE OF, OR THAT WE CURRENTLY DEEM
IMMATERIAL, MAY ALSO ARISE. IF ANY OF THE FOLLOWING RISKS OR OTHER UNKNOWN RISKS
ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COULD BE MATERIALLY ADVERSELY AFFECTED. IN THAT CASE, THE TRADING PRICE OF OUR
ORDINARY SHARES COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THE RISKS DESCRIBED BELOW ARE NOT NECESSARILY IN ORDER OF DEGREE OR MAGNITUDE OF
RISK.
WE HAVE FUTURE CAPITAL NEEDS AND THE AVAILABILITY OF ADDITIONAL FINANCING
ON FAVORABLE TERMS OR AT ALL IS UNCERTAIN. As of July 15, 2004, we had cash and
cash equivalents of approximately $500,000 (including an investment of
$2,487,500 received from the investors in the May and June 2004 investments, on
whose account we are registering ordinary shares for resale hereunder) and
borrowing capacity of approximately $900,000 under our existing credit line. Our
ability to generate revenues and manage costs as anticipated may be adversely
affected by a variety of factors, including those discussed in this Risk Factors
section. If we are unable to generate sufficient revenues from operations, or if
acceleration of our bank loans is demanded by the lenders upon the occurrence of
an event of default under the loan agreements, we would be required to seek to
raise additional capital through public or private debt or equity issuances.
Events of default under our loan agreements include, among others, non-payment
of scheduled principal and interest payments, our liquidation or the occurrence
of events after January 31, 2005, in the case of one of the banks extending us
loans (in respect of $500,000 of our total debt to that bank prior to that
date), and after August 14, 2005, in the case of the other bank, that the banks
believe harm or might harm our ability to perform our obligations under the loan
agreements. Additional debt or equity financing, whether obtained through public
or private debt or equity financing, may not be available when needed or may not
be available on terms acceptable to us. In addition, if additional funds are
raised through the issuance of equity securities, the net tangible book value
per share may decrease, the percentage ownership of our then current
shareholders may be diluted and such new equity securities may have rights,
preferences or privileges senior or more advantageous to those of the holders of
our ordinary shares. If additional financing is not available when needed, our
business and financial condition will be materially adversely affected, we may
be forced to discontinue operations or to pursue a sale of our company or a
substantial part of our assets on terms, which if available at all, may not be
favorable to us or our shareholders.
IF OUR SHAREHOLDERS DO NOT APPROVE AN EQUITY INVESTMENT IN RESPECT OF
CERTAIN INTERESTED PARTY INVESTORS, WE WILL BE REQUIRED TO REPAY THE INVESTED
FUNDS AND MAY NOT HAVE SUFFICIENT CASH TO DO SO. In May and June 2004 we entered
into an equity investment agreement with certain investors on whose account we
are registering ordinary shares for resale hereunder, including Marc Belzberg,
our chairman, chief executive officer and one of our major shareholders, Gibralt
Capital Corporation, or Gibralt, a party controlled by Samuel Belzberg, one of
our directors and Marc Belzberg's father, and Lisa Belzberg, Marc Belzberg's
sister and Samuel Belzberg's daughter. These members of the Belzberg family, or
the Belzberg Family, invested $1,500,000 in return for 3,000,000 of our ordinary
shares, at a price of $0.50 per ordinary share and received warrants to purchase
750,000 of our ordinary shares, at an exercise price of $0.75 per share. The
transaction was approved by our board of directors and audit committee. The
investment by the Belzberg Family is also subject to shareholder approval since
they are "related parties" according to the Israeli Companies Law, 5759-1999, or
the Companies Law. We plan to submit the transaction for shareholder approval at
our next general meeting of shareholders, where it must be approved by a
majority which includes the holders of at least one-third of the votes present
at the meeting, in person or by proxy, and voting on the transaction who are not
related parties, unless our shareholders who are not related parties and who
vote against the resolution do not represent more than one percent of our total
outstanding voting rights. This transaction may not be approved by our
shareholders. According to the terms of the foregoing share purchase agreement,
if our shareholders do not approve the investment by November 10, 2004, such
agreement will be null and void with respect to the Belzberg Family and we will
be obligated to repay such funds together with accrued interest at a rate equal
to the six-month LIBOR prevailing on May 10, 2004. Each of Marc Belzberg,
Gibralt and Lisa Belzberg has agreed that, notwithstanding the foregoing, we
will not be required to repay these funds to them until August 31, 2005, if
doing so would affect our ability to continue operations as a going concern. If
our shareholders do not approve the transaction, and consequently we will be
required to repay to the Belzberg Family their invested amount by August 31,
2005, we will be required to raise additional capital through public or private
debt or equity issuances. Additional debt or equity financing, whether obtained
through public or private debt or equity financing, may not be available when
needed or may not be available on terms acceptable to us. In addition, if
additional funds are raised through the issuance of equity securities, the net
tangible book value per share may decrease, the percentage ownership of our then
current shareholders may be diluted and such new equity securities may have
rights, preferences or privileges senior or more advantageous to those of the
holders of our ordinary shares. If additional financing is not available when
needed, our business and financial condition will be materially adversely
affected, we may be forced to discontinue operations or to pursue a sale of our
company or a substantial part of our assets on terms, which if available at all,
may not be favorable to us or our shareholders.
3
WE MAY NOT HAVE SUFFICIENT CASH ON HAND TO MAKE THE PAYMENTS THAT WILL BE
DUE ON OUR OUTSTANDING BANK LOANS BEGINNING FEBRUARY 28, 2005. In February, May
and July 2004, we entered into agreements amending certain provisions of our
prior agreements with certain banks. As part of these amendments, the scheduled
maturity of the loans the banks provided to us was extended. As of July 15, 2004
our debt to the banks was an aggregate of approximately $1.5 million, which sum
does not include borrowing capacity of approximately $900,000 under our existing
credit line with one of these banks which has not been utilized as of the date
of this prospectus. Pursuant to the amended terms of the agreements, we are
required to repay monthly principal payments to these banks beginning February
28, 2005. The banks can demand acceleration of payment of the loans prior to the
agreed payment dates upon the occurrence of an event of default under the loan
agreements, such as non-payment of scheduled principal and interest payments,
our liquidation or the occurrence of events after January 31, 2005 in the case
of one of the banks extending us loans (in respect of $500,000 of our total debt
to that bank prior to that date) and after August 14, 2005 in the case of the
other bank that the banks believe harm or might harm our ability to perform our
obligations under the loan agreements. We may not have sufficient cash on hand
to make principal or interest payments when due, or if acceleration is demanded
by the banks. If we are unable to make principal or interest payments when due,
our business and financial condition will be materially adversely affected. The
banks have a security interest in our right to receive revenues pursuant to
agreements with two major customers and in the event of a default under the
terms of the agreements, the revenues from these customers would not be
available to us and our business will be materially adversely affected. In any
such event, we may be forced to discontinue operations or to pursue a sale of
our company or a substantial part of our assets on terms, which if available at
all, may not be favorable to our shareholders. Additional debt or equity
financing to repay these loans, whether obtained through public or private debt
or equity financing, may not be available when needed or may not be available on
terms acceptable to us. In addition, if additional funds are raised through the
issuance of equity securities, the net tangible book value per share may
decrease, the percentage ownership of our then current shareholders may be
diluted and such new equity securities may have rights, preferences or
privileges senior or more advantageous to those of the holders of our ordinary
shares.
WE HAVE A HISTORY OF LOSSES AND MAY NOT ACHIEVE PROFITABILITY. We began
operations in 1991 as a software consulting company and began commercial
shipment of our initial Rapid software products in 1994. We incurred significant
operating and net losses in every fiscal year since our inception and expect to
continue to incur losses in the future. While in our fiscal year ended January
31, 2003 our revenues increased to $6.2 million, a 24% increase compared with
$5.0 million in our fiscal year ended January 31, 2002, our revenues in our
fiscal year ended January 31, 2004 were $4.5 million, representing a 28%
decrease compared to our fiscal year ended January 31, 2003. As of January 31,
2004, we had an accumulated deficit of $42 million. Our net losses for our
fiscal year ended January 31, 2004 were $4.2 million, an increase of 147%
compared with net losses of $1.7 million for our fiscal year ended January 31,
2003. We expect net cash outflows and net operating losses will continue through
at least the end of our fiscal year ended January 31, 2005 and may continue
thereafter. We cannot assure you that we will be able to achieve or sustain
profitability. In order to do so, we will need to significantly increase our
revenues and appropriately control our expenses.
4
Our future prospects should be considered in light of the challenges
frequently encountered by companies in new and rapidly evolving industries.
These challenges include establishing and increasing market acceptance of our
products and systems, responding effectively to competitive pressures, offering
high quality customer service and support, introducing, on a timely basis,
advanced versions of, and enhancements to, our existing products and
successfully marketing and supporting these advanced versions and enhancements.
We may not be able to satisfactorily address these risks cost-efficiently or at
all.
THE PROPORTION OF OUR REVENUES DERIVING FROM SERVICES HAS INCREASED AT THE
EXPENSE OF REVENUES DERIVING FROM SALES OF PRODUCTS. IF THIS TREND CONTINUES, IT
MAY ADVERSELY AFFECT OUR GROSS MARGINS AND PROFITABILITY. Our revenues from the
sale of products decreased to approximately $1.8 million in our fiscal year
ended January 31, 2004 from approximately $3.3 million in our fiscal year ended
January 31, 2003 and approximately $3.0 million in our fiscal year ended January
31, 2002. Our revenues from services decreased in our fiscal year ended January
31, 2004 to approximately $2.7 million from approximately $2.9 million in our
fiscal year ended January 31, 2003, a decrease from approximately $2.0 million
in our fiscal year ended January 31, 2002. Our gross margin from products is
higher than our gross margin from services, since our cost of services, which
includes expenses of salaries and related benefits of the employees engaged in
providing the services, is relatively higher than our cost of products. If this
trend continues, our gross margins and profitability may be adversely affected.
WE ARE HEAVILY RELIANT ON THE SALE OF ONE FAMILY OF PRODUCTS TO ONE MARKET.
Sales and services related to our RapidPLUS product family have accounted for
substantially all of our revenue. If sales of our RapidPLUS family products
decline, or fail to grow, or the profit margin on these products decreases
significantly, our business, financial condition and results of operations will
be materially and adversely affected. In addition, while in the past we offered
our products to a wide range of customers, since we changed our business model
our target market has been narrowed to include only wireless handset platform
developers, handset manufacturers and mobile carriers. If we are not successful
in penetrating this market and selling our products, our business, financial
condition and results of operations will be materially and adversely affected.
IF WE FAIL TO TIMELY COMPLETE THE DEVELOPMENT AND INTRODUCTION OF NEW
PRODUCTS, OUR RESULTS OF OPERATIONS WILL SUFFER. Growth in our sales and
revenues is dependent, to a significant extent, upon the commercial success and
market acceptance of our products. To this end, we are involved in the
development and introduction of new products and applications and advanced
versions and enhancements to our existing products. A number of risks are
inherent in this process, and we may not successfully complete the development
or introduction of these products and applications. The development of new
technologies and products is complex and uncertain, and requires close
collaboration and continued technological advancement involving multiple
hardware and software design teams within our company, our customers and outside
suppliers of key components. These factors may result in a failure to introduce
new products and applications, and advanced versions of, and enhancements to,
our existing products in a timely manner, if at all. In the past, we have, on
occasion, experienced delays in the release of new products and product
enhancements, including new modules. If we fail to timely complete the
development and introduction of new products and applications, and advanced
versions of, and enhancements to, our existing products, our results of
operations will suffer.
5
WE ARE SUBJECT TO RISKS OF TECHNOLOGICAL CHANGE AND NEED TO DEVELOP NEW
PRODUCTS AND APPLICATIONS AND NEW VERSIONS OF, AND ENHANCEMENTS TO, OUR EXISTING
PRODUCTS. The market for our products is characterized by rapid technological
developments, evolving industry standards, swift changes in customer
requirements, computer operating environments and software applications, and
frequent new product introductions and enhancements. To succeed, we believe we
must:
o anticipate and timely respond to changes in the market for our
products and customer expectations;
o meet changing and increasing customer expectations;
o continue to enhance our existing products;
o develop and introduce in a timely manner new products and applications
and new versions of, and enhancements to, our existing products
incorporating technological advances; and
o comply with emerging industry standards.
Our products may become obsolete if we fail to successfully anticipate or
react to change. To the extent that one or more of our current or new
competitors introduces products that more effectively address customer needs,
our business, financial condition and results of operations could be materially
adversely affected. In addition, negative reviews or other adverse publicity of
our new or existing products could have a material adverse effect on our
revenues
In 2001 we effected a corporate restructuring, which included a reduction
of our research and development expenses during our fiscal year ended January
31, 2002 and the quarter ended April 30, 2002 by approximately 50%, primarily by
reducing our research and development staff. Although we have increased our
research and development staff since then, we still have fewer research and
development employees than we had prior to the restructuring. We believe that,
to date, these cutbacks have not adversely affected our ability to introduce new
products and applications and new versions of, and enhancements to, our existing
products and the timing of their introduction. However, the reduction in
research and development costs may affect our future revenues and impair our
ability to compete in the markets in which we operate in the future. As part of
the restructuring, we decided not to proceed with the development of a new
product designed to be a new version of our RapidPLUS toolset, and, instead,
have relied upon the knowledge gained in the course of development to introduce
new modules and versions of our existing RapidPLUS toolset. Although we believe
this is a prudent and cost-effective approach to advancing the development of
our products, we cannot be sure that these new modules and versions will be
sufficiently advanced technologically, gain market acceptance or provide the
same long-term return as a new version of our RapidPLUS toolset would be
expected to.
WE HAVE SIGNIFICANT FLUCTUATIONS IN OUR BUSINESS AND OUR RESULTS OF
OPERATIONS ARE UNPREDICTABLE. We have experienced, and expect to continue to
experience, significant quarterly and annual variations in our results of
operations. These variations in our results of operations may make it difficult
for investors to make reliable period-to-period comparisons of our performance
or predictions as to our future performance and may contribute to volatility in
our share price.
These variations result from a variety of factors, including:
o the strength of the market for technology products generally;
o the timing, composition and size of orders from our customers (which
may be impacted by a variety of factors affecting our customers and
not directly related to our products and services);
6
o market acceptance of our products;
o the various types of distribution channels we employ, including direct
sales and sales through distributors;
o the timing of new enhancement or product announcements by us and our
competitors;
o our ability to continue to develop, introduce and deliver new and
enhanced products on a timely basis and in a cost effective manner;
o our ability to offer new products at competitive prices;
o our ability to anticipate customer needs and demand;
o delays in the implementation of our solutions by customers;
o changes in the proportion of service and product revenues;
o price and product competition;
o increases in selling and marketing expenses, as well as other
operating expenses;
o technological changes;
o political instability in the Middle East;
o consolidation of our clients;
o currency exchange rate fluctuations and economic conditions in the
geographical areas in which we operate; and
o the availability of funds to finance implementation of our business
plan.
Moreover, our revenues in each quarter are derived primarily from a few
large orders, some of which are from new customers. For example, single orders
accounted for 37%, 30%, 23% and 21% of revenues in the first, second, third and
fourth quarters of our fiscal year ended January 31, 2004, respectively. The
deferral or loss of one or more significant sales could materially affect our
operating results in any fiscal quarter, especially if there are significant
sales and marketing expenses associated with the deferred or lost sales.
Conversely, if we obtain large orders in a particular quarter, our revenues and
the rate of growth of our revenues for that quarter may reach levels that may
not be sustained in subsequent quarters. Consequently, our inability to obtain
large orders from our customers or delays in the shipment of, or payment for,
any such order could significantly impact our quarterly results. Conversely, a
significant increase in the number of our customers or in our development of new
product offerings, or both, could require us to expend significant amounts of
money, time and other resources to meet the demand. This could strain our
personnel and financial resources.
7
In addition, future results of operations may fall below the expectations
of our investors, which would likely cause the trading price of our ordinary
shares to decline. Our expense levels are based, in part, on our expectations of
future revenues. If our revenues are below expectations, our results of
operations are likely to be adversely affected. Net income may decline due to
decreased revenues because we may not be able to promptly reduce expenses
correspondingly to the decrease in revenues. In light of the above, we believe
that our business activity and results of operations in any quarter are not
necessarily indicative of any longer trends in our business and it may be
difficult for investors to evaluate our prospects. You should not rely on
period-to-period comparisons of our financial results to predict our future
performance.
HISTORICALLY, OUR REVENUES HAVE BEEN CONCENTRATED IN A FEW LARGE ORDERS AND
A SMALL NUMBER OF CUSTOMERS AND OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE
LOSE A KEY CUSTOMER. A significant portion of our revenues each year has been
derived from large orders from a small number of clients. In our fiscal year
ended January 31, 2002, five customers accounted for 45% of our revenues, in our
fiscal year ended January 31, 2003 four customers accounted for 52% of our
revenues and in our fiscal year ended January 31, 2004, five customers accounted
for 60% of our revenues. Although we endeavor to broaden our client base, we
expect that a significant portion of our future revenues will continue to be
derived from a relatively small number of customers. The loss of key customers
or significant reductions in revenues generated from a key customer would cause
our revenues to decline and make it more difficult for us to achieve or sustain
profitability.
WE DEPEND ON CERTAIN KEY TECHNICAL, DEVELOPMENT AND MANAGEMENT PERSONNEL.
THE LOSS OF THE SERVICES OF THESE EMPLOYEES AND OUR FAILURE TO HIRE NEW CAPABLE
EMPLOYEES AND REPLACE EMPLOYEES WHO LEAVE US WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR RESULTS. Our future performance depends, to a significant extent,
upon the continued service of our key technical, development and management
personnel. Competition for these employees can be intense, especially in a
number of our key markets and locations, primarily in Israel. The process of
locating, training and successfully integrating qualified personnel into our
operations can be lengthy and expensive. The market for the qualified personnel
we require is very competitive because of the limited number of people available
with the necessary technical and sales skills and understanding of our products
and technology. We may not be able to compete effectively for the personnel we
need. The loss of the services of certain of these individuals would have a
material adverse effect on our results. None of our employees has a long-term
employment contract. Our future success also depends on our ability to continue
to attract, train and retain highly qualified technical, development and sales
and marketing personnel and we may not be able to attract, train or retain such
personnel. If we are unable to hire and integrate such personnel on a timely
basis in the future, our business, financial condition and results of operations
could be materially adversely affected.
WE ARE SUBJECT TO COMPETITION IN THE MMI, EMBEDDED SYSTEM APPLICATION
SOFTWARE DEVELOPMENT AND INTERNET MARKETS, AND MANY OF OUR COMPETITORS HAVE
LONGER OPERATING HISTORIES, GREATER NAME RECOGNITION, ACCESS TO LARGER CUSTOMER
BASES AND SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, MARKETING AND SALES
RESOURCES THAN WE DO. The wireless handset MMI market and the embedded systems
software development industry are both highly competitive and characterized by
rapidly advancing technology. We expect competition to increase in the future.
We believe that the principal competitive factors in this industry are
technological innovation, functionality, reliability, service, reputation,
pricing and the ability to provide integrated solutions.
8
In order to maintain and improve our position in both the wireless handset
MMI market and the embedded software systems industry, we must continue to
enhance our existing products and to develop new products and applications and
product and application extensions. The reduction in 2001 in the number of our
research and development employees may adversely affect our ability to compete
with our competitors by introducing to the market new products and applications
and new versions of, and enhancements to, existing products in a timely manner
or at all.
We believe that the main competition in the wireless handset MMI market is
from companies that sell the MMI as part of a wider suite of integrated
products, including wireless handset platform vendors who have their own
in-house MMI solution, such as Infineon Technologies AG, Agere Systems, Inc. and
Skyworks Solutions, Inc. and companies that provide core software for wireless
handsets and MMI solutions, such as TTPCom and Cybelius Software Oy.
We believe that the principal competition for our products in the embedded
systems market comes from embedded systems applications software development
solutions that are developed in-house by our customers or potential customers,
rather than those purchased from independent software vendors like us. Many
organizations that develop their software solutions in-house have better
familiarity with their systems and substantial internal programming resources
with the capability to develop specific solutions for their needs. A customer's
decision to use our products may involve a fundamental shift in the software
development process used by that customer. Consequently, we must persuade many
potential customers to replace their in-house solutions, into which substantial
resources have been invested, with our products. We also compete with other
independent software vendors who provide products addressing certain stages of
the development cycle for products incorporating embedded systems applications
software. Software providers competing with our products at various stages of
the embedded systems applications software development cycle include Cats, Inc.,
Altia, Inc., Virtual Prototypes, Inc., ZipC, Inc. and Gaio, Inc.
In the Internet market there are technologies currently available that
compete with LiveProducts and which are difficult to compete with, such as
Macromedia's Flash and ShockWave Director. Current and potential competitors may
develop products that may be more effective than our current or future products
and our technologies and products may be rendered obsolete by such developments.
Many of our existing and potential competitors have longer operating
histories, greater name recognition, access to larger customer bases and
significantly greater financial, technical, marketing and sales resources than
we do. Many of our competitors have well-established relationships with our
current and potential customers and have extensive knowledge of our target
markets. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the promotion and sale of their products than us.
We expect to face increasing competitive pressures from both current and
future competitors. Competitive pressures in our markets could cause us to
reduce the prices of our products, which would result in reduced gross profits.
We believe that our ability to compete successfully will depend on a number of
factors both within and outside our control, including price, quality,
availability, customer service and support, breadth of product line, product
performance and features, rapid time-to-market delivery capabilities,
reliability, timing of new product introductions by us, our customers and our
competitors, and the ability of our customers to obtain financing. We may not
have the financial resources, technical expertise, or marketing, sales,
distribution, and customer service and support capabilities to compete
successfully against our current and future competitors. If we fail to compete
successfully, our business, financial condition and results of operations will
be materially adversely affected.
WE ARE SUBJECT TO CERTAIN RISKS RELATING TO THE MARKETING OF OUR MMI
SOLUTION TO WIRELESS HANDSET PLATFORM VENDORS, WIRELESS HANDSET MANUFACTURES AND
MOBILE CARRIERS. In 2003 we changed our business strategy to improve our
operating results. Our strategy is no longer based upon reliance on our
traditional distributors in the embedded systems market, many of whom were among
our largest customers. Instead, we currently concentrate our efforts on
establishing long-term distribution contracts with wireless handset platform
vendors and direct licensing and development contracts with these vendors and
with wireless handset manufacturers and mobile carriers.
9
Our revenue model is based upon receipt of a royalty stream from the
embedding of our MMI reference design and MicroKernels in handset products sold
by wireless handset manufacturers or mobile carriers. We may not be successful
in marketing our MMI solution to wireless handset platform vendors, wireless
handset manufacturers or mobile carriers. Our wireless handset platform vendor
distributors may be unsuccessful in distributing our MMI solution to their
customers. Furthermore, the wireless handset manufacturers or mobile carriers
may not succeed in marketing the handset units containing our MMI solution.
Additionally, the financial condition of any of such wireless handset platform
distributors, wireless handset manufactures and mobile carriers could suffer
from material adverse changes, which could result in a decrease in orders of our
products. In any of the situations described above, our revenues will suffer and
our results of operations will be materially adversely affected.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH INTERNATIONAL SALES, WHICH HAVE
ACCOUNTED FOR 70.4%, 96.1% AND 98.9% OF OUR REVENUES FOR OUR FISCAL YEARS ENDED
JANUARY 31, 2004, 2003 AND 2002, RESPECTIVELY. A key component of our strategy
is to continue to expand operations in existing international markets outside of
Israel, and to enter new international markets. Substantially all of our sales
have been made and are expected to continue to be made, directly or indirectly,
in the international markets, with sales in the U.S., Japan, the Far East
(excluding Japan) and Europe representing 16.3%, 9.2%, 11.9% and 33.0%,
respectively, of our total revenue for our fiscal year ended January 31, 2004;
20.9%, 44.9%, 10.4% and 19.9%, respectively, of our total revenues for our
fiscal year ended January 31, 2003; and 25.0%, 28.2%, 32.2% and 13.5%,
respectively, of our total revenues for our fiscal year ended January 31, 2002.
We currently maintain direct sales and service offices or personnel in the U.S.
and Japan and have distributors and resellers in Europe and the Far East. A
substantial portion of our revenues has been made, and is expected to continue
to be made, in the U.S., the Far East and Europe, although the relative amount
of sales in each of these markets may change. For additional information see
note 13b to our consolidated financial statements for the fiscal year ended
January 31, 2004, incorporated by reference into the registration statement of
which this prospectus constitutes a part..
There are certain risks inherent in doing business in international
markets, including:
o difficulties in collecting accounts receivable, including royalties;
o foreign currency risks;
o financial and political instability;
o longer payment cycles;
o lack of acceptance of products not adapted for the local market;
o cultural differences in the conduct of business;
o difficulties in protecting intellectual property rights;
o difficulties in staffing and managing foreign operations;
o withholding taxes restricting the repatriation of earnings;
o unexpected changes in regulatory requirements;
o burdens of complying with a wide variety of foreign laws; and
o tariffs and other trade barriers.
10
Any of these factors could adversely affect the success of our
international operations. In some markets, adaptation of our products to the
local culture, language and requirements is critical for local market acceptance
of our products and market penetration. We may incur substantial costs and
experience delays in adapting our products for local markets, and any adapted
product may not achieve market acceptance or generate significant revenues. One
or more of these factors may have a material adverse effect on our business,
financial condition and results of operations.
OUR BUSINESS AND FINANCIAL CONDITION COULD BE NEGATIVELY IMPACTED BY THE
FINANCIAL INSTABILITY OF OUR CUSTOMERS, DUE TO OUR DEPENDENCY ON THE SUCCESS OF
SUCH CUSTOMERS IN SELLING THEIR PRODUCTS IN WHICH OUR RAPID PRODUCTS ARE
EMBEDDED. We sell our products and provide services to wireless handset platform
solutions vendors, wireless handset manufactures and embedded systems
manufacturers and distributors located around the world based on pre-qualified
payment terms. Financial difficulties of a customer could cause us a credit risk
relating to that customer's receivables. Our inability to collect on our trade
accounts receivable from any one of these customers could have a material
adverse effect on our business and financial condition.
WE HAVE RISKS RELATING TO THE LONG SALES CYCLE FOR OUR RAPID PRODUCTS. IN
ADDITION, WE ONLY RECOGNIZE REVENUES AFTER OUR CUSTOMERS AND THEIR CUSTOMERS ARE
SUCCESSFUL IN SELLING THEIR PRODUCTS IN WHICH OUR RAPID PRODUCTS ARE EMBEDDED,
AND THEREFORE THE RECEIPT BY US OF REVENUES IS DEPENDENT ON THE SUCCESS OF OUR
CUSTOMERS AND THEIR CUSTOMERS IN SELLING SUCH PRODUCTS. A decision to use our
Rapid products often entails a fundamental change in a customer's product
engineering methods, and replacement of all or a significant part of a
customer's in-house solutions. Consequently, we devote significant marketing
efforts to educating potential customers about the benefits of adopting the
Rapid methodology. In addition, using RapidPLUS CODE (the code generation module
of our RapidPLUS product) involves a risk of embedding machine-generated code in
the embedded product. Consequently, customers need to be confident that the
generated code functions correctly and efficiently. Moreover, pursuant to our
new business model, an increasing portion of our revenues is expected to consist
of royalties received by us from the sale by our customers - wireless handset
platform vendors - of their own products in which our MicroKernel software is
embedded, rather than from the sale of Rapid PLUS licenses. Under this new
model, we will only be entitled to receive royalties after such vendors complete
the manufacturing of the wireless platforms and sell it to handset
manufacturers, who will then develop, manufacture and sell the handsets. As a
result of this sales chain, we are exposed to risks relating to our customers'
and their customers' volume of sales and their promptness in collecting payments
on such sales and then paying us royalties. If our customers fail to
successfully sell their products in which our Rapid applications are embedded,
we will not recognize revenues, although we will incur costs and expenses
relating to the development, support, marketing and sale of such applications.
In light of the need to educate a customer about the benefits of the Rapid
products and convince customers of the reliability of our code generation
capability, the critical role software development plays in the customer's
business, the significant costs involved in implementing our products on a large
scale within that business and our dependency on sales by our customers and
their customers to end users, our sales cycle is relatively long. For sales of
our Rapid products directly to wireless handset platform vendors, the sales
cycle is typically approximately nine to twelve months (but we do not recognize
revenues from royalties until such platform vendors sell their product to
handset manufacturers, who then sell the handsets to the end users). For sales
of our Rapid products to wireless handset manufacturers, the sales cycle is
typically six to nine months. Because we do not recognize revenues until the
handsets are sold to end users, any significant marketing expenses that we incur
before we receive any revenues generated as a result of these efforts (primarily
research and development and technical support expenses), would have a material
adverse effect on our business, financial condition and results of operations.
The length of the sales cycles may continue to increase in light of the more
conservative spending by many customers and potential customers due to current
market conditions, and may therefore result in a delay in the recognition and
receipt by us of revenues, which may adversely affect our profitability and
financial position.
11
WE ARE SUBJECT TO RISKS OF PRODUCT DEFECTS AS WELL AS OTHER POTENTIAL
LIABILITY. As a result of their complexity, software products, including those
we develop and market, may contain undetected errors or compatibility problems,
particularly when first introduced or when new versions of, and enhancement to,
our existing products are released. Errors may not be detected in new products
or applications or in new versions of, or enhancements to, our existing products
until after they have been shipped, despite our testing as well as the testing
and use by current and potential customers. These errors could result in the
loss of, or delay in, market acceptance of our products, which could have a
material adverse effect on our business, financial condition and results of
operations.
The use of our products for applications in markets where the failure of
our products could cause substantial property damage or personal injury could
subject us to significant product liability claims. In addition, our products
may be used for applications in mission-critical business systems where the
failure of our products could result in substantial economic loss. Our license
and other agreements with our customers typically contain provisions designed to
limit our exposure to potential product liability and other claims. However, the
limitation of liability provisions contained in our agreements are not effective
in all circumstances and in all jurisdictions. Although we have not experienced
any product liability or economic loss claims to date, the conduct of our
business entails the risk of such claims. We carry insurance against product
liability risks and errors or omissions coverage, but our insurance coverage may
not continue to be available to us on commercially reasonable terms or at all,
and even if available, may be insufficient to cover certain liabilities.
In addition, a product liability claim or a claim for economic loss brought
against us in excess of, or outside the limits of, our insurance coverage, or a
product recall involving our software, could have a material adverse effect on
our business, financial condition and results of operations.
WE DEPEND ON CERTAIN PROPRIETARY TECHNOLOGY AND WE CANNOT ASSURE YOU THAT
WE WILL BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS. Our success is dependent, to
a significant extent, upon our proprietary technology. To protect our
proprietary rights, we rely on a combination of copyright, trademark, patent and
trade secret laws, together with non-disclosure and other contractual
confidentiality procedures, which provide only limited protection. We have
registered patents in the United States, Israel, Taiwan and China and have filed
patent applications, which are currently pending, in Europe, India, Japan, Hong
Kong, South Korea, and Canada in respect of certain aspects of our core
technology, and intend to file additional applications in certain other
countries. These new patents may not be issued or if issued, these patents may
be challenged or invalidated, or may not be of sufficient scope or strength to
provide us with meaningful protection or commercial advantage. As part of our
confidentiality procedures, we generally enter into non-disclosure agreements
with our employees, consultants, distributors and development partners that
limit access to, and distribution of, our software, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights,
it may be possible for unauthorized parties to copy our products or to reverse
engineer or obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the United States or Israel. Our efforts to
protect our proprietary rights may not be adequate and our competitors may
independently develop technologies that are substantially equivalent or superior
to our technologies.
WE DEPEND ON THIRD-PARTY PROPRIETARY TECHNOLOGY. We rely, and expect to
continue to rely, on certain software that we license from third parties,
including software that is integrated with internally developed software and
used in our products to perform key functions. Some of this software may be
required to complete the development of products that we intend to offer in the
future. These third-party providers may not remain in business or continue to
support their technology and their technology may not otherwise be available to
us on commercially reasonable terms. The loss of, or inability to maintain or
obtain any of, software licenses we rely upon could result in delays or
cancellations in product shipments until equivalent software can be identified
and licensed or developed and integrated with our products. Any such delay or
cancellation could have a material adverse affect on our business, financial
condition and results of operations.
12
WE COULD BECOME SUBJECT TO LITIGATION REGARDING ALLEGED INFRINGEMENT OF
THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS, WHICH COULD SERIOUSLY HARM OUR
BUSINESS, AND AS A RESULT OF SUCH LITIGATION WE MAY HAVE TO SEEK LICENSES FOR
THE USE OF THIRD PARTIES' INTELLECTUAL PROPERTY RIGHTS, WHICH MAY NOT BE
AVAILABLE TO US ON REASONABLE TERMS OR AT ALL. Third parties have in the past
asserted, and may in the future assert against us, claims that we have violated
a patent or infringed a copyright, trademark or other proprietary right
belonging to them. For instance, in 2002, one of our competitors alleged that
certain features of our RapidPLUS Express breach that party's copyright, a claim
we believe to be without merit and which has not been pursued by that
competitor. In addition, based on the size and sophistication of our competitors
and the history of rapid technological change in our industry, we anticipate
that several competitors may have intellectual property rights that could relate
to our products. Therefore, we may need to litigate to defend against claims of
infringement or to determine the validity or scope of the proprietary rights of
others. Similarly, we may need to litigate to enforce or uphold the validity of
our patents, trademarks and other intellectual property rights. Other actions
may involve ownership disputes over our intellectual property or the
misappropriation of our trade secrets or proprietary technology. As a result of
these actions, we may have to seek licenses for the use of third parties'
intellectual property rights. These licenses may not be available to us on
reasonable terms or at all. In addition, if we decide to litigate these claims,
the litigation could be expensive and time consuming and could result in court
orders preventing us from selling our then-current products or from operating
our business. Any infringement claim, regardless of merit, could result in the
expenditure of significant financial and managerial resources and harm our
business, financial condition and results of operations.
WE MAY PURSUE ACQUISITIONS THAT PRESENT RISKS AND THAT MAY NOT BE
SUCCESSFUL. IN ADDITION, EVEN IF WE ARE ABLE TO IDENTIFY FUTURE SUITABLE
ACQUISITION OR INVESTMENT CANDIDATES, WE CANNOT MAKE ASSURANCES THAT WE WILL BE
ABLE TO MAKE THE ACQUISITIONS OR INVESTMENTS ON COMMERCIALLY ACCEPTABLE TERMS OR
AT ALL. In the future, we may pursue acquisitions to enhance our technology and
diversify our product and service offerings and customer base or for other
strategic purposes. We have a limited history of making acquisitions and we
cannot be certain that any future acquisitions will be successful. Even if we
are able to identify future suitable acquisition or investment candidates, we
cannot make assurances that we will be able to make the acquisitions or
investments on commercially acceptable terms or at all. If we acquire or invest
in another company, we could have difficulty assimilating that company's
personnel, operations, technology or products and service offerings into our
own. The key personnel of the acquired company may decide not to work for us.
These difficulties could disrupt our ongoing business, distract our management
and employees, increase our expenses and adversely affect our results of
operations. In addition, we may incur indebtedness or issue equity securities to
pay for any future acquisitions. The issuance of equity securities could be
dilutive to our existing shareholders.
INFLATION AND CURRENCY FLUCTUATIONS MAY ADVERSELY AFFECT OUR RESULTS. We
may be adversely affected if the rate of inflation in Israel exceeds the rate of
devaluation of the NIS against the dollar.
Most of our revenues are generated in dollars and a substantial portion of
our expenses is incurred in NIS. The dollar cost of our operations in Israel is
influenced by the extent to which any increase in the rate of inflation in
Israel is not offset, or is offset on a lagging basis, by a devaluation of the
NIS in relation to the dollar.
The deflation rate in Israel was 2.3% in 2003, while the NIS appreciated
against the dollar by 6.9%. As a result, we experienced an increase in the
dollar costs of our operations in Israel in 2003, primarily because
substantially all our revenues are received in dollars while salaries in Israel
are paid in NIS and constitute a significant portion of our expenses.
We cannot assure you that we will not be materially and adversely affected
in the future if the rate of inflation in Israel exceeds the devaluation of the
NIS against the U.S. dollar or if the timing of this devaluation lags behind
increases in inflation in Israel.
We do not currently engage in any hedging arrangements to offset risks
associated with fluctuations in foreign currency exchange rates, but may do so
in the future. As a result, price and exchange rate instability could have a
material adverse effect on our business, financial condition and results of
operations.
13
WE MAY NOT SATISFY THE REQUIREMENTS FOR QUOTATION ON THE OTCBB. IF OUR
SHARES ARE REMOVED FROM THE OTCBB, IT WOULD BE MORE DIFFICULT FOR OUR
SHAREHOLDERS TO DISPOSE OF OR PURCHASE OUR SHARES AND OUR ABILITY TO RAISE FUNDS
THROUGH THE ISSUANCE OF EQUITY SECURITIES WOULD BE MATERIALLY ADVERSELY
AFFECTED. In February 2002, our ordinary shares were delisted from the NASDAQ
National Market as a result of our failure to meet NASDAQ's continued listing
requirements. Trading in our ordinary shares is currently conducted on the
OTCBB. If we cannot satisfy OTCBB's requirements for quotation, it may remove
our ordinary shares from its service. To continue to be quoted on the OTCBB, we
must remain current in our filings with the SEC and must have a market maker for
our stock. We may not be able to continue to satisfy these or other quotation
requirements in the future. If this occurs, our ordinary shares may be removed
from the OTCBB. As a result, an investor would likely find it significantly more
difficult to dispose of, or to obtain accurate quotations as to the value of,
our ordinary shares and the prices of our ordinary shares may be lower than
those that might otherwise be available through the OTCBB. In addition, if our
ordinary shares are removed from the OTCBB, our ability to raise funds through
the issuance of equity securities would be materially adversely affected.
THE PRICE OF OUR ORDINARY SHARES IS HIGHLY VOLATILE. The price of our
ordinary shares fluctuates significantly. For example, the price has ranged from
$38 per share in March 2000 to $0.07 per share in October 2002. On July 29, 2004
(the last business day prior to the filing of the registration statement of
which this prospectus constitutes a part), the price was $0.34 per share. During
our fiscal year ended January 31, 2004, our trading volume was, on average, only
19,575 ordinary shares per day, which has increased the volatility of the
trading price of our shares
Prices of our ordinary shares may fluctuate in response to a number of
events and factors, including:
o quarterly variations in our results of operations;
o changes in our operating expense level or losses;
o performance of technology companies generally;
o new products, services and strategic developments by us or our
competitors;
o announcements of innovations;
o changes in financial estimates and recommendations by securities
analysts with respect to our company, companies engaged in a similar
business or technology companies generally;
o general stock market conditions, particularly with respect to
technology companies;
o general conditions of the economies of the countries in which we
operate; and
o outbreaks or escalation of hostilities or terrorist incidents in
Israel or elsewhere in the world.
Any of these events may cause our share price to decline, which may
adversely affect our business and financing opportunities.
14
A substantial portion of our expenses, including most product development,
selling and marketing expenses, must be incurred before revenue is generated. If
our projected revenue does not meet our expectations, we are likely to
experience a shortfall in our projected operating results. As a result, we
believe that period-to-period comparisons of our historical results of
operations are not necessarily meaningful and that you should not rely on them
as an indication of future performance. Also, our quarterly results of
operations have, on separate occasions, been below the expectations of public
market analysts and investors and the price of our ordinary shares subsequently
decreased. If this happens in the future, the price of our ordinary shares will
likely decrease again.
In addition, global stock markets have recently experienced and may
continue to experience significant price decreases and price and volume
fluctuations, which have particularly affected the market prices of the stocks
of high technology companies, Internet-related companies and Israeli companies,
including us.
FUTURE SALES OF OUR ORDINARY SHARES IN THE PUBLIC MARKET AND LOW TRADING
VOLUME COULD ADVERSELY AFFECT OUR SHARE PRICE. As of July 30, 2004 we had
25,354,151 ordinary shares issued and outstanding, which includes an aggregate
of 3,000,000 ordinary shares issuable to the Belzberg Family upon receipt of
shareholder approval (but excludes 48,750 ordinary shares that we have agreed to
issue as finder's fees in connection with the May and June 2004 private
placements, the issuance of which is subject to the approval of our board of
directors). Pursuant to the terms of the share purchase agreements of May and
June 2004, we are filing the registration statement of which this prospectus
constitutes a part for the registration of an aggregate of 6,218,750 ordinary
shares issued or issuable under such agreements (which includes an aggregate of
3,750,000 ordinary shares and ordinary shares underlying warrants immediately
exercisable in full and with a five-year term issuable to the Belzberg Family
upon receipt of shareholder approval and 2,468,750 ordinary shares and ordinary
shares underlying warrants held by certain other warrant-holders). In addition,
we are filing the registration statement of which this prospectus constitutes a
part for the registration of 48,750 ordinary shares and warrants exercisable for
12,188 ordinary shares that we have agreed to issue as finder's fees in
connection with the consummation of the May and June 2004 share purchase
agreements (the issuance of which is subject to the approval of our board of
directors), and 6,600,868 ordinary shares, 6,111,112 ordinary shares underlying
warrants and 450,098 ordinary shares underlying convertible loans held by
parties who have exercised rights to request that we include their shares in any
registration statement that we file. Registration of these shares would
generally result in these shares becoming freely tradable without restriction
immediately upon the effectiveness of such registration. Future sales of these
shares, or the perception that these sales could occur, could adversely affect
the market price of our shares. In addition, during the 12-month period ending
on July 15, 2004, we experienced a low trading volume of our ordinary shares
(consisting of a daily average of approximately 23,043 shares), and if one or a
small number of parties buys or sells a large number of our ordinary shares, we
may experience volatility in our share price and our share price may be
adversely affected.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES. If, for any taxable year, our
passive income, or our assets that produce passive income, exceed specified
levels, we may be characterized as a passive foreign investment company, or
PFIC, for U.S. federal income tax purposes. This characterization could result
in adverse U.S. tax consequences for our U.S. shareholders, which may include
having gains realized on the sale of our ordinary shares treated as ordinary
income, rather than as capital gains income, and having potentially punitive
interest charges apply to the proceeds of sales of our ordinary shares. We
believe we were not a PFIC for our fiscal year ended January 31, 2004. However,
the tests for determining PFIC status are applied annually and it is difficult
to make accurate predictions of future income and assets, which are relevant to
this decision. Accordingly, we may have been, for the fiscal year ended January
31, 2004, or may become in the future, a PFIC. For a more detailed discussion of
the consequences of our being classified as a PFIC, see Item 10.E. Additional
Information-Taxation-United States Federal Income Tax Considerations of our
annual report on Form 20-F for our fiscal year ended January 31, 2004, which is
incorporated herein by reference.
15
WE ARE SUBJECT TO RISKS ASSOCIATED WITH JOINT DEVELOPMENT PROJECTS. In the
past we have joined other companies in joint development projects, and we may
continue to do so in the future. We undertake certain risks when we enter these
joint development projects. These risks include:
o loss of control over the development of aspects of the jointly
developed product;
o loss of control over timing of any module/product introduction and
availability; and
o disputes concerning rights with respect to any technology used or
developed in the joint development process.
In addition, our joint development activities may not result in new
products or enhancements and any products or enhancements developed may not be
commercially successful.
IF OUR SHAREHOLDER APPROVE A RECENT INVESTMENT IN US BY CERTAIN RELATED
PARTIES, OUR CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS AND
HIS AFFILIATES WILL BENEFICIALLY OWN MORE THAN 60% OF OUR ORDINARY SHARES, AND
WILL THEREFORE BE ABLE TO EXERCISE CONTROL OVER ALL MATTERS REQUIRING
SHAREHOLDER APPROVAL, INCLUDING THE ELECTION OF DIRECTORS AND APPROVAL OF
SIGNIFICANT CORPORATE TRANSACTIONS. Assuming shareholder approval of the new
investment noted above by certain related parties, as of July 15, 2004, our
directors, executive officers and principal shareholders and their affiliates
beneficially owned approximately 65.6% of our outstanding ordinary shares.
Assuming such shareholder approval, the Belzberg Family will beneficially own,
immediately following such approval, more than 60% of our ordinary shares. As a
result, the Belzberg Family will be able to exercise control over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership could
delay or prevent proxy contests, mergers, tender offers, open-market purchase
programs or other purchases of our ordinary shares that might otherwise give you
the opportunity to realize a premium over the then-prevailing market price of
our ordinary shares. This concentration of ownership may also adversely affect
our share price.
WE ARE LOCATED IN THE STATE OF ISRAEL, WHICH ENTAILS VARIOUS SPECIAL RISKS.
We are incorporated under the laws of the State of Israel, and our principal
offices, manufacturing and research and development facilities are located in
Israel. Although most of our revenues are currently derived from sales made to
customers outside Israel, we are nonetheless influenced by political, economic
and military conditions affecting Israel. Any major hostilities involving Israel
or the interruption or curtailment of trade between Israel and its present
trading partners could have a material adverse effect on our operations. Since
September 2000, there has been an escalation of violence in the West Bank and
Gaza Strip and increased terrorist activity within Israel, causing a
deceleration of the Israeli economy. Furthermore, several countries restrict
business with Israeli companies. We could be adversely affected by further
set-backs to the peace process in the Middle East or by restrictive laws or
policies directed toward Israel or Israeli businesses.
We benefit from programs sponsored by the Government of Israel for the
support of research and development and marketing, as well as favorable tax
rates available to "Approved Enterprises" in Israel. To be eligible for these
programs and tax benefits, we must continue to meet certain conditions,
including reaching certain revenue and export levels. If we fail to meet these
conditions in the future, we could be required to refund tax benefits that we
expect to receive. In addition, the Government of Israel has reduced the
benefits available under a number of government-sponsored programs and has
indicated its intention to further reduce benefits in the future.
The termination or adverse modification of these programs or our inability
to take advantage of them would cause the costs of our operations in Israel to
materially increase and result in an adverse effect on the results of our
operations as a whole. To the extent that we increase our activities outside of
Israel, which could result from, among other things, future acquisitions, these
increased activities generally will not be eligible for benefit programs
sponsored by the State of Israel. Accordingly, the effective cost of our future
research and development activities in particular, and our operations in
general, could significantly increase.
16
Additionally, all nonexempt male adult citizens of Israel are obligated to
perform military reserve duty. Some of our officers and employees are currently
obligated to perform annual reserve duty. Furthermore, all these persons are
subject to being called to active duty at any time under emergency
circumstances. Although we have operated without any material disruption under
these requirements since we began operations, we cannot assess the full impact
of these requirements on our workforce or business if conditions should change,
and we cannot predict the effect on us of any expansion or reduction of these
obligations.
PROVISIONS OF ISRAELI LAW COULD DELAY, PREVENT OR MAKE DIFFICULT A CHANGE
OF CONTROL AND THEREFORE DEPRESS THE PRICE OF OUR SHARES. The Companies Law
generally requires that a merger be approved by the board of directors and a
majority of the shares voting on the proposed merger. Unless a court rules
otherwise, the merger will not be deemed approved if a majority of the shares
held by parties other than the other party to the merger (or by any person who
holds 25% or more of the shares or the right to appoint 25% or more of the
directors of the other party) vote against the merger. Upon the request of any
creditor of a party to the proposed merger, a court may delay or prevent the
merger if it concludes that there is a reasonable concern that, as a result of
the merger, the surviving company will be unable to satisfy its obligations.
Finally, a merger may not be completed unless at least 70 days have passed since
the filing of the merger proposal with the Israeli Registrar of Companies.
In certain circumstances an acquisition of shares in a public company must
be made by means of a tender offer if, as a result of the acquisition, the
purchaser would become a 25% or 45% shareholder of the company (unless there is
already a 25% or a majority shareholder of the company, respectively). If, as a
result of an acquisition, the acquirer would hold more than 90% of a company's
shares, the acquisition must be made by means of a tender offer for all of the
shares. The described restrictions could prevent or make more difficult an
acquisition of our company, which could depress our share price.
Also, Israel tax law treats some acquisitions, such as stock-for-stock
exchanges between an Israeli company and a foreign company, less favorably than
U.S. tax laws. For example, Israeli tax law may, under certain circumstances,
subject a shareholder who exchanges his ordinary shares for shares in another
corporation, to taxation prior to the sale of the shares received in such
stock-for-stock swap.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US OR OUR OFFICERS
AND DIRECTORS, TO ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL AND TO SERVE
PROCESS ON SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS. We are incorporated
in Israel. Most of our executive officers and directors are nonresidents of the
United States, and a substantial portion of the assets of these persons is
located outside the United States. It may be difficult for an investor, or any
other person or entity, to enforce a U.S. court judgment based upon the civil
liability provisions of U.S. federal securities laws in an Israeli court or to
effect service of process upon these persons. Additionally, it may be difficult
for an investor, or any other person or entity, to enforce civil liabilities
under U.S. federal securities laws in original actions instituted in Israel.
YOUR RIGHTS AND RESPONSIBILITIES AS A SHAREHOLDER WILL BE GOVERNED BY
ISRAELI LAW AND DIFFER IN SOME RESPECTS FROM THE RIGHTS AND RESPONSIBILITIES OF
SHAREHOLDERS UNDER U.S. LAW. We are incorporated under Israeli law. The rights
and responsibilities of holders of our ordinary shares are governed by our
memorandum of association, our articles of association and by Israeli law. These
rights and responsibilities differ in some respects from the rights and
responsibilities of shareholders in typical U.S. corporations. In particular, a
shareholder of an Israeli company has a duty to act in good faith toward the
company and other shareholders and to refrain from abusing his power in the
company, including, among other things, in voting at the general meeting of
shareholders on certain matters. See Item 6. Management - Board Practices -
Approval of Specified Related Party Transactions Under Israeli Law - Shareholder
Duties of our annual report on Form 20-F for our fiscal year ended January 31,
2004, which is incorporated herein by reference, for additional information
concerning this duty.
17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates historical information and
"forward-looking statements," within the meaning of the federal securities laws.
Statements looking forward in time are included in this prospectus pursuant to
the "safe harbor" provision of the private securities litigation reform act of
1995. They involve known and unknown risks and uncertainties that may cause our
actual results in future periods to be materially different from any future
performance suggested herein, including all of the risks and uncertainties
discussed under "Risk Factors" and elsewhere in this prospectus. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements and you should therefore not
rely on these forward-looking statements, which are applicable only as of the
date hereof.
Statements that use the terms "believe," "anticipate," "expect," "plan,"
"intend," "estimate," "anticipate," "project" and similar expressions in the
affirmative and the negative are intended to identify forward-looking
statements. These statements reflect our current views with respect to future
events and are based on current assumptions, expectations, estimates and
projections about our business and the markets in which we operate and are
subject to risks and uncertainties. Actual events (including our results) could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including the risks discussed in "Risk Factors"
above, elsewhere in this prospectus and in the documents we are incorporating
into this prospectus and registration statement by reference. Except as required
by applicable law, including the securities laws of the United States, we do not
undertake any obligation nor intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
and we disclaim any obligation to publicly revise any such statements to reflect
any change in expectations or in events, conditions, or circumstances on which
any such statements may be based.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-3 under
the Securities Act of 1933, as amended, or the Securities Act, with respect to
the securities offered by this prospectus. However, as is permitted by the rules
and regulations of the SEC, this prospectus, which is part of our registration
statement on Form F-3, omits certain non-material information, exhibits,
schedules and undertakings set forth in the registration statement. For further
information about us, and the securities offered by this prospectus, please
refer to the registration statement.
We are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, that are applicable to a foreign
private issuer. In accordance with the Exchange Act, we file reports, including
annual reports on Form 20-F, within 180 days after the end of our fiscal year.
We also furnish to the SEC under cover of Form 6-K material information required
to be made public in Israel, filed with and made public by any stock exchange or
distributed by us to our shareholders.
The registration statement on Form F-3 of which this prospectus forms a
part, including the exhibits and schedules thereto, and reports and other
information filed by us with the SEC, may be inspected without charge and copied
at prescribed rates at the SEC's Public Reference Room at 450 Fifth Street, NW.,
Washington, D.C. 20549. Copies of this material are also available by mail from
the Public Reference Section of the SEC, at 450 Fifth Street, N.W., Washington
D.C. 20549, at prescribed rates. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers, such as us, that file
electronically with the SEC (http://www.sec.gov).
18
As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements to
shareholders. In addition, our officers, directors and principal shareholders
are exempt from the "short-swing profits" reporting and liability provisions
contained in Section 16 of the Exchange Act and related Exchange Act rules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with or submit to it, which means that we can disclose important information to
you by referring to those documents. The information incorporated by reference
is considered to be part of this prospectus, and later information filed with or
submitted to the SEC will update and supersede this information. We incorporate
by reference into this prospectus the documents listed below:
(a) Our annual report on Form 20-F for the fiscal year ended January 31,
2004, filed with the SEC on July 30, 2004 (SEC File No. 1-14842), as
may be amended from time to time;
(b) Our current reports on Form 6-K, submitted to the SEC on February 3,
2004, March 5, 2004, April 5, 2004, June 2, 2004 and June 22, 2004;
and
(c) The description of our ordinary shares set forth in the Prospectus
dated July 7, 1998, contained in our registration statement on Form
F-1 (No. 333-8830) filed with the SEC on July 7, 1998, including any
other amendment or report filed for the purpose of updating such
description.
In addition, all subsequent annual reports on Form 20-F, Form 40-F or 10-K,
and all of our subsequent filings on Form 10-Q and 8-K filed by us pursuant to
the Exchange Act, prior to the termination of the offering, and any reports on
Form 6-K subsequently submitted to the SEC or portions thereof that we
specifically identify in such forms as being incorporated by reference into the
registration statement of which this prospectus forms a part, shall be
considered to be incorporated into this prospectus by reference and shall be
considered a part of this prospectus from the date of filing or submission of
such documents.
As you read the above documents, you may find inconsistencies in
information from one document to another. If you find inconsistencies between
the documents and this prospectus, you should rely on the statements made in the
most recent document.
We will deliver to each person (including any beneficial owner) to whom
this prospectus has been delivered a copy of any or all of the information that
has been incorporated by reference into this prospectus but not delivered with
this prospectus. We will provide this information upon written or oral request,
and at no cost to the requester. Requests should be directed to:
e-SIM Ltd.
19 Hartum Street, Jerusalem 91450
Israel
Tel.: (+972) 2-587-0770
Fax: (+972) 2-587-0773
Attn.: Yaron Eldad
Chief Financial Officer and Chief Operating Officer
19
USE OF PROCEEDS
The selling shareholders will receive all of the proceeds from the ordinary
shares sold pursuant to this prospectus and we will not receive any proceeds
from the sale of the ordinary shares by the selling shareholders. If (i) the
issuance of warrants to purchase 750,000 ordinary shares to the Belzberg Family
is approved by our shareholders and the issuance of warrants to purchase 12,188
ordinary shares as finder's fees in connection with the May and June 2004
private placements is approved by our board of directors, and (ii) all of the
warrants for ordinary shares offered for resale hereunder are exercised in full,
we would realize proceeds, before expenses, in the amount of $4,241,954. The net
proceeds of the exercise of the warrants will be used for working capital and
general corporate purposes.
SELLING SHAREHOLDERS
The selling shareholders, including their transferees, pledgees, donees and
any of their successors in interest may, from time to time, offer and sell the
ordinary shares covered by this prospectus. The ordinary shares and the warrants
to purchase ordinary shares were issued to the selling shareholders pursuant to
the transactions described below.
SHARE PURCHASE AGREEMENTS ENTERED INTO IN MAY AND JUNE 2004 AND RELATED
FINDER'S FEES. During May and June 2004, we entered into share purchase
agreements with certain investors pursuant to which we agreed to issue 4,975,000
of our ordinary shares at a price per share of $0.50 and warrants to purchase
1,243,750 of our ordinary shares at a price per share of $0.75, for an aggregate
purchase price of $2,487,500. Each of the warrants is immediately exercisable in
full and has a five-year term. We agreed with the recipients of our ordinary
shares and warrants to register for public resale all of the ordinary shares
issued to them in the private placements and all of the ordinary shares issuable
to them upon exercise of the warrants.
Pursuant to the terms of the share purchase agreements, we agreed to
prepare and file with the SEC a registration statement on Form F-3, to enable
the resale by the investors in such share purchase agreements from time to time
on the OTCBB of the shares issued to them and the sale of the shares underlying
the warrants issued to them as described above. We also agreed to use reasonable
commercial efforts to cause such registration statement, among other things, to
remain continuously effective until the earlier of (i) the date on which all of
the shares issued and shares underlying warrants issued to the selling
shareholders as described above have been sold hereunder or (ii) the date on
which all of the shares issued and shares underlying warrants issued to the
selling shareholders as described above can be sold by holders thereof pursuant
to Rule 144(k) promulgated under the Securities Act.
The investors in such share purchase agreements agreed that we may (i)
suspend sales of the ordinary shares registered hereunder after this
registration statement is declared effective by the SEC and (ii) require that
the selling shareholders cease the sale of such ordinary shares if we are
engaged in a merger, acquisition or sale, private or public offering or similar
event and our board of directors determines in good faith that, as a result of
such activity, (A) it would be materially detrimental to us to maintain a
registration statement at such time or (B) it is in our best interest to defer
proceeding with such registration at such time.
Of the shares and the shares underlying warrants issuable pursuant to the
foregoing share purchase agreements and registered hereunder, 3,000,000 ordinary
shares and warrants to purchase 750,000 ordinary shares are to be issued to Marc
Belzberg, our chairman, chief executive officer and one of our major
shareholders, Lisa Belzberg (Marc Belzberg's sister), and an entity controlled
by Samuel Belzberg, one of our directors and Marc Belzberg's father, all of whom
are "related parties", as such term is defined in the Companies Law. Under the
Companies Law, the issuance to such selling shareholders of ordinary shares and
warrants to purchase ordinary shares is subject to the approval of our
shareholders. We plan to submit the issuance of shares and warrants to these
selling shareholders for shareholder approval by November 2004. Such selling
shareholders have agreed not to sell any of the ordinary shares registered for
their accounts hereunder until, and subject to, the approval by our shareholders
of the issuance to them of the foregoing ordinary shares and warrants to
purchase ordinary shares.
20
In connection with the consummation of the foregoing transactions in May
and June 2004, we agreed to issue 48,750 ordinary shares and warrants to
purchase 12,188 at an exercise price per share of $0.75 to two persons as
finder's fees. Such issuance is subject to the approval of our board of
directors.
SMITHFIELD INVESTMENTS B.V. Pursuant to a securities purchase agreement
entered into with Smithfield Investments B.V., or Smithfield, an entity
controlled by Marc Belzberg, in December 1999, Smithfield is the beneficial
holder of 250,000 ordinary shares issued to it under such agreement. These
ordinary shares are being registered for resale hereunder.
Smithfield is the beneficial holder of 5,555,556 ordinary shares that were
issued to it in January 2004 upon conversion of a loan extended to us by
Smithfield in July 2003 and has the right to purchase up to 5,555,556 ordinary
shares upon exercise of a warrant issued to Smithfield at the time of conversion
of the loan. Such issued ordinary shares and ordinary shares issuable upon the
exercise of the warrant are being registered for resale hereunder.
VERTICAL VENTURES, LLC. Vertical Ventures is the beneficial owner of
555,556 ordinary shares issuable to it pursuant to the conversion of a loan
extended to us by Vertical Ventures in July 2003 and has the right to purchase
up to 555,556 ordinary shares issued to it at the time of conversion of the
loan. Such ordinary shares and the ordinary shares underlying the foregoing
warrant are being registered for resale hereunder.
ISRAELI BANKS. Israel Discount Bank Ltd. is the beneficial holder of
239,756 ordinary shares issued to it upon a conversion of a loan extended to us
by the bank, and holds a debenture convertible into 130,336 ordinary shares,
which we issued to it in connection with a loan extended to us by the bank in
2000. The Industrial Development Bank of Israel Ltd. holds a debenture
convertible into 319,762 ordinary shares, which we issued to it in connection
with a loan extended to us by the bank in 2000. We are registering for resale
all of the ordinary shares beneficially held by, and all of the ordinary shares
that may be issued upon conversion of the convertible debenture issued to,
Israel Discount Bank Ltd. We are also registering for resale 220,000 ordinary
shares out of the 319,762 ordinary shares that may be issued to the Industrial
Development Bank of Israel Ltd. upon conversion of the convertible debenture
issued to it.
The following table presents information with respect to the beneficial
ownership of our ordinary shares by each selling shareholder and the number of
shares that may be offered for sale pursuant to this prospectus by each such
selling shareholder. This information was compiled from information provided to
us by or on behalf of the selling shareholders with respect to their holdings.
The amounts set forth may have increased or decreased since the date such
information was provided. Our registration of these shares does not necessarily
mean that the selling shareholders will sell any or all of the registered
shares. Since the selling shareholders may sell all or part of their shares and
such offerings are not being underwritten on a firm commitment basis, no
estimate can be given as to the number of shares that will be held by any
selling shareholder upon termination of any offering made hereby.
21
Number of
Shares
Underlying
Warrants or
Number of Convertible
Shares Percent of Loans to be
Beneficially Outstanding Number of Shares to Offered for the
Name and Address of Owned Prior to Shares Prior to be Offered for the Selling
Selling shareholder offering (1) offering (2) Selling Shareholders Shareholders
- ------------------- ------------ ------------ -------------------- ------------
Michael Weinberger
1327 Wellington
Avenue
Teaneck, NJ 07666 62,500 (3) 50,000 12,500(4)
KZ Limited
c/o Euro Dutch Trust
Company
Charlotte House
Charlotte Street
PO Box N9204
Nassau, Bahamas 218,750(5) (3) 175,000 43,750(4)
JBE Limited
c/o Euro Dutch Trust
Company
Charlotte House
Charlotte Street
PO Box N9204
Nassau, Bahamas 218,750(5) (3) 175,000 43,750(4)
Semamor Enterprises
289 Long Oak Drive
Chicago, IL 60185 500,000(6) 2.0% 400,000 100,000(4)
Iroquois Capital LP
641 Lexington Avenue,
26th Floor
New York, NY 10022 250,000(7) 1.0% 200,000 50,000(4)
Chaim Cymerman
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 76,250 (3) 61,000 15,250(4)
22
Number of
Shares
Underlying
Warrants or
Number of Convertible
Shares Percent of Loans to be
Beneficially Outstanding Number of Shares to Offered for the
Name and Address of Owned Prior to Shares Prior to be Offered for the Selling
Selling shareholder offering (1) offering (2) Selling Shareholders Shareholders
- ------------------- ------------ ------------ -------------------- ------------
AFIK Holdings SPRL
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 125,000(8) (3) 100,000 25,000(4)
Sara Ehrmann
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 125,000 (3) 100,000 25,000(4)
Benjamin Kedar
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 55,000 (3) 44,000 11,000(4)
Eran Bar Gil
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 50,000 (3) 40,000 10,000(4)
I.D. Megiddo
Investment and Trade
Ltd.
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 37,500(9) (3) 30,000 7,500(4)
23
Number of
Shares
Underlying
Warrants or
Number of Convertible
Shares Percent of Loans to be
Beneficially Outstanding Number of Shares to Offered for the
Name and Address of Owned Prior to Shares Prior to be Offered for the Selling
Selling shareholder offering (1) offering (2) Selling Shareholders Shareholders
- ------------------- ------------ ------------ -------------------- ------------
Irit Lifshitz
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 25,000 (3) 20,000 5,000(4)
Avishai Ben Yishai
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 25,000 (3) 20,000 5,000(4)
Tobi Ephraim
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 25,000 (3) 20,000 5,000(4)
Rina Ephraim
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 35,000 (3) 28,000 7,000(4)
KRSL Investments
Management Ltd.
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 190,000(10) (3) 152,000 38,000(4)
24
Number of
Shares
Underlying
Warrants or
Number of Convertible
Shares Percent of Loans to be
Beneficially Outstanding Number of Shares to Offered for the
Name and Address of Owned Prior to Shares Prior to be Offered for the Selling
Selling shareholder offering (1) offering (2) Selling Shareholders Shareholders
- ------------------- ------------ ------------ -------------------- ------------
Yoram Levinson
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 187,500 (3) 150,000 37,500(4)
Dalia Rivka Ravnof
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 62,500 (3) 50,000 12,500(4)
Jacob Sabo
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 125,000 (3) 100,000 25,000(4)
Eisenberg O
Management and
Consulting Ltd.
c/o Investscape
81 Sokolov Street
Ramat Hasharon, 47238
Israel 75,000(11) (3) 60,000 15,000(4)
Gibralt Capital
Corporation
2000-1177 West
Hastings Street
Vancouver, BC V6E 2K3
Canada 2,802,566(12) 10.9% 1,000,000 250,000(4)
25
Number of
Shares
Underlying
Warrants or
Number of Convertible
Shares Percent of Loans to be
Beneficially Outstanding Number of Shares to Offered for the
Name and Address of Owned Prior to Shares Prior to be Offered for the Selling
Selling shareholder offering (1) offering (2) Selling Shareholders Shareholders
- ------------------- ------------ ------------ -------------------- ------------
Lisa Belzberg
121 West 81st Street
New York, NY 10024 1,250,000(13) 4.9% 1,000,000 250,000(4)
Marc Belzberg
20 Uzia Street
Jerusalem, Israel 1,291,000(14) 5.0% 1,000,000 250,000(4)
Tomer Zimmerman
10 Paamoni Street
Tel-Aviv 62918
Israel 48,750(15) (3) 48,750 0
Shlomo Talitman
81 Sokolov Street
Ramat Hasharon 47238
Israel 12,188(15) (3) 0 12,188(4)
Smithfield
Investments B.V
1725 Strawinskylaan
Amsterdam
Holland 14,295,916(16) 46.2% 5,805,556 5,555,556(17)
Israel Discount Bank
Ltd.
27Yehuda Halevy Street
Tel Aviv
Israel 370,092(18) 1.2% 239,756 130,336
26
Number of
Shares
Underlying
Warrants or
Number of Convertible
Shares Percent of Loans to be
Beneficially Outstanding Number of Shares to Offered for the
Name and Address of Owned Prior to Shares Prior to be Offered for the Selling
Selling shareholder offering (1) offering (2) Selling Shareholders Shareholders
- ------------------- ------------ ------------ -------------------- ------------
Industrial
Development Bank of
Israel Ltd.
Beit Ofakim
82 Menachem Begin Road
Tel Aviv
Israel 319,762(19) 1.2% 0 220,000
Vertical Ventures, LLC
641 Lexington Avenue,
26th Floor
New York, NY 10022 1,111,112(20) 4.3% 555,556 555,556
- ----------
Except as otherwise noted and pursuant to applicable community property laws,
each person or entity named in the table has sole voting and investment power
with respect to all ordinary shares listed as owned by that person or entity.
(1) Includes ordinary shares underlying currently exercisable warrants or
convertible loans in the amounts set forth under the column headed "Number
of Shares Underlying Warrants or Convertible Loans to be Offered for the
Selling Shareholders".
(2) Based on 25,402,901 ordinary shares outstanding as of July 30, 2004, which
number assumes (i) the approval by our shareholders of the issuance to Marc
Belzberg, Gibralt Capital Corporation and Lisa Belzberg of an aggregate of
3,000,000 ordinary shares and, with the holding percentage of each of such
persons, also the approval by our shareholders of the issuance to such
persons of warrants to purchase 750,000 ordinary shares and (ii) the
approval by our board of directors of the issuance of 48,750 ordinary
shares as finder's fees in connection with the May and June 2004 private
placements.
(3) Less than 1%.
(4) The exercise price of such warrants is $0.75 per ordinary share.
(5) Anthony L.M. Inder Rieden has voting and/or investment control over this
selling shareholder.
(6) Morris Belzberg has voting and/or investment control over this selling
shareholder.
(7) Joshua Silverman has voting and/or investment control over this selling
shareholder.
(8) Yoram Ben Porat has voting and/or investment control over this selling
shareholder.
(9) David Megiddo and Issac Megiddo have voting and/or investment control over
this selling shareholder.
(10) Ilan Shely and Naftali Ehrenfreund have voting and/or investment control
over this selling shareholder.
(11) Ofer Eisenberg has voting and/or investment control over this selling
shareholder.
27
(12) Samuel Belzberg, one of our directors and the father of Marc Belzberg,
chairman of our board of directors, our chief executive officer and a major
shareholder, has voting and/or investment control over this selling
shareholder. The issuances to this selling shareholder of 1,000,000 shares
and warrants to purchase 250,000 ordinary shares has not yet been approved
by our shareholders. If such issuance is approved by our shareholders, this
selling shareholder will hold more than 10% of our outstanding ordinary
shares.
(13) Lisa Belzberg is the sister of Marc Belzberg, chairman of our board of
directors, our chief executive officer and a major shareholder. The
issuances to this selling shareholder of 1,000,000 shares and warrants to
purchase 250,000 ordinary shares has not yet been approved by our
shareholders.
(14) Includes 41,000 ordinary shares underlying currently exercisable options
not included in this prospectus and the registration statement of which
this prospectus is a part. The issuances to this selling shareholder of
1,000,000 shares and warrants to purchase 250,000 ordinary shares has not
yet been approved by our shareholders.
(15) Assumes approval by our board of directors of the issuance of 48,750
ordinary shares and warrants to purchase 12,188 ordinary shares as finder's
fees in connection with the May and June 2004 private placements.
(16) This selling shareholder is a wholly owned subsidiary of Bellevue. Solomon
Spira, the father-in-law of Marc Belzberg, chairman of our board of
directors, our chief executive officer and a major shareholder, holds all
of the voting rights and 10% of the economic rights (e.g., rights to
distributions and liquidation proceeds) of Bellevue. Marc Belzberg holds
90% of the economic rights (but none of the voting rights) of Bellevue.
(17) The exercise price of such warrants is $0.54 per ordinary share
(18) Includes 75,000 ordinary shares issuable upon the conversion of a debenture
with an exercise price of $0.85 per ordinary share and 55,336 ordinary
shares issuable upon the conversion of a debenture with an exercise price
of $4.00 per ordinary share.
(19) Includes 110,000 ordinary shares issuable upon the conversion of a
debenture with an exercise price of $0.90 per ordinary share and 110,000
ordinary shares issuable upon the conversion of a debenture with an
exercise price of $0.70 per ordinary share. Also includes 99,762 ordinary
shares issuable upon the conversion of a debenture with an exercise price
of $4.21 per ordinary share, which are not registered hereunder.
(20) Includes 555,556 ordinary shares underlying a currently exercisable warrant
at an exercise price of $0.54 per ordinary share.
PLAN OF DISTRIBUTION
The selling shareholders may sell their shares on the OTCBB after the
registration statement of which this prospectus forms a part is declared
effective. The selling shareholders and their successors, including their
permitted transferees, pledgees or donees or their successors, may sell the
ordinary shares directly to purchasers or through underwriters, broker-dealers
or agents, who may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders or the purchasers. These discounts,
concessions or commissions as to any particular underwriter, broker-dealer or
agent may be in excess of those customary in the types of transactions involved.
The shares covered by this prospectus to be sold from time to time by the
selling shareholders may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the time of sale, or
at negotiated prices. These sales may be effected in transactions:
o on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the ordinary
shares may be listed or quoted at the time of sale, although at
present our ordinary shares are not listed on any such market;
o in the over-the-counter market;
28
o in private transactions;
o through options or other derivative instruments;
o by pledge to secure debts and other obligations;
o through block transactions;
o any other legally available means; or
o a combination of any of the above transactions.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.
The selling shareholders may either sell shares directly to purchasers, or
sell shares to, or through, broker-dealers. These broker-dealers may act either
as an agent of the selling shareholders, or as a principal for the
broker-dealer's own account. These transactions may include transactions in
which the same broker-dealer acts as an agent on both sides of the trade. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders and/or the purchasers of the shares.
This compensation may be received both if the broker-dealer acts as an agent or
as principal. This compensation might also exceed customary commissions.
If any selling shareholder notifies us that any material arrangement has
been entered into with a broker-dealer for the sale of shares through:
o a block trade,
o a special offering,
o an exchange distribution or secondary distribution, or
o a purchase by a broker or dealer,
then we will file, if required, a supplement to this prospectus under Rule
424(b) of the Securities Act.
The supplement will disclose, to the extent required:
o the names of the selling shareholders and of the participating
broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
o any other fact material to the transaction.
Selling shareholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of the ordinary shares and deliver the ordinary shares to close out
short positions, or loan or pledge the ordinary shares to broker-dealers that in
turn may sell these securities.
In order to comply with the securities laws of some jurisdictions, if
applicable, the holders of ordinary shares may sell in some jurisdictions
through registered or licensed broker-dealers. If broker-dealers are used in the
sale, unless otherwise indicated in a prospectus supplement with respect to the
securities being offered thereby, the selling security holder will sell such
securities to the broker-dealers as principals. The broker-dealers may then
resell such securities to the public at varying prices to be determined by such
broker-dealers at the time of resale.
29
The selling shareholders and any underwriters, broker-dealers or agents
that participate in the sale or distribution of the ordinary shares may be
deemed "underwriters" within the meaning of Section 2(11) of the Securities Act.
Any discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by a selling shareholder. The
selling shareholders may agree to indemnify any agent, dealer or broker-dealer
who participates in transactions involving sales of the shares if liabilities
are imposed on that person under the Securities Act.
The selling shareholders may from time to time pledge or grant a security
interest in some or all of the ordinary shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the ordinary shares from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list
of selling shareholders to include the pledgee, transferee or other successors
in interest as selling shareholders under this prospectus.
The selling shareholders also may transfer the ordinary shares in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the ordinary shares from time to time under this prospectus after
we have filed an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus.
In connection with such sales, the selling shareholders and any
participating broker may be deemed to be "underwriters" of the shares within the
meaning of Section 2(11) of the Securities Act, although the offering of these
securities may not be underwritten by a broker-dealer firm. If a selling
shareholder qualifies as an "underwriter" under the Securities Act and the rules
and regulations and interpretations thereunder, such selling shareholder will be
subject to the prospectus delivery requirements of the Act. Such broker-dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the selling shareholders. Any such commissions and profits
realized on any resale of the shares might be deemed to be underwriting
discounts and commissions under the Securities Act. Sales in the market may be
made to broker-dealers making a market in the ordinary shares or other
broker-dealers, and such broker-dealers, upon their resale of such securities,
may be deemed to be underwriters in this offering.
Under the Exchange Act, any person engaged in the distribution of shares
may not simultaneously engage in market making activities with respect to our
ordinary shares for a period of up to 5 business days prior to the commencement
of such distribution, subject to specified exceptions or exemptions. In
addition, the selling shareholders will be subject to the applicable provisions
of the Exchange Act, including Regulation M, which may restrict certain
activities and limit the timing of purchases and sales of ordinary shares by the
selling shareholders or any other such persons. These restrictions may affect
the marketability of the shares and the ability of any person or entity to
engage in market-making activities with respect to the shares.
In order to comply with the securities laws of some jurisdictions, if
applicable, the ordinary shares must be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the ordinary shares may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
30
Pursuant to the terms of the share purchase agreements into which we
entered with certain of the selling shareholders in May and June 2004, we agreed
to prepare and file with the SEC a registration statement on Form F-3, to enable
the resale by such selling shareholders from time to time on the OTCBB of the
shares issued to them and the shares underlying the warrants issued to them. We
also agreed to use reasonable commercial efforts to cause such registration
statement, among other things, to remain continuously effective until the
earlier of (i) the date on which all of the shares issued and shares underlying
warrants issued to such selling shareholders have been sold hereunder or (ii)
the date on which all of the shares issued and shares underlying warrants issued
to such selling shareholders can be sold by holders thereof pursuant to Rule
144(k) promulgated under the Securities Act. These selling shareholders have
agreed that we may (i) suspend sales of the ordinary shares registered hereunder
after this registration statement is declared effective by the SEC and (ii)
require that such selling shareholders cease the sale of such ordinary shares if
we are engaged in a merger, acquisition or sale, private or public offering or
similar events and our board of directors determined in good faith that, as a
result of such activity, (A) it would be materially detrimental to us to
maintain a registration statement at such time or (B) it is in our best interest
to defer proceeding with such registration at such time.
Of the shares issued and shares underlying warrants issued pursuant to the
foregoing share purchase agreements and registered hereunder, 3,000,000 ordinary
shares and warrants to purchase 750,000 ordinary shares are issuable to Marc
Belzberg and Lisa Belzberg and to an entity controlled by Samuel Belzberg, all
of whom are "related parties", as such term is defined in the Companies Law.
Under the Companies Law, the issuance to such selling shareholders of ordinary
shares and warrants to purchase ordinary shares is subject to the approval of
our shareholders. We plan to submit the issuance of shares and warrants to these
selling shareholders for shareholder approval by November 2004. Such selling
shareholders have agreed not to sell any of the ordinary shares registered for
their accounts hereunder until, and subject to, the approval by our shareholders
of the issuance to them of the foregoing ordinary shares and warrants to
purchase ordinary shares.
We will make copies of this prospectus available to the selling
shareholders and have informed the selling shareholders of the need for delivery
of a copy of this prospectus to each purchaser of the ordinary shares prior to
or at the time of such sale.
The aggregate proceeds to the selling shareholders from the sale of the
ordinary shares registered hereunder will be the purchase price of the ordinary
shares less any discounts and commissions, if applicable. A selling shareholder
reserves the right to accept and, together with its agents, to reject, any
proposed purchase of ordinary shares to be made directly or through agents. We
will not receive any of the proceeds from the resale of these securities by the
selling shareholders. We will, however, receive cash consideration in connection
with the exercise of the warrants.
If required, the ordinary shares to be sold, the names of the selling
shareholders, the respective purchase prices and public offering prices, the
names of any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
To the extend required, we will use our best efforts to file one or more
supplements to this prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this prospectus or any
material change to such information.
VALIDITY OF SECURITIES
The validity of the ordinary shares offered in this offering, including the
ordinary shares underlying warrants or debentures will be passed upon for us by
Elchanan Landau Law Offices, Jerusalem, Israel, our Israeli counsel.
EXPERTS
Our consolidated financial statements appearing in our annual report (Form
20-F) for the year ended January 31, 2004 and incorporated by reference in this
prospectus and registration statement, have been audited by Kost Forer Gabbay &
Kasierer, independent registered public accounting firm, a member of Ernst &
Young Global, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
31
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of
process upon us, our directors and executive officers, the Israeli experts named
in this prospectus and the selling shareholders, most of whom reside outside the
United States, will be difficult to obtain within the United States.
Furthermore, because substantially all of our assets and the assets of these
persons are located outside the United States, any judgment obtained in the
United States against us or any of these persons will be difficult to collect
outside those countries.
We have been informed by our legal counsel in Israel, Elchanan Landau Law
Offices, that there is doubt as to the enforceability of civil liabilities under
the Securities Act and the Exchange Act in original actions instituted in
Israel. However, subject to certain time limitations, Israeli courts may enforce
a final executory judgment of a foreign court in civil matters including
judgments based upon the civil liability provisions of the Securities Act and
the Exchange Act and including a monetary or compensatory judgment in a
non-civil matter, provided that:
o the judgment is enforceable in the state in which it was given;
o the judgment is 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;
o the foreign court is not prohibited by law from enforcing judgments of
Israeli courts;
o adequate service of process has been effected and the defendant has
had a reasonable opportunity to be heard and to present his evidence;
o the judgment and the enforcement of the civil liabilities are not
contrary to the law, public policy, security or sovereignty of the
State of Israel;
o the judgment was not obtained by fraud and does not conflict with any
other valid judgment in the same matter between the same parties;
o 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
o the obligations under the judgment are enforceable according to the
laws of the State of Israel.
We have irrevocably appointed e-SIM Inc. as our agent to receive service of
process in any action against us in any competent court of the United States
arising out of this offering or any purchase or sale of securities in connection
with this offering.
Foreign judgments enforced by Israeli courts are generally payable in
Israeli currency, which can then be converted into non-Israeli currency and
transferred out of Israel. The usual practice in an action before an Israeli
court to recover an amount in a non-Israeli currency is for the Israeli court to
issue a judgment for the equivalent amount in Israeli currency at the rate of
exchange in force on the date of the judgment, but the judgment debtor may make
payment in foreign currency. Pending collection, the amount of the judgment of
an Israeli court stated in Israeli currency ordinarily will be linked to the
Israeli consumer price index plus interest at an annual statutory rate set by
Israeli regulations prevailing at the time or linked to the foreign currency in
which judgment has been given, plus interest at such rates as the court may
determine appropriate. If the judgment debt is linked to the Israeli consumer
price index, judgment creditors must bear the risk of unfavorable exchange
rates.
32
UP TO 19,342,004 ORDINARY SHARES
E-SIM LTD.
-------------------
PROSPECTUS
-------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 8. Indemnification of Directors and Officers.
Under the Companies Law, an Israeli company may only exculpate an office
holder in advance, in whole or in part, for breach of duty of care and only if a
provision authorizing such exculpation is included in its articles of
association. Our articles of association include such a provision. A company may
not exculpate an office holder for breach of duty of loyalty. However, the
company may approve an act performed in breach of the duty of loyalty of an
office holder provided that the office holder acted in good faith, the act or
its approval does not harm the company, and the office holder discloses the
nature of his or her personal interest in the act and all material facts and
documents a reasonable time before discussion of the approval.
Under the Companies Law, an Israeli company may indemnify an office holder
in respect of certain liabilities either in advance of an event or following an
event provided a provision authorizing such indemnification is inserted in its
articles of association. Advance indemnification of an office holder must be
limited to foreseeable liabilities and reasonable amounts determined by the
board of directors. A company may indemnify an office holder against the
following liabilities incurred for acts performed as an office holder:
o a financial liability imposed on him in favor of another person
pursuant to a judgment, settlement or arbitrator's award approved by
court; and
o reasonable litigation expenses, including attorneys' fees, incurred by
the office holder or imposed by a court in proceedings instituted
against him by the company, on its behalf or by a third party, in
connection with criminal proceedings in which the office holder was
acquitted or as a result of conviction for a crime that does not
require proof of criminal intent.
A company may insure an office holder against the following liabilities
incurred for acts performed as an office holder:
o a breach of duty of loyalty to the company, to the extent that the
office holder acted in good faith and had a reasonable basis to
believe that the act would not prejudice the company;
o a breach of duty of care to the company or to a third party; and
o a financial liability imposed on the office holder in favor of a third
party.
An Israeli company may not indemnify or insure an office holder against any
of the following:
o a breach of duty of loyalty, except to the extent that the office
holder acted in good faith and had a reasonable basis to believe that
the act would not prejudice the company;
o a breach of duty of care committed intentionally or recklessly;
o an act or omission committed with intent to derive illegal personal
benefit; or
o a fine levied against the office holder.
Under the Companies Law, indemnification and insurance of office holders
must be approved by our audit committee and our board of directors and, in
specified circumstances, by our shareholders.
Our articles of association provide that we may indemnify and insure our
office holders to the fullest extent permitted by the Companies Law. Our office
holders are currently covered by a directors and officers' liability insurance
policy for certain claims.
II-1
Item 9. Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
4.1 --Specimen share certificate, incorporated herein by reference to the
Registrant's Registration Statement on Form F-1 (Registration No.
333-8830), filed with the SEC on July 7, 1998.
4.2 --Share Purchase Agreement, dated as of June 4, 2004 by and among
certain investors and the Registrant (including form of warrant issued
to such investors), incorporated herein by reference to Exhibit 4.27
to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2004.
4.3 -- Loan agreement dated July 31, 2003, between the Registrant and
Smithfield Investments B.V., incorporated herein by reference to
Exhibit 4.17 to the Registrant's Annual Report on Form 20-F for the
year ended January 31, 2003.
4.4 -- Loan agreement dated July 31, 2003, between the Registrant and
Vertical Ventures LLC, incorporated herein by reference to Exhibit
4.20 to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2004.
4.5 -- Convertible Debenture, dated September 19, 2000, issued to Israel
Discount Bank Ltd., incorporated herein by reference to Exhibit 4.8 to
the Registrant's Annual Report on Form 20-F for the year ended January
31, 2001.
4.6 -- Convertible Debenture, dated November 30, 2000, issued to the
Industrial Development Bank of Israel Ltd., incorporated herein by
reference to Exhibit 4.8 to the Registrant's Annual Report on Form
20-F for the year ended January 31, 2004.
4.7 -- Amendment dated August 13, 2002 to Convertible Debenture issued to
Industrial Development Bank of Israel Ltd., incorporated by reference
to Exhibit 4.11 to the Registrant's Annual Report on Form 20-F for the
year ended January 31, 2002.
4.8 -- Amendment dated August 13, 2002 to Convertible Debenture issued to
Israel Discount Bank Ltd., incorporated by reference to Exhibit 4.13
to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2002.
4.9 --Second Amendment, dated February 15, 2004, to Convertible Debenture
issued to Industrial Development Bank of Israel Ltd., incorporated by
reference to Exhibit 4.22 to the Registrant's Annual Report on Form
20-F for the year ended January 31, 2004.
4.10--Second Amendment, dated February 9, 2004, to Convertible Debenture
issued to Israel Discount Bank Ltd., incorporated by reference to
Exhibit 4.25 to the Registrant's Annual Report on Form 20-F for the
year ended January 31, 2004.
4.11--Agreement dated December 3, 1999, between the Registrant and
Smithfield Investments B.V., incorporated by reference to Exhibit 4.28
to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2004
5.1 -- Opinion of Elchanan Landau Law Offices, Israeli counsel to the
Registrant, as to the validity of the ordinary shares (including
consent).
23.1 -- Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, independent registered public accounting firm.
23.2 -- Consent of Elchanan Landau Law Offices, Israeli counsel to the
Registrant (included in Exhibit 5.1).
24.1-- Powers of Attorney (included in the signature page to the
Registration Statement).
Item 10. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than any payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (i) and (ii) shall not apply to the extent
that the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement.
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) to file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A. of Form 20-F at the start
of any delayed offering or throughout a continuous offering; PROVIDED, HOWEVER,
that this Paragraph (4) shall not apply to the extent that such financial
statements and information are contained in periodic reports filed or furnished
to the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(5) that, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
(6) that, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430 A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-4
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Jerusalem, Israel, on July 30, 2004.
e-SIM LTD.
By: /s/ Marc Belzberg
---------------------
Name: Marc Belzberg
Title: Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Marc Belzberg and Yaron Eldad, and each of them,
as his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to (i) act on, sign and file with the Securities and
Exchange Commission any and all amendments (including post-effective amendments)
to this registration statement together with all schedules and exhibits thereto
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus included in this
registration statement or any such amendment or any subsequent registration
statement filed pursuant to Rule 562(b) under the Securities Act of 1933, as
amended, and (iv) take any and all actions which may be necessary or appropriate
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that all said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
/s/ Marc Belzberg Chairman of the Board of Directors, July 30, 2004
- ----------------- and Chief Executive Officer
Marc Belzberg (Principal Executive Officer)
/s/ Yaron Eldad Chief Operating Officer and Chief July 30, 2004
- --------------- Financial Officer (Principal
Yaron Eldad Financial and Accounting Officer)
/s/ Samuel Belzberg Director July 30, 2004
- -------------------
Samuel Belzberg
/s/ Amir Galilli Director July 30, 2004
- ----------------
Amir Galilli
/s/ John Mcdonald Director July 30, 2004
- -----------------
John McDonald
/s/ Ayelet Tal Director July 30, 2004
- --------------
Ayelet Tal
AUTHORIZED REPRESENTATIVE IN THE U.S.:
E-SIM INC.
BY: /S/ Christina Snow
----------------------
NAME: Christina Snow
TITLE: Controller
DATE: July 30, 2004
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
4.1 --Specimen share certificate, incorporated herein by reference to the
Registrant's Registration Statement on Form F-1 (Registration No.
333-8830), filed with the SEC on July 7, 1998.
4.2 --Share Purchase Agreement, dated as of June 4, 2004 by and among
certain investors and the Registrant (including form of warrant issued
to such investors), Incorporated herein by reference to Exhibit 4.27
to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2004.
4.3 -- Loan agreement dated July 31, 2003, between the Registrant and
Smithfield Investments B.V., incorporated herein by reference to
Exhibit 4.17 to the Registrant's Annual Report on Form 20-F for the
year ended January 31, 2003.
4.4 -- Loan agreement dated July 31, 2003, between the Registrant and
Vertical Ventures LLC, incorporated herein by reference to Exhibit
4.20 to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2004.
4.5 -- Convertible Debenture, dated September 19, 2000, issued to Israel
Discount Bank Ltd., incorporated herein by reference to Exhibit 4.8 to
the Registrant's Annual Report on Form 20-F for the year ended January
31, 2001.
4.6 -- Convertible Debenture, dated November 30, 2000, issued to the
Industrial Development Bank of Israel Ltd. incorporated herein by
reference to Exhibit 4.8 to the Registrant's Annual Report on Form
20-F for the year ended January 31, 2004.
4.7 -- Amendment dated August 13, 2002 to Convertible Debenture issued to
Industrial Development Bank of Israel Ltd. ,incorporated by reference
to Exhibit 4.11 to the Registrant's Annual Report on Form 20-F for the
year ended January 31, 2002.
4.8 -- Amendment dated August 13, 2002 to Convertible Debenture issued to
Israel Discount Bank Ltd., incorporated by reference to Exhibit 4.13
to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2002.
4.9 --Second Amendment, dated February 15, 2004, to Convertible Debenture
issued to Industrial Development Bank of Israel Ltd., incorporated by
reference to Exhibit 4.22 to the Registrant's Annual Report on Form
20-F for the year ended January 31, 2004.
4.10--Second Amendment, dated February 9, 2004, to Convertible Debenture
issued to Israel Discount Bank Ltd., incorporated by reference to
Exhibit 4.25 to the Registrant's Annual Report on Form 20-F for the
year ended January 31, 2004.
4.11--Agreement dated December 3, 1999, between the Registrant and
Smithfield Investments B.V., incorporated by reference to Exhibit 4.28
to the Registrant's Annual Report on Form 20-F for the year ended
January 31, 2004.
5.1 --Opinion of Elchanan Landau Law Offices, Israeli counsel to the
Registrant, as to the validity of the ordinary shares (including
consent).
23.1 --Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, independent registered public accounting firm.
23.2 --Consent of Elchanan Landau Law Offices, Israeli counsel to the
Registrant (included in Exhibit 5.1).
24.1--Powers of Attorney (included in the signature page to the
Registration Statement).