[20-F] ELTEK LTD Files Annual Report (Foreign Issuer)
Filing Impact
Filing Sentiment
Form Type
20-F
Rhea-AI Filing Summary
Eltek Ltd., an Israel-based manufacturer of advanced custom printed circuit boards, reports on its 2025 fiscal year and outlines extensive risk factors. The company had 6,719,827 ordinary shares outstanding as of December 31, 2025 and prepares U.S. GAAP financials in U.S. dollars.
Eltek serves defense and aerospace, medical, industrial, telecom and networking customers with HDI, flex-rigid and high-layer-count rigid PCBs. Key themes include dependence on aging, unique machinery, concentration of revenues among a few large customers and suppliers, exposure to volatile raw-material markets, and sensitivity to NIS/U.S. dollar exchange rates.
The report highlights environmental compliance and penalties in Israel, potential additional remediation costs, cyber and IT risks, possible capital needs despite $12.1 million in cash and $25.0 million in working capital, as well as geopolitical and security risks arising from conflicts involving Israel, Hamas and Iran.
Positive
- None.
Negative
- None.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F
For the fiscal year ended December 31, 2025
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31 , 2025
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report...........
Commission file number 0-28884
(Exact name of Registrant as specified in its charter
and translation of Registrant's name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to section 15(d) of the act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Emerging growth company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
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Other ☐
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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ☐ No ☒
This report on Form 20-F is being incorporated by reference into our Registration Statement on Form S-8 (Registration No. 333-233958).
INTRODUCTION
We manufacture, market and sell technologically advanced custom-made printed
circuit boards, or PCBs, including high density interconnect, or HDI, flex-rigid and rigid boards, with high layer counts. Our principal
customers include manufacturers of defense and aerospace, medical, industrial, telecom and networking equipment, as well as contract electronic
manufacturers. We were incorporated in 1970 under the laws of the State of Israel. Since our initial public offering in January
1997, our ordinary shares have been listed on the NASDAQ Stock Market (symbol: ELTK) and are presently traded on the NASDAQ Capital Market.
As used in this annual report, the terms “we,” “us” and “our” mean Eltek Ltd. and its subsidiaries,
unless otherwise indicated.
Our functional currency is the New Israeli Shekel while our reporting currency is
the U.S. Dollar. All references in this annual report to “dollars” or “$” are to U.S. Dollars and all references
in this annual report to “NIS” are to New Israeli Shekels. Our consolidated financial statements appearing in this annual
report are prepared in accordance with U.S. GAAP. The consolidated financial statements appearing in this annual report are translated
into dollars at the representative rate of exchange under the current rate method. Under such method, the income statement and cash
flows statement items for each year (or period) stated in this report are translated into dollars using the average exchange rates in
effect at each period presented, and assets and liabilities for each year (or period) are translated using the exchange rate as of the
balance sheet date as published by the Bank of Israel ($1.00 = NIS 3.19 as of December 31, 2025), except for equity accounts, which are
translated using the rates in effect at the date of the transactions. All resulting exchange differences that do not affect our
earnings are reported in the accumulated other comprehensive income as a separate component of shareholders’ equity.
Statements made in this annual report concerning the contents of any contract, agreement
or other document are summaries of such contracts, agreements or documents and are not complete descriptions of all of their terms.
If we filed any of these documents as an exhibit to this annual report or to any registration statement or annual report that we previously
filed, you may read the document itself for a complete description of its terms.
Except for the historical information contained in this annual report, the statements
contained in this annual report are “forward‑looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and
the Private Securities Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations.
Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider
that statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,”
“plan,” “intend,” “estimate” and similar expressions are intended to identify forward‑looking
statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties
and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements,
or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed
or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States,
we undertake no obligation to publicly release any update or revision to any forward‑looking statements to reflect new information,
future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other
factors affecting forward-looking statements in the Risk Factors section that appears in Item 3.D. “Key Information- Risk Factors.”
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TABLE OF CONTENTS
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Page No. | |||
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PART I |
1 | ||
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ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
1 | |
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ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
1 | |
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ITEM 3. |
KEY INFORMATION |
1 | |
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A. |
[RESERVED] |
1 | |
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B. |
Capitalization and Indebtedness |
1 | |
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C. |
Reasons for the Offer and Use of Proceeds |
1 | |
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D. |
Risk Factors |
1 | |
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ITEM 4. |
INFORMATION ON THE COMPANY |
22 | |
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A. |
History and Development of the Company |
22 | |
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B. |
Business Overview |
23 | |
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C. |
Organizational Structure |
28 | |
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D. |
Property, Plants and Equipment |
28 | |
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ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
28 | |
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ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
29 | |
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A. |
Operating Results |
29 | |
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B. |
Liquidity and Capital Resources |
32 | |
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C. |
Research and Development, Patents and Licenses |
33 | |
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D. |
Trend Information |
33 | |
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E. |
Critical Accounting Estimates |
33 | |
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ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
34 | |
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A. |
Directors and Senior Management |
35 | |
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B. |
Compensation |
38 | |
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C. |
Board Practices |
39 | |
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D. |
Employees |
37 | |
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E. |
Share Ownership |
38 | |
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F. |
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
50 | |
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ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
51 | |
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A. |
Major Shareholders |
51 | |
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B. |
Related Party Transactions |
51 | |
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C. |
Interests of Experts and Counsel |
52 | |
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ITEM 8. |
FINANCIAL INFORMATION |
52 | |
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A. |
Consolidated Statements and Other Financial Information |
53 | |
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B. |
Significant Changes |
53 | |
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ITEM 9. |
THE OFFER AND LISTING |
54 | |
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A. |
Offer and Listing Details |
54 | |
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B. |
Plan of Distribution |
54 | |
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C. |
Markets |
54 | |
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D. |
Selling Shareholders |
54 | |
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E. |
Dilution |
54 | |
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F. |
Expense of the Issue |
54 | |
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ITEM 10. |
ADDITIONAL INFORMATION |
55 | |
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A. |
Share Capital |
55 | |
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B. |
Memorandum and Articles of Association |
55 | |
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C. |
Material Contracts |
56 | |
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D. |
Exchange Controls |
56 | |
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E. |
Taxation |
56 | |
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F. |
Dividends and Paying Agents |
64 | |
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G. |
Statement by Experts |
64 | |
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H. |
Documents on Display |
64 | |
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I. |
Subsidiary Information |
64 | |
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ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
65 | |
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ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
65 | |
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PART II |
65 | ||
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ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
65 | |
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ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
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65 | |
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ITEM 15. |
CONTROLS AND PROCEDURES |
66 | |
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ITEM 16. |
[RESERVED] |
66 | |
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ITEM 16A. |
Audit Committee Financial Expert |
66 | |
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ITEM 16B. |
Code Of Ethics |
67 | |
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ITEM 16C. |
Principal AccountANT Fees And Services |
67 | |
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ITEM 16D. |
Exemptions From The Listing Standards For Audit CommitteeS |
67 | |
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ITEM 16E. |
PurchaseS Of Equity Securities By The Issuer And AffiliateD Purchasers |
67 | |
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ITEM 16F. |
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT |
68 | |
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ITEM 16G. |
CORPORATE GOVERNANCE |
68 | |
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ITEM 16H. |
MINE SAFETY DISCLOSURE |
68 | |
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ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
68 | |
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ITEM 16J. |
INSIDER TRADING POLICIES |
69 | |
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ITEM 16K. |
CYBERSECURITY |
69 | |
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ITEM 17. |
FINANCIAL STATEMENTS |
69 | |
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ITEM 18. |
FINANCIAL STATEMENTS |
69 | |
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ITEM 19. |
EXHIBITS | 70 | |
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PART I
| ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not applicable.
| ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| ITEM 3. |
KEY INFORMATION |
A. Reserved
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Investing in our ordinary shares involves a
high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing
in our ordinary shares. Our business, prospects, financial condition and results of operations could be adversely affected due to
any of the following risks. In that case, the value of our ordinary shares could decline, and you could lose all or part of your
investment. These risk factors include:
Risks Related to Our Business and Our Industry
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We are dependent on one-of-a-kind machinery that may malfunction and may not be easily replaced. |
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Key customers account for a significant portion of our revenues. |
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We are dependent upon a select number of suppliers for timely delivery of key raw materials. |
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Our business insurance policies may become more limited in scope and our premiums may increase. |
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We are subject to environmental laws and regulations. |
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Our products and related manufacturing processes are often highly complex and therefore our deliveries may be delayed. |
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We are affected by the growing demand for AI services, which have caused shortages of raw materials. |
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Breaches of network or information technology security, natural disasters or terrorist attacks. |
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We may require additional capital in the future, which may not be available to us. |
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Competition in the PCB market is intense. |
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Our results of operations may be adversely affected by currency fluctuations. |
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Changes in international trade policies, tariffs and geopolitical tensions may adversely affect our business. |
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We are subject to claims and litigation relating to environmental matters. |
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Increased regulation associated with climate change and greenhouse gas emissions. |
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Rapid changes in the Israeli and international electronics industries and recessionary pressures. |
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We may not succeed in our efforts to further expand our activity in the U.S. and other foreign markets. |
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We may become subject to the requirements of the National Industrial Security Program Operating Manual. |
| • |
We may fail to detect violations of anti-corruption and anti-money laundering laws. |
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We may encounter difficulties with our international operations and sales, with military agencies. |
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Damage to our manufacturing facilities due to fire, natural disaster, or other events. |
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We are vulnerable to the general economic effects of epidemics, pandemics and other public health crises. |
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Our quarterly operating results fluctuate significantly. |
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Our products and product components need to meet certain industry standards. |
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Our operating margins may be affected as a result of price increases for our principal raw materials. |
| • |
We compete with PCB manufacturers in Asia whose manufacturing costs are lower than ours. |
| • |
Our enterprise resource planning system is no longer being fully supported. |
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We may fail to maintain effective internal control over financial reporting |
| • |
Technological change may adversely affect the market acceptance of our products. |
| • |
The measures we take in order to protect our intellectual property may not be effective or sufficient. |
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Claims that our products infringe upon the intellectual property of third parties. |
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We are affected by increasing global inflation and higher interest rates. |
Risks Related to Our Human Capital
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If our workforce will be represented by a labor union, we could incur additional costs. |
| • |
Under current Israeli law, we may not be able to enforce covenants not to compete. |
| • |
We depend on key personnel for the success of our business. |
| • |
Our ability to maintain our directors’ and officers’ insurance may be curtailed.
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We may be required to make payments to satisfy our indemnification obligations. |
2
Risks Related to Our Ordinary Shares
| • |
Our share price has been volatile in the past and may continue to be in the future. |
| • |
The voting interest of our controlling shareholder may conflict with the interests of other shareholders. |
| • |
We may in the future be classified as a passive foreign investment company, or PFIC. |
| • |
We do not guarantee that dividends will continue to be distributed in the future. |
Risks Related to Our Organization and Location in Israel
| • |
Political, economic and military instability in Israel, including due to the current conflicts. |
| • |
Obligation of our personnel to perform military reserve service. |
| • |
Service and enforcement of legal process on us and our directors and officers may be difficult. |
| • |
Provisions of Israeli law may prevent or make difficult a change of control. |
| • |
The rights and responsibilities of our shareholders are governed by Israeli law and differ to U.S. law. |
| • |
We may follow certain home country corporate governance practices. |
| • |
Expenses incurred by public companies have been increasing. |
| • |
The termination or reduction of tax and other incentives that the Israeli government provides. |
Risks Related to Our Business and Our Industry
We are dependent on one-of-a-kind machinery that may malfunction
and may not be easily replaced.
The proper function of our manufacturing equipment is an important
element in our effectively operating our business. We own and use several unique manufacturing machines, some of which are aging and sometimes
malfunction, causing disruptions and occasionally even cessation of our manufacturing activities, which adversely affects our business.
Although we are currently implementing an investment plan to replace the majority of the aging machinery, it is possible that additional
funds will be required to repair or replace other production machinery, for which replacements or replacement parts may not be readily
available to us. Machinery failure could cause a cessation of our manufacturing activities for a significant period of time, which may
have a material adverse effect on our business, financial condition and results of operations.
While the installation of new machinery is under way, it may take
more time than planned and have an adverse impact on our profitability. Furthermore, even after completion of the planned investments,
we will continue to be dependent on a limited number of machines, and a malfunction in any of these machines would halt production for
a period ranging from several days to several months. In addition, we cannot be certain that we will be able to obtain insurance
coverage for the risk of mechanical breakdown of any of these machines, including coverage with respect to interruptions to our business.
Key customers account for a significant portion
of our revenues. The loss of a key customer would have an adverse impact on our financial results.
In the years ended December 31, 2025, 2024 and 2023, a group of
affiliated companies accounted for 18.3%, 8.3% and 13.7% of our total revenues, respectively, and another group of affiliated companies
accounted for 6.0%, 15.5% and 14.0% of our total revenues, respectively. We expect that a significant portion of our future revenues will
continue to be dependent on a small number of customers. Many of our key customers operate under approved vendor list (AVL) frameworks,
under which suppliers are periodically evaluated based on performance criteria such as quality, delivery and reliability. During 2025,
we experienced certain shipment delays due to operational challenges we encountered in connection with the construction and installation
of new equipment. These delays resulted in a temporary reduction in our AVL rating status with a customer. While this did not have a material
impact on the overall volume of orders received from this customer and its affiliates during the period, there can be no assurance that
similar issues will not arise in the future or that our AVL ratings will not be adversely affected. If our standing with customers under
such AVL frameworks were to decline, or if we are unable to maintain or improve our performance metrics, this could, over time, affect
the level of business we receive from such customers. In addition, if we are unable maintain our level of business with our key customers,
or attract sufficient new business to offset any reduction, our results of operations and financial condition could be adversely affected.
3
We are dependent upon a select number of suppliers
for timely delivery of key raw materials and the loss of one or more of these suppliers or delays in supply of these raw materials would
adversely affect our manufacturing ability. If these suppliers delay or discontinue the manufacture or supply of these raw materials,
we may experience delays in production and shipments, increased costs and cancellation of orders for our products.
We currently obtain our key raw materials from a select number
of suppliers. We do not have long-term supply contracts with our suppliers and our principal suppliers may not continue to supply raw
materials to us at current levels or at all. Any delays in delivery or shortages in these raw materials could interrupt and delay manufacturing
of our products and may result in the cancellation of orders for our products.
As the majority of PCB manufacturing is centered in South-East
Asia, raw material suppliers may focus their attention and give higher priority to manufacturers in those areas, which may interrupt the
supply of raw materials to us. In addition, these suppliers could discontinue the manufacture or supply of these raw materials at
any time. During the year ended December 31, 2025, our purchases from two (2) suppliers accounted for 22.6% and 12.4% of our total of
consolidated raw material costs, respectively. In the event such raw materials are not readily available to us, we may not be able to
identify and integrate alternative sources of supply in a timely fashion. Any transition to alternate suppliers may result in delays in
production and shipment and increased expenses and may limit our ability to deliver products to our customers.
If a raw material or component supplier fails to satisfy our product
quality standards, including standards relating to “conflict minerals” it could harm our customer relationships. Furthermore,
if we are unable to identify an alternative source of supply, we may have to modify our products or a large portion of our production
process to use a substitute raw material, which requires customers’ consent of use of such materials and which may cause delays
in production and shipments, increased design and manufacturing costs and increased prices for our products.
Our business insurance policies may become
more limited in scope and our premiums may increase. As a result, we may incur uninsured losses.
The coverage limits and scope of our insurance policies may not
be sufficient to cover future potential claims. The insurance coverage we may obtain may contain large deductibles or insufficient coverage
or fail to cover certain risks or potential losses, including interruptions to our business resulting from mechanical breakdown of our
machinery. In addition, our insurance policies are subject to annual review by our insurers and may not be renewed on similar or favorable
terms, including with respect to coverage, deductibles or premiums, or at all. If we suffer future machinery failure, fires or floods,
or product liability claims, we may be unable to maintain adequate insurance at satisfactory rates, or at all. Such insurance claims could
negatively affect our manufacturing process and therefore, sales, or require a change in the design or manufacturing process, any of which
could harm our relationship with our customers and have a material adverse impact on our reputation and business, financial condition,
results of operations and prospects.
Our insurance does not cover losses that may occur as a result
of an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the
Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of
war, we cannot be assured that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully
for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages.
Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability
in the region would likely negatively affect business conditions generally and could harm our results of operations.
4
We are subject to environmental laws and regulations.
Compliance with those laws and regulations requires us to incur costs and we are subject to fines or other sanctions for non-compliance.
Our operations are regulated under various environmental laws and
regulations that govern, among other things, the discharge of hazardous materials to the environment, as well as the handling, storage
and disposal of such materials. Compliance with these laws and regulations is a major consideration for PCB manufacturers because
metals and chemicals classified as hazardous substances are used in the manufacturing process. Since May 2003, our environmental
management system has been ISO 14001 certified. This certification was based on successful implementation of environmental management
requirements and includes ongoing monitoring of our processes, raw materials and products. The certification is subject to periodic compliance
audits conducted by the Standards Institution of Israel. If, in the future, we are found to be in violation of environmental laws or regulations,
we could be liable for damages, costs of remedial actions, may be subject to criminal prosecution including a range of potential penalties,
and could also be subject to administrative fines and revocation of permits necessary to conduct our business or any part thereof.
Any such liability or revocation could have a material adverse effect on our business, financial condition and results of operations.
Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated
with a violation, including, inter alia, in view of the Integrated Environmental Permitting Reform, that is entering into force gradually,
which is based on consolidating the air emissions permit, the poison permit, and the additional conditions for the business license issued
by the Ministry of Environmental Protection into a single consolidated permit, and aligning the regulation with the European standard.
The cost of compliance with environmental laws and regulations
depends in part on the requirements of such laws and regulations and on the method selected to implement them. If new or more restrictive
standards are imposed, the cost of compliance could be very high and have an adverse impact on our revenues and results of operations
if we cannot recover those costs through the rates that we charge our customers.
Our customers are also required to comply with various government
regulations, legal requirements and industry standards, including many of the industry-specific regulations discussed above. Our
customers’ failure to comply could affect their businesses, which in turn would affect our sales to them. In addition, if
our customers are required by regulation or other requirements to make changes in their product lines, these changes could significantly
disrupt particular programs for these customers and create inefficiencies in our business.
Our products and related manufacturing processes
are often highly complex and therefore our deliveries may be delayed. Our products may at times contain manufacturing defects, which
may subject us to product liability and warranty claims.
Our business involves highly complex manufacturing processes that are subject to periodic
failure. Process failures have occurred in the past and have resulted in delays in product shipments, and process failures may occur
in the future. Furthermore, we face an inherent business risk of exposure to warranty and product liability claims, which are likely
to be substantial in light of the use of our products in business-critical applications. Our products may fail to perform as expected
or may be alleged to result in bodily injury or property damage. If we were to manufacture and deliver products to our customers that
contain defects, whether caused by a design, manufacturing or component failure, or by deficiencies in the manufacturing processes, it
may result in delayed shipments to customers and reduced or cancelled customer orders. In addition, if any of our products are or
are alleged to be defective, we may be required to participate in a recall of such products. Over the years we have been involved in claims
or litigation relating to allegedly defective products. A successful warranty or product liability claim against us in excess of our established
warranty and legal reserves or available insurance coverage, or a requirement that we participate in a product recall may have a material
adverse effect on our business, financial condition, results of operations or cash flows and may harm our business reputation, which could
lead to customer cancellations or non-renewals.
We are affected by the growing demand for AI
services, which have caused shortages of raw materials and may adversely affect our operations and profitability.
We are currently experiencing a significant shortage in the supply
of rigid laminates and prepreg (a composite material consisting of reinforcing fibers (carbon, glass, or aramid) pre-impregnated with
a thermoplastic or thermoset resin matrix) based on electronics grade glass fibers, which are critical raw materials in our manufacturing
processes. This shortage has resulted in suppliers imposing monthly allocation limits, restricting the quantities available to us. In
addition, prices have increased significantly and have become highly volatile and unpredictable.
5
The shortage is primarily driven by a sharp increase in global
demand for electronics grade glass fibers, including demand associated with artificial intelligence (AI) infrastructure, such as data
centers and related technologies, which require substantial quantities of composite and insulation materials. As a result, competition
for available supply has intensified.
If these supply constraints persist or worsen, we may be unable
to procure sufficient quantities of raw materials on commercially reasonable terms, or at all. This could disrupt our production schedules,
delay customer deliveries, increase our cost of goods sold, and negatively impact our margins and results of operations. Furthermore,
we may not be able to fully pass increased raw material costs on to our customers, which could further adversely affect our profitability.
Although we are actively seeking alternative suppliers and implementing
mitigation measures, there can be no assurance that such efforts will fully offset the impact of the current shortage.
Breaches of network or information
technology security, natural disasters or terrorist attacks could have an adverse effect on our
business.
Cyber-attacks or other breaches of network or IT security, natural
disasters, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations. We have been subject, and
will likely continue to be subject, to attempts to breach the security of our networks and Information Technology, or IT, infrastructure
and our products and services through cyber-attack, malware, computer viruses and other means of unauthorized access, which could also
impact the operation of our products and services. Our inability to operate our facilities as a result of such events, even for a limited
period of time, may result in significant expenses or loss of market share to other competitors in the global PCB industry. In addition,
a failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in
damage to our reputation. In response to past threats and attacks, we have implemented further controls and taken preventive actions.
We also plan to further strengthen our IT infrastructure against future attacks. However, we cannot assure that such measures will provide
absolute security, that we will be able to react in a timely manner in the future, or that our remediation efforts following past or future
attacks will be successful. Consequently, our financial performance and results of operations would be materially adversely affected.
We may require additional capital in the future, which
may not be available to us.
As of December 31, 2025, we had $12.1 million in cash and cash
equivalents and short-term bank deposits and working capital of 25.0 million. The lack of sufficient working capital in the future could
negatively impact our ability to compete effectively in the future or to expand our production facilities, including with respect to our
investment plans. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business,
we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Our working capital
requirements and cash flow provided by our operating and financing activities are likely to vary greatly from quarter to quarter, depending
on the following factors: (i) the timing of orders and deliveries; (ii) net profit in the period; (iii) the purchase of new equipment;
(iv) the build‑up of inventories; (v) the payment terms offered to our customers; (vi) the payment terms offered by our suppliers;
and (vii) ability to obtain additional lines of credit and long-term loans from banks and other lenders. The lack of sufficient working
capital could negatively impact our ability to compete effectively in the future.
As of December 31, 2025, we did not have any outstanding long-term
loans from banks and had unutilized revolving lines of credit aggregating NIS 8.7 million (approximately $2.7 million). These credit facilities
may not remain available to us in the future. All of our assets are pledged as security for our liabilities to our banks, whose consents
are required for any future pledge of such assets.
Because competition in the PCB market is intense,
our business, operating results and financial condition may be adversely affected.
The global PCB industry is highly fragmented and intensely competitive.
It is characterized by rapidly changing technology, frequent new product introductions and rapidly changing customer requirements. We
compete principally in the market for complex, flex-rigid and rigid multi-layer PCBs. In the Israeli market we mainly compete with
PCB Technologies Ltd. and major international PCB exporters, mainly from South Korea, India Europe and North America.
6
We have numerous competitors in the European and North American
markets. Many of these competitors have significantly greater financial and marketing resources than us. Our current competition in the
rigid PCB segment is mainly from PCB manufacturers in Asia (mainly in China, South Korea, India and Thailand), which have substantially
lower production costs than us. Continued competitive pressure could cause us to lose significant market share.
In addition, these competitors may respond more quickly to new
or emerging technologies or adapt more quickly to changes in customer requirements than we do. We must continually develop improved manufacturing
processes to meet our customers’ needs for complex products, and our manufacturing process technology is generally not subject to
significant proprietary protection. During recessionary periods in the electronics industry, our strategy of providing quick-turn services,
an integrated manufacturing solution, and responsive customer service may take on reduced importance to our customers. As a result, we
may need to compete more on the basis of price, which would cause our gross margins to decline.
Our results of operations may be adversely affected by currency
fluctuations.
Our revenues and expenses are denominated in NIS, US dollars and
Euros. Due to the different proportions of currencies our revenues and expenses are denominated in, fluctuations in rates of exchange
between NIS and other currencies may affect our operating results and financial condition. The NIS value of our dollar and euro denominated
revenues are negatively impacted when these currencies depreciate against the NIS. The average exchange rate for the NIS against the dollar
was approximately 7% lower in 2025 than in 2024, which had a material impact on our operating results in 2025. Because our financial statements
are presented in U.S. dollars, a depreciation of the dollar against the NIS increases the dollar-reported amount of our NIS-denominated
expenses, even when those expenses remain unchanged in NIS terms, which could adversely affect our reported results.
We currently do not engage in hedging transactions. If we were to decide to enter
into any hedging transactions in the future in order to protect ourselves in part from currency fluctuations, we may not be successful
in our hedging efforts, or such transactions, if entered into, may not materially reduce the effect of foreign currency exchange rate
fluctuations on our results of operations. Such hedging transactions may not necessarily mitigate the longer-term impact of currency fluctuations
on the operating costs of our business operations and may result in additional expenses.
Changes in international trade policies, tariffs,
and geopolitical tensions may adversely affect our business, competitiveness and supply chain.
Our business is affected by global trade policies, tariffs, export
controls and other governmental actions that impact international commerce. Changes in trade regulations, including the imposition or
increase of tariffs, duties or other trade restrictions by the United States, the European Union, Israel or other jurisdictions, could
increase the cost of raw materials, components or equipment used in our manufacturing processes. Such measures could also increase the
cost of our products in certain markets, which may reduce our competitiveness compared to local manufacturers or suppliers operating in
jurisdictions not subject to the same trade restrictions.
In addition, tariffs or other trade barriers imposed by countries
in which our customers operate could make our products less competitive relative to domestically manufactured alternatives. These developments
could result in reduced demand for our products, pressure on our pricing, or the need for us to absorb additional costs in order to remain
competitive.
Geopolitical tensions and changes in global economic or security
dynamics may also encourage governments to promote or subsidize the development of local manufacturing capabilities, including in the
printed circuit board (PCB) industry and related advanced electronics sectors. Such initiatives may include government incentives, subsidies,
regulatory preferences or procurement policies designed to support domestic manufacturers. If countries in which we operate or sell our
products expand support for local PCB manufacturing, our ability to compete in those markets could be adversely affected. Furthermore,
geopolitical conflicts, trade disputes, sanctions regimes or other political developments could disrupt global supply chains, restrict
access to certain markets, delay shipments or increase the cost and lead time of raw materials and components that we rely on in our manufacturing
processes.
Any of the foregoing developments could adversely affect our business,
financial condition, results of operations and competitive position.
7
We have in the past been, and currently are,
subject to claims and litigation relating to environmental matters. If we are found to be in violation of environmental laws, we
might be liable for damages and costs of remediation and may be subject to criminal or administrative proceedings, including a halt in
production, which may adversely affect our business, operating results and financial condition.
We have in the past been, and currently are, subject to claims
and litigation relating to environmental matters. We may be subject to further environmental claims alleging that we are in violation
of environmental laws. If we are unsuccessful in such claims and other future claims and litigations or if actual results are not consistent
with our assumptions and judgments, we may be exposed to losses that could be material to our company.
In July 2022, we received a notification from the Israeli Ministry
of Environmental Protection about its intention to impose a penalty of approximately $0.1 million for an alleged breach of the Hazardous
Materials Law (1993). We submitted a response to the notification and asked that the penalty be reduced by 40%. In June 2023, the Ministry
of Environmental Protection decided to partially accept our request and reduced 20% of the amount of the financial sanction. We paid the
penalty following the reduction.
In January 2023, we received a notification from the Ministry of
Environmental Protection that it intends to impose a penalty of approximately $0.6 million for an alleged breach of the Clean Air Law
during the years 2019-2020. We have paid this penalty and recorded a relevant expense in our financial statements. We filed an administrative
appeal to reduce the penalty and to obtain a refund for part of the penalty we paid. In February 2024, the court hearing the administrative
petition ruled that we should receive a refund of 10% of the amount of the penalty we paid. Such refund was received and recorded.
In October 2023, we received a notice from the Ministry regarding
some suspicion of contamination of the soil from a drilling survey that was performed in May 2021 at the factory. On January 24, 2024,
representatives of the Ministry visited our facility and informed us that an additional survey of the soil and groundwater in the facility
area would be required. In June 2025, we received a request from the Water Authority to carry out a preliminary investigation of the groundwater
at the facility. We submitted our proposed investigation plan, which has been approved, and is expected to carried out in the coming months,
we are still in discussions with the Ministry regarding the need for and scope of a soil survey. We expect to hold a formal meeting with
the Ministry on this matter, particularly as the facility’s poison permit includes instructions on the subject, including applicable
deadlines.
In February 2026, we received a summons for a hearing from representatives
of the Ministry of Environmental Protection in connection with two hazardous materials incidents that occurred during 2025. The hearing
is scheduled to take place in April 2026. We are unable to assess the outcome of this hearing.
If we are found to be in violation of environmental laws, we could
be liable, in addition to fines, for damages, costs of remedial actions and a range of potential penalties, and could also be subject
to a shutdown of our factory. Such sanctions could have a material adverse effect on our business, financial condition and results of
operations.
Increased regulation associated with climate
change and greenhouse gas emissions, as well as increasing could impose significant additional costs on operations.
Various governments and governmental agencies have adopted or are
contemplating statutory and regulatory changes in response to the potential impacts of climate change and emissions of greenhouse gases.
International treaties or agreements may also result in increasing regulation of climate change and greenhouse gas emissions, including
the introduction of greenhouse gas emissions trading mechanisms. Any such law or regulation regarding climate change and greenhouse gas
emissions could impose significant costs on our operations and on the operations of our customers and suppliers, including increased energy,
capital equipment, environmental monitoring, reporting and other compliance costs. The potential costs of “allowances,” “offsets”
or “credits” that may be part of potential cap-and-trade programs or similar proposed regulatory measures are still uncertain.
Any adopted future climate change and greenhouse gas laws or regulations could negatively impact our ability, and that of our customers
and suppliers, to compete with companies situated in areas not subject to such laws or regulations. These statutory and regulatory initiatives,
if enacted, may impact our operations directly or indirectly through our suppliers or customers. Until the timing, scope and extent
of any future law or regulation becomes known, we cannot predict the effect on our business, financial condition, results of operations
or cash flows.
8
Rapid changes in the electronics industry and
recessionary pressures may adversely affect our business.
Our principal customers include manufacturers of defense and aerospace,
medical, industrial, telecom and networking equipment, as well as contract electronic manufacturers. The electronics industry is subject
to rapid technological changes and products obsolescence. Discontinuance or modification of products containing PCBs manufactured by our
company could have a material adverse effect on us. In addition, the electronics industry is subject to sharp economic cycles. Increased
or excess production capacity by our competitors in the PCB industry and recessionary pressure in major electronics industry segments
may result in intensified price competition and reduced margins. As a result, our financial condition and results of operations
may be adversely affected. A decline in the Israeli and international electronic markets may cause a decline in our revenues and adversely
affect our operating results and financial condition in the future.
We may not succeed in our efforts to further
expand our activity in the U.S. and other foreign markets, including as a result of the “tariffs wars”. If we are unsuccessful,
our future revenues and profitability would be adversely affected.
Our business plan assumes an increase in revenues from the U.S.
and other markets. However, our efforts to increase sales to such markets may not succeed. Sales to the medical, defense and aerospace
industries may be affected by several factors, including the new U.S. tariffs on PCB imports. United States tariff rates on
these imports can range from 10 percent to higher levels. We expect that increases in tariffs will increase the Company’s cost of
sales, although their timing and precise effects are unpredictable. In particular, if the additional reciprocal tariffs go into effect,
the Company will incur substantial additional increases in its cost of sales, and sales volumes into the United States would likely decline. Moreover,
due to market trends, more and more Western counties aim to build and sustain local PCB manufacturing capabilities in an effort to refrain
from complete reliance on import. This could lead to reduced interest in our products.
In order to sell PCBs to the U.S. defense market we were required
to obtain International Traffic in Arms Regulations (ITAR) registration from the U.S. Department of State, which is subject to periodic
extension. There can be no assurance that we will be able to retain our ITAR certification. In the event of a change in control of our
company, the U.S. Department of State may investigate the transfer of control and oppose the transaction. The loss of our ITAR certification
could adversely affect our future revenues and profitability.
We may become subject to the requirements of
the National Industrial Security Program Operating Manual for our facility security clearance, which is a prerequisite to our ability
to work on classified contracts for the U.S. government.
A facility security clearance is required in order to be awarded
and perform classified contracts for the U.S. Department of Defense, or the Department of War, and certain other agencies of the U.S.
government. To become a cleared entity, we must comply with the requirements of the National Industrial Security Program Operating Manual,
or the NISPOM, and any other applicable U.S. government industrial security regulations. Further, due to the fact that a significant portion
of our voting equity is owned by a non-U.S. entity, we are required to be governed by and operate in accordance with the terms and requirements
of a Special Security Agreement, or the SSA.
If we were to violate the terms and requirements of the SSA, the
NISPOM, or any other applicable U.S. government industrial security regulations (which may apply to us under the terms of classified contracts),
we could lose our security clearance. We cannot be certain that we will be able to maintain our security clearance. If for some reason
our security clearance is invalidated or terminated, we may not be able to continue to perform on classified contracts and would not be
able to enter into new classified contracts, which could materially adversely affect our business, financial condition, and results of
operations.
9
Our governance, risk management and compliance
processes may fail to detect violations of anti-corruption and anti-money laundering laws and our standards of ethics, including as a
result of the conduct of our managers, employees, suppliers, business partners and third parties who act in our name, interest or benefit,
which may have a material and adverse impact on our business, financial condition, results of operations, reputation and market price
of our ordinary shares.
We operate in jurisdictions that have a low to medium risk of corruption
according to the Corruption Perception Index from Transparency International. Mechanisms for preventing and combating bribery and corruption,
money laundering, governance procedures, as well as our current internal procedures, may not be sufficient to ensure that all of our managers,
employees, suppliers, business partners and third parties who act on our behalf, interest or benefit always act in strict compliance with
our internal policies and laws and regulations aimed at preventing and combating corruption that we are subject to. These laws and regulations
include the United States Foreign Corrupt Practices Act of 1977, as amended, the United States Foreign Extortion Prevention Act of 2023,
and the Bribery Act 2010 of the United Kingdom, as well as other standards related to the Convention on Combating Corruption of Foreign
Public Officials in International Business Transactions of the Organization for Economic Cooperation and Development - OECD, (collectively,
“Anti-Corruption Laws”).
In general, the Anti-Corruption Laws prohibit companies and their
employees, shareholders or managers from making improper payments to government officials, directly or indirectly, for the purpose of
obtaining or retaining business and/or other benefits. We cannot guarantee that our direct and indirect shareholders, directors, officers,
employees and other third parties (including agents, suppliers and service providers) and the companies to which some business operations
are outsourced will fully comply with the Anti-Corruption Laws and related policies. Our governance, policies, risk management and compliance
processes may not be able to, for example: (i) detect, prevent or respond to violations of the Anti-Corruption Laws or similar legislation,
as well as violations of our internal compliance policies; (ii) detect, prevent or respond to occurrences of fraudulent and dishonest
behavior by our managers, employees, suppliers, customers, business partners or third parties acting on our behalf, interest or benefit;
(iii) manage all risks identified in our risk management matrix and/or predict, identify or mitigate new risks; and (iv) detect, prevent
or respond to other occurrences of behavior inconsistent with ethical and moral principles, which may materially and adversely affect
our reputation, our business, financial conditions and operating results, as well as impact the market price of our Securities negatively.
Public authorities are empowered to impose penalties on us if acts of corruption are inadvertently or intentionally committed by members
of our management, employees and/or third parties acting on our behalf or in our interest. Under the terms of certain Anti-Corruption
Laws, companies may be jointly and severally liable for the payment of a fine and full compensation for damage for unethical practices
attributed to their affiliates and consortia members. As a result, we may be held liable for any such violations.
As we increase and scale our business, we may engage with new business
partners and third-party intermediaries to market our products and services and obtain necessary permits, licenses and other regulatory
approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of
government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these
third-party intermediaries, our employees, representatives, contractors, customers and agents, even if we do not authorize such activities.
The existence of any current or past investigations, inquiries
or proceedings of an administrative or judicial nature related to the violation of the Anti-Corruption Laws, against us, our managers,
employees, suppliers, business partners or third parties acting on our behalf, interest or benefit may result in: (i) fines and indemnities
in the administrative, civil and criminal spheres (the latter, to the administrators who contributed to the infraction); (ii) loss of
unlawfully obtained benefits, including operating licenses; (iii) prohibition or suspension of our activities; and/or (iv) loss of rights
to contract with the public administration, to receive incentives or tax benefits from any financing and resources from the public administration,
among other applicable penalties. We may also be jointly and severally liable for the payment of a fine and full compensation for the
damage due to practices contrary to the Anti-Corruption Laws caused by our controlling, controlled, affiliated or, under the respective
contract, consortium companies, which could materially and adversely affect our reputation, business, financial condition and operating
results, as well as impact the market price of our Securities negatively.
All of these circumstances could have a material adverse effect
on us. Therefore, if we are not able to keep the governance, risk management and compliance processes operating effectively, we may not
be able to prevent the occurrence of fraud and/or the occurrence of other deviations, including in relation to the preparation of statements
and accounting information.
10
The existence of lawsuits, procedures, investigations, convictions,
publications or negative comments in any media vehicle or social network involving us, our direct or indirect shareholders and subsidiaries,
our business, our operations, executive officers, members of our Board, or any third party acting on our behalf, interest or benefit,
could seriously damage our reputation. The reputational risk arising from the negative perception of our brand by customers, counterparties,
shareholders, subsidiaries, investors, regulators and society in general for involvement in any of the above cases can originate from
several factors, including those related to non-compliance with legal obligations, inappropriate business practices related to our customers,
products and services, relationships with partners with questionable ethical posture, employee misconduct, information leakage, anti-competitive
practices, failures in the risk management process, among others.
Any such damage to our reputation and imposition of sanctions or
other penalties may adversely affect our business, financial condition and results of operations, as well as the market price of our ordinary
shares.
We may encounter difficulties with our international
operations and sales that may have a material adverse effect on our sales and profitability.
Contracts with U.S. military agencies, as well as military equipment
manufacturers in Europe, are subject to certain regulatory restrictions and approvals, which we may not be able to comply with or obtain.
We may not be able to maintain or increase international market demand for our products. To the extent that we cannot do so, our
business, operating results and financial condition may be adversely affected.
International operations are subject to inherent risks, including the following:
| • |
the impact of possible recessionary environments or economic instability in multiple foreign markets; |
| • |
changes in regulatory requirements and complying with a wide variety of foreign laws; |
| • |
tariffs and other trade barriers; |
| • |
the imposition of exchange or price controls or other restrictions on the conversion of foreign currencies; and |
| • |
difficulties and costs of staffing and managing foreign operations. |
Significant political developments could also have a materially
adverse effect on us. In the United States, potential or actual changes in fiscal, defense appropriations, tax and labor policies could
have uncertain and unexpected consequences that materially impact our business, results of operations and financial condition.
Damage to our manufacturing facilities due
to fire, natural disaster, or other events could materially adversely affect our business, financial condition, insurance premiums and
results of operations.
All of our manufacturing is conducted in our headquarters building
in Israel. The destruction or closure of our facility for a significant period of time as a result of fire, explosion, act of war or terrorism,
flood, tornado, earthquake, lightning, other natural disasters, required maintenance, or other events could harm us financially, increasing
our costs of doing business and limiting our ability to deliver our manufacturing services on a timely basis.
Our insurance coverage with respect to damage to our facility or our customers’
products caused by natural disasters is limited and is subject to deductibles and coverage limits. Such coverage may not be adequate or
continue to be available at commercially reasonable rates and terms. In addition, our insurance premiums have risen due to recent events.
In the event our facility is closed on a temporary or permanent
basis as a result of a natural disaster, required maintenance or other event, our operations could be significantly disrupted. Such events
could delay or prevent product manufacturing and shipment for the time required to transfer production or repair, rebuild or replace the
affected manufacturing facilities. This time frame could be lengthy and result in significant expenses for repair and related costs. While
we have disaster recovery plans in place, there can be no assurance that such plans will be sufficient to allow our operations to continue
in the event of disaster, required repair or other extraordinary event. Any extended inability to continue our operations at unaffected
facilities following such an event would reduce our revenue and potentially damage our reputation as a reliable supplier.
11
Outbreaks of epidemic and pandemic diseases
and any relevant governmental responses thereto could adversely affect our business, operating results, or financial condition.
Global public health threats, such as COVID-19, influenza and other
highly communicable diseases or viruses, outbreaks which have from time to time occurred in various parts of the world, could disrupt
global financial markets and economic conditions and adversely impact our operations.
For example, restrictions and future prevention and mitigation
measures against outbreaks of epidemic and pandemic diseases, such as travel restrictions and temporarily closing business, are likely
to have an adverse impact on global economic conditions, which could materially and adversely affect our future operations. As a result
of such measures, we may experience severe operational disruptions and delays, and disruptions in the supply chain, among other potential
consequences attendant to epidemic and pandemic diseases.
In particular, we may be required to limit the number of employees
working based on our physical space.
Unlike other industries, as a manufacturer of physical products,
we cannot rely on our main workforce to be working from home. In the past, Israel and other countries enforced quarantines and shutdowns.
We continue to monitor public health developments and related impacts on all aspects of our business and geographies, including our workforce,
supply chain and customers.
Our quarterly operating results fluctuate significantly.
Results of operations in any period should not be considered indicative of the results to be expected for any future period.
Our quarterly operating results have fluctuated significantly in
the past and are likely to fluctuate significantly in the future. Our future operating results will depend on many factors, including
(but not limited to) the following:
| • |
the size and timing of significant orders and their fulfillment; |
| • |
demand for our products and the mix of products purchased by our customers; |
| • |
competition from lower priced manufacturers; |
| • |
fluctuations in foreign currency exchange rates, primarily the NIS against the Dollar and the Euro; |
| • |
manufacturing yield; |
| • |
plant utilization; |
| • |
availability of raw materials; |
| • |
plant or line shutdowns to repair or replace malfunctioning manufacturing equipment; |
| • |
the length of our sales cycles; |
| • |
changes in our strategy; |
| • |
the number of working days in the quarter; |
| • |
changes in seasonal trends; and |
| • |
general domestic and international economic and political conditions. |
Due to the foregoing factors, quarterly revenues and operating
results are difficult to forecast, and it is likely that there will be significant differences between the results from one quarter to
another.
Quarterly sales and operating results are also difficult to forecast
because they are dependent almost exclusively on the volume and timing of orders during the quarter and our customers generally operate
with a short delivery cycle and expect delivery of a significant portion of the order within 30 working days. The delivery of such
orders is subject to the number of available working days during the quarter, which can fluctuate significantly from quarter to quarter
due to holidays and vacations. Certain prototype and pre-production runs require even shorter turn-around times stemming from customers’
product launches and design changes. In addition, there might be sudden increases, decreases or cancellations of orders for which there
are commitments, which further characterize the electronics industry and the companies that operate in it. The industry practice is to
make such changes without any penalties, except for the time and materials expended on the order.
12
Our expenses are, in significant part, relatively fixed. If revenue
levels fall below expectations, our net income is likely to be disproportionately adversely affected because a proportionately smaller
amount of the expenses varies with our revenues. An ongoing pattern of cancellations, reductions in orders and delays could have
a material adverse effect on our results of operations. Due to all of the foregoing, it is very difficult to predict revenues for any
future quarter with any significant degree of accuracy. Accordingly, we believe that period-to-period comparisons of our operating results
are not necessarily meaningful and should not be relied upon as indications of future performance.
Our products and product components need to
meet certain industry standards.
Our products and product components need to meet certain standards
for the aerospace, defense, and other industries to which we market our products. In addition, new industry standards in the aviation
and defense industries could cause some or all of our products and services to become obsolete and unmarketable, which would adversely
affect our results of operations. Noncompliance with any of these standards could limit our sales and adversely affect our business,
financial condition, and results of operations.
Our operating margins may be affected as a
result of price increases for our principal raw materials.
In recent years, our suppliers have increased their prices for
most of our principal raw materials. We have faced pressure to raise our prices for our products to compensate for supplier price increases
in order to maintain our operating margins, which we may not be able to achieve due to the competitive market. Furthermore, our existing
suppliers or new suppliers or sources of materials may pass the increase in sourcing costs due to the coronavirus outbreak to us through
price increases, thereby impacting our margins. Material changes in the pricing practices of our suppliers could negatively impact our
profitability. Additional price increases for our principal raw materials may materially affect our operating margins and future profitability.
We compete with PCB manufacturers in Asia whose
manufacturing costs are lower than ours.
In recent years, many electronics manufacturers have moved their
commercial production to Asia to take advantage of its exceptionally large, relatively low-cost labor pool. The continued outsourcing
of production to Asia is likely to result in additional commercial market share potential for PCB manufacturers with a strong presence
and reputation in such markets. Accordingly, we will need to compete with PCB manufacturers whose costs of production may be substantially
lower than ours. This competition may limit our ability to price our products profitably, which could significantly harm our financial
condition and results of operations. In addition, we distinguish ourselves by focusing on developing cutting edge technologies for high-end
products, in order to serve our sophisticated defense, aerospace and medical customers. This may limit our ability to reach certain clientele
that demand lower-end products in order to reduce their costs.
Our enterprise resource planning system is
no longer being fully supported by its developer and the hardware on which it runs may not be supported in the future. The failure
of such system before we transition to a new system may adversely affect our business and results of operations and the effectiveness
of our internal control over financial reporting.
Our current enterprise resource planning system (“ERP”)
is designed to improve the efficiency of our supply chain and financial transaction processes, accurately maintain our books and records,
and provide information important to the operation of the business to our management team. Our system is no longer being fully supported
by its developer and the hardware on which the ERP runs and the operating system of the hardware are at high risk of not being supported
in the near future. We started the process of replacing our ERP system; however, it will take at least 18 months until such new system
will be operative. Any significant disruption or deficiency in our ERP could have a material adverse effect on our ability to fulfill
and invoice customer orders, apply receipts, place purchase orders with suppliers, and make disbursements, and could negatively impact
data processing and electronic communications among business locations, which may have a material adverse effect on our business, consolidated
financial condition or results of operations.
13
We may fail to maintain effective internal
control over our financial reporting which could have a material adverse effect on our operating results, investor confidence in
our reported financial information, and the market price of our ordinary shares.
Our efforts to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, governing internal control and procedures for financial reporting have resulted in increased general and administrative
expenses and a diversion of management time and attention, and we expect these efforts to require the continued commitment of significant
resources. We may identify material weaknesses or significant deficiencies in our assessments of our internal control over financial reporting.
Failure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities,
and could have a material adverse effect on our operating results, investor confidence in our reported financial information, and the
market price of our ordinary shares.
Technological change may adversely affect the
market acceptance of our products.
Technological change in the PCB industry is rapid and continual.
To satisfy customers’ needs for increasingly complex products, PCB manufacturers must continue to develop improved manufacturing
processes, provide innovative solutions and invest in new facilities and equipment. To the extent we determine that new technologies and
equipment are required to remain competitive, the development, acquisition and implementation of such technologies and equipment are likely
to require significant capital investment. We expect that we will need to invest large amounts in the next few years to replace
or refurbish old equipment and to remain competitive in the market. This capital may not be available to us in the future for such purposes
and any new manufacturing processes developed by us may not become or remain commercially viable. As a result, we may not be able to maintain
our current technological position. Furthermore, the PCB industry may in the future encounter competition from new technologies that may
reduce demand for PCBs or may render existing technology less competitive or obsolete. Our future process development efforts may not
be successful or the emergence of new technologies, industry standards or customer requirements may render our technology, equipment or
processes obsolete or uncompetitive.
The measures we take in order to protect our
intellectual property may not be effective or sufficient.
Our success depends in part on our proprietary techniques and manufacturing
expertise, particularly in the area of complex multi-layer and flex-rigid PCBs. We currently rely on a combination of trade secrets, copyright
and trademark law, together with non-disclosure and invention assignment agreements, to establish and protect the proprietary rights and
technology used in our products. Like many companies in the PCB industry, we currently do not hold any patents. We believe that,
because of the rapid pace of technological change in the electronics industry, the legal protections for our products are less significant
factors in our success than the knowledge, ability and experience of our employees, the frequency of product enhancements and the timeliness
and quality of support services that we provide.
We generally enter into confidentiality agreements with our employees,
consultants, customers and potential customers and limit the access to and the distribution of our proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop
similar technology independently. Further, the laws of certain countries in which we sell our products do not protect our intellectual
property rights to the same extent as do the laws of the United States. Substantial unauthorized use of our products could have a material
adverse effect on our business. We cannot make assurances that our means of protecting our proprietary rights will be adequate or that
our competitors will not independently develop similar technology.
Claims that our products infringe upon the
intellectual property of third parties may require us to incur significant costs.
While we do not believe that our products (which are produced based
on specifications provided by our customers) and proprietary rights infringe upon the proprietary rights of others, third parties may
assert infringement claims against us or claims that we have violated a patent or infringed on a copyright, trademark or other proprietary
right belonging to them, whether directly against us or as a result of an infringement claim against any of our customers. Any infringement
claim, even one without merit, could result in the expenditure of significant financial and managerial resources to defend against the
claim. Moreover, a successful claim of product infringement against us or a settlement could require us to pay substantial amounts or
obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the
technology. We might not be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at
all. We also may not be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering
the product. Infringement claims asserted against us could have a material adverse effect on our business, operating results and financial
condition.
14
During the last several years, a supplier of one of our software
packages requested us to conduct an audit of our operations to verify that we do not breach any intellectual property rights it allegedly
owns. We believe that we have fully, diligently and timely complied with our obligation toward the supplier. We also believe that the
supplier has no right to conduct any audit of our products or services and such audit may cause us to breach confidentiality obligations
to other entities, and therefore replied that there were no grounds for his request. If we are found to be in violation of such
supplier’s intellectual property rights, we could be liable for compensation and costs of an unknown amount. Such liability could
have a material adverse effect on our business, financial condition and results of operations.
We are affected by increasing global inflation and higher interest
rates which may increase our cost of goods and services and borrowing costs.
Global inflation and high interest rates pose a significant risk
factor to our company. The rise in inflation may lead to an increase in the cost of goods and services and affect our sales and revenues.
In addition, higher rates of inflation in Israel and globally, and demand for high-tech personnel in Israel, have impacted, and may continue
to impact our costs of labor and the prices at which we are able to acquire goods and services from third-party vendors on which we rely.
High interest rates have increased borrowing costs, which may reduce
our ability to finance operations and investments, and potentially impact our financial stability. As a result, we are closely monitoring
global economic trends and proactively taking measures to mitigate the impact of inflation and high interest rates on our business operations
and financial performance.
Risks Related to Our Human Capital
If our workforce will be represented by a labor union, we could
incur additional costs or experience work stoppages as a result of the renegotiation of our labor contracts.
Our employees have previously sought to establish an employees’
union committee, which effort was soon abandoned. If our employees are represented by a union in the future, we could incur additional
costs, experience work stoppages, either of which could adversely affect our business operations, including through a loss of revenue
and strained relationships with customers. Strikes and work stoppages occur relatively frequently in Israel. If Israeli trade unions threaten
additional strikes or work stoppages and such strikes or work stoppages occur, these may, if prolonged, have a material adverse effect
on the Israeli economy and on our business, including our ability to deliver products to our customers in a timely manner.
Under current Israeli law, we may not be able to enforce covenants
not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We currently have non-competition clauses in the employment agreements
with most of our employees who have knowledge critical to our operations. The provisions of such clauses prohibit our employees, if they
cease working for us, from directly competing with us or working for our competitors. Recently, Israeli labor courts have required
employers, seeking to enforce non-compete undertakings against former employees, to demonstrate that the competitive activities of the
former employee will cause harm to one of a limited number of material interests of the employer recognized by the courts (for example,
the confidentiality of certain commercial information or a company’s intellectual property). In the event that any of our
employees chooses to leave and work for one of our competitors, we may be unable to prevent our competitors from benefiting from the expertise
our former employee obtained from us, if we cannot demonstrate to the court that we would be harmed.
15
We depend on key personnel for the success of our business.
Our success depends, to a significant extent, on the continued
active participation of our executive officers and other key personnel. In addition, there is significant competition for employees with
technical expertise in our industry. In order to succeed we would need to be able to:
| • |
retain our executive officers and key technical personnel; |
| • |
attract and retain additional qualified personnel to provide technological depth and support to enhance existing products and develop
new products; and |
| • |
attract and retain highly skilled operations, marketing and financial personnel in order to grow our business. |
We cannot make assurances that we will be successful in attracting,
integrating, motivating and retaining key personnel. If we are unable to retain our key personnel and attract additional qualified
personnel as and when needed, our business may be adversely affected.
Our ability to maintain our directors’
and officers’ insurance may be curtailed, which may adversely affect our ability to retain and attract directors and officers.
In recent years we have experienced difficulties in obtaining directors’
and officers’ insurance on reasonable terms as result of a tightening insurance market. If we are unable to continue to obtain directors
& officers’ insurance or in limits of coverage sufficient to satisfy our indemnification obligations to our directors and officers,
we may be unable to retain such directors and officers and have limited ability to attract replacements.
We may be required to make payments to satisfy our indemnification
obligations.
We have agreements with our directors and senior officers which
may require us, subject to Israeli law and certain limitations in the agreements, to indemnify our directors and senior officers for certain
liabilities and expenses that may be imposed on them due to acts performed, or failures to act, in their capacity as office holders as
defined in the Israeli Companies Law, 5759-1999, or the Israeli Companies Law. These liabilities may include financial liabilities imposed
by judgments or settlements in favor of third parties, and reasonable litigation expenses imposed by a court in relation to criminal charges
from which the indemnitee was acquitted or criminal proceedings in which the indemnitee was convicted of an offense that does not require
proof of criminal intent. Furthermore, we agreed to exculpate our directors and officers with respect to a breach of their duty of care
towards our company. On October 17, 2017, our shareholders approved an updated indemnification agreement to be entered into with our directors
and officers, and our shareholders approved an amendment thereto on December 5, 2019.
Risks Related to Our Ordinary Shares
Our share price has been volatile in the past
and may continue to be susceptible to significant market price and volume fluctuations in the future.
Our ordinary shares have experienced significant market price and
volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors
such as the following, some of which are beyond our control:
| • |
quarterly variations in our operating results; |
| • |
operating results that vary from the expectations of securities analysts and investors; |
| • |
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
|
| • |
announcements of technological innovations or new products by us or our competitors; |
| • |
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments; |
| • |
changes in the status of our intellectual property rights; |
16
| • |
announcements by third parties of significant claims or proceedings against us; |
| • |
announcements by governmental or regulatory authorities of significant investigations or proceedings against us; |
| • |
additions or departures of key personnel; |
| • |
changes in our cost structure due to factors beyond our control, such as new laws or regulations relating to environmental matters
and employment; |
| • |
future sales of our ordinary shares; |
| • |
our involvement in litigation; |
| • |
general stock market price and volume fluctuations; |
| • |
changes in the prices of our products and services; and |
| • |
devaluation of the dollar against the NIS. |
Domestic and international stock markets often experience extreme
price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession, interest
rate or currency rate fluctuations or political events or hostilities in or surrounding Israel, could adversely affect the market price
of our ordinary shares. Low trading volume may also increase the price volatility of our ordinary shares. A thin trading market could
cause the price of our ordinary shares to fluctuate significantly more than the stock market as a whole.
The voting interest of Mr. Nissan, individually
and through Nistec Golan, our controlling shareholder, may conflict with the interests of other shareholders.
Mr. Yitzhak Nissan, our Chairman of the Board and the controlling
shareholder of Nistec Golan, beneficially owned 58.7% of our outstanding ordinary shares as of March 19, 2026. Accordingly, Mr. Nissan
and Nistec Golan have the ability to exercise a significant influence over our business and affairs and generally have the power to determine
all matters submitted to a vote of our shareholders where our shares vote together as a single class, including the election of directors
and approval of significant corporate transactions. Mr. Nissan and Nistec Golan may make decisions regarding Eltek and our business that
are opposed to other shareholders’ interests or with which other shareholders may disagree. Nistec Golan’s and Mr. Nissan’s
voting power could have the effect of deterring or preventing a change in control of our company that might otherwise be beneficial to
our other shareholders.
We may in the future be classified as a passive
foreign investment company, or PFIC, which would subject our U.S. investors to adverse tax rules.
U.S. holders of our ordinary shares may face income tax risks.
There is a risk that we will be treated as a “passive foreign investment company” (“PFIC”). Our treatment as a
PFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below in “United States Federal Income Taxation”)
of our ordinary shares and would likely cause a reduction in the value of such shares. A foreign corporation will be treated as a PFIC
for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of
“passive income,” or (2) at least 50% of the average value of the corporation’s gross assets produce, or are held for
the production of, such “passive income.” For purposes of these tests, “passive income” includes dividends, interest,
gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated
parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance
of services does not constitute “passive income.” If we are treated as a PFIC, U.S. Holders of ordinary shares would be subject
to a special adverse U.S. federal income tax regime with respect to the income derived by us, the distributions they receive from us,
and the gain, if any, they derive from the sale or other disposition of their ordinary shares. In particular, dividends paid by us, if
any, would not be treated as “qualified dividend income,” eligible for preferential tax rates in the hands of non-corporate
U.S. shareholders. We believe that we were not a PFIC for the 2025 tax year. However, since PFIC status depends upon the composition
of our income and the market value of our assets from time to time, there can be no assurance that we will not become a PFIC in any future
taxable year. U.S. Holders should carefully read “United States Federal Income Taxation” for a more complete discussion of
the U.S. federal income tax risks related to owning and disposing of our ordinary shares.
17
We cannot assure you that we will pay dividends
in the future.
In November 2022, our board of directors declared the Company’s
first cash dividend, in the amount of US$0.17 per share and approximately $1 million in the aggregate. The dividend was paid in US dollars
on December 19, 2022 to all of our shareholders of record as of December 12, 2022. In November 2023, our board of directors declared another
cash dividend in the amount of $0.22 per share and in the aggregate an amount of approximately $1.3 million. The dividend was paid on
December 21, 2023, in US dollars, to all of the Company’s shareholders of record as of December 13, 2023. In April 2025, our board
of directors declared another cash dividend in the amount of $0.19 per share, and in the aggregate amount of approximately $1.3 million.
The dividend was paid on April 29, 2025, in US dollars, to all of the Company’s shareholders of record as of April 22, 2025.
The distribution of dividends is limited by the Israeli Companies
Law, according to which, a company may distribute dividends out of its Profits (the “Profitability Threshold”), provided that
there is no reasonable concern that such dividend distribution will prevent the company from paying all its current and foreseeable obligations,
as they become due (the “Solvency Threshold”). The distribution amount is limited to the “Profits”. Profits, for
purposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during the preceding two years,
after deducting previous distributions that were not deducted from the surpluses. The Profitability Threshold and the Solvency Threshold
are cumulative and our company is required to meet both thresholds in order to be able to distribute dividends. Notwithstanding the foregoing,
dividends may be paid even if not out of Profit, with the approval of a court, provided that the company can demonstrate that the Solvency
Threshold is met. An equity repurchase is generally treated as a deemed dividend for purposes of the aforementioned limitations on dividend
distributions. However, since our company is listed on an exchange outside of Israel, even if we lack the requisite Profit, we do not
need to seek court approval for an equity repurchase, provided that we notify our creditors of the proposed equity repurchase and allow
such creditors an opportunity to initiate court proceedings to review the terms of repurchase. If within 30 days of such notification
creditors do not file an objection, we may proceed with the repurchase without obtaining court approval. In the event cash dividends are
declared, such dividends will be subject to applicable Israeli withholding taxes. For additional information, see Item 10E. “Additional
Information – Taxation – Taxation of Gains Upon Disposition of, and Dividends Paid on, our Ordinary Shares.”
Risks Related to Our Organization and Location in Israel
Political, economic and military instability
in the State of Israel, including as a result of the war with Iran and the current “Iron Swords” war in Israel, where our
headquarters, members of our management team and our research and development facilities are located, may adversely affect our results
of operations.
Our executive offices and manufacturing facility are located in
Israel. In addition, all of our employees, officers and directors are residents of Israel. Accordingly, political, economic and military
conditions in the Middle East may affect our business directly. Since the establishment of the State of Israel in 1948, a number of armed
conflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region, including Hamas
(an Islamist militia and political group in the Gaza Strip), Hezbollah (an Islamist militia and political group in Lebanon) and other
terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against
civilian targets in various parts of Israel, which have negatively affected business conditions in Israel.
In October 2023, Hamas terrorists infiltrated Israel’s southern
border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks
on the Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the
State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack,
Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in
parallel to their continued rocket and terror attacks. In January 2025, Israel and Hamas entered into a ceasefire agreement, which remained
in effect until March 18, 2025, when hostilities resumed. As of October 9, 2025, Israel and Hamas entered into a renewed ceasefire agreement
calling for a permanent end of the war. However, there are no assurances that such as agreement will hold. While the conflict has created
heightened security concerns, disruptions to business operations, and economic instability, the ceasefire may contribute to improved regional
stability. However, the security situation remains fluid, and any renewed military actions, restrictions, or government-imposed measures
could adversely affect our operations, supply chains, and financial condition.
18
In addition, in April 2024 and October 2024, Iran launched direct
attacks on Israel involving hundreds of drones and missiles and has threatened to continue to attack Israel and is widely believed to
be developing nuclear weapons. In June 2025, in light of continued nuclear threats and intelligence assessments indicating imminent attacks,
Israel launched a preemptive strike directly targeting military and nuclear infrastructure inside Iran, aimed at disrupting Iran’s
capacity to coordinate or launch further hostilities against Israel, as well as to degrade its nuclear program. In response, Iran launched
multiple waves of drones and ballistic missiles at Israeli cities. While most of these attacks were intercepted, several caused civilian
casualties and damage to infrastructure. A ceasefire was reached between Israel and Iran in June 2025 after 12 days of hostilities, but
the hostilities between Israel and Iran resumed on February 28, 2026. Hezbollah rejoined the conflict as well and launched attacks against
Israel, which lead to Israel commencing a combined aerial and ground operation in south Lebanon on March 3, 2026. A broader regional conflict
involving additional state and non-state actors remains a significant risk, especially because Iran also has a strong influence among
extremist groups in the region in addition to Hezbollah, such as Hamas in Gaza, the Houthi movement in Yemen and various rebel militia
groups in Syria and Iraq. These situations may potentially escalate in the future to more violent events which may affect Israel and us.
Since the war broke out on October 7, 2023, our operations have
not been adversely affected by this situation in a material manner, and we have not experienced disruptions to our business operations.
The intensity and duration of the security situation in Israel continue to be difficult to predict, as are the economic implications on
our business and operations and on Israel’s economy in general; the continued hostilities could increase the risk of disruptions
to our business and the Israeli economy in general. The continuation of the hostilities or expansion of the armed conflict to involve
additional state and non-state actors could delay any expansion plans, increase costs, disrupt supply chains and distribution, adversely
affect demand, and materially and adversely affect our business, financial condition and results of operations.
Our commercial insurance does not cover losses that may occur as
a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed
to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that the
government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or
damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.
The continued political instability and hostilities between Israel
and its neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our
operations in Israel and adversely affect the market price of our ordinary shares. In addition, several organizations and countries may
restrict doing business with Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or
curtailment of trade between Israel and its present trading partners could adversely affect our business, financial condition and results
of operations.
At this time, it is not possible to predict the intensity or duration
of the conflict, nor can we predict how this conflict will ultimately affect Israel’s economy in general, including the potential
for further credit rating actions, changes in foreign investment, currency volatility, inflationary pressures, or reduced economic activity.
Credit rating agencies have previously taken actions with respect to Israel’s credit rating and outlook, and additional actions
or continued negative outlooks could further increase borrowing costs and contribute to market volatility. We continue to monitor the
situation closely and examine the potential disruptions that could adversely affect our operations. These situations may potentially escalate
in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability
in Israel or in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult
for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements, when necessary, in order to meet our business partners face to face.
Our results of operations may be negatively
affected by the obligation of our personnel to perform military reserve service.
Many Israeli citizens, including some of our employees, are obligated
to perform several days, and in some cases, more, of annual reserve duty in the Israeli Defense Forces until they reach the age of 40
(or older for certain reservists) and, in the event of a military conflict, may be called to active duty for extended periods of time.
Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees or
a significant number of other employees due to military service. Any disruption in our operations could adversely affect our business.
Currently, only a few of our employees have been called up to military service, none of whom are in management positions. However, if
the number of reservists in our company increases and becomes significant, our operations could be disrupted by such call-ups.
19
Service and enforcement of legal process on
us and our directors and officers may be difficult to obtain.
Service of process upon our directors and officers and the Israeli
experts named herein, all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore,
since substantially all of our assets, all of our directors and officers and the Israeli experts named in this annual report are located
outside the United States, any judgment obtained in the United States against us or these individuals or entities may not be collectible
within the United States.
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 and other
conditions, Israeli courts may enforce final judgments of United States courts for liquidated amounts in civil matters, including judgments
based upon the civil liability provisions of those and similar acts.
Provisions of Israeli law may delay, prevent
or make difficult an acquisition of us, which could prevent a change of control and therefore impact the price of our shares.
Provisions of Israeli corporate and tax laws may have the effect
of delaying, preventing or making more difficult a merger with, or other acquisition of, us or all or a significant portion of our assets.
Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions
involving significant shareholders and regulates other matters that may be relevant to these types of transactions. These provisions of
Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire
us, even if doing so would be beneficial to our shareholders. These provisions may limit the price that investors may be willing
to pay in the future for our ordinary shares. Furthermore, Israeli tax considerations may make potential transactions undesirable to us
or to some of our shareholders.
These laws may have the effect of delaying or deterring a change
in control of our company, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting
the price that some investors are willing to pay for our company’s securities. This could cause our ordinary shares to trade at
prices below the price for which third parties might be willing to pay to gain control of us. Third parties who are otherwise willing
to pay a premium over prevailing market prices to gain control of us may be unable or unwilling to do so because of these provisions of
Israeli law.
The rights and responsibilities of our shareholders
are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.
We are incorporated under Israeli law. The rights and responsibilities
of holders of our ordinary shares are governed by our memorandum of association, 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, each shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising his or her
rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his or her power in
the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli law provides
that these duties are applicable in shareholder votes on, among other things, amendments to a company’s articles of association,
increases in a company’s authorized share capital, mergers and interested party transactions requiring shareholder approval. In
addition, a controlling shareholder of an Israeli company, or a shareholder who knows that he or she possesses the power to determine
the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company,
has a duty of fairness toward the company. Currently there is not a clear definition of the duty of fairness under Israeli law.
There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These
provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically
imposed on shareholders of U.S. corporations.
20
As a foreign private issuer whose shares are
listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.
We follow Israeli law and practice instead of NASDAQ rules regarding the composition of the board of directors, director nomination process
and quorum at shareholders’ meetings.
As a foreign private issuer whose shares are listed on the NASDAQ
Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the
NASDAQ Stock Market Rules. We follow Israeli law and practice instead of the NASDAQ Stock Market Rules regarding the composition of the
board of directors, director nomination process and quorum at shareholders’ meetings. As a foreign private issuer listed on
the NASDAQ Capital Market, we may also follow home country practice regarding, for example, the requirement to obtain shareholder approval
for certain dilutive events (such as for the establishment or amendment of certain equity based compensation plans, an issuance that will
result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest
in the company and certain acquisitions of the stock or assets of another company). A foreign private issuer that elects to follow
a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel
in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws.
In addition, a foreign private issuer must disclose in its annual reports filed with the SEC, or on its website, each such requirement
that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our
shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.
The expenses incurred by public companies generally
for reporting and corporate governance purposes have been increasing.
We are subject to the reporting requirements of the Exchange Act,
the Sarbanes-Oxley Act, the Dodd-Frank Act, the Nasdaq listing rules and other applicable securities laws and regulations. The expenses
incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and
regulations to continue to increase our legal and financial compliance costs and to make some activities more difficult, time-consuming
and costly. Being a public company and being subject to such rules and regulations also makes it more expensive for us to obtain director
and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our ordinary shares,
fines, sanctions and other regulatory action and potentially civil litigation. These factors may therefore strain our resources, divert
management’s attention and affect our ability to attract and retain qualified board members and executive officers.
The termination or reduction of tax and other
incentives that the Israeli government provides to domestic companies may increase the costs involved in operating a company in Israel.
The Israeli government currently provides tax and capital investment
incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities.
In recent years, the Israeli government has reduced the benefits available under these programs and the Israeli governmental authorities
have indicated that the government may in the future further reduce or eliminate the benefits of those programs. We have taken in the
past and may take advantage of these benefits and programs again in the future, however, there is no assurance that such benefits and
programs will continue to be available to us in the future. If such benefits and programs were terminated or further reduced, it could
have an adverse effect on our business, operating results and financial condition. The government tax benefits that we currently are entitled
to receive require us to meet several conditions and may be terminated or reduced in the future.
Some of our operations in Israel may entitle us to certain tax
benefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, once we are profitable. If we do
not meet the requirements for maintaining these benefits, they may be reduced or canceled and the relevant operations would be subject
to Israeli corporate tax at the standard rate, which is set at 23% in 2018 and thereafter. In addition to being subject to the standard
corporate tax rate, we could be required to refund any tax benefits that we have already received, plus interest and penalties thereon.
Even if we continue to meet the relevant requirements, the tax benefits that our current “Benefited Enterprise” is entitled
to may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount
of taxes that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate,
which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by
way of acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefits programs.
21
| ITEM 4. |
INFORMATION ON THE COMPANY |
A. History and Development of the Company
We were incorporated under the laws of the State of Israel on January
1, 1970. We are a public limited liability company under the Israeli Companies Law, and operate under that law and associated legislation.
Our registered offices and principal place of business are located at 20 Ben Zion Gelis Street, Sgoola Industrial Zone, Petach-Tikva 4927920,
Israel and our telephone number is +972-3-9395023. Our website is www.nisteceltek.com. The information on our website is not incorporated
by reference into this annual report.
In November 2013, Nistec Ltd. acquired 50.5% of our issued share
capital and gained control of our company. In December 2018, Nistec Ltd., transferred its ownership interest in our company to Nistec
Golan Ltd. Nistec Golan and Nistec Ltd. are privately held companies indirectly controlled by Mr. Nissan, through Nistec
Holdings Ltd. Since then, Nistec Golan Ltd. and Mr. Nissan have purchased and sold shares of our company on several occasions and, as
of March 3, 2026 they jointly hold 58.7% of our company’s shares. We manufacture and supply technologically advanced custom-made
circuitry solutions for use in sophisticated and compact electronic products. We provide specialized services and are a solution
provider in the PCB business, mainly in Israel, Europe, North America and Asia. PCBs are platforms that conduct an electric current among
active and passive microelectronics components, microprocessors, memories, resistors and capacitors and are integral parts of the products
produced by high‑technology industries. Our focus is on short run quick-turnaround, prototype, pre-production and low to medium
volume runs of high-end PCB products for high growth, advanced electronics applications, mainly flex-rigid PCBs.
We design and develop innovative manufacturing solutions pursuant
to complex interconnect requirements of original equipment manufacturers, and provide our customers with a wide range of custom designed
PCBs, including complex rigid, double-sided and multi-layer PCBs as well as flexible circuitry (flex and flex-rigid boards) made of several
types of high-performance base material. To complement our quick-turnaround, prototype, pre-production and low to medium volume production
capability and provide our customers with single source service, we also act as a supplier for the importation of PCBs from South-East
Asia when customers require high volume production runs, although such activity was not significant in recent years.
During the three years ended December 31, 2025, we invested approximately
$17 million in new equipment and the expansion of our facilities and infrastructure. Subject to availability of financial resources,
we expect to invest approximately $5 million in capital expenditures in 2026, mainly for manufacturing equipment to expand our manufacturing
capacity and to upgrade our technological capabilities. We intend to finance these expenditures with cash flow from operations and our
cash balances. Our ability to satisfy our cash needs and implement our capital allocation strategy depends on our ability to generate
cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative,
regulatory, and other factors that are beyond our control. In addition to cash on hand, we sometimes rely on external financing to help
satisfy our cash needs. However, various factors affect external financing, including general market conditions, interest rate fluctuations,
and operating results. Consequently, external financing may not be available on acceptable terms or at all.
Recent Developments
On February 28, 2026, Israel and the United States launched a joint
attack on Iran, targeting key officials, military commanders and facilities, resulting in the death of Iran’s Supreme Leader and
other key officials and military commanders. In retaliation, Iran launched hundreds of ballistic missiles and drones against civilian
targets in Israel and against U.S. military bases, civilian aviation facilities and other civilian targets in several countries in the
Persian Gulf, including Jordan, Kuwait, Bahrain Qatar, Iraq, Saudi Arabia and United Arab Emirates. Hezbollah rejoined the conflict as
well and launched attacks against Israel, which lead to Israel commencing a combined aerial and ground operation in south Lebanon on March
3, 2026.The war has also led to widespread airspace closures in the region. At this time, we do not expect the current conflict to have
a material impact on our financial and operational results; however, since these are events beyond our control, their continuation or
cessation may affect our expectations. We continue to monitor political and military developments closely and examine the consequences
for our operations, assets and financial and operational results.
22
B. Business Overview
Industry Overview
Printed circuit boards (PCBs) are fabricated from a variety of
base materials and may be double-sided or multilayered, constructed as rigid, flexible, flex rigid, or high frequency types. Essentially,
PCBs serve as platforms that conduct electrical signals among active and passive microelectronic components, such as microprocessors,
memory devices, resistors, and capacitors. Photolithographic processes transfer the circuit images onto individual layers, which are then
etched using chemical processes. The main categories of PCBs include:
Rigid PCBs. Rigid
PCBs represent the core product of the industry and are used in virtually all electronic devices. The layer count typically ranges from
2 to 30, although some PCBs may comprise up to 42 layers.
Flexible and flex‑rigid
PCBs. Flexible PCBs are thin, lightweight circuits used to interconnect other boards and electronic components within various
devices. Flex rigid PCBs combine rigid sections with flexible layers and generally range from 2 to 30 layers. These products are suitable
for applications that impose space or shape constraints, or require highly reliable interconnections. They are commonly used in military
(primarily avionics), medical, measurement, and automotive systems, among others.
Backplanes. Backplanes
are large, high-density circuit boards with design features such as tightly controlled finished hole sizes that demand precise process
management. These products, commonly referred to as motherboards, contain connectors that receive and interconnect additional PCBs. They
are primarily used in telecommunications and data communication systems.
PCB manufacturers are generally classified by two main parameters:
product sophistication and service sophistication. Product sophistication reflects a manufacturer’s ability to produce PCBs with
higher layer counts and more complex structures, as well as finer line widths and spacing. State of the art high density interconnect
(HDI) technology enables the production of PCBs with line widths and spacing as narrow as 2–3 mils and hole diameters between 4
and 6 mils.
Industry Trends
We believe that several trends are impacting the PCB manufacturing
industry. These trends include:
Shorter electronic product life
cycles. Continual advances in technology have shortened the life cycles of complex commercial electronic products, placing
greater pressure on manufacturers to quickly bring new products to market. The accelerated time-to-market and ramp-to-volume needs of
manufacturers for high-end commercial equipment create opportunities for PCB manufacturers that can offer engineering support in the prototype
stage and manufacturing scalability throughout the production life cycle.
Increasing complexity of electronic
products. Manufacturers continue to design higher performance electronic products which take advantage of advances in semiconductor
technology. This in turn requires technologically complex PCBs that can accommodate higher speeds and component densities, including HDI,
flexible and substrate PCBs. These complex PCBs can require very high layer counts, miniaturized circuit connections, advanced
manufacturing processes and materials, and high-mix production capabilities, which involve processing small lots in a flexible manufacturing
environment. Manufacturers increasingly rely upon larger PCB manufacturers, which possess the financial resources necessary to invest
in advanced manufacturing process technologies and sophisticated engineering staff, often to the exclusion of smaller PCB manufacturers
that do not possess such technologies or resources.
Decreasing concentration of global
PCB production in China. During the past decade, many electronics manufacturers have moved their commercial production to Asia
to take advantage of its exceptionally large, relatively low-cost labor pool. In particular, the trend has favored China, which
according to industry sources has the largest PCB market in terms of both revenue and number of suppliers. The overall technical capability
of suppliers in China has improved dramatically in recent years, and China has emerged as a global production center for cellular phones,
smartphones, tablet PCs, computers and computer peripherals, and high-end consumer electronics. Due to geopolitical dynamics, in
recent years there has been a clear shift of PCB manufacturing from China to “green” countries like India, South Korea, Thailand
and others. The trend also extends to Chinese companies, who choose to build new plants outside of China, mainly in Thailand.
23
Decreased reliance on multiple
PCB manufacturers. Manufacturers traditionally have relied on multiple PCB manufacturers to provide different services as
an electronic product moves through its life cycle. The transfer of a product among different PCB manufacturers often results in
increased costs and inefficiencies due to incompatible technologies and manufacturing processes and production delays. In addition,
manufacturers generally find it easier and less costly to manage fewer PCB manufacturers. As a result, manufacturers are reducing the
number of PCB manufacturers and backplane assembly service providers on which they rely, presenting an opportunity for those that can
offer one-stop manufacturing capabilities — from prototype to volume production.
Increased requirements for aerospace
and defense products. The aerospace and defense markets are characterized by increasingly time-consuming and complex certification
processes, long product life cycles, and a demand for leading-edge technology with extremely high reliability and durability. While the
Department of War budget faces increasing scrutiny as part of overall U.S. budget deficit reduction efforts, we anticipate that a continued
Department of War commitment to new product development and upgrades – incorporating leading-edge PCB technology in products for
intelligence, surveillance and reconnaissance, communications and weapon systems – combined with Foreign Military Sales programs
and a recovering global commercial aerospace industry will support a significant long-term market for these products. In addition, the
current political climate in various parts of the world has led to an increased demand for defense and aerospace applications world-wide.
This has resulted in heightened interest from countries looking to upgrade their military capabilities and secure their borders. The situation
has also sparked a renewed focus on national security, with governments investing more resources towards strengthening their defense systems.
These trends are reflected in a significant increase in the volume of orders.
Shortage of key raw materials.
PCB manufacturers obtain their key raw materials from a few suppliers. Any delays in delivery of or shortages in these raw materials could
interrupt and delay manufacturing of PCB products and may result in the cancellation of orders for our products. If a raw material or
component supplier fails to satisfy our product quality standards, including standards relating to “conflict minerals” it
could harm our customer relationships. Furthermore, if we are unable to identify an alternative source of raw material or component
supplier, we may have to modify our products or a large portion of our production process to use a substitute raw material, which requires
customers’ consent of use of such materials and which may cause delays in production and shipments, increased design and manufacturing
costs and increased prices for our products. In addition, price increases for our principal raw materials may materially affect our operating
margins and future profitability.
Introduction of new disruptive
technologies. The traditional PCB production method is subtractive, commencing from an intact copper on the surface of the dielectric,
which is reduced and etched using a lithography process. In recent years, a new technology has been introduced, the mSAP/SAP, an additive
method, in which the copper in the photolithographic processes is enlarged on the basis of a predefined mold. The advantage of this production
method is the ability to utilize a limited path area on which are compressed a large number of processors with a conductor space/width
of less than 25 microns. These new semi-additive and fully additive technologies for ultra-dense (1/1 mil line/space) topography are gaining
traction and are affecting the conventional industries including us. If found to be cost effective and reliable we may need to adopt such
production capabilities in the future.
Manufacturing and Engineering Processes
Continued significant investments in equipment are necessary in
order to maintain technological competitiveness in the PCB industry. During the three years ended December 31, 2025, we invested approximately $17
million in machinery and equipment for that purpose.
Manufacturing Capabilities.
We have the capability to manufacture PCBs having up to 40 layers. Flex-rigid boards consist of blind and buried vias and designs using
materials as thin as 1 mil. We receive orders for production with turnaround times of generally between several days to two months.
We are able to produce short runs of five to 30 units of simple type PCBs within four to five working days, and a few hundred units within
ten working days, and are capable of producing such number of boards within five working days when production line scheduling permits.
24
In the beginning of 2022, we decided to accelerate our investment
program in machinery and equipment. The program includes investments in new production lines as well as in infrastructure in order to
enable us to increase our production capabilities as well as our efficiency. The program includes investments of $15 million and the majority
of its implementation is expected to conclude by the end of 2026. During 2025, we enhanced our production capabilities through the installation
of several new machines and production lines. These include a new outer layer development line, an Alpha prep line for layer preparation
prior to lamination, a Flying Probe electrical testing system, and a new planarizer machine integrated into the via-filling process. We
expect that the program will allow us to increase our sales by $10-15 million annually, to around $60 million, based on the continuity
of the increased demand for our products. Due to the complexity of the investment program, we may encounter delays in the schedule and
the completion of our investments.
Computer Aided Design/Computer
Aided Manufacturing (CAD/CAM). We utilize a state-of-the-art CAD system developed by Frontline PCB Solutions Ltd., an Israeli-based
company, and can receive CAD data by electronic data transmission. Our CAD workstations perform design rule checks on transmitted
designs, incorporate any customer-specific design modifications and perform manufacturability enhancements that increase PCB quality.
Advanced Finishing Capabilities
for Dense Packaging Designs. We provide a wide assortment of alternative surface finishes, including hot air solder leveling, E-less
nickel (ENIG), E- less nickel & palladium (ENEPIG), hard& soft electrolytic gold, immersion silver, outsource nickel/palladium/gold
and immersion tin, for component soldering.
Other Advanced Process Capabilities.
We provide fabrication of dense multi-layer PCBs. We use an advanced inner-layer production line, a direct laser imaging system, mechanical
and laser drilling equipment and clean room environments (ISO-7) to produce technologically advanced products.
Quality, Environmental and Safety
Standards. Our quality management system has been ISO 9001:2015 certified since July 2002 and AS9001D certified since 2012.
Such certification is based on successful implementation of quality assurance requirements and includes ongoing monitoring of our business
and periodic compliance audits conducted by the Israeli Institute of Standards. We have obtained United States Department of Defense
Qualified Product List approval (MIL-PRF-55110G and MIL-P-50884E) for our products. Since 1976, our rigid glass epoxy (FR4 and FR5)
and flex-rigid boards have been UL 94V-0 certified by Underwriters Laboratories Inc and we are in the process of adding additional raw
materials. (a standards organization that offers product safety testing and certification of product safety). Our environmental
management system has been ISO 14001:2015 certified since 2005. We are ISO 45001:2018 certified for occupation health and safety management
systems since December 2007.
Sales, Customers and Marketing
Sales. In the years
ended December 31, 2025, 2024 and 2023, the primary industries for which we produced PCBs were defense and aerospace equipment (73%, 65%
and 51% of production, respectively), medical equipment (7%, 6%, and 7% of production, respectively), industrial equipment (9%, 13% and
14% of production, respectively), distributors, contract electronic manufacturers and others (11%, 16% and 28% of production, respectively).
Customers. During
the year ended December 31, 2025, we provided PCBs to approximately 109 customers in Israel and approximately 66 customers outside
of Israel. Our customers outside of Israel are located primarily in North America, the Netherlands, India, Italy, Romania and Uruguay.
Sales to non-Israeli customers were $16.5 million (32% of revenues) for the year ended December 31, 2025, $15.9 million (34% of revenues)
for the year ended December 31, 2024 and $20.0 million (42.7% of revenues) for the year ended December 31, 2023. In the years ended December
31, 2025, 2024 and 2023, a group of companies accounted for 18.3%, 8.3% and 13.7%, of our total revenues, respectively, and another group
of companies accounted for 6.0%, 15.5% and 14.0% of our total revenues, respectively.
Marketing. We market and
sell our products primarily through our direct sales personnel, sales representatives and through PCB trading and manufacturing companies.
We currently have six direct salespersons, of which five persons are located in Israel and one person is located in the United States.
In North America, we market and sell our products through Eltek USA as well as through independent local sales representatives. PCB trading
and manufacturing companies act as distributors of our products in the Netherlands, Italy, and South Africa. In India, we market
our products through a local sales representative. We maintain technical support services for our customers worldwide. We also maintain
customer service support centers that handle all logistical matters relating to the delivery of our products and receive and handle complaints
relating to delivered products. Our customer service personnel currently consist of five persons.
25
Our strategy is to focus on the high end of the PCB market, mainly
in flex-rigid PCBs, in which margins are better. We are currently focusing our marketing efforts on the defense and medical industries.
To penetrate the U.S. defense market, we applied for ITAR registration from the U.S. Department of State, Bureau of Political-Military
Affairs, which we received in January 2009. ITAR regulates the manufacture, export and transfer of defense articles, information and services.
ITAR is a set of U.S. government regulations that controls the export and import of certain defense-related articles and services.
The regulations restrict sensitive information and technologies only to be shared with U.S. persons, unless special approval is acquired.
To qualify for ITAR registration, we met strict requirements for corporate structure, security, record keeping and procedures to allow
us to sell our PCBs for use in U.S. defense products. Following said registration, we bid on and won an MLA (manufacturing license agreement)
with DDTC, supporting the manufacturing of boards for the Department of War and defense and aerospace contractors in Israel. In November
2009, we became certified to the AS 9100B quality management standard for the avionic industry in order to strengthen our position in
the avionic and aerospace market in North America and Europe. In January 2014, we received accreditation from Nadcap, a global cooperative
accreditation program for aerospace engineering and related industries, for our advanced circuitry solutions, including rigid and flex-rigid
printed circuit boards.
Starting in 2021, we have a dedicated sales team for commercial
activities whose members cooperate with reliable PCB manufacturers from the Far East.
In the past two years, we have been expanding our commercial offering
by entering into agreements with Asian manufacturers who are able to manufacturer variety of applications, including complex boards.
We have ongoing programs to upgrade our processes by implementing
high-quality standards, employee training and special training activities for clients. Marketing efforts include recruiting independent
sales representatives in various geographic areas, the distribution of promotional materials, seminars for engineers, and the supply of
technical information to business publications.
Materials and Supplies
The materials used in the manufacture of PCBs are primarily laminates
(copper clad, with an isolating core separating them), prepreg composite materials, photo-chemical films, chemicals and inks. The materials
we use are manufactured in Europe, North America and South-East Asia. Some of the materials are purchased directly from the manufacturer,
while others are purchased from local distributors.
We, like most PCB manufacturers, generally obtain our key raw materials
from a few suppliers. Any delays in delivery of or shortages in these raw materials could interrupt and delay manufacturing of PCB products
and may result in the cancellation of orders for our products. If a raw material or component supplier fails to satisfy our product quality
standards, including standards relating to “conflict minerals” it could harm our customer relationships. Furthermore, if we
are unable to identify an alternative source of raw material or component supplier, we may have to modify our products or a large portion
of our production process to use a substitute raw material, which requires customers’ consent of use of such materials and which
may cause delays in production and shipments, increased design and manufacturing costs and increased prices for our products.
Competition
The global PCB industry is highly fragmented and intensely competitive,
trends that we believe will continue and even intensify. The global PCB industry is characterized by rapidly changing technology, frequent
new product introductions and rapidly changing customer requirements. We compete principally in the market of high-end complex Rigid-Flex,
multi lamination HDI, RF boards and Mixed-material multi-layer PCBs. In the Israeli market, we mainly compete with the Israeli firm PCB
Technologies Ltd., and few major PCB trading companies like Fineline, NCAB and others. The trading companies are importing PCBs mainly
from Asia, and some from North America and Europe. In the past two years, we have identified a trend of increased competition from manufacturers
in India and South Korea, who are working directly with Israeli e defense and aerospace customers. In the European market we mainly compete
with Advanced Circuit Boards NV (Belgium), Dyconex and Cicor (Switzerland), Graphics, Exception PCB and Invotec (United Kingdom), Cistelaier
and Somacis (Italy), Schoeller-Electronics GmbH (formerly Ruwel Werke GmbH) (Germany) and certain other German companies. In the
North American market, we mainly compete with TTM, Inc. (previously known as DDi Corp and Viasystems), Summit, Printed Circuits, Inc.
and APCT. Many of these competitors have significantly greater financial, technical and marketing resources than us. Although capital
requirements are a significant entry barrier for manufacturing complex PCBs, the basic interconnect technology is generally not protected
by patents or copyrights. Our competition in the rigid PCB segment comes mainly from PCB manufacturers in the Far-East, which have substantially
lower production costs than us. Continued competitive pressures could cause us to lose market share and reduce prices.
26
Backlog
Due to the costs involved, our customers are increasingly reluctant
to maintain inventory and refrain from placing orders significantly in advance. Accordingly, the backlog outstanding at any point in time
is not necessarily indicative of the level of business to be expected in the ensuing period.
Our backlog on December 31, 2025 was approximately $15.8 million
compared to a backlog of approximately $23.1 million on December 31, 2024. We expect to deliver most of our December 31, 2025 backlog
in 2026. We include in our backlog all purchase orders scheduled for delivery within the next 24 months.
Environmental Matters
Our environmental management system has been ISO 14001 certified
since May 2003. This certification was based on successful implementation of environmental management requirements and includes ongoing
monitoring of our processes, raw materials and products. The certification is subject to periodic compliance audits conducted by
the Israeli Institute of Standards.
PCB manufacturing requires the use of metals and chemicals classified
as hazardous substances. Water used in the manufacturing process must be treated to remove metal particles and other contaminates
before it can be discharged into the local sewer systems. We operate and maintain effluent water treatment systems and use approved
testing procedures at our manufacturing facilities. There is no assurance, however, that violations will not occur in the future.
We are also subject to environmental laws and regulations relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Environmental laws and regulations could become more stringent over time, including,
inter alia, in view of the Integrated Environmental Permitting Reform, that is entering into force gradually, which is based on consolidating
the air emissions permit, the poison permit, and the additional conditions for the business license issued by the Ministry of Environmental
Protection into a single consolidated permit, and aligning the regulation with the European standard, and the costs of compliance with
more stringent laws could be substantial. Our operation is subject to various regulatory requirements in connection with the discharge
of wastewater into the sewer system, including regulations that limit the concentration of metals and other contaminants discharged, the
breach of which constitutes a criminal offense. Over the years, we have undertaken various actions to reduce the use of water in
our manufacturing facilities, and invested in improving our effluent wastewater treatment system to lower the amounts of inorganic salts
and copper concentration in the discharged water.
In March 2019, representatives of the Ministry of Environmental
Protection inspected our premises and issued a warning related to an alleged breach of the Clean Air Law and a warning related to the
Hazardous Materials Law (1993).
On July 18, 2022, we received a notification from the Ministry
of Environmental Protection about its intention to impose a penalty of approximately $0.1 million for an alleged breach of the Hazardous
Materials Law (1993). We have filed a request to reduce the amount of the penalty. In June 2023, the Ministry of Environmental Protection
decided to partially accept our request, reducing 20% of the amount of the financial sanction. We paid the penalty following the reduction.
In January 2023, we received a notification from the Ministry of
Environmental Protection about its intention to impose a penalty of approximately $0.6 million for an alleged breach of the Clean Air
Law during the years 2019-2020. We have paid this penalty and recorded a relevant expense in our financial statements. We filed an administrative
appeal to reduce the penalty to obtain a refund for a portion of the penalty. In February 2024, the court hearing the administrative petition
ruled that we should receive a 10% refund of the amount of the penalty that we paid. Such refund was received and recorded.
27
In October 2023, we received a notice from the Ministry regarding
some suspicion of contamination of the soil from a drilling survey that was performed in May 2021 at the factory. On January 24, 2024,
representatives of the Ministry visited the Company's facility and informed us that an additional survey of the soil and groundwater in
the facility area would be required. On June 2025, we received a request from the Water Authority to carry out a preliminary investigation
of the groundwater at the facility. We submitted our proposed investigation plan, which has been approved, and is expected to be carried
out in the coming months. We are still in discussions with the ministry regarding the scope of a soil survey. We expect to hold a formal
meeting with the Ministry on this matter, particularly as the facility’s poison permit includes instructions on the subject, including
applicable deadlines.
In February 2026, we received a summons for a hearing from representatives
of the Ministry of Environmental Protection in connection with two hazardous materials incidents that occurred during 2025. The hearing
is scheduled to take place in April 2026. We are unable to assess the outcome of this hearing.
If we are found to be in violation of environmental laws in the future, we could be
liable for fees, damages, costs of remedial actions and a range of potential penalties and could also be subject to revocation of permits
necessary to conduct our business or any part thereof. Any such liability or revocation could have a material adverse effect on our business,
financial condition and results of operations.
Intellectual Property Rights
Our success depends in part on our proprietary techniques and manufacturing expertise,
particularly in the area of manufacturing complex multi-layer and flex-rigid PCBs. Like many companies in the PCB industry, we do not
hold any patents and rely principally on trade secret protection of our intellectual property. We believe that, because of the rapid pace
of technological change in the electronics industry, the legal protections for our products are less significant factors in our success
than the knowledge, ability and experience of our employees, the frequency of product enhancements and the timeliness and quality of support
services that we provide.
C. Organizational Structure
In July 2007, we established Eltek USA Inc., a wholly-owned subsidiary incorporated
in Delaware, to manage our sales and marketing activities in the North American market.
D. Property, Plants and Equipment
Leased Facilities
Our executive offices, as well as our design, production, storage
and shipping facilities, aggregating approximately 90,000 square feet, are located in an industrial building in the Sgoola Industrial
Zone of Petach-Tikva, Israel. In 2020, we signed an amendment to the lease agreement which extends the lease contract until February 2027
with a 7% increase in rent, with an option to extend the lease for an additional five-year period with an additional 3% increase in rent,
which will expire in February 2032. In January 2026 we signed an additional amendment to the lease extending it until the end of 2039,
without changes to the rent increase mechanism, and with a 50% discount on several months of rent, reflecting compensation from
the landlord for improvements made by us to the leased property. In the year ended December 31, 2025, we incurred $1.2 million of leasing
expenses for these premises.
|
ITEM 4A. |
UNRESOLVED STAFF COMMENTS
|
Not applicable.
28
| ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. Operating Results
The following discussion of our results of
operations should be read together with our consolidated financial statements and the related notes, which appear elsewhere in this annual
report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve
risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.
Overview
We develop, manufacture, market and sell PCBs, including HDI multi-layered
and flex-rigid boards for electronic devices. Our principal customers include manufacturers of medical equipment, defense and aerospace
equipment, industrial equipment, and telecom and networking equipment, as well as contract electronic manufacturers. We have our principal
offices and production facilities in Israel and a marketing subsidiary in the United States.
Our consolidated financial statements appearing in this annual
report are prepared in dollars in accordance with U.S. GAAP. Our functional currency is the NIS. The consolidated financial statements
appearing in this annual report are translated into dollars at the representative rate of exchange under the current rate method. Under
such method, the income statement and cash flows statement items for each year (or period) stated in this report are translated into dollars
using the average exchange rates in effect at each period presented, and assets and liabilities for each year (or period) are translated
using the exchange rate as of the balance sheet date (as published by the Bank of Israel), except for equity accounts, which are translated
using the rates in effect at the date of the transactions. All resulting exchange differences that do not affect our earnings are reported
in the accumulated other comprehensive income as a separate component of shareholders’ equity.
Year Ended December 31, 2025 Compared with
Year Ended December 31, 2024
Revenues. Revenues
increased by 11% to $51.8 million in the year ended December 31, 2025, from $46.5 million in the year ended December 31, 2024. The increase
in revenues is primarily attributable to increased demand for our products as well as the increased capacity achieved by the installation
of new equipment.
Cost of Revenues. Cost
of revenues increased by 21% to $43.8 million for the year ended December 31, 2025, from $36.2 million for the year ended December 31,
2024. The increase in cost of revenues is attributable to the increase in revenues, increase in employee compensation costs, production
inefficiencies resulting from the investment plan and the relocation of production lines to a new area within the plant, and the devaluation
of the dollar against the NIS.
Gross Profit. Gross
profit decreased by 23% to $8.0 million for the year ended December 31, 2025, from $10.3 million for the year ended December 31, 2024.
Gross profit as a percentage of revenues decreased to 15.4% for the year ended December 31, 2025, from 22.2% for the year ended December
31, 2024. The decrease in gross profit margin is primarily attributable to increased employee compensation costs, production inefficiencies
and the devaluation of the dollar against the NIS.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses were $5.6 million in the year ended December 31, 2025, compared to $5.8
million in the year ended December 31, 2024. The decrease in expenses is mainly attributable to a reduction in management fees and executive
incentives.
Operating Profit. We recorded
an operating profit of $2.3 million in the year ended December 31, 2025, compared to an operating profit of $4.4 million in the year ended
December 31, 2024. The decrease is primarily attributable to the decrease in gross profit.
Financial Expenses, Net.
Financial expenses, were $1.3 million in the year ended December 31, 2025 compared to $0.7 million of financial income in the year
ended December 31, 2024. The financial expenses in 2025 was primarily attributable to the devaluation of the dollar against the NIS.
Income Tax Expense. Tax
expenses were $0.2 million in the year ended December 31, 2025 compared to $0.9 million in the year ended December 31, 2024, reflecting
the lower income in 2025.
29
Year Ended December 31, 2024 Compared with Year Ended December 31,
2023
Please see Item 5A of our Form 20-F for the year ended December
31, 2024, as amended, filed on April 8, 2025, for this comparison.
Impact of Currency Fluctuations and Inflation
Our revenues and expenses are denominated in the NIS, dollars and
Euros. Due to the different proportions of currencies our revenues and expenses are denominated in, fluctuations in rates of exchange
between NIS and other currencies may affect our operating results and financial condition. For example, the reported dollar amounts of
our NIS denominated expenses are negatively impacted in case of a devaluation of the dollar and the Euro against the NIS. The average
exchange rate for the NIS against the dollar was approximately 6.7% lower in 2025 than 2024 and the average exchange rate of the NIS against
the Euro was 2.7% lower in 2025 than 2024 and in total, these changes had a negative impact on our operating results in 2025. The average
exchange rate for the NIS against the dollar was approximately 0.73% higher in 2024 than 2023 and the average exchange rate of the NIS
against the Euro was 0.4% higher in 2024 than 2023, and in total, these changes had a positive impact on our operating results in 2024.
The following table sets forth, for the periods indicated, devaluation
or appreciation of the NIS against the most important currencies for our business, the Dollar and Euro, between December 31 each year
and December 31 of the year before.
|
Year Ended December 31,
|
||||||||||||||||||||
|
2025
|
2024
|
2023
|
2022
|
2021
|
||||||||||||||||
|
Dollar |
(12.5) |
% |
0.6 |
% |
3.0 |
% |
13.17 |
% |
(3.27) |
% | ||||||||||
|
Euro |
(1.3) |
% |
(5.4) |
% |
6.9 |
% |
6.62 |
% |
(10.76) |
% | ||||||||||
Because exchange rates between the NIS and the dollar and Euro
fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on our profitability
and period-to-period comparisons of our results. We cannot assure you that in the future our results of operations may not be materially
adversely affected by currency fluctuations.
The increase in inflation is due to many factors beyond
our control, such as rising production and labor costs, changes in the Israeli and foreign governmental policy and regulations, and movements
in exchange rates and interest rates. The Israeli national consumer price index, which is an indicator of the inflation, was 2.6%,
3.2% and 3% in 2025, 2024 and 2023, respectively. Inflation rates may increase in the future. If inflation rates rise,
the costs of our business operations may become significantly higher than anticipated, and we may be unable to pass on such higher costs
to consumers in amounts that are sufficient to cover those increasing operating costs. As a result, further inflationary pressures in
Israel, and worldwide, may have a material adverse effect on our business, financial condition and results of operations, as well as our
liquidity and profitability.
Conditions in Israel
We are incorporated under the laws of, and our executive offices,
principal production facilities and research and development facilities are located in, the State of Israel. See Item 3D. “Key Information
– Risk Factors – Risks Relating to Our Operations in Israel” for a description of governmental, economic, fiscal, monetary
or political polices or factors that have materially affected or could materially affect our operations.
Trade Relations
Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the International Finance Corporation. Israel is a member of the World
Trade Organization and is a signatory to the General Agreement on Tariffs and Trade. In addition, Israel has been granted preferences
under the Generalized System of Preferences from Australia and Canada. These preferences allow Israel to export the products covered
by such programs either duty-free or at reduced tariffs. Israel is also a member of the Organization for Economic Co-operation and
Development, or the OECD, an international organization whose members are governments of mostly developed economies. The OECD’s
main goal is to promote policies that will improve the economic and social well-being of people around the world.
30
Israel and the E.U. concluded a Free Trade Agreement in July 1975
that confers some advantages with respect to Israeli exports to most European countries and obligated Israel to lower its tariffs with
respect to imports from these countries over a number of years. In 1985, Israel and the United States entered into an agreement to establish
a Free Trade Area. The Free Trade Area has eliminated all tariff and some non-tariff barriers on most trade between the two countries.
On January 1, 1993, an agreement between Israel and the European Free Trade Association, known as the EFTA, established a free-trade zone
between Israel and the EFTA nations. In November 1995, Israel entered into a new agreement with the E.U., which includes a redefinition
of rules of origin and other improvements, such as allowing Israel to become a member of the Research and Technology programs of the E.U.
In June 2014, Israel joined the E.U.’s Horizon 2020 Research and Innovation program. In recent years, Israel has established commercial
and trade relations with a number of other nations, including Russia, China, India, and most recently, UAE, and other nations in Eastern
Europe and Asia.
Effective Corporate Tax Rate
Israeli companies are generally subject to income tax on their
taxable income under the Income Tax Ordinance, 5721-1961. The regular corporate tax rate in Israel has been 23% since 2018. However, our
production facility qualifies as a “benefited enterprise” under the Law for the Encouragement of Capital Investments, 5719-1959,
as amended. We may select a “preferred enterprise” status, which will allow us to be taxed at a rate of 16% on all of our
income. For additional information see Item 10E. “Additional Information – Taxation – Tax Benefits under the Law for
the Encouragement of Capital Investments, 5719-1959” and Note 18 to our consolidated financial statements.
As of December 31, 2025, we had $10.8 million in capital loss carry
forwards, which can be offset against future capital gains in Israel without time limitation. In Israel, we have received final
tax assessments through the 1995 tax year. Tax assessments through the 2020 tax year are considered final due to the statute of limitations.
Our U.S. subsidiary has not yet received any final tax assessments since its incorporation. The subsidiary is no longer subject to federal
and state examinations for fiscal years before 2020.
In 2025, we recorded tax expenses of $0.2 million, mainly in respect
of our operations in Israel. In 2024, we recorded tax expenses of $0.9 million, mainly in respect of our operations in Israel.
B. Liquidity and Capital Resources
As of December 31, 2025, we had $12.1 million in cash and cash
equivalents and short-term bank deposits and working capital of $25.0 million compared to $17.2 million in cash and cash equivalents and
working capital of $25.8 million at December 31, 2024.
Historically, we have financed our operations through cash generated
by operations, shareholder loans, long-term and short-term bank loans, borrowings under available credit facilities, proceeds from our
initial public offering in 1997 (approximately $5.8 million), proceeds of $4.2 million from an investment in our company by Nistec in
2013, proceeds from rights offerings in March 2019 (approximately $2.5 million) and December 2020 (approximately $5.7 million) and proceeds
from an underwritten public offering in February 2024 ($10 million, before deducting underwriting discounts and offering expenses ). We
are using the net proceeds of the latest offering to strategically invest in the expansion of our production capabilities and for general
corporate purposes, including working capital.
As of December 31, 2025 we did not have any outstanding bank debt
and had unused revolving lines of credit of approximately $2.7 million with Bank Hapoalim B.M. The credit line from Bank Hapoalim B.M
is secured by specific pledge on certain assets, by a first priority charge on the rest of our now-owned or after-acquired assets and
by a fixed pledge on goodwill (intangible assets) and insurance rights (rights to proceeds on insured assets in the event of damage).
In addition, the credit line prohibits us from selling or otherwise transferring any assets except in the ordinary course of business
or from placing a lien on our assets without the bank’s consent. The credit facility may not remain available to us in the future.
Our working capital requirements and cash flow provided by our
operating and financing activities are likely to vary greatly from quarter to quarter, depending on the following factors: (i) the timing
of orders and deliveries; (ii) net profit in the period; (iii) the purchase of new equipment; (iv) the build‑up of inventories;
(v) the payment terms offered to our customers; and (vi) the payment terms offered by our suppliers.
31
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
Year ended December 31, |
2025
|
2024
|
2023
|
|||||||||
|
($ in thousands) |
||||||||||||
|
Net cash provided by operating activities |
1,146 |
4,540 |
8,862 |
|||||||||
|
Net cash used in investing activities |
(5,331 |
) |
(15,871 |
) |
(2,959 |
) | ||||||
|
Net cash provided by (used in) financing activities |
(1,240 |
) |
9,608 |
(3,806 |
) | |||||||
|
Effect of translation adjustments
|
331 |
20 |
(185 |
) | ||||||||
|
Net increase (decrease) in cash and cash equivalents |
(5,094 |
) |
(1,703 |
) |
1,912 |
|||||||
|
Cash and cash equivalents at beginning of year |
7,575 |
9,278 |
7,366 |
|||||||||
|
Cash and cash equivalents at end of year |
2,481 |
7,575 |
9,278 |
|||||||||
The changes in assets and liabilities reflected in the cash flow
statement do not correspond exactly to the respective amounts in the balance sheets included with this annual report, mainly because our
functional currency is the NIS and our reporting currency is the dollar.
Net cash provided by operating activities was $1.1 million in the
year ended December 31, 2025. This amount was primarily attributable to our pre-tax income of $0.8 million, non-cash expenses in the amount
of $4.0 million, less increases in working capital items of $3.7 million. Net cash provided by operating activities was $4.5 million in
the year ended December 31, 2024. This amount was primarily attributable to our pre-tax income of $5.1 million, depreciation of fixed
assets of $1.5 million and a net increase in working capital items of $2.0 million. Net cash provided by operating activities was $8.9
million in the year ended December 31, 2023. This amount was primarily attributable to our pre-tax income of $7.7 million, depreciation
of fixed assets of $1.3 million and a net increase in working capital items of $0.5 million.
Net cash used in investing activities was $5.4 million in the year
ended December 31, 2025, compared to $15.9 million in the year ended December 31, 2024, and $3.0 million in the year ended December 31,
2023. Net cash used in investing activities in each of the three years ended December 31, 2025 was primarily for the purchase of
fixed assets for our production lines and leasehold improvements. In 2024 and 2023 it included also investment in short-term bank deposits
in the amount of $6.4 million and $2.7 million respectively, and in 2023 a repayment from our insurance company in the amount of $2 million.
In 2025 it also included proceeds from short-term deposits in the amount of $0.5 million.
Net cash used in financing activities was $1.2 million in the year
ended December 31, 2025, which was primarily attributable to dividend distribution. Net cash generated from financing activities was $9.6
million in the year ended December 31, 2024, which was primarily attributable to the $9.3 million proceeds from a public offering
of our ordinary shares. Net cash used in financing activities was $3.8 million in the year ended December 31, 2023, which was primarily
attributable to the $3.3 repayment of long-term loans and dividend distribution of $1.3 million.
Capital expenditures on a cash basis for the years ended December
31, 2025, 2024 and 2023 were approximately $5.4 million, $9.5 million and $2.4 million, respectively. Our capital expenditures in such
periods mainly related to our investments in production and manufacturing equipment, and in leasehold improvements.
We expect to finance our 2026 operations from our cash flow from
operations and cash balances. Although we anticipate that these capital resources will be adequate to satisfy our liquidity requirements
through 2026, our liquidity could be negatively affected by the ongoing hostilities in our region, which could have an adverse effect
on the global markets and on our operations, shortage in raw materials, continued operational difficulties in our manufacturing and a
decrease in demand for our products, including the impact of changes in customer buying that may result from the general economic downturn,
the stability of the dollar/NIS exchange rate, our results of operations, our suppliers’ payment terms, our customers’ demand
for extending their payment terms and other factors detailed in Item 3D “Key Information - Risk Factors”. If available
liquidity is not sufficient to meet our operating as they come due, we would need to pursue alternative financing arrangements or reduce
expenditures to meet our cash requirements through 2026. Such additional financing may not be available to us or, if available, may not
be obtained on terms favorable to us, and there is no assurance that we would be able to reduce discretionary spending to provide the
required liquidity.
32
C. Research and Development, Patents and Licenses
During December 2022, we received final approval from the Israel
Innovation Authority (“IIA”) for a 40% participation in an approximately $800,000 one-year development program, which started
in January 2023. The program was extended for an additional 20 months until September 2025. During 2025, the program was discontinued
due to a technological failure.
D. Trend Information
Other than as disclosed elsewhere in this Annual Report, we are
not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely
to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed
financial information to be not necessarily indicative of future results of operations or financial condition.
E. Critical Accounting Estimates
The preparation of our consolidated financial statements and other
financial information appearing in this Annual Report requires our management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate on an
on-going basis these estimates, mainly related to inventory, deferred tax assets and share based compensation expenses.
We base our estimates on our experience and on various assumptions
that we believe are reasonable under the circumstances. The results of our estimates form the basis for our management’s judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, which could result in a decline in the trading price of our ordinary shares.
In addition to our results determined in accordance with GAAP,
we believe certain non-GAAP financial measures and key metrics may be useful in evaluating our operating performance. We sometimes in
our filings present EBITDA, and intend to continue to present this non-GAAP financial measure and key performance metrics in future filings
with the SEC and other public statements. Any failure to accurately report and present our non-GAAP financial measures and key performance
metrics could cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect
on the trading price of our ordinary shares.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of the financial information included in this annual report:
Inventory
We are required to state our inventories at the lower of cost or
net realizable value. Cost is determined on the weighted average basis for raw materials. For work in progress and finished
goods, the cost is determined based on calculation of accumulated actual direct and indirect costs. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
We periodically evaluate the inventory quantities on hand relative
to historical and projected sales volumes, current and historical selling prices and contractual obligations to maintain certain levels
of parts. Based on these evaluations, inventory write-offs are provided to cover risks arising from slow-moving items, discontinued products,
excess inventories, market prices lower than cost and adjusted revenue forecasts. Any write-off is recognized in our consolidated statements
of income as cost of revenues.
The process for evaluating these write-offs often requires us to
make subjective judgments and estimates concerning future sales potential at which such inventory will be sold in the normal course of
business. Incorrect estimates of future sales potential may cause actual results to differ from the estimates at the time such inventory
is disposed of or sold. Given the significant assumptions required and the possibility that actual conditions will differ, we consider
the valuations to be a critical accounting estimate.
Recently Issued Accounting Standards
See Note 2v to our 2025 consolidated financial statements.
33
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
Directors
Set forth below are the name, age, principal position and a biographical description of each of our directors:
|
Name |
Age |
Position |
|
Yitzhak Nissan (3)
|
76 |
Chairman of the Board of Directors |
|
Mordechai Marmorstein (1)(2)
|
79 |
Director |
|
David Rubner(4) |
85 |
Director |
|
Erez Meltzer(4) |
68 |
Director |
|
Revital Cohen-Tzemach |
42 |
Director |
|
Gad Dovev(1)(2)(3)(4)
|
79 |
External Director |
|
Ilana Lurie (1)(2)(3)(4)
|
53 |
External Director |
__________________________
(1) Member of our audit committee
(2) Member of our compensation committee
(3) Member of our banking committee
(4) Member of the Special Independent Committee for M&A purposes
At our 2025 annual general meeting held on September 18, 2025,
our shareholders re-elected Messrs. Yitzhak Nissan, Mordechai Marmorstein, David Rubner, Erez Meltzer and Ms. Revital Cohen-Tzemach, to
serve as directors until our 2025 annual general meeting of shareholders. Mr. Gad Dovev was elected to serve as an external director
for a fourth three-year term at our 2023 meeting of shareholders. Ms. Ilana Lurie was elected to serve as an external director for a third
three-year term at our 2024 meeting of shareholders. On August 13, 2025, our audit committee and board of directors determined that Mordechai
Marmorstein has the accounting and financial expertise required under the Israeli Companies Law and the Relief Regulations in order to
continue serving as an independent director beyond the maximal three three-year periods set forth in the Israeli Companies Law, and therefore
Mr. Marmorstein was nominated as an independent director for an additional three-year term.
Yitzhak Nissan
has served as the Chairman of our board of directors since November 2013, and is a member of our banking committee. From October 2014
to July 2018, Mr. Nissan also served as our Chief Executive Officer. Mr. Nissan is the founder of Nistec Group and has served as its chief
executive officer since 1985. Mr. Nissan served as a member of ILTAM (Israeli Users’ Association of Advanced Technologies in Hi-Tech
Integrated Systems) Presidential Board between 2008 and 2009, and as a Presiding Member of the Israeli Association of Electronics and
Software Industries between 2012 and 2022. Mr. Nissan also established the VPs Operations Forum, which brings thought leadership to 200
VPs of operations from diverse hi-tech companies in Israel. In 2008, Mr. Nissan received the Distinguished Industry Award from the
mayor of Petach Tikva Municipality. In 2019, Mr. Nissan was awarded a “notable person” award by the city of Petach Tikva.
Mr. Nissan holds a B.Sc. degree in Electronic Engineering from the University of Buffalo, New York.
34
Dr. Mordechai
Marmorstein has served on our board of directors since October 2013 and is a member of our audit and compensation committees. From
1992 to 2001, Dr. Marmorstein was the chief financial officer of Pazchim Co. Ltd. Dr. Marmorstein was also an internal auditor and
accountant at Negev Phosphate Works. Dr. Marmorstein served as the chairman of Teshet (Tourist Enterprises and Aviation Services Co. Ltd.),
a subsidiary of El-Al, the Israeli national airline, from 1999 to 2000. Dr. Marmorstein holds a B.A. degree in Economics, an M.A.
degree in Contemporary Jewry Studies and a Ph.D. in Jewish History Studies, all from Bar-Ilan University.
David Rubner
has served on our board of directors since October 2013. Mr. Rubner is the chairman and chief executive officer of Rubner Technology Ventures
Ltd. Previously, he was a partner in Hyperion Israel Advisors Ltd., a venture capital firm. During the years 1991 to 2000, Mr. Rubner
was the president and chief executive officer of ECI Telecom Ltd. (“ECI”). Prior to that, Mr. Rubner held several senior positions
within ECI. Before joining ECI, Mr. Rubner was a senior engineer in the Westinghouse Research Laboratories in Pittsburgh, Pennsylvania.
Mr. Rubner served on the boards of Check Point Software Ltd., Radware Ltd., Telemessage International Ltd., Koor Industries Ltd., Lipman
Industries Ltd. and a number of private companies. He also serves on the boards of trustees and executive councils of Shaare Zedek
Hospital and Jerusalem College of Technology. Mr. Rubner holds a B.Sc. (Hons) degree in engineering from Queen Mary College, University
of London and an M.S. degree from Carnegie Mellon University. Mr. Rubner was awarded 14 U.S. Patents and was the recipient of the Israeli
Industry Prize for 1995.
Erez Meltzer
has served as on the Board since 2009, including as its chairman from 2011 to 2013. Mr. Meltzer was the Executive Chairman of Hadassah
Medical Center from 2014 until the end of 2020. He is currently the CEO and a member of the board of directors of Nano-x Imaging Ltd.
Mr. Meltzer also serves as a director of Hadasit Bio Holding (HBL) Ltd., Mentfield Ltd., Capital Nature Ltd., GEM Pharma Ltd., Atlasense
Ltd., Supplant Ltd., Tevel Aerobotics Technologies Ltd., Xenia Ltd. and Rivulis (Plastro) Ltd. From 2008 to 2013, Mr. Meltzer served as
the Chief Executive Officer of Gadot Chemical Tankers & Terminals Ltd. From 2006 to 2007, Mr. Meltzer served as the Chief Executive
Officer of Africa Israel Group. From 2002 to 2006, Mr. Meltzer served as the President and Chief Executive Officer of Netafim Ltd. From
1999 to 2001, Mr. Meltzer served as the President and Chief Executive Officer of CreoScitex. Mr. Meltzer is a teaching Professor on Crisis
Management at Tel Aviv University since 2008. Mr. Meltzer served as a colonel in the Israeli Defense Forces – Armored Corps (reserve).
Mr. Meltzer serves as the Chairman of the Lowenstein Hospital Friends Association since 1999. Mr. Meltzer studied Economics and Business
at the Hebrew University of Jerusalem and Boston University and is a graduate of the Advanced Management Program at Harvard Business School.
Ms. Revital
Cohen-Tzemach has served on our board of directors since 2023 and had previously attended board meetings as a non-voting observer
(since 2022). From 2015 to 2023, Ms. Cohen-Tzemach was employed by the Company, first as a trainee in the office of the CEO, then as an
assistant to the CEO, and finally as a special project manager; currently Ms. Cohen-Tzemach is not engaged by the Company outside of her
position on the Board. From 2008 until 2014, Ms. Cohen-Tzemach served as a branch manager for Halperin Optics Ltd., a major Israeli optics
supplier. Ms. Cohen-Tzemach holds a B.Sc. degree in Optometry and an Executive M.B.A. degree from Bar-Ilan University.
Gad Dovev was
re-elected to serve as an external director in September 2023 and is a member of our audit, compensation and banking committees.
Mr. Dovev retired from the Israeli Ministry of Defense in August 2012. He served as head of the Israeli Ministry of Defense Mission
to the United States from August 2008 to August 2011. From August 2005 to August 2008, Mr. Dovev served as head of the Israeli Ministry
of Defense Mission to Germany. Prior to that, from 2001 to 2005, Mr. Dovev acted as Deputy General Manager of the Israeli Ministry
of Defense and Head of the Rehabilitation Department. From 1993 to 2001, Mr. Dovev served as Director of the Finance Department
and the Financial Comptroller of the Israeli Ministry of Defense. Mr. Dovev served as member of the board of birectors of Bank Otsar Ha-Hayal
Ltd., IMI-Israel Military Industries Ltd., Shekem Ltd. and Gapim Ltd. Mr. Dovev holds a BSc. degree in Financial and Agricultural
Administration from the Hebrew University of Jerusalem.
Ms. Ilana Lurie
was re-elected to serve as an external director in July 2024 and is a member of our audit and compensation committees. Ms. Lurie
has served as a CFO, COO and director with significant experience in international finance and operations, within both large technology
companies as well as start-ups. In the course of the last 10 years, Ilana led significant financing rounds, as well as debt restructuring
processes. Ms. Lurie played a critical role in transition from R&D to production in NovelSat and she is currently leading this activity
in IO Tech, in her capacity as CFO & COO and serving as External Director in Wearable devices (NASDAQ:WLDS). Ms. Lurie earned her
B.A. degree and an MBA degree with a specialization in Finance and Marketing from Hebrew University of Jerusalem.
35
Executive Officers
Set forth below are the name, age, principal position and a biographical
description of each of our executive officers:
|
Name |
Age |
Position |
|
Eli Yaffe |
71 |
Chief Executive Officer |
|
Ron Freund |
61 |
Chief Financial Officer |
|
Yitzhak Zemach |
50 |
Director of Operations |
|
Tomer Segev |
56 |
VP Sales and Marketing |
|
Raviv Segev |
48 |
VP Technology & Process Engineering |
|
Yaniv Luria |
51 |
Chief Information Officer |
Eli Yaffe
joined us in July 2018 as our Chief Executive Officer. Prior to joining our company, Mr. Yaffe was the President of Carmel Forge Ltd.
(Aerospace) for almost 16 years. Prior thereto Mr. Yaffe served as the President of Urdan Industries Ltd. (Defense). Previously,
Mr. Yaffe served as VP of Business Development & Strategic Planning, responsible for strategy, M&A, and business development at
Ormat Industries Ltd., including 5 years in the USA. Mr. Yaffe holds a B.Sc. degree (with distinction) from the Technion- Israel Institute
of Technology, M.Sc. degree in Mechanical Engineering from Tel Aviv University and an MBA degree (with distinction) in Finance & Marketing
from Bar Ilan University.
Ron Freund
joined us in January 2022 as our Chief Financial Officer. Mr. Freund served as the CFO of Ophir Tours Ltd. from 2015 to 2021. From 2011
to2014, Mr. Freund served as the CFO of Middle East Tube Company Ltd., an Israeli public company, traded on the Tel Aviv Stock Exchange
(TASE). In previous roles, Mr. Freund served as Deputy CEO and CFO of Soltam Systems LTD. and as a Senior Partner at Ernst & Young
Israel. Mr. Freund holds a B.A. degree in Accounting and Economics from the Hebrew University, Jerusalem, and is a licensed CPA (Israel).
Yitzhak Zemach
joined us in September 2018 as Vice President of Operations. Previously, Mr. Zemach served as the Plant Manager of Kahane Group Ltd.
from February 2011 to September 2018 and prior thereto he served as the VP Operations of Bental Electronics Systems Ltd. Previously, Mr.
Zemach served as Plant Manager of Aladdin Knowledge Systems and prior thereto he served as the Production Manager of the Nistec group.
Mr. Zemach holds a B.Sc. degree in Electronic Engineering from Ariel University and an MBA degree with distinction in IT from Bar Ilan
University.
Tomer Segev joined
us in June 2024 as Vice President of Sales and Marketing. Mr. Segev has more than 20 years of experience in executive positions of sales
& marketing, business management and business development in various leading global technology companies. Mr. Segev holds a B.Sc degree
in Physics and Materials Engineering from the Technion- Israel Institute of Technology and an MBA degree from the Kellogg-Recanati International
Executive MBA program, Tel-Aviv University.
Raviv Segev
joined us in November 2025 as Vice President of Technology & Process Engineering. Dr. Segev has extensive experience in the
industrial sector, having previously served in several senior positions in leading industrial companies in Israel. Dr. Segev holds a Ph.D.
in Chemical Engineering from the Technion- Israel Institute of Technology and an MBA degree from Ono Academic College.
Yaniv Luria
joined us in July 2024 as Chief Information Officer. From 2000 to 2021, Mr. Luria served as Director of IT at Nova Ltd. (Nasdaq: NVMI).
Between 2022 and 2023, Mr. Luria was Head of IT for R&D and Corporate Functions at Adama, and also worked with a startup company.
Mr. Luria holds a B.Sc. degree in Industrial Engineering with a specialization in Information Systems and an MBA degree, both from Ben-Gurion
University.
Ms. Revital Cohen-Tzemach is Yitzhak Nissan’s daughter. There
are no other family relationships among any of our directors and executive officers.
36
B. Compensation
The following table sets forth all compensation we paid with respect
to all of our directors and executive officers as a group for the year ended December 31, 2025.
|
Salaries, fees,
commissions and bonuses |
Pension, retirement
and similar benefits | ||
|
All directors and executive officers as a group (consisting of 12 persons)
|
$2.2 million (1)
|
$0.4 million (2)
|
| (1) |
During the year ended December 31, 2025, we paid each of our directors an annual fee of approximately $16,000 and an attendance
fee of $400 per meeting. These fees are included in the above amount. |
| (2) |
The benefits amount includes expenses for automobiles and other benefits that we provide to certain of our executive officers.
|
As of December 31, 2025, options to purchase 376,272 ordinary shares
granted to our current directors and executive officers were outstanding under our equity incentive plans at a weighted average exercise
price of $8.26 per share.
For as long as we qualify as a foreign private issuer, we are not
required to comply with the proxy rules applicable to U.S. domestic companies, including the requirement to disclose information concerning
the amount and type of compensation paid to the chief executive officer, chief financial officer and the three other most highly compensated
executive officers, rather than on an aggregate basis. Nevertheless, a recent amendment to the regulations promulgated under the Israeli
Companies Law requires us to disclose the annual compensation of our five most highly compensated officers (or all the named executive
officers if there are less than five) on an individual basis, rather than on an aggregate basis, as was previously permitted for Israeli
public companies listed overseas. Under the regulations, this disclosure is required to be included in the notice of our annual
meeting of shareholders each year or in a public document that accompanies such notice, which we furnish to the SEC under cover of a Report
of Foreign Private Issuer on Form 6-K. The Israeli Companies Law regulations permit us to refer to a report filed pursuant to the laws
of the country in which our shares are listed for trading that includes the required information in lieu of its inclusion in the notice
of annual meeting. Because of that disclosure requirement under Israeli law, we are including such information in this annual report,
pursuant to the disclosure requirements of Form 20-F.
The table below reflects the compensation granted to our five most
highly compensated office holders during or with respect to the year ended December 31, 2025. All amounts reported in the table reflect
the cost to the company, as recognized in our financial statements for the year ended December 31, 2025.
|
Name of Officer |
Position of Officer |
Compensation for services (USD)(1)
|
|||||||||||||||
|
Base salary |
Benefits and Perquisites
(2) |
Equity-
Based (3)
|
Total compensation |
||||||||||||||
|
Yitzhak Nissan (4)
|
Chairman of the Board |
417,162 |
-
|
- |
417,162 |
||||||||||||
|
Eli Yaffe |
Chief Executive Officer |
324,806 |
300,767 |
81,329 |
706,901 |
||||||||||||
|
Ron Freund |
Chief Financial Officer |
196,796 |
58,410 |
53,529 |
308,735 |
||||||||||||
|
Yitzhak Zemach |
VP Operations |
189,519 |
92,945 |
39,831 |
322,295 |
||||||||||||
|
Yaniv Luria |
Chief Information Officer |
142,299 |
69,663 |
20,678 |
232,639 |
||||||||||||
|
|
(1) |
Cash compensation amounts denominated
in NIS were converted into U.S. dollars at the rate of NIS 3.45 per $1.00 (the average exchange rate in 2025). | ||||||||||||||||||||
|
|
(2) |
Amounts reported in this column
include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent
applicable, bonuses, car related expenses, managers’ insurance and pension funds, payments to the National Insurance Institute,
advanced education funds, medical insurance, vacation allowance and other customary benefits. Bonuses represent accrued but not yet paid
bonus payments for 2025, based on several criteria, including revenues, profit, employees’ safety, yield and on time deliveries.
| ||||||||||||||||||||
|
(3) |
Represents the equity-based
compensation expenses recorded in the company’s consolidated financial statements for the year ended December 31, 2025 based on
the options’ grant date fair value in accordance with accounting guidance for equity-based compensation. | |||||||||||||||||||||
|
(4) |
Paid to Nistec as
management fees. | |||||||||||||||||||||
37
C. Board Practices
Introduction
According to the Israeli Companies Law, the role of the board of
directors is to formulate a company’s policy and to supervise the chief executive officer’s exercise of his roles and operations.
According to our articles of association, our chief executive officer has the power to appoint our other executive officers who, together
with our chief executive officer, are responsible for our day-to-day management. The board of directors may exercise any power of the
company which was not assigned to another organ of the company by law or by the articles of association. The executive officers
have individual duties as determined by our chief executive officer and board of directors.
Election of Directors
Our articles of association provide for a board of directors consisting
of no less than three and no more than nine members or such other number as may be determined from time to time at a general meeting of
shareholders. Our board of directors is currently composed of seven directors.
Generally, at each annual meeting of shareholders, directors are
elected by a vote of the holders of a majority of the voting power represented and voting at such meeting. All the members of our board
of directors (except the external directors as detailed below) may be reelected upon completion of their term of office. Directors (other
than external directors) may be removed earlier from office by a resolution passed at a general meeting of our shareholders. Our
board of directors may temporarily fill vacancies in the board or add to their body until the next annual meeting of shareholders, provided
that the total number of directors will not exceed the maximum number permitted under our articles of association.
The board of directors of an Israeli public company is required
to determine that at least one or more directors will have “accounting and financial expertise,” as defined by Israeli Companies
Law regulations. Our board of directors determined, accordingly, that at least one director must have “accounting and financial
expertise.” Our board of directors has further determined that our external directors, Mr. Gad Dovev and Ms. Ilana Lurie,
have the requisite “accounting and financial expertise.”
We do not follow the requirements of the NASDAQ Stock Market Rules
with regard to the nomination process of directors, and instead, we follow Israeli law and practice, in accordance with which our board
of directors is authorized to recommend to our shareholders director nominees for election. See Item 16G. “Corporate Governance.”
External and Independent Directors
External directors.
Under the Israeli Companies Law, Israeli companies whose shares have been offered to the public are required to appoint at least two external
directors. A person may not be appointed as an external director if (i) the person is a relative of a controlling shareholder; (ii)
the person, or the person’s relative, partner, employer or an entity under that person’s control, has or had during the two
years preceding the date of appointment any affiliation with the company, or the controlling shareholder or its relative; (iii) in a company
that does not have a controlling shareholder, such person has an affiliation (as such term is defined in the Israeli Companies Law), at
the time of his appointment, to the chairman of the board of directors, chief executive officer, a shareholder holding at least 5% of
the share capital of the company or the chief financial officer; (iv) such person is an employee of the Israeli Securities Authority or
an Israeli stock exchange; and (v) such person’s relative, partner, employer, supervisor, or an entity he controls, has other than
negligible business or professional relations with any of the persons mentioned in subsection (ii) above, even if such relations are not
maintained on a regular basis. The term “relative” means a spouse, sibling, parent, grandparent, child or child, sibling or
parent of spouse or spouse of any of the above. The term “affiliation” includes an employment relationship, a material business
or professional relationship maintained on a regular and continuous basis, control and service as an office holder excluding service as
an external director of a company that is offering its shares to the public for the first time. In addition, no person may serve
as an external director if the person’s position or other activities create or may create a conflict of interest with the person’s
responsibilities as director or may otherwise interfere with the person’s ability to serve as director. If, at the time an external
director is appointed all members of the board of directors who are not the controlling shareholders or their relatives, are of the same
gender, then that external director must be of the other gender. A director of one company may not be appointed as an external director
of another company if a director of the other company is acting as an external director of the first company at such time.
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At least one of the external directors elected must have “accounting
and financial expertise” and any other external director must have “accounting and financial expertise” or “professional
qualification,” as such terms are defined by Israeli Companies Law regulations. We have determined that our external directors,
Mr. Gad Dovev and Ms. Ilana Lurie, have the requisite “accounting and financial expertise.”
External directors are elected by shareholders. The shareholders
voting in favor of their election must include at least a majority of the shares of the non-controlling shareholders (and those who do
not have a personal interest in the matter as a result of their relationship with the controlling shareholders) of the company voting
on the matter (not including abstaining votes). This majority approval requirement need not be met if the total shareholdings of those
non-controlling shareholders (and those who do not have a personal interest in the matter as a result of their relationship with the controlling
shareholders) voting against their election represent 2% or less of all of the voting rights in the company.
External directors serve for a three-year term, which may be renewed
for two additional three-year periods through one of the following mechanisms:
| (i) |
the board of directors proposed the nominee and his appointment was approved by the shareholders in the manner required to appoint
external directors for their initial term; |
| (ii) |
a shareholder holding 1% or more of the voting rights proposed the nominee, and the nominee is approved by a majority of the votes
cast by the shareholders of the company on the matter, excluding the votes of controlling shareholders and those who have a personal interest
in the matter as a result of their relationship with any controlling shareholder and excluding abstentions, provided that the aggregate
votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their
relationship with the controlling shareholders voted in favor of the reelection of the nominee constitute more than 2% of the voting rights
in the company, and provided further that at the time of such nomination or in the two years preceding such nomination, such external
director or his relative are neither the shareholder who proposed such nomination, or a shareholder holding 5% or more of the company's
issued share capital or voting power, in each case who, or whose controlling shareholder or any entity controlled by them (i) has business
relations with the company, or (ii) is a competitor of the company; or |
| (iii) |
such external director nominates himself or herself for each such additional term and his or her election is approved at a shareholders
meeting by the same disinterested majority as required for the election of an external director nominated by a 1% or more shareholder
(as described above). |
Without derogating from the foregoing, under the Companies Regulations
(Relief for Companies Listed in a Foreign Stock Exchange), 5760-2000 (the “Relief Regulations”), a company whose shares are
traded on any of the foreign stock exchanges listed in Section 5A(c) of the Relief Regulations, such as the Company, may extend an external
director’s term of office for one or more additional three (3) year terms, if: (i) the company’s audit committee and board
of directors confirm that such extension is in the company’s best interest, given the external director’s expertise and special
contribution to the work of the board of directors and its committees; (ii) the extension is approved by the special vote required under
the Israeli Companies Law; and (iii) the external director’s overall term of office and the reasons of the audit committee
and board of directors for extending it are presented to the shareholders prior to their approval of such extension. In August 2023, the
audit committee and the board of directors have confirmed that extending Mr. Dovev’s term of office for an additional, fourth, three
(3) year term, is in the best interest of the Company and its shareholders, for the following reasons: Mr. Dovev’s deep knowledge
of the Company, gained over his many years of service as an external director, such that he is intimately familiar with both the Company’s
past practices as well as its present strategy and affairs; Mr. Dovev’s extensive prior experience as a senior official of the Israeli
Ministry of Defense, specifically in charge of different aspects of procurement, by virtue of which he offers unique guidance for Board-level
decision-making with respect to one of the Company’s main type of clients – the defense sector, in Israel and abroad; and
Mr. Dovev’s faithful attendance and participation in the meetings of our audit committee, the compensation committee and the board
of directors since his appointment as an external director.
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External directors cannot be dismissed from office unless: (i)
the board of directors determines that the external director no longer meets the statutory requirements for holding the office, or that
the external director has breached the external director’s fiduciary duties and the shareholders vote, by the same majority required
for the appointment, to remove the external director after the external director has been given the opportunity to present his or her
position; (ii) a court determines, upon a request of a director or a shareholder, that the external director no longer meets the statutory
requirements of an external director or that the external director has breached his or her fiduciary duties to the company; or (iii) a
court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable
to fulfill his or her duty or has been convicted of specified crimes. Each committee that is authorized to exercise powers that
are usually vested in the board of directors must include at least one external director and the audit committee and compensation committee
must each include all of the external directors. An external director is entitled to compensation as provided pursuant to Israeli
Companies Law regulations and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with
such service.
At the 2024 annual general meeting of shareholders, held on July
8, 2024, Ms. Ilana Lurie was re-elected, for a third three-year term as an external director. At our 2023 meeting of shareholders held
on September 8, 2023, our shareholders re-elected Mr. Gad Dovev for a fourth three-year term as an external director.
Independent Directors.
In general, NASDAQ Stock Market Rules require that the board of directors of a NASDAQ-listed company have a majority of independent directors
and its audit committee must have at least three members and be comprised only of independent directors, each of whom satisfies the respective
“independence” requirements of NASDAQ and the SEC. As permitted by NASDAQ home country rules, we do not maintain a majority
of independent directors on our Board, but instead we choose to follow Israeli law and practice which requires that we appoint at least
two external directors, as discussed above. Our audit committee however is comprised of three directors, all of whom are independent directors
under the requirements of the Israeli Companies Law, the NASDAQ and the SEC rules.
Chairman of the Board
Our articles of association provide that the chairman of the
board is appointed by the members of the board of directors. The chief executive officer (referred to as a “general manager”
under the Israeli Companies Law) or a relative of the chief executive officer may not serve as the chairman of the board of directors,
and the chairman or a relative of the chairman may not be vested with authorities of the Chief Executive Officer without shareholder approval
consisting of a majority vote of the shares present and voting at a shareholders meeting, provided that either (i) such majority includes
at least two-thirds of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in
such appointment, present and voting at such meeting; or (ii) the total number of shares of non-controlling shareholders and shareholders
who do not have a personal interest in such appointment voting against such appointment does not exceed two percent of the aggregate voting
rights in the company. Abstaining shareholders shall not be counted as part of the non-controlling shareholders, or shareholders with
no personal interest.
In addition, a person subordinated, directly or indirectly, to
the Chief Executive Officer may not serve as the chairman of the board of directors; the chairman of the board may not be vested with
authorities that are granted to those subordinated to the Chief Executive Officer; and the chairman of the board may not serve in any
other position in the company or a controlled company, but he may serve as a director or chairman of a subsidiary.
On December 29, 2016, our shareholders approved that our Chairman
of the Board would also serve as our Chief Executive Officer. In July 2018, Mr. Eli Yaffe was appointed Chief Executive Officer and Mr.
Nissan continues to serve as the Chairman of our board of directors of our company.
40
Committees of the Board of Directors
Audit Committee
Under the Israeli Companies Law, the board of directors of any
public company must establish an audit committee. The audit committee must consist of at least three directors, must include all
of the external directors and must have a majority of independent directors.
The audit committee may not include the chairman of the board of
directors, the controlling shareholder (or any of the controlling shareholder’s relatives), any director employed by the company
or by its controlling shareholder or by an entity controlled by the controlling shareholder, any director who regularly provides services
to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives
most of his or her income from the controlling shareholder. The chairman of the audit committee must be an external director. A
majority of the members of the audit committee constitutes a quorum, provided that the majority of the members present at the meeting
are independent directors (within the meaning of the Israeli Companies Law) and at least one external director is present at the meeting.
In addition, the NASDAQ Stock Market Rules require us to establish
an audit committee comprised of at least three members, all of whom must be independent directors, each of whom is financially literate
and satisfies the respective “independence” requirements of the SEC and NASDAQ and one of whom has accounting or related financial
management expertise at senior levels within a company.
Our audit committee meets at least once each quarter. Under the
Israeli Companies Law, the roles of the audit committee are (i) to identify deficiencies in the management of our business, including
in consultation with the internal auditor and our independent auditors, and to suggest appropriate courses of action to amend such deficiencies;
(ii) to define whether certain acts and transactions that involve conflicts of interest are material or and to define whether transactions
that involve interested parties are extraordinary or not, and to approve such transactions (which may be approved according to certain
criteria set out by our audit committee on an annual basis); (iii) to establish procedures to be followed in respect of related party
transactions with a controlling shareholder (where such are not extraordinary transactions), which may include, where applicable, the
establishment of a competitive process for such transaction, under the supervision of the audit committee, or individual, or other committee
or body selected by the audit committee, in accordance with criteria determined by the audit committee; (iv) to determine whether to approve
related party transactions, that are subject to the audit committee’s approval according to the Israeli Companies Law; (v) to determine
procedures for approving certain related party transactions with a controlling shareholder, which having been determined by the audit
committee not to be extraordinary transactions, were also determined by the audit committee not to be negligible transactions; (vi) in
companies where the internal auditor’s work plan is subject to board of directors’ approval, to examine and propose revisions
to the internal auditor's work plan before it is presented to the board of directors; (vii) to examine the performance of our internal
auditor and whether he is provided with the required resources and tools necessary for him to fulfill his role, considering, among others,
the company’s size and special needs, and to review his annual plan and approve it should the company's articles of association
require the approval of the Board for such plan; (viii) to oversee and approve the retention, performance and compensation of our independent
auditors and to establish and oversee the implementation of procedures concerning our systems of internal accounting and auditing control;
and (ix) to set procedures for handling of complaints made by company’s employees in connection with management deficiencies and
the protection to be provided to such employees.
The audit committee may consult from time to time with our independent
auditors and internal auditor with respect to matters involving financial reporting and internal accounting controls.
In the event the audit committee has discovered a material deficiency
in the company’s business operations, it must hold at least one meeting regarding such deficiency, at which the internal auditor
or the independent accountants must be present and in which office holders who are not members of the audit committee may not participate,
except for the presentation of their position.
Our audit committee consists of three members of our board of directors
who satisfy the respective requirements of the SEC, NASDAQ and Israeli law for the composition of the audit committee. Our audit committee
is currently composed of Messrs. Dovev (Chairman), Marmorstein and Ms. Lurie.
41
Compensation Committee
Effective December 2012, Israeli law requires our board of directors
to appoint a compensation committee which must be comprised of at least three directors, including all of the external directors, which
shall be a majority of the members of the compensation committee and one of whom must serve as chairman of the committee. However, subject
to certain exceptions, Israeli companies whose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling
party, do not have to meet this majority requirement; provided, however, that the compensation committee meets other Israeli Companies
Law composition requirements, as well as the requirements of the non-Israeli jurisdiction where the company’s securities are traded.
Other than the external directors, the rest of the members of the compensation committee shall be directors who will be compensated for
their role as directors only in accordance with Israeli Companies Law regulations applicable to the compensation of external directors,
or amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage.
On August 31, 2022, our shareholders approved an amended and restated
compensation policy for our company. The compensation policy must be approved every three years by our compensation committee, board of
directors and shareholders, voting with a special majority (in that order). The compensation policy is based on and references certain
matters and provisions set forth in the Israeli Companies Law, which include: (i) promoting our company’s goals, work plan and policy
with a long-term view; (ii) creating appropriate incentives for our company’s office holders, considering, among other things, our
company’s risk management policy; (iii) our company’s size and nature of operations; and (iv) with respect to variable elements
of compensation (such as annual cash bonuses), the office holder’s contribution to achieving company objectives and maximization
of our company’s profits, with a long-term view and in accordance with his or her position.
On September 12, 2023, our shareholders approved a second amended
and restated compensation policy for our company, which policy is consistent with our company’s written policy for recovering incentive-based
compensation paid to its current and former executive officers in the event that we must prepare an accounting restatement due to its
material noncompliance with any financial reporting requirements under securities laws (a “Claw-back Policy”). As required
under the SEC’s final rule 10D-1, and the Nasdaq’s corresponding corporate governance listing rule 5608, which came into effect
on October 2, 2023, our board of directors adopted our Claw-back Policy on August 3, 2023.
On July 8, 2024, our shareholders approved a third amended and
restated compensation policy for our Company, including the following principal amendments: (i) with respect to the monthly based salary,
the maximum gross amount payable to the active chairman of our board of directors was increased from NIS 100,000 to NIS 120,000 (approximately
$32,260) and the gross amount payable to our CEO was increased from NIS 95,000 to NIS 110,000; (ii) with respect to the annual bonus plan,
the bonus amounts (and the ceilings applicable thereto) are being calculated according to the applicable officer’s gross monthly
salary at the time such bonuses are paid; and (iii) with respect to equity-based compensation, (a) for any equity grant, the exercise
price per share shall be no less than the average share price on the stock exchange in the 30 trading days prior to the date on which
such equity grant is made, and (b) the application of “acceleration mechanisms” included in our 2018 share incentive plan
to any equity grant to any director or officer of our company will be determined at the time any such equity grant us made, or at any
time thereafter.
On September 18, 2025, our shareholders approved a fourth amended
and restated compensation policy, including the following principal amendment: with respect to company cars provided for the use of our
officers; the maximum amount payable for our chairman of our board’s company car was increased from NIS 300,000 to NIS 330,000,
including 18% VAT (approximately $103,448), the maximum amount payable for our CEO’s company car was increased from NIS300,000 to
NIS330,000, including 18% VAT (approximately US$103,448), the maximum amount payable for our vice presidents’ other officers’
company car was increased from NIS220,000 to NIS240,000, including 18% VAT (approximately US$75,235), and the maximum amount payable for
our other managers’ (non-officers) company car was set at NIS200,000, including 18% VAT (approximately US$62,695).
Our compensation committee is currently composed of Ms. Lurie and
Messrs. Dovev and Marmorstein.
42
Banking Committee
In March 2014, our board of directors established a banking committee,
which was authorized to adopt resolutions on behalf of the board of directors in respect of banking activities, including opening of new
accounts and signing credit agreements of up to $9 million. Our banking committee is currently composed of Mr. Nissan and Mr. Dovev.
Special Independent Committee
In November 2017, our board of directors established a Special
Independent Committee, separate and independent from our controlling shareholder, Mr. Nissan. The Special Independent Committee received
the Board’s mandate to examine and review any issue that may arise with respect to a possible consummation of an M&A transaction,
at the Special Independent Committee’s sole discretion, including, among other things, the authority to retain and consult with
financial and legal advisors, negotiate such transaction and recommend to our board of directors, which retains the authority on the decision
of final execution of such agreement. For the avoidance of any doubt, the Special Independent Committee may determine that we will not
be party to an M&A Transaction. The Special Independent Committee is currently composed of Mr. Dovev, Ms. Lurie, Mr. Rubner and Mr.
Meltzer.
Internal Audit
The Israeli Companies Law requires the Board of Directors of a
public company to appoint an internal auditor nominated by the audit committee. The internal auditor must meet certain statutory requirements
of independence. The role of the internal auditor is to examine, among other things, the compliance of the company’s conduct
with applicable law and orderly business practice. Since March 2016, Mr. Doron Cohen of the accounting firm of Fahn Kanne has served as
our internal auditor.
Directors’ Service Contracts
There are no arrangements or understandings between us and any
of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment
or service as directors of our company or any of our subsidiaries. We note that the vesting of options granted to directors, as described
below, will stop at termination of their service to the Company.
Exculpation, Indemnification and Insurance of Directors and Officers
Exculpation of Office Holders
The Israeli Companies Law provides that an Israeli company cannot
exculpate an office holder from liability with respect to a breach of his or her duty of loyalty. If permitted by its articles of association,
a company may exculpate in advance an office holder from his or her liability to the company, in whole or in part, with respect to a breach
of his or her duty of care. However, a company may not exculpate in advance a director from his or her liability to the company
with respect to a breach of his duty of care with respect to distributions.
Our articles of association allow us to exculpate any office holder
from his or her liability to us for breach of duty of care, to the maximum extent permitted by law, before or after the occurrence giving
rise to such liability. We provided an exemption letter, in the form approved by the Company's shareholders on October 17, 2013 to each
of our directors and officers, and agreed to provide the same to our future office holders.
Insurance of Office Holders
The Israeli Companies Law provides that a company may, if permitted
by its articles of association, enter into a contract to insure office holders in respect of liabilities incurred by the office holder
with respect to an act or omission performed in his or her capacity as an office holder, as a result of: (i) a breach of the office holder’s
duty of care to the company or to another person; (ii) a breach of the office holder’s duty of loyalty to the company, provided
that the office holder acted in good faith and had reasonable grounds to assume that his or her act would not prejudice the company’s
interests; and (iii) a monetary liability imposed upon the office holder in favor of another person.
43
Our articles of association provide that, subject to any restrictions
imposed by applicable law, we may procure, and/or undertake to procure, insurance covering any past or present or future office holder
against any liability which he or she may incur in such capacity, including insurance covering us for indemnifying such office holder,
to the maximum extent permitted by law.
Without derogating from the above, we may enter into a contract
to insure the liability of an office holder for an obligation imposed on such office holder in consequence of an act or omission done
in such office holder’s capacity as an office holder, in the following case: (i) expenses, including reasonable litigation expenses
and legal fees, incurred by the office holder as a result of a proceeding instituted against such office holder in relation to (A) infringements
that may result in imposition of financial sanction pursuant to the provisions of Chapter H'3 under the Israeli Securities Law, 5728-1968
(as amended), or the “Israeli Securities Law”, or (B) administrative infringements pursuant to the provisions of Chapter H'4
under the Israeli Securities Law or (C) infringements pursuant to the provisions of Chapter I'1 under the Israeli Securities Law; and
(ii) payments made to the injured parties of such infringement under Section 52ND(a)(1)(a) of the Israeli Securities Law.
In August 2024, our compensation committee and board of directors
approved a new D&O Policy, including the order of payment, for the benefit of our directors and officers (including Mr. Nissan, our
controlling shareholder, in his capacity as chairman of our board of directors), currently serving and as may serve from time to time.
Our new D&O policy complies with all applicable limitations set forth in our amended and restated compensation policy, which was previously
approved by our compensation committee, board of directors and shareholders. In accordance with Section 1B1 of the Israeli Companies Regulations
(Relief Regarding Interested-Party Transactions), 5760-2000, such D&O policy requires only the approval of the Company’s compensation
committee, provided that it is on market terms and would not materially affect the company’s profitability, property or liabilities
– as was indeed determined by our compensation committee with respect to our new D&O policy. Furthermore, in accordance with
Sections 1A1 and 1B(a)(5), the application of such D&O policy to our CEO, as well as to Mr. Nissan, likewise requires only the approval
of the Company’s compensation committee and board of directors, provided that its terms are identical for all other directors and
officers of our company – as was also determined by our compensation committee and board of directors. In August 2025, our compensation
committee and board of directors approved the extension of the D&O Policy on substantially the same terms.
Indemnification of Office Holders
The Israeli Companies Law provides that a company may, if permitted
by its articles of association, indemnify an office holder for liabilities or expenses imposed on him or her, or incurred by him or her
concerning acts or omissions performed by the office holder in such capacity for: (i) a monetary liability imposed on the office holder
in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court; (ii) reasonable
litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or proceeding instituted
against him or her by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment
against the office holder or the imposition of any monetary liability in lieu of criminal proceedings, or concluded without an indictment
against the office holder but with the imposition of a monetary liability on the office holder in lieu of criminal proceedings with respect
to a criminal offense that does not require proof of criminal intent; and (iii) reasonable litigation expenses, including attorneys’
fees, incurred by the office holder or which were imposed on him or her by a court, in an action instituted by the company or on the company’s
behalf, or by another person, against the office holder, or in a criminal charge from which the office holder was acquitted, or in a criminal
proceeding in which the office holder was convicted of a criminal offense which does not require proof of criminal intent.
The Israeli Companies Law provides that a company’s articles
of association may permit the company to indemnify an office holder following a determination to this effect made by the company after
the occurrence of the event in respect of which the office holder will be indemnified. It also provides that a company’s articles
of association may permit the company to undertake in advance to indemnify an office holder, except that with respect to a monetary liability
imposed on the office holder by any judgment, settlement or court-approved arbitration award, the undertaking must be limited to types
of events which the company’s board of directors deems foreseeable considering the company’s actual operations at the time
of the undertaking, and to an amount or standard that the board of directors has determined as reasonable under the circumstances.
44
Our articles of association provide that we may indemnify an office
holder retroactively for certain obligations or expenses imposed on such office holder in consequence of an act or omission done in such
office holder’s capacity as an officer in our company. These obligations and expenses include:
| i. |
a monetary obligation imposed on the office holder in favor of another person pursuant to a judgment, including a judgment given
in settlement or an arbitrator's award that has been approved by a court; |
| ii. |
reasonable litigation expenses, including advocates’ professional fees, incurred by the office holder pursuant to an investigation
or a proceeding commenced against the office holder by a competent authority and that was terminated without an indictment and without
having a monetary charge imposed on the office holder in exchange for a criminal procedure (as such terms are defined in the Israeli Companies
Law), or that was terminated without an indictment but with a monetary charge imposed on the office holder in exchange for a criminal
procedure in a crime that does not require proof of criminal intent or in connection with a financial sanction; |
| iii. |
reasonable litigation expenses, including advocates’ professional fees, incurred by the office holder or which the office holder
is ordered to pay by a court, in proceedings filed against the office holder by the company or on its behalf or by another person, or
in a criminal indictment in which the office holder is acquitted, or in a criminal indictment in which the office holder is convicted
of an offence that does not require proof of criminal intent; |
| iv. |
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder as a result of a proceeding instituted
against such office holder in relation to (A) infringements that may result in imposition of financial sanction pursuant to the provisions
of Chapter H'3 under the Israeli Securities Law or (B) administrative infringements pursuant to the provisions of Chapter H'4 under the
Israeli Securities Law or (C) infringements pursuant to the provisions of Chapter I'1 under the Israeli Securities Law; and |
| v. |
payments to an injured party of infringement under Section 52ND(a)(1)(a) of the Israeli Securities Law. |
Our articles of association also provide that we may undertake
to indemnify in advance an office holder, in accordance with the conditions set under applicable law, in respect of the obligations or
expenses specified in (i)-(v) above, provided that such undertaking is limited to types of events which in the board of directors’
opinion may be anticipated, in light of our company’s activities, at the time of granting the indemnity undertaking, and to an amount
or criteria which the board of directors determines is reasonable in the circumstances of the case, both of which are to be specified
in the indemnification undertaking.
According to our compensation policy, the total amount of indemnification
that our company undertakes towards all persons whom it has resolved to indemnify, jointly and in the aggregate, shall not exceed an amount
equal (i) 25% of the net equity of our company according to the audited or reviewed financial statement known at the time the request
for indemnification was submitted; or (ii) $3,000,000, whichever is greater.
Limitations on Exculpation, Insurance and Indemnification
The Israeli Companies Law provides that neither a provision of
the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision
in the articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision
in the articles of association exempting an office holder from duty to the company shall be valid, where such insurance, indemnification
or exemption relates to any of the following: (i) a breach by the office holder of his duty of loyalty, except with respect to insurance
coverage or indemnification if the office holder acted in good faith and had reasonable grounds to assume that the act would not prejudice
the company; (ii) a breach by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the
breach was committed only negligently; (iii) any act or omission committed with intent to derive an unlawful personal gain; and (iv) any
fine or forfeiture imposed on the office holder.
45
Under the Israeli Companies Law, exculpation of, procurement of
insurance coverage for, and an undertaking to indemnify or indemnification of, an office holder (other than the chief executive officer)
must be approved by the company’s compensation committee and board of directors and, if such office holder is a director, also by
the company’s shareholders. Exculpation of, procurement of insurance coverage for, and an undertaking to indemnify or indemnification
of, the chief executive officer must be approved by the company’s compensation committee, board of directors and by a special majority
of the shareholders.
We have agreed to indemnify our office holders for certain liabilities
and expenses that may be imposed on them due to acts performed, or failures to act, in their capacity as office holders, including financial
liabilities imposed by judgments or settlements in favor of third parties, and reasonable litigation expenses imposed by a court in relation
to criminal charges from which the indemnitee was acquitted or criminal proceedings in which the indemnitee was convicted of an offense
that does not require proof of criminal intent, all subject to Israeli law and certain limitations in the agreements. The aggregate amount
we may pay our office holders pursuant to our indemnification undertaking may not exceed, jointly and in the aggregate, $3 million but
in any event not more than 25% of our company’s net equity.
We currently maintain directors’ and officers’ liability
insurance with a per-claim and aggregate limits of liability of $10 million. In addition, our policy provides additional limits of liability
after exhaustion of the existing limits, including additional limits of liability for directors and officers only, with additional coverage
of $1 million per claim for each director/officer, and $6 million in the aggregate for all directors and officers combined for the period
of the policy.
Under our current directors and officers liability insurance policy,
losses will be paid in accordance with the following order of priority: first, the insurer will pay for loss, investigation costs or mitigation
costs to or on behalf of an insured person (director or officer); thereafter, only after such payment and with respect to whatever remaining
amount of the limit of liability is available, the insurer will pay any other loss, investigation costs, mitigation costs, derivative
shareholder costs or derivative investigations costs due to the company.
D. Employees
We consider our employees the most valuable asset of our company.
We offer competitive compensation and comprehensive benefits to attract and retain our employees. We believe that an engaged workforce
is key to maintaining our ability to innovate.
We are committed to providing a safe work environment for our employees
in compliance with applicable regulations.
As of December 31, 2025, we employed 352 full-time employees in Israel, of which 224
were employed in manufacturing services, 45 in process and product engineering, 50 in quality assurance and control, 12 in sales and marketing
and 21 in finance, accounting, information service and administration.
As of December 31, 2024, we employed 329 full-time employees in Israel, of which 231
were employed in manufacturing services, 40 in process and product engineering, 26 in quality assurance and control, 14 in sales and marketing
and 18 in finance, accounting, information service and administration.
As of December 31, 2023, we employed 333 full-time employees in Israel, of which 229
were employed in manufacturing services, 41 in process and product engineering, 28 in quality assurance and control, 16 in sales and marketing
and 19 in finance, accounting, information service and administration.
In addition, Eltek USA, a wholly-owned Delaware subsidiary, employed
one full-time employee as of December 31, 2025 and 2024, and two full-time employees as of December 31, 2023.
Our relationships with our employees in Israel are governed by
Israeli labor law, extension orders of the Israeli Ministry of Economy and Industry and personal employment agreements. We are subject
to various Israeli labor laws, general collective bargaining agreements entered into, from time to time, between the Histadrut and the
Manufacturers Association, as well as specific and local agreements and arrangements. Such laws, agreements, and arrangements cover the
wages and employment conditions of our employees, including length of the workday, minimum daily wages for professional workers, contribution
to pension fund, insurance for work related accidents, procedures for dismissing employees, determination of severance pay, benefit programs
and annual leave. We generally provide our Israeli employees with benefits and working conditions beyond the minimums required by law.
46
In the past, our employees have attempted to establish an employees’
union committee, which was later terminated.
Certain of our officers, key employees and other employees are
party to individual employment agreements. We have entered into a non-disclosure and non-competition agreement with some of our executive
officers. All of our officers and employees are subject to confidential and proprietary information provisions set forth in our Code of
Business Conduct and Ethics.
Pursuant to Israeli law, we are legally required to pay severance
benefits upon certain circumstances, including the retirement or death of an employee or the termination of employment of an employee
without due cause, equivalent to a one-month salary for each year of employment with the company. Most of our employees are covered by
pension plans providing customary benefits including retirement and severance benefits. Some of our employees are covered by life and
pension insurance policies providing similar benefits. We contribute 8.33% of base salaries to the employees’ pension funds or life
pension insurance policies to cover our liability for severance pay. Pursuant to Section 14 of the Israeli Severance Pay Law, 5729-1963,
if a company contributes to an employee’s pension fund or severance fund, then the employee is entitled only to the severance amounts
accumulated in such fund(s) upon resignation from the company or termination by the company, and the company is not obligated to make
additional payments to the employee upon termination of employment with the company.
With respect to pension benefits, we contribute between 6.5% to
7.5% of base salaries to the employees’ pension plans and 7.5% to those employees who have life insurance policies. The employees
who have pension plans contribute between 6% to 7% of base salaries to their pension plans, and the employees who have life insurance
policies contribute 6% of their base salaries to their policies. In addition, we contribute 8.33% for severance pay into the employees’
life insurance policies, pension plans or similar funds of their choice.
We also contribute between 1% to 7.5% of base salaries to certain
“professional advancement” funds for managers, engineers and certain others and such employees have to match one third of
such contribution, up to 2.5% of their base salaries.
Israeli employers and employees are required to pay predetermined
sums to the National Insurance Institute of Israel, which is similar to the United States Social Security Administration. Subject to minimum
thresholds, the employer contribution to the National Insurance Institute is at the rate of 7.6% of the salary (same in 2024) and the
employee contribution to the National Insurance Institute is at the rate of 12% of the salary (of which 5% relates to payments for national
health insurance), both of which are limited to a maximum monthly salary of NIS 51,910 (approximately $16,272) in 2025, NIS 49,030 (approximately
$13,251) in 2024, and NIS 49,00 (approximately $13,300) in 2023. In the year ended December 31, 2024, our aggregate payments as an employer
to the National Insurance Institute amounted to approximately 5.7% of the salaries.
47
E. Share Ownership
Beneficial Ownership of Executive Officers and Directors
The following table sets forth certain information as of March
19, 2026 regarding the beneficial ownership of our ordinary shares by our directors and executive officers and all of our executive officers
and directors as a group:
|
Name |
Number of Ordinary Shares Beneficially Owned |
Percentage of Outstanding Ordinary Shares (2)
|
||||||
|
Principal Shareholders |
||||||||
|
Yitzhak Nissan (1)
|
3,942,462 |
58.7 |
% | |||||
|
Senior Management and Directors |
||||||||
|
Eli Yaffe (1), (3)
|
62,702 |
* |
||||||
|
Ron Freund (4) |
42,519 |
* |
||||||
|
Yitzhak Zemach (5)
|
18,039 |
* |
||||||
|
Tomer Segev (6) |
7,109 |
* |
||||||
|
Yaniv Luria (7) |
4,141 |
* |
||||||
|
Ilana Lurie (8) |
15,898 |
|||||||
|
Mordechai Marmorstein (9)
|
15,898 |
* |
||||||
|
David Rubner (10)
|
15,898 |
* |
||||||
|
Erez Meltzer (11)
|
25,898 |
* |
||||||
|
Revital Cohen-Tzemach (12)
|
8,938 |
* |
||||||
|
Gad Dovev (13) |
25,898 |
* |
||||||
|
Raviv Segev(14) |
938 |
* |
||||||
|
All executive officers and directors as a group (12 persons)
(15) |
243,877 |
3.6 |
% | |||||
__________
*Less than 1%
(1) The percentages shown are based on 6,719,827 ordinary shares issued and outstanding
as of March 19, 2026.
(2) Except for Mr. Nissan, Mr. Yaffe and Mr. Freund, none of our directors or executive
officers holds any of our ordinary shares. Mr. Nissan is the beneficial owner of 3,777,239 shares held by Nistec Golan, a company controlled
by him and holds 165,223 shares as an individual. The principal business address of Nistec Golan is 43 Hasivim Street, Petach Tikva, Israel.
Mr. Yaffe is the beneficial owner of 7,250 shares held by himself. Mr. Freund is the beneficial owner of 7,558 shares held by himself.
(3) The number of ordinary shares beneficially owned includes 55,452 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(4) The number of ordinary shares beneficially owned includes 34,961 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(5) The number of ordinary shares beneficially owned includes 18,039 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(6) The number of ordinary shares beneficially owned includes 7,109 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(7) The number of ordinary shares beneficially owned includes 4,141 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(8) The number of ordinary shares beneficially owned includes 15,898 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(9) The number of ordinary shares beneficially owned includes 15,898 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(10) The number of ordinary shares beneficially owned includes 15,898 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(11) The number of ordinary shares beneficially owned includes 25,898 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(12) The number of ordinary shares beneficially owned includes 8,938 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(13) The number of ordinary shares beneficially owned includes 25,898 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(14) The number of ordinary shares beneficially owned includes 938 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
(15) The number of ordinary shares beneficially owned includes 229,069 ordinary shares
subject to options that are currently exercisable or exercisable within 60 days of the date of this report.
48
2018 Share Incentive
Plan
Our 2018 share incentive plan authorized the grant of options
to purchase shares and restricted shares unites to officers, employees, directors and consultants of the company and its subsidiaries.
Awards granted under the plan to participants in various jurisdictions may be subject to specific terms and conditions for such grants
as may be approved by our board from time to time.
Each option granted under the plan is exercisable for a period
of ten years from the date of the grant of the option or the expiration dates of the option plan. The options primarily vest gradually
over four years of employment.
During 2023, 151,000 options were granted under the plan, and 171,015
options were exercised. During 2024, 87,000 options were granted under the plan, and 68,347 options were exercised. During 2025, 26,000
options were granted under the plan, and 5,787 options were exercised. As of December 31, 2025, options to purchase 376,272 ordinary shares
were outstanding under the plan, exercisable at an average exercise price of $8.26 per share. As of March 19, 2026, options to purchase
454,772 ordinary shares were outstanding under the plan, exercisable at an average exercise price of $8.36 per share.
In September 2018, our shareholders approved the grant of options
to purchase 60,857 ordinary shares to Mr. Yaffe, effective as of, and exercisable at a price per share equal to the average daily closing
price of the ordinary shares during the 30 calendar days prior to, July 1, 2018. Following the rights’ offerings of March 2019 and
December 2020, these options are effectively exercisable into 78,580 ordinary shares. In June 2021, our shareholders approved an additional
grant of options to purchase 100,000 ordinary shares to Mr. Yaffe, effective as of, and exercisable at a price per share equal to the
average daily closing price of the ordinary shares during the 30 calendar days prior to, December 29, 2020. In September 2023, our shareholders
approved an additional grant of options to purchase 25,000 ordinary shares to Mr. Yaffe, effective as of August 3, 2023. In June 2024
our shareholders approved an additional grant of options to purchase 20,000 ordinary shares to Mr. Yaffe, effective as of March 10, 2024.
In June 2021, our shareholders approved the grant of options to
purchase 20,000 ordinary shares to each of the directors (100,000 in the aggregate), including the external directors but excluding Mr.
Yitzhak Nissan, effective as of, and exercisable at a price per share equal to the average daily closing price of the ordinary shares
during the 30 calendar days prior to, September 6, 2021. In September 2023, our shareholders approved an additional grant of options to
purchase 10,000 ordinary Shares to each of our directors (50,000 in the aggregate), including the external directors, but excluding Mr.
Yitzhak Nissan and Ms. Revital Cohen-Tzemach, effective as of, and exercisable at a price per share equal to the average daily closing
price of the ordinary shares during the 30 calendar days prior to, October 6, 2023.
In March 2021, our compensation committee and board of directors
approved the grant of options to purchase 70,200 ordinary shares to our executive officers (other than Mr. Yaffe) and employees. In December
2021 and December 2022, our compensation committee and board of directors approved the grant of an additional 28,000 options (in the aggregate)
to Mr. Freund. In August 2023, our compensation committee and board of directors approved the grant of an additional 76,000 options to
our executive officers (other than the Mr. Yaffe) and employees. In March 2024, our compensation committee and board of directors approved
the grant of an additional 10,000 options (in the aggregate) to Mr. Freund. In March, August and November 2024 our compensation committee
and board approved the grant of an additional 67,000 options to our executive officers (other than Mr. Yaffe) and employees. In March,
May and August 2025, our compensation committee and board of directors approved the grant of 55,500 options to our executive officers
(other than Mr. Yaffe and Mr. Freund) and employees. In November 2025, our compensation committee and board of directors approved the
grant of an additional 9,000 options (in the aggregate) to Mr. Freund. In March 2026, our compensation committee and board of directors
approved the grant of an additional 37,500 options to our executive officers and employees (other than Mr. Yaffe and Mr. Fruend). In March
2026, our compensation committee and board of directors approved the grant of an additional 2,500 options (in the aggregate) to Mr. Freund.
In May 2023, we received a tax ruling from the Israeli tax authorities
which enabled us to reduce the exercise price of options granted before the 2022, 2023 and 2024 dividend distributions, respectively,
by an amount reflecting the dividend payment per share for each of 2022 ($0.17), 2023 ($0.22) and 2024 ($0.19). The ruling is also relevant
with respect to future dividend distributions.
In July 2024, following approval by our audit committee and board
of directors, our shareholders approved an amendment of the terms of all options heretofore granted to each of the Company’s directors
(including the external directors, but excluding Mr. Yitzhak Nissan, and Ms. Revital Cohen-Tzemach) according to which, effective as of
September 6, 2024, notwithstanding anything to the contrary in any award letter executed by our company and each director with respect
to any options granted thereunder, in the event that the Company consummates an M&A Transaction (as defined in the 2018 Equity Share
Incentive Plan), all unvested options as of such time shall automatically vest and become exercisable in full immediately prior to the
consummation of such M&A Transaction. The foregoing amendment is made pursuant the 2018 Equity Share Incentive Plan, and meets the
terms of the Third Amended and Restated Compensation Policy.
| F. |
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. |
Not applicable.
49
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
A. Major Shareholders
The following table sets forth certain information as of March
19, 2026 regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our ordinary shares:
|
Name |
Number of Ordinary Shares
Beneficially Owned (1)
|
Percentage
of Ownership (2)
|
||||||
|
Nistec Golan Ltd. (3)
|
3,777,239 |
56.2 |
% | |||||
|
Yitzhak Nissan (3)
|
165,223 |
2.5 |
% | |||||
___________
|
|
(1) |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities. Ordinary shares relating to options or convertible notes currently exercisable or exercisable within 60 days of
the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially
owned by them. |
| (2) |
The percentages shown are based on 6,719,827 ordinary shares issued and outstanding as of March 3, 2026. |
| (3) |
Nistec Golan is an Israeli private company controlled by Yitzhak Nissan. Accordingly, Mr. Nissan may be deemed to be the beneficial
owner of the ordinary shares held directly by Nistec Golan. |
Significant Changes in the Ownership of Major Shareholders
On December 20, 2023, Nistec (Nistec Golan and Yitzhak Nissan together)
filed a 13D/A with the SEC reflecting ownership of 3,709,463 Ordinary Shares, or 62.72% of our outstanding shares. On December 26, 2023,
Nistec filed a 13D/A reflecting ownership of 3,620,908 Ordinary Shares, or 61.23% of our outstanding shares. On January 4, 2024, Nistec
filed a 13D/A reflecting ownership of 3,511,360 Ordinary Shares, or 59.37% of our outstanding shares. On June 6, 2024, Nistec filed a
13D/A reflecting ownership of 3,525,424 Ordinary Shares, or 52.58% of our outstanding shares. On December 4, 2025, Nistec filed a
13D/A reflecting ownership of 3,730,802 Ordinary Shares, or 55.55% of our outstanding shares.
Major Shareholders Voting Rights
Our principal shareholders do not have different voting rights
attached to their ordinary shares.
50
Record Holders
Based on the information provided to us by our transfer agent,
as of March 3, 2025, there were 8 holders of record of our ordinary shares, of which 5 record holders holding approximately 51.0% of our
ordinary shares had registered addresses in the United States. These numbers are not representative of the number of beneficial holders
of our shares nor are they representative of where such beneficial holders reside, since many of our ordinary shares were held of record
by brokers or other nominees (including one U.S. nominee company, CEDE & Co., which held approximately 50.9% of our outstanding ordinary
shares as of such date).
B. Related Party Transactions
On July 8, 2024, our shareholders approved a renewal of our management
agreement with Nistec Ltd. effective January 1, 2025, for a period of 3 years and the amendment thereof effective as of January 1, 2024.
Under the terms of the amended management agreement, Mr. Nissan serves as the Chairman of our board of directors. In that role,
Mr. Nissan provides us with various enumerated services, as follows: (a) coordination of the activities of our board of directors with
respect to the development of our long term strategy; (b) guidance to our board of directors with respect to the implementation by
management of its strategy, work plans and budget, as shall be determined from time to time by our board of directors; (c) coordination
of the activities of our board of directors with respect to the regulation and implementation of proper corporate governance practices;
(d) coordination of the activities of our board of directors for the purpose of the approval of quarterly and annual financial statements
and reports; (e) development and retention of relations with current and future strategic investors; (f) general guidance and management
of the activities of our board of directors; (g) advancement of the our company’s efforts with respect to the realization of its
business development strategy, including the pursuit of mergers and acquisition opportunities; (h) coordination of the activities of our
board of directors with respect to the definition of strategic financial targets and in attaining such targets (i) provision of assistance
to our company in cooperation with our CEO, regarding our company’s dealings, communications and negotiations with the banks and
non-banking financing institutions, including but not limited to, assistance with respect to obtaining financing for our company’s
business activities, and (j) business development services, including assistance, in cooperation with our CEO, in the development and
preservation of relationships with our company’s existing and potential customers. Mr. Nissan will dedicate the appropriate attention,
time and effort to our company in connection with the provision of the enumerated services. The time dedicated by Mr. Nissan for the provision
of such services will be as required by our company from time to time, and in accordance with its needs.
In consideration for performing the above services, we pay Nistec
Ltd. a monthly fixed fee of NIS 120,000, plus applicable VAT. In addition, Mr. Nissan is entitled to the following compensation:
| • |
Reimbursement of travel expenses (other than food and beverage expenses) while traveling internationally on behalf of our company,
provided that such reimbursement shall not exceed an aggregate amount of NIS 10,000 per calendar quarter. |
| • |
Reimbursement of food and beverage expenses while traveling internationally on behalf of our company, against receipts, in accordance
with the Israeli Income Tax Regulations (Deduction of Certain Expenses), 5732-1972. |
| • |
Commencing in the year ended December 31, 2024 and each calendar year thereafter, a performance-based bonus with respect to each
such calendar year in an amount equal to 3 times the fixed fee, plus applicable VAT; the payment of such bonus is contingent on the Company
having reached net income equal to 4% or more of the Company’s revenues for the applicable calendar year. |
Our compensation committee, board of directors and shareholders
at an Annual General Meeting resolved to approve the extension and amendment of the management agreement as set forth above.
In July 2024, our shareholders approved:
| i. |
The amendment and extension of the Amended PCB Purchase Procedure with Nistec Ltd.; |
Nistec purchases PCBs from our company solely to provide assembled
boards to its customers. Our sales to Nistec are based on our standard pricing, each PCB may be subject to a discount at such rate as
offered by the Company from time to time to its other customer, provided that in no event shall
the quoted price fall below 1.6 times the variable cost of such PCB, as determined by our dynamic pricing system. Alternatively, we may
issue a quote based on a quote issued by a comparable independent PCB supplier with comparable technological capabilities, if and as provided
by Nistec (the “Alternative Quote”). Our quote will include all ancillary
costs such as shipping and customs. We may issue a quote based on the Alternative Quote only if it reflects a gross margin (sale price
less the cost of raw materials) of at least 65%. Should the Alternative Quote be made by a supplier that has already designed tooling
for the specific circuits ordered by Nistec, we may absorb the tooling costs, if Nistec does not charge its clients for such costs, and
in accordance with our customary terms and conditions for orders received from unrelated third parties. Our decision to absorb such tooling
costs will be made by our CEO. Should we be asked to indemnify Nistec for faulty PCBs, such indemnification will be made (a) in compliance
with our general policy in the regard, and (b) subject to the pre-approval of our audit committee. Neither Mr. Nissan, our controlling
shareholder, nor any of his relatives, may be involved in the process of issuing a quote by our company to Nistec or in any post-sale
discussions such as with respect to warranties or indemnification for faulty products. Should the order be for imported PCBs, the quote
should reflect the actual price of such PCBs, plus a mark-up of at least 20%. Should the order be for PCBs that are being sold from excess
inventory of an original order, the quote will reflect the standard price of such PCBs, with a discount of up to 50% of the price actually
paid for such PCBs in the original order (the “Excess Inventory Discount”). The Excess Inventory Discount will apply only
to orders from excess inventory of the first original order of a specific PCB (i.e., should a second order of a specific PCBs generate
any excess inventory and Nistec would like to purchase such excess, the Excess Inventory Discount will not be applied to such purchase).
51
| ii. |
The amendment and extension of the amended general engagement terms, processes and restrictions of the Soldering and Assembly Services
Procedure with Nistec Ltd.; |
We may acquire soldering services (“Soldering
Services”), (ii) design and/or design services for the production of PCBs (“Design
Services”), and/or (iii) the ordering of soldering materials or components by Nistec on our company’s behalf (“Purchasing
Services”) from Nistec. Nistec’s pricing for its Soldering Services and Design Services will be its standard pricing
less a 5% discount. Nistec may charge for Purchasing Services in accordance with the actual costs of the materials and/or components ordered,
plus a 14.25% commission, which reflects a 5% discount, as compared to the commission charged to third parties by Nistec for similar services.
Prices of services not subject to Nistec’s standard pricing will be negotiated by the parties in good faith (without the participation
of Mr. Nissan, our controlling shareholder, or any of his relatives). Nistec standard procedures govern manufacturer warranties and restrictions
regarding defective assembled products. Out purchases of services under the Soldering, Assembly and Design Services Procedure may not
exceed NIS 3,000,000 (approximately $940,000) per annum.
In September 2025, the exculpation letter and the indemnification
letter granted to Mr. Nissan were extended for an additional three (3) year period ending on December 31, 2028. In September 2023, our
shareholders approved the grant of an exculpation letter and an indemnification letter to Ms. Revital Cohen-Tzemach, daughter of Mr. Nissan,
subject to her election by the shareholders to serve on the board of directors, for a three (3) year period, ending on September 11, 2026.
Ms. Revital Cohen-Tzemach was previously employed by us as a special
project manager. On September 12, 2023, our shareholders approved the grant of an annual bonus in the amount of NIS80,000 (approximately
US$21,700) to Ms. Cohen-Tzemach under our annual bonus plan for the year 2022. At the same time, the term of Ms. Cohen-Tzemach’s
employment agreement was extended until July 31, 2026, without modification of its terms. On July 8, 2024, our shareholders approved the
grant of an annual bonus in the amount of NIS80,000 (approximately US$24,000) to Ms. Cohen-Tzemach under our annual bonus plan for the
year 2023. Ms. Cohen-Tzemach’s employment with the Company ended on December 31, 2023.
In September 2023, our shareholders approved (i) the grant of options
to purchase 8,000 ordinary shares to Ms. Cohen-Tzemach, effective as of, and exercisable at a price per share equal to the average daily
closing price of the ordinary shares during the 30 calendar days prior to, August 3, 2023; and (ii) that the following determination be
made with respect to any and all options granted to Ms. Cohen-Tzemach’s on or before August 3, 2023 (the “Existing Options”):
so long as Ms. Cohen-Tzemach is continuously engaged as a member of the Board, and notwithstanding whether or not she is also employed
by the Company, (a) any and all unvested Existing Options shall continue to vest according to their respective vesting schedules, as set
forth in the applicable award letters; and (b) any and all vested Existing Options that have not been previously exercised or expired,
shall remain exercisable until such time that Ms. Cohen-Tzemach ceases to serve on the Board, and for a period of 90 days thereafter (or
any other period as may be determined by the Board in accordance with the Option Plan and subject to our shareholders’ approval).
C. Interests
of Experts and Counsel
Not applicable.
52
| ITEM 8. |
FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial
Information
See the consolidated financial statements, including the notes
thereto, and the exhibits listed in Item 18 hereof.
Legal Proceedings
From time to time, we are involved in legal proceedings arising
from the operation of our business. Based on the advice of our legal counsel, management believes that except for the proceedings
discussed below, such current proceedings, if any, will not have a material adverse effect on our financial position or results of operations.
Employee Related Matters
Three of our employees filed lawsuits between May 2008 and November
2019, alleging that they had suffered personal injuries during their employment and they are seeking aggregate financial compensation
of approximately $121,000 for past damages and additional amounts for future lost income, pain and suffering as the court may determine.
Five other employees notified us between January 2011 and December 2019, that they allegedly suffered personal injuries during their employment
with the company, but have not filed a lawsuit. Of these five employees, two are seeking compensation of approximately $1.7 million and
the others did not state their claim amount. We submitted all of these claims to our insurance company, which informed us that it is reviewing
the statements of claim without prejudicing its rights to deny coverage.
During the period February 2019 through March 2023, three former
employees filed lawsuits seeking additional payments in connection with their employment and subsequent termination which were all settled.
As of December 31, 2025 we had no open lawsuits.
Software License
A supplier of one of our software packages asked to conduct an
audit of our operation to verify that we are not in breach of any intellectual property rights he allegedly owns. We believe that we have
fully, diligently and timely complied with our obligation toward the supplier. We also believe that the supplier has no right to conduct
any audit of our products or services and such audit may cause us to breach confidentiality obligations to other entities. If a claim
is made and we are found to be in violation of such supplier’s intellectual property rights, we could be liable for compensation
and costs of an unknown amount. Such liability could have a material adverse effect on our business, financial condition and results of
operations.
Dividend Distribution Policy
In November 2022, our board of directors declared the Company’s
first cash dividend, in the amount of $0.17 per share and approximately $1 million in the aggregate. The dividend was paid in dollars
on December 19, 2022, to all of the Company’s shareholders of record as of December 12, 2022. Prior to such distribution, we had
never declared or paid any cash dividends to our shareholders. In November 2023, our board of directors declared another cash dividend
in the amount of $0.22 per share and in the aggregate an amount of approximately $1.3 million. The dividend was paid on December 21, 2023,
in dollars, to all of the Company’s shareholders of record as of December 13, 2023.
53
On November 18, 2024, our board of directors approved a dividend
distribution policy for the Company. According to the policy, each year the Company shall distribute a dividend to its shareholders of
up to 25% of the Company’s annual net income, as reflected in the Company’s applicable annual consolidated financial statements.
Any such distribution shall be subject to (a) applicable law, including the available profits and solvency criteria, and any other regulatory
restrictions or requirements; (b) financial covenants or other contractual undertakings of the Company, including towards lenders; and
(c) applicable provisions of the Company’s amended and restated articles of association. The board of directors may, at its sole
discretion and at any time, change, whether as a result of a one-time decision or a change in policy, the rate and/or frequency of dividend
distributions, or decide not to distribute a dividend. Nothing in the dividend policy shall be construed to guarantee the distribution
of any dividends, or as an undertaking by the Company towards any of its shareholders in this regard.
In April 2025, our board of directors declared another cash dividend
in the amount of $0.19 per share, and in the aggregate amount of approximately $1.3 million. The dividend was paid on April 29, 2025,
in dollars, to all of the Company’s shareholders of record as of April 22, 2025.
As mentioned above, the distribution of dividends is limited by
the Israeli Companies Law, according to which, a company may distribute dividends out of its Profits (the “Profitability Threshold”),
provided that there is no reasonable concern that such dividend distribution will prevent the company from paying all its current and
foreseeable obligations, as they become due (the “Solvency Threshold”). The distribution amount is limited to the Profits;
“Profits”, for purposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during
the preceding two years, after deducting previous distributions that were not deducted from the surpluses. The Profitability Threshold
and the Solvency Threshold are cumulative and our company is required to meet both thresholds in order to be able to distribute dividends.
Notwithstanding the foregoing, dividends may be paid even if not out of Profits, with the approval of a court, provided that the company
can demonstrate that the Solvency Threshold is met. An equity repurchase is generally treated as a deemed dividend for purposes of the
aforementioned limitations on dividend distributions. However, since our company is listed on an exchange outside of Israel, even if we
lack the requisite Profit, we do not need to seek court approval for an equity repurchase, provided that we notify our creditors of the
proposed equity repurchase and allow such creditors an opportunity to initiate court proceedings to review the terms of repurchase. If
within 30 days of such notification creditors do not file an objection, we may proceed with the repurchase without obtaining court approval.
In the event cash dividends are declared, such dividends will be paid in NIS, and will be subject to applicable Israeli withholding taxes.
For additional information, see Item 10E. “Additional Information – Taxation – Taxation of Gains Upon Disposition of,
and Dividends Paid on, our Ordinary Shares.”
B. Significant Changes
None.
| ITEM 9. |
THE OFFER AND LISTING |
A. Offer and Listing Details
Our ordinary shares are traded on the NASDAQ Capital Market under
the ticker symbol “ELTK.”
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares have been listed on the NASDAQ Stock Market
since our initial public offering on January 22, 1997.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expense of the Issue
Not applicable.
54
| ITEM 10. |
ADDITIONAL INFORMATION |
A. Share Capital
Not applicable.
B. Memorandum and Articles
of Association
Set out below is a description of certain provisions of our memorandum
of association and articles of association and of the Israeli Companies Law related to such provisions. This description is only
a summary and does not purport to be complete and is qualified by reference to the full text of the memorandum of association and articles
of association, which are incorporated by reference as exhibits to this Annual Report, and to Israeli law.
Purposes and Objects of the Company
We are registered with the Israeli Registrar of Companies and have
been assigned company number 52-004295-3. Section 2 of our memorandum of association provides that we were established for the purpose
of engaging in the business of developing, manufacturing, producing, vending, importing, exporting, supplying, distributing and dealing
in printed, multi-layer, flexible, thick film, hybrid and integrated circuits, components or portions thereof, processes for making the
same and related products. In addition, the purpose of our company is to perform various corporate activities permissible under
Israeli law.
The Powers of the Directors
Under the provisions of the Israeli Companies Law and our articles
of association, a director cannot vote on a proposal, arrangement or contract in which he or she is has personal interest in, nor be present
in the discussion relating to such transaction is considered. In addition, our directors’ compensation is approved through special
procedures prescribed in the Israeli Companies Law. In general, with respect to a director’s compensation, approval is required
by the (i) compensation committee; (ii) board of directors; and (iii) company’s shareholders with a regular majority (in that order).
The authority of our directors to enter into borrowing arrangements
on our behalf is not limited, except in the same manner as any other transaction by us.
Under our articles of association, the service of directors in
office is not subject to any age limitation and our directors are not required to own shares in our company in order to qualify to serve
as directors.
Annual and Extraordinary Meetings of Shareholders
The board of directors must convene an annual general meeting of
shareholders at least once every calendar year, within 15 months of the last annual meeting. Depending on the matter to be voted upon,
notice of at least 21 days or 35 days prior to the date of the meeting is required. In addition, the board of directors must convene a
special general meeting of the shareholders upon the demand of any of: (1) two of the directors; (ii) 25% of the nominated directors;
(iii) one or more shareholders holding at least 5% of our company’s issued and outstanding share capital and at least 1% of the
voting power in the company; or (iv) one or more shareholders holding at least 5% of the voting power in our company.
55
The quorum required for a shareholders meeting consists of at least
two shareholders present in person or represented by proxy who hold or represent, in the aggregate, at least one third of the voting rights
of the issued share capital. A meeting adjourned for lack of a quorum is adjourned by seven business days, at the same time and
place, or any later time and place as the board of directors designate in a notice to the shareholders. The requisite quorum at
an adjourned general meeting will be: (i) if the original meeting was convened upon requisition by shareholders pursuant to the Israeli
Companies Law - the number of shareholders holding the minimum number of voting shares necessary to make such requisition, present in
person or by proxy; and (ii) in any other event - one or more shareholders, present in person or by proxy, holding at least one share.
We do not follow the requirements of the NASDAQ Stock Market Rules regarding the quorum at shareholder meetings. See Item 16G. “Corporate
Governance.”
Please refer to Exhibit 2.2 for Items 10.B.3, B.4, B.6, B.7, B.8,
B.9 and B.10.
C. Material Contracts
None.
D. Exchange Controls
Israeli law and regulations do not impose any material foreign
exchange restrictions on non-Israeli holders of our ordinary shares. Non-residents of Israel who purchase our ordinary shares will
be able to convert dividends, if any, thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well as the
proceeds of any sale in Israel of our ordinary shares to an Israeli resident, into freely repatriable dollars, at the exchange rate prevailing
at the time of conversion, provided that the Israeli income tax has been withheld (or paid) with respect to such amounts or an exemption
has been obtained.
E. Taxation
The following is a discussion of Israeli and United States tax
consequences material to our shareholders. To the extent that the discussion is based on tax legislation which has not been subject
to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question
or by court. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust
all possible tax considerations.
Holders of our ordinary shares should consult
their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary
shares, including, in particular, the effect of any foreign, state or local taxes.
Israeli Tax Considerations
General Corporate Tax Structure
Israeli companies are generally subject to income tax on their
taxable income. The regular corporate tax rate in Israel has been 23% since 2018. However, the effective rate of tax payable by
a company which is qualified under Israeli law as an “Industrial Company” and/or which derives income from an “approved
enterprise,” “benefited enterprise,” “preferred enterprise” or “preferred technological enterprise”
(as further discussed below) may be lower. See this Item 10E. “Additional Information – Taxation – Tax Benefits
Under the Law for the Encouragement of Capital Investments, 5719-1959.”
Tax Benefits under the Law for the Encouragement of Industry (Taxes),
5729-1969
Pursuant to the Law for the Encouragement of Industry (Taxes),
5729-1969, or the Industry Encouragement Law, a company qualifies as an “Industrial Company” if it is a resident of Israel,
was incorporated in Israel and at least 90% of its income in any tax year (exclusive of income raising from certain governmental security
loans) is derived from an “Industrial Enterprise” it owns, which is located in Israel. An “Industrial Enterprise”
is defined for purposes of the Industry Encouragement Law as an enterprise whose principal activity in a given tax year is production.
56
We believe that we are currently an Industrial Company. An Industrial
Company is entitled to certain tax benefits, including a deduction of the purchase price of patents or the right to use a patent or know-how
used for the development or promotion of the Industrial Enterprise at the rate of 12.5% per annum, commencing the year in which such rights
were first exercised.
The tax laws and regulations dealing with the adjustment of taxable
income for local inflation provided that Industrial Enterprises, such as us, were eligible for special rates of depreciation deductions.
These rates vary in the case of plant and equipment. With respect to equipment, the applicable rates of depreciation are determined according
to the number of shifts in which the equipment is being operated and generally range from 20% to 40% on a straight-line basis, a 30% to
50% on a declining balance basis for equipment first put into operation on or after June 1, 1989 (instead of the regular rates which
are applied on a straight-line basis). The applicable regulations are valid for equipment whose date of first operation was not later
than December 31, 2016.
Moreover, companies which own Industrial Enterprises that are approved
enterprises or benefited enterprises (see below) can choose, with respect to income deriving from such enterprises, between (a) the special
depreciation rates referred to above or (b) accelerated regular rates of depreciation applied on a straight-line basis in respect of property
and equipment, generally ranging from 200% (for equipment) to 400% (for buildings) of the ordinary depreciation rates during the first
five years of service of these assets, provided that the depreciation on a building may not exceed 20% per annum, multiplied by the applicable
adjustment rate.
Eligibility for benefits under the Industry Encouragement Law is
not contingent upon the prior approval of any Government agency. There can be no assurance that we will continue to so qualify, or will
be able to avail ourselves of any benefits under the Industry Encouragement Law in the future.
Tax Benefits under the Law for the Encouragement of Capital Investments,
5719-1959
General
Our production facility qualifies as a “benefited enterprise”
under the Law for the Encouragement of Capital Investments, 5719-1959, as amended in 2005, or the Investment Encouragement Law, which
provides certain tax benefits to investment programs of an “approved enterprise” or “benefited enterprise.”
Our benefited enterprise was converted from a previously approved enterprise program pursuant to the approval of the Israel Tax Authority
that we received in September 2006. As of yet, it was not necessary for us to utilize these tax benefits.
The Investment Encouragement Law stipulates certain criteria which
need be met with respect to investment programs carried out by an enterprise, in order for such an enterprise to be classified as a “benefited
enterprise.” Israeli resident companies which own benefited enterprise are generally classified as Benefited Companies. Benefited
Companies may claim tax benefits (as further discussed below) granted by the Investment Encouragement Law in its tax returns (and there
is no need to obtain prior approval to qualify for such benefits). There is no requirement to file reports with the Investment Center.
Audits are the responsibility of the Israeli Income Tax Authority as part of their tax audits. Companies may also approach the Israeli
Tax Authority for a pre-ruling regarding their eligibility for benefits under the Investment Encouragement Law.
A company that owns an approved enterprise is eligible for governmental
grants, but may elect to receive an alternative package comprised of tax benefits, referred to as the “previous alternative benefits
track”. The tax benefits of an approved enterprise include lower tax rates or no tax depending on the area and the track chosen,
lower tax rates on dividends and accelerated depreciation. In order to receive benefits in the grant track or the alternative benefit
track, the industrial enterprise must contribute to the economic independence of the Israeli economy, be competitive and contribute to
the gross local product in one of the manners stipulated in the Investment Encouragement Law. Tax benefits would be available, subject
to certain conditions (described below), to production facilities that generally derive more than 25% of their annual revenue from export,
or that do not derive 75% or more of their annual revenue in a single market.
57
Amendments to Investment Encouragement Law
In December 2010, the Israeli Parliament passed the Law for Economic
Policy for the Years 2011 and 2012 (Amended Legislation), 5771-2011, which prescribes, among other things, amendments to the Investment
Encouragement Law, effective as of January 1, 2011 (the “2011 Amendment”). The 2011 Amendment introduced new benefits
for income generated by a “Preferred Company” through its Preferred Enterprise (as such terms are defined in the Investment
Encouragement Law), if certain criteria are met. The new tax benefits (described below) would be available, subject to certain conditions,
to production facilities that generally derive more than 25% of their annual revenue from export, or that do not derive 75% or more of
their annual revenue in a single market, or, to competitive facilities in the field of renewable energy. A “Preferred Company”
is defined in the amendment as either (i) a company incorporated in Israel and not wholly-owned by governmental entities; or (ii) a partnership
(a) that was registered under the Israeli Partnerships Ordinance; and (b) all of its partners are companies incorporated in Israel, which
are in general not transparent for Israeli tax purposes and that not all of them are fully owned by governmental entities and such companies
or partnerships own, among other conditions, Preferred Enterprises and are controlled and managed from Israel.
In accordance with the 2011 Amendment and further amendments, a
Preferred Company is entitled to reduced corporate tax with respect to income derived by it Preferred Enterprise (and subject to certain
conditions) at the rate of 16%, unless it is located in a certain development zone, in which case the rate will be 7.5%.
Under the amendments, dividends distributed out of income which
is generally attributed to a Preferred Enterprise are subject to withholding tax at the rate of 20% (or lower, under an applicable tax
treaty). However, upon distribution of a dividend attributed to income generated in Israel, to an Israeli company, no withholding
tax will apply.
The 2011 Amendment applies to income generated as of January 1,
2011. Under the transitional provisions of the 2011 Amendment, we may elect to irrevocably implement the 2011 Amendment to the Investment
Encouragement Law while waiving benefits provided under the Investment Encouragement Law as in effect prior to the 2011 Amendment or to
remain subject to the Investment Encouragement Law as in effect prior to the 2011 Amendment. We may elect to implement the 2011 Amendment
by May 31 of any year, and such an election shall apply as of the tax year following the year on which the company's tax return (and the
election) was filed. Electing to implement the 2011 Amendment is irreversible.
We qualify for the status of a “Preferred Company”
pursuant to the 2011 Amendment. We are contemplating the implementation of the 2011 Amendment in future tax years.
In 2021, we have reversed the valuation allowance recorded in past years due
to our forecast that it is more likely than not that the Company will realize its deferred tax losses in the future.
The termination or substantial reduction of any of the benefits
available under the Investment Encouragement Law could have a material adverse effect on our future investments in Israel, and could adversely
affect our results of operations and financial condition.
Taxation of Gains Upon Disposition of, and Dividends Paid on, our Ordinary Shares
Taxation of Israeli Resident Shareholders
Israeli law imposes a capital gains tax on the sale of capital
assets. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain
that is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the CPI between
the date of purchase and the date of sale. Foreign residents who purchased an asset in foreign currency may request that the inflationary
surplus will be computed on the basis of the devaluation of the NIS against such foreign currency. The real gain is the excess of
the total capital gain over the inflationary surplus. The inflationary surplus accumulated from and after December 31, 1993, is exempt
from any capital gains tax in Israel while the real gain is taxed at the applicable rate discussed below.
Dealers in securities in Israel are taxed at regular tax rates applicable to business
income.
58
Subject to certain provisions relating to the linear calculation
method applicable to the determination of the capital gain tax pertaining to capital gains derived from the sale of assets, purchased
prior to January 1, 2003, or prior to January 1, 2012 (with respect to sale of assets or securities not listed in a stock exchange prior
to 1.1.2012), the tax rate on capital gains, including capital gain from the sale of securities listed on a stock exchange and on dividends,
is generally 25% for individuals and 30% for substantial individual shareholders (that are, generally, holders of 10% or more of the shares
of the company on the date of the sale of the shares or at any date during the 12 months period preceding such sale). The tax rate
for capital gains generated by corporations is 23% (since 2018). Dividends paid to an Israeli company by another Israeli company are not
subject to tax, unless received out of income derived from a benefited enterprise, or an approved enterprise, or stems from income derived
or accrued outside of Israel. In any event the applicable paying company and/or bank withholds at source income tax at the rate of 25%
or 30% in the case of a substantial individual shareholder.
If the shares were sold by Israeli residents, then (i) for the
period ending December 31, 2002 their sale would generally be tax exempt so long as (1) the shares were listed on a stock exchange, such
as, in our case, the NASDAQ Capital Market, which is recognized by the Israeli Ministry of Finance on December 31, 2002, and (2) we qualified
as an Industrial Company or Industrial Holding Company under the law for Industry Encouragement Law, at the relevant times as provided
by the Income Tax Ordinance [New Version], 5721-1961, which we believe we so qualified and (ii) for the period commencing January 1, 2003,
the sale of the shares would be, generally, subject to a 25% tax if sold by non-substantial individual shareholders and 30% tax if sold
by a substantial individual shareholders. The tax rate for corporate shareholders for the sale of the shares is 23% (since 2018).
We cannot provide any assurance that the Israeli tax authorities will agree with the determination that we qualified as an Industrial
Company at the relevant times.
Taxation of Non-Israeli Resident Shareholders
Under the convention between the United States and Israel concerning
taxes on income, Israeli capital gains tax will generally not apply to the sale, exchange or disposition of ordinary shares by a person
who qualifies as a resident of the United States. However, this exemption will not apply, among other cases, if the gain is attributable
to a permanent establishment of such person in Israel, or if the qualified U.S. resident holds, directly or indirectly, shares representing
10% or more of our voting power during any part of the 12-month period preceding the sale, exchange or disposition, subject to specified
conditions. In this case, the sale, exchange or disposition would be subject to Israeli tax, to the extent applicable under Israeli
domestic law. However, under the U.S.-Israel tax treaty, a U.S. resident generally would be permitted to claim a credit for the Israeli
tax against the U.S. federal income tax imposed on the sale, exchange or disposition, subject to the limitations in U.S. laws applicable
to foreign tax credits. The U.S.-Israel tax treaty does not relate to U.S. state or local taxes.
For residents of other countries, the purchaser of the shares may
be required to withhold capital gains tax on all amounts paid by it for the purchase of shares for the sale of our ordinary shares, for
so long as the capital gain from such a sale is not exempt from Israeli capital gains tax.
Notwithstanding the above, the capital gain from the sale of our
shares by non-Israeli residents would be tax exempt as long as our shares are listed on the NASDAQ Capital Market or any other stock exchange
recognized by the Israeli Ministry of Finance, and provided that certain other conditions are met. The most relevant conditions are as
follows: (i) the capital gain is not attributed to the foreign resident’s permanent establishment in Israel, and (ii) the shares
were acquired by the foreign resident after the company’s shares had been listed for trading on the foreign Exchange.
On the distribution of dividends other than bonus shares (stock
dividends) to individual Israeli residents shareholders or to non-Israeli shareholders, income tax applies at the rate of 25% or 30%,
as described above, or the lower rate payable with respect to dividends received out of income derived from a preferred or benefited enterprise
(see the Investment Encouragement Law), unless a double taxation treaty is in effect between Israel and the shareholder's country of residence
which provides for a lower tax rate in Israel on dividends. The Convention between the State of Israel and the Government of the
United States relating to relief from double taxation provides for a maximum tax of 25% on dividends paid to a resident of the United
States. As set forth above, dividends paid to an Israeli company by another Israeli company are not subject to corporate tax, unless received
out of income derived from a benefited enterprise, or an approved enterprise or unless the dividend stems from income produced or accrued
abroad.
59
Non-residents of Israel are subject to income tax on income accrued
or derived from sources in Israel. Such sources of income include passive income such as dividends, royalties and interest, as well
as non-passive income from services rendered in Israel. Distributions of dividends other than bonus shares or stock dividends, are
subject to income tax at the rate of 25% or 30% (for individuals), or 23% (for corporations in 2018 and 2019) pursuant to Israeli domestic
law as described above. However, under the Investment Encouragement Law, dividends generated by an approved enterprise or by our
benefited enterprise are, generally, taxed at the rate of 15%.
Pursuant to the Convention between the State of Israel and the
Government of the United States relating to relief from double taxation, the maximum tax rate on dividends paid to a holder of ordinary
shares who is a Treaty U.S. Resident will be 25%. However, dividends which are not generated by an approved enterprise will
generally be subject to Israeli tax at a rate of 12.5% if paid to a U.S. corporation which holds 10% of our voting power for a designated
period and provided that not more than 25% of our gross income for such period consists of certain types of dividends and interest. Notwithstanding
the foregoing, dividends distributed from income attributed to an approved enterprise are generally subject to a withholding tax rate
of 15% for such a U.S. corporation shareholder (which meets both conditions set forth above).
Subject to certain conditions, non-Israeli residents will be tax
exempt on capital gain derived from investments in Israeli companies without derogating from any other capital gain tax exemption applying
to non-Israeli resident under Israeli law or under any applicable double tax treaty.
In any event the applicable paying company and/or bank withholds at source income tax
at the rate of 25% or 30% in the case of a substantial individual shareholder.
United States Federal Income Taxation
The following is a general discussion of the material U.S. federal
income tax consequences of the acquisition, ownership and disposition of our ordinary shares. This description addresses only the U.S.
federal income tax considerations that may be relevant to U.S. Holders (as defined below) who hold our ordinary shares as capital assets.
This summary is based on the U.S. Internal Revenue Code of 1986, as amended, (the “Code”) Treasury regulations promulgated
thereunder, judicial and administrative interpretations thereof and the U.S.-Israel Tax Treaty (the “Treaty”), all as in effect
on the date hereof and all of which are subject to change either prospectively or retroactively or to differing interpretations. There
can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not take a different position concerning the tax consequences
of the acquisition, ownership or disposition of our ordinary shares or that such a position would not be sustained. This discussion does
not address all tax considerations that may be relevant to a U.S. Holder of ordinary shares. In addition, this description does not account
for the specific circumstances of any particular investor, such as:
| • |
broker-dealers; |
| • |
financial institutions or financial services entities; |
|
• |
certain insurance companies; |
| • |
investors liable for alternative minimum tax; |
| • |
regulated investment companies, real estate investment trusts, or grantor trusts; |
| • | dealers or traders in securities, commodities or currencies; |
| • |
tax-exempt organizations; |
| • |
retirement plans; |
| • |
S corporations: |
| • |
pension funds; |
| • |
certain former citizens or long-term residents of the United States; |
| • |
non-resident aliens of the United States or taxpayers whose functional currency is not the U.S. dollar; |
| • |
persons who hold ordinary shares through partnerships or other pass-through entities; |
60
| • |
persons who acquire their ordinary shares through the exercise or cancellation of employee stock options or otherwise as compensation
for services; |
| • |
direct, indirect or constructive owners of investors that actually or constructively own at least 10% of the total combined voting
power of our shares or at least 10% of our shares by value; or |
| • |
investors holding ordinary shares as part of a straddle, appreciated financial position, a hedging transaction or conversion transaction.
|
If a partnership or an entity treated as a partnership for
U.S. federal income tax purposes owns our ordinary shares, the U.S. federal income tax treatment of a partner in such a partnership will
generally depend upon the status of the partner and the activities of the partnership. A partnership that owns our ordinary shares and
the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of holding and disposing
of ordinary shares.
This summary does not address the effect of any U.S. federal
taxation (such as estate and gift tax) other than U.S. federal income taxation. In addition, this summary does not include any discussion
of state, local or non-U.S. taxation.
For purposes of this summary the term “U.S. Holder”
means a person that is eligible for the benefits of the Treaty and is a beneficial owner of ordinary shares who is, for U.S. federal income
tax purposes:
| • |
an individual who is a citizen or a resident of the United States; |
| • |
a corporation or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or
under the laws of the United States or any political subdivision thereof; |
| • |
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| • |
a trust if the trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court within
the United States is able to exercise primary supervision over the trust’s administration and (2) one or more U.S. persons have
the authority to control all of the substantial decisions of the trust. |
Unless otherwise indicated, it is assumed for the purposes of this
discussion that the Company is not, and will not become, a “passive foreign investment company” (“PFIC”) for U.S. federal
income tax purposes. See “—Passive Foreign Investment Companies” below.
Taxation of Distributions
Subject to the discussion below under the heading “—Passive
Foreign Investment Companies,” the gross amount of any distributions received with respect to our ordinary shares, including
the amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. federal income tax purposes when such distribution
is actually or constructively received, to the extent such distribution is paid out of our current and accumulated earnings and profits,
as determined for U.S. federal income tax purposes. Because we do not expect to maintain calculations of our earnings and profits
under U.S. federal income tax principles, it is expected that the entire amount of any distribution will generally be reported as dividend
income to you. Dividends are included in gross income at ordinary income rates, unless such dividends constitute "qualified dividend income,"
as set forth in more detail below. Distributions in excess of our current and accumulated earnings and profits would be treated as a non-taxable
return of capital to the extent of your adjusted tax basis in our ordinary shares and any amount in excess of your tax basis would be
treated as gain from the sale of ordinary shares. See “—Sale, Exchange or Other Disposition
of Ordinary Shares” below for a discussion of the taxation of capital gains. Our dividends would not qualify for the
dividends-received deduction generally available to corporations under Section 243 of the Code.
Dividends that we pay in NIS, including the amount of any Israeli
taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect
on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives
payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day may have a foreign currency
exchange gain or loss that would generally be treated as U.S.-source ordinary income or loss. U.S. Holders should consult their own tax
advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.
61
Subject to complex limitations, some of which vary depending upon
the U.S. Holder’s circumstances, any Israeli withholding tax imposed on dividends paid with respect to our ordinary shares, may
be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, alternatively, for deduction
against income in determining such tax liability). Israeli taxes withheld in excess of the applicable rate allowed by the Treaty (if any)
will not be eligible for credit against a U.S. Holder’s federal income tax liability. The limitation on foreign income taxes eligible
for credit is calculated separately with respect to specific classes of income. Dividends paid with respect to our ordinary shares
generally will be treated as foreign-source passive category income or, in the case of certain U.S. Holders, general category income for
U.S. foreign tax credit purposes. Further, there are special rules for computing the foreign tax credit limitation of a taxpayer who receives
dividends subject to a reduced tax rate. A U.S. Holder may be denied a foreign tax credit with respect to Israeli income tax withheld
from dividends received on our ordinary shares if such U.S. Holder fails to satisfy certain minimum holding period requirements or to
the extent such U.S. Holder’s position in ordinary shares is hedged. An election to deduct foreign taxes instead of claiming a foreign
tax credit applies to all foreign taxes paid or accrued in the taxable year. The rules relating to the determination of the foreign tax
credit are complex. You should consult with your own tax advisors to determine whether and to what extent you would be entitled
to this credit.
Subject to certain limitations (possibly including the PFIC rules
discussed below), “qualified dividend income” received by a non-corporate U.S. Holder may be subject to tax at the lower long-term
capital gain rates (currently, a maximum rate of 20%). Distributions taxable as dividends paid on our ordinary shares should qualify for
a reduced rate if we are a “qualified foreign corporation,” as defined in Code section 1(h)(11)(C). We will be a qualified
foreign corporation if either: (i) we are entitled to benefits under the Treaty or (ii) our ordinary shares are readily tradable on an
established securities market in the United States and certain other requirements are met. We believe that we are entitled to benefits
under the Treaty and that our ordinary shares currently are readily tradable on an established securities market in the United States.
However, no assurance can be given that our ordinary shares will remain readily tradable. The rate reduction does not apply unless certain
holding period requirements are satisfied, nor does it apply to dividends received from a PFIC (see discussion below), in respect of certain
risk-reduction transactions, or in certain other situations. U.S. Holders of our ordinary shares should consult their own tax advisors
regarding the effect of these rules in their particular circumstances.
Sale, Exchange or Other Disposition of Ordinary Shares
Subject to the discussion of the PFIC rules below, if you sell
or otherwise dispose of our ordinary shares (other than with respect to certain non-recognition transactions), you will generally recognize
gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other
disposition and your adjusted tax basis in our ordinary shares, in each case determined in U.S. dollars. Such gain or loss will generally
be capital gain or loss and will be long-term capital gain or loss if you have held the ordinary shares for more than one year at the
time of the sale or other disposition. Long-term capital gain realized by a non-corporate U.S. Holder is generally eligible for a preferential
tax rate (currently at a maximum of 20%). In general, any gain that you recognize on the sale or other disposition of ordinary shares
will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S. source income.
Deduction of capital losses is subject to certain limitations under the Code.
In the case of a cash basis U.S. Holder who receives NIS in connection
with the sale or disposition of our ordinary shares, the amount realized will be based on the U.S. dollar value of the NIS received with
respect to the ordinary shares as determined on the settlement date of such exchange. A cash basis U.S. Holder who receives payment in
NIS and converts NIS into U.S. dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency
exchange gain or loss, based on any appreciation or depreciation in the value of NIS against the U.S. dollar, which would be treated as
ordinary income or loss.
An accrual basis U.S. Holder may elect the same treatment of currency
exchange gain or loss required of cash basis taxpayers with respect to a sale or disposition of our ordinary shares that are traded on
an established securities market, provided that the election is applied consistently from year to year. Such election may not be changed
without the consent of the IRS. In the event that an accrual basis U.S. Holder does not elect to be treated as a cash basis taxpayer (pursuant
to the Treasury regulations applicable to foreign currency transactions), such U.S. Holder is required to calculate the value of the proceeds
as of the "trade date" and may have a foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference
between the U.S. dollar value of NIS prevailing on the trade date and on the settlement date. Any such currency gain or loss generally
would be treated as U.S.- source ordinary income or loss and would be subject to tax in addition to the gain or loss, if any, recognized
by such U.S. Holder on the sale or disposition of such ordinary shares.
62
Passive Foreign Investment Companies
We believe that we were not a PFIC for U.S. federal income tax
purposes for the 2025 taxable year. However, since PFIC status depends upon the composition of our income and assets and the market value
of our assets from time to time, there can be no assurance that we will not be considered a PFIC for any future taxable year. If we were
a PFIC for any taxable year during which a U.S. Holder owned ordinary shares, certain adverse consequences could apply to the U.S. Holder.
Specifically, unless a U.S. Holder makes one of the elections mentioned below, gain recognized by the U.S. Holder on a sale or other disposition
of ordinary shares would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares. The amounts allocated
to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount
allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate,
for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further, any distribution in excess of
125% of the average of the annual distributions received by the U.S. Holder on our ordinary shares during the preceding three years or
the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described immediately above. Certain elections
(such as a mark-to-market election or a QEF election) may be available to U.S. Holders and may result in alternative tax treatment. U.S.
Holders should consult their tax advisors as to the availability and consequences of a mark-to-market election or a QEF election with
respect to their ordinary shares.
In addition, if we were a PFIC for a taxable
year in which we pay a dividend or the prior taxable year, the favorable dividend rates discussed above with respect to dividends paid
to certain non-corporate U.S. Holders would not apply. If we were a PFIC for any taxable year in which a U.S. Holder owned our shares,
the U.S. Holder would generally be required to file annual returns with the IRS on IRS Form 8621.
Additional Tax on Investment Income
In addition to the income taxes described above, U.S. Holders that
are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a 3.8% Medicare contribution tax on net
investment income, which includes dividends and capital gains from the sale or exchange of our ordinary shares.
Backup Withholding and Information Reporting
Payments in respect of our ordinary shares may be subject to information
reporting to the IRS and to U.S. backup withholding tax at the rate (currently) of 24%. Backup withholding will not apply, however,
if you (i) fall within certain exempt categories and demonstrate the fact when required or (ii) furnish a correct taxpayer identification
number and make any other required certification.
Backup withholding is not an additional tax. Amounts withheld under
the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability. A U.S. Holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.
U.S. citizens and individuals taxable as resident aliens
of the United States that (i) own “specified foreign financial assets” (as defined in Section 6038D of the Code and the regulations
thereunder) with an aggregate value in a taxable year in excess of certain thresholds (as determined under rules in Treasury regulations)
and (ii) are required to file U.S. federal income tax returns generally will be required to file an information report with respect to
those assets with their tax returns. IRS Form 8938 has been issued for that purpose. “Specified foreign financial assets”
include any financial accounts maintained by foreign financial institutions, foreign stocks held directly, and interests in foreign estates,
foreign pension plans or foreign deferred compensation plans. Under those rules, our ordinary shares, whether owned directly or through
a financial institution, estate or pension or deferred compensation plan, would be “specified foreign financial assets.” Under
Treasury regulations, the reporting obligation applies to certain U.S. entities that hold, directly or indirectly, specified foreign financial
assets. Penalties can apply if there is a failure to satisfy this reporting obligation. In addition, in the event a U.S. Holder that is
required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income
taxes of such U.S. Holder for the related tax year may not close until three years after the date that the required information is filed.
A U.S. Holder is urged to consult the U.S. Holder’s tax advisor regarding the reporting obligation.
63
Any U.S. Holder who acquires more than $100,000 of our ordinary
shares or holds 10% or more of our ordinary shares by vote or value may be subject to certain additional U.S. information reporting requirements.
Proposed legislation in the U.S. Congress, including changes in
U.S. tax law, may adversely impact the company and the value of the Ordinary Shares. Changes to U.S. tax laws (which changes may have
retroactive application) could adversely affect the company or holders of Ordinary Shares. In recent years, many changes to U.S. federal
income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to occur in
the future. In addition, the Inflation Reduction Act of 2022 includes provisions that impact the U.S. federal income taxation of corporations.
Among other items, this legislation includes provisions that impose a minimum tax on the book income of certain large corporations and
an excise tax on certain corporate stock repurchases that would be imposed on the corporation repurchasing such stock. It remains unclear
in certain respects how this legislation will be implemented by the U.S. Department of the Treasury and the company cannot predict how
this legislation or any future changes in tax laws might affect the company or purchasers of the Ordinary Shares.
The above description is not intended to constitute a complete
analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary shares. You should consult your tax
advisor concerning the tax consequences of your particular situation.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to certain of the reporting requirements of the
Exchange Act as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act. As a foreign private
issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure
and procedural requirements of Regulation 14A under the Exchange Act, and transactions in our equity securities by our officers and directors
are exempt from the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition,
we are not required under the Exchange Act to file quarterly reports and financial statements. However, we file with the SEC an annual
report on Form 20-F containing financial statements audited by an independent accounting firm. We also submit to the SEC reports on Form
6-K containing (among other things) press releases and unaudited financial information. We post our annual report on Form 20-F on our
website promptly following the filing of our annual report with the SEC. The information on our website is not incorporated by reference
into this annual report.
The SEC maintains an Internet website that contains
reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
We make our reports available on our internet website, free of charge, as soon as reasonably practicable after such material is electronically
filed with the SEC.
The documents concerning our company that are referred to in this
annual report may also be inspected at our offices located at 20 Ben Zion Gelis Street, Sgoola Industrial Zone, Petach Tikva 4910101,
Israel.
I. Subsidiary Information
Not applicable.
64
| ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
We are exposed to a variety of market risks,
including foreign currency fluctuations and changes in interest rates affecting primarily the interest on short-term credit lines and
long-term loans.
Foreign Currency Exchange Risk
Our reporting currency is the dollar. Our revenues are primarily
denominated in the dollar, NIS and Euros, while our expenses are primarily denominated in NIS, dollars and Euros. As a result, the NIS
value of our dollar and Euro denominated revenues are negatively impacted by the depreciation of the dollar and the Euro against the NIS.
In addition, fluctuations in rates of exchange between NIS and other currencies may affect our operating results and financial condition.
The average exchange rate for the NIS against the dollar was approximately 6.7% lower in 2025 than 2024 and the average exchange rate
of the NIS against the Euro was 2.7% lower in 2025 than 2024, and in total, these changes had a negative impact on our operating results
in 2025. The average exchange rate for the NIS against the dollar was approximately 0.3% higher in 2024 than 2023 and the average exchange
rate of the NIS against the Euro was 0.4% higher in 2024 than 2023, and in total, these changes had a positive impact on our operating
results in 2024. As of December 31, 2025, we estimate that a devaluation of 1% of the dollar against the NIS would result in a decrease
of approximately $328,000 in our operating income and devaluation of 1% of the Euro against
the NIS would not have a material impact on our operating and financial results.
If we were to determine that it is in our best interests to enter
into hedging transactions in the future in order to protect ourselves in part from currency fluctuations, we may not be able to do so,
or such transactions, if entered into, may not materially reduce the effect of fluctuations in foreign currency exchange rates on our
results of operations and may result in additional expenses.
Commodity Price Risk
Cost of raw materials is a significant component of our cost of
revenues. In 2025, the cost of raw materials used in production was $13.1 million compared to $13.0 million in 2024. A 1% increase or
decrease in the cost of raw materials used in production would increase or decrease our cost of raw materials by approximately $131,000.
Credit Risk
We may be subject to significant concentrations of credit risk
consisting principally of cash and cash equivalents and trade accounts receivable. Cash and cash equivalents are deposited with
major financial institutions in Israel, Europe and the United States.
The risk of collection associated with trade receivables is reduced
by the geographical dispersion of our customer base. However, our business involves selling products to customers for whose credit we
do not have insurance coverage, and we are exposed to risk with respect to our receivables from them.
| ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
PART II
| ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS |
None.
65
| ITEM 15. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our chief
executive officer and chief financial officer to allow timely decisions regarding required disclosure. Our management, including
our chief executive officer and chief financial officer, conducted an evaluation of our disclosure controls and procedures, as defined
under Exchange Act Rule 13a-15(e), as of the end of the period covered by this Annual Report on Form 20-F. Based upon that evaluation,
our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were
effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our company’s principal executive
and principal financial officers and effected by our company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
| • |
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of our company; |
| • |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with
authorizations of management and directors of our company; and |
| • |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our company’s
assets that could have a material effect on our financial statements. |
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2025. In making this assessment, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, our
management concluded that as of December 31, 2025, our internal control over financial reporting is effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting
that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.
| ITEM 16. |
[RESERVED] |
| ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT
|
Our board of directors has determined that Mr. Gad Dovev, an
external director, meets the definition of an audit committee financial expert, as defined by rules of the SEC. For a brief listing of
Mr. Dovev’s relevant experience, see Item 6A. “Directors, Senior Management and Employees - Directors and Senior Management.”
66
| ITEM 16B. |
CODE OF ETHICS |
We have adopted a code of ethics that applies to our chief executive
officer and all senior financial employees of our company, including the chief financial officer and the comptroller. The code of
ethics is publicly available on our website. Written copies are available upon request. If we make any substantive amendment
to the code of ethics or grant any waivers, including any implicit waiver, from a provision of the codes of ethics, we will disclose the
nature of such amendment or waiver on our website.
| ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Independent Registered Public Accounting Firm Fees -
The following table sets forth, for the year ended December
31, 2025, the fees billed by our independent registered public accountants. Kost Forer Gabbay & Kasierer, a member of Ernst &
Young Global have been serving as our principal independent registered public accounting firm as of December 31, 2024.
All of such fees were pre-approved by our audit committee.
|
Services Rendered. |
2025 |
2024 |
||||||
|
Audit (1)
|
$ |
101,500 |
$ |
95,000 |
||||
|
Audit Related Fees |
$ |
37,700 |
$ |
35,000 |
||||
|
Tax (2)
|
$ |
5,800 |
$ |
5,000 |
||||
|
All other Fees (3)
|
5,200 |
4,900 |
||||||
|
Total |
$ |
150,200 |
$ |
139,900 |
||||
______________
| (1) |
Audit fees relate to audit services provided for each of the years shown in the table, including fees associated with the annual
audit, consultations on various accounting issues and audit services provided in connection with statutory or regulatory filings.
|
| (2) |
Tax fees relate to services performed regarding tax compliance. |
| (3) |
Other fees are fees for professional services other than audit or tax related fees. |
Pre-Approval Policies and Procedures
Our audit committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. Pre-approval of an audit or
non-audit service may be given as a general pre-approval, as part of the audit committee’s approval of the scope of the engagement
of our independent auditor, or on an individual basis. Any proposed services exceeding general pre-approved levels also require specific
pre-approval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to perform the
prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the rules of the SEC, and also requires the audit committee
to consider whether proposed services are compatible with the independence of the registered public accountants.
| ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
| ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
Neither we nor any affiliated purchaser has purchased any of
our securities during 2015.
67
| ITEM 16F. |
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not applicable.
| ITEM 16G. |
CORPORATE GOVERNANCE |
Under NASDAQ Stock Market Rule 5615(a)(3), foreign private issuers,
such as our company, are permitted to follow certain home country corporate governance practices instead of certain provisions of the
NASDAQ Stock Market Rules. A foreign private issuer that elects to follow a home country practice instead of any of such NASDAQ
rules must submit to NASDAQ, in advance, a written statement from an independent counsel in such issuer’s home country certifying
that the issuer’s practices are not prohibited by the home country’s laws.
We have notified NASDAQ that we choose not to comply with the following
NASDAQ requirements, and instead follow Israeli law and practice in respect of such requirements:
| • |
The requirement to maintain a majority of independent directors, as defined under the NASDAQ Stock Market Rules. Instead, we
follow Israeli law and practice which requires that we appoint at least two external directors, within the meaning of the Israeli Companies
Law, to our board of directors. We have the mandated three independent directors, within the meaning of the rules of the SEC and
NASDAQ, on our audit committee. See Item 6C. “Directors, Senior Management and Employees - Board Practices - External and
Independent Directors.” |
| • |
The requirements regarding the directors’ nominations process. Under Israeli law and practice, our board of directors
is authorized to recommend to our shareholders director nominees for election. See Item 6C. –
“Directors, Senior Management and Employees - Board Practices - Election of Directors.” |
| • |
The requirement regarding the quorum for any meeting of shareholders. Instead, we follow Israeli law and practice which provides
that, unless otherwise provided by a company’s articles of association, the quorum required for a general meeting of shareholders
is at least two shareholders present who hold, in the aggregate, 25% of the company’s voting rights. Our articles of association
provide that the quorum required for a shareholder meeting consists of at least two shareholders present in person or represented by proxy
who hold or represent, in the aggregate, at least 33% of the voting rights of the issued share capital. See Item 10B. “Additional
Information - Memorandum and Articles of Association- Annual and Extraordinary Meetings of Shareholders.” |
| ITEM 16H. |
MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 16I. |
DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
Not applicable.
68
| ITEM16J. |
INSIDER TRADING POLICIES
|
We have adopted an Insider Trading Compliance Policy (the “Insider Trading Policy”), which, among other things, governs the purchase, sale and other dispositions of our securities by our directors, executive officers and employees. Our Insider Trading Policy aims to promote compliance with applicable insider trading laws, rules and regulations, and Nasdaq listing standards. A copy of our Insider Trading Policy is available on our website and is filed as Exhibit 11.1 to this Annual Report.
|
ITEM16K.
|
CYBERSECURITY
|
Cybersecurity Risk Management and Strategy
We generally seek to address cybersecurity risks by implementing security measures on our internal computer systems. These security measures include firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are periodically evaluated by our Chief Information Officer (“CIO”). Our CIO, who holds over 25 years of experience in information technology is responsible for implementing protection measures for our information systems from cybersecurity threats and promptly responding to any cybersecurity incidents.
Our management has primary responsibility for our overall cybersecurity risk management and supervises our internal information technology personnel. Our management is responsible for assessing and managing our material risks from cybersecurity threats. The risk assessment occurs on an ongoing basis, or as business needs change, and covers identification of risks that could act against the company's objectives as well as specific risks related to a compromise to the security of data.
Our board of directors recognizes the critical importance of maintaining the availability of our data and computer systems which is essential to maintaining the trust and confidence of our business partners and employees. Our audit committee is responsible for reviewing our policies with respect to cybersecurity risks and relevant contingent liabilities and risks that may be material to our company, including risks from third parties and business partners . Our audit committee meets with management and our CIO from time to time to discuss our policies and the implementation of security measures.
|
ITEM 17.
|
FINANCIAL STATEMENTS
|
Not applicable.
|
ITEM 18.
|
FINANCIAL STATEMENTS
|
Consolidated Financial Statements
|
Reports of Independent Registered Public Accounting Firms
|
F-2
|
|
Consolidated Balance Sheets
|
F-5 - F-6
|
|
Consolidated Statements of Comprehensive Income (loss)
|
F-7
|
|
Consolidated Statements of Changes in Shareholders’ Equity
|
F-8
|
|
Consolidated Statements of Cash Flows
|
F-9 - F-10
|
|
Notes to the Consolidated Financial Statements
|
F-11 - F-36
|
69
|
ITEM 19.
|
EXHIBITS
|
Index to Exhibits
|
Exhibit
|
Description
|
|
1.1
|
Memorandum of Association of the Registrant (1)
|
|
1.2
|
Articles of Association of the Registrant, as amended (2)
|
|
2.1
|
Specimen of Share Certificate (3)
|
|
2.2*
|
Description of Ordinary Shares
|
|
3.1
|
Form of Director and Officer Indemnity Agreement (4)
|
|
4.1
|
Fourth Amended and Restated Compensation Policy dated September 18, 2025 (5)
|
|
4.2
|
English summary of terms of Waste Water Treatment Facility Building and Operation Agreement, dated July 3, 2014, by and between the Registrant and Elad Technologies (L.S.) (6)
|
|
4.3
|
Underwriting Agreement dated February 12, 2024(7)
|
|
8.1
|
List of Subsidiaries of the Registrant(8)
|
|
11.1*
|
Insider Trading Policy
|
|
12.1*
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
|
|
12.2*
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1924, as amended.
|
|
13.1*
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
13.2*
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
15.1*
|
Consent of Brightman Almagor Zohar & Co., a firm in the Deloitte Global Network for the year ending December 31, 2023.
|
|
15.2*
|
Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global for the year ending December 31, 2025 and December 31, 2024.
|
|
97.1
|
Claw-back Policy dated August 3, 2023(9)
|
|
101.INS
|
Inline XBRL Instance Document.
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
101.PRE
|
Inline XBRL Taxonomy Presentation Linkbase Document.
|
|
101.CAL
|
Inline XBRL Taxonomy Calculation Linkbase Document.
|
|
101.LAB
|
Inline XBRL Taxonomy Label Linkbase Document.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
|
(1)
|
Filed as Exhibit 1.1 to our registration statement on Form F-1, registration number 333-229740, as amended, and incorporated herein by reference.
|
|
(2)
|
Included in Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on September 12, 2013 and incorporated herein by reference.
|
|
(3)
|
Filed as Exhibit 2.1 to our registration statement on Form F-1, registration number 333-229740, as amended, and incorporated herein by reference.
|
|
(4)
|
Included as Exhibit A to Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on October 31, 2019 and incorporated herein by reference.
|
|
(5)
|
Included as Exhibit A to Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on August 14, 2025 and incorporated herein by reference.
|
|
(6)
|
Filed as Exhibit 4.13 to our Annual Report on Form 20-F for the year ended December 31, 2014, and incorporated herein by reference.
|
|
(7)
|
Included as Exhibit A to Exhibit 99.1 to our Report of Foreign Issuer on Form 6-K filed on August 8, 2023 and incorporated herein by reference
|
|
(8)
|
Filed as Exhibit 8.1 to our Annual Report on Form 20-F for the year ended December 31, 2021, and incorporated herein by reference.
|
|
(9)
|
Filed as Exhibit 97.1 to our Annual Report on Form 20-F for the year ended December 31, 2023, and incorporated herein by reference.
|
|
*
|
Filed herewith.
|
70
ELTEK LTD. AND ITS SUBSIDIARIES
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2025
IN U.S. DOLLARS
INDEX
|
Page
|
|
|
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
|
F-2
|
|
(Firm Name: Kost Forer Gabay & Kasierer / PCAOB ID No.
(Firm Name: Brightman Almagor Zohar & Co / PCAOB ID No.
|
|
|
CONSOLIDATED BALANCE SHEETS
|
F-5 - F-6
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
F-7
|
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
F-8
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
F-9 - F-10
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-11 - F-36
|
- - - - - - - - - - - - - - - - - - - - - - - -
 |
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road,
Building A Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
REPORT OF INDEPENDENCE REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Eltek Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Eltek Ltd. and its subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of comprehensive income, shareholders' equity and cash flows, for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
We also audited the disclosure of significant expenses and other segment items in Note 14 that have been disclosed for 2023 due to the adoption of ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. In our opinion, such disclosures are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2023 consolidated financial statements of the Company other than with respect to these disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2023 consolidated financial statements taken as a whole.
We also audited the disclosure of significant expenses and other segment items in Note 14 that have been disclosed for 2023 due to the adoption of ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. In our opinion, such disclosures are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2023 consolidated financial statements of the Company other than with respect to these disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2023 consolidated financial statements taken as a whole.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F - 2
|
|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road,
Building A Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
Measurement of Inventory Valuation Reserves
|
|
Description of the Matter
|
As of December 31, 2025, the Company’s net inventory balance was $11,154 thousand. As described in Note 2 to the consolidated financial statements, management records inventory at the lower of its cost or net realizable value. The Company reviews the components of its inventory on a periodic basis for excess and obsolescence and adjusts inventory to its net realizable value as necessary.
We determined that the write-offs for excess and obsolete inventory represent a critical audit matter due to the significant judgments involved in management’s estimation process and the level of audit effort required. Auditing these estimates demanded a high degree of professional judgment and an increased level of audit procedures to assess the methodology used and the reasonableness of the recorded write-offs.
|
|
|
|
|
|
|
How We Addressed the Matter in Our Audit
|
Our audit procedures to test the adequacy of the Company’s excess and obsolete inventory write-offs included, among others, evaluating the appropriateness of management’s inputs and assumptions used in estimating excess and obsolete inventory. We tested the completeness and accuracy of the underlying data used in management’s calculation, such as historical usage patterns, inventory aging, and prior write-off activity. We also tested the mathematical accuracy of the calculation and performed inquiries of management to understand the rationale for the estimate. In addition, we performed a retrospective review by comparing prior year write-off estimates to actual inventory disposals or write-offs.
|
/s/ KOST FORER GABBAY & KASIERER
A Member EY Global
We have served as the Company’s auditor since 2024.
March 26, 2026
F - 3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
ELTEK LTD.
Opinion on the Financial Statements
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 14 to the consolidated financial statements, the consolidated statement of comprehensive income, shareholders’ equity, and cash flows of Eltek Ltd. and subsidiaries (the "Company") for the year ended December 31, 2023, and the related notes (collectively referred to as the "financial statements") (the 2023 financial statements before the effects of the retrospective adjustments discussed in Note 14 to the financial statements are not presented herein). In our opinion, the 2023 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting as described in Note 14 to the financial statements, present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting as described in Note 14 to the financial statements, and accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
/s/ Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
March 26, 2024
We began serving as the Company’s auditor in 2020. In 2024 we became the predecessor auditor.
F - 4
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
December 31,
|
|||||||||||
|
Note
|
2025
|
2024
|
|||||||||
|
ASSETS
|
|||||||||||
|
CURRENT ASSETS:
|
|||||||||||
|
Cash and cash equivalents
|
3
|
|
|
||||||||
|
Short-term bank deposits
|
4
|
|
|
||||||||
|
Trade receivables
|
2f
|
|
|
|
|||||||
|
Inventories
|
5
|
|
|
||||||||
|
Other accounts receivable and prepaid expenses
|
6
|
|
|
||||||||
|
Total current assets
|
|
|
|||||||||
|
LONG-TERM ASSETS:
|
|||||||||||
|
Severance pay fund
|
9
|
|
|
||||||||
|
Deferred tax asset, net
|
16
|
|
|
||||||||
|
Operating lease right-of-use assets
|
10
|
|
|
||||||||
|
Property and equipment, net
|
7
|
|
|
||||||||
|
Total long-term assets
|
|
|
|||||||||
|
Total assets
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
U.S. dollars in thousands
|
December 31,
|
|||||||||||
|
Note
|
2025
|
2024
|
|||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|||||||||||
|
CURRENT LIABILITIES:
|
|||||||||||
|
Trade payables
|
|
|
|||||||||
|
Other accounts payable and accrued expenses
|
8
|
|
|
||||||||
|
Short-term operating lease liabilities
|
10
|
|
|
||||||||
|
Total current liabilities
|
|
|
|||||||||
|
LONG-TERM LIABILITIES:
|
|||||||||||
|
Accrued severance pay
|
9
|
|
|
||||||||
|
Long-term operating lease liabilities
|
10
|
|
|
||||||||
|
Total long-term liabilities
|
|
|
|||||||||
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
11
|
|
|
||||||||
|
SHAREHOLDERS' EQUITY:
|
|||||||||||
|
Share capital -
|
|||||||||||
|
Ordinary shares of NIS
Authorized:
|
|
|
|||||||||
|
Additional paid-in capital
|
|
|
|||||||||
|
Foreign currency translation adjustments
|
|
|
|||||||||
|
Capital reserves
|
|
|
|||||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
|||||||
|
Total shareholders' equity
|
12
|
|
|
||||||||
|
Total liabilities and shareholders' equity
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands (except per share data)
|
Year ended
December 31,
|
|||||||||||||||
|
Note
|
2025
|
2024
|
2023
|
||||||||||||
|
Revenues
|
14b
|
|
|
|
|
||||||||||
|
Cost of revenues
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
Gross profit
|
|
|
|
||||||||||||
|
Operating expenses:
|
|||||||||||||||
|
Research and development, net
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
Selling, general and administrative
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
Operating income
|
|
|
|
||||||||||||
|
Financial (expense) income
|
15
|
(
|
)
|
|
|
||||||||||
|
Income before income taxes
|
|
|
|
||||||||||||
|
Income tax benefit (expenses), net
|
16
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Net income
|
|
|
|
||||||||||||
|
Other comprehensive income, net:
|
|||||||||||||||
|
Foreign currency translation adjustments
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total comprehensive income
|
|
|
|
||||||||||||
|
Basic income per ordinary share attributable to Eltek Ltd. shareholders
|
13
|
|
|
|
|||||||||||
|
Diluted income per ordinary share attributable to Eltek Ltd. shareholders
|
13
|
|
|
|
|||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 7
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share data)
|
Company's shareholders
|
||||||||||||||||||||||||||||
|
Ordinary shares
|
Amount
|
Additional
paid-in capital
|
Accumulated other comprehensive income
|
Capital
reserves
|
Accumulated deficit
|
Total
|
||||||||||||||||||||||
|
Balance as of January 1, 2023
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Dividend distribution
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Exercise of stock options
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
-
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of December 31, 2023
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Exercise of stock options
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Issue of Share capital
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
-
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of December 31, 2024
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Dividend distribution
|
(
|
)
|
(
|
)
|
||||||||||||||||||||||||
|
Exercise of stock options
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of December 31, 2025
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 8
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
|
|
|
|||||||||
|
Adjustments required to reconcile net income to net cash flows provided by operating activities:
|
||||||||||||
|
Depreciation
|
|
|
|
|||||||||
|
Share-based compensation
|
|
|
|
|||||||||
|
Changes in deferred income tax assets, net
|
|
|
|
|||||||||
|
Decrease (increase) in long-term tax receivables
|
|
|
(
|
)
|
||||||||
|
Accrued Interest, net and exchange rate effects
|
|
(
|
)
|
|
||||||||
|
Increase (decrease) in employee severance benefits, net
|
|
(
|
)
|
|
||||||||
|
Decrease (increase) in trade receivables, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease in operating lease right-of-use assets
|
|
|
|
|||||||||
|
Decrease in operating lease liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease (increase) in other receivables and prepaid expenses
|
|
|
(
|
)
|
||||||||
|
Increase in inventories
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Increase (decrease) in trade payables
|
(
|
)
|
|
|
||||||||
|
Increase (decrease) in other liabilities and accrued expenses
|
|
|
|
|||||||||
|
Net cash provided by operating activities
|
|
|
|
|||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Investment in short-term bank deposits, net
|
|
(
|
)
|
(
|
)
|
|||||||
|
Restricted deposit
|
|
|
|
|||||||||
|
Repayment from insurance
|
|
|
|
|||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Issuance of shares, net
|
|
|
|
|||||||||
|
Exercise of options
|
|
|
|
|||||||||
|
Dividend distribution
|
(
|
)
|
|
(
|
)
|
|||||||
|
Repayment of long-term loans
|
|
|
(
|
)
|
||||||||
|
Net cash provided by (used in) financing activities
|
(
|
)
|
|
(
|
)
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 9
ELTEK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
U.S. dollars in thousands
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(
|
)
|
||||||||
|
Increase (decrease) in cash and cash equivalents
|
(
|
)
|
(
|
)
|
|
|||||||
|
Cash and cash equivalents at the beginning of the year
|
|
|
|
|||||||||
|
Cash and cash equivalents at end of the year
|
|
|
|
|||||||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
|
||||||||||||
|
Cash paid for interest
|
|
|
|
|||||||||
|
Cash paid for income taxes
|
|
|
|
|||||||||
|
Supplemental Disclosures of non-cash activity:
|
||||||||||||
|
Purchase of property and equipment in credit
|
|
|
|
|||||||||
|
Right-of-use assets recognized with corresponding lease liabilities
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 10
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
DESCRIPTION OF BUSINESS AND GENERAL
|
| a. |
General:
|
| - |
Eltek Ltd. ("the Company") was established in Israel in 1970, and its ordinary shares have been publicly traded on the NASDAQ Capital Market ("NASDAQ") since 1997. Eltek Ltd. and its subsidiaries (Eltek USA Inc. and Eltek Europe GmbH) are collectively referred to as "the Company". As of December 31, 2025, Eltek Europe GmbH is inactive.
|
| - |
The Company manufactures, markets and sells custom made printed circuit boards ("PCBs"), including high density interconnect, flex-rigid and multi-layered boards. The principal markets of the Company are in Israel, Europe, India and North America.
|
| - |
The Company markets its products mainly to the medical technology, defense and aerospace, industrial, telecom and networking equipment industries, as well as to contract electronic manufacturers.
|
| - |
The Company is controlled by Nistec Golan Ltd ("Nistec Golan"). Nistec Golan is controlled indirectly by Mr. Yitzhak Nissan, who owns, indirectly through Nistec Holdings Ltd., all of the shares of Nistec Ltd and Nistec Golan (Nistec Holdings Ltd. and/or any of its subsidiaries are referred to as "Nistec").
|
| b. |
Credit facilities:
|
The Company has a revolving credit facility pursuant to which the Company may withdraw an aggregate amount of up to NIS 8.7 million ($2.7 million), subject to several financial covenants. As of December 31, 2025, and December 31, 2024, the Company has no outstanding amounts under the facility.
| c. |
Business risks and conditions:
|
| - |
The Company’s business is subject to numerous risks including, but not limited to, the impact of currency exchange rates (mainly NIS/US$), the Company's ability to implement its sales and manufacturing plans, the impact of competition from other companies, the Company's ability to receive regulatory clearance or approval to market its products, changes in regulatory environment, domestic and global economic conditions and industry conditions, and compliance with environmental laws and regulations.
|
| - |
Mechanical malfunction – The Company’s operations depend on specialized and, in some cases, aging manufacturing equipment that may malfunction and is not easily replaced, which could disrupt production and adversely affect its business. I addition, the Company may not be able to obtain insurance coverage to fully cover all losses, including business interruptions resulting from mechanical failures, and may be subject to higher premiums, increased deductibles, reduced coverage, or non-renewal.
|
F - 11
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 1:- |
DESCRIPTION OF BUSINESS AND GENERAL (CONT.)
|
| - |
The Company's liquidity position, as well as its operating performance, may be negatively affected by other financial and business factors, many of which are beyond its control.
|
| - |
Since October 7, 2023, Israel has faced ongoing hostilities, including the armed conflict with Hamas in the Gaza Strip and periodic escalations with Hezbollah in Lebanon, which have continued to contribute to heightened regional tensions and uncertainty. In 2025 and 2026, this volatility further extended to include significant confrontations involving Iran and elements of the wider international community, with hostilities and military actions occurring between Israeli forces and Iranian targets that have exacerbated geopolitical instability in the region. Although there have been efforts toward temporary ceasefires and de-escalation, the risk of renewed or expanded military engagement involving Iran, Iran-backed actors in neighboring countries, and the potential for broader regional spillover remains. As of March 2026, these events have had no material impact on the Company's operations.
|
The Company's commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the region. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, the Company cannot assure that this government coverage will be maintained or, if maintained, will be sufficient to compensate fully the damages incurred.
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
| A. |
Basis of presentation:
|
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), followed on a consistent basis.
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances, including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.
| B. |
Functional and reporting currency:
|
The Company’s functional currency is the New Israeli Shekel ("NIS"). Transactions denominated in foreign currencies are translated into NIS using the prevailing exchange rates at the date of the transaction. Gains and losses from the translation of foreign currency transactions are recorded in financial income or expenses.
In accordance with ASC 830, assets and liabilities are translated into the reporting currency using the exchange rate at the end of the year. Revenues and expenses are translated into the reporting currency using the average exchange rate for each quarter. Translation adjustments are reported separately as a component of accumulated other comprehensive income.
F - 12
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
The functional currency of the Company's active foreign subsidiary is the local currency in which such subsidiary operates. For this subsidiary, assets and liabilities are translated at year-end exchange rates and statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are reported separately as a component of accumulated other comprehensive income.
| C. |
Exchange rates and linkage bases:
|
| 1. |
Balances linked to the Israeli Consumer Price Index ("CPI"), are recorded pursuant to contractual linkage terms of the specific assets and liabilities.
|
| 2. |
Details of the CPI (2024 base) and the representative exchange rates are as follows:
|
|
Exchange rate
|
||||||||
|
Israeli CPI
|
of one US dollar
|
|||||||
|
Points
|
NIS
|
|||||||
|
December 31, 2025
|
|
|
||||||
|
December 31, 2024
|
|
|
||||||
|
December 31, 2023
|
|
|
||||||
|
%
|
||||||||
|
December 31, 2025
|
|
(
|
)
|
|||||
|
December 31, 2024
|
|
|
||||||
|
December 31, 2023
|
|
|
||||||
| D. |
Use of estimates:
|
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires the management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, allowance for credit losses, deferred tax assets, inventory write-offs, other contingencies and share-based compensation costs. Actual results could differ from these estimates.
| E. |
Cash and cash equivalents:
|
Cash and cash equivalents are highly liquid investments which include short-term bank deposits with an original maturity of three months or less from deposit date and which are not restricted by a lien.
F - 13
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
| F. |
Trade accounts receivable:
|
Trade accounts receivables are recorded when the Company's right to consideration becomes unconditional. Trade accounts receivables are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for expected credit losses for estimated losses inherent in its accounts receivable portfolio.
The expected credit loss allowance is determined based on management's estimate of the aged receivable balance considered uncollectible, based on historical experience, aging of the receivable and information available about specific customers, including their financial condition and volume of their operations.
The activity in the expected credit loss allowance is as follows:
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Opening balance
|
|
|
|
|||||||||
|
Provision for credit losses
|
|
|
|
|||||||||
|
Foreign currency translation adjustments
|
|
(
|
)
|
|
||||||||
|
Closing balance
|
|
|
|
|||||||||
| G. | Inventories: |
Inventories are recorded at the lower of cost or net-realizable value. Cost is determined on the weighted average basis for raw materials. For work in progress and finished goods, the cost is determined based on accumulated actual costs and indirect costs, applying the lower of cost or net realizable value principle. The main components included in the cost of work-in-progress and finished goods inventory are cost of raw materials, labor costs, and manufacturing overhead, which includes energy, maintenance, leasing expenses, and other expenses calculation of accumulated actual direct and indirect costs.
The Company periodically evaluates the inventory quantities on hand relative to historical and projected sales volumes, current and historical selling prices and contractual obligations to maintain certain levels of parts. Based on these evaluations, inventory write-offs are provided to cover risks arising from slow-moving items, discontinued products, excess inventories, market prices lower than cost and adjusted revenue forecasts.
F - 14
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
| H. |
Severance pay:
|
The Company's liability for its Israeli employees severance pay is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date (the "Shut Down Method"). Employees are entitled to one month's salary for each year of employment or a portion thereof.
The Company has an approval from the Israeli Ministry of Labor and Social Welfare, pursuant to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which the Company's current deposits in the pension fund and/or with the insurance company exempt it from any additional severance obligations to the employees for whom such depository payments were made.
For certain non-management employees, the Company deposits 72 % of its liability for severance obligations with a pension fund for such employees. Assets held for employees' severance payments represent contributions to insurance policies and deposits to a central severance pay fund and are recorded at their current redemption value.
| I. |
Property and equipment:
|
Property and equipment are stated at cost, net of accumulated depreciation and impairment losses. Depreciation is computed by the straight-line method over the estimated useful lives of the assets at the following annual rates:
|
%
|
|
|
Machinery and equipment
|
|
|
Leasehold improvements
|
|
|
Office furniture and equipment
|
|
| J. |
Impairment of long-lived assets:
|
The Company's long-lived assets (assets group) to be held or used, including right of use assets and intangible assets that are subject to amortization are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment" whenever events or changes in circumstances indicate that the carrying amount of a group of assets may not be recoverable. Recoverability of a group of assets to be held and used is measured by a comparison of the carrying amount of the group to the future undiscounted cash flows expected to be generated by the group. If such group of assets is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. During the years ended December 31, 2025, 2024 and 2023, the Company did not record any impairment charges attributable to long-lived assets.
F - 15
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
| K. |
Income taxes:
|
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes." This ASC prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
The Company establishes reserves for uncertain tax positions based on an evaluation of whether the tax position is “more likely than not” to be sustained upon examination.
| L. |
Accounting for share-based compensation:
|
The Company accounts for share-based compensation in accordance with ASC 718, "Compensation-Stock Compensation".
ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the share-based payment award that ultimately vests is recognized as an expense over the requisite service periods in the Company's consolidated income statement.
The Company recognize share-based compensation expense for graded-vesting awards with service conditions only, using the straight-line attribution method.
During the years ended December 31, 2025, 2024 and 2023, the Company recognized share-based compensation expenses related to employee share options as follows:
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Sales and marketing expenses
|
|
|
|
|||||||||
|
General and administrative expenses
|
|
|
|
|||||||||
|
Total share-based compensation expenses
|
|
|
|
|||||||||
F - 16
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
The Company calculates the fair value of share options on the date of grant using the Black-Scholes option-pricing model, whereas the fair value of restricted share units is based on the closing market value of the underlying shares at the date of grant, and the expense is recognized over the requisite service period of each individual grant using the straight-line attribution method. Forfeitures are accounted for as they occur.
The Black-Scholes option-pricing model requires the Company to make several assumptions, including the value of the Company's ordinary shares, expected volatility, expected term, risk-free interest rate and expected dividends. The Company evaluates the assumptions used to value option awards upon each grant of share options.
Expected volatility was calculated based on historical stock price volatility. The expected option term was calculated based on the simplified method, which uses the midpoint between the vesting date and the contractual term, as the Company does not have sufficient historical data to develop an estimate based on participant behavior.. The risk-free interest rate was based on the U.S. treasury bonds yield with an equivalent term. As the Company's awards are dividend protected by reducing the exercise price, an expected dividend assumption of zero was used. The assumptions used to determine the fair value of the share-based awards are management’s best estimates and involve inherent uncertainties and the application of judgment.
The following assumptions were used in the Black-Scholes option pricing model for the three-year period ended December 31, 2024:
|
2025
|
2024
|
2023
|
||||
|
Dividend yield
|
|
|
|
|||
|
Expected volatility
|
|
|
|
|||
|
Risk-free interest
|
|
|
|
|||
|
Expected term
|
|
|
|
|||
|
Forfeiture rate
|
|
|
|
| M. | Revenue recognition: |
The Company generates its revenues mainly from sales of distinct custom-made PCBs.
Revenues from the Company's contracts with customers are recognized using the five-step model in ASC 606 - "Revenue from Contracts with Customers" ("ASC 606"). At first, the Company determines if an agreement with a customer is considered to be a contract to the extent it has a commercial substance, it is approved in writing by both parties, all rights and obligations including payment terms are identifiable, the agreement between the parties creates enforceable rights and obligations, and collectability in exchange for goods that will be transferred to the customer is considered as probable. The Company then assesses the performance obligations in the contract and allocates the transaction price in the contract to the distinct performance obligation. Revenue is recognized when control is transferred to the customer.
F - 17
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
The Company uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is a year or less. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to the tax authorities.
Revenues from the sale of PCBs are recognized at a point in time, when control is transferred to the customer (which is generally upon shipment). The Company generally does not provide a right of return to its customers. Shipping and handling costs are not considered performance obligations and are included in cost of revenues. The Company does not disclose information about the remaining performance obligations that have original expected durations of one year or less. Customer balance is typically due within 0 to 75 calendar days of the invoice date.
Unbilled accounts receivables
In certain Company contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met. Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $0 and $0 as of December 31, 2025 and 2024, respectively, and are included in the accounts receivable balance.
Deferred revenue consists of unrecognized amounts which have not yet been performed as of the balance sheet date, for which the Company has an unconditional right for a consideration or has collected the amounts. Deferred revenues are recognized as (or when) the Company performs under the contract. During the year ended December 31, 2025, the Company did not recognize revenue that were included in the deferred revenues balance as of December 31, 2024. Deferred revenues are presented as part of Other accounts payable and accrued expenses and amounted to $135 and $52 as of December 31, 2025 and 2024, respectively.
| N. |
Earnings per ordinary share:
|
Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earnings Per Share." Options to purchase 223,000 , 212,000 and 151,000 ordinary shares were not included in the computation of diluted EPS for the years 2025, 2024 and 2023 respectively, since the effect would be anti-dilutive.
| O. |
Concentration of credit risk:
|
Financial instruments that may subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. Cash is deposited with major financial institutions in Israel and the United States.
F - 18
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
The Company performs ongoing credit evaluations of the financial condition of its customers. The risk of collection associated with trade receivables is reduced by the large number and geographical dispersion of the Company's customer base, and the Company's policy of obtaining credit evaluations of the financial condition of certain customers, requiring collateral or security with respect to certain receivables, or purchase of insurance for certain other receivables.
| P. |
Research and development costs:
|
Research and development costs incurred in the process of developing product improvements or new products, are charged to expenses as incurred.
| Q. |
Commitments and contingencies:
|
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| R. |
Fair value measurements:
|
ASC 820, "Fair Value Measurement and Disclosure" clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
| Level 1 | - | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| Level 2 | - | Significant other observable inputs based on market data obtained from sources independent of the reporting entity. | |
| Level 3 | - | Unobservable inputs which are supported by little or no market activity. | |
As of December 31, 2025, 2024 and 2023, the Company did not have any derivative instruments, measured at fair value on a recurring or nonrecurring basis. The Company's financial instruments on December 31, 2025 and 2024, consisted of cash and cash equivalents, short-term bank deposits, trade and other accounts receivable, other current assets and trade and other payables. The carrying amounts of the financial instruments, approximate fair value due to their short maturity.
| S. |
Comprehensive income (loss):
|
The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income". ASC 220 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity (deficiency) during the period except those resulting from investments by, or distributions to, shareholders.
The Company has determined that its items of comprehensive income (loss) relate to unrealized gain (loss) from foreign currency translation adjustments.
The Company has determined that its items of comprehensive income (loss) relate to unrealized gain (loss) from foreign currency translation adjustments.
F - 19
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
| T. |
Leases:
|
In accordance with ASC 842, the Company determines if an arrangement is a lease and the classification of that lease at inception is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset.
ROU assets and lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. ROU assets are initially measured at amounts, which represent the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The lease liability is initially measured based on the discounted present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The implicit rate within the operating leases is generally not reasonably determinable, therefore, the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate for collateralized borrowing with similar terms and payments and in economic environments where the leased asset is located.
Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option. The Company does not record an asset or liability for operating leases with a term of 12 months or less.
| U. |
Impact of recently issued and adopted accounting standards:
|
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topics 740): Improvements to Income Tax Disclosures”, which expands the disclosure requirements for income taxes, primarily related to the rate reconciliation and income taxes paid. This ASU is effective for the fiscal years beginning after December 15, 2024. The Company adopted this guidance on a prospective basis as reflected in the Notes to the Consolidated Financial Statements. There was no impact to the Company’s consolidated balance sheets, consolidated statements of income (loss), consolidated statements of shareholders’ equity or consolidated statements of cash flows (see Note 16).
F - 20
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 2:- |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
|
| V. |
New accounting pronouncements not yet effective:
|
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses, which requires disaggregated disclosure in the notes to the financial statements of prescribed categories of expenses within relevant income statement captions. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact on its financial statement disclosures.
In July 2025, the FASB issued ASU 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets”. The amendments in this update provide a practical expedient permitting an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current classified accounts receivable and contract assets. This update is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date. Early adoption is permitted. The Company is currently evaluating the provisions of this ASU.
In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”. The ASU simplifies the capitalization guidance by removing all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout ASC 350-40. The ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date; or follow a modified transition approach that is based on the status of the respective projects and whether software costs were capitalized before the date of adoption; or retrospectively to any or all prior periods presented in the consolidated financial statements. The Company is currently evaluating the provisions of this ASU.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants. Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant will be received. The ASU provides specific accounting models for grants related to assets and grants related to income, including options to recognize government grants as deferred income or as a reduction of the asset’s cost basis. The ASU also requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the financial statements. ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-10.
F - 21
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 3:- |
CASH AND CASH EQUIVALENTS
|
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Denominated in U.S. dollars
|
|
|
||||||
|
Denominated in NIS
|
|
|
||||||
|
Denominated in Euro
|
|
|
||||||
|
|
|
|||||||
| NOTE 4:- |
SHORT-TERM BANK DEPOSITS
|
Short-term bank deposits are deposited in NIS or U.S. Dollars. During the year ended December 31, 2025 and 2024, the Company recognized interest in the amount of $514 and $517 , respectively.
| NOTE 5:- |
INVENTORIES
|
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Raw materials
|
|
|
||||||
|
Work-in-progress
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
|
|
|||||||
During the years ended December 31, 2025, 2024 and 2023, the Company recorded inventory write-offs in the amounts of $78 , $80 and $80 , respectively. Such write-offs were included in cost of revenues.
| NOTE 6:- |
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Prepaid expenses
|
|
|
||||||
|
Receivables from government authorities
|
|
|
||||||
|
Others
|
|
|
||||||
|
|
|
|||||||
F - 22
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 7:- |
PROPERTY AND EQUIPMENT, NET
|
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Cost:
|
||||||||
|
Machinery and equipment
|
|
|
||||||
|
Equipment advanced payments
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
|
|
|||||||
|
|
|
|||||||
|
Accumulated depreciation:
|
||||||||
|
Machinery and equipment
|
(
|
)
|
(
|
)
|
||||
|
Leasehold improvements
|
(
|
)
|
(
|
)
|
||||
|
Office furniture and equipment
|
(
|
)
|
(
|
)
|
||||
|
(
|
)
|
(
|
)
|
|||||
|
Depreciated cost
|
|
|
||||||
Depreciation expense for the years ended December 31, 2025, 2024 and 2023 were $2,104 , $1,546 and $1,317 , respectively.
| NOTE 8:- |
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Accrued payroll including amounts due to government authorities
|
|
|
||||||
|
Provision for vacation and other employee benefits
|
|
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
|
|
|||||||
| NOTE 9:- |
EMPLOYEE SEVERANCE BENEFITS
|
Under Israeli law and labor agreements, the Company is required to make severance and pension payments to retired, dismissed or resigned employees.
| a. |
The Company has an approval from the Israeli Ministry of Labor and Social Welfare, pursuant to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which the Company's current deposits in the pension fund and/or with the insurance company exempt it from any additional severance obligations to the employees for whom such depository payments were made.
|
F - 23
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 9:- |
EMPLOYEE SEVERANCE BENEFITS (CONT.)
|
| b. |
The Company's employees participate in a pension plan or individual insurance policies that are purchased by them. The Company's liability for severance obligations for the employees employed for one year or more is discharged by making regular deposits with a pension fund or the insurance policies. Under Israeli law, there is no liability for severance pay in respect of employees who have not completed
|
| NOTE 10:- |
LEASES
|
The Company entered into operating leases primarily for offices and motor vehicles. The leases have remaining lease terms of up to 3.2 years, some of which may include options to extend the leases for up to an additional 5 years . On June 30, 2020, the Company signed a new agreement for its current office and manufacturing facilities lease which originally was to end in 2022. The new agreement is for five years starting in 2022 with an option to extend the lease by another five years until 2032. The Company treated the new agreement as an extension and a modification of its current operating lease as it does not grant the Company any additional right of use. In addition, the Company concluded that it is reasonably certain that it will exercise the additional five years option starting in 2027. Accordingly, the Company re-measured the lease liability based on the remaining lease term as of the modification date using the incremental borrowing rate at the effective date of the modification. See also Note 18 – Subsequent Events.
The Company also elected the practical expedient (by class of underlying asset) to not separate lease and non-lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for its leased motor vehicles.
| a. |
The components of operating lease costs were as follows:
|
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Operating lease cost
|
|
|
|
|||||||||
|
Total lease costs
|
|
|
|
|||||||||
F - 24
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 10:- |
LEASES (CONT.)
|
| b. |
Supplemental balance sheet information related to operating leases is as follows:
|
|
As of December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Operating lease ROU assets
|
|
|
||||||
|
Operating lease liabilities, current
|
|
|
||||||
|
Operating lease liabilities, long-term
|
|
|
||||||
|
Weighted average remaining lease term (in years)
|
|
|
||||||
|
Weighted average discount rate
|
|
%
|
|
%
|
||||
| c. |
Future lease payments under operating leases as of December 31, 2025, are as follows:
|
|
As of December 31, 2025
|
||||
|
|
||||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030
|
|
|||
|
2031-2032
|
|
|||
|
|
||||
|
Total undiscounted lease payments
|
|
|||
|
Less: imputed interest
|
(
|
)
|
||
|
|
||||
|
Present value of lease liabilities
|
|
|||
| NOTE 11:- |
COMMITMENTS AND CONTINGENT LIABILITIES
|
| a. |
Pledges:
|
The Company has pledged certain items of its equipment and the rights to any insurance claims on such items to secure its debts to banks, as well as placed floating liens on all of its remaining assets in favor of the banks. As of December 31, 2025 the Company has no debt to banks; however such pledges has not yet been cancelled.
| b. |
Indemnification agreement:
|
The Company entered into indemnification agreements with each of its directors and officers and undertook to enter into the same agreement with future directors and officers. Such indemnification amount will not exceed: (i) the value of 25 % of the Company’s net equity according to the audited or reviewed financial statement known at the time the request for indemnification was submitted; or (ii) $3,000,000 , whichever is greater.
F - 25
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 11:- |
COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
|
The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his or her duty of loyalty. If permitted by its articles of association, a company may exculpate in advance an officer from his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care. However, a company may not exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care with respect to distributions.
The Company's articles of association allow it to exculpate any office holder from his or her liability for breach of duty of care, to the maximum extent permitted by law, before or after the occurrence giving rise to such liability. As of December 31, 2025, no liability was recorded with respect to the indemnification agreement.
| c. |
Contingent Liabilities:
|
Environmental Related Matters
The Company has business permit in order to continue operating its business until December 31, 2028. The permit is subject to certain conditions, especially certain conditions imposed by the Israeli Ministry of Environmental Protection. Compliance with these conditions may be costly.
In January 2023, the Company received a notification from the Ministry that it intends to impose a penalty of approximately $0.6 million for an alleged breach of the Clean Air Law during the years 2019-2020. The Company paid this penalty.
In October 2023, the Company received a notice from the Ministry regarding some suspicion of contamination of the soil from a drilling survey that was done in May 2021 at the factory. On January 24, 2024, representatives of the Ministry visited the Company's facility and informed the Company that an additional survey of the soil and groundwater in the facility area would be required. In June 2025, the Company received a request from the Water Authority to carry out a preliminary investigation of the groundwater at the facility. The Company submitted its proposed investigation plan, which has been approved, and is expected to carried During 2026. As of December 31, 2025, the Company is still in discussions with the Ministry regarding the need and scope a soil survey and the revisions made to the Company's poison permit to include instructions on this subject and applicable deadlines.
In February 2026, the Company received a summons for a hearing from representatives of the Ministry of Environmental Protection in connection with two hazardous materials incidents that occurred during 2025. The hearing is scheduled to take place in April 2026. As of the balance sheet date, the Company is unable to assess the outcome of this hearing.
F - 26
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 12:- |
SHAREHOLDERS' EQUITY
|
Share Option Plan:
The Company’s 2018 Share Incentive Plan (the "Plan") authorizes the grant of options to purchase shares and restricted shares units (“RSUs”) to officers, employees, directors and consultants of the Company and its subsidiaries. Awards granted under the Plan to participants in various jurisdictions may be subject to specific terms and conditions for such grants as may be approved by the Company’s board from time to time.
Each option granted under the Plan is exercisable for a period of ten years from the date of the grant of the option or the expiration dates of the option plan. The options primarily vest gradually over four years of employment.
During 2023, 151,000 options were granted under the Plan and 171,015 options were exercised. During 2024, 87,000 options were granted under the Plan and 68,347 options were exercised. During 2025, 26,000 options were granted under the Plan and 5,787 options were exercised. The total fair value of the options granted is being recognized over a four-year vesting period.
As of December 31, 2025, options to purchase 414,772 ordinary shares were outstanding under the Plan, exercisable at an average exercise price of $8.46 per share. The share-based compensation expense related to employees' equity-based awards, recognized during 2025, 2024 and 2023 was $512 , $607 and $363 , respectively.
A summary of employee option activity under the Plan as of December 31, 2025 and changes during the year ended December 31, 2025 are as follows:
|
Number of options
|
Weighted-average exercise
price
|
Weighted- average remaining contractual life
(in years)
|
Aggregate intrinsic
value
(in thousands)
|
|||||||||||||
|
Outstanding at January 1, 2025
|
|
|
|
|
||||||||||||
|
Granted
|
|
|
|
|
||||||||||||
|
Exercised
|
|
|
|
-
|
||||||||||||
|
Forfeited
|
|
|
|
-
|
||||||||||||
|
Outstanding at December 31, 2025
|
|
|
|
|
||||||||||||
|
Exercisable at December 31, 2025
|
|
|
|
|
||||||||||||
The weighted-average fair value of options granted during the years ended December 31, 2025, 2024 and 2023 were $8.30 , $9.20 and $5.90 , respectively. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing share price on the last trading day of the fourth quarter of fiscal 2025 and 2024 and the exercise price, multiplied by the number of in-the-money options). This amount changes based on the fair market value of the Company's share. As of December 31, 2025, there was approximately $934 of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Company's share option plans. This cost is expected to be recognized over a weighted average period of 2.3 years. The total intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $0.01 million and $0.88 million, respectively. The Company satisfies stock option exercises through the issuance of new shares and does not maintain or utilize treasury shares for this purpose.
F - 27
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 13:- |
BASIC AND DILUTED NET EARNINGS PER SHARE
|
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Numerator:
|
||||||||||||
|
Profit attributable to Eltek Ltd. shareholders
|
|
|
|
|||||||||
|
Denominator:
|
||||||||||||
|
Denominator for basic profit per share weighted-average number of shares outstanding
|
|
|
|
|||||||||
|
Effect of diluting securities:
|
||||||||||||
|
Employee share options
|
|
|
|
|||||||||
|
Denominator for diluted profit per share - adjusted weighted average shares and assumed exercises
|
|
|
|
|||||||||
| NOTE 14:- |
OPERATING SEGMENTS AND ENTITY WIDE DISCLOSURES
|
| a. |
The Company operates as a single operating segment - manufacturing, marketing and sale of custom made printed circuit boards.
|
The CODM of Eltek Ltd. is the Chief Executive Officer (CEO). The CEO evaluates the company's performance and allocates resources based on financial information presented on a consolidated basis. The Company’s CODM uses consolidated net income to review actual results to allocate resources within the business to continue growth. The CEO does not use asset-based measures in assessing segment performance or allocating resources.
Significant expenses that the CEO monitors include cost of raw materials and inventory change, manufacturing cost, salaries and depreciation cost. These expenses are evaluated on a consolidated basis to understand their impact on the company's profitability. Other items considered in the assessment of segment performance include general and administrative, tax expenses and finance income. These items are reviewed collectively to gain a comprehensive understanding of the company's financial position.
F - 28
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
|
NOTE 14:-
|
OPERATING SEGMENTS AND ENTITY WIDE DISCLOSURES (CONT.)
|
The following table presents information on reportable segment profit for the periods presented:
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Less:
|
||||||||||||
|
Raw materials
|
|
|
|
|||||||||
|
Manufacturing
|
|
|
|
|||||||||
|
Salaries
|
|
|
|
|||||||||
|
Depreciation
|
|
|
|
|||||||||
|
Other segment items*
|
|
|
|
|||||||||
|
Net profit
|
|
|
|
|||||||||
| * |
Other segment items comprised of other cost items included with cost of sales, research and development, selling, general and administrative, tax expenses and finance income.
|
| b. |
Customers who accounted for over 10% of the total consolidated revenues:
|
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Customer A - Sales of manufactured products
|
|
%
|
|
%
|
|
%
|
||||||
|
Customer B - Sales of manufactured products
|
|
%
|
|
%
|
|
%
|
||||||
| c. |
Revenues by geographic areas:
|
|
Israel
|
|
|
|
|||||||||
|
North America
|
|
|
|
|||||||||
|
Netherlands
|
|
|
|
|||||||||
|
India
|
|
|
|
|||||||||
|
Others
|
|
|
|
|||||||||
|
|
|
|
F - 29
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
|
NOTE 14:-
|
OPERATING SEGMENTS AND ENTITY WIDE DISCLOSURES (CONT.)
|
| d. |
Primary industries for which the Company produced PCBs:
|
|
Defense and aerospace equipment
|
|
%
|
|
%
|
|
%
|
||||||
|
Medical equipment
|
|
%
|
|
%
|
|
%
|
||||||
|
Industrial equipment
|
|
%
|
|
%
|
|
%
|
||||||
|
Distributors, contract electronic manufacturers and others
|
|
%
|
|
%
|
|
%
|
||||||
|
|
%
|
|
%
|
|
%
|
| NOTE 15:- |
FINANCIAL EXPENSES (INCOME), NET
|
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Interest on long-term bank loans
|
|
|
|
|||||||||
|
Interest on bank deposits
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Bank charges
|
|
|
|
|||||||||
|
Foreign exchange loss (gain), net
|
|
(
|
)
|
(
|
)
|
|||||||
|
|
(
|
)
|
(
|
)
|
||||||||
| NOTE 16:- |
TAXES ON INCOME
|
| a. |
Tax laws applicable to the Company:
|
The Law for the Encouragement of Capital Investments, 1959:
According to the Law, companies are entitled to various tax benefits by virtue of the "preferred enterprise" status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are:
Tax benefits and reduced tax rates:
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):
On August 5, 2013, the Knesset issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consists of Amendment 71 to the Law for the Encouragement of Capital Investments ("the Amendment"). According to the Amendment, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16 % (in development area A - 9 %).
F - 30
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 16:- |
TAXES ON INCOME (CONT.)
|
The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20 %.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73):
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments ("the Amendment") was published. According to the Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5 % instead of 9 % effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16 %).
Conditions for the entitlement to the benefits:
The above benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published thereunder and the letters of approval for the investments in the approved enterprises, as above. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. Management believes that the Company is meeting the aforementioned conditions.
The Law for the Encouragement of Industry (Taxation), 1969:
The Company has the status of an "industrial company", as defined by this law. According to this status and by virtue of regulations published thereunder, the Company was entitled to claim a deduction of accelerated depreciation on equipment used in industrial activities, as determined in the regulations issued under the Inflationary Law. The Company is also entitled to amortize a patent or rights to use a patent or intellectual property that are used in the enterprise's development or advancement, to deduct issuance expenses for shares listed for trading, and to file consolidated financial statements under certain conditions.
| b. |
Tax rates applicable to the Company:
|
| 1. |
The Israeli corporate income tax rate is
|
As the Company has the status of a preferred enterprise, the income tax rate applied is 16 %. A company is taxable on its real capital gains at the corporate income tax rate in the year of sale.
| 2. |
The tax rates of the Company's active non-Israeli subsidiary is
|
| c. |
Carryforward losses for tax purposes:
|
As of December 31, 2025 the Company's carryforward operating losses for tax purposes were approximately $0.0 million. Carryforward capital losses for tax purposes were approximately $9.5 million. The Company's carryforward losses for tax purposes and tax credits carryforward do not have expiration dates.
F - 31
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 16:- |
TAXES ON INCOME (CONT.)
|
| d. |
Income tax assessments:
|
The Company files its income tax return in Israel. Eltek USA files its income tax return in the United States.
In Israel, the Company has received final tax assessments through the 1995 tax year. Assessments through the 2020 tax year are considered final due to statute of limitations. The Israeli tax returns of the Company may be audited by the Israeli Tax Authorities for the tax years beginning in 2021.
Eltek Europe's tax returns remain subject to audit for the tax years beginning in 2015. The tax returns of Eltek USA remain subject to audit for the tax years beginning in 2021.
| e. |
Income before taxes on income (tax benefit) is comprised as follows:
|
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Income before income tax expense:
|
||||||||||||
|
Israel
|
|
|
|
|||||||||
|
Foreign jurisdictions
|
|
|
|
|||||||||
|
|
|
|
||||||||||
| f. |
Taxes on income (tax benefit) are comprised of the following:
|
|
Year ended December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Domestic taxes:
|
||||||||||||
|
Current
|
|
|
|
|||||||||
|
Deferred
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Foreign taxes:
|
||||||||||||
|
Current
|
|
|
|
|||||||||
|
Deferred
|
|
|
|
|||||||||
|
Taxes on income (tax benefit), net
|
|
|
|
|||||||||
F - 32
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 16:- |
TAXES ON INCOME (CONT.)
|
| g. |
Reconciliation of the theoretical income tax benefit to the actual income tax expense:
|
The following table presents the reconciliation between the Company’s theoretical income tax and effective income tax for the year ended December 31, 2025 after the adoption of ASU 2023-09
|
Year ended December 31,
|
||||||||
|
2025
|
||||||||
|
Israeli Statutory Corporate Tax Rate
|
|
|
%
|
|||||
|
Tax benefit arising from "Preferred enterprises"
|
(
|
)
|
(
|
)%
|
||||
|
Foreign tax rate differential in subsidiaries
|
|
|
||||||
|
Nontaxable and Nondeductible items: |
||||||||
|
Share based compensation
|
|
|
%
|
|||||
|
Other adjustments
|
(
|
)
|
(
|
)%
|
||||
|
Total Effective Tax Rate
|
|
|
%
|
|||||
The following table presents the reconciliation between the Company’s theoretical income taxes and effective income taxes for the years ended December 31, 2024 and 2023 prior the adoption of ASU 2023-09:
|
Year ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Income before income tax expense as reported in the consolidated statements of comprehensive income
|
|
|
||||||
|
Israel Statutory tax rate
|
|
%
|
|
%
|
||||
|
Theoretical tax expense calculated
|
|
|
||||||
|
Tax benefit arising from "Preferred enterprises"
|
(
|
)
|
(
|
)
|
||||
|
Foreign tax rate differential in subsidiaries
|
|
(
|
)
|
|||||
|
Non-deductible items and others
|
|
|
||||||
|
Total
|
(
|
)
|
(
|
)
|
||||
|
Income tax (benefit) expense
|
|
|
||||||
F - 33
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 16:- |
TAXES ON INCOME (CONT.)
|
| h. |
Deferred tax assets and liabilities:
|
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards (in Israel)
|
|
|
||||||
|
Capital loss carryforwards (in Israel)
|
|
|
||||||
|
Prepayment for non-deductible expenses
|
|
|
||||||
|
Reserves and other
|
|
|
||||||
|
Total gross deferred taxes
|
|
|
||||||
|
Less valuation allowance
|
(
|
)
|
(
|
)
|
||||
|
Deferred tax assets, net
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Undistributed income of subsidiaries
|
(
|
)
|
(
|
)
|
||||
|
Property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Total deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net deferred tax assets
|
|
|
||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. During the year ended December 31, 2025, the Company concluded that, based on its evaluation of available evidence, it was not more likely than not that deferred tax assets related to capital losses carryforwards in Israel were realizable.
| i. |
Accounting for uncertainty in income taxes:
|
For the twelve-month periods ended December 31, 2025, 2024 and 2023, the Company did not have any material unrecognized tax positions and thus, no interest and penalties related to unrecognized tax positions were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next twelve-month months.
F - 34
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 17:- |
RELATED PARTY BALANCES AND TRANSACTIONS
|
Nistec, the controlling shareholder of the Company, is also a customer of the Company. The Company sells products to Nistec, pays management fees to Nistec and purchases certain services from Nistec. The Company's transactions with Nistec were carried out on an arm's-length basis.
| a. |
Balances with related parties:
|
|
December 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Trade accounts receivable
|
|
|
||||||
|
Trade accounts payable
|
|
|
||||||
| b. |
Transactions with related parties:
|
|
Year ended
December 31,
|
||||||||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Revenues
|
|
|
|
|||||||||
|
Purchases, general and administrative expenses
|
|
|
|
|||||||||
PCB purchases by Nistec - Nistec purchases PCBs from the Company solely to provide assembled boards to its customers. The Company sells PCBs to Nistec based on its standard pricing, each PCB may be subject to a discount at such rate as offered by the Company from time to time to its other customer, provided that in no event shall the quoted price fall below 1.6 times the variable cost of such PCB, as determined by the Company's dynamic pricing system. Should the order be for PCBs imported by the Company, the quote reflects the actual price of such PCBs, plus a mark-up of at least twenty percent (20 %). Should the order be for PCBs from excess inventory of an original order, the quote will reflect the standard price of such PCBs, with a discount of up to fifty percent (50 %) of the price actually paid for such PCBs in the original order (the “Excess Inventory Discount”). The Excess Inventory Discount will apply only to orders from excess inventory of the first original order of a specific PCB (i.e., should a second order of a specific PCBs generate any excess inventory, and Nistec would like to purchase such excess, the Excess Inventory Discount will not be applied to such purchase).
Soldering and assembly services - The Company may acquire soldering services and/or purchasing services from Nistec. Nistec’s pricing for its soldering services will be its standard pricing (the “Pricing”), less a five percent (5 %) discount. Nistec may charge for Purchasing Services in accordance with the actual costs of the orders, plus a fourteen and a quarter (14.25 %) commission, which reflects a five percent (5 %) discount, as compared to the commission charged to third parties by Nistec for similar services. Prices of services not included in the Pricing will be negotiated by the parties in good faith (without participation of Mr. Nissan, the Company's controlling shareholder and CEO, or any of his relatives). Nistec standard procedures govern manufacturer warranties and restrictions regarding defective assembled products. The Company’s purchases of services under the Soldering, Assembly and Design Services Procedure may not exceed NIS 3,000,000 per annum.
F - 35
ELTEK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| NOTE 17:- |
RELATED PARTY BALANCES AND TRANSACTIONS (CONT.)
|
Managements fees - In July 2024, the Company's Audit Committee, Compensation Committee and Board of Directors, as applicable, approved the terms of the amended Management Agreement. Nistec is entitled to a monthly management fee of NIS 120,000 ($33,000 ). In the event that the Company’s audited consolidated financial statements reflect that the Company’s net income equals 4% or more of the Company’s revenues, Nistec shall be entitled to receive an annual performance-based bonus in an amount equal to three (3) times the monthly management fee.
Subject to Company’s reimbursement policy approved by the Audit Committee on May 15, 2016, Mr. Nissan receives reimbursement of travel expenses (other than food and beverage expenses) while traveling internationally on behalf of the Company, provided that such reimbursement will not exceed an aggregate amount of NIS 10,000 ($2,700 ) per calendar quarter.
Mr. Nissan is reimbursed for food and beverage expenses while traveling internationally on behalf of the Company, against receipts, in accordance with the Israeli Income Tax Regulations (Deduction of Certain Expenses) 1972.
In addition, the Company's shareholders in the annual general meetings held on December 5, 2019, October 29, 2020 and August 31, 2022 approved the following:
| a. |
The extension of the Directors and Officers' Indemnity Agreement with Mr. Nissan.
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| b. |
The extension of the Exculpation Letter with respect to Mr. Nissan .
|
| c. |
The application of the Company’s directors and officers' liability insurance policy with respect to Mr. Nissan
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| NOTE 18:- |
SUBSEQUENT EVENTS
|
| a. |
In January 2026 the Company signed an additional amendment to the leased facility agreement extending it until the end of 2039, without a change in rent increase mechanism, and with a
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| b. |
Subsequent to the balance sheet date, the Company granted
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F - 36
S I G N A T U R E S
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
ELTEK LTD. | |||
By: | /s/ Eli Yaffe | ||
Name: | Eli Yaffe | ||
Title: | Chief Executive Officer | ||
By: | /s/ Ron Freund | ||
Name: | Ron Freund | ||
Title: | Chief Financial Officer | ||
Dated: March 26, 2026
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