Securities registered or to be registered
pursuant to Section 12(b) of the Act:
Securities registered or to be registered
pursuant to Section 12(g) of the Act:
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:
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 (December
31, 2019):
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. (Check one):
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. ☐
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
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
Unless indicated otherwise
by the context, all references in this annual report to “we”, “us”, “our”, “Metalink”,
or the “Company” are to Metalink Ltd.
When the following
terms and abbreviations appear in the text of this annual report, they have the meanings indicated below:
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, and the summary included herein is qualified by reference to the full text of the document
which is incorporated by reference into this annual report.
On December 31, 2019,
the exchange rate between the NIS and the dollar, as quoted by the Bank of Israel, was NIS 3.456 to $1.00. Unless derived from
our financial statements or indicated otherwise by the context, statements in this annual report that provide the dollar equivalent
of NIS amounts or provide the NIS equivalent of dollar amounts are based on such exchange rate.
PART
I
|
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
|
ITEM 2.
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OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
|
|
A.
|
Selected
Financial Data
|
We have derived the
following selected financial data from our financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles, or U.S. GAAP.
The following selected
data is derived from our audited financial statements included elsewhere in this annual report:
|
|
●
|
statement of income data for the years ended December 31, 2017, 2018 and 2019; and
|
|
|
●
|
balance sheet data as of December 31, 2018 and 2019.
|
The following selected
data is derived from our audited financial statements that are not included in this annual report:
|
|
●
|
statement of income data for the years ended December 31, 2015 and 2016; and
|
|
|
●
|
balance sheet data as of December 31, 2015, 2016 and 2017.
|
You should read
the following selected financial data together with Item 5 of this annual report entitled “Operating and Financial Review
and Prospects” and our financial statements and notes thereto and the other financial information appearing elsewhere in
this annual report.
|
|
|
Year Ended December 31,*
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
|
(U.S. dollars in thousands, except share and per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
506
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
202
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Royalties to the Government of Israel
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total cost of revenues
|
|
|
217
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Gross profit (loss)
|
|
|
289
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
84
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
General and administrative
|
|
|
175
|
|
|
|
291
|
|
|
|
194
|
|
|
|
58
|
|
|
|
45
|
|
|
Total operating expenses
|
|
|
259
|
|
|
|
291
|
|
|
|
194
|
|
|
|
58
|
|
|
|
45
|
|
|
Operating profit (loss)
|
|
|
30
|
|
|
|
(291
|
)
|
|
|
(194
|
)
|
|
|
(58
|
)
|
|
|
(45
|
)
|
|
Financial income (expenses), net:
|
|
|
12
|
|
|
|
39
|
|
|
|
4
|
|
|
|
23
|
|
|
|
49
|
|
|
Net profit (loss) from continuing operation
|
|
$
|
42
|
|
|
$
|
(252
|
)
|
|
$
|
(190
|
)
|
|
$
|
(35
|
)
|
|
|
4
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss)
|
|
$
|
0.02
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.136
|
)
|
|
$
|
(0.028
|
)
|
|
|
0.003
|
|
|
Shares used in computing loss per ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
2,690,857
|
|
|
|
2,690,857
|
|
|
|
1,401,128
|
|
|
|
1,255,640
|
|
|
|
1,255,640
|
|
|
|
|
As of December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,573
|
|
|
$
|
4,347
|
|
|
$
|
1,966
|
|
|
$
|
24
|
|
|
$
|
12
|
|
|
Deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,902
|
|
|
|
1,919
|
|
|
Working capital
|
|
|
4,415
|
|
|
|
4,163
|
|
|
|
1,820
|
|
|
|
1,785
|
|
|
|
1,789
|
|
|
Total assets
|
|
|
4,584
|
|
|
|
4,357
|
|
|
|
1,966
|
|
|
|
1,926
|
|
|
|
1,931
|
|
|
Shareholders’ equity
|
|
|
4,415
|
|
|
|
4,163
|
|
|
|
1,820
|
|
|
|
1,785
|
|
|
|
1,789
|
|
|
B.
|
Capitalization and Indebtedness
|
Not Applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not Applicable.
You should carefully
consider the following risks before deciding to purchase, hold or sell our stock. Set forth below are the most significant risks,
as identified by our management, but we may also face risks in the future that are not presently foreseen. Our business, operating
results or financial condition could be materially and adversely affected by these and other risks. You should also refer to the
other information contained or incorporated by reference in this annual report, before making any investment decision regarding
our company.
Risks Related to Our Business and Industry
We currently do not engage in any business.
Since February 2010,
we conducted only limited business activities related to our DSL business, which, since March 2015, we no longer conduct. Our plan
of operation is to consider strategic alternatives, including a possible business combination, other strategic transaction with
a domestic or foreign, private or public operating entity or a “going private” transaction, including with any of our
affiliates, and, to a limited extent, voluntary liquidation. In particular, our Board of Directors has determined to focus on exploring
a possible business combination with an operating company. See also below under “We may not be successful in executing
our plan of operations”.
We may not be successful in executing
our plan of operations.
Since February 2010,
we have not been able to identify and consummate a suitable business opportunity in accordance with our plan of operations and
there can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or to otherwise
execute our plan of operations. While our plan of operation is to consider strategic transactions and opportunities, we have not
determined to pursue any particular opportunities at this time. Accordingly, we may enter into a business combination with a business
entity having no significant operating history or other negative characteristics such as having a limited or no potential for immediate
earnings, or otherwise pursue a strategic transaction that will not necessarily provide us or our shareholders with significant
financial benefits in the short or long term. In the event that we will complete a business combination with an operating company,
the success of our operations is likely to be dependent upon the management of the target company and numerous other factors beyond
our control. There is no assurance that we will be able to negotiate a business combination on terms favorable to us, or at all,
or that we will otherwise be successful in executing our plan of operations. In addition, if we do consummate a major strategic
transaction, such as a business combination, our shareholders may suffer a dilution of value of shares and we may need to raise
additional financing because a business combination normally will involve the issuance of a significant number of additional Metalink
shares and may require us to raise funds through a public or private financing. See also above under “We currently do
not engage in any business” and below under “We have a controlling shareholder”.
We have a history of operating losses.
We incurred
significant operating losses since our inception. Although we generated a profit from continuing operations of approximately
$4,000 and $40,000 for the years ended December 31, 2019 and December 31, 2015, respectively, we incurred a loss from
continuing operations for each of the years ended December 31, 2018, 2017, 2016, 2014 and 2013. Even if we are able to
sustain profitability, we cannot assure that future net income will offset our accumulated deficit, which, as of
December 31, 2018, was approximately $145.1 million. This is likely to have an adverse impact on the value of our
stock.
We hold substantially all of our assets
in cash, which exposes us to decrease in the value of such funds. Even if we determine to invest part of such cash in financial
instruments, we will be exposed to decreases in the value of our financial investments and may also be deemed an “investment
company” under the Investment Company Act of 1940, which could subject us to material adverse consequences.
As of December 31,
2019, we held approximately $1.9 million in cash (including short-term bank deposits), which represent substantially all of our
assets. If we continue to hold such funds in cash or short-term bank deposit, it will expose us to decrease in value of such funds,
especially if these short-term deposits do not yield interest rates at levels similar to the rate of inflation. On the other hand,
if we determine to invest some or all of these funds in financial instruments or securities, we will be subject to loss to the
extent that the market value of these instruments decline, which will adversely affect our financial condition. In addition, in
order to invest such funds in any securities, we will first need to ensure that the investment of the cash proceeds will not cause
us to be an “investment company” under the United States Investment Company Act of 1940, or the Investment Company
Act. This is because if we were deemed to be an investment company, we would not be permitted to register under the Investment
Company Act without obtaining exemptive relief from the SEC because we are incorporated outside of the United States and, prior
to being permitted to register, we would not be permitted to publicly offer or promote our securities in the United States.
As a result, we may be required to take certain actions with respect to the investment of our assets or the distribution of cash
to shareholders in order to avoid being deemed an investment company, which actions may not be as favorable to us as if we were
not potentially subject to regulation under the Investment Company Act. If we are deemed to be an investment company, we could
be found to be in violation of the Investment Company Act, and a violation of that act could subject us to material adverse
consequences. We seek to conduct our operations, including by way of investing our cash and cash equivalents, to the extent
possible so as not to become subject to regulation under the Investment Company Act.
We will not generate any more revenues
from our DSL business.
In early 2008, we issued
an “end-of-life” notice to our customers, according to which we discontinued the production of the majority of our
DSL components. In March 2015, we completed the delivery of certain of our DSL products to a customer and received approximately
$450,000, which we recognized in the first quarter of 2015. This order marks the last order that we will receive for our DSL products.
Risks Relating to Our Ordinary Shares
We have a controlling shareholder.
As of April 1, 2020,
Mr. Daniel Magen, our Chief Executive Officer and Chief Financial Officer and a member of our Board of Directors, beneficially
owned 670,000 ordinary shares representing approximately 53.4% of our outstanding ordinary shares. As a result, Mr. Magen may have
sufficient voting power, subject to special approvals required by Israeli law for transactions involving controlling shareholders,
to elect all of our directors (subject to the provisions of the Companies Law with regard to external directors); control our management;
approve or reject any merger, consolidation or full tender offer; and otherwise exert significant influence on decisions by our
shareholders on matters submitted to shareholder vote. This concentration of ownership of our ordinary shares could delay or prevent
proxy contests, mergers, tender offers, or other purchases of our ordinary shares that might otherwise give our shareholders the
opportunity to realize a premium over the then-prevailing market price for our ordinary shares and, as a result, may also adversely
affect our share price.
The limited market for our shares may
reduce their liquidity and make our stock price more volatile. You may have difficulty selling your shares.
Our ordinary
shares are currently quoted on the over-the-counter market in the Pink Open Market (also known as the Pink Sheets), or OTC
Pink, which is operated by OTC Markets Group, Inc. OTC Pink is a market tier of OTC Markets for various companies, including
those that are registered with and reporting to the SEC (like us) and others that are delinquent in their filings. Securities
traded on the OTC Pink market typically have low trading volumes and reduced liquidity. Market fluctuations and volatility,
as well as general economic, market and political conditions, could reduce our share price. As a result, there may be only a
limited public market for our ordinary shares, and it may be more difficult to dispose of or to obtain accurate quotations as
to the market value of our ordinary shares. In addition, unlike the NASDAQ Stock Market and the various international stock
exchanges, there are no corporate governance requirements imposed on OTC Pink-listed companies.
Our ordinary shares are subject to the
“penny stock” rules of the SEC, which makes transactions in our ordinary shares cumbersome and may reduce the value
of our shares.
Rule 3a51-1 of the
Securities Exchange Act of 1934, as amended, or the Exchange Act, establishes the definition of a “penny stock,” for
the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. The market price of our ordinary shares on the OTC Pink has been substantially
less than $5.00 per share and we do not currently meet any of the other rule exclusions, and therefore our ordinary shares are
currently subject to the “penny stock” rules of the SEC. For as long as they are subject to such rules, transactions
in our ordinary shares are cumbersome and may reduce the value of our shares. This is because for any transaction involving a penny
stock like ours, unless exempt, Rule 15g-9 of the Exchange Act generally requires:
|
|
●
|
that a broker or dealer approve a person’s account for transactions in penny stocks; and
|
|
|
●
|
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
|
In order to approve a person’s
account for transactions in penny stocks, the broker or dealer must:
|
|
●
|
obtain financial information and investment experience objectives of the person; and
|
|
|
●
|
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny
stock market, which, generally:
|
|
●
|
sets forth the basis on which the broker or dealer made the suitability determination; and
|
|
|
●
|
requires that the broker or dealer receive a signed, written statement from the investor prior to the transaction.
|
Disclosure also has
to be made by the broker or dealer about the risks of investing in penny stocks in both public offerings and in secondary trading
and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements
have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market
in penny stocks.
Generally, brokers
may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more
difficult for investors to dispose of our ordinary shares and cause a decline in our market value for as long as we are subject
to the said “penny stock” rules.
Substantial future sales of our ordinary
shares may depress our share price.
As of April 1, 2020,
Mr. Daniel Magen, our Chief Executive Officer and Chief Financial Officer and a member of our Board of Directors, beneficially
owned 670,000 ordinary shares representing approximately 53.4% of our outstanding shares. If Mr. Magen sells substantial amounts
of our ordinary shares, or if the perception exists that he may sell a substantial number of our ordinary shares, the market price
of our ordinary shares may fall.
If we are characterized as a passive
foreign investment company, our U.S. shareholders may suffer adverse tax consequences.
As more fully described
in Item 10 – “Additional Information - Taxation” under the caption “Passive Foreign Investment Company
Considerations,” we may be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax
purposes in 2019. If, for any taxable year, our passive income, or our assets that produce passive income, exceed specified levels,
we may be characterized as a PFIC for that year and possibly also for later years. We satisfied the corporate level test to be
a PFIC during some of the years 2002 – 2019. Our ordinary shares will be considered shares of a PFIC in the case of any
United States person that owned those shares in 2002 or 2003 and that person has not made any of certain elections that could
permit the PFIC classification of our shares to terminate in a taxable year in which we did not satisfy the test to be a PFIC.
If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences. These consequences may include having
gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gains, and having the highest
possible tax rates in prior years, together with significant interest charges, apply to substantial portions of those gains and
to certain distributions, if any, that we make, whether or not we have any earnings and profits. U.S. shareholders should consult
their own U.S. tax advisers with respect to the U.S. tax consequences of investing in our ordinary shares.
If we fail to maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, it could have a material adverse effect on our business,
operating results and stock price.
The Sarbanes-Oxley
Act of 2002 imposes certain duties on us. Our efforts to comply with the management assessment requirements of Section 404 thereof
have resulted in a devotion of management time and attention to compliance activities, and we expect these efforts to require the
continued commitment of significant resources. If we fail to maintain the adequacy of our internal controls, we may not be able
to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting. We may also
identify material weaknesses or significant deficiencies in our internal control over financial reporting. In addition, our internal
control over financial reporting has not been, and is not required to be, audited by our independent registered public accounting
firm. In the future, if we are unable to assert that our internal controls are effective, our investors could lose confidence in
the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline. Failure to maintain
effective internal control over financial reporting could also result in investigation and/or sanctions by regulatory authorities,
and could have a material adverse effect on our business and operating results, investor confidence in our reported financial information,
and the market price of our ordinary shares.
Risks Relating to Our Location in Israel
Conditions in the Middle East may adversely
affect our business and limit our ability to persue our strategic alternatives.
We are incorporated
under the laws of the State of Israel, and our principal offices are located in Israel. In addition, all of our officers and directors
are residents of Israel. Accordingly, security, political and economic conditions in the Middle East in general, and in Israel
in particular, affect our business.
Over the past several
decades, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in
degree and intensity, has existed between Israel and certain other countries or militant groups in the region. Since late 2000,
there has also been an increase in violence and unrest between Israel and the Palestinians, including during the summer of 2014,
when Israel was engaged in an armed conflict with Hamas, a militia and political group operating in the Gaza Strip. This conflict
has strained Israel’s relationship with its Arab citizens, Arab countries and, to some extent, with other countries around
the world. In addition, since the end of 2010, several countries in the region have been experiencing increased political instability,
which has led to changes in government in some of these countries and increases in violence and turbulence, including the ongoing
civil war in Syria which shares a common border with Israel, the effects of which are currently difficult to assess. In addition, Israel
faces threats from more distant neighbors, such as Iran (which has previously threatened to attack Israel and is believed to have
influence over Hamas in Gaza and Hezbollah, a militia and political group operating in Lebanon) and the militant group known as
the Islamic State of Iraq and Syria. This situation may potentially escalate in the future. In addition, this instability
in the region may affect the global economy and marketplace. We do not believe that the political and security situation has had
a material impact on our business to date; however, there can be no assurance that this will be the case for future operations.
Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks
or acts of war, we cannot be assured that this government coverage will be maintained or will be adequate in the event we submit
a claim. We could be adversely affected by any major hostilities, including acts of terrorism as well as cyber-attacks or any other
hostilities involving or threatening Israel, the interruption or curtailment of trade between Israel and its trading partners,
a significant downturn in the economic or financial condition of Israel or a significant increase in the rate of inflation.
Furthermore, some
neighboring countries, as well as certain companies, organizations and movements, continue to participate in a boycott of
Israeli firms and others doing business with Israel or with Israeli companies. In the past several years, there have
been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government
policies. Similarly, Israeli companies are limited in conducting business with entities from several countries. For example,
in 2008, the Israeli legislature passed a law forbidding any investments in entities that transact business with Iran.
Restrictive laws, policies or practices directed towards Israel or Israeli businesses could have an adverse impact on our
operating results, financial condition or the expansion of our business.
Provisions of Israeli law may delay, prevent or complicate
merger or acquisition activity, which could depress the market price of our shares.
Provisions
of Israeli corporate, securities and tax law may have the effect of delaying, preventing or making an acquisition of our company
more difficult. For example, under the Companies Law, upon the request of a creditor of either party to a proposed merger, the
court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the
surviving company will be unable to satisfy the obligations of any of the parties to the merger. This and other provisions of Israeli
law 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, since 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.
It may be difficult to enforce a U.S. judgment against us,
our officers and directors or to assert U.S. securities laws claims in Israel.
We are incorporated
under the laws of the State of Israel. Service of process upon us, and our directors and officers, all of whom reside outside the
United States, may be difficult to obtain within the United States. Furthermore, because the majority of our assets and investments,
and all of our directors and officers are located outside the United States, any judgment obtained in the United States against
us or any of them may be difficult to collect within the United States and may not be enforced by an Israeli court.
We have been informed
by our legal counsel in Israel that it may also be difficult to assert U.S. securities law claims in original actions instituted
in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws because Israel
reasoning that the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable,
the content of applicable U.S. law must be proven as a fact, which can be a time-consuming and costly process. Certain matters
of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing these matters.
Subject to specified
time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts
may enforce a U.S. judgment in a civil matter, including a judgment based upon the civil liability provisions of the U.S. securities
laws, as well as a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
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subject to limited exceptions, the judgment is final and non-appealable;
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the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in the state in which it was given;
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the judgment was rendered by a court competent under the rules of private international law applicable in Israel;
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the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts;
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adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
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the judgment is enforceable under the laws of State of Israel and its enforcement is not contrary to the law, public policy, security or sovereignty of the State of Israel;
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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and
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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.
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Since we received government grants for research and development
expenditures, we are subject to ongoing restrictions and conditions.
We have received in
the past royalty-bearing grants from the Government of Israel through the Israel Innovation Authority (formerly known as the Office
of the Chief Scientist) of the Israeli Ministry of Economy, or the IIA, for research and development programs that meet specified
criteria pursuant to the Law for the Encouragement of Research, Development and Technological Innovation, 1984, and the regulations
promulgated thereunder, or the R&D Law. The terms of the IIA grants limit our ability to manufacture products or transfer technologies
outside of Israel if such products or technologies were developed using know-how developed with or based upon IIA grants. In addition,
any non-Israeli who becomes an “interested party” in Metalink (e.g., a holder of 5% or more of our share capital) is
generally required to notify the IIA and to undertake to observe the R&D Law governing the grant programs of the IIA, the principal
restrictions of which are the transferability limits described above in this paragraph. The IIA may establish new guidelines regarding
the R&D Law, which may affect our existing and/or future IIA programs and incentives for which we may be eligible. We cannot
predict what changes, if any, the IIA may make.
Also, as more fully
described in Item 8-A-“Legal Proceedings,” in August 2011, we received a demand from the IIA to pay it royalties in
the amount of approximately NIS 940,000 (equal to approximately $268,000), excluding interest and linkeage to CPI. While we believe
the claim has no merits, there is no assurance that we will necessarily prevail in our efforts to oppose this demand, which
may harm our results of operations.
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ITEM 4.
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information on the company
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A.
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History and Development of the Company
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Corporate History and Details
Metalink was incorporated
in September 1992 as a corporation under the laws of the State of Israel. Our principal executive offices are located at Kinneret
5, Bnei Brak, Israel. Our telephone number is 972-72-2117400.
From our inception
through the third quarter of 1994, our operating activities related primarily to establishing a research and development organization,
developing prototype chip designs which meet industry standards and developing strategic OEM partnerships with leading telecommunications
equipment manufacturers. We shipped our first chipset in the fourth quarter of 1994. From that time until February 2010, we focused
on developing additional products and applications, shaping new industry standards and building our worldwide indirect sales and
distribution channels. In February 2010, we sold our wireless local area network (WLAN) business to Lantiq. In February 2017, we
completed our self-tender offer and purchased approximately 53.3% of the shares issued and outstanding as of immediately prior
to the consummation of the tender offer, for $1.50 per share, or approximately $2.15 million in the aggregate. Consequently, to
our knowledge, (1) Mr. Daniel Magen became our largest beneficial owner, owning, in the aggregate, 670,000 ordinary shares, representing
approximately 53.4% of the issued and outstanding shares of Metalink, and (2) each of Uzi Rozenberg, the former Chairman of our
Board of Directors, and Tzvi Shukhman, a former member of the Board of Directors, who were also principal shareholders of Metalink
prior to completion of the tender offer, no longer hold any shares of Metalink (but see Item 7 – Major Shareholders for details
about the stock options held by Mr. Shukhman).
Recent Major Developments
There were no major
developments in Metalink since January 1, 2019.
Principal Capital Expenditure and Divestitures
Capital expenditures
were $0 for each of the years ended December 31, 2019, 2018 and 2017.
During 2017, 2018 and
2019, we did not make any significant divestitures.
Overview
Our plan of operation
is to consider strategic alternatives, including a possible business combination or other strategic transaction with a domestic
or foreign, private or public operating entity or a “going private” transaction, including with any of our affiliates,
and, to a limited extent, voluntary liquidation. In particular, our Board of Directors has determined to focus on exploring a possible
business combination with an operating company.
Historic DSL Business
We previously marketed
and sold DSL chipsets used by manufacturers of telecommunications equipment. In March 2015, we completed the delivery of our DSL
products to a customer. In exchange therefor we received a payment of approximately $450,000, which we recognized in the first
quarter of 2015. This order marks the last order that we will receive for our DSL products, which were the subject of an “end
of life” notice that we issued in early 2008.
All of our sales in 2014 and 2015 were to
one customer in Taiwan. We had no sales since 2016.
Research and Development
Since the sale of the
WLAN business to Lantiq in February 2010, we are not engaged in any research and development activities.
The Government of Israel,
through the IIA, encourages research and development projects. Since 1995, we received grants from the IIA for the development
of our products, including DSL products. In addition, we were engaged in a research project, under the sixth framework program
of the European Commission, under which we were entitled to grants based on certain approved expenditures of a research and development
plan. See Item 5.A under “Government Grants” and Item 5.C under “Grants from the IIA”.
Manufacturing
We have never owned
or operated a semiconductor fabrication facility. As a fabless provider of chipsets, we subcontracted our entire semiconductor
manufacturing to third party contractors. Our chipsets were delivered to us fully assembled and tested based on our proprietary
designs.
We subcontracted our
semiconductor wafer manufacturing, packaging and testing to semiconductor manufacturing companies in Taiwan. The selection of these
manufacturers was based on the breadth of available technology, quality, manufacturing capacity and support for design tools used
by us.
Proprietary Rights
We used to rely on
patent, copyright, trademark and trade secret laws, confidentiality agreements and other contractual arrangements with our employees,
strategic partners and others to protect our technology. We do not currently own any registered trademarks or registered copyrights.
In addition, other
parties may assert rights as inventors of the underlying technologies, which could limit our ability to fully exploit the rights
conferred by any patent that we receive. Our competitors may be able to design around any patent that we receive and other parties
may obtain patents that we would need to license or circumvent in order to exploit our patents.
All of our U.S. patents
expired in 2018.
Government Regulations
Israeli Innovation
Authority. See Item 5.C under “Grants from the IIA”.
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C.
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Organizational Structure
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We currently have no active subsidiaries.
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D.
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Property, Plants and Equipment
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In November 2017, our
offices relocated to Bnei Brak, Israel, as part of our engagement with Daniel Magen to provide CFO and CEO services to the Company,
without remuneration.
We believe that the
aforesaid office space is suitable and adequate for our operations as currently conducted and as currently foreseen. In the event
any additional or substitute offices and/or facilities will become required, we believe that we could obtain such offices and facilities
at commercially reasonable rates.
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ITEM 4A.
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UNRESOLVED STAFF COMMENTS
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None.
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ITEM 5.
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Operating and financial review and prospects
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The information contained
in this section should be read in conjunction with our financial statements and related notes included elsewhere in this annual
report. Our financial statements have been prepared in accordance with U.S. GAAP.
Overview
General
Our plan of operation
is to consider strategic alternatives, including a possible business combination, other strategic transaction with a domestic or
foreign, private or public operating entity or a “going private” transaction, including with any of our affiliates,
and, to a limited extent, voluntary liquidation.
Revenues in 2019 and
2018 were $0.
Operating loss for
2019 was $45,000, compared to an operating loss of $58,000 in 2018. This decrease was mainly due to the decrease of our operating
expenses.
As of December 31,
2019 we had approximately $12,000 in cash and cash equivalents and short-term deposits of approximately $1.9 million. As of
the date of this annual report, we anticipate that we will be able to meet our cash requirements in the next 12 months without
obtaining additional capital from external sources.
2020 Outlook
Revenues. In
March 2015, we completed the delivery of certain of our DSL products to a customer. In exchange therefor we received approximately
$450,000, which we recognized in the first quarter of 2015. This order marked the last order that we will receive for DSL products,
which were the subject of an “end of life” notice that we issued in early 2008. As a result, we do not expect to generate
any revenues in 2020.
Plan of Operations.
Our plan of operation is to consider strategic alternatives, including a possible business combination or other strategic transaction
with a domestic or foreign, private or public operating entity or a “going private” transaction, including with any
of our affiliates, and, to a limited extent, voluntary liquidation. There is no assurance that any of these alternatives will be
pursued or, if one is pursued, what the timing thereof would be or the terms on which it would occur.
Critical Accounting Policies
Management’s
discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have
been prepared in accordance with U.S. GAAP. A change in those accounting rules can have a significant effect on our reported results
and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning
of current practices may adversely affect our reported financial results or the way we conduct our business. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could
differ from those estimates.
However, we currently
did not identify any critical accounting policies that require significant judgments and estimates used in the preparation of our
financial statements.
General
The following discussion
of our results of operations for the years ended December 31, 2019, 2018 and 2017, including the following table, which presents
selected financial information data in dollars (dollars in thousands) and as a percentage of total revenues, is based upon our
statements of operations contained in our financial statements for those periods, and the related notes, included in this annual
report.
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Year Ended December 31,
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2017
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2018
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2019
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Revenues
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0
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0
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%
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0
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0
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%
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0
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0
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%
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Cost of revenues:
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Costs and expenses
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-
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-
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-
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-
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-
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-
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Royalties to the Government of Israel
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-
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-
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-
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-
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-
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-
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Total Cost of revenues
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-
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-
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-
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-
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-
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-
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Gross profit
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-
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-
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-
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-
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-
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-
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Operating expenses:
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Sales and marketing
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-
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-
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-
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-
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-
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-
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General and administrative
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194
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-
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58
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-
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45
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-
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Other expenses
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-
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-
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-
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-
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-
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-
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Total operating expenses
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194
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-
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58
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-
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45
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-
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Operating loss
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(194
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)
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-
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(58
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-
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(45
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)
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-
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Financial income, net
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4
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-
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23
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-
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49
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-
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Net income (loss)
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(190
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)
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0
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%
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(35
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)
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0
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%
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4
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0
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%
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Revenues. Our
revenues are generated in U.S. dollars, and the majority of our costs and expenses are incurred in U.S. dollars. Consequently,
we use the dollar as our functional currency. For additional details regarding the manner in which we recognize revenues, see the
discussion under the caption “Critical Accounting Policies - Revenue Recognition” above.
Cost of Revenues.
Our cost of revenues consists primarily of materials and components used in the manufacture and assembly of our chips, fees
for subcontractors who manufacture, assemble and test our chipsets, and other overhead expenses and royalties paid to the Government
of Israel.
Operating Expenses.
Operating expenses consist of sales and marketing expenses as well as general and administrative expenses (primarily salaries
and other personnel related expenses for executive, accounting and administrative personnel, professional fees, and other general
corporate expenses).
Financial Income,
Net. In 2019, 2018 and 2017, financial income, net was primarily attributable to interest income, exchange rates differences
and balance annulments.
Taxes. Israeli
companies were subject to corporate tax at the rate of 24% for the year 2017. For 2018 and 2019, the corporate tax rate was decreased
to 23%. Israeli companies are generally subject to Capital Gains Tax at the corporate tax rate.
Year Ended December 31, 2019 Compared
with Year Ended December 31, 2018
Revenues. There
were no revenues in 2019 and in 2018. This occurred due to completion of delivery of our last DSL products order in 2015, which
was the subject of an “end of life” notice we issued already in early 2008.
Cost of Revenues.
Cost of revenues was $0 in 2019 and in 2018.
Operating Expenses.
Operating expenses were $45,000 in 2019, compared with $58,000 in 2018. This decrease was primarily due to cost reduction efforts
we implemented during 2019.
Financial Income,
net. Financial income, net was $49,000 in 2019, compared with $23,000 in 2018.
Year Ended December 31, 2018 Compared
with Year Ended December 31, 2017
Revenues. There
were no revenues in 2018 and in 2017. This occurred due to completion of delivery of our last DSL products order in 2015, which
was the subject of an “end of life” notice we issued already in early 2008.
Cost of Revenues.
Cost of revenues was $0 in 2018 and in 2017.
Operating Expenses.
Operating expenses were $58,000 in 2018, compared with $194,000 in 2017. This decrease was primarily due to cost reduction efforts
we implemented during 2018.
Financial Income,
net. Financial income, net was $23,000 in 2018, compared with $4,000 in 2017.
Impact of Inflation and Foreign Currency Fluctuations
The dollar cost of
our operations is influenced by the extent to which any increase in the rate of inflation in Israel is (or is not) offset, or is
offset on a lagging basis, by the devaluation of the NIS in relation to the dollar. Inflation in Israel has a negative effect on
our profitability as we receive payment in dollars or dollar-linked NIS for substantially all of our sales while we incur a portion
of our expenses, principally salaries and related personnel expenses, in NIS, unless such inflation is offset by a devaluation
of the NIS.
The following table
sets forth, for the periods indicated, (1) devaluation or appreciation of the U.S. dollar against the most significant currency
for our business, i.e., the NIS; and (2) inflation as reflected in changes in the Israeli consumer price index.
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Year Ended December 31,
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2015
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2016
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2017
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2018
|
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2019
|
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NIS
|
|
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0.3
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%
|
|
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(1.5
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)%
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(9.8
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)%
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8.1
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%
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|
(7.8
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)%
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|
Israeli Consumer Price Index
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|
|
(1.0
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)%
|
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|
(0.2
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)%
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0.4
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%
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0.8
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%
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0.6
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%
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A revaluation of the
NIS in relation to the dollar, as was the case in 2016 and 2017 and 2019, has the effect of increasing the dollar amount of any
of our expenses or liabilities which are payable in NIS (unless such expenses or payables are linked to the dollar). Such revaluation
also has the effect of increasing the dollar value of any asset, which consists of NIS or receivables payable in NIS (unless such
receivables are linked to the dollar). Conversely, any decrease in the value of the NIS in relation to the dollar, as was the case
in 2015 and 2018, has the effect of decreasing the dollar value of any unlinked NIS assets and the dollar amounts of any unlinked
NIS liabilities and expenses.
In 2015-2019, foreign
currency fluctuations and the rate of inflation in Israel did not have a material impact on our financial results. However, we
cannot predict any future trends in the rate of inflation/deflation in Israel or the rate of devaluation/revaluation of the NIS
against the dollar. We cannot assure you that we will not be adversely affected in the future if inflation in Israel exceeds the
devaluation of the NIS against the dollar or if the timing of such devaluation lags behind increases in inflation in Israel or
if the NIS will be appreciated against the dollar.
The effects of foreign
currency re-measurements are reported in our financial statements in current operations.
Corporate Tax Rate
Israeli companies were
generally subject to corporate tax at the rate of 23% for the years 2018 and 2019 and for future years.
As a result of our
accumulated tax loss carry-forwards (which totaled more than $200 million at December 31, 2019), and based on the current
tax system in Israel, we do not anticipate being subject to income tax in Israel for the 2019 tax year.
Israeli Government Grants
We used to conduct
a substantial part of our research and development operations in Israel. Some of our research and development efforts have been
financed through internal resources and grants per project from the IIA. The IIA provided us grants for research and development
efforts of approximately $1.9 million for the year ended December 31, 2009 (20% of our then total research and development expenses),
$0.1 million for the year ended December 31, 2010 (86% of our then total research and development expenses) and none for the year
ended December 31, 2011 and thereafter.
Since the grant program
has the impact of lowering our research and development expenditures and improving our operating margins, reduction in the Company’s
participation in the program or in the benefits that the Company receives under the program could affect the Company’s financial
condition and results of operations. Currently, we are obligated to pay royalties to the IIA at the rate of 3% to 4.5%. Due to
our manufacturing outside of Israel, our aggregate payment amount with respect to grants received in 2009 and 2010 is 100% of the
dollar-linked value of such grants. In 2003, we were required by the IIA to perform at least 50% of our manufacturing in Israel.
See “Item 5(C)- Research and Development, Patents and Licenses, etc.- Grants from the IIA”.
The refund of the grants
is contingent on future sales (or related services) and we have no obligation to refund these grants if sales are not generated.
We paid or accrued
to the IIA $0 for 2019, 2018 and 2017. See also Item 8A – “Legal Proceedings” regarding a pending claim of the
IIA.
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B.
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Liquidity and Capital Resources
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Historically, we have
financed our operations primarily through funds generated by our public offerings in 1999 and 2000 as well as research and development
and marketing grants, primarily from the Government of Israel. From 2008 until 2010, we also financed our operations through private
equity investments and, on a limited basis, through short-term loans.
Working Capital and Cash Flows
We had cash and cash
equivalents of approximately $12,000, $24,000 and $2.0 million as of December 31, 2019, 2018 and 2017, respectively. In addition,
we had short-term deposits of approximately $1.9 million as of December 31, 2019 and 2018 and $0 as of December 31, 2017. It should
be noted that as of each of those dates we did not have any short-term (other than the above mentioned short-term deposit) or long-term
investments or outstanding borrowings.
Our total proceeds
from grants received from the IIA (DSL and WLAN), net of royalties paid, was approximately $28 million as of each of December 31,
2019, 2018 and 2017. See also Item 8A – “Legal Proceedings” regarding a pending claim of the IIA.
No capital expenditures
were made in our continuing operation for each of the years ended December 31, 2019, 2018 and 2017.
Net cash provided by
operating activities was $5,000 for the year ended December 31, 2019. Net cash used in operating activities was $40,000 and $228,000
for the years ended December 31, 2018 and 2017, respectively.
Net cash used in financing
activities was $0 for the years ended December 31, 2019 and 2018, compared to $2,153,000 for the year ended December 31, 2017,
primarily related to the self-tender offer we completed in February 2017. Since 2010, we no longer hold government treasury securities
and we do not conduct interest rate or currency hedging activities.
Net cash used in investing
activities was $17,000 and $1.9 million for the years ended December 31, 2019 and 2018, respectively, compared to $0 for the year
ended December 31, 2017, primarily related to a short-term deposit renewed automatically on a half year basis.
Outlook
In light of several
factors, primarily our current cash position, we anticipate that our existing capital resources will be adequate to satisfy our
working capital and capital expenditure requirements in the next twelve months.
|
C.
|
Research and Development, Patents and Licenses, etc.
|
Grants from the IIA
The Government of Israel
encourages research and development projects through the Israel Innovation Authority (formerly known as the Office of the Chief
Scientist) of the Israeli Ministry of Economy, or the IIA, pursuant to the R&D Law. Grants received under such programs are
generally repaid through a mandatory royalty based on revenues from products (and ancillary services) incorporating know-how developed,
in whole or in part, with the grants. This government support is condition upon our ability to comply with certain applicable requirements
and conditions specified in the IIA’s programs and the R&D Law.
Generally, grants from
the IIA constitute up to 50% of qualifying research and development expenditures for particular approved projects. Under the terms
of these IIA projects, a royalty of 3% to 5% is due on revenues from sales of products and related services that incorporate know-how
developed, in whole or in part, within the framework of projects funded by the IIA.
The R&D Law also
provides that know-how developed under an approved research and development program or rights associated with such know-how (1)
may not be transferred to third parties in Israel without the approval of the IIA (such approval is not required for the sale or
export of any products resulting from such research or development) and (2) may not be transferred to any third parties outside
Israel, except in certain special circumstances and subject to the IIA’s prior approval, which approval, if any, may generally
be obtained, in the following cases: (a) the grant recipient pays to the IIA a portion of the sale price paid in consideration
for such IIA-funded know-how (according to certain formulas, which may result in repayment of up to 600% of the grant amounts plus
interest), or (b) the grant recipient receives know-how from a third party in exchange for its IIA-funded know-how. Such approval
is not required for the export of any products resulting from such research or development.
The R&D Law imposes
reporting requirements with respect to certain changes in the ownership of a grant recipient. The law requires the grant recipient
and its controlling shareholders and foreign interested parties to notify the IIA of any change in control of the recipient or
a change in the holdings of the means of control of the recipient and requires a non-Israeli interested party to undertake to
the IIA to comply with the R&D Law. In addition, the rules of the IIA may require additional information or representations
in respect of certain of such events. For this purpose, “Control” is defined as the ability to direct the activities
of a company other than any ability arising solely from serving as an officer or director of the company. A person is presumed
to have control if such person holds 50% or more of the means of control of a company. “Means of Control” refers to
voting rights or the right to appoint directors or the chief executive officer. An “interested party” of a company
includes a holder of 5% or more of its outstanding share capital or voting rights, its chief executive officer and directors,
someone who has the right to appoint its chief executive officer or at least one director, and a company with respect to which
any of the foregoing interested parties owns 25% or more of the outstanding share capital or voting rights or has the right to
appoint 25% or more of the directors. Accordingly, any non-Israeli who acquires 5% or more of our ordinary shares will be required
to notify the IIA that it has become an interested party and to sign an undertaking to comply with the R&D Law.
A major amendment to
the R&D Law entered into force on January 1, 2016. This amendment may create uncertainty in respect of the terms of our existing
and/or future IIA programs and incentives we may be eligible for as it empowers the IIA to issue new guidelines in connection therewith.
See also Item 8A –
“Legal Proceedings” regarding a pending claim of the IIA.
See Item 5A –
“Operating Results – Overview – 2020 Outlook.”
|
E.
|
Off-balance sheet arrangements
|
We do not have any
off-balance sheet arrangements, as such term is defined under Item 5E of the instructions to Form 20-F, that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources that is material to investors. In addition, we have no special
purpose financing or partnership entities that are likely to create material contingent obligations.
|
F.
|
Tabular disclosure of Contractual Obligations.
|
There were no contractual obligations or
commercial commitments as of December 31, 2019, as such terms are defined under Item 5F of the instructions to Form 20-F.
|
ITEM 6
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors and Senior Management
|
The following table
lists our current directors and executive officers:
|
Name
|
|
Age
|
|
Position
|
|
Joseph Winston
|
|
41
|
|
Chairman of the Board of Directors
|
|
Daniel Magen
|
|
49
|
|
Director, Chief Executive Officer and Chief Financial Officer
|
|
Roi Kol
|
|
37
|
|
Director
|
|
Ron Mekler*
|
|
46
|
|
Director
|
|
Avi Mann*
|
|
57
|
|
External Director
|
|
Mor Kaniel*
|
|
30
|
|
External Director
|
|
*
|
Member of the Audit Committee and Compensation Committee.
|
Joseph Winston has
served as Chairman of our Board of Directors since March 2017. He is the Chief Financial Officer of Finext Capital, a
subsidiary of the Futureal Group, a European real estate developer. From November 2007 until June 2011, Mr. Winston
worked as an analyst and portfolio manager at Erez Investments, a subsidiary of Vision Sigma Ltd. (TASE: VISN).
Mr. Winston has a B.A. in economics with a minor in business from the University of California, Berkeley and an M.B.A.
in finance and strategy from the UCLA Anderson School of Management. Mr. Winston earned the right to use the Charted
Financial Analyst designation in 2005.
Daniel Magen
has served as our director since March 2017. Effective December 2017, Mr. Magen also serves as our Chief Executive Officer and
Chief Financial Officer. He currently also serves as the sole director of Top Alpha Capital S.M. Ltd., a controlling shareholder
of the Company. Mr. Magen has a B.A. in economics and accounting from Tel Aviv University. Mr. Magen is a certified public
accountant.
Roi Kol has
served as our director since March 2017. He is the VP Investments of Top Alpha Investment House, an affiliate of Top Alpha Capital
S.M. Ltd., a controlling shareholder of the Company. Mr. Kol has a B.A. in economics with a specialty in business management
from Ben Gurion University. Mr. Kol holds a portfolio management license from the Israel Securities Authority.
Ron Mekler has
served as our director since June 2018. He is the Chief Financial Officer at a large health services organization. Mr. Mekler previously
served as CFO and as a Controller in several international industrial and real estate companies. Mr. Mekler has a B.A. in economics
and accounting from Ben Gurion University and an M.B.A. in business administration with a specialty in finance and tax from the
Ono Academic College. Mr. Mekler is a certified public accountant.
Avi Mann has
served as our external director since June 2018. He is the Chief Executive Officer of Ezer Construction, a privately held company
that provides marketing, engineering and technological solutions for construction projects to a number of international companies.
Mr. Mann has a BSc in mechanical engineering from the Technion, Israel Institute of Technology with a specialty in energy systems
and an M.B.A. in business administration with a specialty in strategic management, marketing, human resources, systems management
and organizational structure from the Technion, Israel Institute of Technology.
Mor Kaniel has
served as our external director since June 2018. She is the Head of Finance of the Retail Division of Alpha Cosmetics Ltd. Ms.
Kaniel has a B.A. in economics and business administration from Bar Ilan University.
Additional Information
There are no family
relations between the directors and executive officers named above. We are also not aware of any arrangements or understandings
with major shareholders, customers, suppliers or others, pursuant to which (1) any person referred to above was selected as a director
or member of senior management or (2) any director will receive compensation by a third party in connection with his or her candidacy
or board service in the Company.
General
The aggregate remuneration
we paid for the year ended December 31, 2019 to our directors and executive officers (six persons during 2019), was approximately
NIS 19,300 (equivalent to $5,590) in salaries, fees, commissions and bonuses. There were no amounts set aside or accrued to provide
for pension, retirement or similar benefits.
As approved
by our shareholders, commencing June 2018, our external directors, including Messrs. Mann and Kaniel, and our independent
directors, including Mr. Mekler, and such other external and independent directors who may serve the Company from time to
time are entitled to receive the minimum compensation permitted for external directors under the Companies Regulations (Rules
Regarding Compensation and Expenses to External directors), 2000, as amended (the “Compensation Regulations”),
which currently means: (i) fixed compensation for their service on the Board of Directors or any committee of the Board of
Directors of NIS 21,210 (equivalent to approximately $5,800) on an annual basis, and (ii) compensation for their
participation in any Board of Directors or committee meetings of NIS 615 per meeting attended (equivalent to approximately
$170), or, for attendance via teleconference, 60% of such participation fee and 50% of such fee for the approval of actions
of the Board of Directors by way of written consent all linked to the Israeli CPI.
As approved by our
shareholders, commencing June 2018, our directors affiliated with our controlling shareholder (namely, Mr. Kol) or that may be
affiliated with our controlling shareholder (namely, Mr. Winston) are entitled to a meeting attendance fee of NIS 620 (equivalent
to approximately $170), or, for attendance via teleconference, 60% of such participation fee and 50% of such fee for the approval
of actions of the Board of Directors by way of written consent, all linked to the Israeli CPI.
For the sake of clarity,
Mr. Magen is not entitled to any fees in consideration for his service as a member of the Board of Directors or as an executive
officer.
No directors have arrangements
to receive benefits upon termination of employment.
Compensation of Executive Officers
In 2019, we did not
pay any compensation to our executive officer.
Introduction
We are incorporated
in Israel and therefore are subject to various corporate governance practices under the Israeli Companies Law, relating to such
matters as external directors, the audit committee, the internal auditor and approvals of interested party transactions. These
matters are in addition to the ongoing conditions and other relevant provisions of U.S. securities laws.
Board of Directors
According to the Companies
Law and our articles of association, the oversight of the management of our business is vested in our Board of Directors. The
Board of Directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. As
part of its powers, our Board of Directors may cause us to borrow or secure payment of any sum or sums of money for our purposes,
at times and upon terms and conditions as it thinks fit, including the grant of security interests in all or any part of our property.
According to our articles
of association, our Board of Directors may consist of between four (4) and nine (9) directors. Our Board of Directors currently
consists of six (6) directors.
Under the Companies
Law, our Board of Directors must determine the minimum number of directors having financial and accounting expertise, as defined
in the regulations, that our Board of Directors should have. In determining the number of directors required to have such expertise,
the Board of Directors must consider, among other things, the type and size of the company and the scope and complexity of its
operations. Our Board of Directors has determined that we require at least one director with the requisite financial and accounting
expertise and that Mr. Mann has such expertise.
Our directors are elected
at annual meetings of shareholders by a vote of the holders of a majority of the ordinary shares voting thereon. Directors generally
hold office until the next annual meeting of shareholders. Our annual meeting of shareholders is required to be held at least once
during every calendar year and not more than fifteen months after the last preceding meeting. The Board of Directors generally
may temporarily fill vacancies in the board.
A resolution proposed
at any meeting of the Board of Directors is deemed adopted if approved by a majority of the directors present and voting on the
matter.
External Directors
Qualifications of
External Directors
Under the Israeli Companies
Law, companies incorporated under the laws of Israel whose shares are listed for trading on a stock exchange or have been offered
to the public in or outside of Israel, such as Metalink, are generally required to appoint at least two external directors. The
Companies Law provides that a person may not be appointed as an external director if the person or the person’s relative,
partner, employer or any entity under the person’s control has, as of the date of the person’s appointment to serve
as an external director, or had, during the two years preceding that date, any affiliation with:
|
|
●
|
any entity controlling the company;
|
|
|
●
|
any entity controlled by the company or by its controlling entity; or
|
|
|
●
|
in a company that does not have a controlling shareholder, affiliation with the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company.
|
The term affiliation
includes:
|
|
●
|
an employment relationship;
|
|
|
●
|
a business or professional relationship;
|
|
|
●
|
service as an office holder.
|
The Companies Law defines
the term “office holder” of a company to include a director, the chief executive officer and any officer of the company
who reports directly to the chief executive officer.
No person can serve
as an external director if the person’s position or other business creates, or may create, a conflict of interest with the
person’s responsibilities as an external director or may otherwise interfere with the person’s ability to serve as
an external director.
Until two years from
termination of office, a company and its controlling shareholder generally not give any direct or indirect benefit to the former
external director or his relative.
In addition, pursuant
to the Companies Law, (1) an external director must have either “accounting and financial expertise” or “professional
qualifications” (as such terms are defined in regulations promulgated under the Companies Law) and (2) at least one of the
external directors must have “accounting and financial expertise”. Our current external directors are Mr. Mann and
Ms. Kaniel. We have determined that Mr. Mann has the requisite “accounting and financial expertise”.
Election of External
Directors
External directors
are elected at meetings of shareholders by a vote of the holders of a majority of the ordinary shares voting thereon, provided
that either:
|
|
●
|
At least a majority of the shares of non-controlling shareholders voted at the meeting vote in favor of the external director’s election; or
|
|
|
●
|
The total number of shares of non-controlling shareholders that voted against the election of the external director does not exceed 2% of the aggregate voting rights in the company.
|
The initial term of
an external director is three years and may be extended for up to two additional three-year terms.
Reelection of an external
director may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee
and the election was approved by the shareholders by the majority required to appoint external directors for their initial term
as described above; or (2) a shareholder holding 1% or more of the voting rights or the external director proposed the reelection
of the nominee, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the
votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the
controlling shareholders; provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute
more than 2% of the voting rights in the company.
External directors
may be removed from office only by the same percentage of shareholders as is required for their election, or by a court, only if
the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty
to the company.
Each committee of a
company’s board of directors that exercises a power of the board of directors is required to include at least one external
director, except for the audit committee and compensation committee, each of which is required to include all the external directors.
Committees
Subject to the provisions
of the Companies Law, our Board of Directors may delegate its powers to committees consisting of board members. Our board has formed
an audit committee and a compensation committee.
Audit Committee
Under the Companies
Law, our Board of Directors is required to appoint an audit committee, which must be comprised of at least three directors, include
all of the external directors, a majority of its members must satisfy the independence standards under the Companies Law, and the
chairman is required to be an external director.
The duties of the audit
committee under the Companies Law include, among others, examining flaws in the business management of the company and suggesting
remedial measures to the board, assessing the company’s internal audit system and the performance of its internal auditor,
and as more fully described below, approval of certain interested party transactions. An interested party is defined in the Companies
Law to include 5% or greater shareholder, any person or entity who has the right to designate one director or more or the general
manager of the company or any person who serves as a director or as a general manager.
Our Audit Committee
adopted a written charter specifying the committee’s duties and responsibilities, which include, among other:
|
|
●
|
Overseeing financial and operational matters involving accounting, corporate finance, internal and independent auditing, internal control over financial reporting, compliance and business ethics; and
|
|
|
●
|
Authority to oversee the Company’s independent registered public accounting firm and recommend to our shareholders to appoint or remove them.
|
Our Audit Committee
consists of Mr. Mann, Ms. Kaniel and Mr. Mekler.
Our Board of Directors
has determined that Mr. Mann qualifies as an “audit committee financial expert” within the meaning of the SEC rules.
Our Audit Committee
meets when required.
Compensation Committee
Under the Companies
Law, our Board of Directors is required to appoint a compensation committee, which must be comprised of at least three directors,
including all of the external directors and whose other members must satisfy certain independence standards under the Companies
Law, and the chairman of which is required to be an external director. Under the Companies Law, the role of the compensation committee
is to recommend to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation
of office holders based on specified criteria; to review, from time to time, modifications to the compensation policy and examine
its implementation; to approve the actual compensation terms of office holders prior to approval thereof by the board of directors;
and to resolve whether to exempt the compensation terms of a candidate for chief executive officer from shareholder approval.
Our compensation committee
consists of the same members as the Audit Committee and meets as required.
Internal Auditor
Under the Companies
Law, our Board of Directors is also required to appoint an internal auditor proposed by the audit committee. The role of the internal
auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. At present,
we have no serving internal auditor.
Approval of Specified Related Party
Transactions Under Israeli Law
Fiduciary Duties
of Office Holders
The Companies Law imposes
a duty of care and a duty of loyalty on all office holders of a company, including directors and executive officers.
The duty of care requires
an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under
the circumstances. The duty of care includes a duty to use reasonable means to obtain:
|
|
●
|
information on the appropriateness of a given action brought for his/her approval or performed by him/her by virtue of his/her position; and
|
|
|
●
|
all other important information pertaining to the previous actions.
|
The duty of loyalty
of an office holder includes a duty to:
|
|
●
|
refrain from any conflict of interest between the performance of his duties in the company and his personal affairs;
|
|
|
●
|
refrain from any activity that constitutes competition with the company’s business;
|
|
|
●
|
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and
|
|
|
●
|
disclose to the company any information or documents relating to a company’s affairs which the office holder has received due to his position as an office holder.
|
Each person listed
in the table under “Directors and Senior Management” above is an office holder. Under the Companies Law, all arrangements
as to compensation of directors and officers in public companies such as ours, generally require the approvals of the compensation
committee, the board of directors and, in the case of the Chief Executive Officer and the directors, subject to certain exceptions,
the shareholders as well, in that order.
Disclosure of Personal
Interests of an Office Holder.
The Companies Law requires
that an office holder of a company promptly disclose any personal interest that he may have and all related material information
known to him in connection with any existing or proposed transaction by the company. A personal interest of an office holder includes
an interest of a company in which the office holder is, directly or indirectly, a 5% or greater shareholder, director or general
manager or in which he has the right to appoint at least one director or the general manager. In the case of an “extraordinary
transaction”, the office holder’s duty to disclose applies also to a personal interest of the office holder’s
relative.
Under the Companies
law, an extraordinary transaction is a transaction:
|
|
●
|
other than in the ordinary course of business;
|
|
|
●
|
other than on market terms; or
|
|
|
●
|
that is likely to have a material impact on the company’s profitability, assets or liabilities.
|
Under the Companies
Law, once an office holder complies with the above disclosure requirement the board of directors may approve a transaction between
the company and such office holder or a third party in which such office holder has a personal interest, unless the articles of
association provide otherwise. Nevertheless, a transaction that is adverse to the company’s interest cannot be approved.
If the transaction
is an extraordinary transaction, both the audit committee and the board of directors must approve the transaction. Under specific
circumstances, shareholder approval may also be required. Generally, when a transaction is considered by the audit committee and
board of directors, the interested director may not be present or vote, unless a majority of the members of the board of directors
or the audit committee, as the case may be, has a personal interest in the matter. If a majority of members of the board of directors
have a personal interest therein, shareholder approval is generally also required.
Approval of Office Holder Compensation
Under the Companies
Law, every Israeli public company was required to adopt a compensation policy, recommended by the compensation committee, and approved
by the board of directors and the shareholders, in that order, no later than January 2014. The shareholder approval requires a
majority of the votes cast by shareholders, provided that either (i) the shares voted in favor of the resolution include at least
a majority of the shares voted by shareholders who are not controlling shareholders and do not have a “personal interest”
in such matter or (ii) the total number of shares voted against such matter by said group of disinterested shareholders does not
exceed two percent of the voting rights in the company. In general, all office holders’ terms of compensation – including
fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and
the grant of an exemption from liability – must comply with the company’s compensation policy. To date, we have not
sought shareholder approval for any compensation policy primarily because we believe that we are exempt from such requirement.
In addition, the compensation
terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder
must be approved separately by the compensation committee, the board of directors and the shareholders of the company (by the same
majority noted above), in that order. The compensation terms of other officers require the approval of the compensation committee
and the board of directors. Shareholder approval is not required for director compensation payable in cash up to the maximum amount
set forth in the regulations governing the compensation of external directors. The compensation terms of other officers who report
directly to the chief executive officer require the approval of the compensation committee and the board of directors.
Exculpation, Insurance and Indemnification of Directors and
Officers
Exculpation of Office Holders
Under the Companies
Law, an Israeli company may not exempt an office holder from liability with respect to a breach of his duty of loyalty, but may
exempt in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his duty
of care (except in connection with distributions), provided that the articles of association of the company allow it to do so.
Our articles of association allow us to exempt our office holders to the fullest extent permitted by law.
Office Holder Insurance
Our articles of association
provide that, we may, to the maximum extent permitted by the Companies Law, insure the liability of officers. Without derogating
from the foregoing, we may enter into a contract for the insurance of the liability of any of our office holders with respect to
an act performed in the capacity of an office holder for:
|
|
●
|
a breach of his duty of care to us or to another person;
|
|
|
●
|
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests;
|
|
|
●
|
a financial liability imposed upon him in favor of another person;
|
|
|
●
|
expenses he or she incurs as a result of administrative proceedings that may be instituted against him or her under Israeli securities laws, if applicable, and payments made to injured persons under specific circumstances thereunder; and
|
|
|
●
|
any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of an office holder.
|
Indemnification
of Office Holders
We may, to the maximum
extent permitted by the Companies Law, indemnify the liability of office holders. Without derogating from the foregoing, we may
indemnify an office holder for acts or omissions committed in his or her capacity as an office holder of the Company for:
|
|
●
|
a financial liability imposed on him in favor of another person by any judgement, including a settlement or an arbitrator’s award approved by a court. Such indemnification may be approved (i) after the liability has been incurred, or (ii) in advance, provided that our undertaking to indemnify is limited to events that our Board of Directors believes are foreseeable in light of our actual operations at the time of providing the undertaking and to a sum or criterion that our Board of Directors determines to be reasonable under the circumstances;
|
|
|
●
|
reasonable litigation expenses, including attorneys’ fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (i) concluded without the imposition of any financial liability in lieu of criminal proceedings, or (ii) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent or in connection with a financial sanction;
|
|
|
●
|
reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him or her by a court, resulting from the following: proceedings we institute against him or her or instituted on our behalf or by another person; a criminal indictment from which he or she was acquitted; or a criminal indictment in which he or she was convicted for a criminal offense that does not require proof of intent;
|
|
|
●
|
expenses he or she incurs as a result of administrative proceedings that may be instituted against him or her under Israeli securities laws, if applicable, and payments made to injured persons under specific circumstances thereunder; and
|
|
|
●
|
any other matter in respect of which it is permitted or will be permitted under applicable law to indemnify an office holder.
|
Limitations on Insurance and Indemnification
The Companies Law provides
that a company may not exculpate or indemnify an office holder nor enter into an insurance contract which would provide coverage
for any monetary liability incurred as a result of any of the following:
|
|
●
|
a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|
|
|
●
|
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly, unless the breach was done negligently;
|
|
|
●
|
any act or omission done with the intent to derive an illegal personal benefit; or
|
|
|
●
|
any fine levied against the office holder.
|
In addition, under
the Companies Law, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit
committee and our Board of Directors and, in specified circumstances, by our shareholders.
We currently do not
have director’s and officer’s liability insurance. We entered into indemnification and exculpation agreements with
our directors and executive officers in accordance with our articles of association.
Management and Director Service Contracts
We receive chief executive
officer and chief financial officer services from Mr. Magen, for no remuneration.
Except as set forth
above, there are no arrangements or understandings between us and any of our current directors for benefits upon termination of
service.
Since January 2012,
we do not have any employees. Rather, all of our personnel are composed of the Chief Executive Officer and the Chief Financial
Officer, whom we engaged (through Top Alpha) for no remuneration in December 2017.
The following table
sets forth certain information regarding the ownership of our ordinary shares by our directors and officers as of April 1, 2020.
The percentage of outstanding ordinary shares is based on 1,255,640 ordinary shares outstanding as of April 1, 2020 (excluding
1,435,217 treasury shares).
|
Name
|
|
Number of Ordinary Shares Beneficially Owned(1)
|
|
|
Percentage of Outstanding Ordinary Shares(2)
|
|
|
Daniel Magen
|
|
|
670,000
|
|
|
|
53.4
|
%
|
|
Joseph Winston
|
|
|
-
|
|
|
|
-
|
|
|
Roi Kol
|
|
|
-
|
|
|
|
-
|
|
|
Ron Mekler
|
|
|
-
|
|
|
|
-
|
|
|
Avi Mann
|
|
|
-
|
|
|
|
-
|
|
|
Mor Kaniel
|
|
|
-
|
|
|
|
-
|
|
|
Directors and Officers as a group (consisting of 6 persons)
|
|
|
670,000
|
|
|
|
53.4
|
%
|
|
|
(1)
|
Except
as otherwise noted and pursuant to applicable community property laws, each person named in the table has sole voting and investment
power with respect to all ordinary shares listed as owned by such person. Shares beneficially owned include shares that may be
acquired pursuant to options that are exercisable within 60 days of April 1, 2020.
|
|
|
(2)
|
Ordinary
shares deemed beneficially owned by virtue of the right of any person or group to acquire such shares within 60 days of April
1, 2020, are treated as outstanding only for the purposes of determining the percent owned by such person or group.
|
Share Option Plans
We have two option
plans, our Share Option Plan (2003), for our advisors and independent contractors, which is currently in use and one other plan.
The expiration dates of the options granted under the plans range from 4 to 25 years from the date of grant. Our plans are administered
currently by our Board of Directors. All of our employees and directors are eligible to participate in our plans. Members of advisory
board, if any and our independent contractors are eligible to receive options under our Share Option Plan (2003).
In 2017, 2018 and 2019,
we did not grant any options to purchase ordinary shares. As of April 1, 2020, options to purchase 112,500 ordinary shares, at
an exercise price per share of $1.50, are outstanding, all of which are fully vested and expire on December 31, 2021. These options
were granted to Mr. Shukhman, our former CEO, and to Mr. Zack, our former Director.
|
|
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The following table
sets forth certain information regarding the beneficial ownership of our ordinary shares as of April 1, 2020 by each person or
entity known to own beneficially more than 5% of our outstanding ordinary shares based on information provided to us by the holders
or disclosed in public filings with the SEC.
|
Name
|
|
Number of Ordinary Shares Beneficially Owned (1)
|
|
|
Percentage of
Outstanding Ordinary Shares(2)
|
|
|
Daniel Magen(3)
|
|
|
670,000
|
|
|
|
53.4
|
%
|
|
Tzvi Shukhman(4)
|
|
|
100,000
|
|
|
|
7.4
|
%
|
|
|
(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 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 pursuant to applicable community property laws, 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
percentage of outstanding ordinary shares is based on 1,255,640 ordinary shares outstanding as of April 1, 2020 (excluding 1,435,217
treasury shares).
|
|
|
(3)
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The
record holder of the 670,000 shares is Top Alpha, an Israeli company wholly owned by Mr. Magen.
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(4)
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Consists
of options exercisable into 100,000 ordinary shares, at exercise price per share of $1.50, all of which are fully vested and expires
on December 31, 2021.
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Our major shareholders do not have voting
rights different from the voting rights of our other shareholders.
In May 2013, Daniel
Magen, through his ownership of Top Alpha, purchased 271,600 of our ordinary shares, which constituted approximately 7.13% of our
outstanding shares at that time. Since that time, Mr. Magen, through his ownership of Top Alpha, has purchased an additional 398,400
of our ordinary shares, and now beneficially owns 670,000 of our ordinary shares, which constitutes approximately 53.4% of our
outstanding shares.
Record Holders
Based on a review
of the information provided to us by our transfer agent, as of April 1, 2020, there were 22 holders of record of our ordinary shares. These
numbers are not representative of the number of beneficial holders of our ordinary shares nor is it representative of where such
beneficial holders reside since many of these ordinary shares were held of record by brokers or other nominees.
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B.
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Related Party Transactions
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Not applicable.
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C.
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Interests of Experts and Counsel
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Not applicable.
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ITEM 8.
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financial information
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A.
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Statements and Other Financial Information
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Financial Statements
See Item 18–
“Financial Statements” below.
Legal Proceedings
In August 2011, we
received a demand from the IIA to pay it royalties in the amount of approximately NIS 940,000 (approximately $268,000), excluding
interest and linkeage to CPI, due to the consideration we received from the Lantiq Transaction. We objected to the demand and asked
the IIA to withdraw it. In February 2012, the IIA rejected our request and informed us that it intends to pursue full payment of
such royalties. Since that time, to our knowledge, the IIA has not instituted legal proceedings against us in regards to such amount.
While we believe the claim has no merits, there is no assurance that we will necessarily prevail.
Except as stated above,
we are currently not, and have not been in the recent past, a party to any legal proceedings which may have or have had in the
recent past significant effects on our financial position or profitability.
Dividend Policy
On January 28, 2013,
our Board of Directors authorized a special one-time dividend of $0.10 per ordinary share, or approximately $270,000 in the aggregate,
payable to shareholders of record as of March 15, 2013. On February 6, 2017, we announced that we have successfully completed our
self tender offer and, as contemplated in the offer to purchase, we have accepted for purchase all of the 1,435,217 shares tendered
for $1.50 per share, or approximately $2.15 million in the aggregate. The distribution of the dividend to shareholders and the
self tender offer were subject to deduction of applicable withholding taxes.
Our Board of Directors
has not adopted any dividend policy at this time, and any future dividend policy will be determined by our Board of Directors and
will be based upon conditions then existing, including our results of operations, financial condition, current and anticipated
cash needs, contractual restrictions and other conditions.
According to the Companies
Law, a company may distribute dividends only out of its “profits,” as such term is defined in the Companies Law, as
of the end of the most recent fiscal year or as accrued over a period of two years, whichever is higher. Our Board of Directors
is authorized to declare dividends, provided that there is no reasonable concern that payment of the dividend will prevent us from
satisfying our existing and foreseeable obligations as they become due. Notwithstanding the foregoing, dividends may be paid with
the approval of a court, provided that there is no reasonable concern that payment of the dividend will prevent us from satisfying
our existing and foreseeable obligations as they become due. Profits, for purposes of the Companies Law, means the greater of retained
earnings or earnings accumulated during the preceding two years, after deduction of previous distributions that were not already
deducted from the surpluses, as evidenced by financial statements prepared no more than six months prior to the date of distribution.
Except as otherwise
disclosed in this annual report, no significant change has occurred since December 31, 2019.
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ITEM 9.
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THE OFFER AND LISTING
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A.
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Offer and Listing Details
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Our ordinary shares
are currently quoted on the over-the-counter market in the Pink Open Market (also known as the Pink Sheets), or OTC Pink, which
is operated by OTC Markets Group, Inc. This means there may be limited liquidity for trading in our shares. See Item 3.D “Risk
Factors” under “The limited market for our shares may reduce their liquidity and make our stock price more volatile.
You may have difficulty selling your shares.”
Not applicable.
Our ordinary shares
began trading on the NASDAQ Global Market on December 2, 1999 under the symbol “MTLK”. In March 2009, our ordinary
shares were transferred to the NASDAQ Capital Market.
As of December 3, 2000,
our ordinary shares began trading also on the Tel Aviv Stock Exchange, or TASE, under the symbol “MTLK.” We voluntarily
delisted our ordinary shares from trade on the TASE, effective June 14, 2010.
On April 21, 2011,
our ordinary shares were delisted from The NASDAQ Capital Market and became quoted on the OTCQB under the symbol “MTLK”
and, since January 1, 2018, are quoted on the OTC Pink.
Not applicable.
Not applicable.
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F.
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Expenses of the Issue.
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Not applicable.
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ITEM 10.
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additional information
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Not applicable.
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B.
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Memorandum and Articles of Association
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Copies of our memorandum
of association and our articles of association are filed as Exhibits 1.1 and 1.2 to this annual report. The information called
for by this Item 10.B. is included in Exhibit 2.1 to this annual report and is incorporated herein by reference.
None
There are currently
no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or
the proceeds from the sale of our shares, except for the obligation of Israeli residents to file reports with the Bank of Israel
regarding some transactions. However, legislation remains in effect under which currency controls can be imposed by administrative
action at any time.
The ownership or voting
of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with
Israel, is not restricted in any way by our articles of association or by the laws of the State of Israel.
The following is a
brief summary of the current tax structure applicable to companies in Israel, with special reference to its effect on us and certain
Israeli Government programs benefiting us. The following also contains a discussion of material Israeli and United States tax consequences
to purchasers of our ordinary shares. To the extent that the discussion is based on new tax legislation which has not been subject
to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted
by the tax authorities in question of the courts. The discussion is not intended, and should not be construed, as legal or professional
tax advice.
Holders of our ordinary
shares are encouraged to consult their own tax advisors as to the United States, Israeli or other tax consequences of the purchase,
ownership and disposition of ordinary shares.
Israeli Tax
General Corporate
Tax
For a discussion of
the current corporate tax applicable to companies in Israel - see Item 5A “Operating Results – Corporate Tax Rate”
above.
Capital Gains Tax
Israeli law
generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes,
and on the sale of assets located in Israel by non-residents of Israel, including our ordinary shares, unless a specific exemption
is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law
distinguishes between the real gain and inflationary surplus. Real gain is the difference between the total capital gain and the
inflationary surplus. The inflationary surplus is computed on the basis of the difference between the Israeli consumer price index
or, in certain circumstances, a foreign currency exchange rate, on the date of sale and the date of purchase. The real gain is
the excess of the total capital gain over the inflationary surplus.
Provisions of Israeli
tax law may treat a sale of securities listed on a stock exchange differently than the sale of other securities. In the past, the
ITA has indicated that it does not recognize the OTC Bulletin Board or the OTC Pink as a “stock exchange” for purposes
of the Tax Ordinance. However, the ITA has indicated that it will view securities quoted on the OTC Bulletin Board or the OTC Pink
as listed on a “stock exchange” where such securities were previously delisted from a “stock exchange”
(such as the Nasdaq Capital Market), such as our ordinary shares.
Generally, as of January
1, 2012, the tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is
25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares,
in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “Significant
Shareholder” at any time during the 12-month period preceding such sale, i.e. such shareholder holds directly or indirectly,
including with others, at least 10% of any means of control in the company, the tax rate shall be 30%. However, the foregoing tax
rates will not apply to: (i) dealers in securities; and (ii) shareholders who acquired their shares prior to an initial public
offering (that may be subject to a different tax arrangement). Israeli Companies are subject to the Corporate Tax rate on capital
gains derived from the sale of listed shares.
The tax basis of our
shares acquired prior to January 1, 2003 will generally be determined in accordance with the average closing share price in the
three trading days preceding January 1, 2003. However, a request may be made to the tax authorities to consider the actual adjusted
cost of the shares as the tax basis if it is higher than such average price.
Shareholders that are
individuals who have taxable income that exceeds NIS 640,000 in a tax year (linked to the Israeli CPI each year) will be subject
to an additional tax, referred to as High Income Tax, at the rate of 3% on their taxable income for such tax year that is in excess
of such threshold. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable
income from dividend distributions.
Non-Israeli residents
are exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded on a recognized stock market
outside of Israel, provided that such capital gains are not derived from a permanent establishment in Israel and that such shareholders
did not acquire their shares prior to the issuer’s initial public offering. However, non-Israeli corporations will not be
entitled to such exemption if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation,
or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether
directly or indirectly.
In some instances where
our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject
to the withholding of Israeli tax at the source.
Application of the
U.S.-Israel Tax Treaty to Capital Gains Tax
Pursuant to the Convention
between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended
(the “U.S.-Israel Tax Treaty”), the sale, exchange or disposition of our ordinary shares by a person who qualifies
as a resident of the United States and is entitled to claim the benefits afforded to a resident, or a Treaty U.S. Resident, will
not be subject to Israeli capital gains tax unless (i) that Treaty U.S. Resident held, 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; or (ii) the
capital gains from such sale can be allocated to a permanent establishment in Israel; or (iii) such Treaty U.S. Resident is an
individual and was present in Israel for 183 days or more during the relevant taxable year. If any of these exceptions apply,
then the sale, exchange or disposition of our ordinary shares by a Treaty U.S. Resident will be subject to Israeli capital gains
tax, to the extent applicable. However, under the U.S.-Israel Tax Treaty, the Treaty U.S. Resident would be permitted to claim
credit for these taxes if required to be paid against U.S. income tax imposed with respect to such sale, exchange or disposition,
subject to the limitations set in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to state
or local taxes.
Taxation of Non-Residents
on Receipt of Dividends
On distributions of
dividends other than bonus shares, or stock dividends, income tax is withheld at the source. Non-residents of Israel are subject
to Israeli income tax on the receipt of dividends paid on our ordinary shares, at the rate of 25%, or 30% for a shareholder that
is considered a Significant Shareholder at any time during the 12-month period preceding such distribution, unless the dividends
are paid from income derived under certain tax incentive programs provided by Israeli tax law, or a different rate is provided
in a treaty between Israel and the shareholder’s country of residence. Under the U.S.-Israel Tax Treaty, the maximum tax
on dividends paid to a holder of our ordinary shares who is a Treaty U.S. Resident will be 25%. However, dividends paid from income
derived during any period for which the Israeli company is not entitled to the reduced tax rate applicable to tax incentive programs,
the maximum tax will be 12.5% if the holder is a U.S. company holding shares representing at least 10% of the issued voting power
during the part of the taxable year preceding the date of payment of dividends and during the whole of the prior taxable year,
and provided that not more than 25% of the Israeli company’s gross income consists of interest or dividends.
For information with
respect to the applicability of High Income Tax on distribution of dividends, see - “Capital Gains Tax” above.
United States Federal Income Tax Considerations
General
Subject
to the limitations described below, the following discussion describes the material U.S. federal income tax consequences to a U.S.
Holder (as defined below) that is a beneficial owner of our ordinary shares and that holds them as capital assets. For purposes
of this summary, a “U.S. Holder” is a beneficial owner of our ordinary shares who or that is for U.S. federal income
tax purposes:
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a citizen or individual resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal tax purposes) created or organized in the United States or under the law of the United States or of any State or the District of Columbia;
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an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
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a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) the trust was in existence on August 20, 1996 and properly elected to continue to be treated as a United States person.
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This summary
is not a comprehensive description of all of the tax considerations that may be relevant to each individual investor’s decision
to purchase, sell or hold ordinary shares. We recommend that owners of our ordinary shares consult their own tax advisers with
respect to the U.S. federal, state and local tax consequences, as well as non-U.S. tax consequences, of the acquisition, ownership
and disposition of our ordinary shares applicable to their particular tax situations.
This discussion is
based on current provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), current and proposed
U.S. Treasury regulations promulgated thereunder, and administrative and judicial decisions, as of the date hereof, all of which
are subject to change, possibly on a retroactive basis. This discussion does not address all aspects of U.S. federal income taxation
that may be relevant to any particular holder based on that holder’s individual circumstances. In particular, this discussion
does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to U.S. Holders
that are subject to special treatment, including:
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broker-dealers, including dealers in securities or currencies;
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taxpayers that have elected mark-to-market accounting;
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tax-exempt organizations;
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financial institutions or “financial services entities”;
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taxpayers who hold the ordinary shares as part of a straddle, “hedge”, constructive sale, “conversion transaction” or other risk reduction transaction;
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holders owning directly, indirectly or by attribution shares having at least ten percent of the total voting power of all our shares;
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taxpayers whose functional currency is not the U.S. dollar; and
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taxpayers who acquire our ordinary shares as compensation.
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This discussion does
not address any aspect of U.S. federal gift or estate tax or state or local tax laws. Additionally, the discussion does not consider
the tax treatment of partnerships or other entities treated as pass-throughs for U.S. federal income tax purposes or persons who
hold our ordinary shares through a partnership or other pass-through entity.
Material aspects of
U.S. federal income tax relevant to a Non-U.S. Holder are also discussed below. In general, a Non-U.S. Holder is a beneficial owner
of our ordinary shares who or that is for U.S. federal income tax purposes: (i) a nonresident alien individual, (ii) a corporation
(or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the law of a country
other than the United States or a political subdivision thereof or, (iii) an estate or trust that is not a U.S. Holder.
Each prospective
investor is advised to consult that person’s own tax adviser with respect to the specific tax consequences to that person
of purchasing, holding or disposing of our ordinary shares.
Taxation of Dividends
Paid on Ordinary Shares
In the event of dividend
distribution, and subject to the discussion of the passive foreign investment company, or PFIC, rules below, a U.S. Holder will
be required to include in gross income as a dividend the amount of any distribution paid on our ordinary shares, including any
Israeli taxes withheld from the amount paid, on the date the distribution is received to the extent the distribution is paid out
of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Distributions in excess
of those earnings and profits will be applied against and will reduce the U.S. Holder’s basis in the ordinary shares and,
to the extent in excess of that basis, will be treated as a gain from the sale or exchange of the ordinary shares. The legislation
until the end of 2010 provided that dividend income generally would be taxed to noncorporate taxpayers at the rates applicable
to long-term capital gains, provided certain holding period and other requirements (including a requirement that we are not a PFIC
in the year of the dividend or in the preceding year) are satisfied. Dividends received after 2010 will be taxable as ordinary
income.
Distributions out of
current or accumulated earnings and profits paid in foreign currency to a U.S. Holder will be includible in the income of the U.S.
Holder in a U.S. dollar amount calculated by reference to the exchange rate on the date the distribution is received. A U.S. Holder
that receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt will have
foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar,
which will generally be U.S. source ordinary income or loss.
U.S. Holders will have
the option of claiming the amount of any Israeli income taxes withheld at source either as a deduction from gross income or as
a dollar-for-dollar credit against their U.S. federal income tax liability. Individuals who do not claim itemized deductions, but
instead utilize the standard deduction, may not claim a deduction for the amount of any Israeli income taxes withheld, but those
individuals may still claim a credit against their U.S. federal income tax liability. The amount of foreign income taxes that may
be claimed as a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual
basis by each shareholder. The total amount of allowable foreign tax credits in any year cannot exceed the pre-credit U.S. tax
liability for the year attributable to foreign source taxable income.
A U.S. Holder will
be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on the ordinary shares:
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if the U.S. Holder has not held the ordinary shares for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date; or
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to the extent the U.S. Holder is under an obligation to make related payments on substantially similar or related property.
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Any days during which
a U.S. Holder has substantially diminished his or its risk of loss on the ordinary shares are not counted toward meeting the 16-day
holding period required by the statute. In addition, distributions of current or accumulated earnings and profits generally will
be foreign source passive income for U.S. foreign tax credit purposes and will not qualify for the dividends received deduction
otherwise available to corporations.
Taxation of the
Disposition of Ordinary Shares
Subject to the discussion
of the PFIC rules below, upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder will recognize capital
gain or loss in an amount equal to the difference between that U.S. Holder’s basis in the ordinary shares, which is usually
the U.S. dollar cost of those shares, and the amount realized on the disposition. A disposition of the ordinary shares will be
considered to occur on the “trade date”, regardless of the U.S. Holder’s method of accounting. A U.S. Holder
that uses the cash method of accounting calculates the U.S. dollar value of the proceeds received on the sale as of the date that
the sale settles. However, a U.S. Holder that uses an accrual method of accounting is required to calculate the value of the proceeds
of the sale as of the “trade date” and may therefore realize foreign currency gain or loss, unless that U.S. Holder
has elected to use the settlement date to determine its proceeds of sale for purposes of calculating that foreign currency gain
or loss. Capital gain from the sale, exchange or other disposition of the ordinary shares held more than one year is long-term
capital gain. Long-term capital gains of noncorporate taxpayers are eligible for reduced rates of taxation.
Gain or loss recognized
by a U.S. Holder on a sale, exchange or other disposition of our ordinary shares generally is treated under the U.S. Internal Revenue
Code as U.S. source income or loss for U.S. foreign tax credit purposes, and thus a U.S. Holder ordinarily would not be entitled
to claim a foreign tax credit for taxes paid to Israel with respect to gains. However, under the U.S.- Israel Tax Treaty, gains
derived from the sale, exchange or other disposition of our ordinary shares generally are considered to be from Israeli sources
if the sale, exchange or other disposition occurs in Israel, and a U.S. Holder who is entitled to claim the benefits of that treaty
is permitted to claim a foreign tax credit for taxes paid to Israel with respect to the sale, exchange or disposition, subject
to the limitations on foreign tax credits under U.S. federal income tax law. The U.S. Israel Tax Treaty does not relate to state
or local taxes. (See Israeli Tax - Application of the U.S.- Israel Tax Treaty to Capital Gains Tax).
The deductibility of
a capital loss recognized on the sale, exchange or other disposition of the ordinary shares is subject to limitations. In addition,
a U.S. Holder that receives foreign currency upon disposition of the ordinary shares and converts the foreign currency into U.S.
dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of
the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
Passive Foreign
Investment Company Considerations
If we are characterized
as a PFIC for U.S. federal income tax purposes, adverse tax consequences can arise for our shareholders. Generally a foreign corporation
is treated as a PFIC if either (i) 75 percent or more of its gross income in a taxable year, including the pro-rata share of the
gross income of any company, U.S. or foreign, in which that corporation is considered to own 25 percent or more by value of the
shares, is passive income, or (ii) 50 percent or more of its assets in a taxable year, averaged over the year and ordinarily determined
based on quarter-end fair market values and including the pro-rata share of the assets of any company in which that corporation
is considered to own 25 percent or more by value of the shares, produce, or, are held for the production of, passive income. In
general, passive income for this purpose means, with certain designated exceptions, dividends, interest, rents, royalties (other
than certain rents and royalties derived in the active conduct of trade or business), annuities, net gains from dispositions of
certain assets, net foreign currency gains, income equivalent to interest, income from notional principal contracts and payments
in lieu of dividends.
We believe that we
satisfied the test to be a PFIC in 2001, 2002 and 2003 but not in 2004 – 2019. Although we will endeavor to avoid characterization
as a PFIC in the future, we may not be able to do so. Although the Code contains an exception to PFIC classification for certain
corporations that change their business, that exception is not available to a corporation that was, as we were, a PFIC in any prior
taxable year.
The determination of
whether a foreign corporation is a PFIC is a factual determination made annually and is therefore subject to change. However, once
stock in a foreign corporation is stock in a PFIC in the hands of a particular shareholder that is a United States person, it remains
stock in a PFIC in the hands of that shareholder, even if in later taxable years the foreign corporation ceases to satisfy the
test to be a PFIC, unless the shareholder makes any of certain elections. As described below, those elections include a “qualified
electing fund”, or QEF, election and a mark-to-market election.
A U.S. Holder who is
subject to the PFIC rules and who does not make a QEF election or a mark to-market election will be subject to the following rules:
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gain recognized by the U.S. Holder upon the disposition of, as well as income recognized upon receiving certain dividends on, the ordinary shares will be taxable as ordinary income;
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the U.S. Holder will be required to allocate that dividend income and/or disposition gain ratably over the shareholder’s entire holding period for the ordinary shares;
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the amount allocated to each year other than the year of the dividend payment or disposition will be subject to tax at the highest applicable tax rate, and an interest charge will be imposed with respect to the resulting tax liability;
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the U.S. Holder will be subject to information reporting requirements each year and will be required to report distributions received on, and gain recognized on dispositions of, our shares; and
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any U.S. Holder who acquired our ordinary shares upon the death of a shareholder will not receive a step-up in the tax basis of those shares to fair market value but instead, the U.S. Holder beneficiary will have a tax basis equal to the decedent’s basis, if lower.
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In the case of a U.S.
Holder that made, or, as described below, is treated as having made, a QEF election for the first taxable year the U.S. Holder
owns our ordinary shares and we are a PFIC (that taxable year hereafter being referred to as the “First PFIC Year”),
the following U.S. federal income tax consequences will arise:
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the U.S. Holder will be required for each taxable year in which we are a PFIC to include in income a pro-rata share of our (i) net ordinary earnings as ordinary income (which income is not eligible for any 15 percent maximum tax rate applicable to certain dividends) and (ii) net capital gain as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge.
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the U.S. Holder will not be required under these rules to include any amount in income for any taxable year during which we do not have net ordinary earnings or capital gains; and
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the U.S. Holder will not be required under these rules to include any amount in income for any taxable year for which we are not a PFIC.
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The QEF election is
made on a shareholder-by-shareholder basis and can be revoked only with the consent of the IRS. A QEF election applies to all shares
of the PFIC held or subsequently acquired by an electing U.S holder. A shareholder makes a QEF election by attaching a completed
IRS Form 8621, including the PFIC annual information statement, to a timely filed U.S. federal income tax return and by filing
that form with the IRS Service Center in Philadelphia, Pennsylvania. Continuation of a QEF election requires ongoing annual filing
of the PFIC annual information statement that we provide. Even if a QEF election is not made, a shareholder in a PFIC who is a
United States person must satisfy information reporting requirements to the IRS every year. During January 2002, 2003 and 2004,
we sent to our shareholders the required information to report income and gain under a QEF election – a “PFIC Annual
Information Statement” for the years 2001, 2002, and 2003, respectively.
We did not have net
ordinary earnings or net capital gain for our 2001-2003 taxable years. Therefore, any U.S. Holder who made a timely QEF election
for those periods was not required to include any amount in income in those years as a result of that election.
Alternatively, provided
our ordinary shares qualify as marketable stock, a U.S. Holder can elect to mark our ordinary shares to market annually, recognizing
as ordinary income or loss each year that we are a PFIC and the U.S. Holder either holds or disposes of the shares, an amount equal
to the difference between the U.S. Holder’s adjusted tax basis in our ordinary shares and their fair market value or amount
realized. Losses would be allowed only to the extent of net mark-to-market gain included in income by the U.S. Holder for prior
taxable years pursuant to the mark-to-market election. As with the QEF election, a U.S. Holder who makes a mark-to-market election
with respect to our shares would not be subject to deemed ratable allocations of distributions or gain, the interest charge, or
the denial of basis step-up at death described above (except for the first year that the election applies, if that is not the first
PFIC Year). We believe that our shares should be treated as marketable stock for purposes of this mark-to-market election. Subject
to our shares not being or ceasing to be marketable, a mark-to-market election is irrevocable without the consent of the IRS.
As noted above, once
stock in a foreign corporation is stock in a PFIC in the hands of a particular U.S. shareholder, it remains stock in a PFIC in
the hands of that shareholder, even if in later taxable years the foreign corporation ceases to satisfy the test to be a PFIC,
unless the shareholder makes a QEF election for the First PFIC Year makes or the mark-to-market election.
If a U.S. shareholder
makes a QEF election for the First PFIC Year, and if in any later year the foreign corporation does not satisfy the test to be
a PFIC, the PFIC rules do not apply to the stock of the foreign corporation owned by that shareholder in that year. However, if
the foreign corporation subsequently becomes a PFIC in a later taxable year, the QEF rules once again will apply to that stock.
A U.S. shareholder who or that did not make a QEF election in the First PFIC Year may make a QEF election in a later taxable year,
and if the U.S. shareholder also makes another election, sometimes called a “purging” election, pursuant to which the
U.S. shareholder may be required to pay additional tax and interest, the U.S. shareholder will be treated as having made a QEF
election in the First PFIC Year.
If a U.S. shareholder
makes the mark-to-market election for the stock in a PFIC, the stock will cease to be stock in a PFIC in any later year the foreign
corporation does not satisfy the test to be a PFIC. However, if the foreign corporation subsequently becomes a PFIC in a later
taxable year, the mark-to-market rules once again will apply to that stock. If a United States person makes a mark-to-market election
after the First PFIC Year, his or its mark-to-market gain, if any, will be subject to the PFIC rules that apply when there is
no special election, described above, but those rules will not thereafter apply in subsequent taxable years.
We believe that we
satisfied the test to be a PFIC in 2001, 2002, 2003, 2016, 2017, 2018 and 2019, but not in 2004-2015. In that event, based on the
rules described above, in the hands of any U.S. Holder that owned our ordinary shares in 2001, 2002 or 2003 and that has made,
or is treated as having made, a QEF election for the First PFIC Year or that has made a mark-to-market election, our ordinary shares
will not be shares in a PFIC in any year after 2003 in which we do not satisfy the test to be a PFIC. In addition, any U.S. Holder
that acquired our ordinary shares in 2004, (or in a later year, if any, in which we were or are not a PFIC) will not be subject
to the PFIC rules, unless in a subsequent year we again satisfy the test to be a PFIC. However, any U.S. Holder that owned our
ordinary shares in 2001, 2002 or 2003 (or any later year we are a PFIC) and did not and does not make a QEF election effective
for the First PFIC Year and has not made and does not make a mark-to-market election will remain subject to the PFIC rules that
apply when no special election is in effect.
The U.S federal
income tax rules relating to PFIC are complex. U.S. Holders of our shares are strongly urged to consult their tax advisers about
the PFIC rules, including the availability, advisability and timing of, and procedure for, making a QEF or mark-to-market election
with respect to their holding of our ordinary shares, including warrants or rights to acquire our ordinary shares.
Tax Consequences
for Non-U.S. Holders of Ordinary Shares
Except as described
in “U.S. Information Reporting and Backup Withholding” below, a Non-U.S. Holder who is a beneficial owner of our ordinary
shares will not be subject to U.S. federal income or withholding tax on the payment of dividends on, or the proceeds from the disposition
of, the ordinary shares, unless:
|
|
●
|
that item is effectively connected with the conduct by the Non-U.S. Holder of trade or business in the United States and, in the case of a resident of a country which has a treaty with the United States, that item is attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United States;
|
|
|
●
|
the Non-U.S. Holder is an individual who holds the ordinary shares as capital assets and is present in the United States for 183 days or more in the taxable year of the disposition and does not qualify for an exemption; or
|
|
|
●
|
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to U.S. expatriates.
|
U.S. Information
Reporting and Backup Withholding
U.S. Holders generally
are subject to information reporting requirements with respect to dividends paid in the United States on our ordinary shares. In
addition, U.S. Holders are subject to U.S. backup withholding at a rate of 28 percent on dividends paid in the United States on
the ordinary shares unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption. U.S. Holders are subject
to information reporting and backup withholding at a rate of 28 percent on proceeds paid from the sale, exchange, redemption or
other disposition of the ordinary shares unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption.
Non-U.S. Holders generally
are not subject to information reporting or backup withholding with respect to dividends paid on, or proceeds from the sale, exchange,
redemption or other disposition of, the ordinary shares, provided that the Non-U.S. Holders provide a taxpayer identification number,
certify to their foreign status or otherwise establish an exemption.
The amount of any backup
withholding will be allowed as a credit against the U.S. Holder’s or Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the holder to a refund, provided that the required information is timely furnished to the U.S. Internal Revenue
Service.
|
F.
|
Dividends and Paying Agents
|
Not applicable.
|
G.
|
Statements by Experts.
|
Not applicable.
We are subject to the
informational requirements of the Exchange Act applicable to foreign private issuers and fulfill our obligations with respect to
such requirements by filing reports with the SEC.
As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and “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 periodic reports and
financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under
the Exchange Act. Notwithstanding the foregoing, we solicit proxies and furnish proxy statements for all meetings of shareholders,
a copy of which proxy statement is furnished promptly thereafter with the SEC under the cover of a Current Report on Form 6-K.
This annual report
and the exhibits thereto and any other document we file pursuant to the Exchange Act are available on the SEC Internet site (http://www.sec.gov).
The documents concerning our Company which are referred to in this annual report may also be inspected at our offices located at
c/o Top Alpha Capital Ltd., Haaliya 24, Beit-Yitzhak 4292000, Israel.
|
ITEM 11.
|
Quantitative and qualitative disclosures about market risk
|
Foreign Currency Risk
All of our sales were
made in US dollars. In addition, a substantial portion of our costs is incurred in dollars. Since the dollar is the primary currency
of the economic environment in which we operate, the dollar is our functional currency, and accordingly, monetary accounts maintained
in currencies other than the dollar (principally cash and cash equivalents, short-term deposits and liabilities) are remeasured
using the foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured
and recorded at the rate in effect at the date of the transaction. The effect of foreign currency remeasurement is reported in
current operations.
Since 2008, we have
not engaged in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest
rate fluctuations.
For additional qualitative
disclosure, see Item 5 – “Impact of Inflation and Foreign Currency Fluctuations”.
Interest Rate Risk
Historically, our exposure
to market risk with respect to changes in interest rates related primarily to our short- and long-term investments and borrowings.
At present, we do not have any short-term or long-term investments and borrowings.
|
ITEM 12.
|
description of securities other than equity securities
|
Not applicable.
NOTES TO FINANCIAL STATEMENTS
(US dollars in thousands, except share
and per share data)
NOTE 1 - GENERAL
Metalink Ltd. (the “Company”)
is an Israeli company, which until the sale of its WLAN operations in
February 2010 was engaged in the WLAN business and since then, conducted only limited business activities related to its
DSL business, which, since March 2016, it no longer conducts. In February 2017, the Company completed its self-tender offer and
purchased approximately 53.3% of the shares outstanding as of immediately prior to the consummation of the tender offer, for $1.50
per share, or approximately $2.15 million in aggregate. The Company’s current plan of operation is to consider strategic alternatives,
including a possible business combination, other strategic transaction with a domestic or foreign, private or public operating
entity or a “going private” transaction, including with any of its affiliates, and, to a limited extent, voluntary liquidation.
NOTE 2 - SIGNIFICANT ACCOUNTING
POLICIES
The financial statements have been
prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
|
|
A.
|
Use of Estimates in Preparation of Financial Statements
|
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from those estimates.
|
|
B.
|
Financial Statements in U.S. Dollars
|
The reporting currency of the Company
is the U.S. dollar (“dollar” or “$”). The currency of the primary economic environment in which the operations
of the Company are conducted is the dollar, and the dollar has been determined to be the Company’s functional currency.
Transactions and balances originally
denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been re-measured into
dollars in accordance with the principles set forth in Accounting Standards Codification (“ASC”) No. 830 (“Foreign
Currency Matters”). All exchange gains and losses from re-measurement of monetary balance sheet items resulting from transactions
in non-dollar currencies are reflected in the statements of operations as they arise.
Cash equivalents consist of short-term,
highly liquid investments that are readily convertible into cash with original maturities when purchased of three months or less.
METALINK LTD.
NOTES TO FINANCIAL STATEMENTS
(US dollars in thousands, except share
and per share data)
NOTE 2 - SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
|
D.
|
Net Profit (Loss) Per Ordinary Share
|
Basic and diluted net profit (loss)
per share have been computed in accordance with ASC No. 260-10 (formerly SFAS No. 128, “Earnings per Share”) using
the weighted average number of ordinary shares outstanding. Basic profit (loss) per share excludes any dilutive effect of options
and warrants.
|
|
E.
|
Stock-based compensation
|
The Company applies
ASC No. 718-10 (formerly SFAS No. 123(R), “Share Based Payment”). The Company’s net profit (loss) for
the years ended December 31, 2019, 2018 and 2017 includes $0 of compensation expenses related to the Company’s share-based
compensation awards, respectively.
For purposes
of estimating fair value in, the Company utilized the Black-Scholes option-pricing model.
The Company determined
the risk-free interest rate in accordance with ASC No. 718-10. The Company uses U.S. treasury zero-coupon issues with remaining
time equal the expected term.
|
|
F.
|
Equity instruments issued to other than employees for acquiring, or
in conjunction with selling goods or services
|
The Company applies ASC No.
505-50 (formerly EITF 96-18), (“accounting for equity instruments issued to other than employees for acquiring, or in conjunction
with selling, goods or services”). The Company’s compensation expenses related to the Company’s equity-based
compensation awards for the year ended December 2019, 2018 and 2017 were $0.
|
|
G.
|
Concentrations of Credit Risk
|
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, marketable
securities and trade receivables.
|
|
(i)
|
As of December 31, 2019, the Company had cash and cash equivalents that totaled to $12 and short-term
deposits totaling to $1,919 all of which are deposited in a major Israeli financial institution. As of December 31, 2018, the Company
had cash and cash equivalents that totaled to $24 and short-term deposits totaling to $1,902 all of which were deposited in a major
Israeli financial institution. Management believes that the financial institutions holding the Company’s cash and cash equivalents
and its deposits are financially sound.
|
|
|
H.
|
Fair Value of Financial Instruments
|
The financial instruments of the
Company consist mainly of cash and cash equivalents, deposits, accounts payable and accruals. In view of their nature, the fair
value of the financial instruments included in working capital of the Company is usually identical or substantially similar to
their carrying amounts.
METALINK LTD.
NOTES TO FINANCIAL STATEMENTS
(US dollars in thousands, except share
and per share data)
NOTE 3 - COMMITMENTS
AND CONTINGENT LIABILITIES
In August 30, 2011, the Company
received a letter from Tmura Fund, operating within the Israel Innovation Authority (formerly known as the Office of the Chief
Scientist) of the Israeli Ministry of Economy) (the “IAA”) according to which - the Company is required to pay the IAA
a sum of $247 for royalties on the basis of income derived from the sale of the WLAN business to Lantiq.
On September 15, 2011 the Company
replied that it disagrees with the IAA position.
Until this day, the disagreement
has not been resolved. The Company is of the opinion that the demand has no merits and intends to vigorously defend its case. The
Company recorded a provision, included in other payables and accrued expenses, intended for legal claims against the Company, including
the above mentioned demand dated August 30, 2011, which the Company’s management believes is sufficient under the circumstances.
NOTE 4 - SHARE CAPITAL -
Stock
Options
|
|
(i)
|
In January 2012, the Company granted its former CEO, Tzvika Shukhman, options to purchase up to
100,000 ordinary shares of Metalink, in accordance with the following terms: (i) exercise price equal to $1.50 per share; (ii)
the options vested fully on December 31, 2013; (iii) the options expiration date is set 10 years from date of grant, i.e. December
31, 2021; and (iv) all other terms and conditions in connection with the above options shall be as set forth in the Company’s stock
option plan. Those options are treated as equity instruments issued to other than employees.
|
|
|
(ii)
|
During 2012, the Board of Directors decided to grant its former director, Hudi Zak, options to
purchase up to 12,500 ordinary shares of Metalink, in accordance with the following terms: (i) exercise price equal to $1.50 per
share; (ii) the options are all fully vested upon the grant; (iii) the options expiration date is set 10 years from date of grant;
and (iv) all other terms and conditions in connection with the above options shall be as set forth in the Company’s stock option
plan.
|
A summary of the status of the
Company’s stock option plans to employees and directors of the Company as of December 31, 2019, 2018 and 2017 and changes during
the years then ended are as follows:
METALINK LTD.
NOTES TO FINANCIAL STATEMENTS
(US dollars in thousands, except share
and per share data)
NOTE 4 - SHARE CAPITAL
(Cont.)
Stock
Options (Cont.)
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Options outstanding at beginning of year
|
|
|
112,500
|
|
|
|
-
|
|
|
|
112,500
|
|
|
|
-
|
|
|
|
112,500
|
|
|
|
-
|
|
|
Granted during year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited during year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised during year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
112,500
|
|
|
|
1.5
|
|
|
|
112,500
|
|
|
|
1.5
|
|
|
|
112,500
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
112,500
|
|
|
|
1.5
|
|
|
|
112,500
|
|
|
|
1.5
|
|
|
|
112,500
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value of options & RSU granted during year
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited average intrinsic value during year
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Exercised average intrinsic value during year
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
METALINK LTD.
NOTES TO FINANCIAL STATEMENTS
(US dollars in thousands, except share
and per share data)
NOTE 5 - TAXES ON INCOME
|
|
A.
|
Taxation under Various Laws
|
|
|
(i)
|
The Company is assessed under the provisions of the Israeli Income Tax Ordinance.
|
|
|
(ii)
|
Income derived from sources other than the “Approved Enterprise” is taxable at the ordinary
corporate tax rate of 23% in 2019 and 2018 (regular “Company Tax”).
|
|
|
B.
|
Reconciliation of Income Taxes
|
The following is a reconciliation
of the taxes on income assuming that all income is taxed at the ordinary statutory corporate tax rate in Israel and the effective
income tax rate:
|
|
|
Year ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
Net profit (loss) as reported in the statements of operations
|
|
|
4
|
|
|
|
(35
|
)
|
|
|
(190
|
)
|
|
Statutory tax rate
|
|
|
23.0
|
%
|
|
|
23.0
|
%
|
|
|
24.0
|
%
|
|
Income Tax under statutory tax rate
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less full valuation allowance
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
METALINK LTD.
NOTES TO FINANCIAL STATEMENTS
(US dollars in thousands, except share
and per share data)
NOTE 5 - TAXES ON INCOME
(Cont.)
Under ASC 740-10 deferred tax assets
are to be recognized for the anticipated tax benefits associated with net operating loss carry forwards and deductible temporary
differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment
is made by a valuation allowance.
Since the realization of the net
operating loss carry forwards and deductible temporary differences is less likely than not, a valuation allowance has been established
for the full amount of the tax benefits.
Tax losses carried forward of the
Company are $209 million (NIS 724 million) for December 2017, $193 million (NIS 724 million) for December 2018 and expected to
be $210 million (NIS 724 million) for December 2019. This loss is unlimited in duration and denominated in nominal NIS (the dollar
balance translated according to the exchange rate at yearend, and therefore fluctuates significantly through the periods).
The Company has not received final
tax assessments for income tax purposes since incorporation. However, according to Israeli tax laws assessments considered final
until and including the year ended in 2014.
NOTE 6 - SUPPLEMENTARY
BALANCE SHEET INFORMATION
Other Payables and Accrued
Expenses
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Payroll and related amounts
|
|
|
0
|
|
|
|
0
|
|
|
Accrued expenses
|
|
|
142
|
|
|
|
141
|
|
|
|
|
|
142
|
|
|
|
141
|
|