UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F
 
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019
 
OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________
 
OR

☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report.
 
Commission file number: 0-15375
 
RADA ELECTRONIC INDUSTRIES LTD.
(Exact name of Registrant as specified in its charter
and translation of Registrant’s name Into English)
 
Israel
(Jurisdiction of incorporation or organization)
 
7 Giborei Israel Street, Netanya 4250407, Israel
(Address of principal executive offices)
 
Avi Israel, CFO
+972 9 892 1122 (phone), + 972 9 885 5885 (fax)
7 Giborei Israel Street, Netanya 4250407, Israel
(Name, telephone, facsimile number and address of company contact person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Ordinary Shares, NIS 0.03 Par Value
  
RADA
  
Nasdaq Capital Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 38,456,693 Ordinary Shares (As of 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.
 
Large accelerated filer ☐
Accelerated filer ☒
  
Emerging growth company ☐
Non-accelerated filer ☐
  
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
 
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP ☒
International Financial Reporting Standards
as issued by the International Accounting
Standards Board ☐
Other ☐
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
 
Item 17 ☐     Item 18 ☐
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ☐     No ☒
 
This annual report on Form 20-F is incorporated by reference into the registrant’s Registration Statements on Form F-3 File Nos. 333-220304, 333-226387 and 333-226845, and Form S-8 Registration Statement File No. 333-212284.
 
ii
 
 
INTRODUCTION
 
We are an Israel based defense electronics company. We specialize in the development, manufacture, marketing and sales of tactical land radars for defense forces and for critical infrastructure protection applications, and military avionics for manned and unmanned aircraft.
 
Our shares are traded on the NASDAQ Capital Market under the symbol “RADA.” As used in this annual report, the terms “we,” “us” and “our” mean RADA Electronic Industries Ltd. and its subsidiaries, unless otherwise indicated.
 
Our consolidated financial statements appearing in this annual report are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. All references in this annual report to “dollars” or “$” are to U.S. dollars and all references in this annual report to “NIS” are to New Israeli Shekels.
 
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 previous filing with the Securities and Exchange Commission, or the SEC, you may read the document itself for a complete recitation of its terms.
 
Except for the historical information contained in this annual report, the statements contained in this annual report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider that statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,” “plan,” “intend,” “estimate,” and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Such forward-looking statements are also included in Item 4 – “Information on the Company” and Item 5 – “Operating and Financial Review and Prospects.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 3D. “Key Information - Risk Factors.”
 
iii
 
TABLE OF CONTENTS
 
 
 
 
Page No.
PART I
 
1
 
 
 
 
1
1
1
 
A.
Selected Financial Data
1
 
B.
Capitalization and Indebtedness
2
 
C.
Reasons for the Offer and Use of Proceeds
2
 
D.
Risk Factors
2
13
 
A.
History and Development of the Company
13
 
B.
Business Overview
13
 
C.
Organizational Structure
21
 
D.
Property, Plants and Equipment
21
21
21
 
A.
Operating Results
21
 
B.
Liquidity and Capital Resources
27
 
C.
Research and Development, Patents and Licenses
30
 
D.
Trend Information
30
 
E.
Off-Balance Sheet Arrangements
30
 
F.
Tabular Disclosure of Contractual Obligations
30
31
 
A.
Directors and Senior Management
31
 
B.
Compensation
35
 
C.
Board Practices
36
 
D.
Employees
44
 
E.
Share Ownership
45
46
 
A.
Major Shareholders
46
 
B.
Related Party Transactions
48
 
C.
Interests of Experts and Counsel
49
49
 
A.
Consolidated Statements and Other Financial Information
49
 
B.
Significant Changes
49
49
 
A.
Offer and Listing Details
49
 
B.
Plan of Distribution
49
 
C.
Markets
50
 
D.
Selling Shareholders
50
 
E.
Dilution
50
 
F.
Expense of the Issue
50
50
 
A.
Share Capital
50
 
B.
Memorandum and Articles of Association
50
 
C.
Material Contracts
51
 
D.
Exchange Controls
51
 
E.
Taxation
51
 
F.
Dividend and Paying Agents
61
 
G.
Statement by Experts
61
 
H.
Documents on Display
61
 
I.
Subsidiary Information
62
62
62
 
iv

PART II
 
63
 
 
 
 
63
63
63
63
63
64
64
64
64
65
65
65
 
 
 
PART III
 
66
 
 
 
 
66
66
66
 
v

PART I
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.
KEY INFORMATION
 
A. Selected Financial Data
 
We derived the following consolidated statements of operations data for the years ended December 31, 2017, 2018 and 2019 and the consolidated balance sheet data as of December 31, 2018 and 2019 from our audited consolidated financial statements, included elsewhere in this annual report. We derived the consolidated statements of operations data for the years ended December 31, 2015 and 2016, and the consolidated balance sheet data as of December 31, 2015, 2016 and 2017 from our audited consolidated financial statements that are not included in this annual report. (See Item 4A. “Discontinued Operations”).
 
 
  
Year Ended December 31,
  
 
  
2015
    
2016
    
2017
    
2018
    
2019
  
 
  
(U.S. dollars in thousands)
  
Revenues
  
$
14,074
    
$
12,821
    
$
26,182
    
$
28,032
    
$
44,331
  
Cost of revenues
    
11,665
      
11,379
      
17,841
      
17,817
      
28,394
  
Gross profit
    
2,409
      
1,442
      
8,341
      
10,215
      
15,937
  
Research and development, net
    
693
      
758
      
1,653
      
3,189
      
6,912
  
Marketing and selling
    
2,357
      
2,269
      
2,137
      
2,860
      
4,044
  
General and administrative
    
1,513
      
1,814
      
2,568
      
4,001
      
7,084
  
Goodwill impairment
    
587
      
-
      
-
      
-
          
Net loss from sale of fixed assets
    
-
      
-
      
-
      
103
      
-
  
Operating income (loss)
    
(2,741
)
    
(3,399
)
    
1,983
      
62
      
(2,103
)
Financial (income) expense, net
    
3,577
      
1,521
      
156
      
(119
)
    
121
  
Net income (loss) from continuing operations
    
(6,318
)
    
(4,920
)
    
1,827
      
181
      
(2,224
)
Net income (loss) from discontinued operations
    
(179
)
    
13
      
515
      
(404
 )
   
(115
)
Net income (loss)
    
(6,497
)
    
(4,907
)
    
2,342
      
(223
)
    
(2,339
)
Net income (loss) attributable to non-controlling interest from discontinued operations
    
(36
)
    
3
      
103
      
(386
)
    
(309
)
Net income (loss) attributable to RADA Electronic Industries’ shareholders
  
$
(6,461
)
  
$
(4,910
)
  
$
2,239
    
$
163
    
$
(2,030
)
Basic net income (loss) per Ordinary share attributable for RADA Electronic Industries’ shareholders
  
$
(0.53
)
  
$
(0.35
)
  
$
0.07
    
$
0.02
    
$
(0.05
)
Diluted net income (loss) per Ordinary share attributable for RADA Electronic Industries’ shareholders
  
$
(0.53
)
  
$
(0.35
)
  
$
0.06
    
$
0.02
    
$
(0.05
)
Weighted average number of shares used to compute basic net income (loss) per share
    
11,904
      
14,029
      
24,957
      
33,185
      
38,149
  
Weighted average number of shares used to compute diluted net income (loss) per share
    
11,904
      
14,029
      
28,127
      
33,717
      
38,841
  

1
 
 
  
As of December 31,
  
 
  
2015
    
2016
    
2017
    
2018
    
2019
  
 
  
(U.S. dollars in thousands)
  
BALANCE SHEET DATA:
                              
Working capital
  
$
6,522
    
$
11,106
    
$
25,641
    
$
37,840
    
$
31,805
  
Total assets
    
18,576
      
20,987
      
36,030
      
53,502
      
64,915
  
Short-term credits and current maturities of long-term loans
    
-
      
-
      
-
      
-
          
Convertible note - short term
    
3,090
      
3,175
      
-
      
-
          
Shareholders’ equity (Excluding Non-controlling interest)
  
$
8,507
    
$
10,516
    
$
28,526
    
$
42,213
    
$
41,420
  
 
B. Capitalization and Indebtedness
 
Not applicable.
 
C. Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
D. Risk Factors
 
Investing in our Ordinary Shares involves a high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing in our Ordinary Shares. Our business, prospects, financial condition and results of operations could be adversely affected due to any of the following risks. In that case, the value of our Ordinary Shares could decline, and you could lose all or part of your investment.
 
Risks Related to Our Business and Our Industry
 
We have a history of operating losses and may not be able to sustain profitable operations in the future. To the extent that we incur operating losses in the future, we may not have sufficient working capital to fund our operations.
 
We incurred operating losses in three of the five years ended December 31, 2019 and may not be able to achieve or sustain profitable operations in the future or generate positive cash flows from operations. As of December 31, 2019, our accumulated deficit was $79 million, and we had cash, cash equivalents and short-term bank deposits of $13.8 million, compared to cash, cash equivalents and short-term bank deposits of $20.8 million as of December 31, 2018. Based on our current operations, we believe our existing funds will be sufficient to fund our operations in 2020. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or if available, may not be on terms satisfactory to us. If adequate funds are not available to us, our business, and results of operations and financial condition will be adversely affected.

2
 
While we have met with initial success in the introduction of our advanced ground radars for tactical applications such as defense forces protection and border protection, there can be no assurance that we will succeed in obtaining general market acceptance or that we will ever recover our investment in this new product family.
 
We have developed a number of radar hardware platforms for use in combat vehicles and tactical protection applications for defense forces and border protection. In December 2014, we announced the first significant order for this product family and while we have been successful in marketing our ground radar products since then, we cannot assure you that our ground radars will achieve broad market acceptance.
  
We may be required to obtain financing for strategic opportunities, which financing may not be available for us in a timely manner or on favorable terms, and which may dilute the holdings of our shareholders and/or require us to incur additional debt.
 
In order to invest in strategic opportunities in support of our growth plans and/or business development activities, we may be required to obtain funds from financing sources, including through debt vehicles or re-financing, sale of new securities or other financing alternatives. There is no assurance that we will be able to obtain sufficient funding, if at all, from the financing sources detailed above or other sources in a timely manner (or on commercially reasonable terms) in order to allow us to fund our growth plans and/or business development activities, which may adversely affect our financial position and operations, may dilute the holdings of our shareholders or require us to incur additional debt.

Due to inaccurate forecasts, mistakes or business changes, we may be exposed to inventory-related losses on inventory we purchased in advance and part of our inventory may be written off, which would increase our cost of revenues.

We normally purchase more inventory than is immediately required in order to shorten our delivery time especially in the event of an increase in demand for our products. If the actual orders from our customers are lower than projected or if we decide to change our product line or our product support strategy, we will have excess inventory of components or finished products. Our inventory levels may be too high, and inventory may become obsolete or over-stated on our balance sheet. Our inventory of finished products may accumulate. The rate of accumulation may increase in a period of economic downturn. This would require us to write off inventory, which could adversely affect our gross profit and results of operation.

Competition in the market for defense electronics is intense. Our products may not achieve market acceptance, which could adversely affect our business, financial condition and results of operations.
 
The market for our products is highly competitive and we may not be able to compete effectively in our market. Our principal competitors in the defense electronics market, include Israel Aerospace Industries Ltd., or IAI, Raytheon Company, Northrop Grumman Corporation, Thales Group, and SRC Inc. We expect to continue to face competition from these and other competitors. Most of our competitors are larger and have substantially greater resources than us, including financial, technological, marketing and distribution capabilities, and enjoy greater market recognition than we do. These competitors are able to achieve greater economies of scale and may be less vulnerable to price competition than us. We may not be able to offer our products as part of integrated systems to the same extent as our competitors or successfully develop or introduce new products that are more cost effective or offer better performance than those of our competitors. Failure to do so could adversely affect our business, financial condition and results of operations.
 
We may not be able to implement our growth strategy which could adversely affect our business, financial condition and results of operations.
 
In line with our growth strategy, we entered into a number of strategic relationships with Embraer S.A., or Embraer, Hindustan Aeronautics Ltd., or HAL, IAI, Lockheed Martin Corporation, or Lockheed Martin, Boeing Defense, Space & Security, or Boeing, Rafael Advanced Defense Systems Ltd., or Rafael, Elbit Systems Ltd., or Elbit,  Leonardo DRS, or DRS and Ascent Vision Technologies,  or AVT, to increase our penetration into the defense electronics market. We are currently investing and intend to continue to invest significant resources to develop these relationships and additional new relationships. Should our relationships fail to materialize into significant agreements or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.

3
 
Our growth is dependent in part on the development of new products, based on internal research and development, including the expansion of our radar offerings. We may not accurately identify market needs before we invest in the development of a new product. We may also face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market and competing products may emerge during the development and certification process.
 
Reductions in defense budgets worldwide may cause a reduction in our revenues, which would adversely affect our business, operating results and financial condition.
 
Substantially all of our revenues are derived from the sale of products with military applications. These revenues totaled approximately $44 million, or 100% of our revenues in 2019, $28 million, or 100% of our revenues, in the year ended December 31, 2018 and $26 million, or 100% of our revenues, in the year ended December 31, 2017. The defense budgets of a number of countries have declined and may be reduced in the future. Declines in defense budgets may result in reduced demand for our products and manufacturing services. This would result in reduction in our core business’ revenues and adversely affect our business, results of operations and financial condition.

The current novel strain of coronavirus (COVID-19) may adversely affect our operations and business.
 
If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States, Israel or elsewhere, our business may be adversely affected. In December 2019, COVID-19 was identified in Wuhan, China. This virus continues to spread globally and as of March 2020, has spread to over 100 countries, including the United States and Israel. The spread of this virus has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic.” Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus.  The Government of Israel now requires all travelers arriving in Israel to remain in home quarantine until 14 days have passed since the date of entry into Israel. In addition, gatherings of 10 or more people in one place have been restricted, schools have been closed and employees are being asked to work remotely.
 
We currently anticipate that the COVID-19 outbreak will have a negative effect on our operations. The restrictions imposed as a result of the outbreak are likely to cause operating difficulties, COVID-19 will likely have a negative impact on our ability to generate revenues due to the inability of certain of our sales and support teams to travel and/or meet with customers or provide on-site services. The spread of COVID-19 may also result in order cancellations, delays and delivery suspensions. As a result, our business and operating results will likely be negatively affected. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including, reductions in in defense spending because of the financial impact of the pandemic on governmental budgets and the governmental actions to contain COVID-19.

Unfavorable national and global economic conditions could have a material adverse effect on our business, operating results and financial condition.
 
During periods of slowing economic activity, our customers may reduce their demand for our products, technology and professional services, which would reduce our sales, and our business, operating results and financial condition may be adversely affected. Significant portions of our operations are conducted outside the markets in which our products and solutions are manufactured or generally sold, and accordingly, we often export a substantial number of products into such markets. We may, therefore, be denied access to potential customers or suppliers or denied the ability to ship products from any of our subsidiaries into the countries in which we currently operate or wish to operate, as a result of economic, legislative, political and military conditions, including hostilities and acts of terrorism, in such countries.
 
We could also be exposed to credit risk and payment delinquencies on our accounts receivable. In particular, there is currently significant uncertainty about the future relationship between the U.S. and various other countries, with respect to trade policies, treaties, government regulations, and tariffs. Although we partially manufacture in the US, major developments in trade relations, including the imposition of new or increased tariffs by the U.S. and/or other countries, and any emerging nationalist trends in specific countries could alter the trade environment and consumer purchasing behavior which, in turn, could have a material effect on our financial condition and results of operations.

4

Any slowdown or instability in the global economy could impact income, purchasing power and consumption levels among other things, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us. In addition, any global economic slowdown or uncertainty may result in volatile conditions in the global financial markets, which could have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. Any such adverse effect on capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.
 
We may also be required in the future to increase our reserves for doubtful accounts. In addition, the fair value of some of our assets may decrease as a result of an uncertain economy and as a result, we may be required to record impairment charges in the future. If global economic and market conditions or economic conditions in key markets remain uncertain or weaken further, our financial condition and operating results may be materially adversely affected.
 
Sales of our products are subject to governmental procurement procedures and practices; termination, reduction or modification of contracts with our customers or a substantial decrease in our customers’ budgets may adversely affect our business, operating results and financial condition.
 
Our products are primarily sold to governmental agencies, governmental authorities and government-owned companies, many of which have complex and time-consuming procurement procedures. A substantial time often elapses from the time we begin marketing a product until we actually sell that product to a particular customer. In addition, our sales to governmental agencies, authorities and companies are directly affected by these customers’ budgetary constraints and the priority given in their budgets to the procurement of our products. A decrease in governmental funding for our customers’ budgets would adversely affect our results of operations. This risk is heightened during periods of global economic slowdown. Accordingly, governmental purchases of our systems, products and services may decline in the future as the governmental purchasing agencies may terminate, reduce or modify contracts or subcontracts if:
 
 
●
their requirements or budgetary constraints change;
 
 
 
 
●
they cancel multi-year contracts and related orders if funds become unavailable;
 
 
 
 
●
they shift spending priorities into other areas or for other products; or
 
 
 
 
●
they adjust contract costs and fees on the basis of audits.

Any such event may have a material adverse effect on us.
 
Further, our business with the State of Israel and other governmental entities is, in general, subject to delays in funding and performance of contracts and the termination for convenience (among other reasons) of contracts or subcontracts with governmental entities. The termination, reduction or modification of our contracts or subcontracts with the Government of Israel in the event of change in requirements, policies or budgetary constraints would have an adverse effect on our business, operating results and financial condition.
 
If we do not receive the governmental approvals necessary for the export of our products, our revenues may decrease. Similarly, if our suppliers and partners do not receive government approvals necessary to export their products or designs to us, our revenues may decrease, and we may fail to implement our growth strategy.
 
Israel’s defense export policy regulates the sale of our systems and products. Current Israeli policy encourages export to approved customers of defense systems and products, such as ours, as long as the export is consistent with Israeli government policy. A license is required to initiate marketing activities. We are also required to obtain a specific export license for any hardware exported from Israel. We may not be able to receive all the required permits and licenses for which we may apply in the future. If we do not receive the required permits for which we apply, our revenues may decrease.
 
We are subject to laws regulating export of “dual use” items (items that are typically sold in the commercial market, but that also may be used in the defense market) and defense export control legislation. Additionally, our participation in governmental procurement processes in Israel and other countries is subject to specific regulations governing the conduct of the process of procuring defense contracts. Furthermore, solicitations for procurements by governmental purchasing agencies in Israel and other countries are governed by laws, regulations and procedures relating to procurement integrity, including avoiding conflicts of interest and corruption in the procurement process. We may not be able to respond quickly and effectively to changing laws and regulations and any failure to comply with such laws and regulations may subject us to significant liability and penalties.

5

We depend on sales to key customers and the loss of one or more of our key customers would result in a loss of a significant amount of our revenues, which would adversely affect our business, financial condition and results of operations.
 
A significant portion of our revenues is derived from a small number of customers. During the years ended December 31, 2019 and 2018, 61% and 72% of our revenues, respectively, were attributable to nine customers. We anticipate that a significant portion of our future revenues will continue to be derived from sales to a small number of customers. No assurances can be given that our customers will continue to purchase our products, that we will be successful in any bid for new contracts to provide such products, or that if we were granted subsequent orders, such orders would be of a scope comparable to the sales that we have experienced to date. If our principal customers do not continue to purchase products from us at current levels or if we do not retain such customers and we are not able to derive sufficient revenues from sales to new customers to compensate for their loss, our revenues would be reduced and adversely affect our business, cash flows, financial condition and results of operations.
 
We depend on suppliers of components for our products and if we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our financial results could be adversely affected.
 
We acquire most of the components for the manufacturing of our products from suppliers and subcontractors, most of whom are located in Israel and the U.S. A number of these suppliers are currently the sole source of one or more components upon which we are dependent. Suppliers of some of the components for manufacturing require us to place orders with significant lead-time to assure supply in accordance with our manufacturing requirements. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and may significantly hurt our business and result of operations. In addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Temporary disruptions of our manufacturing operations would ensue if we were required to obtain components from alternative sources, which may have an adverse effect on our financial results.
 
Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition and results of operations.
 
The defense electronics market in which we compete is subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and new products. We may not be successful in developing and marketing enhancements to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties that could delay or prevent the successful development, introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degrees of market acceptance. If release dates of our new products or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results and financial condition may be adversely affected.
 
We enter into fixed-price contracts that could expose us to losses in the event we fail to properly estimate our costs.
 
We enter into firm fixed-price contracts. If our initial cost estimates are incorrect, we can lose money on these contracts. To the extent we underestimate the costs to be incurred in any fixed-price contract, we could experience a loss on the contract, which could have a negative effect on our results of operations, financial position and cash flow.

6

Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our business.
 
Cyber-attacks or other breaches of network or IT security, natural disasters, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations. We may be subject to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material impact to our operations or financial condition.

We are subject to risks associated with international operations; we generate a significant portion of our sales from customers located in countries that may be adversely affected by political or economic instability and corruption.
 
We are aviation and defense company with worldwide operations. Although 78% of our sales are in Israel and North America, we expect to derive an increasing portion of our sales and future growth from other regions such as Latin America, India and Central and Eastern Europe, which may be more susceptible to political or economic instability and the economic impact of the spread of COVID-19. In addition, in many less-developed markets, we rely heavily on third-party representatives, consultants and other agents for business development, marketing and distribution of our products. Many of these third parties do not have internal compliance resources comparable to ours. Business activities in many of these markets have historically been more susceptible to corruption. If our efforts to screen third party agents and detect cases of potential misconduct fail, we could be held responsible for the noncompliance of these third parties under applicable laws and regulations, which may adversely affect our reputation and our business, financial condition or results of operations.
 
Exports (whether direct sales or sales through our Israeli customers) accounted for 71% of our revenues in 2019, 63% of our revenues in 2018 and 76% of our revenues in 2017. Our reliance on export sales subjects us to many risks inherent in engaging in international business, including:
 
 
●
Limitations and disruptions resulting from the imposition of government controls;
 
 
 
 
●
Changes in regulatory requirements;
     
 
●
The global impact of the COVID-19 pandemic;
 
 
 
 
●
Export license requirements;
 
 
 
 
●
Economic or political instability;
 
 
 
 
●
Trade restrictions;
 
 
 
 
●
Changes in tariffs;
 
 
 
 
●
Currency fluctuations;
 
 
 
 
●
Longer receivable collection periods and greater difficulty in accounts receivable collection;
 
 
 
 
●
Greater difficulty in safeguarding intellectual property;
 
 
 
 
●
Difficulties in managing overseas subsidiaries and international operations; and
 
 
 
 
●
Potential adverse tax consequences.
 
We may not be able to sustain or increase revenues from international operations and may encounter significant difficulties, in connection with the sale of our products in international markets. Any of those events may adversely affect our business, operating results and financial condition.

7
 
In addition, as a company registered with the SEC, we are subject to the regulations imposed by the Foreign Corrupt Practices Act, or FCPA, which generally prohibits registrants and their intermediaries from making improper payments to foreign officials, for the purpose of obtaining or keeping business or obtaining an improper business benefit. We have adopted proactive procedures to promote compliance with the FCPA, but we may be held liable for actions taken by our strategic or local partners or agents even though these partners may not themselves be subject to the FCPA. Any determination that we have violated the FCPA could materially and adversely affect our business, results of operations, and cash flows.
 
Currency exchange rate fluctuations in the world markets in which we conduct business could have a material adverse effect on our business, results of operations and financial condition.
 
Most of our revenues are in dollars or are linked to the dollar, while a portion of our expenses, principally salaries and related personnel expenses, are incurred in other currencies, particularly in NIS. Therefore, our costs in such other currencies, as expressed in dollars, are influenced by the exchange rate between the dollar and the relevant currency. We are also exposed to the risk that the rate of inflation in Israel will exceed the rate of depreciation of the NIS in relation to the dollar or that the timing of this depreciation lags behind inflation in Israel. This would have the effect of increasing the dollar cost of our operations. In the past, the NIS exchange rate with the dollar and other foreign currencies has fluctuated, generally reflecting inflation rate differentials. We cannot predict any future trends in the rate of inflation in Israel or the rate of depreciation or appreciation of the NIS against the dollar. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. We engage in currency hedging transactions intended to partly reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. However, such transactions may not materially reduce the effect of fluctuations in foreign currency exchange rates on our results of operations.
 
Claims that our products infringe upon the intellectual property of third parties may require us to incur significant costs, enter into licensing agreements or license substitute technology.
 
Third parties may assert infringement claims against us or claims that we have violated a patent or infringed on a copyright, trademark or other proprietary right belonging to them. Any infringement claim, even one without merit, could result in the expenditure of significant financial and managerial resources to defend against the claim. Moreover, a successful claim of product infringement against us or a settlement could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. We might not be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all. We also may not be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering the product. Infringement claims asserted against us could have a material adverse effect on our business, operating results and financial condition.
 
Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our solutions.
 
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use in components of our products of “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries, whether the components of our products are manufactured by us or third parties. These requirements could affect the pricing, sourcing and availability of minerals used in the manufacture of components we use in our products. Although the SEC has provided guidance with respect to a portion of the conflict mineral filing requirements that may somewhat reduce our reporting practices, there are costs associated with complying with the disclosure requirements and customer requests, such as costs related to our due diligence to determine the source of any conflict minerals used in our products. We may face difficulties in satisfying customers who may require that all of the components of our products are certified as conflict mineral free or free of numerous other hazardous materials.
 
We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which could have an adverse effect on our financial results and the market price of our Ordinary Shares.
 
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002 governing internal controls and procedures for financial reporting, which started, in connection with our 2007 Annual Report on form 20-F, have resulted in increased general and administrative expense and a diversion of management time and attention, and we expect these efforts to require the continued commitment of significant resources. We may identify material weaknesses or significant deficiencies in our assessments of our internal controls over financial reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory authorities and could have a material adverse effect on our operating results, investor confidence in our reported financial information and the market price of our Ordinary Shares.

8
 
Risk Factors Related to Our Ordinary Shares
 
Certain of our shareholders beneficially own a substantial percentage of our ordinary shares.

DBSI holds approximately 15.7% of our outstanding ordinary shares and three other shareholders hold 6.9%, 5.2% and 5.0% of our outstanding ordinary shares. This concentration of ownership of our ordinary shares could delay or prevent 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. This concentration could also accelerate these same transactions in lieu of others depriving shareholders of opportunities. This concentration of ownership may also cause a decrease in the volume of trading or otherwise adversely affect our share price. 

Our share price has been volatile in the past and may decline in the future.
 
Our Ordinary Shares have experienced significant market price and volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors such as the following, some of which are beyond our control:
 
 
●
Quarterly variations in our operating results;
 
 
 
 
●
Operating results that vary from the expectations of securities analysts and investors;
 
 
 
 
●
Changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
 
 
 
 
●
Announcements of technological innovations or new products by us or our competitors;
 
 
 
 
●
Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
 
 
 
 
●
Changes in the status of our intellectual property rights;
 
 
 
 
●
Announcements by third parties of significant claims or proceedings against us;
 
 
 
 
●
Additions or departures of key personnel;
 
 
 
 
●
Future sales of our Ordinary Shares;
 
 
 
 
●
Delisting of our shares from the NASDAQ Capital Market; and
 
 
 
 
●
Stock market price and volume fluctuations.
 
Domestic and international stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recessions, pandemics, interest and currency rate fluctuations, and political events or hostilities in or surrounding Israel, could adversely affect the market price of our Ordinary Shares.
 
In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources both of which could have a material adverse effect on our business and results of operations.
 
In addition, to continue to be listed on the NASDAQ Capital Market, we need to satisfy a number of conditions, including a minimum closing bid price per share of $1.00. At times in the past we were not in compliance with this requirement, although we managed to regain compliance by a reverse stock split. If in the future, our share price drops again (for 30 consecutive days under a bid price per share of $1.00), we may be eventually delisted from NASDAQ and trading in our Ordinary Shares would be conducted on a market where an investor would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of our Ordinary Shares.

9
 
Substantial future sales of our Ordinary Shares by our principal shareholders may depress our share price.
 
If our principal shareholders sell substantial amounts of their Ordinary Shares, including shares registered under effective registration statements and shares issuable upon the exercise of outstanding warrants, or if the perception exists that our principal shareholders may sell a substantial number of our Ordinary Shares, the market price of our Ordinary Shares may fall. Any substantial sales of our shares in the public market also might make it more difficult for us to sell equity or equity related securities in the future at a time and on terms we deem appropriate.
  
We do not intend to pay dividends.
 
We have never declared or paid cash dividends on our Ordinary Shares and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our board of directors and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our Ordinary Shares, which is uncertain and unpredictable. There is no guarantee that our Ordinary Shares will appreciate in value or even maintain the price at which you purchased your Ordinary Shares.

We may be classified as a passive foreign investment company, or PFIC, which would subject our U.S. investors to adverse tax rules.

U.S. holders of our Ordinary Shares may face income tax risks. We have been advised that we may have been a “passive foreign investment company” (“PFIC”) for the 2018 taxable year, but that we were likely not a PFIC for the 2019 taxable year. Our treatment as a PFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below in Item 10E. “Additional Information – Taxation”) of our Ordinary Shares and would likely cause a reduction in the value of such shares. A foreign corporation will be treated as a PFIC for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income,” or (2) at least 50% of the average value of the corporation’s gross assets produce, or are held for the production of, such “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” If we are treated as a PFIC, U.S. Holders of Ordinary Shares would be subject to a special adverse U.S. federal income tax regime with respect to the income derived by us, the distributions they receive from us, and the gain, if any, they derive from the sale or other disposition of their Ordinary Shares. In particular, dividends paid by us, if any, would not be treated as “qualified dividend income,” eligible for preferential tax rates in the hands of non-corporate U.S. shareholders. Since PFIC status depends upon the composition of our income and the market value of our assets from time to time, even if we were not a PFIC in 2018, there can be no assurance that we will not become a PFIC in any future taxable year. U.S. Holders should carefully read Item 10E. “Additional Information – Taxation” for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of our Ordinary Shares.

Risks Relating to Our Location in Israel
 
Political, economic and military instability in Israel may disrupt our operations and negatively affect our business condition, harm our results of operations and adversely affect our share price.
 
We are incorporated under the laws of, and our principal executive offices and manufacturing and research and development facilities are located in the State of Israel. As a result, political, economic and military conditions affecting Israel directly influence us. Any major hostilities involving Israel, a full or partial mobilization of the reserve forces of the Israeli army, the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel could adversely affect our business, financial condition and results of operations.
 
Conflicts in North Africa and the Middle East, including in Egypt and Syria which border Israel, have resulted in continued political uncertainty and violence in the region. Efforts to improve Israel’s relationship with the Palestinian Authority have failed to result in a permanent solution, and there have been numerous periods of hostility in recent years. In addition, relations between Israel and Iran continue to be seriously strained, especially with regard to Iran’s nuclear program. Such instability may affect the local and global economy, could negatively affect business conditions and, therefore, could adversely affect our operations. To date, these matters have not had any material effect on our business and results of operations; however, the regional security situation and worldwide perceptions of it are outside our control and there can be no assurance that these matters will not negatively affect our business, financial condition and results of operations in the future.

10

Furthermore, we could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue to participate in a boycott of Israeli companies and others doing business with Israel or with Israeli companies. As a result, we are precluded from marketing our products to these countries, companies and organizations. Foreign government defense export policies towards Israel could also make it more difficult for us to obtain the export authorizations necessary for our activities. Also, over the past several years there have been calls in Europe and elsewhere to reduce trade with Israel. Restrictive laws, policies or practices directed towards Israel or Israeli businesses may have an adverse impact on our operations, our financial results or the expansion of our business.
 
Our results of operations may be negatively affected by the obligation of our personnel to perform military service.
 
Some of our employees in Israel are obligated to perform annual military reserve duty and are subject to being called for active duty under emergency circumstances. If a military conflict or war arises, these individuals could be required to serve in the military for extended periods of time. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees or a significant number of other employees due to military service. Any disruption in our operations could adversely affect our business.
 
We may not be able to enforce covenants not-to-compete under current Israeli law.
 
We have non-competition agreements with most of our employees, many of which are governed by Israeli law. These agreements generally prohibit our employees from competing with us or working for our competitors for a specified period following termination of their employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively brief periods of time in restricted geographical areas and only when the employee has unique value specific to that employer’s business and not just regarding the professional development of the employee. Any such inability to enforce non-compete covenants may cause us to lose any competitive advantage resulting from advantages provided to us by such confidential information.
 
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
 
A significant portion of our intellectual property has been developed by our Israeli employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or Israeli Patent Law, inventions conceived by an employee during the term and as part of the scope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Israeli Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or C&R Committee, a body constituted under the Israeli Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. The C&R Committee (decisions of which have been upheld by the Israeli Supreme Court) has held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the C&R Committee has not yet set specific guidelines regarding the method for calculating this remuneration or the criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded. We generally enter into intellectual property assignment agreements with our employees pursuant to which such employees assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
 
Service and enforcement of legal process on us and our directors and officers may be difficult to obtain.
 
Service of process upon our directors and officers and the Israeli experts named in this annual report, most of who reside outside the U.S., may be difficult to obtain within the U.S. Furthermore, since substantially most of our assets, our directors and officers and the Israeli experts named in this annual report are located outside the U.S., any judgment obtained in the U.S. against us or these individuals or entities may not be collectible within the U.S.
 
11

There is doubt as to the enforceability of civil liabilities under the Securities Act and the Securities Exchange Act in original actions instituted in Israel. However, subject to certain time limitations and other conditions, Israeli courts may enforce final judgments of U.S. courts for liquidated amounts in civil matters, including judgments based upon the civil liability provisions of those Acts.
 
The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from those of a typical U.S. corporation.
 
We are incorporated under Israeli law and the rights and responsibilities of holders of our Ordinary Shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable to shareholder votes at the general meeting with respect to, among other things, amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and actions and transactions involving interests of officers, directors or other interested parties which require the shareholders’ approval. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that he or she possesses the power to determine the outcome of a vote at a meeting of our shareholders, or who has, by virtue of the company’s articles of association, the power to appoint or prevent the appointment of an office holder in the company, or any other power with respect to the company, has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.
 
Israeli government programs and tax benefits may be terminated or reduced in the future, which could increase our tax expenses.
 
We participate from time to time in programs of the Israeli Innovation Authority (formerly the Office of the Chief Scientist) of the Israeli Ministry of Economy, or Innovation Authority, for which we receive funding for the development of technologies and products. We may benefit from certain Israeli government programs and tax benefits, particularly from tax exemptions and cash incentives, including “Approved Enterprise” status due to our manufacturing facilities in Israel. To be eligible for these programs and tax benefits or similar programs in the future, we must meet certain conditions, including making specified investments in fixed assets and equipment. For more information about these programs see Item 5. “Operating and financial review and prospects – Research & Developments – Israeli Innovation Authority.” If we fail to comply with these conditions, we may be required to pay additional penalties, make refunds and may be denied future benefits. From time to time, the government of Israel has discussed reducing or eliminating the benefits available under these programs, and therefore these benefits may not be available to us in the future at their current levels or at all.
 
As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.
 
As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of The NASDAQ Stock Market Rules. Among other things, as a foreign private issuer we may follow home country practice with regard to the composition of the board of directors, director nomination procedure, and quorum at shareholders’ meetings. In addition, we may follow our home country law, instead of the NASDAQ Stock Market Rules, which require that we obtain shareholder approval for certain dilutive events such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company, and certain acquisitions of the stock or assets of another company. A foreign private issuer that elects to follow a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.
 
12
 
ITEM 4.
INFORMATION ON THE COMPANY
 
A. History and Development of the Company
 
We were incorporated under the laws of the State of Israel on December 8, 1970. We are a public limited liability company under the Israeli Companies Law 1999-5759, or the Israeli Companies Law, and operate under this law and associated legislation. Our registered offices and principal place of business are located at 7 Giborei Israel Street, Netanya 4250407, Israel, and our telephone number is: +972-9-892-1111. Our website address is www.rada.com. The information on our website is not incorporated by reference into this annual report.
 
We develop, manufacture and sell defense electronics, including tactical land-based radars for defense forces and for critical infrastructure protection solutions, avionics solutions for unmanned aerial vehicles and airborne data/video recording and management systems. In addition, in 2019 we completed the sale of our legacy commercial products subsidiary, Beijing Hua Rui Aircraft Maintenance and Service, Co., Ltd., known as CACS. The financial results presented in this annual report were adjusted to present CACS’ results in a separate line as “Discontinued Operations.”
 
In March 2018, we announced the formation of a joint venture company with SAZE Technologies LLC or SAZE of Silver Spring, MD. The new company, RADA Technologies LLC, or RTL is based in Germantown, Maryland. In July 2019 we purchased all of SAZE’s interests in RTL, which is now wholly owned by us. RTL is focused on the adaptation of our tactical radar technology for the U.S. market, certifying the radars to U.S. standards, establishing production capabilities and providing infrastructure for maintenance and support. In the first quarter of 2020 RTL commenced the manufacture of certain radars.
 
B. Business Overview
 
Industry Overview
 
We are a product-oriented company focused on the defense electronics market. This is a growing market and is currently a large part of the defense industry. The defense electronics market reflects two contradictory trends, the proliferation of defense electronics, which has been offset by the significant reduction in the price of electronic systems which is reducing the dollar value of the market. Today, new military vehicles of all kinds are equipped with significantly more electronic systems than they used to carry in the past. The increasing usage of advanced electronics in modern vehicles, including upgrades of existing technology and the growing use of unmanned vehicles of all kinds, have provided significant growth to the market.
 
Today’s advanced defense electronics systems typically incorporate components that are derived from the industrial or the consumer electronics markets, especially from the telecom and automotive markets. Most of the defense electronics systems are built with commercial components and even with sub-systems, which reduce the overall price, and at the same time generate complex obsolescence issues.
 
Purchasers of defense electronics products are either governments or major integrators. Engagement in business relationships with these customers is complex, has a long sales cycle and requires long-term commitments for future support of delivered hardware. Production batches of such products are usually small.
 
Suppliers of defense electronic systems are either providers of products and sub-systems to major integrators and platform manufacturers, or are providers of integrated systems to the industry or to the armed forces. These companies are typically very large and have diversified product offerings.
 
13

New products in the defense electronic market are usually developed utilizing customer sponsored research and development funds, and are typically tailored to specific customer needs. In many cases, the customer who pays for the design and adaptation, limits the use of intellectual property that was funded by it for other applications, due to either commercial or security reasons. We are developing our products utilizing our internal resources, and as a result we own the proprietary rights and are able to address a wide range of customers and integrators.
 
Products and Services
 
We primarily sell state-of-the-art defense electronics products. We may also provide end-to-end solutions for one or more systems or sub-systems. Our current product lines are:
 
 
●
Tactical radars, land-based, for defense forces and critical infrastructure protection solutions;
 
●
Military Avionics (data/video recorders, core avionics for aircraft and UAVs, and Inertial Navigation Systems, or INS).
 
 Land-Based Tactical Radars for Defense Forces and Critical Infrastructure Protection Solutions.
 
We develop advanced land-based radars for tactical applications such as defense forces protection and critical infrastructure protection. Our pulse Doppler, software-defined radars are solid-state, fully digital, incorporate active electronically scanned array, or AESA antenna, are compact, mobile and highly reliable, provide hemispheric spatial coverage and multi-mission capabilities, can operate on-the-move, or OTM, and demonstrate unprecedented performance-to-price ratio.
 
The conflicts in which modern armies have been engaged in recent years dictate the needs for instantaneous and real-time intelligence, minimal cycle time for target acquisition, highly accurate weapons with minimal collateral damage and discrimination between hostiles and civilians. Our tactical radars, which move with the maneuvering combat units in the field and operate OTM, provide the real-time knowledge of whether and from where they are threatened, detect all relevant threats, whether unfriendly fire or drones/UAVs/fighters/helicopters from any angle (including very high angles), discriminate among threats and provide the needed intelligence for any course of action, whether counter-fire or avoidance. We believe that the performance-over-price ratio of our radars makes them ideal solutions for the current needs and requirements of the maneuver forces, and for the protection of critical infrastructure against a variety of threats that can be applied on it.

We have developed various radar hardware platforms: the compact hemispheric radar, or CHR, and its advanced variants, eCHR and aCHR, which are tailored for use on combat vehicles and short-range protection applications; and a family of multi-mission hemispheric radars, or MHRs, and its advanced variant, ieMHR, which are tailored for use in force and critical infrastructure protection applications. All of our radar platforms share basic characteristics, but differ in range, size, weight, and price. We implement several operational missions for our platforms by soft-changing the radar operational parameters.

The current operational missions of the CHR family of radar platforms are:
 
 
●
Radar sensors for active protection systems, or APS, detecting all relevant threats that may be fired at combat vehicles, including RPGs, anti-tank guided missiles (ATGMs) and projectiles and provide 360° hemispheric coverage. The system delivers threat data to the APS, enabling it to neutralize threats.
 
 
 
 
●
Very-short-range hemispheric air surveillance radar system which can detect, classify and track aerial vehicles, with emphasis on small UAVs. Mobile or stationary, the system can be integrated with any C4I system and other radars and sensors, and can operate either as a stand-alone, or as part of a large-scale surveillance system.
 
 
●
Perimeter and border protection, detecting, identifying, and tracking aerial and surface intruders including slow and small aircraft, vehicles, vessels, and pedestrians at tactical ranges. Our radars can operate either on a stand-alone basis, or as part of a large-scale surveillance system.
 
14

The current operational missions of the MHR family of radar platforms are the following:
 
 
●
Hostile fire detection radar systems which detect, track, classify and locate direct and elevated threats fired at stationary or mobile forces. They compute the Point-of-Origin (POO) and Point-of-Impact (POI) of the threats, which may be rockets, artillery, mortars, ATGMs, RPGs, and more other threats. The systems can be integrated with any protection and Command, Control, Communications, Computers and Intelligence (C4I) system and be installed at stationary bases and posts, or onboard fighting vehicles.
 
 
 
 
●
Tactical hemispheric air surveillance radar systems which detect, classify and track all types of aerial vehicles, including fighters, helicopters, UAVs, transport aircraft, etc. at tactical ranges. Mobile or stationary, the systems can be integrated with any C4I system and other radars and sensors, and can operate either as a stand-alone, or as part of a large-scale surveillance system.
 
 
 
 
●
Three-dimensional perimeter surveillance radar systems for critical infrastructure protection can detect, identify, and track aerial and surface intruders including slow and small aircraft, air breathing targets, vehicles, vessels, and pedestrians at tactical ranges. The systems can operate either as a stand-alone, or as part of a large-scale surveillance system.
 
Among our customers and users of our radar systems are leading defense forces and defense contractors worldwide, including the Israeli MOD, IMI (an Elbit Systems subsidiary), Rafael, MER Group, Lockheed Martin, Boeing, Leonardo DRS, AVT, General Atomics, Elettronica, the U.S. Marine Corps and Navy, the U.S. Air Force, Indian Security Forces, Rheinmetall, and many additional integrators and end-users. Some of our customers have purchased a small number of radars for evaluation and integration in their air defense and/or other systems. These initial purchases may turn into larger production orders upon evaluation.

Military Avionics

We are active in the field of mission data and video recording, management, and post-mission analysis and debriefing for fighter and trainer aircrafts. Over the past 25 years we have developed, fielded and supported a wide range of solid-state digital recorders, cameras and debriefing systems for aerospace and military applications, including:
 
 
●
Flight data recorders, or FDR, for fighter aircraft;
 
●
Digital video/audio/data recorders, or DVDR (with data transfer functions);
 
●
HD-DVDR, high definition digital video/audio/data recording for fighter and trainer aircrafts.
 
●
A wide range of head-up-displays color video cameras, or HCVC, for fighter aircraft; and
 
●
A variety of ground debriefing solutions, or GDS.

These digital recorders feature state-of-the-art technologies and are designed for military applications. Our high-performance recorders provide simultaneous, high-capacity video (both analog and digital/HD), audio and data recording, high throughput and mass storage handling capabilities, supporting rapid dissemination and real-time playback. Our video recorders implement MPEG-2 and/or MPEG-4 (H.264) compression formats, supporting up to 128GB of solid-state memory, facilitating continuous recording over extended mission durations. Recent upgrades to our recorders provide the ability to record high-definition video formats such as HD-SDI.

Our GDS synchronized video, audio, data, and air combat maneuvering debriefing. GDS vary from personal, laptop-size debriefing units, through robust desktop multi-channel systems supporting the mission debriefing of four-aircraft formations up to large-scale simultaneous debriefing systems. These network-based systems support large numbers of participants operating from different locations, and provide advanced data management features.

15

We have been a developer and manufacturer of core avionics systems for over 35 years. We currently offer a wide spectrum of military avionics systems designed for integration in new and upgraded military aircraft and UAVs worldwide. Our core avionics products are easily adapted to western, eastern, and indigenous-origin platforms of all kinds. In particular, our avionics for UAVs are extremely compact through modern board connectivity solutions, use of innovative passive/conductive cooling techniques, withstand extreme environmental conditions and are very reliable and affordable.

We offer the following avionics solutions:

 
●
Mission data recorders and debriefing solutions and HUD video cameras (as described above);
 
●
Avionics for UAVs (Interface control processors, engine control computers, Payload management computers and others);
 
●
Compact, MEMS-based, multiple-sensor aided INS for UAVs and backup INS for manned aircraft;

Our airborne products and system solutions are fully qualified and operated by leading air forces and prime integrators worldwide, such as the Israeli Air Force, or IAF, Lockheed Martin, Boeing Company, HAL, Embraer, IAI, Rafael, the Chilean Air Force, and many others. Our units are installed onboard F-16, F-15, T-6, A-4, Jaguar, MiG-27, Su-30MKI, Dhruv Helicopter, MiG-29, Super-Tucano and other aircraft, and onboard a large number of UAVs.
 
Business Development, Sales and Marketing
 
Strategy
 
Our business development strategy is based on the following principles:
 
 
●
Becoming a reliable and trusted supplier of sensors and sub-systems to defense system integrators and major platforms manufacturers with global sales, such as Lockheed Martin, Boeing, Elbit, IAI, Rafael, Leonardo DRS, Embraer, HAL, Elettronica, AVT and others.
 
 
 
 
●
Establishing operations s in our primary target markets (i.e. U.S.), either through subsidiaries or through joint ventures, for local presence, direct market development, localization of the technology, production and customer support.
 
 
●
Expanding our global business development efforts and potential customer base, by engaging business development consultants and service providers in the countries and territories in which our products may be used, and actively managing this global network; and
 
 
 
 
●
Establishing strategic relationships with leading integrators in the prime target markets for tactical radars, i.e. U.S. Europe, India; such relationships may involve indigenization and localization of our technologies to enable sales in significant quantities in these markets.
 
16

Strategic Relationships and Customers
 
As part of our strategy, we have established a number of strategic relationships with leading global defense contractors and several air forces. We have focused our marketing and sales efforts to support these relationships.
 
Lockheed Martin. Lockheed Martin is the manufacturer of the F-16 aircraft, one of the most popular fighter aircraft in the western world today. We are supplying the DVDR, HD-DVDR and GDS for new F-16 aircraft production and for F-16 upgrade programs led by Lockheed Martin. In 2015, Lockheed Martin ordered a single radar system for integration in their internally funded high energy laser research and development program and recently acquired a second radar for the same purpose.
 
IMI Systems. IMI (a subsidiary of Elbit Systems) is a world leader in the field of APS for land platforms and is the developer and manufacturer of the “Iron Fist” APS. We teamed with IMI on the integration and production of our CHR family of radars as part of their “Iron Fist” APS solution for local and global customers. During 2016, there was a global increase in the interest of major forces in APS. As a result, in 2018 and 2019 we engaged in extensive efforts with IMI to integrate, test and provide its “Iron Fist” APS to customers in Europe and North America, along with our on-going support. We have sold dozens of radars to IMI to support these activities. We anticipate that these testing efforts will mature into acquisition programs. The first acquisition program was purchased by the IMOD in the end of 2019 to equip the Eitan fighting vehicle with the Iron Fist APS.
 
Boeing Defense, Space and Security. Boeing, a provider of air defense and high-energy laser systems, acquired our MHR in 2013 for evaluation of its use as part its directed energy tactical systems, and in 2017 has acquired our ieMHR to be integrated into critical infrastructure surveillance solutions. We also provide Boeing with recorders and debriefing stations for the T-45 VMTS and have received follow-on orders from Boeing.
 
Leonardo DRS. DRS is a major player in the defense electronics market in North America, with a focus on tactical systems and radars. In 2017, we signed a cooperation agreement with DRS to market and sell our tactical radars in the North American market for counter-UAV, short-range air defense, and other solutions. DRS has acquired a few MHR radars and is actively promoting our radars as part of their system solutions. In 2018, DRS was selected by the US Army as the mission equipment package provider for the Army’s IM-SHORAD program, which includes our MHR radars as onboard search sensors. This program has the potential for sale of 144 vehicles, each with 4 MHR radars on board. To date, we have delivered radars for seven prototype units and received a purchase order for 16 more units.
 
European Air Defense Integrators. Two major European air defense integrators have purchased radars for integration and testing. We have signed a value-added representation agreement with one of the integrators for certain countries where it has a dominant position in sales of air defense and other solutions.
 
Rafael Advanced Defense Systems Ltd. Rafael is a world leader in the development and supply of missiles, smart weapons and pods of various types. Rafael has become a strategic customer of ours as a result of our development and production of a few advanced built-to-specification products in recent years. Recently, Rafael selected the MHR as the radar for the “Drone Dome” system that is designed to counter UAVs and drones and is purchasing radars from us for their customers.
 
17
 
Military Forces. We are the sole provider of digital recorders and debriefing solutions to the Chilean Air Force and are the primary provider of recorders and debriefing solutions to a major Asian air force. Two other Asian military forces have purchased radars for air surveillance and counter-mortar applications. Our tactical radars are used by the U.S. Navy and Marines as part of their ground-based air defense advanced MADIS system. We believe that these strategic relationships with military forces provide us with the potential for prolonged cooperation.
 
Israel Aerospace Industries. We actively supply avionics and test equipment to four different divisions of IAI, and in particular to the MALAT division, who is a major UAS global provider and utilizes our products and services for repeated follow-on orders.
 
Hindustan Aeronautics Ltd. HAL is the major aerospace integrator in India. We are currently cooperating with four divisions of HAL and supply DVDRs, HCVCs, GDS, support equipment and other services.
 
Embraer S.A. The Military Aircraft Division of the Brazilian aircraft manufacturer is a strategic customer. In addition to supplying avionics such as DVDR, INS and HCVC to Embraer, we are participating in Embraer’s programs through the development and supply of avionic units per their specifications and their training and support activities.
 
Business Development and Marketing
 
Our Chief Executive Officer, Mr. Dov Sella, together with Mr. Gil Schwartz, our VP Business Development & Marketing, lead our business development and marketing efforts from Israel. Mr. Bill Watson, Ms. Charlene Caputo and Mr. Max Cohen are responsible for our business development and marketing efforts in North America. We currently employ twelve additional professionals (seven of which are part-time consultants) in business development and the sales of our products. Our program managers, Chief Technology Officer, VP Customer Solutions, VP Product Development and our product managers and engineering departments support our marketing and sales efforts with respect to proposal preparations and product demonstrations. In addition, we have engaged business development consultants in Europe, South America and Asia who receive success fees for sales generated by them.  Our RTL subsidiary is responsible for business development in the North-American market and works directly with and in cooperation with our U.S. partners on the exploitation of large opportunities in the U.S. Four of our seven part-time consultants are supporting this activity.
 
The Israeli Ministry of Defense has historically supported, and continues to support, our marketing efforts through its defense export assistance branch and through various projects for the IDF and its related divisions. There is no guarantee that this type of assistance will be available to us in the future.
 
We take part and present our tactical radars at the major land systems exhibitions on a regular basis, such as the AUSA Annual Meetings, Eurosatory in Paris, DSEI in London, and in regional or focused exhibitions such as DefExpo in India and SOFIC, MDM and many others in the USA.
 
Fixed Price Contracts
 
Some of our contracts are fixed-price contracts, under which the price is not subject to adjustment by reason of the costs incurred in the performance of the contracts, as long as the costs incurred, and work performed, fall within governmental guidelines. Under our fixed-price contracts, we assume the risk of increased or unexpected costs that may reduce our profits or even generate losses. This risk can be particularly significant under fixed-price contracts for research and development involving new technologies.
 
Our books and records may be subject to audits by the Israeli Ministry of Defense and other governmental agencies, including the U.S. Department of Defense. These audits may result in adjustments to contract costs and profits.
 
18

Principal Customers
 
We generally complete a few major transactions each year, each accounting for than 10% of our revenues for such year. As a result, each year a significant portion of our revenues is derived from a small number of customers. The following table sets forth our principal customers in 2017, 2018 and 2019:
 
 
  
Percentage of Revenues
  
 
  
2017
    
2018
    
2019
  
Israel Aerospace Industries
    
7
%
    
7
%
    
12
%
RAFAEL
    
2
%
    
11
%
    
8
%
Hindustan Aeronautics Ltd
    
5
%
    
11
%
    
3
%
Lockheed Martin Corporation
    
13
%
    
6
%
    
3
%
Leonardo DRS
    
35
%
    
4
%
    
6
%
Customer in Israel
    
-
%
    
12
%
    
4
%
SAZE Technologies LLC
    
3
%
    
12
%
    
4
%
 
Although we continually strive to increase the number of our customers, we anticipate that a significant portion of our future revenues will continue to be derived from a small number of customers. Because of our dependency on a small number of customers and on government contracts, we are subject to business risks, including changes in governmental appropriations and changes in national defense policies and priorities. Although many of the programs in which we participate as a contractor or subcontractor may extend for several years, our business is dependent upon annual appropriations and funding of new and existing contracts. Most of the contracts are subject to termination for the convenience of the customer, pursuant to which the customer pays only for reimbursement of costs incurred and the applicable profit on work performed. The Israeli Government or any other government may discontinue funding purchases of our products. 

Geographical Markets
 
We sell our products to various air forces and companies worldwide. The following table presents our revenues by geographical markets for the periods indicated:
 
 
  
2017
    
2018
    
2019
  
Israel
    
24
%
    
37
%
    
28
%
South and Latin America
    
2
%
    
4
%
    
2
%
Asia
    
17
%
    
11
%
    
6
%
North America
    
55
%
    
42
%
    
50
%
Europe
    
1
%
    
6
%
    
14
%
Australia
    
1
%
    
-
%
    
-
%
 
Competition
 
The markets for our products are highly competitive. Our principal competitors in the avionics and recorder markets include Elbit Systems Ltd., Honeywell International Inc., IAI, Northrop Grumman Corporation, Sagem Avionics LLC., Thales Group and Zodiac Aerospace Group. Our principal competitors on tactical radars are IAI (through its subsidiary, Elta), SRC Inc., Raytheon, Northrop Grumman, Dynetics (Leidos), SAAB, Thales, Hensoldt and Leonardo Selex. We expect to continue to face competition from these and other competitors. All of our competitors are larger and have substantially greater resources than us, including financial, technological, marketing and distribution capabilities, and enjoy greater market recognition than we do. These competitors may be able to achieve greater economies of scale and may be less vulnerable to price competition than us. We may not be able to offer our products as part of integrated systems to the same extent as our competitors or successfully develop or introduce new products that are more cost effective or offer better performance than those of our competitors. Failure to do so could adversely affect our business, financial condition and results of operations.

19
 
Government Regulations
 
Israel’s defense export policy regulates the sales of our systems and products. Current Israeli policy encourages export to approved customers of defense systems and products, such as ours, as long as the export is consistent with Israeli government policy.
 
A license is required to initiate marketing activities. We are also required to obtain a specific export license for any hardware exported from Israel. We are regulated by an Israeli law regulating export of “dual use” items (items that are typically sold in the commercial market, but that also may be used in the defense market) and the Defense Export Control Law and its supplemental regulations. Those laws and regulations govern the enforcement of export control and defined certain new areas of licensing, particularly with respect to transfer of technology. It is not certain that we will receive all the required permits and licenses for which we may apply in the future. Our participation in governmental procurement processes in Israel and other countries is subject to specific regulations governing the process of procuring defense contracts. Furthermore, solicitations for procurements by governmental purchasing agencies in Israel and other countries are governed by laws, regulations and procedures relating to procurement integrity, including avoiding conflicts of interest and corruption in the procurement process.
 
In addition, antitrust laws and regulations in Israel and other countries often require governmental approvals for transactions that are considered to limit competition. Such transactions may include cooperative agreements for specific programs or areas, as well as mergers and acquisitions.
 
Proprietary Information
 
We generally do not consider patent protection significant to our current operations and rely upon a combination of security devices, trade secret laws and contractual restrictions to protect our rights in our products. Our policy is to require employees and consultants to execute confidentiality agreements upon the commencement of their relationships with us. These measures may not be adequate to protect our technology from third-party infringement, and our competitors might independently develop technologies that are substantially equivalent or superior to ours. Additionally, our products may be sold in foreign countries that provide less protection for intellectual property rights than that provided under U.S. or Israeli laws.
 
The Israeli government usually retains certain rights in technologies and inventions resulting from our performance as a prime contractor or subcontractor under Israeli government contracts and may generally disclose such information to third parties, including other defense contractors. When the Israeli government funds research and development, it may acquire rights to proprietary data and title to inventions; we may retain a non-exclusive, royalty-free license for such inventions. However, if the Israeli government purchases only the end product, we may retain the principal rights and the government may use the data and take an irrevocable, non-exclusive, royalty-free license.
 
Manufacturing and Quality Control
 
Our Israeli production plant is located in Beit She’an, Israel. The plant is equipped to handle most of our manufacturing processes and testing requirements. For some processes we utilize outsourced resources. This structure allows us flexibility and versatility. To support the growth in radar production, we have established a supply chain of board assembly providers and chassis/casting providers, while final assembly, calibration and testing is accomplished internally. We are also in the final process of physically duplicating our Israeli assembly facilities in the U.S. and adapting them for the U.S. market.
 
We place great emphasis on quality control in our production processes. Commencing with customer requirements and expectations, via raw material inspection through completion, specifications are repeatedly checked. We maintain a quality assurance team that participates in every stage of the design and manufacturing of the products. Our quality management system is certified by the Standards Institute of Israel, or SII, pursuant to ISO 9001:2015 for hardware design and production and ISO 90003:2018 for software design. SII performs quality system audits twice a year and various customers perform audits four to six times a year. Our environmental management system is certified by SII to ISO 14001:2015. Our quality management system is also certified according to AS-9100D (2016), a quality management system for aerospace requirements.
 
According to the standard warranty incorporated in most of our sales contracts, we warrant that our products will be free from defects in design, materials or workmanship, and guarantee repair or replacement of defective parts typically for periods between one to two years following delivery of a product to a customer. We also provide maintenance services to customers who sign maintenance contracts.

20
 
Source and Availability of Raw Materials
 
We acquire most of the components for the manufacturing of our products from suppliers and subcontractors, most of whom are located in Israel and the U.S. Some of these suppliers are currently the sole source of one or more components upon which we are dependent. Since many of our purchases require long lead-times, a delay in supply of an item can significantly delay the delivery of a product. To date, we have not experienced any specific difficulties in obtaining timely deliveries of necessary components. We depend on a limited number of suppliers of components for our products and if we are unable to obtain these components when needed, we would experience delays in manufacturing our products and our financial results could be adversely affected.
 
C. Organizational Structure

RADA Technologies LLC, or RTL, a Delaware LLC, based in Germantown, Maryland, is our only significant subsidiary.

D. Property, Plants and Equipment
 
We own a 30,000 square feet industrial building in Beit She’an, Israel. The building, which includes manufacturing facilities and warehouse space, is situated on land leased from the Israel Land Authority for a period of 49 years ending in 2034. The plant has sufficient capacity to meet our current requirements.
 
Our executive offices, sales and marketing and research and development facilities are located in a 22,600 square feet office facility in Netanya, Israel. The lease for this facility expires in January 2022. The aggregate annual rent for our offices in Israel was approximately $454,000 in 2019.
 
As of December 2019, RTL is occupying approximately 25,000 square feet of office and production facilities in Germantown, Maryland. The lease for this facility, whose current monthly rental cost is approximately $57,000, expires in June 2030.
 
ITEM 4A.
UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
A. Operating Results
 
The following discussion of our results of operations should be read together with our consolidated financial statements and the related notes, which appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.
 
Overview
 
We develop, manufacture and sell defense electronics including tactical land radars for force and critical infrastructure protection applications, and military avionics systems for manned and unmanned aircraft. Our U.S. wholly owned RTL subsidiary, is focused on adapting our tactical radar technology for the U.S. market by altering our technology to meet U.S. customer requirements, certifying the radars to U.S. standards, manufacturing radars and providing maintenance and support. 
 
21

General
 
Our consolidated financial statements appearing in this annual report are prepared in dollars and in accordance with U.S. GAAP. Transactions and balances originally denominated in dollars are presented at their original amounts. Transactions and balances in other currencies are re-measured into dollars in accordance with the principles set forth in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 830. The majority of our sales are made outside of Israel and a substantial part of them are in dollars. In addition, a substantial portion of our costs are incurred in dollars. Since the dollar is the primary currency of the economic environment in which we operate, the dollar is our functional and reporting currency and, accordingly, monetary accounts maintained in currencies other than the dollar are re-measured using the foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the exchange rate in effect at the date of the transaction. All monetary balance sheet accounts have been re-measured using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been re-measured using the average exchange rate for the period. The financial statements of our foreign subsidiary, whose functional currency is not the dollar, have been translated into dollars. All balance sheet amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate prevailing during the year. Such translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity.

Discussion of Critical Accounting Policies and Estimations

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the notes to our consolidated financial statements. These policies have been consistently applied in all material respects. While the estimates and judgments associated with the application of these policies may be affected by different assumptions or conditions, we believe the estimates and judgments associated with the reported amounts are appropriate under the circumstances. We believe the following accounting policies are the most critical in fully understanding and evaluating our financial condition and results of our operations under U.S. GAAP.
 
Revenue Recognition. We account for revenue recognition when (or as) it satisfies performance obligations by transferring promised goods or services to its customers in an amount that reflects the consideration the Company expects to receive. In order to achieve that core principle, we apply the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased or service provided. Revenues from long-term and short-term fixed price contracts are usually recognized over time based on the cost-to-cost input method that best depicts the transfer of control over the performance obligation to the customer. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
 
Impairment of Long-Lived Assets. We are required to assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of our assets based on a number of factors, including any significant changes in the manner of our use of the respective assets or the strategy of our overall business and significant negative industry or economic trends. Upon determination that the carrying value of a long-lived asset may not be recoverable, based upon a comparison of expected undiscounted future cash flows to the carrying amount of the asset, an impairment charge is recorded in the amount of the carrying value of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2019, 2018 and 2017, no impairment losses were identified.
 
Accounting for income taxes. On January 1, 2007, we adopted FASB ASC 740-10 “Income Taxes,” which contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740-10. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement ASC 740-10. We provided a valuation allowance in respect to the deferred tax assets resulting from operating loss carryforwards and other temporary differences. Our management currently believes that since our company has a history of losses, it is more likely than not that the deferred tax regarding the loss carryforwards and other temporary differences will not be realized in the foreseeable future.

22
 
Inventory valuation. The majority of our inventory consists of work in progress, raw materials and components. Inventories are valued at the lower of cost or market. Cost of finished goods is determined on the basis of direct manufacturing costs plus allocable indirect costs representing allocable operating overhead expenses and manufacturing costs. Raw material is valued using the “FIFO” method. We assess the valuation of our inventory on a quarterly basis and periodically write down the value for different finished goods and raw material items based on their potential utilization. If we consider specific inventory to be damaged, we write such inventory down to zero. Inventory write-offs are provided to cover risks arising from slow-moving items, discontinued products, and excess inventories. The process for evaluating these write-offs often requires us to make subjective judgments and estimates concerning the future utilization of the inventory items. Write-offs of inventories for the years ended December 31, 2019, 2018 and 2017 amounted to $230,000, $39,000 and $122,000, respectively. The write-offs were due to slow-moving items and excess inventories and were recorded in cost of revenues. As of December 31, 2019 and 2018 the Company turned part of the slow-moving inventory provision due to sales and disposals of certain items in the amount of $455,000 and 129,000, respectively, which was recorded as income in cost of revenues.
 
Allowance for doubtful accounts. Our trade receivables are derived from sales to customers all over the world. We perform ongoing credit evaluations of our customers. In certain circumstances, we may require letters of credit or prepayments. We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments that we have determined to be doubtful of collection. We determine the adequacy of this allowance by regularly reviewing our accounts receivable and evaluating individual customers’ receivables, considering customers’ financial condition, credit history and other current economic conditions. If a customer’s financial condition were to deteriorate which might impact its ability to make payment, then additional allowances may be required. Provisions for doubtful accounts are recorded in general and administrative expenses. Our allowance for doubtful accounts was $2,000, $2,000 and $14,000 for the years ended December 31, 2019, 2018 and 2017, respectively.
 
Stock-based compensation. We account for stock-based compensation in accordance with the provisions of ASC 718, “Compensation - Stock Compensation.” Under the fair value recognition provisions of ASC 718, stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award. We estimate the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. Effective as of January 1, 2017, we adopted a change in accounting policy in accordance with ASU 2016-09, “Compensation Stock Compensation (Topic 718)” (“ASU 2016-09”) to account for forfeitures as they occur. 
 
The fair value of an award is affected by our stock price on the date of grant and other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options.
 
Discontinued Operations. Under ASC 205-20, “Presentation of Financial Statements - Discontinued Operation” when a component of an entity, as defined in ASC 205-20, has been disposed of or is classified as held for sale, the results of its operations, including the gain or loss on its component are classified as discontinued operations and the assets and liabilities of such component are classified as assets and liabilities attributed to discontinued operations; that is, provided that the operations, assets and liabilities and cash flows of the component have been eliminated from the company’s consolidated operations and the company will have no significant continuing involvement in the operations of the component. Subsequent to our determination to sell our interest in CACS, CACS’ results are accounted as discontinued operation and appear in this annual report in a separate line item as “Discontinued Operations.”

23

Explanation of Key Income Statement Items
 
Revenues. Our revenues are mainly derived from sales of defense electronics and their supporting ground systems.
 
Cost of Revenues. Cost of revenues consists primarily of salaries, raw materials, subcontractor expenses, related depreciation costs, inventories write-downs and overhead allocated to cost of revenues activities.
 
Research and Development Expenses, net. Research and development expenses consist primarily of salaries for research and development personnel, use of subcontractors and other costs incurred in the process of developing product prototypes.
 
Marketing and Selling Expenses. Marketing and selling expenses consist primarily of salaries for marketing and business development personnel, marketing activities, public relations, promotional materials, travel expenses, trade show exhibit expenses, and success fees to business development consultants.
 
General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related expenses for executive, accounting, legal, administrative personnel, professional fees, provisions for doubtful accounts and other general corporate expenses.
 
Financial Expenses, Net. Financial expenses consist of interest and bank expenses, interest on convertible note and loans, amortization expenses of discount on convertible note, deferred charges and currency re-measurement losses. Financial income consists of interest on cash and cash equivalent balances and currency re-measurement gains.
 
Results of Operations
 
The following table presents certain financial data expressed as a percentage of total revenues for the periods indicated:
 
 
  
Year Ended December 31,
  
 
  
2017
    
2018
    
2019
  
Revenues
    
100
%
    
100
%
    
100
%
Cost of revenues
    
68.1
%
    
63.6
%
    
64.0
%
Gross profit
    
31.9
%
    
36.4
%
    
36.0
%
Research and development, net
    
6.3
%
    
11.3
%
    
15.6
%
Marketing and selling
    
8.2
%
    
10.2
%
    
9.1
%
General and administrative
    
9.8
%
    
14.3
%
    
16.0
%
Net loss from sale of fixed assets
    
0
%
    
0.4
%
    
0
%
Operating income (loss)
    
7.6
%
    
0.2
%
    
(4.7
)%
Financial (expenses) income, net
    
(0.6
)%
    
0.4
%
    
(0.3
)%
Net income (loss) from continuing operations
    
7.0
%
    
0.6
%
    
(5.0
)%
Net income (loss) from discontinued operations
    
1.9
%
    
(1.4
)%
    
(0.3
)%
Net income (loss)
    
8.9
%
    
(0.8
)%
    
(5.3
)%
Net income (loss) attributable to non-controlling interest
    
(0.3
)%
    
(1.4
)%
    
(0.7
)%
Net income (loss) attributable to RADA Electronic Industries’ shareholders
    
8.6
%
    
0.6
%
    
(4.6
)%

24

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
 
Revenues. Our revenues increased by 58% to $44.3 million in 2019 from $28.0 million in 2018, mainly due to the increase in sales of our radars.
 
Cost of Revenues. Cost of revenues were $28.4 million in 2019 and $17.8 million in 2018, reflecting the increase in revenues.

Gross Profit. Our gross profit increased by 56% to $15.9 million in 2019 from $10.2 million in 2018. Our gross profit margin was approximately 36.0% in 2019 and 36.4% in 2018. The increase in our gross profit in 2019 was mainly attributable to the increase in revenues generated from the sale of radars.
 
Research and Development Expenses, Net. Our research and development expenses, net increased by 117% to $6.9 million in 2019 from $3.2 million in 2018. The increase is a result of our strategy to achieve and maintain a technological edge for our products in the market.
 
Marketing and Selling Expenses. Marketing and selling expenses increased by 41% to approximately $4.0 million in 2019 from $2.9 million in 2018. We increased our level of marketing and selling expenses primarily due to our efforts to sell our radar products, mainly reflected in the costs incurred as part of our participation in field demonstrations requested by our potential customers as well as because of the costs associated with developing our RTL subsidiary in the U.S.
 
General and Administrative Expenses. General and administrative expenses increased by 77% to approximately $7.1million in 2019 from $4.0 million in 2018. The increase is primarily attributable to the development of RTL in the U.S. as well as to the increase in the non-cash expense associated with employee option compensation.
 
Financial Expenses (Income), Net. We had net financial expenses of $0.1 million in 2019 while we incurred $0.1 million of net financial income in 2018.
 
Year Ended December 31, 2018 Compared with Year Ended December 31, 2017
 
Please see Item 5A of our Form 20-F for the year ended December 31, 2018 filed on April 1, 2019 for this comparison.
 
Our Location in Israel
 
We are incorporated under the laws of the State of Israel, and our principal executive offices and principal manufacture, research and development facilities are located in Israel. See Item 3D “Key Information – Risk Factors – Risks Relating to Our Location in Israel” for a description of governmental, economic, fiscal, monetary or political polices or factors that have materially affected or could materially affect our operations.
 
Corporate Tax Rate
 
Israeli companies were generally subject to corporate tax at a rate of 23% in 2019 and are subject to the same corporate tax rate in 2020.
 
As of December 31, 2019, our net operating loss carry forward for Israeli tax purposes was approximately $64 million, not including capital loss carry forwards of approximately $3.8 million. As of December 31, 2019, our U.S. subsidiaries have U.S. federal carryforward tax losses of approximately $3.0 million.
 
25

Trade Relations
 
Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development, and the International Finance Corporation. Israel is a member of the World Trade Organization and is a signatory to the General Agreement on Tariffs and Trade. Israel is a member of the Organization for Economic Co-operation and Development, or the OECD, an international organization whose members are governments of mostly developed economies. The OECD’s main goal is to promote policies that will improve the economic and social well-being of people around the world. In addition, Israel has been granted preferences under the Generalized System of Preferences from the U.S., Australia, Canada and Japan. These preferences allow Israel to export the products covered by such programs either duty-free or at reduced duties.
 
Israel and the E.U. concluded a Free Trade Agreement in July 1975 that confers some advantages with respect to Israeli exports to most European countries and obligates Israel to lower its tariffs with respect to imports from these countries over a number of years. In 1985, Israel and the U.S. entered into an agreement to establish a Free Trade Area. The Free Trade Area has eliminated all tariff and some non-tariff barriers on most trade between the two countries. On January 1, 1993, an agreement between Israel and the European Free Trade Association, known as the “EFTA,” established a free-trade zone between Israel and the EFTA nations. In November 1995, Israel entered into a new agreement with the E.U., which includes a redefinition of rules of origin and other improvements, such as allowing Israel to become a member of the Research and Technology programs of the E.U.
 
Impact of Currency Fluctuation and of Inflation
 
A significant portion of the cost of our Israeli operations, primarily personnel and facility-related, is incurred in NIS. Therefore, our NIS related costs, as expressed in dollars, are influenced by the exchange rate between the dollar and the NIS. In addition, if the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the dollar, or if the timing of such devaluations were to lag considerably behind inflation, our cost as expressed in dollars may increase. NIS linked balance sheet items, may also create foreign exchange gains or losses, depending upon the relative dollar values of the NIS at the beginning and end of the reporting period, affecting our net income and earnings per share. Although we may use hedging techniques, we may not be able to eliminate the effects of currency fluctuations. Therefore, exchange rate fluctuations could have a material adverse impact on our operating results. The caption “Financial expenses, net” in our consolidated financial statements includes the impact of these factors as well as traditional interest income or expense.
 
The following table sets forth, for the periods indicated, (i) depreciation or appreciation of the NIS against the most important currency for our business, the dollar, until December 31 each year and the year before, and (ii) inflation as reflected in changes in the Israeli consumer price index.
 
 
  
Year Ended December 31,
  
 
  
2015
    
2016
    
2017
    
2018
    
2019
  
NIS vs. U.S. Dollar
    
0
%
    
(1.0
)%
    
(9.8
)%
    
3.19
%
    
(7.8
)%
Israeli Consumer Price Index
    
(1.0
)%
    
(0.2
)%
    
1.5
%
    
0.8
%
    
0.6
%
 
Since exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on our profitability and period-to-period comparisons of our results. We cannot assure you that in the future our results of operations may not be materially adversely affected by currency fluctuations.
 
Recently Issued Accounting Standards

New accounting pronouncements not yet effective:
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new accounting standard will be effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. We do not expect that adoption of this standard will have a material impact on our consolidated financial statements.
 
 
26

Recently Adopted Accounting Pronouncements:
 
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, “Leases” ("ASC 842"), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. We have adopted a policy whereby leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under the prior guidance (ASC 840). The new standard requires lessors to account for leases using an approach that is substantially equivalent to ASC 840 guidance for sales-type leases, direct financing leases and operating leases. The new standard supersedes the previous leases standard, ASC 840, "Leases". We adopted the new standard as of January 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been restated. We have elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it to reassess the prior conclusions about lease identification, lease classification and initial direct costs. We elected the practical expedient to not separate lease and non-lease components for all its leases. This results in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability being greater than if the policy election was not applied. The Company also elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. 
 
B. Liquidity and Capital Resources
 
We have historically met our financial requirements primarily through cash generated by operations, funds generated by our public offerings, private placements of our Ordinary Shares and debt securities, loans from our principal shareholders, short-term loans and credit facilities from banks, research and development grants from the government of Israel and the Israel-U.S. Binational Industrial Research and Development Foundation, investment grants for approved enterprise programs and marketing grants from the government of Israel.
 
We had working capital of $31.8 million as of December 31, 2019 compared with working capital of $37.8 million at December 31, 2018. Cash and cash equivalents were $13.8million as of December 31, 2019 compared to $20.8 million as of December 31, 2018. The decline in working capital and cash and cash equivalents is principally attributable to a $5.9 million increase in inventories to support our increase in sales, our investments in RTL and increased research and development expenses.

As of December 31, 2019, our banks provided $0.35 million of guarantees on our behalf, mainly to our customers and suppliers in the ordinary course of business. The guarantees are secured by a first priority charge on our restricted cash total $0.38million as of December 31, 2019.

On May 15, 2016, our shareholders approved the sale to DBSI of 8,510,638 of our Ordinary Shares in consideration for approximately $4 million, reflecting a price per share of $0.47. In addition, we issued to DBSI warrants to purchase: (i) an additional 4,255,319 Ordinary Shares at an exercise price per share of $0.47 (resulting in an aggregate exercise price of $2 million), exercisable for a period of 24 months following the date of the initial investment and (ii) warrants to purchase an additional 3,636,363 shares at an exercise price per share of $0.55 (resulting in an aggregate exercise price of $2 million), exercisable for a period of 48 months following the date of the initial investment.
 
DBSI also granted our company an option, exercisable by either us or DBSI, for us to obtain a three-year loan in the principal amount of up to $3.175 million solely for the purpose of the repayment of the outstanding shareholders’ debt. We exercised such option in June 2016 and used the funds to fully repay our outstanding shareholders’ debt.
 
During the term of the loan, which had a three-year term, DBSI had the right, but not the obligation, at its sole discretion, to convert the then remaining convertible loan amount into Ordinary Shares at a price per share equal to the lower of: (i) $2.40, or (ii) a five percent (5%) discount to the FMV (the average of the closing prices of our Ordinary Shares over the 5 consecutive trading days ending on the last trading day prior to the date of conversion), but in no event less than $0.47. In August 2017, DBSI converted the entire principal of the loan and acquired 1,322,917 Ordinary Shares, reflecting a conversion price of $2.40 per share.

27
 
DBSI’s exercise of warrants has resulted in proceeds to our company of $1.25 million in 2016, $1.95 million in 2017 and $0.8 million in 2018. There are no outstanding warrants held by DBSI.
 
In connection with the 2016 DBSI transaction, we issued warrants to purchase 255,319 Ordinary Shares to each of Legos Advisors Ltd. and Mr. Avi Geffen as commission and finder’s fees. All of these warrants were exercised in 2017 for total consideration of $0.24 million.
 
On November 15, 2016, we completed a $2 million registered direct offering of 1,904,762 Ordinary Shares at a price per share of $1.05 to The Phoenix Insurance Company Ltd. (“Phoenix”) and its affiliate, Shotfut-Menayot-Israel-HaPhoenix Amitim Ltd. At the same time, DBSI invested an additional $1 million in our company through the exercise of 2,127,660 warrants.
 
On August 20, 2017, we sold 4,604,500 of our Ordinary Shares to Israeli institutional investors, at a price of $2.15 per share pursuant to our shelf registration statement.
 
On November 13, 2018, one of our consultants exercised 111,000 warrants and was issued 62,601 Ordinary Shares in a cashless exercise.
 
On December 6, 2018 we completed a $12.5 million registered direct offering of 4,545,454 Ordinary Shares at a price per share of $2.75, of which $10 million was invested by Psagot and $2.5 million by Phoenix, two Israeli institutional investors. In addition, on January 16, 2019 we issued 545,454 Ordinary Shares to DBSI in a shareholder approved private placement for approximately $1.5 million, reflecting a price per share of $2.75.

On January 20, we raised in an underwritten public offering of 4,819,052 Ordinary Shares at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800.
 
We made capital expenditures of $ 4.6million in the year ended December 31, 2019, primarily for machinery and equipment for use by RTL and our manufacturing facility in Israel. We currently do not have any significant capital spending or purchase commitments.
 
Cash Flows
 
The following table summarizes our cash flows for the periods presented:
 
 
  
Year ended December 31,
  
 
  
2017
    
2018
    
2019
  
 
  
(U.S. dollars in thousands)
  
Net cash provided by (used in) operating activities from continuing operations
    
1,722
      
(3,858
)
    
(3,461
)
Net cash used in investing activities from continuing operations
    
(1,806
)
    
(948
)
    
(5,133
)
Net cash provided by financing activities from continuing operations
    
11,292
      
12,798
      
966
  
Net cash provided by (used in) operating activities from discontinued operations
    
(644
)
    
1,186
      
-
  
Net cash used in investing activities from discontinued operations
    
(101
)
    
(2
)
    
-
  
Effect of exchange rate changes on cash and cash equivalents
    
(138
)
    
(420
)
    
-
  
Increase (decrease) in cash and cash equivalents and restricted cash
    
10,325
      
8,756
      
(7,628
)
Cash and cash equivalents and restricted cash at beginning of the year
    
2,681
      
13,006
      
21,762
  
Cash and cash equivalents and restricted cash at end of the year
    
13,006
      
21,762
      
14,134
  
Less cash and cash equivalents of discontinued operation at the end of the year
    
267
      
526
      
-
  
 
    
12,739
      
21,236
      
14,134
  
 
28

Continuing Operations:
 
Net cash used in operating activities was $3,461,000 in 2019. This was primarily due to an increase in inventories of $6,613,000and a net loss of $2,339,000. This was offset by depreciation and amortization expenses of $1,223,000, share based non-cash compensation to employees of $1,148,000, an increase in trade payables of $1,439,000 and an increase in other accounts payables of $2,729,000. Net cash provided by operating activities was $3,858,000 in 2018. This was primarily due to an increase in trade receivables of $6,096,000 and an increase in inventories of $3,865,000. This was offset by depreciation and amortization of $799,000, share based non-cash compensation to employees of $898,000, an increase in trade payables of $ 2,610,000 and an increase in other accounts payables of $1,693,000. Further details concerning comparative financial data for 2017, are available in registrant’s Form 20-F for the fiscal year ended December 31, 2018.
 
Net cash used in investing activities was $5,133,000 in 2019, primarily due to the investment of $4,092,000 in property, plant and equipment and construction-in-process of production infrastructure of $459,000 and disposal of discontinued operations of $526,000. Net cash used in investing activities was $948,000 in 2018, primarily due to the investment of $899,000 in property, plant and equipment and construction-in-process of production infrastructure of $308,000. Further details concerning comparative financial data for 2017, are available in registrant’s Form 20-F for the fiscal year ended December 31, 2018.

Net cash provided by financing activities was $966,000in 2019, reflecting mainly the issuance of Ordinary Shares in a registered direct offering. Net cash provided by financing activities was $12,798,000 in 2018, reflecting the issuance of Ordinary Shares in a registered direct offering that provided us with net proceeds of $12,252,000. Further details concerning comparative financial data for 2017, are available in registrant’s Form 20-F for the fiscal year ended December 31, 2018.
 
Discontinued Operations:
 
Net cash provided by operating activities from discontinued operations was $1,186,000 in 2018. This was primarily due to a decrease in trade receivables of $645,000. Further details concerning comparative financial data for 2017, are available in our Annual Report on Form 20-F for the fiscal year ended December 31, 2018.
 
Net cash used in investing activities from discontinued operations was $2,000 in 2018, due to investment of $2,000 in property, plant and equipment. Further details concerning comparative financial data for 2017, are available in registrant’s Form 20-F for the fiscal year ended December 31, 2018
 
As a result of the foregoing, at December 31, 2019, we had working capital of $31,805,000 and cash and cash equivalents of $13,754,000as compared to working capital of $37,840,000 and cash and cash equivalents of $20,814,000, at December 31, 2018.
 
We expect to fund our short-term liquidity needs in 2020, including our obligations under, contractual agreements and any other working capital requirements, from our cash and cash equivalents (including funds raised in January 2020), and operating cash flow. We project that our current cash and cash equivalents and our expected cash flow from operations, will be sufficient to meet our cash requirements in 2020.
 
29
 
C. Research and Development, Patents and Licenses
 
Research and Development
 
Our research and development activities focus on improvements to our existing products, the development of complementary products that provide continued support for our current customers and improve our capability to market our products to new customers and to keep a competitive edge over our competitors. In 2019, 2018 and 2017 we incurred $6.9 million, $3.1 million and $1.6 million, respectively, of research and development expenses, net. The majority of these expenses are attributable to the development of our radars. In 2020, we intend to continue our investment in the research and development of new products. As of December 31, 2019, we employed 44 engineers (including 2 sub-contractors) in research and development who principally concentrate on research and development activities.
 
The Israel Innovation Authority, or the IIA, encourages research and development by providing grants to Israeli companies, pursuant to the Law for the Encouragement of Industrial Research and Development, 1984, as amended. The terms of such grants prohibit the manufacture of the developed products outside of Israel and the transfer of technologies developed using the grants to any person without the prior written consent of the IIA. During recent years, we developed a new radar sensor for APS, partly financed by the IIA. We received royalty bearing grants of $1.138 million from the IIA. Pursuant to applicable Israeli law, we are currently required to pay royalties at the rate of 3% of sales of products developed with certain grants received from the IIA, up to 100% of the amount of such grants, adjusted by the exchange rate with the dollar. As of December 31, 2019, our total obligation for royalty payments, net of royalties paid or accrued was zero.
 
D. Trend Information
 
In 2019, our revenues increased by approximately 58% compared to our revenues in 2018. Our future revenues will, in great measure, be dependent upon the success of our sales and marketing strategy. We are currently focusing our sales efforts on:
 
 
●
tactical radar systems for force and critical infrastructure protection solutions; and
 
 
 
 
●
military avionics.
 
We cannot provide any assurances that we will be successful in meeting our targets in the future. As a result of the unpredictable business environment in which we operate and the potential effects of the spread of COVID-19, we are unable to provide any specific guidance as to sales and profitability trends. However, on January 7, 2020 we provided revenues guidance for 2020 of $65 million, which guidance is subject to change. If we are unsuccessful in our sales efforts, it is unlikely that we will be able to achieve profitability in the future and we will require additional capital.
 
E. Off-Balance Sheet Arrangements
 
We are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.

F. Tabular Disclosure of Contractual Obligations
 
The following table summarizes our minimum contractual obligations and commercial commitments, as of December 31, 2019 and the effect we expect them to have on our liquidity and cash flow in future periods.
 
Contractual Obligations
  
Payments due by Period
  
 
  
(U.S. dollars in thousands)
  
 
  
Total
    
Less than 1 year
    
1-3 Years
    
3-5 Years
    
More than
5 years
  
Long-term debt obligations
    
-
      
-
      
-
      
-
      
-
  
Operating lease obligations
    
7,996
      
1,164
      
2,063
      
1,172
      
3,597
  
Total
    
7,996
      
1,164
      
2,063
      
1,172
      
3,597
  

We have long-term liabilities for severance pay for certain employees that are calculated pursuant to Israeli law generally based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Under Israeli law, employees are entitled to one month’s salary for each year of employment or a portion thereof upon termination of employment in certain circumstances, including the retirement or death of an employee or the termination of employment of an employee without due cause. As of December 31, 2019, our severance pay liability was $0.8 million.
 
30

ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
A. Directors and Senior Management
 
Set forth below are the name, age, principal position and a biographical description of each of our directors and executive officers:
 
Name
 
Age
 
Position
Yossi Ben Shalom (2)
 
63
 
Executive Chairman of the Board of Directors
Nir Cohen
 
47
 
Director
Prof. Alon Dumanis (1)(2)
 
69
 
Director
Haim Regev
 
53
 
Director
Joseph Weiss
  
68
  
Director
Tal Misch Vered (1)
 
52
 
External Director
Elan Sigal (1)
 
52
 
External Director
Kineret Yaari
 
35
 
Director
Guy Zur (2)
 
58
 
Director
Dov Sella
 
64
 
Chief Executive Officer
Avi Israel
 
55
 
Chief Financial Officer
Oleg Kiperman
 
66
 
Chief Technology Officer
Yaniv Dorani
  
44
  
Chief Operating Officer
William Watson
 
56
 
Chief Executive Officer of RADA Technologies LLC
Max Cohen
 
46
 
Chief Executive Officer of RADA Sensors Inc (RSI(3))
 
 
(1)
Member of the Audit and Compensation Committee
(2)
Member of the Business Development Committee
(3)
RADA Sensors Inc. is the sole shareholder of RADA Technologies LLC
 
Messrs. Yossi Ben Shalom, Nir Cohen, Haim Regev, Joseph Weiss, Guy Zur and Alon Dumanis and Ms. Kineret Yaari will serve as directors until our 2020 annual general meeting of shareholders. Ms. Misch and Mr. Sigal serve as our external directors and each currently holds office for three-year terms until October 21, 2021, and August 30, 2022, respectively. On July 22, 2019, Mr. Ben Zion Gruber retired as a member of our Board of Directors and on September 12,2019, Mr. Israel Livnat passed away.
 
Yossi Ben Shalom was appointed as a director of RADA effective as of May 18, 2016 and has served as the Chairman of our Board of Directors since June 14, 2016. Mr. Ben-Shalom was Executive Vice President and Chief Financial Officer of Koor Industries Ltd. from 1998 through to 2000. Before that, Mr. Ben-Shalom served as Chief Financial Officer of Tadiran Ltd. Mr. Ben-Shalom was an active director on numerous boards of directors, including: NICE Systems Ltd. (NASDAQ: NICE) (computer telephony); Machteshim Agan (chemistry); and Investec Bank. He also participated in the creation of TDA VC fund (a joint venture between Templeton and Tadiran) and was an active Chairman of Scopus – a technology company with sales of over $30 million. Yossi is a co-founder of DBSI Investments Ltd. As such, he currently serves as the Chairman of Shagrir Group Car Services Ltd. (TASE: SHGR). Mr. Ben-Shalom also serves as a director of Taldor Computer Systems (1986) Ltd. (TASE: TALD) and several other privately held companies. Mr. Ben-Shalom holds a B.A. degree in Economics and an M.A. degree in Business Management from Tel Aviv University.
 
31
 
Nir Cohen has served as a director of RADA since May 18, 2016. Mr. Cohen serves as Chief Financial Officer of DBSI Investments Ltd. and of its affiliate – Shiraz DS Investments Ltd. As the CFO of both DBSI and Shiraz, Mr. Cohen serves as a director in several public companies: Taldor Computer Systems (1986) Ltd. (TASE: TALD) and Shagrir Group Vehicle Services Ltd. (TASE: SHGR). Before joining DBSI, Mr. Cohen served as partner and CFO of Argoquest Holdings, LLC, a privately held U.S.-based investment company specializing in high-tech investments. Prior to joining Argoquest, Mr. Cohen served as a senior associate at Kesselman & Kesselman, an Israeli affiliate of the global accounting firm PricewaterhouseCoopers (PwC). Before joining PwC, Mr. Cohen worked as an auditor for the accounting firm KPMG in Israel. Mr. Cohen holds a B.A. degree in Accounting and Business Management from the College of Management and is a Certified Public Accountant in Israel.
 
Prof. Alon Dumanis has served as a director of RADA since 2015. Until December 31, 2015, Prof. Dumanis was the Chief Executive Officer of Dumanis Investments Ltd and its affiliates. He is currently chairman of Aposense (TASE-APOS), Managing Partner of Augmentum Ltd., CEO of ACS Air-Cyber Solutions Ltd., member of the board of directors of Lapidoth Capital (TASE-LAPD), SirVir Ltd. and advisory board member of Parazero Ltd. Prof. Dumanis was for 15 years (until 2015) the Chief Executive Officer of Docor International Management Ltd. and the General Manager of Crecor B.V. and Docor International B.V., Dutch investment companies, subsidiaries of The Van-Leer Group Foundation. He was the chairman of Van Leer Xenia (Jerusalem Technology Incubator), XSight Systems, Softlib, DNR Imaging, Clariton Networks, Bondx, and a member of the board directors of Spectronix (TASE-SPCT), Collplant (TASE-CLPT), and a member of the board of directors of other high-tech and bio tech companies in Docor’s investment portfolio. Prof. Dumanis is a former member of the board of directors of El Al Israel Airlines (TASE-LY), Tadiran Communications (TASE-TDCM), Nova Measuring Instruments (NASDAQ-NVMI), Protalix Biotherapeutics (NYSE-PLX) and Inventech Investments Co. Ltd. (TASE-IVTC). Previously, Prof. Dumanis was the Head of the Material Command in the Israel Air Force holding the rank of Brigadier General. Prof. Dumanis holds a Ph.D. in Aerospace Engineering from Purdue University, West Lafayette, Indiana, USA. Prof. Dumanis is currently a faculty member in Azrieli Jerusalem College of Engineering Jerusalem and serves as the head of the Technological Entrepreneurship graduates’ program. He has managed multi-billion-dollars R&D programs, engineering, security, information technology, logistics and Acquisition, Air-Force infrastructure programs and other projects. He was a member of various notable steering committees for the Minister of Defense and the Israel Defense Forces, Chief of General Staff, for national level strategy, technological road mapping and information technology. Prof. Dumanis has received prizes, honors and awards including the Purdue University “Outstanding Aerospace Engineer of 2001 Award”. He is a chairperson and member of several national steering committees and is the author of many papers published locally and internationally in a number of domains including technology and management. Prof. Dumanis also holds a Doctorate of Philosophy degree in Aerospace Engineering from Purdue University.
 
Haim Regev has served as a director of RADA since May 21, 2019. Mr. Regev serves as a board member of the Israeli Ministry of Foreign Affairs since August 2016 and as the director for the Middle East and Peace Process Division. From 2013 to 2016, Mr. Regev was Director of Coordination Department at the Ministry of Foreign Affairs. From 2008 to 2013, Mr. Regev directed the Department for International Cooperation at the Israeli Missile Defense Organization (IMDO) at the rank of Lieutenant Colonel. Mr. Regev served as Israel’s Counselor for Congressional Affairs in Washington D.C between 2004 to 2008. Mr. Regev has a B.A. in Political Science and Middle Eastern Studies and an M.A. in Business Management with honors, both from Tel Aviv University.
 
Joseph Weiss has served as director of RADA since December 25, 2019. Mr. Weiss served as the President and Chief Executive Officer of Israel Aerospace Industries Ltd (“IAI”), Israel's largest aerospace corporation and the country's largest high-tech company from 2012 until August 31, 2018. Mr. Weiss joined IAI in 1998, after serving in Israel's navy for 27 years in various field and headquarter positions and retired as a Captain. While at IAI Mr. Weiss held a number of managerial positions and was also appointed as Chairman of the Board of ELTA, IAI's subsidiary which provides design, development, manufacture and support of electronic intelligence & defense systems for military, paramilitary and law-enforcement markets. Mr. Weiss also serves as a member of the Board of Governors of the Technion – Israel Institute of Technology in Haifa, as a Director of Bet Shemesh Engines Ltd., a jet engine parts manufacturer, as a director of UVision Air Ltd., UVision designs, manufactures and delivers innovative, cost-effective, unmanned aerial loitering munition systems for customers worldwide, and since January 1, 2019, serves as Chairman of the Board of Tubex NRG Ltd, a bio-nanotechnology startup that is seeking to improve battery performance. Mr. Weiss holds a BSc. degree (with honor) in Mechanical Engineering from the Technion and an MBA degree from Tel Aviv University. He also completed MSc studies at the Technion.

32

Tal Misch Vered has served as an external directors of RADA since October 2018 Ms. Misch has served as an external director of Telsys Ltd., an Israeli company whose shares are traded on the TASE (since 2016), the company for the Management of the Provident Fund of Ovdei Hamedina (since 2016), a government fund, Mardechai Aviv Building Industries (1973) Ltd., an Israeli public company whose shares are traded on the TASE (since 2016), Medi Power (Overseas) Ltd., a Cypriot company whose shares are traded on the TASE (since 2015), and Opal Balance Ltd., an Israeli company whose shares are traded on the TASE (since 2012). In addition, Ms. Misch served as a director of A.D.O. group, an Israeli company whose shares are traded on the TASE (from 2018 to 2020), Roots Sustainable Agricultural Technologies Ltd. an Israeli company whose shares are traded in Australia (from 2017 to 2018), Semicom Industries Ltd. an Israeli public company (from 2013 to 2014), Arazim Investments Ltd. an Israeli public company (from 2011 to 2014), Ligad Investment and Building Ltd., an Israeli public company (from 2012 to 2013), Karden Automobiles Ltd., an Israeli public company (from 2004 to2005) and Keshet Broadcast Ltd., an Israeli private company (from 2003 to 2004). Between 2006 and 2014, Ms. Misch served as the co-CEO of Gmul Residential Real Estate Ltd, an Israeli public company. Prior to that, from 2004 to 2007 Ms. Misch served as the CFO of Gmul Investment Ltd. an Israeli public company. Prior to that, Ms. Misch served in various managerial and professional positions, including as a certified public accountant in Broyde KPMG & Co. Ms. Misch is a CPA and a member of the Israeli Accountants Council as well as a licensed real estate appraiser. Ms. Misch has a B.A. degree in Economics and Accounting, and an M.A. degree in Philosophy, Science and Digital Culture, from Tel Aviv University and MCSA certification.
 
Elan Sigal has served as an external director of RADA since August 2013. Mr. Sigal is currently serving as the Chief Financial Officer of Scodix, a capital equipment manufacturer in the printing industry. From January 2013 to August 2017, Mr. Sigal served as the Chief Financial Officer of Landa Corporation (Israel), an Israeli company that develops printing systems with proprietary nanography technology for the commercial market. Between January 2008 and December 2012, Mr. Sigal was the Chief Financial Officer of Objet Geometries Ltd., an Israeli company that is engaged in the design, development and manufacture of 3D printers. Between 2004 and December 2007, Mr. Sigal served as the Chief Financial Officer of our company. From May 2000 to December 2003, Mr. Sigal worked as a management consultant in the London office of McKinsey & Co., a leading global management consulting firm. For ten years Mr. Sigal served as a fighter pilot in the Israeli Air Force. Mr. Sigal holds a B.A. degree in Economics from Tel Aviv University.
 
Kineret Yaari has served as a director of RADA since May 18, 2016. Mrs. Yaari serves as a Chief Investments Manager at DBSI Investments Ltd. Mrs. Yaari also serves as a director of Taldor Computer Systems (1986) Ltd. (TASE: TALD) and Shagrir Group Vehicle Services Ltd. (TASE: SHGR). Before joining DBSI Investments, Mrs. Yaari served as a senior business analyst at Giza-Singer-Even, a financial advisory and investment banking firm in Israel. Mrs. Yaari holds a B.A. degree in Economics and Management and an M.B.A. degree in Accounting and Finance from Tel Aviv University.
 
Guy Zur has served as a director of RADA since March 27, 2017. Mr. Zur joined the IDF in 1980 and served in the military until 2016 in a variety of positions retiring with the rank of Major General. Mr. Zur served as the commander of the Ground Forces from 2013 until 2016. Between 2010 and 2013, Mr. Zur served as the Head of the IDF Planning Division. Between 2007 and 2010, Mr. Zur served as the commander of the National Training Center for Ground Trainings (NTC). Mr. Zur is currently the CEO of some Taavura Group subsidiaries, one of the largest logistics and transportation conglomerates in Israel, as well as a technology entrepreneur. Mr. Zur holds an M.B.A. degree from Be’er Sheva University, a Bc.S. degree in Mechanical Engineering from Tel Aviv University, and is an alumnus of the Royal College of Defense Studies, London.
 
Dov Sella has served as our Chief Executive Officer since November 2016 and previously, since July 2007, served as our chief business development officer. Prior to that and from January 2003, Mr. Sella served as our chief operating officer. Mr. Sella has over 20 years of senior management and product development experience. From 1982 until 1997, Mr. Sella worked for Elbit Systems Ltd., a leading Israeli defense contractor. Among his positions at Elbit, he served as director of programs, director of avionics engineering and director of business development. Between 1997 and 2000, Mr. Sella served as executive vice president and vice president of business development and vice president of research and development of UltraGuide Ltd., a medical devices start-up. During the three years prior to joining our company, Mr. Sella was the president of NeuroVision Inc., a medical technology start-up. Mr. Sella has a B.Sc. degree (cum laude) in Computer Engineering from the Technion - Israeli Institute of Technology. Mr. Sella served as a fighter aircraft navigator in the IAF.

33
 
Avi Israel has served as our Chief Financial Officer since November 2017. Prior to that and since 2014, Mr. Israel has served as the CEO of Logisticare Ltd., a leading Israeli private company providing third-party logistics and supply chain services. Between 2010 and 2013, Mr. Israel served as the CEO of Brimag Communication Ltd., the Israeli importer and distributor of mobile phones and other cellular products manufactured by LG Electronics. Prior to that and since 2004, Mr. Israel served in several positions (including Deputy CEO and Finance Director) of Telit Communications PLC., an IoT (Internet of Things) company listed on AIM in London. Between 1996 and 2004, Mr. Israel served in several positions in the Formula Systems Group, as the VP M&A in charge of the international operations of Matrix Ltd. (TASE: MTRX), one of Israel’s largest software solutions companies, as well as the CFO of New Applicom Ltd., an Israeli software company that merged with Matrix. Prior to that and since 1992, Mr. Israel acted as the CFO of Burford International Application Ltd in the United Kingdom. Between 1989 and 1992, Mr. Israel was a certified public accountant with Almagor & Co, (today Deloitte Israel). Mr. Israel also served between the years 2011-2017 as an external director of Analyst Portfolio Management Ltd. and between 2004 and 2010 as an external director of Semicom Industries Ltd. Currently, Mr. Israel is also an external director of Or Shay Ltd., whose bonds are traded on the TASE. Mr. Israel has a B.A. degree in Economics and Accounting and an M.B.A. degree, both from Bar-Ilan University in Israel. Mr. Israel is a CPA and a member of the Israeli Accountants Council.
 
Oleg Kiperman has served as our Chief Technology Officer since July 2007. Mr. Kiperman joined us in 1984 as project manager of several embedded avionics development programs and in 2000 was named as our director of engineering. From 1982 until 1984, Mr. Kiperman served as a hardware development team leader at Tadiran Ltd. developing digital communication systems. From 1977 until 1982, Mr. Kiperman served as a senior engineer in the IAF Weapons Control Branch. Mr. Kiperman holds a B.Sc. degree in Electrical Engineering from the Technion - Israeli Institute of Technology.

Yaniv Dorani has served as our Chief Operating Officer since March 2020. Mr. Dorani served as the Chief Financial Officer of Pointer Telocation Ltd. (NASDAQ: PNTR) from April 2017 until Pointer’s acquisition by PowerFleet Inc. (NASDAQ: PWFL) in October 2019. Mr. Dorani was employed in various capacities with Pointer starting in 2008. Prior to joining Pointer, Mr. Dorani served as Corporate Controller at Medis Technologies and assistant controller at Delta Galil Industries. Before joining Delta Galil, Mr. Dorani was a senior auditor for the accounting firm KPMG in Israel. Mr. Dorani holds a B.A. degree in Economics and Accounting and a M.B.A. degree from Bar Ilan University in Tel Aviv.  Mr. Dorani is a Certified Public Accountant in Israel.

William Watson has served as the Chief Executive Officer of RADA Technologies LLC (RTL) since March 2018. Mr. Watson has over 30 years of experience in product and business development experience in the defense market. Prior to joining RADA, Mr. Watson was responsible for worldwide sales and business development for L3 Technologies, GCS between July 2017 and January 2018. Mr. Watson also developed a worldwide sales team for Safran Vectronix in March 2015 and December 2016. He previously spent 27 years with DRS Technologies, a major US defense contractor, in a variety of roles including P&L responsibilities as VP, Radar & Communication Systems; and also VP, Naval C4 Systems. During his tenure with DRS, Mr. Watson also held leadership positions in Program Management, Engineering and Business Operations. Mr. Watson has an M.B.A. degree in Business Administration and Management from Long Island University (C.W. Post) and o a Bachelor of Engineering degree (BEng) in Mechanical Engineering from the State University of New York (Stony Brook).
 
Max Cohen has served as our Executive Vice President for the U.S. market, since May 2018 and has served as the Chief Executive Officer of RADA Sensors Inc. since December 2019. Mr. Cohen, who retired from the Israeli Defense Forces (IDF) in March 2018 as a Lieutenant Colonel (LTC) after 26 years of service, relocated to the U.S. in August 2018. Since his retirement, Mr. Cohen together with his partners, founded FLYON Aerosystems Ltd., a start-up company engaged in the development of a new commercial flying platform. Mr. Cohen initiated and led a major program during his services in the IDF. From 2004 until 2017, as the head of the Sky Picture Department in the IAF, Mr. Cohen led the development of the air picture command and control systems (C2) and the air picture radars. During this period, Mr. Cohen initiated a comprehensive national program to deal with the emerging threat of the quadcopters. Mr. Cohen has a BSc. degree in Electrical and Computer Engineering from Ben-Gurion University (during his studies he published two papers on multispectral imaging in the SPIE - The International Society for Optics and Photonic. He also finished all the required courses for a MSc. degree in electrical engineering from Tel-Aviv University.

34
B. Compensation
 
The following table includes information for the year ended December 31, 2019 concerning the five (5) most highly compensated executive officers of our company, (the figures below reflect the applicable cost of employment on an annual basis):
 
 
  
Dov Sella1
    
Bill Watson
    
Max Cohen
    
Oleg Kiperman
    
Avi Israel
  
Annual salary cost and other benefits ($)2  
    
574,914
      
389,250
      
396,944
      
358,572
      
292,430
  
Non-cash employees’ options compensation cost for 2019 ($)3
    
454,578
      
90,287
      
36,115
      
74,002
      
99,904
  
Total ($)
    
1,029,492
      
479,537
      
433,059
      
432,574
      
392,334
  
 
 
(1)
In January 2017, our shareholders approved a new employment agreement with our Chief Executive Officer, Mr. Dov Sella, who had previously served as our Chief Business Development Officer. From January 2017 until December 31, 2018 Mr. Sella received a monthly gross base salary of NIS 75,000. In addition to the options to purchase 131,250 Ordinary Shares that were granted to him on June 14, 2016, our shareholders approved an additional grant of options to Mr. Sella as follows: (i) options to purchase 68,750 Ordinary Shares at an exercise price of $1.16 per ordinary share that vested ratably over a period of four (4) years and (ii) options to purchase 150,000 Ordinary Shares at an exercise price of $1.16 per ordinary share that will vest immediately instead of 99 vacation days that had accrued and were redeemable by Mr. Sella. In November 2017, our shareholders approved the grant of additional options to Mr. Sella as follows: options to purchase 500,000 Ordinary Shares at an exercise price of $2.96 per shares that vest ratably over a period of four (4) years. In June 2018, our shareholders approved the grant of additional options to Mr. Sella as follows: options to purchase 500,000 Ordinary Shares at an exercise price of $2.32 per shares that vest over a period of four (4) years as follows: 25% will vest at the first anniversary of the grant date and the balance shall vest in 12 equal and consecutive quarterly installments. In addition, on January 16, 2019 our shareholder approved an increase of the monthly base-salary payable to Mr. Sella, effective as of January 1, 2019 to NIS100,000 as well an additional bonus payment (not exceeding 6 base salaries) that are conditioned upon the Company and Mr. Sella satisfying certain measurable business and quantitative milestones.
 
 
 
 
(2)
Includes the gross salary of the five (5) most highly compensated executive officers plus payments of (i) salary bonus; (ii) social benefits such as payments for savings funds, education funds, pension, severance, insurances, social security; and (iii) general benefits such as company car (including maintenance and gas) and cell phone; and (iv) option compensation and other benefits pursuant to our company’s policy.
 
 
 
 
(3)
Option compensation pursuant to our company’s policy.
 
Mr. Yossi Ben Shalom has served as the Executive Chairman of our Board of Directors since May 18, 2016. In January 2017, our shareholders approved that in addition to the directors’ fees to be paid to all of our directors commencing as of January 1, 2017, we would pay DBSI a monthly payment of NIS 17,500 (approximately $4,600) for time devoted by Mr. Ben Shalom to such position. As of 2017, the first calendar year in which our consolidated audited financial statements reflected net income (before taxes), such payment was increased to NIS 35,000 (approximately $10,000).
 
Mr. Guy Zur has served as a member of our Board of Directors since March 27, 2017. In June 2018, our shareholders approved a consulting agreement with Mr. Zur, pursuant to which he is entitled to receive, in addition to his directors' fees, a monthly retainer of NIS 10,000 payable as of January 1, 2018 for business development consulting services. Pursuant to the consultancy agreement with Mr. Zur, both Mr. Zur and our company may terminate the engagement with or without reason by giving 30 days’ prior notice. In 2019 Mr. Zur received $33,000 for his consulting services from us.

Mr. Yossi Weiss has served as a member of our Board of Directors since December 25, 2019. Both our Audit Committee and Board of Directors approved on March 8, 2020 and on March 10, 2020 respectively, the entering into an agreement with Mr. Weiss for business development consulting services. Pursuant to this agreement, Mr. Weiss is entitled to receive, in addition to his directors' fees, a monthly retainer of NIS 15,000. In addition, Mr. Weiss is also entitled to receive a commission of 2.5% of our net revenues with respect to specific transactions introduced to us by Mr. Weiss and pre-approved by our Audit Committee. Both Mr. Weiss and our company may terminate the engagement with or without reason by giving a 30 days’ prior written notice. The agreement is subject to the approval of our shareholders.

35

During the year ended December 31, 2019, the aggregate compensation paid to our above-mentioned executive officers and directors as a group was approximately $2,926,276. As of December 31, 2019, the aggregate amount set aside or accrued for pension, retirement, recreation payments and vacation or similar benefits for our directors and executive officers was approximately $394,609.

During the year ended December 31, 2019, we paid each of our external directors a per-meeting attendance fee of NIS 1,110 (approximately $320) and an annual fee of NIS 43,450 (approximately $12,400).
 
Pursuant to the Israeli Companies Law, we have adopted a compensation policy and are required to follow certain approval requirements with respect to the compensation of our directors and executive officers. See below “Board of Directors – Compensation Committee” and Item 10. Additional Information – Office Holders.
 
We follow Israeli law and practice instead of the requirements of the NASDAQ Stock Market Rules regarding the compensation of our Chief Executive Officer and other executive officers. See Item 16G. “Corporate Governance.”
 
C. Board Practices
 
Introduction
 
According to the Israeli Companies Law and our articles of association, 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. Our executive officers are responsible for our day-to-day management. The executive officers have individual responsibilities established by our Chief Executive Officer and board of directors. Executive officers are appointed by and serve at the discretion of the board of directors, subject to any applicable agreements.
 
Election of Directors
 
Our Articles of Association provide for a board of directors consisting no less than four (4) and no more than twelve (12) members, or such other number as may be determined from time to time at a general meeting of shareholders. All the directors in the company must be qualified to serve as a director and the time required for such position, taking into consideration the type and size of the company and the scope and complexity of its operation. The directors must provide the electing general meeting with a detailed declaration as to the compliance with the above-listed requirements. Our board of directors is currently composed of nine (9) directors.
 
Pursuant to our Articles of Association, our directors, except for the External Directors, are elected at the Annual General Meeting by the vote of the holders of a majority of the voting power represented at such meeting in person or by proxy and voting on the election of directors, and each director generally serves until the Annual General Meeting next following the Annual General Meeting at which such director was appointed, or his earlier vacation of office or removal. Except with respect to the removal of External Directors, the shareholders are entitled to remove any director(s) from office, by a simple majority of the voting power of the company represented at the meeting in person or by proxy and voting thereon. All the members of our board of directors (except the external directors as detailed below) may be reelected upon completion of their term of office. The majority of directors may appoint additional directors to fill any vacancies in the board of directors until the next annual general meeting; provided, however that the total number of directors will not exceed the maximum number, if any, fixed by or in accordance with our Articles of Association. We do not follow the requirements of the NASDAQ Marketplace Rules with regard to the nomination process of directors and instead follow Israeli law and practice. See Item 16G. “Corporate Governance.”

36
 
External and Independent Directors
 
External Directors. The Israeli Companies Law requires publicly held Israeli companies to appoint at least two external directors. The Israeli 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 an entity under that person’s control, has or had during the two years preceding the date of appointment any affiliation with the company, or any entity controlling, controlled by or under common control with the company. The term “relative” means a spouse, sibling, parent, grandparent, child or child of spouse or spouse of any of the above as well as a sibling, brother, sister or parent of the foregoing relatives. In general, the term “affiliation” includes an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an office holder. Furthermore, if the company does not have a controlling shareholder or a shareholder holding at least 25% of the voting rights “affiliation” also includes a relationship, at the time of the appointment, with the chairman of the board, the Chief Executive Officer, a substantial shareholder or the most senior financial officer of such company. Regulations promulgated under the Israeli Companies Law include certain additional relationships that would not be deemed an “affiliation” with a company, for the purpose of service as an external director. In addition, no person may serve as an external director if the person’s position or other activities create, or may create, a conflict of interest with the person’s responsibilities as director or may otherwise interfere with the person’s ability to serve as director. If, at the time an external director is appointed, all current members of the board of directors are of the same gender, then that external director must be of the other gender. A director of one company may not be appointed as an external director of another company if a director of the other company is acting as an external director of the first company at such time.

At least one of the elected external directors must have “accounting and financial expertise” and any other external director must have “accounting and financial expertise” or “professional qualification,” as such terms are defined by regulations promulgated under the Israeli Companies Law. However, Israeli companies listed on certain stock exchanges outside Israel, including the NASDAQ Capital Market, such as our company, are not required to appoint an external director with “accounting and financial expertise” if a director with accounting and financial expertise who qualifies as an independent director for purposes of audit committee membership under the laws of the foreign exchange serves on its board of directors. All of the external directors of such a company must have “professional qualification.”
 
The external directors are elected by shareholders at a general meeting. The shareholders voting in favor of their election must include at least a simple majority of the shares voted by shareholders other than controlling shareholders or shareholders who have a personal interest in the election of the external director (unless such personal interest is not related to such person’s relationship with the controlling shareholder). This majority requirement will not be required if the total number of shares of such non-controlling shareholders and disinterested shareholders who vote against the election of the external director represent 2% or less of the voting rights in the company.
 
In general, under the Israeli Companies Law, external directors serve for a three-year term and may be reelected to two additional three-year terms, at the nomination of either the board of directors or any shareholder(s) holding at least 1% of the voting rights in the company. If the board of directors proposed the nominee, the reelection must be approved by the shareholders in the same manner required to appoint external directors for an initial term, as described above. If such reelection is proposed by shareholders, such reelection requires the approval of the majority of the shareholders voting on the matter, excluding the votes of any controlling shareholder and other shareholders having a personal interest in the matter as a result of their relationship with the controlling shareholder(s), provided that, the aggregate votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their relationship with the controlling shareholder(s) who voted in favor of the nominee constitute more than 2% of the voting rights in the company and provided further that, at the time of the appointment, such reelected external director is not (i) a related or competitor shareholder, or (ii) a relative of such related or competitor shareholder or otherwise affiliated with a related or competitor shareholder either at the time of appointment or at any time during the two years period prior to such appointment. A related or competitor shareholder is defined by the Israeli Companies Law as the shareholder that proposed the reelection or a holder of 5% or more of the outstanding share capital of the company, provided that at the time of appointment (i) such shareholders, their controlling shareholder or any entity controlled by either of them has business relations with company, or (ii) such shareholders, their controlling shareholder or any entity controlled by either of them are competitors of the company. External directors can be removed from office only by the same special percentage of shareholders that can elect them, or by a court order, and then only if the external directors cease to meet the statutory qualifications with respect to their appointment or if they violate their fiduciary duty to the company.
 
Each committee of the board of directors that is authorized to exercise powers vested in the board of directors must include at least one external director and the audit committee and the Compensation Committee must include all the external directors. An external director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service.

37
 
Independent Directors. In general, NASDAQ Stock Market Rules require that the board of directors of a NASDAQ-listed company have a majority of independent directors and its audit committee must have at least three members and be comprised only of independent directors, each of whom satisfies the respective “independence” requirements of NASDAQ and the SEC. However, foreign private issuers, such as our company, may follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Stock Market Rules. We do not follow the requirement of the NASDAQ Stock Market Rules to maintain a majority of independent directors on our board and instead follow Israeli law and practice (see Item 16G. “Corporate Governance”). However, we have the mandated three independent directors on our audit committee, in accordance with the rules of the SEC and NASDAQ Stock Market.
 
Pursuant to the Israeli Companies Law, a director may be qualified as an independent director if such director is either (i) an external director; or (ii) a director that serves as a board member for less than nine years and the audit committee has approved that he or she meets the independence requirements of an external director. A majority of the members serving on the audit committee and the compensation committee must be independent under the Israeli Companies Law.
 
Our board of directors has determined that Ms. Misch, Mr. Sigal, Mr. Dumanis and Mr. Zur qualify as independent directors under the SEC and NASDAQ requirements and that Ms. Misch, Mr. Sigal and Mr. Dumanis qualify as independent directors under the Israeli Companies Law requirements.
 
We do not follow the requirements of the NASDAQ Stock Market Rules with regard to regularly scheduled meetings of independent directors. Under Israeli law, external directors are not required to hold executive sessions. See Item 16G. “Corporate Governance.”
 
Committees of the Board of Directors
 
Audit Committee. Under the Israeli Companies Law, the board of directors of any public company must establish an audit committee. The audit committee must be comprised of at least three directors, the majority of which must be independent directors. Such independent directors must meet all of the standards required of an external director and may not serve as a director for more than consecutive nine years (a cessation of service as a director for up to two years during any nine years period will not be deemed to interrupt the nine years period). The audit committee may not include the chairman of the board of directors; any director employed by the company or providing services to the company on an ongoing basis; a controlling shareholder or any of the controlling shareholder’s relatives; and any director who rendered services to the controlling shareholder or an entity controlled by the controlling shareholder. Any person who is not permitted to be a member of the audit committee may not be present in the meetings of the audit committee unless the chairman of the audit committee determines that such person’s presence is necessary in order to present a specific matter. However, an employee who is not a controlling shareholder or relative of a controlling shareholder may participate in the audit committee’s discussions but not in any vote, and at the request of the audit committee, the secretary of the company and its legal counsel may be present during the meeting. The chairman of the audit committee must be an external director.
 
Under Israeli law, an audit committee may not approve an action or a transaction with a controlling shareholder, or with an office holder, unless at the time of approval two external directors are serving as members of the audit committee and at least one of the external directors was present at the meeting in which an approval was granted.
 
The role of the audit committee, pursuant to the Israeli Companies Law, includes:
 
 
●
monitoring deficiencies in the management of the company, including in consultation with the independent auditors or the internal auditor, and to advise the board of directors on how to correct such deficiencies. If the audit committee finds a material deficiency, it will hold at least one meeting regarding such material deficiency, with the presence of the internal auditor or the independent auditors but without the presence of the senior management of the company. However, a member of the company’s senior management can participate in the meeting in order to present an issue which is under his or her responsibility;
 
 
 
 
●
determining, on the basis of detailed arguments, whether to classify certain engagements or transactions as material or extraordinary, as applicable, and therefore as requiring special approval under the Israeli Companies Law. The audit committee may make such determination according to principles and guidelines predetermined on an annual basis;
 
38

 
●
determining if transactions (excluding extraordinary transactions) with a controlling shareholder, or in which a controlling shareholder has a personal interest, are required to be rendered pursuant to a competitive procedure;
 
 
 
 
●
deciding whether to approve engagements or transactions that require the audit committee approval under the Israeli Companies Law;
 
 
●
determining the approval procedure of non-extraordinary transactions, following classification as such by the audit committee, including whether such specific non-extraordinary transactions require the approval of the audit committee;
 
 
 
 
●
examining and approving the annual and periodical working plan of the internal auditor;
 
 
 
 
●
overseeing the company’s internal auditing and the performance of the internal auditor; confirm that the internal auditor has sufficient tools and resources at his disposal, taking into account, among other, the special requirements of the company and its size;
 
 
 
 
●
examining the scope of work of the independent auditor and its pay, and bringing such recommendations on these issue before the Board; determining the procedure of addressing complaints of employees regarding shortcomings in the management of the company and ensure the protection of employees who have filed such complaints;
 
 
 
 
●
determining with respect to transactions with the controlling shareholder or in which such controlling shareholder has personal interest, whether such transactions are extraordinary or not, an obligation to conduct competitive process under supervisions of the audit committee or determination that prior to entering into such transactions the company shall conduct other process as the audit committee may deem fit, all taking into account the type of the company. The audit committee my set such qualifications for one year in advance; and
 
 
 
 
●
determining the manner of approval of transactions with the controlling shareholder or in which it has personal interest which (i) are not negligible transactions (pursuant to the committee’s determination) and (ii) are not qualified by the committee as extraordinary transactions.
 
In addition, the NASDAQ Stock Market Rules require us to establish an audit committee comprised of at least three members, all of whom must be financially literate, satisfy the respective “independence” requirements of the SEC and NASDAQ and one of whom must have an accounting or related financial management expertise at senior levels within a company.
 
Pursuant to recent amendment to the Israeli companies Law, effective as of February 2016, an audit committee that complies with the requirements of the Israeli Companies Law may act also as compensation committee. Our board of directors has determined that our audit committee complies with such requirements and therefore, commencing as of May 2016, it shall serve also as compensation committee.
 
The current members of our audit and compensation committees are Ms. Tal Misch Vered, Mr. Elan Sigal and Prof. Alon Dumanis, each of whom satisfies the “independence” requirements of both the SEC and NASDAQ. We also comply with Israeli law requirements for audit committee members. The audit committee meets at least once each quarter.
 
39
 
Compensation Committee. Our Board of Directors is required to appoint a compensation committee, whose role is to: (i) recommend to the board on a compensation policy for office holders and to recommend to the board, once every three years, on the approval of the continued validity of the compensation policy that was determined for a period exceeding three years; (ii) recommend an update the compensation policy from time to time and to examine its implementation; (iii) determine whether to approve the Terms of Service and Employment of Office Holders that require the committee’s approval; and (iv) exempt a transaction from the requirement for shareholders’ approval. The compensation committee also has oversight authority over the actual terms of employment of directors and officers and may make recommendations to the board of directors and the shareholders (where applicable) with respect to deviation from the compensation policy that was adopted by the company. Under Israeli law, our compensation committee must consist of no less than three members, including all of our external directors (who must constitute a majority of its members of the committee), and the remainder of the members of the compensation committee must be directors whose terms of service and employment were determined pursuant to the applicable regulations. The same restrictions on the actions and membership in the audit committee apply to the compensation committee with respect to, among other things, the requirement that an external director serve as the chairman of the committee and the list of persons who may not serve on the committee. Our board of directors established a compensation committee composed of Ms. Tal Misch Vered, Mr. Elan Sigal and Prof. Alon Dumanis. In August 2019, our shareholders approved an updated compensation policy for an additional period of three years.
 
Business Development Committee. In November 2016, our Board of Directors established a Business Development Committee whose role is to review and make recommendations to the Board of Directors with respect to business development strategies, plans and targets. The Business Development Committee is composed of Messrs. Yossi Ben Shalom, Guy Zur, and Prof. Alon Dumanis.
 
Internal Audit
 
The Israeli Companies Law also requires the board of directors of a publicly held company to appoint an internal auditor nominated by the audit committee. An internal audit must satisfy the Israeli Companies Law’s independence requirements. The role of the internal auditor is to examine, among other things, the compliance of the company’s conduct with applicable law and orderly business practice. Under the Companies Law, the internal auditor may not be an interested party or an office holder, or a relative of any of the foregoing, nor may the internal auditor be the company’s independent accountant or its representative. Our internal auditor complies with the requirements of the Israeli Companies Law.
 
Approval of Related Party Transactions under Israeli Law
 
Fiduciary Duties of Office Holders
 
The Israeli Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An “office holder” is defined in the Israeli Companies Law as a director, general manager, chief business manager, deputy general manager, vice general manager, other manager directly subordinated to the general manager or any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title. An office holder’s fiduciary duties consist of a duty of care and a fiduciary duty. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the appropriateness of a given action brought for his approval or performed by him by virtue of his position and (ii) all other information of importance pertaining to the foregoing actions. The fiduciary duty includes (i) avoiding any conflict of interest between the office holder’s position in the company and any other position he holds or his personal affairs, (ii) avoiding any competition with the company’s business, (iii) avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others, and (iv) disclosing to the company any information or documents relating to the company’s affairs that the office holder has received due to his position as an office holder.
 
Disclosure of Personal Interests of an Office Holder; Approval of Transactions with Office Holders
 
The Israeli Companies Law requires that an office holder promptly and no later than the first board meeting at which such transaction is considered, disclose any personal interest that he or she may have, and all related material information known to him or her and any documents in their position, in connection with any existing or proposed transaction by us. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary course of business, other than on market terms, or likely to have a material impact on the company’s profitability, assets or liabilities, the office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the foregoing, or by any corporation in which the office holder or a relative is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager.

40
 
Some transactions, actions and arrangements involving an office holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided for in a company’s articles of association, however, a transaction that is adverse to the company’s interest may not be approved. In some cases, such a transaction must be approved by the audit committee and by the board of directors itself, and under certain circumstances shareholder approval may also be required. A director who has a personal interest in a transaction that is considered at a meeting of the board of directors or the audit committee may not be present during the board of directors or audit committee discussions and may not vote on the transaction, unless the transaction is not an extraordinary transaction or the majority of the members of the board or the audit committee have a personal interest, as the case may be. In the event the majority of the members of the board of directors or the audit committee have a personal interest, then the approval of the general meeting of shareholders is also required.
 
Approval of a Compensation Policy for Office Holders
 
The Israeli Companies Law and the regulations adopted thereunder require the compensation committee to adopt a policy for director and office holders.
 
The compensation policy needs to be re-approved every three years by the board of directors, following the recommendation of the compensation committee, and by the company’s shareholders, by a Special Majority (as defined below). In the event that the compensation policy is not so approved by the shareholders, the board of directors may nonetheless approve it, provided that the compensation committee and the board of directors, following further discussion of the matter and for specified reasons, determine that the approval of the compensation policy is in the best interests of the company.
 
Special Majority means: (a) a majority of the shareholders who are not controlling shareholders of the Company and do not have a “Personal Interest” in the approval of the respective resolution who participate in the vote, in person, by proxy or by a voting instrument vote to approve it (abstentions will not be taken into account) or (b) the total number of votes of the shareholders referred to in (a) above that are voted against the proposed resolution does not exceed two percent (2%) of the company’s total voting rights.
 
The compensation policy serves as the basis for decisions concerning the financial terms of employment or engagement of officer holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement.
 
In addition, compensation of the directors and the Chief Executive Officer is also subject to the approval of the compensation /audit committee, the board of directors and the shareholders at a general meeting. The approval of the compensation of the Chief Executive Officer is subject to the Special Majority requirements
 
Any deviations from the compensation policy in respect of the compensation of the office holders require the approval of the compensation/audit committee, the board of directors and the shareholders by Special Majority.
 
Under the Israeli Companies Law, all arrangements as to compensation of office holders who are not directors require the approval of the compensation/audit committee prior and in addition to the approval of the board of directors. However, if the company duly adopts a compensation plan for its office holders, the approval of the board of directors is not required if the new arrangement only modifies an existing arrangement and the compensation committee determines that such modification is not material.

Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders
 
Pursuant to the Israeli Companies Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, but excludes a shareholder whose power derives solely from its position on the board of directors or any other position at the company. A person is presumed to be a “controlling shareholder” if it holds or controls, by itself or together with others, one half or more of any one of the “Means of Control” of the company. “Means of Control” is defined as any one of the following: (i) the right to vote at a General Meeting of the company, or (ii) the right to appoint directors of the company or its Chief Executive Officer. For the purpose of related party translations, under the Israeli Companies Law, a controlling shareholder is also a shareholder who holds 25% or more of the voting rights if no other shareholder who holds more than 50% of the voting rights. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. As of Admission, the company does not have a controlling shareholder.

41

Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, together with any shareholder who knows that it has the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or exercise any other rights available to it under the company’s articles of association with respect to the company. The Israeli Companies Law does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty of fairness.
 
An extraordinary transaction between a public company and a controlling shareholder, or in which a controlling shareholder has a personal interest, including a private placement in which the controlling shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding his or her terms of employment, require the approval of a company’s audit committee (or compensation committee with respect to compensation arrangements), board of directors and shareholders, in that order. Such transaction must be elected by a majority vote of the Ordinary Shares present and voting at a shareholders’ meeting, provided that either: (i) such majority includes at least a majority of votes held by all shareholders who do not have a personal interest in such transaction, present and voting at such meeting (excluding abstentions); or (ii) the total number of votes of shareholders who do not have a personal interest in such transaction voting against the approval of the transaction, does not exceed 2% of the aggregate voting rights in the company.
 
Pursuant to the Israeli Companies Law, the audit committee of the company should determine in connection with such transaction if it requires rendering pursuant to a competitive procedure or pursuant to other proceedings. See “Audit Committee” above.
 
To the extent that any such transaction with a controlling shareholder or his relative is for a period extending beyond three years, shareholder approval is required once every three years, unless, in respect to certain transactions, the audit committee determines that the longer duration of the transaction is reasonable under the circumstances.
 
Pursuant to regulations promulgated pursuant to the Israeli Companies Law, a transaction with a controlling shareholder that would otherwise require approval of the shareholders is exempt from shareholders’ approval if each of the audit committee and the board of directors determine that the transaction meets certain criteria that are set out in specific regulations promulgated under the Israeli Companies Law. Under these regulations, a shareholder holding at least 1% of the issued share capital of the company may require, within 14 days of the publication of such determination, that despite such determination by the audit committee and the board of directors, such transaction will require shareholder approval under the same majority requirements that otherwise apply to such transactions.
 
The Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder of the company. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would hold greater than a 45% interest in the company, unless there is another shareholder holding more than a 45% interest in the company. These requirements do not apply if, in general, (i) the acquisition was made in a private placement that received shareholder approval, (ii) was from a 25% or greater shareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, if there is not already a 25% or greater shareholder of the company, or (iii) was from a shareholder holding a 45% interest in the company which resulted in the acquirer becoming a holder of a 45% interest in the company if there is not already a 45% or greater shareholder of the company.
 
If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a public company’s outstanding shares or a class of shares, the acquisition must be made by means of a tender offer for all of the outstanding shares or a class of shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquirer offered to purchase will be transferred to the acquirer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares. The Israeli Companies Law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer. However, in the event of a full tender offer, the offeror may determine that any shareholder who accepts the offer will not be entitled to appraisal rights. Such determination will be effective only if the offeror or the company has timely published all the information that is required to be published in connection with such full tender offer pursuant to all applicable laws.

42
 
Exculpation, Indemnification and Insurance of Directors and Officers
 
Exculpation of Office Holders
 
The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his or her duty of loyalty. If permitted by its articles of association, a company may exculpate in advance an office holder from his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care. However, a company may not exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care in the event of distributions.
 
Insurance of Office Holders
 
The Israeli Companies Law provides that a company may, if permitted by its articles of association, enter into a contract to insure office holders in respect of liabilities incurred by the office holder with a respect to an act performed in his or her capacity as an office holder, as a result of:
 
 
●
a breach of the office holder’s duty of care to the company or to another person;
 
 
 
 
●
a breach of the office holder’s duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the company’s interests; or
 
 
 
 
●
a financial liability imposed upon the office holder in favor of another person.
 
Indemnification of Office Holders
 
The Israeli Companies Law provides that a company may, if permitted by its articles of association, indemnify an office holder for acts or omissions performed by the office holder in such capacity for:
 
 
●
a monetary liability imposed on the office holder in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court;
 
 
 
 
●
reasonable litigation expenses, including attorney’s fees, actually incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition of any monetary liability in lieu of criminal proceedings, or concluded without the filing of an indictment against the office holder and a monetary liability was imposed on the officer holder in lieu of criminal proceedings with respect to a criminal offense that does not require proof of criminal intent; and
 
 
 
 
●
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or which were imposed on him or her by a court, in an action instituted by the company or on the company’s behalf or by another person, against the office holder, or in a criminal charge from which he was acquitted, or in a criminal proceeding in which the office holder was convicted of a criminal offense which does not require proof of criminal intent.
 
43

In accordance with the Israeli Companies Law, a company’s articles of association may permit the company to:
 
 
●
prospectively undertake to indemnify an office holder, except that with respect to a monetary liability imposed on the office holder by any judgment, settlement or court-approved arbitration award, the undertaking must be limited to types of events which the company’s board of directors deems foreseeable considering the company’s actual operations at the time of the undertaking, and to an amount or standard that the board of directors has determined as reasonable under the circumstances.
 
 
 
 
●
retroactively indemnify an office holder of the company.
 
Limitations on Exculpation, Insurance and Indemnification
 
The Israeli Companies Law provides that neither a provision of the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision in the articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision in the articles of association exculpating an office holder from duty to the company shall be valid, where such insurance, indemnification or exculpation relates to 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 such breach was committed intentionally or recklessly, unless the breach was committed only negligently;
 
 
 
 
●
any act or omission done with the intent to unlawfully yield a personal benefit; or
 
 
 
 
●
any fine or forfeiture imposed on the office holder.
 
Pursuant to the Israeli Companies Law, exculpation of, procurement of insurance coverage for, and an undertaking to indemnify or indemnification of, our office holders must be approved by our audit committee and our board of directors and, if the office holder is a director, also by our shareholders.
 
Our Articles of Association allow us to insure, indemnify and exempt our office holders to the fullest extent permitted by law, subject to the provisions of the Israeli Companies Law. Up until August 2017 we maintained directors and officers liability insurance policy with per claim and aggregate coverage limit of $7.5 million. On August 2017, our Compensation Committee and Board of Directors approved an increase in the per claim coverage and aggregate coverage of up to $10 million under its directors and officers liability insurance policy. Pursuant to resolutions adopted by our shareholders on May 15, 2016, we have also entered into agreements with our directors and officeholders providing for their indemnification and exemption from the duty of care.
 
D. Employees
 
As of December 31, 2019, we employed 167 persons in Israel, of whom 44 persons were employed in research, development and engineering, 101 persons in manufacturing and logistics, 11persons in sales and marketing, and 11 persons in administration, management and finance. In addition, RTL employed 25 persons in the U.S., of whom 8 persons were employed in in manufacturing and logistics, 1 person in logistics and engineering, 5 persons in sales and marketing, and 11persons in administration, management and finance.
 
44
  
As of December 31, 2018, we employed 117 persons in Israel, of whom 41 persons were employed in research, development and engineering, 57 persons in manufacturing and logistics, 8 persons in sales and marketing, and 11 persons in administration, management and finance. . In addition, RTL employed 9 persons in the U.S., of whom 3 persons were employed in research and development, 1 person in logistics and engineering, 2 persons in sales and marketing, and 3 persons in administration, management and finance.

As of December 31, 2017, we employed 112 persons in Israel, of whom 38 persons were employed in research, development and engineering, 60 persons in manufacturing and logistics, 5 persons in sales and marketing, and 9 persons in administration, management and finance. In addition, CACS, our previously owned subsidiary, employed 17 persons in China.
 
Our technical employees have signed nondisclosure agreements covering all proprietary information that they might possess or to which they might have access. Employees are not organized in any union, although they are employed according to provisions established by the Israeli Ministry of Economy and Industry. Certain provisions of the collective bargaining agreements between the General Federation of Labor in Israel (Histadrut) and the Coordination Bureau of Economic Organizations (including the Industrialists Association) are applicable to our Israeli employees by order of the Israeli Ministry of Economy and Industry. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
 
Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment without due cause. Further, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute; such amounts also include payments for national health insurance. Most of our ongoing severance obligations for our Israeli employees are provided for by monthly payments made by us for insurance policies to cover these obligations.
 
E. Beneficial Ownership of Executive Officers and Directors
 
The following table sets forth certain information as of April 1, 2020 regarding the beneficial ownership by each of our directors and executive officers:
 
Name
  
Number of Ordinary
Shares or Options
Beneficially
Owned (1)
    
Percentage of
Ownership (2)
  
Yossi Ben Shalom (3)
    
6,821,309
      
15.7
%
Nir Cohen
    
-
      
-
  
Alon Dumanis
    
-
      
-
  
Haim Regev
    
-
      
-
  
Joseph Weiss
    
-
      
-
  
Tal Misch Vered
    
-
      
-
  
Elan Sigal
    
-
      
-
  
Kineret Yaari
    
-
      
-
  
Guy Zur
    
-
      
-
  
Dov Sella
    
468,750
      
1.1
%
Avi Israel
    
112,500
      
*
  
Oleg Kiperman
    
46,875
      
*
  
Yaniv Dorani
    
-
      
*
  
Bill Watson
    
109,375
      
*
  
Max Cohen
    
43,750
      
*
  
All directors and executive officers as a group (13 persons)
    
928,123
      
2.1
%
 
 
* Less than 1%

45

Except as otherwise indicated, the business address of all directors and executive officers is c/o RADA Electronic Industries Ltd., 7 Giborei Israel Street, Netanya, 4250407, Israel.
 
(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 and warrants currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
 
 
(2)
The percentages shown are based on 43,388,870 Ordinary Shares issued and outstanding as of April 1, 2020.
 
 
(3)
Mr. Yossi Ben Shalom and Mr. Barak Dotan, by virtue of their relationship with and indirect interests in DBSI may be deemed to control DBSI and consequently share the beneficial ownership of the 6,821,309 Ordinary Shares of the company beneficially owned by DBSI, including the right to jointly direct the voting of, and disposition of, such shares. Mr. Barak Dotan holds his shares of DBSI through his control of B.R.Y.N. Investments Ltd., or BRYN. Mr. Barak Dotan controls BRYN pursuant to the terms of a power of attorney granted to him by Mr. Boaz Dotan and Mrs. Varda Dotan (collectively referred to as the Dotans). Pursuant to the power of attorney, Barak Dotan is entitled to take all actions to which the Dotans would be entitled by virtue of their shareholdings in BRYN, with the exception of the disposition of such shares. According to the terms of the power of attorney, the Dotans are required to give notice of not less than 90 days to (i) revoke the power of attorney, thereby acquiring the ability to vote the shares of BRYN; and (ii) dispose of the shares of BRYN. Mr. Yossi Ben Shalom holds his shares of DBSI through his control of White Condor Holdings Ltd. and Pulpit Rock Investments Ltd. The address of DBSI is 85 Medinat Hayehudim Street, Herzliya 4676670, Israel.
 
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
A. Major Shareholders
 
The following table sets forth certain information as of April 1, 2020, regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our Ordinary Shares:
 
Name
  
Number of Ordinary
Shares Beneficially
Owned (1)
    
Percentage of
Ownership (2)
  
DBSI Investments Ltd. (3) (4)
    
6,821,309
      
15.7
%
The Phoenix Holdings Ltd. (5)
    
3,005,340
      
6.9
%
Psagot Investment House Ltd. (6)
    
2,179,255
      
5.0
%
Yelin Lapidot Holdings Management Ltd. (7)
    
2,235,362
      
5.2
%
 
(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 and notes currently exercisable or convertible or exercisable or convertible within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
 
 
(2)
The percentages shown are based on 43,388,870 Ordinary Shares issued and outstanding as of April 1, 2020.
 
46

(3)
As reported by DBSI in its latest Schedule 13D/A, dated September 16, 2019 and as reported to the company, it is currently the beneficial owner of 6,821,309 Ordinary Shares, constituting 15.7% of our issued and outstanding Ordinary Shares.

(4)
Mr. Yossi Ben Shalom and Mr. Barak Dotan, by virtue of their relationship with and indirect interests in DBSI may be deemed to control DBSI and consequently share the beneficial ownership of the 6,821,309 Ordinary Shares of the company beneficially owned by DBSI, including the right to jointly direct the voting of, and disposition of, such shares. Mr. Barak Dotan holds his shares of DBSI through his control of B.R.Y.N. Investments Ltd., or BRYN. Mr. Barak Dotan controls BRYN pursuant to the terms of a power of attorney granted to him by Mr. Boaz Dotan and Mrs. Varda Dotan (collectively referred to as the Dotans). Pursuant to the power of attorney, Barak Dotan is entitled to take all actions to which the Dotans would be entitled by virtue of their shareholdings in BRYN, with the exception of the disposition of such shares. According to the terms of the power of attorney, the Dotans are required to give notice of not less than 90 days to (i) revoke the power of attorney, thereby acquiring the ability to vote the shares of BRYN; and (ii) dispose of the shares of BRYN. Mr. Yossi Ben Shalom holds his shares of DBSI through his control of White Condor Holdings Ltd. and Pulpit Rock Investments Ltd. The address of DBSI is 85 Medinat Hayehudim Street, Herzliya 4676670, Israel.
 
 
(5)
Based on the Schedule 13G/A filed by The Phoenix Holdings Ltd. with the SEC on February 18, 2020. The address of The Phoenix Holdings Ltd. is Derech Hashalom 53, Givataim, 53454, Israel.
 
 
(6)
Based on the Schedule 13G/A filed on February 18, 2020 by Psagot Investment House Ltd. jointly with Ordinary Shares owned by portfolio accounts managed by Psagot Securities Ltd and Ordinary Shares owned by portfolio accounts owned by provident funds and pension funds managed by Psagot Provident Funds and Pension Ltd. and Ordinary Shares owned Psagot Index Funds Ltd managed by Psagot Index Funds Ltd. (all wholly-owned subsidiaries of Psagot Investment House Ltd.). The address of Psagot Investment House Ltd. is 14 Ahad Ha’am Street, Tel Aviv 65142, Israel.
   
(7)
Based on the Schedule 13G/A filed on February 10, 2020 by Yelin Lapidot Holdings Management Ltd. jointly with Yelin Lapidot Mutual Funds Management Ltd. and Messrs. Dov Yelin and Yair Lapidot with the SEC on February 10, 2020. The address of Yelin Lapidot is 50 Dizengoff St., Dizengoff Center, Gate 3, Top Tower, 13th floor, Tel Aviv 64332, Israel.
 
Significant Changes in the Ownership of Major Shareholders
 
In 2016, DBSI purchased 8,510,638 newly issued Ordinary Shares as well as warrants to purchase up to 4,255,319 shares, at an exercise price of $0.47 per share, exercisable within 24 months following the closing on May 18, 2016, and warrants to purchase up to 3,636,363 shares, at an exercise price of $0.55 per share exercisable within 48 months, as well as the right to acquire additional Ordinary Shares pursuant to the conversion of a $3,175,000 convertible loan. These holdings amounted to the beneficial ownership 67.4% of our Ordinary Shares at that time. On June 15, 2016, DBSI purchased the $3,175,000 convertible note at the request of a special, independent committee of our board of directors and subsequently converted the loan into 1,322,917 Ordinary Shares, reflecting a conversion price of $2.40 per share.
 
DBSI has since regularly reported on Form 13D/A sales of our Ordinary Shares and of exercises of warrants. On January 25, 2017, DBSI reported that it had sold an aggregate of 1,402,389 additional Ordinary Shares and that it had exercised warrants to purchase 531,915 Ordinary Shares. The aggregate impact of these transactions reduced DBSI’s beneficial ownership from 61.3% to 56.0%. As of December 31, 2017, DBSI held 9,327,088 Ordinary Shares and as of December 31, 2018, DBSI held 9,001,634 Ordinary Shares. On January 2019, our shareholders approved in a private placement the issuance of 545,454 Ordinary Shares to DBSI, reflecting a price per share of $2.75. On January 29, 2019 DBSI reported on Schedule 13D/A that it holds 9,547,088 Ordinary Shares, constituting 25.1% of our issued and outstanding Ordinary Shares. On September 16, 2019 DBSI reported on Schedule 13D/A that it held 6,821,309 Ordinary Shares, constituting 15.7% of our issued and outstanding Ordinary Shares at the time.

47
 
On February 8, 2017, Yelin Lapidot Holdings Management Ltd., jointly with Messrs. Dov Yelin and Yair Lapidot, filed a Schedule 13G/A with the SEC reflecting ownership of 1,790,284, or 4.04%, of our ordinary shares as of December 31, 2016. On September 5, 2017, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 1,620,000, or 5.55%, of our Ordinary Shares. On January 31, 2018, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 1,663,942, or 5.55%, of our Ordinary Shares as of December 31, 2017. On February 11, 2019, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 3,113,873, or 8.30%, of our Ordinary Shares as of December 31, 2018. On February 10, 2020, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 2,235,362, or 5.82%, of our Ordinary Shares as of December 31, 2019.

On August 23, 2017, the Phoenix Insurance Company Ltd. and its affiliate, Shotfut-Menayot-Israel-HaPhoenix Amitim Ltd., reported that it held 1,904,762, or 8.97%, of our Ordinary Shares as of December 31, 2016. On August 28, 2017, the Phoenix Insurance Company reported that it held 2,601,418, or 11.20%, of our Ordinary Shares. On December 27, 2017, it reported that it held 1,455,870, or 4.86%, of our Ordinary Shares. On August 27, 2019, Pheonix Holdings reported that it held 2,144,282 or 5.63% of our Ordinary Shares. On February 18, 2020 Phoenix Holdings filed a Schedule 13G/A, reflecting ownership of 3,005,340, or 7.89%, of our Ordinary Shares as of December 31, 2019.

On January 7, 2019, Psagot Investment House Ltd. jointly with Psagot Securities Ltd and Psagot Provident Funds and Pension Ltd. and Psagot Index Funds Ltd. (all are wholly owned subsidiaries of Psagot Investment House Ltd.) filed a Schedule 13G with the SEC reflecting ownership of 2,423,326, or 6.46%, of our Ordinary Shares. On February 19, 2019 Psagot filed a Schedule 13G/A, reflecting ownership of 2,424,883, or 6.46%, of our Ordinary Shares as of December 31, 2018.  On February 18, 2020 Psagot filed a Schedule 13G/A, reflecting ownership of 2,179,255, or 5.67%, of our Ordinary Shares as of December 31, 2019.
 
Shareholders Voting Rights
 
Our major shareholders do not have different voting rights.
 
Record Holders
 
Based on a review of the information provided to us by American Stock Transfer & Trust Company, our transfer agent, as of April 6, 2020, there were 62 holders of record of our Ordinary Shares, of which 53 record holders holding approximately 83% of our Ordinary Shares had registered addresses in the U.S., including banks, brokers and nominees. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these Ordinary Shares were held of record by banks, brokers or other nominees.

B. Related Party Transactions
 
On May 18, 2016, we completed the sale to DBSI of 8,510,638 of our Ordinary Shares in consideration for approximately $4,000,000, reflecting a price per share of $0.47. In addition, we issued to DBSI warrants to purchase 4,255,319 Ordinary Shares at an exercise price per share of $0.47 (resulting in an aggregate exercise price of $2,000,000), exercisable for a period of 24 months following the date of the initial investment and warrants to purchase an additional 3,636,363 shares at an exercise price per share of $0.55 (resulting in an aggregate exercise price of $2,000,000), exercisable for a period of 48 months following the date of the initial investment.
 
DBSI also granted our company an option, exercisable either by us or DBSI, for us to receive a convertible loan in the principal amount of up to $3,175,000 solely for the purpose of the repayment of outstanding shareholders’ debt. We exercised such option in June 2016. In August 2017, DBSI converted the entire principal loan into 1,322,917 Ordinary Shares reflecting a conversion price of $2.40 per share.
 
On January 2019 our shareholders approved the issuance of additions 545,454 Ordinary Shares to DBSI, at a price per share of $2.75 and approximately $1.5 million in the aggregate.
 
48

Form F-3 Registration Statements
 
Pursuant to the registration rights agreements we entered into with DBSI in 2016 and 2017, we filed Registration Statements on Form F-3 with the SEC on June 15, 2016, March 27, 2017, September 1, 2017, and on August 10, 2018, for the public resale of the Ordinary Shares they purchased.
 
C. Interests of Experts and Counsel
 
Not applicable.
 
ITEM 8.
FINANCIAL INFORMATION
 
A. Consolidated Statements and Other Financial Information
 
Export Sales
 
Export sales constitute a significant portion of our sales. In 2019, we had approximately $31.6 million of export sales, constituting approximately 71% of our total sales. For further information regarding the allocation of our revenues by geographic region see Item 4 – “Information on the Company-Markets.”
 
Legal Proceedings
 
Currently, we are not a party to any material legal proceedings; however, from time to time we are involved in legal proceedings arising from the operation of our business. Based on the advice of our legal counsel, management believes such current proceedings, if any, will not have a material adverse effect on our financial position or results of operations.
 
Dividend Distribution Policy
 
We have never paid cash dividends to our shareholders. We intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our Ordinary Shares in the foreseeable future. Any future dividend policy will be determined by the 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 as the board of directors may deem relevant.
 
According to the Israeli Companies Law, a company may distribute dividends out of its profits, so long as the company reasonably believes that such dividend distribution will not prevent the company from paying all its current and future debts. Profits, for purposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during the preceding two years. In the event cash dividends are declared, such dividends will be paid in NIS.
 
B. Significant Changes
 
Except as otherwise disclosed in this annual report, no significant change has occurred since December 31, 2019.
 
ITEM 9.
THE OFFER AND LISTING
 
A. Offer and Listing Details
 
Our capital consists of Ordinary Shares, which are traded on the NASDAQ Capital Market under the symbol “RADA”.
 
B. Plan of Distribution
 
Not applicable.

49
 
C. Markets
 
Our Ordinary Shares are traded on the NASDAQ Capital Market under the symbol “RADA”.
 
D. Selling Shareholders
 
Not applicable.
 
E. Dilution
 
Not applicable.
 
F. Expense of the Issue
 
Not applicable.
 
ITEM 10.
ADDITIONAL INFORMATION
 
A. Share Capital
 
Not applicable.
 
B. Memorandum and Articles of Association
 
Purposes and Objectives of the Company
 
We are registered with the Israeli Companies Registry and have been assigned company number 52-003532-0. Section 2 of our memorandum of association provides that we were established for the purpose of engaging in the business of providing services of planning, development, consultation and instruction in the electronics field. In addition, the purpose of our company is to perform various corporate activities permissible under Israeli law.
 
On February 1, 2000, the Israeli Companies Law came into effect and superseded most of the provisions of the Israeli Companies Ordinance (New Version), 5743-1983, except for certain provisions which relate to liens, bankruptcy, dissolution and liquidation of companies. Under the Israeli Companies Law, as recently amended, various provisions, some of which are detailed below, overrule the current provisions of our articles of association.
 
The Powers of the Directors
 
Under the provisions of the Israeli Companies Law, and our articles of association, a director cannot participate in a meeting nor vote on a proposal, arrangement or contract in which he or she is materially interested. In addition, our directors cannot vote compensation to themselves or any members of their body without the approval of our audit committee and our shareholders at a general meeting. The authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.
 
Under our articles of association, retirement of directors from office is not subject to any age limitation and our directors are not required to own shares in our company in order to qualify to serve as directors.

Rights Attached to Shares
 
Annual and Extraordinary General Meetings
 
The board of directors must convene an annual meeting of shareholders at least once every calendar year, within 15 months of the last annual meeting. Depending on the matter to be voted upon, notice of at least 21 days or 35 days prior to the date of the meeting is required. Our board of directors may, in its discretion, convene additional meetings as “Extraordinary General Meetings.” In addition, the board of directors must convene an Extraordinary General Meeting upon the demand of two of the directors, 25% of the nominated directors, one or more shareholders having at least 5% of the outstanding share capital and at least 1% of the voting power in the company, or one or more shareholders having at least 5% of the voting power in the company.

50
 
The quorum required for a General Meeting of shareholders consists of at least two shareholders present in person or represented by proxy who hold or represent, in the aggregate, at least 25% of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders or to such day and at such time and place as the Chairman of the General Meeting shall determine. At the reconvened meeting, if the original meeting was convened upon the demand of one or more shareholders having at least 5% of the outstanding share capital and at least 1% of the voting power in the company, or one or more shareholders having at least 5% of the voting power in the company, the quorum will be one or more Shareholders, present in person or by proxy, and holding the number of shares required for making such requisition. In any other case the required quorum consists of any two members present in person or by proxy.
 
Please refer to Exhibit 2.2 for Items 10.B.3, B.4, B.6, B.7, B.8, B.9 and B.10.

C Material Contracts
 
We do not deem any individual contract to be a material contract which is not already discussed and filed as an exhibit or in the ordinary course of our business.
 
D Exchange Controls
 
Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our Ordinary Shares.
 
Non-residents of Israel who purchase our Ordinary Shares will be able to convert dividends, if any, thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our Ordinary Shares to an Israeli resident, into freely repairable dollars, at the exchange rate prevailing at the time of conversion, provided that the Israeli income tax has been withheld (or paid) with respect to such amounts or an exemption has been obtained.
 
E Taxation
 
The following is a discussion of Israeli and U.S. tax consequences material to us and our shareholders. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations.
 
Holders of our Ordinary Shares should consult their own tax advisors as to the U.S., Israeli or other tax consequences of the purchase, ownership and disposition of Ordinary Shares, including, in particular, the effect of any foreign, state or local taxes.

Israeli Tax Considerations
 
The following is a summary of the current tax structure applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of the material Israeli tax consequences to purchasers of our Ordinary Shares and Israeli government programs benefiting us. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.

51
 
General Corporate Tax Rate
 
Generally, Israeli companies were subject to corporate tax on taxable income and capital gains at the rate of 23% for the tax years 2019 and 2018 and 24% for the tax year 2017.
 
Law for the Encouragement of Industry (Taxes), 1969
 
The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies”. The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel and which was incorporated in Israel, of which 90% or more of its income in any tax year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area,” as such terms are defined in the Israeli Income Tax Ordinance [New Version] 5721-1961, or the Ordinance. An “Industrial Enterprise” is defined as an enterprise which is held by an Industrial Company whose principal activity in a given tax year is industrial production.
 
The following corporate tax benefits, among others, are available to Industrial Companies:
 

 •
Amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or advancement of the Industrial Enterprise, commencing from the tax year where the Industrial Enterprise began to use them;
 

 •
Accelerated depreciation rates on equipment and buildings;
 

 •
Under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and
 

 •
Expenses related to a public offering are deductible in equal amounts from income attributed to the Industrial Enterprise over three years commencing in the year of the offering.
 
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. As of the date of this prospectus supplement, we have industrial production activities. Therefore, we qualify as an Industrial Company and may be eligible for the benefits described above. However, we cannot assure that we will qualify as an Industrial Company in the future or that the benefits described above will be available to us.
 
Tax Benefits and Grants for Research and Development
 
Israeli tax law allows, under certain conditions, a tax deduction for expenditures related to scientific research and development projects, including capital expenditures, for the year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:
 
The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; or
 
The research and development are for the promotion of the company and is carried out by or on behalf of the company seeking such tax deduction.
 
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the financing of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Ordinance. Expenditures not so approved are deductible in equal amounts over three years.
 
52
 
From time to time, we may apply to the Israeli Innovation Authority, or the IIA, for approval to allow a tax deduction for research and development expenses during the year incurred. There can be no assurance that such applications will be accepted. For more information about these programs, see “Item 5.C. Operating and Financial Review and Prospects – Research and Development, Patents and Licenses” of our annual report on Form 20-F for the year ended December 31, 2019.
 
Law for the Encouragement of Capital Investments, 5719-1959
 
The Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law). The benefits available under the Investment Law are subject to the fulfillment of conditions stipulated therein. If a company does not meet these conditions, it may be required to refund the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest, or other monetary penalties.
 
Tax Benefits Prior and Subsequent to the 2005 Amendment
 
Prior to April 1, 2005, the Investment Law provided that capital investments in an Industrial Enterprises (or other eligible assets) may, upon approval by the Investment Center of the Israel Ministry of Economy and Industry, or the Investment Center, be designated as an “Approved Enterprise.” Each certificate of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset. The tax benefits from any certificate of approval relate only to taxable profits attributable to the specific Approved Enterprise.
 
On April 1, 2005, a comprehensive amendment to the Investment Law came into effect, which we refer to as the 2005 Amendment. The 2005 Amendment included revisions to the criteria for investments qualified to receive tax benefits. The 2005 Amendment does not retroactively apply to investment programs having an Approved Enterprise approval certificate issued by the Investment Center prior to December 31, 2004, unless chosen otherwise. Approved Enterprises are subject to the provisions of the Investment Law prior to its revision, while new investments and tax benefits, if any, will be subject to the provisions of the 2005 Amendment.
 
Pursuant to the 2005 Amendment, only Approved Enterprises receiving cash grants required the approval of the Investment Center. Approved Enterprises which do not receive benefits in the form of governmental cash grants, such as benefits in the form of tax benefits, are no longer required to obtain this approval. An eligible investment program under the 2005 Amendment qualifies for benefits as a “Benefited Enterprise.” However, a “Benefited Enterprise” is required to comply with certain requirements and make certain investments as specified in the 2005 Amendment.
 
In addition, the benefits available to an Approved Enterprise are conditioned upon terms stipulated in the Investment Law and the regulations thereunder and the criteria set forth in the applicable certificate of approval. In March 2019, our investment program was approved as an Approved Enterprise under the Investment Law, which entitles us to an approximately NIS 1,095,000 cash grant. If we do not fulfill the conditions set forth in the certificate of approval, in whole or in part, the benefits may be cancelled and we could be required to refund the amounts of the benefits, with the addition of the Israeli consumer price index linkage differences and interest. We have not yet activated such investment plan and as a result we have not yet received the cash grants. There can be no assurance that we will activate said investment plan or that the cash grant will be available to us if we do.
 
The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depend on, among other things, the geographic location of the Benefited Enterprise in Israel. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to 10 years, depending on the geographic location of the Benefited Enterprise in Israel, and a reduced corporate tax rate of between 10% and the applicable corporate tax rate for the remainder of the benefits period, depending on the level of foreign investment in the company in each year during the benefits period.

53
 
A Benefited Enterprise may, at its discretion, in order to obtain greater certainty, elect to apply for a pre-ruling from the Israeli tax authorities confirming that it is in compliance with the provisions of the amendments in the Investment Law and is therefore entitled to receive such benefits provided under the amendments to Investment Law as set below.
 
We are not entitled to tax benefits under the 2005 Amendment.
 
Tax Benefits Under the 2011 Amendment
 
The Investment Law was significantly amended as of January 1, 2011, or the 2011 Amendment. The 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment.
 
The 2011 Amendment introduced new tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise,” in accordance with the definition of such terms in the Investment Law. The definition of a Preferred Company, includes, inter alia, a company incorporated in Israel that (1) is not wholly owned by a government entity, (2) owns a Preferred Enterprise and (3) is controlled and managed from Israel and is subject to further conditions set forth in the Investment Law. Moreover, a Preferred Company needs to meet certain conditions stipulated in the Investment Law such as being an industrial company (including a minimum threshold of 25% export).
 
A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to the income attributed to its Preferred Enterprise, unless the Preferred Enterprise is located in development area “A,” in which case the rate will be 7.5%. Our operations are currently not located in development area “A.”
 
Dividends distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at the following rates: (i) Israeli resident individuals — 20% (iii) non-Israeli residents — 20%, subject to a reduced tax rate under the provisions of an applicable double tax treaty and subject to the receipt in advance of valid certificate from the Israeli Tax Authority, or the ITA. If such dividends are paid to an Israeli company, no tax is required to be withheld. However, if such dividends are subsequently distributed by such Israeli company to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply.
 
The provisions of the 2011 Amendment do not apply to existing “Benefited Enterprises” or “Approved Enterprises,” which will continue to be entitled to the tax benefits under the Investment Law, as in effect prior to the 2011 Amendment, unless the company owning such enterprises had made an election to apply the provisions of the 2011 Amendment (such election cannot be later rescinded), which is to be filed with the ITA, not later than the date prescribed for the filing of the company’s annual Israeli tax return for the respective year.
 
We are currently not entitled to tax benefits under the 2011 Amendment.
 
Tax Benefits Under the 2017 Amendment
 
Additional amendments to the Investment Law became effective in January 2017, or the 2017 Amendment. The 2017 Amendment provides new tax benefits for two types of “Technological Enterprises,” as described below, and is in addition to the other existing tax benefit programs under the Investment Law.
 
The 2017 Amendment provides that a technological company satisfying certain conditions may qualify as a “Preferred Technological Enterprise” and thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technological Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technological Enterprise located in development area “A.” In addition, a Preferred Technological Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefited Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefited Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the IIA.

54
 
The 2017 Amendment further provides that a technological company satisfying certain conditions may qualify as a “Special Preferred Technological Enterprise” and thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technological Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technological Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefited Intangible Assets” to a related foreign company if the Benefited Intangible Assets were either developed by an Israeli company or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from the IIA. A Special Preferred Technological Enterprise that acquires Benefited Intangible Assets from a foreign company for more than NIS 500 million may be eligible for these benefits for a period of at least 10 years, subject to certain approvals as specified in the Investment Law.
 
Dividends distributed by a Preferred Technological Enterprise or a Special Preferred Technological Enterprise, paid out of Preferred Technological Income or income attributed to production are generally subject to withholding tax at the rate of 20% or such lower rate, as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. However, if such dividends are subsequently distributed by such Israeli company to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply. If dividends paid out of Preferred Technological Income are distributed to a foreign company and other conditions are met, the withholding tax rate will be 4% (or a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate).
 
We are currently not entitled to tax benefits under the 2017 Amendment.
 
Taxation of Our Shareholders
 
Capital Gains
 
Capital gain tax is imposed on the disposition of capital assets by an Israeli resident for tax purposes, and on the disposition of such assets by a non-Israeli resident for tax purposes if those assets are (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel. The Ordinance distinguishes between “Real Capital Gain” and the “Inflationary Surplus.” Real Capital Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of disposition. Inflationary Surplus is not currently subject to tax in Israel.
 
Real Capital Gain accrued by individuals on the sale of our ordinary shares will be taxed at the rate of 25%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s “means of control,” which includes, among other things, the right to receive profits of the company, voting rights, the rights to receive proceeds upon the company’s liquidation and the right to appoint a director) at the time of sale or at any time during the preceding 12-month period, such capital gain will be taxed at the rate of 30%. Furthermore, where an individual claimed real interest expenses and linkage differentials on securities, the capital gain on the sale of the securities will taxed at a rate of 30%. Real Capital Gain derived by corporations will be generally subject to the corporate tax rate (23% in 2018 and thereafter).
 
Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income — 23% for corporations in 2018 and thereafter and a marginal tax rate of up to 47% in 2019 for individuals, not including excess tax (described below). Notwithstanding the foregoing, Real Capital Gain derived from the sale of our ordinary shares by a non-Israeli shareholder may be exempt under the Ordinance from Israeli taxation provided that the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of the shares on the stock exchange, (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributable, (iii) if the seller is a corporation, no more than 25% of its means of control are held, directly and indirectly, by Israeli residents, and (iv) if the seller is a corporation, there is no Israeli resident that is entitled to 25% or more of the revenues or profits of the corporation, directly or indirectly. In addition, such exemption would not be available to a person whose capital gains from selling or otherwise disposing of the securities are deemed to be business income.
 
55
 
In addition, the sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the Convention Between the Government of the United States and the Government of the State of Israel with respect to Taxes of Income, as amended, or the U.S.-Israel Double Tax Treaty, exempts U.S. residents for the purposes of the treaty from Israeli capital gain tax in connection with such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of the Israeli resident company’s voting power at any time within the 12-month period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel.
 
Shareholders may be liable for Israeli tax on the sale of their ordinary shares and the payment of the consideration may be subject to withholding of Israeli tax. Shareholders may be required to demonstrate that they are exempt from Israeli tax on their capital gains in order to avoid withholding at the time of sale. For example, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the ITA may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the ITA to confirm their status as a non-Israeli resident for tax purposes, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes.
 
The purchaser, the Israeli stockbrokers or financial institutions through which the shares are held is obligated, subject to the above mentioned exemptions, to withhold tax on the amount of consideration paid upon the sale of the shares (or on the Real Capital Gain on the sale, if known) at the rate of 25% in respect of an individual and 23% in respect of a corporation.
 
Upon the sale of securities traded on a stock exchange, a detailed return, including a computation of the tax due, must be filed and an advanced payment must be paid on January 31 and July 31 of every calendar year in respect of sales of securities made within the previous six months. However, if all tax due was withheld according to applicable provisions of the Ordinance and regulations promulgated thereunder the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable on the annual income tax return.
 
Dividends
 
We have never paid cash dividends to our shareholders. A distribution of dividend by our company from income attributed to a Preferred Enterprise to Israeli residents will generally be subject to withholding tax in Israel at the following tax rates: Israeli resident individuals — 20%; Israeli resident companies — 0% (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided if an applicable tax treaty will apply (subject to the receipt in advance of a valid tax certificate from the ITA allowing for a reduced tax rate)). A distribution of dividends from income, which is not attributed to a Preferred Enterprise to an Israeli resident individual, will generally be subject to withholding tax at a rate of 25% or 30% if the dividend recipient is a “Controlling Shareholder” (as defined above) at the time of distribution or at any time during the preceding 12-month period. If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accrued within Israel (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 25% or such lower rate as may be provided if an applicable tax treaty will apply (subject to the receipt in advance of a valid tax certificate from the ITA allowing for a reduced tax rate)).

56
 
A non-Israeli resident (either individual or corporation) is generally subject to Israeli withholding tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a “Controlling Shareholder” (as defined above), at the time of distribution or at any time during the preceding 12-month period); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). Under the U.S.-Israel Double Tax Treaty, the following withholding rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding voting shares of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends — the withholding tax rate is 12.5%, (ii) if both the conditions mentioned in (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate applicable to an Approved Enterprise, Benefited Enterprise or Preferred Enterprise — the withholding tax rate is 15% if a certificate for a reduced withholding tax rate would be provided in advance from the ITA and (iii) in all other cases, the withholding tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel
 
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer and (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed.
 
Excess Tax
 
Individuals who are subject to tax in Israel (whether such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax on annual income exceeding a certain threshold (NIS 649,560, for 2019), which amount is linked to the Israeli consumer price index, at a rate of 3%, including, but not limited to, income derived from dividends, interest and capital gains.
 
Foreign Exchange Regulations
 
Non-residents of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated, and may be restored at any time by administrative action.
 
Estate and Gift Tax
 
Israeli law presently does not impose estate or gift taxes.
 
United States Federal Income Taxation
 
The following is a general discussion of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our Ordinary Shares. This description addresses only the U.S. federal income tax considerations that may be relevant to U.S. Holders (as defined below) who hold our Ordinary Shares as capital assets. This summary is based on the U.S. Internal Revenue Code of 1986, as amended, (the “Code”) Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof and the U.S.-Israel Tax Treaty (the “Treaty”), all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively or to differing interpretations. There can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not take a different position concerning the tax consequences of the acquisition, ownership or disposition of our Ordinary Shares or that such a position would not be sustained. This discussion does not address all tax considerations that may be relevant to a U.S. Holder of Ordinary Shares. In addition, this description does not account for the specific circumstances of any particular investor, such as:
 
 
●
broker-dealers;

57


 
 
 
 
●
financial institutions or financial services entities;
 
 
 
 
●
certain insurance companies;
 
 
 
 
●
investors liable for alternative minimum tax;
 
 
 
 
●
regulated investment companies, real estate investment trusts, or grantor trusts;
 
 
 
 
●
dealers or traders in securities, commodities or currencies;
 
 
 
 
●
tax-exempt organizations;
 
 
 
 
●
retirement plans;
 
 
 
 
●
S corporations:
 
 
 
 
●
pension funds;
 
 
 
 
●
certain former citizens or long-term residents of the United States;
 
 
 
 
●
non-resident aliens of the United States or taxpayers whose functional currency is not the U.S. dollar;
 
 
 
 
●
persons who hold Ordinary Shares through partnerships or other pass-through entities;
 
 
 
 
●
persons who acquire their Ordinary Shares through the exercise or cancellation of employee stock options or otherwise as compensation for services;
 
 
 
 
●
direct, indirect or constructive owners of investors that actually or constructively own at least 10% of the total combined voting power of our shares or at least 10% of our shares by value; or
 
 
 
 
●
investors holding Ordinary Shares as part of a straddle, appreciated financial position, a hedging transaction or conversion transaction.
 
If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns our Ordinary Shares, the U.S. federal income tax treatment of a partner in such a partnership will generally depend upon the status of the partner and the activities of the partnership. A partnership that owns our Ordinary Shares and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of holding and disposing of Ordinary Shares.
 
This summary does not address the effect of any U.S. federal taxation (such as estate and gift tax) other than U.S. federal income taxation. In addition, this summary does not include any discussion of state, local or non-U.S. taxation.

For purposes of this summary the term “U.S. Holder” means a person that is eligible for the benefits of the Treaty and is a beneficial owner of Ordinary Shares who is, for U.S. federal income tax purposes:
 
 
●
an individual who is a citizen or a resident of the United States;
 
 
 
 
●
a corporation or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision thereof;
 
 
 
 
●
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
 
 
 
 
●
a trust if the trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over the trust’s administration and (2) one or more U.S. persons have the authority to control all of the substantial decisions of the trust.
 
Unless otherwise indicated, it is assumed for the purposes of this discussion that the Company is not, and will not become, a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes. See “—Passive Foreign Investment Companies” below.

58

Taxation of Distributions
 
Subject to the discussion below under the heading “—Passive Foreign Investment Companies,” the gross amount of any distributions received with respect to our Ordinary Shares, including the amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. federal income tax purposes when such distribution is actually or constructively received, to the extent such distribution is paid out of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. Because we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that the entire amount of any distribution will generally be reported as dividend income to you. Dividends are included in gross income at ordinary income rates, unless such dividends constitute “qualified dividend income,” as set forth in more detail below. Distributions in excess of our current and accumulated earnings and profits would be treated as a non-taxable return of capital to the extent of your adjusted tax basis in our Ordinary Shares and any amount in excess of your tax basis would be treated as gain from the sale of Ordinary Shares. See “—Sale, Exchange or Other Disposition of Ordinary Shares” below for a discussion of the taxation of capital gains. Our dividends would not qualify for the dividends-received deduction generally available to corporations under section 243 of the Code.
 
Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day may have a foreign currency exchange gain or loss that would generally be treated as U.S.-source ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.
 
Subject to complex limitations, some of which vary depending upon the U.S. Holder’s circumstances, any Israeli withholding tax imposed on dividends paid with respect to our Ordinary Shares, may be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, alternatively, for deduction against income in determining such tax liability). Israeli taxes withheld in excess of the applicable rate allowed by the Treaty (if any) will not be eligible for credit against a U.S. Holder’s federal income tax liability. The limitation on foreign income taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends paid with respect to our common stock generally will be treated as foreign-source passive category income or, in the case of certain U.S. Holders, general category income for U.S. foreign tax credit purposes. Further, there are special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to a reduced tax rate. A U.S. Holder may be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on our Ordinary Shares if such U.S. Holder fails to satisfy certain minimum holding period requirements or to the extent such U.S. Holder’s position in Ordinary Shares is hedged. An election to deduct foreign taxes instead of claiming a foreign tax credit applies to all foreign taxes paid or accrued in the taxable year. The rules relating to the determination of the foreign tax credit are complex. You should consult with your own tax advisors to determine whether and to what extent you would be entitled to this credit.

Subject to certain limitations (including the PFIC rules discussed below), “qualified dividend income” received by a non-corporate U.S. Holder may be subject to tax at the lower long-term capital gain rates (currently, a maximum rate of 20%). Distributions taxable as dividends paid on our Ordinary Shares should qualify for a reduced rate if we are a “qualified foreign corporation,” as defined in Code section 1(h)(11)(C). We will be a qualified foreign corporation if either: (i) we are entitled to benefits under the Treaty or (ii) our Ordinary Shares are readily tradable on an established securities market in the United States and certain other requirements are met. We believe that we are entitled to benefits under the Treaty and that our Ordinary Shares currently are readily tradable on an established securities market in the United States. However, no assurance can be given that our Ordinary Shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied, nor does it apply to dividends received from a PFIC (see discussion below), in respect of certain risk-reduction transactions, or in certain other situations. U.S. Holders of our Ordinary Shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances.
 
59

Sale, Exchange or Other Disposition of Ordinary Shares
 
Subject to the discussion of the PFIC rules below, if you sell or otherwise dispose of our Ordinary Shares (other than with respect to certain non-recognition transactions), you will generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in our Ordinary Shares, in each case determined in U.S. dollars. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if you have held the Ordinary Shares for more than one year at the time of the sale or other disposition. Long-term capital gain realized by a non-corporate U.S. Holder is generally eligible for a preferential tax rate (currently at a maximum of 20%). In general, any gain that you recognize on the sale or other disposition of Ordinary Shares will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S. source income. Deduction of capital losses is subject to certain limitations under the Code.
 
In the case of a cash basis U.S. Holder who receives NIS in connection with the sale or disposition of our Ordinary Shares, the amount realized will be based on the U.S. dollar value of the NIS received with respect to the Ordinary Shares as determined on the settlement date of such exchange. A cash basis U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss, based on any appreciation or depreciation in the value of NIS against the U.S. dollar, which would be treated as ordinary income or loss.
 
An accrual basis U.S. Holder may elect the same treatment of currency exchange gain or loss required of cash basis taxpayers with respect to a sale or disposition of our Ordinary Shares that are traded on an established securities market, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. In the event that an accrual basis U.S. Holder does not elect to be treated as a cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign currency transactions), such U.S. Holder is required to calculate the value of the proceeds as of the “trade date” and may have a foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference between the U.S. dollar value of NIS prevailing on the trade date and on the settlement date. Any such currency gain or loss generally would be treated as U.S.- source ordinary income or loss and would be subject to tax in addition to the gain or loss, if any, recognized by such U.S. Holder on the sale or disposition of such Ordinary Shares.

Passive Foreign Investment Companies
 

We may have been a PFIC for U.S. federal income tax purposes for the 2018 taxable year. We have been advised that we were likely not a PFIC for the 2019 taxable year. If we were a PFIC for any taxable year during which a U.S. Holder owned Ordinary Shares, certain adverse consequences could apply to the U.S. Holder. Specifically, unless a U.S. Holder makes one of the elections mentioned below, gain recognized by the U.S. Holder on a sale or other disposition of Ordinary Shares would be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further, any distribution in excess of 125% of the average of the annual distributions received by the U.S. Holder on our Ordinary Shares during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described immediately above. If we were a PFIC for any taxable year in which a U.S. Holder owned our shares, the U.S. Holder would generally be required to file annual returns with the IRS on IRS Form 8621. Certain elections (such as a mark-to-market election or a QEF election) may be available to U.S. Holders and may result in alternative tax treatment. U.S. Holders should consult their tax advisors as to the availability and consequences of a mark-to-market election or a QEF election with respect to their Ordinary Shares. 


60
 
In addition, if we were a PFIC for a taxable year in which we pay a dividend or the prior taxable year, the favorable dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. If we were a PFIC for any taxable year in which a U.S. Holder owned our shares, the U.S. Holder would generally be required to file annual returns with the IRS on IRS Form 8621.

Additional Tax on Investment Income
 
In addition to the income taxes described above, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a 3.8% Medicare contribution tax on net investment income, which includes dividends and capital gains from the sale or exchange of our Ordinary Shares.
 
Backup Withholding and Information Reporting
 
Payments in respect of our Ordinary Shares may be subject to information reporting to the IRS and to U.S. backup withholding tax at the rate (currently) of 24%. Backup withholding will not apply, however, if you (i) fall within certain exempt categories and demonstrate the fact when required or (ii) furnish a correct taxpayer identification number and make any other required certification.
 
Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability. A U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.
 
U.S. citizens and individuals taxable as resident aliens of the United States that (i) own “specified foreign financial assets” (as defined in Section 6038D of the Code and the regulations thereunder) with an aggregate value in a taxable year in excess of certain thresholds (as determined under rules in Treasury regulations) and (ii) are required to file U.S. federal income tax returns generally will be required to file an information report with respect to those assets with their tax returns. IRS Form 8938 has been issued for that purpose. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or foreign deferred compensation plans. Under those rules, our Ordinary Shares, whether owned directly or through a financial institution, estate or pension or deferred compensation plan, would be “specified foreign financial assets.” Under Treasury regulations, the reporting obligation applies to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties can apply if there is a failure to satisfy this reporting obligation. In addition, in the event a U.S. Holder that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax year may not close until three years after the date that the required information is filed. A U.S. Holder is urged to consult the U.S. Holder’s tax advisor regarding the reporting obligation.
 
Any U.S. Holder who acquires more than $100,000 of our Ordinary Shares or holds 10% or more of our Ordinary Shares by vote or value may be subject to certain additional U.S. information reporting requirements.
 
The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our Ordinary Shares. You should consult your tax advisor concerning the tax consequences of your particular situation.
 
F. Dividend and Paying Agents
 
Not applicable.
 
G. Statement by Experts
 
Not applicable.
 
H. Documents on Display
 
We are subject to certain of the reporting requirements of the Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act. As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, and transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we file with the SEC an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also submit to the SEC reports on Form 6-K containing (among other things) press releases and unaudited financial information. We post our annual report on Form 20-F on our website (www.rada.com) promptly following the filing of our annual report with the SEC. The information on our website is not incorporated by reference into this annual report.

61
 
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.
 
The documents concerning our company that are referred to in this annual report may also be inspected at our offices located at: 7 Giborei Israel Street, Netanya 4250407, P.O. Box 8606, Israel.
 
I. Subsidiary Information
 
Not applicable.
 
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
 
Interest Rate Risk
 
We currently do not invest in or otherwise hold, for trading or other purposes, any financial instruments subject to market risks. Generally, we pay interest on our credit facilities, convertible notes and short-term loans based on Libor, for dollar-denominated loans, and Israeli prime or adjustment differences to the Israeli consumer price index, for some of our NIS-denominated loans. As a result, changes in the general level of interest rates may affect the amount of interest payable by us under these facilities.
 
Foreign Currency Exchange Risk
 
The depreciation of the NIS against the dollar has the effect of reducing 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). As of December 31, 2019, we had liabilities payable in NIS which are not linked to the dollar in the amount of $6.9 million and cash and receivables in the amount of $3.8 million denominated in NIS. Accordingly, 1% appreciation of the NIS against the dollar would increase our financing expenses by approximately $32,000. A 1% depreciation of the NIS against the dollar would decrease our financing expenses by the same amount. However, the amount of liabilities payable and/or cash and receivables in NIS is likely to change from time to time.
 
Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reported in our consolidated financial statements in continuing operations. 
 
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not applicable.

62
 
PART II
 
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
None.
 
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
None.
 
ITEM 15.
CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Our management, including our Chief Executive Officer, and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2019. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer, have concluded that, as of December 31, 2019, our company’s disclosure controls and procedures are effective.
 
Management's Annual Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of the end of the period covered by this report.
 
Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2019. Notwithstanding the foregoing, there can be no assurance that our internal control over financial reporting will detect or uncover all failures of persons within the Company to comply with our internal procedures, as all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements.
 
Attestation Report of the Registered Public Accounting Firm
 
The attestation report of Kost Forer Gabbay & Kasierer, a member of EY Global, an independent registered public accounting firm in Israel, on our management’s assessment of our internal control over financial reporting as of December 31, 2019 is provided on page F-3, as included under Item 18 of this annual report.
 
Changes in Internal Control over Financial Reporting

Based on the evaluation conducted by our Chief Executive Officer and our Chief Financial Officer pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act, our management has concluded that there was no change in our internal control over financial reporting that occurred during the year ended December 31, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16.
RESERVED.

ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
 
Our board of directors has determined that Mr. Elan Sigal, one of our external directors, within the meaning of the Israeli Companies Law, and an independent director, as defined by the SEC and NASDAQ, meets the definition of an audit committee financial expert, as defined by rules of the SEC. For a brief listing of Mr. Sigal’s relevant experience, see Item 6.A. “Directors, Senior Management and Employees — Directors and Senior Management.”

63

ITEM 16B.
CODE OF ETHICS
 
We have adopted a code of ethics that applies to our Chief Executive Officer and all senior financial officers of our company, including the Chief Financial Officer, Chief Accounting Officer or controller, or persons performing similar functions. Written copies of our code of ethics are available upon request. If we make any substantive amendment to the code of ethics or grant any waivers, including any implicit waiver, from a provision of the codes of ethics, we will disclose the nature of such amendment or waiver on our website.
 
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Independent Registered Public Accounting Firm Fees
 
The following table sets forth, for each of the years indicated, the fees billed by our principal independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global (“EY Israel”). All of such fees were pre-approved by our Audit Committee.
 
 
  
Year Ended December 31
  
Services Rendered:
  
2018
    
2019
  
Audit (1)
  
$
93,273
    
$
150,000
  
Audit-related (2)
  
$
15,938
    
$
5,091
  
Tax (3)
  
$
21,109
    
$
39,065
  
Total (2)
  
$
130,320
    
$
194,156
  
 
 
(1)
Audit fees are fees for audit services for each of the years shown in this table, including fees associated with the annual audit, services provided in connection with audit of our internal control over financial reporting and audit services provided in connection with other statutory or regulatory filings.
 
 
 
 
(2)
Audit-related fees relate to assurance and associated services that traditionally are performed by the independence auditor including SEC filings, comfort letters, consents and comment letters in connection with regulatory filings.
 
 
 
 
(3)
Tax fees are the aggregate fees billed for professional services rendered for tax compliance and tax advice, other than in connection with the audit. Tax compliance involves preparation of original and amended tax returns, tax planning and tax advice.
 
 
 
 
 
EY Israel and other EY affiliates did not bill the company for services other than the fees described above for fiscal year 2019 or fiscal year 2018.
 
Pre-Approval Policies and Procedures
 
Our Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global (“EY Israel”). Pre-approval of an audit or non-audit service may be given as a general pre-approval, as part of the audit committee’s approval of the scope of the engagement of our independent auditor, or on an individual basis. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the rules of the Securities and Exchange Committee, and also requires the Audit Committee to consider whether proposed services are compatible with the independence of the public accountants.
 
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.
 
ITEM 16E.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
Issuer Purchase of Equity Securities
 
Neither we, nor any “affiliated purchaser” of our company, has repurchased any of our securities during 2019.

64
 
ITEM 16F.
 CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
 
None.
 
ITEM 16G.
 CORPORATE GOVERNANCE
 
Under NASDAQ Stock Market Rule 5615(a) (3), foreign private issuers, such as our company, are permitted to follow certain home country corporate governance practices instead of certain provisions of the NASDAQ Stock Market Rules. A foreign private issuer that elects to follow a home country practice instead of any of such NASDAQ rules must submit to NASDAQ, in advance, a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws.
 
We have notified NASDAQ pursuant to Rule 5615(a) (3), that we do not comply with the following Rules and instead follow Israeli law and practice in respect of such Rules:
 
 
●
The Rule requiring maintaining a majority of independent directors, as defined under the NASDAQ Marketplace Rules. Instead, under Israeli law and practice, we are required to appoint at least two external directors, within the meaning of the Israeli Companies Law, to our board of directors. In addition, in accordance with the rules of the SEC and NASDAQ, we have the mandated three independent directors, as defined by the rules of the SEC and NASDAQ, on our audit committee. See above in Item 6C. “Directors, Senior Management and Employees - Board Practices Outside and Independent Directors.”
 
 
 
 
●
The Rule requiring that our independent directors have regularly scheduled meetings at which only independent directors are present: instead, we follow Israeli law according to which independent directors are not required to hold executive sessions.
 
 
 
 
●
The Rule regarding independent director oversight of director nominations process for directors. Instead, we follow Israeli law and practice according to which our board of directors recommends directors for election by our shareholders. See above Item 6C. “Directors, Senior Management and Employees - Board Practices - Election of Directors.”

 
●
The requirement to obtain shareholder approval for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. Under Israeli law and practice, the approval of the board of directors is required for the establishment or amendment of equity-based compensation plans and private placements. Under Israeli regulations, Israeli companies whose shares have been publicly offered only outside of Israel or are listed for trade only on an exchange outside of Israel, such as our company, are exempt from the Israeli law requirement to obtain shareholder approval for private placements of a 20% or more interest in the company. For the approvals and procedures required under Israeli law and practice for an issuance that will result in a change of control of the company and acquisitions of the stock or assets of another company, see Item 6C “Directors, Senior Management and Employee - Board Practices - Approval of Related Party Transactions Under Israeli Law - Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders”.
 
ITEM 16H.
MINE SAFETY DISCLOSURE
 
Not applicable.
 
65

PART III
 
ITEM 17.
FINANCIAL STATEMENTS
 
Not applicable.
 
ITEM 18.
FINANCIAL STATEMENTS
 
Consolidated Financial Statements
 
F-1
F-2 - F-3
F-4 – F-5
F-6
F-7
F-8
F-9 – F-10
F-11 – F-40
 
ITEM 19.
EXHIBITS
 
Index to Exhibits
 
Exhibit
 
Description

 
 
 

 
 
 

     

 
 
 

 
 
 



 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
66
 
 
 

 
 
 

 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
(1)
Filed as an exhibit to our Annual Report on Form 20-F for the year ended December 31, 2000 and incorporated herein by reference.
 
 
(2)
Filed as Annex A to our Proxy Statement on Form 6-K furnished on April 4, 2016 and incorporated herein by reference.
 
 
(3)
Filed as Exhibit 2.1 to our Annual Report on Form 20-F for the year ended December 31, 2016 and incorporated herein by reference.
 
 
(4)
Filed as Exhibit A to Exhibit 99.1 to our Proxy Statement on Form 6-K furnished on July 27, 2016 and incorporated herein by reference.
 
 
(5)
Filed as an Annex B to our Proxy Statement on Form 6-K furnished on April 4, 2016 and incorporated herein by reference.
 
 
(6)
Filed as Exhibit 99.1 to our Report on Form 6-K furnished on August 21, 2017 and incorporated herein by reference.
 
 
(7)
Filed as Exhibit 4.1 to our Report on Form 6-K furnished on November 28, 2018 and incorporated herein by reference.
 
(8)
Filed as Exhibit 4.3 to Registration Statement on Form S-8 filed on August 24, 2016 and incorporated herein by reference.
 
67

 
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
 
AS OF DECEMBER 31, 2019
 
U.S. DOLLARS IN THOUSANDS
 
INDEX
 
 
Page
 
 
F-2 - F-3
 
 
F-4 – F-5
 
 
F-6
 
 
F-7
 
 
F-8
 
 
F-9 – F-10
 
 
F-11 – F-40
 
- - - - - - - - - - - - - - -
F - 1
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com       
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Shareholders and Board of Directors of RADA ELECTRONIC INDUSTRIES LTD.
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of RADA Electronic Industries Ltd. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 7, 2020 expressed an unqualified opinion thereon.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
/s/ Kost Forer Gabbay & Kasierer
Kost Forer Gabbay & Kasierer,
A Member of Ernst & Young Global
 
We have served as the Company’s auditor since 2003.
 
Tel-Aviv, Israel
April 7, 2020

F - 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

RADA ELECTRONIC INDUSTRIES LTD. 

Opinion on Internal Control over Financial Reporting

We have audited RADA Electronic Industries Ltd. and its subsidiaries (the "Company") internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019, and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated April 7, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Kost Forer Gabbay & Kasierer
Kost Forer Gabbay & Kasierer,
A Member of Ernst & Young Global

Tel-Aviv, Israel
  
April 7, 2020
  

F - 3
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands

  
  
December 31,
  
 
  
2019
    
2018
  
 
            
ASSETS
            
 
            
CURRENT ASSETS:
            
Cash and cash equivalents
  
$
13,754
    
$
20,814
  
Restricted deposits
    
380
      
422
  
Trade receivables, net
    
13,765
      
13,382
  
Contract assets (Note 4)
    
1,269
      
899
  
Other accounts receivable and prepaid expenses (Note 5)
    
1,673
      
506
  
Inventories, net (Note 6)
    
17,196
      
11,244
  
Current assets related to discontinued operations
    
-
      
1,524
  
 
                
Total current assets
    
48,037
      
48,791
  
 
                
LONG-TERM ASSETS:
                
Long-term receivables and other deposits
    
97
      
79
  
Property, plant and equipment, net (Note 7)
    
9,127
      
4,632
  
Operating lease right-of-use asset (Note 3)
    
7,654
      
-
  
 
                
Total long-term assets
    
16,878
      
4,711
  
 
                
Total assets
  
$
64,915
    
$
53,502
  
 
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
LIABILITIES AND EQUITY
            
 
            
CURRENT LIABILITIES:
            
Trade payables
  
$
7,661
    
$
5,650
  
Other accounts payable and accrued expenses (Note 8)
    
5,572
      
3,842
  
Advances from customers
    
1,563
      
727
  
Contract liabilities (Note 4)
    
196
      
366
  
Operating lease short term liabilities (Note 3)
    
1,240
      
-
  
Current liabilities related to discontinued operations
    
-
      
366
  
 
                
Total current liabilities
    
16,232
      
10,951
  
 
                
LONG-TERM LIABILITIES:
                
Operating lease long term liabilities (Note 3)
    
6,499
      
-
  
Accrued severance pay
    
764
      
690
  
 
                
Total long-term liabilities
    
7,263
      
690
  
 
                
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
                
 
                
EQUITY:
                
Share capital (Note 10) -
                
Ordinary shares of NIS 0.03 par value - Authorized: 100,000,000 shares at December 31, 2019 and 2018; Issued and outstanding: 38,456,693 and 37,516,891 at December 31, 2019 and at December 31, 2018 respectively.
    
394
      
386
  
Additional paid-in capital
    
121,212
      
118,568
  
Accumulated other comprehensive income
    
(1,195
)
    
220
  
Accumulated deficit
    
(78,991
)
    
(76,961
)
 
                
Total RADA Electronic Industries shareholders’ equity
    
41,420
      
42,213
  
Non-controlling interest
    
(-
)
    
(352
)
 
                
Total equity
    
41,420
      
41,861
  
 
                
Total liabilities and equity
  
$
64,915
    
$
53,502
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 5
 RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except share and per share data

  
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
Revenues:
                  
Products
  
$
43,597
    
$
26,909
    
$
25,010
  
Services
    
734
      
1,123
      
1,172
  
 
    
44,331
      
28,032
      
26,182
  
Cost of revenues:
                        
Products
    
28,272
      
(*17,674

   
*(17,729
  
Services
    
122
      
143
      
112
  
 
    
28,394
      
(*17,817

   
(*17,841

Gross profit
    
15,937
      
(*10,215

   
(*8,341

Operating costs and expenses:
                        
Research and development, net
    
6,912
      
(*3,189

   
(*1,653

Marketing and selling
    
4,044
      
2,860
      
2,137
  
General and administrative
    
7,084
      
4,001
      
2,568
  
Net loss from sale of fixed asset
    
-
      
103
      
-
  
 
                        
Total operating costs and expenses
    
18,040
      
(*10,153

   
(*6,358

 
                        
Operating income (loss)
    
(2,103
)
    
62
      
1,983
  
 
                        
Financial (expenses) income, net (Note 12)
    
(121
)
    
119
      
(156
)
 
                        
Net income (loss) from continuing operations
    
(2,224
)
    
181
      
1,827
  
 
                        
Net income (loss) from discontinued operations
    
(115
)
    
(404
)
    
515
  
 
                        
Net income (loss)
  
$
(2,339
)
  
$
(223
)
  
$
2,342
  
Net income (loss) attributable to non-controlling interest
    
(309
)
    
(386
)
    
103
  
Net income (loss) attributable to RADA Electronic Industries’ shareholders
    
(2,030
)
    
163
      
2,239
  
 
                        
Basic net income (loss) from continuing operations per Ordinary share
  
$
(0.05
)
  
$
0.02
    
$
0.07
  
Diluted net income (loss) from continuing operations per Ordinary share
  
$
(0.05
)
  
$
0.02
    
$
0.06
  
Basic and diluted net income (loss) from discontinued operations per Ordinary share
  
$
(0.00
)
  
$
(0.01
)
  
$
0.02
  
Basic net income (loss) per Ordinary share
  
$
(0.05
)
  
$
0.01
    
$
0.09
  
Diluted net income (loss) per Ordinary share
  
$
(0.05
)
  
$
0.01
    
$
0.08
  
Weighted average number of Ordinary shares used for computing basic net income (loss) per share
    
38,148,756
      
33,184,570
      
24,956,915
  
Weighted average number of Ordinary shares used for computing diluted net income (loss) per share
    
38,841,866
      
33,716,931
      
28,126,509
  

*) Reclassified
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 6
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Net income (loss)
  
$
(2,339
)
  
$
(223
)
    
2,342
  
 
                        
Other comprehensive income (loss):
                        
Change in foreign currency translation adjustment
     -      
(251
)
    
213
  
 
                        
Total comprehensive income (loss)
    
(2,339
 )
    
(474
)
    
2,555
  
Less: comprehensive income (loss) attributable to non-controlling interest
    
-
      
(465
)
    
146
  
Comprehensive income (loss) attributable to RADA Electronic Industries’ shareholders
  
$
(2,339
)
  
$
(9
)
    
2,409
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 7
 RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands, except share data

  
  
Number of
          
Additional
    
Accumulated other
          
Non
        
 
  
Ordinary
    
Share
    
paid-in
    
comprehensive
    
Accumulated
    
controlling
    
Total
  
 
  
shares (*)
    
capital
    
capital
    
income
    
deficit
    
Interest
    
equity
  
Balance at January 1, 2017
    
21,246,502
      
250
      
89,407
      
222
      
(79,363
)
    
513
      
11,029
  
Share-based compensation to employees
    
-
      
-
      
559
      
-
      
-
      
-
      
559
  
Exercise of warrants
    
4,218,121
      
36
      
2,105
      
-
      
-
      
-
      
2,141
  
Conversion of convertible loan to Ordinary shares
    
1,322,917
      
11
      
3,164
      
-
      
-
      
-
      
3,175
  
Issuance of shares, net of issuance costs of $174
    
4,604,500
      
38
      
9,688
      
-
      
-
      
-
      
9,726
  
Net income
    
-
      
-
      
-
      
-
      
2,239
      
103
      
2,342
  
Other comprehensive income
    
-
      
-
      
-
      
170
      
-
      
43
      
213
  
 
                                                        
Balance at December 31, 2017
    
31,392,040
      
335
      
104,923
      
392
      
(77,124
)
    
659
      
29,185
  
Share-based compensation to employees
    
-
      
-
      
898
      
-
      
-
      
-
      
898
  
Exercise of warrants
    
1,454,546
      
13
      
787
      
-
      
-
      
-
      
800
  
Issuance of shares, net of issuance costs of $248
    
4,545,454
      
37
      
12,215
      
-
      
-
      
-
      
12,252
  
Exercise of Option
    
124,851
      
1
      
(1
)
    
-
      
-
      
-
      
-
  
Net income
    
-
      
-
      
-
      
-
      
163
      
(386
)
    
(223
)
Transaction with non-controlling interest
    
-
      
-
      
(254
)
    
-
      
-
      
(546
)
    
(800
)
Other comprehensive income
    
-
      
-
      
-
      
(172
)
    
-
      
(79
)
    
(251
)
Balance at December 31, 2018
    
37,516,891
    
$
386
    
$
118,568
    
$
220
    
$
(76,961
)
  
$
(352
)
  
$
41,861
  
Share-based compensation to employees
    
-
      
-
      
1,148
      
-
      
-
      
-
      
1,148
  
 
                                                        
Issuance of shares,
    
545,455
      
4
      
1,496
      
-
      
-
      
-
      
1,500
  
Exercise of Option
    
394,347
      
4
      
-
      
-
      
-
      
-
      
4
  
Net Loss
    
-
      
-
      
-
      
-
      
(2,030
)
    
(309
)
    
(2,339
)
Transaction with non-controlling interest
                            
(1,195
)
            
661
      
(534
)
Other
    
-
      
-
      
-
      
(220
)
    
-
      
-
      
(220
)
Balance at December 31, 2019
    
38,456,693
    
$
394
    
$
121,212
    
$
(1,195
)
  
$
(78,991
)
  
$
-
    
$
41,420
  
 
(*) See Note 10a.
 
The accompanying notes are an integral part of the consolidated financial statements.
  
F - 8
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Cash flows from operating activities:
                  
Net income (loss)
  
$
(2,339
)
  
$
(223
)
  
$
2,342
  
Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities:
                        
Share based compensation to employees
    
1,148
      
898
      
559
  
Depreciation and amortization
    
1,223
      
799
      
638
  
Net Loss from sale of fixed asset
    
-
      
103
      
-
  
Extinguishment and amortization expenses related to beneficial conversion feature and discount of convertible loans
    
-
      
-
      
103
  
Severance pay, net
    
74
      
(47
)
    
93
  
Operating lease right-of-use asset
    
551
       -
      
-
  
Increase in trade receivables, net
    
(383
)
    
(6,096
)
    
(2,280
)
Operating lease long-term-liabilities
    
(466
)
    
-
      
-
  
Decrease (increase) in other accounts receivable, long term receivable and prepaid expenses
    
(284
)
    
(192
)
    
14
  
Decrease in costs and estimated earnings in excess of billings
    
-
      
995
      
809
  
Increase in contract assets
    
(370
)
    
(899
)
    
-
  
Increase (Decrease) in contract liabilities
    
(170
)
    
366
      
-
  
Increase in inventories
    
(6,613
)
    
(3,865
)
    
(890
)
Increase in trade payables
    
1,439
      
2,610
      
303
  
Increase in other accounts payable, accrued expenses, long term liabilities and advances from customers
    
2,729
      
1,693
      
31
  
 
                        
Net cash provided by (used in) operating activities from continuing operations
    
(3,461
)
    
(3,858
)
    
1,722
  
 
                        
Cash flows from investing activities:
                        
 
                        
Purchase of property, plant and equipment
    
(4,092
)
    
(899
)
    
(1,041
)
Construction-in-process
    
(459
)
    
(308
)
    
(736
)
Consideration from fixed asset sale
    
-
      
254
      
-
  
Disposal of discontinued operations
     (526
)
     -
       -
  
Increase (decrease) in long-term receivables and deposits
    
(56
)
    
5
      
(29
)
 
                        
Net cash used in investing activities from continuing operations
    
(5,133
)
    
(948
)
    
(1,806
)
  
F - 9
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
Cash flows from financing activities:
                  
 
                  
Issuance of Ordinary shares, net
    
1,500
      
12,252
      
9,726
  
Exercise of warrants
    
-
      
800
      
2,141
  
Repayment of short-term bank credit, net
    
-
      
-
      
(575
)
Transaction with non-controlling interest
    
(534
)
    
(254
)
    
-
  
 
                        
Net cash provided by financing activities from continuing operations
    
966
      
12,798
      
11,292
  
 
                        
Net cash provided by (used in) operating activities from discontinued operations
    
-
      
1,186
      
(644
)
Net cash used in investing activities from discontinued operations
    
-
      
(2
)
    
(101
)
 
                        
Effect of exchange rate changes of discontinued operation on cash and cash equivalents
    
-
      
(420
)
    
(138
)
 
                        
Decrease in cash and cash equivalents and restricted cash
    
(7,628
)
    
8,756
      
10,325
  
Cash and cash equivalents and restricted cash at the beginning of the year
    
21,762
      
13,006
      
2,681
  
 
                        
Cash and cash equivalents and restricted cash at the end of the year
    
14,134
      
21,762
      
13,006
  
Less cash and cash equivalents of discontinued operation at the end of the year
    
-
      
526
      
267
  
 
                        
Cash and cash equivalents of continued operation at the end of the year
  
$
14,134
    
$
21,236
    
$
12,739
  
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
(a) Supplemental disclosures of cash flow activities:
              

 
Net cash paid during the year for:
              

 
Income taxes
  
$
17
    
$
17
    
$
17
  
Interest
  
$
-
    
$
18
    
$
173
  
 
                        
(b) Non-cash transactions
                        
Conversion of convertible loan including unpaid interest
  
$
-
    
$
-
    
$
3,175
  
Transfer of inventory to property, plant and equipment
  
$
595
    
$
530
    
$
82
  
Purchase of property, plant and equipment in credit
  
$
572
    
$
136
    
$
44
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 10
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 1:-
GENERAL
 
a.
RADA Electronic Industries Ltd. (the "Company") is a global defense technology company focused on proprietary radar solutions and legacy avionics systems. The Company is a leader in mini-tactical radars, serving attractive, high-growth markets, including critical infrastructure protection, border surveillance, active military protection and counter-drone applications. The Company also  specializes in the design, development, production and sales of Avionics Systems (including Inertial Navigation Systems) for fighter aircraft and UAVs.
 
In January 2018, the Company incorporated RADA Sensors Inc., a fully owned subsidiary of the Company. As of December 31, 2019, RADA Sensors Inc. is the holder of 100% of the interests in RADA Technologies LLC, also organized in January 2018. When Organized, Rada was the owner of 75% of RADA Technologies LLC together with an investor. During July 2019, the Company purchased 25% RADA Technologies LLC from the investor.

The Company is organized and operates as one operating segment.
b.
Discontinued operations
 
In December 2016, the Company committed to a plan to sell its test and repair services activity (provided through the Company’s then 80% owned subsidiary, CACS) in order to focus in its core business. In October 2018, a transaction with non-controlling interest occurred and as a result, as of December 31, 2018, the Company owned 100% of CACS, which resulted in a $254 decrease in additional paid in capital.
 
In December 2018, the Company signed an agreement to sell its ownership interest in CACS for approximately $1,500. On March 14, 2019, the ownership was transferred to the buyer. As of December 31, 2019, the Company received 100% of the consideration, which is currently held in a trust account in China. The net consideration, total amount of $730, is recorded under other accounts receivables and prepaid expenses in the consolidated balance sheet as of December 31, 2019.

The Company recorded in 2018 a provision of $159 for the expected loss resulted from the sale, which amount was included in accrued expenses in the consolidated balance sheets and in the net loss from discontinued operations in the consolidated statements of operations. In 2019, the company recorded additional expected loss of $115, mainly due to exchange rate differences relates to the consideration held in a trust account in China, which decreased the net consideration presented under other accounts receivables and prepaid expenses in the consolidated balance sheet and was included in the net loss from discontinued operations in the consolidated statements of operations.
 
The results of the discontinued operations including prior periods’ comparable results, assets and liabilities which have been retroactively included in discontinued operations as separate line items in the statements of operations and balance sheets, are presented below:
 
F - 11
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 1:-
GENERAL (Cont.)
 
 
  
Year ended
December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Revenues
  
$
-
    
$
750
    
$
1,729
  
Cost of sales
    
-
      
(787
)
    
(909
)
Operating expenses
    
-
      
(208
)
    
(310
)
Operating income (loss)
    
-
      
(245
)
    
510
  
Finance income (expenses), net
    
-
      
-
      
5
  
 
                        
Net income (loss)
    
-
      
(245
)
    
515
  
 
                        
Loss from sale of subsidiary
    
(115
)
    
(159
)
    
-
  
Net income (loss) from discontinued operations
  
$
(115
)
  
$
(404
)
  
$
515
  
 
The major classes of assets and liabilities that were classified as discontinued operations were:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
  
 
            
Cash and cash equivalents
  
$
-
    
$
526
  
Trade receivables
    
-
      
555
  
Other accounts receivable and prepaid expenses
    
-
      
42
  
Inventories
    
-
      
401
  
Property, plant and equipment, net
    
-
      
-
  
 
                
Total assets of discontinued operations
    
-
      
1,524
  
 
                
Trade payables
    
-
      
55
  
Accrued expenses and other liabilities
    
-
      
311
  
 
                
Total liabilities of discontinued operations
  
$
-
    
$
366
  

F - 12
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 1:-
GENERAL (Cont.)

 
c.
Liquidity and Capital Resources:
 
In November 2018, the Company entered into agreements with several Israeli institutional investors to purchase 4,545,454 ordinary shares at price per share of $2.75, for a total consideration of $12,500. Offering costs amounted to $248.

In January 2019, the Company’s shareholders approved the sale of 545,454 Ordinary Shares to DBSI at a price per share of $2.75, approximately $1.5 million in the aggregate.

In January 2020, after balance sheet date, the company raised in an underwritten public offering of 4,819,052 ordinary shares of the Company at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800 (refer to Note 15).

Since incorporation, the Company has incurred an accumulated deficit of $78,991. As of December 31, 2019, the Company’s cash position (cash and cash equivalents) totaled approximately $13,754. Management believes that its cash and cash equivalents, including the funds raised in January 2020 (refer to Note 15), are sufficient for the Company to meet its obligations as they come due at least for a period of twelve months from the sign off date of the consolidated financial statements.
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are as follows:
 
 
a.
Use of estimates:
 
The preparation of financial statements in conformity with (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
F - 13
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they were made.
 
 
b.
Financial statements in U.S. dollars:
 
The majority of the revenues of the Company are generated in U.S. dollars. In addition, Financing activities are made in U.S. dollars.
 
The Company’s management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, its functional and reporting currency is the dollar.
 
Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statement of operations as financial income or expenses, as appropriate, in the period in which the currency exchange rate changes.
 
The financial statements of the Company’s foreign subsidiary (CACS), whose functional currency is not the U.S. dollar, have been translated into dollars. All balance sheet amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate prevailing during the year. Such translation adjustments are reported as a separate component of accumulated other comprehensive income (loss) in equity )see also note 1b)
 
 
c.
Basis of consolidation:
 
The consolidated financial statements include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated upon consolidation.
 
 
d.
Cash equivalents:
 
All highly liquid investments that are readily convertible to cash and are not restricted as to withdrawal or use and the period to maturity of which did not exceed three months at time of deposit, are considered cash equivalents.
 
 
e.
Restricted deposit:
 
Restricted cash is invested in short-term bank deposits (less than twelve months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks. The deposits are in U.S. dollars and bear a variable annual interest of up to 1.63%.

F - 14
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

 NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
 
f.
Inventories:
 
Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items, excess inventories and for market prices lower than cost (see also Note 6).
 
Cost is determined as follows:
 
Raw materials and components - using the FIFO cost method.
 
Work in progress and finished goods - represents the cost of manufacturing with the addition of allocable indirect manufacturing costs.
 
Costs incurred on long-term contracts in progress include direct labor, material, subcontractors, other direct costs and an allocation of overhead, which represent recoverable costs incurred for production.
 
 
g.
Property, plant and equipment:
 
Property plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets. Annual rates of depreciation are as follows:
 
 
  
%
  
 
      
Factory and other buildings
    
4
  
Machinery and equipment
    
7 - 33
  
Office furniture and equipment
    
6 - 33
  
 
Leasehold improvements are depreciated over the shorter of the estimated useful life or the lease period.
 
Assets, in respect of which investment grants have been received, are presented at cost less the related grant amount. Depreciation is based on net cost.
 
 
h.
Impairment of long-lived assets:
 
The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, plant and equipment”, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
 
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2019, 2018 and 2017, no impairment losses have been identified.
 
F - 15
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
As required by ASC 820, “Fair Value Measurement”, the Company applies assumptions that market-place participations would consider in determines the fair value of long-lived assets (or asset group).
 
 
i.
Research and development costs:
 
Research and development costs, net of participation grants, include costs incurred for research and development, are charged to the statement of operations as incurred.
 
The Company received royalty-bearing grants, from the Israeli Innovation Authority (“IIA”) for the purpose of partially funding research and development projects. The grants are recognized as a deduction from research and development costs incurred (see also Note 9a).
 
 
j.
Income taxes:
 
The Company accounts for income taxes in accordance with ASC 740, “Income taxes”. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax based assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
 
The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
 
The Company implements a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The adoption of ASC 740-10 did not result in a change in the Company’s accumulated deficit. The Company did not record any provision in connection with ASC 740-10 as of December 31, 2019 and 2018.
 
 
k.
Severance pay:
 
The Company’s agreements with most of its Israeli employees are in accordance with section 14 of the Severance Pay Law - 1963, under which the Company’s contributions for severance pay shall be instead of severance compensation. Upon release of the policy to the employee, no additional liability exists between the parties regarding the matter of severance pay and no additional payments will be made by the Company to the employee.
 
F - 16
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
The Company’s liability for severance pay for its Israeli employees that are not covered in section 14 is calculated pursuant to Israel’s Severance Pay Law - 1963, based on the most recent salary of the employees as of the balance sheet date less monthly deposits for insurance policies and/or pension funds. Employees are entitled to one month’s salary for each year of employment or a portion thereof.
 
The carrying value of deposited funds includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant to Israeli severance pay law or labor agreements.
 
Severance expense recorded in the statement of operations is net of interest and other income accumulated in the deposits. Severance expense for the years ended December 31, 2019, 2018 and 2017 amounted to $951, $33 and $434, respectively
 
 
l.
Accounting for share-based compensation:
 
The Company accounts for share-based payment in accordance with ASC 718, “Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees on the date of grant using an option-pricing model. The value of the portion of the award is recognized as an expense over the requisite service periods in the Company’s statement of operations. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.
 
Effective as of January 1, 2017, the Company adopted a change in accounting policy in accordance with ASU 2016-09, “Compensation Stock Compensation (Topic 718)” (“ASU 2016-09”) to account for forfeitures as they occur.
 
The fair value for the Company’s stock options granted to employees and directors was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Dividend yield
    
0
%
    
0
%
Risk-free interest rate
    
1.81
%
    
2.70
%
Expected term (in years)
    
4.22
      
4.22
  
Volatility
    
63
%
    
78
%
 
The dividend yield assumption is based on the Company’s historical experience and expectation of future dividend payouts and may be subject to changes in the future.
 
The computation of expected volatility is based on realized historical share price volatility of the Company’s Ordinary shares.
 
F - 17
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
The risk-free interest rate assumption is the implied yield currently available on the U.S treasury yield zero-coupon issues with a remaining term equal to the expected life term of the Company’s options.
 
The expected term of the options represents the period of time that the options are expected to be outstanding and is based on the simplified method, as allowed under Staff Accounting Bulletin No. 110, which is the mid-point between the vesting date and the end of the contractual of the option.
 
 
m.
Fair value of financial instruments:
 
The Company measures its financial instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
 
A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
 
 
Level 1 -
Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
 
 
 
 
Level 2 -
Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
 
 
 
 
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
 
The carrying amount of cash and cash equivalents, restricted deposits, trade receivables, other accounts receivable, bank credit, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments.
 
F - 18
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

 NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. As of December 31, 2019 and 2018 the fair value of foreign currencies derivatives asset (liability) were 35 and (71), respectively.
 
 
n.
Concentrations of credit risk:
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and long-term receivables.
 
The Company’s cash and cash equivalents and restricted deposits are mainly held in U.S. dollars with major banks in Israel. Management believes that the financial institutions that hold the Company’s investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.
 
The Company’s trade receivables are derived from sales to large and solid organizations located mainly in the United States, Asia, Latin America and Israel. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to these amounts that the Company has determined to be doubtful of collection. The allowance is computed for specific debts and the collectability is determined based upon the Company’s experience.
 
 
o.
Comprehensive income (loss):
 
The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income and its components.
 
Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. Accordingly, the Company presents a separate consolidated statement of comprehensive income (loss).
 
The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes for the years ended December 31, 2018  (no other comprehensive income was recorded in 2019):

  
  
Accumulated foreign currency translation differences
  
 
      
Balance as of December 31, 2017
  
$
392
  
Net current period other comprehensive loss
    
(172
)
 
        
Balance as of December 31, 2018
  
$
220
  
 
F - 19
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
 
p.
Warranty:
 
In connection with the sale of its products, the Company provides product warranties for periods between one to two years. Based on past experience and engineering estimates, the estimated liability from these warranties is $35 as of December 31, 2019 and 2018.
 
 
q.
Revenue recognition:
 
The Company generates revenues mainly from the sale of products and from long-term fixed price contracts of defense electronics as follows: data recording and management systems, inertial navigation systems for air and land applications, avionics solutions, and avionics for UAVs, and land radar for defense forces and border protection applications. In addition, the Company provides manufacturing, development and product support services.

The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised goods or services to its customers in an amount that reflects the consideration the Company expects to receive.
 
The Company applies the following five-step approach:
 
 
a)
Identify the contract with a customer
 
A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.
 
 
b)
Identify the performance obligations in the contract
 
Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.
 
F - 20
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
The Company’s contracts contain a single performance obligation which includes sale of product or development and manufacturing services and sale of product that are not separately identifiable and, therefore, not distinct. In situations when the Company’s contract includes distinct goods or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services.
 
When contracts are modified to account for changes in contract specifications and requirements, the Company consider whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively.
 
 
c)
Determine the transaction price
 
The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The Company doesn’t usually grant its customers with a right to return the products sold. However, in some cases, the arrangements may include penalties if the Company fails to deliver future goods on time. The above is accounted for as variable considerations, which may be considered as adjustments to the transaction price.
 
As the Company’s standard payment terms are less than one year, the Company elected the practical expedient and the contracts have no significant financing component.
 
 
d)
Allocate the transaction price to performance obligations in the contract
 
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Standalone selling price is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices are established at contract inception and subsequent changes in transaction price are allocated on the same basis as at contract inception. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation.
 
F - 21
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
 
e)
Recognize revenue when or as the Company satisfies a performance obligation
 
Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
 
The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased or service provided.
 
Revenues from long-term and short-term fixed price contracts are usually recognized over time based on the cost-to-cost input method that best depicts the transfer of control over the performance obligation to the customer. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
 
For contracts with an estimated amortization period of less than one year, the Company elected the practical expedient and expenses incremental costs immediately.
 
Contract Estimates - In estimating contract costs, the Company utilizes a profit-booking rate based upon performance expectations that takes into consideration a number of assumptions and estimates regarding risks related to technical requirements, feasibility, schedule, and contract costs. Management performs periodic reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as the Company is able to mitigate and retire such risks. Conversely, if the Company is not able to retire these risks, cost estimates may increase, resulting in a lower profit-booking rate.
 
The cost estimation process requires significant judgment and is based upon the professional knowledge and experience of the Company’s engineers, program managers, and financial professionals. Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any performance delays, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete.
 
Changes in estimates of sales, costs, and profits on a performance obligation are recognized using the cumulative catch-up method of accounting, which recognizes in the current period the cumulative effect of the changes in current and prior periods. When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance obligation related to a complex, construction-type contract, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.
 
F - 22
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
Contract Assets - Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time, including retention amounts. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-term nature of many of the Company’s contracts. Contract assets are transferred to accounts receivable when the right to consideration becomes unconditional.
 
Contract Liabilities - Contract liabilities primarily consist of advance payments and billings in excess of costs incurred. Advances represent deposits received from customers on an order. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Such billings are generally not considered a significant financing component, because they are utilized to pay for contract costs within a one-year period. Contract liability amounts are recognized as revenue once the requisite performance progress has occurred.
 
 
r.
Basic and diluted net income (loss) per share:
 
Basic net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year in accordance with ASC 260, “Earnings per share”.
 
 
s.
Derivatives and hedging:
 
The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related Interpretations. ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings (for fair value hedge transactions) or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (for cash flow hedge transactions).
 
The ineffective portion of a derivative’s change in fair value is recognized in earnings. If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. Cash flows related to such hedges are classified as operating activities.
 
F - 23
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
The Company enters into forward exchange contracts and option contracts in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in NIS. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately as financial expenses, net.
 
As of December 31, 2019 and 2018, the fair value of the outstanding forward contracts was $35, which was recorded in other receivables against financial income and $71 which was recorded in other payables against financial expense, respectively.

 
t.
Reclassifications:

Certain financial statement data for prior years has been reclassified to conform to current year financial statement presentation.
 
 
u.
New accounting pronouncements not yet effective:
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new accounting standard will be effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. The Company does not expect that adoption of this standard will have a material impact on its consolidated financial statements.
 
Recently Adopted Accounting Pronouncements:
 
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, “Leases” ("ASC 842"), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The company has adopted a policy whereby leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under the prior guidance (ASC 840). The new standard requires lessors to account for leases using an approach that is substantially equivalent to ASC 840 guidance for sales-type leases, direct financing leases and operating leases. The new standard supersedes the previous leases standard, ASC 840, "Leases". Refer to Note 3.

F - 24
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
 
  
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the new standard effective January 1, 2018 using the retrospectively method. The adoption of this new guidance had an immaterial impact on the Company’s consolidated financial statements. Restricted cash is invested in short-term bank deposits (for three months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks.
 
The following table provides a reconciliation of cash and cash equivalents and restricted deposits reported within the consolidated balance sheets that sum to the total of such amounts in the consolidated statements of cash flows:

  
  
December 31, 2019
    
December 31, 2018
    
December 31, 2017
  
 
                  
Cash and cash equivalents
  
$
13,754
    
$
20,814
    
$
12,417
  
Restricted cash
    
380
      
422
      
322
  
 
                        
Cash and cash equivalents and restricted cash
  
$
14,134
    
$
21,236
    
$
12,739
  
 
F - 25
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 3: 
LEASES
 
The Company adopted the new standard as of January 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been restated. The Company has elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it to reassess the prior conclusions about lease identification, lease classification and initial direct costs. The Company elected the practical expedient to not separate lease and non-lease components for all its leases. This results in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability being greater than if the policy election was not applied. The Company also elected the short-term lease recognition exemption for all leases with a term shorter than 12 months.

The adoption of this new standard as of January 1, 2019 affected the Company's consolidated balance sheets by recognizing new ROU assets and lease liabilities for operating leases in the amount of approximately $2,032.

Some leases include one or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in remeasurement of the right of use asset and lease liability, which are not accounted as separate lease contract.

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The Company's incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

Some of the real estate leases contain variable lease payments, including payments based on an index or rate (CPI). Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease adoption. Additional payments based on the change in an index or rate are recorded as a period expense when incurred.


F - 26

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data


NOTE 3: 
 LEASES (Cont.)
 
The Company has various operating leases for office space and vehicles that expire through 2022 and 2030. Its lease agreements do not contain any material residual value guarantees or material restrictive covenants. Below is a summary of the Company's operating right-of-use assets and operating lease liabilities as of December 31, 2019:

 
  
December 31, 2019
  
Operating right-of-use assets
  
$
7,654
  
 
        
Operating lease liabilities, current
    
1,240
  
Operating lease liabilities long-term
    
6,499
  
Total operating lease liabilities
  
$
7,739
  
         
Weighted average remaining lease term (years)
    
9
  
Weighted average discount rate
    
3.56
%

Cash paid for lease expenses during the twelve months ended December 31, 2019 was $1,302 and non-cash transactions totaled $8,205 to recognize operating assets and liabilities for new leases.

Minimum lease payments for the Company's right of use assets over the remaining lease periods as of December 31, 2019, are as follows:

   
December 31, 2019
  
2020
  
$
1,164
  
2021
    
1,323
  
2022
    
740
  
2023
    
579
  
2024
    
593
  
2025
    
608
  
2026
    
623
  
2027
    
639
  
2028
    
655
  
2029
    
671
  
2030
    
401
  
 Total undiscounted lease payments
  
$
7,996
  
 
        
 Less: Interest
    
(257
)
 
        
Present value of lease liabilities
  
$
7,739
  

Total lease expenses for the twelve months ended December 31, 2019 and 2018  and 2017 were $1,138 and $958 and $888 respectively.
F - 27

 RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 4:-
REVENUES

In accordance with the new standard, costs and estimated earnings in excess of billings on uncompleted contracts were reclassified as contract assets and contract liabilities from December 31, 2018. Contract liabilities include advances from customers, which were presented separately in the Company's consolidated balance sheets as of December 31, 2019 and 2018.

The following table presents the significant changes in the advances from customers balance during the twelve months ended December 31, 2019:

   
12 months ended December 31,
  
 
   2019     2018  
             
Balance, beginning of the period
  
$
727
    
$
41
  
New performance obligations
    
893
      
794
(*)
Reclassification to revenue as a result of satisfying performance obligation
    
(57
 )
   
(108
)(*)
Balance, end of the period
  
$
1,563
    
$
727
(*)

The following table summarizes our contract assets and liabilities balances:

   
2019
    
2018
  
             
Contract assets at January 1,
  
$
899
    
$
1,140
  
Contract assets at December 31,
  
$
1,269
    
$
899
  
                 
Change in contract assets – increase(decrease)
  
$
370
    
$
241
  
                 
Contract liabilities at January 1,
  
$
366
    
$
145(
*)
Contract liabilities at December 31,
  
$
196
    
$
366(
*)
                 
Change in contract liabilities - increase
  
$
170
    
$
221
  
                 
Net change
  
$
200
    
$
20
  

(*) Reclassified

For the twelve months ended December 31, 2019, 70% of the amount that was previously included in the beginning balance of contract liabilities was recognized.

The Company’s unsatisfied performance obligations as of December 31, 2019 and the estimated revenue expected to be recognized in the future related to long-term fixed price contracts amounts to $1,070. The Company expects to recognize approximately 100% of this amount as revenues during the next 12 months. For information regarding disaggregated revenues, please refer to Note 14.

F - 28
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 5:-
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Prepaid expenses
  
$
781
    
$
184
  
Government authorities
    
78
      
243
  
Advance payments to vendors
    
9
      
70
  
Deposits
    
40
      
9
  
Fair value of the outstanding forward contracts
    
35
          
Other accounts receivable related to Discontinued operations)see also note 1c.)
    
730
      
-
  
 
  
$
1,673
    
$
506
  
 
NOTE 6:-
INVENTORIES
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Raw materials
  
$
8,377
    
$
5,605
  
Work in progress, net
    
3,884
      
3,558
  
Finished goods
    
4,935
      
2,081
  
 
  
$
17,196
    
$
11,244
  
 
Write-offs of inventories for the years ended December 31, 2019, 2018 and 2017 amounted to $230, $39 and $122, respectively. The write-offs were due to slow-moving items and excess inventories and were recorded in cost of revenues. As of December 31, 2019 and 2018 the Company turned part of the slow-moving inventory provision due to sales and disposals of certain items in the amount of $455 and $129 respectively, which was recorded as income in cost of revenues.
 
F - 29
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 7:-
PROPERTY, PLANT AND EQUIPMENT, NET
 
 
  
December 31,
  
 
  
2019
    
2018
  
Cost:
            
 
            
Factory building
  
$
2,081
    
$
2,081
  
Machinery and equipment *) **)
    
14,641
      
10,723
  
Office furniture and equipment
    
1,089
      
838
  
Leasehold improvements
    
2,004
      
455
  
 
                
 
    
19,815
      
14,097
  
Accumulated depreciation:
                
 
                
Factory building
    
2,058
      
2,006
  
Machinery and equipment  **)
    
8,043
      
6,948
  
Office furniture and equipment
    
389
      
345
  
Leasehold improvements
    
198
      
166
  
 
                
 
    
10,688
      
9,465
  
 
                
Depreciated cost
  
$
9,127
    
$
4,632
  
 
 
*)
As of December 31, 2019 and 2018, $459 and $1,044, respectively, relates to construction-in-process of production infrastructure.
 
 
 
 
**)
Capital loss from sale of fixed asset amounted to $103, is due to machinery and equipment sales during 2018.
 
Depreciation expense amounted to $1,223, $799 and $641 (offset by depreciation write-offs for an amount of $0, $1,030 and $3 mainly due to assets disposals) for the years ended December 31, 2019, 2018 and 2017, respectively.
 
NOTE 8:-
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Payroll and related accruals
  
$
4,327
    
$
2,397
  
Accrued expenses - agents’ commissions
    
518
      
84
  
Accrued expenses
    
727
      
731
  
Royalties to IIA
    
-
      
393
  
Provision for loss from sale of subsidiary
    
-
      
159
  
Others
    
-
      
78
  
 
                
 
  
$
5,572
    
$
3,842
  
 
F - 30
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 9:-
COMMITMENTS AND CONTINGENT LIABILITIES
 
 
a.
The Company’s research and development efforts have been partially financed through royalty-bearing programs sponsored by the IIA. In return for the IIA’s participation, the Company is committed to pay royalties at a rate ranging from 3% to 5% of sales of the products whose research was supported by grants received from the IIA, up to 100% of the amount of such participation received linked to the U.S. dollar. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. As of December 31, 2019, the Company received total grants from the IIA in the amount of $5,543.
 
 
 
 
 
The total amount of royalties charged to operations for the years ended December 31, 2019, 2018 and 2017, were approximately $41, $458 and $569, respectively. As of December 31, 2019, the Company’s contingent liability for royalties, net of royalties paid or accrued is zero.
 
 
 
 
b.
The Company provides bank guarantees to some of its customers and others, in the ordinary course of business. The guarantees are to secure advances received at the commencement of a project or to secure performance of operational milestones. The total amount of bank guarantees provided to customers and others as of December 31, 2019, is approximately $350.
 
F - 31
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-
SHAREHOLDERS’ EQUITY
 
 
a.
Share capital:
 
Ordinary Shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.

In June 2018, the Company's shareholders approved an increase of the Company's authorized share capital by NIS 1,875,000 and as a result the authorized share capital is equal to NIS 3,000,000 divided into 100,000,000 Ordinary Shares, par value NIS 0.03 each.

In November 2018, the Company entered into agreements with several Israeli institutional investors to purchase 4,545,454 Ordinary shares at price per share of $2.75, for a total consideration of $12,500. Offering costs amounted to $248.

In January 2019, the Company’s shareholders approved the sale of 545,454 Ordinary Shares to the controlling shareholder at a price per share of $2.75, approximately $1,500 in the aggregate.

In January 2020, after balance sheet date, the Company raised in an underwritten public offering of 4,819,052 ordinary shares of the Company at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800 (refer to Note 15).
 
 
b.
Stock option plans:
 
In April 2015, the Company's Board of Directors adopted the "2015 Share Option Plan" (the "Plan"), which authorized the grant of options to purchase up to an aggregate of 1,500,000 Ordinary Shares to officers, directors, consultants and key employees of the Company and its subsidiaries. Options granted under the Plan expire within a maximum of ten years from adoption of the plan.

In April 2018, the Company granted options to its CEO to purchase a total of 500,000 Ordinary Shares at an exercise price of $2.32 per share. The options will vest as follows: 25% of the options granted will vest in April 2019; and 75% of the options will vest in twelve equal quarterly installments of 6.25% each until April 2022. These options will be exercisable for 48 months following the date of vesting.

F - 32
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-
SHAREHOLDERS’ EQUITY (Cont.)

On June 7, 2018, the Company’s shareholders approved the U.S. Taxpayers Appendix to its 2015 Share Option Plan and to reserve 1,000,000 of our Ordinary Shares for issuance thereunder. On August 15, 2018, the Company’s Board of Directors approved an increase in the framework of the Plan to 3,750,000 options.
 
On August 15 and 23, 2018, the Company granted options to its officers and employees to purchase a total of 732,500 and 35,000 Ordinary Shares, respectively, at exercise prices of $2.93 and $2.81 per share, respectively. The options will vest as follows: 25% will vest in August 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2022. These options will be exercisable for 48 months following the date of vesting.
 
In November 2018, the Company granted options to one of its officers to purchase a total of 217,500 Ordinary Shares at an exercise price of $2.81 per share. The options will vest as follows: 25% will vest in November 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until November 2022. These options will be exercisable for 48 months following the date of vesting.

In January 2019, the Company granted options to its employees to purchase a total of 60,000 Ordinary Shares at an exercise price range $2.76 - $2.85 per share. The options will vest as follows: 25% will vest in January 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until January 2023. These options will be exercisable for 48 months following the date of vesting.

In March 2019, the Company granted options to its officers and employees to purchase a total of 75,000 Ordinary Shares at an exercise price of $2.73 per share. The options will vest as follows: 25% will vest in March 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until March 2023. These options will be exercisable for 48 months following the date of vesting.

In May 2019, the Company granted options to one of its employees to purchase a total of 7,500 Ordinary Shares at an exercise price of $3.11 per share. The options will vest as follows: 25% will vest in May 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until May 2023. These options will be exercisable for 48 months following the date of vesting.

In August 2019, the Company granted options to its officers and employees to purchase a total of 100,000 and 50,000 Ordinary Shares at an exercise price of $3.64 and 4.87 per share. The options will vest as follows: 25% will vest in August 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2023. These options will be exercisable for 48 months following the date of vesting.

In September 2019, the Company granted options to employees to purchase a total of 15,000 Ordinary Shares at an exercise price between $3.99 to $4.40 per share. The options will vest as follows: 25% will vest in September 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until September 2023. These options will be exercisable for 48 months following the date of vesting.
 
F - 33
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-
SHAREHOLDERS’ EQUITY (Cont.)
 
In September 2019, the Company granted options to one of its officers to purchase a total of 30,000 Ordinary Shares at an exercise price of $4.83 per share. The options will vest as follows: 25% will vest in September 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until September 2023. These options will be exercisable for 48 months following the date of vesting.

In November 2019, the Company granted options to one of its employees to purchase a total of 17,500 Ordinary Shares at an exercise price of $5.25 per share. The options will vest as follows: 25% will vest in November 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until November 2023. These options will be exercisable for 48 months following the date of vesting.

In December 2019, the Company granted options to officers and employees to purchase a total of 70,000 Ordinary Shares at an exercise price of $5.24 per share. The options will vest as follows: 25% will vest in December 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until December 2023. These options will be exercisable for 48 months following the date of vesting.
 
As of December 31, 2019, options to purchase 475,687 Ordinary Shares are available for future grant under the Plan.
 
A summary of the Company’s activity for options granted to employees and directors under the Plan is as follows:
 
 
  
Twelve months ended December 31, 2019
  
 
  
Number of
options
    
Weighted
average
exercise
price
    
Weighted
average
remaining
contractual
term
    
Aggregate
Intrinsic
Value Price
  
 
                        
Outstanding at the beginning of the period
    
3,229,375
    
$
2.25
      
8.82
    
$
1.617
  
Granted
    
470,000
      
4.08
      
-
      
-
  
Exercised
    
(505,000
)
    
1.08
      
-
      
-
  
Forfeited
    
(83,437
)
    
2.93
                  
 
                                
Outstanding at the end of the period
    
3,110,938
      
2.76
      
8.23
      
7,579
  
 
                                
Exercisable
    
1,067,344
    
$
2.49
      
7.86
    
$
2,885
  
 
F - 34
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-
SHAREHOLDERS’ EQUITY (Cont.)
 
Aggregate intrinsic value of exercisable options (the difference between the closing share price of the Company’s Ordinary Shares on the last trading day in the period and the exercise price, multiplied by the number of in-the-money options) represents the amount that would have been received by the employees and directors option holders had all option holders exercised their options on December 31, 2019. This amount changes based on the fair market value of the Company’s Ordinary share.
 
As of December 31, 2019, unrecognized compensation expenses related to employees and directors stock options to be recognized over an average time of approximately 4 years is approximately $3,089.
 
During the twelve months period ended December 31, 2019, the Company recognized compensation expenses related to employees and service providers stock option in the amount of $1,148, as follows:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
  
 
            
Research and Development
  
$
243
    
$
97
  
Cost of revenues
  
$
134
    
$
107
  
Marketing and selling
  
$
57
    
$
123
  
General and administrative
  
$
714
    
$
571
  
 
  
$
1,148
    
$
898
  
 
 
c.
Warrants:
 
On May 18, 2016, the Company issued Warrants to the Investor (see Note 1c) to purchase: (i) 4,255,319 additional Ordinary shares at an exercise price per Ordinary share of $0.47 (having an aggregate exercise price of $2,000), exercisable for a period of 24 months following the date of the Initial Investment and (ii) 3,636,363 Ordinary shares at an exercise price per Ordinary share of $0.55 (having an aggregate exercise price of $2,000), exercisable for a period of 48 months following the date of the Initial Investment. During 2016, the Investor exercised Warrants to purchase 2,659,575 Ordinary shares at an exercise price per share of $0.47 for an aggregate total consideration of $1,250. During 2017, the Investor exercised Warrants to purchase 1,595,744 Ordinary shares at an exercise price per share of $0.47 for an aggregate total consideration of $750, and an additional 2,181,818 Ordinary shares at an exercise price per share of $0.55 for an aggregate total consideration of $1,200. In January 2018, the Investor exercised Warrants to purchase an additional 1,454,545 Ordinary shares at an exercise price per share of $0.55 in consideration of $800.
 
F - 35
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 10:-
SHAREHOLDERS’ EQUITY (Cont.)
 
On May 18, 2016, as part of the investment transaction, the Company issued to a consultant 510,638 Warrants to purchase Ordinary shares at an exercise price per Ordinary share of $0.47, exercisable for a period of 18 months following the date of the Initial Investment. During 2016, the consultant exercised Warrants to purchase 106,383 Ordinary shares at an exercise price per share of $0.47, for an aggregate total consideration of $50. During 2017, the consultant exercised Warrants to purchase 404,255 Ordinary Shares at an exercise price per share of $0.47, for an aggregate total consideration of $190.
 
As of December 31, 2019, all of the Company’s outstanding Warrants were fully exercised.
 
NOTE 11:-
TAXES ON INCOME
 
 
a.
The Israeli corporate tax rate and real capital gains tax was 23% in 2019 and 2018 and 24% in 2017.
 
 
 
 
  
The Company’s subsidiaries which were incorporated in U.S. are subject to federal tax rate of 21% in 2019 and 2018.
 
 
 
 
b.
In accordance with the Israeli tax laws, tax returns of the Company submitted up to and including the 2014 tax year can be regarded as final.
 
 
 
 
 
The Company’s subsidiaries did not receive final tax assessments since their incorporation.
 
 
 
 
c.
Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
 
 
 
 
 
The Company qualifies as an “Industrial Company” under the Law for the Encouragement of Industry (Taxes), 1969 (the “Industrial Encouragement Law”). The Industrial Encouragement Law defines an “Industrial Company” as a company that is resident in Israel and that derives at least 90% of its income in any tax year, other than income from defense loans, capital gains, interest and dividends, from an enterprise whose major activity in a given tax year is industrial production.
 
 
 
 
 
The principal benefit from the above law is the deduction of expenses in connection with a public offering. Also, under the industrial Encouragement Law an “Industrial Company” is entitled to special rates of depreciation for industrial equipment and in addition to amortization of the cost of purchased know-how and patents over an eight-year period for tax purposes and an accelerated depreciation rate on equipment.
 
 
 
 
 
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.
 
 
 
 
d.
As of December 31, 2019, the net operating tax loss carryforward relating to the Company in Israel amounted to approximately $64,084, not including a carryforward capital loss amounting to approximately $3,841. Carryforward losses in Israel may be carried forward indefinitely and may be offset against future taxable income.
 
F - 36
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 11:-
TAXES ON INCOME (Cont.)
 
As of December 31, 2019, the U.S. subsidiaries have U.S. federal carryforward tax losses of approximately $3,017.
 
As the Company believes that it is more likely than not that the deferred tax assets in respect of these carryforward losses will not be utilized, the Company recorded a full valuation allowance for the entire balance of the deferred tax asset relating to the carryforward losses.
 
 
e.
The main reconciling items between the statutory tax rate of the Company and the effective tax rate is the valuation allowance recorded in respect of the deferred tax assets relating to net operating loss carryforward and other temporary differences due to the uncertainty of the realization of such tax assets.
 
Deferred income taxes:
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Net operating loss carryforward
  
$
15,373
    
$
14,598
  
Capital loss carryforward
    
883
      
871
  
Allowances and reserve
    
401
      
322
  
 
                
Total deferred tax assets before valuation allowance
    
16,657
      
15,791
  
Valuation allowance
    
(16,657
)
    
(15,791
)
 
                
Net deferred tax assets
  
$
-
    
$
-
  
 
As of December 31, 2019 and 2018, the Company has provided valuation allowances in respect of deferred tax assets resulting from the tax loss carryforward and other temporary differences, since it has a history of operating losses and the current uncertainty concerning its ability to realize these deferred tax assets in the future.
 
The Company accounts for its income tax uncertainties in accordance with ASC 740, which clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
 
As of December 31, 2019 and 2018, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate.
 
F - 37
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 12:-
FINANCIAL EXPENSES, NET
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Income:
                  
 
                  
Foreign currency exchange differences
  
$
-
    
$
47
    
$
130
  
Interest on cash equivalents and restricted deposits
    
359
      
184
      
50
  
Other
    
96
      
-
      
34
  
 
                        
 
    
455
      
231
      
214
  
Expenses:
                        
 
                        
Amortization of shareholders’ convertible loans discount and BCF
    
-
      
-
      
103
  
Interest on shareholders’ convertible note and loans
    
-
      
-
      
164
  
 
                        
Bank commissions and others
    
38
      
17
      
82
  
Operating lease expenses
    
85
      
-
      
-
  
Foreign currency exchange differences
    
453
      
93
      
9
  
Interest on loans from banks and other credit balances
    
-
      
2
      
12
  
 
                        
 
    
576
      
112
      
370
  
 
                        
Total financial (expenses) Income, net
  
$
(121
)
  
$
119
    
$
(156
)
 
NOTE 13:-
RELATED PARTY BALANCE AND TRANSACTIONS
 
In January 2017, the Company’s shareholders approved that in addition to the directors’ fees to be paid to all of the Company’s directors, commencing as of January 1, 2017, the Company will pay the Investor (see Note 1c) an additional monthly payment of approximately $4.6 (NIS 17,500) for time devoted to the Company by the Executive Chairman of the Board of Directors, who is also a co-owner of the Investor. Such payment would increase in the event the Company achieved profitable operations. In 2017, the Company’s consolidated audited financial statements reflected net income (before taxes), so such additional payment increased to approximately $9 (NIS 35,000). In 2019 and 2018, the total payments to the Investor with respect to the Executive Chairman of the Board of Directors were $119 and $118, respectively..
 
F - 38
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 13:-
RELATED PARTY BALANCE AND TRANSACTIONS (Cont.)

See also Note 10 for transactions with the Company’s shareholders.
 
Balances with related parties:

 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Accrued expenses
  
$
50
    
$
43
  
 
Related parties’ expenses:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Directors and management fees
  
$
169
    
$
156
    
$
170
  
 
                        
Amortization of shareholders’ convertible loans discount and BCF
  
$
-
    
$
-
    
$
103
  
 
                        
Interest on shareholders’ convertible note and loans
  
$
-
    
$
-
    
$
164
  
 
NOTE 14:-
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
 
 
a.
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportable segment, and derives revenues from develops, manufactures and sells land radar for defense forces and border protection applications, avionics equipment and aviation data acquisition and debriefing systems (see Note 1 above for a brief description of the Company’s business).
 
 
 
 
b.
Revenues by geographic areas:

Revenues are attributed to geographic area based on the location of the end customers as follows:

  
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
North America
  
$
21,995
    
$
11,686
    
$
14,446
  
Israel
    
12,737
      
10,446
      
6,363
  
Asia
    
2,499
      
3,093
      
4,372
  
South America
    
1,027
      
1,206
      
514
  
Europe
    
6,073
      
1,601
      
281
  
Australia
    
-
      
-
      
206
  
 
                        
Total
  
$
44,331
    
$
28,032
    
$
26,182
  
 
F - 39
RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 14:-
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
 
 
c.
Major customers:
 
Revenues from single customers that exceed 10% of the total revenues in the reported years as a percentage of total revenues are as follows:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
  
%
  
 
                  
Customer A
    
12
      
7
      
7
  
Customer C
    
8
      
11
      
2
  
Customer E
    
3
      
11
      
5
  
Customer F
    
3
      
6
      
13
  
Customer G
    
6
      
4
      
35
  
Customer H
    
4
      
12
      
3
  
Customer I
    
4
      
12
      
-
  

 
d.
Long-lived assets (property, plant and equipment) by geographic areas:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Israel
  
$
6,062
    
$
3,915
  
China
    
-
      
319
  
USA
    
3,065
      
-
  
 
                
 
  
$
9,127
    
$
4,234
  
 
NOTE 15:-
SUBSEQUENT EVENTS
 
On January 2020, the Company raised in an underwritten public offering of 4,819,052 ordinary shares of the Company at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800.

F - 40

SIGNATURES
 
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
 
RADA ELECTRONIC INDUSTRIES LTD.
 
 
 
 
By:
/s/ Dov Sella
 
Name:
Dov Sella
 
Title:
Chief Executive Officer
 
 
 
Dated: April 7, 2020
 
 
 
 68

Exhibit 1.1
 
THE COMPANIES ORDINANCE
 
A COMPANY LIMITED BY SHARES
 
MEMORANDUM OF ASSOCIATION
 
OF
 
RADA ELECTRONICS CONSULTING & SERVICES COMPANY LTD.
 
1.
The name of the Company is:
 
In Hebrew:  ראדא חברה ליעוץ ושרותים אלקטרוניים בע"מ
 
In English:  Rada Electronics Consulting & Services Company Ltd.
 
2.
The objects for which the Company was established are:
 
 
a.
To manage, advise, plan, organize, instruct and assist, to act, produce, manufacture, work, and engage in the business of service and consultation in the field of electronics and, inter alia, to undertake and execute projects of planning, development, consultation and instruction in the branch of electronics.
 
 
b.
To act as engineers and consultants of all kinds and to carry on the business of planning and engineering.
 
 
c.
To carry on the business of buying, selling, trade, marketing, import and export supplies of raw materials, commodities, products, goods and materials of all kinds and for whatever use, necessary and/or conducive to the attainment of the objects of the Company.
 
 
d.
To engage in haulage, transportation and any other means of transport and carriage that may be necessary or conducive to the attainment of the objects of the Company, in whole or in part.
 
 
e.
To apply for, purchase or otherwise acquire, to obtain rights of use or exploitation of, protect, prolong or renew, whether in Israel or abroad, any patents, patent rights, brevets d’invention, licenses, protections and concessions (hereinafter collectively called “Patent Rights”), which may be thought by the Company to be advantageous, and to use, manufacture under, exploit and derive any benefit from the patent rights, to enter into any agreements and do any acts in respect of the use, exploitation or derivation of any benefit from the patent rights and to sell or otherwise dispose of and grant licenses and privileges in respect of the same.
 
 
f.
To enter into any arrangement or agreement with any government or authority, supreme, municipal, local or otherwise that may seem beneficial to the objects of the Company, in whole or in part, and to obtain from any such government or authority any right, privilege or concession which the Company may think desirable to obtain, exploit or execute.
 
 
g.
To purchase or acquire, take in exchange or otherwise any business, whether as a going concern or not, and any property, whether movable or immovable, goodwill, rights, privileges or any other rights of any person or company, necessary or convenient for the attainment of all or any of the Company’s objects or any object connected therewith.
 
 
h.
To establish or promote or concur in establishing or promoting any company which shall acquire or undertake all or any of the assets and liabilities of this Company and having any other object which the Company think may directly or indirectly assist this Company to advance any business within the ambit of any of the objects of this Company.
 
 
i.
To amalgamate or merge with any other company.
 
 
j.
To enter into any partnership or arrangement for sharing profits, union of interests or cooperation with any person or Company.
 
 
k.
To subscribe for, take, purchase or otherwise acquire, hold, sell, transfer, or enter into an agreement in respect of shares, stock, debenture, debenture stock, obligations and other securities, and interests of any other company having objects altogether or in part similar to those of this Company, in whole or in part, or of any company carrying on or intending or entitled to miry on business which may directly or indirectly be beneficial to the Company.
 
 
l.
To borrow and raise monies and secure the payment of any monies in such manner and upon such terms as the Company may deem fit and, particularly, by the issue of debentures, series of debentures, debenture stock secured by the all or any of the assets of the Company, present and future, whether movable or immovable, or the uncalled share capital, to acquire, redeem and release any such security, to mortgage the land of the Company and to redeem and release any such security, mortgage or pledge as aforesaid.
 
 
m.
To lend and advance money or give credit to and to guarantee the debts and contracts of such persons, firms or companies on such terms as may seem expedient, and in particular to customers and others having dealings with the Company, and to give guarantees or become security for any such persons, firms or companies, and to accept from those to or for whom the Company shall lend money or give credit or guarantees, such guarantees and collateral securities as the Company or its directors may deem proper, including mortgages, pledge, charges, floating charges or any security on land and chattels, and to release and waive the right to any security as aforesaid upon such terms as the Company may deem proper.
 
2
 
n.
To enter into, sign and execute any agreements and contracts, to make, accept, endorse, issue, transfer, cancel, redeem, purchase or otherwise dispose of bills of exchange, promissory notes, cheques, letters of credit, bills of lading, any instruments, whether negotiable or not negotiable, and any deeds, documents, certificates and securities.
 
 
o.
To sell and transfer the whole or any part of the undertaking of the Company, either together or in portions, for such consideration as the Company think fit, including for shares, debentures or other securities, to any other company whose objects, in whole or in part, are similar to the objects of the Company.
 
 
p.
To insure the Company and its property, plants, undertakings and operations, in whole or in part, against all damages, losses, risks and liabilities.
 
 
q.
To invest and deal with the monies of the Company not immediately required for its business, in such manner as the Company shall from time to time determine.
 
 
r.
To distribute the assets of the Company among its members in specie or distribute the proceeds of its assets sold or delivered, provided that by the distribution of the assets, no reduction of capital shall result otherwise than in compliance with the Companies Ordinance, to grant allowances, grants and prizes to its employees and directors.
 
 
s.
To do all or any of the things set out in the Second Schedule to the Companies Ordinance, and it is hereby declared that any object or power added to the Second Schedule to the Companies Ordinance by any amendment of the Ordinance or otherwise, shall be deemed to be added expressly to this memorandum of association; However, any object or power omitted from the Second Schedule to the Companies Ordinance by any amendment of the Ordinance or otherwise, shall not be deemed to be omitted from this memorandum of association, and same shall be deemed to continue to be included in this memorandum of association, except where such object or power shall be prohibited under the law in force at that time.
 
 
t.
To do all such acts as are connected with or related to the objects included in this memorandum of association, either expressly or impliedly, or as may in any way assist in, facilitate or be conducive to the attaining of all or any of the said objects.
 
 
u.
To do all the above things, and either as principals, agents, contractors or trustees or otherwise, and either alone or in conjunction with others, and either by or through agents, contractors or trustees or others.
 
 
v.
To do in every country and place in the world all the acts which the Company is by virtue of the law and the memorandum of association, authorized to do in Israel.
 
3

 
w.
And it is hereby agreed and declared that in this memorandum of association the following expressions, whether appearing in the memorandum of association itself or in the Second Schedule to the Companies Ordinance, shall have the following meanings:
 
“person” includes company and corporation.
 
“company” or “corporation” includes, unless it refers to this Company, any other company, cooperative society, any other society, body politic, public or juristic, association, partnership or body of persona, whether incorporated or not incorporated, whether domiciled in Israel or abroad.
 
“to manage”, “to engage in”, “to do” include to be engaged and act as merchants, importers, exporters, buyers, sellers, exchangers, financiers, agents, brokers, distributors, partners, founders, promoters, holders, helpers, directors, organizers, developers, improvers, searchers, producers, issuers, cultivators, renovators, handlers, lessees, lessors, chargors, chargees, recipients of rights or interests, grantors of rights and interests and in any other manner.
 
 
x.
And it is hereby further agreed and declared that, unless it is expressly otherwise stated, each of the objects and powers specified in each of the paragraphs of this clause, including, having regard to the provisions of paragraph o. of this clause, each of the paragraphs of the Second Schedule to the Companies Ordinance, is a main and independent object, and shall in no way be limited or restricted by any inference from any other paragraph of this Clause or of the Second Schedule to the Companies Ordinance, or by any reference to or inference from the name of the Company.
 
3.
The liability of the members is limited.
 
4.
The share capital of the company is 450,000 (four hundred and fifty thousand) New Israeli Shekels, divided into 30,000,000 Ordinary Shares of a nominal value of 0.015 New Israeli Shekels (0.015 NIS) each, all ranking, pari-passu. [last amended, April 16, 2015]
 
5.
The Company may make alterations in the original or increased capital, including the creation of new capital from time to time with such rights and subject to such limitations as are specified in the attached articles of association, as from time to time amended.
 
We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the capital of the Company set opposite our respective names.
 
Names of Subscribers
 
Addresses & Description
 
Number of Shares taken
by each Subscriber
 
Signature
 
 
 
 
Founders
 
Ordinary
 
 
1.  David Reitner
 
145A Derech Hayam Haifa, Engineer
 
4
 
100
 
(-)
2.  Aviva Reitner
 
145A Derech Hayam Haifa, Housewife
 
1
 
10
 
(-)

Haifa, 13th September, 1970
 
I authenticate the above signatures:
 
advocate Yom-Tov Elkayam
 
4

Exhibit 2.2
Rights Attached to Shares
 
Our authorized share capital consists of 100,000,000 Ordinary Shares of a nominal value of NIS 0.03 each. All outstanding Ordinary Shares are validly issued, fully paid and non-assessable. The rights attached to the Ordinary Shares are as follows:
 
Dividend rights. Holders of our Ordinary Shares are entitled to the full amount of any cash or share dividend subsequently declared. The board of directors may declare interim dividends and propose the final dividend with respect to any fiscal year only out of the retained earnings, in accordance with the provisions of the Israeli Companies Law. Our articles of association provide that the declaration of a dividend requires approval of the board of directors. See Item 8A. “Financial Information – Consolidated and Other Financial Information – Dividend Distribution Policy.” If after one year a dividend has been declared and it is still unclaimed, the board of directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed. We are not obligated to pay interest or linkage differentials on an unclaimed dividend.
 
Voting rights. Holders of Ordinary Shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
 
Except as otherwise required by the Israeli Companies Law, a resolution of the Shareholders shall be deemed adopted if approved by the holders of a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting.
 
Pursuant to our Articles of Association, our directors, except for the external directors, shall be elected at the Annual General Meeting by the vote of the holders of a majority of the voting power represented at such meeting in person or by proxy and voting on the election of directors, and each director shall generally serve until the Annual General Meeting next following the Annual General Meeting at which such director was appointed, or his earlier vacation of office or removal pursuant to the Articles of Association. Except with respect to the removal of external directors, the shareholders shall be entitled to remove any director(s) from office, by a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon. All the members of our Board of Directors (except the external directors) may be reelected upon completion of their term of office. For information regarding the election of external directors, see Item 6C “Directors, Senior Management and Employees - Board Practices -Election of Directors.”
 
Rights to share in the company’s profits. Our shareholders have the right, in accordance with the Board of Directors resolution, to share in our profits distributed as a dividend and any other permitted distribution.
 
Rights to share in surplus in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of Ordinary Shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
 
Liability to capital calls by the company. Under our memorandum of association and the Israeli Companies Law, the liability of our shareholders is limited to the par value of the shares held by them.
 
Limitations on any existing or prospective major shareholder.
 
See Item 6C. “Directors, Senior Management and Employees - Board Practices – Approval of Related Party Transactions under Israeli Law.”
 
Changing Rights Attached to Shares
 
According to the Articles of Association, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders with a simple majority of the class of shares so effected, and a simple majority vote of all classes of shares voting together as a single class at a General Meeting. 


Limitations on the Rights to Own Securities in Our Company
 
Neither our memorandum of association or our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of shares by non-residents, except with respect to subjects of countries which are in a state of war with Israel.
 
Provisions Restricting Change in Control of Our Company
 
The Israeli Companies Law requires that mergers between Israeli companies be approved by the board of directors and general meeting of shareholders of both parties to the transaction. The approval of the board of directors of both companies is subject to such board’s confirmation that there is no reasonable doubt that after the merger the surviving company will be able to fulfill its obligations towards its creditors. Each company must notify its creditors about the contemplated merger. Generally, under the Israeli Companies Law, our articles of association are deemed to include a requirement that such merger be approved by a special resolution of the shareholders, as explained above. The approval of the merger by the general meetings of shareholders of the companies is also subject to additional approval requirements as specified in the Israeli Companies Law and regulations promulgated thereunder. For purposes of the shareholders’ approval, the merger shall not be deemed as granted, unless the court determines otherwise, if it is not supported by the majority of the shares represented at the general meeting, other than those shares that are held by the other party to the merger or by any shareholder holding 25% or more of the outstanding share capital of the company or the right to appoint 25% or more of the members of the board of directors. The Israeli Companies Law also provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company and there is no existing 25% or greater shareholder in the company. An acquisition of shares of a public company must also be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company. These requirements do not apply if the acquisition (i) was made through a private placement that received shareholder approval, (ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a 45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder of the company. The special tender offer must be extended to all shareholders, but the offer may include explicit limitations allowing the offeror not to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. The special tender offer may be effected only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.

If, as a result of an acquisition of shares, the acquirer will hold more than 90% of the outstanding shares, the acquisition must be made by means of a tender offer for the entire outstanding shares. In such event, if less than 5% of the outstanding shares are not tendered in the tender offer, all the shares of the company will be deemed as tendered and sold. However, if more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire any shares at all. The law provides for appraisal allowing any shareholder to file a motion to the court within six months following the consummation of a full tender offer. However, in the event of a full tender offer, the offeror may determine that any shareholder who accepts the offer will not be entitled to appraisal rights. Such determination will be effective only if the offeror or the company has timely published all the information that is required to be published in connection with such full tender offer pursuant to all applicable laws.
 
In addition, the purchase of 25% or more of the outstanding share capital of a company or the purchase of substantial assets of a company requires, under certain conditions the approval of the Competition Authority. Furthermore, if the target company has received tax incentives of grants from the Innovation Authority, changes in ownership may require also the approval of the tax authorities or the Innovation Authority, as applicable.

Disclosure of Shareholders Ownership
 
The Israeli Securities Law and regulations promulgated thereunder do not require a company whose shares are publicly traded solely in a stock exchange outside of Israel, as in the case of our company, to disclose its share ownership.
 
Changes in Our Capital
 
Changes in our capital are subject to the approval of the shareholders at a general meeting by a simple majority of the votes of shareholders participating and voting in the general meeting.



Exhibit 8.1
 
LIST OF SIGNIFICANT SUBSIDIARIES
 
RADA Technologies LLC, an indirectly fully owned subsidiary in Maryland, USA.


Exhibit 12.1
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
 
I, Avi Israel, certify that:
 
1.
I have reviewed this annual report on Form 20-F of RADA Electronic Industries Ltd.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
 
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
 
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
 
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
 
 
 
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
 
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
 
 
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
 
Dated: April 7, 2020
 
 
 
/s/Dov Sella *
 
Dov Sella
 
Chief Financial Officer
 
(Principal Financial Officer)
 
 
*
The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.
 

Exhibit 12.2
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
 
I, Dov Sella, certify that:
 
1.
I have reviewed this annual report on Form 20-F of RADA Electronic Industries Ltd.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
 
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
 
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
 
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
 
 
 
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
 
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
 
 
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Dated: April 7, 2020
 
 
 
/s/ Avi Israel *
 
Avi Israel
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
*
The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.
 

Exhibit 13.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of RADA Electronic Industries Ltd. (the “Company”) on Form 20-F for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dov Sella, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
 
By:
/s/ Dov Sella *
    
 
 
Dov Sella
    
 
 
Chief Executive Officer
    
 
 
(Principal Executive Officer)
    
 
Dated: April 7, 2020
 
*
The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.
 

Exhibit 13.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of RADA Electronic Industries Ltd. (the “Company”) on Form 20-F for the period ending December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Avi Israel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
 
By:
/s/Avi Israel*
  
 
 
Avi Israel
  
 
 
Chief Financial Officer
  
 
 
(Principal Financial Officer)
  
 
Dated: April 7, 2020
 
*
The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.
 



Exhibit 15.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in the Registration Statements on Form F-3 (File Nos. 333-220304, 333-226387 and 333-226845) and Form S-8 (File No. 333-213284) of RADA Electronic Industries Ltd. of our report dated April 7, 2020, with respect to the consolidated financial statements of RADA Electronic Industries Ltd. and its subsidiaries and the effectiveness of internal control over financial reporting of RADA Electronic Industries Ltd. and its subsidiaries included in this Annual Report on Form 20-F for the year ended December 31, 2019.
 
 
/s/ Kost Forer Gabbay & Kasierer
Tel Aviv, Israel
Kost Forer Gabbay & Kasierer
April 7, 2020
A Member of Ernst & Young Global

v3.20.1
GENERAL - Schedule of Results of Discontinued Operations (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]      
Revenues $ 750 $ 1,729
Cost of sales (787) (909)
Operating expenses (208) (310)
Operating income (loss) (245) 510
Finance income (expenses), net 5
Net income (loss) (245) 515
Loss from sale of subsidiary (115) (159)
Net income (loss) from discontinued operations $ (115) $ (404) $ 515
v3.20.1
FINANCIAL EXPENSES, NET (Tables)
 12 Months Ended
Dec. 31, 2019
Other Income and Expenses [Abstract]  
Schedule of Financial Expenses, Net
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Income:
                  
 
                  
Foreign currency exchange differences
  
$
-
    
$
47
    
$
130
  
Interest on cash equivalents and restricted deposits
    
359
      
184
      
50
  
Other
    
96
      
-
      
34
  
 
                        
 
    
455
      
231
      
214
  
Expenses:
                        
 
                        
Amortization of shareholders’ convertible loans discount and BCF
    
-
      
-
      
103
  
Interest on shareholders’ convertible note and loans
    
-
      
-
      
164
  
 
                        
Bank commissions and others
    
38
      
17
      
82
  
Operating lease expenses
    
85
      
-
      
-
  
Foreign currency exchange differences
    
453
      
93
      
9
  
Interest on loans from banks and other credit balances
    
-
      
2
      
12
  
 
                        
 
    
576
      
112
      
370
  
 
                        
Total financial (expenses) Income, net
  
$
(121
)
  
$
119
    
$
(156
)
v3.20.1
PROPERTY, PLANT AND EQUIPMENT, NET (Tables)
 12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Schedule of Property Plant and Equipment
 
  
December 31,
  
 
  
2019
    
2018
  
Cost:
            
 
            
Factory building
  
$
2,081
    
$
2,081
  
Machinery and equipment *) **)
    
14,641
      
10,723
  
Office furniture and equipment
    
1,089
      
838
  
Leasehold improvements
    
2,004
      
455
  
 
                
 
    
19,815
      
14,097
  
Accumulated depreciation:
                
 
                
Factory building
    
2,058
      
2,006
  
Machinery and equipment  **)
    
8,043
      
6,948
  
Office furniture and equipment
    
389
      
345
  
Leasehold improvements
    
198
      
166
  
 
                
 
    
10,688
      
9,465
  
 
                
Depreciated cost
  
$
9,127
    
$
4,632
  
 
 
*)
As of December 31, 2019 and 2018, $459 and $1,044, respectively, relates to construction-in-process of production infrastructure.
 
 
 
 
**)
Capital loss from sale of fixed asset amounted to $103, is due to machinery and equipment sales during 2018.
v3.20.1
REVENUES
 12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
REVENUES
NOTE 4:-
REVENUES

In accordance with the new standard, costs and estimated earnings in excess of billings on uncompleted contracts were reclassified as contract assets and contract liabilities from December 31, 2018. Contract liabilities include advances from customers, which were presented separately in the Company's consolidated balance sheets as of December 31, 2019 and 2018.

The following table presents the significant changes in the advances from customers balance during the twelve months ended December 31, 2019:

   
12 months ended December 31,
  
 
   2019     2018  
             
Balance, beginning of the period
  
$
727
    
$
41
  
New performance obligations
    
893
      
794
(*)
Reclassification to revenue as a result of satisfying performance obligation
    
(57
 )
   
(108
)(*)
Balance, end of the period
  
$
1,563
    
$
727
(*)

The following table summarizes our contract assets and liabilities balances:

   
2019
    
2018
  
             
Contract assets at January 1,
  
$
899
    
$
1,140
  
Contract assets at December 31,
  
$
1,269
    
$
899
  
                 
Change in contract assets – increase(decrease)
  
$
370
    
$
241
  
                 
Contract liabilities at January 1,
  
$
366
    
$
145(
*)
Contract liabilities at December 31,
  
$
196
    
$
366(
*)
                 
Change in contract liabilities - increase
  
$
170
    
$
221
  
                 
Net change
  
$
200
    
$
20
  

(*) Reclassified

For the twelve months ended December 31, 2019, 70% of the amount that was previously included in the beginning balance of contract liabilities was recognized.

The Company’s unsatisfied performance obligations as of December 31, 2019 and the estimated revenue expected to be recognized in the future related to long-term fixed price contracts amounts to $1,070. The Company expects to recognize approximately 100% of this amount as revenues during the next 12 months. For information regarding disaggregated revenues, please refer to Note 14.
v3.20.1
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
NOTE 8:-
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Payroll and related accruals
  
$
4,327
    
$
2,397
  
Accrued expenses - agents’ commissions
    
518
      
84
  
Accrued expenses
    
727
      
731
  
Royalties to IIA
    
-
      
393
  
Provision for loss from sale of subsidiary
    
-
      
159
  
Others
    
-
      
78
  
 
                
 
  
$
5,572
    
$
3,842
v3.20.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenues:      
Total revenue $ 44,331 $ 28,032 $ 26,182
Cost of revenues:      
Total cost of revenue 28,394 17,817 [1] 17,841 [1]
Gross profit 15,937 10,215 [1] 8,341 [1]
Operating costs and expenses:      
Research and development, net 6,912 3,189 [1] 1,653 [1]
Marketing and selling 4,044 2,860 2,137
General and administrative 7,084 4,001 2,568
Net loss from sale of fixed asset 103
Total operating costs and expenses 18,040 10,153 [1] 6,358 [1]
Operating income (loss) (2,103) 62 1,983
Financial (expenses) income, net (Note 12) (121) 119 (156)
Net income (loss) from continuing operations (2,224) 181 1,827
Net income (loss) from discontinued operations (115) (404) 515
Net income (loss) (2,339) (223) 2,342
Net income (loss) attributable to non-controlling interest (309) (386) 103
Net income (loss) attributable to RADA Electronic Industries' shareholders $ (2,030) $ 163 $ 2,239
Basic net income (loss) from continuing operations per Ordinary share $ (0.05) $ 0.02 $ 0.07
Diluted net income (loss) from continuing operations per Ordinary share (0.05) 0.02 0.06
Basic and diluted net income (loss) from discontinued operations per Ordinary share 0 (0.01) 0.02
Basic net income (loss) per Ordinary share (0.05) 0.01 0.09
Diluted net income (loss) per Ordinary share $ (0.05) $ 0.01 $ 0.08
Weighted average number of Ordinary shares used for computing basic net income (loss) per share 38,148,756 33,184,570 24,956,915
Weighted average number of Ordinary shares used for computing diluted net income (loss) per share 38,841,866 33,716,931 28,126,509
Product [Member]      
Revenues:      
Total revenue $ 43,597 $ 26,909 $ 25,010
Cost of revenues:      
Total cost of revenue 28,272 17,674 [1] 17,729 [1]
Service [Member]      
Revenues:      
Total revenue 734 1,123 1,172
Cost of revenues:      
Total cost of revenue $ 122 $ 143 $ 112
[1] Reclassified
v3.20.1
SUBSEQUENT EVENTS (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended
Jan. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Jun. 30, 2018
Subsequent Event [Line Items]        
Shares issued under underwritten public offering   38,456,693 37,516,891  
Issue price   $ 0.03 $ 0.03 $ 0.03
Subsequent Event [Member] | Ordinary Shares Underwritten Public Offering [Member]        
Subsequent Event [Line Items]        
Shares issued under underwritten public offering 4,819,052      
Proceeds from issue of underwritten public offering $ 25,300      
Issue price $ 5.25      
Offering cost $ 1,800      
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income (loss) $ (2,339) $ (223) $ 2,342
Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities:      
Share based compensation to employees 1,148 898 559
Depreciation and amortization 1,223 799 638
Net Loss from sale of fixed asset 103
Extinguishment and amortization expenses related to beneficial conversion feature and discount of convertible loans 103
Severance pay, net 74 (47) 93
Operating lease right-of-use asset 551
Increase in trade receivables, net (383) (6,096) (2,280)
Operating lease long-term-liabilities (466)
Decrease (increase) in other accounts receivable, long term receivable and prepaid expenses (284) (192) 14
Decrease in costs and estimated earnings in excess of billings 995 809
Increase in contract assets (370) (899)
Increase (Decrease) in contract liabilities (170) 366
Increase in inventories (6,613) (3,865) (890)
Increase in trade payables 1,439 2,610 303
Increase in other accounts payable, accrued expenses, long term liabilities and advances from customers 2,729 1,693 31
Net cash provided by (used in) operating activities from continuing operations (3,461) (3,858) 1,722
Cash flows from investing activities:      
Purchase of property, plant and equipment (4,092) (899) (1,041)
Construction-in-process (459) (308) (736)
Consideration from fixed asset sale 254
Disposal of discontinued operations (526)
Increase (decrease) in long-term receivables and deposits (56) 5 (29)
Net cash used in investing activities from continuing operations (5,133) (948) (1,806)
Cash flows from financing activities:      
Issuance of Ordinary shares, net 1,500 12,252 9,726
Exercise of warrants 800 2,141
Repayment of short-term bank credit, net (575)
Transaction with non-controlling interest (534) (254)
Net cash provided by financing activities from continuing operations 966 12,798 11,292
Net cash provided by (used in) operating activities from discontinued operations 1,186 (644)
Net cash used in investing activities from discontinued operations (2) (101)
Effect of exchange rate changes of discontinued operation on cash and cash equivalents (420) (138)
Decrease in cash and cash equivalents and restricted cash (7,628) 8,756 10,325
Cash and cash equivalents and restricted cash at the beginning of the year 21,762 13,006 2,681
Cash and cash equivalents and restricted cash at the end of the year 14,134 21,762 13,006
Less cash and cash equivalents of discontinued operation at the end of the year 526 267
Cash and cash equivalents of continued operation at the end of the year 14,134 21,236 12,739
(a) Supplemental disclosures of cash flow activities:      
Net cash paid during the year for: Income taxes 17 17 17
Net cash paid during the year for: Interest 18 173
(b) Non-cash transactions      
Conversion of convertible loan including unpaid interest 3,175
Transfer of inventory to property, plant and equipment 595 530 82
Purchase of property, plant and equipment in credit $ 572 $ 136 $ 44
v3.20.1
REVENUES - Schedule of Changes in Advances from Customers (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]    
Balance, beginning of the period $ 727 [1] $ 41
New performance obligations 893 794 [1]
Reclassification to revenue as a result of satisfying performance obligation (57) (108) [1]
Balance, end of the period $ 1,563 $ 727 [1]
[1] Reclassified
v3.20.1
INVENTORIES - Schedule of Inventories (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]    
Raw materials $ 8,377 $ 5,605
Work in progress, net 3,884 3,558
Finished goods 4,935 2,081
Inventory net $ 17,196 $ 11,244
v3.20.1
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES - Schedule of Other Accounts Payable and Accrued Expenses (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Payables and Accruals [Abstract]    
Payroll and related accruals $ 4,327 $ 2,397
Accrued expenses - agents' commissions 518 84
Accrued expenses 727 731
Royalties to IIA 393
Provision for loss from sale of subsidiary 159
Others 78
Other accounts payable and accrued expenses $ 5,572 $ 3,842
v3.20.1
SHAREHOLDERS' EQUITY - Schedule of Recognized Stock-based Compensation (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Stock-based compensation expense $ 1,148 $ 898 $ 559
Research and Development [Member]      
Stock-based compensation expense 243 97  
Cost of Revenues      
Stock-based compensation expense 134 107  
Marketing and Selling [Member]      
Stock-based compensation expense 57 123  
General and Administrative [Member]      
Stock-based compensation expense $ 714 $ 571  
v3.20.1
RELATED PARTY BALANCE AND TRANSACTIONS (Details Narrative)
₪ in Thousands
 12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Dec. 31, 2017
ILS (₪)
Jan. 31, 2017
USD ($)
Jan. 31, 2017
ILS (₪)
Board of Directors Chairman [Member]            
Related Party Transaction [Line Items]            
Additional monthly payment to be paid to related party for devoted time         $ 4,600  
Increased additional monthly payment to be paid to related party for devoted time, as a result of acheiving net income before taxes in the Company's first calendar year audited financial statements     $ 9,000      
Board of Directors Chairman [Member] | NIS [Member]            
Related Party Transaction [Line Items]            
Additional monthly payment to be paid to related party for devoted time | ₪           ₪ 17,500
Increased additional monthly payment to be paid to related party for devoted time, as a result of acheiving net income before taxes in the Company's first calendar year audited financial statements | ₪       ₪ 35,000    
Executive Chairman [Member]            
Related Party Transaction [Line Items]            
Repayment to related party $ 119,000 $ 118,000        
v3.20.1
REVENUES (Details Narrative)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
USD ($)
Revenue from Contract with Customer [Abstract]  
Percentage of amount recognized from contract liabilities 70.00%
Revenue performance obligations $ 1,070
Revenue, performance obligation, percentage 100.00%
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES - Schedule of Reconciliation of Cash and Cash Equivalents and Restricted Deposits (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Accounting Policies [Abstract]      
Cash and cash equivalents $ 13,754 $ 20,814 $ 12,417
Restricted cash 380 422 322
Cash and cash equivalents and restricted cash $ 14,134 $ 21,236 $ 12,739
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Accounting Policies [Abstract]      
Interest rate on investments held as restricted deposits 1.63%    
Impairment of long-lived assets
Severance expense 951 33 $ 434
Fair value of foreign currencies derivatives asset 35    
Fair value of foreign currencies derivatives liabilities   (71)  
Warranties 35 35  
Other payables $ 35 $ 71  
v3.20.1
FINANCIAL EXPENSES, NET
 12 Months Ended
Dec. 31, 2019
Other Income and Expenses [Abstract]  
FINANCIAL EXPENSES, NET
NOTE 12:-
FINANCIAL EXPENSES, NET
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Income:
                  
 
                  
Foreign currency exchange differences
  
$
-
    
$
47
    
$
130
  
Interest on cash equivalents and restricted deposits
    
359
      
184
      
50
  
Other
    
96
      
-
      
34
  
 
                        
 
    
455
      
231
      
214
  
Expenses:
                        
 
                        
Amortization of shareholders’ convertible loans discount and BCF
    
-
      
-
      
103
  
Interest on shareholders’ convertible note and loans
    
-
      
-
      
164
  
 
                        
Bank commissions and others
    
38
      
17
      
82
  
Operating lease expenses
    
85
      
-
      
-
  
Foreign currency exchange differences
    
453
      
93
      
9
  
Interest on loans from banks and other credit balances
    
-
      
2
      
12
  
 
                        
 
    
576
      
112
      
370
  
 
                        
Total financial (expenses) Income, net
  
$
(121
)
  
$
119
    
$
(156
)
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES (Policies)
 12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Use of Estimates
a.
Use of estimates:
 
The preparation of financial statements in conformity with (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they were made.
Financial Statements in U.S. Dollars
b.
Financial statements in U.S. dollars:
 
The majority of the revenues of the Company are generated in U.S. dollars. In addition, Financing activities are made in U.S. dollars.
 
The Company’s management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, its functional and reporting currency is the dollar.
 
Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statement of operations as financial income or expenses, as appropriate, in the period in which the currency exchange rate changes.
 
The financial statements of the Company’s foreign subsidiary (CACS), whose functional currency is not the U.S. dollar, have been translated into dollars. All balance sheet amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate prevailing during the year. Such translation adjustments are reported as a separate component of accumulated other comprehensive income (loss) in equity )see also note 1b)
Basis of Consolidation
c.
Basis of consolidation:
 
The consolidated financial statements include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated upon consolidation.
Cash Equivalents
d.
Cash equivalents:
 
All highly liquid investments that are readily convertible to cash and are not restricted as to withdrawal or use and the period to maturity of which did not exceed three months at time of deposit, are considered cash equivalents.
Restricted Deposit
e.
Restricted deposit:
 
Restricted cash is invested in short-term bank deposits (less than twelve months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks. The deposits are in U.S. dollars and bear a variable annual interest of up to 1.63%.
Inventories
f.
Inventories:
 
Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items, excess inventories and for market prices lower than cost (see also Note 6).
 
Cost is determined as follows:
 
Raw materials and components - using the FIFO cost method.
 
Work in progress and finished goods - represents the cost of manufacturing with the addition of allocable indirect manufacturing costs.
 
Costs incurred on long-term contracts in progress include direct labor, material, subcontractors, other direct costs and an allocation of overhead, which represent recoverable costs incurred for production.
Property, Plant and Equipment
g.
Property, plant and equipment:
 
Property plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets. Annual rates of depreciation are as follows:
 
 
  
%
  
 
      
Factory and other buildings
    
4
  
Machinery and equipment
    
7 - 33
  
Office furniture and equipment
    
6 - 33
  
 
Leasehold improvements are depreciated over the shorter of the estimated useful life or the lease period.
 
Assets, in respect of which investment grants have been received, are presented at cost less the related grant amount. Depreciation is based on net cost.
Impairment of Long-Lived Assets
h.
Impairment of long-lived assets:
 
The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, plant and equipment”, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
 
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2019, 2018 and 2017, no impairment losses have been identified.
  
As required by ASC 820, “Fair Value Measurement”, the Company applies assumptions that market-place participations would consider in determines the fair value of long-lived assets (or asset group).
Research and Development Costs
i.
Research and development costs:
 
Research and development costs, net of participation grants, include costs incurred for research and development, are charged to the statement of operations as incurred.
 
The Company received royalty-bearing grants, from the Israeli Innovation Authority (“IIA”) for the purpose of partially funding research and development projects. The grants are recognized as a deduction from research and development costs incurred (see also Note 9a).
Income Taxes
j.
Income taxes:
 
The Company accounts for income taxes in accordance with ASC 740, “Income taxes”. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax based assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
 
The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
 
The Company implements a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The adoption of ASC 740-10 did not result in a change in the Company’s accumulated deficit. The Company did not record any provision in connection with ASC 740-10 as of December 31, 2019 and 2018.
Severance Pay
k.
Severance pay:
 
The Company’s agreements with most of its Israeli employees are in accordance with section 14 of the Severance Pay Law - 1963, under which the Company’s contributions for severance pay shall be instead of severance compensation. Upon release of the policy to the employee, no additional liability exists between the parties regarding the matter of severance pay and no additional payments will be made by the Company to the employee.
 
The Company’s liability for severance pay for its Israeli employees that are not covered in section 14 is calculated pursuant to Israel’s Severance Pay Law - 1963, based on the most recent salary of the employees as of the balance sheet date less monthly deposits for insurance policies and/or pension funds. Employees are entitled to one month’s salary for each year of employment or a portion thereof.
 
The carrying value of deposited funds includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant to Israeli severance pay law or labor agreements.
 
Severance expense recorded in the statement of operations is net of interest and other income accumulated in the deposits. Severance expense for the years ended December 31, 2019, 2018 and 2017 amounted to $951, $33 and $434, respectively
Accounting for Share-Based Compensation
l.
Accounting for share-based compensation:
 
The Company accounts for share-based payment in accordance with ASC 718, “Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees on the date of grant using an option-pricing model. The value of the portion of the award is recognized as an expense over the requisite service periods in the Company’s statement of operations. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.
 
Effective as of January 1, 2017, the Company adopted a change in accounting policy in accordance with ASU 2016-09, “Compensation Stock Compensation (Topic 718)” (“ASU 2016-09”) to account for forfeitures as they occur.
 
The fair value for the Company’s stock options granted to employees and directors was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Dividend yield
    
0
%
    
0
%
Risk-free interest rate
    
1.81
%
    
2.70
%
Expected term (in years)
    
4.22
      
4.22
  
Volatility
    
63
%
    
78
%
 
The dividend yield assumption is based on the Company’s historical experience and expectation of future dividend payouts and may be subject to changes in the future.
 
The computation of expected volatility is based on realized historical share price volatility of the Company’s Ordinary shares.
 
The risk-free interest rate assumption is the implied yield currently available on the U.S treasury yield zero-coupon issues with a remaining term equal to the expected life term of the Company’s options.
 
The expected term of the options represents the period of time that the options are expected to be outstanding and is based on the simplified method, as allowed under Staff Accounting Bulletin No. 110, which is the mid-point between the vesting date and the end of the contractual of the option.
Fair Value of Financial Instruments
m.
Fair value of financial instruments:
 
The Company measures its financial instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
 
A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
 
 
Level 1 -
Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
 
 
 
 
Level 2 -
Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
 
 
 
 
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
 
The carrying amount of cash and cash equivalents, restricted deposits, trade receivables, other accounts receivable, bank credit, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments.
 
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. As of December 31, 2019 and 2018 the fair value of foreign currencies derivatives asset (liability) were 35 and (71), respectively.
Concentrations of Credit Risk
n.
Concentrations of credit risk:
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and long-term receivables.
 
The Company’s cash and cash equivalents and restricted deposits are mainly held in U.S. dollars with major banks in Israel. Management believes that the financial institutions that hold the Company’s investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.
 
The Company’s trade receivables are derived from sales to large and solid organizations located mainly in the United States, Asia, Latin America and Israel. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to these amounts that the Company has determined to be doubtful of collection. The allowance is computed for specific debts and the collectability is determined based upon the Company’s experience.
Comprehensive Income (Loss)
o.
Comprehensive income (loss):
 
The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income and its components.
 
Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. Accordingly, the Company presents a separate consolidated statement of comprehensive income (loss).
 
The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes for the years ended December 31, 2018  (no other comprehensive income was recorded in 2019):

  
  
Accumulated foreign currency translation differences
  
 
      
Balance as of December 31, 2017
  
$
392
  
Net current period other comprehensive loss
    
(172
)
 
        
Balance as of December 31, 2018
  
$
220
Warranty
p.
Warranty:
 
In connection with the sale of its products, the Company provides product warranties for periods between one to two years. Based on past experience and engineering estimates, the estimated liability from these warranties is $35 as of December 31, 2019 and 2018.
Revenue Recognition
q.
Revenue recognition:
 
The Company generates revenues mainly from the sale of products and from long-term fixed price contracts of defense electronics as follows: data recording and management systems, inertial navigation systems for air and land applications, avionics solutions, and avionics for UAVs, and land radar for defense forces and border protection applications. In addition, the Company provides manufacturing, development and product support services.

The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised goods or services to its customers in an amount that reflects the consideration the Company expects to receive.
 
The Company applies the following five-step approach:
 
 
a)
Identify the contract with a customer
 
A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.
 
 
b)
Identify the performance obligations in the contract
 
Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.
  
The Company’s contracts contain a single performance obligation which includes sale of product or development and manufacturing services and sale of product that are not separately identifiable and, therefore, not distinct. In situations when the Company’s contract includes distinct goods or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services.
 
When contracts are modified to account for changes in contract specifications and requirements, the Company consider whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively.
 
 
c)
Determine the transaction price
 
The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The Company doesn’t usually grant its customers with a right to return the products sold. However, in some cases, the arrangements may include penalties if the Company fails to deliver future goods on time. The above is accounted for as variable considerations, which may be considered as adjustments to the transaction price.
 
As the Company’s standard payment terms are less than one year, the Company elected the practical expedient and the contracts have no significant financing component.
 
 
d)
Allocate the transaction price to performance obligations in the contract
 
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Standalone selling price is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices are established at contract inception and subsequent changes in transaction price are allocated on the same basis as at contract inception. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation.
 
 
e)
Recognize revenue when or as the Company satisfies a performance obligation
 
Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
 
The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased or service provided.
 
Revenues from long-term and short-term fixed price contracts are usually recognized over time based on the cost-to-cost input method that best depicts the transfer of control over the performance obligation to the customer. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
 
For contracts with an estimated amortization period of less than one year, the Company elected the practical expedient and expenses incremental costs immediately.
 
Contract Estimates - In estimating contract costs, the Company utilizes a profit-booking rate based upon performance expectations that takes into consideration a number of assumptions and estimates regarding risks related to technical requirements, feasibility, schedule, and contract costs. Management performs periodic reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as the Company is able to mitigate and retire such risks. Conversely, if the Company is not able to retire these risks, cost estimates may increase, resulting in a lower profit-booking rate.
 
The cost estimation process requires significant judgment and is based upon the professional knowledge and experience of the Company’s engineers, program managers, and financial professionals. Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any performance delays, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete.
 
Changes in estimates of sales, costs, and profits on a performance obligation are recognized using the cumulative catch-up method of accounting, which recognizes in the current period the cumulative effect of the changes in current and prior periods. When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance obligation related to a complex, construction-type contract, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.
 
Contract Assets - Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time, including retention amounts. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-term nature of many of the Company’s contracts. Contract assets are transferred to accounts receivable when the right to consideration becomes unconditional.
 
Contract Liabilities - Contract liabilities primarily consist of advance payments and billings in excess of costs incurred. Advances represent deposits received from customers on an order. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Such billings are generally not considered a significant financing component, because they are utilized to pay for contract costs within a one-year period. Contract liability amounts are recognized as revenue once the requisite performance progress has occurred
Basis and Diluted Net Income (Loss) Per Share
r.
Basic and diluted net income (loss) per share:
 
Basic net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year in accordance with ASC 260, “Earnings per share”.
Derivatives and Hedging
s.
Derivatives and hedging:
 
The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related Interpretations. ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings (for fair value hedge transactions) or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (for cash flow hedge transactions).
 
The ineffective portion of a derivative’s change in fair value is recognized in earnings. If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. Cash flows related to such hedges are classified as operating activities.
 
The Company enters into forward exchange contracts and option contracts in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in NIS. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately as financial expenses, net.
 
As of December 31, 2019 and 2018, the fair value of the outstanding forward contracts was $35, which was recorded in other receivables against financial income and $71 which was recorded in other payables against financial expense, respectively.
Reclassifications
t.
Reclassifications:

Certain financial statement data for prior years has been reclassified to conform to current year financial statement presentation.
New accounting pronouncements not yet effective
u.
New accounting pronouncements not yet effective:
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new accounting standard will be effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. The Company does not expect that adoption of this standard will have a material impact on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements:
 
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, “Leases” ("ASC 842"), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The company has adopted a policy whereby leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under the prior guidance (ASC 840). The new standard requires lessors to account for leases using an approach that is substantially equivalent to ASC 840 guidance for sales-type leases, direct financing leases and operating leases. The new standard supersedes the previous leases standard, ASC 840, "Leases". Refer to Note 3.

 
 
  
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the new standard effective January 1, 2018 using the retrospectively method. The adoption of this new guidance had an immaterial impact on the Company’s consolidated financial statements. Restricted cash is invested in short-term bank deposits (for three months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks.
 
The following table provides a reconciliation of cash and cash equivalents and restricted deposits reported within the consolidated balance sheets that sum to the total of such amounts in the consolidated statements of cash flows:

  
  
December 31, 2019
    
December 31, 2018
    
December 31, 2017
  
 
                  
Cash and cash equivalents
  
$
13,754
    
$
20,814
    
$
12,417
  
Restricted cash
    
380
      
422
      
322
  
 
                        
Cash and cash equivalents and restricted cash
  
$
14,134
    
$
21,236
    
$
12,739
v3.20.1
REVENUES (Tables)
 12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Schedule of Changes in Advances from Customers
The following table presents the significant changes in the advances from customers balance during the twelve months ended December 31, 2019:

   
12 months ended December 31,
  
 
   2019     2018  
             
Balance, beginning of the period
  
$
727
    
$
41
  
New performance obligations
    
893
      
794
(*)
Reclassification to revenue as a result of satisfying performance obligation
    
(57
 )
   
(108
)(*)
Balance, end of the period
  
$
1,563
    
$
727
(*)
Schedule of Contract Assets and Liabilities
The following table summarizes our contract assets and liabilities balances:

   
2019
    
2018
  
             
Contract assets at January 1,
  
$
899
    
$
1,140
  
Contract assets at December 31,
  
$
1,269
    
$
899
  
                 
Change in contract assets – increase(decrease)
  
$
370
    
$
241
  
                 
Contract liabilities at January 1,
  
$
366
    
$
145(
*)
Contract liabilities at December 31,
  
$
196
    
$
366(
*)
                 
Change in contract liabilities - increase
  
$
170
    
$
221
  
                 
Net change
  
$
200
    
$
20
  

(*) Reclassified
v3.20.1
TAXES ON INCOME (Details Narrative) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Effective tax rate 23.00% 23.00% 24.00%
Effective income tax rate reconciliation, at federal statutory income tax rate 21.00% 21.00%  
Unrecognized tax benefits  
Israel [Member]      
Net operating loss carry forward 64,084    
Capital loss carryforwards 3,841    
USA [Member]      
Net operating loss carry forward $ 3,017    
v3.20.1
RELATED PARTY BALANCE AND TRANSACTIONS - Schedule of Balance with Related Parties (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Related Party Transactions [Abstract]    
Accrued expenses $ 50 $ 43
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES - Summary of Changes in Accumulated Other Comprehensive Income (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Balance as of beginning of the period $ 220  
Balance as of end of the period (1,195) $ 220
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]    
Balance as of beginning of the period 220 392
Net current period other comprehensive loss/income (172)
Balance as of end of the period $ 220
v3.20.1
GENERAL - Schedule of Major Classes of Assets and Liabilities Classified as Discontinued Operations (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Cash and cash equivalents $ 526
Trade receivables 555
Other accounts receivable and prepaid expenses 42
Inventories 401
Property, plant and equipment, net
Total assets of discontinued operations 1,524
Trade payables 55
Accrued expenses and other liabilities 311
Total liabilities of discontinued operations $ 366
v3.20.1
LEASES - Schedule of Minimum Lease Payments (Details)
$ in Thousands
Dec. 31, 2019
USD ($)
Operating leases  
2020 $ 1,164
2021 1,323
2022 740
2023 579
2024 593
2025 608
2026 623
2027 639
2028 655
2029 671
2030 401
Total undiscounted lease payments 7,996
Less: Interest (257)
Total operating lease liabilities $ 7,739
v3.20.1
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES (Tables)
 12 Months Ended
Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Schedule of Other Accounts Receivable and Prepaid Expenses
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Prepaid expenses
  
$
781
    
$
184
  
Government authorities
    
78
      
243
  
Advance payments to vendors
    
9
      
70
  
Deposits
    
40
      
9
  
Fair value of the outstanding forward contracts
    
35
          
Other accounts receivable related to Discontinued operations)see also note 1c.)
    
730
      
-
  
 
  
$
1,673
    
$
506
v3.20.1
RELATED PARTY BALANCE AND TRANSACTIONS
 12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
RELATED PARTY BALANCE AND TRANSACTIONS
NOTE 13:-
RELATED PARTY BALANCE AND TRANSACTIONS
 
In January 2017, the Company’s shareholders approved that in addition to the directors’ fees to be paid to all of the Company’s directors, commencing as of January 1, 2017, the Company will pay the Investor (see Note 1c) an additional monthly payment of approximately $4.6 (NIS 17,500) for time devoted to the Company by the Executive Chairman of the Board of Directors, who is also a co-owner of the Investor. Such payment would increase in the event the Company achieved profitable operations. In 2017, the Company’s consolidated audited financial statements reflected net income (before taxes), so such additional payment increased to approximately $9 (NIS 35,000). In 2019 and 2018, the total payments to the Investor with respect to the Executive Chairman of the Board of Directors were $119 and $118, respectively..

See also Note 10 for transactions with the Company’s shareholders.
 
Balances with related parties:

 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Accrued expenses
  
$
50
    
$
43
  
 
Related parties’ expenses:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Directors and management fees
  
$
169
    
$
156
    
$
170
  
 
                        
Amortization of shareholders’ convertible loans discount and BCF
  
$
-
    
$
-
    
$
103
  
 
                        
Interest on shareholders’ convertible note and loans
  
$
-
    
$
-
    
$
164
v3.20.1
GENERAL (Tables)
 12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Results of Discontinued Operations
The results of the discontinued operations including prior periods’ comparable results, assets and liabilities which have been retroactively included in discontinued operations as separate line items in the statements of operations and balance sheets, are presented below:
 
 
  
Year ended
December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Revenues
  
$
-
    
$
750
    
$
1,729
  
Cost of sales
    
-
      
(787
)
    
(909
)
Operating expenses
    
-
      
(208
)
    
(310
)
Operating income (loss)
    
-
      
(245
)
    
510
  
Finance income (expenses), net
    
-
      
-
      
5
  
 
                        
Net income (loss)
    
-
      
(245
)
    
515
  
 
                        
Loss from sale of subsidiary
    
(115
)
    
(159
)
    
-
  
Net income (loss) from discontinued operations
  
$
(115
)
  
$
(404
)
  
$
515
Schedule of Major Classes of Assets and Liabilities Classified as Discontinued Operations
The major classes of assets and liabilities that were classified as discontinued operations were:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
  
 
            
Cash and cash equivalents
  
$
-
    
$
526
  
Trade receivables
    
-
      
555
  
Other accounts receivable and prepaid expenses
    
-
      
42
  
Inventories
    
-
      
401
  
Property, plant and equipment, net
    
-
      
-
  
 
                
Total assets of discontinued operations
    
-
      
1,524
  
 
                
Trade payables
    
-
      
55
  
Accrued expenses and other liabilities
    
-
      
311
  
 
                
Total liabilities of discontinued operations
  
$
-
    
$
366
v3.20.1
TAXES ON INCOME (Tables)
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Schedule of Deferred Income Tax
Significant components of the Company’s deferred tax assets are as follows:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Net operating loss carryforward
  
$
15,373
    
$
14,598
  
Capital loss carryforward
    
883
      
871
  
Allowances and reserve
    
401
      
322
  
 
                
Total deferred tax assets before valuation allowance
    
16,657
      
15,791
  
Valuation allowance
    
(16,657
)
    
(15,791
)
 
                
Net deferred tax assets
  
$
-
    
$
-
  
v3.20.1
INVENTORIES (Tables)
 12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
Schedule of Inventories
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Raw materials
  
$
8,377
    
$
5,605
  
Work in progress, net
    
3,884
      
3,558
  
Finished goods
    
4,935
      
2,081
  
 
  
$
17,196
    
$
11,244
v3.20.1
GENERAL (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended 12 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Jan. 31, 2019
Nov. 30, 2018
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Jul. 31, 2019
Jun. 30, 2018
Jan. 31, 2018
Dec. 31, 2016
Loss from sale of subsidiary         $ (115) $ (159)        
Percentage of consideration received from transaction         100.00%            
Proceeds from sale of discontinued operations, net         $ 730            
Number of ordinary shares issued         1,500 12,252 9,726        
Accumulated deficit         78,991 76,961          
Cash and cash equivalents         $ 13,754 $ 20,814 $ 12,417        
Shares issued under underwritten public offering         38,456,693 37,516,891          
Issue price         $ 0.03 $ 0.03     $ 0.03    
Subsequent Event [Member] | Ordinary Shares Underwritten Public Offering [Member]                      
Offering costs $ 1,800                    
Shares issued under underwritten public offering 4,819,052                    
Proceeds from issue of initial public offering $ 25,300                    
Issue price $ 5.25                    
CACS [Member]                      
Ownership percentage                     80.00%
Percentage on ownership acquired           100.00%          
Decrease of additional paid in capital           $ 254          
Proceeds from noncontrolling interests           1,500          
Loss from sale of subsidiary           $ 159          
RADA Sensors Inc [Member]                      
Ownership percentage         100.00%         75.00%  
RADA Technologies LLC [Member]                      
Ownership percentage               25.00%      
Israeli Institutional Investor [Member]                      
Number of ordinary shares issued, shares       4,545,454              
Number of ordinary shares issued       $ 12,500              
Number of ordinary shares issued, price per share       $ 2.75              
Offering costs       $ 248              
DBSI [Member]                      
Number of ordinary shares issued, shares   545,454 545,454                
Number of ordinary shares issued   $ 1,500 $ 1,500                
Number of ordinary shares issued, price per share   $ 2.75 $ 2.75                
v3.20.1
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
 12 Months Ended
Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
NOTE 5:-
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Prepaid expenses
  
$
781
    
$
184
  
Government authorities
    
78
      
243
  
Advance payments to vendors
    
9
      
70
  
Deposits
    
40
      
9
  
Fair value of the outstanding forward contracts
    
35
          
Other accounts receivable related to Discontinued operations)see also note 1c.)
    
730
      
-
  
 
  
$
1,673
    
$
506
v3.20.1
COMMITMENTS AND CONTINGENT LIABILITIES
 12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENT LIABILITIES
NOTE 9:-
COMMITMENTS AND CONTINGENT LIABILITIES
 
 
a.
The Company’s research and development efforts have been partially financed through royalty-bearing programs sponsored by the IIA. In return for the IIA’s participation, the Company is committed to pay royalties at a rate ranging from 3% to 5% of sales of the products whose research was supported by grants received from the IIA, up to 100% of the amount of such participation received linked to the U.S. dollar. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. As of December 31, 2019, the Company received total grants from the IIA in the amount of $5,543.
 
 
 
 
 
The total amount of royalties charged to operations for the years ended December 31, 2019, 2018 and 2017, were approximately $41, $458 and $569, respectively. As of December 31, 2019, the Company’s contingent liability for royalties, net of royalties paid or accrued is zero.
 
 
 
 
b.
The Company provides bank guarantees to some of its customers and others, in the ordinary course of business. The guarantees are to secure advances received at the commencement of a project or to secure performance of operational milestones. The total amount of bank guarantees provided to customers and others as of December 31, 2019, is approximately $350.
v3.20.1
GENERAL
 12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
GENERAL
NOTE 1:-
GENERAL
 
a.
RADA Electronic Industries Ltd. (the "Company") is a global defense technology company focused on proprietary radar solutions and legacy avionics systems. The Company is a leader in mini-tactical radars, serving attractive, high-growth markets, including critical infrastructure protection, border surveillance, active military protection and counter-drone applications. The Company also  specializes in the design, development, production and sales of Avionics Systems (including Inertial Navigation Systems) for fighter aircraft and UAVs.
 
In January 2018, the Company incorporated RADA Sensors Inc., a fully owned subsidiary of the Company. As of December 31, 2019, RADA Sensors Inc. is the holder of 100% of the interests in RADA Technologies LLC, also organized in January 2018. When Organized, Rada was the owner of 75% of RADA Technologies LLC together with an investor. During July 2019, the Company purchased 25% RADA Technologies LLC from the investor.

The Company is organized and operates as one operating segment.
b.
Discontinued operations
 
In December 2016, the Company committed to a plan to sell its test and repair services activity (provided through the Company’s then 80% owned subsidiary, CACS) in order to focus in its core business. In October 2018, a transaction with non-controlling interest occurred and as a result, as of December 31, 2018, the Company owned 100% of CACS, which resulted in a $254 decrease in additional paid in capital.
 
In December 2018, the Company signed an agreement to sell its ownership interest in CACS for approximately $1,500. On March 14, 2019, the ownership was transferred to the buyer. As of December 31, 2019, the Company received 100% of the consideration, which is currently held in a trust account in China. The net consideration, total amount of $730, is recorded under other accounts receivables and prepaid expenses in the consolidated balance sheet as of December 31, 2019.

The Company recorded in 2018 a provision of $159 for the expected loss resulted from the sale, which amount was included in accrued expenses in the consolidated balance sheets and in the net loss from discontinued operations in the consolidated statements of operations. In 2019, the company recorded additional expected loss of $115, mainly due to exchange rate differences relates to the consideration held in a trust account in China, which decreased the net consideration presented under other accounts receivables and prepaid expenses in the consolidated balance sheet and was included in the net loss from discontinued operations in the consolidated statements of operations.
 
The results of the discontinued operations including prior periods’ comparable results, assets and liabilities which have been retroactively included in discontinued operations as separate line items in the statements of operations and balance sheets, are presented below:
 
 
  
Year ended
December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Revenues
  
$
-
    
$
750
    
$
1,729
  
Cost of sales
    
-
      
(787
)
    
(909
)
Operating expenses
    
-
      
(208
)
    
(310
)
Operating income (loss)
    
-
      
(245
)
    
510
  
Finance income (expenses), net
    
-
      
-
      
5
  
 
                        
Net income (loss)
    
-
      
(245
)
    
515
  
 
                        
Loss from sale of subsidiary
    
(115
)
    
(159
)
    
-
  
Net income (loss) from discontinued operations
  
$
(115
)
  
$
(404
)
  
$
515
  
 
The major classes of assets and liabilities that were classified as discontinued operations were:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
  
 
            
Cash and cash equivalents
  
$
-
    
$
526
  
Trade receivables
    
-
      
555
  
Other accounts receivable and prepaid expenses
    
-
      
42
  
Inventories
    
-
      
401
  
Property, plant and equipment, net
    
-
      
-
  
 
                
Total assets of discontinued operations
    
-
      
1,524
  
 
                
Trade payables
    
-
      
55
  
Accrued expenses and other liabilities
    
-
      
311
  
 
                
Total liabilities of discontinued operations
  
$
-
    
$
366
  

 
c.
Liquidity and Capital Resources:
 
In November 2018, the Company entered into agreements with several Israeli institutional investors to purchase 4,545,454 ordinary shares at price per share of $2.75, for a total consideration of $12,500. Offering costs amounted to $248.

In January 2019, the Company’s shareholders approved the sale of 545,454 Ordinary Shares to DBSI at a price per share of $2.75, approximately $1.5 million in the aggregate.

In January 2020, after balance sheet date, the company raised in an underwritten public offering of 4,819,052 ordinary shares of the Company at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800 (refer to Note 15).

Since incorporation, the Company has incurred an accumulated deficit of $78,991. As of December 31, 2019, the Company’s cash position (cash and cash equivalents) totaled approximately $13,754. Management believes that its cash and cash equivalents, including the funds raised in January 2020 (refer to Note 15), are sufficient for the Company to meet its obligations as they come due at least for a period of twelve months from the sign off date of the consolidated financial statements.
v3.20.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ (2,339) $ (223) $ 2,342
Other comprehensive income (loss):      
Change in foreign currency translation adjustment (251) 213
Total comprehensive income (loss) (2,339) (474) 2,555
Less: comprehensive income (loss) attributable to non-controlling interest (465) 146
Comprehensive income (loss) attributable to RADA Electronic Industries' shareholders $ (2,339) $ (9) $ 2,409
v3.20.1
Document and Entity Information
 12 Months Ended
Dec. 31, 2019
shares
Document And Entity Information  
Entity Registrant Name RADA ELECTRONIC INDUSTRIES LTD
Entity Central Index Key 0000761238
Document Type 20-F
Document Period End Date Dec. 31, 2019
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity Well Known Seasoned Issuer No
Entity Voluntary Filer No
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Accelerated Filer
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding 38,456,693
Document Fiscal Period Focus FY
Document Fiscal Year Focus 2019
Entity Incorporation State Country Code IL
Entity File Number 0-15375
Document Annual Report true
Document Transition Report false
Document Shell Company Report false
v3.20.1
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION - Schedule of Long-Lived Assets by Geographic Area (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Long-Lived Assets $ 9,127 $ 4,234
Israel [Member]    
Long-Lived Assets 6,062 3,915
China [Member]    
Long-Lived Assets 319
USA [Member]    
Long-Lived Assets $ 3,065
v3.20.1
COMMITMENTS AND CONTINGENT LIABILITIES (Details Narrative) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Royalties $ 41 $ 458 $ 569
Contingent liability for royalties 0    
Total bank guarantees provided to customers and others $ 350    
Israel Innovation Authority [Member]      
Grants received percentage 100.00%    
Grants received $ 5,543    
Israel Innovation Authority [Member] | Minimum [Member]      
Royalties payable, percent of sales 3.00%    
Israel Innovation Authority [Member] | Maximum [Member]      
Royalties payable, percent of sales 5.00%    
v3.20.1
REVENUES - Schedule of Contract Assets and Liabilities (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Contract assets at January 1 $ 899    
Contract assets at December 31 1,269 $ 899  
Change in contract assets - increase (decrease) (370) (899)
Contract liabilities at January 1 366    
Contract liabilities at December 31 196 366  
Change in contract liabilities - increase (170) 366
Contract Assets and Liabilities [Member]      
Contract assets at January 1 899 1,140  
Contract assets at December 31 1,269 899 1,140
Change in contract assets - increase (decrease) 370 241  
Contract liabilities at January 1 [1] 366 145  
Contract liabilities at December 31 196 366 [1] $ 145 [1]
Change in contract liabilities - increase 170 221  
Net change $ 200 $ 20  
[1] Reclassified
v3.20.1
PROPERTY, PLANT AND EQUIPMENT, NET (Details Narrative) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Property, Plant and Equipment, Net [Abstract]      
Depreciation expense $ 1,223 $ 799 $ 641
Write-offs of machinery and equipment $ 1,030 $ 3 $ 3
v3.20.1
LEASES (Details Narrative) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Lessee Disclosure [Abstract]      
Lease expenses $ 1,138 $ 958 $ 888
Cash paid for lease 1,302    
Right-of-use assets and lease liabilities for operating leases $ 8,205 $ 2,032  
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES - Schedule of Annual Rate of Depreciation (Details)
 12 Months Ended
Dec. 31, 2019
Factory and Other Building [Member]  
Annual rate of depreciation 4.00%
Minimum [Member] | Machinery and Equipment [Member]  
Annual rate of depreciation 7.00%
Minimum [Member] | Office Furniture and Equipment [Member]  
Annual rate of depreciation 6.00%
Maximum [Member] | Machinery and Equipment [Member]  
Annual rate of depreciation 33.00%
Maximum [Member] | Office Furniture and Equipment [Member]  
Annual rate of depreciation 33.00%
v3.20.1
SHAREHOLDERS' EQUITY - Schedule of Stock Options Activity (Details) - Stock Option [Member]
$ / shares in Units, $ in Thousands
 12 Months Ended
Dec. 31, 2019
USD ($)
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Number of options, outstanding at the beginning of the period | shares 3,229,375
Number of options, granted | shares 470,000
Number of options, exercised | shares (505,000)
Number of options, forfeited | shares (83,437)
Number of options, outstanding at the end of the period | shares 3,110,938
Number of options, exercisable | shares 1,067,344
Weighted average exercise price, outstanding at the beginning of the period | $ / shares $ 2.25
Weighted average exercise price, granted | $ / shares 4.08
Weighted average exercise price, exercised | $ / shares 1.08
Weighted average exercise price, forfeited | $ / shares 2.93
Weighted average exercise price, outstanding at the end of the period | $ / shares 2.76
Weighted average exercise price, exercisable | $ / shares $ 2.49
Weighted average remaining contractual term, outstanding at the beginning of the period 8 years 9 months 25 days
Weighted average remaining contractual term, outstanding at the end of the period 8 years 2 months 23 days
Weighted average remaining contractual term, exercisable 7 years 10 months 10 days
Aggregate intrinsic value price, outstanding at the beginning of the period | $ $ 1,617
Aggregate intrinsic value price, outstanding at the end of the period | $ 7,579
Aggregate intrinsic value price, exercisable | $ $ 2,885
v3.20.1
FINANCIAL EXPENSES, NET - Schedule of Financial Expenses, Net (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Other Income and Expenses [Abstract]      
Foreign currency exchange differences $ 47 $ 130
Interest on cash equivalents and restricted deposits 359 184 50
Other 96 34
Total income 455 231 214
Amortization of shareholders' convertible loans discount and BCF 103
Interest on shareholders' convertible note and loans 164
Bank commissions and others 38 17 82
Operating lease expenses 85
Foreign currency exchange differences 453 93 9
Interest on loans from banks and other credit balances 2 12
Total expenses 576 112 370
Total financial (expenses) Income, net $ (121) $ 119 $ (156)
v3.20.1
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Details Narrative)
 12 Months Ended
Dec. 31, 2019
Segments
Segment Reporting [Abstract]  
Business reporting segment 1
v3.20.1
SUBSEQUENT EVENTS
 12 Months Ended
Dec. 31, 2019
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS
NOTE 15:-
SUBSEQUENT EVENTS
 
On January 2020, the Company raised in an underwritten public offering of 4,819,052 ordinary shares of the Company at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800.
v3.20.1
LEASES (Tables)
 12 Months Ended
Dec. 31, 2019
Lessee Disclosure [Abstract]  
Schedule of Operating Right-of-use Assets and Operating Lease Liabilities
Below is a summary of the Company's operating right-of-use assets and operating lease liabilities as of December 31, 2019:

 
  
December 31, 2019
  
Operating right-of-use assets
  
$
7,654
  
 
        
Operating lease liabilities, current
    
1,240
  
Operating lease liabilities long-term
    
6,499
  
Total operating lease liabilities
  
$
7,739
  
         
Weighted average remaining lease term (years)
    
9
  
Weighted average discount rate
    
3.56
%
Schedule of Minimum lease Payments
Minimum lease payments for the Company's right of use assets over the remaining lease periods as of December 31, 2019, are as follows:

   
December 31, 2019
  
2020
  
$
1,164
  
2021
    
1,323
  
2022
    
740
  
2023
    
579
  
2024
    
593
  
2025
    
608
  
2026
    
623
  
2027
    
639
  
2028
    
655
  
2029
    
671
  
2030
    
401
  
 Total undiscounted lease payments
  
$
7,996
  
 
        
 Less: Interest
    
(257
)
 
        
Present value of lease liabilities
  
$
7,739
v3.20.1
LEASES
 12 Months Ended
Dec. 31, 2019
Lessee Disclosure [Abstract]  
LEASES
NOTE 3: 
LEASES
 
The Company adopted the new standard as of January 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been restated. The Company has elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it to reassess the prior conclusions about lease identification, lease classification and initial direct costs. The Company elected the practical expedient to not separate lease and non-lease components for all its leases. This results in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability being greater than if the policy election was not applied. The Company also elected the short-term lease recognition exemption for all leases with a term shorter than 12 months.

The adoption of this new standard as of January 1, 2019 affected the Company's consolidated balance sheets by recognizing new ROU assets and lease liabilities for operating leases in the amount of approximately $2,032.

Some leases include one or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in remeasurement of the right of use asset and lease liability, which are not accounted as separate lease contract.

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The Company's incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

Some of the real estate leases contain variable lease payments, including payments based on an index or rate (CPI). Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease adoption. Additional payments based on the change in an index or rate are recorded as a period expense when incurred.

The Company has various operating leases for office space and vehicles that expire through 2022 and 2030. Its lease agreements do not contain any material residual value guarantees or material restrictive covenants. Below is a summary of the Company's operating right-of-use assets and operating lease liabilities as of December 31, 2019:

 
  
December 31, 2019
  
Operating right-of-use assets
  
$
7,654
  
 
        
Operating lease liabilities, current
    
1,240
  
Operating lease liabilities long-term
    
6,499
  
Total operating lease liabilities
  
$
7,739
  
         
Weighted average remaining lease term (years)
    
9
  
Weighted average discount rate
    
3.56
%

Cash paid for lease expenses during the twelve months ended December 31, 2019 was $1,302 and non-cash transactions totaled $8,205 to recognize operating assets and liabilities for new leases.

Minimum lease payments for the Company's right of use assets over the remaining lease periods as of December 31, 2019, are as follows:

   
December 31, 2019
  
2020
  
$
1,164
  
2021
    
1,323
  
2022
    
740
  
2023
    
579
  
2024
    
593
  
2025
    
608
  
2026
    
623
  
2027
    
639
  
2028
    
655
  
2029
    
671
  
2030
    
401
  
 Total undiscounted lease payments
  
$
7,996
  
 
        
 Less: Interest
    
(257
)
 
        
Present value of lease liabilities
  
$
7,739
  

Total lease expenses for the twelve months ended December 31, 2019 and 2018  and 2017 were $1,138 and $958 and $888 respectively.
v3.20.1
PROPERTY, PLANT AND EQUIPMENT, NET
 12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
PROPERTY, PLANT AND EQUIPMENT, NET
NOTE 7:-
PROPERTY, PLANT AND EQUIPMENT, NET
 
 
  
December 31,
  
 
  
2019
    
2018
  
Cost:
            
 
            
Factory building
  
$
2,081
    
$
2,081
  
Machinery and equipment *) **)
    
14,641
      
10,723
  
Office furniture and equipment
    
1,089
      
838
  
Leasehold improvements
    
2,004
      
455
  
 
                
 
    
19,815
      
14,097
  
Accumulated depreciation:
                
 
                
Factory building
    
2,058
      
2,006
  
Machinery and equipment  **)
    
8,043
      
6,948
  
Office furniture and equipment
    
389
      
345
  
Leasehold improvements
    
198
      
166
  
 
                
 
    
10,688
      
9,465
  
 
                
Depreciated cost
  
$
9,127
    
$
4,632
  
 
 
*)
As of December 31, 2019 and 2018, $459 and $1,044, respectively, relates to construction-in-process of production infrastructure.
 
 
 
 
**)
Capital loss from sale of fixed asset amounted to $103, is due to machinery and equipment sales during 2018.
 
Depreciation expense amounted to $1,223, $799 and $641 (offset by depreciation write-offs for an amount of $0, $1,030 and $3 mainly due to assets disposals) for the years ended December 31, 2019, 2018 and 2017, respectively.
v3.20.1
TAXES ON INCOME
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
TAXES ON INCOME
NOTE 11:-
TAXES ON INCOME
 
 
a.
The Israeli corporate tax rate and real capital gains tax was 23% in 2019 and 2018 and 24% in 2017.
 
 
 
 
  
The Company’s subsidiaries which were incorporated in U.S. are subject to federal tax rate of 21% in 2019 and 2018.
 
 
 
 
b.
In accordance with the Israeli tax laws, tax returns of the Company submitted up to and including the 2014 tax year can be regarded as final.
 
 
 
 
 
The Company’s subsidiaries did not receive final tax assessments since their incorporation.
 
 
 
 
c.
Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
 
 
 
 
 
The Company qualifies as an “Industrial Company” under the Law for the Encouragement of Industry (Taxes), 1969 (the “Industrial Encouragement Law”). The Industrial Encouragement Law defines an “Industrial Company” as a company that is resident in Israel and that derives at least 90% of its income in any tax year, other than income from defense loans, capital gains, interest and dividends, from an enterprise whose major activity in a given tax year is industrial production.
 
 
 
 
 
The principal benefit from the above law is the deduction of expenses in connection with a public offering. Also, under the industrial Encouragement Law an “Industrial Company” is entitled to special rates of depreciation for industrial equipment and in addition to amortization of the cost of purchased know-how and patents over an eight-year period for tax purposes and an accelerated depreciation rate on equipment.
 
 
 
 
 
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.
 
 
 
 
d.
As of December 31, 2019, the net operating tax loss carryforward relating to the Company in Israel amounted to approximately $64,084, not including a carryforward capital loss amounting to approximately $3,841. Carryforward losses in Israel may be carried forward indefinitely and may be offset against future taxable income.
 
As of December 31, 2019, the U.S. subsidiaries have U.S. federal carryforward tax losses of approximately $3,017.
 
As the Company believes that it is more likely than not that the deferred tax assets in respect of these carryforward losses will not be utilized, the Company recorded a full valuation allowance for the entire balance of the deferred tax asset relating to the carryforward losses.
 
 
e.
The main reconciling items between the statutory tax rate of the Company and the effective tax rate is the valuation allowance recorded in respect of the deferred tax assets relating to net operating loss carryforward and other temporary differences due to the uncertainty of the realization of such tax assets.
 
Deferred income taxes:
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Net operating loss carryforward
  
$
15,373
    
$
14,598
  
Capital loss carryforward
    
883
      
871
  
Allowances and reserve
    
401
      
322
  
 
                
Total deferred tax assets before valuation allowance
    
16,657
      
15,791
  
Valuation allowance
    
(16,657
)
    
(15,791
)
 
                
Net deferred tax assets
  
$
-
    
$
-
  
 
As of December 31, 2019 and 2018, the Company has provided valuation allowances in respect of deferred tax assets resulting from the tax loss carryforward and other temporary differences, since it has a history of operating losses and the current uncertainty concerning its ability to realize these deferred tax assets in the future.
 
The Company accounts for its income tax uncertainties in accordance with ASC 740, which clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
 
As of December 31, 2019 and 2018, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate.
v3.20.1
RELATED PARTY BALANCE AND TRANSACTIONS (Tables)
 12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Schedule of Balance with Related Parties
Balances with related parties:

 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Accrued expenses
  
$
50
    
$
43
Schedule of Related Party Expenses
Related parties’ expenses:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
Directors and management fees
  
$
169
    
$
156
    
$
170
  
 
                        
Amortization of shareholders’ convertible loans discount and BCF
  
$
-
    
$
-
    
$
103
  
 
                        
Interest on shareholders’ convertible note and loans
  
$
-
    
$
-
    
$
164
v3.20.1
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)
 12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
Schedule of Other Accounts Payable and Accrued Expenses
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Payroll and related accruals
  
$
4,327
    
$
2,397
  
Accrued expenses - agents’ commissions
    
518
      
84
  
Accrued expenses
    
727
      
731
  
Royalties to IIA
    
-
      
393
  
Provision for loss from sale of subsidiary
    
-
      
159
  
Others
    
-
      
78
  
 
                
 
  
$
5,572
    
$
3,842
v3.20.1
INVENTORIES (Details Narrative) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Inventory Disclosure [Abstract]      
Write-offs of inventories $ 230 $ 39 $ 122
Provision due to sale / disposal of inventories $ 455 $ 129  
v3.20.1
PROPERTY, PLANT AND EQUIPMENT, NET - Schedule of Property Plant and Equipment (Details) (Parenthetical) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Property, Plant and Equipment, Net [Abstract]      
Construction-in-process of production infrastructure $ 459 $ 1,044  
Net Loss from sale of fixed asset $ 103
v3.20.1
Consolidated Statements of Changes in Equity (Parenthetical) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Number of Ordinary Shares [Member]    
Issuance of cost $ 248 $ 174
v3.20.1
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION - Schedule of Revenues by Geographic Areas (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Total $ 44,331 $ 28,032 $ 26,182
Operating Segments [Member] | North America [Member]      
Total 21,995 11,686 14,446
Operating Segments [Member] | Israel [Member]      
Total 12,737 10,446 6,363
Operating Segments [Member] | Asia [Member]      
Total 2,499 3,093 4,372
Operating Segments [Member] | South America [Member]      
Total 1,027 1,206 514
Operating Segments [Member] | Europe [Member]      
Total 6,073 1,601 281
Operating Segments [Member] | Australia [Member]      
Total $ 206
v3.20.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Ordinary shares, par value $ 0.03 $ 0.03
Ordinary shares, shares authorized 100,000,000 100,000,000
Ordinary shares, shares issued 38,456,693 37,516,891
Ordinary shares, shares outstanding 38,456,693 37,516,891
v3.20.1
SHAREHOLDERS' EQUITY
 12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
SHAREHOLDERS' EQUITY
NOTE 10:-
SHAREHOLDERS’ EQUITY
 
 
a.
Share capital:
 
Ordinary Shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.

In June 2018, the Company's shareholders approved an increase of the Company's authorized share capital by NIS 1,875,000 and as a result the authorized share capital is equal to NIS 3,000,000 divided into 100,000,000 Ordinary Shares, par value NIS 0.03 each.

In November 2018, the Company entered into agreements with several Israeli institutional investors to purchase 4,545,454 Ordinary shares at price per share of $2.75, for a total consideration of $12,500. Offering costs amounted to $248.

In January 2019, the Company’s shareholders approved the sale of 545,454 Ordinary Shares to the controlling shareholder at a price per share of $2.75, approximately $1,500 in the aggregate.

In January 2020, after balance sheet date, the Company raised in an underwritten public offering of 4,819,052 ordinary shares of the Company at a price of $5.25 per share, for a total consideration of $25,300. Offering costs amounted to approximately $1,800 (refer to Note 15).
 
 
b.
Stock option plans:
 
In April 2015, the Company's Board of Directors adopted the "2015 Share Option Plan" (the "Plan"), which authorized the grant of options to purchase up to an aggregate of 1,500,000 Ordinary Shares to officers, directors, consultants and key employees of the Company and its subsidiaries. Options granted under the Plan expire within a maximum of ten years from adoption of the plan.

In April 2018, the Company granted options to its CEO to purchase a total of 500,000 Ordinary Shares at an exercise price of $2.32 per share. The options will vest as follows: 25% of the options granted will vest in April 2019; and 75% of the options will vest in twelve equal quarterly installments of 6.25% each until April 2022. These options will be exercisable for 48 months following the date of vesting.

On June 7, 2018, the Company’s shareholders approved the U.S. Taxpayers Appendix to its 2015 Share Option Plan and to reserve 1,000,000 of our Ordinary Shares for issuance thereunder. On August 15, 2018, the Company’s Board of Directors approved an increase in the framework of the Plan to 3,750,000 options.
 
On August 15 and 23, 2018, the Company granted options to its officers and employees to purchase a total of 732,500 and 35,000 Ordinary Shares, respectively, at exercise prices of $2.93 and $2.81 per share, respectively. The options will vest as follows: 25% will vest in August 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2022. These options will be exercisable for 48 months following the date of vesting.
 
In November 2018, the Company granted options to one of its officers to purchase a total of 217,500 Ordinary Shares at an exercise price of $2.81 per share. The options will vest as follows: 25% will vest in November 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until November 2022. These options will be exercisable for 48 months following the date of vesting.

In January 2019, the Company granted options to its employees to purchase a total of 60,000 Ordinary Shares at an exercise price range $2.76 - $2.85 per share. The options will vest as follows: 25% will vest in January 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until January 2023. These options will be exercisable for 48 months following the date of vesting.

In March 2019, the Company granted options to its officers and employees to purchase a total of 75,000 Ordinary Shares at an exercise price of $2.73 per share. The options will vest as follows: 25% will vest in March 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until March 2023. These options will be exercisable for 48 months following the date of vesting.

In May 2019, the Company granted options to one of its employees to purchase a total of 7,500 Ordinary Shares at an exercise price of $3.11 per share. The options will vest as follows: 25% will vest in May 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until May 2023. These options will be exercisable for 48 months following the date of vesting.

In August 2019, the Company granted options to its officers and employees to purchase a total of 100,000 and 50,000 Ordinary Shares at an exercise price of $3.64 and 4.87 per share. The options will vest as follows: 25% will vest in August 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2023. These options will be exercisable for 48 months following the date of vesting.

In September 2019, the Company granted options to employees to purchase a total of 15,000 Ordinary Shares at an exercise price between $3.99 to $4.40 per share. The options will vest as follows: 25% will vest in September 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until September 2023. These options will be exercisable for 48 months following the date of vesting.
  
In September 2019, the Company granted options to one of its officers to purchase a total of 30,000 Ordinary Shares at an exercise price of $4.83 per share. The options will vest as follows: 25% will vest in September 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until September 2023. These options will be exercisable for 48 months following the date of vesting.

In November 2019, the Company granted options to one of its employees to purchase a total of 17,500 Ordinary Shares at an exercise price of $5.25 per share. The options will vest as follows: 25% will vest in November 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until November 2023. These options will be exercisable for 48 months following the date of vesting.

In December 2019, the Company granted options to officers and employees to purchase a total of 70,000 Ordinary Shares at an exercise price of $5.24 per share. The options will vest as follows: 25% will vest in December 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until December 2023. These options will be exercisable for 48 months following the date of vesting.
 
As of December 31, 2019, options to purchase 475,687 Ordinary Shares are available for future grant under the Plan.
 
A summary of the Company’s activity for options granted to employees and directors under the Plan is as follows:
 
 
  
Twelve months ended December 31, 2019
  
 
  
Number of
options
    
Weighted
average
exercise
price
    
Weighted
average
remaining
contractual
term
    
Aggregate
Intrinsic
Value Price
  
 
                        
Outstanding at the beginning of the period
    
3,229,375
    
$
2.25
      
8.82
    
$
1.617
  
Granted
    
470,000
      
4.08
      
-
      
-
  
Exercised
    
(505,000
)
    
1.08
      
-
      
-
  
Forfeited
    
(83,437
)
    
2.93
                  
 
                                
Outstanding at the end of the period
    
3,110,938
      
2.76
      
8.23
      
7,579
  
 
                                
Exercisable
    
1,067,344
    
$
2.49
      
7.86
    
$
2,885
  
 
Aggregate intrinsic value of exercisable options (the difference between the closing share price of the Company’s Ordinary Shares on the last trading day in the period and the exercise price, multiplied by the number of in-the-money options) represents the amount that would have been received by the employees and directors option holders had all option holders exercised their options on December 31, 2019. This amount changes based on the fair market value of the Company’s Ordinary share.
 
As of December 31, 2019, unrecognized compensation expenses related to employees and directors stock options to be recognized over an average time of approximately 4 years is approximately $3,089.
 
During the twelve months period ended December 31, 2019, the Company recognized compensation expenses related to employees and service providers stock option in the amount of $1,148, as follows:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
  
 
            
Research and Development
  
$
243
    
$
97
  
Cost of revenues
  
$
134
    
$
107
  
Marketing and selling
  
$
57
    
$
123
  
General and administrative
  
$
714
    
$
571
  
 
  
$
1,148
    
$
898
  
 
 
c.
Warrants:
 
On May 18, 2016, the Company issued Warrants to the Investor (see Note 1c) to purchase: (i) 4,255,319 additional Ordinary shares at an exercise price per Ordinary share of $0.47 (having an aggregate exercise price of $2,000), exercisable for a period of 24 months following the date of the Initial Investment and (ii) 3,636,363 Ordinary shares at an exercise price per Ordinary share of $0.55 (having an aggregate exercise price of $2,000), exercisable for a period of 48 months following the date of the Initial Investment. During 2016, the Investor exercised Warrants to purchase 2,659,575 Ordinary shares at an exercise price per share of $0.47 for an aggregate total consideration of $1,250. During 2017, the Investor exercised Warrants to purchase 1,595,744 Ordinary shares at an exercise price per share of $0.47 for an aggregate total consideration of $750, and an additional 2,181,818 Ordinary shares at an exercise price per share of $0.55 for an aggregate total consideration of $1,200. In January 2018, the Investor exercised Warrants to purchase an additional 1,454,545 Ordinary shares at an exercise price per share of $0.55 in consideration of $800.
On May 18, 2016, as part of the investment transaction, the Company issued to a consultant 510,638 Warrants to purchase Ordinary shares at an exercise price per Ordinary share of $0.47, exercisable for a period of 18 months following the date of the Initial Investment. During 2016, the consultant exercised Warrants to purchase 106,383 Ordinary shares at an exercise price per share of $0.47, for an aggregate total consideration of $50. During 2017, the consultant exercised Warrants to purchase 404,255 Ordinary Shares at an exercise price per share of $0.47, for an aggregate total consideration of $190.
 
As of December 31, 2019, all of the Company’s outstanding Warrants were fully exercised.
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES
 12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are as follows:
 
 
a.
Use of estimates:
 
The preparation of financial statements in conformity with (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they were made.
 
 
b.
Financial statements in U.S. dollars:
 
The majority of the revenues of the Company are generated in U.S. dollars. In addition, Financing activities are made in U.S. dollars.
 
The Company’s management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, its functional and reporting currency is the dollar.
 
Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statement of operations as financial income or expenses, as appropriate, in the period in which the currency exchange rate changes.
 
The financial statements of the Company’s foreign subsidiary (CACS), whose functional currency is not the U.S. dollar, have been translated into dollars. All balance sheet amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate prevailing during the year. Such translation adjustments are reported as a separate component of accumulated other comprehensive income (loss) in equity )see also note 1b)
 
 
c.
Basis of consolidation:
 
The consolidated financial statements include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated upon consolidation.
 
 
d.
Cash equivalents:
 
All highly liquid investments that are readily convertible to cash and are not restricted as to withdrawal or use and the period to maturity of which did not exceed three months at time of deposit, are considered cash equivalents.
 
 
e.
Restricted deposit:
 
Restricted cash is invested in short-term bank deposits (less than twelve months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks. The deposits are in U.S. dollars and bear a variable annual interest of up to 1.63%.
 
f.
Inventories:
 
Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items, excess inventories and for market prices lower than cost (see also Note 6).
 
Cost is determined as follows:
 
Raw materials and components - using the FIFO cost method.
 
Work in progress and finished goods - represents the cost of manufacturing with the addition of allocable indirect manufacturing costs.
 
Costs incurred on long-term contracts in progress include direct labor, material, subcontractors, other direct costs and an allocation of overhead, which represent recoverable costs incurred for production.
 
 
g.
Property, plant and equipment:
 
Property plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets. Annual rates of depreciation are as follows:
 
 
  
%
  
 
      
Factory and other buildings
    
4
  
Machinery and equipment
    
7 - 33
  
Office furniture and equipment
    
6 - 33
  
 
Leasehold improvements are depreciated over the shorter of the estimated useful life or the lease period.
 
Assets, in respect of which investment grants have been received, are presented at cost less the related grant amount. Depreciation is based on net cost.
 
 
h.
Impairment of long-lived assets:
 
The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, plant and equipment”, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
 
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2019, 2018 and 2017, no impairment losses have been identified.
  
As required by ASC 820, “Fair Value Measurement”, the Company applies assumptions that market-place participations would consider in determines the fair value of long-lived assets (or asset group).
 
 
i.
Research and development costs:
 
Research and development costs, net of participation grants, include costs incurred for research and development, are charged to the statement of operations as incurred.
 
The Company received royalty-bearing grants, from the Israeli Innovation Authority (“IIA”) for the purpose of partially funding research and development projects. The grants are recognized as a deduction from research and development costs incurred (see also Note 9a).
 
 
j.
Income taxes:
 
The Company accounts for income taxes in accordance with ASC 740, “Income taxes”. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax based assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
 
The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
 
The Company implements a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The adoption of ASC 740-10 did not result in a change in the Company’s accumulated deficit. The Company did not record any provision in connection with ASC 740-10 as of December 31, 2019 and 2018.
 
 
k.
Severance pay:
 
The Company’s agreements with most of its Israeli employees are in accordance with section 14 of the Severance Pay Law - 1963, under which the Company’s contributions for severance pay shall be instead of severance compensation. Upon release of the policy to the employee, no additional liability exists between the parties regarding the matter of severance pay and no additional payments will be made by the Company to the employee.
 
The Company’s liability for severance pay for its Israeli employees that are not covered in section 14 is calculated pursuant to Israel’s Severance Pay Law - 1963, based on the most recent salary of the employees as of the balance sheet date less monthly deposits for insurance policies and/or pension funds. Employees are entitled to one month’s salary for each year of employment or a portion thereof.
 
The carrying value of deposited funds includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant to Israeli severance pay law or labor agreements.
 
Severance expense recorded in the statement of operations is net of interest and other income accumulated in the deposits. Severance expense for the years ended December 31, 2019, 2018 and 2017 amounted to $951, $33 and $434, respectively
 
 
l.
Accounting for share-based compensation:
 
The Company accounts for share-based payment in accordance with ASC 718, “Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees on the date of grant using an option-pricing model. The value of the portion of the award is recognized as an expense over the requisite service periods in the Company’s statement of operations. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.
 
Effective as of January 1, 2017, the Company adopted a change in accounting policy in accordance with ASU 2016-09, “Compensation Stock Compensation (Topic 718)” (“ASU 2016-09”) to account for forfeitures as they occur.
 
The fair value for the Company’s stock options granted to employees and directors was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Dividend yield
    
0
%
    
0
%
Risk-free interest rate
    
1.81
%
    
2.70
%
Expected term (in years)
    
4.22
      
4.22
  
Volatility
    
63
%
    
78
%
 
The dividend yield assumption is based on the Company’s historical experience and expectation of future dividend payouts and may be subject to changes in the future.
 
The computation of expected volatility is based on realized historical share price volatility of the Company’s Ordinary shares.
 
The risk-free interest rate assumption is the implied yield currently available on the U.S treasury yield zero-coupon issues with a remaining term equal to the expected life term of the Company’s options.
 
The expected term of the options represents the period of time that the options are expected to be outstanding and is based on the simplified method, as allowed under Staff Accounting Bulletin No. 110, which is the mid-point between the vesting date and the end of the contractual of the option.
 
 
m.
Fair value of financial instruments:
 
The Company measures its financial instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
 
A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
 
 
Level 1 -
Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
 
 
 
 
Level 2 -
Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
 
 
 
 
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
 
The carrying amount of cash and cash equivalents, restricted deposits, trade receivables, other accounts receivable, bank credit, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments.
 
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. As of December 31, 2019 and 2018 the fair value of foreign currencies derivatives asset (liability) were 35 and (71), respectively.
 
 
n.
Concentrations of credit risk:
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and long-term receivables.
 
The Company’s cash and cash equivalents and restricted deposits are mainly held in U.S. dollars with major banks in Israel. Management believes that the financial institutions that hold the Company’s investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.
 
The Company’s trade receivables are derived from sales to large and solid organizations located mainly in the United States, Asia, Latin America and Israel. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to these amounts that the Company has determined to be doubtful of collection. The allowance is computed for specific debts and the collectability is determined based upon the Company’s experience.
 
 
o.
Comprehensive income (loss):
 
The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income and its components.
 
Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. Accordingly, the Company presents a separate consolidated statement of comprehensive income (loss).
 
The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes for the years ended December 31, 2018  (no other comprehensive income was recorded in 2019):

  
  
Accumulated foreign currency translation differences
  
 
      
Balance as of December 31, 2017
  
$
392
  
Net current period other comprehensive loss
    
(172
)
 
        
Balance as of December 31, 2018
  
$
220
  
  
 
p.
Warranty:
 
In connection with the sale of its products, the Company provides product warranties for periods between one to two years. Based on past experience and engineering estimates, the estimated liability from these warranties is $35 as of December 31, 2019 and 2018.
 
 
q.
Revenue recognition:
 
The Company generates revenues mainly from the sale of products and from long-term fixed price contracts of defense electronics as follows: data recording and management systems, inertial navigation systems for air and land applications, avionics solutions, and avionics for UAVs, and land radar for defense forces and border protection applications. In addition, the Company provides manufacturing, development and product support services.

The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised goods or services to its customers in an amount that reflects the consideration the Company expects to receive.
 
The Company applies the following five-step approach:
 
 
a)
Identify the contract with a customer
 
A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.
 
 
b)
Identify the performance obligations in the contract
 
Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.
  
The Company’s contracts contain a single performance obligation which includes sale of product or development and manufacturing services and sale of product that are not separately identifiable and, therefore, not distinct. In situations when the Company’s contract includes distinct goods or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services.
 
When contracts are modified to account for changes in contract specifications and requirements, the Company consider whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively.
 
 
c)
Determine the transaction price
 
The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The Company doesn’t usually grant its customers with a right to return the products sold. However, in some cases, the arrangements may include penalties if the Company fails to deliver future goods on time. The above is accounted for as variable considerations, which may be considered as adjustments to the transaction price.
 
As the Company’s standard payment terms are less than one year, the Company elected the practical expedient and the contracts have no significant financing component.
 
 
d)
Allocate the transaction price to performance obligations in the contract
 
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Standalone selling price is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices are established at contract inception and subsequent changes in transaction price are allocated on the same basis as at contract inception. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation.
 
 
e)
Recognize revenue when or as the Company satisfies a performance obligation
 
Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
 
The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased or service provided.
 
Revenues from long-term and short-term fixed price contracts are usually recognized over time based on the cost-to-cost input method that best depicts the transfer of control over the performance obligation to the customer. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
 
For contracts with an estimated amortization period of less than one year, the Company elected the practical expedient and expenses incremental costs immediately.
 
Contract Estimates - In estimating contract costs, the Company utilizes a profit-booking rate based upon performance expectations that takes into consideration a number of assumptions and estimates regarding risks related to technical requirements, feasibility, schedule, and contract costs. Management performs periodic reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as the Company is able to mitigate and retire such risks. Conversely, if the Company is not able to retire these risks, cost estimates may increase, resulting in a lower profit-booking rate.
 
The cost estimation process requires significant judgment and is based upon the professional knowledge and experience of the Company’s engineers, program managers, and financial professionals. Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any performance delays, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete.
 
Changes in estimates of sales, costs, and profits on a performance obligation are recognized using the cumulative catch-up method of accounting, which recognizes in the current period the cumulative effect of the changes in current and prior periods. When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance obligation related to a complex, construction-type contract, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.
 
Contract Assets - Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time, including retention amounts. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-term nature of many of the Company’s contracts. Contract assets are transferred to accounts receivable when the right to consideration becomes unconditional.
 
Contract Liabilities - Contract liabilities primarily consist of advance payments and billings in excess of costs incurred. Advances represent deposits received from customers on an order. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Such billings are generally not considered a significant financing component, because they are utilized to pay for contract costs within a one-year period. Contract liability amounts are recognized as revenue once the requisite performance progress has occurred.
 
 
r.
Basic and diluted net income (loss) per share:
 
Basic net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year in accordance with ASC 260, “Earnings per share”.
 
 
s.
Derivatives and hedging:
 
The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related Interpretations. ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings (for fair value hedge transactions) or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (for cash flow hedge transactions).
 
The ineffective portion of a derivative’s change in fair value is recognized in earnings. If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. Cash flows related to such hedges are classified as operating activities.
 
The Company enters into forward exchange contracts and option contracts in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in NIS. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately as financial expenses, net.
 
As of December 31, 2019 and 2018, the fair value of the outstanding forward contracts was $35, which was recorded in other receivables against financial income and $71 which was recorded in other payables against financial expense, respectively.

 
t.
Reclassifications:

Certain financial statement data for prior years has been reclassified to conform to current year financial statement presentation.
 
 
u.
New accounting pronouncements not yet effective:
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new accounting standard will be effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. The Company does not expect that adoption of this standard will have a material impact on its consolidated financial statements.
 
Recently Adopted Accounting Pronouncements:
 
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, “Leases” ("ASC 842"), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The company has adopted a policy whereby leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under the prior guidance (ASC 840). The new standard requires lessors to account for leases using an approach that is substantially equivalent to ASC 840 guidance for sales-type leases, direct financing leases and operating leases. The new standard supersedes the previous leases standard, ASC 840, "Leases". Refer to Note 3.

 
 
  
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the new standard effective January 1, 2018 using the retrospectively method. The adoption of this new guidance had an immaterial impact on the Company’s consolidated financial statements. Restricted cash is invested in short-term bank deposits (for three months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks.
 
The following table provides a reconciliation of cash and cash equivalents and restricted deposits reported within the consolidated balance sheets that sum to the total of such amounts in the consolidated statements of cash flows:

  
  
December 31, 2019
    
December 31, 2018
    
December 31, 2017
  
 
                  
Cash and cash equivalents
  
$
13,754
    
$
20,814
    
$
12,417
  
Restricted cash
    
380
      
422
      
322
  
 
                        
Cash and cash equivalents and restricted cash
  
$
14,134
    
$
21,236
    
$
12,739
v3.20.1
INVENTORIES
 12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
INVENTORIES
NOTE 6:-
INVENTORIES
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Raw materials
  
$
8,377
    
$
5,605
  
Work in progress, net
    
3,884
      
3,558
  
Finished goods
    
4,935
      
2,081
  
 
  
$
17,196
    
$
11,244
  
 
Write-offs of inventories for the years ended December 31, 2019, 2018 and 2017 amounted to $230, $39 and $122, respectively. The write-offs were due to slow-moving items and excess inventories and were recorded in cost of revenues. As of December 31, 2019 and 2018 the Company turned part of the slow-moving inventory provision due to sales and disposals of certain items in the amount of $455 and $129 respectively, which was recorded as income in cost of revenues.
v3.20.1
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Tables)
 12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Schedule of Revenues by Geographic Areas
Revenues are attributed to geographic area based on the location of the end customers as follows:

  
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
North America
  
$
21,995
    
$
11,686
    
$
14,446
  
Israel
    
12,737
      
10,446
      
6,363
  
Asia
    
2,499
      
3,093
      
4,372
  
South America
    
1,027
      
1,206
      
514
  
Europe
    
6,073
      
1,601
      
281
  
Australia
    
-
      
-
      
206
  
 
                        
Total
  
$
44,331
    
$
28,032
    
$
26,182
  
 
Schedule of Revenue from Major Customers
Revenues from single customers that exceed 10% of the total revenues in the reported years as a percentage of total revenues are as follows:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
  
%
  
 
                  
Customer A
    
12
      
7
      
7
  
Customer C
    
8
      
11
      
2
  
Customer E
    
3
      
11
      
5
  
Customer F
    
3
      
6
      
13
  
Customer G
    
6
      
4
      
35
  
Customer H
    
4
      
12
      
3
  
Customer I
    
4
      
12
      
-
Schedule of Long-Lived Assets by Geographic Area
Long-lived assets (property, plant and equipment) by geographic areas:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Israel
  
$
6,062
    
$
3,915
  
China
    
-
      
319
  
USA
    
3,065
      
-
  
 
                
 
  
$
9,127
    
$
4,234
v3.20.1
SHAREHOLDERS' EQUITY (Tables)
 12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
Schedule of Stock Options Activity
A summary of the Company’s activity for options granted to employees and directors under the Plan is as follows:
 
 
  
Twelve months ended December 31, 2019
  
 
  
Number of
options
    
Weighted
average
exercise
price
    
Weighted
average
remaining
contractual
term
    
Aggregate
Intrinsic
Value Price
  
 
                        
Outstanding at the beginning of the period
    
3,229,375
    
$
2.25
      
8.82
    
$
1.617
  
Granted
    
470,000
      
4.08
      
-
      
-
  
Exercised
    
(505,000
)
    
1.08
      
-
      
-
  
Forfeited
    
(83,437
)
    
2.93
                  
 
                                
Outstanding at the end of the period
    
3,110,938
      
2.76
      
8.23
      
7,579
  
 
                                
Exercisable
    
1,067,344
    
$
2.49
      
7.86
    
$
2,885
Schedule of Recognized Stock-based Compensation
 
  
Year ended December 31,
  
 
  
2019
    
2018
  
 
            
Research and Development
  
$
243
    
$
97
  
Cost of revenues
  
$
134
    
$
107
  
Marketing and selling
  
$
57
    
$
123
  
General and administrative
  
$
714
    
$
571
  
 
  
$
1,148
    
$
898
v3.20.1
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES - Schedule of Other Accounts Receivable and Prepaid Expenses (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]    
Prepaid expenses $ 781 $ 184
Government authorities 78 243
Advance payments to vendors 9 70
Deposits 40 9
Fair value of the outstanding forward contracts 35
Other accounts receivable related to Discontinued operations(see also note 1c.) 730
Other accounts receivable and prepaid expenses $ 1,673 $ 506
v3.20.1
PROPERTY, PLANT AND EQUIPMENT, NET - Schedule of Property Plant and Equipment (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Total cost $ 19,815 $ 14,097
Total accumulated depriciation 10,688 9,465
Depreciated cost 9,127 4,632
Factory Building [Member]    
Total cost 2,081 2,081
Total accumulated depriciation 2,058 2,006
Machinery and Equipment [Member]    
Total cost [1],[2] 14,641 10,723
Total accumulated depriciation [2] 8,043 6,948
Office Furniture and Equipment [Member]    
Total cost 1,089 838
Total accumulated depriciation 389 345
Leasehold Improvements [Member]    
Total cost 2,004 455
Total accumulated depriciation $ 198 $ 166
[1] As of December 31, 2019 and 2018, $459 and $1,044, respectively, relates to construction-in-process of production infrastructure.
[2] Capital loss from sale of fixed asset amounted to $103, is due to machinery and equipment sales during 2018.
v3.20.1
Consolidated Statements of Changes in Equity - USD ($)
$ in Thousands
Number of Ordinary Shares [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Deficit [Member]
Noncontrolling Interest [Member]
Total
Balance at Dec. 31, 2016 $ 250 $ 89,407 $ 222 $ (79,363) $ 513 $ 11,029
Balance, shares at Dec. 31, 2016 [1] 21,246,502          
Share-based compensation to employees 559 559
Share-based compensation to employees, shares [1]          
Exercise of warrants $ 36 2,105 2,141
Exercise of warrants, shares [1] 4,218,121          
Conversion of convertible loan to Ordinary shares $ 11 3,164 3,175
Conversion of convertible loan to Ordinary shares, shares [1] 1,322,917          
Issuance of shares, net of issuance costs $ 38 9,688 9,726
Issuance of shares, net of issuance costs, shares [1] 4,604,500          
Net income (loss) 2,239 103 2,342
Other comprehensive loss/income 170 43 213
Balance at Dec. 31, 2017 $ 335 104,923 392 (77,124) 659 29,185
Balance, shares at Dec. 31, 2017 [1] 31,392,040          
Share-based compensation to employees 898 898
Share-based compensation to employees, shares [1]          
Exercise of warrants $ 13 787 800
Exercise of warrants, shares [1] 1,454,546          
Issuance of shares, net of issuance costs $ 37 12,215 12,252
Issuance of shares, net of issuance costs, shares [1] 4,545,454          
Exercise of Option $ 1 (1)
Exercise of Option, shares [1] 124,851          
Transaction with non-controlling interest (254) (546) (800)
Net income (loss) 163 (386) (223)
Other comprehensive loss/income (172) (79) (251)
Balance at Dec. 31, 2018 $ 386 118,568 220 (76,961) (352) 41,861
Balance, shares at Dec. 31, 2018 [1] 37,516,891          
Share-based compensation to employees 1,148 1,148
Share-based compensation to employees, shares [1]          
Issuance of shares, net of issuance costs $ 4 1,496 1,500
Issuance of shares, net of issuance costs, shares [1] 545,455          
Exercise of Option $ 4 4
Exercise of Option, shares [1] 394,347          
Transaction with non-controlling interest (1,195) 661 (534)
Net income (loss) (2,030) (309) (2,339)
Other (220) (220)
Balance at Dec. 31, 2019 $ 394 $ 121,212 $ (1,195) $ (78,991) $ 41,420
Balance, shares at Dec. 31, 2019 [1] 38,456,693          
[1] See Note 10a.
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 13,754 $ 20,814
Restricted deposits 380 422
Trade receivables, net 13,765 13,382
Contract assets (Note 4) 1,269 899
Other accounts receivable and prepaid expenses (Note 5) 1,673 506
Inventories, net (Note 6) 17,196 11,244
Current assets related to discontinued operations 1,524
Total current assets 48,037 48,791
LONG-TERM ASSETS:    
Long-term receivables and other deposits 97 79
Property, plant and equipment, net (Note 7) 9,127 4,632
Operating lease right-of-use asset (Note 3) 7,654
Total long-term assets 16,878 4,711
Total assets 64,915 53,502
CURRENT LIABILITIES:    
Trade payables 7,661 5,650
Other accounts payable and accrued expenses (Note 8) 5,572 3,842
Advances from customers 1,563 727
Contract liabilities (Note 4) 196 366
Operating lease short term liabilities (Note 3) 1,240
Current liabilities related to discontinued operations 366
Total current liabilities 16,232 10,951
LONG-TERM LIABILITIES:    
Operating lease long term liabilities (Note 3) 6,499
Accrued severance pay 764 690
Total long-term liabilities 7,263 690
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
EQUITY:    
Share capital (Note 10) - Ordinary shares of NIS 0.03 par value - Authorized: 100,000,000 shares at December 31, 2019 and 2018; Issued and outstanding: 38,456,693 and 37,516,891 at December 31, 2019 and at December 31, 2018 respectively. 394 386
Additional paid-in capital 121,212 118,568
Accumulated other comprehensive income (1,195) 220
Accumulated deficit (78,991) (76,961)
Total RADA Electronic Industries shareholders' equity 41,420 42,213
Non-controlling interest (352)
Total equity 41,420 41,861
Total liabilities and equity $ 64,915 $ 53,502
v3.20.1
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION - Schedule of Revenue from Major Customers (Details)
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Customer A [Member]      
Total revenue percentage 12.00% 7.00% 7.00%
Customer C [Member]      
Total revenue percentage 8.00% 11.00% 2.00%
Customer E [Member]      
Total revenue percentage 3.00% 11.00% 5.00%
Customer F [Member]      
Total revenue percentage 3.00% 6.00% 13.00%
Customer G [Member]      
Total revenue percentage 6.00% 4.00% 35.00%
Customer H [Member]      
Total revenue percentage 4.00% 12.00% 3.00%
Customer I [Member]      
Total revenue percentage 4.00% 12.00%
v3.20.1
LEASES - Schedule of Operating Assets and lease liabilities (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Lessee Disclosure [Abstract]    
Operating right-of-use assets $ 7,654
Operating lease liabilities, current 1,240
Operating lease liabilities long-term 6,499
Total operating lease liabilities $ 7,739  
Weighted average remaining lease term (years) 9 years  
Weighted average discount rate 3.56%  
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES - Schedule of Fair Value of Stock Options Valuation Assumptions (Details)
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Accounting Policies [Abstract]    
Dividend yield 0.00% 0.00%
Risk-free interest rate 1.81% 2.70%
Expected term (in years) 4 years 2 months 19 days 4 years 2 months 19 days
Volatility 63.00% 78.00%
v3.20.1
RELATED PARTY BALANCE AND TRANSACTIONS - Schedule of Related Party Expenses (Details) - USD ($)
$ in Thousands
 12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Related Party Transactions [Abstract]      
Directors and management fees $ 169 $ 156 $ 170
Amortization of shareholder' convertible loans discount and BCF 103
Interest on shareholders' convertible note and loans $ 164
v3.20.1
SHAREHOLDERS' EQUITY (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended 12 Months Ended
Aug. 15, 2018
Jan. 31, 2020
Dec. 31, 2019
Nov. 30, 2019
Sep. 30, 2019
Aug. 31, 2019
May 31, 2019
Mar. 31, 2019
Jan. 31, 2019
Jan. 31, 2019
Nov. 30, 2018
Aug. 23, 2018
Apr. 30, 2018
Apr. 30, 2015
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Jun. 30, 2018
Jun. 07, 2018
Jan. 31, 2018
Dec. 31, 2016
May 18, 2016
Ordinary shares, shares authorized     100,000,000                       100,000,000 100,000,000   100,000,000        
Ordinary shares, par value     $ 0.03                       $ 0.03 $ 0.03   $ 0.03        
Shares issued under underwritten public offering     38,456,693                       38,456,693 37,516,891            
Number of shares purchased, value                             $ 1,500 $ 12,252 $ 9,726          
Stock-based compensation expense                             $ 1,148 $ 898 $ 559          
2015 Share Option Plan [Member]                                            
Number of stock options shares grant to purchase                           1,500,000                
Option expire term                           10 years                
Number of ordinary shares, reserve 3,750,000                                   1,000,000      
Number of shares available for grant     475,687                       475,687              
Subsequent Event [Member] | Ordinary Shares Underwritten Public Offering [Member]                                            
Ordinary shares, par value   $ 5.25                                        
Shares issued under underwritten public offering   4,819,052                                        
Proceeds from issue of underwritten public offering   $ 25,300                                        
Offering cost   $ 1,800                                        
DBSI [Member]                                            
Number of shares purchased, shares                 545,454 545,454                        
Shares purchased price per share                 $ 2.75 $ 2.75                        
Number of shares purchased, value                 $ 1,500 $ 1,500                        
Investor [Member] | Warrant [Member]                                            
Warrant to purchase of ordinary shares                                 1,595,744     1,454,545 2,659,575 4,255,319
Warrant exercise price                                 $ 0.47     $ 0.55 $ 0.47 $ 0.47
Warrant exercise price value                                 $ 750     $ 800 $ 1,250 $ 2,000
Investor [Member] | Warrant 1 [Member]                                            
Warrant to purchase of ordinary shares                                           3,636,363
Warrant exercise price                                           $ 0.55
Warrant exercise price value                                           $ 2,000
Investor [Member] | Warrant 1 [Member]                                            
Warrant to purchase of ordinary shares                                 2,181,818          
Warrant exercise price                                 $ 0.55          
Warrant exercise price value                                 $ 1,200          
Israeli Institutional Investors [Member]                                            
Number of shares purchased, shares                     4,545,454                      
Shares purchased price per share                     $ 2.75                      
Number of shares purchased, value                     $ 12,500                      
Offering cost                     $ 248                      
Chief Executive Officer [Member]                                            
Number of stock options shares grant to purchase                         500,000                  
Stock option exercise price                         $ 2.32                  
Stock option vesting description                         The options will vest as follows: 25% of the options granted will vest in April 2019; and 75% of the options will vest in twelve equal quarterly installments of 6.25% each until April 2022.                  
Officers [Member]                                            
Number of stock options shares grant to purchase 732,500       30,000 100,000         217,500                      
Stock option exercise price $ 2.93       $ 4.83 $ 3.64         $ 2.81                      
Stock option vesting description The options will vest as follows: 25% will vest in August 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2022.       The options will vest as follows: 25% will vest in September 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until September 2023. The options will vest as follows: 25% will vest in August 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2023.         The options will vest as follows: 25% will vest in November 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until November 2022.                      
Employees [Member]                                            
Number of stock options shares grant to purchase           500,000       60,000   35,000                    
Stock option exercise price           $ 4.87           $ 2.81                    
Stock option vesting description           The options will vest as follows: 25% will vest in August 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2023.       The options will vest as follows: 25% will vest in January 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until January 2023.   The options will vest as follows: 25% will vest in August 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until August 2022.                    
Employees and Officers [Member]                                            
Offering cost     $ 70,000                                      
Number of stock options shares grant to purchase               75,000                            
Stock option exercise price     $ 5.24         $ 2.73             $ 5.24              
Stock option vesting description     The options will vest as follows: 25% will vest in December 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until December 2023.         The options will vest as follows: 25% will vest in March 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until March 2023.                            
Employee [Member]                                            
Number of stock options shares grant to purchase       17,500 15,000   7,500                              
Stock option exercise price       $ 5.25     $ 3.11                              
Stock option vesting description       The options will vest as follows: 25% will vest in November 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until November 2023. The options will vest as follows: 25% will vest in September 2020; and 75% will vest in twelve equal quarterly installments of 6.25% each until September 2023.   The options will vest as follows: 25% will vest in May 2019; and 75% will vest in twelve equal quarterly installments of 6.25% each until May 2023.                              
Employees and Directors [Member]                                            
Unamortized compensation expenses period                             4 years              
Unamortized compensation expenses     $ 3,089                       $ 3,089              
Consultant [Member]                                            
Warrant to purchase of ordinary shares                                 404,255       106,383 510,638
Warrant exercise price                                 $ 0.47       $ 0.47 $ 0.47
Warrant exercise price value                                 $ 190       $ 50  
Maximum [Member] | Employees [Member]                                            
Stock option exercise price                 $ 2.85 $ 2.85                        
Maximum [Member] | Employee [Member]                                            
Stock option exercise price         $ 4.40                                  
Minimum [Member] | Employees [Member]                                            
Stock option exercise price                 $ 2.76 $ 2.76                        
Minimum [Member] | Employee [Member]                                            
Stock option exercise price         $ 3.99                                  
NIS [Member]                                            
Value of shares authorized                                   $ 1,875        
NIS [Member] | Maximum [Member]                                            
Value of shares authorized                                   $ 3,000        
v3.20.1
TAXES ON INCOME - Schedule of Deferred Income Tax (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Income Tax Disclosure [Abstract]    
Net operating loss carryforward $ 15,373 $ 14,598
Capital loss carryforward 883 871
Allowances and reserve 401 322
Total deferred tax assets before valuation allowance 16,657 15,791
Valuation allowance (16,657) (15,791)
Net deferred tax assets
v3.20.1
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
 12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
NOTE 14:-
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
 
 
a.
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportable segment, and derives revenues from develops, manufactures and sells land radar for defense forces and border protection applications, avionics equipment and aviation data acquisition and debriefing systems (see Note 1 above for a brief description of the Company’s business).
 
 
 
 
b.
Revenues by geographic areas:

Revenues are attributed to geographic area based on the location of the end customers as follows:

  
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
                  
North America
  
$
21,995
    
$
11,686
    
$
14,446
  
Israel
    
12,737
      
10,446
      
6,363
  
Asia
    
2,499
      
3,093
      
4,372
  
South America
    
1,027
      
1,206
      
514
  
Europe
    
6,073
      
1,601
      
281
  
Australia
    
-
      
-
      
206
  
 
                        
Total
  
$
44,331
    
$
28,032
    
$
26,182
  
 
 
c.
Major customers:
 
Revenues from single customers that exceed 10% of the total revenues in the reported years as a percentage of total revenues are as follows:
 
 
  
Year ended December 31,
  
 
  
2019
    
2018
    
2017
  
 
  
%
  
 
                  
Customer A
    
12
      
7
      
7
  
Customer C
    
8
      
11
      
2
  
Customer E
    
3
      
11
      
5
  
Customer F
    
3
      
6
      
13
  
Customer G
    
6
      
4
      
35
  
Customer H
    
4
      
12
      
3
  
Customer I
    
4
      
12
      
-
  

 
d.
Long-lived assets (property, plant and equipment) by geographic areas:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Israel
  
$
6,062
    
$
3,915
  
China
    
-
      
319
  
USA
    
3,065
      
-
  
 
                
 
  
$
9,127
    
$
4,234
v3.20.1
SIGNIFICANT ACCOUNTING POLICIES (Tables)
 12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Schedule of Annual Rate of Depreciation
Annual rates of depreciation are as follows:
 
 
  
%
  
 
      
Factory and other buildings
    
4
  
Machinery and equipment
    
7 - 33
  
Office furniture and equipment
    
6 - 33
Schedule of Fair Value of Stock Options Valuation Assumptions
The fair value for the Company’s stock options granted to employees and directors was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
 
 
  
December 31,
  
 
  
2019
    
2018
  
 
            
Dividend yield
    
0
%
    
0
%
Risk-free interest rate
    
1.81
%
    
2.70
%
Expected term (in years)
    
4.22
      
4.22
  
Volatility
    
63
%
    
78
%
Summary of Changes in Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes for the years ended December 31, 2018  (no other comprehensive income was recorded in 2019):

  
  
Accumulated foreign currency translation differences
  
 
      
Balance as of December 31, 2017
  
$
392
  
Net current period other comprehensive loss
    
(172
)
 
        
Balance as of December 31, 2018
  
$
220
Schedule of Reconciliation of Cash and Cash Equivalents and Restricted Deposits
The following table provides a reconciliation of cash and cash equivalents and restricted deposits reported within the consolidated balance sheets that sum to the total of such amounts in the consolidated statements of cash flows:

  
  
December 31, 2019
    
December 31, 2018
    
December 31, 2017
  
 
                  
Cash and cash equivalents
  
$
13,754
    
$
20,814
    
$
12,417
  
Restricted cash
    
380
      
422
      
322
  
 
                        
Cash and cash equivalents and restricted cash
  
$
14,134
    
$
21,236
    
$
12,739