SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
                                                                                            
     
FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2020

Commission file number 000-28884

Eltek Ltd.
(Name of Registrant)

Sgoola Industrial Zone, Petach Tikva, Israel
 (Address of Principal Executive Office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒         Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

This Form 6-K is being incorporated by reference into the Registrant’s Form S-8 Registration Statements File Nos. 333-130611 and 333-123559.




Eltek Ltd.
 
EXPLANATORY NOTE
 
The following exhibits are attached:
 
99.1. Management’s Discussion and Analysis of Results of Operations for the Six Months ended June 30, 2020

99.2. Eltek Ltd. and Its Subsidiaries Interim Condensed Consolidated Financial Statements as of June 30, 2020 (Unaudited)
 

 
Signature
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Eltek Ltd.
(Registrant)
 
       

By:
/s/ Alon Mualem  
    Name: Alon Mualem  
    Title:   Chief Financial Officer  
       
Dated: August 13, 2020


 


 

 



Exhibit 99.1
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The discussion and analysis which follows contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our earnings, projected growth and forecasts, and similar matters which are not historical facts. We remind shareholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements.
 
The interim condensed consolidated financial statements appearing elsewhere in this report should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 20-F for the year ended December 31, 2019. The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the operating results for the full fiscal year.
 
Overview
 
We manufacture and supply technologically advanced custom made circuitry solutions for use in sophisticated and compact electronic products.  We provide specialized services and are a solution provider in the printed circuit board (“PCB”) business, mainly in Israel, Europe, North America and Asia. PCBs are platforms that conduct an electric current among active and passive microelectronics components, microprocessors, memories, resistors and capacitors and are integral parts of the products produced by high‑technology industries. PCBs are constructed from a variety of base raw materials.  PCBs can be double-sided or multi-layered and made of rigid, flexible, flex-rigid or high-frequency materials.  Photolithographic type processes transfer the images of the electrical circuit onto the layers, and chemical processes etch these lines on the boards. Our focus is on short run quick-turnaround, prototype, pre-production and low to medium volume runs of high-end PCB products for high growth, advanced electronics applications, mainly flex-rigid PCBs. We also act as an agent for the importation of PCBs from Southeast Asia when customers require high volume production runs, although such activity was not significant in recent years.

Discussion of Critical Accounting Policies and Estimations
 
We have identified the policies below as critical to the understanding of our consolidated financial statements.  The application of these policies requires management to make estimates and assumptions that affect the valuation of assets and expenses during the reporting period.  There can be no assurance that actual results will not differ from these estimates.
 
The significant accounting policies described in Note 1 of our consolidated financial statements, which we believe to be most important to fully understand and evaluate our financial condition and results of operation under U.S. GAAP, are discussed below.
 
Revenue Recognition.  We recognize revenues when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sale price is fixable or determinable. Revenues generated from continual projects are recognized over a period of time according to their completion proportion.
 
Inventories.  Inventories are recorded at the lower of cost or market value.  Cost is determined on the weighted average basis for raw materials.  For work in progress and finished goods, the cost is determined based on calculation of accumulated actual direct and indirect costs.
 
Allowance for doubtful accounts receivable.  The allowance for doubtful accounts receivable is calculated on the basis of specific identification of customer balances.  The allowance is determined based on management’s estimate of the aged receivable balance considered uncollectible, based on historical experience, aging of the receivable and information available about specific customers, including their financial condition and the volume of their operations.


 
Fixed assets.  Assets are recorded at cost.  Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets.  Machinery and equipment purchased under capital lease arrangements are recorded at the present value of the minimum lease payments at lease inception.  Such assets and leasehold improvements are depreciated and amortized respectively, using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
 
Impairment in Value of Assets.  Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset or asset group to the undiscounted future net cash flows expected to be generated by the asset or the asset group.  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.
 
Use of estimates.  The preparation of the consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  Actual results could differ from these estimates.  Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowance for doubtful accounts, valuation of derivatives, deferred tax assets, inventory, income tax uncertainties and other contingencies.
 
Commitments and contingencies.  Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.  Legal costs incurred in connection with loss contingencies are expensed as incurred.  Recoveries of environmental remediation costs from third parties that are probable of realization are separately recorded as assets, and are not offset against the related environmental liability.
 
Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study.  Such accruals are adjusted as further information develops or circumstances change.  Costs of expected future expenditures for environment remediation obligations are not discounted to their present value.
 
Explanation of Key Income Statement Items
 
Revenues. Our revenues are mainly derived from sales of PCBs, including high density interconnect, flex-rigid and multi-layered boards. The principal markets of the Company are in Israel, Europe and North America.
 
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 expenses in connection with our participation in the Printel program, a consortium within the framework of the MAGNET program of the Israeli Innovation Authority.
 
Selling, General and Administrative ExpensesSelling, general and administrative expenses consist primarily of salaries and related expenses for executive and for selling, and marketing personnel, marketing activities, 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 loans, and currency re-measurement losses. Financial income consists of interest on cash and cash equivalent balances and currency re-measurement gains.



Recent accounting pronouncements
 
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses on Financial Instruments,” which requires that expected credit losses relating to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Also, for available-for-sale debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption by the Company of the new guidance did not have a material impact on the Company’s consolidated financial statements. Our condensed consolidated financial statements for the six months ended June 30, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

In February 2016, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. In July 2018, the FASB issued amendments in ASU 2018-11, which provide another transition method in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements. We adopted the standard as of January 1, 2019, using a modified retrospective transition approach and elected to use the effective date as the date of initial application. As a result of the adoption of Topic 842 on January 1, 2019, we recorded operating lease right of use (“ROU”) assets of $3.26 million and operating lease liabilities of $3.25 million. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact the Company’s beginning retained earnings, or its prior year consolidated statements of income and statements of cash flows.

Recent Events - Impact of COVID-19
 
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now spread globally. This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact us in ways that cannot necessarily be foreseen.
 
To date, the effects of the pandemic have not materially affected our company’s operations, which have been deemed an “essential enterprise” by the Israeli government and we are striving to operate as normal.. Most of the work is still preformed at our production facility in Israel. Some of our employees are quarantined and in some cases are working remotely, due to safety concerns. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production and order raw materials necessary for production has not been materially impacted. To date, the Company has not experienced a significant change in sales or in the timeliness of payments of invoices.  Our cash position remains stable with approximately $3.4 million of cash and cash equivalents as of July 31, 2020.

The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company and could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect our operating results.

Results of Operations
 
Revenues. Our revenues for the six months ended June 30, 2020 increased by $1.0 million, or 5.9%, to $17.9 million from $16.9 million for the six months ended June 30, 2019. The increase in revenues is primarily attributable to increased revenues in the Israeli defense market.
 
Cost of Revenues. Cost of revenues increased by 0.7% to $14.2 million for the six months ended June 30, 2020 from $14.1 million for the six months ended June 30, 2019. The increase in our cost of revenues is attributable to the increase of 5.9% in revenues, which increase was mitigated by continuous cost reductions and operational efficiencies.


 
Gross Profit. Our gross profit increased to $3.7 million or 20.6% for the six months ended June 30, 2020 from $2.8 million, or 16.6% for the six months ended June 30, 2019. The increase in our gross profit in 2020 was mainly attributable to the decrease in cost of revenues.
 
Our operating expenses were $2.3 million for the six months ended June 30, 2020 as compared to $2.4 million for the six months ended June 30, 2019.
 
Financial Expenses, Net. We had net financial expenses of $139,000 in first six months of 2020 compared to net financial expenses of $263,000 in the first six months of 2019. The decrease in financial expenses is primarily attributable to the decrease in our financial liabilities and the impact of such decrease on interest expenses and by a decrease of finance expenses attributable to the NIS exchange rate on outstanding Dollar and Euro denominated balances.

Other Income, Net.  Other expenses were nil in first six months of 2020 compared to other income, net of $877,000 in the first six months of 2019 which was primarily due to the receipt of an insurance payment during 2019 associated with a claim for damages to one of our manufacturing machines.

Net Profit. Our net profit for first six months of 2020 was $1.2 million compared to net profit of $1.0 million in the first six months of 2019.
 
Liquidity and Capital Resources
 
Historically, we have financed our operations through cash generated by operations, shareholder loans, long-term and short-term bank loans, borrowings under available credit facilities and the proceeds from our initial public offering in 1997 (approximately $5.8 million). In August 2013, we entered into a definitive investment agreement with Nistec pursuant to which Nistec purchased 706,531 of our ordinary shares (approximately 34.8% of our issued share capital on a fully diluted basis) in consideration of $4.2 million. On the same date, Nistec purchased 317,888 of our ordinary shares from Merhav M.N.F. Ltd. As a result of these transactions, which closed on November 1, 2013, Nistec acquired 50.5% of our issued share capital on a fully diluted basis.
 
In March 2019, we issued subscription rights to the holders of our ordinary shares to purchase up to an aggregate of 3,380,920 shares. We raised $3.4 million in gross proceeds from this offering. We used the proceeds of the offering to reduce our outstanding debt under our lines of credit by NIS 6.0 million (approximately $1.7 million), as well as for working capital and other general corporate purposes, including investment in equipment.

As of June 30, 2020, our cash position (cash and cash equivalents) totaled $3.4 million compared to $1.6 million in cash and cash equivalents as of December 31, 2019. As of June 30, 2020, we had working capital (excluding short term credit from a related party) of $4.6 million as compared to working capital (excluding short term credit from a related party) of $2.2 million as of December 31, 2019.

As of June 30, 2020, we had revolving lines of credit aggregating NIS 11.6 million ($3.3 million) with our banks and from a non-banking financial institution, of which $1.3 million was utilized as of such date, and $1.8 million of long-term loans (including current maturities) from banks and fixed assets suppliers. In addition, we had shareholders’ loans in the amount of NIS 10.0 million ($2.9 million) not including accrued interest. As of December 31, 2019, we were in compliance with our banks' covenants. These credit facilities may not remain available to us in the future.  Furthermore, under certain circumstances the banks may require us to accelerate or make immediate payment in full of our credit facilities.  All of our assets are pledged as security for our liabilities to our banks, whose consents are required for any future pledge of such assets.

As of August 12, 2020, the aggregate principal amount of the loans from Nistec was NIS 10 million (approximately $2.9 million). Nistec has agreed that a loan of NIS 5 million will become due on May 1, 2021 and a loan of NIS 5 million will become due on November 30, 2021.



During the year ended December 31, 2019, we invested approximately $931,000 in new equipment and the expansion of our facilities and infrastructure. In the first half of 2020, we invested approximately $454,000 for computerization, leasehold improvements and small fixed equipment.
To the extent that the funds generated from our operations and our existing capital resources are insufficient to fund our operating, financial and capital investment requirements, we will need to raise additional funds through public or private financing or other sources.  Additional financing may not be available on commercially reasonable terms, if at all.  If adequate funds are not available on terms acceptable to us, we may be required to delay, scale back or eliminate certain aspects of our operations, and our business, financial condition and results of operations would be materially adversely affected.

Net cash provided by operating activities for the first six months of 2020 was $2.9 million as compared to net cash provided by operating activities of $1.3 million during the first six months of 2019. This was primarily due to the net profit of $1.2 million incurred during this period, depreciation of fixed assets of $786,000, decrease in inventories of $248,000 and increase in other accounts payables and accrued expenses in amount of $538,000.
 
Net cash used by investing activities during the first six months of 2020 was $512,000. This was primarily due to the purchase of computerization, leasehold improvements and small fixed equipment. Net cash used by investing activities during the first six months of 2019 was $250,000.
 
Net cash used in financing activities during the first six months of 2020 was $607,000, mainly reflecting decrease in short term credit and loans, compared to cash used in financing activities of $190,000 during the first six months of 2019.
 
Our working capital requirements and cash flow provided by our operating and financing activities are likely to vary greatly from quarter to quarter, depending on the following factors: (i) the timing of orders and deliveries; (ii) net profit in the period; (iii) the purchase of new equipment; (iv) the build‑up of inventories; (v) the payment terms offered to our customers; (vi) the payment terms offered by our suppliers; (vii) the repayment of existing lines of credit and loans; (vii) the spread of coronavirus, Covid-19, may affect our business, operations and financial condition; and (viii) approval of the current or additional lines of credit and long-term loans from banks.

Corporate Tax Rate
 
Israeli companies were generally subject to corporate tax at a rate of 24% in 2017. The corporate tax in Israel, as of January 1, 2018, decreased to 23%.
 
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 and share price.



Exhibit 99.2


ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2020

IN U.S. DOLLARS

UNAUDITED

INDEX

 
Page
   
F-2 - F-3
   
F-4
   
F-5 – F-6
   
F-7
   
F-8 - F-23



ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

   
June 30,
   
December 31,
 
   
2020
   
2019
 
   
Unaudited
       
             
ASSETS
           
             
CURRENT ASSETS:
           
             
Cash and cash equivalents (Note 2)
   
3,407
     
1,628
 
Trade accounts receivable (net of allowance for doubtful accounts of
  $175 and $227 as of June 30, 2020 and December 31, 2019, respectively)
   
7,307
     
7,480
 
Inventories (Note 3)
   
3,474
     
3,735
 
Other accounts receivable and prepaid expenses
   
484
     
675
 
                 
Total current assets
   
14,672
     
13,518
 
                 
LONG-TERM ASSETS:
               
                 
Restricted deposits
   
58
     
-
 
Severance pay fund
   
59
     
60
 
Operating lease right of use assets
   
2,029
     
2,490
 
                 
Total long-term assets
   
2,146
     
2,550
 
                 
PROPERTY AND EQUIPMENT, NET
   
6,407
     
6,761
 
                 
Total assets
   
23,225
     
22,829
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

F - 2


ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

   
June 30,
   
December 31,
 
   
2020
   
2019
 
   
Unaudited
       
LIABILITIES AND SHAREHOLDERS' EQUITY
           
             
CURRENT LIABILITIES:
           
             
Short-term credit and current maturities of long-term debt (Note 4)
   
1,303
     
2,120
 
Short-term credit from related party
   
2,885
     
3,472
 
Trade payables
   
3,983
     
4,673
 
Other accounts payable and accrued expenses
   
3,653
     
3,118
 
Short-term operating lease liabilities
   
1,141
     
1,383
 
                 
Total current liabilities
   
12,965
     
14,766
 
                 
LONG-TERM LIABILITIES:
               
                 
Long-term debt, excluding current maturities (Note 5)
   
1,468
     
387
 
Accrued severance pay
   
307
     
268
 
Deferred tax liabilities
   
57
     
45
 
Long-term operating lease liabilities
   
872
     
1,094
 
                 
Total long-term liabilities
   
2,704
     
1,794
 
                 
SHAREHOLDERS' EQUITY:
               
 Share capital -
               
Ordinary shares, NIS 3.0 par value; Authorized: 10,000,000 shares; Issued and outstanding 4,380,268 shares
   
3,964
     
3,964
 
Additional paid-in capital
   
18,583
     
18,583
 
Foreign currency translation adjustments
   
2,479
     
2,479
 
Capital reserves
   
1,006
     
963
 
Accumulated deficit
   
(18,476
)
   
(19,720
)
                 
Total shareholders' equity
   
7,556
     
6,269
 
                 
Total liabilities and shareholders' equity
   
23,225
     
22,829
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

F - 3


ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

U.S. dollars in thousands (except share and per share data)


   
Six months ended
June 30,
   
Three months ended
June 30,
   
Year ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
   
2019
 
   
Unaudited
       
                               
Revenues
   
17,949
     
16,934
     
8,792
     
8,198
     
34,794
 
Cost of revenues
   
(14,246
)
   
(14,139
)
   
(6,892
)
   
(6,942
)
   
(28,787
)
                                         
Gross profit
   
3,703
     
2,795
     
1,900
     
1,256
     
6,007
 
                                         
Operating (expenses) income:
                                       
Research and development, net
   
2
     
-
     
4
     
-
     
(16
)
Selling, general and administrative
   
(2,284
)
   
(2,355
)
   
(1,095
)
   
(1,249
)
   
(4,604
)
                                         
Operating profit
   
1,421
     
440
     
809
     
7
     
1,387
 
Financial expenses, net
   
(139
)
   
(263
)
   
(83
)
   
(78
)
   
(440
)
Other income, net (Note 6)
   
-
     
877
     
-
     
871
     
923
 
                                         
Income before taxes on income
   
1,282
     
1,054
     
726
     
800
     
1,870
 
Taxes on income
   
(38
)
   
(22
)
   
(22
)
   
(10
)
   
(77
)
                                         
Net income
   
1,244
     
1,032
     
704
     
790
     
1,793
 
                                         
Other comprehensive income (loss):
                                       
Foreign currency translation adjustments
   
-
     
(1
)
   
169
     
9
     
139
 
                                         
Total comprehensive income
   
1,244
     
1,031
     
873
     
799
     
1,932
 
                                         
Basic and diluted income per Ordinary share attributable to Eltek Ltd. shareholders
   
0.28
     
0.33
     
0.16
     
0.19
     
0.48
 
                                         
Weighted average number of Ordinary shares used to compute basic and diluted income per Ordinary share attributable to Eltek Ltd. Shareholders
   
4,380,268
     
3,088,110
     
4,380,268
     
4,147,667
     
3,734,317
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

F - 4


ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share and per share data)

   
Number
of shares
   
Ordinary
Shares
   
Additional
paid-in capital
   
Accumulated
other
comprehensive
income (loss)
   
Capital
reserves
   
Accumulated
deficit
   
Total
 
                                           
                                           
Balance as of January 1, 2019
   
2,028,552
     
1,985
     
17,270
     
2,340
     
800
     
(21,513
)
   
882
 
                                                         
Issuance of shares in rights offering, net
   
2,351,716
     
1,979
     
1,313
     
-
     
-
     
-
     
3,292
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
141
     
-
     
141
 
Transaction with controlling shareholder
   
-
     
-
     
-
     
-
     
22
     
-
     
22
 
Comprehensive income:
                                                       
Foreign currency translation adjustments
   
-
     
-
     
-
     
139
     
-
     
-
     
139
 
Net income
   
-
     
-
     
-
     
-
     
-
     
1,793
     
1,793
 
                                                         
Balance as of December 31, 2019
   
4,380,268
     
3,964
     
18,583
     
2,479
     
963
     
(19,720
)
   
6,269
 
                                                         
Stock-based compensation
   
-
     
-
     
-
     
-
     
43
     
-
     
43
 
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
-
     
-
     
1,244
     
1,244
 
                                                         
Balance as of June 30, 2020 (unaudited)
   
4,380,268
     
3,964
     
18,583
     
2,479
     
1,006
     
(18,476
)
   
7,556
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

F - 5


ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share and per share data)

   
Ordinary
shares
   
Amount
   
Additional
paid-in capital
   
Accumulated
other
comprehensive income
   
Capital
reserves
   
Accumulated
deficit
   
Total
 
                                           
Balance as of January 1, 2019
   
2,028,552
     
1,985
     
17,270
     
2,340
     
800
     
(21,513
)
   
882
 
                                                         
Issuance of Share capital in rights offering, net
   
2,351,716
     
1,979
     
1,313
     
-
     
-
     
-
     
3,292
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
62
     
-
     
62
 
Transaction with controlling shareholder
   
-
     
-
     
-
     
-
     
29
     
-
     
29
 
Comprehensive income (loss):
                                                       
Net income
   
-
     
-
     
-
     
-
     
-
     
1,032
     
1,032
 
Foreign currency translation adjustments
   
-
     
-
     
-
     
(1
)
   
-
     
-
     
(1
)
                                                         
Balance as of June 30, 2019 (unaudited)
   
4,380,268
     
3,964
     
18,583
     
2,339
     
891
     
(20,481
)
   
5,296
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

F - 6


ELTEK LTD. AND ITS SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

   
Six months ended
June 30,
   
Year ended
December 31,
 
   
2020
   
2019
   
2019
 
Cash flows from operating activities:
                 
Net income
   
1,244
     
1,032
     
1,793
 
Adjustments to reconcile income to net cash flows provided by operating activities:
                       
Depreciation
   
786
     
748
     
1,508
 
Revaluation of long-term loans
   
4
     
(24
)
   
(38
)
Stock based compensation
   
43
     
62
     
141
 
Transaction with controlling shareholder
   
-
     
29
     
22
 
Accrued severance pay, net
   
40
     
(9
)
   
36
 
Decrease (increase)  in operating lease right-of-use assets
   
449
     
(3
)
   
1,385
 
Decrease in operating lease liabilities
   
(453
)
   
(6
)
   
(1,388
)
Decrease (increase) in trade receivables, net
   
149
     
(1,598
)
   
(1,277
)
Decrease in other accounts receivables and prepaid expenses
   
187
     
879
     
598
 
Decrease (increase) in inventories
   
248
     
(114
)
   
175
 
Increase (decrease) in trade payables
   
(370
)
   
194
     
107
 
Increase in deferred tax liabilities
   
12
     
-
     
45
 
Increase (decrease) in other accounts payables and accrued expenses
   
538
     
132
     
(529
)
                         
Net cash provided by operating activities
   
2,877
     
1,322
     
2,578
 
                         
Cash flows from investing activities:
                       
Purchase of property and equipment
   
(454
)
   
(250
)
   
(931
)
Restricted deposits
   
(58
)
   
-
     
-
 
Proceeds from disposals of property and equipment and repayment from insurance
   
-
     
-
     
125
 
                         
Net cash used in investing activities
   
(512
)
   
(250
)
   
(806
)
                         
Cash flows from financing activities:
                       
Short- term bank credit, net
   
(765
)
   
(3,394
)
   
(4,181
)
Proceeds from short- term shareholder loan
   
-
     
555
     
561
 
Repayment of short- term shareholder loan
   
(571
)
   
-
     
-
 
Issuance of share capital in rights offering, net
   
-
     
3,298
     
3,298
 
Repayment of long-term loans
   
(108
)
   
(455
)
   
(891
)
Proceeds from long-term loans
   
1,141
     
-
     
558
 
Repayment of property and equipment payables
   
(304
)
   
(194
)
   
(477
)
                         
Net cash used in financing activities
   
(607
)
   
(190
)
   
(1,132
)
                         
Effect of exchange rate on cash and cash equivalents
   
21
     
(37
)
   
(4
)
                         
Increase in cash and cash equivalents
   
1,779
     
845
     
636
 
Cash and cash equivalents at beginning of the period
   
1,628
     
992
     
992
 
                         
Cash and cash equivalents at end of the period
   
3,407
     
1,837
     
1,628
 
                         
Supplemental cash flow information:
                       
                         
Interest
   
95
     
90
     
232
 
                         
Non-cash activities:
                       
                         
Purchase of property and equipment on credit
   
141
     
65
     
350
 
Right-of-use asset recognized with corresponding lease liability
   
153
     
-
     
377
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

F - 7

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES


a.
General:


-
Eltek Ltd. ("the Company") was organized in Israel in 1970, and its shares have been publicly traded on the NASDAQ Capital Market ("NASDAQ") since 1997. Eltek Ltd. and its subsidiaries (Eltek USA Inc. and Eltek Europe GmbH) are collectively referred to as "the Company".


-
The Company manufactures, markets and sells custom made printed circuit boards ("PCBs"), including high density interconnect, flex-rigid and multi-layered boards. The principal markets of the Company are in Israel, Europe and North America.


-
The Company markets its products mainly to the medical technology, defense and aerospace, industrial, telecom and networking equipment, as well as to contract electronic manufacturers, among other industries.

The Company is controlled by Nistec Golan Ltd ("Nistec Golan"). Nistec Golan is controlled indirectly by Mr. Yitzhak Nissan, who owns, indirectly through Nistec Holdings Ltd., all of the shares of Nistec Ltd and Nistec Golan (Nistec Holdings Ltd. and/or any of its subsidiaries are referred to as "Nistec").

Business risks and condition:
 
 -
The Company’s business is subject to numerous risks including, but not limited to, the impact of currency exchange rates (mainly NIS/US$), the Company's ability to implement its sales and manufacturing plans, the impact of competition from other companies, the Company's ability to receive regulatory clearance or approval to market its products, changes in regulatory environment, domestic and global economic conditions and industry conditions, and compliance with environmental laws and regulations. Due to these conditions and other financial and business factors, the Company's liquidity position, as well as its operating performance, was negatively affected. As a result, in the past, including the year ended December 31, 2018, the Company incurred net losses and suffered negative cash flows from its operating activities. In the six month ended June 30, 2020 and in the year ended December 31, 2019 the Company recorded net income of $1.2 million and $1.8 million, respectively, compared to a loss of $2.6 million in the year ended December 31, 2018. As of June 30, 2020, the Company's working capital amounted to $1.7 million and its accumulated deficit amounted to approximately $18.5 million. The Company's liquidity position, as well as its operating performance, may be negatively affected by other financial and business factors, many of which are beyond its control.




-
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has spread globally. This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact the company in ways that cannot necessarily be foreseen.


F - 8

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)



To date, the effects of the pandemic have not materially affected the Company’s operations, which have been deemed an “essential enterprise” by the Israeli government and the Company is striving to operate as normal.

Some of the Company’s employees are quarantined and in some cases are working remotely, due to safety concerns. Most of the work is still preformed from the Company's production facility. The Company’s ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order raw materials necessary for production has not been materially impacted. To date, the Company has not experienced a significant change in sales or in the timeliness of payments of invoices and its cash position remains stable with approximately $3.4 million of cash and cash equivalents as of July 31, 2020.

The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for the Company and could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the Company’s operating results.

Loans and credit lines:


-
In June 2017, due to continued losses and the Company's limited ability to obtain additional loans from the banks, the Company obtained a loan of NIS 5.0 million (approximately $ 1.4 million) from Nistec (the “First Loan”). The terms of the loan were amended in April 2018, with retroactive effect as of June 2017.

In July 2017, the Company obtained a line of credit dedicated to a specific project of up to NIS 4.5 million (approximately $1.3 million) from Bank Hapoalim, guaranteed by Nistec Ltd., for a period of up to one year. In July 2018 Bank Hapoalim extended the dedicated line of credit and in January 2019 the Company reduced the line of credit to NIS 2.25 million (approximately $ 620). During April 2020, Bank Hapoalim approved the increase of this line of credit back to NIS 4.5 million (approximately $1.3 million) and made this facility available for use for any purpose.

In November 2017, the Company obtained a loan of NIS 3 million (approximately $ 840) from Mizrahi-Tefahot Bank, guaranteed by Nistec. In April 2019, the Company repaid the debt owed to the bank from the proceeds of the rights offering.

In March 2018, the Company obtained another loan from Nistec of NIS 4.0 million (approximately $ 1.2 million) (the “Second Loan”). In July 2018, in accordance with a commitment letter provided by Nistec, the Company obtained another loan from Nistec of NIS 1.0 million (approximately $ 290) (the “Third Loan,” and together with the First Loan and the Second Loan, the “Loans”).

F - 9


ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

The Company and Nistec have entered into term and interest provisions of the Loans aggregating NIS 10 million (approximately $ 2.9 million). On December 5, 2019, at the Annual General Meeting of the Company's shareholders approved (following the approval of the Company's Audit Committee and Board of Directors) the execution of an Interest Agreement with Nistec Golan. Under the terms of the Interest Agreement, the Loans bear interest, as follows:


1.
Interest Amount:


a.
A total aggregate principal loan amount of NIS 5 million (the “First Half of the Loans”) bear interest of Prime + 1%, as of September 26, 2019 and until January 7, 2020. As of January 8, 2020, and until repaid, the First Half of the Loans shall bear annual interest of Prime + 1.75%.
 

b.
A total aggregate principal loan amount of NIS 5 million (the “Second Half of the Loans”) bear annual interest of Prime + 1.75%, as of January 1, 2019, and until repaid in full.
 

2.
Payment Schedule: the interest is paid on the 10th day of each quarter, for the interest accumulated in the three (3) months prior to such payment date (except with respect to the first interest payment). The first interest payment was paid on January 10, 2020, for 2019.
 

3.
Late Fees: Any amount not paid by the Company when due, will bear an annual interest of Prime + 3%, unless the Company has not paid the applicable interest amount due to its requirement to avoid any going concern qualifications, in which event the applicable interest (i.e., Prime+ 1.75) will continue to apply.
 
In August 2018, the Company obtained a credit facility of NIS 7 million (approximately $ 2.0 million) from a non-banking financial institution. In October 2019, this credit facility, which is guaranteed by Nistec, was reduced to NIS 6 million (approximately $ 1.7 million). In March 2020, the non-banking financial institution informed the Company that due to the coronavirus outbreak, its insurance carrier put on hold any future activity until further notice and therefore this facility may not be available to the Company going forward.

In January 2019, Nistec provided the Company with an additional loan of NIS 2.0 million (approximately $580), due on April 30, 2019. However, the Company exercised an option to extend the term of the loan until May 1, 2020 as approved by Company's Audit Committee that determined that such extension was required for the Company’s orderly operations. The loan was repaid to Nistec on May 1, 2020.

F - 10

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

In addition, during January 2019 Nistec guaranteed NIS 2.0 million (approximately $580) of the Company's existing debt to Bank Leumi, which was due to be repaid by April 30, 2019. During March 2019 and as part of the rights offering (described below) the Company's Audit Committee and Board of Directors authorized the Company to repay the debt owed to Bank Leumi from the proceeds of the rights offering.

On July 2019 the Company obtained a long term loan of NIS 2.0 million (approximately $580) from Bank Leumi.

As of June 30, 2020, the total principal amounts of the loans received by the Company from Nistec (as described above) was NIS 10 million (approximately $2.9 million), which will become due on or after May 1, 2021.  In August 2020, Nistec provided the Company with a letter of commitment that NIS 5 million (approximately $ 1.4 million) of the Loans will become due on May 1, 2021 and an additional NIS 5 million (approximately $ 1.4 million) will become due on November 30, 2021. Nistec has also agreed that in the event that the guarantees that it provided to banks and to a non-banking institution will be exercised, the amount due to Nistec as a result of the exercise of the guarantee will be due on November 30, 2021.

On June 30, 2020 the Company obtained a long term loan of NIS 4 million (approximately $ 1.2 million) from Mizrahi-Tefahot Bank, under the Coronavirus government loans plan. This loan, which is guaranteed by Nistec, is for 5 years, with a one year grace period and interest is waived during the first year. The loan principal and interest will be repaid over 48 monthly instalments starting the 13th month and bearing an annual interest of Prime + 1.5%. As part of this loan grant, the Company deposited an amount of $58 in a restricted deposit.


-
In April 2019 the Company completed a rights offering in which,69.6% of the Company’s shareholders participated and which provided gross proceeds of $3.4 million (before deducting expenses related to the offering). The Company used the net proceeds from this offering to repay a NIS 3.0 million (approximately $870) loan from Mizrahi Bank (guaranteed by Nistec), repay a NIS 2.0 million (approximately $580) line of credit from Bank Leumi (for which Nistec provided a guarantee) and a NIS 1.0 million (approximately $290) line of credit from Bank Hapoalim. The remainder of the proceeds was used for working capital and other general corporate purposes, including investment in plant and equipment.

Financial covenants:

In April 2014, the Company signed a new financial undertakings letter with one bank and in May 2014 with another bank. Under these undertakings the Company is required to maintain certain financial covenants, including: (i) adjusted shareholders' equity (excluding certain intangible and other assets) equal to the greater of $4.5 million or 17% of its consolidated total assets; and (ii) a debt service ratio of 1.5. Debt service ratio is defined as the ratio of EBITDA to current maturities of long-term debt plus interest expenses. The compliance with the financial covenants is measured annually based on the Company’s annual audited financial statements. As of December 31, 2019, the Company was in compliance with these covenants.

F - 11

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)



The Company believes that in the event that its business condition for the second half of 2020 will significantly worsen, it will not meet the above-mentioned financial covenants.

The Company's management believes that its current business plans and the commitments from Nistec will enable the Company to continue to operate for a period of at least one year from the date of the approval of these financial statements. In the event the Company will not be successful in generating sufficient cash from its current operations, the Company may be required to obtain additional financing from external sources. There is no assurance that such financing will be obtained.


b.
Basis of presentation:

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The consolidated financial statements include the accounts of the Company and its subsidiaries.

The Company sells goods through its subsidiaries that function as distributors. All intercompany transactions and balances were eliminated in consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.


c.
Use of estimates:

The preparation of the consolidated financial statements in accordance with U.S. GAAP requires the management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowance for doubtful accounts, deferred tax assets, inventory, income tax uncertainties and other contingencies.

F - 12

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)


d.
Unaudited interim financial statements:

The accompanying consolidated balance sheet as of June 30, 2020, consolidated statements of income and comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 and the consolidated statements of cash flows for the three and six months ended June 30, 2020 and 2019 are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. In the preparation of the consolidated financial statements, the Company applied the significant accounting policies, on a consistent basis to the audited consolidated annual financial statements of the Company as of December 31, 2019 except as detailed in note 1g (accounting pronouncements adopted in 2020).

In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company's consolidated financial position as of June 30, 2020, and the Company's consolidated cash flows and results of operations for the three and six months ended June 30, 2020 and 2019.

The balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements as of such date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for a complete set of financial statements.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2019 included in the Company's Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission ("SEC") on April 27, 2020 and Form 20-F/A filed with the SEC on May 21, 2020.
 

F - 13

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)


e.
Recently Issued and Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses on Financial Instruments,” which requires that expected credit losses relating to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Also, for available-for-sale debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption by the Company of the new guidance did not have a material impact on the Company’s consolidated financial statements.

The condensed consolidated financial statements for the six months ended June 30, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

F - 14

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-
CASH AND CASH EQUIVALENTS

   
June 30,
   
December 31,
 
   
2020
   
2019
 
   
Unaudited
       
             
Denominated in U.S. dollars
   
1,263
     
1,034
 
Denominated in NIS
   
1,583
     
129
 
Denominated in Euro
   
561
     
465
 
                 
     
3,407
     
1,628
 

NOTE 3:-
INVENTORIES

   
June 30,
   
December 31,
 
   
2020
   
2019
 
   
Unaudited
       
             
Raw materials
   
1,861
     
1,860
 
Work in progress
   
1,349
     
1,607
 
Finished goods
   
264
     
268
 
                 
     
3,474
     
3,735
 

NOTE 4:-
SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM DEBT

Banks:

   
Interest
             
   
June 30,
   
June 30,
   
December 31,
 
   
2020
   
2020
   
2019
 
   
%
   
Unaudited
       
                   
In NIS bears interest rate of Prime+0.85% to Prime+2.7%
 
2.45% - 4.30%

   
851
     
1,326
 
Short term credit from others
 
4.15%

   
308
     
612
 
Long-term debt from banks in NIS bears interest of Prime rate
 
2.6%

   
144
     
182
 
                       
           
1,303
     
2,120
 

F - 15

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 5:-
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES

Others:

   
Interest
             
   
June 30,
   
June 30,
   
December 31,
 
   
2020
   
2020
   
2019
 
Linkage terms:
 
%
   
Unaudited
       
                   
U.S. dollar
 
3.5% - 5%

   
128
     
381
 
NIS - fix interest rate
 
5% - 5.5%

   
1,655
     
664
 
                       
           
1,783
     
1,045
 
Less - current maturities (trade payables)
         
(315
)
   
(658
)
                       
           
1,468
     
387
 

Minimum future payments at June 30, 2020 due under the long-term debt are as follows:

   
Long-term loan
 
       
First year
   
316
 
Second year
   
420
 
Third year
   
428
 
Fourth year
   
317
 
Fifth year
   
302
 
         
     
1,783
 

Long-term debt includes liabilities associated with equipment purchases in the amounts of $171 and $477 and current maturities of long-term debt of $171 and $477 at June 30, 2020 and December 31, 2019, respectively. The current maturities are classified in the trade payable balance as of June 30, 2020 and December 31, 2019, respectively.

As to pledges securing the loans, see Note 7a.

NOTE 6:-
OTHER INCOME

The Company had other income, net of $877 in first six months of 2019, primarily as a result of the receipt of an insurance payment associated with a claim for damages incurred during 2018 to one of the Company's manufacturing machines.

F - 16

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 7:-
COMMITMENTS AND CONTINGENT LIABILITIES


a.
Pledges:


1.
The Company has pledged certain items of its equipment and the rights to any insurance claims on such items to secure its debts to banks, as well as placed floating liens on all of its remaining assets in favor of the banks.


2.
The Company has also pledged machines to secure its indebtedness to certain suppliers that provided financing for such equipment.


b.
Operating leases:


1.
The Company leases substantially all of its factory premises, machines and vehicles under operating leases. The Company's leases have original lease periods expiring between 2020 and 2024.
 

2.
Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement.
 

3.
The aggregated present value of lease agreements is recorded as a long-term asset titled ROU assets. The corresponding lease liabilities are split between operating lease liabilities within current liabilities and operating lease liabilities within long-term liabilities.
 

c.
Indemnification agreement:

The Company entered into indemnification agreements with each of its directors and officers and undertook to enter into the same agreement with future directors and officers. Such indemnification amount will not exceed: (i) the value of 25% of the Company’s net equity according to the audited or reviewed financial statement known at the time the request for indemnification was submitted; or (ii) $3,000,000, whichever is greater.

The Israeli Companies Law provides that an Israeli company cannot exculpate an officer from liability with respect to a breach of his or her duty of loyalty. If permitted by its articles of association, a company may exculpate in advance an officer from his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care. However, a company may not exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care with respect to
distributions.

The Company's articles of association allow it to exculpate any officer from his or her liability for breach of duty of care, to the maximum extent permitted by law, before or after the occurrence giving rise to such liability. The Company provided an exculpation letter to each of its directors and officers, and agreed to provide the same to future officers.

F - 17

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 7:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)


d.
Contingent Liabilities:

Environmental Related Matters
In connection with the change of control of the Company that resulted from Nistec's acquisition of a controlling stake in the Company, Israeli law requires it to obtain a new business permit in order to continue operating its business. The Company submitted an application for this permit and received a permit until 2099. The new permit is subject to certain conditions, especially certain conditions imposed by the Israeli Ministry for Environmental Protection. Compliance with these conditions may be costly.

In October 2015, the Company filed an application for an emissions permit with the Ministry. In January 2016, the Company received a notice of non-compliance from the Ministry, stating that the application was incomplete and that the Company is in breach of the Clean Air Law, 5768-2008 and the Licensing of Businesses Law, 5728-1968. The Company submitted amended application and conducted discussions with the Ministry throughout 2016 and 2017. The Company received the emissions permit in July 2017.

In March 2019, representatives of the Ministry, inspected the Company's premises and as a result issued a warning of a breach of the Clean Air Law, 5768-2008 and a warning of Hazardous Materials Law (1993). The Company was invited to a hearing at the Ministry during August 2019. The Company believes that during the hearing and after presenting to the Ministry the correction made for some of the findings, the issue will be resolved but there can be no assurance that our standpoint will be accepted.

Employee related matters
In May 2008, June 2019 and November 2019, lawsuits were filed by three of our employees alleging that they had suffered personal injuries during her employment and they are seeking aggregate financial compensation of approximately $ 113 for past damages and additional amounts for future lost income, pain and suffering as the court may determine.

Five other employees notified the Company in January 2011 and December 2019, that they allegedly suffered personal injuries during their employment with the Company. Of these five employees, two are seeking compensation of $1,614 and the others did not state their claim amount.

The above-mentioned claims were submitted to the insurance company, which informed the Company that it is reviewing the statements of claim without prejudicing its rights to deny coverage.

During the period January 2016 through February 2019, two former employees filed law suits seeking additional payments in connection with their employment with the Company and subsequent termination. In September 2019 a decision was entered in one of the labor suits, and a provision was recorded accordingly. On October 2019, both the Company and this former employee appealed the Labor Court’s decision and in July 2020 both the Company and this former employee agreed to withdraw their appeal with no further claims. The aggregate amount claimed in the remaining suit is approximately $ 212. The Company recorded a provision according to its legal advisor's opinion.

F - 18

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 8:-
SHAREHOLDERS' EQUITY

Authorized, issued and outstanding share capital in historical terms is as follows:

   
Authorized
 
Issued and outstanding
   
June 30,
       
   
2020 and
       
   
December 31,
 
June 30,
 
December 31,
   
2019
 
2020
 
2019
   
Number of shares
             
Ordinary shares of par value NIS 3.0 each
 
10,000,000
 
4,380,268
 
4,380,268

NOTE 9:-
SEGMENT INFORMATION


a.
Customers who accounted for over 10% of the total consolidated revenues:

   
Six months ended
June 30,
   
Three months ended
June 30,
   
Year ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
   
2019
 
   
Unaudited
       
                               
Customer A - sales of manufactured products
   
17.2
%
   
17.0
%
   
17.1
%
   
18.1
%
   
19.5
%


b.
Revenues by geographic areas:

   
Six months ended
June 30,
   
Three months ended
June 30,
   
Year ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
   
2019
 
   
Unaudited
       
                               
Israel
   
10,172
     
9,144
     
4,964
     
4,756
     
19,659
 
North America
   
3,163
     
3,606
     
1,644
     
1,431
     
6,434
 
The Netherlands
   
1,788
     
1,562
     
874
     
596
     
2,898
 
Europe
   
617
     
605
     
405
     
268
     
1,129
 
India
   
1,110
     
1,809
     
426
     
545
     
3,809
 
Others
   
1,099
     
208
     
479
     
602
     
865
 
                                         
     
17,949
     
16,934
     
8,792
     
8,198
     
34,794
 


F - 19

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:-
TAXES ON INCOME


a.
Deferred tax assets and liabilities:

The Company recorded a full valuation allowance for deferred tax assets with respect to its deferred tax assets in Israel due to uncertainty about its ability to utilize such losses in the future. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies in making this assessment.


b.
Reconciliation of the theoretical income tax (expense) benefit to the actual income tax expense:

For the six months period ended June 30, 2020 the main differences between the theoretical tax expenses (statutory tax rate of 23%) and the actual tax expenses are tax benefit arising from "Beneficiating and Preferred enterprises" and realization of carryforward tax losses for which valuation allowance was provided.

NOTE 11:-
RELATED PARTY BALANCES AND TRANSACTIONS

Nistec, a related party of the Company, is also a customer of the company. The Company sells products to Nistec, pays management fees to Nistec, purchases certain services from Nistec and shares certain expenses with Nistec, for services that it acquires jointly with Nistec. The Company's transactions with its related parties were carried out on an arm's-length basis.


a.
Balances with related parties:

   
June 30,
   
December 31,
 
   
2020
   
2019
 
   
Unaudited
       
             
Trade accounts receivable
   
126
     
47
 
Trade accounts payable
   
35
     
115
 
Controlling shareholder loans (*)
   
2,885
     
3,472
 
 (*)     See also Note 1(a).                


b.
Transactions with related parties:

   
Six months ended
June 30,
   
Three months ended
June 30,
   
Year ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
   
2019
 
   
Unaudited
       
                               
Revenues
   
216
     
98
     
123
     
51
     
226
 
                                         
Purchases, selling, general and administrative expenses
   
161
     
231
     
81
     
150
     
323
 
                                         
Interest from Loans from controlling shareholder
   
54
     
31
     
26
     
16
     
121
 

F - 20

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11:-
RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

PCB purchases by Nistec - Nistec purchases PCBs from the Company solely to provide assembled boards to its customers and not for re-sale. The Company's quote is based on its standard price list, and may be subject to a discount of up to ten percent (10%). Should the order be for PCBs imported by the Company, the quote reflects the actual price of such PCBs, plus a mark-up of at least twenty percent (20%). Should the order be for PCBs from excess inventory of an original order, the quote will reflect the standard price of such PCBs, with a discount of up to fifty percent (50%) of the price actually paid for such PCBs in the original order (the “Excess Inventory Discount”). The Excess Inventory Discount will apply only to orders from excess inventory of the first original order of a specific PCB (i.e., should a second order of a specific PCBs generate any excess inventory, and Nistec would like to purchase such excess, the Excess Inventory Discount will not be applied to such purchase).

Soldering and assembly services - The Company may acquire soldering services and/or purchasing services from Nistec. Nistec’s pricing for its soldering services will be its standard price list (the “Price List”), less a five percent (5%) discount. Nistec may charge for purchasing services in accordance with the actual costs of the orders, plus a fourteen and a quarter (14.25%) commission, which reflects a five percent (5%) discount, as compared to the commission charged to third parties by Nistec for similar services. Prices of services not included in the Price List will be negotiated by the parties in good faith (without participation of Mr. Nissan, the Company's controlling shareholder and CEO, or any of his relatives). Nistec standard procedures govern manufacturer warranties and restrictions regarding defective assembled products. In addition to requesting Nistec to provide the Company with a quote for soldering and assembly services, in the event that the Company requires design and/or design services for production of PCBs, it may ask Nistec to provide it with a quote for such services. Nistec may charge for design and/or design services in accordance its standard price list for such services, less a five percent (5%) discount. The Company’s purchases of services under the Soldering, Assembly and Design Services Procedure may not exceed NIS 300 per annum.

Insurance expenditures - The Company may share with Nistec costs of insurance consulting and insurance premiums in the event the Company determines that a joint insurance policy with Nistec will reduce the Company’s costs as compared to purchasing insurance separately. Insurance expenditures will be divided between the Company and Nistec as follows: (i) insurance consulting services costs will be divided in proportion to the insurance premiums paid by the Company and Nistec in the preceding year; (ii) the joint insurance premiums will be divided in the proportions indicated by the insurer for each of the Company and Nistec had they purchased the insurance separately. The Company will solicit updated insurance proposals at least bi-annually. The decision to enter into such a joint insurance policy with Nistec will be subject to the approval of the Audit Committee and the Board of Directors of the Company.

F - 21

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11:-
RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

Employees social activities - The Company may purchase social activities for the benefit of its employees together with Nistec. The cost of such activities will be divided between the Company and Nistec in accordance with the ratio of the number of Company's employees and Nistec employees to whom the applicable activity was directed, regardless of actual participation.

Marketing activities - The Company may purchase services together with Nistec. Marketing costs will be divided between the Company and Nistec as follows: (i) to the extent the portion of the marketing material applicable to the Company can be quantified, costs will be divided accordingly; (ii) in the event that such costs cannot be quantified, each of Nistec and the Company will bear 50% of the marketing costs.

Managements fees - In September 2019, the Company's Audit Committee, Compensation Committee and Board of Directors, as applicable, approved the terms of the amended Management Agreement. This amended Management Agreement was approved by the Company's shareholders in the annual general meeting, held on December 5, 2019. Nistec and Mr. Nissan receive the following compensation:
 

a.
Eltek pays Nistec monthly managements fees of NIS 90 ($26).
 

b.
Subject to Company’s reimbursement policy approved by the Audit Committee on May 15, 2016, Mr. Nissan  will receive reimbursement of travel expenses (other than food and beverage expenses) while traveling internationally on behalf of the Company, provided that such reimbursement shall not exceed an aggregate amount of NIS 10 per calendar quarter.
 

c.
Mr. Nissan is entitled to receive reimbursement of food and beverage expenses while traveling internationally on behalf of the Company, against receipts, in accordance with the Israeli Income Tax Regulations (Deduction of Certain Expenses) 1972.

In addition, the Company's shareholders in the annual general meeting, held on December 5, 2019 approved the following:


a.
The extension of the Directors and Officers Indemnity Agreement with Mr. Yitzhak Nissan.

b.
The extension of the Exculpation Letter with Mr. Nissan for an additional three (3) year period

c.
The application of the Company’s directors and officers liability insurance policy with respect to Mr. Nissan

d.
The revised terms of employment of Mr. Nissan's daughter, who is employed by the Company as special project manager.

Loans and guarantees from Nistec - see Note 1.

F - 22

ELTEK LTD. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 12:- STOCK BASED COMPENSATION

The Company's 2018 Share Incentive Plan (the "Plan") authorized the grant of options to purchase shares and restricted shares unites ("RSUs") to officers, employees, directors and consultants of the Company and its Subsidiaries. Awards granted under the Plan to participants in various jurisdictions may be subject to specific terms and conditions for such grants as may be approved by the Company's board from time to time.

Each option granted under the Plan is exercisable for a period of ten years from the date of the grant of the option or the expiration dates of the option plan. The options primarily vest gradually over four years of employment.

As of June 30, 2020 the Company granted to its employees and officers 133,519 options to acquire 133,519 Ordinary shares under the Plan. Total fair value of the options granted was $418 to be recognized over a four years vesting period. The stock-based compensation expense related to employees' equity-based awards, recognized during the six months ended June 30, 2020 and 2019 was $43 and $62, respectively.


F - 23


v3.20.2
Document And Entity Information
6 Months Ended
Jun. 30, 2020
Document And Entity Information [Abstract]  
Document Type 6-K
Amendment Flag false
Document Period End Date Jun. 30, 2020
Document Fiscal Period Focus Q2
Document Fiscal Year Focus 2020
Entity Registrant Name ELTEK LTD
Entity Central Index Key 0001024672
Current Fiscal Year End Date --12-31
v3.20.2
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
CURRENT ASSETS:    
Cash and cash equivalents (Note 2) $ 3,407 $ 1,628
Trade accounts receivable (net of allowance for doubtful accounts of $175 and $227 as of June 30, 2020 and December 31, 2019, respectively) 7,307 7,480
Inventories (Note 3) 3,474 3,735
Other accounts receivable and prepaid expenses 484 675
Total current assets 14,672 13,518
LONG-TERM ASSETS:    
Restricted deposits 58
Severance pay fund 59 60
Operating lease right of use assets 2,029 2,490
Total long-term assets 2,146 2,550
PROPERTY AND EQUIPMENT, NET 6,407 6,761
Total assets 23,225 22,829
CURRENT LIABILITIES:    
Short-term credit and current maturities of long-term debt (Note 4) 1,303 2,120
Short-term credit from related party 2,885 3,472
Trade payables 3,983 4,673
Other accounts payable and accrued expenses 3,653 3,118
Short-term operating lease liabilities 1,141 1,383
Total current liabilities 12,965 14,766
LONG-TERM LIABILITIES:    
Long-term debt, excluding current maturities (Note 5) 1,468 387
Accrued severance pay 307 268
Deferred tax liabilities 57 45
Long-term operating lease liabilities 872 1,094
Total long-term liabilities 2,704 1,794
SHAREHOLDERS' EQUITY:    
Share capital - Ordinary shares, NIS 3.0 par value; Authorized: 10,000,000 shares; Issued and outstanding 4,380,268 shares 3,964 3,964
Additional paid-in capital 18,583 18,583
Foreign currency translation adjustments 2,479 2,479
Capital reserves 1,006 963
Accumulated deficit (18,476) (19,720)
Total shareholders' equity 7,556 6,269
Total liabilities and shareholders' equity $ 23,225 $ 22,829
v3.20.2
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical)
$ in Thousands
Jun. 30, 2020
USD ($)
shares
Dec. 31, 2019
USD ($)
shares
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts | $ $ 175 $ 227
Ordinary shares, shares authorized 10,000,000 10,000,000
Ordinary shares, shares issued 4,380,268 4,380,268
Ordinary shares, shares outstanding 4,380,268 4,380,268
v3.20.2
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Income Statement [Abstract]          
Revenues $ 8,792 $ 8,198 $ 17,949 $ 16,934 $ 34,794
Cost of revenues (6,892) (6,942) (14,246) (14,139) (28,787)
Gross profit 1,900 1,256 3,703 2,795 6,007
Operating (expenses) income:          
Research and development, net 4 2 (16)
Selling, general and administrative (1,095) (1,249) (2,284) (2,355) (4,604)
Operating profit 809 7 1,421 440 1,387
Financial expenses, net (83) (78) (139) (263) (440)
Other income, net (Note 6) 871 877 923
Income before taxes on income 726 800 1,282 1,054 1,870
Taxes on income (22) (10) (38) (22) (77)
Net income 704 790 1,244 1,032 1,793
Other comprehensive income (loss):          
Foreign currency translation adjustments 169 9 (1) 139
Total comprehensive income $ 873 $ 799 $ 1,244 $ 1,031 $ 1,932
Basic and diluted income per Ordinary share attributable to Eltek Ltd. shareholders $ 0.16 $ 0.19 $ 0.28 $ 0.33 $ 0.48
Weighted average number of Ordinary shares used to compute basic and diluted income per Ordinary share attributable to Eltek Ltd. Shareholders 4,380,268 4,147,667 4,380,268 3,088,110 3,734,317
v3.20.2
INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($)
$ in Thousands
Ordinary shares [Member]
Additional paid-in capital [Member]
Accumulated other comprehensive income (loss) [Member]
Capital reserves [Member]
Accumulated deficit [Member]
Total
Balance at Dec. 31, 2018 $ 1,985 $ 17,270 $ 2,340 $ 800 $ (21,513) $ 882
Balance, shares at Dec. 31, 2018 2,028,552          
Issuance of Share capital in rights offering, net $ 1,979 1,313 3,292
Issuance of Share capital in rights offering, net, shares 2,351,716          
Stock-based compensation 62 62
Transaction with controlling shareholder 29 29
Comprehensive income (loss):            
Net income 1,032 1,032
Foreign currency translation adjustments (1) (1)
Balance at Jun. 30, 2019 $ 3,964 18,583 2,339 891 (20,481) 5,296
Balance, shares at Jun. 30, 2019 4,380,253          
Balance at Dec. 31, 2018 $ 1,985 17,270 2,340 800 (21,513) 882
Balance, shares at Dec. 31, 2018 2,028,552          
Issuance of Share capital in rights offering, net $ 1,979 1,313 3,292
Issuance of Share capital in rights offering, net, shares 2,351,701          
Stock-based compensation 141 141
Transaction with controlling shareholder 22 22
Comprehensive income (loss):            
Net income 1,793 1,793
Foreign currency translation adjustments 139 139
Balance at Dec. 31, 2019 $ 3,964 18,583 2,479 963 (19,720) $ 6,269
Balance, shares at Dec. 31, 2019 4,380,253         4,380,268
Stock-based compensation 43 $ 43
Comprehensive income (loss):            
Net income 1,244 1,244
Balance at Jun. 30, 2020 $ 3,964 $ 18,583 $ 2,479 $ 1,006 $ (18,476) $ 7,556
Balance, shares at Jun. 30, 2020 4,380,268         4,380,268
v3.20.2
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Cash flows from operating activities:      
Net income $ 1,244 $ 1,032 $ 1,793
Adjustments to reconcile income to net cash flows provided by operating activities:      
Depreciation 786 748 1,508
Revaluation of long-term loans 4 (24) (38)
Stock based compensation 43 62 141
Transaction with controlling shareholder 29 22
Accrued severance pay, net 40 (9) 36
Decrease (increase) in operating lease right-of-use assets 449 (3) 1,385
Decrease in operating lease liabilities (453) (6) (1,388)
Decrease (increase) in trade receivables, net 149 (1,598) (1,277)
Decrease in other accounts receivables and prepaid expenses 187 879 598
Decrease (increase) in inventories 248 (114) 175
Increase (decrease) in trade payables (370) 194 107
Increase in deferred tax liabilities 12 45
Increase (decrease) in other accounts payables and accrued expenses 538 132 (529)
Net cash provided by operating activities 2,877 1,322 2,578
Cash flows from investing activities:      
Purchase of property and equipment (454) (250) (931)
Restricted deposits (58)
Proceeds from disposals of property and equipment and repayment from insurance 125
Net cash used in investing activities (512) (250) (806)
Cash flows from financing activities:      
Short- term bank credit, net (765) (3,394) (4,181)
Proceeds from short- term shareholder loan 555 561
Repayment of short- term shareholder loan (571)
Issuance of Share capital in rights offering, net 3,298 3,298
Repayment of long-term loans (108) (455) (891)
Proceeds from long-term loans 1,141 558
Repayment of property and equipment payables (304) (194) (477)
Net cash used in financing activities (607) (190) (1,132)
Effect of exchange rate on cash and cash equivalents 21 (37) (4)
Increase in cash and cash equivalents 1,779 845 636
Cash and cash equivalents at beginning of the period 1,628 992 992
Cash and cash equivalents at end of the period 3,407 1,837 1,628
Supplemental cash flow information:      
Interest 95 90 232
Non-cash activities:      
Purchase of property and equipment on credit 141 65 350
Right-of-use asset recognized with corresponding lease liability $ 153 $ 377