UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐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 endedDecember 31, 20172018
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 0-28996
ELBIT IMAGING LTD.
(Exact name of registrant as specified in its charter)
N/A
(Translation of registrant’s name into English)
ISRAEL
(Jurisdiction of incorporation or organization)
7 MOTA GUR3 SHIMSHON STREET, PETACH TIKVA 4952801,4900102, ISRAEL
(Address of principal executive offices)
RON HADASSI
Tel: +972-3-608-6000
Fax: +972-3-608-6050
7 MOTA GUR3 SHIMSHON STREET, PETACH TIKVA 4952801,4900102, ISRAEL
(Name, Telephone, E-Mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Name of each exchange on which registered: | |
ORDINARY SHARES, NO PAR VALUE | NASDAQ GLOBAL SELECT 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: 9,190,808 ordinary shares, no par value per share, as of December 31, 2017.2018.
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, or a non-accelerated filer, or an emerging growth company.filer. See the definitionsdefinition of “large accelerated filer,” “accelerated filer” and “emerging growth company”large accelerated filer” in Rule 12b-2 ofin the Exchange Act. (Check one):
Large Accelerated Filer ☐ | Accelerated Filer ☐ | Non-Accelerated Filer ☒ |
Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ | 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☒
i
INTRODUCTION
To date we operate primarily in the following fields of business:
Medical Industries – through our indirect holdings in two companies which operates in the field of life science: (i) InSightec Ltd. (“InSightec”) - InSightec operates in the field of development, production, and marketing of treatment-oriented medical systems, based on a unique technological platform combining the use of focused ultrasound and magnetic resonance imaging for the purpose of performing noninvasive treatments in human beings; (ii) Gamida Ltd. (“Gamida”) – Gamida operates in the field of research, development and manufacture of products designated for certain cancer diseases.diseases (As of October 26, 2018, Gamida’s shares are traded on the NASDAQ (Nasdaq: GMDA)).
Plots in India – we have indirect holdings in plots of land in India which are designated for sale (and which were initially designated for residential projects).
Plots in Eastern Europe initially designated for development of commercial centers - The plots in Eastern Europe (and in Greece)India are held by our subsidiaryElbit Plaza India Real Estate Holdings Limited (“EPI”) which is a joint venture held by us (47.5%) and by Plaza Centers N.V. (“PC”) whose business strategy is to(47.5%). It should also be noted that we hold 44.9% of the equity (but not voting) rights in PC.
On December 19, 2018 we announced that we no longer develop commercial centers butconsider ourselves to dispose its real estate assets at optimal market conditions.be the controlling shareholder of PC. In light of PC’s current financial situation, the Company estimates that the loss of control therein is not material to the Company. Accordingly, PC’s financial statement are no longer consolidated with the Company’s financial statement and the review of the development of the Company’s business in 2018 does not relate to PC (However, this report does include reference to the events that occurred in PC until 2017 (inclusive)).
References in this annual report to Elbit Imaging Ltd. and its subsidiaries are referred to herein as “EI,” “Elbit,” the “Company,” “our,” “we” or “us”.
Special Explanatory Note
Share and share price information in this annual report have been adjusted to reflect the 1-for-3 reverse share split effected by us on June 28, 2016.
THIS ANNUAL REPORT ON FORM 20-F CONTAINS “FORWARD-LOOKING STATEMENTS,” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE “EXCHANGE ACT”). FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT ABOUT THE COMPANY’S BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, PROJECTED CASH FLOW, INITIATION, TIMING, PROGRESS AND RESULTS OF RESEARCH, MANUFACTURING, PRECLINICAL STUDIES, CLINICAL TRIALS, AND OTHER RESEARCH AND DEVELOPMENT EFFORTS OF INSIGHTEC AND/OR GAMIDA, RELATIONSHIPS WITH EMPLOYEES, BUSINESS PARTNERS AND OTHER THIRD PARTIES, THE CONDITION OF ITS PROPERTIES, LOCAL AND GLOBAL MARKET TERMS AND TRENDS, AND THE LIKE. WORDS SUCH AS “BELIEVE,” “EXPECT,” “INTEND,” “ESTIMATE” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED, EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING, WITHOUT LIMITATION, THE FACTORS SET FORTH BELOW UNDER THE CAPTION “RISK FACTORS.” ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT SPEAK ONLY AS OF THE DATE HEREOF, AND WE CAUTION EXISTING AND PROSPECTIVE INVESTORS NOT TO PLACE UNDUE RELIANCE ON SUCH STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS DO NOT PURPORT TO BE PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES, AND THEREFORE, THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKINGFORWARD- LOOKING STATEMENT CONTAINED HEREIN WILL PROVE TO BE ACCURATE. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
ii
CURRENCY TRANSLATION
For the reader’s convenience, financial information for 20172018 has been translated from various foreign currencies to the U.S. dollar (“$” or “U.S. dollar”), as of December 31, 2017,2018, in accordance with the following exchange rates:
Currency | $1.00 as of December 31, | |||
1 New Israeli Shekel (NIS) | ||||
1 Euro | ||||
1 Indian Rupee (INR) | ||||
1 Crore (10 million INR) |
ii
The U.S. dollar amounts reflected in these convenience translations should not be construed as representing amounts that actually can be received or paid in U.S. dollars or convertible into U.S. dollars (unless otherwise indicated), nor do such convenience translations mean that the foreign currency amounts (i) actually represent the corresponding U.S. dollar amounts stated, or (ii) could be converted into U.S. dollars at the assumed rate. The Federal Reserve Bank of New York does not certify for customs purposes a buying rate for cable transfers in New Israeli Shekel (“NIS”). Therefore, all information about exchange rates is based on the Bank of Israel rates.
EXCHANGE RATES
The exchange rate between the NIS and U.S. dollar published by the Bank of Israel was NIS 3.5233.584 to the U.S. dollar on April 23, 2018.May 10, 2019. The exchange rate has fluctuated during the six month period beginning October 2017November 2018 through April 23, 2018May 10, 2019 from a high of NIS 3.553.781 to the U.S. dollar to a low of NIS 3.3883.558 to the U.S. dollar. The monthly high and low exchange rates between the NIS and the U.S. dollar during the six month period beginning October 2017,November 2018, through April 23, 2018May 10, 2019 as published by the Bank of Israel, were as follows:
HIGH | LOW | |||
MONTH | 1 U.S. dollar =NIS | 1 U.S. dollar =NIS | ||
October 2017 | 3.542 | 3.491 | ||
November 2017 | 3.544 | 3.499 | ||
December 2017 | 3.550 | 3.467 | ||
January 2018 | 3.535 | 3.388 | ||
February 2018 | 3.681 | 3.427 | ||
March 2018 | 3.514 | 3.431 | ||
April 2018 (until April 23 , 2018) | 3.503 | 3.537 |
HIGH | LOW | |||
MONTH | 1 U.S. dollar =NIS | 1 U.S. dollar =NIS | ||
November 2018 | 3.743 | 3.668 | ||
December 2018 | 3.781 | 3.718 | ||
January 2019 | 3.746 | 3.642 | ||
February 2019 | 3.662 | 3.604 | ||
March 2019 | 3.636 | 3.600 | ||
April 2019 | 3.628 | 3.558 | ||
May 2019 (until May 10, 2019) | 3.601 | 3.584 |
The average exchange rate between the NIS and U.S. dollar, using the average of the exchange rates on the last day of each colander month during the period, for each of the five most recent fiscal years was as follows:
PERIOD | AVERAGE EXCHANGE RATE | |
January 1, | ||
3.577 NIS/$1 | ||
January 1, 2015 – December 31, 2015 | 3.885 NIS/$1 | |
January 1, 2016 – December 31, 2016 | 3.841 NIS/$1 | |
January 1, 2017 – December 31, 2017 | 3.599 NIS/$1 | |
January 1, 2018 – December 31, 2018 | 3.5949 NIS/$1 |
iii
PARTPART I
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not Applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not Applicable.
ITEM 3. | KEY INFORMATION |
A. | SELECTED FINANCIAL DATA |
The following selected consolidated financial data of Elbit Imaging Ltd. and its subsidiaries are derived from our 20172018 consolidated financial statements and are set forth below in table format. Our 20172018 consolidated financial statements and notes included elsewhere in this report were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The 20172018 consolidated financial statements were audited by Ernst and Young Israel – Kost Forer Gabbay and Kasierer (“Ernst and Young Israel”), a firm of certified public accountants in Israel and a member of Ernst and Young Global. See “Item 16F - CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT” for more information regarding the appointment of our new independent auditors.auditors in 2017.
The consolidated financial statements for all years since 2016 (including 2016) presented in this filing were audited by Ernst and Young Israel. The consolidated financial statements for all years prior to 2016 presented in this filing(not including 2016) were audited by Brightman Almagor Zohar and Co., a Member Firm of Deloitte Touche Tohmatsu. However, the financial data presented in this filing regarding the annual years 2015 and 2014 were reclassified due to the loss of control over PC and were not audited by any of the said auditors. Our selected consolidated financial data are presented in NIS. A convenience translation to U.S. dollars is presented for 20172018 only.
1
The selected financial data for the years ended December 31, 2018, 2017, 2016, 2015 2014 and 20132014 which are presented in the table below are derived from our consolidated financial statements prepared in accordance with IFRS and do not include consolidated financial data in accordance with U.S. GAAP.
CONSOLIDATED STATEMENTS OF OPERATIONS IN ACCORDANCE WITH IFRS
(In thousands of USD, except share and per share data)
2017 Convenience translation | 2017 | 2016 | 2015 | 2014 | 2013 | 2018 Convenience translation | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||||||||||||
($’000) | (NIS’000) | (NIS’000) | ($’000) | (NIS’000) | ||||||||||||||||||||||||||||||||||||||||||||
Income revenues and gains | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues from sale of commercial centers | 225,794 | 782,829 | 126,019 | 200,078 | 201,571 | 8,614 | ||||||||||||||||||||||||||||||||||||||||||
Total revenues | 225,794 | 782,829 | 126,019 | 200,078 | 201,571 | 8,614 | ||||||||||||||||||||||||||||||||||||||||||
Gains and other | ||||||||||||||||||||||||||||||||||||||||||||||||
Rental income from commercial centers | 9,229 | 31,997 | 66,417 | 83,849 | 113,661 | 129,748 | ||||||||||||||||||||||||||||||||||||||||||
Gains from sale of investees | - | - | - | 6,712 | 11,301 | - | - | - | - | 6,712 | 11,301 | |||||||||||||||||||||||||||||||||||||
Gains from changes of shareholding in investees | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Gains from loss of significant influence in associate | 71,265 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Gain from fair value adjustment | 13,915 | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total gains | 9,229 | 31,997 | 66,417 | 90,561 | 124,962 | 129,748 | 85,180 | - | - | 6,712 | 11,301 | |||||||||||||||||||||||||||||||||||||
Total income revenues and gains | 235,023 | 814,826 | 192,436 | 290,0639 | 326,533 | 138,362 | 85,180 | - | - | 6,712 | 11,301 | |||||||||||||||||||||||||||||||||||||
Expenses and losses | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial centers | 232,369 | 805,623 | 159,806 | 290,360 | 291,864 | 124,737 | ||||||||||||||||||||||||||||||||||||||||||
General and administrative expenses | 4,306 | 14,930 | 10,257 | 16,678 | 39,785 | 60,643 | 11,940 | 14,723 | 10,003 | 13,053 | 37,895 | |||||||||||||||||||||||||||||||||||||
Share in losses of associates, net | 5,827 | 20,202 | 54,313 | 42,925 | 17,298 | 339,030 | - | 20,202 | 54,313 | 52,871 | 38,159 | |||||||||||||||||||||||||||||||||||||
Financial expenses | 32,390 | 112,296 | 124,354 | 207,721 | 207,729 | 306,929 | 55,715 | 69,457 | 60,280 | 69,647 | 106,778 | |||||||||||||||||||||||||||||||||||||
Financial income | (522 | ) | (1,811 | ) | (1,056 | ) | (2,154 | ) | (6,317 | ) | (3,930 | ) | (1,801 | ) | (1,720 | ) | (2,318 | ) | (3,248 | ) | (3,245 | ) | ||||||||||||||||||||||||||
Exchange differences, net | (14,796 | ) | 816 | (2,602 | ) | (889 | ) | |||||||||||||||||||||||||||||||||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | - | - | (2,707 | ) | 2,568 | 71,432 | 68,407 | (31,220 | ) | - | - | 5,459 | (400 | ) | ||||||||||||||||||||||||||||||||||
Financial gain from debt restructuring | - | - | - | - | (1,616,628 | ) | - | - | - | - | - | (1,616,628 | ) | |||||||||||||||||||||||||||||||||||
Write-down, charges and other expenses, net | 29,166 | 101,120 | 162,318 | 99,292 | 544,371 | 784,075 | 4,877 | 1,596 | 567 | 121,170 | 86,700 | |||||||||||||||||||||||||||||||||||||
303,536 | 1,052,360 | 509,397 | 657,390 | (450,465 | ) | 1,679,891 | 24,716 | 101,882 | 120,243 | 258,063 | (1,350,741 | ) | ||||||||||||||||||||||||||||||||||||
Profit (loss) before income taxes | (68,513 | ) | (237,534 | ) | (316,961 | ) | (366,751 | ) | 776,998 | (1,541,530 | ) | 60,464 | (101,882 | ) | (120,243 | ) | (251,351 | ) | 1,362,042 | |||||||||||||||||||||||||||||
Income taxes (tax benefits) | 3,243 | 11,244 | 3,020 | 4,402 | (2,287 | ) | (30,937 | (5,245 | ) | 7,000 | - | 8,804 | (14 | ) | ||||||||||||||||||||||||||||||||||
Profit (loss) from continuing operations | (71,756 | ) | (248,778 | ) | (319,981 | ) | (371,153 | ) | 779,285 | (1,510,593 | ) | 65,709 | (108,882 | ) | (120,243 | ) | (260,155 | ) | 1, 362,028 | |||||||||||||||||||||||||||||
Profit(loss) from discontinued operations, net | (44,102 | ) | (152,903 | ) | 7,913 | 56,231 | 5,072 | (54,418 | ) | (650,077 | ) | (292,799 | ) | (191,825 | ) | (54.767 | ) | (577,672 | ) | |||||||||||||||||||||||||||||
Profit (loss) for the year | (115,858 | ) | (401,681 | ) | (312,068 | ) | (314,922 | ) | 784,357 | (1,565,010 | (584,368 | ) | (401,681 | ) | (312,068 | ) | (314,922 | ) | 784,357 | |||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity holders of the Company | (97,500 | ) | (338,034 | ) | (194,830 | ) | (186,150 | ) | 1,008,999 | (1,155,645 | ) | (584,368 | ) | (338,034 | ) | (194,830 | ) | (186,150 | ) | 1,008,999 | ||||||||||||||||||||||||||||
Non-controlling interest | (18,358 | ) | (63,647 | ) | (117,238 | ) | (128,772 | ) | (224,642 | ) | (409,365 | ) | (66,535 | ) | (63,647 | ) | (117,238 | ) | (128,772 | ) | (224,642 | ) | ||||||||||||||||||||||||||
(115,858 | ) | (401,681 | ) | (312,068 | ) | (314,922 | ) | 784,357 | (1,565,010 | ) | (401,681 | ) | (312,068 | ) | (314,922 | ) | 784,357 | |||||||||||||||||||||||||||||||
Earnings per share - (in NIS) | ||||||||||||||||||||||||||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||||||||||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||||||||||||||
From continuing operations | (5.80 | ) | (20.14 | ) | (22.05 | ) | (21.73 | ) | 126.81 | (2,675.22 | ) | 4.56 | (11.46 | ) | (12.36 | ) | (13.45 | ) | 141.38 | |||||||||||||||||||||||||||||
From discontinued operations | (4.80 | ) | (16.64 | ) | 0.85 | 1.48 | 0.64 | (109.69 | ) | (60.90 | ) | (25.32 | ) | (8.83 | ) | (6.83 | ) | (22.77 | ) | |||||||||||||||||||||||||||||
(10.60 | ) | (36.78 | ) | (21.20 | ) | (20.25 | ) | 127.45 | (2,784.91 | ) | (56.34 | ) | (36.78 | ) | (21.20 | ) | (20.28 | ) | 118.61 | |||||||||||||||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||||||||||||||
From continuing operations | (5.80 | ) | (20.14 | ) | (22.05 | ) | (21.73 | ) | 126.81 | (2,675.22 | ) | |||||||||||||||||||||||||||||||||||||
From discontinued operations | (4.80 | ) | (16.64 | ) | 0.85 | 1.43 | 0.64 | (109.69 | ) | |||||||||||||||||||||||||||||||||||||||
(10.60 | ) | (36.78 | ) | (21.20 | ) | (20.25 | ) | 127.45 | (2,784.91 | ) |
2
SELECTED BALANCE SHEET DATA IN ACCORDANCE WITH IFRS
2017 Convenience translation | 2017 | 2016 | 2015 | 2014 | 2013 | 2018 Convenience translation | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||||||||||||
($’000) | (NIS’000) | (NIS’000) | (NIS’000) | (NIS’000) | (NIS’000) | ($’000) | (NIS’000) | (NIS’000) | (NIS’000) | (NIS’000) | ||||||||||||||||||||||||||||||||||||||
Current Assets | 139,445 | 483,456 | 178,592 | 217,544 | 488,702 | 694,348 | 11,999 | 44,970 | 483,456 | 178,592 | 217,544 | 488,702 | ||||||||||||||||||||||||||||||||||||
Non-current Assets | 153,998 | 533,913 | 2,082,617 | 2,486,008 | 3,172,611 | 3,870,096 | 56,284 | 210,954 | 533,915 | 2,082,617 | 2,486,008 | 3,172,611 | ||||||||||||||||||||||||||||||||||||
Total | 293,443 | 1,017,371 | 2,261,209 | 2,703,552 | 3,661,313 | 4,564,444 | 68,283 | 255,924 | 1,017,371 | 2,261,209 | 2,703,552 | 3,661,313 | ||||||||||||||||||||||||||||||||||||
Current Liabilities | 244,266 | 846,874 | 1,209,627 | 806,251 | 358,985 | 4,794,477 | 41,238 | 154,563 | 846,874 | 1,209,627 | 806,251 | 358,985 | ||||||||||||||||||||||||||||||||||||
Non-current Liabilities | 92,092 | 319,282 | 1,002,967 | 1,593,237 | 2,589,091 | 178,597 | 43,086 | 161,488 | 319,281 | 1,002,967 | 1,593,237 | 2,589,091 | ||||||||||||||||||||||||||||||||||||
Shareholders’ equity Attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity holders of the company | (56,082 | ) | (194,435 | ) | (88,489 | ) | 19,287 | 231,979 | (1,032,637 | ) | (10,590 | ) | (39,695 | ) | (194,435 | ) | (88,489 | ) | 19,287 | 231,979 | ||||||||||||||||||||||||||||
Non-controlling interest | 13,167 | 45,651 | 137,103 | 284,777 | 481,258 | 624,007 | (5,451 | ) | (20,432 | ) | 45,651 | 137,103 | 284,777 | 481,258 | ||||||||||||||||||||||||||||||||||
Total | 293,443 | 1,017,371 | 2,261,209 | 2,703,552 | 3,661,313 | 4,564,444 | 68,283 | 255,924 | 1,017,371 | 2,261,209 | 2,703,552 | 3,661,313 |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not Applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not Applicable.
D. | RISK FACTORS |
The following is a list of the material risk factors that may affect our business, our financial condition, results of operations and our cash flows. We cannot predict nor can we assess the impact, if any, of such risk factors on our business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those projected in any forward-looking statement. Furthermore, we cannot assess the occurrence, probability or likelihood of any such risk factor, or a combination of factors, to materialize, nor can we provide assurance that we will not be subject to additional risk factors resulting from local and/or global changes and developments not under our control that might impact our businesses or the markets in which we operate.
3
RISKS RELATING TO OUR MEDICAL COMPANIES IN GENERAL
Our medical companies are subject to extensive governmental regulation, which can be costly and subject their business to disruption, delays and potential penalties.
Our medical companies are subject to extensive regulation by the US Federal and Drug Administrative (“FDA”) and various other U.S. federal and state authorities and the European Medicines Agency and other foreign regulatory authorities. The process of obtaining regulatory approvals to market a drug or medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for future products or new indications and uses, could result in delayed realization of product revenues, reduction in revenues and substantial additional costs. In addition, no assurance can be given that our medical companies will remain in compliance with applicable FDA and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and post marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. Our medical companies’ facilities are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory authorities, and they must incur expense and expend effort to ensure compliance with these complex regulations. Failure to comply with all applicable regulatory requirements may subject our medical companies to operating restrictions and criminal prosecution, monetary penalties and other disciplinary actions, including, sanctions, warning letters, product seizures, recalls, fines, injunctions, suspension, shutdown of production, revocation of approvals or the inability to obtain future approvals, or exclusion from future participation in government healthcare programs. Any of these events could disrupt our medical business.
There is uncertainty regarding reaching the phase of commercial sales
Gamida is primarily involved in research and development stages of its products. InSightec’s ExAblate system has obtained regulatory approvals for certain applications (including FDA and CE approval) which are sold to customers, and InSightec’s research and development activities focus on additional applications to its existing products.
A company wishing to develop a medical product and receive approval to market it must pass through a series of trials catalogued according to various phases, and each of them may end in failure. In such circumstances, InSightec’s and Gamida’s research and development activities do not carry with them a certainty of succeeding and reaching the phase of commercial sales of their products/additional applications to its existing products. Furthermore, it is not possible to predict the results of the later-phase trials based on the results of the preclinical trials and the first clinical trials carried out in the same product. Furthermore, a large part of the costs is invested in research and development expenses before the company begins to derive revenue from the sales of the productsproducts/applications in development. A failure in one of the trial phases may cause the loss of the entire investments. Furthermore, there is no certainty regarding the price that may be received for the productsproducts/applications under development when they begin to be marketed.
Our medical companies need considerable funds for research and development in order to be successful
InSightec invests significant resources into the research and development of new applications for its existing products, and a significant partmost of Gamida’s operations is in the research and development field. So long as InSightec and Gamida continue with their product development processes, their development costs will remain high, as will their need for considerable funds, andfunds. Also, so long as Insightec a will not generate revenues for its new applications, and Gamida will not generate revenues from its products. Both InSightec and Gamida are dependent on the success of their respective research and development process, and if its research and development efforts, including clinical trials, fail in part or in whole, or significantly deviate from their objectives in terms of the development time or development costs, it could have a material adverse effect on Insightec and/or Gamida, as the case may be.
The clinical trials may not be successful and may be delayed or discontinued
The continued development of the products/applications being developed by Gamida and InSightec, and Gamidarespectively, is conditioned on the conduct of clinical trials and the success of these trials at each of the regulatory phases. The conduct of clinical trials depends on a range of factors, including the ability to recruit a satisfactory number of both ill and healthy candidates. The necessity to receive the consent of clinical research entities for the trials, approvals for the conduct of the trials, as well as the possibility for unpredicted side effects may negatively impact the success of our medical companies’ successful completion of their clinical trials. All these may delay, or even cause a discontinuation of, the clinical trials, and lead to a postponement of the approvals and permits, as described above. Moreover, it is not possible to know when the clinical trials will be completed, if at all.
Our medical companies may experience difficulties and delays in recruiting candidates for clinical trials
Continued development of InSightec’s and Gamida’s products/applications and products, respectively, and completion of the clinical trials depend, among other factors, on the recruitment of appropriate candidates for the aforementioned trials. A lower than expected rate and/or delay of the recruitment of trial candidates may be caused by a variety of factors, such as the low prevalence of patients fitting the trial criteria, competition between the companies for candidate participation in trials, changes in the candidates’ willingness to volunteer for the trial, and a lack of budgets.
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Our medical companies’ operations (which include clinical trials) may lead to exposure to legal claims.
Our medical companies’ activities in the field of medical equipment and devices development include clinical trials, which raise exposure to legal claims due to bodily injury or side effects resulting from the usage of such medical devices or treatment or the negligence or improper usage of such equipmentequipment/medicine by the medical staff performing the treatment. Any such claims could result in harm to our business and results of operations.
Our medical companies may be unable to adequately protect or enforce their rights to intellectual property, causing them to lose valuable rights.
InSightec’s and Gamida’s success and ability to compete depends in large part upon their ability to protect their proprietary technology. InSightec and Gamida rely on a combination of patent, copyright, trademark and trade secret laws, and on confidentiality and invention assignment agreements, in order to protect their intellectual property rights. The process of seeking patent protection can be long and expensive, and there can be no assurance that InSightec’s and Gamida’s existing or future patent applications will result in patents being issued, or that InSightec’s and Gamida’s existing patents, or any patents, which may be issued as a result of existing or future applications, will provide meaningful protection or commercial advantage to InSightec and Gamida.
Violation of a third party’s rights
Claims by competitors and other third parties that InSightec’s or Gamida’s products allegedly infringe the patent rights of others (e.g. if InSightec’s and/or Gamida’s employees or service providers have violated, or are violating, the intellectual property rights held, in the past or present, by their other employers) could have a material adverse effect on InSightec’s or Gamida’s business. Any future litigation, regardless of outcome, could result in substantial expense and significant diversion of the efforts of InSightec’s and Gamida’s technical and management personnel. An adverse determination in any such proceeding could subject InSightec and Gamida to significant liabilities or require InSightec or Gamida to seek licenses from third parties or pay royalties that may be substantial.
Lack of coverage by government entities and/or insurance companies for the products’ costs
The payment mechanisms currently used in the USA and Europe and some other countries, according to which the cost of patient care is covered by government bodies and/or insurance companies, may affect InSightec’s and Gamida’s sales potential. Should insurance coverage for the costs of InSightec’s and Gamida’s products not be approved, this may lead to a reduction in these products’ sales potential.
InSightec believes that third-party payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the ExAblate. If InSightec is unable to obtain reimbursement on a national basis for treatments using the ExAblate, or if there are changes in reimbursement policies of private healthcare or governmental payors affecting the reimbursement for treatment procedures using the ExAblate, it could have a material adverse effect on InSightec.
For more information regarding reimbursement for InSightec'sInSightec’s products see "Item“Item 4B – Business Overview – Insightec – Insurance Coverage"Coverage”.
Our medical companies are dependent on professional and skilled manpower
InSightec’s and Gamida’s success depends, among other factors, on the continued services of key personnel in the development, production, management and business development fields. The supply of professional and skilled manpower in InSightec’s and Gamida’s field of activity in Israel is small. Should InSightec and Gamida not be able to hire or retain the aforementioned employees, this could cause a delay in the development and production of their products.
Grants and benefits from government entities and limits on realization of holdings
InSightec and Gamida benefit from the budgets of government entities, such as the Israeli Innovation Authority. These grants and benefits impose limitations on the activities of recipient companies (e.g. restrictions on production outside Israel and a prohibition on sales of knowledge to foreign entities). Moreover, limitations exist on the possibility to sell InSightec’s and Gamida’s operations to foreign investors, which may limit the options for realizations of the Company’s holdings in InSightec and/or Gamida. A violation of the limitations may subject InSightec and Gamida to a range of penalties, including financial and criminal penalties. Furthermore, changes in the budgets of the aforementioned government entities that may prevent or reduce the grants and/or benefits that InSightec and Gamida may receive in the future and therefore may substantially impact their operations and results.
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Moreover, foreign investments are affected, among other factors, by the preservation of foreign investment incentives by Israeli regulators, including tax incentives. In the event that the aforementioned incentives for foreign investments are discontinued and/or limited, this may negatively affect foreign investments in InSightec and Gamida, and therefore negatively affect their business results and the company’s business results.
Limits on the realization of InSightec and Gamida holdings
From time to time, InSightec and Gamida sometimes enterenters into agreements whichthat impose restrictions on the holdings of parties to the agreement or on third parties, including the company,Company, related to their holdings in InSightec, and Gamida, such as refusal rights and tag along rights. The aforementioned restrictions may limit the company’sCompany’s ability to realize its holdings in InSightec and/or Gamida and even deter potential investors from entering into investment agreements with the Company with regard to InSightec.
In addition, in regardsconnection with the initial public offering of Gamida, we (together with other major shareholders and officers of Gamida) have signed a lock-up agreements pursuant to InSightec and Gamida.which, we agreed, subject to certain exceptions, not to sell or otherwise dispose our holdings in Gamida, for a period of 180 days after the date of Gamida’s prospectus (i.e. until April 27, 2019).
Developments in the pharmaceutical and medical research fields
The development of competing drug treatments in InSightec’s and Gamida’s fields of research and development may reduce or obviate entirely the need for their products.
Changes enabling the circumvention of InSightec’s and/or Gamida’s intellectual property
It is possible that, after development is completed and a patent is registered in InSightec’s and/or Gamida’s name, third parties may succeed in developing alternative products that will include a technological change that will enable them to circumvent InSightec’s and/or Gamida’s patent-protected rights. In such a case, it is possible that third parties may succeed in developing products competing with InSightec’s and/or Gamida’s without violating the patent-protected rights, which may increase competition for InSightec’s and/or Gamida’s products and reduce their expected profits.
Violation of rights that are protected by patents, or will be protected in the future by patents
It is possible that, after development is completed and a patent is registered in InSightec’s and Gamida’s name, third parties may act to produce InSightec’s and Gamida’s products while violating the patent-protected rights. In light of this, the production of InSightec’s and Gamida’s products in violation of their patent-protected rights may harm them, and cause a decline in the prices of their products and reduce their expected profits.
Risks inherent in marketing medical products
Certain risks are inherent in marketing medical products and/or medicine, such as side effects for a drug (when referring to Gamida’s products) and other patient reactions to the drug, which in some cases are unpredicted. The realization of the aforementioned risks may delay the continued development activities, and impact InSightec’s and Gamida’s continued operations and product development.
InSightec and Gamida are dependent on further capital investments.
Until InSightec achieves broad market acceptance of the ExAblate and is able to generate sufficient sales to support its business and its research and development expenses, and until Gamida begins selling its products and generating positive cash flow, each of them will need to obtain additional capital investments to support its business in general and, in particular, its significant research and development costs and expenses. The current volume of sales and backlog of InSightec will not suffice to maintain its current cash burn-rate and expenditure levels. Each of InSightec’s or Gamida’s inability to obtain additional funding sources, particularly capital investments, might have a material adverse effect on its business and/or ability to continue its operations.
InSightec’s and Gamida’s technology may become obsolete, which could materially adversely impact InSightec’s and Gamida’s future business and financial performance.
InSightec’s and Gamida’s success and ability to compete depends in large part upon their ability to develop and maintain unique and leading technologies and capabilities, providing medical solutions superior to alternative treatments and technologies. The discovery or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions to the same diseases, could make InSightec’s or Gamida’s technologies or solutions inferior, obsolete or irrelevant. The rapid development and massive research and development activities in the medical areas in which these companies operate creates constant risk of such occurrence, which could adversely impact InSightec’s and Gamida’s future business and financial performance.
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RISKS RELATING TO INSIGHTEC
Demand for InSightec products
As of the date of this annual report, and in light of InSightec’s annual sales volume, there is no certainty that the demand for InSightec products will remain stable or grow. Furthermore, there is currently no certainty with regards to the rate of growth in the gynecology, oncology, and neurology markets, at which the current InSightec products are targeted. Increased demand for InSightec products depends also on the success of the marketing efforts, including overcoming various obstacles, with regard to which there is no certainty.
Technological compatibility
As of the date of this annual report, ExAblate is compatible only with certain Magnetic Resonance Imaging (MRI) systems ofof: (i) GE Healthcare, a division of the General Electric Company (“GE”); and (ii) MRI systems of Siemens Healthcare GmbH (“Siemens”),; which may limit InSightec’s potential market.
In light of the above, we depend on collaboration with GE and Siemens to ensure the compatibility of the ExAblate with new models of GE and Siemens MRI systems and upgrades to existing GE and Siemens MRI systems. If InSightec is unable to receive information regarding new models of the GE and Siemens MRI systems or upgrades to existing GE and Siemens MRI systems, and coordinate corresponding upgrades to the ExAblate to ensure continued compatibility with new and existing GE and Siemens MRI systems, its ability to generate sales of its system will be adversely affected.
A termination of the cooperation with one or both MRI manufacturers may cause a delay in the sale of InSightec products and a need for additional funding in order to make its products compatible with the MRI systems of other manufacturers.
InSightec is dependent on GE
As at the date of this report, InSightec has regulatory authorizations to integrate systems manufactured by it only into MRI beds manufactured by GE. InSightec is in the process of obtaining authorizations to integrate the systems manufactured by Siemens. However, at this stage, prior to having obtained the authorizations as stated, InSightec is dependent upon GE.
If the ExAblate is subject to a product recall, InSightec will not be able to generate sufficient sales to support its business.
If the ExAblate does not comply with regulatory standards or if it is subject to reports of damaging effects to patients, it may be subject to a mandatory recall by the relevant authorities and sales may be stopped until it can clear regulatory approvals once again. A recall may harm the reputation of InSightec and its products and its ability to generate additional sales of the ExAblate which may be adversely affected. As of the date of this annual report, and to InSightec’s best knowledge, no incidents that may lead to a product recall by the relevant authorities have been reported.
Incorporation of third-party software components in InSightec products
Third-party software components are found in InSightec’s products which are subject to use limitations in accordance with their user license. Should InSightec fail to use the product in accordance with the license and the limitations established therein, InSightec may be sued for violations of the component developer’s copyrights and/or may be required to hand over sensitive internal information to the public, which would benefit InSightec’s competitors and harm its protected confidential data. Any demand to reveal InSightec’s source code or exposure of InSightec to copyright violations would significantly damage its competitiveness and business outcomes.
If the ExAblate systems dodoes not achieve broad market acceptance, InSightec will not be able to generate sufficient sales to support its business.
InSightec must achieve broad market acceptance of the approved ExAblate systems among physicians, patients and third-party payors in order to generate sufficient sales to support its business. Physicians will not recommend the use of any of the approved systems unless InSightec can demonstrate that it produces results comparable or superior to existing alternative treatments. If long-term patient studies do not support InSightec’s existing clinical results, or if they indicate that the use of the particular approved system has negative side effects on patients,patients; then physicians may not adopt or may not continue to use them. Even if InSightec demonstrates the effectiveness of the approved systems, physicians may still not use the systems for a number of other reasons. Physicians may continue to recommend traditional treatment options simply because those methods are already widely accepted and are based on established technologies. Patients may also be reluctant to undergo new, less established treatments. If, due to any of these factors, the approved ExAblate systems do not receive broad market acceptance among physicians or patients, InSightec will not generate significant sales. In this event, InSightec’s business, financial condition and results of operations would be significantly harmed, and InSightec’s ability to develop additional treatment applications for the ExAblate would be adversely affected.
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Insightec’s ability to initiate an IPO requires the consent of the holders of its preferred shares.
Following the completion of Insightec’s Series E investment round during 2018, Insightec’s shareholders approved certain amendments to Insightec’s Article of Association, including that prior to December 27, 2021, initiating an initial public offering of capital stock of Insightec pursuant to an effective registration statement 41 under the Securities Act, or pursuant to similar laws in any other jurisdiction other than a Qualified IPO is subject to the approval of the holders of at least 66% of the Series E Preferred Shares then issued and outstanding.
In addition, initiating an initial underwritten primary public offering of capital stock of Insightec pursuant to an effective registration statement under the Securities Act, or pursuant to similar laws in any other jurisdiction, other than a Qualified IPO is subject to the approval of the holders of at least 85% of the Preferred Shares voting together as a single class on an as converted basis.
Qualified IPO is defined as the initial underwritten public offering pursuant to an effective registration statement under the Securities Act or similar laws in effect in the State of Israel that (i) raises at least $75.0 million of gross proceeds, (ii) public offering which will result in the Ordinary Shares being listed either on the New York Stock Exchange or NASDAQ; and (iii) if such public offering were to occur prior to December 27, 2021, then such public offering would result in a per share issue price of not less than $4.02 per Ordinary Share (“Qualified IPO”).
For more information regarding InSightec’s Article of Association see “Item 4B – Business Overview – Insightec – Holdings in InSightec’s shares”.
RISKS RELATING TO GAMIDA
Gamida is dependent on the completion of the development of its products in the field of stem cell proliferation
Gamida develops unique products using unique technologies for the proliferation of stem cells. There is no certainty that the development activities will conclude successfully nor is there any certainty that the clinical trials conducted by Gamida will conclude successfully and accordingly that Gamida’s products will be found to be effective and safe for use.
Gamida’s is dependent on manufacturing sites
The manufacturing capability of Gamida depends upon the manufacturing site that it owns and the manufacturing site of its subcontractor. As of the date of this report, the manufacturing of NiCord for all the clinical trials conducted by Gamida is carried out at all of these manufacturing sites. Physical or other damage to the manufacturing sites, and mainly the manufacturing site of the subcontractor, that requires its unexpected closing, could materially adversely affect Gamida.
RISKS RELATING TO OUR REAL ESTATE ASSETS IN GENERALINDIA
We and PC essentially ceased significant business development activities in the real estate sector, particularly in the fields of plots in India and commercial centers, which may have a material adverse effect on our operations and cash flow.
As a result of certain constraints imposed on us and PC within the framework of our respective Debt Restructurings, as well as other circumstances, such as lack of new financing and related matters, we did not initiate any new projects nor make any significant progress in projects that were under development. PC currently does not develop commercial centers and most of the plots purchased by PC in the past are designated for sale and not for development. Rather, we and PC are currently focused on enhancing parts of our backlog projects and selling them at favorable market conditions. In addition, we did not commence new cycles of entrepreneurship-development-improvement-realization, and focused only on our backlog projects with no new pipeline. Since we are highly dependent on the realization of our current assets as a source of cash flow to serve our debts, this change in corporate strategy and focus may adversely affect our operations, and may cause material adverse effects on our ability to generate future cash flow in order to meet our and PC’s obligations.
The fair value of our real estate assets may be harmed by certain factors that may entail impairment losses not previously recorded, which would affect our financial results.
Certain circumstances may affect the fair value of our real estate assets, including, among other things: (i) the absence of or modifications to permits or approvals required for the development of the plots,plots; (ii) delays in completion of development works beyond the anticipated target, (iii) pending lawsuits that may affect our operations, whether or not we are a party thereto, (iv)thereto; (iii) full or partial eminent domain proceedings (with or without compensation) regarding such real estate assets; and (v)(iv) findings indicating soil or water contamination or the existence of historical or geological antiquities that may require us to absorb significant cleaning, purification or preservation costs; (vi)(v) sale done under time constrains which prevents us from making a sale in optimal conditions. In addition, certain laws and regulations applicable to our business in certain countriesIndia where the legislation process undergoes constant changes may be subject to frequent and substantially different interpretations, and agreements which may be interpreted by governmental authorities so as to shorten the term of use of real estate, which may be accompanied by a demolition or nationalization order with or without compensation, may significantly affect the value of such real estate asset.
Real estate investments are relatively illiquid.
As of the date of this report, we have entered into sale agreements for the sale of all the land plots held by us in India (however, we are in dispute with the purchasers of the plot in Chennai and Bangalore).
For further information regarding our plot in Bangalore, India, See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a Plot in Bangalore, India”.
For further information regarding our plot in Chennai, India, See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India”).
The following refers to circumstances in which any of the sale agreements will not materialize.
Substantially all of our portfolio’s total consolidated assets consist of investments in undeveloped real estate properties. Because real estate investments are relatively illiquid, our ability to quickly sell one or more properties in the portfolio in response to changing economic, financial and investment conditions is limited. Moreover, the sale of any of the undeveloped assets to third parties will involve other difficulties compared to the selling of operational real estate assets, such as the lack of financing for development, the risk of not obtaining the building permits and approvals from the authorities and the like.
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The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, supply and demand for space, and trends, that are beyond our control. As our projectsassets are subject to numerous factors that are not under our control, there is no assurance that our predictions and estimations of the timing in which we will be able to sell any property and/or the price or terms we set will actually materialize as predicted. There is no assurance that our predictions and estimations as to the length of time needed to find a willing purchaser and to close the sale of a property will be correct.
In addition, current economic and capital market conditions might make it more difficult for us to sell properties or might adversely affect the price we receive for properties that we do sell. Finally, attempting to sell any of our investments in real propertiesassets at an accelerated pace due to cash flow needs may result in receiving a lower purchase price for such investments.
In addition, the number of prospective buyers interested in purchasing real estate properties may be limited. Therefore, if we want to sell one or more of the properties in our portfolio, we may not be able to dispose of the property within the desired time period and may receive less consideration than the book value of the property in our consolidated financial statements.
Environmental factors may have a significant impact on the budget, schedule, viability and marketability of our assets.
If and to the extent that we will engage in the development of any of our real estate assets (rather than sale it AS IS), we may encounter unforeseen construction delays or compliance defaults due to factors beyond our control such as delays or defaults caused by previously unknown soil contamination or the discovery of archeological findings which may have a significant impact on development budget and schedules and which may, in turn, have a detrimental effect on the viability or marketability of the development or cause legal liability in connection with a portfolio asset. We may be liable for the costs of removal, investigation or remedy of hazardous or toxic substances located on or in a site owned by us, regardless of whether we were responsible for the presence of such hazardous or toxic substances. The costs of any required removal, investigation or remedy of such substances may be substantial and/or may result in significant budget overruns and critical delays in construction schedules. The presence of such substances, or the failure to remedy such substances properly, may also adversely affect our ability to sell or lease such property or to obtain financing using the real estate as security. Additionally, any future sale of such property will be generally subject to indemnities to be provided by us to the purchaser against such environmental liabilities. Accordingly, we may continue to face potential environmental liabilities with respect to a particular property even after such property has been sold. Any environmental issue may significantly increase the cost of a development and/or cause delays, which could have a material adverse effect on the profitability of that development and our results of operations and cash flows.
RISKS RELATING TO THE CASA RADIO PROJECT IN ROMANIA
PC’s Casa Radio projectWe may have difficulties in Romania may be subject to governmental expropriation or monetary sanctions.
In 2006, PC added the Casa Radio project in Romania to its portfolio. The naturerealization of the development and exploitation rights granted to the joint venture company in relation to the Casa Radio site in Bucharest are for a period of only 49 years, and in the event that this term is not extended, the rights in relation to the site would revert to the Government of Romania. Additionally, there may be other regulatory risks relating to the Romanian government’s right to expropriate the rights to the Casa Radio Site in Bucharest or that they will impose sanctions on PC with respect to the property, See “Item 4 – Information on the Company – History and Developmentsale of the Company – Recent Events – Casa Radio Projectplot in Bucharest, Romania” for more information regarding the Casa Radio Site. Furthermore, these rights are subject to termination under certain circumstances by the Romanian government, such as in the event of a delay in the project timetable, and any termination prior to the expiration of such rights may have a material adverse effect on our business cash flow and our results of operations.
RISKS RELATING TO OUR PLOTS IN INDIA
WeBangalore, India; or alternatively we may have difficulties exercising a full separation from our partnerthe buyer of the plot in connection with our project in Bangalore, India which may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in India
Our strategy with respect to our plots in India is to dispose of such assets under the most optimal market conditions. Due to regulatory, physical and other limitations to develop our project in Bangalore, India, on December 2, 2015, we announced that Elbit Plaza India Real Estate Holdings Limited (in which we hold a 50% stake with PC) (“EPI”) signed an agreement to sell 100% of its interest in a special purpose vehicle which holds a plot in Bangalore, India to a local Investor (the “Purchaser”) which should had been closed on September 30, 2016.The Local investor2016. The Purchaser has failed to close the transaction in the agreed time line. As a result of this breach, the local investorPurchaser was required to carry out an agreed upon separation mechanism in such manner that EPI will have full title over the plot. Such mechanism include mainly the execution of certain title documents transferring and duly registering the 10% undivided interest in the plot that are being held by the local PartnerPurchaser in EPI’s favor. Since the separation mechanism has not been executed by the Local investor,Purchaser, EPI forfeitedhas received from the escrow agent, the sale deeds and transfer deedsdocuments for land plots covering approximately 8.38.7 acres which had been provided to us as guaranteesmortgaged by the Purchaser under the agreement.
On June 19, 2017, we announced that EPI has signed a revised agreement for the sale of the plot in Bangalore.Bangalore to the Purchaser. As part of the agreement, part of the consideration will be paid by the Purchaser in installments until the Final Closing. The final closing that was set to take place on September 1, 2018. All other existing securities granted to EPI under the previous agreement will remain in place until the Final Closing.final closing.
OnIn January 19, 2018, we announcedthe Purchaser has notified EPI that the purchaser announced that the remaining payments under the revised agreement will not be made due to certaina proposed zoning change proposed(initiated by the Indian authorities thatauthorities) which could potentially impact the development of the site.
On February 21, 2018land, all remaining payments under the Company announced that despiteAgreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the purchaser’s January 2018 announcement,Purchaser’s claims, having no relevance to the Purchaserexisting Agreement, and started to evaluate its legal options. INR 46 Crores (approximately EUR 6.06 million) were paid the January installment in the amount of INR 5 Crores (circa €0.62 million).till March 2018.
In March 2018, an amended revised agreement was signed, and the Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8€44.5 million). Following the signing of the revised agreement, the Purchaser paid EPI an additional INR 10 Crores (approximately €1.3 million) further to the INR 45 Crores (approximately €5.9 million) that were already paid during the recent year. An additional INR 83 Crores (approximately €10.8 million) will be paid by the Purchaser in unequal monthly installments until the final closing. The final closingFinal Closing will take place on 31 August 31, 2019 when the final installment of approximatelycirca INR 212 Crores (approximately €27.8EUR 26.9 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
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On February 4, 2019, the Company announced that the Purchaser defaulted on payments and EPI is considering all legal measures available to it to protect its interest.
During March 2019, the Company announced that the Purchaser has further paid INR 9.25 Crores (approximately €1.15 million).
During April 2019 EPI has reached an understanding with the Purchaser according to which: (i) the closing date for the transaction will be extended to November 2019 (instead of August 2019) (the “Closing Date”); and (ii) the consideration will be increased to approximately €45.64 (INR 356 crores) (instead of INR 350 crores) (the “Consideration”). The Closing Date can be further extended to August 2020, subject to mutually agreed payment terms.
On May 13, 2019, the Company announced that the Purchaser defaulted on payments of INR 10 crores (approximately €1.27 million) according to the new understandings signed on April 2019. EPI has initiated legal process to protect its interest while it continues to negotiate with the Purchaser for payment of the amount due.
As of the date of this report, the Purchaser paid in total INR 80 crores (approximately EUR 10.26 million) as against INR 90 crores (approximately EUR 11.5 million) that was supposed to be paid by end of April 2019 according to the mutual understating.
If the Purchaser defaults before the final closing, EPI is entitled to forfeit certainthe amounts paid by the Purchaser until this date (approximately €10.26 million) as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the final closing. However, it should be noted that, in case of a breach by the Purchaser of the new agreement, we will still should achieve full separation from the local partner,Purchaser, which might be a long and tedious process and we are not certain that we will be able to achieve it. In case such separation would not be achieved it may cause a significant impairment to the value of the property and may cause significant difficulties to find another third partythird-party buyer to this plot taking into account that there is no clean title on the property. This may have a material adverse effect on our operations, cash flow and in turn, our ability to repay our debts in timely manner.
Even if we are able to properly execute the separation mechanism (in particular with respect to the transfer of the local partner’sPurchaser’s 10% undivided interest in our favor) and/or exercise the guarantees placed by the local investor,Purchaser, there is no guarantee that we will be able to dispose of the land in the Bangalore project to a third party on efficient economic terms due to proprietary claims to certain parts of the Bangalore project, and other third party holdings on parts of the land within the Bangalore project thus making the holdings in the land a non-contiguous property. In addition, legal and regulatory restrictions placed by local authorities can materially impede our ability to dispose of the land on optimal commercial terms which may materially adversely affect our ability to dispose of the land to third parties which may jeopardize our business strategy, planning and operations, and could cause severe delays in disposition of the plots and could have a material adverse effect on our operations, cash flow and in turn, our ability to repay our debts in timely manner.
Our ability to generate short term cash flowWe may have difficulties in realization of the sale of the plot in Chennai, India; or alternatively we may have difficulties exercising a full separation from ourthe buyer of the plot in Chennai, project in the short term is limitedIndia
Our strategy in respect of our projects in India is to liquidate our assets at the most commercially optimal prices.
However, in 2016 we have entered into a Joint Development Agreement (“JDA”) transaction with a local developer (the “Developer”) in order to develop our project in Chennai, India. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India”. As per the terms of the JDA, we are entitled to receive an agreed upon percentage of the proceeds from sales to third parties of villas and plots developed by the local developer.
As of the date of this current report,On July 5, 2018, due to delays in the commencement of the project, we announced that EPI signed a term sheet with the Developer in respect to the sale of the SPV which holds our project in Chennai, India. Under the terms of the term sheet the Developer is stillto purchase the SPV in consideration for €13.8 million, subject to obtaining an access roadadjustment with respect to the project which as of the date of this filling has not yet been obtained,previous amount deposited and the Company is examining its options.existing cash in the SPV.
In addition, our abilitythe period of time following the signing of the term sheet EPI and the Developer agreed on: (i) updating the consideration (following a due diligence) to sell€13.2 million; (ii) the projectlocal developer will pay EPI an additional consideration that will be calculated as an annual interest of 12% on the consideration amount (calculated from December 1, 2018 till the closing date; (iii) several postponement of the closing date.
On January 14, 2019, we announced that EPI has granted the Developer until mid-February 2019, to other third party developers is limitedcomplete the transaction. However, On February 11, 2019, we announced that the Developer has defaulted to complete the transaction and EPI has terminated the JDA and the Term Sheet with the Developer.
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On March 4, 2019, we announced that the SPV (a subsidiary of EPI) holding the plot in Chennai has initiated an arbitration proceeding against the Developer in accordance with the Arbitration Rules of the Singapore International Arbitration Center (as required by the agreement between the parties). The reliefs sought in the framework of the arbitration are as follows: (a) a declaration that the JDA stands terminated validly; and (b) to instruct the Developer to compensate for damages caused due to the breach of the Joint Development Agreement by the Developer.
Even though we announced the termination of the term sheet and the JDA and initiated the arbitration process, we still should achieve full separation from him, which might be a long and tedious process and we are not certain that we will be able to achieve it. In case such separation would not be achieved it may cause a significant impairment to the value of the property and may cause significant difficulties to find another third-party buyer to this plot since new developersbuyer would likely to ask that we terminate our JDA with the local developer,Developer, which is possible only under certain events detailed in the JDA.
Additionally, we are fully dependent This may have a material adverse effect on the local developer’s skills and efforts to complete the Chennai, India project in the most efficient way. If the local developer will not duly perform its obligations we may experience a delay in our expectedoperations, cash flow and may needin turn, our ability to terminate the JDA and seek alternative exit strategies from the Chennai, India project which may not be on optimal terms.
We rely onrepay our local joint development partner’s performance, financial capability and reputationdebts in our project in Chennai. Any significant decline in the reputation of the local joint development partner’s capabilities or the existence of conflicts of interest could adversely affect our results of operation and cash flow.
Our project in Chennai, India is subject to a JDA with a local partner. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement with respect to our Plot in Chennai, India”. The Chennai, India project is to be developed by the local partner who is responsible for the construction of the Chennai, India project at its own costs, as well as marketing the Chennai, India project to third party buyers. Any significant decline in the financial capabilities of the local partner might cause delays in the construction and marketing of the Chennai, India project by the local partner in the expected timeline. In addition, any significant decline in the reputation of the local partner could cause delays in the marketing of the project to third party buyers. Since the local partner has another project in Chennai in close proximity to our Chennai, India project, there may be a conflict of interest in the construction and marketing of our Chennai, India project since the local partner may have other business interests that are inconsistent with ours.
Consequently, disputes or disagreements with the local partner could result in interruption to the business operations of our project and may materially impact our financial condition, cash flow, and results of operations.timely manner.
Our plots located in India are subject to a highly regulated legal regime which is burdensome for foreigner investors
Our plots are located in India and are subject to the Indian Foreign Exchange Management Act, 1999, and the regulations framed thereunder with respect to the construction development sector in India. That sector is governed by provisions of the Foreign Exchange Management Act and the consolidated Foreign Direct Investment (“FDI”) policy issued by the Department of Industrial Policy and Promotion (“DIPP”) of the Indian Ministry of Commerce and Industry and updated/revised from time to time through various Press Notes (“FDI Policy”). The latest release with respect to the FDI Policy was a Consolidated FDI Policy circular issued by the DIPP, with effect from August 28, 2017. These regulations forbid the sale of undeveloped land in view of blocking speculative real-estate investments by foreigners and require a minimum lock-in period of 3 years for each tranche of an investment. Additional regulations promulgated under the FDI Policy and the Reserve Bank of India (“RBI”) subject the repatriation of capital to strict regulatory procedures and time-consuming bureaucratic processes. Failure to comply with the requirements of the FDI Policy or RBI regulations will require us to receive governmental approvals which we may not be able to obtain or which may include limitations or conditions that will make the investment unviable or impossible, and non-compliance with investment and/or repatriation restrictions may result in the imposition of penalties and the inability to dispose of our projects. Such limitations block or limit our ability to separate and walk away from unsuccessful joint ventures, terminate land acquisition contracts, dispose of land inventory that the development thereof is not economical for us or control the timing of such disposition. In addition, that legislation is subject to continuous rapid and unexpected changes that can jeopardize our business strategy, planning and conduct, and can cause severe delays in timetables for the disposition of the plots and could have a material adverse effect on our operations, cash flow and in turn, our ability to repay our debts in timely manner. For additional information regarding the relevant regulation to our business in India see “Item 4B – Business Overview – Governmental Regulation.”
Real estate legislation in India does not assure clear title and ownership status.
Under Indian law, the registration of ownership in land with the land registration offices does not automatically guarantee the absence of third partythird-party rights to such land. In contrast to other countries, India does not have a central title registry for real property. Title registries are maintained at the state and district level and, since the process of storing such records digitally has only recently started, such records may not be available online for inspection. In addition, because it is common practice in some parts of India (especially in villages) for transfers of title upon deaths of family members and in certain other circumstances to be made only by notation in local revenue records, changes in the ownership of land may not be registered with the relevant land registry in a timely manner or at all. Title registries and local revenue records may not be updated or complete. As such, legal defects and irregularities may exist in the title to the properties on which our existing facilities and/or future facilities are or may be located.plots owned by us. While we utilize all reasonable efforts to ensure integrity of title in the real estate propertiesplots acquired by us, the system of recording ownership and rights in and to immovable property is not conclusive. Our rights in respect of such properties may be threatened by improperly executed, unregistered or insufficiently stamped conveyance instruments, unregistered encumbrances in favor of third parties, rights of adverse possessors, ownership claims of family members of prior owners, or other defects of which we may not be aware. These defects may arise after land is acquired by us, and are not necessarily revealed by due diligence, due to various factors, including incomplete land records, transactions without registered documents, the decentralized nature of land registries and local revenue records, property-related litigation in India and family disputes in previous sellers’ families. Any defects or irregularities of title may result in litigation and/or the loss of development rights over the affected property. With respect to projects on leasehold land, revocation/expiry of the lease and any defect or irregularity in the lessor’s title may result in loss of our rights over affected property. This would have an adverse effect on our business and results of operations.
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The new order issued by the National Green Tribunal and the proposed Master Plan may significantly limit the ability of a prospective purchaser to develop the land in the most efficient way and may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in Bangalore.
On May 4, 2016, the National Green Tribunal (“NGT”) issued a new order in which it directed that specified areas surrounding bodies of water are to be treated as “no construction zones”. See “Item 4B – Business Overview – Governmental Regulation – Plots in India – National Green Tribunal – New Order”.
Our project in Bangalore is in proximity to the Varthur Lake and has several water drains crossing it, and may therefore be subject to the NGT order. Consequently, a third party prospective buyer may claim that the new NGT order may cause significant limitations on the development of the project which in turn may limit our ability to dispose of this property at its fair market value or at all. Such issues may have a material adverse effect on our cash flow position and the value of this property in our consolidated financial statements.
On February 2018 the Company was informed about the preparation of a new master plan in the State of Karnataka, India (”(“Master Plan”) which effects major portions of the Varthur Land. Under the Master Plan a major portion of the Varthur Land is classified as “buffer/valley/open space/park”. This could change if an objection filedThe Master Plan does not contemplate any compensation mechanism for persons affected by changes in master plans, as the zoning is considered and accepted, and thissupposed to achieve the common good. This may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in Bangalore.
We have filed objections to the proposed Master Plan to seek the re-classification of the proposed zoning of the Varthur Land.
For additional information see “Item 4B – Business Overview – Governmental Regulation – Plots in India – Master Plan”.
Our Partner has filed objections to the Master Plan to seek the re-classification of the proposed zoning of the buffer zone and the zoning of areas within the buffer zone.
We may have difficulties disposing our projects in India which may significantly affect our ability to complete our strategy relating to our plots in India
Due to regulatory and legal restrictions in India which make it difficult to register the transfer of ownership rights in our Indian projects, our ability to secure full title to our projects in India may be significantly restricted.
There are ongoing court cases with respect to third party proprietary claims to certain parcels of land within our projects in India which further impede our ability to dispose of the asset. Physical and geographical limitations, such as the lack of an access road leading to the Chennai project territory, NGT order claims, theft of sand and destruction of property, and third party holdings throughout our Indian project territory (which we are unable to purchase from such third parties at all or on reasonable market terms) may also impede our ability to dispose of projects on optimal commercial terms.
We have capital needs and additional financing may not be available.
If and to the extent that we will engage in the development of any of our real estate assets (rather than sale it AS IS), we require up-front expenditures for land development and construction costs for our existing plots in India which are designated for sale. Accordingly, we require certain amounts of cash and financing for our operations in India. We cannot be certain that our own capital will be sufficient to support such future development or that such external financing would be available on favorable terms, on a timely basis or at all. Furthermore, any changes in the global economy, real estate or business environments in which we operate, any negative trend in the capital markets, any restrictions on the availability of credit and/or decrease in the credit rating of PC, might have a material adverse effect on our ability to raise capital.
GENERAL RISKS
Most of our assets (including those of our subsidiaries) are managed in foreign currencies while our liabilities (including those of our subsidiaries) are denominated in NIS.
We are impacted by exchange rate fluctuations as a significant part of our cash flow is dependent on our assets and investments which are acquired and managed in foreign currencies (mainly EUR, US Dollar and Rupee) while our debts (mainly our Notes (Series I) (for more details regarding our Notes (Series I) see: “Item 5 – operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Other Loans”) (the “Notes” or “Notes Series I”) and Elbit Medical Notes and PCTechnologies Ltd Notes) are mainly incurred in NIS. As a result of this currency discrepancy, the proceeds from the realization of our assets and investments may significantly fluctuate and we may be adversely affected by such discrepancy. Currently we do not have any material hedges against exchange rate fluctuations. If a devaluation of the foreign currency against the NIS will occur when we will realize these assets and investments our cash flow may be significantly harmed, and it may cause us not to serve our indebtedness in full and on timely manner. In addition, such exchange rate fluctuations will affect our shareholders equity and our net asset value in the event we will have currency exchange losses that are attributed to the profit and loss or directly to our shareholders equity in accordance with accounting standard.
Delays in the realization of our assets could result in significant harm to our financial condition and our ability to repay our indebtedness in a timely manner.
Our business objective is to create value with our assets and, as a result, following the realization of such assets, to create value for our company. Our cash flow is dependent upon maintaining synchronization between the realization timetablesschedules to the payment schedulesschedule of our indebtedness.Notes (the balance of which, as of May 10, 2019, is approximately NIS 140 (approximately USD 39 million) including principal and accrued interest) which are due on November 2019. Delays or inability to realize our assets in a timely and optimal manner could harm our cash flow and our ability to serve our indebtedness.Notes in a timely manner (i.e. on or before November 2019).
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Difficulties in realizing our assets may be attributed to a number of factors including: (i) regarding our medical companiesas listed above, including - The conditions for realizing the holdings have not yet matured, with an emphasis on the existence of significant improvement potential; (ii) regarding our real estate business - delays in obtaining permits and licenses from municipal and planning authorities, a tougher approach and stricter demands by banks and financial institutions for the financing of potential purchasers and other factors beyond our control.
We are dependent on realizing a significant part of our assets in order to serve our debtsNotes in a timely and optimal manner. There is no assurance that we Elbit Medical and PC will succeed in the realization of our assets in synchronization with the maturity date of our debts,Notes, which may lead us to an event of default under our various notes (the “EI Notes”) and/or which may lead to legal actions by our Notes holders which may result in insolvency proceedings against the Elbit Medical notes (the “Elbit Medical Notes”) and/or PC’s notes (the “PC Notes”).Company.
Conditions and changes in the local and global economic environments may adversely affect our business and financial results including our ability to comply with certain financial covenants.
Adverse economic conditions in the markets in which we operate can harm our business. Such adverse economic conditions may result in economic factors including diminished liquidity and tighter credit conditions, leading to decreased credit availability, as well as declines in economic growth, employment levels, purchasing power, and the size and amount of transactions.
In particular, adverse economic conditions may have the following consequences on our business: (i) slowdown in our business resulting from potential buyers experiencing difficulties in raising capital from financial institutions in order to finance the purchase of our assets from us, which may significantly impact our cash flow and our ability to serve our debts in a timely manner (ii) decrease in asset values that are deemed to be permanent, which may result in impairment losses and possible noncompliance with certain financial covenants in credit and loan agreements to which we are a party, (iii) negative impact on our liquidity, financial condition and share price, which may impact our ability to raise capital in the market, obtain financing and other sources of funding in the future on terms favorable to us, which would harm our ability to finance the development ofrefinance our projects and engage with co-investors,indebtedness, and (iv) imposition of regulatory limitations on financial institutions with respect to their ability to provide financing to companies such as us and/or projects such as those in which we are engaged and/or to potential buyers of our assets, while creating a credit crunch. If such financial and economic uncertainty shall occur, in part or in whole, it may materially adversely affect our results of operations and cash flow.
We are highly leveraged.
We are highly leveraged and have significant debt service obligations. As of the balance sheet date our consolidated debt toward note holders amount to NIS 1083324 million ($31286 million), out of which a corporate -level debt (i.e.: debts of the Company on a standalone balance sheet) amounted to NIS 572144 million (approximately $165$125 million).
As a result of our substantial indebtedness: (i) we could be more vulnerable to general adverse economic and industry conditions; (ii) we may find it more difficult to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; (iii) we may not be able to refinance our outstanding indebtedness, and (iv) we may have limited flexibility in planning for, or reacting to, changes in our business and in the industry.
We cannot guarantee that our projected cash flow will actually materialize in a manner that will allow us to serve our debt in a timely manner or fund our planned capital expenditures. In addition, we may need to refinance some or all of our indebtedness on or before maturity. We cannot guarantee that we will be able to refinance our indebtedness on commercially reasonable terms or at all.
Our ability to satisfy our obligations under certainour notes depends on the value of our assets.
Although the use of borrowings is intended to enhance the returns on our invested capital when the value of our underlying assets increases, it may have the opposite effect where the value of underlying assets falls. Any fall in the value of any of our assets, may significantly reduce the value of our equity investment in the entity which holds such asset, meaning that we may not make a profit, may incur a loss on the sale or impairment of any such asset and/or increase the likelihood of breaching certain financial covenants and trigger potential cross defaults. The occurrence of one or more of these factors may have a material adverse effect on our business, financial condition, prospects and/or results of operations and cash flow.
We have and, in the future, may be exposed to liabilities under the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, and any determination that we or any of our subsidiaries has violated the Foreign Corrupt Practices Act or similar worldwide laws could have a material adverse effect on our business.
We are subject to compliance with various laws and regulations, including the Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-corruption laws, including Sections 290-295 of the Israeli Penal Code, which generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. The FCPA also requires proper record keeping and characterization of such payments in our reports filed with the SEC.
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While our employees and agents are required to comply with these laws, we operate in many parts of the worldIndia that have experienced governmental and commercial corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our policies and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in financial penalties, debarment from government contracts, third party claims and other consequences that may have a material adverse effect on our business, financial condition or results of operations.
On March 12, 2018 the Company announced that the Securities and Exchange Commission ("(“SEC"”) approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA. For additional information See “Item 4- Information on the Company – History and Development of the Company – Recent Events – Approval of an Offer of Settlement with the SEC in the matter of Alleged Violations of FCPA”.
Under the terms of the Notes we have limited flexibility in distributing dividends due to prepayment obligations.
The Notes include mandatory prepayment provisions in the event we pay a dividend or make any other distribution before the full redemption of the Notes, such that we will be obligated to prepay an amount equal to the amount distributed by us, in the following order: (i) first, towards all unpaid amounts under the Series H notes, and (ii) secondly, towards all unpaid amounts under the Series I notes. Such provisions may substantially limit our ability to distribute dividends to our shareholders. In addition, such limitation could prove burdensome and limit our ability to raise equity investments due to the limited ability to avail our shareholders of the return of such investments by way of dividends or distributions.
We have no controlling shareholders who are able to influence the composition of our Board of Directors.
Our largest shareholders include affiliates of York Capital Management Global Advisers LLC and affiliates of Davidson Kempner Capital Management LLCLP who beneficially own an aggregate of approximately 19.6%18.9% and 14.3% respectively, of our outstanding ordinary shares. To our knowledge, these shareholders are not party to a shareholders’ agreement between them or with any other shareholders. As a result, we have no controlling shareholder able to influence the composition of our Board of Directors. Consequently, following the next annual general meeting of our shareholders, a Board of Directors comprised of new individuals may be elected. Such new Board of Directors may have significantly different corporate strategies than our current Board of Directors, which may cause a material change in our operations and financial results.
The market price of our ordinary shares may suffer from fluctuation and may decline significantly.
There are a number of different major groups of shareholders with different and possibly opposing interests who may at any time sell their shares in the Company. There may be an adverse effect on the market price of our shares as a result of a substantial number of shares being sold or available for sale. If our shareholders sell substantial amounts of our ordinary shares, the market price of our ordinary shares may fall. Our ordinary shares are generally freely tradable, and the potential sales of such shares could cause the market price of our ordinary shares to decline significantly. This might also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
We are restricted from receiving dividends from Elbit Medical Technologies Ltd, PC and other subsidiaries.affiliates.
The Elbit Medical Technologies Ltd (“Elbit Medical”) Notes and the notes issued by PC (“PC Notes”) include certain limitations on the distribution of dividends as well as subordination provisions, which would significantly limit our ability to generate cash flow from Elbit Medical and PC and may significantly affect our cash flow and operations. In addition, other subsidiaries of ours are subject to limitations on the payment of dividends by virtue of legal or regulatory restrictions in their respective jurisdictions. These limitations may have material adverse effects on our cash flow and in turn our ability to servicerepay our debts in timely manner.
If Elbit Medical or PC fail to comply with the provisions of the Elbit Medical Notes, or the PC Notes, respectively, theyit may enter into liquidation or we may lose our control over Elbit Medical or PCMedical.
Both Elbit Medical and PC havehas a considerable amount of debt to serve in the coming year to the Elbit Medical Noteholders and the PC Noteholders. If Elbit Medical or PC will not be able to meet its obligations under the Elbit Medical or PC Notes, the applicable partythen it will enter into a default under its Notes and there is no obligation or assurance that we will be able to further support Elbit Medical or PC.Medical. Such defaults may lead to creditors realizing liens imposed on the assets of Elbit Medical and PC. In addition, PC’s audited financial statements for the year ended December 31, 2017 includes a going concern note. Such default may result in massive dilution of our holdings causing us to lose our control over PC or the liquidation of PC, which would result in the loss of our investment in PC. Furthermore, PC is already in default under its Notes and its Noteholders may decide to exercise their rights to exercise the liens they have on PC’s assets.Medical.
Our EI Notes and PC Notes are subject to changes in the consumer price index which may have a negative impact on our earnings, balance sheet and cash flows.
The principal and interest of most of our and PC debt instruments are determined by reference to the Israeli consumer price index (the “CPI”), which may entail significant risks not associated with similar investments in a conventional fixed or floating rate debt security. The historical value of the CPI is not indicative of future CPI performance and its value is affected by, and sometimes depends on, a number of interrelated factors, including direct government intervention and economic, financial, regulatory, and political events, over which we have no control. An increase in the CPI will result in additional financing expenses to our profits and losses and will have a negative impact on our cash flows. Currently we do not have any material hedges against fluctuations in the CPI.
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The failure to comply with government regulation may adversely affect our business and results of operations.
Our business is subject to numerous national and local government regulations, including those relating to acquisition of real estate properties building(in India) and zoning requirements, fire safety control, access forSecurities Law (in both Israel and the disabled, environmental law and health board reviews and standards.US). In addition, we are subject to laws governing our relationships with employees, including overtime and working conditions. A determination that we are not in compliance with these regulations could result in the imposition of fines, an award of damages to private litigants and significant expenses in bringing our operations into compliance with such laws and regulations.
Operating globally exposes us to additional and unpredictable risks.
We conduct our businesses in multiple countries. Our future results could be materially adversely affected by a variety of factors relating to international transactions, including changes in exchange rates, general economic conditions, regulatory requirements, dividend restrictions, tax structures or changes in tax laws or practices, and longer payment cycles in the countries in our geographic areas of operations. International operations may be limited or disrupted by the imposition of governmental controls and regulations, political instability, hostilities, natural disasters and difficulties in managing international operations. In the CEE region and India, laws and regulations, particularly those involving taxation, foreign investment and trade, title to securities, and transfer of title that are applicable to our activities, can change quickly and in a far more volatile manner than in developed market economies. We cannot assure you that one or more of these factors will not have a material adverse effect on our international operations and, consequently, on our business, financial condition results of operations and our cash flow. A failure to effectively manage the expansion of our business could have a negative impact on our business.
IfWe believe that we arelikely were characterized as a passive foreign investment company for U.S. federal income tax purposes in 2018, and, as a result, our U.S. holders of ordinary shares may suffer adverse tax consequences.
Generally, if for any taxable year, after applying certain look through rules, 75% or more of our gross income is passive income, or at least 50% of the value of our assets, averaged quarterly, are held for the production of, or produce, passive income, we will be characterized as a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes. Our PFIC status is determined based on several factors, including our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies upon which we base our analysis. A determination
We believe it is likely that we arewere a PFIC could causein 2018, because we likely did not satisfy the asset test, and possibly the income test, in 2018, primarily due to the decrease in our ownership of Insightec. If we were a PFIC in 2018, our U.S. shareholders toholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares taxed at ordinary income rates, rather than capital gains rates, and being subject to an interest charge on such gain.gain rates. Similar rules apply to certaindistributions that are classified as “excess distributions” made with respect. In addition, both gains upon disposition and amounts received as excess distributions could be subject to our ordinary shares. Aan additional interest charge by the United States Internal Revenue Service, or IRS. The determination that we are a PFIC could also have an adverse effect on the price and marketability of our ordinary shares. If
U.S. holders that own our ordinary shares may be able to avoid (or minimize) the adverse tax consequences described above if they can, and do, elect to apply one of two alternative taxing regimes - the “qualified electing fund” (“QEF”) and “mark-to-market” regimes, which are described below in Item 10E - Taxation - U.S. Federal Income Tax Considerations - Tax Consequences if we are a Passive Foreign Investment Company. In general, a U.S. holder may make a QEF election so long as we provide U.S. holders with certain information to enable a U.S. holder to compute the U.S. holder’s pro rata share of our ordinary earnings and net capital gain under U.S. tax principles. We do not intend to provide U.S. holders with such information. As a result, U.S. holders may not be able to make a QEF election. In general, a U.S. holder may make a mark-to-market election if our ordinary shares are considered “marketable stock.” A class of stock is “marketable stock” if it is “regularly traded” on a “qualified exchange or other market” (within the meaning of Treasury Regulation Section 1.1296-2(c)). Our ordinary shares and the shares of Elbit Medical are currently traded on the Tel Aviv Stock Exchange in Israel. While it is not entirely clear, we believe that the Tel Aviv Stock Exchange should be considered such a “qualified exchange or other market.”
Unless a QEF election or mark-to-market election is made with respect to our ordinary shares, the determination that we are a PFIC forin a taxable year generally will cause such PFIC status to apply with respect to a U.S. federal income tax purposes, highly complex rules would applyholder who held our shares in such year to all future taxable years in which such holder continues to own our shares, notwithstanding that we may not be a PFIC in such other taxable years.
Provided that we are a PFIC, a U.S. holder will be deemed to own shares in any of our subsidiaries that is also a PFIC. We believe that Elbit Medical was a PFIC in 2018. As a result, distributions from Elbit Medical to us, and sales by us of Elbit Medical shares at a gain, may be subject to the “excess distribution” regime described above, regardless of whether a mark-to-market election has been made with respect to our shares. However, subject to the limitations and requirements described above, a U.S. holder may be able to make a separate mark-to-market election with respect to the shares of Elbit Medical. Doing so should avoid application of the “excess distribution” regime to distributions by, and sales of shares of, Elbit Medical.
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U.S. holders owningof our ordinary shares. Accordingly, youshares are urged to review “Item 10E - Taxation - U.S. Federal Income Tax Considerations – Tax Consequences if we are a Passive Foreign Investment Company” and consult yourwith their tax advisors regarding the potential application and effects of such rules.the PFIC rules to their acquisition, ownership and disposition of our ordinary shares.
Changes to the U.S. federal tax laws, including the recent enactment of certain tax reform measures, could have an impact on a shareholder’s investment in the Company.
U.S. federal income tax laws and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. On December 22, 2017, P.L. 115-97 was signed into law making significant changes to U.S. federal tax laws. The impact of these provisions on the Company’s operations and on its investors is uncertain and may not become evident for some period of time. Since enactment, the IRS has issued proposed and final regulations, some of which may be further revised and possibly withdrawn, implementing the changes to the U.S. federal tax laws. Prospective investors are urged to consult their tax advisors regarding the effect of these changes to the U.S. federal tax laws on an investment in our shares.
If we do not satisfy the NASDAQ requirements for continued listing, ourOur ordinary shares could behave been delisted from NASDAQ and from the TASE.trading on Nasdaq.
Our listingOn February 7, 2019, the Company announced that NASDAQ had informed the Company that the Hearings Panel has determined to delist the Company’s ordinary shares. Nasdaq subsequently suspended Company from trading shares on Nasdaq effective at the open of business on February 11, 2019 and filed a Form 25 (Notification of Removal from Listing) with the SEC after applicable appeal periods lapsed to notify the SEC of the delisting of the Company’s ordinary shares, effective at the opening of the trading session on May 13, 2019.
Nasdaq had previously informed the Company that it did not meet Nasdaq Listing Rule 5450(b)(3)(C) (under which the Company must maintain a minimum market value of its publicly held shares of $15,000,000 for 30 consecutive business days), and that the Company would be subject to delisting if such requirements were not met within a certain time period.
The Company’s ordinary shares continue to be listed on the NASDAQTel Aviv Stock Market is contingentExchange, and its ordinary shares are currently quoted on our compliance with the NASDAQ’s conditions for continued listing. One of such conditions is the timely filing of our Annual Report on Form 20-F with the Securities and Exchange Commission, in accordance with the requirement of the SEC.OTC Markets.
For example, in May 2017, the Company received a notice from NASDAQ that it was not in compliance with Rule 5250(c)(1) because it failed to timely file the Form 20-F for the period ending December 31, 2016. The delay in filing the Form 20-F was the result of a disclaimer contained in the report of the auditor of Plaza Centers N.V. (an indirect subsidiary (45%) of the Company) in PC’s annual financial statements for 2016. As a result of this disclaimer, the Company’s auditor notified the Company that it was unable to provide an audit opinion regarding the Company’s financial statements for 2016. After the Company submitted a plan to regain compliance and other information, among others, NASDAQ ultimately granted the Company an extension until November 13, 2017 to file its annual report on Form 20-F and thereby regain compliance with the Rule 5250(c)(1). The Company filed its annual report on Form 20-F on November 13, 2017.
If a delisting were to occur, and our shares did not thereafter qualify for trading on thefrom Nasdaq, Global Market or the Nasdaq Capital Market, trading in our shares in the United States may be conducted, if available, on the Over the Counter Bulletin Board or another medium. In the event of such delisting, an investor may find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of, our shares, and our ability to raise future capital through the sale of our shares couldwill be adversely affected. Moreover, we would beare unable to use the SEC’s “short form” Form F-3 to register the offering and sale of securities, even for limited primary offerings. In addition, in the event of such delisting, we may beare required to comply with enhanced reporting obligations under the Israeli securities laws, in addition to the reporting obligations under the U.S. securities laws, which could require additional management attention, increase our legal and accounting expenses and raise our exposure to sanctions for possible violations of Israeli securities laws.
In addition, if a delisting or suspension from the NASDAQ were to occur, the Company’s shares and Notes likely would be suspended or delisted from TASE.
If PC and Elbit Medical Technologies Ltd. dodoes not satisfy the applicable stock exchange conditions for continued listing, theirits shares could be delisted.
The shares of PC are listed for trading on the main board of the London Stock Exchange under the symbol “PLAZ”, on the main list of the Warsaw Stock Exchange under the symbol “PLZ”, and ondelisted from the Tel Aviv Stock Exchange under the symbol “PLAZ”. Exchange.
The shares of our subsidiary Elbit Medical Technologies Ltd. are listed on the Tel-Aviv Stock Exchange under the symbol “EMTC”. If PC or Elbit Medical Technologies Ltd. do not satisfy the conditions of the applicable stock exchange for continued listing (such as, but not limited to, free-float requirements), theirits shares could be delisted. Such occurrences would make the realization of those investmentsthis investment or any part thereof by us more difficult and could limit the possibility to attract new investors to those portfolios.this portfolio.
If the convertible notes issued by Elbit Medical are converted into ordinary shares of Elbit Medical, our holdings in Elbit Medical will be diluted.
On February 19, 2018, we announced thatElbit Medical completed a public offering of notes with a principal amount of NIS 180 million convertible into ordinary shares of Elbit Medical. The notes bear annual interest at 5% in the first two years and 10% in the remaining period and are convertible at any time until the maturity date of the notes, March 1, 2022, at a price per Elbit Medical ordinary share equal to NIS 1.47 in notes. In the event the entire principal amount of the convertible notes is converted into Elbit Medical ordinary shares, our holdings in Elbit Medical will be diluted and assuming no additional ordinary shares are issued by Elbit Medical, our holdings in Elbit Medical will be reduced to 58%41% of the issued share capital of Elbit Medical. In addition, the price per ordinary share of Elbit Medical may decline as a result of the issuance of a significant number of shares.
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If Elbit Medical defaults inon its obligations to the holders of its convertible notes, the holders may foreclose on Elbit Medical’s holdings in InSightec and Gamida.
As described above, on February 19, 2018, we announced thatElbit Medical completed a public offering of notes with a principal amount of NIS 180 million convertible into ordinary shares of Elbit Medical. The notes bear annual interest at 5% in the first two years and 10% in the remaining period and are convertible into Elbit Medical ordinary share. The trust agreement of the notes includes certain limitations, including on the ability of Elbit Medical to distribute dividends and raise additional debt. In addition, the notes are secured by a pledge on a portion of Elbit Medical'sMedical’s holdings in InSightec and Gamida in a "value“value to loan"loan” ratio of 200% (as of the issuance date of the notes). In the event Elbit Medical defaults inon its obligations to the holders of its convertible notes, the holders may foreclose on Elbit Medical'sMedical’s holdings in Insightec and Gamida, which would have a material adverse effect on our business.
Our Ordinary Shares are tradedWe granted a vendor loan of approximately €8 million to the purchaser of the Radisson Hotel, and if the purchaser doesn’t repay the loan, it may be a material adverse effect on different markets and this may result in price variations.our projected cash flow.
Our ordinary sharesOn December 19, 2017, we announced that we completed the sale of our holdings in a SPV that held the Radisson Hotel Complex in Bucharest, Romania.
As part of the transaction we granted the purchaser an €8 million vendor loan for a term of three years, bearing interest at a rate of 5% per annum. The loan was given as collateral for customary post-closing liabilities of the SPV, whereby the purchaser may offset adjudicated losses which may be incurred by it as a result of a breach of warranties or in respect of certain indemnities given under the agreement.
On April 2, 2018 we announced that we received a notice from the purchaser claiming that it is entitled to indemnification in the amount of approximately €3 million, due to the alleged breach of certain warranties made by the Subsidiary in the Agreement (the “Notice”). In the Notice the purchaser has informed the Company that it has submitted claims under the policies of Warranty & Indemnity Insurance and Title Insurance taken out in terms of the agreement, which provides that where loss arising from a warranty claim may reasonably be anticipated to be covered by such insurance policies, the purchaser will firstly attempt to recover such loss out of the proceeds paid out under such policies. The Company is currently examining the Notice with its legal advisors. After a preliminary review of the Notice, the Company believes that the warranty claims are tradedwithout merit and intends to vigorously contest same. See–“Item 4 - Information on the Tel Aviv Stock ExchangeCompany – History and onDevelopment of the Nasdaq Stock Market. Trading inCompany – Recent Events Sale of our ordinary shares on these markets will be made in different currencies (NIS on the Tel Aviv Stock Exchange and USD on the Nasdaq) and will take place at different times (resulting from different time zones, different trading days and different public holidaysholdings in the United States and Israel). The trading pricesRadisson complex in Bucharest, Romania”
If the SPV fails to pay the loan under any circumstances (such as a result of a breach of warranties or certain indemnities given under the agreement), it may be a material adverse effect on our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on any of these markets could cause a decrease in the trading price of our ordinary shares on the other market.projected cash flow.
RISKS RELATING TO ISRAEL
Security and economic conditions in Israel may affect our operations.
We are incorporated under Israeli law and our principal offices are located in Israel. In addition, our operations in our other lines of business, such as Elbit Medical, operate in Israel. Political, economic and security conditions in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, various armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon), and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel.
In addition, acts of terrorism, armed conflicts or political instability in the region could negatively affect local business conditions and harm our results of operations. We cannot predict the effect on the region of any diplomatic initiatives or political developments involving Israel or the Palestinians or other countries in the Middle East. Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and have raised concerns regarding security in the region and the potential for armed conflict. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons, and the Islamic State of Iraq and Levant (ISIL), a violent jihadist group, is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us.
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Furthermore, some neighboring countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Restrictive laws, policies or practices directed towards Israel or Israeli businesses could have an adverse impact on the expansion of our business. In addition, we could be adversely affected by the interruption or curtailment of trade between Israel and its trading partners, a significant increase in the rate of inflation, or a significant downturn in the economic or financial condition of Israel.
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, all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, since the majorityall of our assets and all of our directors and officers are located outside the United States, any judgment obtained in the United States against us or these individuals or entities may not be collectible within the United States. Additionally, it may be difficult to enforce civil liabilities under U.S. federal securities law in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing these matters.
Furthermore, our Debt Restructuring included an exemption from personal civil liability with respect to our then-current officers and directors other(other than the deceased Mr. Mordechai Zisser,Zisser) for actions and omission during the period preceding the consummation of the Debt Restructuring. This also limits the ability to pursue legal action against such individuals.
Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.
Provisions of Israeli corporate law may have the effect of delaying, preventing or making more difficult a merger or acquisition involving us. The Companies Law generally provides that a merger be approved by the board of directors and a majority of the shares present and voting on the proposed merger. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares not held by the other party to the merger (or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party or its general manager) have voted against the merger. Upon the request of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the surviving company. Finally, a merger may not be completed unless at least (i) 50 days have passed since the filing of a merger proposal signed by both parties with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.
The Companies Law also provides that an acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become (i) a 25% or greater shareholder of the company unless prior to such acquisition there is already another 25% or greater shareholder of the company or (ii) a 45% or greater shareholder of the company unless prior to such acquisition there is already a 45% or greater shareholder of the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval or (ii) was from a 25% or 45% shareholder, as the case may be. The tender offer may be consummated only if (i) at least 5% of 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. In addition, under our amended articles of association, a person seeking to cross the 25% ownership threshold is required to offer to purchase at least 10% of our outstanding ordinary shares in such a tender offer. In any event, if as a result of an acquisition of shares the purchaser will beneficially own more than 90% of a company’s shares, the acquisition must be made by means of a tender offer for all of the remaining shares. Shareholders may request an appraisal in connection with a tender offer for a period of six months following the consummation of the tender offer, but the purchaser is entitled to stipulate that any tendering shareholder surrender its appraisal rights.
Finally, Israel tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges its ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
The described restrictions could prevent or make more difficult an acquisition involving us, which could depress our share price.price
RISKS RELATING TO EASTERN EUROPE
We are subject to various risks related to our operations in Eastern Europe, including economic and political instability, political and criminal corruption and the lack of experience and unpredictability of the civil justice system.
Many of the Eastern European countries in which we operate are countries which were allied with the former Soviet Union under a communist economic system, and subject us to various risks. Certain Eastern European countries, in particular those countries that are not expected to join the European Union in the near future, are still economically and politically unstable and suffer from political and criminal corruption, lack of commercial experience, unpredictability of the civil justice system, land expropriation, changes in taxation legislation or regulation, changes to business practices or customs, changes to laws and regulations relating to currency repatriation and limitations on the level of foreign investment or development. These risks could be harmful to us and are very difficult to quantify or predict. We will be affected by the rules and regulations regarding foreign ownership of real and personal property. Such rules may change quickly and dramatically and thus may have an adverse impact on ownership and may result in a loss without recourse of our property or assets. Domestic and international laws and regulations, whether existing today or in the future, could adversely affect our ability to market and sell our properties and could impair our profitability. With respect to our operations in Romania, any foreign company or litigant may encounter difficulties in prevailing in any dispute with, or enforcing any judgment against, the Romanian government or officers or directors under the Romanian legal system. The joint venture in relation to the Casa Radio site in Bucharest is governed by the public-private partnership laws of Romania pursuant to which no projects have yet been implemented in Romania. There is a risk that the legal structure of this partnership may be challenged in the future and that the development and exploitation rights to be granted by the Romanian government to the joint venture company are more restrictive than currently anticipated, leading to us being unable to obtain the development profits predicted for the project. Recent political changes in Romania have resulted in delays in receiving required communications, regulatory approvals and permits from the Romanian government, which may affect our ability to develop and sell our projects there. Furthermore, third parties could challenge the Romanian government’s decision, following the failure of the original partners to fulfill their obligations or to put the contract out to tender or to carry out a new site valuation. A successful challenge on either count could result in us having to enter a new tender process, which would lead to an increase in associated expenses and uncertainty.
Certain Post-Communist Eastern Europe countries initiated legislation that cancels and nullifies transactions involving real estate that were subject to confiscation, condemnation or eminent domain proceeding by the former communist regime. While we make every effort to conduct thorough and reliable due diligence investigations, in some countries where former communist regimes carried out extensive land expropriations in the past, we may be faced with restitution claims by former land owners in respect of project sites acquired by it. If upheld, these claims would jeopardize the integrity of our title to the land and our ability to develop the land.
We may be faced with restitution claims by former land owners in respect of project sites acquired by some countries by expropriation
While we make every effort to conduct thorough and reliable due diligence investigations, in some countries where former Communist regimes carried out extensive land expropriations in the past, we may be faced with restitution claims by former land owners in respect of project sites acquired by it. If upheld, these claims would jeopardize the integrity of our title to the land and our ability to develop the land, which may have a material adverse effect on our business, financial condition and/or results of operations.
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RISKS RELATING TO INDIA
Hostilities in India and other countries in Asia could have a material adverse effect on our financial conditions and results of operations.
India has from time to time experienced instances of internal terror attacks and hostilities with neighboring countries, including Pakistan and China. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult and such political tensions could create a greater perception that companies operating in India are usually involved in higher degrees of risk. Events of this nature in the future, as well as social and civil unrest within other countries in Asia or within India, could influence the Indian economy and could have a material adverse effect on our financial condition and results of operations. In addition, India has from time to time experienced social and civil unrest due to religious strife.
Changes in the economic policies of the Government of India or political instability could have a material adverse effect on our business.
Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector and significantly reducing the roles of the state governments in the Indian economy as producers, consumers and regulators. The Indian Government has announced policies and taken initiatives that support the continued economic liberalization pursued by previous governments. However, this trend of liberalization may not continue in the future. The rate of economic liberalization could change, and specific laws and policies generally affecting, among other things, foreign investments, currency exchange, local taxation legislation, repatriation of profits and other matters affecting our investments, as well as specifically affecting the sectors of commercial activity in which we operate, could also change. A significant shift in India’s economic liberalization and deregulation policies could materially adversely affect business and economic conditions in India generally, as well as our business operations in particular. In addition to potential economic instability, the Indian economy and business practices are relatively unsophisticated and lacking in experience, and there have been some instances of political and criminal corruption. Furthermore, India continues to suffer from high unemployment, low wages and low literacy rates. These risks could be harmful to us and are very difficult to quantify or predict. Indian governments are democratically elected but are invariably comprised of a coalition of several political parties. The withdrawal of one or more of these parties from the coalition could cause the government to fall, resulting in political instability or stagnation pending new elections. Such events could delay or even halt the progress and development of the Indian economy and its receptiveness to foreign investment and may have a material adverse effect on our business.
ITEM 4. | INFORMATION ON THE COMPANY |
A. | HISTORY AND DEVELOPMENT OF THE COMPANY |
Elbit Imaging Ltd. was incorporated in 1996 under the laws of the State of Israel. Our shares arewere listed on the NASDAQ Global Select Market (ticker symbol: EMITF) until February 11, 2019 and are currently quoted on the OTC Markets and listed on the Tel Aviv Stock Exchange (“TASE”). Our executive offices are located at 3 Shimshon Street, Petach Tikva 4952801, Israel. You may reach us by telephone at (972-3) 608-6000 or by fax at (972-3) 608-6050.
For a summary of our recent acquisitions, dispositions and other activities and of our capital expenditures and divestitures during the years 2015, 2016, 2017 and 2017,2018, and that are currently in progress, see “Item 5 – Operating and Financial Review and Prospects – Overview.”
Recent Events
InSightec’s Medical Updates
See “Item 4B – Business Overview – Medical Companies – Insightec – Clinical and Regulatory Development in InSightec’s Products”.
Gamida Medical Updates
See “Item 4B – Business Overview – Medical Companies- Gamida – Clinical and Regulatory Development”.
The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent
Second SPA with Exigent Capital Group
On February 2019 we signed a second Share Purchase Agreement (the “Second SPA”) with an SPV related to Exigent Capital Group for the sale of between 3,760,417 ordinary shares of Elbit Medical (1.6% of its outstanding share capital) and 57,968,760 ordinary shares of Elbit Medical (25% of its outstanding share capital).
As of May 13, 2019 (under the Second SPA), Exigent Capital Group purchased a total of 3,760,417 shares of Elbit Medical, constituting approximately 1.6% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96 and a total consideration of approximately NIS 3.6 million (approximately US$ 1 million), and waived the option it had to purchase additional shares of Elbit Medical.
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The Company currently holds (as of May 13, 2019) approximately 62% of Elbit Medical’s issued and outstanding share capital.
First SPA with Exigent Capital Group
On August 2018 we signed a Share Purchase Agreement (the “First SPA”) with an SPV related to Exigent Capital Group (“SPV”) for the sale of between 11,574,146 ordinary shares of Elbit Medical (5% of its outstanding share capital) and 115,741,467 ordinary shares of Elbit Medical (50% of its outstanding share capital) for a price per share of NIS 0.96.
During August through November (under the First SPA) 2018 we sold to the SPV a total of 60,087,537 Elbit Medical shares, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of approximately US$ 15,548,275.
The parties also entered into a three-year voting agreement regarding the appointment of directors in Elbit Medical.
Gamida Cell has raised USD50 Million in an IPO in the United States
On October 26, 2018, we announced that Gamida completed the pricing for initial public offering of its ordinary shares in the United States and application to list 6.65 million of its ordinary shares on NASDAQ. The price set in the pricing procedure was eight (8) dollars per share, a price that reflect a post-money valuation of Gamida of approximately 215 million dollars.
The consideration for Gamida in the IPO was approximately 53 million dollars (including the consideration received from the exercise of the option to the underwriters but not including underwriters’ fees and other expenses in connection with the IPO). Gamida’s shares started trading on the NASDAQ in October 26, 2018 (Nasdaq: GMDA).
Delisting from the NASDAQ
On December 27, 2018, the Company received a letter from the Listing Qualifications Department of The NASDAQ (the “Staff”) indicating that the Company did not meet the Staff’s December 24, 2018 deadline to regain compliance with NASDAQ Listing Rule 5450(b)(3)(C) due to the Company’s failure to maintain a minimum market value of its publicly held shares of $15,000,000 for 30 consecutive business days. As a result, the Company would be subject to delisting on January 4, 2019 unless it requests a hearing before a Nasdaq Hearings Panel (the “Panel”).
On January 3, 2019, the Company announced that The NASDAQ granted the Company’s request for a hearing before the Panel at which time the Company will present its plan to regain compliance with NASDAQ Listing Rule 5450(b)(3)(C), under which the Company must maintain a minimum market value of its publicly held shares of $15,000,000 for 30 consecutive business days, and request a further extension of time to comply.
On February 7, 2019, the Company announced that NASDAQ had informed the Company that the Hearings Panel has determined to delist the Company’s ordinary shares. Nasdaq subsequently suspended Company shares from trading on Nasdaq effective at the open of business on February 11, 2019 and filed a Form 25 (Notification of Removal from Listing) with the SEC after applicable appeal periods lapsed to notify the SEC of the delisting of the Company’s ordinary shares, effective at the opening of the trading session on May 13, 2019.
The Company’s ordinary shares continue to be listed on the Tel Aviv Stock Exchange, and its ordinary shares are currently quoted on the OTC Markets.
Change in Status as Controlling Shareholder of Plaza Centers N.V.
On December 19, 2018 we announced that we signed a trust agreement according to which the Company will deposit its shares of PC with a trustee. In accordance with the trust agreement, we redeem the voting rights and retains the ownership rights of PC’s shares, other than the voting rights which are irrevocably vested with the trustee for all matters and purposes effective from December 18, 2018. We may instruct the trustee, from time to time, to sell all or any portion of the Shares. The trust agreement shall terminate upon the earlier of: (i) a sale of all of the shares to a third party; and (ii) the date on which actions have been taken for realization of any of the liens we granted in favor of the holders of the Series I Notes issued by the Company. As a result, we no longer consider ourselves to be the controlling shareholder of PC. In light of PC’s current financial situation, the Company estimates that the loss of control therein is not material to the Company. Accordingly, PC’s financial statement are no longer consolidated with the Company’s financial statement and the review of the development of the Company’s business in 2018 does not relate to PC.
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Settlements with Israeli Tax Authorities
On July 2, 2018 we announced that an Israeli court issued a decision in a lawsuit brought by us against the Israeli Tax Authority relating to VAT assessments issued to us and relating to the period from April 2006 to June 2011. In the decision, the court accepted in part the Israeli Tax Authority’s position and ruled that we should have deducted input tax at rates lower than those actually deducted by us. Accordingly, the court rules that we are required to pay the Israeli Tax Authority a payment of approximately NIS 16.5 million (excluding interest and linkage differentials) for the relevant period.
On November 19, 2018 we announced that we reached a settlement agreement with the Israeli Tax Authority pursuant to which we will pay approximately NIS 5.7 million in connection with VAT assessments for the years 2013 through 2018.
Sale of Holdings in Olive Software Inc.
On June 11, 2018 we announced that Olive Software Inc. (an affiliate in which the Company indirectly holds 16% of the outstanding share capital) was merged into another corporation in a cash transaction. In consideration for our holdings in Olive, the Company received approximately $1.8 million gross.
Full redemption of Series H Notes.
On May 31, 2018 the Company repaid its Series H Notes in full and as of the date of this report, there remains a financial debt for the Series I Notes only, as detailed below in this report.
Agreement to sell a Plot in Bangalore, India
In March, 2008 EPI entered into a share subscription and framework agreement (the “Agreement”), with a third party local developer (the “Purchaser”), and a wholly owned Indian subsidiary of EPI which was designated for this purpose (“SPV”), to acquire together with the Purchaser, through the SPV, up to 440 acres of land in Bangalore, India (the “Project”) in certain phases as set forth in the Agreement. As of December 31, 2018, the Partner has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest in the Plot and have also signed a Joint Development Agreement with the SPV in respect of the Plot.
On December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Purchaser (the “Sale Agreement”). The total consideration upon completion of the transaction was INR 3,210 million (approximately EUR 42 million) which should have been paid no later than September 30, 2016 (“Long Stop Date”). On November 15, 2016, the Purchaser informed EPI that it will not be able to execute the advance payments.
As a result of the foregoing, the Company has received from the escrow agent the sale deeds in respect of additional 8.7 acres (the “Additional Property”) which has been mortgaged by the Purchaser in favor of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favor of the SPV.
As a result of the failure of the Purchaser to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, the Purchaser lost its right to receive the 50% shareholding.
New payment structure for sale of Project in Bangalore, India
On June 19, 2017 we announced that EPI signed a revised agreement in relation to the sale of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India to the Purchaser. The Purchaser and EPI agreed that the purchase price will be amended to INR 338 Crores (approximately €42.4 million and approximately $48.5 million) instead of the INR 321 Crores (approximately €40 million and approximately $46 million) agreed to in the previous agreement signed in December 2015. As part of the revised agreement, INR 110 Crores (approximately €14 million and approximately $16 million) will be paid by the Purchaser in installments until September 1, 2018, when the final installment of INR 228 Crores (approximately Euro 30 million and approximately $34 million) will be paid to EPI. If the Purchaser defaults prior to such date, EPI will be entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement, signed in December 2015, will remain in place until the final closing.
In January 2018, the Purchaser has notified EPI that due to a proposed zoning change (initiated by the Indian authorities) which could potentially impact the development of the land, all remaining payments under the Agreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Purchaser’s claims, having no relevance to the existing Agreement, and started to evaluate its legal options. INR 46 Crores (approximately EUR 6.06 million) were paid till March 2018
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In March 2018, we signed an amended revised agreement as follows: The Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately EUR 44.5 million) The Final Closing will take place on 31 August 2019 when the final installment of circa INR 212 Crores (approximately EUR 26.9 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
On February 4, 2019, we announced that the Purchaser defaulted on payments and EPI is considering all legal measures available to it to protect its interest.
During March 2019, the Company announced that the Purchaser has further paid INR 9.25 Crores (approximately €1.15 million).
During April 2019 EPI has reached an understanding with the purchaser according to which: (i) the closing date for the transaction will be extended to November 2019 (instead of August 2019) (the “Closing Date”); and (ii) the consideration will be increased to approximately €45.64 (INR 356 crores) (instead of INR 350 crores) (the “Consideration”). The Closing Date can be further extended to August 2020, subject to mutually agreed payment terms.
On May 13, 2019, the Company announced that the Purchaser defaulted on payments of INR 10 crores (approximately €1.27 million) according to the new understandings signed on April 2019. EPI has initiated legal process to protect its interest while it continues to negotiate with the Purchaser for payment of the amount due.
As of the date of this report, the Purchaser paid in total INR 80 crores (approximately EUR 10.26 million) as against INR 90 crores (approximately EUR 11.5 million) that was supposed to be paid by end of April 2019 according to mutual understating.
EPI is entitled to forfeit the amounts paid by the Purchaser until this date (approximately €10.26 million) as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the final closing.
Environmental update on Bangalore project – India
On May 4, 2016, the National Green Tribunal (“NGT”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“Order”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.
The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several stormwater crossing it.
An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has set aside the Order thereby restoring the position as it existed before the Order was passed by NGT.
Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India
In December 2007 EPI established a special purpose vehicle (“SPV”) which acquired 74.73 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai.
On August 2, 2016, we announced that the SPV signed a Joint Development Agreement (“JDA”) relating to the plot in Chennai, India project, owned 100% by EPI. Under the terms of the JDA, the SPV will confer the property development rights to a reputable local developer (the “Developer”) who will carry full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices. Development will commence subject to the obtainment of the required governmental/municipal approvals and permits, and it is intended that 67% of the land will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale. The SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units. In order to secure its obligation, the Developer will pay a total refundable deposit of INR 35.5 Crores (approximately €4.5 million), with INR 10 Crores (approximately €1.3 million) paid following the signing and registration of the JDA, INR 17 Crores (approximately €2million) payable when planning permission for the first phase of the development project is obtained (the “Project Commencement Date”), and the remaining INR 8.5 Crores (approximately €1 million) payable six months after the Project Commencement Date.
On July 5, 2018 we announced that EPI signed a term sheet with the Developer in respect to the sale of the SPV. Under the terms of the Term Sheet, the Developer was provided with period of 60 (sixty) days to undertake a due diligence process solely with respect to the SPV, following which definitive agreements for the sale of the SPV, in consideration for INR 110 Crores (approximately €13.8 million, subject to adjustment with respect to the previous amount deposited and the existing cash in the SPV), shall be signed and closing shall take place on the same day.
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On October 18, 2018 we announced that the closing date of the transaction was extended to November 10, 2018. It was further agreed that the consideration will be reduced to 106 Crores (approximately €13.2million) instead of 110 Crores (approximately €13.8 million).
On January 14, 2019, we announced that EPI has granted the Developer until mid-February 2019, to complete the transaction. However, On February 11, 2019, we announced that the Developer has defaulted to complete the transaction and EPI has terminated the JDA and the Term Sheet with the Developer.
On March 4, 2019, we announced that the SPV (a subsidiary of EPI) holding the plot in Chennai has initiated an arbitration proceeding against the Developer in accordance with the Arbitration Rules of the Singapore International Arbitration Center (as required by the agreement between the parties). The reliefs sought in the framework of the arbitration are as follows: (a) a declaration that the JDA stands terminated validly; and (b) to instruct the Developer to compensate for damages caused due to the breach of the Joint Development Agreement by the Developer.
Agreement to sell a land located in Kochi, India
The Company has rights under certain share subscription agreement to hold 50% shareholding in Indian SPV (“Project SPV”). The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired 13 acres (“Property A”) for a total consideration of INR 1,495 million ($21 million) payable subject to fulfillment of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR 718 million ($ 10 million) to the seller in consideration for the transfer of title in Property A to the Project SPV Our share in such acquisition is approximately $ 6 million.
On January 14, 2016, the Company signed an agreement to waive any of its rights and interest in the Project SPV, subject to receipt of INR 10 Crores (approximately €1.2 million and approximately $1.4 million) (the “Consideration”), which will be paid to the Company upon the closing of the transaction.
On December 12, 2018, after several delays by the Purchaser in making the payments, we announced that it was agreed that the Consideration will be paid in two installments as follows: 50% until December 31, 2018 and the remaining 50% until April 30, 2019.
On January 8, 2019, we announced that the amount that was supposed to be paid to the Company until December 31, 2018 (50% of the Consideration) was not received yet.
On April 1, 2019, following a revised agreement between the parties, we announced that the Company has sold 50% of its stake in the Project SPV and received $0.72 million, i.e., 50% out of the Consideration. The remaining 50% will be paid to the Company in Q1 of 2020.
Notes Buy-Back Plans
Notes | Date of approval of the plan | Maximum amount approved for the buyback | Amount of notes repurchased (in par value) | Actual amount used for the buyback | |||||
(Series H) | October 12, 2015 | NIS 50 million | 56 million | NIS 50 million | |||||
(Series H) | February 1, 2016 | NIS 40 million | 43 million | NIS 40 million | |||||
(Series H) | June 1, 2016 | NIS 40 million | 34 million | NIS 36 million | |||||
(Series H) | August 18, 2016 | NIS 50 million | 15 million | NIS 15 million | |||||
(Series I) | February 28, 2018 | NIS 50 million | 42.2 million | NIS 49 million | |||||
(Series H) | March 15, 2018 | NIS 57.6 million | 7 million | NIS 7 million | |||||
(Series I) | July 18, 2018 | NIS 70 million | 54.3million | NIS 70 million | |||||
(Series I) | November 20, 2018 | NIS 80 million | 19.1 million | NIS 25 million |
Since the issuance of the Series H Notes (in February 2014) until the date of this annual report, the Company has published 5 programs for the repurchase of up to NIS 237.6 million of Series H notes. As of the date of this report the Company has purchased par value NIS 155 million Series H notes for a total cash consideration of NIS 148 million. On May 31, 2018 the Company repaid its Series H Notes in full.
Since the issuance of the Series I notes (in February 2014) and as of the date of this report, the Company has published 3 programs for the repurchase of up to NIS 200 of Series I notes. As of the date of this report the Company has purchased par value NIS 115.6 Series I notes for a total cash consideration of NIS 144 million
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Approval of an offer of Settlement with the SEC in the matter of Alleged Violations of FCPA
On March 12, 2018, we announced that the SEC approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA, as follows:
In March 2016, PC announced that its board of directors became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Romania that may indicate potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
In addition, in April 2017, the Company’s board of directors and PC’s board of directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The characteristics of the said agreements could raise red flags that this agreements may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
Upon the discovery of each of the cases described above, the Company appointed an internal committees to examine these events and at the same time updated the SEC.
The internal committees hashave concluded their examination of these matters and submitted their recommendations to the Company’s board of directors. The Company’s board of directors fully adopted the committee’s recommendations and is working to implement them. Following discussions with the SEC regarding the potential violation of the requirements of the FCPA, the Company submitted an Offer of Settlement (“Offer”).
Solely for the purpose of the proceedings brought by or on behalf of the SEC and without admitting or denying the findings in the Offer (except as to the SEC’s jurisdiction over it and the subject matter of these proceedings, which are admitted) the Company consented to the entry of an order containing the SEC’s findings.
The SEC has determined to accept the Offer and ordered that:
● | Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), the Company cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. |
● | The Company paid a civil money penalty in the amount of $500,000 to the SEC for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). |
In determining to accept the Offer, the SEC considered remedial acts that the Company promptly undertook, its self-reporting, and its cooperation afforded to the SEC staff, including having conducted a thorough internal investigation, voluntarily providing detailed reports to the staff, fully responding to the staff’s requests for additional information in a timely manner, and providing translations of certain documents.
On March 29, 2018, we announced that further to our announcement regarding a settlement with the SEC involving concerns of violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977), that a shareholderShareholder of the Company (the “Plaintiff”) has filed a motion with the Financial Department of the District Court in Tel-Aviv Israel againstto reveal and review internal documents of the Company (the “Claim”) requesting the court to instruct the Company to discloseand of PC., with respect to the Plaintiff documentsevents surrounding that certain agreements that were signed in connection with the events underlyingCasa Radio Project in Romania and the settlement.sale of the U.S. portfolio (the “Motion”).
TheOn July 2018, the Company is currently examininghas filed its response to the ClaimMotion together with its legal advisors and intenda motion to respond in due time. The Company is unable to estimate what will bedismiss the outcomeMotion.
On January 13, 2019, a Court hearing was held following which the judge decided that the board of directors of each of the Claim and/two companies will examine the relevant facts and the allegations raised by the Plaintiff in connection with the said events and decide whether or how itnot they should file a law suit against any of its officers. The two companies are required to submit their conclusion to both the court and the plaintiff (not later than May 12, 2019) and afterwards the Plaintiff will evolve.notify the court weather or not he wishes to continue with the Motion.
Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company
On February 19, 2018, the Company announced thatElbit Medical completed a public offering of notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit Medical’s holdings in InSightec and Gamida.
The main terms of the Notes are: (i) the total amount raised was NIS 180 million; (ii) the maturity date is March 1, 2022; (iii) the notes bear annual interest of 5% in the first two years and 10% in the remaining period, payable twice a year - in March and September; (iv) each NIS1.47 par value in notes are convertible into one Elbit Medical ordinary share; (v) the trust agreement of the notes includes certain limitations, including on the ability of Elbit Medical to distribute dividends and raise additional debt; and (vi) the Notes are secured by a pledge on a portion of Elbit Medical’s holdings in InSightec and Gamida in a “value to loan” ratio of 200%.
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The use of proceeds from the Notes were as follows: (a) payment of all expenses in connection with the issuance of the notes (approximately NIS6 (approximately US$ 1.7 million)); (b) NIS18 million (approximately $ 5 million) to be deposited with the trustee and used for interest payments due on the notes for the first two years; (c) NIS 4 million (approximately $ 1 million) for ongoing operational expenses; and (d) the remaining proceeds will be used to repay Elbit Medical’s intercompany debt to the Company in the amount of approximately NIS 154153 million (approximately $ 43 million). The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS2 million (approximately USD 580 thousand) will be converted to approximately NIS2 million par value Notes. The Notes were not registered under the U.S. Securities Act of 1933.
On March 9, 2018 the Company announced that following the completion of the offering of Elbit Medical Notes, Elbit Medical hadtransferred approximately NIS 151 million (approximately $ 43.7 million) to the Company as an early repayment on account of its debt to the Company. The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS 2 million (approximately $ 580 thousand) willwas be converted into approximately NIS 2 million of par value notes.
Agreementnotes that were issued to sellthe Company in a Plot in Bangalore, Indiaprivate offering that took place on March 2018.
On June 19, 2017 we announced that Elbit Plaza India Real Estate Holdings Limited (“EPI”) signed a revised agreement in relation to the sale of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India to third party purchaser. The purchaser and EPI agreed that the purchase price will be amended to INR 338 Crores (approximately €44.2 million and approximately $47 million) instead of the INR 321 Crores (approximately €42 million and approximately $47 million) agreed to in the previous agreement signed in December 2015. As part of the revised agreement, INR 110 Crores (approximately €14.4 million and approximately $15 million) will be paid by the Purchaser in installments until September 1, 2018, when the final installment of INR 228 Crores (approximately Euro 29.8 million) will be paid to EPI. If the purchaser defaults prior to such date, EPI will be entitled to forfeit certain amounts paid by the purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement, signed in December 2015, will remain in place until the final closing.
On January 19, 2018 we announced that the purchaser announced that the remaining payments under the revised agreement will not be made due to certain change proposed by the Indian authorities that could potentially impact the development of the plot.
On February 21, 2018 we announced that despite the purchaser’s January 2018 announcement, the purchaser paid the January installment in the amount of INR 5 Crores (approximately €0.62 million).
On March 22, 2018 an amended revised agreement was signed and the Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). Following the signing of the revised agreement the Purchaser paid EPI an additional INR 11 Crores (approximately €1.3 million) further to the INR 45 Crores (approximately €5.9 million) that were already paid during the recent year. An additional INR 82 Crores (approximately €10.8 million) will be paid by the Purchaser in unequal monthly installments until the final closing. The final closing is scheduled to take place on August 31, 2019 when the final installment of approximately INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Purchaser defaults before the final closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the final closing.
InSightec Equity Round
See “Item 4B – Business Overview – Medical Companies–Insightec –Preferred stock investment round E”.
Gadish Settlement
On September 27, 2017, we announced that the district court in Israel approved in principle a settlement with the plaintiffs in a November 1999 claim initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd. (our former subsidiary), in connection with the change of control in our Company and in Elscint and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder) (Gadish et al v. Elscint et al). This lawsuit was later certified in part as a class action.
According to the settlement, the plaintiffs will receive compensation in the total amount of NIS 50 million (approximately $14 million). The Company is expected to pay NIS 4.65 million (approximately $ 1.3 million) of the said amount.
On January 17, 2018 the Company announced that the court has given its final approval of the settlement.
However, one of the plaintiffs initiated a motion for leave to appeal against the settlement claiming, rather superficially, thatsettlement. In August 2018 the settlement agreement is a result of a conspiracy in which the defendants “bought” the plaintiffs in order to dismiss their claim.
On April 20, 2018 The Supreme Court decided thatto reject the appellant is exempted from paying court fees but obligated to pay a 5,000 NIS deposit until May 6, 2018. Failing to pay the deposit could lead to striking out the appeal.
On that same day - April 20, 2018 - the District Court’s decided that the compensation for the plaintiffs will be held by the Plaintiff’s attorney in escrowappeal and will not be distributed until it is clear that: (a) the appellant did not initiate an appellate procedure; or (b) an appellate procedure, if filed, and it ended without significantly changing the settlement agreement.
For further information with regards to the class action, please see Note 13A.(1) of our Annual Consolidated Financial Statements as of December 31, 2017.
Settlement between PC and its Israeli Noteholders
On September 27, 2017, we announced that PC announced that a dispute has arisen between PC's Israeli (Series A) bondholders and PC's Israeli (Series B) bondholders (the “Bondholders”) as to the allocation of funds received from sale of PC's real estate assets. Therefore PC announced that it intends to repay to its bondholders in Poland and the Bondholders (during October 2017), an aggregate amount of approximately €18,800,000 million, representing 75% of the funds Plaza received in the last quarter from sale of real estate assets.
On December 14, 2017, we announced that PC announced that the Israeli court has instructed that the mandatory repayment amounts due to the Bondholders should be allocated according to the ratios set out in PC’s restructuring plan. The court has also acknowledged that PC is not an interested party in this bondholder dispute and has granted PC a protective order from any claims in this respect.
On December 21, 2017, we announced that PC announced that the Israeli (Series A) bondholders triggered the immediate repayment of the entire outstanding debt under the Series A trust deed.
On January 11, 2018, the Company announced that PC announced that a settlement agreement has been reached and approved between the Bondholders regarding the allocation of funds to be repaid by PC among the Bondholders. As part of the settlement agreement, the (Series A) Bondholders have agreed to withdraw their demand for immediate repayment which resulted from a dispute between the Bondholders as to the allocation of funds received from the sale of PC’s real estate assets.became final.
Sale of our holdings in the Radisson complex in Bucharest, Romania
In December 2017, we signed an amendment to the trust deed of (Series H) and (Series I) note according to which the collateral relating to Elscint Holding and Investment NV (“EH”) was canceled, and in return the Company undertook to use 75% of the net proceeds from the future sale of the Radisson Hotel Complex in Bucharest, Romania for an early repayment of Series H notes. In addition, the Company undertook to pledge the repayment of the vendor loan (which will be given to the purchaser) in favor of (Series H) and (Series I) bondholders.
On December 19, 2017, we announced that we completed the sale of our holdings in a SPV that held the Radisson Hotel Complex in Bucharest, Romania based on a property value of Euro 169.2 million so that the net proceeds received by the SPV was approximately Euro 81 million.
The following amounts were deducted from the net proceeds (as a result of which the SPV received total cash of approximately Euro 61.4 million): (i) the repayment of our outstanding loan to Bank Hapoalim Ltd. in the amount of approximately Euro 11.6 million (the “Loan”); (ii) €8 million used to finance a vendor loan which has been provided by the SPV to the purchaser for a period of three years, bearing interest at a rate of 5% per annum.
In accordance with the provisions of the Amended Trust Deed of our Series H and Series I notes, we used 75% of the net proceeds from the sale thereof for an early repayment of our Series H notes on January 5, 2018 in the total amount of NIS 240 million.
Completing the sale of plots in Timisoara and Constanta, Romania, by PC
On August 7, 2017,April 2, 2018 we announced that PCwe received a notice from the purchaser claiming that it is entitled to indemnification in the amount of approximately €3 million, due to the alleged breach of certain warranties made by the Subsidiary in the Agreement (the “Notice”). In the Notice the purchaser has completedinformed the saleCompany that it has submitted claims under the policies of Warranty & Indemnity Insurance and Title Insurance taken out in terms of the agreement, which provides that where loss arising from a plot totaling approximately 32,000 sqm in Timisoara, Romania, for €7.25 million (approximately $7.65 million)warranty claim may reasonably be anticipated to be covered by such insurance policies, the purchaser will firstly attempt to recover such loss out of the proceeds paid out under such policies. The Company is currently examining the Notice with its legal advisors. After a preliminary review of the Notice, the Company believes that the warranty claims are without merit and a plot totaling approximately 30,000 sqm in Constanta, Romania, for €1.3 million (approximately $1.37 million).intends to vigorously contest same.
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Investment in Gamida
On July 10, 2017, we announced that an approximately $40 million private financing investment round in Gamida has been completed (the “Investment“”). The investment was led by Shavit Capital Fund joined by the pharmaceutical company Novartis and additional investors, including VMS Investment Group, Israel Biotech Fund, IHCV and Clal Biotechnology Industries (the “Investors”). Following the Investment, preferred shares were allotted to the Investors, based on $120 million pre-money valuation to Gamida (the “Allotted Shares”). In addition, the investors received options to preferred shares in the amount of 60% of the Allotted Shares. The exercise price of the options is 120% of the shares price which have been paid on the Investment closing date. The options will expire 5 years after the Investment closing date. Elbit Medical didn’t take part in the Investment. Following the closing of the Investment, Elbit Medical holds approximately 17.87% of the share capital in Gamida (13.63% on a fully diluted basis). As of the date herein, there is no certainty that the Investors will exercise their options. Gamida informed the Company that the Investment proceeds will be used to (i) complete Nicord©’s Phase III clinical trial; (ii) to prepare for product commercialization by expanding its in-house manufacturing capacity; (iii) expanding Gamida’s presence in the US; (iv) continuing to develop additional pipeline products.
Sale of Torun Plaza
On 21 November, 2017 one of PC’s subsidiaries has completed the sale of Torun Plaza shopping and entertainment center in Poland to a private investment fund.
PC has received circa EUR 28.3 million. This net cash is after the deduction of the bank loan (circa EUR 43.3 million), and other working capital adjustments in accordance with the balance sheet of the SPV holding the Project. The above-mentioned sums do not include the earn-out payments in an amount of EUR 0.35 million, reduced by NAV adjustment of EUR 0.2 million. PC recorded revenue of EUR 71.6 million from the disposal and a loss of circa EUR 1.5 million (not including the earn-out payment mentioned).
Sale of Land plot in Budapest, Hungary
On October 2, 2017, PC’s subsidiary concluded a transaction with an international investor, NEPI Rockcastle (the “Buyer”), regarding the termination of land use rights and a preliminary easement agreement which created certain easement rights over the Arena Plaza plot registered in favor of a PC’s subsidiary. In consideration for termination of the land use rights and the preliminary easement agreement, PC’s subsidiary received the net sum of EUR 2.5 million (NIS 10.4 million) and recorded revenue in the amount of EUR 2.5 million (NIS 10.4 million)
Sale of Belgrade Plaza commercial center
On March 2, 2017 we announced that PC has completed the sale of Belgrade Plaza commercial center to BIG Shopping Centers Ltd. (the “Purchaser”). The commercial center was opened in April 2017 and PC remained responsible for the development and leasing of the asset until the opening. Upon the completion of the transaction PC has received an initial advance payment of approximately €31.7 million ($33 million) from the Purchaser for the sale of 100% of the SPV, further payments of EUR 13.35 ($ 16 million) million has been received during September 2017.
Additional payments are contingent upon certain operational targets and milestones being met. The purchaser has provided a guarantee to secure these future payments. The final agreed value of Belgrade Plaza, will be calculated based on a general cap rate of 8.25% on the sustainable NOI after 12 months of operation, which PC estimates will be approximately €6.2-6.5 million per annum. Parts of the NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.
Sale of Suwałki Plaza commercial center
On February 1, 2017, we announced that PC completed the sale of Suwałki Plaza shopping and entertainment center in Poland to an investment fund for € 42.3 million (approximately $45 million). PC received approximately €17 million (approximately $18 million) net cash, after the repayment of the bank loan, and other working capital adjustments
Acquiring bank loan for PC’s plot in Brasov, Romania
On December 6, 2016, we announced that PC has acquired a bank loan of approximately €10 Million (approximately $10.5 million), which is held against PC’s plot in Brasov, Romania, for the total consideration of €1.35 million (approximately $1.42 million). The transaction represents a discount of approximately 86.5% on the outstanding bank loan and the lender has transferred all the collateral granted with respect of the loan to PC, while also releasing PC from its recourse loan. As part of the terms of the transaction, the Lender has been granted a purchase option for a term of three years, to acquire the plot for €1.1 million.
Klepierre Settlement
On December 6 , 2016, we announced, that we and Klepierre S.A. (“Klepierre”) reached a settlement relating to the International Court of Arbitration’s ruling on July 7, 2016, with respect to a transaction agreement between the parties, according to which PC is liable for an indemnification claim totaling approximately €2 million (approximately $2.1 million), including costs arising from the legal process. Since Klepierre is deemed a creditor under PC’s ongoing Restructuring Plan, payment of the principal amount due by PC under the indemnification claim is deferred to July 2018. However, due to our guarantee under the original transaction and according to Dutch law, we were obliged to pay the amount determined by the International Court of Arbitration. The settlement states, inter alia, that we will pay €1.2 million (approximately $1.3 million) to Klepierre and Klepierre shall release all of its claims against us, and our fully owned subsidiary, Elbit Ultrasound (Luxembourg) B.V./S.À.R.L. (who was also guarantor to PC) and PC.
Sale of Riga Plaza Center
On September 15, 2016 we announced that PC completed the sale of Riga Plaza shopping and entertainment center in Riga, Latvia, to a global investment fund. The agreement reflects a value for the business of €93.4 million (reflecting 100%) (approximately $99 million). Following a price adjustment mechanism and costs incurred in respect of the completion of the sale, PC received €17.8 million (approximately $19 million) in cash after repayment of banks loan (representing PC’s share of the sale of the business), with an additional €0.7 million (approximately $0.74 million) expected to be received within 24 months of the closing of the transaction.
Debt repayment agreement and Sale of Zgorzelec Plaza Commercial Center
On September 14, 2016 we announced that PC completed the sale of the shares in Zgorzelec Plaza commercial Center in Poland. PC had previously signed a Debt Repayment Agreement (“DRA”) with the financing bank (the “Bank”) of Zgorzelec Plaza commercial Center in Poland, which provides that, among other things, PC will make a payment of €1.1 million (approximately $1.16 million) (in escrow) to the Bank and the Bank will deposit (in escrow) Release Letters for: (i) releasing a mortgage in favour of the Bank from a plot of land of PC in the city of Leszno, Poland; (ii) releasing of a recourse right obligation (of €1.1 million) under the corporate guarantee of PC and an additional subsidiary of PC; (iii) subordination agreement; and (iv) submission for enforcement on the loan. A share purchase agreement was signed between PC and an appointed shareholder nominated by the Bank, after which the remainder of the DRA process was completed, including delivery of Release Letters to PC, and removing a mortgage over an asset of PC in Leszno, Poland (valued at €0.8 million). PC recognized an accounting profit of approximately €9.2 million, stemming from the release of €23 million of the outstanding (and partially recourse) loan (including accrued interest thereof), against an outstanding asset valued at €12.7 million (approximately $13.4 million) and other working capital adjustments.
Notes buy-back plans
Since the issuance of the Notes (in February 2014) until the date of this annual report, the Company has published 5 programs for the repurchase of up to NIS 237.6 million of Series H notes. As of the date of this report the Company has purchased par value NIS 155 million Series H notes for a total cash considerations of NIS 148 million.
Non-Exclusive Cooperation Agreement with Siemens
See “Item 4B – Business Overview – Medical Companies – Insightec – Cooperation agreement with Siemens”.
Joint Development Agreement with respect to our Plot in Chennai, India
On August 2, 2016, we announced that a subsidiary of EPI (“SPV”) signed a Joint Development Agreement (“JDA”) relating to the plot in Chennai, India project, owned 100% by EPI. Under the terms of the JDA, the SPV will confer the property development rights to a reputable local developer (the “Developer”) who will carry full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices. Development will commence subject to the obtainment of the required governmental/municipal approvals and permits, and it is intended that 67% of the land will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale. The SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units. In order to secure its obligation, the Developer will pay a total refundable deposit of INR 35.5 Crores (approximately €4.8 million), with INR 10 Crores (approximately €1.35 million) paid following the signing and registration of the JDA, INR 17 Crores (approximately €2.3 million) payable when planning permission for the first phase of the development project is obtained (the “Project Commencement Date”), and the remaining INR 8.5 Crores (approximately €1.15 million) payable six months after the Project Commencement Date.
Termination of lease agreement - plot in Tiberius, Israel.
On August 1, 2016, we announced that we received from the Israeli Land Administration (“ILA”) an amount of approximately NIS 7 million ( approximately(approximately $1.8 million) (in addition to the amount of approximately NIS 13 million, which related to the release of bank guarantees discussed below) following the termination of our lease agreement with respect to a plot near Tiberius, Israel.Israel (the “Plot”). The lease agreement was signed on July 2007, with the ILA, according to which, we leased a plot of approximately 44,600 square meters near Tiberius, Israel for a term of 49 years (through 2056). Following the termination of the lease agreement, the ILA released two bank guarantees in the aggregated amount of approximately NIS 13 million, (approximately $3 million) which have been provided to the ILA in order to secure our undertakings under the lease agreement. In addition, on December 1, 2016 we announced that the LA reimbursed to us a gross amount of approximately NIS 27 million (approximately $7 million) with respect to development fees paid by us on account of the plot.
SaleFiling a Lawsuit against the Municipality of Plot and Related Real Estate in Belgrade, SerbiaTiberias
On June 29, 2016,May 5, 2019, we announced that PC completedwe filed a lawsuit against the saleMunicipality of its wholly owned subsidiary, which holdsTiberias (the “Defendant”) regarding the “MUP” plotPlot. the Company is suing to obtain a refund of approximately NIS 7 million (including interest and linkage) that was deposited in the Defendant’s bank account and designated for development charges and fees related real estate in Belgrade, Serbia, for €15.75 million (approximately $16.2 million) that were paid in several installments until October 2017. MUP is a prominent development site atto the locationPlot. The Defendant made no such use of the former Federal Ministry of Internal Affairs, atdeposit and hence the entrance to Belgrade’s old town and on the city’s main thoroughfare.Company’s lawsuit.
Reverse Share Split
On June 28, 2016, our shareholders authorized a reverse share split at a ratio of one-to-three in order to increase the per share trading price of our ordinary shares to satisfy NASDAQ’s Listing Rule 5450(a)(1) which requires that listed stocks maintain a closing bid price in excess of $1.00 per share for continued listing on the NASDAQ. For more information, see “Item 3 – Risk Factors – General Risks – If we do not satisfy the NASDAQ requirements for continued listing, our ordinary shares could be delisted from NASDAQ.”
Sale of Plot in Lodz, Poland
On June 28, 2016, we announced that PC signed an agreement for the sale of a 20,700 square meter plot of land in Lodz, Poland, to a residential developer, for €2.4 million (approximately $2.5 million). Following this transaction, the Company owns a remaining 4,000 sqm site.
The Company received €1.44 million in 2016 in installments, and a final installment of €0.96 million was received in June 2017.
Sale of Liberec Plaza Commercial Center
On March 31, 2016, we announced that PC has completed the sale of its subsidiary holding Liberec Plaza, commercial center in the Czech Republic, for €9.5 million (approximately $10 million). Following net asset value adjustments related to the subsidiary’s balance sheet, PC received net €9.37 million (approximately $10 million).
Addendum to Loan Agreement with Bank Hapoalim
On March 22, 2016, we announced that we had signed an addendum to the loan agreement with Bank Hapoalim B.M. (the “Bank” and “Loan Agreement”), that will cancel and replace the previous loan agreement (the “Addendum” and the “Loan”). Under the Addendum, subject to the prepayment of €15.0 million (approximately $16 million) to the Bank by March 31, 2016, the following new terms will apply to the loan: (i) the repayment schedule of the Loan will be as follows: €7 million (approximately $8 million) will be repaid on November 30, 2016 and the balance will be repaid on November 30, 2017 instead of one single payment in February 20, 2017 in the existing Loan Agreement; (ii) we will not have prepayment obligations for the planned Notes repurchase program which will be executed by us during 2016 for an amount up to NIS 50 million (approximately $13 million); and (iii) any net cash flow that will be received by us from the refinancing of the Radisson Blu hotel in Bucharest Romania in an amount up to €97 million shall not have repayment obligations, and shall be used by us at our sole discretion.
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The loan was repaid in full through the sale of our holdings in the Radisson complex in Bucharest, Romania. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania”
Refinance of Hotel in Bucharest
On March 10, 2016, we announced that our subsidiary Bucaresti Turism SA (Romania) (“BUTU”) entered into a definitive credit facility agreement with Raiffeisen Bank International A.G and Raiffeisen Bank S.A., leading international European banks, as lenders, (“Lenders”) to amend the facilities agreement between the parties entered into on September 16, 2011, as amended. According to the definitive facility agreement, the lenders will increase the loan under the facilities agreement up to €97 million (approximately $102 million). The new facility can be drawn down in two Tranches, with the first Tranche in the amount of up €85 million, (approximately $89 million) and the second Tranche in the amount of up to €12 million (approximately $13 million). The proceeds of the new facility shall be used, inter alia, to prolong the outstanding facility under the existing facility agreement in the amount of approximately €60 million (approximately $63 million). The surplus of the new facility will be used for the repayment of all existing shareholder loans granted to BUTU by Elbit Group. On March 24, 2016, the first draw down in an amount of €85 million (approximately $93 million) was closed. The net cash received by us was approximately € 24.4 million (approximately $27 million). On November 21, 2016, we announced BUTU reached the effective date for the drawdown of the second tranche of the loan in the amount of €12 million (approximately $13 million).
PC Debt Restructuring
On November 18, 2013, our subsidiary PC announced that it had filed for reorganization proceedings (preliminary suspension of payments) with the District Court of Amsterdam in the Netherlands (the “Dutch Court”) and submitted a restructuring plan to the Dutch Court proposed to its creditors, which was further amended (the “Amended PC Plan”). The Amended PC Plan proposed,inter alia, that all principal payments of any unsecured debt due during 2013-2015 be deferred for three years from the date of approval of the Amended PC Plan by the Dutch Court (“Approval Date”). If within two years from the Approval Date PC manages to repay 50% of such unsecured debt, then the remaining principal payments shall be deferred for an additional one year. Under the Amended PC Plan, following the removal of the suspension of payments order by the Dutch Court, PC will be required to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of its unsecured debt, to be allocated among the holders of such unsecured debt. PC will be permitted to make investments only if its cash reserves contain an amount equal to general and administrative expenses and interest payments for such unsecured debt for a six-month period. The Amended PC Plan was made contingent upon a cash injection of approximately €20 million in PC, by way of a rights issuance (the “Rights Offering”), under which, we, PC, and its directors and officers would be fully released from all claims. On June 23, 2014, subject to the application of certain conditions precedent, we undertook to exercise (or procure that other persons will exercise) all of our rights in the proposed Rights Offering and to procure subscriptions for any unexercised portion of the Rights Offering (the “Undertaking”). On June 26, 2014 PC announced that a majority of its creditors voted to approve the Amended PC Plan, and on July 10, 2014, the Dutch Court approved the Amended PC Plan, with the Approval Date being July 18, 2014, upon which PC’s management resumed full control of PC’s business. On December 19, 2014, PC announced that it had successfully completed the Rights Offering.
On December 1, 2016, we announced that the holders of PC’s Series A PC notes, Series B PC notes and Polish PC notes have approved the following proposed amendments by the required majorities, with immediate effect: The proposed amendments include, inter alia, the postponement of the early prepayments term, as determined in the Amended PC Plan, by up to four (4) months, and the reduction of the requested early prepayments term’s total amount to at least NIS 382,000,000.
As part of the proposed amendments, PC will pay, on March 31, 2018, a one-time payment of 0.25% of PC’s outstanding debt. In addition, PC agreed with the PC Noteholders that in the event of successful sale of the Casa Radio project in Bucharest, Romania (the “Project”), including by way of sale of PC’s holdings in the Project (but excluding the injection of monies into the Project by a third party), prior to the full repayment of the relevant PC Notes, and in no event later than December 31, 2019, and provided that the net proceeds actually received by PC from such sale exceed €45 million (the “Minimum Proceeds”), PC will pay to the PC Noteholders additional one-time payment which is derived from the net proceeds actually received by PC on top of the Minimum Proceeds, which can be in a range of between €1 and approximately €11 million.
In addition, the Amended PC Plan includes other provisions which essentially prevent us from using the proceeds from realization of PC’s projects for the development of PC’s existing projects designated for development. As a result, any future development of existing projects by PC may not be executed due to insufficient cash for equity injection into such projects.
Amendment of the Restructuring Plan of PC
On December 1, 2016, we announced that the holders of PC Notes have approved the proposed amendments to the restructuring plan of PC by the required majorities. Under the original restructuring plan, principal payments under the PC Notes originally due in the years 2013 to 2015 were deferred for a period of four and a half years, and principal payments originally due in 2016 and 2017 were deferred for a period of one year (the “Extended Repayment Schedule”). The restructuring plan further provides that, if PC does not prepay an aggregate amount of at least NIS 434 million on the principal of the PC Notes on or before December 1, 2016 (the “Early Prepayment”), the principal payments due under the Extended Repayment Schedule will be advanced by one year (the “Accelerated Repayment Schedule”). The proposed amendments sought by PC are comprised of the postponement of the Early Prepayment date by up to four months and the reduction of the total amount of the required Early Prepayments to at least NIS382 million (approximately $99 million) (a reduction of 12% on the original amount). In addition to the above, PC announced that as part of the approval of the proposed amendment, PC will pay on March 31, 2018 a one-time consent fee in the amount of approximately €488 thousand (approximately $515 thousand) (which is equal to 0.25% of the PC’s outstanding debt under the PC Notes at that time). Additional provisions in the restructuring plan were amended, among others, with respect to: (i) consideration on account of potential sales of the Casa Radio project in Romania, (ii) non-compliance with the amended and restated restructuring plan, (iii) reduction of the deferred debt ratio for the Series B notes, and (iv) commitment of PC to register the Polish notes for trade.
Our Debt Restructuring
During 2013, our Board resolved to suspend all payments to its unsecured creditors and to negotiate with its unsecured creditors on a restructuring plan for the unsecured financial debts. On October 17, 2013, our unsecured financial creditors approved a Plan of Arrangement (the “Arrangement”) (as adjusted from time to time) and on January 1, 2014, the Israeli District Court approved the Arrangement. The closing of the Arrangement took place on February 20, 2014. The general terms of the Arrangement are: (i) in consideration of the extinguishment of our unsecured financial debts (i.e.: series A-G notes, series 1 note and our debts to Bank Leumi), we issued at the closing of the Arrangement the following instruments (A) New ordinary shares, representing immediately following such exchange 95% of our outstanding share capital on a fully diluted basis; and (B) Two series of new notes in the aggregate principal amount of NIS 666 million, (ii) the new shares and the new notes were allocated among the various unsecured financial creditors in proportion to the outstanding balance (principal, interest and CPI linkage) under each obligation as of the closing of the Arrangement. The new shares are listed for trading on both the Tel Aviv Stock Exchange and the NASDAQ Stock Market, and the new notes are listed for trading on the Tel Aviv Stock Exchange, and (iii) pursuant to the terms of the Arrangement, we amended our Articles of Association to include among other things that a decision to engage in a new field of business which is material to us, in which neither the we nor any of our subsidiaries is engaged and which new field of business is not complementary to our business or our subsidiaries, shall require the unanimous approval of all of the members of the board.
B. | BUSINESS OVERVIEW |
To date we operate primarily in the following fields of business:
● | Medical Industries – through our indirect holdings in two companies which operates in the field of life science: (i) InSightec Ltd. (“InSightec”) - InSightec operates in the field of development, production, and marketing of treatment-oriented medical systems, based on a unique technological platform combining the use of focused ultrasound and magnetic resonance imaging for the purpose of performing noninvasive treatments in human beings; and (ii) Gamida Cell Ltd. (“Gamida”) – Gamida operates in the field of research, development and manufacture of products designated for certain cancer |
● | Plots in India – we have holdings in plots of land in India which are designated for sale (and which were initially designated for residential projects) |
On December 19, 2018 we announced that we no longer consider ourselves to be the controlling shareholder of PC. Accordingly, PC’s financial statement are no longer consolidated with the Company’s financial statement and the review of the development of the Company’s business does not relate to PC.
Following our sale of the Radisson Hotel Complex in Bucharet,Bucharest, Romania, during 2017, the Company is no longer involved in the hotel industry. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania”.
Medical Companies
Our medical portfolio is held by Elbit Medical Technologies Ltd. (an Israeli company traded on the TASE (“Elbit Medical”). Elbit Medical holds shares in two medical companies: InSightec and Gamida.
On November 29, 2018 we completed the sale of an aggregate total of 60,087,537 Elbit Medical shares held by us, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of US$ 15,548,275, to an affiliate of Exigent Capital Group pursuant to the August 8, 2018 Share Purchase Agreement between the parties.
On February 8, 2019 we signed a second share purchase agreement with Exigent Capital Group for the sale of up to 57,968,760 additional shares of Elbit Medical. As of May 13, 2019, Exigent Capital Group purchased (under the second share purchase agreement) 3,760,417 shares of Elbit Medical at a price per share of NIS 0.96 and a total consideration of approximately NIS 3.6 million, and waived the option it had to purchase additional shares of Elbit Medical.
As of the date of this annual report, we hold 89%approximately 62% of Elbit Medical’s share capital (88.7%(approximately 40% on a fully diluted basis).
In addition to our holding in the shares of Elbit Medical, we provided throughout the years credit lines and services to Elbit Medical. As of December 31, 2017, Elbit Medical has a total of NIS 151153 million (approximately $43 million) outstanding loans and current accounts due to us. However, on February 2018, Elbit Medical raised a total of NIS180 million through a public offering of a new series of notes convertible into shares of Elbit Medical and used the proceeds to repay its debt to the Company.
For more information regarding the new convertible notes of Elbit Medical see “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Payment of Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company”.
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InSightec
InSightec
Holdings in InSightec’s shares
As of the date of the report’s publication, we hold, indirectly through Elbit Medical, approximately 22.0% of InSightec’s issued capital (approximately 19%18% at full dilution.), as listed below:
Share types | Issued share capital | Number of stock held by the Company | Number of stock held by the Company of the same class of shares | Number of shares held by the Company of the same class of shares on a fully diluted basis | ||||||||||||
Common stock | 14,243,462 | 8,993,762 | 63.1 | % | 18.5 | % | ||||||||||
Type B preferred stock | 14,037,888 | 9,039,612 | 64.4 | % | 64.4 | % | ||||||||||
Type B1 preferred stock | 32,201,524 | 24,242,023 | 75.3 | % | 75.3 | % | ||||||||||
Type C preferred stock | 27,519,390 | - | - | - | ||||||||||||
Type D preferred stock | 48,473,238 | - | - | - | ||||||||||||
Type E preferred stock | 55,970,149 | - | - | - | ||||||||||||
Employee options | 35,696,755 | - | - | - | ||||||||||||
Total | 228,142,406 | 42,275,397 | 22.0 | % | 18.5 | % |
Share types | Issued share capital | Number of stocks held by the Company | Number of stocks held by the Company of the same class of shares | Number of shares held by the Company of the same class of shares on a fully diluted basis | ||||||||||||
Common stock | 14,244,962 | 8,993,762 | 63.1 | % | 16.6 | % | ||||||||||
Type B preferred stock | 14,037,888 | 9,039,612 | 64.4 | % | 64.4 | % | ||||||||||
Type B1 preferred stock | 32,201,524 | 24,242,023 | 75.3 | % | 75.3 | % | ||||||||||
Type C preferred stock | 27,519,390 | - | - | - | ||||||||||||
Type D preferred stock | 48,473,238 | - | - | - | ||||||||||||
Type E preferred stock | 55,970,149 | - | - | - | ||||||||||||
Employee options | 39,904,255 | - | - | - | ||||||||||||
Total | 232,351,407 | 42,275,397 | 22.0 | % | 18.2 | % |
In addition, the Company holds directly (and not through Elbit Medical) 450,000 Ordinary Shares of InSightec.
The following is a summary of certain provisions in the articles of association of InSightec:
Dividends
The Articles of Association provides that theInsightec’s holders of Series E, Series D and Series C Preferred Shares, in that order, have dividend preference based on the original issue price for their shares plus 8% per annum.
Liquidation Preference
Upon the occurrence of an exit event (including, among others, (i) the sale, lease, exchange, grant of a perpetual exclusive license or other transfer or disposition of all or substantially all of the property, assets or business of InSightec, (ii) liquidation, dissolution nor winding up of InSightec, (iii) any consolidation or merger or any other business combination of InSightec with or into another corporation or other business organization in which the majority of the shareholders of InSightec do not beneficially own the majority of the equity interest of the surviving company after such transaction; (iv) any sale of shares or other transaction or series of transactions which results in any person or group of persons, other than the holders of Ordinary Shares and Preferred Shares beneficially owning securities of the company representing 50% or more of the voting securities of the company then outstanding and (v) purchase of all remaining shares by a shareholder or an affiliate:
(a) The holders of the Series E Preferred Shares shall be entitled to receive, prior to and in preference to any distribution of any of the assets or surplus funds of InSightec to the other shareholders, an amount per Series E Preferred Share equal to ($2.68 plus any declared but unpaid dividends thereon.
(b) Thereafter, the holders of the Series D Preferred Shares shall receive an amount per Series D Preferred Share equal to $1.7845 plus any declared but unpaid dividends thereon.
(c) Thereafter, the holders of the Series C Preferred Shares shall receive an amount per Series C Preferred Share equal to U.S. $1.12 plus any declared but unpaid dividends thereon, subject to various adjustments.
(d) Thereafter, the holders of the Series B Preferred Shares and the Series B-1 Preferred Shares shall receive an amount per Series B Preferred Share and Series B-1 Preferred Share equal to U.S. $6.00 (in the case of Series B Preferred Shares) and U.S. $1.446 (in the case of Series B-1 Preferred Shares) plus any declared but unpaid dividends thereon.
(e) After the aforesaid preferences entire remaining assets and surplus funds of InSightec legally available for distribution, if any, shall be distributed ratably to all holders of Series E Preferred Shares, Series D Preferred Shares, Series C Preferred Shares and Ordinary Shares in proportion to the number of Ordinary Shares then held by each such holder of such class of shares on an as converted basis.
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Notwithstanding the preferences stated in (d) and (e) above, if after distribution of the preferences pursuant to (a) - (c) above, the total value of the assets and funds to be distributed between all of the shares of InSightec on a pro rata, as converted, basis (without distribution of any preferences to the holders of Series B Preferred Shares or Series B-1 Preferred Shares) would result in the holders of each Series B Preferred Share and Series B-1 Preferred Share receiving an amount per Series B Preferred Share and Series B-1 Preferred Share equal to or greater than U.S. $6.00 (in the case of Series B Preferred Shares) and U.S. $1.446 (in the case of Series B Preferred Shares), then the provisions of (d) and (e) above shall not apply and the entire assets and surplus funds of InSightec legally available for distribution to the shareholders after distribution of the respective preference amounts for Series E Preferred Shares, Series D Preferred Shares and Series C Preferred Shares shall be distributed to all holders of shares of InSightec on a pro rata, as converted, basis, and in such case no preference amount shall be payable on the Series B Preferred Shares and the Series B-1 Preferred Shares.
Conversion
At any time, the holders of B Preferred Shares and Series B-1 Preferred Shares may convert all or any portion of their shares into the number of Ordinary Shares computed by dividing U.S. $6.00 (per Series B Preferred Share) and U.S. $1.446 (per Series B-1 Preferred Share) by the applicable conversion price which, subject to adjustments, shall originally be U.S. $6.00 (per Series B Preferred Share) and U.S. $1.446 (per Series B-1 Preferred Share). In addition, there are additional conversion rights with respect to other Preferred Shares that Elbit does not hold.
All preferred shares shall automatically convert upon a Qualified IPO, which is defined as the initial underwritten public offering pursuant to an effective registration statement under the Securities Act or similar laws in effect in the State of Israel that (i) raises at least $75.0 million of gross proceeds, (ii) public offering which will result in the Ordinary Shares being listed either on the New York Stock Exchange or NASDAQ; and (iii) if such public offering were to occur prior to December 27, 2021, then such public offering would result in a per share issue price of not less than $4.02 per Ordinary Share.IPO.
Subject to adjustments, each Series B Preferred Share shall be converted into Ordinary Shares upon the consent of holders of 66% of the outstanding Series B Preferred Shares, and each Series B-1 Preferred Share shall be converted into Ordinary Shares upon the consent of the holders of 66% of the outstanding Series B-1 Preferred Shares.
The Series E Preferred Shares, the Series D Preferred Shares and the Series C Preferred Shares have broad based weighted average protection.
Other Restriction of Transferability of Shares in InSightec
The shares in InSightec (with certain standard exceptions) are subject to right of first refusal, co-sale and (if approved by 85% of the Preferred Shares voting together as a single class) drag-along rights.
Board of Directors
The number of directors in InSightec shall be not more than nine. Elbit Medical is entitled to appoint one member to the board so long as it holds in the aggregate 5% or more of the outstanding share capital of InSightec on an as-converted basis.
The Elbit Medical board member together with the board members appointed by KDT Medical Investments Corporation and York Global Finance II S.À R.L. are entitled to unanimously appoint four board members.
The CEO of InSightec will act as a director.
Special Consents/Veto Rights
Certain actions require the approval of the holders of at least 85% of the Preferred Shares voting together as a single class on an as converted basis, including the following: (a) the payment of dividends; (b) issuing shares which are equal to or senior to the Preferred Shares; (c) amending the terms of the Preferred Shares; (d) making any loans, advances to or guarantees, for the benefit of, or investments in third parties (subject to exceptions); (e) merging or consolidating with a third party (other than a wholly-owned subsidiary); (f) selling, leasing or otherwise disposing of all or substantially all of InSightec’s assets or intellectual property; (g) liquidating, dissolving or effecting a recapitalization or reorganization; (h) acquiring any interest in any company or entering into any joint venture with consideration to be paid in excess of $15,000,000; (i) making any material changes to its lines of business; (j) entering into any new leases or other rental agreements with consideration to be paid on an annual basis in excess of $4,000,000; (k) issuing or selling any shares of its capital stock or rights to acquire shares of its capital stock; (l) initiating an initial public offering other than a qualified IPO that will result in the Ordinary Shares being listed either on the New York Stock Exchange or NASDAQ; (m) establishing or adopting, or make any modification to, any stock ownership, stock option, stock bonus, stock purchase, restricted stock or other equity-based plan; (n) altering, increasing, decreasing or otherwise impacting or changing in any way, InSightec’s authorized share capital; (o) consummating an exit event; and (p) any amendment to InSightec’s Articles of Association.
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In addition, various actions require the approval of the holders of at least 66% of the Series E Preferred Shares, including the following: (a) creating or authorizing the creation of, or issuing or obligating InSightec to issue shares or other securities (or any securities convertible into or exchangeable for securities ranking equal or senior to the Series E Preferred Shares), unless the same ranks junior to the Series E Preferred Shares in all respects; (b) any amendment of the employment terms or arrangements governing the engagement of InSightec’s Chief Executive Officer, including hiring and termination (constructive or otherwise) of the employment of the Chief Executive Officer; (c) prior to December 27, 2021, consummating or consenting to or obligating InSightec to consummate at any time in the future any exit event, resulting in receipt of a price per share of Series E Preferred Shares of less than $4.02; and (d) prior to December 27, 2021, initiating an initial public offering of capital stock of InSightec pursuant to an effective registration statement under the Securities Act, or pursuant to similar laws in any other jurisdiction other than a Qualified IPO.
Right to participate in fundraising
Each of the stakeholders has a right to participate in assignment of additional securities carried out by InSightec in order to protect his holdings from dilution.
Business Concept
InSightec develops and markets Exablate, the first FDA approved magnetic resonance imaging guided focused ultrasound treatment platform (“MRgFUS”) for a variety of neurosurgery, oncology and gynecology indications. Treatments are non-invasive and are performed in an ambulatory setting.
InSightec’s objective is to transform the surgical environment for the treatment of a limited number of forms of benign and malignant tumors by replacing invasive and minimally invasive surgical procedures with an incision-less surgical treatment solution. The system is designed to deliver safe and effective non-invasive treatments while reducing the risk of disease, potential complications, as well as the direct and indirect costs associated with surgery.
InSightec’s MRgFUS technology integrates the therapeutic effects of focused ultrasound energy with the precision guidance and treatment outcome monitoring provided by MRI systems. Ultrasound is a form of energy that can pass harmlessly through skin, muscle, fat and other soft tissue, and is widely used in diagnostic applications. The ExAblate uses a phased-array transducer that generates a high intensity, focused beam of ultrasound energy, or a sonication, aimed at a small volume of targeted tissue. The focused ultrasound energy provides an incision-less therapeutic effect by raising the temperature of the targeted tissue mass high enough to ablate, or destroy it, while minimizing the risk of damage to overlaying and surrounding tissue.
InSightec believes that by combining the non-invasive therapeutic effects of focused ultrasound energy and the precise “real-time” data provided by the MRI system, it has developed an effective, non-invasive treatment solution for its approved applications.
InSightec also believes that its MRgFUS technology can be applied to the treatment of other medical conditions, providing similar advantages by presenting both physicians and patients with a safe and effective incision-less surgical treatment option for several medical conditions, including a number of indications for which there are currently few effective treatment options.
Investments in InSightec capital
Below are details regarding investments in InSightec capital in the last two years:
Preferred stock investment round D
As part of the agreement dated 26/06/2014, as amended from time to time, the Company, InSightec, and additional InSightec shareholders (including the current CEO, Mr. Maurice R. Ferré), its additional investors, and York Global Finance II S.a.r.l, a company owned by York Foundation, which has an interest in the Company (Hereinafter:“York Foundation”), have signed a series of agreements for a round of investment in InSightec for a total sum of 86.5 million United States dollars, by means of purchase of 48,473,238 Series D share of InSightec at a price of 1.78 United States dollars per share1. A total of approximately 2 million dollars of the total investment amount has been invested during 2016.E
On January 31, 2018, we announced that InSightec completed the second (and final) closing of its Series E investment round in a total amount of $150 million approximately(approximately $90 million, in the first closing and approximately $60 million in the second closingclosing) in return for the issuance of 55,970,149 preferred Insightec stock from a new Series E (with a price of 2.68 dollars per share). The lead investor in the round was KDT Medical Investments Corporation (a subsidiary of Koch Industries, Inc.) which invested in total $ 100 million in InSightec (York participated in this round as well in the total investment of $ 6 million). Immediately following the closing, the Series E Preferred Shares of InSightec issued in the first and second closings represented approximately 29.1% (24.7% on a fully-dilutedfully diluted basis) of InSightec’s share capital. Following the completion of the second closing, the CompanyElbit Medical holds (directly and indirectly through its subsidiary Elbit Medical) approximately19.8% (16.7%approximately 22% (18% on a fully-dilutedfully diluted basis) of InSightec’s share capital.
As part of the investment agreement, it was agreed that holders of the preferred stock E will have privileges in cases of dividend distribution and material events. Furthermore, an amendment to the shareholders agreement was signed between the Investor and other major shareholders in InSightec and an amendment to InSightec’s bylaws was approved.
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Clinical and regulatory Development in InSightec’s Products
ExAblate Neuro(“Brain SystemSystem” or “Neuro system””)
The ExAblate Neuro indication is designated to preform treatment for Essential Tremor, Tremor dominate Parkinson’s disease and Neuropathic pain and others.
The brain system is based on the MRgFUMRgFUS technology, which relies on MRI imaging to plan, guide execution, and receive real-time response during treatment, adopted for use on the brain.
The patient interface in this system consists of a helmet-like acoustic projection system with the patient’s head held within the helmet. The projector allows electronic shaping of the acoustic beam, as required for intracranial treatment.
1 It will be clarified that the share price listed above, is after an adjustment carried out pursuant to the terms of the investment agreement, which resulted in the reduction of the share price by 8%, thus the share price was updated to 1.78 United States dollars per share (compared to the initial price of 1.94 United states dollars per share), and, moreover, participants in the agreement were assigned an additional 3,788,289 preferred stock.
The brain system has been given approval for commercial use in the USA, Europe, Japan, Korea, Canada, Taiwan, and Israel for treatment of functioning disorders (essential tremors, and/or tremors resulting from Parkinson’s disease, andand/or neuropathic pain). So far, about 600more than 1000 patients have received treatment on a commercial basis.
In addition to the existing commercial approval, we continue the technological and clinical research and development in order to obtain approval for combination of the device with a Siemens MRI in Europe and in the USA. As of the date of this report, our products are approved for use in combination with MRI devices of General Electric Company Healthcare Division (“GE Healthcare”). Clinical studies for treatments continue at a range of research facilities in the USA, Europe, Asia and Canada.
The system is also usedundergoing clinical evaluation for clinical studies in the preliminary feasibility studies, e.g. treatment of advanced Parkinson’s disease, epilepsy, and compulsive functioning disorders,OCD, depression, neuropathic pain as well as drug-based and immunological treatment by means of temporary and transient opening of the blood-brain barrier for treatment of brain tumors and Alzheimer’s disease.Disease. The system is compatible with several MRI systems from both GE and Siemens.
As of the date of the publication of this report, 4745 brain systems existare operational in leading hospitals around the world.world and 17 are in the process of installation.
The following items describe the significant clinical and regulatory events regarding the ExAblate Neuro:
● | On February 25, 2019, we announced that an additional Local Medicare Contractor of the Centers for Medicare and Medicaid Services (“CMS”), Noridian Medicare, has posted a positive Local Coverage Determination for MR-guided focused ultrasound (MRgFUS) for the incisionless treatment for essential tremor that has not responded to medication, effective April 1, 2019. Noridian coverage will include the following 13 states: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. At this stage, Noridian Medicare administers benefits to approximately 7 million Medicare beneficiaries. Following the updated insurance cover by Noridian as detailed above, MRgFUS for the treatment of essential tremor will be covered by five of the Local Medicare Contractors: National Government Services (NGS), Palmetto GBA, CGS Medicare, Wisconsin Physician Services (WPS) and Noridian Medicare, representing 38 States | |
● | On January 30, 2019, we announced that Insightec and the Brain Research Institute at Yonsei University College of Medicine in Seoul, South Korea, announced that the first patient worldwide completed chemotherapy cycles in a clinical trial to investigate the safety and efficacy of focused ultrasound for disrupting the blood brain barrier (BBB) in patients with glioblastoma (GBM). This first patient successfully completed all six sessions of their planned complete adjuvant temozolomide (TMZ) with BBB disruption treatment. There were no complications or side effects following disruption of the BBB with focused ultrasound. Glioblastoma is the most common primary malignant brain tumor in adults. The blood brain barrier not only protects the brain from toxins, it also prevents the effective delivery of therapeutic agents to treat brain tumors, such as GBM, which is why disrupting the BBB is key for introducing treatment options. The investigational Exablate Neuro device from INSIGHTEC delivers low frequency focused ultrasound without surgical incisions to temporarily disrupt the BBB. In the clinical trials, following surgical resection and radiotherapy plus concomitant TMZ, focused ultrasound is delivered during the first treatment of each of the six maintenance cycles of TMZ. | |
● | On December 19, 2018 we announced that Insightec informed that the Center for Devices and Radiological Health has approved an expansion of the indication of Exablate Neuro to include the treatment of patients with tremor-dominant Parkinson’s disease (“PD”). This expansion adds medication-refractory tremor from PD to the current Exablate Neuro indication for incisionless, focused ultrasound thalamotomy for medication-refractory essential tremor. | |
● | On December 11, 2018 we announced the European CE Mark approval of the Exablate Neuro™ compatibility with Magnetom Skyra, Prisma and Prisma fit scanners from Siemens Healthineers, to treat patients with essential tremor (ET), Tremor Dominant PD and Neuropathic Pain. | |
● | On November 12, 2018 we announced that the CMS posted the final rule, updating the reimbursement levels for MRgFUS FDA approved indications. Effective January 1, 2019, (MRgFUS in the treatment of essential tremor) will be reimbursed at USD$12,500.50 for Medicare beneficiaries (if deemed medically appropriate). MRgFUS in the treatment of pain palliation of bone metastases will be reimbursed at USD $10,936.00. Currently, MRgFUS for the treatment of essential tremor is covered by four of the Local Medicare Contractors. These include National Government Services (NGS), Palmetto GBA, CGS Medicare and Wisconsin Physician Services (WPS), representing 25 States. |
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● | On September 26, 2018, we announced that Insightec informed us that the U.S. Food and Drug Administration (FDA) has approved Exablate Neuro™ compatibility for the MRI Scanners from Siemens Healthineers (models: Magnetom Skyra, Prisma and Prismafit) to treat patients with essential tremor (ET) Who do not respond to medication. | |
● | On July 26, 2018 we announced that the FDA has approved the initiation of a clinical study using Insightec’s MRgFUS to treat patients with Alzheimer’s disease. | |
● | On June 21, 2018, we announced that Insightec informed that the National Institute for Health and Care Excellence (NICE) issued a positive NICE guidance for unilateral MRI-guided focused ultrasound thalamotomy for treatment-resistant essential tremor (ET). The treatment is performed using Insightec’s Exablate Neuro technology. | |
● | On June 4, 2018 we announced that CMS benefit coverage will be available to patients in the United States for MRgFUS treatment of essential tremor in six more states (Indiana, Iowa, Kansas, Nebraska, Michigan and Missouri. | |
● | On January 17, |
● | On December 14, 2017, we announced that we were informed by InSightec, that the CMS updated the reimbursement code for ExAblate Neuro treatment for essential tremor, as follows: (i) on November 2016 the CMS decided to associate InSightec’s ExAblate Neuro system (for essential tremor treatment), a reimbursement code with a payment level of $ 9,751; (ii) beginning January 1, 2018, the primary procedure code for Movement Disorders (essential tremor) is assigned to a new technology level and will be paid at $17,500.50 for |
● | On November 23, 2017 we announced that InSightec informed us that the Taiwanese Food and Drug Administration (TFDA) has approved its Exablate Neuro system for the treatment of essential tremor in patients who do not respond to medication. |
● | On October 25, 2017, we announced that the FDA has approved the commencement of Phase III clinical trial for the treatment of neuropathic pain by InSightec’s ExAblate Neuro system, for treating dyskinesia symptoms or motor fluctuations of advanced Parkinson’s disease patients who have not responded to medication. InSightec estimates that Parkinson’s disease afflicts millions of people worldwide, including approximately one million in the United States alone with 60,000 additional diagnoses each year. Treatment with the ExAblate Neuro is intended to improve motor function and reduce dyskinesia, one debilitating symptom that presents as uncontrolled, involuntary movement of the arms and/or legs. One May 3, 2018 we announced that Insightec initiated treatment of its first patient in the Phase III clinical trial pivotal. | |
● | On June 26, 2017, we announced that the FDA has approved the commencement of Phase I clinical trial for the treatment of neuropathic pain by InSightec’s ExAblate Neuro system (the “Trial”). The Trial will include 10 patients and will be fund by the Focused Ultrasound Foundation. InSightec is the regulatory sponsor of the clinical Trial. The purpose of the Trial is to examine the safety and the efficiency of the treatment. |
● | In April 2017, the FDA has extended its approval of InSightec’s Exablate Neuro system for a non-invasive treatment of essential tremor in patients who have not responded to medication and now it’s including the usage on 1.5 Tesla MRI systems (the former FDA approval, which was announced on July 12, 2016, was given for the usage of the ExAblate Neuro on 3 Tesla magnet strength MRI systems). |
● | In March 2017, the first treatment was performed under Phase I clinical trial to investigate the use of MRI guided by Focused Ultrasound (MRgFUS) technology for opening the blood brain barrier in patients with early Alzheimer’s disease. The treatment was conducted at Sunnybrook Health Sciences Centre in Toronto, Canada and used InSightec’s ExAblate Neuro system. InSightec is the regulatory sponsor of the clinical trial. |
● | On July 12, 2016, we were informed by InSightec Ltd., that the FDA approved its Exablate Neuro system for a non-invasive treatment of essential tremor (ET) in patients who have not responded to medication. ExAblate Neuro uses focused ultrasound waves to precisely target and ablate tissue deep within the brain with no incisions or implants. The treatment is done under Magnetic Resonance Imaging (MRI) guidance for real time treatment monitoring. Essential tremor is the most common movement disorder, affecting more than 5 million people in the United States, and millions more worldwide. Hand tremor is the most common symptom, but tremors can also affect the head, arms, voice, legs, and torso. For these patients, performing everyday tasks presents a challenge and impacts their quality of life. |
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● | In May 2016 InSightec informed us that Health Canada approved its Exablate Neuro system for the treatment of ET |
● | In November 2015 InSightec informed us that the Korean Ministry of Food and Drug Safety (MFDS) has approved its Exablate Neuro system to treat movement, pain and behavioral disorders which allows Korean patients suffering from neurological disorders which cause significant disability access to a new, non-invasive treatment option that does not require open surgery. |
● | In November 2015, InSightec informed us that they are investigating the use of MR Guided Focused Ultrasound technology to temporarily open the blood brain barrier which is a protective barrier that restricts the passage of substances from the bloodstream into the brain, protecting it from toxic chemicals and preventing the delivery of essential medication to reach the brain. |
ExAblate for Body Platform (“(the“Body System”)
The body system, like the brain system, is based on the MRgFUMRgFUS technology, which relies on MRI imaging to plan, guide execute,for treatment planning and receiveguidance, and for real-time response during treatment.feedback. As of the date of the report, the body system is adapted for use with MRI machines manufacturedmade by GE Healthcare only.
The body system constitutes a multi-application treatment platform. The system is being sold to customers interested in treating various body applications, requiring the use of different typesany of body transducers (a component converting a physical signal into an electric one). The system has been planned for treatment of uterine myoma,fibroids, organ-confined, prostate cancer, bone tumors and metastatic growth in the bone in various configurations, and in the future also in cancer of the kidneys,potentially for liver, pancreas and liver (subject to performing clinical trials and obtaining all the required regulatory approvals).renal tumors. Some of the indications have received regulatory approval in various parts of the world, and some are still in the research and development stage.
The body system is a treatment systemtherapeutic device incorporating an MRI bedtable converted to contain a robotic system broadcasting a focused, high-energy (up to 1,000 Watt) ultrasound beam aimed attargeted towards the area where the affected tissue intended to be ablated (tumor) is located. The focused ultrasound beam transmitted from the transducer heats the targeted tissue and ablates it in the beam’s focus and destroys it non-invasively,an incisionless manner, and without damaging the tissues en route, andbeam trajectory, thus, essentially, eliminatesdestroying the targeted benign or malignant tumor.
InMRI imaging is included in all steps of development: at the first step, before treatment is carried out, the treating physician uses MRI imaging for precise identification of the affected tissue. Based on the imaging, the treating physician plans the treatment and marks the boundaries of the tissue requiring treatment. At the second (second-generation) system, unlikestage, during the first system,treatment itself, the crib holdingtreating physician uses thermal imaging (a temperature map) received from the patientMRI machine in real time, measuring the heat at the target and in its environs. Based on this information, treatment parameters can be separatedadapted to the characteristics of the tissue being treated, and replaced based on the application for whichefficacy of the treatment is required. This structure is expressed alsocan be verified in real-time. At the third stage, MRI imaging enables the treating physician to identify the changes that have taken place in the product’s pricing,tissues as a result of the thermal treatment. For this purpose, the tissue is scanned by the MRI machine and evaluated in comparison to the images taken at the beginning of the treatment. This enables the physician to verify that the treatment was in fact carried out in a satisfactory fashion (receiving a real-time response). The MRI machine used for treatment by Insightec products can be used also for additional diagnostic testing and is not limited to exclusive use with the principal sum being paidproduct as part of a system. Connection of Insightec products to the diagnostic system for the basic platform (treatment bed), and smaller sums will be paid for every application that the customer may wish to purchase, thus, enabling the customer to purchase all the products step by step.treatment takes only a few minutes.
TABLE OF CONTENTSTo the best of Insightec’s knowledge, as of this date, the body system is in use with 84 active sites (in commercial, research, and combined commercial and research use).
The following items describe the significant clinical and regulatory events regarding the Exablate for Body Platform:
● | In October 2015 InSightec informed us that the FDA approved InSightec’s Exablate For Body Platform to treat symptomatic uterine fibroids and changed the labeling to allow consideration for women who desire to maintain fertility. The updated labeling specifies that ablation of uterine fibroid tissue can now be considered for women with symptomatic uterine fibroids, who desire to retain fertility and spare their uterus. InSightec estimates that such change in labeling provides younger women suffering from symptomatic fibroids access to a new, non-invasive treatment option that is safe, effective and keeps their uterus intact without compromising their existing ability to get pregnant. The approval is based on accumulated, documented clinical data on 118 patients’ pregnancies post Exablate MRgFUS treatments. |
● | In October 2004, InSightec received FDA approval to market the ExAblate For Body Platform in the United States for the treatment of uterine fibroids, a type of benign tumor of the uterus. InSightec also has regulatory approval to market the ExAblate For Body Platform for the treatment of uterine fibroids in Israel, Canada, Russia, Brazil, Mexico, Korea, Taiwan, Australia, New Zealand, Singapore, Japan, China and the European Union Economic Area (“EEA”), as well as for the treatment of breast cancer in Korea. In February 2013, the Clalit healthcare fund agreed to cover treatments executed at Sheba Medical Center using ExAblate For Body Platform technology to treat uterine fibroids. In May 2007, InSightec received CE marking for the pain palliation of bone metastases. In October 2012, the U.S. FDA approved ExAblate For Body Platform to treat pain from bone metastases in patients who do not respond or cannot undergo radiation treatment for their pain. In July 2013 ExAblate For Body Platform also received an extended European CE Mark for the local treatment of cancerous and benign primary and secondary bone tumors. In August 2013 InSightec received the approval of the Health Canada Administration, and in November 2014 the approval of Japanese Ministry of Health, for the treatment for pain result from bone tumors. |
ExAblate for Body Platform is currently the only non-invasive treatment for uterine fibroids approved for use in Japan. InSightec is also in various stages of development and clinical research for the application of its MRgFUS technology to the treatment of other types of benign and malignant tumors. These additional applications are being developed to take advantage of the modular design of the ExAblate for Body Platform, which enables it to function as a common platform for multiple MRgFUS-based surgical applications. So far the brain system has been operated with MRI systems made by GE Healthcare only. In 2016 we signed a cooperation agreement with Siemens to develop an interface that allows operation with Siemens’ MRI system. The system combined with a Siemens MRI is currently engaged in a process of evaluation and submission for regulatory approval, which commenced in early 2018.
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Products
Below is a table listing the main products of InSightec including products/applications in development stages:
The medical product | The indication for which the medical product is intended as of the date of the report | The stage of the medical product developments’ as of the date of the report | Milestones expected in the coming 12 months | The nearest milestone and the expected date of its achievement | Cost estimate for achieving the nearest milestone | InSightec’s estimate regarding the size of the expected target audience (no. of patients or procedures) and the expected financial extent of the potential target market for the medical product in development correct at the date of the report. | InSightec’s estimate regarding the date approval for the commercialization of the medical product under development | Insightec’s estimate regarding the expected market segment for the medical product under development, assuming commercialization approval is received | ||||||||||
The brain system | Essential tremors | The following approvals exist: for the integration of the device in Europe and in the USA with | Approval of | The prevalence of the disease in the USA is approximately 10 million patients. InSightec estimates that approximately 1% - 5% patients will form the potential target market (approximately 100-500 thousand patients). The estimated cost of the treatment is 10,000-30,000 United States dollars. | Insightec estimates that at the stage of market penetration, the relevant segment will be approximately 10% of the relevant target market. | |||||||||||||
Insightec’s estimate is for the potential market segment for which treatment in its product only is appropriate. Except where this is stated explicitly, Insightec cannot evaluate the expected market segment for the medical product it is developing. The estimate for the disease’s prevalence pertains only to the USA with the assumption that in different geographies the prevalence of the various indications will be similar, proportionately to the country’s population. |
Insightec is developing an innovative treatment, which is not a direct replacement of the treatment existing today. Therefore, its estimates of the market’s size are based on data and articles regarding the number of potential patients, and Insightec’s evaluation regarding the number of patients for which treatment with the device is appropriate. For this reason, articles and publications central to each of the three indications are attached. |
Insurance coverage for this application of the brain system has been |
Medical Accessories and Devices approved by the Ministry of Health of Israel (Hereinafter: “MAD”) |
In April 2017, Insightec informed the company that the FDA’s approval for commercial use of the brain system in the USA for treatment of essential tremors in patients that do not respond to drug treatment has been expanded to include also use of the brain system on 1.5-Tesla MRI systems. The FDA approval reported in the past, on 12/07/2016, was given for use of the brain system with a 3-Tesla MRI system. (This is the magnetic power of the MRI machine). The expansion of the FDA approval as stated above is expected to broaden the market of products with which Insightec’s brain system is compatible, in a manner in which it will be possible to integrate it both in an MRI machine of 1.5 Tesla as well as in MRI machines of 3 tesla. |
http://www.essentialtremor.org/wp-content/uploads/2013/07/FactSheet012013.pdf. The estimate for the disease’s prevalence pertains only to the USA with the assumption that in different geographies the prevalence of the various indications will be similar, proportionately to the country’s population. |
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The medical product | The indication for which the medical product is intended as of the date of the report | The stage of the medical product developments’ as of the date of the report | Milestones expected in the coming 12 months | The nearest milestone and the expected date of its achievement | Cost estimate for achieving the nearest milestone | InSightec’s estimate regarding the size of the expected target audience (no. of patients or procedures) and the expected financial extent of the potential target market for the medical product in development correct at the date of the report. | InSightec’s estimate regarding the date approval for the commercialization of the medical product under development | Insightec’s estimate regarding the expected market segment for the medical product under development, assuming commercialization approval is received1 | ||||||||
Parkinson’s disease | MAD, CE, FDA, Thailand, Australia and Korean approval exist for the treatment of Parkinson’s disease tremors. Treatment of advanced Parkinson’s Diseases CE, Australia, Thailand and Korean approval. | Approval of Parkinson’s Disease treatment in Japan expected in 2019 | The next milestones for complete enrollment of the FDA study, 2020 | 1M$ | The number of Parkinson’s sufferers in the USA is estimated at about 1 million.7Of their number, approximately 150 thousand patients require surgical treatment8, for whom the InSightec treatment is relevant and who comprise the target population. The estimated cost of the treatment is 10,000-30,000 United States dollars. | Approval for Advanced Parkinson may be achieved in the USA in 2021. Approval of Parkinson’s Disease treatment in Japan expected in 2019 | Insightec estimates that at the stage of market penetration, the relevant segment will be approximately 40% – 60% of the relevant target market. |
7 | http://www.healthcommunities.com/parkinsons-disease/incidence-prevalence.shtml |
The estimations regarding the amount of patient’s requiring a surgical treatment is based on InSightec’s own estimates. |
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The medical product | The indication for which the medical product is intended as of the date of the report | The stage of the medical product developments’ as of the date of the report | Milestones expected in the coming 12 months | The nearest milestone and the expected date of its achievement | Cost estimate for achieving the nearest milestone | InSightec’s estimate regarding the size of the expected target audience (no. of patients or procedures) and the expected financial extent of the potential target market for the medical product in development correct at the date of the report. | InSightec’s estimate regarding the date approval for the commercialization of the medical product under development | Insightec’s estimate regarding the expected market segment for the medical product under development, assuming commercialization approval is received1 | ||||||||
Neuropathic pain | CE, MAD and also in Australia and Thailand. | No plans for FDA approval exist as of the date of the report. | None | None planned | The target market in the USA is approximately 75,000 patients for whom treatment with the brain system may be appropriate9. The estimated cost of the treatment is 10,000-30,000 United States dollars. | The date for FDA approval in the USA cannot be estimated at this stage. | Insightec estimates that at the stage of market penetration, the relevant segment will be approximately 50% of the relevant target market. | |||||||||
Opening of the blood-brain barrier for treatments of tumors. | Preliminary feasibility studies after FDA approval is received for Phase I study and its implementation in the USA and additional countries. | Recruitment of 10 patients in GBM Studies | Completion of FDA phase-I study expected in 2020. | $2M | The target market in the USA is approximately 50,000 patients for whom treatment with the brain system may be appropriate10. The estimated cost of the treatment is 10,000-30,000 United States dollars. | Cannot be estimated at this stage | Cannot be estimated at this stage |
9 | The data is based on InSightec estimates. |
The data is based on InSightec estimates. |
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The medical product | The indication for which the medical product is intended as of the date of the report | The stage of the medical product developments’ as of the date of the report | Milestones expected in the coming 12 months | The nearest milestone and the expected date of its achievement | Cost estimate for achieving the nearest milestone | InSightec’s estimate regarding the size of the expected target audience (no. of patients or procedures) and the expected financial extent of the potential target market for the medical product in development correct at the date of the report. | InSightec’s estimate regarding the date approval for the commercialization of the medical product under development | Insightec’s estimate regarding the expected market segment for the medical product under development, assuming commercialization approval is received1 | ||||||||
Epilepsy | Planned phase I preliminary feasibility studies. | Completing recruitment of the first 5 patients. | Recruitment of the first of 5 patients. | Patient recruitment is funded by the executing site. | The target market is approximately 17,000 patients for whom treatment with the brain system may be appropriate11 . The estimated cost of the treatment is 10,000-30,000 United States dollars. | Cannot be estimated at this stage | InSightec estimates that at the stage of market penetration, the relevant segment will be approximately 80% of the target market | |||||||||
Body system | Uterine myomas12 (including adenomyosis where approved exists) | FDA, CE, MAD and other countries. | No expected milestones | No plans | No plans | Every year, approximately 1.3 surgeries for treatment of uterine myomas are carried out in the USA. InSightec estimates that approximately 30% – 50% of the patients will be able to benefit from the treatments and they are the target market. To date the annual cost of uterine myoma treatments in the USA (direct costs of surgical treatment) is approximately 3 billion dollar13. The estimated cost of the treatment is approximately 5,000-15,000 United States Dollars | Commercialization and treatment approvals have been issued in the USA, Israel, and Europe | Marketing approval has been obtained and InSightec aspires to achieve a market share of approximately 40% – 60% of the target market. |
11 | The data is based on InSightec estimates. |
Insurance coverage for this application has been approved. |
1) | http://www.ahrq.gov/research/womenh2.htm; |
2) | http://www.cdc.gov/chronicdisease/resources/publications/fact_sheets/cancer.htm; |
3) | Saigal CA, Litwin MS. Economic costs of early stage prostate cancer. Pharmaeconomics 2002:20:869-78. figures ($4.75B) interpolated for 2009 based on 1990 CPI (Consumer Price Index) of 193 and 2009 CPI of |
4) | LaVallee RW, Simpson KN, LaVallee RL; International Society of Technology Assessment in Health Care. Meeting Breast cancer, bone metastasis and episodes of care: a basis for cost effectiveness analysis. https://www250.safesecureweb.com/hcvadvocate/hepatitis/About_Hepatitis_pdf/1.1_Hepatits_C/Burden.pdf |
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The medical product | The indication for which the medical product is intended as of the date of the report | The stage of the medical product developments’ as of the date of the report | Milestones expected in the coming 12 months | The nearest milestone and the expected date of its achievement | Cost estimate for achieving the nearest milestone | InSightec’s estimate regarding the size of the expected target audience (no. of patients or procedures) and the expected financial extent of the potential target market for the medical product in development correct at the date of the report. | InSightec’s estimate regarding the date approval for the commercialization of the medical product under development | Insightec’s estimate regarding the expected market segment for the medical product under development, assuming commercialization approval is received1 | ||||||||
Treatment of metastases and tumors in bone.14 | CE approval and MAD exist for treatment of metastases and tumors in bone. FDA approval exists for treatment of metastases in bone.15 *An additional configuration of the device (CBS) has CE approval (and other countries). | No expected milestones | No expected milestones | Negligible costs | There are approximately 320,000 patients a year globally that suffer from metastatic-induced bone pain16. The annual financial scope of treatment of cancer metastases in bones in the USA is currently estimated at approximately 10 billion dollars. Approximately 50% of the patients with pain induced by metastases (that are not in the spine) will be a fit for treatment with the product and form the target market. The estimated cost of treatment is approximately 5,000-15,000 United States Dollars. | CE approval and MAD exist for commercialization in Europe and Israel. FDA approval exists in the USA. | Marketing approval has been obtained and InSightec aspires to achieve a market share of approximately 14% of the target market. | |||||||||
Prostate cancer | CE approval exists. FDA study protocol has been approved in the USA. | Complete patient follow up in 2019 | Complete patient follow up in 2019 | $ 2 million | There are approximately 1.1 million patients a year diagnosed for prostate cancer, mostly in the developed countries17. To date the annual costs of treatment of prostate cancers in the USA is estimated at over 5 billion dollars18. Approximately 40% of the patients are diagnosed with intermediate-risk cancer and will be a fit for local treatment with InSightec product and form the target market19. The estimated cost of treatment is approximately 10,000-30,000 United States Dollars. | InSightec cannot currently estimate the date FDA approval for marketing of the product will be received in the USA (if at all). | InSightec estimates that, at the market penetration stage, its share will be approximately 80% of the intermediate-risk cancer cases forming the target market. |
14 | Insurance coverage for this application has been approved. |
It shall be clarified that no FDA approval has been received for treatment of tumors and the approval is to treat metastases in bone only. |
Cancer induced bone pain. Kane et al. BMJ 2015; 350 doi: http://dx.doi.org/10.1136/bmj.h315 |
WHO Cancer report 2014 |
Kommu SS, Eden CG, Luscombe CJ, Golash A, Persad RA. Initial treatment costs of organ-confined prostate cancer: a general perspective Int. 2011 Jan;107(1):1-3 |
He et al. European Urology 2016; pii: S0302-2838(16)30883-1. doi: 10.1016/j.eururo.2016.11.031 |
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Regulatory approvals
Below is a table listing the approvals received by InSightec products from the Ministry of Health in Israel:
Name of the product approved | Indication | Medical Device Approval number | Medical Device Approval date | Approval term | ||||
Body system | General surgery – treatment (heating destruction – ablation and pain removal) in soft tissue, including adenomyosis, uterine myomas, bone and nerve growth by focused heating of segments using ultrasonic energy. | 8960000 | August 2002 | May 2019 | ||||
Brain system | Functional disorders (essential tremor, Parkinson’s disease, neuropathic pain) | 8960401 | October 2013 | December 2019 |
Below is a table listing the approvals received by InSightec products from the FDA2120:
Name of the product approved | Indication | Approval process | Approval number | Approval date | Predicate device [bilingual text] | |||||
Body system | Uterine myomas | FULL PMA | P040003 | October 2004 | None | |||||
Body system | Metastases in bone | PMA | P110039 | October 2012 | None | |||||
Brain system | Essential tremor | PMA | P150038 | July 2016 | None | |||||
Brain system | Essential tremor – Siemens approval | PMA | P150038/005 | September 2018 | None |
Below is a table listing the approvals received by InSightec products from the CE:
Name of the product approved | Indication | Notified Body | Approval number | Approval date | Approval term | Last date of notified body inspection and its results | ||||||
Body system | Uterine myomas | DEKRA | 2110597CE01 | October 2002 | January 2023 | December 2017 | ||||||
Body system | Adenomyosis | DEKRA | 2110597CE01 | May 2010 | January 2023 | December 2017 | ||||||
Body system | Bone tumors | DEKRA | 2110597CE01 | May 2007 | January 2023 | December 2017 | ||||||
Body system | Uterine myomas, adenomyosis, bone tumors | DEKRA | 2110597CE01 | September 2009 | January 2023 | December 2017 | ||||||
Body system | Expanding bone treatment indications and approval for CBS system. | DEKRA | 2110597CE01 | June 2013 | January 2023 | December 2017 | ||||||
Body system | Prostate cancer | DEKRA | 2110597CE01 | December 2016 | January 2023 | December 2017 | ||||||
Brain system | Functional disorders (essential tremor, Parkinson’s disease, neuropathic pain) | DEKRA | 2110597CE01 | November 2012 | January 2023 | December 2017 | ||||||
Brain system | DEKRA | 2110597CE01 | January 2023 | |||||||||
** The notified body inspection for each indication is carried out soon after the approval date. Beyond this, at least one inspection is carried out each year, and an overall inspection is carried out every 3 years, renewing the certificate.
The table present the regulatory approvals given granted by the FDA for InSightec systems and does not contain all the expansions and updates of technical systems made for the same indication over the years. |
The notified body inspection for each indication is carried out soon after the approval date. Beyond this, | ||
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Below is a table listing the approvals received by InSightec products in Japan, China, Korea, Taiwan, Canada, Australia and Canada:Thailand:
Japan
Name of the product approved | Indication | Approval process | Approval date | Predicate device [bilingual text] | ||||||||||||
Japan | ||||||||||||||||
Body system | Uterine myomas | Full registration | August 2009 | None | ||||||||||||
Body system | Bone metastases and UF updates | Partial change | November 2014 | None | ||||||||||||
Brain system | Essential tremors | Full registration | December 2016 | None | ||||||||||||
China | ||||||||||||||||
Body system | Uterine myomas | Full registration | July 2013 | Yes | ||||||||||||
Korea | ||||||||||||||||
Brain system | Movement, pain, and psychiatric disorders | Full registration | November 2015 | None | ||||||||||||
Body system | Uterine myomas, breast cancer | Full registration | November 2005 | None | ||||||||||||
Body system | Adenomyosis | Partial change | June 2011 | None | ||||||||||||
Body system | Metastases in bone | Full registration | March 2009 | None | ||||||||||||
Taiwan | ||||||||||||||||
Brain system | Essential tremor | Full registration | November 2017 | None | ||||||||||||
Canada | ||||||||||||||||
Brain system | Essential tremor | Full | May 2016 | |||||||||||||
Body system | Uterine myomas and metastases in bone | Full | August 2013 | |||||||||||||
Australia | ||||||||||||||||
Brain system | Functional disorders (essential tremor, Parkinson’s disease, neuropathic pain) | Full registration | September 2015 | None | ||||||||||||
Body system | Uterine myomas ,metastases in bone, Bone tumors Adenomyosis and Prostate cancer | Full registration | September 2015 | None | ||||||||||||
Thailand | ||||||||||||||||
Brain system | Functional disorders (essential tremor, Parkinson’s disease, neuropathic pain) | Full registration | May 2018 | None | ||||||||||||
Body system | Uterine myomas, metastases in bone, Bone tumors Adenomyosis and Prostate cancer | Full registration | May 2018 | None |
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Insurance coverage
As to InSightec’s best knowledge, as of the date of the report, insurance coverage is available for (a) Treatment of uterine myomas, by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket); (b) treatment by pain caused by cancer metastases in bones by the body system, by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket); (c) Insurance coverage for treatment of essential tremor by the brain system , by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket);
In July 20162018 a range of American insurance companies2521 providing insurance coverage for about 99.8 million members have published updates in their policies regarding treatment with the MRgFUS technology so as to include coverage for MRI-guided focused ultrasound treatment for pain caused by bone cancer. InSightec estimates that the aforementioned updates will enable access of these insurance coverage for treatments for this indication with InSightec’s ExAblate, as a treatment option approved by the FDA.
In November 2016, the CMS has decided to giveAmerican Medical Association (AMA) assigned a specific Current Procedural Technology (CPT) code for the treatment of essential tremor using InSightec’sInsightec’s brain system (hereinafter:“the treatment”), leading to the CMS to assign a payment level of $9,751 USD for the brain system. In this manner, the status of the treatment was changed from a non-entitled Medicare approved treatment to a treatment eligible for which refunds are available. This changes the treatment’s status from the status of a treatment for which insurance compensation is not available to one that enables insurance compensations to a level of 9,751 dollars.Medicare reimbursement.
Later, the CMS decided that starting on 01/01/2018 the primary code for movement disorders (essential tremors) will be assigned to a new technology level enabling an insurance compensation of 17,500 dollars t for those insured for whom the aforementioned treatment is appropriate.
In November 2018, the CMS decided that, commencing on 01/01/2019 the primary code for movement disorders (essential tremors) will be reassigned to a new technology level enabling an insurance compensation of 12,500 dollars for those insured for whom the aforementioned treatment is appropriate. MRgFUS in the treatment of pain palliation of bone metastases will be reimbursed at USD $10,936.00.
The CMS reimbursement level decision is only one of the necessary conditions necessary to receive an insurance compensation for the treatment. Pursuant to the CMS approval, the approval of each ofpayment level assignment, coverage decisions from the regional CMS representativesMedicare Contractors in the USA is required in order to receive insurance compensation for patients for the treatment. As of thethis date, an approval from a CMS representative in one area onlyfive of the seven Local Medicare Contractors have been received (National Government Services (NGS), Palmetto GBA, CGS Medicare, Local Medicare Contractor (MAC) for jurisdiction 6andK26) has been receivedWisconsin Physician Services (WPS) and the CompanyNoridian Medicare), representing 38 States. Insightec is acting to receive the rest of theremaining CMS representatives’MAC approvals, but cannot estimate when whether these approvals will be received.
InSightec is acting to expand the number of health insurance providing insurance coverage as described above, as well as the geographical area where the aforementioned health insurance will be provided to insured patients. For this purpose, InSightec is acting in a range of avenues, as follows: (1) Working with hospitals in the USA and Europe and supporting them in the process of applying to local insurance companies in order to receive insurance coverage (2) Forming a call center for support for patients whose applications for coverage from the insurance companies that are insuring them; (3) Direct activity with insuring entities, as well as entities setting policy in the matters of insurance coverage. In addition, in this context InSightec is also evaluating the possibility to make use of existing insurance codes, to receive insurance coverage as described for oncological applications. Expenses for this InSightec activity are included in InSightec sales and marketing expenses, as described in the financial reports.
InSightec believes that third-party payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the ExAblate.
21 | The publications are pursuant to a change of the insurance policy by insurance companies from theBlue Cross Blue Shield Association Health Care Service CorporationGroup. |
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Distribution and Marketing
InSightec has two main distributing channels; the first one is InSightec’s independent business department and the second one is by distributors and local agencies among them is GE healthcare representatives (usually without exclusivity) and other distribution agreements with third parties. Distribution agreements are generally for a term of between one and five years, with an option to extend the agreement based on the performance of the distributor.
Accumulated orders
As of 31/2017,12/2018, InSightec has accumulated orders resulting from obligating orders (Which can be canceled pursuant to the conditions of the contract with the distributor/client) for its products (in millions of dollars)22:
Period | Revenues | |
2 | ||
Total for | 14.1 | |
Revenues for | ||
Total accumulated orders |
Material agreements
InSightec is a party to a number of substantial agreements that are outside of the normal scope of business and were valid in the period described in this report, or affected its activities in this period:
Shareholders agreement
The Company, KDT, GE, MTA, theMediTech Advisors LLC, York, Foundation,Shanghai GEOC Hengtong Investment Limited Partnership, Mr. Ferré, Focused Holdings LP, InSightec, and a number of additional shareholders are a party to a shareholder agreement, as amended from time to time, establishing the relationship between the parties and their rights.
The cooperation agreement with GE Healthcare
On December 5, 2012 an agreement for cooperation between InSightec and GE was signed, and subsequently amended. This agreement provides the following as of the date of the report.
InSightec appointed GE as a non-exclusive distributor of its products, for the period ending at the end of 2020. The Agreement sets prices for InSightec products and the rates of the sales commission, refunds, and supports development of ties to radiologists using its products.
It shall be noted that, until the agreement was first amended (in June 2014), the cooperation agreement included, among other provisions, a commitment of InSightec to grant GE exclusivity, so that InSightec’s products would only be compatible with MRI machines made by GE. This exclusivity has been subsequently been terminated with the parties consent, and InSightec even entered into, in August 2016, a non-exclusive cooperation agreement with Siemens, an international company that is a leading manufacturer and developer of MRI imaging machines, for the purpose of adapting InSightec’s systems for work with the MRI imaging machines made by Siemens, in order to expand the market of products that InSightec systems are compatible with.
That said, correct to the date
22 | It should be noted that the data regarding accumulated InSightec orders are not reviewed by InSightec’s inspecting CPA. Furthermore, these orders depend on InSightec aprocuring appropriate regulatory approvals for the client, and should InSightec fail to receive these approvals, the order won’t be supplied. |
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It has been established in the agreement that InSightec carries the sole liability for defects in the manufacturing, planning, and initial assembly of the products. Moreover, InSightec is obligated to compensate GE Healthcare, its employees and representatives, for any damage, costs, or obligations resulting from a third-party suit resulting from the contract between the parties. GE Healthcare, on the other hand, is obligated to compensate InSightec, its employees and representatives, for damages caused by GE Healthcare products and/or changes made to these products without InSightec’s authorization. For the implementation of the provisions of this agreements, the parties have obligates themselves to purchase (each) an insurance policy to the extent of at least 5,000,000 dollars.
Moreover, the agreement originally established that InSightec will serve as a non-exclusive distributor of GE MR scanners, in order to enable InSightec to sell the scanners as part of its combined treatment system. This section was terminated with the consent of both parties in December 2017. The agreement establishes the price per unit and technological compatibility with InSightec products, to which GE is obligated
Cooperation agreement with Siemens
On August 15, 2016, we announced that InSightec Ltd. signed a non-exclusive cooperation agreement with Siemens, a leading manufacturer and developer of diagnostic imaging equipment in general and Magnetic Resonance scanners specifically, to develop compatibility between InSightec’s MRgFUS and Siemens’ MRI scanners (the “Systems”) with the intention to expand the MRgFUS market globally. According to the co-operation agreement, the Parties will cooperate regarding the performance of R&D, integration, testing and approving the compatibility of the systems of the parties. Each party shall be solely responsible, at its own cost, to obtain the regulatory approval for its systems, and InSightec shall be solely responsible, at its sole cost, to obtain the regulatory approval for the combined system. Each party shall bear all of its internal and external costs relating to its performance under the co-operation agreement, except that InSightec shall reimburse Siemens an amount agreed upon in the co-operation agreement, for its R&D costs. The co-operation agreement also provides that each party shall act independently in the marketing and sales of its component portion of the Combined System, and determines the amount InSightec shall pay Siemens for sales of the Combined Systems and in case of sales for installed MR base.
The term of the co-operation agreement is five (5) years from the first commercial sale of the combined system and shall automatically renew for additional 1-year periods, unless either Party has provided a notice for its non-renewal or of its termination, in accordance with the terms of the co-operation agreement.
Business Strategy
Insightec’s vision is global leadership in the field of non-invasive treatment using magnetic resonance guided focused ultrasound technology (MRgFUS), made available for broad use for the benefit and welfare of the patients.
Insightec’s strategy is focused on development of two product lines, a product line in the field of body systems (oncology and gynecology) and a line of products in the field of brain treatment systems (neurological disorders and tumors).
In the field of brain systems, Insightec intends to develop applications that will make use of advanced mechanisms of interactions between tissues and acoustic fields (for example, Targeted Drug Delivery), neuromodulation, and more. The brain applications currently supported by Insightec’s current systems and those planned in the future are based on thermal ablation. Insightec utilizes the technology used in this system in non-invasive brain treatments. To the best of Insightec’s knowledge, this field was a research field only in the first years of Insightec’s activity. As technology allowing brain treatment without trepanation became possible, this field became central for Insightec.
In order to realize its vision, Insightec intends to continue developing the MRgFUS technology and the systems based thereon, which will allow the replacement of surgical procedures, minimally-invasive procedures, and radiation treatment. Moreover, Insightec intends to continue searching for strategic partners acting in the markets relevant for its products in order to cooperate with them on entering the markets in an efficient, low-cost, broad entry of its technology into the target markets. In addition, Insightec is also working to raise funding from existing shareholders or from new sources of funding, which will support the acceleration of business and other activities.
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Insightec intends to develop a future surgical system that will replace the invasive operating room currently in use. The system will allow treatment in a variety of clinical applications, all of this while generating more value for its products and Insightec itself. Moreover, Insightec is evaluating the use of MRgFUS technology as an additional tool for Radiation Oncology departments, which will enable treatment of patients for whom radiation treatments are not currently providing a satisfactory response, or for whom a combination of MRgFUS treatment and radiation treatments will serve as a preferable treatment solution.
Insightec aspires to expand the marketing of its systems in additional countries in America, Europe, Asia and Oceania. For this purpose, Insightec intends to expand its distribution network, as well as evaluating various possibilities for marketing the product in the USA – by means of distribution agreements, direct marketing, or partnership with a strategic partner. Beyond that, Insightec intends to expand the volume of its activities in China and Japan, for which purpose Insightec has set up a fully owned subsidiary company in China and in Japan, and recruited a number of local employees.
Insightec aspires to complete the development of additional applications for its products, so that every product purchase can serve for the treatment of a great number of disorders, which will significantly increase the profitability of purchasing it.
Insightec goals for the current year’s (2019) activities:
● | Development of the business markets with a stress on brain systems and continued sales growth. | |
● | Investment of resources and acceleration of insurance coverage in the USA. | |
● | Continued research and development to expand the research in the field of brain systems and prostate research. |
Gamida Cell Ltd.
Holdings in Gamida’s shares
AsStarting from October 26, 2018, Gamida’s shares are traded on the NASDAQ (Nasdaq: GMDA) and as of the date of the report’s publication, we indirectly hold, through Elbit Medical, approximately 16%11% of the outstanding share capital (12%(8% on a fully diluted basis) of Gamida, as listed below:
Share types | Issued share capital | Number of stock held by the Company | Number of stock held by the Company of the same class of shares | Number of shares held by the Company of the same class of shares on a fully diluted basis | ||||||||||||
Common stock | 549,990 | 450,000 | 81.8 | % | 43.5 | % | ||||||||||
Type B common stock | 139,908 | - | - | - | ||||||||||||
Type A preferred stock | 600,000 | - | - | - | ||||||||||||
Type B preferred stock | 1,453,846 | 517,637 | 35.6 | % | 35.6 | % | ||||||||||
Type C preferred stock | 2,827,430 | 990,460 | 35.0 | % | 25.0 | % | ||||||||||
Type D preferred stock | 3,473,345 | 265,343 (5,380following adjustment (*)) | 7.8 | % | 7.8 | % | ||||||||||
Type E-1 preferred stock | 571,478 | - | - | - | ||||||||||||
Type E-2 preferred stock | 1,023,312 | 436,681 | 42.7 | % | 42.7 | % | ||||||||||
Type F-1 preferred stock | 4,274,363 | - | - | - | ||||||||||||
Type C preferred stock options | 1,129,008 | |||||||||||||||
Common stock options for investors, employees, and consultants | 1,506,510 | - | - | - | ||||||||||||
Type F-2 preferred stock options | 2,564,619 |
(*) It should be noted that, as of the date of this filing, 265,343 of the abovementioned Type D preferred shares are convertible to 270,723 ordinary shares, and this comes following the increase in the conversion ratio resulting from the activation of the anti-dilution mechanism included in Gamida’s Articles, within the scope of previous rounds of raising capital that Gamida has performed.
The following is a summary of the material provisions in the Articles of Association of Gamida (and the rights attached to its shares):
Liquidation and Dividend Preference
Upon the occurrence of a distribution, liquidation or deemed liquidation, including (a) the merger or consolidation or other reorganization of the company with or into any other corporate entity; or (b) a sale or perpetual exclusive license (in any two of the following territories: (i) substantially all of North America, (ii) substantially all countries in Europe, taken as a whole, and (iii) substantially all other countries (i.e., other than North America and Europe, taken as a whole) or (c) other irrevocable disposition of all or of substantially all of the company’s shares or intellectual property or assets, subject to certain exceptions:
(a) The holders of the Series F Preferred Shares shall first be entitled to receive $9.44 for each Preferred F-1 Share and $11.33 for each Preferred F-2 Share;
(b) Thereafter, the holders of the Series E Preferred Shares shall be entitled to receive $3.1503 per each Preferred E-1 Share and $3.7288 per each Preferred E-2 Share; provided that each of the holders of the Ordinary C Shares shall be entitled to receive out of the aggregate amount paid to the Series E Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series E Preferred Shares under this section multiplied by the ratio that such Ordinary C Share bears to the total number of the outstanding shares of Gamida on a fully diluted basis (the “Gamida Share Ratio”);
(c) Thereafter, the holders of the Series D Preferred Shares shall be entitled to receive $6.3111 for each Series D Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to receive out of the aggregate amount paid to the Series D Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series D Preferred Shares under this section multiplied by the Gamida Share Ratio;
(d) Thereafter, the holders of the Series C Preferred Shares shall be entitled to receive $1.9553 for each Series C Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to receive out of the aggregate amount paid to the Series C Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series C Preferred Shares under this section multiplied by the Gamida Share Ratio;
(e) Thereafter, the holders of the Series B Preferred Shares shall be entitled to receive $1.8052 for each Series B Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to received out of the aggregate amount paid to the Series B Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series B Preferred Shares under this section multiplied by the Gamida Share Ratio;
(f) Thereafter, the holders of the Series A Preferred Shares shall be entitled to receive $1.3720 for each Series A Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to received out of the aggregate amount paid to the Series A Preferred Shares in this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series A Preferred Shares in this section multiplied by the Gamida Share Ratio;
Under no circumstances shall the aggregate preference amounts payable in respect of any outstanding Preferred Shares, or that are underlying any outstanding convertible securities , as of July 3, 2017, exceed US$ 36,078,000.
(g) After the aforesaid preferences the remaining distributable assets, if any, shall be distributed among the holders of Ordinary Shares, Ordinary B Shares, Ordinary C Shares and Preferred Shares on a pro rata, pari passu, and as-converted basis.
Conversion
At any time, the holders of Preferred Shares may convert all or any portion of their shares into the number of Ordinary Shares computed by dividing the applicable original issue price paid for the class of Preferred Share held by such holders (“Original Issue Price”) by the applicable conversion price for such Preferred Share, which initially is the Original Issue Price (other than the Preferred D Shares for which the Original Issue Price is $9.56 and the conversion price is $9.37).
The preferred shares shall convert: (i) immediately prior to and conditioned upon the consummation of a public offering that yields gross proceeds of at least $30,000,000 at a pre-money value of at least $150,000,000, (ii) on the date specified in a written consent of the holders of at least a majority of voting power represented by the then issued and outstanding Preferred Shares (voting together as one class, on an as-converted basis), including the consent of the holders of at least a majority (or, in the case of the Preferred F Shares – 60%) of each of the series of Preferred Shares (other than the Series A Preferred Shares) then outstanding; or (iii) upon the date specified in a written consent of the holders of at least a majority (or, in the case of the Preferred F Shares – 60%) of the voting power represented by the then issued and outstanding shares of a certain series of Preferred Shares (with the shares of such series of Preferred Shares voting together as one class, on an as-converted basis), delivered to the Company, all issued and outstanding shares of such series of Preferred Shares shall automatically be converted.
The Preferred Shares have broad based weighted average protection formula (the Preferred F Shares are subject to a special anti-dilution mechanism).
Other Restriction of Transferability of Shares in Gamida
The shares in Gamida (with certain standard exceptions) are subject to a right of first refusal, co-sale and bring-along rights (if approved by 60% of the shares voting together as a single class).
Board of Directors
The number of Directors in Gamida shall not exceed 10 directors.
Any one or more shareholder(s) (with certain exclusions) who hold(s), together with its or their permitted transferees, shares of Gamida (other than Preferred F Shares) representing an aggregate of 11% or more of the voting power of Gamida on an as-converted basis, shall have the right to appoint, replace and remove one (1) director by virtue of such aggregate 11% holdings.
Special Voting Provisions/Veto Rights
Among other special voting rights, Gamida shall not effect a deemed liquidation in which holders of Gamida’s Preferred Shares receive equity in a private corporation in consideration for the transaction, other than such a transaction in which holders of Preferred Shares receive no less than their entire preference amounts in cash and/or publicly-traded securities, without the consent or vote of 60% of the Preferred F Shares.
The board of directors shall not undertake certain actions, including the following, without consent of a majority of the members of the Board appointed by the holders of the Preferred F Shares or shareholders holding an aggregate of 11% or more of the voting power represented by the then issued and outstanding share capital: (a) make any fundamental changes to the business of Gamida; or (b) any transaction out of the ordinary course of business not contemplated by the company’s budget then in effect.
Business Concept
Gamida deals in the research and development of medical products based on stem cells, the source of which is mainly from umbilical cord blood (hereinafter: “Umbilical BloodGamida’s Business Overview”).
Gamida operatesis a clinical-stage biopharmaceutical company committed to developing advanced cell therapies with the potential to cure cancer and rare, serious hematologic diseases. While cell therapies have the potential to address a variety of diseases, they are limited by availability of donor cells, matching a donor to the patient, and the decline in donor cell functionality when expanding the cells to achieve a therapeutic dose. Gamida have leveraged our nicotinamide-based, or NAM-based, cell expansion technology to develop a pipeline of products designed to address the limitations of cell therapies. Gamida’s proprietary technology is designed to allow for the proliferation of donor cells while maintaining the cells’ functional therapeutic characteristics, which, if approved, will provide a treatment alternative for patients.
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Gamida’s most advanced product candidate, NiCord, is an investigational advanced cell therapy based on NAM-expanded cord blood designed to enhance and expand the life-saving benefits of hematopoietic stem cell (bone marrow) transplant, or HSCT. Gamida is currently enrolling patients in a pivotal Phase 3 clinical trial in approximately 120 patients with various hematologic malignancies, including high risk leukemias such as acute myeloid leukemia, or AML, acute lymphocytic leukemia, or ALL, chronic myeloid leukemia, or CML, myelodysplastic syndrome, or MDS and lymphomas. Gamida anticipate reporting top-line data from this trial in the fieldfirst half of research, development2020. In Gamida’s Phase 1/2 clinical trials, patients who were transplanted with NiCord achieved rapid engraftment and manufactureimmune reconstitution, which are key indicators of products designatedclinical benefits. Data from the Phase 1/2 clinical study were published in the Journal of Clinical Oncology in December 2018. Based on the results of Gamida’s Phase 1/2 clinical trials, Gamida received Breakthrough Therapy Designation for NiCord in the United States from the U.S. Food and Drug Administration, or the FDA. Furthermore, Gamida received orphan drug designation from both the FDA and the European Medicines Agency, or the EMA.
Gamida also developing NiCord for the treatment of other rare, life-threatening hematologic diseases, including severe aplastic anemia, a bone marrow transplantsfailure disease, which is currently being investigated in leukemiaa Phase 1/2 trial sponsored by the National Institutes of Health, or lymph node cancer sufferers, non - malignant blood diseases such as Sickle Cell Anemia and Thalassemia, metabolic genetic diseases.NIH. In addition, Gamida is in further advanced stages of research development and manufacture of productsapplied its NAM-based cell expansion technology to natural killer, or NK, cells, to develop Gamida’s product candidate, NAM-NK, an innate immunotherapy for the immunological treatment of cancer sufferers by meanshematologic and solid tumors, now being evaluated in a Phase 1 investigator-sponsored trial for the treatment of Natural Killer Cells27 (hereinafter: “NK Cells”) (hereinafter together: “Field of Activities”).relapsed or refractory non-Hodgkin lymphoma, or NHL, and multiple myeloma, or MM.
Cell therapies involve the delivery of human cells to replace or repair damaged tissue or cells in order to treat a variety of cancers and other diseases. Hematopoietic stem cell transplantation with donor cells, or allogeneic HSCT, also called bone marrow transplantation, is the most frequently used cell therapy and is used to treat a variety of hematologic malignancies and other serious conditions. HSCT involves reconstituting a patient’s bone marrow from a seed population of stem cells obtained from a donor whose blood-forming and immune-system-forming cells are both cancer-free and effective at carrying out their functions.
There are multiple sources of donor cells. The mainbest source for donor cells is a sibling who is a matched related donor, or MRD, but the chances of having a sibling match in the United States are only 25% to 30%. The majority of patients rely on alternate sources of donor cells, including matched unrelated donor, or MUD, haploidentical, or “half-matched” donors, and umbilical cord blood. However, due to disease progression and other complications during the time needed to find a suitable donor, more than 40% of all patients who are candidates for HSCT do not receive a transplant.
Notwithstanding the various potential sources of donor cells, HSCT is subject to a number of significant limitations, including: (i) delays in finding a suitable match, during which disease progression may make patients ineligible for transplant; (ii) an insufficient number or delayed engraftment of donor cells, leaving patients without a functioning immune system and leading to potentially life-threatening immune deficiency following transplant; and (iii) a lack of long-term compatibility between the donor cells and the patient’s own cells, resulting in potentially fatal graft versus host disease, or GvHD.
Umbilical cord blood offers promise as a readily available source of stem cells for patients who need HSCT and do not have a MRD source. It is easier to find a match when using stem cells derived from cord blood, since a full match is not required for a successful transplant using cord blood. This broadens the pool of potential donors and shortens the process of finding a suitable match. However, on average, a typical cord blood graft contains approximately one-tenth the number of stem and progenitor cells compared to stem cell grafts from adult bone marrow or peripheral blood donors. This lower number of cells may delay engraftment of the donor cells and reconstitution of the immune system. This, in turn, increases both time in the hospital and the likelihood that a patient might contract a life-threatening infection.
NiCord, Gamida’s lead product candidate, is designed to address the limitations of HSCT and cord blood as a source of donor cells. NiCord is composed of cord blood that has been manufactured using Gamida’s proprietary NAM-based cell expansion technology, which increases engraftment efficiency in HSCT and enables rapid engraftment and immune system reconstitution. This reduces the risk of infections and other complications after transplant. In addition, the donor T cells in cord blood are naïve, meaning that they have not matured and may more readily adapt to the recipient. This results in greater immunologic compatibility, or the matching of the donor cells with the recipient’s cells, reducing the frequency and severity of GvHD, a medical complication following the receipt of transplanted tissue from a genetically different person, when compared to HSCT with a MUD. In light of these advantages, NiCord, if approved, may serve as a universal, readily-available, reliable and effective alternative to existing sources of donor cells for HSCT.
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NiCord has the potential to be a universal stem cell graft in two broad patient groups: (i) patients with high-risk leukemias and lymphomas who require HSCTs but who lack access to genetically matched donors; and (ii) patients with severe hematologic disorders such as severe aplastic anemia. In the first patient population, Gamida is developingcurrently enrolling an international, multicenter, randomized, pivotal Phase 3 clinical trial with top-line data expected in the first half of 2020. In Gamida’s company-sponsored, Phase 1/2 clinical trial in hematologic malignancies, NiCord was observed to help patients achieve rapid neutrophil and platelet engraftment. Neutrophil engraftment is defined as achieving a minimum neutrophil count of at least 0.5 x 109 per liter on three consecutive measurements on different days. Platelet engraftment is defined as achieving a platelet count of at least 20 x 109 per liter on three consecutive measurements on different days, with no platelet transfusion in the preceding seven days. Based on these promising clinical results, believe NiCord® (hereinafter “NiCord”), based upon has curative potential for hematologic malignancies initially, and eventually other rare hematologic conditions such as severe aplastic anemia. In the enrichmentsecond patient population, Gamida is currently conducting a Phase 1/2 clinical trial of umbilical cord bloodNiCord sponsored by the NIH, under an Investigational New Drug, or IND, application for CordIn. In February 2019, Gamida reported preliminary data from three patients at the Transplantation and Cellular Therapy Meeting, or TCT Meeting. All three patients were successfully transplanted and engrafted. These data enable the initiation of the second cohort evaluating NiCord as a stand-alone graft in patients with stemsevere aplastic anemia. Patient enrollment in Cohort 2 is expected to begin in the first half of 2019.
Gamida also applying its technology to develop NAM-NK for innate immunotherapy of expanded natural killer, or NK, cells for application in additional cancer indications when combined with standard-of-care antibody therapies. NK cells are highly potent cytotoxic lymphoid cells that can kill tumor cells in the absence of prior sensitization by other components of the immune system. By expanding NK cells with Gamida’s NAM technology, processGamida has the potential to increase the number and functionality of therapeutic NK cells targeting tumors. When NAM-NK is combined with targeted antibodies, Gamida has shown that makesthere is enhanced antibody-dependent cellular toxicity, or ADCC. NAM-NK is currently being evaluated in an ongoing investigator-sponsored Phase 1 clinical trial projected to enroll 24 patients with NHL and MM in combination with rituximab or elotuzumab, respectively. In February 2019, Gamida reported preliminary data at the TCT Meeting. The data from the first 14 patients demonstrated that NAM-NK was clinically active and generally well tolerated. Among the 12 patients evaluable for activity, six NHL patients, three patients achieved a complete response, one patient achieved a partial response, and two patients experienced progressive disease. Two of the patients who achieved a complete response subsequently received a bone marrow transplant. Among the six MM patients evaluable for activity, one patient achieved a complete response, two patients experienced stable disease, and three patients experienced progressive disease. Activity was observed at all three dose levels evaluated.
In addition, on February 12, 2019, Gamida Cell and Editas Medicine entered into a collaboration agreement to evaluate the potential use of Nicotinamide molecules (hereinafter: “NAM”). It would be prudentEditas Medicine’s CRISPR technology to state that Gamidaedit NAM-NK cells. The two companies will engage in joint research to evaluate unnamed targets by combining Gamida’s proprietary NAM-based cell expansion technology with Editas Medicine’s CRISPR technology. The research initiative is workingfocused on exploring the potential to develop additional products, which are also based on the NAM technology, including the CordIn and the NK cell product. These products are also in clinical development, but at a less advanced stage of development than the NiCord.edit NAM-NK cells to further optimize their tumor-killing properties.
Investments in Gamida’s capital
Below are details regarding investments in Gamida’s capital in the last two years:
● | On October 26, 2018, Gamida completed the pricing for initial public offering of its ordinary shares in the United States and application to list 6.65 million of its ordinary shares on NASDAQ. The price set in the pricing procedure was eight (8) dollars per share, a price that reflect a post-money valuation of Gamida of approximately 215 million dollars. As part of the IPO, Gamida gave the underwriters an option to purchase up to 937,500 additional shares. The consideration for Gamida in the IPO was approximately 53 million dollars (including the consideration received from the exercise of the option to the underwriters but not including underwriters’ fees and other expenses in connection with the IPO). Gamida’s shares started trading on the NASDAQ in October 26, 2018 (Nasdaq: GMDA). |
In July 2017, Gamida completed a round
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● | In July 2017, Gamida completed a round of fundraising of a scope of approximately 40 million dollars (Hereinafter in this paragraph: “The Investment”) in consideration for 4,274,363 f-1 shares. Immediately following the closing: (i) the Series F-1 Preferred Shares issued represented approximately 28.7% (21.9% on a fully-diluted basis) of Gamida’s share capital; (ii) the options to Series F-2 Preferred Shares issued represented approximately (13.1 on a fully-diluted basis) of Gamida’s share capital. The Investment was led by the Shavit Capital Fund, which was joined by Novartis and other investors, including the VMS Investment Group, IHCV, Israel Biotech Fund and the Company (hereinafter in this paragraph: “The Investors”). In return for the investment, Gamida issued preferred shares to the investors (hereinafter: “The Allocated Shares”) pursuant to a value of 120 million dollars (before the money). The portion of the company in the investment was 1.5 million dollars. In addition, options were allocated to the investors to purchase preferred shares in a quantity constituting 60% of the number of the preferred shares allocated (hereinafter in this paragraph: “The Options”). The exercise price of the options is 120% of the preferred share price paid by the investors at the time of the completion of the investment. The options are exercisable
Gamida’s Products and Clinical development
NAM-Based Cell Expansion Technology While cell-based therapies have the potential to address a variety of medical conditions, one of the key technical challenges for developing treatments with this approach is the expansion of therapeutically functional cells. In order for cell therapies to be clinically effective, there must be a sufficient quantity of therapeutically active cells for treatment, which requires the donor cells to be expanded in artificial culture conditions. While this may increase the number of cells, the functionality of those cells often diverges from the therapeutic functionality of the original donor cells. This shortcoming in the cells used for treatment can result in suboptimal clinical outcomes. Gamida’s NAM-based epigenetic technology for expanded cell products addresses this challenge by leveraging the biochemical properties of the small molecule nicotinamide in our manufacturing process. Gamida expand the number of donor cells while maintaining their functional therapeutic characteristics through the proprietary combination of NAM, intended to maintain silencing of cell differentiation and preservation of gene expression, and particular cytokines which promote cell growth. Gamida’s optimized manufacturing process results in robust and replicable batch production, enabling the generation of standardized donor-derived cell products, potentially resulting in better clinical outcomes.
The first application of the NAM-based technology is in umbilical cord blood cells. Gamida’s lead product candidate, NiCord, contains standard umbilical cord blood-derived stem cells that are expanded to obtain a critical number of effective cells for HSCT. A typical umbilical cord sample has a relatively low number of stem and progenitor cells, which currently limits the use of cord blood in HSCT, and hence, would ideally be increased for more successful treatment purposes. 47 A key component of Gamida’s cell expanded product candidates is NAM, which is a naturally occurring substance that regulates multiple processes including cellular stress, cellular energy, mitochondrial functions and gene expression. Gamida had successfully demonstrated the effectiveness of NAM-based technology in cord blood expansion cultures. Gamida incubated two cultures of cord blood cells, one treated with NAM and one untreated, for three weeks with cytokines known to induce numerical expansion of cord blood cells. The NAM-treated umbilical cord blood cell cultures had 30 times more stem cells than NAM-untreated umbilical cell cultures, as measured by the abundance of stem-cell-related surface markers. Furthermore, when examining the gene expression pattern of NAM-treated proliferating cord blood stem cells, Gamida observed a high degree of resemblance with the gene expression pattern of original stem cell populations inoculated in expansion cultures. In contrast, the gene expression pattern of cells incubated for three weeks without NAM was very different than that of the original stem cells. This confirms that NAM has the ability to preserve the characteristics of the original stem cell population.
Gene expression of cord blood CD34+ cells before culturing or after three weeks of culture with or without NAM. The levels of expression of clusters of thousands of genes are represented by the density of vertical bars. Three independent samples are shown as individual rows for each condition. In line with demonstrating the ability of Gamida’s proprietary cell expansion technology to increase the quantity while maintaining the quality of the therapeutic cells, Gamida had also been able to demonstrate that this could translate to clinical benefit. In pre-clinical models, NAM-treated cord blood cells demonstrated a 7.6-fold improved ability to establish stable grafts versus cord blood cells expanded without NAM. This resulted in a nine-fold increase in the number of engraftable cells over a cord blood unit before expansion. While test subjects receiving the same number of stem cells cultured without NAM had a low number of engrafted cells, NAM-treated stem cells exhibited a significant increase in the level of engraftment. Thus, not only do NAM-treated stem cells appear to be more stem-like, but they also retain stem cell-like functions and improve the ability to establish stable grafts.
Cord blood cells cultured with NAM result in a significantly higher number of engrafted cells in a preclinical model. *A result is considered to be statistically significant when the probability of the result occurring by random chance, rather than from the efficacy of the treatment, is sufficiently low. The conventional method for measuring the statistical significance of a result is known as the “p-value,” which represents the probability that random chance caused the result (e.g., a p-value = 0.001 means that there is a 0.1% or less probability that the difference between the control group and the treatment group is purely due to random chance). Generally, a p-value less than 0.05 is considered statistically significant, and may be supportive of a finding of efficacy by regulatory authorities. However, regulatory authorities, including the FDA and EMA, do not rely on strict statistical significance thresholds as criteria for marketing approval and maintain the flexibility to evaluate the overall risks and benefits of a treatment. 48 Based on the preclinical results, Gamida advanced NiCord into the clinic. Gamida had also applied NAM-based technology for Gamida’s second product candidate, NAM-NK, and plan to explore this technology for other cells with therapeutic potential. Allogeneic HSCT Allogeneic hematopoietic stem cell transplantation, or HSCT, is the transplantation of hematopoietic stem cells, derived from a donor’s bone marrow, peripheral blood or standard umbilical cord blood. HSCT involves reconstituting a person’s entire blood and bone marrow from a seed population of cells. In some clinical settings, autologous HSCT may be performed, in which cells are derived from the patient and reinfused at a later date. In leukemia and other hematologic malignancies, it is more appropriate to use allogeneic HSCT obtained from a donor, which ensures that the graft does not contain the patient’s malignant cells and leverages the ability of donor cells to fight against a patient’s cancer, which is known as the “graft versus leukemia” effect. In an HSCT procedure, a patient is treated with chemotherapy and/or radiation to destroy the residual cancerous or defective cells that reside in the bone marrow. This procedure, called myeloablation, also destroys the hematopoietic stem cells that are responsible for forming red blood cells, platelets and white blood cells. Stem cells from a donor are then infused into a patient who is now in remission, migrate and home to the bone marrow and begin to proliferate and differentiate into various types of blood cells, eventually leading to a full reconstitution of the bone marrow and immune system.
Dosing patients with stem cell graft The intent of HSCT is to cure patients of their hematologic malignancies. As of 2016, more than 500,000 allogeneic HSCT procedures have been performed worldwide over the past 50 years with over 30,000 being performed per year, of which 8,500 are in the United States. Approximately half of such patients are cured of their hematologic malignancies. From 2006 to 2016, the number of patients receiving an allogeneic HSCT procedure increased by approximately 5% per year in the United States due to multiple factors, including an aging population and new transplant modalities. Approximately 90% of HSCT procedures performed in the United States are for patients with various hematologic malignancies. Although the number of allogeneic HSCT procedures performed is growing and there are new modalities for the procedure, HSCT continues to have a number of limitations. There are two major areas of unmet need. First, of those who receive a transplant, there is concomitant morbidity and mortality associated with the treatment. Second, a significant number of patients who are candidates for transplant do not receive one in a timely fashion. Gamida believe that NiCord can address significant limitations. Current Sources of Donor Cells for Allogeneic HSCT There are multiple potential sources of donor cells for transplants. For each donor, there are various baseline requirements including age and overall health. In general, younger donors produce more and better cells for HSCT than older donors. The optimal source of donor cells is a sibling who is a MRD, but the chances of having a sibling match are only 25% to 30%. An alternate source of donor cells is a MUD, but only 30% of patients requiring a transplant have a good to intermediate probability of finding a MUD. Furthermore, it takes approximately four months on average to identify an appropriate MUD who is medically suitable and willing to donate. During this lengthy time period, there is a risk of disease recurrence. Over time, the patient may also become ineligible due to other health complications. Moreover, prolonged donor searches heighten anxiety for patients and their families. The ability to find a match through this process is particularly challenging for individuals of ethnic backgrounds that are not well represented in donor databases. 49 Donor matching is determined by human leukocyte antigens, or HLA, which are proteins present on most cells and inherited genetically. HLA are recognized by the immune system, and “foreign” or nonmatching HLA may be rejected. Therefore, matching of HLA between bone marrow donor and recipient is needed for a successful transplant outcome. There are rules for the minimum, or lowest, HLA match needed between a donor and recipient. In general, patients have better transplant outcomes with a closely matched donor. Research has found that a donor must match a minimum of six HLA markers. In some centers, eight markers are tested. In transplantation with a matched related donor or matched unrelated donor, there must be a six of six or eight of eight HLA match with the recipient. If a matched donor cell source is not identified, there are two alternatives for transplant candidates: haploidentical donors and umbilical cord donors. Haploidentical, or “half-matched” donors, are only partially compatible with the recipient. Because of the immune incompatibility in a haploidentical transplant, there is a high risk of GvHD, infection and other complications. There are two types of GvHD. Acute GvHD primarily affects the skin, the liver and the gastrointestinal tract (stomach, intestines and colon). Chronic GvHD begins later after transplant and lasts longer. It can be associated with damage to the liver, joints, skin and lungs. An approach to reduce these complications is to reduce the number of immune cells by giving cyclophosphamide after the transplant. However, this treatment modality may be associated with a decreased graft versus leukemia effect resulting in a higher rate of relapse, delayed time to engraftment associated with increased risk of infections and other complications. Alternatively, donor cells can be obtained from umbilical cord blood. There are over a million publicly available cord blood units, making this a readily available source of cells. In contrast to matched unrelated donor transplants, which require a greater degree of matching, cord blood transplantation can be performed successfully with a match of four of six, five of six, or six of six HLA. Because cord blood requires a less stringent degree of genetic matching than other graft sources, it is suitable in approximately 95% of all patients. This obviates the need to go through a prolonged search process with uncertain outcomes in order to find a donor and arrange for the collection of donor cells. Because the donor T cells in cord blood are naïve, meaning that they have not matured, they readily adapt to the recipient and are associated with a low risk of a patient developing GvHD, in particular chronic GvHD. Furthermore, transplantation with cord blood reduces the risk of potential transmission of infections from the donor. Limitations of Allogeneic HSCT There are three critical limitations to successful HSCT:
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DueNiCord is Designed to Address the inherently unpredictable natureLimitations of the research and development processes, we are unable to estimate with any certainty the estimated cost of achieving the next milestone.
Clinical and Regulatory Development
Nicord
NiCord is an investigational advanced cell therapy designed to enhance and expand the lead productlife-saving benefits of hematopoietic stem cell (bone marrow) transplant. NiCord utilizes the NAM-based cell expansion technology, to expand the number of donor cord blood stem cells while maintaining the cells’ functional therapeutic characteristics.
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NiCord consists of two fractions of a unit of cord blood separated based on the expression of a marker on the surface of individual cells known as CD133. A cell’s CD133 status reflects its “stem cell” properties. Those cells that express CD133 represent a pool of stem or progenitor cells, cells that are capable of generating blood cells that can differentiate into a variety of cell subtypes. The CD133-positive stem or progenitor cells are also capable of reproducing themselves. Once Gamida Cell forhad isolated cells bearing this marker, we then culture them using Gamida’s proprietary technology to expand their number while maintaining their regenerative properties. After approximately three weeks, Gamida harvest and cryopreserve these cultured cells.
Those cells that do not express CD133 represent other types of more mature, differentiated cells, including essential components of the treatment of patients with Hematological Malignanciesimmune system such as LeukemiaT cells. These mature cells cannot engraft but can provide immunological support until T cells derived from the stem cell graft recover. Gamida cryopreserve the CD133-negative cells at the outset of manufacturing and Lymphoma who requireretain them for use as the second component of NiCord.
The NiCord production process
The cryopreserved NiCord product is shipped cryogenically to transplant centers where both components are thawed and infused to patients on the day of transplantation. The thawing process occurs in a donor derived (allogeneic) bone marrow transplantation.closed system and can also be performed at the patient’s bedside for ease of administration. Gamida’s cryopreserved product resulted in engraftment results similar to those obtained with non-cryopreserved product in the pilot study at Duke University.
NiCord is composed fromdesigned to address the limitations of the current standard of care for HSCT. The NAM-expanded portion is designed to provide a therapeutically effective dose of stem cells derived from umbilical cord blood which were expandedto drive rapid engraftment, reconstitution of the entire immune system and enriched using Gamida’s proprietary NAM technology.
NiCord is enrolling patients in a Phase III registration study. NiCord received a breakthrough Therapy designation fromlong-term graft survival while the FDA and Orphan drug designation from the FDA and EMA.
The following items describe the significant clinical and regulatory events related to NiCord®:CD133-negative portion provides an immediate immune system benefit by supplying T cells.
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Given these characteristics, NiCord may serve as a reliable alternative to existing sources of donor cells as well as expand the transplant market for those who are unable to find a match.
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CordinNiCord for HSCT and Hematologic Malignancies
Another product based on the technology usedNiCord is in the NAM moleculesan international, multicenter, randomized, pivotal Phase 3 clinical trial in 120 patients for the treatment of hematologic malignancies. Gamida anticipate reporting top-line data from this trial in the first half of 2020. In Gamida’s completed Phase 1/2 clinical trials, patients who were transplanted with NiCord achieved rapid engraftment and immune reconstitution, which are key indicators of clinical benefits. Based on these results, Gamida received Breakthrough Therapy Designation from the FDA for NiCord. In addition, Gamida received orphan drug designation from both the FDA and the EMA.
Hematologic Malignancies
Hematologic malignancies are characterized by meansan abnormal and excessive proliferation of malignant blood cells that replace normal blood cells in the bone marrow and the circulation. In some patients, these cancerous cells proliferate rapidly, requiring urgent treatment. Patients are initially treated with chemotherapy in order to destroy the malignant cells in a rapid manner. However, in most patients, remission is temporary and the disease will return after initial treatment. One of the most effective treatment options for these patients is HSCT, where the blood forming cells in the patient are destroyed using chemotherapy, radiation or a combination of both. These patients then receive new bone marrow stem cells from a healthy donor.
NiCord: Phase 1/2 Clinical Trial Results
After an initial safety evaluation of NiCord in a pilot study at Duke University, an international, multi-center open-label study was conducted. The results of this single-arm Phase 1/2 trial of NiCord were published in the Journal of Clinical Oncology on December 4, 2018. The study enrolled 36 adolescent and adult patients with hematologic malignancies who did not have a suitably matched donor. All patients in the trial had been previously treated for various hematologic malignancies, including ALL, AML, MDS, CML and lymphoma. These patients were deemed to be in remission and at high risk of subsequent relapse.
The main objective of the study was to evaluate the safety and efficacy of NiCord treatment in patients with hematologic malignancies following myeloablative conditioning therapy. Myeloablative conditioning therapy is a combination of chemotherapy agents, and in some cases radiotherapy, that is expected to produce low blood counts and is administered in order to reduce the tumor burden, suppress the patient’s immune system, and allow engraftment of donor stem cells. The study compared outcomes against a group of historic controls that were identified from data collected by the Center for International Blood and Marrow Transplant Research, or CIBMTR, which tracks all allogeneic transplants conducted in the United States. From the CIBMTR database, we identified 146 age and disease matched patients who received standard cord blood transplants and served as historic controls.
In this study, NiCord was administered via central venous catheter after thawing and reconstitution of the two infusion bags, the first containing the NiCord-cultured fraction and the second the noncultured fraction. The NiCord-cultured fraction contains at least 8.0 x 108 total nucleated cells, or TNC, while the noncultured fraction contains at least 4.0 x 108 TNC. The final volume of the NiCord-cultured fraction is 100 milliliters and the final volume of the noncultured fraction is 50 milliliters.
The study’s primary endpoint was time to neutrophil engraftment and was met based on recovery of neutrophils. Patients treated with NiCord recovered their neutrophils (500 cells per microliter) with a median recovery of 11.5 days after transplantation, which is significantly shorter than the 21 days observed in the historic controls (p<0.001). Platelet counts recovered within a median time period of 34 days in the NiCord treated patients, compared to 46 days in the historic controls (p<0.001). For both neutrophils and platelets, the percentage of patients who achieved engraftment was higher than in the historic controls. The age-adjusted cumulative incidence of neutrophil engraftment at 42 days following transplantation was 94% for NiCord recipients and 85% for the CIBMTR comparator cohort.
Neutrophils are infection-fighting white blood cells circulating in healthy individuals. A minimum neutrophil count, or ANC, of 0.5 x 109 cells per liter is necessary to prevent life-threatening infections. In all NiCord clinical trials, neutrophil engraftment is defined as achieving an ANC > 0.5 x 109 per liter on three consecutive measurements on different days. The day of neutrophil engraftment is designated as the first of the three consecutive measurements and must occur on or before 42 days post-transplant.
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Platelets are required for normal blood clotting. Low platelet counts are associated with life-threatening hemorrhage. Platelet counts of >20 x 109 per liter are the minimum needed for the prevention of serious bleeding. Patients who have platelet counts lower than 20 x 109 per liter are usually given platelet transfusions in order to maintain their blood clotting function. In all NiCord clinical trials, platelet engraftment is defined as achieving a platelet count >20 x 109 per liter on three consecutive measurements on different days, with no platelet transfusions in the preceding seven days. The first day of the three measurements is designated the day of platelet engraftment.
Additional endpoints included rates of acute GvHD, chronic GvHD, infections, hospitalization and overall survival. In the Phase 1/2 trial of NiCord, rates of high grade acute GvHD were 11% in patients treated with NiCord and 27% in the CIBMTR cohort (p=0.09 by Fine-Gray analysis). For chronic GVHD, the cumulative incidence of all grades (including mild, moderate, and severe) was 40% for NiCord recipients and 30% for the CIBMTR comparator cohort (p = 0.1 by Fine-Gray analysis). Rates of the most clinically serious grades of chronic GVHD, moderate and severe, were 10% in both the NiCord and CIBMTR groups. The two-year estimates of disease-free survival, or DFS, were 43% in the NiCord group and 45% in the CIBMTR group, while overall survival rates, or OS, were 48% and 51%, respectively; neither DFS or OS were significantly different between the two groups. Other serious adverse events attributed to NiCord were hypertension (3%), infusion reaction (3%), thrombocytopenia, or low platelets (3%), and transaminitis, or elevated liver enzymes (3%). Of the 16 patients who died, eight deaths (50%) were attributed to relapsed disease, five (31%) to infection, two (13%) to GvHD, and one (6%) to organ failure.
The clinical impact associated with rapid engraftment was assessed in 18 patients treated with NiCord at Duke University. The patients who received NiCord had a decreased frequency of infections compared to 86 patients who received a standard cord blood transplant at the same institution. In particular, serious, Grade 2 and Grade 3 infections were significantly reduced (p<0.01).
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NiCord treated patients have significantly lower rates of serious infections than standard cord blood controls.
The speed and robustness of the immune system reconstitution also likely contributed to an observed reduction of 20 days in the number of days, post-transplant, that patients were hospitalized when compared to the length of hospital stays for similar patients treated with standard cord blood also at Duke University.
Patients with hematologic malignancies treated with NiCord had significantly fewer days of hospitalization than comparable patients receiving standard umbilical cord blood.
NiCord: Ongoing Phase 3 Clinical Trial for Hematologic Malignancies
Based on the results of Gamida’s Phase 1/2 trials, Gamida received Breakthrough Therapy Designation from the FDA for NiCord; and currently enrolling an international, multicenter, randomized, pivotal Phase 3 clinical trial of transplantation of NiCord versus transplantation of one or two standard cord blood units in approximately 120 patients with ALL, AML, MDS, CML or lymphoma. Gamida is conducting the Phase 3 clinical trial with the same eligibility criteria and endpoints as our Phase 1/2 trials to confirm the superiority of using NiCord in HSCT over standard cord blood. All patients enrolled in this trial are candidates for allogeneic HSCT who do not have a suitable matched donor. The primary endpoint of this trial is time to neutrophil engraftment. Gamida anticipate completing patient enrollment by the end of 2019, and reporting topline data from this trial in the first half of 2020. Additional endpoints include platelet engraftment, and rates of acute and chronic GvHD, infections, hospitalization and overall survival.
Ongoing Phase 3 trial of NiCord for HSCT in patients with hematologic malignancies.
NiCord: Health Economic Implications
The potential clinical advantages of NiCord could lead to societal benefits such as enabling patients to return to work, spend time with loved ones and enjoy improved quality of life. NiCord may also reduce the costs to the healthcare system versus standard cord HSCT due to potentially shortened isolation and intensive care hospital stays, reduced re-admission rates and decreased severity and rates of infections and GvHD. In the ongoing Phase 3 clinical trial, Gamida is collecting data to assess these endpoints. In parallel, Gamida is conducting a “real world” outcomes data study that is a prospective observational study designed to capture clinical and economic endpoints for haploidentical, mismatched unrelated, and matched unrelated transplant. The data Gamida collect from these efforts will inform a Health Economics Outcomes Research study that will be used to inform pricing and reimbursement.
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Gamida expect private payers to cover NiCord, and plan to apply for an add-on reimbursement code for NiCord in HSCT under private insurance. Gamida also plan to pursue reimbursement for NiCord under the NTAP program. NTAP provides Medicare and Medicaid beneficiaries timely access to breakthrough therapies that, absent any additional payments, would be inadequately covered under the existing Diagnosis Related Group payment system. Notably, two companies who are commercializing advanced cell therapy products for the treatment of hematologic malignancies – Gilead (Yescarta) and Novartis (Kymriah) – recently received NTAP status.
NiCord for the Treatment of Other Hematologic Disorders
In addition to hematologic malignancies, Gamida is pursuing the development of NiCord for the treatment of bone marrow failure disorders. The goal in treating these diseases is to replace defective bone marrow cells with cells derived from cord blood donors. NiCord is currently being evaluated in a Phase 1/2 NIH-sponsored clinical trial for the same investigational development candidate as NiCord, under an IND for the brand name CordIn. In this trial, NiCord is administered in combination with a reduced conditioning preparative protocol, which is designed to minimize toxicity, in up to 62 patients with severe aplastic anemia or hypoplastic myelodysplastic syndrome, another bone marrow failure disease. This research protocol is designed to evaluate the safety and effectiveness of transplantation with CordIn to overcome the high incidence of graft rejection associated with standard cord blood HSCT in severe aplastic anemia patients, where graft rejection occurs in up to 50% of subjects. In February 2019, Gamida reported preliminary data from the first cohort of patients. In this initial cohort of three patients, all successfully underwent a stem cell transplant consisting of NiCord plus a haploidentical stem cell graft. The rapid engraftment, sustained hematopoiesis and accelerated immune recovery observed in these patients enable the initiation of a second cohort of patients to be treated with NiCord as a stand-alone graft. Additionally, these data suggest that NiCord could potentially overcome some of the limitations of umbilical cord blood enrichedtransplantation for severe aplastic anemia.
Overview of Severe Aplastic Anemia
Severe aplastic anemia is a rare disease, with an estimated incidence in the United States of 600-900 patients per year. Underlying causes include autoimmune disease, certain medications or toxic substances, and inherited conditions. However, the cause is unknown in approximately half of all cases of severe aplastic anemia. The disease is characterized by stem cells in the bone marrow that are damaged and unable to produce enough new blood cells. This leads to extremely low blood cell counts and platelet levels, and often requires patients to be immediately hospitalized for treatment.
Allogeneic HSCT is the treatment of choice for patients with non - malignant hematological diseases (such as: Thalassemia, Sickle Cell Anemia,severe aplastic anemia who have an available matched sibling donor. Among the 2,471 patients with severe aplastic anemia receiving HSCT with a matched sibling donor between 2005 and Aplastic Anemia)2015, the three-year probability of survival was 91% for those younger than 18 years, and 78% for patients 18 years of age or older. Among the 1,751 recipients of HSCT with a MUD during the same period, the probabilities of survival were 78% and 68% for severe aplastic anemia patients under 18 years and greater than or equal to18 years, respectively. Unfortunately, because of the severity of the disease, some patients cannot wait to find an ideal match and use haploidentical matches that have a lower survival rate. Among those who are able to find a matched donor in a timely manner, the survival rates are very good. We believe NiCord may be able to provide a treatment option for those patients who are unable to locate such a donor in time.
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NAM-NK: Our Immuno-Oncology Product Candidate
NAM-NK is our cell therapy product candidate generated by the expansion of NK cells using the NAM-based technology platform. NAM-NK addresses a key limitation in the therapeutic potential of NK cells by increasing the cytotoxicity and in vivo retention and proliferation in the bone marrow and lymphoid organs of NK cells expanded in culture conditions. NAM-NK is currently in an investigator-sponsored Phase 1 trial for the treatment of MM and NHL. Gamida believe that NAM-NK may have broad potential in both hematologic and solid tumors.
Limitations of Therapeutic Antibodies in Cancer Treatment
NHL is the most common malignancy of B cells. An estimated 74,680 new cases of NHL were diagnosed in the United States in 2018. The five-year survival rate for those with NHL is approximately 70%. The combination of an antibody such as rituximab and chemotherapy is the standard of care for patients with NHL. However, many patients develop resistance to rituximab, and when used as monotherapy, only 15% of patients respond. One mechanism that contributes to this resistance is the inability of patient or autologous NK cells to locate and kill tumor cells that rituximab has bound to. Treatment with donor-derived NK cells may overcome this resistance.
MM is a hematologic malignancy characterized by the proliferation of monoclonal plasma cells in the bone marrow. It is more common in elderly patients, with a median age at diagnosis of 65 to 74 years. The National Cancer Institute estimated that there were approximately 30,770 new cases of myeloma diagnosed in the United States in 2018. The preferred treatment for myeloma is an autologous stem cell transplant, but due to other pre-existing conditions, not all patients are eligible for this. These, and the majority of patients who relapse following initial treatment, are then treated with various chemotherapy and antibody-based therapies that have significant anti-cancer activity when used in combination. However, there is still a large unmet clinical need as the five-year survival rate for patients with myeloma is approximately 50%.
NK Cells: Broad Anti-Cancer Potential
Extensive research efforts are ongoing to generate cellular products for the treatment of cancer patients. There is much interest in the field in the potential of NK cells because they have potent anti-tumor properties. In contrast to other immune cell therapies, NK cells can be used independently from genetic matching, potentially enabling NK cells to serve as a universal donor-based therapy when combined with certain antibodies.
NK cells’ tumor killing activity is greatly enhanced by antibodies that recognize tumor cells, which trigger antibody-dependent cellular toxicity, or ADCC. In ADCC, the binding of an antibody to a cell marks it for destruction by NK cells. A number of antibody products have been approved by the FDA as therapeutics in oncology, each of which has limited efficacy as monotherapy. The effectiveness of these antibodies can potentially be enhanced through co-administration with NK cells. A key limitation in the application of NK cells in cell therapy has been the traditionally challenging task of generating sufficient numbers of highly functional NK cells in culture.
Gamida’s Solution: NAM-NK
Gamida has developed NAM-NK, a cell therapy product candidate generated by expansion of NK cells using our NAM-based technology. Gamida believe that NAM-NK has potential application in boosting the innate immune response to cancer. Functional studies have shown that Gamida’s NAM-NK cells expanded in culture with our NAM technology and the cytokine IL-15 display increased tumor killing activity over NK cells expanded with IL-15 but without NAM. Gamida’s pre-clinical studies have demonstrated the potential of NAM-NK product to eradicate tumor cells to increase survival rates.
Further, Gamida has demonstrated that NAM-NK cells can kill B cell lymphoma in culture. The efficacy of this killing is further enhanced by the addition of rituximab, which drives ADCC. In a cell lysis experiment, NAM-NK cell-dependent killing of B cells was enhanced by rituximab. No killing was obtained in the groups treated with rituximab and without NK cells.
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Rituximab enhanced lysis of lymphoma by NAM-NK
An investigator-sponsored Phase 1 trial of NAM-NK cells in up to 24 patients with NHL or MM was initiated in 2017 at the dateUniversity of Minnesota. These patients have relapsed or refractory NHL or MM, meaning that their disease has come back after standard therapy and/or they are not responding to standard therapy for their disease. In combination with NAM-NK cells, these patients also receive therapeutic antibodies, which, in the case of NHL, includes rituximab and in the case of MM, includes elotuzumab. In February 2019, Gamida reported preliminary data at the TCT Meeting. The data reported from the first 14 patients demonstrated that NAM-NK was highly active and generally well tolerated. Among the six NHL patients evaluable for activity, three patients achieved a complete response, one patient achieved a partial response, and two patients experienced progressive disease. Two of the publicationpatients who achieved a complete response subsequently received a bone marrow transplant. Among the six MM patients evaluable for activity, one patient achieved a complete response, two patients experienced stable disease, and three patients experienced progressive disease. Activity was observed at all three dose levels evaluated. All 14 patients were evaluable for safety, and data from these patients showed that NAM-NK was generally well tolerated, with no GvHD, no tumor lysis syndrome and no neurotoxicity syndrome observed. Grade 3 (n = 3) and Grade 4 (n = 1) hematologic adverse events were observed. Non-hematologic adverse events were mostly Grade 1 and Grade 2. There was one case of Grade 3 cytokine release syndrome and one death due to sepsis. Based on these data, the report, Gamida is conductingexpects to initiate a multicenter Phase I / II1/2 clinical trial with CordIn, which is transplantedof NAM-NK in 2020.
Phase 1 trial of NAM-NK in patients with Sickle Cell Anemia, together with a unit of umbilical blood which has not undergone any treatment (in a configuration of two units of umbilical blood).
Furthermore, in July 2016, Gamida began Phase I / II trials on patients with Sickle Cell Anemia and Thalassemia using CordIn (in a configuration of one umbilical blood unit).
In addition, in August 2017, a transplant was performed on the first patients as part of the Phase I / II trial on patients with severe Aplastic Anemia, and Myelodysplastic diseases (Hypoplastic Myelodysplastic syndromes – MDS) using CordIn.MM or NHL
The following items describeresults of this study will also provide the significant clinical and regulatory events related to CordIn:basis for potential exploration in solid tumors.
NiCord for the Treatment of Non-Malignant Disorders
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NiCord has also been tested in patients with sickle cell disease, or SCD, for which HSCT is currently the only clinically established cure. In Phase 1/2 clinical trials, 14 patients with SCD were treated with a standard unit of cord blood followed by NiCord, administered via central venous catheter after thawing and reconstitution of the infusion bags. The standard cord blood unit was infused first, with the dose consisting of the entire unit, or one infusion bag. The NiCord infusion consisted of two infusion bags, the first containing the NiCord cultured fraction and the second, the non-cultured fraction. The NiCord-cultured fraction contained at least 8.0 x 10 8 TNC, while the non-cultured fraction contained at least 4.0 x 10 8 TNC. The final volume of the NiCord-cultured fraction was 100 milliliters and the final volume of the non-cultured fraction was 50 milliliters. All patients initially engrafted at a median of seven days. Twelve patients had long-term engraftment and were disease free after 22 months. Two of the patients died, one due to chronic GvHD and the other due to secondary graft failure. There were no other serious adverse events attributed to NiCord in patients with SCD. These results are favorable when compared to those from a study of 29 patients with SCD who underwent HSCT with cells from an MUD donor. In that study, 27 of the patients had neutrophil engraftment, and the median time to engraftment was 12 days. There were eight deaths, seven due to GvHD and one due to graft rejection; 19 of 29 were disease-free at two years. The SCD trial is currently closed to further enrollment, and data will be analyzed when patient follow-up is completed in the second half of 2019.
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Gamida believe that NiCord has potential to replace other allogeneic HSCT procedures in other hematologic diseases and some metabolic disorders. The following table illustrates the annual incidence of certain non-malignant diseases in the United States, according to the U.S. National Marrow Donor Program.
Material agreements
The Lonza Agreement
OnGamida’s product candidates are currently manufactured at Gamida’s Jerusalem, Israel facility and in the United States by Lonza Walkersville, Inc., or Lonza US, using a scalable self-assembly process with well-defined unit operations. This highly specialized and precisely controlled manufacturing process enables Gamida and Lonza to manufacture product candidates reproducibly and efficiently for clinical and commercial applications. Gamida currently rely on Lonza US, to conduct a material portion of Gamida’s product manufacturing for NiCord and CordIn and intend to do so at Lonza US or a Lonza affiliate, at least until Gamida’s manufacturing facility is expected to be completed.
In February 13, 2016, and as amended, Gamida entered into a framework agreement,Manufacturing Services Agreement, or the Manufacturing Agreement, with Lonza US for the production of products containing human cells intended for therapeutic use in humans. Under the terms of the Manufacturing Agreement, Lonza US manufactures, packages, ships, and handles quality assurance and control products, based on statements of work, which Gamida submit with respect to each development of a process or product and as may be further be amended by change orders. Each statement of work describes the activities to be performed by the parties and is subject to the terms of the Manufacturing Agreement unless the parties have agreed otherwise. In February 2016, Gamida signed a statement of work for technology transfer and clinical manufacturing of Nicord and CordIn for a five year period with Lonza Walkersville Inc (“Lonza”) forended December 2018. In February 2019, the supply of serviceSOW was extended and operation of manufacturing facilities, as well as a service agreement for purposesis effective until November 30, 2019.
The term of the manufacturing of NiCord and CordIn (mainly for the Phase III clinical trials of the NiCord product).Manufacturing Agreement is five years, unless terminated earlier pursuant to its terms. The parties agreed that,Manufacturing Agreement may be terminated in the event that Gamida will want to commercialize NiCord, the parties will discuss between them (with no obligations), the continuation of manufacturing for such commercial stage. The period of service agreement is until to December 2018 and Gamida has the option of extending the agreement periodan uncured material breach by an additional 6 months against additional payment. The total costone of the agreement is several millionsparties. In addition, the Manufacturing Agreement or any statement of dollars.work thereunder may be terminated by Gamida can terminateby providing six months prior written notice or by Lonza US by providing 12 months prior written notice. In addition, the agreementManufacturing Agreement may be terminated if either NiCord or Cordin, which are being produced thereunder, has been or will be suspended or terminated by meansthe FDA due to the failure of a 6 monththe product candidate, by providing two months prior written notice. Lonza can terminateFurther, the agreement as of December 31, 2017,Manufacturing Agreement may be terminated by means of a 12 month prior notice. Likewise, the two parties can terminate the agreement by means of a two month prioreither party upon notice in the event thatof dissolution, termination of existence, liquidation or business failure of the clinical trial is suspended byother party, the FDA.uncured appointment of a custodian or receiver to the other party or un-dismissed institution of insolvency, reorganization or bankruptcy proceedings.
In Gamida’s opinion, in the caseAs of the replacementdate of December 31, 2018, Gamida have paid Lonza a great deal of resources will be required, both from the aspect of locating alternate vendors that comply with the stringent standards as well as from the aspect of preparing a new production facility, the transfer of technology training workers, etc., which is estimated to be a periodan aggregate of approximately one year and, as a result, Gamida is liable$11.7 million pursuant to be dependent on this vendor.the Manufacturing Agreement.
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The Kiryat Gat Premises Lease Agreement
In December 2017, Gamida entered into a lease agreement of a propertyfor an approximately 52,000 square foot facility in Kiryat Gat, of 5,000 sq. m. designated for use asIsrael, where Gamida intend to build a production site for the commercial stage.commercial-grade cGMP manufacturing. The lease agreement is for a 10 year period and includes an option to extend it for an additional 5 years.
Plots in Eastern Europe initially designated forThe Jerusalem Lease Agreement
Gamida’s principal executive offices are located at 5 Nahum Heftsadie Street, Givaat Shaul, Jerusalem 91340, Israel, where Gamida lease an approximately 1,300 square foot facility. This facility houses Gamida’s administrative headquarters, research and development of commercial centerslaboratories and pilot manufacturing facility.
plots in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PCGamida’s strategy“) whose business strategy
Gamida’s goal is to no longer develop commercial centers butdeliver curative cell therapies to dispose its real estate assets at optimal market conditions.
Business Conceptpatients with serious and Strategy
PC business concept and strategy islife-threatening medical conditions. The key strategies to no longer develop commercial centers, but to solve existing bureaucratic or legal issues and dispose its real estate assets.
PC’s financial reports for 2017 indicateachieve Gamida’s goal are the existence of a material uncertainty that casts significant doubt about PC’s ability to continue as a going concern.
Plots owned by PC
Casa Radio, Romania
One of PC’s most significant projects is the Casa Radio project in Bucharest, Romania. The carrying amount of this project in the company’s financial statements as of December 31, 2017, amounts to NIS 263 million (2016 - NIS 263 million).
In 2006 PC entered into an agreement according to which it acquired a 75% interest in a company (“Project SPV”) which is under a Public Private Partnership (“PPP”) agreement with the Government of Romania to develop the Casa Radio site in the center of Bucharest (“Project”). After signing the PPP agreement, PC holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and a third party private investor (10%).
As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006. As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building (“PAB”) measuring approximately 11.000 square meters for the Romanian Government at its own expense.
Large scale demolition, design and foundation works (financed by loans given to the Project SPV by PC) were performed on the construction site until 2010, when construction and development was put on hold due to lack of progress in the renegotiation of the PPP agreement with the authorities, as detailed below, and the global financial crisis. These circumstances (and mainly the bureaucratic deadlock with the Romanian Authorities to deal with the issues detailed below) caused the Project SPV not to meet the development timeline of the Project, as specified in the PPP. However, PC’s management believes that it had legitimate reasons for the delays in this timeline, as detailed below.
Obtaining of the Detailed Urban Plan (“PUD”) permit
The Project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan (“PUZ”) related to the Project. The court decision is irrevocable.
As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.
Discussions with Authorities on construction time table deferral
Following the Court decision with respect to the PUZ, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit. The building permits have not been obtained.
Additional information in respect of PC’s trading property:
However, due to substantial differences between the approved PUD and stipulations in the PPP agreement as well as changes in the EU directives concerning environmental considerations in buildings used by public authorities the Project SPV attempted to renegotiate the future development of the Project with the Romanian Authorities on items such as time table, structure and milestones as well as adaptation of thePAB development to the current EU requirements. Despite many notifications sent to the Romanian Authorities expressing a wish to renegotiate the existing PPP agreement no major breakthrough could be achieved. PC could be subject to significant delay penalties under the terms of the PPP agreement if it is determined that PC was at fault in causing the delays.
Because of the failure of the public authorities to cooperate, negotiate and adjust the PPP agreement, the Project SPV was not able to meet its obligations under the PPP. This resulted in a situation where the Project SPV could not “de facto” continue the execution of the Project and created a risk that the public authorities could attempt to terminate the PPP agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, PC may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (€ 50.4 million). As of the date of approval of PC's consolidated financial statements for 2017 the Project SPV did not receive any termination notification by the public authorities.
PC believes that although there is no formal obligation for the Romanian Authorities to renegotiate the PPP agreement, such obligation is implicitly provided for the situation when significant unexpected circumstances arise and that the unresponsiveness of the authorities is a violation of the general undertaking to support the Project SPV in the execution of the Project as agreed in the PPP agreement.
PC also believes that the risk that the public authorities may seek to terminate the PPP and/or relevant permits on the basis of the perceived breach of the PC’s commitments and/or may seek to impose delay penalties on the basis of the PPP contract is unlikely given the public authorities have not sought to do such since the perceived breach in 2012 and given PC believes that it has basis for counter claims against the relevant public authorities.
In the case of termination for breach under the PPP agreement the relationship and compensation between the parties is to be decided by a competent court of arbitrations. PC’s management believe that, in the case of termination, PC has a strong case to claim compensation for damages.
Since 2016 PC’s management has taken a number of steps in order to unblock the development of the project and mitigate the risk of termination of the PPP agreement, including commencing a process to identify third party investors willing and capable to join PC for the development of the project and/or potential buyers for the Project. PC’s management believes that reputable investors with considerable financial strength can enhance PC’s negotiation position vis-à-vis the authorities and assist in advancing an amicable agreement with the relevant authorities with respect to the development of the project.
Whereas PC’s management considers the risk of termination of the PPP agreement and/or the imposition of penalties by the authorities to be unlikely, the consolidated financial statements do not include any provision in respect to any potential future penalties in respect to the breach of the PPP agreement. The increased risk arising from the above matters has been reflected in the valuation of the Project.
Co-operation with the Romanian Authorities regarding potential irregularities
In 2015, PC’s board and management became aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, PC’s board appointed the chairman of its Audit Committee to investigate the matters and independent law firms to analyze the available alternatives in this respect. The chairman of the Audit Committee did not conclude the investigation as the person with key information was not available to answer questions. PC’s Board, among other steps, implemented a specific policy in order to prevent the reoccurrence of similar events and appointed the chairman of the audit committee to monitor the policy’s implementation by PC’s management. In addition, it was decided that in the future certain agreements will be brought to PC’s board’s approval prior to signing.
PC has approached and is co-operating fully with the relevant Romanian Authorities regarding the matters that have come to its attention and in March 2016 it has submitted its initial findings to the Romanian Authorities. During this process PC has been verbally informed by the Romania Authorities that it has received immunity from certain potential criminal charges and received further verbal assurance that the mentioned investigation should have no effect on the PC’s existing legal rights to the Project and the PPP Agreement. As the investigation by the Romanian Authorities is still on-going, the Company in unable to comment further on any details related to this matter. Management is currently unable to estimate any monetary sanctions in respect to the potential irregularities, consequently no provision has been recorded in connection with these matters.
As mentioned above, when PC entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own expense for the benefit of the Romanian Government. Consequently, the statement of financial position includes a provision in the amount of EUR 12.8 million ($ 15 million) in respect of the construction of the PAB (December 31, 2016: EUR 13.2 million). During 2017, the Company recorded income in total amount of EUR 0.4 million from change in PAB provision as part of write down of trading properties (in 2016 - EUR 1.7 thousand).
In addition to the Casa Radio project, the following table provides additional information in respect ofPC plots which are designated for sale, as of December 31, 2017:following:
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● | Advance NiCord for the treatment of severe aplastic anemia in an ongoing Phase 1/2 clinical trial. In addition to hematologic malignancies, Gamida is pursuing NiCord in severe aplastic anemia. NiCord is currently being evaluated in a NIH-sponsored, Phase 1/2 clinical trial in patients with severe aplastic anemia under an IND for the brand name CordIn. In February 2019, Gamida reported preliminary data from the first cohort of patients. In this initial cohort of three patients, all successfully underwent a stem cell transplant consisting of NiCord plus a haploidentical stem cell graft. The rapid engraftment, sustained hematopoiesis and accelerated immune recovery observed in these patients enable the initiation of a second cohort of patients to be treated with NiCord as a stand-alone graft. Beyond this disease there are a multitude of rare, life threatening conditions in which NiCord has curative potential. | |||||||||
● | Investigate the potential of NAM-NK in conjunction with therapeutic antibodies in additional cancer indications. Gamida has applied its NAM-based technology platform for expanded cell products to develop a second product candidate, NAM-NK, which has potential application in boosting the innate immune response to cancer. NAM-NK is currently being evaluated in an investigator-sponsored, Phase 1 clinical trial in patients with NHL or MM, in combination with rituximab or elotuzumab, respectively. In February 2019, Gamida reported preliminary data at the TCT Meeting. The data from the first 14 patients demonstrated that NAM-NK was highly active and generally well tolerated. Among the 12 patients evaluable for activity, six NHL patients, three patients achieved a complete response, one patient achieved a partial response, and two patients experienced progressive disease. Two of the patients who achieved a complete response subsequently received a bone marrow transplant. Among the six MM patients evaluable for activity, one patient achieved a complete response, two patients experienced stable disease, and three patients experienced progressive disease. Activity was observed at all three dose levels evaluated. Based on these data, Gamida expects to initiate a multicenter Phase 1/2 clinical trial of NAM-NK in 2020. | |||||||||
● | Maximize commercial value of our product candidates.If NiCord is approved for stem cell transplantation, Gamida intend to independently pursue the commercialization of NiCord in the United States, where Gamida plan to build a sales force focused on the approximately 200 domestic stem cell transplant centers. Outside of the United States, Gamida may pursue the approval and commercialization of NiCord in collaboration with strategic partners, particularly in Europe, Japan, Taiwan, Korea and other geographies which are more effectively managed by companies with local expertise. |
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● | Centralize manufacturing capabilities to deliver a pharmaceutical grade product to meet commercial demand.Gamida has devoted significant resources to optimizing and standardizing process development and manufacturing, which are key components to successfully delivering cell therapies. Gamida has limited in-house GMP manufacturing capabilities and we are working to build additional manufacturing infrastructure at an identified site to diversify production of NiCord and in preparation for commercialization. Gamida’s cryopreservation capabilities enable Gamida to deliver Gamida’s cell therapies globally, ready for infusion. Gamida believe that these efforts will lead to an efficient production cycle and improved access for patients seeking suitable donor solutions. Gamida goal is to carefully manage our fixed cost structure, maximize efficiency and scale, and reduce the cost of manufacturing its products. | |||||||
● | Demonstrate NiCord’s value through Health Economics Outcomes Research. Gamida believe that a favorable outcome of its ongoing Health Economics Outcomes Research analysis will inform price, reimbursement and | |||||||
(1) Following the preliminary agreement regarding the disposal of a plot in Piraeus, Greece, several amendments were signed during 2016-2017. The latest amendment deadline expired on January 20, 2018. In order to secure the prolonged validity of the initial agreement, the purchaser made advance payments in a total amount of EUR 0.3 million (non-refundable) to PC. The completion of the transactions are expected to be concluded during 2018 as an asset deal (instead of the original agreement regarding a share deal) with a lower sales price of EUR 3.35 million.
(2) On June 13, 2017, PC announced that it has signed a preliminary sale agreement for the sale of a 13,770 square meter plot at its second land holding in Lodz, Poland, (representing 22% of this holding) to a retail developer, for €1.2 million. The purchaser made a down payment of EUR 0.035 million and a second payment of EUR 0.085 million shall be paid when the purchaser obtains environmental permit for investing in the access road to the plot. The remaining balance minus 50% of the sum invested in the road (up to maximum amount of EUR 0.12 million) will be paid once a building permit is obtained for development of the plot which is expected to be granted till the end of 2018.
Plots in India
Joint Venture with PC in respect of Plots in India
Our plots in India are owned by our subsidiary, Elbit Plaza India Real Estate Holdings Limited("Limited (“EPI"”). EPI is held 47.5% directly by us and 47.5% by our subsidiary PC (the remaining 5% are held by the Company'sCompany’s former Executive Vice Chairman (VC) of the Board). EPI holds two plots in India (in Bangalore and Chennai).
Business concept and strategy
Our business concept and strategy in respect of our Bangalore, India project and the Chennai, India project is to transfer our proprietary interests in the plotplots to third parties.
With respect toFor information regarding our Chennai, India project, our main goal and strategy is to find a commercially suitable exit from the project and liquidate our interest in the project in the most efficient manner. Until such time, we are developing, through a local Joint Development Agreement with a local partner, the plot in the Chennai,Bangalore, India, project. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement with respect to our Plot in Chennai, India “.
Additional information in respect of the Chennai Project
In December 2007 EPI established a special purpose vehicle (“Chennai Project SPV”) which acquired 74.73 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai (“Property”).
On July 21, 2016, Chennai Project SPV signed a Joint Development Agreement with a local developer (“Developer” and “JDA”, respectively) with respect to the Property.
Under the terms of the JDA, the Chennai Project SPV granted the property development rights to the Developer who shall bear full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices.
Development will commence subject to the obtainment of the required governmental/ municipal approvals and permits, and it is intended that 67% of the Property will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale.
The Chennai Project SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units.
In order to secure its obligation, the Developer paid a total refundable deposit of INR 10 Crores ($ 1.6 million) following the signing and registration of the JDA.
The JDA may be terminated in the event that the required governmental approvals for establishment of an access road to the Property has not been achieved within the 12 (twelve) month period from the execution date of the JDA. The required approvals were not obtained by the target date (and as of this date they have not yet been obtained), but none of the parties has canceled the agreement at this juncture. Upon such termination, the Developer shall be entitled to a refund of the relevant amounts paid as refundable deposit and any other cost related to such access road or the title over the Property. The JDA may also be terminated by the Chennai Project SPV, inter alia, if the Developer has not obtained certain development milestone and/or breached the terms of the JDA.
Additional information in respect of Bangalore project
In March, 2008 EPI entered into a share subscription and framework agreement (the “Agreement”), with a third party local developer (the “Partner”), and a wholly owned Indian subsidiary of EPI which was designated for this purpose (“SPV”), to acquire together with the Partner, through the SPV, up to 440 acres of land in Bangalore, India (the “Project”) in certain phases as set forth in the Agreement. As of December 31, 2017, the Partner has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest in the Plot and have also signed a Joint Development Agreement with the SPV in respect of the Plot.
On December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Partner (the “Sale Agreement”). The total consideration upon completion of the transaction was INR 3,210 million (approximately EUR 42 million) which should have been paid no later than September 30, 2016 (“Long Stop Date”). On November 15, 2016, the Partner informed EPI that it will not be able to execute the advance payments.
As a result of the foregoing, the Company has received from the escrow agent the sale deeds in respect of additional 8.3 acres (the “Additional Property”) which has been mortgaged by the Partner in favor of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favor of the SPV.
As a result of the failure of the Partner to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, the partner is no longer entitled to receive the 50% shareholding.
New payment structure for sale of Project in Bangalore, India
In June 2017, EPI signed a revised sale agreement with the former Partner according to which the parties have agreed that the purchase price will be amended to INR 338 Crores (approximately Euro 44.2 million) instead of the INR 321 Crores (approximately Euro 42 million) agreed in the previous Agreement. As part of the new agreement, INR 110 Crores (approximately Euro 14.4 million) will be paid in instalments until the final closing that is scheduled to take place on September 1, 2018 (the "Final Closing"), when the final instalment of INR 228 Crores (approximately Euro 29.8 million) will be paid to EPI.
If the Partner defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Partner as stipulated in the new agreement. All other existing securities granted to EPI under the previous Agreement will remain in place until the Final Closing.
In January 2018, the Partner has notified EPI that due to a proposed zoning change (initiated by the Indian authorities) which could potentially impact the development of the land, all remaining payments under the new agreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Partner’s claims, having no relevance to the new agreement, and started to evaluate its legal options.
Since the signing of the revised new agreement, the Partner has paid non-refundable advance payments totaling INR 46 Crores (approximately € 5.9 million).
In March 2018, an amended to the agreement was signed and the Partner and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). Following the signing of the new agreement, the Partner paid EPI an additional INR 9 Crores (approximately €1.3 million) further to the INR 46 Crores (approximately €5.9 million) that were already paid during the recent year. Additional INR 83 Crores (approximately €10.8 million) will be paid by the Partner in unequal monthly installments until the Final Closing that will take place on August 31, 2019 (the “New Final Closing”) when the final installment of approximately INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Partner defaults before the new Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the New Final Closing.
Environmental update on Bangalore project - India
On May 4, 2016, the National Green Tribunal (“NGT”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“Order”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.
The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several storm-water crossing it.
An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has stayed the operation of certain portions of the Order. At this stage, it is difficult to predict the amount of time that the Supreme Court of India will take to decide on the matter.
See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a plotPlot in Bangalore, India”.
For information regarding our plot in Chennai, India, See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India”.
Additional informationInformation in respect of the Kochi project
The Company has rights under certain share subscriptionFor information regarding the agreement to hold 50% shareholdingsale our land in Indian SPV (“Project SPV”). The Project SPV has entered into an agreement forKochi, India, See “Item 4 – Information on the purchaseCompany – History and Development of the Company – Recent Events – Agreement to sell a land located in Kochi, India according to which it has acquired 13 acres (“Property A”) for a total consideration of INR 1,495 million ($ 23 million) payable subject to fulfillment of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR 718 million ($ 11 million) to the seller in consideration for the transfer of title in Property A to the Project SPV and as advance towards for property. Our share in such acquisition amount to approximately $ 6 million.India”.
On January 14, 2016, the Company signed an agreement to waive any60
.
Revenues classified by geographical markets and by business segments
The following table sets forth our breakdown of revenues by each geographic market in which we operate, for each of the last three years (in NIS thousands):
2017 | 2016 | 2015 | Convenience Translation in U.S. Dollars for 2017 | |||||||||||||
Central and Eastern Europe | 814,826 | 328,275 | 133,631 | |||||||||||||
India | - | - | 150,296 | 235,023 | ||||||||||||
Other and Allocations | - | - | 6,712 | - | ||||||||||||
Total Revenues | 814,826 | 328,275 | 290,639 | 235,023 |
The following table sets forth our breakdown of revenue by business segments for each of the last three years (in NIS thousands):
2017 | 2016 | 2015 | Convenience Translation in U.S. Dollars for 2017 | |||||||||||||
Commercial and Entertainment Centers | 814,826 | 210,014 | 309,302 | 235,023 | ||||||||||||
Medical Companies* | 117,488 | 96,333 | 69,432 | 33,888 | ||||||||||||
Plots in India | - | - | - | - | ||||||||||||
Other and Allocations* | (117,488 | ) | (113,911 | ) | (88,095 | ) | (33,888 | ) | ||||||||
Total | 814,826 | 192,436 | 290,639 | 235,023 |
2018 | 2017 | 2016 | Convenience | |||||||||||||
Medical Companies* | 136,810 | 117,488 | 96,333 | 36,502 | ||||||||||||
Plots in India | - | - | - | - | ||||||||||||
Other and Allocations* | (136,810 | ) | (117,488 | ) | (96,333 | ) | (36, 502) | |||||||||
Total | - | - | - | - |
* Other‘Other and AllocationsAllocations’ includes equity method adjustments to eliminate revenues of our equity method investments that are reviewed on a full basis.Seebasis. See Note 18 to our consolidated financial statements.
InSightec
Most of InSightec’s revenue is derived from sale of systems to hospitals and research centers that are generally funded by public budget.
Patents and Proprietary Rights; Licenses
PC is the registered owner of a European Community trademark “Plaza Centers + figures.” The trademark is also registered in India.
InSightec’s intellectual property includes ownership ofover 171 patents. In addition, InSightec has submitted 57over 70 patent applications, which remain pending and in process. InSightec has registered trademarks for “ExAblate” and “InSightec” in the United States, European Union, Canada and Israel as well as “INSIGHTEC BRINGING THERAPY INTO FOCUS & DESIGN” (Old company logo) in the United States..States.
Gamida’s patent portfolio is comprisedAs of 7December 31, 2018, Gamida own 40 issued U.S. patents 25 issued non-U.S. patents, 2 pending U.S. patent applications, 10 pending non-U.S. patent applications, and 115 pending patent applications underworldwide, including 12 U.S. issued patents, two pending U.S. non-provisional patent applications, one pending U.S. provisional patent application and three pending PCT applications. Gamida own two issued patents in the Patent Cooperation Treaty. United States and 16 issued foreign patents related to Gamida’s NiCord product candidate. The patents that Gamida own outside of the United States are granted in Australia, Canada, Europe, Hong Kong, Israel, Japan, Singapore, and South Africa. In addition, Gamida own one pending U.S. non-provisional patent application, one pending U.S. provisional patent application and two pending PCT applications related to our NiCord product candidate. These patents and pending patent applications contain composition-of-matter claims to Gamida’s NiCord product candidate and claims to methods of producing and methods of treatment using Gamida’s NiCord product candidate. Gamida own six issued foreign patents related to Gamida’s NAM-NK product candidate. The patents that Gamida own outside of the United States are granted in Australia, Europe, Hong Kong, Israel, and Japan. In addition, Gamida own one pending U.S. non-provisional patent application, one pending PCT application and six pending foreign patent applications related to our NAM-NK product candidate. These patents and pending patent applications contain composition-of-matter claims to Gamida’s NAM-NK product candidate and claims to methods of producing and methods of treatment using Gamida’s NAM-NK product candidate. In addition, Gamida filed for and obtained trademark registration in the United States, China, Europe, Hong Kong and Israel for “NiCord”. Gamida also rely upon trade secrets, know-how and continuing technological innovation to develop, strengthen and maintain Gamida’s competitive position.
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Competition
Competition
Medical Companies – InSightec
Competition to MRgFUS treatments includes traditional surgical modalities, minimally invasive surgery, and competing image guided high intensity focused ultrasound (HIFU) systems. Minimally invasive procedures involving tissue ablation methods include radiofrequency ablation where electromagnetic energy is inserted into the body with a special needle, microwave ablation, laser, cryoablation which ablates tissue through freezing, embolization of the blood vessels, and irreversible electroporation, are potential competitors of InSightec. Depending upon the medical indication treated, these methods may have regulatory approval in various geographies, including CE marking in Europe and FDA approval in the US.
InSightec faces competition from both traditional and minimally invasive treatments of uterine fibroids and the other medical conditions that InSightec has targeted for its future applications. Traditional treatment methods for uterine fibroids and other medical conditions that InSightec has targeted for product development are more established, accepted and practiced widely among physicians, and reimbursed by healthcare insurance.
Competitive treatments for uterine fibroids, which are approved by the FDA and CE marked include hysterectomy, myomectomy, uterine artery embolization, and radiofrequency ablation. Competitive treatments for bone metastases include external beam radiation therapy, radiofrequency, cryoablation and microwave ablation.
Similar to uterine fibroids, Insightec’s neurosurgery product faces competition from invasive or minimally invasive surgical options. For the approved indication of Essential Tremor, those options are invasive ablation techniques with radiofrequency energy delivered via an inserted probe, or chronic deep brain stimulation via an implanted brain electrode and pacemaker. For indications under development but not yet approved competition would be invasive respective surgery, non-invasive ablation with radiation (radiosurgery), or minimally invasive ablation with laser probes.
In recent years, GE’s main competitors in magnetic resonance imaging, Philips and Siemens, have developed MRgFUS devices; Philips has designed and manufactures its own system, Sonalleve, whereas Siemens has partnered with Chongqing Haifu, a Chinese manufacturer of therapeutic ultrasound systems, a partnership that has since dissolved. In December 2009 Philips announced that their MRgHIFU Sonalleve device for treatment of uterine fibroids received CE Mark and is available commercially in Europe and other countries that recognize the CE regulation. In 2011 ECR Philips also announced that Sonalleve has been cleared for treating painful bone metastases. Due to inability to recruit patients for their FDA PMA uterine fibroids study, Philips stopped last year the FDA study. They are conducting a clinical trial for CFDA approval in China. This validates the uterine fibroid application for which InSightec’s ExAblate received FDA approval in 2004. There are several ultrasound-guided HIFU approved in China, including Chongqing. According to recent publications more than 10,000 UF treatments were performed in China using these systems. Treatments however are limited to relatively small fibroids, and reports regarding the safety of the procedures significantly vary between less than 1% and more than 28% serious complications. At present, to our knowledge, the Chinese ULSgFUS companies have focused their marketing efforts in Asia.
In 2008, YDME (US-guided HIFU system) received FDA IDE to start a phase I pancreatic cancer study in the United States but terminated that study due to its own financial reasons.
Two US-guided systems for treatment of prostate cancer, Ablatherm (EDAP TMS) and Sonablate (SonaCare Medical) have registered a CE Mark. Recently SonaCare succeeded the changing of the category of their device into category II, and approved the Sonablate for treatment of prostate tissue.
Profound Medical offers a CE approved (since April 2016) transurethral MR-guided HIFU system, which is currently under FDA 510K evaluation for treatment of locally confined prostate cancer. The system was evaluated initially for whole gland ablation in patients with low risk prostate cancer that are currently not considered as candidates for any treatment, and is currently under evaluation for focal therapy in patients with low and intermediate risk prostate cancer.
In the area of treating brain disorders (tremor, tumors, CNS, mediated drug delivery) using MRgFUS, InSightec faces potential competition from the French company Supersonic Imagine. The company has been developing a product similar in capabilities to InSightec’s ExAblate Neuro device. The Supersonic Imagine device is still in a pre-clinical development stage
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Medical Companies – Gamida
NiCord®
NiCord® mayThe biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While Gamida believe that its technology platform, development experience and scientific knowledge provide them with competitive advantages, Gamida face indirectpotential competition from othermany different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that Gamida successfully develop products forand commercialize will compete with existing therapies and new therapies that may become available in the treatment of the diseases that we target. If these therapies are successful in curing these diseases, they may reduce the number of patients undergoing hematopoietic (blood) stem cell transplantation (HSCT) procedures. Other new medications may allow more patients to be eligible to transplant.
HSCT from cord blood in general may face additional competition from haplo-identical transplantation, another therapeutic approach currently being studied. This approach uses cells from a non-matched family related donor and is not currently regulated by the FDA. Companies like MolMed S.p.A. and Kiadis Pharma B.V. and Bellicum are developing technologies aiming to improve the clinical outcomes of haplo-identical transplantation.
Other companies are developing clinical-stage technologies that aim to improve the clinical outcomes of HSCT from cord blood by expanding HSCT from cord blood. These companies include Magenta, Nohla and Targazyme.
In addition, the bio-medical field is characterized by rapid development and massive research and development activities, having potential for direct or non-direct competition resulting from the discovery or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions to the same diseases, while making InSightec’s (or Gamida’s) technologies or solutions inferior, obsolete or irrelevant. Such occurrence could adversely impact InSightec’s (and Gamida’s) future business and financial performance.
CordInfuture.
InGamida anticipate intensifying competition in the field of treatmentcell therapies as new therapies are approved and advanced technologies become available. Many of non - malignant hematology diseasesGamida’s competitors will have substantially greater financial, technical and human resources. Competitors may also have more experience developing, obtaining approval for, and marketing novel treatments in particular, Thalassemiathe indications that Gamida pursuing. These factors could give Gamida’s competitors an advantage over Gamida in recruiting and Sickle Cell Anemia,retaining qualified personnel, completing clinical development, and commercializing their products. Competitors that are able to obtain FDA or other regulatory approval for their products more rapidly than Gamida has, at this stage, two main competitors, whocan for its products may also establish a stronger market position, diminishing Gamida’s commercial opportunity. Key considerations that would impact Gamida’s capacity to effectively compete include the efficacy, safety, ease of use, as well as pricing and reimbursement of Gamida’s products.
There are at stagesseveral clinical-stage development programs that seek to improve human umbilical cord blood transplantation through the use of clinical trials, BlueBird Bio and Bellicum.an allogeneic HSCT graft. In addition, it is possiblethere are clinical-stage development programs that the other technologies for the expansion of stem cells, will also suit a similar treatment use as that of CordIn.focus on natural killer cells. Companies active in these areas include, but are not limited to:
Allogeneic HSCT Graft: Nohla Therapeutics, Inc., Magenta Therapeutics, Inc., Fate Therapeutics, Inc., ExCellThera Inc., Aldagen, Inc., a wholly-owned subsidiary of Cytomedix, Inc., Angiocrine Bioscience Inc., Medipost Co., Ltd., Kiadis Pharma NV, MolMed S.p.A., Bellicum Pharmaceuticals, Inc.; and
Natural Killer Cell product: AbbVie Inc., Affimed N.V., Innate Pharma SA, Agilent Technologies Inc., Altor Bioscience Corp., Bayer HealthCare Pharmaceuticals LLC, Bellicum Pharmaceuticals, Inc., Bristol-Myers Squibb, Celgene Corporation, Celularity Inc., Fortress Biotech, Inc., Fate Therapeutics, Inc., Genexine Inc., Sanofi Genzyme, Glycostem Therapeutics B.V., Green Cross Lab Cell Corporation, Incyte Corporation, Ivy Life Sciences, Co., Ltd., Takeda Pharmaceutical Company Limited, Miltenyi Biotec GmbH, multimmune GmbH, NantKwest, Inc., Nkarta Therapeutics, Inc., NKBio Co., Ltd., PersonGen BioTherapeutics Suzhou Co. Ltd., United Therapeutics Corporation, Y-mAbs Therapeutics, Inc., Ziopharm Oncology, Inc.
Plots in India
Our plot in Bangalore, India is relatively larger in size when compared to other plots available in its vicinity. Further, our plot is irregularly shaped and non-contiguous as there are pockets of land parcels within our plot which are owned by third parties. Our plot is in close proximity to the Varthur Lake with water drains crossing it, and is therefore subject to the NGT order.buffer zone requirements as per RMP-2015. Consequently, a third party prospective buyer may claim that the new NGT order may create significantcreating limitations on the development of our plot. The presence of residential developments by reputed developers near our plot exposes us to increasing residential competition in the local market.
Our residential development in Chennai faces competition from other developers who have readily available inventory for sale and have larger resources and larger market presence than our local partner.us. The Chennai market has been adversely impacted due to repeated floods in the last few years and certain political uncertainty in recent months. Our plot does not have a designated access road and there are high power tension lines running adjacent to our plots which may cause significant limitations on the development of our plot.
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Governmental Regulation
Plots in Eastern Europe initially designated for Commercial centers
The development, construction and operation of commercial centers are subject to various regulatory directives, which vary according to the country of activity. Some countries require that a developer provide an environmental report for the land before building permit applications are examined. In certain European countries, antitrust permits must be obtained before a foreign investor is allowed to acquire shares of a local entity. In most Eastern European countries, construction work may only begin after the lapse of the objection period provided for third parties whose interests may be affected by such permits, at which time the contestation permit becomes final. If restitution claims made by former land owners in respect of project sites are upheld, these claims can jeopardize the integrity of title to the land and the ability to develop the land. Generally, construction must commence within a specified period following issuance of the permit, otherwise, the construction permit may expire.
Plots in India
Foreign Exchange Management Act
In order for a nonresident entity (i.e. person resident outside India) to invest in the capital of an Indian company (under Indian Law, holding a real estate property by a nonresident entity can only be done through an entity) it needs to meet the provisions of the Foreign Exchange Management Act, in the construction development sector and certain conditions under the Foreign Direct Investment Policy (“FDI”). According to the FDI, a nonresident entity has two alternatives to invest in the capital of an Indian company: (i) Automatic Route that doesn’t require approval from Government of India for the investment; or (ii) Government Route, that requires prior approval of the Government of India.
The automatic route is subject to meeting certain restrictions pertaining, inter alia, to the following matters: (a) the investor will be permitted to exit on the earlier of (i) completion of the project, (ii) development of trunk infrastructure, i.e. roads, water supply, street lighting, drainage and sewerage, or (iii) expiry of 3 years (lock-in period); (b) project completion schedule; (c) conformance with local laws and applicable standards; (d) obtaining necessary approvals; (e) supervision by the state government/municipal/local body concerned, and (f) ability to sell developed plots only (developed plots has been defined to mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage has been made available).
The Reserve Bank Of India (“RBI”) has from time to time, amended certain provisions under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations (2000), relating to the pricing norms for issuance of shares by an Indian company to persons residing outside India. These regulations include provisions stipulating that the shares of an unlisted company have to be issued at a price not less than the fair valuation of the shares (calculated in accordance with international pricing methodology), in case of issuance on preferential allotment, and such issue price cannot be less than the relevant price. Also, in case of transfer of shares of an unlisted company from resident to non-resident, the relevant price will serve as the minimum price payable by the non-resident to the resident. In the case of transfer of shares of an unlisted company from a non-resident to a resident, the relevant price will serve as the maximum price payable by the resident to the non-resident. Furthermore, certain provisions of the Companies Act, 2013 have also recently been amended, which pertain to compliance by Indian companies in relation to the issue and allotment of shares on rights or preferential basis. These provisions include a new requirement of obtaining a valuation report from a registered value agency where shares are to be issued on a preferential basis.
National Green Tribunal – New Order
The new order by the National Green Tribunal (“NGT”) which passed on May 4, 2016, may significantly limit the ability of the prospective purchasers to develop the land in the most efficient way, and may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in Bangalore. The NGT established that the following areas are to be treated as “no construction zones”: (a) In the case of lakes, 75 meters from the periphery of the water body; (b) in the case of primary storm water drains, 50 meters from the edge of such primary storm water drains; (c) in the case of secondary storm water drains, 35 meters from the edge of such secondary storm water drains; and (d) in the case of tertiary storm water drains, 15 meters from the edge of such tertiary storm water drains.
An appeal was filed before the Supreme Court of India objecting toagainst the new NGT order. Accordingly, the impact of the new NGT order cannot be fully determined until theOrder. The Supreme Court of India adjudicates uponhas set aside the matter. The issues andOrder thereby restoring the uncertainty arising upon potential implementation ofposition as it existed before the new NGT order may impede the disposal of our Bangalore plot.Order was passed by NGT.
Master Plan
The local authorities in the State of Karnataka, India have proposed a revised master plan -2031 (provisional) (under the provisions of Section 9 of the Karnataka Town and Country Planning Act, 19611961) (the “Act”) for Bangalore under which it is inter alia proposed to change certain regulations pertaining to zoning of the plot which if given effect might adversely affect the development prospects on the plot. The Company being aggrieved by the proposed change was entitled to and has filed the necessary objections with the concerned authorities and believes that the current zoning regulations will be maintained.
The Act does not contemplate any compensation mechanism for persons affected by changes in master plans, as the zoning is supposed to achieve the common good.
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Medical Companies
InSightec
The testing, manufacture and sale of InSightec’s products are subject to regulation by numerous governmental authorities, principally the FDA, the EEC and corresponding state and foreign regulatory agencies.
The U.S. Safe Medical Devices Act of 1990 (the “SMDA”) includes various provisions which are applicable to each of the existing products of InSightec and may result in the pre-market approval process (a process whereby the FDA approves high risk or a new system that has no predicate devices that have been approved in the past) for such products becoming lengthier and more costly. Under the SMDA, the FDA can impose new special controls on medical products. These include the promulgation of performance standards, post-market surveillance requirements, patient registries, and the development and dissemination of guidelines and other actions as the FDA may deem necessary to provide reasonable assurance and effectiveness.
In June 1993, directive 93/42/EEC for medical devices was adopted by the EEC. In June 1998, this directive replaced the local regulation and ensured free transfer of qualified medical equipment among member states. Medical devices that meet the established standards, receive certification represented by the symbol “CE”. There are two types of certifications that are granted: (1) general certification of a company and (2) CE certification for a specific product. InSightec decided to comply with Medical Device Directive 93/42/EEC (“MDD”) and with the international standard ISO 13485 entitled “Medical DevicesDevic–s - Quality management systemssyste–s - requirements for regulatory purposes”. InSightec obtained a certification of compliance with the standard in May 2001, and is subject to annual audits by the European Notified Body to renew the certification in accordance with all applicable updates of the standard and the MDD.
The Japanese MHLW (Ministry of Health, Labor, and Welfare) with JPAL (Japan Pharmaceutical Affairs Law) also requires company registration and a device license. InSightec obtained a device license in September 2009. In December 2016 a full registration for was received for Essential Tremor.
The Chinese CFDA requires the ExAblate to be registered as high risk as well under the relevant regulatory orders. ExAblate has been registered in the Chinese CFDA since July 2013.
The ExAblate has been registered in Canada’s Food and Drugs Act and Regulations “Health Canada” since August 2013 and from May 2016 a registration for Essential Tremor was received.
Gamida
The FDA and other regulatory authorities at federal, state, and local levels, as well as in non-U.S. countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such as those Gamida is developing. Gamida, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which it wish to conduct studies or seek approval or licensure of Gamida’s product candidates.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:
● | completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices (“GLP”) regulation; | |
● | submission to the FDA of an IND, which must become effective before clinical trials may begin and must be updated annually or when significant changes are made; | |
● | approval by an independent Institutional Review Board (“IRB”) or ethics committee at each clinical site before the trial is commenced; |
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● | performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed biologic product candidate for its intended purpose; | |
● | preparation of and submission to the FDA of a Biologics License Application, or BLA after completion of all pivotal clinical trials; | |
● | satisfactory completion of an FDA Advisory Committee review, if applicable; | |
● | a determination by the FDA within 60 days of its receipt of a BLA to file the application for review; | |
● | satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMP and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with Good Clinical Practices, or GCP; and | |
● | FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States. |
Preclinical and Clinical Development
Prior to beginning the first clinical trial with a product candidate, Gamida must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
● | Phase 1—The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. | |
● | Phase 2—The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. | |
● | Phase 3—The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval. |
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In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so- called Phase 4 studies may be made a condition to approval of the BLA. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
BLA Submission and Review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of a BLA requires payment of a substantial application user fee to FDA, unless a waiver or exemption applies.
Once a BLA has been submitted, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.
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Post-Approval Requirements
Any products manufactured or distributed by Gamida pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon Gamida and its third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon Gamida and any third-party manufacturers that Gamida may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
● | restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls; | |
● | fines, warning letters or holds on post-approval clinical studies; | |
● | refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals; | |
● | product seizure or detention, or refusal of the FDA to permit the import or export of products; or | |
● | injunctions or the imposition of civil or criminal penalties. |
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by Gamida and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.
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Breakthrough Therapy Designation
A sponsor may seek FDA designation of a product candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation allows more intensive FDA interaction and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work to expedite the development and review of such drug.
Other Healthcare Regulations
Gamida’s business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers, may expose Gamida to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which Gamida conduct its operations, including how Gamida research, market, sell and distribute its product candidates, if approved. Such laws include those described below.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for, or purchasing, leasing, ordering, or arranging for the purchase, lease or order of, any good, facility, item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other hand. The term remuneration has been interpreted broadly to include anything of value. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all facts and circumstances. Additionally, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the PPACA, amended the intent requirement of the federal Anti-Kickback Statute, and other healthcare criminal fraud statutes, so that a person or entity no longer needs to have actual knowledge of the federal Anti-Kickback Statute, or the specific intent to violate it, to have violated the statute. The PPACA also provided that a violation of the federal Anti-Kickback Statute is grounds for the government or a whistleblower to assert that a claim for payment of items or services resulting from such violation constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
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The federal civil and criminal false claims laws, including the federal civil False Claims Act, or FCA, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the U.S. federal government, including the Medicare and Medicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease or conceal an obligation to pay money to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties. Government enforcement agencies and private whistleblowers have investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged impermissible promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees and other benefits to physicians to induce them to prescribe products; engaging in promotion for “off-label” uses; and submitting inflated best price information to the Medicaid Rebate Program.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick, scheme or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Additionally, the PPACA amended the intent requirement of some of these criminal statutes under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute, or the specific intent to violate it, to have committed a violation.
Additionally, the federal Open Payments program pursuant to the Physician Payments Sunshine Act, created under Section 6002 of the PPACA and its implementing regulations, require some manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with specified exceptions) to report annually information related to specified payments or other transfers of value provided to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually specified ownership and investment interests held by physicians and their immediate family members.
In addition, Gamida may be subject to data privacy and security regulation of both the federal government and the states in which Gamida conduct its business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, impose requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities subject to the law, such as health plans, healthcare clearinghouses, and certain healthcare providers, and their business associates, defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. Among other things, HITECH created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties and HIPAA’s security standards directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.
Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers. Gamida may also be subject to state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, state and local laws that require the registration of pharmaceutical sales representatives, state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information, and/or state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Ensuring that Gamida’s internal operations and business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. It is possible that governmental authorities will conclude that Gamida’s business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Gamida’s operations were found to be in violation of any of these laws or any other governmental regulations that may apply to Gamida, it may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from government funded healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if Gamida become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and curtailment of its operations, any of which could substantially disrupt Gamida’s operations. If the physicians or other providers or entities with whom Gamida expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
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Coverage and Reimbursement
Gamida’s ability to successfully commercialize any products for which Gamida receive approval will depend in part on the extent to which coverage and adequate reimbursement for the procedures utilizing its products will be available to health care providers from third-party payors, such as government health administration authorities, private health insurers and other organizations. Third-party payors determine which procedures, and the products utilized in such procedures, they will cover and establish reimbursement levels. Assuming coverage is obtained for procedures utilizing a given product, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who undergo procedures for the treatment of their conditions, and their treating physicians, generally rely on third-party payors to reimburse all or part of the costs associated with the procedures which utilize Gamida’s products. Treating physicians are unlikely to use and order Gamida’s products unless coverage is provided, and the reimbursement is adequate to cover all or a significant portion of the cost of the procedures which utilize Gamida’s products. Therefore, coverage and adequate reimbursement for procedures, which utilize new products, is critical to the acceptance of such new products. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.
Government authorities and other third-party payors are developing increasingly sophisticated methods of cost containment, such as price controls, restrictions on coverage and reimbursement and requirements for substitution of less expensive products and procedures. Increasingly, government and other third-party payors are increasingly challenging the prices charged for health care products and procedures, examining the cost effectiveness of procedures, and the products used in such procedures, in addition to their safety and efficacy, and limiting or attempting to limit both coverage and the level of reimbursement. Further, no uniform policy requirement for coverage and reimbursement exists among third-party payors in the United States, which causes significant uncertainty related to the insurance coverage and reimbursement of newly approved products, and the procedures which may utilize such newly approved products. Therefore, coverage and reimbursement can differ significantly from payor to payor and health care provider to health care provider. As a result, the coverage determination process is often a time-consuming and costly process that requires the provision of scientific and clinical support for the use of new products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
There may be significant delays in obtaining coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA. Moreover, eligibility for coverage and reimbursement does not imply that a product, or the procedures which utilize such product, will be paid for in all cases or at a rate which the health care providers who purchase those products will find cost effective.
Healthcare Reform Measures
The United States and some non-U.S. jurisdictions are considering or have enacted a number of legislative and regulatory proposals designed to change the healthcare system. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the FDA regulates biological products under the Federal Food, Drug,pharmaceutical industry has been a particular focus of these efforts and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHS Act, and related regulations. Biological products are also subject to other U.S. federal, state, and local statutes and regulations, as well as non-U.S. statutes and regulations. The FDA and comparable regulatory agencies in state and local jurisdictions and in countries outside the United States impose substantial requirements upon the clinical development, manufacture and marketing of biological products. These agencies regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, packaging, labeling, storage, distribution, record keeping, reporting, approval, advertising and promotion of our products. These requirements and regulations vary from country to country. Failure to comply with the applicable regulatory requirements at any time during the product development process, including during clinical testing, during the approval process, or after approval, in Israel, the United States and any other country in which Gamida conducts its operations or sells its products may subject us to administrative or judicial sanctions.has been significantly affected by major legislative initiatives.
Government regulation may delay or prevent marketing of product candidates for a considerable period of time and impose costly procedures upon Gamida’s activities. The testing and approval process requires substantial time, effort, and financial resources, and Gamida cannot be certain thatFor example, the FDA or any other regulatory agency will grant approvals for NiCord, CordIn, Gamida’s NK cell product, or any future product candidates on a timely basis, if at all. The FDA’s policies and the policies of comparable regulatory authorities in other countries may change and additional government regulations may be enacted that could prevent or delay regulatory approval of Gamida’s current product candidates or any future product candidates or approval of new disease indications or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative, judicial, or administrative action, eitherpharmaceutical industry in the United States has been affected by the passage of PPACA, which, among other things: imposed new fees on entities that manufacture or elsewhere.import certain branded prescription drugs; expanded pharmaceutical manufacturer obligations to provide discounts and rebates to certain government programs; implemented a licensure framework for follow-on biologic products; expanded health care fraud and abuse laws; revised the methodology by which rebates owed by manufacturers to the state and federal government under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics, including products that are inhaled, infused, instilled, implanted or injected; imposed an additional rebate similar to an inflation penalty on new formulations of drugs; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations; expanded the 340B program which caps the price at which manufacturers can sell covered outpatient pharmaceuticals to specified hospitals, clinics and community health centers; and provided incentives to programs that increase the federal government’s comparative effectiveness research.
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Since its enactment, there have been judicial and Congressional challenges to certain aspects of the PPACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the PPACA have been signed into law. The Tax Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans and the annual fee imposed on certain health insurance providers based on market share. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amended the PPACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. On December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. While the Texas U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the PPACA will impact the PPACA.
Other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2.0% per fiscal year, which went into effect in April 2013, and due to subsequent legislative amendments, including the BBA, will remain in effect through 2027, unless additional U.S. Congressional action is taken. In addition, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Additional changes that may affect Gamida’s business include new quality and payment programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which will be fully implemented in 2019.
In addition, there has been particular and increasing legislative and enforcement interest in the United States with respect to drug pricing practices in recent years, particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of prescription drugs under Medicare and reform government program reimbursement methodologies for pharmaceutical products. The Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a blueprint to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. Although a number of these, and other proposed measures may require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. In addition, individual states in the United States have become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In the future, there will likely continue to be proposals relating to the reform of the U.S. healthcare system, some of which could further limit coverage and reimbursement of products.
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The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any non-U.S. official, political party or candidate for the purpose of influencing any act or decision of the non-U.S. entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the companies to maintain books and records that accurately and fairly reflect all transactions of the companies, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Non-U.S. Government Regulation
To the extent that any of Gamida’s product candidates, once approved, are sold in a country outside of the United States, Gamida may be subject to similar non-U.S. laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.
In order to market Gamida’s future products in the EEA (which is comprised of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein) and many other jurisdictions, Gamida must obtain regulatory approvals from such jurisdictions. More precisely, in the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations:
● | the Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use of the European Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products and medicinal products indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the European Union; and | |
● | National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. |
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Data and Marketing Exclusivity
In the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the European Union during a period of eight years from the date on which the reference product was first authorized in the European Union. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the European Union until 10 years have elapsed from the initial authorization of the reference product in the European Union. The 10-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
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Pediatric Investigation Plan
In the EEA, marketing authorization applications for new medicinal products not authorized have to include the results of studies conducted in the pediatric population, in compliance with a pediatric investigation plan, or PIP, agreed with the EMA’s Pediatric Committee, or PDCO. The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the European Union and study results are included in the product information, even when negative, the product is eligible for six months’ supplementary protection certificate extension.
Orphan Drug Designation
In the EEA, a medicinal product can be designated as an orphan drug if its sponsor can establish that the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or that the product is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the drug will be of significant benefit to those affected by that condition.
In the EEA, an application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. During this market exclusivity period, the EMA or the member state competent authorities, cannot accept another application for a marketing authorization, or grant a marketing authorization, for a similar medicinal product for the same indication. The period of market exclusivity is extended by two years for medicines that have also complied with an agreed PIP.
This period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justify market exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from the marketing authorization holder, inability to supply sufficient quantities of the product, demonstration of “clinical superiority” by a similar medicinal product, or, after a review by the Committee for Orphan Medicinal Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria are believed to no longer apply). Medicinal products designated as orphan drugs pursuant are eligible for incentives made available by the European Union and its Member States to support research into, and the development and availability of, orphan drugs.
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C. | ORGANIZATIONAL STRUCTURE |
Our significant subsidiaries and companies in which we have a significant interest as of the date of this annual report are as follows:
NAME OF COMPANY | COUNTRY OF ORGANIZATION | DIRECT/INDIRECT OWNERSHIP PERCENTAGE | ||||
Plaza Centers N.V. | The Netherlands | 44.9 | %(1) | |||
Elscint Holdings and Investment N.V. | The Netherlands | 100 | %(2) | |||
Elbit Medical Technologies Ltd. | Israel | 89 | %(3) | |||
Elbit Plaza India Real Estate Holdings Limited | Cyprus | 50 | %(4)(5) | |||
Elbit Ultrasound (Luxemburg) B.V./S.a r.l. | The Netherlands and Luxemburg | 100 | % |
NAME OF COMPANY | COUNTRY OF ORGANIZATION | DIRECT/INDIRECT OWNERSHIP PERCENTAGE | ||
Elbit Medical Technologies Ltd. | 62%(1) | |||
Elbit Plaza India Real Estate Holdings Limited | Cyprus | 47.5%(2)(3) | ||
Elbit Ultrasound (Luxemburg) B.V./S.a r.l. | The Netherlands and Luxemburg | 100% |
Approximately |
We hold 47.5% of the shares in EPI |
5% of the equity in EPI was allotted to Mr. Avraham (Rami) Goren who served as our former Executive vice chairman of the Board. The shares allotted are entitled to distribution only following their return of Investment of the Company and PC plus agreed interest. |
D. | PROPERTY, PLANTS AND EQUIPMENT |
OurFor our operational portfolio consists of various freeholds, leaseholds and other tangible assets. For details as to such real estate portfolio see “Item 4B – Business Overview”. Below we present information regarding certain tangible fixed assets including leasehold properties that do not form part of our operational portfolio, but rather serve as basis for our and our subsidiaries’ offices and management, as of March 31, 2017.2019.
On December 2017, we signed a lease agreement for approximately 121 square meters of space, including parking spaces, for management and administrative purposes in an office building in Petach Tikva, Israel. The annual aggregate rental fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be approximately NIS 150,000 (approximately $43,000).
PC’s headquarters are located in an office located on Bajcsy-Zsilinszky út, Budapest, Hungary. The rental area is 55 square meter plot. The annual aggregate rental fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be approximately €26,100 (approximately $31,264) on an annual basis.
On June 29, 2015 Elbit Plaza India Management Services Pvt. Ltd. signed a lease agreement for approximately 70 square meters of office space in Bangalore, Karnataka, India, for its management and administration activities. The term of the lease was until June 14, 2016, and was thereafter renewed by mutual consent of both parties from time to time until April 30, 2018.February 29, 2020. The annual lease payments payable by Elbit Plaza India Management Services Pvt. Ltd. is INR 2,90,400351,383 (approximately $4,470)$5,100), with an annual increase in the monthly rental fees of 10%.
ITEM 4A. | UNRESOLVED STAFF COMMENTS. |
Not applicable.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS. |
Overview
To date we operate primarily in the following fields of business:
● | Medical Industries – through our indirect holdings in two companies which operates in the field of life science: (i) InSightec Ltd. (“InSightec–) - InSightec operates in the field of development, production, and marketing of treatment-oriented medical systems, based on a unique technological platform combining the use of focused ultrasound and magnetic resonance imaging for the purpose of performing noninvasive treatments in human beings; (ii) Gamida Ltd. (“Gamida”) – Gamida operates in the field of research, development and manufacture of products designated for certain cancer diseases (As of October 26, 2018, Gamida’s shares are traded on the NASDAQ (Nasdaq: GMDA)). |
● | Plots in India – we have holdings in plots of land in India which are designated for sale (and which were initially designated for residential projects). |
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Plots in India –On December 19, 2018 we have holdings in plotsannounced that we no longer consider ourselves to be the controlling shareholder of land in India whichPC. In light of PC’s current financial situation, the Company estimates that the loss of control therein is not material to the Company. Accordingly, PC’s financial statement are designated for sale (and which were initially designated for residential projects).
Plots in Eastern Europe initially designated forno longer consolidated with the Company’s financial statement and the review of the development of commercial centersthe Company’s business does not relate to PC. For further information, see “Item 5- Operating and Financial Review and Prospects - plotsCritical Judgment in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PC”) whose business strategy is to no longer develop commercial centers but to dispose its real estate assets at optimal market conditions.
PC’s financial reports for 2017 indicate the existence of a material uncertainty that casts significant doubt about PC’s ability to continue as a going concern.
Following our sale of the Radisson Hotel Complex in Bucharest, Romania, the Company is no longer directly involved in the hotel industry. See “Item 4Applying Accounting Policies - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania.”
Our revenues from the sale of real estate and trading property are subject to the execution and consummation of sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on them as a basis for future performance.De Facto Control”.
Our functional currency is NIS and our consolidated financial statements are also presented in NIS.NIS Since our revenues and expenses are recorded in various currencies, our results of operations are affected by several inter-related factors, including the fluctuations of the NIS compared to other currencies at the time we prepare our consolidated financial statements.
Financial data included in this discussion were derived from our consolidated financial statements and the analysis herein is based on our general accounting records and published statistical data. Such financial data have been rounded to the nearest thousand or million. Unless otherwise indicated, we have translated NIS amounts into U.S. dollars at an exchange rate of NIS 3.4673.748 to $1.00, the representative exchange rate on December 31, 2017,2018, and we have translated € amounts into U.S. Dollars and NIS at the respective exchange rates of $1.1978$1.145 to €1.00 and NIS 4.15264.292 to €1.00, the representative exchange rates on December 31, 2017.2018.
The following activities affected our operational results for 2015, 2016, 2017 and 20172018 and may continue to affect our operational results and cash flow in the coming years.
20182019
● | On April 1, 2019, we announced that we signed an agreement for the sale of our rights and interests in a special purpose vehicle which holds a land plot in Kochi, India. The total consideration for us is INR 10 Crores (approximately €1.4 million). See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a land located in Kochi, India”. | |
● | On February 2019 we signed a second Share Purchase Agreement (the “Second SPA”) with an SPV related to Exigent Capital Group for the sale of between 3,760,417 ordinary shares of Elbit Medical (1.6% of its outstanding share capital) and 57,968,760 ordinary shares of Elbit Medical (25% of its outstanding share capital). See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent”. |
2018
● | On December 19, 2018 we announced that we signed a trust agreement according to which the Company will deposit its shares of PC. In accordance with the trust agreement, we retain the right to receive any and all rights in connection with the shares, other than the voting rights which are vested with the trustee for all matters and purposes effective from December 18, 2018. We may instruct the trustee, from time to time, to sell all or any portion of the Shares. The trust agreement shall terminate upon the earlier of: (i) a sale of all of the shares to a third party; and (ii) the date on which actions have been taken for realization of any of the liens we granted in favor of the holders of the Series I Notes issued by the Company. As a result, we no longer consider ourselves to be the controlling shareholder of PC and subsequently we no longer see ourselves as the controlling shareholder in EPI. | |
● | On November 26, 2018 we announced the third buy-back plan for the Company’s Series I Notes. See “Item–4 - Information on the Company – History and Development of the Company – Recent Events – Notes Buy-Back plans.” |
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● | On October 26, 2018 we announced that Gamida completed the pricing for initial public offering of its ordinary shares in the United States and application to list 6.65 million of its ordinary shares on NASDAQ. The price set in the pricing procedure is eight (8) dollars per share, a price that reflect a post-money valuation of Gamida of approximately 215 million dollars. The consideration for Gamida in the IPO is approximately 53 million dollars (including the consideration received from the exercise of the option to the underwriters) and not including underwriters’ fees and other expenses in connection with the IPO. | |
● | On July 2, 2018 we announced that an Israeli court issued a decision in a lawsuit brought by us against the Israeli Tax Authority relating to VAT assessments issued to us and relating to the period from April 2006 to June 2011. In the decision, the court accepted in part the Israeli Tax Authority’s position and ruled that we should have deducted input tax at rates lower than those actually deducted by us. Accordingly, the court rules that we are required to pay the Israeli Tax Authority a payment of approximately NIS 16.5 million (excluding interest and linkage differentials) for the relevant period. On November 19, 2018 we announced that we reached a settlement agreement with the Israeli Tax Authority pursuant to which we will pay approximately NIS 5.7 million in connection with VAT assessments for the years 2013 through 2018. | |
● | On August 2018 we signed a Share Purchase Agreement (“SPA”) with an SPV related to Exigent Capital Group (“SPV”) for the sale of between 11,574,146 ordinary shares of Elbit Medical (5% of its outstanding share capital) and 115,741,467 ordinary shares of Elbit Medical (50% of its outstanding share capital) for a price per share of NIS 0.96. During August through November 2018 we sold to the SPV a total of 60,087,537 Elbit Medical shares, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of approximately US$ 15,548,275. | |
● | On July 19, 2018 we announced the second buy-back plan for the Company’s Series I Notes, commencing on August 26, 2018. See “Item–4 - Information on the Company – History and Development of the Company – Recent Events – Notes Buy-Back plans.” | |
● | On June 11, 2018 we announced that Olive Software Inc. (an affiliate in which the Company indirectly holds 16% of the outstanding share capital) was merged into another corporation in a cash transaction. In consideration for our holdings in Olive, the Company received approximately $1.8 million gross. | |
● | On March 22, 2018 we announced that EPI signed a revised agreement for the sale of the SPV which holds a plot in | |
● | On March 15, 2018, we announced | |
● | On March 12, 2018 we announced that the SEC approved an offer of settlement by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA. See “Item 4- Information on the Company – History and Development of the Company – Recent Events – approval of an Offer of Settlement with the SEC in the matter of Alleged Violations of FCPA”. | |
● | On |
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● | ||
On | ||
2017
● | On December 18, 2017 we announced the completion of the transaction for the sale of our rights in the Radisson Hotel Complex in Bucharest, Romania. On April 2, 2018 we announced that we received a notice from the purchaser claiming that it is entitled to indemnification in the amount of approximately €3 million, due to the alleged breach of certain warranties in the agreement. See | |
● | On November 21, 2017 we announced that PC has completed the sale of the Torun Plaza shopping and entertainment center in Poland (the “Project”) to a private investment fund for a purchase price reflecting a total forecasted value for the Project of Euro 70.6 million (approximately $ 84 million). See “Item 4- Information on the Company – History and Development of the Company – Recent Events – Sale of Torun Plaza”. | |
● | On October 2, 2017 we announced that PC’s has concluded the transaction with an international investor, NEPI Rockcastle. See |
● | On September 27, 2017, we announced that the district court in Israel approved in principle a settlement with the plaintiffs in a November 1999 claim initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd. (our former subsidiary), in connection with the change of control of our Company and Elscint and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder) (Gadish et al v. Elscint et al). This lawsuit was later certified in part as a class action. See | |
● | On August 31, 2017, we announced, in further to our announcement dated June 21, 2017, regarding the sale of Toruń Plaza commercial center in Poland, that the completion of the transaction has been postponed and is now expected to conclude in the fourth quarter of this year. | |
● | On August 7, 2017, we announced that PC has completed the sale of a plot in Timisoara, Romania, for €7.25 million and a plot in Constanta, Romania, for €1.3 million. See | |
● | On March 2, 2017, we announced that PC completed the sale of Belgrade Plaza shopping and entertainment center, to a subsidiary of BIG Shopping Centers Ltd. On September 14, 2017 we announced that Plaza has received a further payment of €13.4 million from the Purchaser. See | |
● | On February 1, 2017, we announced that PC completed the sale of Suwałki Plaza shopping and entertainment center in Poland to an investment fund for €42.3 million (approximately $45 million). See |
78
2016
● | On December 6, 2016, we announced that PC has acquired a bank loan of approximately €10 Million (approximately $10.5 million), which is held against PC’s plot in Romania, for a total consideration of €1.35 million (approximately $1.43 million). See | |
● | On December 6, | |
● | On December 1, 2016, we announced the proposed amendments to the Restructuring Plan of PC, that the holders of PC Notes have approved the proposed amendments by the required majorities. See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Amendment of the Restructuring Plan of PC.” | |
● | On September 15, 2016 we announced that PC completed the sale of Riga Plaza shopping and entertainment center in Riga, Latvia, to a global investment fund. The agreement reflects a value for the business of €93.4 million (approximately $98.6 million) (reflecting 100%). See | |
● | On September 14, 2016 we announced that it completed the sale of the shares in Zgorzelec Plaza commercial Center in Poland. See | |
● | On June 1, 2016 and August 18, 2016, we approved two new programs to repurchase up to NIS forty (40) million (approximately $10.4 million) and NIS 50 million (approximately $13.3 million), respectively of the Notes, which are traded on the Tel Aviv Stock Exchange. See |
● | On August 2, 2016, we announced that an Indian subsidiary (“SPV”) signed a Joint Development Agreement (“JDA”) relating to its 74.7 acre plot in Chennai, India. See | |
● | On August 1, 2016, we announced that we received from the ILA an amount of approximately NIS 7 million following the termination of our lease agreement with respect to a plot near Tiberius, Israel. See | |
● | On June 29, 2016, we announced that PC completed the sale of the MUP plot and related real estate in Belgrade, Serbia, for €15.75 million (approximately $16.6 million). See | |
79
● | On June 28, 2016, we announced that PC signed an agreement for the sale of a 20,700 square meters Plot of land in Lodz, Poland, to a residential developer, for €2.4 million. See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Sale of Plot in Lodz, Poland”. | |
● | On March 31, 2016, we announced that PC has completed the sale of its subsidiary holding Liberec Plaza, a shopping and entertainment center in the Czech Republic, for €9.5 million (approximately $10 million). See |
2015
Critical Judgment in Applying Accounting Policies and Use of Estimates
General
In the application of our accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In addition, in the process of applying our accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in our consolidated financial statements.
The following are the critical judgments and key sources of estimation that management has made while applying our accounting policies and that have the most significant effect on the amounts recognized in our consolidated financial statements.
Use of estimates
Write-down of trading properties
The recognition of a write down to our trading properties is subject to a considerable degree of judgment and estimates, the results of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results and could have a material adverse effect on our consolidated financial statements.
This valuation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development in addition to the lack of transactions in the real estate market in the CEE and India for same or similar properties.
We are responsible for determining the net realizable value of our trading properties. In determining net realizable value of the vast majority of trading properties, we usually utilize the services of an independent third party recognized as a specialist in valuation of properties.
For special assumption see note 4B,4b, and note 4C(1)(e)4c to our consolidated financial statements included elsewhere in this report.
Litigation and other contingent liabilities
WeFrom time to time we are involved in litigation, tax assessments and other contingent liabilities in substantial amounts including class actions concerns of a violation of the FCPA and potential legal proceedings (see note 4(C)(1)4C(c), 13A13a and note 13B13b to our consolidated financial statements included elsewhere in this report). We recognize a provision for such litigation when it is probable that we will be required to settle the obligation, and the amount of the obligation can be reliably estimated. We evaluate the probability and outcome of such litigation based on, among other factors, legal opinions and consultation, and past experience. The outcome of such contingent liabilities may differ materially from management’s estimation. We periodically evaluate these estimations and makesmake appropriate adjustments to the provisions recorded in the consolidated financial statements. In addition, as facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the consolidated financial statements. In rare circumstances, when the case is unique, complicated and involves prolong and uncommon proceedings, we cannot reliably predict the outcome of said case.litigation.
80
Accounting for income taxes
The calculation of our tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations and tax treaties, in respect of various jurisdictions in which we operate and which vary from time to time. In addition, tax authorities may interpret certain tax issues in a manner different than that which we adopted. Should such contrary interpretive principles be adopted upon adjudication of such cases, the tax liabilities may be significantly increased. In calculating deferred taxes, we are required to evaluate: (i) the probability of the realization of our deferred income tax assets against future taxable income, and (ii) the anticipated tax rates in which our deferred taxes would be utilized.
Potential penalties, guarantees issued and expired building permits
Penalties and guaranties are part of the ongoing construction activities, and result from obligations we have towards third parties such as banks and municipalities. Our management is required to provide estimations regarding risks evolving from penalties that we may have to settle. In addition, our operations in the construction area are subject to valid authorizations and building permits from local authorities. Under certain circumstances we are required to determine whether the building permits we obtain have not yet expired. It may occur that building permits have expired which might impose on us additional costs and expenses, or delays, and may even cause us to abandon projects under construction. For additional information see also note 4(C) (1)4 C (c) to our consolidated financial statements included elsewhere in this report.
Fair value of hotelfinancial instruments at fair value through profit or loss
Our fair value of the Radisson Hotel Complex is determined based upon the discounted cash flows (“DCF”) approach. TheWe exercises judgment in selecting appropriate valuation techniques and assumptions underlying this model, as well as the ability to support them by means of objective and reasonable market benchmarks so they can be viewed as assumptions that market participants may have used, are significant in determiningdetermine the fair value of the hotels. The predominant assumptions that may cause substantial changes in thefinancial instruments at fair value are:through profit or loss, which have no quoted market price in an active market. In addition, the capitalization rate, exit yield rate, the expected net operating income of the hotel (which is mainly affected by the expected average room ratevaluations based on non-observable parameters and the occupancy rate as well as the level of operational expenses of the hotels) the level of refurbishments reserve and the capital expenditures that needassumptions. For additional information see also note 20d to be investedour consolidated financial statements included elsewhere in the hotel. Our fair value of the Radisson Hotel Complex is performed by independent appraisals with a local knowledgeable in the hotels business.this report.
Critical judgment in applying accounting policies
De facto Controlcontrol:
As for December 31, 2017 and 2016, we held approximately 44.9% of PC’sPC share capital; DK holdholds approximately 26.3% of PC’sPC share capital and the rest is widely spread throughby the public. We arewere of the opinion that based on the absolute size of ourits holdings, the relative size of the other shareholdings and due to the fact that PC’s directors are appointed by a regularnormal majority inof PC’s general meeting of shareholders, we haveGeneral Meeting, it had a sufficiently dominant voting interest to meet the power criterion, therefore we havehad de facto control over PC.
In December 2018, we had deposited our entire shares of PC with a trustee. Effective from December 18, 2018 the voting rights were vested with the trustee for all matters and purposes. As a result, we no longer consider ourselves to be the controlling shareholder of PC. See also note 19b to our consolidated financial statements included elsewhere in this report.
Examination of significant influence:
An affiliated company is an entity in which we have significant influence. Significant influence is the ability to participate in making decisions relating to the financial and operating policy of the affiliated company, which does not constitute a control over the decision making. Significant influence exists, as a rule, when we holds 20% or more of the voting power of the investee (unless it can be clearly demonstrated that this is not the case). Significant influence also exists where the holding in the associate is less than 20%, provided that such influence is clearly demonstrated. As for the examination of the existence of significant influence of Elbit Medical in Insightec after the capital transactions carried out during 2017-2018 - see Note 5 b 1 to our consolidated financial statements included elsewhere in this report.
With regard to Elbit Medical loss of significant influence in respect of Gamida, see Note 8 3 to our consolidated financial statements included elsewhere in this report.
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New accounting standards and interpretation issued that are not yet effective
For information on recently issued accounting standards, amendments to standards and clarifications which are applicable or expected to be applicable, to us, and which have not yet become effective see note2Xnote 2X to our annual consolidated financial statements included elsewhere in this report.
A. | Operating Results |
Presentation method of financial statements
See “Item 5- Operating and Financial Review and Prospects - Critical Judgment in Applying Accounting Policies - De Facto Control”.
We are involved in investments in a wide range of different activities. Accordingly, management believes that its income statements should be presented in the “single-step form”. According to this form, all costs and expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of overall income and gains. We also believe that our operating expenses should be classified by a function of: (i) those directly related to each revenue source (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.
PC’s strategy in respect of its commercial centers was to dispose of the commercial centers upon completion, subject to certain exceptions. However, as of this date of this report, PC’s strategy is to solve existing bureaucratic or legal issues and dispose its real estate assets. The Group is unable to clearly identify its actual operating cycle with respect to trading property. Under such circumstances, we decided to utilize for accounting reporting purposes an assumed operating cycle of 12 months. Revenues from these commercial centers are mainly derived from their disposal to third parties, while until a disposal occurs we collect rental income from our completed commercial centers. Therefore, rental income from commercial centers (from the first day of their operations until the sale thereof) may not be sustainable in the future upon PC selling the commercial centers as part of its business cycle.
Our revenues from the sale of commercial centers and other real estate properties are subject to the execution and consummation of sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on them as a basis for future performance.
All of the hotel’s results are presented as discontinued operations. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania”.
Translation of statements of income of foreign operations
The majority of our businesses, which operate in various countries, report their operational results in their respective functional currency which differs from the NIS (our reporting and functional currency).currency. We translate our subsidiaries’ results of operations into NIS based on the average exchange rate of the functional currency against the NIS. Therefore, a devaluation of the NIS against each functional currency would cause an increase in our reported revenues and the costs related to such revenues in NIS while an increase in the valuation of the NIS against each functional currency would cause a decrease in our revenues and costs related to such revenues in NIS.
Statements of income –
The following table presents our statements of income for each of the three years ended December 31, 2018, 2017 2016 and 2015: 2016
Year ended December 31 | ||||||||||||||||||||||||||||||||
Year ended December 31 | 2 0 1 8 | 2 0 1 7 | 2 0 1 6 | 2 0 1 8 | ||||||||||||||||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | 2 0 1 7 | Convenience translation (Note 2D) | ||||||||||||||||||||||||||||
Convenience translation (Note 2D) | (in thousand NIS) | U.S.$’000 | ||||||||||||||||||||||||||||||
(in thousand NIS) | U.S.$’000 | (Except for per-share data) | ||||||||||||||||||||||||||||||
(Except for per-share data) | ||||||||||||||||||||||||||||||||
Revenues and gains | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Revenues from sale of commercial centers | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||||||||||||||||||
Total revenues | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||||||||||||||||||
Gains and other | ||||||||||||||||||||||||||||||||
Rental income from Commercial centers | 31,997 | 66,417 | 83,849 | 9,229 | ||||||||||||||||||||||||||||
Gain from sale of investees | - | - | 6,712 | - | ||||||||||||||||||||||||||||
Gain from loss of significant influence in associate | 71,265 | - | - | 19,014 | ||||||||||||||||||||||||||||
Gain from fair value adjustment | 13,915 | - | - | 3,713 | ||||||||||||||||||||||||||||
Total gains | 31,997 | 66,417 | 90,561 | 9,229 | 85,180 | - | - | 22,727 | ||||||||||||||||||||||||
Total revenues and gains | 814,826 | 192,436 | 290,639 | 235,023 | 85,180 | - | - | 22,727 | ||||||||||||||||||||||||
Expenses and losses | ||||||||||||||||||||||||||||||||
Commercial centers | 805,523 | 159,806 | 290,360 | 232,369 | ||||||||||||||||||||||||||||
General and administrative expenses | 14,930 | 10,257 | 16,678 | 4,306 | (11,940 | ) | (14,723 | ) | (10,003 | ) | (3,186 | ) | ||||||||||||||||||||
Share in losses of associates, net | 20,202 | 54,313 | 42,925 | 5,827 | - | (20,202 | ) | (54,313 | ) | - | ||||||||||||||||||||||
Financial expenses | 112,296 | 124,354 | 207,721 | 32,390 | (55,716 | ) | (69,457 | ) | (60,280 | ) | (14,867 | ) | ||||||||||||||||||||
Financial income | (1,811 | ) | 1,056 | (2,154 | ) | (522 | ) | 1,801 | 1,720 | 2,318 | 481 | |||||||||||||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | - | (2,707 | ) | 2,568 | - | |||||||||||||||||||||||||||
Exchange differences, net | 14,796 | 816 | 2,602 | 3,948 | ||||||||||||||||||||||||||||
Change in fair value of financial instruments measured at fair value | 31,220 | - | - | 8,331 | ||||||||||||||||||||||||||||
Write-down, charges and other expenses, net | 101,120 | 162,318 | 99,292 | 29,166 | (4,877 | ) | 1,596 | (567 | ) | (1,301 | ) | |||||||||||||||||||||
1,052,360 | 509,397 | (657,390 | ) | 303,536 | (24,716 | ) | (101,882 | ) | (120,243 | ) | (6,594 | ) | ||||||||||||||||||||
Profit (loss) before income taxes | (237,534 | ) | (316,961 | ) | (366,751 | ) | (68,513 | ) | 60,464 | (101,882 | ) | (120,243 | ) | 16,133 | ||||||||||||||||||
Income taxes expenses (tax benefits) | 11,244 | 3,020 | (4,402 | ) | 3,243 | (5,245 | ) | 7,000 | - | (1,399 | ) | |||||||||||||||||||||
Profit (loss) from continuing operations | (248,778 | ) | (319,981 | ) | (371,153 | ) | (71,756 | ) | 65,709 | (108,882 | ) | (120,243 | ) | 17,532 | ||||||||||||||||||
Profit (loss) from discontinued operations, net | (152,903 | ) | 7,913 | 56,231 | (44,102 | ) | (650,077 | ) | (292,799 | ) | (191,825 | ) | (173,446 | ) | ||||||||||||||||||
Profit (loss) for the year | (401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | (584,368 | ) | (401,681 | ) | (312,068 | ) | (155,914 | ) |
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Year ended December 31 | ||||||||||||||||
2 0 1 8 | 2 0 1 7 | 2 0 1 6 | 2 0 1 8 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | (517,833 | ) | (338,034 | ) | (194,830 | ) | (138,162 | ) | ||||||||
Non-controlling interest | (66,535 | ) | (63,647 | ) | (117,238 | ) | (17,752 | ) | ||||||||
(584,368 | ) | (401,681 | ) | (312,068 | ) | (155,914 | ) | |||||||||
Profit (loss) from continuing operations | ||||||||||||||||
Equity holders of the Company | 41,910 | (105,331 | ) | (113,642 | ) | 11,182 | ||||||||||
Non-controlling interest | 23,799 | (3,551 | ) | (6,601 | ) | 6,350 | ||||||||||
65,709 | (108,882 | ) | (120,243 | ) | 17,532 | |||||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||
Equity holders of the Company | (559,743 | ) | (232,703 | ) | (81,188 | ) | (149,344 | ) | ||||||||
Non-controlling interest | (90,334 | ) | (60,096 | ) | (110,637 | ) | (24,102 | ) | ||||||||
(650,077 | ) | (292,799 | ) | (191,825 | ) | (173,446 | ) | |||||||||
Earnings (loss) p–r share - (in NIS) | ||||||||||||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||
From continuing operation | 4.56 | (11.46 | ) | (12.36 | ) | 1.22 | ||||||||||
From discontinued operations | (60.90 | ) | (25.32 | ) | (8.83 | ) | (16.25 | ) | ||||||||
(56.34 | ) | (36.78 | ) | (21.20 | ) | (15.03 | ) |
83
Year ended December 31 | ||||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | 2 0 1 7 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | (338,034 | ) | (194,830 | ) | (186,150 | ) | (97,500 | ) | ||||||||
Non-controlling interest | (63,647 | ) | (117,238 | ) | (128,772 | ) | (18,358 | ) | ||||||||
(401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | |||||||||
Profit (loss) from continuing operations | ||||||||||||||||
Equity holders of the Company | (185,132 | ) | (202,724 | ) | (242,709 | ) | (53,398 | ) | ||||||||
Non-controlling interest | (63,647 | ) | (117,257 | ) | (128,463 | ) | (18,358 | ) | ||||||||
(248,779 | ) | (319,981 | ) | (371,172 | ) | (71,756 | ) | |||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||
Equity holders of the Company | (152,903 | ) | 7,893 | 56,540 | (44,102 | ) | ||||||||||
Non-controlling interest | - | 20 | (309 | ) | - | |||||||||||
(152,903 | ) | 7,913 | 56,231 | (44,102 | ) | |||||||||||
Earnings (loss) per share - (in NIS) | ||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||
From continuing operation | (20.14 | ) | (22.05 | ) | (21.73 | ) | (5.80 | ) | ||||||||
From discontinued operations | (16.64 | ) | 0.85 | 1.48 | (4.80 | ) | ||||||||||
(36.78 | ) | (21.20 | ) | (20.25 | ) | (10.60 | ) | |||||||||
Diluted earnings (loss) per share: | ||||||||||||||||
From continuing operation | (20.14 | ) | (22.05 | ) | (21.73 | ) | (5.80 | ) | ||||||||
From discontinued operations | (16.64 | ) | 0.85 | (1.48 | ) | (4.80 | ) | |||||||||
(36.78 | ) | (21.20 | ) | (20.25 | ) | (10.60 | ) |
20172018 compared to 20162017
Income - Revenues and Gains
Total income (revenues and gains) in 2017 amounted to NIS 815 million ($235 million), compared to NIS 192 million in 2016.
Total revenues in 2017 amounted to NIS 783 million ($225 million), compared to NIS 126 million in 2016. The decrease is mainly attributable to:
Total gains in
|
Operating Expenses and losses
Our operating expenses and losses in 2017 amounted to NIS 1,05216 million ($3034.5 million), compared to income NIS 50933 million in 2016.2017. Set forth below is an analysis of our expenses and losses:
(i) |
(ii) | Share in losses of associates, net decreased to nil in 2018, compared to NIS 20 million in 2017. The decrease is mainly attributable to Elbit Medical’s share in InSightec’s losses and in Gamida’s losses of which were taken in 2017 in amounts that set the investments in InSightec and Gamida into zero. |
(iii) | Other expenses, net, increased to NIS 5 million ($1.3million) in 2018, compared to NIS 1.5 million income in 2017. The expenses in 2018 was mainly attributable to expenses related to government institutions. |
Financial expenses, net
(iv) | Financial expenses decreased to NIS 56 million ($15 million) in 2018, compared to NIS 69 million in 2017. Such decrease of approximately NIS 13 million is mainly due to the followings: |
(i) Decrease in the interest and CPI-linked expenses in the amount of NIS 28 million ($7.5 million) which was mainly attributable to a reduction in our debt due to repayment of notes and loans and a buyback of notes. $.(ii) decrease in interest and linkage to the CPI in the amount of NIS 5 million recorded in 2017 in respect of provisions for institutions due to final settlement with the authorities. Offset by (iii) an increase in interest expenses in Elbit Medical due to the issue of convertible bonds in the beginning of 2018 in the amount of NIS 21.
(v) | Financial income amounted to NIS |
(vi) | Exchange differences, net amounted to income in the amount of NIS 15 in 2018 comparing to expenses in the amount of NIS 1 in 2018. Such increase was mainly attributable to changes in the exchange rate between the USA $ and NIS on Elbit Medical’s notes, which are recorded in NIS and are measured in USA. |
(vii) | Change in fair value of financial instruments at fair value amounted to income of NIS 32 million ($ |
As a result of the foregoing factors, we recognized a profit before income tax in the total amount of NIS 60 million ($16 million) in 2018, compared to loss before income tax in the total amount of NIS 102 in 2017.
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Income taxes benefits amounted to NIS 5 million ($1.4 million) in 2018 related to reverse of previous year provision compared to tax expenses in the total amount of NIS 7 million 2017.
The above resulted in a profit from continuing operations in the amount of NIS 66 million ($17.5 million) in 2018, compared to a loss from continuing operations in the amount of NIS 109 million in 2017.
Loss from discontinued net operation amounted to NIS 650 ($173 million) in 2018 compared to NIS 293 million in 2017. The loss in 2018 was mainly attributable to realization of foreign currency translation reserves to profit and loss in the total amount of NIS 594 million ($158 million). In 2018 the discontinued operations were attributable mainly to our commercial centers operations and plots in India.
The above resulted in a loss of NIS 584 million ($156 million) in 2018, of which a loss of NIS 518 million ($138 million) was attributable to our equity holders and a loss in the amount of NIS 66 million ($15 million) was attributable to the non-controlling interest. Loss of NIS 402 million in 2017, of which a loss of NIS 338 million was attributable to our equity holders and a loss in the amount of NIS 64 million was attributable to the non-controlling interest.
The deficit in the shareholders’ equity attributable to our equity holder as of December 31, 2018 amounted to NIS 40 million ($11 million). Our total deficit in the shareholder equity as of December 31, 2018 amount to NIS 60 million ($16 million).
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2018 (in NIS million):
Segment | Medical Industries | India plots | Other and Allocations | Total | ||||||||||||
Revenues | 137 | - | (137 | ) | - | |||||||||||
Total revenues and gains | 137 | - | (137 | ) | - | |||||||||||
Costs and expenses | - | |||||||||||||||
Other expenses (income), net | - | |||||||||||||||
Segment profit (loss) | (153 | ) | 7 | 146 | - | |||||||||||
Unallocated gains | 85 | |||||||||||||||
Share in losses of associates, net | - | |||||||||||||||
Unallocated general and administrative expenses | (12 | ) | ||||||||||||||
Unallocated other expenses | (5 | ) | ||||||||||||||
Unallocated financial expenses | (56 | ) | ||||||||||||||
Financial income | 2 | |||||||||||||||
Exchange differences, net | 15 | |||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | 31 | |||||||||||||||
Profit before income taxes | 60 | |||||||||||||||
Income taxes | (4 | ) | ||||||||||||||
Profit from continuing operations | 66 | |||||||||||||||
Income from discontinued operation | (650 | ) | ||||||||||||||
Loss for the year | (584 | ) |
85
2017 compared to 2016
Operating Expenses
Our operating expenses in 2017 amounted to NIS 33 million, compared to NIS 65 million in 2016. Set forth below is an analysis of our operating expenses:
(i) | Share in losses of associates, net decreased to NIS 20 million in 2017, compared to NIS |
(ii) | General and administrative expenses increased to NIS 15 million |
(iii) |
Financial expenses, net
Financialexpenses
|
(v) | Financial income amounted to NIS 2 million in 2017 and 2016. |
(vi) | Exchange differences, net amounted to expenses in the amount of NIS
| |
Year ended December 31 | ||||||||
2017 | 2016 | |||||||
(In thousand NIS) | ||||||||
Project name (City, Country) | ||||||||
Non-Operational: | ||||||||
Chennai (Kadavantara, India) | 7,879 | 24,564 | ||||||
Banglore (Ayyas, India) | 35,178 | - | ||||||
Helios Plaza (Athens, Greece) | - | 2,992 | ||||||
Lodz Plaza (Lodz, Poland) | 4,983 | 1,618 | ||||||
Krusevac (Krusevac, Serbia) | 1,661 | 809 | ||||||
Casa radio (Bucharest, Romania) | 40,305 | 130,376 | ||||||
Constanta (Constanta, Romania) | - | 3,445 | ||||||
Ciuc (Ciuc, Romania) | - | 3,842 | ||||||
Timisoara (Timisoara, Romania) | - | 10,514 | ||||||
Lodz residential (Lodz, Poland) | 415 | |||||||
Kielce (Kielce, Poland) | - | 4,448 | ||||||
BAS (Romania) | - | 3,235 | ||||||
Arena Plaza extention (Budapest, Hungary) | 336 | 3,749 | ||||||
Others | - | - | ||||||
90,757 | 189,592 | |||||||
90,757 | 189,592 |
The above expenses for 2016 were offset by income of NIS 35 million which was attributable mainly to firstly consolidation of the Bangalore project in India.
As a result of the foregoing factors, we recognized a loss before income tax in the total amount of NIS 238102 million ($68.6 million) in 2017, compared to loss before income tax in the total amount of NIS 317120 million in 2016.
Income taxes expenses amounted to 11NIS 7 million ($3 million) related to previous years in 2017 compared NIS 3 millionto nil in 2016.
The above resulted in a loss from continuing operations in the amount of NIS 249109 million ($72 million) in 2017, compared to a loss from continuing operations in the amount of NIS 320120 million in 2016.
Loss from discontinued net operation amounted to NIS 153 ($44 million)293 in 2017 compared profit from discontinued net operation amounted to NIS 8192 million in 2016. The loss in 2017 was attributable mainly to realization of foreign currency translation reserves to profit and loss in the total amount of NIS 213 million.million. The discontinued operations waswere attributable to our former hotel operations.operations, commercial centers operations and plots in India.
The above resulted in a loss of NIS 402 million ($116 million) in 2017, of which a loss of NIS 338 million ($97 million) was attributable to our equity holders and a loss in the amount of NIS 64 million ($18 million) was attributable to the non-controlling interest. Loss of NIS 312 million in 2016, of which a loss of NIS 195 million was attributable to our equity holders and a loss in the amount of NIS 117 million was attributable to the non-controlling interest.
The deficit in the shareholders’ equity attributable to our equity holder as of December 31, 2017 amounted to NIS 194 million ($56 million).million. Our total deficit in the shareholder equity as of December 31, 2017 amount to NIS 149 million ($43 million).million.
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The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2017 (in NIS million):
Segment | Commercial Centers | Medical Industries | India plots | Other and Allocations | Total | |||||||||||||||
Revenues | 783 | 117 | - | (117 | ) | 783 | ||||||||||||||
Rental income from commercial centers | 32 | - | - | - | 32 | |||||||||||||||
Total revenues and gains | 815 | 117 | - | (117 | ) | 815 | ||||||||||||||
Costs and expenses | 806 | 252 | - | (252 | ) | 806 | ||||||||||||||
Other expenses (income), net | 46 | - | 56 | 102 | ||||||||||||||||
Segment profit (loss) | (37 | ) | (135 | ) | (56 | ) | 135 | (93 | ) | |||||||||||
Financial (expenses) income, net | (5 | ) | - | - | - | (5 | ) | |||||||||||||
Share in losses of associates, net | - | (15 | ) | - | (5 | ) | (20 | ) | ||||||||||||
Unallocated general and administrative expenses | (15 | ) | ||||||||||||||||||
Unallocated other expenses | (1 | ) | ||||||||||||||||||
Unallocated financial expenses | (107 | ) | ||||||||||||||||||
Financial income | (2 | ) | ||||||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | - | |||||||||||||||||||
Loss before income taxes | (238 | ) | ||||||||||||||||||
Income taxes | (11 | ) | ||||||||||||||||||
Loss from continuing operations | (249 | ) | ||||||||||||||||||
Income from discontinued operation | (153 | ) | ||||||||||||||||||
Loss for the year | (402 | ) |
2016 compared to 2015
Income - Revenues and Gains
Total income (revenues and gains) in 2016 amounted to NIS 192 million, compared to NIS 290 million in 2015.
Total revenues in 2016 amounted to NIS 126 million, compared to NIS 200 million in 2015. The decrease is mainly attributable to:
Expenses and losses
Our expenses and losses in 2016 amounted to NIS 509 million, compared to income NIS 657 million in 2015. Set forth below is an analysis of our expenses and losses:
Year ended December 31 | ||||||||
2 0 1 6 | 2 0 1 5 | |||||||
(In thousand NIS) | ||||||||
Project name (City, Country) | ||||||||
Operational: | ||||||||
Koregaon Park (Pune, India) | - | 6,547 | ||||||
Zgorzelec (Zgorzelec, Poland) | - | 6,233 | ||||||
Liberec (Liberec, Czech Republic) | - | 26,466 | ||||||
- | 39,246 | |||||||
Non-Operational: | ||||||||
Chennai (Kadavantara, India) | 24,564 | - | ||||||
Helios Plaza (Athens, Greece) | 2,992 | 1,913 | ||||||
Sportstar Plaza Visnjicka (Belgrade, Serbia) | - | (23,814 | ) | |||||
Lodz Plaza (Lodz, Poland) | 1,618 | 9,460 | ||||||
Krusevac (Krusevac, Serbia) | 809 | 3,401 | ||||||
Casa radio (Bucharest, Romania) | 130,376 | 36,139 | ||||||
Constanta (Constanta, Romania) | 3,445 | 1,701 | ||||||
Ciuc (Ciuc, Romania) | 3,842 | - | ||||||
Timisoara (Timisoara, Romania) | 10,514 | 1,110 | ||||||
Lodz residential (Lodz, Poland) | - | 9,070 | ||||||
Kielce (Kielce, Poland) | 4,448 | 723 | ||||||
BAS (Romania) | 3,235 | - | ||||||
Arena Plaza extention (Budapest, Hungary) | 3,749 | 5,323 | ||||||
Others | - | 2,716 | ||||||
189,592 | 47,742 | |||||||
189,592 | 86,988 |
The above expenses for 2016 were offset by income of NIS 32 million which was attributable mainly to firstly consolidation of the Bangalore project in India.
As a result of the foregoing factors, we recognized a loss before income tax in the total amount of NIS 317 million in 2016, compared to loss before income tax in the total amount of NIS 367 in 2015.
Income taxes expenses amounted to 3 million in 2016 compared to tax benefits amounted to NIS 6 million in 2015.
The above resulted in a loss from continuing operations in the amount of NIS 319 million in 2016, compared to a loss from continuing operations in the amount of NIS 371 million in 2015.
Profit from discontinued net operation amounted to NIS 8 million in 2016, compared to loss from discontinued net operation amounted to NIS 56 million in 2015. In 2016 the discontinued operations was attributable to our former hotel operations. In 2015, the discontinued operations was attributable to our former Mango operational hotel operations.
The above resulted in a loss of NIS 312 million in 2016, of which a loss of NIS 195 million was attributable to our equity holders and a loss in the amount of NIS 117 million was attributable to the non-controlling interest. Loss of NIS 315 million in 2015, of which a loss of NIS 186 million was attributable to our equity holders and a loss in the amount of NIS 129 million was attributable to the non-controlling interest.
The deficit in the shareholders’ equity attributable to our equity holder as of December 31, 2016 amounted to NIS 88 million. Our total shareholder equity as of December 31, 2016 amount to NIS 49 million.
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2016 (in NIS million):
Segment | Commercial Centers | Medical Industries |
India plots | Other and Allocations | Total | |||||||||||||||
Revenues | 126 | 96 | - | (96 | ) | 126 | ||||||||||||||
Rental income from commercial centers | 84 | - | - | (18 | ) | 66 | ||||||||||||||
Total revenues and gains | 210 | 96 | - | (114 | ) | 192 | ||||||||||||||
Costs and expenses | 174 | 216 | - | (230 | ) | 160 | ||||||||||||||
Other expenses (income), net | 171 | - | (9 | ) | - | 162 | ||||||||||||||
Segment profit (loss) | (135 | ) | (120 | ) | 9 | 116 | (130 | ) | ||||||||||||
Financial (expenses) income, net | 60 | - | - | - | 60 | |||||||||||||||
Share in losses of associates, net | - | (8 | ) | - | (46 | ) | (54 | ) | ||||||||||||
Unallocated general and administrative expenses | (10 | ) | ||||||||||||||||||
Unallocated other expenses | (1 | ) | ||||||||||||||||||
Unallocated financial expenses | (185 | ) | ||||||||||||||||||
Financial income | (1 | ) | ||||||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | 3 | |||||||||||||||||||
Loss before income taxes | (317 | ) | ||||||||||||||||||
Income taxes | (3 | ) | ||||||||||||||||||
Loss from continuing operations | (320 | ) | ||||||||||||||||||
Income from discontinued operation | 8 | |||||||||||||||||||
Loss for the year | (312 | ) |
Segment | Medical Industries | India plots | Other and Allocations | Total | ||||||||||||
Revenues | 117 | - | (117 | ) | - | |||||||||||
Total revenues and gains | 117 | - | (117 | ) | - | |||||||||||
Costs and expenses | ||||||||||||||||
Other expenses (income), net | ||||||||||||||||
Segment profit (loss) | (135 | ) | (56 | ) | 191 | - | ||||||||||
Share in losses of associates, net | (15 | ) | - | (5 | ) | (20 | ) | |||||||||
Unallocated general and administrative expenses | (15 | ) | ||||||||||||||
Unallocated other expenses | 2 | |||||||||||||||
Unallocated financial expenses | (69 | ) | ||||||||||||||
Financial income | 1 | |||||||||||||||
Exchange differences, net | (1 | ) | ||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | - | |||||||||||||||
Loss before income taxes | (102 | ) | ||||||||||||||
Income taxes | 7 | |||||||||||||||
Loss from continuing operations | (109 | ) | ||||||||||||||
Income from discontinued operation | (293 | ) | ||||||||||||||
Loss for the year | (402 | ) |
B. | Liquidity and Capital Resources |
General
Our capital resources include the following: (a) proceeds from sales of trading property and real estate assets subject to market conditionconditions, (b) lines of credit obtained from banks, and others; (c) proceeded from sales of shares in the Group held companies in the medical fieldfield; (d) available cash and cash equivalents.equivalents; and (e) proceeds from capital raising of equity or debt, if and to the extent completed.
Such resources are generally used for the following purposes:
(i) | Interest and principal payments on the Group notes
|
(ii) | Payment of general and administrative expenses; |
See ”“ - Overview” above for information on the major transactions and events carried out by us in 2015, 2016, 2017 and 2017,2018, which resulted in material changes in our liquidity and capital resources.
Liquidity
PC'sOur strategy in respect of its commercial centers was to dispose of the commercial centers upon completion, subject to certain exceptions. However, as of this date of this report, PC's strategyconcerning our real estate business is to solve existing bureaucratic or legal issues and dispose itsto sell our real estate assets. Therefore, we do not foresee significant investments by us in the development of our real estate business in the years to come. Our medical business, however, require a substantial amount of cash in order to finance their R&D and other expenses. The major source to finance these operations will be by means of equity financing by other shareholders in these companies (both existing and new shareholders) while.
The audit opinion for our financial statements for the fiscal year ended December 31, 2018 includes a qualification raising substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing and repay our outstanding loans.
Based on existing trust deed of (Series I) notes, in case of a material deterioration in our business compared to our condition at the date of the debt arrangement, and a substantial concern exists that we will considernot be able to partially participate (through our subsidiary – Elbit Medical) in these rounds subject to our cash resource atrepay the thatbonds on time as well as other factors.the Series I noteholders may call for immediate repayment of the Series I Notes.
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The followings list describes major transactions and events in 2019, 2018, 2017 2016 and 2015,2016, which resulted in material changes in our liquidity:
Sources of Cash from Major Transactions and Events:
2019
● | On April 1, 2019, we announced that we signed an agreement for the sale of our rights and interests in a special purpose vehicle which holds a land plot in Kochi, India. The total consideration for us is INR 10 Crores (approximately €1.4 million). See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a land located in Kochi, India” | |
● | On February 2019 we signed a second Share Purchase Agreement (the “Second SPA”) with an SPV related to Exigent Capital Group for the sale of between 3,760,417 ordinary shares of Elbit Medical (1.6% of its outstanding share capital) and 57,968,760 ordinary shares of Elbit Medical (25% of its outstanding share capital). See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent”. |
2018
● | On August 2018 we signed a Share Purchase Agreement (“SPA”) with an SPV related to Exigent Capital Group (“SPV”) for the sale of between 11,574,146 ordinary shares of Elbit Medical (5% of its outstanding share capital) and 115,741,467 ordinary shares of Elbit Medical (50% of its outstanding share capital) (the “Maximum Quantity”) for a price per share of NIS 0.96 (“Per Share Price”). During August through November 2018 we sold to the SPV a total of 60,087,537 Elbit Medical shares, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of approximately NIS 58 million (US$ 15.5 million). |
● | On July 2, 2018 we announced that an Israeli court issued a decision in a lawsuit brought by us against the Israeli Tax Authority relating to VAT assessments issued to us and relating to the period from April 2006 to June 2011. In the decision, the court accepted in part the Israeli Tax Authority’s position and ruled that we should have deducted input tax at rates lower than those actually deducted by us. Accordingly, the court rules that we are required to pay the Israeli Tax Authority a payment of approximately NIS 16.5 million (excluding interest and linkage differentials) for the relevant period. On November 19, 2018 we announced that we reached a settlement agreement with the Israeli Tax Authority pursuant to which we will pay approximately NIS 5.7 million in connection with VAT assessments for the years 2013 through 2018. |
● | On June 11, 2018 we announced that Olive Software Inc. (an affiliate in which the Company indirectly holds 16% of the outstanding share capital) was merged into another corporation in a cash transaction. In consideration for our holdings in Olive, the Company received approximately $1.8 million gross. |
● | On May 31, 2018 the Company repaid its Series H Notes in full in the amount of NIS 49 million ($13 million). |
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● | During 2018 and 2019 we continued with the execution of several buy back plans for our Series H and Series I Notes. For additional information see “Item 4 – Information on the Company. A – History and development of the Company. Notes Buy-Back Plans.”. |
● | On March 22, 2018 we announced that EPI signed a revised agreement for the sale of the SPV which holds a plot in |
● | On March 12, 2018 we announced that the SEC approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA. As part of the settlement the Company paid a civil money penalty in the amount of $500,000 to the SEC. See | |
● |
On February 19, 2018 we announced that Elbit Medical completed a public offering of NIS 180 par value notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit |
● | On January 17, 2018, we announced that the district court in Israel granted its final approval to a settlement with the plaintiffs in a November 1999 claim initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd. (our former subsidiary), in connection with the change of control in our Company and in Elscint and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder) (Gadish et al v. Elscint et al). See |
2017
● | On December 19, 2017, we announced that we completed the sale of our holdings in a SPV that held the Radisson Hotel Complex in Bucharest, Romania based on a property value of Euro 169.2 million so that the net proceeds received by the SPV was approximately Euro 81 million. €8 million were deducted from the net proceeds as it was used to finance a vendor loan which has been provided by the SPV to the purchaser for a period of three years, bearing interest at a rate of 5% per annum. |
● | On August 7, 2017, we announced that PC has completed the sale of a plot in Timisoara, Romania, for €7.25 million (approximately $7.65 million) and a plot in Constanta, Romania, for €1.3 million (approximately $1.37 million). See |
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● | On November 21, 2017 we announced that PC has completed the sale of the Torun Plaza shopping and entertainment center in Poland (the “Project”) to a private investment fund for a purchase price reflecting a total forecasted value for the Project of Euro 70.6 million (approximately $ 84 million). See |
● | On October 2, 2017 |
● | On March 2, 2017 we announced that PC has completed the sale of Belgrade Plaza commercial center to BIG Shopping Centers Ltd. See |
● | On February 1, 2017, we announced that PC completed the sale of Suwałki Plaza shopping and entertainment center in Poland to an investment fund for € 42.3 million (approximately $45 million). PC received approximately €17 million (approximately $18 million) net cash, after the repayment of the bank loan, and other working capital adjustments. See |
2016
During 2016 PC has executed transactions for the sale of plots to third parties in Poland and Romania for the total amount of approximately €4 million ($4 million).
● | On December 6, 2016, PC has acquired a bank loan of approximately €10 Million (approximately $10.5 million), which is held against PC’s plot in Brasov, Romania, for a total consideration of €1.35 million (approximately $1.4 million). See |
● | On December 1, 2016, the holders of PC Notes have approved a proposed amendments to the restructuring plan of PC. See “Item 4 – Information on |
● | On September 15, 2016 PC completed the sale of Riga Plaza shopping and entertainment center in Riga, Latvia, to a global investment fund. See “Item 4 – Information on |
● | On September 14, 2016 PC completed the sale of the shares in Zgorzelec Plaza commercial center in Poland. See “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Sale of Zgorzelec Plaza Commercial Center”. |
● | On June 1, 2016 and August 18, 2016, we approved two new programs to repurchase up to NIS forty (40) million (approximately $10.4 million) and NIS 50 million (approximately $13.3 million), of our Notes. See |
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● | On August 2, 2016, a subsidiary of EPI (“SPV”) signed a Joint Development Agreement relating to the Chennai, India project, owned 100% by EPI. See |
● | On August 1, 2016, we received from the Israeli Land Administration an amount of approximately NIS 7 million (approximately $2 million) following the termination of our lease agreement with respect to a plot near Tiberius, Israel. See |
● | On June 30, 2016, PC has signed a Debt Repayment Agreement (“DRA”) with the financing bank (the “Bank”) of Zgorzelec Plaza commercial Center in Poland. As part of the DRA, PC paid of €1.1 million ($1.2 million) (in escrow) to the financing bank of the commercial Center. The DRA stated that PC is obliged to make its best effort and cooperate with the Bank in trying to sell Zgorzelec Plaza commercial Center. Simultaneous with this, the financing bank will seek a third party to be an appointed shareholder to purchase the shares of Zgorzelec Plaza commercial Center for €1. |
● | On June 29, 2016, PC completed the sale of its wholly owned subsidiary, which holds the “MUP” plot and related real estate in Belgrade, Serbia, for €15.75 million (approximately $15.8 million). |
● | On June 28, 2016, PC signed an agreement for the sale of a 20,700 square meters plot of land in Lodz, Poland, to a residential developer, for €2.4 million (approximately $2.5 million). |
● | On June 21, 2016, PC signed a €42.5 million loan agreement to support the development of Belgrade Plaza (Visnjicka) in the Serbian capital, Belgrade, from a consortium of banks led by the Hungarian bank OTP Bank Plc. As for the sale of Belgrade Plaza and the repayment of the loan agreement. |
● | On March 31, 2016, PC has completed the sale of its subsidiary holding Liberec Plaza, a shopping and entertainment center in the Czech Republic, for €9.5 million ($10 million). |
2015
The following table sets forth the components of our cash flows statements for the periods indicated:indicated
Year ended December 31, | ||||||||||||||||
2 0 1 7 | 2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||||
Convenience translation in $ thousands | NIS Thousands | NIS Thousands | NIS Thousands | |||||||||||||
Net cash provided by (used in) operating activities | 125,126 | 433,812 | 77,030 | 191,353 | ||||||||||||
Net cash provided by investing activities | 132,451 | 459,206 | 89,886 | 235,796 | ||||||||||||
Net cash used in financing activities | (149,911 | ) | (519,743 | ) | (233,259 | ) | (579,557 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | 107,665 | 373,275 | (66,343 | ) | (152,408 | ) |
Year ended December 31, | ||||||||||||||||
2 0 1 8 | 2 0 1 8 | 2 0 1 7 | 2 0 1 6 | |||||||||||||
Convenience translation in $ thousands | NIS Thousands | NIS Thousands | NIS Thousands | |||||||||||||
Net cash provided by (used in) operating activities | (5,417 | ) | (20,293 | ) | 433,812 | 77,030 | ||||||||||
Net cash provided by investing activities | 12,064 | 45,214 | 459,206 | 89,886 | ||||||||||||
Net cash used in financing activities | (122,755 | ) | (460,084 | ) | (519,743 | ) | (233,259 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | (116,108 | ) | (435,169 | ) | 373,275 | (66,343 | ) |
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Cash flow in or from operating activities
Our cash flow from operating activities is affected by our policy in respect of PC’s real estate assets which are classified as trading property since it is PC’s management goal to sell these assets. Accordingly, our cash flow from operating activities includes all the costs of acquisition and construction of a trading property and also the proceeds from sale of trading properties after their disposition. Therefore, in periods in which our investments in construction and/or acquisition of trading properties are higher than the proceeds from the sale of trading properties, we will have a negative cash flow from operating activities.
NetIn 2018 our net cash fromused in operating activities was NIS 43420 million (approximately $1255.4 million) in 2017 compared to net cash provided by operating activities of NIS 77434 million in 20162017 and net cash from operating activities of NIS 19177 million in 2015.2016.
Our cash flow from operating activities in 2018, 2017 2016 and 20152016 was influenced by the following significant factors:
(i) | Cash flow used in operating activities in 2018 included negative cash flow mainly attributable to the ongoing expenses of the group and payments made to the VAT institution | |
(ii) | Cash flow from operating activities in 2017 included positive cash flow mainly attributable to the sale of trading properties in an amount of NIS 427 million ($123 million), mostly from the sale of Belgrade Plaza (Leisure) in Serbia, Torun, Swalallki Plaza in Poland and Timisoara in Romania. | |
Cash flow from operating activities in 2016 included positive cash flow attributable to proceeds from sale of trading property mostly from the sale of “MUP” in Belgrade and Liberec Plaza commercial center in Czech in an amount of NIS 84 million. |
Cash from investment activities
Cash flow from investment activities in 2018, 2017 2016 and 20152016 amounted to NIS 45945 million ($13212 million), NIS 90459 million and NIS 23690 million, respectively.
Our cash flow from investing activities in 2018 was influenced by the following factors:
(i) | Cash withdrawals due to loss of control of subsidiaries in an amount of NIS 14 million ($4 million). |
(ii) | Proceeds from sale of Elbit Medical shares in an amount of NIS 58 million ($15 million). | |
(iii) | Proceeds from sale of property, plant and equipment and other assets in the amount of NIS 9 million ($2 million) mainly attributable to the sale of Olive. |
(iv) | Investment in long-term deposits and long-term loans in an amount of NIS 14 million ($4 million). |
(vi) | Disposition of short-term deposits and marketable securities, net, in the amount of NIS 6 million ($2 million). |
Our cash flow from investing activities in 2017 was influenced by the following factors:
(i) | Proceeds from the realization of investments in subsidiaries, mainly Butu in Romania, in an amount of NIS 430 million ($133 million) and Plaza House in Hungary in an amount of NIS 12 million ($3 million) |
(ii) | Purchase of property, plant and equipment and other assets in the amount of NIS 4 million ($1 million) mainly attributable to the Radisson Hotel Complex. |
(iii) | Proceeds from realization of property plant and equipment assets in the amount of NIS 4 million ($1 million), mainly attributable to Tiberius plot. |
(iv) | Proceeds from the sale of investment in a joint venture (sale of Riga Plaza commercial center) in an amount of NIS 2 million ($1 million). |
(v) | Proceeds from the realization of long-term deposits and | |
(vi) | Disposition of short-term deposits and marketable securities, net, in the amount of NIS 13 million ($4 million). |
Our cash flow from investment activities in 2016 was influenced by the following factors:
(i) | Proceeds from sale of investment in a joint venture (sale of Riga Plaza commercial center) in an amount of NIS 83 million. |
(ii) | Proceeds from sale of property, plant and equipment, mainly sell of Tiberius plot in an amounted of NIS 22 million. |
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(iii) | Purchase of property, plant and equipment and other assets in the amount of NIS 3 million mainly attributable to the renovation which was executed in the Radisson Hotel Complex during 2015 and was paid during 2016. |
(iv) | Proceed from realization of long-term deposits and |
(v) | Investment in long-term deposits and |
(vi) | Disposition of short-term deposits and marketable securities, net, in the amount of NIS 10 million. |
Cash flow from financing activities
Cash flow used in financing activities in 2018, 2017 and 2016 amounted to NIS 460 million ($123 million), NIS 520 million and NIS 233 million, respectively.
Our cash flow from investmentfinancing activities in 20152018 was influenced by the following factors:
(i) |
(ii) |
(iii) |
Cash flow from financing activities
Cash flow used in financing activities in 2017, 2016 and 2015 amounted to NIS 520 million ($150 million), NIS 233 million and NIS 580 million, respectively.
Our cash flow used infrom financing activities in 2017 was influenced by the following factors:
(i) | Interest paid in cash |
(ii) | Repayment of borrowings, net, of proceeds from loans in the amount of NIS 461 million ($133 million), mainly attributable to repayment of PC Notes and repayments of loans provided to our operating commercial centers and our hotels. |
(iii) | Proceeds from long-term borrowings in an amount of NIS 16 million ($5 million) which is attributed to |
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Our cash flow used in financing activities in 2016 was influenced by the following factors:
(i) | Interest paid in cash |
(ii) | Repayment of borrowings, net, of proceeds from loans in the amount of NIS 129 million, mainly attributable repayment of PC |
Our cash flow used in financing activities in 2015 was influenced by the following factors:
Major balance sheet changes
The following table discloses the balance sheet balances in NIS million and major balance sheet items as a percentage of total assets as of December 31, 2018, 2017 2016 and 2015:2016:
2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||
NIS million | % | NIS million | % | NIS million | % | NIS million | % | NIS million | % | NIS million | % | |||||||||||||||||||||||||||||||||||||
Current assets | 483 | 47% | 179 | 8% | 218 | 8% | 46 | 18 | % | 483 | 47 | % | 179 | 8 | % | |||||||||||||||||||||||||||||||||
Current liabilities | 847 | 83% | 1,210 | 54% | 806 | 30% | 155 | 60 | % | 847 | 83 | % | 1,210 | 54 | % | |||||||||||||||||||||||||||||||||
Non-current assets | 534 | 53% | 2,083 | 92% | 2,486 | 92% | 211 | 82 | % | 534 | 53 | % | 2,083 | 92 | % | |||||||||||||||||||||||||||||||||
Non-current liabilities | 319 | 31% | 1,003 | 44% | 1,593 | 59% | 161 | 63 | % | 319 | 31 | % | 1,003 | 44 | % | |||||||||||||||||||||||||||||||||
Shareholders’ equity (Deficiency): | ||||||||||||||||||||||||||||||||||||||||||||||||
Attributable to our equity holders | (194 | ) | (19%) | (88 | ) | (4%) | 19 | 1% | (40 | ) | (16 | )% | (194 | ) | (19 | )% | (88 | ) | (4 | )% | ||||||||||||||||||||||||||||
Non-controlling interest | 46 | 5% | 137 | 6% | 285 | 10% | (20 | ) | (8 | )% | 46 | 5 | % | 137 | 6 | % |
2018 compared to 2017
The decrease in current assets in the amount of NIS 437 million ($117 million) in 2018 was mainly attributable to a decrease the cash and cash equivalents in an amount of NIS 433 million ($116 million) mainly due to repayments of our and PC notes.
The decrease in current liabilities in the amount of NIS 692 million ($185 million) in 2018 was mainly attributable to: (i) repayment and buyback of our and PC notes in the amount of NIS 466 million ($124 million) (ii) cancellation of a short-term liability in the amount of NIS 331 million ($88 million) due to loss of control on PC, offset by (iii) classification of current maturities to current liabilities in the amount of NIS 136 million ($36 million)
The decrease in non-current assets in the total amount of NIS 323 million ($86 million) in 2018 was mainly attributable to(i) decrease in trading properties in the total amount of NIS 492 ($132 million) mainly due to write down of PC’s trading property in the amount of NIS 107 million ($29 million) and loss of control on PC and EPI in the amount of NIS 382 million ($102 million); offset by (ii) increase in investments in associates and joint venture due to loss of control on EPI and recording of an investment in the equity method in the amount of NIS 76 million ($ 20 million) (iii) increase in financial asset through profit and loss in the total amount of NIS 86 million ($ 21 million) due to loss of significant influence on Gamida.
The decrease in non-current liabilities in the amount of NIS 158 million ($42 million) in 2018 was mainly attributable to: (i) elimination of other liabilities due to loss of control on PC and EPI in the amount of NIS 75 million ($20 million); (ii) the classification of our notes in the amount of NIS 136 million ($36 million) from non-current liabilities to current liabilities, (iii) buyback of our notes in an amount of NIS 109 million ($29 million). offset by: (iv) issue of convertible bonds in Medical in an amount of NIS 145 million ($39 million) and by other financial liability due to recognition of the conversion component in an amount of NIS 16 million ($4 million).
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2017 compared to 2016
The increase in current assets in the amount of NIS 304 million ($88 million) in 2017 was mainly attributable to an increase in each of: (i) cash and cash equivalents in an amount of NIS 375 million ($108 million) mainly due to the completion of the sale of the Radisson Hotel Complex and Torun, (ii) decrease in trade account receivables in the amount of NIS 34 million ($10 million) due to the sale of all of PC’s commercial centers and the Radisson Hotel Complex, and (iii) a decrease in short term deposits in the amount of NIS 30 million ($9 million).
The decrease in current liabilities in the amount of NIS 363 million ($105 million) in 2017 was mainly attributable to: (i) repayment of our bank loan in the amount of NIS 59 million ($17 million), (ii) repayment of PC loans in the amount of NIS 333 million ($96 million), (iii) early redemption of PC notes in the amount of NIS 31 million ($9 million) due to asset sales, and (iv) decreases in amount due to suppliers and service providers in the amount of NIS 236 million ($68 million) due to the sale of all of PC'sPC’s commercial centers and the Radisson hotel.
The said decrease in current liabilities was partially offset by: (i) the classification of current maturities of Series H debentures in the amount of NIS 296 million ($85 million) and (ii) an increase in payables in respect of transactions in India in the amount of NIS 12 million ($3 million) and in provisions to government authorities in the amount of NIS 12 million ($ 3 million).
The decrease in non-current assets in the total amount of NIS 1,549 million ($447million) in 2017 was mainly attributable to: (i) the write-down of PC trading properties in an amount of NIS 91 million ($26 million); (ii) sale of all the commercial centers and other plots of PC in the total amount of NIS 750 million ($216 million) and (iii) disposal of the Radisson Hotel Complex, net of depreciation and foreign currency adjustments, during the year in the total amount of NIS 720 million ($208 million).
The said decrease in current liabilities was partially offset by: (i) increase of foreign currency adjustments in the amount of NIS 16 million ($5 million)
The decrease in non-current liabilities in the amount of NIS 683 million ($197) in 2017 was mainly attributable to: to (i) the classification of our notes in the amount of NIS 296 million ($85 million) from non-current liabilities to current liabilities, (ii) repayment of our hotel’s loan in an amount of NIS 353 million ($101 million) as part of the sale of the Radisson Hotel Complex and (iii) the decrease of deferred taxes due to the sale of the Radisson Hotel in an amount of NIS 92 million ($27 million).
The said decrease in non-current liabilities was partially offset by: (i) the reducing of our bond discount, net, in amount of NIS 40 million ($12 million) and (ii) an increase in advances on account of India transactions in the amount of NIS 22 million ($6 million).
2016 compared to 2015
The decrease in current assets in the amount of NIS 39 million in 2016 was mainly attributable to a decrease in each of: (i) cash and cash equivalents in an amount of NIS 68 million mainly due to repayment and buyback of the Notes and loans, payment of interest on notes and loans and general and administrative expenses; offset by (ii) increase in trade account receivable in the amount of NIS 21 million due to receivable from sale of PC’s plots in the amount of NIS 23 million (iii) increase in short term deposits in the amount of NIS 9 million
The increase in current liabilities in the amount of NIS 404 million in 2016 was mainly attributable to: (i) increase in current maturities of PC project company loans in the amount of NIS 62 million; (ii) classification of our bank loans in an amount of NIS 59 million from non- current liabilities to current liabilities due to current maturities (iii) classification of PC notes and loans in the amount of NIS 666 million from non-current liabilities to current liabilities due to the risk that PC’s notes holders could argue there exists a substantial suspicion with respect to PC’s ability to repay its obligations to its noteholders that entitles them to demand immediate repayment of the notes. Should this occur there is a risk that the banks that provided loans to PC will demand immediate repayment of the loans made to PC. The said increase in current liabilities was partially offset by (i) classification of our hotel’s loans in an amount of NIS 238 million from current liabilities to non - current liabilities due to refinance of the loan during 2016; (ii) decrease in the PC Notes in the total amount of NIS 145 million due to repayments made;
The decrease in non-current assets in the total amount of NIS 403 million in 2016 was mainly attributable to (i) write-down of PC trading properties in an amount of NIS 190 million; (ii) sale of Liberace Plaza in Czech republic commercial center and other plots of PC in the total amount of NIS 166 million; (iii) foreign currency in translation adjustments in the amount of NIS 65 million; The sale of our plot designated for hotel in Tiberius in the amount of NIS 15 million; (iv) sale of our Investments in joint venture in the amount of NIS 85 million; (v) our share in losses of associates, net, in the amount of NIS 54 million; offset by (i) the revaluation of our hotel net of depreciation and foreign currency translation adjustment during the year in the total amount of NIS 33 million; (ii) Increase in construction costs in our trading property mainly due to our activity in Serbia in the amount of NIS 109 million; increase in our investment in the plot of Bangalore in the total amount of NIS 30 million due to firstly consolidation.
The decrease in non-current liabilities in the amount of NIS 590 million in 2016 was mainly attributable to (i) classification of PC notes and loans in the amount of NIS 666 million from non-current liabilities to current liabilities due to the risk that PC’s noteholders could argue there exists a substantial suspicion with respect to PC’s ability to repay its obligations to its noteholders that entitles them to demand immediate repayment. Should this occur there is a risk that the banks that provided loans to PC will also demand immediate repayment of the loans made to PC (ii) repayment of our Notes (net from increase in bearing interest) and loan in the amount of NIS 153 million and classification of our loan to current liabilities in the amount of NIS 59 million; and (iii) decrease in the PC Notes and loans, net, in the total amount of NIS 65 million. The said increase in non - current liabilities was partially offset by classification and increase of our hotel’s loan in an amount of NIS 353 million from current liabilities to non - current liabilities due to refinance of the loan during 2016.
Derivative Instruments
For information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure about Market Risks”.
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Other Loans
We have entered into or assumed liability for various financing agreements, either directly or indirectly through our subsidiaries, to provide capital for the purchase, construction, and renovation and operation of commercial and entertainment centers and hotels as well as for various investments in our other operations.investments. Set forth below is certain material information with respect to material loans extended to us our subsidiaries and our jointly controlled companiessubsidiaries as of December 31, 2017.2018.
The loans granted to our jointly controlled companies, as of December 31, 2017, are presented in the following table at their 100% amount, unless otherwise specified.
For information regarding notes issued by our subsidiary, Elbit Medical, in February 2018, see Item 4 – Information on the Company – Recent Events – “Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company “.
Borrower | Lender | Original Amount (par value) | Amount Outstanding on Dec. 31, (par value) | Interest | Payment Terms |
EI | Series I public notes issued to the Public as part of the debt Arrangement | NIS 218 million | NIS
| 6% per annum, linked to the Israeli CPI. | Principal and accrued interest is paid in one installment on December 1, 2019.
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Principal Security and Covenants | ● ● ● ● Negative Pledge by each of the Company and EUL. With respect to EUL the Negative Pledge also applies to EUL’s share in PC, including all rights associated therewith. ● Corporate guaranty by EUL, which guarantees the Company’s obligations to the Series H and Series I Trustees. ● First ranking fixed pledge on the Company’s rights for repayment of the vendor loan that that was given to the purchaser of the Radisson hotel in Romania (the rights for the repayment of the vendor loan were assigned from the SPV that sold the hotel to the Company). For additional information regarding the vendor loan see “Item 4 – Information on the Company. A – History and development of the Company. Sale of our holdings in the Radisson complex in Bucharest, Romania.”
It should be noted
It should also be noted, that on December 2017 we signed an amendment to the Trust Deed of (Series I) notes, so that all collateral relating to our wholly owned subsidiary EH were canceled and in return the Company undertook to use 75% of the net proceeds from the sale of the Radisson Hotel Complex for an early repayment on account of the (Series H) notes. The early repayment was made in January 2018.
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Other Information
| The Notes are registered for trade on the TASE.
The Notes are not registered under the Securities Act.
Events of default include, among other things, the occurrence of an event of default under the Notes or an event that would entitle the On July 10, 2017, the series “I” noteholders approved a resolution to waive their immediate repayment right, pursuant to the delay in publications of the financial statements and |
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Borrower | Lender | Original Amount (par value) | Amount Outstanding on Dec. 31, 2018 (par value) | Interest | Payment Terms | |
Elbit Medical | Series C public notes issued to the Public | NIS 182 million (approximately $49 million) | NIS 182 million (approximately $49 million) | 5% in the first two years and 10% in the remaining period | Principal is paid in one installment on March 1, 2022. Accrued interest is paid in semi-annual payments every March 1 and September 1 beginning September 1, 2018 and ending on March 1, 2022 | |
Principal Security and Covenants | ● First ranking fixed pledge on 2,000,162 Ordinary shares of Gamida Cell (and the rights attached thereto) held by the Company. ● First ranking fixed pledge on 6,774,995 Ordinary shares of Insightec (and the rights attached thereto) held by the Company. ● First ranking fixed pledge on 6,809,458 Preferred Shares B of Insightec (and the rights attached thereto) held by the Company. ● First ranking fixed pledge on 18,261,298 Preferred Shares B-1 of Insightec (and the rights attached thereto) held by the Company. | |||||
Other Information | The Notes are registered for trade on the TASE. The Notes are not registered under the Securities Act. Each NIS1.47 par value in notes are convertible into one Elbit Medical ordinary share. The trust agreement of the notes includes certain limitations, including on the ability of Elbit Medical to distribute dividends and raise additional debt. The use of proceeds from the Notes were as follows: (a) payment of all expenses in connection with the issuance of the notes (approximately NIS6 (approximately US$ 1.7 million)); (b) NIS18 million (approximately $ 5 million) were deposited with the trustee and are used for interest payments due on the notes for the first two years; (c) NIS 4 million (approximately $ 1 million) for ongoing operational expenses; and (d) the remaining proceeds were used to repay Elbit Medical’s intercompany debt to the Company in the amount of approximately NIS 153 million (approximately $ 43 million). The Notes were not registered under the U.S. Securities Act of 1933. Events of default include, among other things, material deterioration in the Company’s business, the occurrence of an event of default under the Notes or an event that would entitle the Trustee under the Notes or the noteholders to accelerate and redeem the Notes, as well as cross default with other series of notes and delisting from the TASE.
On July 10, 2017, the series “I” noteholders approved a resolution to waive their immediate repayment right, pursuant to the delay in publications of the financial statements and to extend the submission date of the Company’s annual financial statements for the year of 2016 until December 31, 2017 (the “Resolution”).
Should there be grounds for the realization of any of the collaterals, or should a substantial event as defined below occur, then, starting from that date, the following provisions shall apply (hereinafter: “the restricting provisions”); (1) After the Company’s Series |
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Financial Instruments
For information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure about Market Risks” below.
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Material Commitments for Capital Expenditure
See “Tabular Disclosure of Contractual Obligations” below.
Designated Disclosure with Respect to the Company’s Projected Cash Flows
Whereas the Company was incorporated in Israel and its securities are also traded in the Tel Aviv Stock Exchange (“TASE”), it is subject to certain reporting requirements under the Israeli Securities Law, 1967, inter alia, the requirement to publish a projected cash flow for a period of 24 months (the “Projected Cash Flow”) if and to the extent that Warning Signs (as defined below) exists in the Company’s financial statements; and also provide explanations on differences between previously disclosed Projected Cash Flow with actual cash flow.
”“Warning Signs” are defined under the Securities Regulations (Immediate and Periodic Notices) 5730-1970 (the “Regulations”), as one of the following: (i) A deficit in shareholders ‘equity; (ii) An opinion or review by the corporation’s auditors as of the report date that includes reference to the corporation’s financial condition; (iii) A deficit in working capital or in working capital for a period of twelve months together with a persistent negative cash flow from ongoing activity; (iv) A deficit in working capital or in working capital for a period of twelve months or an ongoing negative cash flow from ongoing activity and the Board of Directors of the corporation has not determined that this is not an indication of a liquidity problem in the corporation; (v) An opinion or review by the corporation’s auditors as of the report date which includes reference to any material doubts concerning the continuation of the corporation’s activities as a going concern;
The first threefour Warning Signs as described above exists in the Company’s financial statements for December 31, 2017.2018. Therefore, the Company publishes this Projected Cash Flow of the Company (on a standalone basis) and the assumptions upon which it is based:
January 1, 2018- December 31, 2018 (NIS Thousands) | January 1, 2019- December 31, 2019 (NIS Thousands) | |||||||
Opening balance: Cash and cash equivalents | 269 | 52 | ||||||
Projected Sources | ||||||||
Sources from realization of assets and business: | ||||||||
Cash flow from sale of our holdings in plot in India (Bangalore site) (1) | 8 | 43 | ||||||
Cash flow from sale of our holdings in plot in India (Chennai site) (2) | - | 28 | ||||||
Cash flow from selling our medical business (3) | - | 196 | ||||||
Cash flow from repayment of Elbit Medical loan (4) | 149 | - | ||||||
Total Sources | 426 | 319 | ||||||
Projected uses: | ||||||||
Debt service: | ||||||||
Buy back of Series H (5) | 7 | - | ||||||
Buy back of Series I (6) | 49 | - | ||||||
Principal payment to Series H note holders (7) | 289 | - | ||||||
Interest payment to Series H note holders (7) | 2 | - | ||||||
Principal payment to Series I note holders (8) | - | 250 | ||||||
Payments to our subsidiary Plaza centers NV (9) | 7 | - | ||||||
Other operating expenses | ||||||||
General and administrative expenses | 9 | 8 | ||||||
Other non-recurring expenses (10) | 11 | 8 | ||||||
Total Uses | 374 | 266 | ||||||
Closing balance: Cash and cash equivalents | 52 | 53 |
January 1, 2019- November 30, 2019 (NIS Thousands) | ||||
Opening balance: Cash and cash equivalents | 29 | |||
Projected Sources | ||||
Sources from realization of assets and business: | ||||
Cash flow from sale of our holdings in plot in India (Bangalore site)(1) | 15 | |||
Cash flow from selling our medical business (2) | 4 | |||
Cash flow from selling our medical business (3) | 129 | |||
Cash flow from selling 50% from plot in Kochi (4) | 3 | |||
Total Sources | 180 | |||
Projected uses: | ||||
Debt service: | ||||
Buy back of Series I (5) | 8 | |||
Principal and interest payment to Series I note holders (6) | 144 | |||
Other operating expenses | ||||
General and administrative expenses | 10 | |||
Other non-recurring expenses (7) | 7 | |||
Total Uses | 169 | |||
Closing balance: Cash and cash equivalents | 11 |
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Assumptions and explanations pertaining to the above table:
General assumption:assumptions: (i) The Projected Cash Flow is until November 30, 2019, since it assumes full repayment of the Notes (Series I) on November 30, 2019; (ii) the projected cash flow was prepared based on the exchange rates, interest rates and the quoted market price of Elbit medical shares known close to the date of the approval of this annual report as follow:
Indian Rupee/NIS exchange rate | ||||
Elbit Medical share price on the TASE |
(1) |
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During March 2019, the purchaser paid EPI an additional INR 9.25 cores (approximately EUR 1.15 million) and during April 2019 EPI has reached an understandings with the purchaser according to which: (i) the closing date for the transaction will be extended to November 2019 (instead of August 2019), however, the closing date can be further extended to August 2020, subject to mutually agreed payment terms; and (ii) the consideration will be increased to approximately €45.64 (INR 356 crores instead of INR 350 crores). | |
As of May 10, 2019, the purchaser paid EPI a | |
On May 13, 2019, the Company announced that | |
For additional information see | |
The Company estimates that notwithstanding the above, EPI will receive €7.3 million from the purchaser until November 30, 2019 (on account of the consideration). The Company is entitled to 50% out of the consideration paid to EPI (subject to deduction of expenses and taxes). | |
The main assumptions with respect to this valuation are: (i) that there will be no material delays in payments by the |
(2) | On March 27, 2019 Exigent purchased from the Company 3.76 million shares of Elbit Medical in consideration for NIS 3.6 million (i.e. NIS 0.96 per share). |
The SPV waived the option it had to purchase additional 54.2 million shares of Elbit Medical. | |
(3) | Those amounts are based on realization of all our remaining shares in Elbit Medical |
The main assumptions that might affect |
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(4) |
(5) | During
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The outstanding (Series I) notes, |
(7) | The non-recurring expenses include mainly expenses due to: (i) |
It should be clarified that since there is no certainty regarding the Company’s ability to realize the above projection (which is based mainly on the realization of the Company’s assets), concurrently, the Company is examining the possibilities of raising capital and/or debt (private and/or public) to repay its Notes (Series I). The Company is also examining various possibilities for combining the two (i.e. realization of assets together with raising funds). If and to the extent that the Company will not be able to realize assets and/or raise funds in the amount required to repay the Notes (Series I) in full on November 31, 2019, the Company will not have liquid resources for such repayment, and in these circumstances the Company will be in breach of the terms of the Notes (Series I) and might be forced to enter into a debt arrangement with the holders of the Notes (Series I), with all the implications thereof.
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The Company has additional cash generating abilities that were not taken in tointo account in preparing the Projected Cash Flow detailed above.above due to the uncertainty surrounding them. The following describes those additional potential sources and the Company’s assumptions regarding these additional cash generating abilities:those sources:
Item | Amount (NIS million) | Additional information | ||||
Plot in Chennai, India | 27 | Based on a valuation of the asset done by external valuator for the financial statements as of December 31, 2018. The said amount is the amount that the Company will receive from a future sale of the plot (if any) taking into account the Company’s holding percentage in EPI. It should be noted that EPI signed a term sheet for the sale of its rights in the plot in consideration for USD14.4 million, however, on March 4, 2019, we announced the initiation of an arbitration proceeding against the buyer due to failure of the buyer to complete the transaction. For additional information see–“Item 4 - Information on the Company – History and Development of the Company – Recent Events -Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India”. | ||||
Plot in Bangalore, India | 47 | |||||
Plot in Kochi, India | Based on transaction signed on January 14, | |||||
The The said amount is based on | ||||||
Share in PC (45%) | - | Due to the significant debt | ||||
Vendor loan in respect of the sale of our holding in Radisson | 36 | Represents the principal and interest payments with respect to For further details regarding the said transaction and the vendor loan see Item 4 - Information on the Company – History and Development of the Company – Recent Events -Sale of our holdings in the Radisson complex in Bucharest, Romania”). The main assumptions that might affect those amounts are: (i) The loan was given as collateral for customary post-closing liabilities of the SPV, whereby the purchaser may offset adjudicated losses which may be incurred by it as a result of a breach of warranties or in respect of certain indemnities given under the agreement; (ii) The transaction is | ||||
Total |
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Previous cash flow – actual vs. plan
There were no material differences between the projected cash flow as published by the Company on its 2018 semi-annual financial statements and the actual cash flow in 2017as for 31.12.2018 and therefore the Company does not attachincludes a comparison table between them.them and its explanations for those differences:
July 1, (NIS Thousands) (Forecast) | July 1, (NIS Thousands) (Actual cash flow) | |||||||
Opening balance: Cash and cash equivalents | 68 | 68 | ||||||
Projected Sources | ||||||||
Sources from realization of assets and business: | ||||||||
Cash flow from sale of our holdings in plot in India (Bangalore site) (1) | 4 | 1 | ||||||
Cash flow from sale of our holdings in plot in India (Chennai site) (2) | 28 | 0 | ||||||
Cash flow from selling our medical business (3) | 111 | 58 | ||||||
Total Sources | 143 | 59 | ||||||
Projected uses: | ||||||||
Debt service: | ||||||||
Buy back of Series I (4) | 70 | 87 | ||||||
Payments to our subsidiary Plaza centers NV | 7 | 5.5 | ||||||
Other operating expenses | ||||||||
General and administrative expenses | 4 | 3.5 | ||||||
Other non-recurring expenses (5) | 7 | 2 | ||||||
Total Uses | 88 | 98 | ||||||
Closing balance: Cash and cash equivalents | 123 | 29 |
(1) | The difference between the actual to the projected cash flow is due to the default of the purchaser on payments due to EPI. However, the entire amount was paid by the end of the first quarter of Q1 2019. For additional information see sub section (1) above and – “Item 4 - Information on the Company – History and Development of the Company – Recent Events -Agreement to sell a Plot in Bangalore, India”. |
(2) | The difference between the actual to the projected cash flow is due to the default of the purchaser on payments due to EPI. For additional information see –“Item 4 - Information on the Company – History and Development of the Company – Recent Events -Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India”. |
(3) | On August 2018 the company signed a Share Purchase Agreement (“SPA”) with an SPV related to Exigent Capital Group (“SPV”) for the sale of between 11,574,146 to 115,741,467 ordinary shares of Elbit Medical for a price per share of NIS 0.96. In November the company completed the sale of 60,087,537 ordinary shares of Elbit medical for total consideration of NIS 58 million. The SPV waived the option it had to purchase additional shares of Elbit Medical for an additional NIS53 million. For more information see “Item 4 - Information on the Company – History and Development of the Company – Recent Events -The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent”. |
(4) | During November 2018 the Company’s board of directors approved a new buyback plan for its Notes (Series I) in the total amount of NIS 80 million and the Company purchased additional Notes (Series I). For additional information see sub section (4) above. |
(5) | The difference in the non-recurring expenses were mainly due to a settlement agreement between the Company and the Israeli Tax authorities. For more information see “Item 4 - Information on the Company – History and Development of the Company – Recent Events -Settlements with Israeli Tax Authorities”. |
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The information detailed above, concerningThis Section contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words and includes relating to: (i) the possibility of completing the transaction for the sale of Elbit Medical’s shares; (ii) executing the buyback plan for the Notes (Series I); and/or (iii) Receipt of funds from transactions for the sale of any of the plots in India. Forward-looking statements are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s cash flow forecast, includingcontrol, and cannot be predicted or quantified and consequently, actual results may differ materially from those projected, expressed or implied in the materialization, occurrence, consummationforward-looking statements. Such risks and executionuncertainties include, without limitation, the risk that the Company will not succeed in selling Elbit Medical’s shares, the risk that the parties will fail to satisfy conditions precedent for closing the transaction, the risk that the buyer of Elbit Medical’s shares will be unable to complete the transaction and purchase Elbit Medical shares, the risk that the Company will decide to suspend the buyback Plan for the Notes (including due to market conditions), and risk that the Company will be unable to sale the plots in India (inter alia due to market conditions or lack of demand for such plots in India). More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in “Item 3 - Key Information - Risk Factors”. Any forward-looking statements contained in this Section speaks only as of the date of this report, and we caution existing and prospective investors not to place undue reliance on such statements. Such forward-looking statements do not purport to be predictions of future events transactionsor circumstances, and of the assumptions on which such Projected Cash Flow is based, are forward looking information as definedtherefore, there can be no assurance that any forward-looking statement contained in the Securities Law, 5728-1968. This information includes forecasts, subjective, assessments, estimates, etc. and is based, among other things, on the Company management’s past experience. Furthermore, some of such information is based on future data and internal estimates by the Company’s management made at the current time, and there isthis Section will prove to be accurate. We undertake no certainty that they will materialize, in wholeobligation to update or in part, due to factors that are not in the Company’s control. It is hereby clarified that there is a likelihood that said forward looking information will not be realized in whole or in part, both with respect to the Company’s forecasts and with respect to the working assumptions on which they are based.revise any forward-looking statements.
C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. |
The Israeli government encourages industrial companies by grants for research and development activities through grants by the National Authority for Technological Innovation, or ("(“NATI"”) (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry, or the OCS).
Each of InSightec’s and Gamida’s research and development efforts had been financed, in part, through NATI grants. InSightec and Gamida (only for Gamida’s NiCord development) have received or were entitled to receive grants totaling $29.8 million and $25.3$29.3 million, respectively, from NATI since their respective inception and each of them is required to repay such grants through payment of royalties to NATI each respective revenues until the entire amount is repaid.
Each of InSightec’s and Gamida’s technology developed with NATI funding is subject to transfer restrictions, which may impair their ability to sell their technology assets or to outsource manufacturing. The restrictions continue to apply even after InSightec or Gamida has paid the full amount of royalties’ payable for the grants. In addition, the restriction may impair InSightec’s and Gamida’s ability to consummate a merger or similar transactions in which the surviving entity is not an Israeli company.
The total NATI grants received by InSightec during 2018, 2017 and 2016 and 2015 were nil, $ 0.1millon $1.5 million and $0.3$1.5 million, respectively, and the total NATI grants received by Gamida during 2018, 2017 and 2016 and 2015 were $1.5$ 2.4 million $4.3$2.9 million and $3.2$4.3 million, respectively.
D. | TREND INFORMATION |
Romania– Romania is a business destination for global investors and enjoys a growing, stable economy. In 2017, Romania registered GDP growth of approximately 7%, the highest in the European Union, following a strong 2016, when GDP increased by 4.8%, which was also the highest in the European Union. This was the seventh consecutive year of growth. Retail sales, which registered one of the highest growths in the EU (10.7% in 2017, year on year), continue to be the main driver of the economy, fueled by the increase in net average wages (11.7% year on year, reaching €567 in December 2017), although this is based on a low base.
In 2007/2008 Romania had a very liquid real estate investment market with total volumes of over €2 billion and €1 billion respectively, despite the limited availability of modern products at the time. Romania was then the third largest investment market in terms of deal flow in the CEE (after Poland and the Czech Republic). Between 2009 and 2013, volumes decreased significantly, as the number of active players plunged sharply. Transactional activity picked up in 2014, when approximately €1.17 billion was transacted (including a number of unique, very large deals) and 2015, when the property investment volume was approximately €670 million. The increasing trend continued in 2016 and 2017, when close to €900 million and €1 billion were transacted. Given its size in terms of population and forecasted GDP, it is expected that Romania should be second only to Poland in the CEE in terms of investment volumes at some point over the coming years.
Prime office yields are at 7.5%, prime retail yields at 7.25%, while prime industrial yields are at 8.5%. Yields for office and retail are at the same level as 12 months ago, while industrial yields have compressed by 50 bps over the year. There is soft downward pressure on yields and in 2018 there may be limited compression in case prime assets will transact.
India
Amidst the uncertainty in the world economy and the challenges being faced by emerging economies, India’s macro-economic stabilityIndia continues to improve. Consumer Price Inflation (CPI)be a vibrant economy. According to a new study by the World Economic Forum, the Indian economy is expected to become the world’s third largest consumer market. It will be second only to the United States and China. Presently, the Indian economy is the sixth largest economy in the world. The study by World Economic Forum stated that by 2030 private consumption, which is more than 50% of the GDP, will grow to approximately USD 6 trillion. According to the IMF’s database, India’s contribution to world growth has risen from 7.6 per cent during 2000-2008 to 14.5 per cent in 2018 Indian economy has witnessed an accelerated pace of domestic reforms in recent years. These reforms include, inter alia, the flexible inflation-targeting monetary policy framework, the Insolvency and Bankruptcy Code (IBC), the Goods and Services Tax (GST) and steps for enhancing foreign investments by liberalizing the FDI regime and undertaking efforts to 5.2%provide a conducive business climate. India has witnessed significant disinflation since 2012-13 - with headline CPI inflation moderating from an annual average of 10.0 per cent in December, 2017 over2012-13 to 3.6 per cent in 2017-18 and 3.7 per cent in 2018-19 so far (April-December).
India’s external sector has remained resilient in recent period despite terms of trade losses due to the same month the previous year. CPI Inflation reached 4.88% in Novemberfirming up of international crude prices and 3.58 % in October, 2017. India’s Current Account Deficit, on a cumulative basis, narrowed to 0.7uncertain global demand conditions. The current account deficit since FY 2013-14 has been below 2 per cent of GDP, in 2016-17 from 1.1though it rose to 2.7 per cent in 2015-16 on the backfirst half of the contraction in the trade deficit. India’s trade deficit narrowed to $ 112.4 billion in 2016-17 from $ 130.1 billion in 2015-16. Foreign Direct Investment (FDI) inflows to India in 2016-17 at $60.2 billion increased significantly from $55.6 billion in 2015-16. A number of global reports and assessments, over the last two years, have shown that India has considerably improved its policies, practices and economic profile. According to IMF forecast, India is expected to be one of the fastest growing major economies in 2018.
With the objective of doing away with the need for multiple indirect taxes and thereby making it easier for doing business, the government of India introduced the Goods and Service Tax (“GST”) effective from July 1, 2017. The GST is India’s biggest tax reform.
With the objective to safeguard consumer interests, the Government of India enforced the Real Estate (Regulation and Development) Act, 2016 nationwide on May 1, 2017. For a sector that did not have any regulatory structure, this historic move was heralded as an inflection point that will change the manner in which real estate is transacted in India. Provisions such as mandatory disclosures by promoters and prior approvals before launching the project, were targeted to weed out fly-by-night operators and bring financial discipline, which will spike investor interest. year 2018-19 reflecting elevated crude oil prices
The slewIndian economy is likely to grow at 7% in 2018-19 as against 6.6% in 2017-18.
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The real estate sector in India is witnessing a charged pace of transformation. Being India’s second largest employer, the sector holds a prominent place in the formcountry’s commercial system, and any shifts in its impact the economy as a whole. The residential market in India has seen a steady upward momentum during 2016 and 2017 with the cumulative sales of the Real Estate (Regulationresidential apartments standing at 2,44,830 units and Development) Act, 2016 (RERA) and GST implementation have increased the gestation period for sale closures though buyers remaining positive about readynew apartment launches at 2,33,387 units. The housing sector, which currently contributes to occupy productsnearly 5-6% of India’s GDP, will nearly double its contribution to an estimated 11.2% by 2020.
Bangalore
In comparison to 2017 Bengaluru’s residential market surrendered to the pressures of crumbling sales volume. From a peak
of 57,366 residential units soldthere was three times rise in 2013, the sales volume noted a stark 40% decline at the end of 2017, albeit green shoots of recovery were visiblenew launches in the latter halfcity in 2018. New launches during Q4 of 2017. No longer bucking2018 were dominated by the trend, Bengaluru’s residentialmid segment which accounted for 49% of the share, followed by the affordable category with a 16% share. 2018 clocked a strong finish for the Bengaluru office market has been impacted bywhich saw gross leasing activity exceeding 15 MSF. and vacancy remaining anchored to single digits. At nearly 8.0 MSF, net absorption was largely on par with 2017.Chennai
Quarterly launches were higher on a varietyQoQ basis for the second consecutive quarter, with around 3000 units launched in Q4 of factors impacting both demand and supply. The stress2018, an increase of 7% QoQ. A major chunk of the new units launched in Q4 were in the marketaffordable segment with 70% of the units launched priced below INR 3.5 million in ticket size terms. Most of the affordable launches were seen in peripheral locations which have benefited from improved connectivity in recent times. Sale momentum has shown signs of a slow revival with buyers who were fence-sitters executing their purchase decisions and this is also capturedallowing sales to hold steady. Buyers continue to prefer completed projects over under-construction properties. With sentiments improving and buyers getting active, we expect capital values to remain largely range bound with a slightly upward bias in the age of unsold inventory, which has progressively increased from 7.5 quarters in 2014 to 13 quarters in 2017.
The Chennai residential market that had just begun to show some promise of a recovery during the second half of2017, once again broke new lows in terms of sales and supply numbers during the second half of 2017. The ongoing slowdown in the country in coupled with to its own issues ranging from political uncertainty to floods, the Chennai residential market had been in a downward slope over the past three years. The 33% year-on-year (YoY) drop in the second half of 2017 residential supply levels, pushed down the annual supply number under 10,000 units for the first time during this decade. Both supply and sales for the Chennai residential market came in at their lowest levels since 2011.coming quarters.
E. | OFF-BALANCE SHEET ARRANGEMENTS |
The following are our off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors:
● | In the framework of the transactions for the sale of our holdings in certain subsidiaries or projects, or the realization and sale of certain business activities, we have undertaken to indemnify the respective purchasers for any losses and costs incurred in connection with the sale transactions. The indemnifications usually include: (i) Indemnifications in respect of integrity of title on the assets and/or the shares sold (i.e.: that the assets and/or the shares sold are owned by us and are free from any encumbrances and/or mortgage and the like). Such indemnifications generally survived indefinitely and are capped to the purchase price in each respective transaction. (ii) Indemnifications in respect of other representations and warranties included in the sales agreements (such as: development of the project, responsibility to defects in the development project, tax matter, environmental matters, employees and others). Such indemnifications are limited in time and are generally caped to certain percentages of the purchase price. To our best knowledge as of the approval date of our consolidated financial statements, no claim of any kind which was not reflected in the financial statement was received by us with respect to these indemnifications. |
To our best knowledge as of the approval date of our consolidated financial statements, no claim of any kind which was not reflected in the financial statement was received by us with respect to these indemnifications.
● | A former subsidiary of PC incorporated in Prague (“Bestes”), which was sold in June 2006 is a party to an agreement with a third party (“Lessee”), for the lease of commercial areas in a center constructed on property owned by it, for a period of 30 years, with an option to extend the lease period by an additional 30 years, in consideration for |
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● | We and our subsidiaries have entered into indemnification agreements with our respective directors and officers. For more information, see Note |
● | As for indemnification agreements granted by Elbit medical to Gamida and Insightec and their officers, employee and shareholders, see Note 13b5 to our consolidated financial statements for the year ended December 31, 2018. |
● | As required under the lease agreement for |
F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
Our contractual obligations consist mainly of: (i) long-term borrowings (mainly loans from banks and financial institutions and non-convertible notes); (ii) commitments towards suppliers subcontractors and other third parties in respect of land acquisitions and operational lease;government institutions and (iii) other long termlong-term liabilities reflected in the balance sheet. Our contractual obligationssheet are generally linked to foreign currencies (mainly Euro and U.S. dollar) and/or other indexes (such as the Israeli consumer price index). Below is a summary of our significant contractual obligations as of December 31, 20172018 in NIS, based upon the representative exchange rate of the NIS as of the balance sheet date, against the currency in which the obligation is originally denominated or based on the respective index of the Israeli consumer price index as of December 31, 2017.2018. Actual payments of these amounts (as are presented in our consolidated financial statements) are significantly dependent upon such exchange rates or indexes prevailing as at the date of execution of such obligation, and therefore may significantly differ from the amounts presented herein below.
Payments due by Period (in NIS thousands) | Payments due by Period (in NIS thousands) | |||||||||||||||||||||||||||||||
Contractual Obligations as of December 31, 2017 | Total | Less than 1 Year | 2-3 Years | 4-5 Years (and thereafter) | ||||||||||||||||||||||||||||
Contractual Obligations as of December 31, 2018 | Total | Less than 1 Year | 2-3 Years | 4-5 Years (and thereafter) | ||||||||||||||||||||||||||||
Long-Term Debt(1) | 1,215,010 | 612,410 | 602,599 | - | 388,775 | 163,095 | 36,660 | 189,000 | ||||||||||||||||||||||||
Operating Leases(2) | 2,263 | 589 | 951 | 723 | 133 | 133 | - | - | ||||||||||||||||||||||||
Total | 1,217,272 | 612,999 | 603,550 | 723 | 388,888 | 163,228 | 36,660 | 189,000 |
(1) | Long term debt includes interest that we will pay from January 1, |
(2) | Our operating lease obligations are subject to periodic adjustment of the lease payments as stipulated in the agreements. This table includes the lease obligation based on the most recent available information. |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | DIRECTORS AND SENIOR MANAGEMENT |
The following table sets forth information regarding our directors, executive officers and other key employees of the company as of the date of this annual report except as otherwise noted below:
NAME | AGE | POSITION | ||
Ron Hadassi | CEO and Chairman of the Board of Directors and Director | |||
Alon Bachar (1) (2) | Director | |||
Nitzan Gozlan (1) (2) | Director | |||
Boaz Lifschitz (2) | Director | |||
Nadav Livni (1) | Director | |||
Yael Naftali | Chief Financial Officer |
(1) | Member of the audit committee |
(2) | Member of the compensation committee |
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RON HADASSI. Mr. Hadassi serves as the Chairman of our Board of Directors since March 2014 and as the Chief Executive Officer of the Company since January 2018. Mr. Hadassi also serves as the Chairman of Elbit Medical Technologies Ltd Board of Directors since March 2014. Mr. Hadassi also serves as the Chairman of Plaza Centers N.V Board of Directors since March 2014. Mr. Hadassi has served as Senior Manager of the Bronfman-Fisher Group until 2002, as well as the Vice Chairman of Super-Sol Ltd., Isralom Properties Ltd., and Shefa Success Logistic (B.P) Ltd. (former name - Palace Industries Ltd.). Mr. Hadassi also served until the summer of 2015 as Executive Chairman and until March 2014 as acting Chief Executive Officer of Nanette Real Estate Group N.V. From 2005 until 2012, Mr. Hadassi served as Chairman of the board of directors of Northern Birch Ltd. (IKEA Israel), and until 2015 as Chairman of a subsidiary. Mr. Hadassi serves as a director of the Carmel Winery. Mr. Hadassi has served on the boards of public companies, including Blue Square Israel Ltd., Blue Square Real Estate Ltd., Bet Shemesh Engines Holdings Ltd., Naaman Group N.V. Ltd. and Olimpia Real Estate Holdings (as well as its subsidiaries). Mr. Hadassi is a banking and finance lecturer at Hebrew University, Jerusalem, the Interdisciplinary Center, Herzeliya, and the College of Management, Rishon LeZiyon, holds a B.A in Economics and Political Science, an LL.BLL. B and a MBA, all from Tel Aviv University, and is a member of the Israeli Bar.
ALON BACHAR. Mr. Bachar serves as a member of our Board of Directors since March 2014. Mr. Bachar serves as a member of Elbit Medical Board of Directors since March 2014. Mr. Bachar has served as the Chief Financial Officer of the Bronfman-Fisher Group since 2006, as the Chief Executive Officer of Isralom Properties Ltd. since 2012, and in addition currently serves as a Chief Executive Officer of Shefa Success Logistic (B.P) Ltd. Mr. Bachar served in the past as a director of various private and public companies, such as Sufersal Ltd. From 2003 until 2006, Mr. Bachar served as the Deputy Chief of the corporate division of Bank of Jerusalem Ltd. From 1999 until 2003, Mr. Bachar served as Credit Officer of the corporate division in the Industrial Development Bank of Israel Ltd. From 1996 until 1999, Mr. Bachar served as an Analyst and Credit Officer in the corporate division of Bank Leumi L’Israel B.M. Mr. Bachar holds a B.A in Economics from Tel Aviv University, as well as an MBA from Ben-Gurion University.
NITZAN GOZLAN – Ms. Gozlan served as a member of our Board of Directors since December 2017. Ms. Gozlan is a co-founder of a company that provides lectures on the topics of financial management of companies and iswas a lecturer at the MA program in Kibbutzim Education College, Tel Aviv.Aviv, from 2015 until 2018. From 2011 until 2016 Ms. Gozlan served as an external director, chairman of the balance committee and a member of the audit committee of Isralom Properties Ltd. From 1996 until 1998 Ms. Gozlan served as the Head of Policy Production Department at Peltours Insurance Company Ltd. From 1994 until 1995 Ms. Gozlan served as an Internal Auditor in Bank Egud Ltd and from 1991 until 1994 she served as a business analyst in Dan and Bradstreet, Israel Ltd. Ms. Gozlan holds a BA in Finance and Marketing and an MA in Educational Management and Leadership, both from the Centre for Academic Studies, Or Yehuda, Israel. In addition, Ms. Gozlan holds a Ph.DPh. D in Education from the International University of Business & Law – IUBL, USAUSA..
BOAZ LIFSCHITZ. Mr. Lifschitz has served as a member of our Board of Directors since March 2014. Mr. Lifschitz is a co-founder and General Partner of Peregrine Ventures, a venture capital fund founded in 2001. Mr. Lifschitz previously served as Chief Operating Officer and Chief Financial Officer of VisionCare Opthalmic Technologies. Mr. Lifschitz currently serves as Chairmana director of CartihealMagento Inc., Eve Pharma Ltd., PayzDay Ltd. and is a board member of other privately held companies. He previously served on the board of Neovasc Inc. (NVCN). Mr. Lifschitz holds a B.Sc. from Bar-Ilan University as well as a M.Sc. from Boston University jointly with Ben Gurion University.
NADAV LIVNI. Mr. LivnihasLivni has served as a member of our Board of Directors since March 2014. Mr. Livni is the founder and Managing Director of The Hillview Group, an independent Merchant Bank basedand Alternative Asset Manager, with offices in London.London and New York. Since 2006, The Hillview Group has expertly managed over $3$10 billion of strategic capital market transactions and principal investments, across Centralwith a focus on asset-backed sectors including: real estate, healthcare, multifamily and Eastern Europe, Russia, Africa andfinancial services. Prior to founding The Hillview Group, Nadav worked in the U.S. During his 20 year career, Nadav has advised governments, controlling shareholders and entrepreneurs on all aspectsInvestment Banking divisions of capital markets transactions. In previous roles at Deutsche Bank, Goldman Sachs and KPMG, Nadav participated in over $100 billion of transactions in the real estate, financial services, healthcare and consumer sectors, specializing in mergers and acquisitions, structuring innovative funds and all aspects of capital raising in the public and private markets. Nadav is a qualified Chartered Accountant, holds a Bachelor of Commerce from the University of the Witwatersrand, aan MSc. in Finance from City University Business School and is a guest speaker at London Business School on the topics of private equity and real estate investment.
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YAEL NAFTALI On May 1, 2016, Ms. Naftali was appointed as our Chief Financial Officer. In addition, Ms. Naftali served as our Chief Controller from 2010 until 2016. Ms. Naftali also serves as Chief Executive Officer of Elbit Medical as of January 1, 2018. From 2007 until 2010 Ms. Naftali served as the Controller for a public company in the field of real estate and from 2004 until 2007 she was an intern at KPMG Israel. Ms. Naftali holds a B.A. in Accounting and Economics from the Hebrew University of Jerusalem and is a Certified Public Accountant.
B. | COMPENSATION OF DIRECTORS AND OFFICERS |
Aggregate 20172018 Compensation of Directors and Officers of the Company
The aggregate compensation paid to or accrued on behalf of all persons as a group (8 persons –(6 persons– who served in the capacity of director or executive officer in the year ended December 31, 20172018 was approximately NIS 6,0243,833 (approximately $1,738)$1,023). Such aggregate amount includes management fees, director’s fees salaries and certain fringe benefits and accrued amounts in respect of pensions and retirement benefits but does not include stock-based compensation expenses relating to options granted to our directors and officers.
In addition, the company issued option to its officers pursuant to various Employees Stock Option Plans adopted by us, our subsidiaries and our associates. For information regarding the terms of grant and exercise under all plans, see “Item 6E – Share Ownership"Ownership”.
The table below reflects the compensation granted (including accrued compensation) during the year ended December 31, 20172018 to office holders in the Company and its controlled companies in connection with their service in the Company and/or in its controlled subsidiaries. We refer to the fivefollowing individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table below, “compensation” includes salary cost, consultancy fees, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, social benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized in our consolidated financial statements for the year ended December 31, 20172018 plus compensation paid to such Covered Executive following the end of the year in respect of services provided during the year. Each of the Covered Employees was covered by the respective D&O liability insurance policy and was entitled to indemnification and exculpation in accordance with applicable law.
Name and Principal Position(1) | Salary Cost(2) | Consultancy Fees | Bonus(3) | Equity-Based Compensation (4) | Termination cost(5) | Total (NIS Thousands) | ||||||||||||||||||
(NIS Thousands) | ||||||||||||||||||||||||
Maurice R. Ferre InSightec’s Chairman of the Board and CEO | 1,288 | - | 532 | 2,188 | - | 4,008 | ||||||||||||||||||
Kobi Vortman InSightec’s vice chairman of the Board and director | 1,944 | - | 500 | 704 | - | 3,148 | ||||||||||||||||||
Ron Hadassi – Elbit Imaging's -Chairman of the Board | 487 | 773 | 619 | 399 | 62 | 2,278 | ||||||||||||||||||
Doron Moshe Elbit Imaging's CEO | 1,265 | 732 | - | 138 | 2,135 | |||||||||||||||||||
Jim (Jun) Tao - InSightec’s Chief Commercial Officer | 1,211 | - | 368 | 396 | - | 1,975 |
Name and Principal Position(1) | Salary Cost(2) | Consultancy Fees | Bonus(3) | Equity-Based Compensation (4) | Termination cost(5) | Total (NIS Thousands) | ||||||||||||||||||
(NIS Thousands) | ||||||||||||||||||||||||
Ron Hadassi – Elbit Imaging’s - Chairman of the Board and CEO | 980 | 779 | 194 | 180 | 125 | 2,258 | ||||||||||||||||||
Yael Naftali Elbit Imaging’s CFO | 758 | - | 149 | 38 | 115 | 1,060 |
(1) | Unless otherwise indicated herein, all Covered Executives are employed on a full-time (100%) |
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(2) | Salary cost includes the Covered Executive’s gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurances and benefits, convalescence or recreation pay and other benefits and perquisites consistent with the Company’s policies. |
(3) | Represents annual bonuses granted to the Covered Executives based on formulas set forth in their respective employment agreements. |
(4) | Represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, |
(5) | Termination costs include payment made to retired employees during the year ended December 31, |
Director Compensation
We pay our directors (other than our Chairman and CEO, Ron Hadassi) based on the amount payable to external directors under the Companies Regulations (rules regarding compensations and expenses to external directors), 2000 (the “Compensation Regulations”) taking into account our shareholders’ equity as of the end of the previous year. Accordingly, in 2017,2018, we paid each of our directors (both external and others) NIS 37,115 (approximately $ 10,7059,902 per year and NIS 3,300 (approximately $ 952880) per meeting (or a smaller50% - 60% of the said amount in case they did not physically attend the meeting).
Adoption of Compensation Policy
In August 2014, following our shareholders’ approval, we adopted a revised compensation policy for our officers and directors (the “Compensation Policy”), in accordance with Amendment No. 20 to the Israeli Companies Law, pursuant to which we are required to determine the compensation of our officers and directors in accordance with a compensation policy. In March 2016, and in October 2016 and October 2018, following our shareholders’ approvals, we adopted an amendments to our compensation policy (the “Amendments”). The Compensation Policy and the Amendments was previously approved by our board of directors, upon recommendation of our Compensation Committee. An English translation of the Compensation Policy and the Amendments were filed with the Securities and Exchange Commission. For further discussion regarding the Compensation Policy and the Amendments, please see "Item“Item 10B – Memorandum and Articles of Association,Association” below, and our Reports on Form 6-K filed on July 10, 2014, August 14, 2014, February 24, 2016, and September 6, 2016 and August 27, 2018 (as exhibit to the proxy statement of the March 31, 2016 extraordinary shareholders meeting, and the October 13, 2016 annual shareholders meeting, and the October 4, 2018 annual and extraordinary shareholders meeting, respectively) which are incorporated herein by reference.
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Services of Our Chairman and CEO, Mr. Ron Hadassi
In December 2017, our shareholders approved a compensation plan for Ron Hadassi for his services as the Chairman of our Board of Directors and our Chief Executive Officer, effective as of January 1, 2018. The main terms of the consideration for such services are as follows:
In December 2017, our shareholders approved the terms of a compensation for Mr. Hadassi for his services as the Chairman of our Board of Directors and our Chief Executive Officer as part time position (80% of his working time), effective as of January 1, 2018. Our shareholders approved certain amendments to the terms on October 4, 2018. The main terms of his compensation are as follows:
● | A fixed cash fee of NIS 60,000 per month, which will be linked to the Israeli consumer price index (the “Fixed Compensation”). Additional payments, benefits and expenses, including a company car and related expenses, income tax and VAT in the total amount of 55% of the Fixed Compensation, including any applicable taxes deriving from the Fixed Compensation and benefits. Notwithstanding the foregoing, any amounts of VAT refundable to (or subject to offset by) the Company shall be in addition to the Fixed Compensation and such 55% addition. Compensation for Ron | |
● | Annual bonus of up to 5 salaries (i.e., NIS 300,000) for achieving Company goals determined by the Compensation Committee and Board of Directors in accordance with the Company’s Compensation Policy. In addition, 1. If and to the extent that the Committee believes that the 2. If and to the extent that the Committee believes that the |
● | A special bonus (in addition to the annual bonus) based on the realization of two main assets of the Company (one of them is the Radisson Blu Hotel that was sold and the other is the holdings in InSightec). In addition to the special bonus for the realization of assets, upon fulfillment of both of the two following conditions, a special bonus of five month’s gross 5 salary: (1) The full repayment of the Company’s notes (Series I) from: (1) the cash balance of the Company; (2) proceeds from the sale of assets; and/or (3) raising new debt, provided however, that the remaining net debt of the Company following the full repayment of notes (Series I) shall not exceed NIS 60 million; and (2) The continuation of full or part-time employment until December 31, 2019 (provided there is no dismissal in circumstances that grant the Company the right to dismiss without payment of severance pay). | |
● | The | |
● | 38,445 options exercisable (in consideration price for an exercise price of 13.426 NIS per share) into 38,445 ordinary shares, with no par value, of the Company, constituting approximately 0.4% of the Company’s issued and outstanding share capital on a fully diluted basis, and 12,298,913 options exercisable (in consideration price for an exercise price of 0.106 NIS per share) into 6,149,456 ordinary shares, with no par value, of our subsidiary Elbit Medical Technologies Ltd. | |
● | Mr. Hadassi shall be entitled to a three month notice period prior to the termination of his position. | |
● | Mr. Hadassi shall be entitled to receive six salaries retirement bonus (i.e., NIS 360,000). | |
● | Mr. Hadassi shall be covered under the Company’s Directors and Officers liability insurance policies and the Company’s indemnification to its officers. |
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Services of our CFO, Ms. Yael Naftali
In November 2017, our shareholders approved the terms of compensation for Ms. Naftali for her services as the Company'sCompany’s Chief Financial Officer and as the Chief Executive Officer of Elbit Medical, effective as of January 1, 2018. Our Board of Directors approved certain amendments to the terms on July 2018. The main terms of her compensation are as follows:
● | A fixed salary of NIS | |
● | Annual bonus of up to 4 salaries (i.e. NIS | |
In addition, | ||
1. If and to the extent that the Committee believes that the | ||
2. If and to the extent that the Committee believes that the |
● | Ms. Naftali was granted 6,371,100 options exercisable into 3,185,550 shares of Elbit Medical and subsequently exercised all such options. During 2016 Ms. Naftali was granted 10,000,000 options exercisable (in consideration for an exercise price of NIS 0.1 per share) into 5,000,000 shares of Elbit Medical. One third of such options were vested and exercised. Another third of those options have vested but have not been exercised and another third of such options have not yet vested. | |
● | Ms. Naftali will be entitled to receive a retirement bonus equal to 6 salaries (3 salaries calculated based on the gross monthly salary and 3 salaries calculated based on the cost of salary to the Company). | |
● | Special
| |
(1) The full repayment of the Company’s notes | ||
(2) The continuation of full or part-time employment until December 31, 2019 (provided | ||
● | A two month notice prior to termination of employment. | |
● | Ms. Naftali shall be covered under the Company’s Directors and Officers liability insurance policies and the Company’s indemnification to its officers. |
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Services of our Director, Mr. Boaz Lifschitz
In December 2017, our shareholders approved a one-year renewal (until October 2018) of the consultancy agreement with Mr. Lifschitz, of his advisory services in the field of life sciences (i.e. InSightec and Gamida) (the “Services”) to be provided to the Company and its subsidiaries (and other related companies). In consideration for such services, the Company shall pay Mr. Lifschitz an annual fee of NIS 29,270 plus VAT, payable in quarterly installments in arrears and a meetings attendance fee of NIS 930 per meeting (i.e. meeting of the board of directors of InSightec and Gamida and any of their committees). Such fees are in addition to the fees Mr. Lifschitz is entitled to in his capacity as member of the board of directors of the Company and of Elbit Medical.
Services of Mr. Doron Moshe
In March 2016,On October 4, 2018, our shareholders approved the termsextension of the consultancy agreement by one additional year (i.e., from October 14, 2018 until October 13, 2019). The consideration during the extension period shall be annual compensation for services to both Insightec and Gamida in the total amount of NIS 29,270 and NIS 930 for each meeting of the Board of Directors of Insightec or Gamida or any of their committees attended in person. Such fees are in addition to the fees Mr. Lifschitz is entitled in his capacity as a member of the Board of Directors of the Company and Elbit Medical. Should Mr. Lifschitz cease to serve as a member of the Board of Directors of Insightec or as an observer in Gamida, then the annual compensation shall be reduced by 50%. Should Mr. Lifschitz cease to hold his office in Insightec and employment for Mr. Moshe for his services asGamida then the chief executive officer of our Company. The main terms of office and employment for his service are as follows:consultancy agreement will be terminated.
C. | BOARD PRACTICES |
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as the audit committee, the internal auditor and approvals of interested-party transactions. These mattersThe Nasdaq has determined to remove from listing the ordinary shares of the Company, effective at the opening of the trading session on May 13, 2019. After delisting, NASDAQ rules are in additionno longer applicable to the ongoing listing conditions of the Nasdaq Global Select MarketCompany, while Israeli and other relevant provisions of U.S. securities laws. Under the NASDAQ rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable NASDAQ requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. For further information, see “Item 16G. Corporate Governance.”laws will continue to apply.
Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations promulgated under the Companies Law, that our board of directors should have. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least two directors with the requisite financial and accounting expertise and that two of our directors fulfill the requirements promulgated under the Companies Law.
Election of Directors
Pursuant to our Amended and Restated Articles of Association, the size of our board of directors shall be no less than 4four persons but no more than 7,seven, excluding any external directors. Our directors are generally elected by our shareholders at the annual meeting of the shareholders by a simple majority. The directors hold office until the next annual meeting of our shareholders. Our board of directors may appoint additional directors to our board of directors in the event of a vacancy on or an enlargement of the board of directors up to the maximum number provided in our articles of association. Any director so appointed will hold office until the next annual meeting of the shareholders. Our board of directors currently consists of six members.
In addition, the Companies Law provides that a person will not be elected and will not serve as a director in a public company if he or she does not have the required qualifications and the ability to dedicate an appropriate amount of time for the performance of his or her director position in the company, taking into consideration, among other factors, the special needs and size of the company. A general shareholders meeting of a company whose shares are publicly traded, at which the election of a director is to be considered, will not be held unless the nominee has declared to the company that he or she complies with the above-mentioned requirements, and the details of his or her applicable qualifications are provided, and in case such nominee is an “independent director” as defined in the Companies Law (see below), that such nominee has also declared that he or she complies with the independence criteria under the Companies Law. Each of our elected directors has declared to our board of directors that he or she complies with the required qualifications under the Companies Law for appointment as a member of our board of directors, detailing his or her applicable qualifications, and that he or she is capable of dedicating the appropriate amount of time for the performance of his or her role as a member of our board of directors.
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Alternate Directors
Our Amended and Restated Articles of Association provide that any director, other than the external directors, may, by written notice to us, appoint another person, who is not a director, to serve as an alternate director, subject to the approval of the chairman of the board. In the case of an appointment made by the chairman, such appointment shall be valid unless objected to by the majority of other directors. The term of appointment of an alternate director is unlimited in time and scope unless otherwise specified in the appointment notice, or until notice is given of the termination of the appointment. No director currently has appointed any other person as an alternate director. The Companies Law stipulates that a person who serves as a director may not serve as an alternate director and that external director may not appoint alternate director,directors, except under very limited circumstances. An alternate director has the same responsibility as a director and shall possess all the required qualifications to serve as a director.
Adoption of Companies Regulation Leniency with Respect to Composition of Board ofExternal Directors
On August 18, 2016, our Board resolvedUnder the Companies Law, Israeli companies whose shares are listed for trading on a stock exchange or have been offered as securities to adopt the corporate governance structure set forthpublic in Regulation 5Dor outside of Israel are required to appoint at least two “external directors.”
The Companies Law provides that a person may not be appointed as an external director of a company if the person or the person’s relative, partner, employer or any entity under the person’s control has, as of the date of the person’s appointment to serve as an external director, or had, during the two years preceding that date any affiliation with:
● | the company; |
● | any entity controlling the company; or |
● | any entity controlled by the company or by its controlling entity. |
The term affiliation includes:
● | an employment relationship; |
● | a business or professional relationship maintained on a regular basis; |
● | control; and |
● | service as an office holder, excluding service as an outside director of a company that is offering its shares to the public for the first time. The Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, the chief business manager, a vice president and any officer that reports directly to the chief executive officer. |
Under the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000. In accordance with such Regulation,Law, a public company with securities listed on certain foreign exchanges, including NASDAQ,is required to appoint as an external director a person who has “professional expertise” or a person who has “financial and accounting expertise,” provided that satisfiesat least one of the applicable foreign country lawsexternal directors must have “financial and accounting expertise.”
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Under the Israeli Companies Law regulations, a director having financial and accounting expertise is a person who, due to his education, experience and qualifications is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that applyenables him to companies organizedunderstand in that country relatingdepth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the Israeli Companies Law regulations, a director having professional expertise is a person who has an academic degree in either economics, business administration, accounting, law or public administration or another academic degree or has completed other higher education studies, all in an area relevant to the appointmentmain business sector of independentthe company or in a relevant area of the board of directors position, or has at least five years of experience in one of the following or at least five years of aggregate experience in two or more of the following: a senior management position in the business of a corporation with a substantial scope of business, a senior position in the public service or a senior position in the main field of the company’s business.
No person can serve as an external director if the person’s position or other business creates, or may create, a conflict of interests with the person’s responsibilities as an external director or may otherwise interfere with the person’s ability to serve as an external director. Until the lapse of two years from termination of office, a company may not engage an external director to serve as an office holder and compositioncannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person. In addition, if at the time an external director is appointed all current members of audit and compensation committeesthe board of directors who are exempt fromneither controlling shareholders nor relatives of controlling shareholders are of the composition requirements set forthsame gender, then the external director to be appointed must be of the other gender.
External directors are to be elected by a majority vote at a shareholders meeting, provided that either (1) the majority of shares voted at the meeting, including at least a majority of the votes of the shareholders who are not controlling shareholders (as defined in the Israeli Companies Law.
In accordance with such resolution, for so long as the Company doesLaw), do not have a controlling shareholder as definedpersonal interest in the Companies Law,appointment (excluding a personal interest which did not result from the Company shall complyshareholder’s relationship with the NASDAQ Listing Rulescontrolling shareholder), vote in connection withfavor of the election of the director without taking abstentions into account; or (2) the total number of independent directors on the Board, and the composition of eachshares of the Audit Committeeabovementioned shareholders who voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.
The initial term of an external director is three years and may be extended for two additional terms of three-years each.
External directors may be removed from office only by the Compensation Committee,same percentage of shareholders as is required for their election, or by a court, and then only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. Each committee of a company’s board of directors empowered with powers of the board of directors is required to include at least one external director except for the audit committee, which is required to include all external directors.
An external director is entitled to compensation and reimbursement of expenses in lieu of such requirements set forthaccordance with regulations promulgated under the Israeli Companies Law.Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with serving as a director except for certain exculpation, indemnification and insurance provided by the company.
Under the NASDAQ rules, a majority of our directors are required to be “independent directors” as defined in NASDAQ’s rules. The current composition of our board of directors consists of a majority of independent directors, who have been designated as such by the audit committee.
Board Committees
Our board of directors has established an audit committee and a compensation committee, as described below:
Audit committeeCommittee
Due to recent amendments to Israel legislation, as mention above, “dual listed” companies are not required to comply withUnder the Israeli Companies law requirement regardingLaw, the Auditboard of directors of a public company must appoint an audit committee, composition, subject to full compliance with SEC and Nasdaq requirement.that should be comprised of at least three directors including all of the external directors.
The responsibilitiesIn addition, the Israeli Companies Law provides that the majority of the members of the audit committee, include identifyingas well as the majority of members present at audit committee meetings, must be “independent” (as such term is defined below), and examining flawsthat the chairman of the audit committee must be an external director. In addition, the following are disqualified from serving as members of the audit committee: the chairman of the board of directors, the controlling shareholder and her or his relatives, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of its income from the controlling shareholder. Any persons not qualified from serving as a member of the audit committee may not be present at the audit committee meetings during the discussion and at the time decisions are made, unless the chairman of the audit committee determines that the presence of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in the business managementIsraeli Companies Law.
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An “independent director” is defined as an external director or a director who meets the following conditions: (i) satisfies certain conditions for appointment as an external director (as described above) and the audit committee has determined that such conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, with any interruption of up to two years in service not being deemed a disruption in the continuity of such service.
The role of the audit committee under the Israel Companies Law is to examine suspected flaws in our business management, in consultation with the internal auditor or our independent accountants and suggestingsuggest an appropriate course of actions, recommendingaction in order to correct such flaws. In addition, the approval of interestedthe audit committee is required to effect specified actions and related party transactions, assessingtransactions.
Additional functions to be performed by the company’s internal audit system andcommittee include, among others, the performance of its internal auditor.following:
● | the determination whether certain related party actions and transactions are “material” or “extraordinary” for purposes of the requisite approval procedures; | |
● | to determine whether to approve actions and transactions that require audit committee approval under the Israel Companies Law; | |
● | to assess the scope of work and compensation of the company’s independent accountant; | |
● | to assess the company’s internal audit system and the performance of its internal auditor and if the necessary resources have been made available to the internal auditor considering the company’s needs and size; and | |
● | to determine arrangements for handling complaints of employees in relation to suspected flaws in the business management of the company and the protection of the rights of such employees. |
Our audit committee is comprised of fourthree members, all of whom meet all requisite independence and other professional requirements. Our audit committee operates in accordance with a charter. Within the framework of such governing documents, the audit committee oversees the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on our consolidated financial statements. The audit committee’s specific responsibilities in carrying out its oversight role include the approval of all audits and permitted non-audit services to be provided by the external auditor.
Our audit committee is also authorized to act as our “qualified legal compliance committee”. As such, our audit committee will be responsible for investigating reports, made by attorneys appearing and practicing before the SEC in representing us, of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar material violations of U.S. law by us or any of our agents. Under NASDAQ rules, the approval of the audit committee is also required to effect related-party transactions that would be required to be disclosed in our annual report.
NASDAQ rules require that director nominees be selected or recommended for the board’s selection either by a committee comprised solely of independent directors or by a majority of independent directors. For a foreign private issuer, such as our company, NASDAQ rules allow foreign private issuers to follow “home country practice”. On September 3, 2015 the board approved the exemption from the requirement to select board nominees by the nomination committee. The compensation of a company’s chief executive officer and other executive officers is required to be approved either by a majority of the independent directors on the board or a committee comprised solely of independent directors.
An “independent director” is defined as an external director or a director who meets the following conditions: (i) satisfies certain conditions for appointment as an external director and the audit committee has determined that such conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, with any interruption of up to two years in service not being deemed a disruption in the continuity of such service Or for a “dual listed” company like us and independent director may be considered as such through compliance with Nasdaq requirements.
Our audit committee has the authority to retain independent legal, accounting or other consultants as advisors, for which we will provide funding, and handle complaints relating to accounting, internal accounting controls or auditing matters.
The members of our audit committee are Alon Bachar, Nitzan Gozlan and Nadav Livni.
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Compensation Committee
DueAccording to recent amendments tothe Israeli legislation, as mentioned above, “dual listed” companies that: (i) has no Controlling (as such term is defined underCompanies Law, the board of directors of a public company must establish a compensation committee. The Israeli Companies Law) shareholder; and (ii) are in compliance with SEC and Nasdaq requirements regarding nominationLaw requires that the compensation committee consist of independentat least three directors and regardinginclude all of the compositionexternal directors who must constitute a majority of its members. The remaining members must be qualified to serve on the audit committee pursuant to the Israeli Companies Law requirements described above. The compensation committee chairman must be an external director and compensation committee); are exempt, inter alia, from the requirementany persons not qualified to comply with the Companies law provisions regardingserve as a member of the compensation committee composition.may not be present at the compensation committee meetings during the discussion and at the time decisions are made, unless the chairman of the compensation committee determines that the presence of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in the Israeli Companies Law.
Under the Companies Law, the role of the compensation committee is to recommend to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria, to review modifications to thesuch compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior to approval by the board of directors, and to resolve whether to exempt the compensation terms of a candidate for chief executive officer from shareholder approval. The members of our compensation committee are Nitzan Gozlan, Boaz Lifschitz and Alon Bachar.
Financial Statements Review Committee
Pursuant to regulations promulgated under the Israeli Companies RegulationsLaw, the financial reports of a public company such as our company may be brought for discussion and approval of the board only after such committee has discussed and formulated recommendations to the board in connection with: (1) the valuations and estimates used in connection with the consolidated financial statements; (2) the internal controls related to financial reporting; (3) the completeness and appropriateness of disclosure in the consolidated financial statements; (4) the accounting policy adopted and accounting treatment applied in the material matters of the company; and (5) valuations, including the assumptions and estimates underlying them, on which data in the consolidated financial statements is provided. The Financial Statements Review Committee must consist of at least three members, the chairperson of the committee must be an independent Director,director, and the majority of its members must be directors who meet certain independence requirements of the Companies Law, and, among other criteria, all of its members must be able to read and understand financial statements, with at least one of the members having “financial and accounting expertise” (as defineddiscussed above).
Pursuant to the regulations promulgated under the Companies Regulations, theLaw, our audit committee may serveserves as the Financial Statements Review Committee subject to fulfillment of the aforementioned conditions.
Internal Auditor
Under the Companies Law, our board of directors is required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether our actions comply with the law and proper business procedure. The internal auditor may not be an interested party, an office holder, or a relative of any of the foregoing, nor may the internal auditor be our independent accountant or its representative. The Companies Law defines the term “interested party” to include a person who holds 5% or more of our outstanding share capital or voting rights, has the right to appoint one or more directors or the general manager or who serves as a director or as the general manager. Our internal auditor is Mr. Daniel Shapira, a Certified Public Accountant in Israel.
For information on the duties of directors, officers and shareholders and requirements for the approval of related-party transactions, please see "Item“Item 10B - Memorandum and Articles of Association"Association”.
D. | EMPLOYEES |
As of March 31, 2019, we employed or contracted 5 persons as employees, administration and managerial services, all of whom work out of our headquarters in Israel.
As of March 31, 2018, we employed or contracted 5 persons as employees, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2018, PC had 11 employees and consultants in the Netherlands, Greece and India.
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As of March 31, 2017, we employed or contracted 7 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2017, PC had 61 employees, consultants and part time employees in the Netherlands, CEE, Greece and India. As of March 31, 2017, our Hotel division had 402 employees.
As of March 31, 2016, we employed or contracted 9 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2016, PC had 83 employees, consultants and part time employees in the Netherlands, CEE, Greece and India. As of March 31, 2016, our Hotel division had 420 employees.
We are not party to any collective bargaining agreement with our employees or with any labor organization.
E. | SHARE OWNERSHIP |
None of our officers and/or directors beneficially own at least 1% of the Company’s share capital.
Incentive Plan for the Chairman of our Board, Mr. Ron Hadassi
As part of the compensation plan for the Chairman of our Board, Mr. Ron Hadassi, approved at our General Meeting held in October 2016 (the “Chairman’s Incentive Plans”), Mr. Hadassi was granted options exercisable in to 38,445 ordinary shares, no par value, of the Company, constituting approximately 0.4% of our issued and outstanding share capital on a fully diluted basis. In addition, Mr. Hadassi has been granted with 12,298,913 options convertible into maximum 6,149,456 shares of Elbit Medical constituting approximately 0.33% of our issued and outstanding share capital on a fully diluted basis.
2011 Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s Shares
In April 2011, our board of directors adopted the Elbit Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s shares (the “2011 Plan”) for the grant of up to 19,829,625 options exercisable into 9,930,437 ordinary shares of Elbit Medical for an exercise price of NIS 0.40.Medical. The exercise price of each option will be reduced upon distribution of dividends, stock dividends etc. The exercise mechanism of the options into Elbit Medical’s shares will be as follows: at the exercise date the Company shall transfer to each exercising option holder shares of Elbit Medical (owned by the Company) equal to the difference between (A) the price of Elbit Medical’s shares on the TASE on the exercise date, provided that if such price exceeds 100% of the exercise price, the opening price shall be set as 100% of the exercise price (the “Capped Exercise Price”); less (B) the exercise price of the options; and the result (A minus B) will be divided by the Capped Exercise Price. In November 2012, our board of directors adopted an amendment to the 2011 Plan increasing
The following table details the number of options issuable from 19,829,625 to 23,463,500 and resolved to grant an additional 3,633,875 options to employees and officer of the Company. Further, the Board had decided to amend the exercise price per share to NIS 0.133 and extend the expiration date of such options to November 29, 2017 in respect of employees and officers who served at Elbit Group at that time.
In September 2014, we granted an additional 1,800,000 options to past and present officers of Elbit Medical with an exercise price of NIS 0.115 per share.
In March 2016, we granted an additional 1,250,000 options to the new appointed chief financial officer of Elbit Medical at a price of NIS 0.10 per share.
In October 2016, we granted an additional 1,537,364 options to our chairman of the Board with an exercise price of NIS 0.106 per share .In March 2017 our board of directors has approved a grant of additional 62,500 options to an employee of the company and decided to extend the terms of the option to December 31, 2018 for the Company’s officers and June 30, 2019 for the company’s employees who served at Elbit at that time
As of March 31, 2018, 2,821,455 options were outstanding under the 2011 Plan of which 127,543,835 were vested.
All options under the 2011 Employees Stock Option plan has expired.and their status as for 31.12.2018:
PC Share Option Scheme, as amended
granted | max exercisable number of shares | average exercise price (NIS) | vested | average contractual life | ||||||||||||||||
Number of options | 2,587,568 | 1,293,784 | 0.95 | 1,012,455 | 2.87 | |||||||||||||||
options granted to key personnel: | ||||||||||||||||||||
CEO& chairman of the board | 1,024,909 | 512,455 | 0.85 | 512,455 | 2.78 | |||||||||||||||
CFO | 833,333 | 416,667 | 0.8 | 416,667 | 2.25 | |||||||||||||||
PC’s Option Plan, as amended in August 2007, November 2008 and November 2011 (“PC’s First Option Plan”) provides for the grant
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Under the terms of both of PC’s Option Plans, options vest over a period of three years, such that 33.33% of the options granted become exercisable on each of the first, second and third anniversaries of the date of grant.
Upon the occurrence of an event of change of control in PC (as defined in PC’s Option Plan), the vesting of all the outstanding options granted by PC that were not exercised or did not expire by such date, shall be fully accelerated.
As of March 31, 2018, 253,520 options to purchase ordinary shares were outstanding under PC’s Option Plan of which 253,520 options were vested.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | MAJOR SHAREHOLDERS |
We had 9,190,808 ordinary shares outstanding as of April 26, 2018.May 10, 2019. The voting rights of all shareholders are the same. The following table sets forth certain information as of April 26, 2018,May 10, 2019, unless stated otherwise, concerningconcerning: (i) persons or entities who, to our knowledge, beneficially own more than 5% of our outstanding ordinary shares and (ii) the number of our ordinary shares beneficially owned by all of our directors and officers as a group:
Name and Address | Number of Shares Beneficially Owned | Approximate Percentage of Shares | Number of Shares Beneficially Owned | Approximate Percentage of Shares | ||||||||||||
York Capital Management Global Advisers LLC and/or certain funds and/or accounts managed by it or its affiliates(1) | 1,802,428 | 19.6 | % | 1,740,485 | 18.9 | % | ||||||||||
Davidson Kempner Capital Management LP and/or certain funds and/or accounts managed by it or its affiliates (2) | 1,314,528 | 14.3 | % | 1,314,528 | 14.3 | % | ||||||||||
All of our officers and directors as a group.(3) | 12,815 | 0.14 | % | 12,815 | 0.14 | % |
(1) | Based on the Schedule |
(2) | Based on information provided by the shareholder to the Company. |
(3) | Taking into account options that are vested. |
York Capital Management Global Advisers LLC and Davidson Kempner Capital Management LLC,LP, together with their respective affiliates, are holders of theour Notes (Series I) and PC Notes.Elbit medical notes. For further detail, see note 18D17d to our annual consolidated financial statements incorporated herein by reference.
B. | RELATED PARTY TRANSACTIONS |
Repayment of Elbit Medical debt to the Company
On March 9, 2018, we announced that following Elbit Medical’s public offering of a new series of notes, Elbit Medical hadtransferred approximately NIS 151 million (approximately $ 43.7 million) to the Company as an early repayment on account of its debt to the Company. The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS 2 million (approximately $ 580 thousand) was converted into approximately NIS 2 million of par value notes from the new series.series of notes.
York’s investment in InSightec Series E Investment Agreement
See "Item“Item 4B – Business Overview – Medical Companies – InSightec – Preferred stock investment round E."”
InSightec Amendment to Series D Investment Agreement
In June 2014, InSightec entered into a Series D Preferred Share Purchase agreement with York Global Finance II S.à r.l. (an affiliate of York which is a related party of the Company) and other investors for an investment of up to USD 62.5 million in series D preferred shares of InSightec which than constitutes approximately 25% of InSightec’s issued and outstanding share capital on a fully diluted basis. By the end of May 2015 the entire amount was invested (“Series D Preferred Share Purchase Agreement“”) ..On.On December 31, 2015, InSightec and some of its existing and new shareholders signed and executed an amendment to the Series D Preferred Share Purchase Agreement, as amended from time to time (the “Amendment to the Share Purchase Agreement”), under which InSightec completed an investment of $22 million in consideration for approximately 7.3% of InSightec’s outstanding share capital, on a fully diluted basis. The terms and conditions of the investment were the same as in the original Series D Preferred Share Purchase Agreement, based on the same pre-money valuation and subject to certain adjustments. InSightec.
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Joint venture agreement with PC
As detailed in Item 4B – Business Overview, in August 2008 we entered into the EPI Agreement with PC, under which, amongst other things, PC was allotted 47.5% of the EPI share capital. EPI is holding two plots in India (in Bangalore and Chennai) in conjunction with local Indian partners and has engaged with certain third parties with respect of the Kochi Island project. As of the date of the execution of the EPI Agreement through the date of this annual report, the Kochi Island project was held through a special purpose vehicle other than EPI. We agreed that 50% of our rights in the Kochi Island project will be held in favor of PC, and we undertook and guaranteed to transfer the holdings in the Kochi project to EPI or 50% to PC within 12 months following the execution of the EPI Agreement, or alternatively to repay the consideration paid by PC for the rights in the project. This undertaking and guarantee have since been extended until August 25, 2013. On November 11, 2013, PC notified us of its demand that we repay the amount paid by PC for the Kochi Island project together with the interest accumulated thereupon, amounting to approximately €4.3 million (US$ 5.2 million) due to alleged failure to timely meet certain conditions set forth in the EPI Agreement. Following the approval of the Audit committee of PC and us we agreed that we will have the full rights in the Kochi Project and the amount outstanding from the Company to PC will be repaid in installments as scheduled in the agreement. As of the filing of this annual report the total amount outstanding under this loan is approximately €2.7€0.226 million.
Relationship Agreement with PC
On October 27, 2006, we entered into an agreement with PC pursuant to which we undertook, as long as we hold at least 30% of the issued share capital of PC, that neither we nor any person connected with us will compete with the business of PC related to the development of commercial and entertainment centers in Central and Eastern Europe or India or the development of the Dream Island or Casa Radio projects. The Relationship Agreement terminates in the event that PC’s shares capital ceases to be admitted to the main market of the London Stock Exchange. In the framework of the Amended PC Plan we were required by the UK Listing Authority to enter into an amended and restated relationship agreement on basically the same terms, with minor adjustments due to regulatory changes not affecting the essence of the agreement.
Guarantee Agreement with PC
On October 27, 2006, PC agreed, with effect from January 1, 2006, to pay a commission to us in respect of any and all outstanding corporate and first demand guarantees which have been issued by us in favor of PC and which remain valid and outstanding (“EI Guarantees”). The amount of the commissions to be paid will be agreed upon between us and PC at the beginning of each fiscal year and will apply to all EI Guarantees which remain outstanding during the course of that relevant fiscal year, subject to a cap of 0.5% of the amount or value of the relevant EI Guarantee, per annum. During 2017, no guarantees were provided by us to PC.
In2018 the parties signed a termination agreement for the termination and cancellation of the said guarantee agreement.
Indemnification, Insurance and Exemption
For information regarding the grant of insurance, exemption and indemnification to our directors and officers, by us or our subsidiaries, see "Item“Item 10B – Memorandum and Articles of Association – Insurance, Indemnification and Exemption”.
Inter-company Services, Loans and Guarantees
From time to time we investsign guarantees in favor of third parties in connection with actions/transactions of our subsidiaries and jointly controlled companies, by way of equity or capital investments, or otherwise provide loans or guarantees to such companies, in order to finance their operations and businesses.companies. All such investments are eliminated in our consolidated financial statements. Details as to material guarantees are provided in Item 5B – Operating and Financial Review and Prospects – Liquidity and Capital Resources – “Loans” above.
Under the terms of a management agreement with Elbit Medical, we provide services of chairman of the board (20% working time) and chief executive officer and chief financial officer (each 50% working time) for a monthly payment of NIS 67,000 per month. TheUnder the terms of a services agreement with Elbit Medical, we provide accounting, secretarial and administration services to Elbit Medical for a monthly payment of NIS 8,000 per month. Both management agreement wasand services agreements were approved by Elbit'sElbit Medical’s audit committee, board of directors and shareholders and is in effect until November 9, 2020.
For amounts paid under our related party transactions, see note 27C17 to our annual consolidated financial statements incorporated herein by reference.
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ITEM 8. | FINANCIAL INFORMATION |
A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
Legal Proceedings
For information regarding the legal proceeding we are involved in, see "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events, and note 13B to our annual consolidated financial statements"statements”.
Dividend Distribution Policy
To date, we do not have a dividend distribution policy. Consequentially, our Board may issue dividends at its sole discretion.
B. | SIGNIFICANT CHANGES |
There are no significant changes that have occurred since December 31, 2015,2018, except as otherwise disclosed in this annual report and in our annual consolidated financial statements.
ITEM 9. | THE OFFER AND LISTING |
A. | OFFER AND LISTING DETAILS |
Our ordinary shares are listed on the TASE under the symbol “EMIT” and are quoted on the OTC Markets under the symbol “EMITF” since February 2019. Our ordinary shares were listed on the NASDAQ Global Select Market under the symbol “EMITF” and on the TASE under the symbol “EMIT.” As stated(ticker symbol: EMITF) until February 11, 2019, when trading in the Special Explanatory Note to this Annual Report, share and share price information have been adjusted to reflect the 1-for-20 reverse share split effected by us on August 21, 2014.
Information regarding the price history of the stock listed
The annual high and low sale prices for our ordinary shares for the five most recent full financial years are:
NASDAQ | TASE | |||||||||||||||
Year Ended December 31, | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
2017 | 3.63 | 2.22 | 3.6 | 2.16 | ||||||||||||
2016 | 4.01 | 2 | 4.18 | 1.88 | ||||||||||||
2015 | 2.14 | 0.65 | 2.09 | 0.64 | ||||||||||||
2014 | 26.4 | 1.25 | 26.48 | 1.21 | ||||||||||||
2013 | 70 | 13.8 | 68.2 | 14.6 |
The quarterly high and low sale prices forwas suspended. On May 13, 2019, our ordinary shares for the two most recent full financial years and any subsequent period are:
NASDAQ | TASE | |||||||||||||||
Financial Quarter | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
2018 | ||||||||||||||||
Q1 | 3.04 | 2.70 | 2.92 | 2.64 | ||||||||||||
Q2 (through April 23, 2018) | 2.75 | 2.69 | 2.66 | 2.65 | ||||||||||||
2017 | ||||||||||||||||
Q1 | 3.63 | 3.23 | 3.60 | 3.27 | ||||||||||||
Q2 | 3.54 | 2.83 | 3.44 | 2.75 | ||||||||||||
Q3 | 3.20 | 2.77 | 3.12 | 2.75 | ||||||||||||
Q4 | 2.90 | 2.22 | 2.93 | 2.16 | ||||||||||||
2016 | ||||||||||||||||
Q1 | 3.00 | 2.00 | 2.76 | 1.88 | ||||||||||||
Q2 | 2.85 | 2.33 | 2.65 | 2.28 | ||||||||||||
Q3 | 4.01 | 2.31 | 4.18 | 2.28 | ||||||||||||
Q4 | 3.96 | 3.39 | 3.83 | 3.37 |
The monthly high and low sale prices for our ordinary shares during the past six months were:
NASDAQ | TASE | |||||||||||||||
Month | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
April 2018 (through April 23) | ||||||||||||||||
March 2018 | 2.80 | 2.75 | 2.76 | 2.67 | ||||||||||||
February 2018 | 2.85 | 2.70 | 2.83 | 2.64 | ||||||||||||
January 2018 | 3.04 | 2.78 | 2.92 | 2.72 | ||||||||||||
December 2017 | 2.90 | 2.30 | 2.93 | 2.27 | ||||||||||||
November 2017 | 2.48 | 2.22 | 2.44 | 2.16 | ||||||||||||
October 2017 | 2.80 | 2.47 | 2.75 | 2.43 |
The closing prices of our ordinary shares listedwere removed from listing on the TASE for each of the periods referred to in the tables above were originally denominated in NIS and were converted to U.S. dollars using the representative exchange rate between the U.S. dollar and the NIS published by the Bank of Israel for each applicable day in the presented period.Nasdaq.
B. | PLAN OF DISTRIBUTION |
Not applicable.
C. | MARKETS |
Since our initial public offering in November 1996, our ordinary shares have been listed on the NASDAQ Global Select Market (then known as the NASDAQ National Market) under the symbol “EMITF” and on the TASE under the symbol “EMIT.” On February 11, 2019, trading in our ordinary shares on Nasdaq was suspended and the Company was subsequently removed from Nasdaq listing on May 13, 2019.
D. | SELLING SHAREHOLDERS |
Not applicable.
E. | DILUTION |
Not applicable.
F. | EXPENSES OF THE ISSUE |
Not applicable.
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ITEM 10. | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
Not applicable.
B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
Purposes and Objects of the Company
We are a public company registered under the Companies Law as Elbit Imaging Ltd., registration number 52-004303-5.
Pursuant to Section 2 of our Amended and Restated Memorandum of Association, we are authorized to operate in any business or matter for profit purposes as shall be determined or defined by our board of directors from time to time. In addition, our Amended and Restated Articles of Association authorize us to donate reasonable amounts to any cause we deem worthy.
Approval of Certain Transactions
The Companies Law imposes approval requirements for the compensation of office holders. Every Israeli public company is required to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders. The shareholder approval requires a special majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described in the following paragraph regarding transactions with a controlling shareholder). In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company’s compensation policy. In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder must be approved separately by the compensation committee, the board of directors and the shareholders of the company (part of them, by a special majority noted above). The compensation terms of other officers require the approval of the compensation committee and the board of directors. In addition, under the Companies Law and our Amended and Restated Articles of Association, transactions with our officers or directors or a transaction with another person in which such officer or director has a personal interest must be approved by our audit committee, board of directors or authorized non-interested signatories, and if such transaction is considered an extraordinary transaction (as defined below) or involves the engagement terms of officers, the transaction must be approved by the audit committee and board of directors. Our Compensation Committee and Board adopted a compensation policy, which our shareholders subsequently approved at the annual general meeting of our shareholders held on August 14, 2014, and amended compensation policy at the extraordinary general meeting of our shareholders held on March 31, 2016, and at the annual general meeting of our shareholders held on October 13, 2016.2016, and at the annual and extraordinary shareholders meeting held on October 4, 2018 ..
The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including compensation, benefits, exculpation, insurance and indemnification. The compensation policy must take into account certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must include certain principles, such as: a link between variable compensation and long-term performance and measurable criteria; the relationship between variable and fixed compensation; and the minimum holding or vesting period for variable, equity-based compensation. We believe that our Amended Compensation Policy satisfies these requirements.
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The Companies Law also requires that any extraordinary transaction with a controlling shareholder or an extraordinary transaction with another person in which a controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and the shareholders of the company, in that order. The shareholder approval must be by a simple majority, provided that (i) such majority vote includes at least a simple majority of the total votes of shareholders having no personal interest in the transaction or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company. In addition, any such extraordinary transaction whose term is longer than three years requires further shareholder approval every three years, unless (with respect to transactions not involving management fees or employment terms) the audit committee approves that a longer term is reasonable under the circumstances.
The Companies Law prohibits any person who has a personal interest in a matter from participating in the discussion and voting pertaining to such matter in the company’s board of directors or audit committee except for in circumstances where the majority of the board of directors has a personal interest in the matter, in which case such matter must be approved by the company’s shareholders.
An “extraordinary transaction” is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of business; (ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s profitability, assets or liability.
Under the Companies Law, a private placement of securities requires approval by the board of directors and the shareholders of the company if it will cause a person to become a controlling shareholder or if:
● | the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance; |
● | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and |
● | the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights. |
Fiduciary Duties of Directors and Officers
The Companies Law imposes a duty of care and a duty of loyalty on the directors and officers of a company. The duty of care requires a director or office holder to act with the level of care with which a reasonable director or officer in the same position would have acted under the same circumstances. It includes a duty to use reasonable means to obtain information on the advisability of a given action brought for his approval or performed by him by virtue of his position and all other important information pertaining to these actions.
The duty of loyalty of a director or officer includes a general duty to act in good faith for the benefit of the company, and particularly to:
● | refrain from any conflict of interest between the performance of his duties for the company and the performance of his other duties or his personal affairs |
● | refrain from any activity that is competitive with the company; |
● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and |
● | Disclose to the company any information or documents relating to a company’s affairs which the director or officer has received due to his position as such. |
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The Companies Law requires that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he or she may have, including all related material facts or documents in connection with any existing or proposed transaction by the company. The disclosure must be made without delay and no later than the first board of directors meeting at which the transaction is first discussed.
Duties of a Shareholder
Under the Companies Law, a shareholder, in exercising his rights and fulfilling his obligations to the company and the other shareholders, must act in good faith and in a customary manner and refrain from improperly exploiting his power in the company, including when voting at general meetings of shareholders on: (a) any amendment to the articles of association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) the approval of related party transactions. In addition, a shareholder must refrain from prejudicing the rights of other shareholders. Furthermore, any controlling shareholder and any shareholder who knows that he possesses power to determine the outcome of the shareholders’ vote at a general meeting, is subject to a duty to act in fairness towards the company. The Companies Law does not detail the substance of this duty.
Board of Directors
In accordance with our Amended and Restated Articles of Association, the board of directors may, from time to time, in its discretion, cause us to borrow or secure the payment of any sum or sums of money for the purposes of the Company and may cause us to secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it deems fit, and in particular by the issuance of notes, perpetual or redeemable notes, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of our property (both present and future), including its uncalled or called but unpaid share capital for the time being.
Neither our Amended and Restated Memorandum of Association nor our Amended and Restated Articles of Association, nor the laws of the State of Israel require retirement of directors at a certain age or share ownership for director qualification, nor do any of them contain any restriction on the board of directors’ borrowing powers.
Insurance, Indemnification and Exemption
General- our Amended and Restated Articles of Association set forth the following provisions regarding the grant of exemption, insurance and indemnification to any of our directors or officers, all subject to the provisions of the Companies Law. In accordance with such provisions and pursuant to the requisite approvals of our compensation committee, board of directors and shareholders, we have obtained liability insurance covering our directors and officers, have granted indemnification undertakings to our directors and officers and have agreed to exempt our directors and officers (other than our Executive Chairman) from liability for breach of the duty of care. PC, InSightec and Gamida have also granted indemnification undertakings to their respective directors and officers.
Insurance- we may insure the liability of any director or officer to the fullest extent permitted by law. Without derogating from the aforesaid, we may enter into a contract to insure the liability of a director or officer for an obligation imposed on him in consequence of an act done in his capacity as such, in any of the following cases:
(i) | A breach of the duty of carevis-a-vis us orvis-a-vis another person; | |
(ii) | A breach of the duty of loyaltyvis-a-vis us, provided that the director or officer acted in good faith and had reasonable basis to believe that the act would not harm us; | |
(iii) | A monetary obligation imposed on him in favor of another person; |
(iv) | Reasonable litigation expenses, including attorney fees, incurred by the director or officer as a result of an administrative enforcement proceeding instituted against him. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968, as amended (the “Securities Law”) and expenses that the director or officer incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees; or |
(v) | Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of our directors or officers. |
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Indemnification
We may indemnify a director or officer to the fullest extent permitted by law, either retroactively or pursuant to an undertaking given in advance. Without derogating from the aforesaid, we may indemnify our directors or officers for liability or expense imposed on him in consequence of an action taken by him in his capacity as such, as follows:
(i) | Any financial liability he incurs or imposed on him in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by a court, provided that any undertaking to indemnify be restricted to events that, in the opinion of the board of directors, are anticipated in light of our actual activity at the time of granting the undertaking to indemnify and be limited to a sum or measurement determined by the board of directors to be reasonable under the circumstances; |
(ii) | Reasonable litigation expenses, including legal fees, incurred by the director or officer or which he was ordered to pay by a court, within the framework of proceedings filed against him by or on behalf of us, or by a third party, or in a criminal proceeding in which he was acquitted, or in a criminal proceeding in which he was convicted of a felony which does not require a criminal intent; and |
(iii) | Reasonable litigation expenses, including legal fees he incurs due to an investigation or proceeding conducted against him by an authority authorized to conduct such an investigation or proceeding, and which was ended without filing an indictment against him and without being subject to a financial obligation as a substitute for a criminal proceeding, or that was ended without filing an indictment against him, but with the imposition of a financial obligation, as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms in the Companies Law or in connection with an administrative enforcement proceeding or a financial sanction. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law, and expenses that the director or officer incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees. |
The aggregate indemnification amount payable by us pursuant to indemnification undertakings mayshall not exceed the lower of (i) 25% of our shareholders’ equity as of the date of actual payment by us of the indemnification amount (as set forth in our most recent consolidated financial statements prior to such payment) and (ii) $40 million, in excess of any amounts paid (if paid) by insurance companies pursuant to insurance policies maintained by us, with respect to matters covered by such indemnification.
Exemption- we may exempt a director or officer in advance or retroactively for all or any of his liability for damage in consequence of a breach of the duty of carevis-a-vis us, to the fullest extent permitted by law.
Prohibition on the grant of exemption, insurance and indemnification - The Companies Law provides that a company may not give insurance, indemnification nor exempt its directors or officers from liability in the following events:
(i) | a breach of the duty of loyalty to the company, unless, with respect to insurance coverage or indemnification, the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm us; |
(ii) | an intentional or reckless breach of the duty of care; |
(iii) | an act done with the intention of unduly deriving a personal profit; or |
(iv) | A fine imposed on the officer or director. |
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Rights Attached to Shares
Our registered share capital consists of a single class of 11,666,66750,000,000 ordinary shares, of no parno-par value, of which 9,190,808 ordinary shares were issued and outstanding as of April 27, 2018.May 13, 2019.
Dividend and Liquidation Rights
Our board of directors may declare a dividend to be paid to the holders of ordinary shares on a pro rata basis. Dividends may only be paid out of our profits and other surplus funds, as defined in the Companies Law, as of our most recent financial statement or as accrued over the past two years, whichever is higher, or, in the absence of such profits or surplus, with court approval. In any event, a dividend is permitted only if there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro rata basis. 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, subject to applicable law. For information on our dividend policy, see "Item“Item 8A – Financial Information – Consolidated Statements and Other Financial Information – Dividend Distribution Policy.”
Voting Rights
Holders of ordinary shares have one vote for each ordinary share held by them on all matters submitted to a vote of the shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least 33.33% of the issued voting share capital. In the event that a quorum is not present within half an hour of the scheduled time, the meeting shall be adjourned to the same day of the following week, at the same time and place, or to such other day, time and place as the board of directors shall determine by notice to the shareholders. If at such adjourned meeting a quorum is not present within half an hour of the scheduled time, the two members present in person or by proxy will constitute a quorum.
Annual and Special Meetings
In accordance with the Companies Law, the board of directors must convene an annual meeting of shareholders at least once every calendar year and no later than within 15 months from the last annual meeting. Notice of at least 14 days prior to the date of the meeting is required, subject to applicable law, which often requires notice of at least 21 or 35 days. An extraordinary meeting may be convened by the board of directors, either at its discretion or upon a demand of (i) any two directors or 25% of the serving directors; or (ii) one shareholder or more holding in the aggregate at least 5% of our issued capital and at least 1% of the voting rights in the Company or one shareholder or more holding at least 5% of the voting rights in the Company.
Limitations on the Rights to own Securities
Our Amended and Restated Memorandum of Association and Amended and Restated Articles of Association do not restrict in any way the ownership of our shares by non-residents of Israel and neither the Amended and Restated Memorandum of Association, the Amended and Restated Articles of Association or Israeli law restricts the voting rights of non-residents of Israel except that under Israeli law any transfer or issue of our shares to a resident of an enemy state of Israel is prohibited and shall have no effect.
Changes to our Capital
Changes to our capital are subject to the approval of our shareholders by a simple majority.
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Anti-Takeover Provisions
The Companies Law prohibits the purchase of our shares if the purchaser’s holding following such purchase increases above certain percentages without conducting a tender offer or obtaining shareholder approval. Our Amended and Restated Articles of Association increased the required amount of such tender offer to at least 10% of our outstanding ordinary shares See "Item“Item 3D – Risk Factors - Risks Relating to Israel – "Provisions“Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.” above.
Amendment of Articles of Association
Any amendment to our articles of association requires the approval of our shareholders by a simple majority.
Transfer Agent
Our transfer agent in the United States is American Stock Transfer and Trust Company whose address is 6201 15th Avenue, Brooklyn, New York 11219.
C. | MATERIAL CONTRACTS |
The following is a list of material contracts entered into by us or any of our subsidiaries during the two years prior to the filing of this annual report.
Sale of up to 57,968,760 Elbit Medical shares under a second share purchase agreement with Exigent
For a discussion of a second Share Purchase Agreement with an SPV related to Exigent Capital Group for the sale of up to 57,968,760 Elbit Medical shares, constituting approximately 25% of Elbit Medical’s issued and outstanding share capital see “Item 4 - Information on the Company – History and Development of the Company – Recent Events – The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent - Second SPA with Exigent Capital Group”.
Sale of 60,087,537 Elbit Medical shares under a share purchase agreement with Exigent
For a discussion of a Share Purchase Agreement with an SPV related to Exigent Capital Group (“SPV”) for the sale of a total of 60,087,537 Elbit Medical shares, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of approximately US$ 15,548,275 see “Item 4 - Information on the Company – History and Development of the Company – Recent Events – The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent - First SPA with Exigent Capital Group”.
Deposit of PC shares with a trustee
For a discussion of the deposit of PC shares with a trustee see “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Change in Status as Controlling Shareholder of Plaza Centers N.V.”.
Issuance of a new series of convertible notes by Elbit Medical
For discussion about the issuance of a new series of convertible notes by EI – See "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events – "Issuance“Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company"Company”.
Sale of Belgian Hotels
For discussion about the sale of our hotels in Antwerp Belgium –See “Item 5 - Sources of Cash from Major Transactions and Events – 2015.”
Sale of the Radisson Complex
For a discussion of the sale of the Radisson Hotel Complex see "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania"Romania”
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Sale of plot in Bangalore, India
For a discussion of sale agreement of our plot in Bangalore (including amendment thereto) see "Item“Item 4 - Information on the Company – History and Development of the Company – Recent Events – Agreement to Sell a Plot in Bangalore, India”.
AcquisitionIssuance of a loan to control the Liberec Plaza
For a discussion regarding our acquisition of Liberec Plaza, see "Item 5 – Operating and Financial Review and Prospects – 2015”.
Debt repayment agreement and Sale of Zgorzelec Plaza commercial Center
For a discussion regarding debt repayment agreement and the sale of Zgorzelec commercial center see "Item 4 - Information on the Company – History and Development of the Company – Recent Events – Debt repayment agreement and Sale of Zgorzelec Plaza Shopping Commercial Center”.
Acquiring bank loan for PC’s plot in Brasov, Romania
For a discussion regarding acquiring bank loan in Brasov, Romania see "Item 4 - Information on the Company – History and Development of the Company – Recent Events – Acquiring bank loan for PC’s plot in Brasov, Romania”.
The Debt RestructuringSeries I Notes
For a discussion of the Debt Restructuring, see above "Item 4 – Information on the Company – History and Development of the Company – Recent Events – “Our Debt Restructuring”.
The PC Debt Restructuring
For a discussion of the Amended PC Plan, see above "Item 4 – Information on the Company – History and Development of the Company – Recent Events – PC Debt Restructuring”.
\
Issuance of Series I Notes
For a discussion of the our Series I Notes, see above "Item“Item 5 – Operating and Financial Review and Prospects – Liquidity and Capital Resources – Liquidity – Other Loans”.
Medical
For information regarding the investment in InSightec by Koch Disruptive Technologies, York Global Finance II S.à r.l., an affiliate of York Capital Management which is a related party of the Company certain other investors see Item 4 - Information on the Company – History and Development of the Company – Recent Events –“InSightec Equity Round”.
D. | EXCHANGE CONTROLS |
In 1998, the government of Israel promulgated a general permit under the Israeli Currency Control Law, 5738 - 1978. Pursuant to such permit, substantially all transactions in foreign currency are permitted.
Our Amended and Restated Memorandum of Association and Articles of Association do not restrict in any way the ownership of our shares by non-residents, and neither our Amended and Restated Memorandum of Association nor Israeli law restricts the voting rights of non-residents.
E. | TAXATION |
The following is a discussion of certain tax laws that may be material to our shareholders, all as in effect as of the date of this report and all of which are subject to changes, possibly on a retroactive basis, to the extent that such laws are still subject to judicial or administrative interpretation in the future. This discussion is not intended, and should not be construed, as legal or professional tax advice and does not cover all possible tax considerations. For further information as to taxes that apply to us and our subsidiaries, see note 22 to our annual consolidated financial statements.
WE ENCOURAGE EACH INVESTOR TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE ISRAELI, U.S. FEDERAL, STATE, AND LOCAL TAXES.
Taxation in Israel
The following is a summary of the material Israeli tax consequences to purchasers of our ordinary shares. 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. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel, and by non-residents of Israel if those assets either (i) are located in Israel; (ii) are shares or a right to a share in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a double tax convention concluded between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is equal to the increase in the purchase price of the relevant asset attributable solely to the increase in the Israeli CPI, or a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
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As of January 1, 2012, capital gains derived by Israeli individuals from the sale of shares purchased on or after January 1, 2003, will be taxed at the rate of 25%. However, if the individual shareholder is a “Significant Shareholder” (i.e., a person who holds, directly or indirectly, alone or jointly with others, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding 12 month12-month period, such gains will be taxed at the rate of 30%. In addition, capital gains derived by an individual claiming a deduction of financing expenses in respect of such gains will be taxed at the rate of 30%. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering. Israeli companies are subject to the corporate tax rate (26.5% for the 2015 tax year, 25% for the 2016 tax year, 24% for the tax year 2017 and 23% for the 2018 tax year and thereafter) on capital gains derived from the sale of shares.
The tax basis of our shares acquired prior to January 1, 2003, will generally be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003. However, a request may be made to the Israeli tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.
Capital gains derived from the sale of our shares by a non-Israeli shareholder may be exempt under the Israeli Income Tax Ordinance from Israeli taxation provided the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of our shares on the stock exchange, (ii) the seller doesn’t have a permanent establishment in Israel to which the derived capital gains are attributed, and (iii) if the seller is a corporation, (a) 25% or less of its means of control or (b) less than 25% of the beneficial rights to the revenues or profits of such corporation, whether directly or indirectly, are held by Israeli resident shareholders. In addition, the sale of our shares by a non-Israeli shareholder may be exempt from Israeli capital gain tax under an applicable tax treaty.
Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended, or the U.S.- Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty generally will not be subject to Israeli capital gains tax unless (i) either such resident holds, directly or indirectly, shares representing 10% or more of the voting power in the company during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, or (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment of the shareholder in Israel. If the above conditions are not met, the sale, exchange or disposition of ordinary shares would be subject to such Israeli capital gains tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such residents should be permitted to claim a credit for such taxes against U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to state or local taxes.
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.
At 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 June 30 of every tax year in respect of sales of securities made within the previous six months. However, if all tax due was withheld at source 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.
Taxation of Dividends Distribution
A distribution of dividends to an Israeli resident individual will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Significant Shareholder at the time of distribution or at any time during the preceding 12 month12-month period. If the recipient of the dividend is an Israeli resident company, such dividend will be exempt from income tax provided that the income from which such dividend is distributed was derived or accrued within Israel. As of January 1, 2014, any distribution of dividends from income attributed to a Preferred Enterprise under the Law for the Encouragement of Capital Investments, 1959 (“Investment Law”) is generally subject to a tax at a rate of 20%. However, if such dividends are distributed to an Israeli company, no tax is imposed. As of January 1, 2014, dividends distributed from income attributed to an Approved Enterprise and/or a Benefited Enterprise under the Investment Law, are subject to a tax rate of 20%. Notwithstanding the above, a reduced 15% tax rate will be applicable if the dividend was distributed out of income of: (i) Approved Enterprise activated prior to 2014; or (ii) Benefited Enterprise with a “Year of Election” prior to 2014.
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Under the Israeli Income Tax Ordinance, a non-Israeli resident (either individual or company) is generally subject to Israeli income tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a Significant Shareholder), unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.- Israel Tax Treaty, the following 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 tax year which precedes the date of payment of the dividend and during the whole of its prior tax year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying company, and not more than 25% of the gross income of the Israeli resident paying company for such prior taxable year (if any) consists of certain type of interest or dividends - the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income generated by an “Approved Enterprise”, which was entitled to a reduced tax rate under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 - the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S. - Israel Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
We are generally obligated to withhold Israeli tax at the source upon the distribution of a dividend, at the aforementioned rates.
A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the shareholder.
Excess Tax
Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 2% for the tax year 2016 and at a rate of 3% for the tax year 2017 and thereafter on annual income exceeding a certain threshold (approximately NIS 811,000 for 2016 and NIS 640,000 for 2017, which amount is linked to the annual change in the Israeli consumer price index), including, but not limited to income derived from, dividends, interest and capital gains.
U.S. Federal Income Tax Considerations
Subject to the limitations described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares to a U.S. holder. A U.S. holder is a holder of our ordinary shares who is:
● | an individual citizen or resident of the United States for U.S. federal income tax purposes; |
● | a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any political subdivision thereof or the District of Columbia; |
● | an estate, the income of which may be included in the gross income for U.S. federal income tax purposes regardless of its source; or |
● | a trust (i) if, in general, a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
Unless otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (or a partnership) (a “non-U.S. holder”) and considers only U.S. holders that will own the ordinary shares as capital assets (generally, for investment).
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This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s particular circumstances. In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers; who have elected mark-to-market accounting; who own, directly, indirectly or constructively, 10% or more of our outstanding shares (by vote or value); U.S. holders that received ordinary shares as a result of exercising employee stock options or otherwise as compensation; U.S. holders holding our ordinary shares as part of a hedging, straddle or conversion transaction; U.S. holders whose functional currency is not the U.S. dollar; real estate investments trusts, regulated investment companies, insurance companies, tax-exempt organizations, qualified retirement plan or individual retirement account; financial institutions, grantor trusts, S corporations; certain former citizens or long term residents of the United States; and persons subject to the alternative minimum tax, who may be subject to special rules not discussed below. Additionally, the possible application of U.S. federal estate, or gift taxes or any aspect of state, local or non-U.S. tax laws is not discussed.
If an entity treated as a partnership or other pass-through entity for U.S. Federal income tax purposes holds our ordinary shares, the tax treatment of the entity and an equity owner in such entity will generally depend on the status of the equity owner and the activities of the entity. Such an equity owner or entity should consult its tax advisor as to its consequences.
Each holder of our ordinary shares is advised to consult his or her tax advisor with respect to the specific U.S. federal, state, local and foreign tax consequences to him or her of purchasing, holding or disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Tax Consequences if We are a Passive Foreign Investment Company,” a distribution paid by us with respect to our ordinary shares to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution with respect to our ordinary shares will equal the amount of cash and the fair market value of any property distributed and will also include the amount of any non-U.S. taxes withheld from such distribution. Dividends that are received by U.S. holders that are individuals, estates or trusts may be taxed at the rate applicable to long-term capital gains (current maximum rate of 20%), provided that such dividends meet the requirements of “qualified dividend income.” For this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if certain holding period and other requirements are met and either (a) the stock of the non-U.S. corporation with respect to which the dividends are paid is “readily tradable” on an established securities market in the U.S. (e.g., the NASDAQ Global Select Market) or (b) the non-U.S. corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The United States Internal Revenue Service (“IRS”) has determined that the U.S.-Israel income tax treaty is satisfactory for this purpose. Dividends that fail to meet such requirements, and dividends received by corporate U.S. holders are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (1) if the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities); or (2) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as such term is defined in the Code) for any taxable year, dividends paid on our ordinary shares in such year and in the following taxable year would not be qualified dividends. See discussion below regarding our PFIC status at “Tax Consequences If We Are a Passive Foreign Income Company.” In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case, the dividend will be taxed at ordinary income rates.
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The amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s tax basis in its ordinary shares to the extent thereof, and then as capital gain from the deemed disposition of the ordinary shares. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares.
Dividends paid by us in NIS will be generally included in the income of U.S. holders at the U.S. dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the exchange rate in effect on the date of the distribution. U.S. holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that U.S. dollar value. Any subsequent gain or loss in respect of the NIS arising from exchange rate fluctuations will generally be taxable as U.S. source ordinary income or loss.
Subject to certain conditions and limitations set forth in the Code and the Treasury Regulations thereunder, including certain holding period requirements, U.S. holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability the non-U.S. income taxes withheld from dividends received in respect of our ordinary shares. The limitations on claiming a foreign tax credit include, among others, computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. In this regard, dividends paid by us generally will be foreign source “passive income” for U.S. foreign tax credit purposes. U.S. holders that do not elect to claim a foreign tax credit may instead claim a deduction for the non-U.S. income taxes withheld if they itemize deductions for U.S. federal income tax purposes. The rules relating to foreign tax credits are complex, and U.S. holders should consult their tax advisors to determine whether and to what extent they would be entitled to this credit.
Disposition of Ordinary Shares
Subject to the discussion below under “Tax Consequences if we are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition of our ordinary shares (other than in certain non-recognition transactions), a U.S. holder will generally recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in our ordinary shares. The gain or loss recognized on the disposition of the ordinary shares will be long-term capital gain or loss if the U.S. holder held our ordinary shares for more than one year at the time of the disposition. Under current law, long-term capital gains are subject to a maximum rate of 20%. Capital gain from the sale, exchange or other disposition of our ordinary shares held for one year or less is short-term capital gain and taxed at ordinary income tax rates. Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of our ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. A U.S. holder that receives foreign currency upon the disposition of our ordinary shares and converts the foreign currency into U.S. dollars after the settlement date (in the case of a cash method taxpayer or an accrual method taxpayer that elects to use the settlement date) or trade date (in the case of an accrual method taxpayer) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
Net Investment Income
Subject to certain limitations and exceptions, certain non-corporate U.S. holders may be subject to an additional 3.8% surtax on all or a portion of their “net investment income,” which may include dividends on, or capital gains recognized from the disposition of, our ordinary shares. U.S. holders are urged to consult their own tax advisors regarding the implications of the additional net investment income tax on their investment in our ordinary shares.
Tax Consequences if we are a Passive Foreign Investment Company
We will be a PFIC if either (1) 75% or more of our gross income in a taxable year is passive income or (2) 50% or more of the value, determined on the basis of a quarterly average, of our assets in a taxable year produce or are held for the production of passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we will be treated for purposes of the foregoing tests as owning our proportionate share of that other corporation’s assets and as directly earning our proportionate share of that other corporation’s income. If
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We believe it is likely that we were a PFIC in 2018, because we believe it likely that we did not satisfy the asset test, and possibly the income test, in 2018, primarily due to the decrease of our indirect ownership in InSightec.
Our PFIC analysis is based upon, among other things, certain assumptions and methodologies with respect to the values that we have used, our percentage ownership (by value), and the appropriate value of our ownership interest, in companies we hold, and the manner in which we have allocated the aggregate value of our assets among our active assets and passive assets. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. There can be no assurance with respect to the position of the IRS or a court of law as to our status as a PFIC.
Provided we were a PFIC, a U.S. holder must determine under which of three alternative taxing regimes – the “QEF” regime, the “mark-to-market” regime and the “excess distribution” regime - it wishes towill be taxed.subject.
The “QEF” regime applies if the U.S. holder elects to treat us as a “qualified electing fund” (“QEF”) for the first taxable year in which the U.S. holder owns our ordinary shares or in which we are a PFIC, whichever is later, and if we comply with certain reporting requirements. If a QEF election is made after the first taxable year in which a U.S. holder holds our ordinary shares and we are a PFIC, then special rules would apply. If the QEF regime applies, then for each taxable year that we are a PFIC, such U.S. holder will include in its gross income a proportionate share of our ordinary earnings (which is taxed as ordinary income) and net capital gain (which is taxed as long-term capital gain), subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. These amounts would be included in income by an electing U.S. holder for its taxable year in which our taxable year ends, whether or not such amounts are actually distributed to the U.S. holder. A U.S. holder’s basis in our ordinary shares for which a QEF election has been made would be increased to reflect the amount of any taxed but undistributed income. Generally, a QEF election allows an electing U.S. holder to treat any gain realized on the disposition of its ordinary shares as capital gain. Once made, the QEF election applies to all subsequent taxable years of the U.S. holder in which it holds our ordinary shares and for which we are a PFIC, and the QEF election can be revoked only with the consent of the IRS. In order to make a QEF election, a U.S. holder must compute its proportionate share of our ordinary earnings and net capital gain as determined for U.S. federal income tax purposes. We do not intend to provide U.S. holders with such information. As a result, U.S. holders may not be able to make a QEF election.
If a U.S. holder fails to make a timely QEF election for the first taxable year in which the U.S. holder holds our shares and we are a PFIC (but we provide U.S. holders with the necessary information to make such an election), the U.S. holder may be eligible to make a retroactive QEF election under certain circumstances. U.S. holders who do not timely make a QEF election with respect to the first taxable year during their holding period in which we are a PFIC and are not eligible to make a retroactive QEF election may nevertheless make a QEF election for a subsequent year (if we provide U.S. holders with the necessary information to make such an election) together with a deemed sale election for the same taxable year. If a deemed sale election is made, the U.S. holder will be treated as if it had sold our ordinary shares for their fair market value on the last day of the taxable year immediately preceding the taxable year for which the QEF election is made and will recognize gain (but not loss) on such deemed sale and pay tax and an interest charge on such gain in accordance with the excess distribution regime described below.
A second regime, the “mark-to-market” regime, may be elected so long as our ordinary shares are “marketable stock” (e.g., “regularly traded” on a “qualified exchange or other market”). Our ordinary shares and the NASDAQ Global Select Market).shares of Elbit Medical are currently traded on the Tel Aviv Stock Exchange in Israel. While it is not entirely clear, we believe that the Tel Aviv Stock Exchange should be considered such a “qualified exchange or other market.” If the mark-to-market election is made after the first taxable year in which a U.S. holder holds our ordinary shares and we are a PFIC, then special rules would apply. Pursuant to this regime, an electing U.S. holder’s ordinary shares are marked-to-market each taxable year that we are a PFIC, and the U.S. holder recognizes as ordinary income or loss the amount equal to the difference as of the close of the taxable year between the fair market value of our ordinary shares and the U.S. holder’s adjusted tax basis in our ordinary shares. Losses are allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election for prior taxable years. An electing U.S. holder’s adjusted basis in our ordinary shares is increased by income recognized under the mark-to-market election and decreased by the deductions allowed under the election. Under the mark-to-market election, in a taxable year that we are a PFIC, gain on the sale of our ordinary shares is treated as ordinary income, and loss on the sale of our ordinary shares, to the extent the amount of loss does not exceed the net mark-to-market gain previously included, is treated as ordinary loss. Any loss on the sale of our ordinary shares in excess of net mark-to-market gain previously included is generally treated as a capital loss. The mark-to-market election applies to the taxable year for which the election is made and all later taxable years, unless the ordinary shares cease to be marketable stock or the IRS consents to the revocation of the election.
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A U.S. holder making neither the QEF election nor the mark-to-market election is subject to the “excess distribution” regime. Under this regime, “excess distributions” are subject to special tax rules. An excess distribution is either (1) a distribution with respect to our ordinary shares that is greater than 125% of the average distributions received by the U.S. holder from us over the shorter of either the preceding three taxable years or such U.S. holder’s holding period for our ordinary shares prior to the distribution year, or (2) gain from the disposition of our ordinary shares (including gain deemed recognized if the ordinary shares are used as security for a loan).
Excess distributions must be allocated ratably to each day that a U.S. holder has held our ordinary shares. A U.S. holder must include amounts allocated to the current taxable year, as well as amounts allocated to taxable years prior to the first taxable year in which we were a PFIC, in its gross income as ordinary income for that year. All amounts allocated to other taxable years would be taxed at the highest tax rate for each such prior taxable year applicable to ordinary income and the U.S. holder also would be liable for interest on the deferred tax liability for each such taxable year calculated as if such liability had been due with respect to each such taxable year. A U.S. holder who inherits shares in a non-U.S. corporation that was a PFIC in the hands of the decedent generally is denied the otherwise available step-up in the tax basis of such shares to fair market value at the date of death. Instead, such U.S. holder would generally have a tax basis equal to the lesser of the decedent’s basis or the fair market value of the ordinary shares on the date of the decedent’s death.
We believeUnless a QEF election or mark-to-market election is made with respect to our ordinary shares, the determination that we were notare a PFIC in 2017. However, sincea taxable year generally will cause such PFIC status to apply with respect to a U.S. holder who held our shares in such year to all future taxable years in which such holder continues to own our shares, notwithstanding that we may not be a PFIC in such other taxable years.
Since the determination of whether we are a PFIC is based upon such factual matters as our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies in which we have based our analysis, there can be no assurance that the IRS will agree with our position. In addition, there caneven if we are a PFIC, we may not be no assurance that we will not become a PFIC for the current taxable year ending December 31, 20182019 or in any future taxable year. We will notify U.S. holders in the event we conclude
Provided that we are a PFIC, a U.S. holder will be treated asdeemed to own shares in any of our subsidiaries that is also a PFIC. We believe that Elbit Medical was a PFIC for any taxable yearin 2018. As a result of Elbit Medical being a PFIC, distributions from Elbit Medical to enable U.S. holders to consider whether or not to elect to treat us, asand sales by us of Elbit Medical shares at a QEF for U.S. federal income tax purposes, or to “mark-to-market” the ordinary shares or to becomegain, may be subject to the “excess distribution” regime. Ifregime described above, regardless of whether a mark-to-market election has been made with respect to our shares. However, subject to the limitations and requirements described above, a U.S. holder may be able to make a separate mark-to-market election with respect to the shares of Elbit Medical. Doing so should avoid application of the “excess distribution” regime to distributions by, and sales of shares of, Elbit Medical.
A U.S. holder that owns our ordinary shares during any taxable year in which we are a PFIC U.S. holders will generally be required to file an annual report with the IRS.IRS Form 8621 annually (regardless of whether a QEF election or mark-to-market election is made) for each PFIC that such holder owns, including indirectly.
U.S. holders are urged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner and advisability of making, the QEF election or the mark-to-market election.
Non-U.S. Holders
Subject to the discussion below under “Information Reporting and Backup Withholding,” a non-U.S. holder of our ordinary shares generally will not be subject to U.S. federal income or withholding tax on the receipt of dividends on, and the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes (i) the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and in the case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in the case of an individual, the item is attributable to a fixed place of business in the United States, or (ii) the non-U.S. holder is an individual who holds the ordinary shares as a capital asset, is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met.
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Information Reporting and Backup Withholding
U.S. holders (other than certain exempt recipients such as corporations) generally are subject to information reporting requirements with respect to dividends paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from disposing of our ordinary shares. U.S. holders generally are also subject to backup withholding (currently 24%) on dividends paid in the United States or by a U.S. payor or U.S. middleman on our ordinary shares and on the gross proceeds from disposing of our ordinary shares, unless the U.S. holder provides an IRS Form W-9 or otherwise establishes that such holder is exempt from backup withholding.
Certain U.S. holders (and to the extent provided in IRS guidance, certain non-U.S. holders) who hold interests in “specified foreign financial assets” (as defined in Section 6038D of the Code) are generally required to file an IRS Form 8938 as part of their U.S. federal income tax returns to report their ownership of such specified foreign financial assets, which may include our ordinary shares, if the total value of those assets exceed certain thresholds. Substantial penalties may apply to any failure to timely file IRS Form 8938. In addition, in the event a 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 holder for the related tax year may not close until three years after the date that the required information is filed. Holders should consult their own tax advisors regarding their tax reporting obligations.
Non-U.S. holders generally are not subject to information reporting or backup withholding with respect to dividends paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from the disposition of our ordinary shares, provided that such non-U.S. holder certifies to its foreign status or is otherwise exempt from backup withholding or information reporting.
The amount of any backup withholding may be allowed as a credit against a holder’s U.S. federal income tax liability and may entitle such holder to a refund provided that certain required information is timely furnished to the IRS.
F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
G. | STATEMENT BY EXPERTS |
Not applicable.
H. | DOCUMENTS ON DISPLAY |
We are subject to the informational requirements of the Exchange Act that are applicable to a foreign private issuer. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
However, we file annual reports with, and furnish other information to, the SEC. These materials, including this annual report and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. Additionally, copies of the materials may be obtained from the SEC’s website at http://www.sec.gov.
I. | SUBSIDIARY INFORMATION |
Not applicable.
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ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Management of financial risks
Our operations expose us to risks that relate to various financial instruments, such as market risks (including currency risk, cash flow risk with respect to interest rates and other price risk), credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flow of financial instruments will fluctuate because of changes in market prices.
Credit risk is the risk of financial loss to us if counterparty to a financial instrument fails to meet its contractual obligations.
Liquidity riskis the risk that we will not be able to meet our financial obligations as they become due.
Our comprehensive risk management program focuses on actions to minimize the possible negative effects on our financial performance. In certain cases, we use derivatives financial instruments in order to mitigate certain risk exposures.
Our board of directors has overall responsibility for the establishment and oversight of our risk management framework. Our board of directors is managing the risks faced by us and confirms that all appropriate actions have been or are being taken to address any weaknesses.
As of December 31, 2017,2018, we had exposure to the following risks that are related to financial instruments:
Foreign currency risk
We have international activities in many countries and, therefore, we are exposed to foreign currency risks as a result of fluctuations in the different exchange rates. Foreign currency risks are derived from transactions executed and/or financial assets and liabilities held in a currency which is different than the functional currency of our entity which executed the transaction or holds these financial assets and liabilities. In order to minimize such exposure, our policy is to hold financial assets and liabilities in a currency which is the functional currency of that entity.
In addition, a significant part of our business/investments are denominated in foreign currencies (Euro for the commercial center business and plots in Eastern Europe, US dollar for the Medical business and INR for the plots in India) while the corporate obligations of us and PC and Elbit Medical (mainly notes) are linked to the Israeli NIS. Our main source to serve these corporate debts will arrive mainly from the sale of these assets/investments. Therefore, a devaluation of each of these currencies against the NIS until the date of the execution of the relevant sale transaction may significantly affect us, andElbit Medicaland PC cash flow and our ability to repay our debts in a timely manner. As of the filling of this annual report we do not actively hedge this risk.
The following table detailsdemonstrates the sensitivity analysistest to a reasonably possible change of 10% in our main foreign currencies, as of December 31, 2017, against the relevant functional currencyUSD and their effectNIS exchange rates, with all other variables held constant. The impact on the statementsCompany’s income before tax is due to changes in the fair value of incomemonetary assets and the shareholder’s equity (before tax and before capitalizing any exchange results to qualified assets):liabilities.
Change in USD rate | Effect on income before tax | Change in USD rate | Effect on income before tax | |||||||||||||
NIS in thousands | NIS in thousands | |||||||||||||||
2018 | +10 | % | (25,656 | ) | -10 | % | 25,656 |
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The following table demonstrates the sensitivity test to a reasonably possible change in EURO and NIS exchange rates, with all other variables held constant. The impact on the Company’s income before tax is due to changes in the fair value of monetary assets and liabilities.
Change in EURO rate | Effect on income before tax | Change in EURO rate | Effect on income before tax | |||||||||||||
NIS in thousands | NIS in thousands | |||||||||||||||
2018 | +10 | % | 3,790 | -10 | % | (3,790 | ) |
Credit risk
We hold cash and cash equivalents, short-term investments and other long-term investments in financial instruments in various reputable banks and financial institutions. These banks and financial institutions are located in different geographical regions, and it is our policy to disperse our investments among different banks and financial institutions. Our maximum credit risk exposure is approximately the financial assets presented in the balance sheet in our annual consolidated financial statements.
Due to the nature of its activity, our commercial centers business do not materially exposed to credit risks stemming from dependence on a given customer. Our company examined on an ongoing basis the credit amounts extended to its customers and, accordingly, records a provision for doubtful debts based on those factors it considers having an effect on specific customers.
Interest rate risk
Fair value risk
A significant portion of our long term loans and notes bearing a fixed interest rate and are therefore exposed to change in their fair value as a result of changes in the market interest rate. The vast majority of these loans and notes are measured at amortized cost and therefore changes in the fair value will not have any effect on the statement of income.
Cash flow risk
Part of our long-term borrowings are bearing variable interest rates. Cash and cash equivalents, short-term deposits and short-term bank credits are mainly deposited in or obtained at variable interest rates. Changes in the market interest rate will affect our finance income and expenses and our cash flow.
In certain cases we use interest rate swap transaction in order to swap loans with a variable interest rate to fixed interest rate or alternatively entering into loans with a fixed interest rate.
The following table presents the effect of an increase of 1% in the LIBOR rate with respect to financial assets and liabilities as of December 31, 2017, which are exposed to cash flow risk (before tax and before capitalization to qualifying assets):
The following table presents our long-term financial liabilities classified according to their interest rate and their contractual maturity date: (*)
Functional | Linkage | Interest | Average Interest | Repayment Years | ||||||||||||||||||||||||||||
Currency | Currency | Rate % | Rate % | 1 | 2 | 3 | 4 | 5 | Total | |||||||||||||||||||||||
€ | PLN | 6M WIBOR+6 | 7.8 | 21.2 | - | - | - | - | 21.2 | |||||||||||||||||||||||
€ | NIS (linked to CPI) | 6-6.9 | 6-6.9 | (*)213.1 | 223.2 | 53.9 | - | - | 490.2 | |||||||||||||||||||||||
NIS | NIS (linked to CPI) | 6 | 6 | 296.2 | 275.6 | - | - | - | 571.8 | |||||||||||||||||||||||
530.5 | 498.8 | 53.9 | - | - | 1,083.2 |
(*) Regarding PC Notes - the repayment take into account the minimum contractual payments on the PC Notes to achieve the Deferral see note 11 E.
Israeli consumer price index risk
A significant part of our borrowings consists of notes raised by us on the TASE and which are linked to the increase in the Israeli consumer price index above the base index at the date of the Notes issuance. An increase of 2% in the Israeli consumer price index will cause an increase in our finance expenses for the year ended December 31, 20172018 (before tax) in the amount of NIS 193 million (approximately $5$1 million).
Fair value of financial instruments
Our financial instruments primarily include cash and cash equivalents, short and long-term deposits, marketable securities, trade receivables, short and long-term other receivables, short- term banks credit, other current liabilities and long-term monetary liabilities.
The fair value of traded financial instruments (such as marketable securities and notes) is generally calculated according to quoted closing prices as of the balance sheet date, multiplied by the issued quantity of the traded financial instrument as of that date. The fair value of financial instruments that are not traded is estimated by means of accepted pricing models, such as present value of future cash flows discounted at a rate that, in our assessment, reflects the level of risk that is incorporated in the financial instrument. We relies,rely, in part, on market interest which is quoted in an active market, as well as on various techniques of approximation. Therefore, for most of the financial instruments, the estimation of fair value presented below is not necessarily an indication of the realization value of the financial instrument as of the balance sheet date. The estimation of fair value is carried out, as mentioned above, according to the discount rates in proximity to the date of the balance sheet date and does not take into account the variability of the interest rates from the date of the computation through the date of issuance of the consolidated financial statements. Under an assumption of other discount rates, different fair value assessments would be received which could be materially different from those estimated by us, mainly with respect to financial instruments at fixed interest rate. Moreover, in determining the assessments of fair value, the commissions that could be payable at the time of repayment of the instrument have not been taken into account and they also do not include any tax effect. The difference between the balances of the financial instruments as of the balance sheet date and their fair value as estimated by us may not necessarily be realizable, in particular in respect of a financial instrument which will be held until redemption date.
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Following are the principal methods and assumptions which served to compute the estimated fair value of the financial instruments:
a) | Financial instruments included in current and non-current assets and current liabilities -(cash and cash equivalents, deposits and marketable securities, trade receivables, other current assets, |
b) | Financial instruments included in long-term liabilities- the fair value of the traded liabilities (notes) is determined according to closing prices as of the balance sheet date quoted on the Tel- Aviv |
The following table presents the book value and fair value of our financial assets (liabilities), which are presented in our consolidated financial statements at other than their fair value:
As of December 31, 2017 | ||||||||
Book Value | Fair Value | |||||||
Notes | (1,024,168 | ) | (911,051) |
As of December 31, 2018 | ||||||||
Book Value | Fair Value | |||||||
Notes | (280,592 | ) | (299,199 | ) |
The following table provides the fair value reconciliation as at December 31, 2018:
Derivative (*) | Financial asset through profit and loss (**) | |||||||
(In thousands NIS) | ||||||||
Balance as at issuance date | (42,214 | ) | 71,265 | |||||
Change in fair value of financial instruments measured at fair value through profit and loss | 31,220 | 13,915 | ||||||
Exchange rate differences through profit and loss | 2,896 | - | ||||||
Translation reserve | (2,896 | ) | 1,082 | |||||
Balance as at December 31, 2018 | (10,994 | ) | 86,262 |
(*) | With respect to issuance of convertible notes by our company’s subsidiary. |
(**) | With respect to investment in Gamida |
Fair value measurement technique:
Name of the derivative | Fair value as for December 31, 2018 | Valuation technique | Significant unobservable inputs | Range (Weighted average) | Sensitivity of fair value to change in data | |||||||||
Conversion component of convertible notes | (10,994 | ) | Binomial model | Discount rate (%) Expected volatility (%) | 8.9 33.4 | % % | The increase / decrease of 10% in the effective interest has no material effect on the fair value. An increase / decrease of 10% in the standard deviation will result in an increase / decrease in fair value of NIS 2.6 million. | |||||||
Financial asset through profit and loss | 86,262 | Asian put option | Expected volatility (%) | 108.2 | % | An increase / decrease of 10% in the standard deviation will result in an increase / decrease in fair value of NIS 1.5 million. |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
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PART II
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
PC Debt Restructuring
On November 18, 2013, our subsidiary PC announced that it had filed for reorganization proceedings and submitted a restructuring plan to the Dutch Court proposed to its creditors, which was further amended. For more information, see "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events –PC Debt Restructuring” and "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events – Amendment of the Restructuring Plan of PC"PC”.
Our Debt Restructuring
See "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events –PC Debt Restructuring” and "Item“Item 4 – Information on the Company – History and Development of the Company – Recent Events – Our Debt Restructuring"Restructuring”.
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, with the participation of our principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2017.2018.
There can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within our company to disclose information otherwise required to be set forth in our reports. Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based on this evaluation, our principal executive officer and chief financial officer concluded that, as of December 31, 2017,2018, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance to our management and the board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. 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 decline.
Our management evaluated the effectiveness of our internal control over financial reporting established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(2013). Based on the above, our management has assessed and concluded that, as of December 31, 2017,2018, our internal control over financial reporting is effective.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding effectiveness of our internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report as we are a non-accelerated filer.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 20172018 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting other than the recommendations of the special committees as described below:
Potential violation of the requirements of the FCPA in Casa Radio Project in Romania
In March 2016 PC announced that its board became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Romania that may indicate potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
In order to address this matter, PC’s Board appointed the chairman of its Audit Committee to investigate the matters internally. PC’s Board also appointed independent law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with relevant Romanian authorities regarding the matters that have come to its attention in this respect, and it has submitted its findings to the Romanian authorities.
Following PC’s report to us, our audit committee decided to appoint a special committee to examine the matters raised in PC’s announcement, including any internal control and reporting issues. The special committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board. The main recommendations are as follows:reporting.
The Company’s Board fully adopted the special committee’s recommendations, and is working to implement them.
Potential violation of the requirements of the FCPA in Agency and SEC agreement from 2011
In addition, in April 2017 our Board of Directors and PC’s Board of Directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The agreement was between the Company, PC and another party, the beneficial owners of which had not been identified.
The characteristics of the contract could raise red flags that this contract may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA. In order to address this matter, our Board has appointed a joint committee with PC to investigate and examine the issues raised, including any internal control and reporting issues.
The joint committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board. The main recommendations are as follows:
The Company’s Board fully adopted the joint committee’s recommendations, and, among other steps, is working to implement specific changes to its internal control policies and procedures.
None of the adjustments are expected to have a materially affect our internal control over financial reporting or financial statements.
For more information see "Item 4 – Information on the Company – History and Development of the Company – Recent Events –Approval of an offer of Settlement with the SEC in the matter of Alleged PC Violations of FCPA”.
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
In accordance with Nasdaq Corporate Governance Rules, ourOur board of directors has determined that both Mr. Alon Bachar and Mr. Nadav Livni are “audit committee financial experts” as defined in the instructions to Item 16A. of Form 20-F and are independent in accordance with the NASDAQ listing standards for audit committees applicable to us.20-F.
ITEM 16B. | CODE OF ETHICS |
Our principal executive officer, principal financial officer as well as all other directors, officers and employees are bound by a Code of Ethics and Business Conduct. Our Code of Ethics and Business Conduct is posted on and can be accessed via our web-sitewebsite at www.elbitimaging.com. We will provide any person, without charge, upon request, a copy of our Code of Ethics. Such request should be submitted to our Corporate Secretary at Shimshon 3, Petah Tikva, Israel and should include a return mailing address.
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Fees billed by Deloitte and by EY for professional services for each of the last two fiscal years were as follows:
Services Rendered | EY 2017 Fees | EY 2016 Fees | Deloitte 2016 Fees | EY 2018 Fees | EY 2017 Fees | |||||||||||||||
Audit (a) | $ | 723,477 | $ | 1,096,498 | $ | 382,484 | $ | 210,373 | $ | 723,477 | ||||||||||
Audit-related (b) | $ | 16,007 | - | $ | 2,574 | $ | - | 16,007 | ||||||||||||
Tax (c) | $ | 48,023 | $ | 57,354 | $ | 14,804 | $ | - | $ | 48,023 | ||||||||||
All other fees (d) | - | - | - | - | - | |||||||||||||||
Total | $ | 787,506 | $ | 1,153,852 | $ | 399,862 | $ | 210,373 | $ | 787,506 |
(a) | Audit Fees |
“Audit Fees” are the aggregate fees billed for the audit of our annual consolidated financial statements; audit in accordance with section 404 of the Sarbanes-Oxley Act of 2002, statutory audits and services that are normally provided in connection with statutory and regulatory filings or engagements.
138
(b) | Audit-Related Fees |
“Audit-Related Fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under Audit Fees.
In 2015, Audit-Related Fees included mainly work related to conversion of our Registration Statement on Form F-1 to a Registration Statement on Form F-3.
(c) | Tax Fees |
“Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance, tax advice on actual or contemplated transactions and tax consultations regarding tax audits, tax opinions and tax pre-rulings.
(d) | All Other Fees |
“All Other Fees” are the aggregate fees billed for products and services provided by Deloitte otherEYother than as described above.
(e) | Pre-Approval Policies and Procedures |
Our audit committee oversees the appointment, compensation, and oversight of the registered public accounting firm engaged to prepare and issue an audit report on our consolidated financial statements. The audit committee’s specific responsibilities in carrying out its oversight role include the approval of all audit and non-audit services to be provided by our registered public accounting firm and quarterly review of its non-audit services and related fees. These services may include audit services, audit-related services, permitted tax services and other services, as described above. The audit committee approves in advance the particular services or categories of services to be provided to us during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional services may be pre-approved by the audit committee on an individual basis throughout the year.
None of the Audit-Related Fees, Tax Fees or Other Fees paid by us for services provided by Deloitte and/or EY were approved by the audit committee pursuant to thede minimis exception to the pre-approval requirement provided by Section 10A of the Exchange Act.
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS |
Purchases of equity securities by the Company
No purchases of any of our equity securities (either pursuant to or not pursuant to any publicly announced plans or programs) were made by or on behalf of us during 2016.2018.
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.On June 28, 2017, following approval by our audit committee and board of directors, the Company and Brightman Almagor Zohar & Co., a Member Firm of Deloitte Touche Tohmatsu (the “Former Auditor”), reached an understanding to end the engagement and dismiss the Former Auditor as the independent accountants of the Company effective immediately (the “Understanding”).
139
This Understanding resulted from the notification by the Company’s Former Auditor that it was unable to provide an unqualified audit opinion regarding the Company’s financial statements for 2016 as a result of matters underlying the disclaimer made by KPMG Hungaria Kft., the former auditor of PC, in its report relating to PC’s annual financial statements for 2016, which report expresses no opinion with regard to PC’s financial statements.
As a result of the foregoing, the Company was unable to file its Annual Report on Form 20-F for the year 2016 by the required deadline.
The Company concluded that in order to timely file its Form 20-F and comply with NASDAQ requirements, there should be one independent accountant for the Company and its subsidiaries (the “Group”). The Company approached two potential independent accountant firms to serve in such capacity. In addition, both of the independent accountant firms approached stated they would not accept the role of independent accounting firm of PC without also acting as the independent accounting firm of the Company due to the difficulty of meeting their own internal auditing requirements while also meeting the auditing requirements of another accounting firm, all within the timetable required to enable the Company to comply with its NASDAQ requirements.
The Group chose KOST FORER GABBAY & KASIERER (A Member of EY Global) (the “New Auditor”) as auditor for the Group after taking into account their experience, ability to enable the Company to file its Form 20-F in a timely manner.
On June 28, 2017, following approval by the audit committee and board of directors of the Company, the Company approved the engagement with the New Auditor as the Company’s new independent Auditor, subject to shareholders’ approval (which was obtained on July 25, 2017). The New Auditor has also been retained by PC to serve as the independent accountants of PC.
During the two fiscal years ended December 31, 2015 and December 31, 2014, the Former Auditor has not issued any report on the financial statements that contained an adverse opinion or disclaimer of opinion, nor were the reports of the Former Auditor qualified or modified in any manner.
During the two fiscal years ended December 31, 2015 and December 31, 2014 and the subsequent interim period preceding the date of this Report, there was no disagreement with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, or any reportable event as described in Item 16F(a)(1)(iv) of Form 20-F.
During the two fiscal years ended December 31, 2015 and December 31, 2014 and the subsequent interim period preceding the date of this Report, we did not consult with the New Auditor for any matters regarding either:
● | the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the consolidated financial statements of the Company; or |
● | any matter that was the subject of a disagreement as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions to that Item or a “reportable event” as described in Item 16F (a)(1)(v) of Form 20-F. |
The Company has provided the Former Auditor with a copy of the disclosures given above and has requested the Former Auditor to furnish the Company with a letter addressed to the Commission stating whether it agrees with the statements made by the Company in response to Item 16F (a), and if not, stating the respects in which it does not agree. A copy of the letter dated November 9, 2017 from the Former Auditor addressed to the Commission, is filed as an exhibit to this Annual Report on Form 20-F.
140
ITEM 16G. | CORPORATE GOVERNANCE |
We follow the Companies Law, the relevant provisions of which are summarized in this annual report, rather than comply with the NASDAQ requirements relating to: (i) the quorum for adjourned shareholder meetings, as described in Item 10B – Memorandum and Articles of Association – “Voting Rights”; (ii) executive sessions of independent directors, which are not required under the Companies Law; (iii) that director nominees either be selected, or recommended for the board’s selection, either by independent directors constituting a majority of the board’s independent directors or by a nominations committee comprised solely of independent directors, and (iv) shareholder approval with respect to issuance of securities under equity based compensation plans. NASDAQ rules generally require shareholder approval when an equity based compensation plan is established or materially amended, but we follow the Companies Law, which requires approval of the board of directors or a duly authorized committee thereof, unless such arrangements are for the compensation of directors, in which case they also require compensation committee and shareholder approval.Not applicable.
ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
ITEM 17. | FINANCIAL STATEMENTS |
In lieu of responding to this item, we have responded to Item 18 of this annual report.
ITEM 18. | FINANCIAL STATEMENTS |
Our consolidated financial statements for the period ending December 31, 20172018 are found at the end of this Annual Report, beginning on page F-1.
141
PART III
ITEM 19. | EXHIBITS |
* | Confidential treatment granted with respect to certain portions of this Exhibit. |
** | Filed herewith |
142
ELBIT IMAGING LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
ELBIT IMAGING LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
F-1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 20172018
Page | |
Audited Consolidated Financial Statements: | |
Reports of | F-3 |
Statements of Financial Position | F-4 |
Statements of Profit or Loss | F-5 |
Statements of | |
F-9 | |
Statements of | F-10 – |
Notes to |
- - - - - - - - - - - - - - - - - - - - -
F-2
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Elbit Imaging Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Elbit Imaging Ltd and its subsidiaries (the “Company”), as of December 31, 20172018 and 2016,2017, the related consolidated statements of profit or loss, comprehensive income, changes in shareholders’ equity and cash flows for each of the twothree years in the period ended December 31, 20172018 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172018 and 2016,2017, and the results of its operations, changes in equity, and its cash flows for each of the twothree years in the period ended December 31, 2017,2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also audited the adjustments described in Note 19 that were applied to adjust the 2015 consolidated financial statements due to discontinued operation. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2015 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2015 consolidated financial statements taken as a whole.
We did not audit the financial statements of an associate, in which the Company has an 22.5%a 22% interest and are accounted for using the equity method, stated at NIS 0 thousand and NIS 5,300 thousand as of December 31, 2017, and 2016, respectively, and the Company’s share of its losses amounted to NIS 5,300 thousand and NIS 49,670 thousand for the years ended December 31, 2017 and NIS 49,670 thousand for the year ended December 31, 2016.2016, respectively. The financial statements of this associate were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for this associate is based solely on the reports of the other auditors.
Emphasis of matters:
1. | Note |
The materialization of the Company’s forecast, as described in Note 1(c), is not certain and is subject to factors beyond the Company’s control. Delays in the realization of the Group’s assets and investments or realization at lower price than expected by the Company could have an adverse effect on the Company’s liquidity position and its ability to meet its contractual obligations on a timely manner.
The abovementioned conditions and the short time remaining to maturity of Series I notes cast a significant doubt about the Company’s ability to continue as a going concern.
Note that based on existing trust deed of (Series I) notes, in case of material deterioration in the Company's business in compare to its condition at the date of the debt arrangement, and substantial concern that the Company will not be able to repay the bonds on time, the Series I noteholders may call for immediate repayment of the Series I Notes.
2. |
Note 4(C)(1)(c) which discloses potential irregularities regarding to Casa Radio project in Romania and their potential implications. |
|
|
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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company’s auditor since 2017.
Tel-Aviv, Israel
April 25, 2018May 13, 2019
F-3
CONSOLIDATED STATEMENTS FINANCIAL POSITION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Elbit Imaging Ltd.
December 31 | ||||||||||||||
Convenience translation (Note 2d) | ||||||||||||||
2018 | 2017 | 2018 | ||||||||||||
Note | NIS in thousands | USD in thousands | ||||||||||||
CURRENT ASSETS | ||||||||||||||
Cash and cash equivalents | 32,906 | 465,739 | 8,780 | |||||||||||
Short-term deposits and investments | (3a) | 9,207 | 10,495 | 2,457 | ||||||||||
Other receivables | (3b) | 2,857 | 7,222 | 762 | ||||||||||
44,970 | 483,456 | 11,999 | ||||||||||||
NON-CURRENT ASSETS | ||||||||||||||
Trading property | (4) | - | 492,619 | - | ||||||||||
Deposits, receivables and other investments | (3c) | 42,185 | 34,874 | 11,255 | ||||||||||
Investments in associates and joint venture | (5,6) | 82,431 | 5,592 | 21,993 | ||||||||||
Financial asset through profit and loss | 8 | 86,262 | - | 23,016 | ||||||||||
Property, plant and equipment, net | 76 | 830 | 20 | |||||||||||
210,954 | 533,915 | 56,284 | ||||||||||||
255,924 | 1,017,371 | 68,283 | ||||||||||||
CURRENT LIABILITIES | ||||||||||||||
Current maturities of long term borrowings and short-term credits | (9) | 136,028 | 780,861 | 36,293 | ||||||||||
Suppliers and service providers | - | 2,720 | - | |||||||||||
Payables and other credit balances | (10) | 18,535 | 63,293 | 4,945 | ||||||||||
154,563 | 846,874 | 41,238 | ||||||||||||
NON-CURRENT LIABILITIES | ||||||||||||||
Borrowings | (11) | 144,564 | 243,311 | 38,571 | ||||||||||
Other financial liability | (11c8) | 16,054 | - | 4,283 | ||||||||||
Other liabilities | (4c1d) | 870 | 75,970 | 232 | ||||||||||
161,488 | 319,281 | 43,086 | ||||||||||||
COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS | (13) | |||||||||||||
SHAREHOLDERS’ EQUITY | (14) | |||||||||||||
Share capital and share premium | 1,105,974 | 1,105,974 | 295,084 | |||||||||||
Reserves | (200,077 | ) | (870,043 | ) | (53,382 | ) | ||||||||
Retained losses | (945,592 | ) | (430,366 | ) | (252,292 | ) | ||||||||
Attributable to equity holders of the Company | (39,695 | ) | (194,435 | ) | (10,590 | ) | ||||||||
Non-controlling interest | (20,432 | ) | 45,651 | (5,451 | ) | |||||||||
(60,127 | ) | (148,784 | ) | (16,041 | ) | |||||||||
255,924 | 1,017,371 | 68,283 |
We have audited, before the effectsThe accompanying notes are an integral part of the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated financial statements, the consolidated statements of income, comprehensive income, changes in equity, and cash flows of Elbit Imaging LTD and its subsidiaries (the “Company”) for the year ended December 31, 2015 (the 2015 consolidated financial statements before the effects of the adjustments discussed in Note 19 to the consolidated financial statements are not presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 2015 consolidated financial statements, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated financial statements, present fairly, in all material respects, the financial performance and cash flows of Elbit Imaging Ltd and subsidiaries for the year ended December 31, 2015, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
Without qualifying our opinion, we draw attention to:statements.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu
Tel-Aviv, Israel
March 31, 2016
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENT FINANCIAL POSITION
December 31 | ||||||||||||||
Convenience translation (note 2d) | ||||||||||||||
2017 | 2016 | 2017 | ||||||||||||
Note | NIS in thousands | USD in thousands | ||||||||||||
ASSETS | ||||||||||||||
CURRENT ASSETS | ||||||||||||||
Cash and cash equivalents | 465,739 | 89,688 | 134,335 | |||||||||||
Short-term deposits and investments | (3a) | 10,495 | 39,527 | 3,027 | ||||||||||
Trade accounts receivables | (3b) | - | 34,168 | - | ||||||||||
Other receivables | (3c) | 7,222 | 13,344 | 2,083 | ||||||||||
Inventories | - | 1,865 | - | |||||||||||
483,456 | 178,592 | 139,445 | ||||||||||||
NON-CURRENT ASSETS | ||||||||||||||
Trading property | (4) | 492,619 | 1,310,549 | 142,088 | ||||||||||
Deposits, loans and other long-term balances | (3d) | 34,874 | 23,484 | 10,058 | ||||||||||
Investments in associates and joint venture | (5,6) | 5,592 | 26,949 | 1,613 | ||||||||||
Property, plant and equipment, net | (8) | 830 | 721,635 | 239 | ||||||||||
533,915 | 2,082,617 | 153,998 | ||||||||||||
1,017,371 | 2,261,209 | 293,443 | ||||||||||||
CURRENT LIABILITIES | ||||||||||||||
Current maturities of long term borrowings and short-term credits | (9) | 780,861 | 1,128,768 | 225,226 | ||||||||||
Suppliers and service providers | 2,720 | 34,160 | 785 | |||||||||||
Payables and other credit balances | (10) | 63,293 | 46,699 | 18,255 | ||||||||||
846,874 | 1,209,627 | 244,266 | ||||||||||||
NON-CURRENT LIABILITIES | ||||||||||||||
Borrowings | (11) | 243,311 | 852,870 | 70,179 | ||||||||||
Other liabilities | (4c1d), (4d2) | 75,970 | 57,155 | 21,913 | ||||||||||
Deferred taxes | (12) | - | 92,942 | - | ||||||||||
319,281 | 1,002,967 | 92,092 | ||||||||||||
Commitments, Contingencies, Liens and Collaterals | (13) | |||||||||||||
Shareholders’ Equity | (14) | |||||||||||||
Share capital and share premium | 1,105,974 | 1,105,974 | 319,000 | |||||||||||
Reserves | (870,043 | ) | (787,765 | ) | (250,951 | ) | ||||||||
Retained losses | (430,366 | ) | (406,698 | ) | (124,131 | ) | ||||||||
Attributable to equity holders of the Company | (194,435 | ) | (88,489 | ) | (56,082 | ) | ||||||||
Non-controlling interest | 45,651 | 137,103 | 13,167 | |||||||||||
(148,784 | ) | 48,614 | (42,915 | ) | ||||||||||
1,017,371 | 2,261,209 | 293,443 |
Date of approval of the financial statements | Yael Naftali Chief Financial Officer | Ron Hadassi Chairman of the |
The accompanying notes are an integral part of the consolidated financial statements.
F-4
CONSOLIDATED STATEMENTSTATEMENTS OF PROFIT AND LOSS
Year ended December 31 | ||||||||||||||||||
Convenience translation (note 2d) | ||||||||||||||||||
2017 | (*)2016 | (*)2015 | 2017 | |||||||||||||||
note | NIS in thousands | USD in thousands | ||||||||||||||||
REVENUES AND GAINS | ||||||||||||||||||
REVENUES | ||||||||||||||||||
Revenues from sale of commercial centers | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||||
Total revenues | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||||
GAINS AND OTHER | ||||||||||||||||||
Rental income from commercial centers | 31,997 | 66,417 | 83,849 | 9,229 | ||||||||||||||
Gain from sale of investees | - | - | 6,712 | - | ||||||||||||||
Total gains | 31,997 | 66,417 | 90,561 | 9,229 | ||||||||||||||
Total revenues and gains | 814,826 | 192,436 | 290,639 | 235,023 | ||||||||||||||
EXPENSES AND LOSSES | ||||||||||||||||||
Cost of commercial centers | 16a | 805,623 | 159,806 | 290,360 | 232,369 | |||||||||||||
General and administrative expenses | 16b | 14,930 | 10,257 | 16,678 | 4,306 | |||||||||||||
Share in losses of associates, net | 6,7 | 20,202 | 54,313 | 42,925 | 5,827 | |||||||||||||
Financial expenses | 16c | 112,296 | 124,354 | 207,721 | 32,390 | |||||||||||||
Financial income | 16d | (1,811 | ) | 1,056 | (2,154 | ) | (522 | ) | ||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | 16e | - | (2,707 | ) | 2,568 | - | ||||||||||||
Write-down, charges and other expenses, net | 16f | 101,120 | 162,318 | 99,292 | 29,166 | |||||||||||||
1,052,360 | 509,397 | 657,390 | 303,536 | |||||||||||||||
Loss before income taxes | (237,534 | ) | (316,961 | ) | (366,751 | ) | (68,513 | ) | ||||||||||
Income taxes expenses | 12 | 11,244 | 3,020 | 4,402 | 3,243 | |||||||||||||
Loss from continuing operations | (248,778 | ) | (319,981 | ) | (371,153 | ) | (71,756 | ) | ||||||||||
Profit (loss) from discontinued operations, net | 19 | (152,903 | ) | 7,913 | 56,231 | (44,102 | ) | |||||||||||
Loss for the year | (401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) |
Year ended December 31 | ||||||||||||||||||
Convenience translation (Note 2d) | ||||||||||||||||||
2018 | (*)2017 | (*)2016 | 2018 | |||||||||||||||
Note | NIS in thousands | USD in thousands | ||||||||||||||||
Gain from loss of significant influence in associate | 8 | 71,265 | - | - | 19,014 | |||||||||||||
Gain from fair value adjustment | 8 | 13,915 | - | - | 3,713 | |||||||||||||
85,180 | - | - | 22,727 | |||||||||||||||
Share in losses of associates, net | 5,6 | - | (20,202 | ) | (54,313 | ) | - | |||||||||||
General and administrative expenses | 16a | (11,940 | ) | (14,723 | ) | (10,003 | ) | (3,186 | ) | |||||||||
Other expenses, net | (4,877 | ) | 1,596 | (567 | ) | (1,301 | ) | |||||||||||
Operating profit (loss) | 68,363 | (33,329 | ) | (64,883 | ) | 18,240 | ||||||||||||
Financial expenses | 16b | 55,716 | 69,457 | 60,280 | 14,867 | |||||||||||||
Financial income | 16c | (1,801 | ) | (1,720 | ) | (2,318 | ) | (481 | ) | |||||||||
Exchange differences, net | (14,796 | ) | 816 | (2,602 | ) | (3,948 | ) | |||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | (20d) | (31,220 | ) | - | - | (8,331 | ) | |||||||||||
(7,899 | ) | (68,553 | ) | (55,360 | ) | (2,107 | ) | |||||||||||
Profit (loss) before income taxes | 60,464 | (101,882 | ) | (120,243 | ) | 16,133 | ||||||||||||
Income taxes (benefits) expenses | 12 | (5,245 | ) | 7,000 | - | (1,399 | ) | |||||||||||
Profit (loss) from continuing operations | 65,709 | (108,882 | ) | (120,243 | ) | 17,532 | ||||||||||||
Loss from discontinued operations, net | 19 | (650,077 | ) | (292,799 | ) | (191,825 | ) | (173,446 | ) | |||||||||
Loss for the year | (584,368 | ) | (401,681 | ) | (312,068 | ) | (155,914 | ) |
(*) Reclassified (discontinued operations). Refer to Note 19.
The accompanying notes are an integral part of the consolidated financial statements.
F-5
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENTSTATEMENTS OF PROFIT AND LOSS (Cont.)
Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||||||||||||||
Convenience translation (note 2d) | Convenience translation (Note 2d) | |||||||||||||||||||||||||||||||||||
2017 | (*)2016 | (*)2015 | 2017 | 2018 | (*)2017 | (*)2016 | 2018 | |||||||||||||||||||||||||||||
note | NIS in thousands | USD in thousands | Note | NIS in thousands | USD in thousands | |||||||||||||||||||||||||||||||
(Except share and per share data) | (Except share and per share data) | |||||||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||||||
Equity holders of the Company | (338,034 | ) | (194,830 | ) | (186,150 | ) | (97,500 | ) | (517,833 | ) | (338,034 | ) | (194,830 | ) | (138,162 | ) | ||||||||||||||||||||
Non-controlling interest | (63,647 | ) | (117,238 | ) | (128,772 | ) | (18,358 | ) | (66,535 | ) | (63,647 | ) | (117,238 | ) | (17,752 | ) | ||||||||||||||||||||
(401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | (584,368 | ) | (401,681 | ) | (312,068 | ) | (155,914 | ) | |||||||||||||||||||||
Loss from continuing operations | ||||||||||||||||||||||||||||||||||||
Profit (loss) from continuing operations | ||||||||||||||||||||||||||||||||||||
Equity holders of the Company | (185,132 | ) | (202,724 | ) | (242,709 | ) | (53,398 | ) | 41,910 | (105,331 | ) | (113,642 | ) | 11,182 | ||||||||||||||||||||||
Non-controlling interest | (63,647 | ) | (117,257 | ) | (128,463 | ) | (18,358 | ) | 23,799 | (3,551 | ) | (6,601 | ) | 6,350 | ||||||||||||||||||||||
(248,779 | ) | (319,981 | ) | (371,172 | ) | (71,756 | ) | 65,709 | (108,882 | ) | (120,243 | ) | 17,532 | |||||||||||||||||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||||||||||||||||||||||
Loss from discontinued operation, net | ||||||||||||||||||||||||||||||||||||
Equity holders of the Company | (152,903 | ) | 7,893 | 56,540 | (44,102 | ) | (559,743 | ) | (232,703 | ) | (81,188 | ) | (149,344 | ) | ||||||||||||||||||||||
Non-controlling interest | - | 20 | (309 | ) | - | (90,334 | ) | (60,096 | ) | (110,637 | ) | (24,102 | ) | |||||||||||||||||||||||
(152,903 | ) | 7,913 | 56,231 | (44,102 | ) | (650,077 | ) | (292,799 | ) | (191,825 | ) | (173,446 | ) | |||||||||||||||||||||||
Loss per share - (in NIS) | (16j) | |||||||||||||||||||||||||||||||||||
Profit(Loss) per share - (in NIS) | (16d) | |||||||||||||||||||||||||||||||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||
From continuing operation | (20.14 | ) | (22.05 | ) | (21.73 | ) | (5.8 | ) | 4.56 | (11.46 | ) | (12.36 | ) | 1.22 | ||||||||||||||||||||||
From discontinued operations | (16.64 | ) | 0.85 | 1.48 | (4.8 | ) | (60.90 | ) | (25.32 | ) | (8.83 | ) | (16.25 | ) | ||||||||||||||||||||||
(36.78 | ) | (21.20 | ) | (20.25 | ) | (10.6 | ) | (56.34 | ) | (36.78 | ) | (21.20 | ) | (15.03 | ) |
(*) Reclassified (discontinued operations). Refer to Note 19.
The accompanying notes are an integral part of the consolidated financial statements.
F-6
CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME
Year ended December 31 | ||||||||||||||||||||||||||||||||
Convenience translation (note 2d) | Year ended December 31 | |||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | Convenience translation (Note 2d) | ||||||||||||||||||||||||||||
NIS in thousands | USD in thousands | 2018 | 2017 | 2016 | 2018 | |||||||||||||||||||||||||||
(Except share and per share data) | NIS in thousands | USD in thousands | ||||||||||||||||||||||||||||||
Loss for the year | (401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | (584,368 | ) | (401,681 | ) | (312,068 | ) | (155,914 | ) | ||||||||||||||||
Other comprehensive income to be reclassified to profit or loss in subsequent periods: | ||||||||||||||||||||||||||||||||
Exchange differences arising from translation of foreign operations | (13,597 | ) | (33,933 | ) | (91,319 | ) | (3,926 | ) | (13,951 | ) | (13,597 | ) | (33,933 | ) | (3,723 | ) | ||||||||||||||||
Gain from cash flow hedge | - | 1,670 | 2,081 | - | - | - | 1,670 | - | ||||||||||||||||||||||||
Reclassification adjustments relating to foreign operations disposed of in the year | 213,848 | - | (32,454 | ) | 61,681 | |||||||||||||||||||||||||||
Reclassification adjustments relating to foreign operations disposed/deconsolidated during the year | 596,453 | 213,848 | - | 159,139 | ||||||||||||||||||||||||||||
200,251 | (32,263 | ) | (121,692 | ) | 57,755 | 582,502 | 200,251 | (32,263 | ) | 155,416 | ||||||||||||||||||||||
Items not to be reclassified to profit or loss in subsequent periods (*): | ||||||||||||||||||||||||||||||||
Additions during the year | 9,763 | 90,410 | 83,582 | 2,816 | - | 9,763 | 90,410 | - | ||||||||||||||||||||||||
9,763 | 90,410 | 83,582 | 2,816 | - | 9,763 | 90,410 | - | |||||||||||||||||||||||||
Other comprehensive income (loss) | 210,014 | 58,147 | (38,110 | ) | 60,571 | |||||||||||||||||||||||||||
Other comprehensive income | 582,502 | 210,014 | 58,147 | 155,416 | ||||||||||||||||||||||||||||
Comprehensive loss | (191,667 | ) | (253,921 | ) | (353,032 | ) | (55,287 | ) | (1,866 | ) | (191,667 | ) | (253,921 | ) | (498 | ) | ||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||
Equity holders of the Company | (127,918 | ) | (128,114 | ) | (206,504 | ) | (36,896 | ) | 66,714 | (127,918 | ) | (128,114 | ) | 17,800 | ||||||||||||||||||
Non-controlling interest | (63,749 | ) | (125,807 | ) | (146,528 | ) | (18,387 | ) | (68,580 | ) | (63,749 | ) | (125,807 | ) | (18,298 | ) | ||||||||||||||||
(191,667 | ) | (253,921 | ) | (353,032 | ) | (55,283 | ) | (1,866 | ) | (191,667 | ) | (253,921 | ) | (498 | ) | |||||||||||||||||
Loos from continuing operations | ||||||||||||||||||||||||||||||||
Profit (loss) from continuing operations | ||||||||||||||||||||||||||||||||
Equity holders of the Company | (198,441 | ) | (211,394 | ) | (206,597 | ) | (57,236 | ) | 34,787 | (111,396 | ) | (117,340 | ) | 9,282 | ||||||||||||||||||
Non-controlling interest | (63,935 | ) | (127,281 | ) | (143,610 | ) | (18,441 | ) | 22,135 | (2,181 | ) | (6,515 | ) | 5,906 | ||||||||||||||||||
(262,376 | ) | (227,675 | ) | (350,208 | ) | (75,677 | ) | 56,922 | (113,577 | ) | (123,855 | ) | 15,188 | |||||||||||||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||||||||||||||||||
Equity holders of the Company | 70,895 | 83,279 | (3,226 | ) | 20,449 | 31,927 | (16,522 | ) | (10,775 | ) | 8,518 | |||||||||||||||||||||
Non-controlling interest | (186 | ) | 1,474 | 402 | (54 | ) | (90,715 | ) | (61,568 | )) | (119,291 | ) | (24,204 | ) | ||||||||||||||||||
70,708 | 84,753 | �� | (2,824 | ) | 20,395 | (58,788 | ) | (78,090 | ) | (130,066 | ) | (15,686 | ) |
(*) All amounts are presented net of related tax.
(*) | All amounts are presented net of related tax. |
The accompanying notes are an integral part of the consolidated financial statements.
F-7
STATEMENTSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the Company | Non- controlling interest | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
NIS in thousands | NIS in thousands | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance -January 1, 2015 | 1,055,056 | (201,848 | ) | 130,549 | 49,527 | (734,176 | ) | (67,129 | ) | 231,979 | 481,258 | 713,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - January 1, 2016 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (186,150 | ) | (186,150 | ) | (128,772 | ) | (314,922 | ) | - | - | - | - | - | (194,830 | ) | (194,830 | ) | (117,238 | ) | (312,068 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | 8,007 | 60,783 | - | (109,649 | ) | 20,504 | (20,355 | ) | (17,756 | ) | (38,111 | ) | - | 2,015 | 76,025 | - | (24,089 | ) | 12,765 | 66,716 | (8,569 | ) | 58,147 | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 845 | - | - | 845 | (175 | ) | 670 | - | - | - | 27 | - | - | 27 | 149 | 176 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction with non-controlling interest | - | (148,066 | ) | 37,413 | - | 94,933 | 8,142 | (7,578 | ) | (50,565 | ) | (58,143 | ) | - | 40,903 | - | - | (27,369 | ) | - | 13,534 | (15,239 | ) | (1,705 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Expiration of options held by minority | - | - | - | 546 | 546 | 787 | 1,333 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancelation of treasury stock and old stock | 50,918 | - | - | (50,918 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance -December 31, 2015 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 6,777 | - | - | - | - | 6,777 | (6,777 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2016 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 |
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the Company | Non- controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||||||||||||||
Balance - January 1, 2017 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 | |||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (338,034 | ) | (338,034 | ) | (63,647 | ) | (401,681 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | - | (1,960 | ) | - | 200,518 | 11,556 | 210,114 | (100 | ) | 210,014 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 199 | - | - | 199 | 503 | 702 | |||||||||||||||||||||||||||
Disposal as a result of sale of subsidiary (see Note 19a) | - | - | (302,810 | ) | - | - | 302,810 | - | (6,433 | ) | (6,433 | ) | ||||||||||||||||||||||||
Change in holding rate in subsidiary | - | 1,537 | - | - | - | - | 1,537 | (1,537 | ) | - | ||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 20,238 | - | - | - | - | 20,238 | (20,238 | ) | - | ||||||||||||||||||||||||||
Balance - December 31, 2017 | 1,105,974 | (270,437 | ) | - | 226 | (599,832 | ) | (430,366 | ) | (194,435 | ) | 45,651 | (148,784 | ) |
(*) | Includes transactions with non-controlling interest reserve and hedging reserve. |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.The accompanying notes are an integral part of the consolidated financial statements.
F-8
ELBIT IMAGING LTD.
STATEMENTSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Cont.)
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||||||||||||||
Balance -January 1, 2016 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 | ||||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (194,830 | ) | (194,830 | ) | (117,238 | ) | (312,068 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | 2,015 | 76,025 | - | (24,089 | ) | 12,765 | 66,716 | (8,569 | ) | 58,147 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 27 | - | - | 27 | 149 | 176 | |||||||||||||||||||||||||||
Transaction with non-controlling interest | - | 40,903 | - | - | (27,369 | ) | - | 13,534 | (15,239 | ) | (1,705 | ) | ||||||||||||||||||||||||
Forfeiture of stock options granted | - | 6,777 | - | - | - | - | 6,777 | (6,777 | ) | - | ||||||||||||||||||||||||||
Balance -December 31, 2016 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
ELBIT IMAGING LTD.
Share capital and premium | Other reserves (*) | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the Company | Non- controlling interest | Total shareholders’ equity | |||||||||||||||||||||||||
Balance - January 1, 2018 | 1,105,974 | (270,437 | ) | 226 | (599,832 | ) | (430,366 | ) | (194,435 | ) | 45,651 | (148,784 | ) | |||||||||||||||||||
Adjustments related to initial application of IFRS9 (refer to Note 3) | - | - | - | - | 2,607 | 2,607 | 3,198 | 5,805 | ||||||||||||||||||||||||
Loss for the year | - | - | - | - | (517,833 | ) | (517,833 | ) | (66,535 | ) | (584,368 | ) | ||||||||||||||||||||
Other comprehensive loss | - | - | - | (11,906 | ) | - | (11,906 | ) | (2,045 | ) | (13,951 | ) | ||||||||||||||||||||
Stock based compensation expenses | - | - | 90 | - | - | 90 | 240 | 330 | ||||||||||||||||||||||||
Transaction with non-controlling interest (see Note 7) | - | 92,206 | - | (6,877 | ) | - | 85,329 | (27,645 | ) | 57,684 | ||||||||||||||||||||||
Disposal as a result of loss of control (see Note 19b) | - | - | - | 596,453 | - | 596,453 | 26,704 | 623,157 | ||||||||||||||||||||||||
Balance - December 31, 2018 | 1,105,974 | (178,231 | ) | 316 | (22,162 | ) | (945,592 | ) | (39,695 | ) | (20,432 | ) | (60,127 | ) |
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Cont.)
Share capital and premium | Other reserves (*) | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the Company | Non- controlling interest | Total shareholders’ equity | |||||||||||||||||||||||||
Balance - January 1, 2018 | 295,084 | (72,155 | ) | 60 | (160,041 | ) | (114,826 | ) | (51,878 | ) | 12,180 | (39,698 | ) | |||||||||||||||||||
Adjustments related to initial application of IFRS9 (refer to Note 3) | - | - | - | - | 696 | 696 | 853 | 1,549 | ||||||||||||||||||||||||
Loss for the year | - | - | - | - | (138,162 | ) | (138,162 | ) | (17,752 | ) | (155,914 | ) | ||||||||||||||||||||
Other comprehensive loss | - | - | - | (3,176 | ) | - | (3,176 | ) | (547 | ) | (3,723 | ) | ||||||||||||||||||||
Stock based compensation expenses | - | - | 24 | - | - | 24 | 64 | 88 | ||||||||||||||||||||||||
Transaction with non-controlling interest (see Note 7) | - | 24,601 | - | (1,835 | ) | - | 22,767 | (7,376 | ) | 15,391 | ||||||||||||||||||||||
Disposal as a result of sale of subsidiary (see Note 19b) | - | - | - | 159,140 | - | 159,140 | 7,125 | 166,265 | ||||||||||||||||||||||||
Balance - December 31, 2018 | 295,084 | (47,554 | ) | 84 | (5,912 | ) | (252,292 | ) | (10,590 | ) | (5,451 | ) | (16,041 | ) |
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||||||||||||||
Balance -January 1, 2017 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 | |||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (338,034 | ) | (338,034 | ) | (63,647 | ) | (401,681 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | - | (1,960 | ) | - | 200,518 | 11,556 | 210,114 | (100 | ) | 210,014 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 199 | - | - | 199 | 503 | 702 | |||||||||||||||||||||||||||
Disposal as a result of sale of subsidiary (see note 19) | - | - | (302,810 | ) | - | - | 302,810 | - | (6,433 | ) | (6,433 | ) | ||||||||||||||||||||||||
Change in holding rate in subsidiary | - | 1,537 | - | - | - | - | 1,537 | (1,537 | ) | - | ||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 20,238 | - | - | - | - | 20,238 | (20,238 | ) | - | ||||||||||||||||||||||||||
Balance -December 31, 2017 | 1,105,974 | (270,437 | ) | - | 226 | (599,832 | ) | (430,366 | ) | (194,435 | ) | 45,651 | (148,784 | ) |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
(*) | Includes transactions with non-controlling interest reserve and hedging reserve. |
The accompanying notes are an integral part of the consolidated financial statements.
F-9
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Cont.)
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
USD in thousands | ||||||||||||||||||||||||||||||||||||
Balance -January 1, 2017 | 319,000 | (84,284 | ) | 87,906 | 8 | (230,848 | ) | (117,305 | ) | (25,523 | ) | 39,545 | 14,022 | |||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (97,500 | ) | (97,500 | ) | (18,358 | ) | (115,858 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | - | (565 | ) | - | 57,836 | 3,333 | 60,604 | (29 | ) | 60,575 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 57 | - | - | 57 | 145 | 202 | |||||||||||||||||||||||||||
Disposal as a result of sale of subsidiary (see note 19) | - | - | (87,341 | ) | - | - | 87,341 | - | (1,856 | ) | (1,856 | ) | ||||||||||||||||||||||||
Change in holding rate in subsidiary | - | 443 | - | - | - | - | 443 | (443 | ) | - | ||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 5,837 | - | - | - | - | 5,837 | (5,837 | ) | - | ||||||||||||||||||||||||||
Balance -December 31, 2017 | 319,000 | (78,004 | ) | - | 65 | (173,012 | ) | (124,131 | ) | (56,082 | ) | 13,167 | (42,915 | ) |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
The accompanying notes are an integral part of the consolidated financial statements.
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
Year ended December 31 | ||||||||||||||||
Convenience translation (note 2d) | ||||||||||||||||
2017 | 2016 | 2015 | 2017 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||
Loss for the year | (401,681 | ) | (312,068 | ) | (321,796 | ) | (115,858 | ) | ||||||||
Adjustments to profit (loss): | ||||||||||||||||
Tax expenses recognized in profit and loss | 11,164 | 2,906 | 5,631 | 3,220 | ||||||||||||
Finance expenses recognized in profit and loss, net | 344,434 | 142,336 | 239,598 | 99,346 | ||||||||||||
Income tax paid in cash | (1,856 | ) | (803 | ) | (509 | ) | (535 | ) | ||||||||
Depreciation, amortization and other (including impairment) | 119,694 | 196,141 | 123,145 | 34,524 | ||||||||||||
Realization of foreign currency translation reserve in connection with sale operations | - | - | (56,063 | ) | - | |||||||||||
Profit from realization of subsidiary (Appendix A) | (56,544 | ) | - | (4,147 | ) | (16,309 | ) | |||||||||
Profit from realization of investments in associates and joint venture | - | - | (6,713 | ) | ||||||||||||
Share in losses of associates, net | 20,202 | 54,312 | 42,925 | 5,827 | ||||||||||||
Profit from realization of assets and liabilities | (3,204 | ) | (7,973 | ) | (4,872 | ) | (924 | ) | ||||||||
Stock based compensation expenses | 719 | 189 | 1,047 | 207 | ||||||||||||
Other | (759 | ) | (412 | ) | (488 | ) | (219 | ) | ||||||||
Change in trade accounts receivables | 10,000 | (22,797 | ) | 3,415 | 2,884 | |||||||||||
Change in receivables and other debit balances | (21,657 | ) | 61 | 10,968 | (6,247 | ) | ||||||||||
Change in Inventories | 187 | 106 | (118 | ) | 54 | |||||||||||
Change in trading property | 385,127 | 18,708 | 181,680 | 111,084 | ||||||||||||
Change in suppliers and service providers | (1,301 | ) | 20,929 | (7,095 | ) | (375 | ) | |||||||||
Change in payables and other credit balances | 29,287 | (14,605 | ) | (13,241 | ) | 8,447 | ||||||||||
Net cash provided by operating activities of continuing operations | 433,812 | 77,030 | 193,367 | 125,126 | ||||||||||||
Net cash used in discontinued operating activities | - | - | (2,014 | ) | - | |||||||||||
Net cash provided by operating activities | 433,812 | 77,030 | 191,353 | 125,126 |
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (Cont.)
Year ended December 31 | ||||||||||||||||
Convenience translation | ||||||||||||||||
2017 | 2016 | 2015 | 2017 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
(Except share and per share data) | ||||||||||||||||
Cash flows from investing activities | ||||||||||||||||
Proceeds from realization of investments in subsidiaries (a) | 442,708 | - | 192,026 | 127,693 | ||||||||||||
Proceeds from realization of investments in associates and joint venture | 1,983 | 83,792 | 76 | 572 | ||||||||||||
Purchase of property plant and equipment, and other assets | (4,095 | ) | (2,872 | ) | (23,630 | ) | (1,181 | ) | ||||||||
Proceeds from realization of property plant and equipment | 3,635 | 22,278 | 12,916 | 1,048 | ||||||||||||
Proceed from realization of long-term deposits and long-term loans | 1,085 | 7,128 | 10,197 | 313 | ||||||||||||
Investment in long-term deposits and long-term loans | 974 | (10,851 | ) | - | 281 | |||||||||||
Interest received in cash | - | 328 | 1,404 | - | ||||||||||||
Change in short-term deposits and marketable securities, net and changes in restricted cash | 12,916 | (9,917 | ) | 5,070 | 3,725 | |||||||||||
Net cash provided by continued investing activities | 459,206 | 89,886 | 198,059 | 132,451 | ||||||||||||
Net cash provided by discontinued investing activities | - | - | 37,737 | - | ||||||||||||
Net cash provided by investing activities | 459,206 | 89,886 | 235,796 | 132,451 |
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (Cont.)
Year ended December 31 | |||||||||||||||||
2017 | 2016 | 2015 | Convenience translation (note 2d) 2017 | ||||||||||||||
NIS in thousands | USD in thousands | ||||||||||||||||
(Except share and per share data) | |||||||||||||||||
Cash flows from financing activities | |||||||||||||||||
Interest paid in cash | (75,584 | ) | (107,297 | ) | (129,350 | ) | (21,801 | ) | |||||||||
Purchase of non-controlling interest | - | (701 | ) | (62,059 | ) | - | |||||||||||
Proceeds from long-term borrowings | 16,364 | 204,615 | - | 4,720 | |||||||||||||
Repayment of long-term borrowings | (460,523 | ) | (332,553 | ) | (377,406 | ) | (132,830 | ) | |||||||||
Proceeds (payments) from hedging activities through sale of options and forwards | - | 2,677 | (1,610 | ) | - | ||||||||||||
Repayment of short-term credit | - | - | (6,997 | ) | - | ||||||||||||
Net cash used in continued financing activities | (519,743 | ) | (233,259 | ) | (577,422 | ) | (149,911 | ) | |||||||||
Net cash used in discontinued financing activities | - | - | (2,135 | ) | - | ||||||||||||
Net cash used in financing activities | (519,743 | ) | (233,259 | ) | (579,557 | ) | (149,911 | ) | |||||||||
Increase (decrease) in cash and cash equivalents | 373,275 | (66,343 | ) | (152,408 | ) | 107,665 | |||||||||||
Cash and cash equivalents at the beginning of the year | 89,688 | 157,851 | 323,182 | 25,869 | |||||||||||||
Cash and cash equivalents related to discontinued operations at the end of the year | - | - | - | - | |||||||||||||
Net effect on cash due to currency exchange rate changes | 2,776 | (1,820 | ) | (12,923 | ) | 801 | |||||||||||
Cash and cash equivalents at the end of the year | 465,739 | 89,688 | 157,851 | 134,335 | |||||||||||||
(a) | Proceeds from realization of investments in subsidiaries: | ||||||||||||||||
Working capital (excluding cash), net | 1,426 | - | (15,591 | ) | 411 | ||||||||||||
Long term deposits | 9,302 | - | - | 2,683 | |||||||||||||
Property, plant equipment and other assets | 705,809 | - | 203,470 | 203,579 | |||||||||||||
Bank loans | (231,631 | ) | - | - | (66,810 | ) | |||||||||||
Deferred taxes | (92,309 | ) | - | - | (26,625 | ) | |||||||||||
Non- controlling interests | (6,433 | ) | - | - | (1,855 | ) | |||||||||||
Profit from realization of subsidiaries | 56,544 | - | 4,147 | 16,309 | |||||||||||||
442,708 | - | 192,026 | 127,692 |
Year ended December 31 | ||||||||||||||||
Convenience translation (Note 2d) | ||||||||||||||||
2018 | 2017 | 2016 | 2018 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
Cash flows from operating activities | ||||||||||||||||
Loss for the year | (584,368 | ) | (401,681 | ) | (312,068 | ) | (155,914 | ) | ||||||||
Adjustments to profit (loss): | ||||||||||||||||
Tax expenses recognized in profit and loss | (9,531 | ) | 11,164 | 2,906 | (2,543 | ) | ||||||||||
Finance expenses recognized in profit and loss, net | 636,956 | 344,434 | 142,336 | 169,946 | ||||||||||||
Income tax paid in cash | (1,719 | ) | (1,856 | ) | (803 | ) | (459 | ) | ||||||||
Depreciation, amortization and other (including impairment) | 113,367 | 119,694 | 196,141 | 30,247 | ||||||||||||
Profit from realization of subsidiary (Appendix A) | (170,936 | ) | (56,544 | ) | - | (45,607 | ) | |||||||||
Share in losses of associates, net | - | 20,202 | 54,312 | - | ||||||||||||
Profit from realization of assets and liabilities | (6,553 | ) | (3,204 | ) | (7,973 | ) | (1,748 | ) | ||||||||
Stock based compensation expenses | 237 | 719 | 189 | 63 | ||||||||||||
Other | (2,401 | ) | (759 | ) | (412 | ) | (641 | ) | ||||||||
Change in trade accounts receivables | 115 | 10,000 | (22,797 | ) | 31 | |||||||||||
Change in financial assets | (13,926 | ) | - | - | (3,716 | ) | ||||||||||
Change in receivables and other debit balances | 4,635 | (21,657 | ) | 61 | 1,237 | |||||||||||
Change in Inventories | - | 187 | 106 | - | ||||||||||||
Change in trading property | 6,421 | 385,127 | 18,708 | 1,713 | ||||||||||||
Change in suppliers and service providers | 3,333 | (1,301 | ) | 20,929 | 888 | |||||||||||
Change in payables and other credit balances | 4,071 | 29,287 | (14,605 | ) | 1,086 | |||||||||||
Net cash provided by (used for) operating activities | (20,293 | ) | 433,812 | 77,030 | (5,417 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
F-10
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
Year ended December 31 | ||||||||||||||||
Convenience translation (Note 2d) | ||||||||||||||||
2018 | 2017 | 2016 | 2018 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
Cash flows from investing activities | ||||||||||||||||
Deconsolidation/Proceeds from disposal of subsidiaries (a) | (13,812 | ) | 442,708 | - | (3,685 | ) | ||||||||||
Proceeds from sale of shares in subsidiaries | 57,685 | 15,391 | ||||||||||||||
Proceeds from realization of investments in associates and joint venture | - | 1,983 | 83,792 | - | ||||||||||||
Purchase of property plant and equipment, and other assets | - | (4,095 | ) | (2,872 | ) | - | ||||||||||
Proceeds from realization of property plant and equipment | 8,682 | 3,635 | 22,278 | 2,316 | ||||||||||||
Proceed from realization of long-term deposits and long-term loans | - | 1,085 | 7,128 | - | ||||||||||||
Investment in long-term deposits and long-term loans | (13,667 | ) | 974 | (10,851 | ) | (3,646 | ) | |||||||||
Interest received in cash | - | - | 328 | - | ||||||||||||
Change in short-term deposits and marketable securities, net and changes in restricted cash | 6,326 | 12,916 | (9,917 | ) | 1,688 | |||||||||||
Net cash provided by investing activities | 45,214 | 459,206 | 89,886 | 12,064 |
The accompanying notes are an integral part of the consolidated financial statements.
F-11
Table of ContentsNOTES TO THE
ELBIT IMAGING LTD.
CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (Cont.)
Year ended December 31 | ||||||||||||||||
Convenience translation (Note 2d) | ||||||||||||||||
2018 | 2017 | 2016 | 2018 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
Cash flows from financing activities | ||||||||||||||||
Interest paid in cash | (66,358 | ) | (75,584 | ) | (107,297 | ) | (17,705 | ) | ||||||||
Purchase of non-controlling interest | - | - | (701 | ) | - | |||||||||||
Proceed from issuance of convertible debentures | 174,793 | - | - | 46,636 | ||||||||||||
Proceeds from long-term borrowings | - | 16,364 | 204,615 | - | ||||||||||||
Repayment of long-term borrowings | (568,519 | ) | (460,523 | ) | (332,553 | ) | (151,686 | ) | ||||||||
Proceeds from hedging activities through sale of options and forwards | - | - | 2,677 | - | ||||||||||||
Net cash used in financing activities | (460,084 | ) | (519,743 | ) | (233,259 | ) | (122,755 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | (435,169 | ) | 373,275 | (66,343 | ) | (116,108 | ) | |||||||||
Cash and cash equivalents at the beginning of the year | 465,739 | 89,688 | 157,851 | 124,263 | ||||||||||||
Net effect on cash due to currency exchange rate changes | 2,336 | 2,776 | (1,820 | ) | 623 | |||||||||||
Cash and cash equivalents at the end of the year | 32,906 | 465,739 | 89,688 | 8,778 |
(a) | Deconsolidation of subsidiaries: | |||||||||||||||||
Working capital (excluding cash), net | (16,735 | ) | 1,426 | - | (4,465 | ) | ||||||||||||
Investments in associates | (77,010 | ) | - | - | (20,547 | ) | ||||||||||||
Long term deposits | 7 | 9,302 | - | 2 | ||||||||||||||
Trading properties and other assets | 382,112 | 705,809 | - | 101,951 | ||||||||||||||
Borrowings | (428,560 | ) | (231,631 | ) | - | (114,344 | ) | |||||||||||
Deferred taxes | - | (92,309 | ) | - | - | |||||||||||||
Non- controlling interests | 26,704 | (6,433 | ) | - | 7,125 | |||||||||||||
Profit from realization of subsidiaries | 99,670 | 56,544 | - | 26,593 | ||||||||||||||
(13,812 | ) | 442,708 | - | 3,685 |
The accompanying notes are an integral part of the consolidated financial statements.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 1:- GENERAL
a. | Elbit Imaging Ltd. (“the Company”) was incorporated in Israel. The Company’s shares are registered for trade on the Tel Aviv Stock Exchange and until March, 2019 in the United States on the NASDAQ Global Select |
b. | The Group engages, directly and through its investee companies, in Israel and abroad, mainly in the following areas: |
● | Medical industries and devices - through the Company indirect holdings in two companies which operates in the field of life science: (i) |
● | Plots in India - plots designated for sale which were initially designated to residential |
● | Plots in Eastern Europe initially designated for development of commercial centers |
c. |
As of the financial statements’ approval date, the Company’s standalone financial position includes liabilities to Series H and Series I notes in the aggregate principal and interest amount of approximately NIS 271 million. An amount of approximately NIS 50144 million (principal plus future accrued interest)which is due to Series H notes until May 30, 2018. The remaining amount of approximately NIS 250 million (principal plus future accrued interest) will become due until November 30, 2019. In addition, until November 2019 the Company has certain operational expenses and other current liabilities for its ongoing operations in the amount of approximately NIS 2811 million.
The Company has prepared a projected cash flow that outlines the relevant resources that will facilitate future liabilities and expenses with emphasis on period until November 2019 that are expected to servewhen the repaymentsrepayment to Series H and I notes which includesis due. These resources include the following resources :following: (i) cash and cash equivalents (on a standalone basis) of approximately NIS 11324 million; (ii) proceeds from payments on account of the sale of the Company’s plot in Bangalore (India) in the amount of approximately NIS 5112 million based on the current valuation which is lower than the sale agreement signed on March 2018 and was amended through April 2019 as mentioned in note 4 d.Note 6a2b and taking in consideration possible delay in payments.; (iii) proceeds from the Company’s plot in Chennai in the amount of NIS 28 million based on the current valuation of the plot (iv) proceeds from sale of the Company’s shares in Elbit Medical in the amount of approximately NIS 129 million (see also Note 21 1).
F-13
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 1:- GENERAL (Cont.)
c. |
The Company’s management and board of directors are of the opinion, based on the projected cash flow and the assumptions described, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future.
In light of the foregoing, the Company’s management and board of directors are of the opinion thatSince there is no significant doubts exist as tocertainty regarding the Company’s ability to actrealize the above projection (which is based mainly on the realization of the Company’s assets), concurrently, the Company is examining the possibilities of raising capital and/or debt (private and/or public) to repay and/or extend its Series I notes.
Management acknowledges that the above expected cash flows are based on forward-looking plans and estimations which rely on the information known to management at the time of the approval of these financial statements. The materialization of the above forecast is not certain and is subject to factors beyond the Company’s control. Delays in the realization of the Group’s assets and investments or realization at a price which is lower than expected by management could have an adverse effect on the Company’s liquidity position and its ability to meet its contractual obligations on a timely manner.
The abovementioned conditions and the short time remaining to maturity of Series I notes cast a significant doubt about the Company’s ability to repay its liabilities when due and to continue as a going concern.
Note that based on existing trust deed of (Series I) notes, in case of material deterioration in the Company's business in compare to its condition at the date of the debt arrangement, and substantial concern that the Company will not be able to repay the bonds on time, the Series I noteholders may call for immediate repayment of the Series I Notes.
Within the Company’s consolidated financial statements as of December 31, 2015 which was published on March 30, 2016, the Company has included, inter alia, note with respect to its financial position which stated that the Company had prepared a projected cash flow until June 2018, which included the anticipated sources that to the Company’s estimation, were expected to serve the repayment of its financial liabilities. As of December 31, 2015 the Company’s Board of directors was of the opinion, based on the projected cash flow, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future.
In light of the foregoing, the Company’s board of directors was of the opinion that, the Company is a going concern and hence, the consolidated financial statements of the Company as of December 31, 2015 were prepared based on going concern assumption.
Definitions: |
The Company | - | Elbit Imaging | |
Group | - | The Company and its Investees | |
Investees | - | Subsidiaries, joint ventures and associates | |
Elbit Medical | - | Elbit Medical Technologies Ltd., a public Israeli company traded on the Tel Aviv Stock Exchange. As for December 31, 2018, the Company holds approximately 63% of Elbit Medical share capital (41% on a fully diluted basis). | |
PC | - | Plaza Centers N.V. Group, |
EPI | - |
Related parties | - | As defined in International Accounting Standard (“IAS”) |
F-14
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. | Statement of compliance: |
The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).
b. | Basis for preparation: |
The audited consolidated financial statements have been prepared on the historical cost basis except for (i) financial instruments measured at fair value; (ii) certainvalue through profit and loss and trading property measured at net realizable value (see note 2w.(1)a.Note 2w1a.); and (iii) certain property, plant and equipment (hotels) were presented until their disposal at the revaluation model (based on fair value). The principal accounting policies are set out below.
c. | Presentation of the income statements: |
The Group operations are characterized by diverse activities. Accordingly, management believes that itsCompany has elected to present the consolidated income statements should be presented inusing the “Single - step form”. According to this form, all costs andfunction of expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of the overall revenues and gains. Management also believes that its operating expenses should be classified by function to: (i) those directly related to each revenue (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.method.
d. | Convenience translation: |
The balance sheet as of December 31, 2017,2018, and statement of income, statement of other comprehensive income, statement of changes in shareholders’ equity and statement of cash flows for the year then ended have been translated into USD using the representative exchange rate as of that date (USD 1= NIS 3.467)3.748). Such translation was made solely for the convenience of the U.S. readers. The USD amounts so presented in these financial statements should not be construed as representing amounts receivable or payable in USD or convertible into dollars but only a convenience translation of reported NIS amounts into USD, unless otherwise indicated. The convenience translation supplementary financial data is audited and is not presented in accordance with IFRSs.
e. | Operating cycle: |
The Group is unable to clearly identify its actualCompany’s normal operating cycle with respectis one year. Accordingly, the current assets and current liabilities include items that are held and are expected to trading property. As such,be realized by the end of the Group’s normal operating cycle relating to trading property and corresponding borrowings is 12 months. Trading property and borrowings associated therewith are presented as non-current assets and non-current liabilities, respectively.cycle.
F-15
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
f. | Basis for consolidation: |
1. | Assessment of control: |
The audited consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (“Subsidiaries”). Control is achieved where the Company:
● | Has the power over the investee; | |
● | Is exposed, or has rights, to variable returns from its involvement with the investee; | |
● | Has the ability to use its power to affect its returns. |
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to theThe financial statements of the Company and of the subsidiaries to bring theirare prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies into line withby all companies in the Group’s accounting policies.Group.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
As for de facto control of the Company in PC see w (2) below.
2. | Changes in the Group’s ownership interests in existing subsidiaries: |
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.
F-16
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
f. | Basis for consolidation (cont.): |
3. | If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. |
As for the loss of the Company in PC see w (2) below.
g. |
An associate is an entity overJoint arrangements are arrangements in which the GroupCompany has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement.control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Joint ventures:
In joint ventures the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted for at equity method.
h. | Investments in associates: |
Associates are companies in which the Group has significant influence over the financial and operating policies without having control. The resultsinvestment in an associate is accounted for using the equity method.
i. | Investments accounted for using the equity method: |
The Group’s investments in associates and assets and liabilities of associates or joint ventures are incorporated in these audited consolidated financial statementsaccounted for using the equity method of accounting. method.
Under the equity method, anthe investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in the Group’s share of net assets, including other comprehensive income of the associate or the joint venture. Gains and losses resulting from transactions between the Group and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint venture.
Goodwill relating to the acquisition of an associate or a joint venture is initially recognizedpresented as part of the investment in the consolidated statement of financial positionassociate or the joint venture, measured at cost and adjusted thereafter to recognize the Group’s sharenot systematically amortized. Goodwill is evaluated for impairment as part of the profitinvestment in the associate or lossin the joint venture as a whole.
F-17
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i. | Investments accounted for using the equity method (cont.): |
The financial statements of the Company and other comprehensive income of the associate or joint venture. Whenventure are prepared as of the Group’s sharesame dates and periods. The accounting policies applied in the financial statements of lossesthe associate or the joint venture are uniform and consistent with the policies applied in the financial statements of the Group.
Losses of an associate in amounts which exceed its equity are recognized by the Company to the extent of its investment in the associate plus any losses that the Company may incur as a result of a guarantee or aother financial support provided in respect of the associate. For this purpose, the investment includes long-term receivables (such as loans granted) for which settlement is neither planned nor likely to occur in the foreseeable future.
The equity method is applied until the loss of significant influence in the associate or loss of joint control in the joint venture exceedsor classification as investment held for sale.
On the Group’s interest in that associatedate of loss of significant influence or joint venture (which includescontrol, the Group measures any long-term interests that, in substance, form part of the Group’s netremaining investment in the associate or joint venture), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.
An investment in an associate or a joint venture is accounted for usingat fair value and recognizes in profit or loss the equity methoddifference between the fair value of any remaining investment plus any proceeds from the date on which the investee becomes an associate or a joint venture. On acquisitionsale of the investment in anthe associate or athe joint venture any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment.
In circumstances where the Group’s interest in an investee company is in the form of mixed securities (such as ordinary shares, preferred shares or other senior securities, or loans), the Group records equity losses in excess of the Group’s investment in the ordinary shares of the investee based on the priority liquidation mechanism, that is, allocating the loss to the other components in reverse order to their seniority in liquidation.date.
Where necessary, adjustments are made to the financial statements of associates to adjust their accounting policies with those of the Company.
The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency: |
1. | Foreign currency transactions: |
The financial statements of each individual entity of the Group are presented based on its functional currency. Transactions in currencies other than each individual entity’s functional currency (foreign currency) are translated into that entity’s functional currency based on the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the foreign exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the historical exchange rate prevailing at the date of the transaction. Non-monetary assets and liabilities carried at fair value that are denominated at foreign currency are translated at the exchange rates prevailing at the date when the fair value was determined.
Exchange rate differences as a result of the above are recognized in statement of income, except for: (i) exchange rate differences charged to foreign currency translation reserve (see (2) below); and (ii) exchange rate differences charge to revaluation of property plant and equipment carried at fair value (see l below).
F-18
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. | Foreign currency (cont.): |
2. | Financial statements of foreign operations: |
For the purpose of the audited consolidated financial statements, the assets and liabilities of foreign operations (the functional currency of each foreign operation is the currency of the primary economic environment in which it operates) are translated to New Israeli Shekels (“NIS”) which is the functional currency and the presentation currency of the Company, based on the foreign exchange rates prevailing at the balance sheet date. The revenues and expenses of foreign operations are translated to the functional currency of the Company based on exchange rates as at the date of each transaction or for sake of practicality using average exchange rates for the period.
Foreign exchange rate differences arising from translation of foreign operations are recognized directly to foreign currency translation reserve within other comprehensive income.
Exchange rate differences attributable to monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation are also included in the foreign currency translation reserve.
On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in the equity reserve in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In the case of a partial disposal that does not result in loss of control by the Group over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to or from non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. reductions in the Group’s ownership interest in associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.
F-19
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. | Foreign currency (cont.): |
3. | Rates of exchange of NIS, in effect, in relation to foreign currency (in NIS) are as follows: |
December 31 | |||||||||
2017 | 2016 | ||||||||
USD ($) | 3.467 | 3.845 | |||||||
EURO(EUR) | 4.153 | 4.044 | |||||||
Romanian New Lei (RON) | 0.8912 | 0.8905 | |||||||
Indian Rupee (INR) | 0.0544 | 0.0565 |
December 31 | ||||||||
2018 | 2017 | |||||||
USD ($) | 3.748 | 3.467 | ||||||
EURO(EUR) | 4.219 | 4.153 | ||||||
Indian Rupee (INR) | 0.0538 | 0.0544 |
Scope of change in the exchange rate, in effect, of the NIS in relation to the foreign currencies (%):
December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
USD ($) | (10 | ) | (1 | ) | - | ||||||||
EURO(EUR) | 3 | (5 | ) | (10 | ) | ||||||||
Romanian New Lei (RON) | (3 | ) | (5 | ) | (11 | ) | |||||||
Indian Rupee (INR) | (4 | ) | (4 | ) | (5 | ) |
Year ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
USD ($) | 8 | (10 | ) | (1 | ) | |||||||
EURO(EUR) | 3 | 3 | (5 | ) | ||||||||
Indian Rupee (INR) | (1 | ) | (4 | ) | (4 | ) |
Cash and cash equivalents: |
Cash equivalents include unrestricted readily convertible to a known amount of cash, maturity period of which, as at the date of investments therein, does not exceed three months.
Financial assetsShort-term bank deposits are deposits with an original maturity of more than three months from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their terms of deposit.
F-20
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m. | Revenue recognition: |
As described in Note 2x1 regarding the initial adoption of IFRS 15, “Revenue from Contracts with Customers” (“the Standard”), the Company elected to adopt the provisions of the Standard using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data.
The Group recognizes revenue and gains when the amount of revenue, or gain, can be reliably measured, it is probable that future economic benefits will flow to the entity.
Revenues and Gains from sales of plant and equipment and trading properties are recognized when all the following conditions are satisfied:
1. | The Group has transferred to the buyer the significant risks and rewards of ownership of the asset sold; |
2. | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the asset sold; |
3. | The amount of income can be measured reliably; |
4. | it is probable that the economic benefits associated with the transaction will flow to the Group (including the fact that the buyer’s initial and continuing investment is adequate to demonstrate commitment to pay); |
5. | The costs incurred or to be incurred in respect of the transaction can be measured reliably; and |
6. | There are no significant acts that the Group is obliged to complete according to the sale agreement. |
For the Group, these conditions are usually fulfilled upon the closing of a binding sale contract.
n. | Discontinued operation |
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group areand which:
(1) | Represents a separate major line of business or geographical area of operations; |
(2) | Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or |
(3) | Is a subsidiary acquired exclusively with a view to re-sale. |
Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified mainly as loansheld-for-sale, if earlier.
When an operation is classified as a discontinued operation, the comparative statement of comprehensive income and receivables. cash flow is re-presented as if the operation had been discontinued from the start of the comparative year.
F-21
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. | Financial instruments: |
As described in Note 2x2 regarding the initial adoption of IFRS 9, “Financial Instruments” (“the Standard”), the Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data.
The accounting policy for financial instruments applied until December 31, 2017, is as follows:
Financial assets:
1. | Financial assets at fair value through profit or loss: |
This category includes financial assets are initially measuredheld for trading and financial assets designated upon initial recognition as at fair value through profit or loss.
2. | Loans and receivables: |
Loans and receivable consist of trade receivables, deposits in banks, and financial institutions, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables where the recognition of interest is considered immaterial.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Real estate properties for future sale are classified as trading properties and are stated at the lower of cost and net realizable value.
Net realizable was determined based on the residual method using the estimated selling price less cost for completion and executing the sale discounted in the applicable discount rate without taking into account the developer’s profit and assuming that marketing period is restricted to a period which is lower than the normal oneor the comparable method taking into account the specific restrictions that the Group has on the property. See also 2 w (1)a below and note 4 c (1) and note 4 d.
Costs of commercial centers include costs directly associated with their purchase (including payments for the acquisitions of leasehold rights and borrowing cost and all subsequent direct expenditures for the development and construction of such properties. Cost of trading property is determined mainly on the basis of specific identification of their individual costs.
As for borrowing costs capitalized to trading property - see s below.
As for write down of trading property - see w1a) below.
As for the operating cycle of trading property - see e above.
Revaluations are carried out on a regular basis (generally each half year). A change in the value of the hotel resulting from revaluation or from exchange rate differences is attributable to other comprehensive income (any revaluation reserve is net of applicable deferred taxes).
The reserve derived from the revaluation of the hotel is transferred to retained earnings over the period for which the hotel is usedEquity instruments issued by the Group. The transferred amounts equal the difference between the depreciation charge based on the revalued carrying amounts of the hotel and the depreciation charge based on the hotels’ original cost. When a revaluated hotel is sold, the remaining amount in the revaluation reserve with respect to the same hotel (including any tax expenses) is directly transferred to retained earnings.
Other property plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Improvements and renovations are charged to cost of assets. Maintenance and repair costs are charged to the statement of income as incurred.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Annual depreciation rates are as follows:
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current taxes:
Tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are non-taxable or deductible for tax purposes. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted as of the balance sheet date.
Deferred taxes:
Deferred taxes are calculated in respect of all temporary differences, including (i) differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit; and (ii) tax losses and deductions that may be carried forward for future years or carried backwards for previous years.
Deferred taxes are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The calculation of deferred tax liabilities does not include taxes that would have arisen in the event of a realization of investments in certain investee companies or upon receiving their retained earnings as dividends, since it is management’s policy not to realize these investees nor to declare dividend out of their retained earnings, or other form of profit distributions, in the foreseeable future, in a manner which entails additional substantial tax burden on the Group. For certain other Group’s investee companies, which management’s intention is to realize or to distribute their retained earnings as taxable dividend, tax liabilities (current and deferred) are recorded.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is to be settled or the asset is to be realized, based on tax rates and laws that have been enacted or substantively enacted as of the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes (Cont.):
Deferred tax asset is recorded to the extent that it is probable that it would be realized against future taxable profits. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered in the future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity or in other comprehensive income, in which case the tax effect is also recognized directly in equity or in other comprehensive income;
Equity instruments:Group:
An equity instrument is any contract that represents a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issuance costs.
F-22
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. | Financial instruments (cont.): |
Financial liabilities:
1. | Financial liabilities at amortized cost: |
Financial liabilities at amortized cost of the Group consist of short-term credits, current maturities of long-term borrowing suppliers and service providers, borrowings and other payables, which are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, unless recognition of interest is immaterial.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, when appropriate, a shorter period to the net carrying amount of the financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial liability (for example, prepayment, call and similar options). The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
When the Group revises its estimates of payments, it adjusts the carrying amount of the financial liability to reflect actual and revised estimated cash flows. The Group recalculates the carrying amount by computing the present value of estimated future cash flows at the financial liability’s original effective interest rate. The adjustment is recognised in profit or loss as a financial expense.
The Company has Consumer Price Index (“CPI”)-linked financial liabilities that are not measured at fair value through profit or loss. For these liabilities, the Company determines the effective interest rate as a real rate plus linkage differences according to the actual changes in the CPI through each balance sheet date. Rate of decrease in the Israeli CPI in 2018 was 1.2% (2017 - 0.3%; 2016 was 0.3% (2015-- decrease of 0.9%; 2014 - increase of 0.1%0.3%).
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Financial liabilities |
Financial liabilities at fair value through profit or loss include financial liabilities designated upon initial recognition as at fair value through profit or loss.
3. | Compound financial instruments |
Convertible notes that are denominated in foreign currency contain two components: the conversion component and the debt component. The liability conversion component is initially recognized as a financial derivative at fair value. The balance is attributed to the debt component. Directly attributable transaction costs are allocated between the liability conversion component and the liability debt component based on the allocation of the proceeds to each component.
F-23
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. | Financial instruments (cont.): |
Financial liabilities (cont.):
4. Buyback of notes and loans:notes:
The Group derecognizes a financial liability from its statement of financial position when repurchasing its notes or its loans.notes. The difference between the carrying amount of the notes or the loans repurchased at the repurchase date and the consideration paid is recognized in profit or loss.
The accounting policy for financial instruments applied commencing from January 1, 2018, is as follows:
1. | Financial assets: |
Financial assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.
Debt instruments are measured at amortized cost when:
The Company’s business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate method, less any provision for impairment.
Financial assets at fair value through profit and loss:
On October 26, 2018 Gamida completed initial public offering (IPO) and for the listing of its shares in Nasdaq. After the issuance the Company (through its subsidiary) holds approximately 7% (5% on fully diluted basis) in Gamida. The Company’s shares in Gamida are restricted for offer, sale, pledge etc for a period of 180 days from the issuance date (“Lock-up Period”). Therefore the fair value of the Company’s investment in Gamida takes into account the effect of the lock-up period. See Note 20d.
F-24
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. |
The Group enters into a variety of derivativeaccounting policy for financial instruments someapplied commencing from January 1, 2018, is as follows (cont.):
2. | Impairment of financial assets: |
The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are intended to mitigate its exposure to interest rate and foreign exchange rate risks, including interest rate swaps and cross currency swaps. Further details of derivative financial instruments are disclosed in note 20.not measured at fair value through profit or loss.
3. | Derecognition of financial assets: |
Derivatives
A financial asset is derecognized only when:
- | The contractual rights to the cash flows from the financial asset has expired; or |
- | The Company has transferred substantially all the risks and rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset; or |
- | The Company has retained its contractual rights to receive cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to a third party. |
4. | Financial liabilities: |
a) | Financial liabilities measured at amortized cost: |
Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method.
F-25
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. | Financial instruments (cont.): |
The accounting policy for financial instruments applied commencing from January 1, 2018, is as follows (cont.):
4. Financial liabilities (cont.)
b) Financial liabilities issued by the Company:
Elbit Medical issued convertible bonds which are denominated in NIS.
On the issuance date, the derivative contractconversion component is entered intomeasured at fair value. The remained balance of the consideration is attributed to the debt component. The issuance costs are allocated to the debt component and are subsequently re-measured at their fair value each balance sheet date.to the conversion component proportionally based on the allocation of the consideration. The resulting gain or loss from a derivativeportion of the issuance costs attributed to the debt component is presented net of the liability in respect of the convertible bonds. The portion of the issuance costs attributed to the conversion component is recognized immediately recognized in profit andor loss. A derivative
Subsequent to the issuance, the debt component is presented as a non-currentfinancial liability and measured at amortized cost. The conversion component is presented as financial liability and measured at fair value at the end of each reporting period. The changes in fair value of conversion component are recognized in profit or loss.
5. | Derecognition of financial liabilities: |
A financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is discharged or cancelled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability.
6. | Offsetting financial instruments: |
Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset or a non-currentand settle the liability if the remaining maturitysimultaneously.
F-26
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
p. | Taxes on income: |
Current or deferred taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or equity.
1. | Current taxes: |
The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years.
2. | Deferred taxes: |
Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes.
Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible carryforward losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their utilization is probable.
When the Company owns an investment in a single property company and the manner in which the Company expects to dispose of the investment is by selling the shares of the property company rather than by selling the property itself, the Company recognizes deferred taxes for both inside temporary differences arising from the difference between the carrying amount of the property and its tax basis, and for outside temporary differences arising from the difference between the tax basis of the investment and the Company’s carrying amount of the net assets of the investment in the consolidated financial statements.
Taxes that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Company’s policy not to initiate distribution of dividends from a subsidiary that would trigger an additional tax liability.
F-27
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
p. | Taxes on income (cont.): |
2. | Deferred taxes (cont.): |
Deferred taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.
q. | Trading property: |
Trading properties are being designated for sale in the ordinary course of business and as such are classified as trading properties (inventory) and measured at the lower of cost and net realizable value.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs to complete construction and selling expenses. If net realisable value is less than the cost, the trading property is written down to net realisable value.
In each subsequent period, a new assessment is made of net realisable value. When the circumstances that previously caused trading properties to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed so that the new carrying amount is the lower of the cost and the revised net realisable value.
The amount of any write-down of trading properties to net realisable value and all losses of trading properties are recognised as a write-down of trading properties expense in the period the write-down or loss occurs. The amount of any reversal of such write-down arising from an increase in net realisable value is recognised as a reduction in the expense in the period in which the reversal occurs.
Costs comprise all costs of purchase, direct materials, direct labour costs, subcontracting costs and other direct overhead costs incurred in bringing the properties to their present condition.
Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalized as part of the costs of the asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are recognized as an expense in the period in which they incurred.
As for write down of trading property - see w1(a) below.
F-28
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
r. | Provisions: |
Provisions areA provision in accordance with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is more likely than not (probable)probable that the Groupan outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be measured with respect tomade of the amount of the obligation. The amountWhen the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a provisionseparate asset but only when the reimbursement is virtually certain. The expense is recognized in the best estimatestatement of the consideration required to settle the present obligation asprofit or loss net of the balance sheet date, taking into account the risks and uncertainties associated with the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the result of the discounted expected cash flows, as long as the effect of discounting is material.any reimbursement.
Share-based payments: |
The Company’s employees/other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions and certain employees/other service providers are entitled to remuneration in the form of cash-settled share-based payment transactions that are measured based on the increase in the Company’s share price.
Equity-settled share-based payments totransactions:
The cost of equity-settled transactions with employees and others providing similar services areis measured at the fair value of the equity instrumentinstruments granted at the grant date. The Fairfair value is determined using an acceptable option pricing model.
As for other service providers, the cost of the transactions is measured usingat the Black and Scholes (“B&S”) model exceptfair value of the goods or services received as consideration for capped-Stock Appreciation Rights (“SAR”) forequity instruments granted.
The cost of equity-settled transactions is recognized in profit or loss together with a corresponding increase in equity during the period which the Group is usingperformance and/or service conditions are to be satisfied ending on the binomial model.date on which the relevant employees become entitled to the award (“the vesting period”). The expected life used in the B&S model has been adjusted, based on management’s best estimate,cumulative expense recognized for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determinedequity-settled transactions at the grantend of each reporting period until the vesting date ofreflects the equity-settled share-based payments is expensed on a straight-line basis for each award overextent to which the vesting period based onhas expired and the Group’s best estimate of sharesthe number of equity instruments that will eventuallyultimately vest.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied.
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ELBIT IMAGING LTD. |
General NOTE 2:- The Group recognizes revenue and gains when the amount of revenue, or gain, can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and specifics of each arrangement.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
The leases generally provide for rent escalations throughout the lease term. For these leases, the rental income is recognized on a straight line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental income recognized on a straight line basis, represents unbilled rent receivables that the Group will receive only if the tenant makes all rent payments required through the expiration of the initial term of the lease. The leases may also provide for contingent rent based on a percentage of the lessee’s gross sales or contingent rent indexed to further increases in the Consumer Price Index (CPI). For contingent rentals that are based on a percentage of the lessee’s gross sales, the Group recognizes contingent rental income when the change in the factor on which the contingent lease payment is based, actually occurs. Rental income for lease escalations that are indexed to future increases in the CPI, are recognized once the changes in the index have occurred.
For the Group, these conditions are usually fulfilled upon the closing of a binding sale contract.
s. |
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized to the cost of those assets. A qualifying asset is an asset that necessarily takes a substantial period of time to get it ready for its intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Borrowing costs qualifiedEquity-settled transactions (cont.):
If the Company modifies the conditions on which equity-instruments were granted, an additional expense is recognized for capitalization include mainly: Interest expensesany modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification date.
If a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date and amortizationany expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described above.
Cash-settled transactions:
The cost of raising debt.
Capitalization of borrowing costs to qualifying assets commences whencash-settled transactions is measured at fair value on the Group startsgrant date using an acceptable option pricing model. The fair value is recognized as an expense over the activities for the preparation of the asset for its intended usevesting period and a corresponding liability is recognized. The liability is remeasured at each reporting date until settled at fair value with any changes in fair value recognized in profit or sale and continues, generally, until the completion of substantially all the activities necessary to prepare the asset for its designated use or sale (i.e. when the commercial center is ready for lease).
In certain cases, the Group ceases to capitalize borrowing cost if management decides that the asset can no longer be defined as a “qualifying asset”. In other circumstances, capitalization is suspended for certain time periods, generally where the efforts to develop a project are significantly diminished due to inter-alia lack of external finance, or ongoing difficulties in obtaining permits. The conclusions whether an asset is qualified for capitalization or not, or whether capitalization is to be suspended, are also dependent on management plans with regard to the specific asset, such as the ability to raise bank loans, find anchors and local market conditions that support or postpone the construction of the project.loss.
t. | Earning (loss) per share: |
The Company presents basic and diluted earnings (loss)Earnings per share with respect to continued and discontinued operation. Basic earnings per share is computedare calculated by dividing the net income (loss) attributable to equity holders of ordinary shares of the Company by the weighted average number of theOrdinary shares outstanding ordinary shares during the period. In
Potential Ordinary shares are included in the computation of diluted earnings per share when their conversion decreases earnings per share from continuing operations. Potential Ordinary shares that are converted during the Company adjusts its income (loss) attributable to its ordinary shareholders for its shareperiod are included in income (loss) of investees by multiplying their diluted earnings per share only until the conversion date and from that date in basic earnings per share. The Company’s share of earnings of investees is included based on its share of earnings per share of the investees multiplied by the Company’s interest innumber of shares held by the investees including its holding in dilutive potential ordinary shares of the investees. In addition, the Company adjusts the weighted average outstanding ordinary shares for the effects of all the dilutive potential ordinary shares of the Company. On June 27, 2016, the Company executed reverse share split of its ordinary shares, therefore the earnings (loss) per share for previous periods was retrospectively adjusted. See also note 14.
u. | Statement of cash flows: |
Investments in, and payments on account of, trading property are included as cash flow from operating activities. Interest and dividend received from deposits and investments are included as cash flow from investing activities. Interest paid on the Group’s borrowings (including interest capitalized to qualifying assets) and cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control are included as cash flow from financing activities.
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ELBIT IMAGING LTD. |
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ELBIT IMAGING LTD.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s principal market, or in the absence of a principal market, in the most advantageous market.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
Fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement:
Level 1 | - | quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
Level 2 | - | inputs other than quoted prices included within Level 1 that are observable directly or indirectly. | |
Level 3 | - | inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data). |
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held-for-sale, if earlier.
When an operation is classified as a discontinued operation, the comparative statement of comprehensive income and cash flow is re-presented as if the operation had been discontinued from the start of the comparative year.
Critical judgment in applying accounting policies and use of estimates: |
In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In addition, in the process of applying the Group’s accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in the financial statements.
The followings are the critical judgments and key sources of estimation that management has made while applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in these financial statements.
1. | Use of estimates: |
a) | Write down of trading |
The recognition of a write down to the Group’s trading properties is subject to a considerable degree of judgment and estimates, the results of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results and could have a material adverse effect on the Group’s audited consolidated financial statements.
This valuation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development in addition to the lack of transactions in the real estate market in the CEE and India for same or similar properties.
Management is responsible for determining the net realizable value of the Group’s trading properties. In determining net realizable value of the vast majority of trading properties, management utilizes the services of an independent third party recognized as a specialist in valuation of properties.
For special assumption see noteNote 4b 4c1e and 4d.4c.
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ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Critical judgment in applying accounting policies and use of estimates |
1. | Use of estimates |
b) | Litigation and other contingent liabilities: |
The Group is involved in litigation, tax assessments and other contingent liabilities in substantial amounts including class actions, FCPA and potential legal acts (see also noteNote 4c1, 13b and noteNote 13c). The Group recognizes a provision for such litigation when it is probable that the Group will be required to settle the obligation, and the amount of the obligation can be reliably estimated. The Group evaluates the probability and outcome of these litigations based on, among other factors, legal opinion and consultation and past experience. The outcome of such contingent liabilities may differ materially from management’s estimation. The Group periodically evaluates these estimations and makes appropriate adjustments to the provisions recorded in the audited consolidated financial statements. In addition, as facts concerning contingencies become known, the Group reassesses its position and makes appropriate adjustments to the audited consolidated financial statements. In rare circumstances, when the case is unique, complicated and involves prolong and uncommon proceedings, the Group cannot reliably estimate the outcome of said casecase.
c) | Accounting for income taxes: |
The calculation of the Group’s tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations and tax treaties, in respect of various jurisdictions in which the Group operates and which vary from time to time. In addition, tax authorities may interpret certain tax issues in a manner other than that which the Group has adopted. Should such contrary interpretive principles be adopted upon adjudication of such cases, the tax burden of the Group may be significantly increased.
In calculating its deferred taxes, the Group is required to evaluate (i) the probability of the realization of its deferred income tax assets against future taxable income and (ii) the anticipated tax rates in which its deferred taxes would be utilized.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
w. | Critical judgment in applying accounting policies and use of estimates (cont.): |
1. | Use of estimates (cont.): |
d) | Potential penalties, guarantees issued and expired building permits: |
Penalties and guaranties are part of the on-going construction activities of the Group, and result from obligations the Group has towards third parties, such as banks and municipalities. The Group’s management is required to provide estimations regarding risks evolving from penalties that the Group may have to settle. In addition, the Group’s operations in the construction area are subject to valid authorizations and building permits from local authorities. Under certain circumstances the Group is required to determine whether the building permits it obtained have not yet expired. It may occur that building permits have expired which might impose on the Group additional costs and expenses, or delays and even abandon project under construction see also noteNote 4c1.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
e) |
The fair value of the Radisson Complex is determined based upon the discounted cash flows (“DCF”) approach, the assumptions underlying the model, as well as the ability to support them by means of objective and reasonable market benchmarks, so they can be viewed as assumptions that market participants may have used, are significant in determining the fair value of the hotels. The predominant assumptions that may cause substantial changes in the fair value are: the capitalization rate, exit yield rate, the expected net operating income of the hotel (which is mainly affected by the expected average room rate and the occupancy rate as well as the level of operational expenses of the hotels) the level of refurbishments reserve and the capital expenditures that need to be invested in the hotel. The fair value of the Radisson Complex is performed by and independent appraisals with a local knowledgeable in the hotels business.
2. | Critical judgment in applying accounting policies: |
De facto Control:
a) | De facto control: |
As for December 31, 2017 and 2016, the Company holdsheld approximately 44.9% of PC share capital; DK holds approx.approximately 26.3% of PC share capital and the rest is widely spread by the public. The Company’s management iswas of the opinion that based on the absolute size of its holdings, the relative size of the other shareholdings and due to the fact that PC’s directors are appointed by normal majority of PC’s General Meeting, it hashad a sufficiently dominant voting interest to meet the power criterion, therefore the Company hashad de facto control over PC.
In December, 2018 the Company has deposited its entire shares of PC with a trustee. Effective from December 18, 2018 the voting rights were vested with the trustee for all matters and purposes. As a result, the Company no longer considers itself to be the controlling shareholder of PC. See also note 19b.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
w. | Critical judgment in applying accounting policies and use of estimates (cont.): |
2. | Critical judgment in applying accounting policies (cont.): |
b) | Examination of significant influence: |
An affiliated company is an entity in which the Group has significant influence. Significant influence is the ability to participate in making decisions relating to the financial and operating policy of the affiliated company, which does not constitute a control over the decision making. Significant influence exists, as a rule, when the Group holds 20% or more of the voting power of the investee (unless it can be clearly demonstrated that this is not the case). Significant influence also exists where the Group’s holding in the associate is less than 20%, provided that such influence is clearly demonstrated. As for the examination of the existence of significant influence of Elbit Medical in Insightec after the capital transactions carried out during 2017-2018 - see Note 5b (1). With regard to Elbit Medical loss of significant influence in respect of Gamida, see Note 7.
x. | New accounting standards and interpretation issued, that are |
1. | Initial adoption of IFRS 15, “Revenue from Contracts with Customers”: |
The following areIASB issued IFRS 15, “Revenue from Contracts with Customers” (“the new accounting standards, amendmentsStandard”) in May 2014. The new Standard replaces IAS 18, “Revenue”, IAS 11, “Construction Contracts”, IFRIC 13, “Customer Loyalty Programs”, IFRIC 15, “Agreements for the Construction of Real Estate”, IFRIC 18, “Transfers of Assets from Customers” and SIC-31, “Revenue - Barter Transactions Involving Advertising Services”.
The new Standard introduces a five-step model that applies to standardsrevenue earned from contracts with customers.
The new Standard has been applied for the first time in these financial statements. The Company elected to adopt the provisions of the new Standard using the modified retrospective method with the application of certain practical expedients and clarifications which are applicable or expected to be applicable, towithout restatement of comparative data.
The effect of the Group, and which haveinitial application of the new Standard on the Company’s financial statements is not yet become effective:material.
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ELBIT IMAGING LTD. |
‘In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
x. | New accounting standards and interpretation issued, that are |
Initial adoption of IFRS 9, |
The Group plans to adoptIn July 2014, the new standard onIASB issued the required effective datefinal and will not restate comparative information. During 2017, the Group has performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects no significant impact on its statement of financial position and equity except for the effect of applying the impairment requirements of IFRS 9. The Group expects an increase in the loss allowance resulting in a negative impact on equity as discussed below. In addition, the Group will implement changes in classification of certain financial instruments.
Loans are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement under IFRS 9. Therefore, adoptioncomplete version of IFRS 9, will not have a material effect“Financial Instruments” (“the new Standard”), which replaces IAS 39, “Financial Instruments: Recognition and Measurement”. The new Standard mainly focuses on the classification and measurement of financial assets.assets and it applies to all assets within the scope of IAS 39.
In addition, onThe new Standard has been applied for the first time in these financial statements retrospectively without restatement of comparative data.
The effect of the initial adoption of IFRS 9,the new Standard on the Company’s financial statements is as follows:
During 2017, a non-substantial modification to the terms of previously issued debentures was made by the Company due to modification of the trust deeds terms. Accordingly, the Company accounted for the modification in accordance with the principles of IAS 39.AG7 by adjusting the effective interest rate calculated on Company’s bonds at amortized costs, will be adjusted as necessary in order to reflectsuch that the change in accounting policy related to modification of trust deeds terms.
The initial application of IFRS 9 will impact the Group’s accounting treatment for the modification of financial liabilities without this resulting in derecognition.
Under IAS 39, no gain or loss was recognized at the date of modification of the loans’ terms, instead the difference between the original and modified cash flows was amortized over the remaining term of the modified liability by re-calculating the effective interest rate.
Under IFRS 9, a gain or losses should be recognised in profit or loss. These gains or losses, under IFRS 9, will be calculated as the difference between the original contractual cash flows and the modifiedrevised cash flows, discounted at the new interest rate, was equal to the carrying amount of the debentures before the modification in terms. Under the provisions of the new Standard, the change should be accounted for pursuant to the principles of IAS 39.AG8 whereby the revised cash flows after the modification in terms are discounted using the original effective interest rate.rate of the debentures to arrive at a new carrying amount, with any difference from the existing carrying amount on the date of modification being recorded in profit or loss.
In summary, the impact of IFRS 9 adoption is expected to be, as follows:
Impact on equity (increase/(decrease)) as of 31 December 2017:
Adjustments | NIS000 | |||||||||
Liabilities and shareholders’ equity | ||||||||||
Bonds at amortized cost | (5,751 | ) | ||||||||
Total liabilities | (5,751 | ) | ||||||||
Net impact on equity | (5,751 | ) | ||||||||
Retained earnings | (5,751 | ) |
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ELBIT IMAGING LTD. |
IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Disclosure of new standards in the period prior to their adoption: |
In January 2016, the IASB issued IFRS 16, “Leases” (“the new Standard”). According to the new Standard, a lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.
The effects of the adoption of the new Standard are as follows:
● | According to the new Standard, lessees are required to recognize all leases in the statement of financial position (excluding certain exceptions, see below). Lessees will recognize a liability for lease payments with a corresponding right-of-use asset, similar to the accounting |
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. The Group plans to adopt the new standard on the required effective date using a modified retrospective method. During 2016, the Group performed a preliminary assessment of IFRS 15, which was continued with a more detailed analysis completed in 2017.
For contracts with customers in which the sale of trading property is generally expected to be the only performance obligation, adoption of IFRS 15 is not expected to have any impact on the Group’s revenue and profit or loss. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the trading property. In preparing to adopt IFRS 15, the Group is considering the following:
One contract with a buyer provide a final agreed value depends on sustainable NOI following 12 months of operation of the mall, followed by re-examined NOI again after 24 and 36 months of operation which may lead to an upward price adjustment. Currently, the Group recognizes revenue from the sale of trading property measured at the fair value of the consideration received or receivable. If revenue cannot be reliably measured, the Group defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15 and will be required to be estimated at contract inception and updated thereafter.
IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue. The Group does not expect that application of the constraint will result in more revenue being deferred than undercurrent IFRS.
The Group generally provides for warranties for general repairs and does not provide extended warranties in its contracts with buyers. As such, most existing warranties will be assurance-type warranties under IFRS 15, which will continue to be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, consistent with its current practice.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in the Group’s financial statements. Many of the disclosure requirements in IFRS 15 are new and the Group has assessed that the impact of some of these disclosures requirements will not be significant. In particular, the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements made: when determining the transaction price of those contracts that include variable consideration, how the transaction price has been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling prices of each performance obligation.
In addition, as required by IFRS 15, the Group will disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. In 2017 the Group continued testing of appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16Standard is effective for annual periods beginning on or after January 1, January 2019.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Early application is permitted, but not beforeThe Company believes, based on an entity applies IFRS 15. A lessee can choose to applyassessment of the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.
In 2018, the Group will continue to assess the potential effectimpact of IFRS 16 on its consolidated financial statements. Since the Company’s lease contracts are not significant, the Company estimates that the adoption of the new Standard, willthat its application is not expected to have a material impact on the Company’s assets and liabilities. However, at this stage, the Company is unable to quantify the impacteffect on the financial statements.
2. | IFRIC 23, “Uncertainty over Income Tax Treatments”: |
In June 2017, the IASB issued IFRIC 23, “Uncertainty over Income Tax Treatments” (“the Interpretation”). The Interpretation clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, “Income Taxes”, in situations of uncertainty involving income taxes. The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement of the effects of uncertainty involving income taxes on the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Disclosure of new standards in the period prior to their adoption (cont.): |
2. | IFRIC |
The Interpretation addressesis to be applied in financial statements for annual periods beginning on January 1, 2019. Early adoption is permitted. Upon initial adoption, the accounting for income taxes when tax treatments involve uncertainty that affectsCompany will apply the applicationInterpretation using one of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:two approaches:
An entity must determine whetherThe Company does not expect the Interpretation to consider each uncertain tax treatment separatelyhave any material effect on the financial statements.
3. | IAS 28, “Investments in Associates and Joint Ventures”: |
In October 2017, the IASB published an amendment to IAS 28, “Investments in Associates and Joint Ventures” (“the Amendment”). The Amendment clarifies that long-term interests in associates and joint ventures (such as loans receivable or together with one or more other uncertain tax treatments. The approach that better predicts the resolutioninvestments in preferred shares) which form part of the uncertainty shouldnet investment in an associate or joint venture are initially accounted for according to the provisions of IFRS 9 (both regarding measurement and impairment) and subsequently those interests are subject to the provisions of IAS 28.
The Amendment is to be followed. The interpretation is effectiveapplied retrospectively for annual reporting periods beginning on or afterJanuary 1, January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date. Since the Group operates in a complex multinational tax environment, applying the Interpretation may affect its consolidated financial statements and the required disclosures. In addition, the Group may need to establish processes and procedures to obtain information that2019. Early adoption is necessary to apply the Interpretation on a timely basis.permitted.
After having evaluated the potential effects of the adoption of the Amendment, the Company will measure its investment in preferred shares in Insightec at fair value. However, due to accumulated losses of Insightec which were not fully recorded by the Company as of 31 December 2018, the effect of adoption of IAS 28 amendments is not material.
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ELBIT IMAGING LTD.
ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3:- DEPOSITS, RECEIVABLES AND OTHER INVESTMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
a. | Short-term deposits and |
December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Deposits at banks: | |||||||||
EURO (1) | - | 26,795 | |||||||
NIS (2) | 6,463 | 6,426 | |||||||
Other restricted deposits (3) | - | 2,215 | |||||||
6,463 | 35,436 | ||||||||
Available for sale financial assets | 4,032 | 4,091 | |||||||
10,495 | 39,527 |
December 31 | ||||||||
2018 | 2017 | |||||||
NIS in thousands | ||||||||
Deposits at banks: | ||||||||
NIS (1) | 9,207 | 6,463 | ||||||
Available for sale financial assets (2) | - | 4,032 | ||||||
9,207 | 10,495 |
(1) | As |
As of December 31, 2017 - includes NIS 4.6 million was restricted due to the Company’s settlement agreement as described in Note 13a1.
(2) |
b. |
December 31, | |||||||||
2017 | 2016 | ||||||||
Trade receivables (1) | - | 38,210 | |||||||
Less - Allowance for doubtful debts | - | (4,042 | ) | ||||||
- | 34,168 |
December 31 | ||||||||
2018 | 2017 | |||||||
NIS in thousands | ||||||||
Income taxes | 1,095 | 1,258 | ||||||
Governmental institutions | - | 936 | ||||||
Prepaid expenses | 233 | 1,818 | ||||||
Other | 1,529 | 3,210 | ||||||
2,857 | 7,222 |
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ELBIT IMAGING LTD. |
NOTE 3:- DEPOSITS, RECEIVABLES AND OTHER INVESTMENTS (Cont.)
c. |
December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Income taxes | 1,258 | 1,298 | |||||||
Governmental institutions | 936 | 6,362 | |||||||
Advance to suppliers | - | 525 | |||||||
Prepaid expenses | 1,818 | 3,510 | |||||||
Interest to receive | 46 | 514 | |||||||
Other | 3,164 | 1,135 | |||||||
7,222 | 13,344 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deposits and other long-term |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Deposits at banks (1) | - | 11,453 | |||||||
Available for sale financial assets | 1,596 | 1,596 | |||||||
Vendor loan (see note 19) | 33,221 | - | |||||||
Prepaid expenses | - | 7,064 | |||||||
Other | 57 | 3,371 | |||||||
34,874 | 23,484 |
December 31 | ||||||||
2018 | 2017 | |||||||
NIS in thousands | ||||||||
Available for sale financial assets | 1,596 | 1,596 | ||||||
Vendor loan (see Note 19 a) | 36,111 | 33,221 | ||||||
Long term deposit (See Note 11c) | 4,479 | - | ||||||
Other | - | 57 | ||||||
42,185 | 34,874 |
NOTE 4:- TRADING PROPERTY
a. | Composition: |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Balance as of January, 1 | 1,310,549 | 1,467,760 | |||||||
Construction costs (1) | 7,895 | 108,511 | |||||||
Disposal during the year (2) | (736,484 | ) | (158,786 | ) | |||||
Write-down to net realizable value (see b below ) | (92,398 | ) | (196,333 | ) | |||||
Firstly consolidated entity (see note 4d2 ) | - | 154,598 | |||||||
Foreign currency translation adjustments | 3,057 | (65,201 | ) | ||||||
Balance as of December, 31 | 492,619 | 1,310,549 |
December 31 | ||||||||
2018 | 2017 | |||||||
NIS in thousands | ||||||||
Balance as of January, 1 | 492,619 | 1,310,549 | ||||||
Construction costs | - | 7,895 | ||||||
Disposal during the year (1) | (11,836 | ) | (736,484 | ) | ||||
Write-down to net realizable value (see b below) | (107,009 | ) | (92,398 | ) | ||||
Deconsolidation of PC and EPI (see Note 19 b) | (382,033 | ) | - | |||||
Foreign currency translation adjustments | 8,259 | 3,057 | ||||||
Balance as of December, 31 | - | 492,619 |
(1) |
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ELBIT IMAGING LTD. | |
Composition of trading property per stages of development:NOTE 4:- TRADING PROPERTY (Cont.)
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Projects designated for development | - | 226,449 | |||||||
Other trading properties | 492,619 | 1,084,100 | |||||||
Total | 492,619 | 1,310,549 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b. | Additional information: - |
Composition of trading property distinguished between freehold and leasehold rights:
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Freehold | 212,075 | 973,217 | |||||||
Leasehold | 280,544 | 337,332 | |||||||
492,619 | 1,310,549 |
Write down trading properties per project:
Year ended December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Project name (City, Country) | |||||||||
Chennai (Kadavantara, India) (see d1 below) | 7,879 | 24,564 | |||||||
Bangalore (Aayas, India) (see d2 below) | 35,178 | - | |||||||
Helios Plaza (Athens, Greece) | - | 2,992 | |||||||
Lodz Plaza (Lodz, Poland) | 4,983 | 1,618 | |||||||
Krusevac (Krusevac, Serbia) | 1,661 | 809 | |||||||
Casa radio (Bucharest, Romania) (See c1 below) | 41,946 | 137,117 | |||||||
Constanta (Constanta, Romania) | - | 3,445 | |||||||
Ciuc (Ciuc, Romania) | - | 3,842 | |||||||
Timisoara (Timisoara, Romania) | - | 10,514 | |||||||
Lodz residential (Lodz, Poland) | 415 | - | |||||||
Kielce (Kielce, Poland) | - | 4,448 | |||||||
BAS (Romania) | - | 3,235 | |||||||
Arena Plaza extention (Budapest, Hungary) | 336 | 3,749 | |||||||
92,398 | 196,333 | ||||||||
Change in provision in respect to PAB | (1,641 | ) | (6,741 | ) | |||||
90,757 | 189,592 |
The 2017 write-downs were caused mainly due to the following factors:
EUR 9.7 million (NIS 40 million) of write-down (net of change in provision in respect to PAB) in Casa Radio project, Romania due to the following: a slight increase in construction cost, a slight decrease in financing interest rate, prolongation of lead-in period in half a year and an increase in the discount factor for restricted marketing period from 25% to 35%. As compared to 2016, deals take longer to exchange as the level of due diligence and scrutiny is heightened domestically and internationally. As a consequence a restricted marketing period would have a marked impact on the realizable value as a greater discount would be sought by a purchaser.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31 | ||||||||
2018 | 2017 | |||||||
Project name (City, Country) | NIS in thousands | |||||||
Chennai (Kadavantara, India) - see Note 6(a)(2)(a) | - | 7,879 | ||||||
Bangalore (Aayas, India) - see Note 6(a)(2)(b) | (13,939 | ) | 35,178 | |||||
Helios Plaza (Athens, Greece) | 4,867 | - | ||||||
Lodz Plaza (Lodz, Poland) | 8,275 | 4,983 | ||||||
Krusevac (Krusevac, Serbia) | 1,277 | 1,661 | ||||||
Casa radio (Bucharest, Romania) (See c1 below) | 103,760 | 41,946 | ||||||
Lodz residential (Lodz, Poland) | 429 | 415 | ||||||
BAS (Romania) | 2,340 | - | ||||||
Arena Plaza extention (Budapest, Hungary) | - | 336 | ||||||
107,009 | 92,398 | |||||||
Change in provision in respect to PAB | 5,298 | (1,641 | ) | |||||
112,307 | 90,757 |
c. | Additional information in respect of PC’s trading property: |
1. Casa radio:
One of PC’s most significant projects under development is the Casa radio project in Bucharest, Romania. The Casa radio Project cost in the Group’s financial statements as of December 31, 2017,2018, amount to NIS 263189 million (2016(2017 - NIS 296263 million).
In 2006 PC entered into an agreement according to which it acquired 75% interest in a company (“Project SPV”) which is under a PPP agreement with the Government of Romania to develop the Casa radio site in the center of Bucharest (“Project”). After signing the PPP agreement, PC holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and a third party private investor (10%).
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4:- TRADING PROPERTY (Cont.)
c. | Additional information in respect of PC’s trading property (cont.): |
Casa radio (cont.):
As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006 (37 years remaining at the end of the reporting period). As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building (“PAB”) measuring approximately 11.000 square meters for the Romanian Government at its own cost.
Large scale demolition, design and foundation works, financed by loans given to the Project SPV by PC were performed on the construction site until 2010, when current construction and development was put on hold due to lack of progress in the renegotiation of the PPP agreement with the Authorities, as discussed in subsection (c) below, and the global financial crisis. These circumstances (and mainly the bureaucratic deadlock with the Romanian Authorities to deal with the issues specified below caused the Project SPV not to meet the development timeline of the Project, as specified in the PPP.
However, PC management believes that it had legitimate reasons for the delays in this timeline, as discussed in subsection (c) below.
a) | Obtaining of the Detailed Urban Plan (“PUD”) |
The Project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan (“PUZ”) related to the Project. The court decision is irrevocable.
As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4:- TRADING PROPERTY (Cont.)
c. | Additional information in respect of PC’s trading property (cont.): |
Casa radio (cont.):
b) | Discussions with authorities on construction time table |
Following the Court decision with respect to the PUZ, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit. The building permits have not been obtained.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
However, due to substantial differences between the approved PUD and stipulations in the PPP agreement as well as changes in the EU directives concerning environmental considerations in buildings used by public authorities the Project SPV attempted to renegotiate the future development of the Project with the Romanian Authorities on items such as time table, structure and milestones as well as adaptation of the PAB development to the current EU requirements.
Despite many notifications sent to the Romanian Authorities expressing a wish to renegotiate the existing PPP agreement no major breakthrough could be achieved. PC could be subject to significant delay penalties under the terms of the PPP agreement if it is determined that PC was at fault in causing the delays.
Because of the failure of the public authorities to cooperate, negotiate and adjust the PPP agreement, the Project SPV was not able to meet its obligations under the PPP. This resulted in a situation where the Project SPV could not “de facto” continue the execution of the Project and created a risk that the public authorities could attempt to terminate the PPP agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, PC may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (NIS 209.7107 million). As of the date of approval of PC’s consolidated financial statements the Project SPV did not receive any termination notification by the public authorities.
PC believes that although there is no formal obligation for the Romanian Authorities to renegotiate the PPP agreement, such obligation is implicitly provided for the situation when significant unexpected circumstances arise and that the unresponsiveness of the authorities is a violation of the general undertaking to support the Project SPV in the execution of the Project as agreed in the PPP agreement.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4:- TRADING PROPERTY (Cont.)
c. | Additional information in respect of PC’s trading property (cont.): |
Casa radio (cont.):
b) | Discussions with authorities on construction time table deferral (cont.): |
PC believes that the risk that the public authorities may seek to terminate the PPP and/or relevant permits on the basis of the perceived breach of the PC’s commitments and/or may seek to impose delay penalties on the basis of the PPP contract is unlikely given the public authorities have not sought to do such since the perceived breach in 2012 and given PC believes that it has basis for counter claims against the relevant public authorities.
In the case of termination for breach under the PPP agreement the relationship and compensation between the parties is to be decided by a competent court of arbitrations. PC’s management believe that, in the case of termination, PC has a strong case to claim compensation for damages.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Since 2016 PC’s management has taken a number of steps in order to unblock the development of the project and mitigate the risk of termination of the PPP agreement, including commencing a process to identify third party investors willing and capable to join PC for the development of the project and/or potential buyers for the Project. PC’s management believes that reputable investors with considerable financial strength can enhance PC’s negotiation position vis-à-vis the public authorities and assist in advancing an amicable agreement with the relevant authorities with respect to the development of the project. As a result of its ongoing efforts, a non-binding LOI for the sale of its holdings was signed after the balance sheet date (see (d) below).
PC’s management considers the risk of termination of the PPP agreement and/or the imposition of penalties by the authorities to be unlikely and the consolidated financial statements do not include any provision in respect to any potential future penalties in respect to the breach of the PPP agreement.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4:- TRADING PROPERTY (Cont.)
c. | Additional information in respect of PC’s trading property (cont.): |
Casa radio (cont.):
c) | Co-operation with the Romanian Authorities regarding potential irregularities: |
In 2015, PC’s board and management became aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, PC’s board appointed the chairman of it’s Audit Committee to investigate the matters and independent law firms to analyze the available alternatives in this respect. The chairman of the Audit Committee did not conclude the investigation as the person with key information was not available to answer questions. PC’s Board, among other steps, implemented a specific policy in order to prevent the reoccurrence of similar issues and appointed the chairman of the audit committee to monitor the policy’s implementation by PC’s management. In addition, it was decided that in the future certain agreements will be brought to PC’s board’s approval prior to signing.
PC has approached and is co-operating fully with the relevant Romanian Authorities regarding the matters that have come to its attention and it has submitted its initial findings in March 2016 to the Romanian Authorities. PC, during this process has been verbally informed by the Romania Authorities that it has received immunity from certain potential criminal charges and received further verbal assurance that the mentioned investigation should have no effect on the PC’s existing legal rights to the Project and the PPP Agreement. As the investigation by the Romanian Authorities is still on-going, PC in unable to comment further on any details related to this matter. PC’s management is currently unable to estimate any monetary sanctions in respect to the potential irregularities, consequently no provision has been recorded in connection with these matters.
For more information see note 13 b12.Note 13b6.
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ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4:- TRADING PROPERTY (Cont.)
c. | Additional information in respect of PC’s trading property |
Casa radio (cont.):
d) | Provision in respect of PAB: |
As mentioned in point a above, when PC entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own costs for the benefit of the Romanian Government. Consequently, the statement of financial position of PC includes a provision in the amount of EUR 12.8€ 14 million (NIS 5360 million) in respect of the construction of the PAB (December 31, 2016: EUR 13.22017: € 12.8 million) which is presented as part of other non-current liabilities.. During 2017, the Company2018, PC recorded incomeexpenses in total amount of EUR 0.41.2 million (NIS 5.3 million) from change in PAB provision as part of write down of trading properties (in 20162017 income - EUR 1.7 thousand)0.4 million).
PC’s management believes that the current level of provision is an appropriate estimation in the current circumstances. Upon reaching concrete agreements with Authorities, PC will be able to further update the provision.
e) | LOI to sale Casa |
ELBIT IMAGING LTD.On February 11, 2019 PC signed a non-binding Letter of Intent (“LOI”) with AFI Europe N.V. (the “Purchaser”, and together with the Company, the “Parties”), for the sale of its entire indirect shareholdings (75%) in the Casa Radio Project, for a maximum consideration of EUR 60 million (NIS 258 million), subject to the fulfilment of certain conditions as specified in the LOI.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFollowing the execution of the LOI, the Purchaser shall have a period of 3 months to conduct due diligence investigations, after which, if satisfactory, a pre-sale agreement will be executed within 30 days following the conclusion of the due diligence investigations. (the “Pre-Sale Agreement”).
In the framework of the Pre-Sale Agreement, the Purchaser will pay PC a non-refundable down payment. 15 months following the execution of the Pre-Sale Agreement, and subject to the satisfactory fulfillment of certain conditions precedent, the Parties will sign a sale agreement.
As of the date hereof, there can be no certainty that, either the Pre-Sale Agreement nor the Sale Agreement will be executed and/or that the Transaction will be consummated as presented above or at all.
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ELBIT IMAGING LTD. |
NOTE 4:- TRADING PROPERTY (Cont.)
c. | Additional information in respect of PC’s trading property |
Significant estimates:Casa radio (cont.):
f) | In 2017 the trading property Casa Radio was valued using the Residual technique which set a value of EUR 50 million. Prior to the signing of the LOI, PC had obtained an updated appraisal as of December 31, 2018 based on the same technique which reflected a value of EUR 43 million. |
Following several years of efforts to promote the development of the project either by bringing a partner or through the sale of PC’s holdings, a number of serious proposals were received during the course of 2018 from serious and experienced real estate investors which were examined by management and the board. The management and the board of directors came to the conclusion that the proposed price and terms of LOI are optimal and reasonable considering PC’s current status and decided to sign a LOI with AFI Europe.
The following table shows the valuation techniques used in measuringFollowing signing of LOI as described above PC measured the net realizable value of the project based on the signed LOI .For this purpose, a valuation was performed through an external appraiser whose opinion does not reflect the risk related to uncertainty in respect of fulfilment of the closing conditions, as described above and derived to a value of EUR 37.7 million. As a result, PC’s management assumed additional discount of 33.3% in order to reflect this uncertainty which resulted in value of the proposed deal of EUR 25 million.
Accordingly, since the value based on the Residual technique is higher than estimated value of the proposed deal, as of December 31, 2018, PC recorded Casa radio project:Radio project at its net realizable value in the amount of EUR 25 million (trading property is presented at gross basis in the amount of EUR 39.1 million and provision for PAB liability in the amount of EUR 14.1 million).
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|
|
The following tables provide a sensitivity analysis on the value of PC’s certain trading properties (in millions of NIS) assuming the following changes in key inputs used in the valuations:NOTE 4:- TRADING PROPERTY (Cont.)
Plots | Exit Yield | Rental income for all phases | Construction Cost | Delay in construction commencement date (months) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | +15bps | +25bps | +40bps | +50bps | -10% | -5% | 0 | +5% | +10% | -10% | -5% | 0 | +5% | +10% | 0 | 6 | 12 | 18 | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casa Radio | 209.7 | 193.2 | 182.7 | 167.3 | 157.6 | 111.3 | 160.5 | 209.7 | 258.6 | 307.6 | 285.6 | 248.1 | 209.7 | 171 | 132.4 | 209.7 | 204.3 | 198.9 | 194 | 189 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
c. | Additional information in respect of PC’s trading property (cont.): |
Casa radio (cont.):
Following parameters have been considered to arrive at the net realizable value of the property:
Risk category | Rate | Comments | ||||
Asset risk | 7.63 | % | 7.25% Prime Yield - the prime real estate yield as a basis for the computation of the discount rate since this risk reflects investors’ sentiment regarding the country risk as well as liquidity/industry risk; and 0.38% Submarket risk - based on relevant transactions recently closed but as well as considering current market sentiment, the respective prime yield was adjusted, for each asset class planned to be developed on the site The overall estimated transaction yield is resulting from the weighted average, for each asset class, between the expected GLA and its respective transaction yield. | |||
Approval risk | 0.00 | % | The assessment assumed that all authorizations will be obtained therefore no risk was considered in this respect. | |||
Project risk | 1.75 | % | Considering the legal specificities of the transaction (PPP legal framework), the potential delays in obtaining all authorizations/approvals as well as the potential findings during the due diligence phase, a component of construction risk as well inherent to a development project - it was assumed an overall project risk of 1.75% | |||
Counterparty risk | 5.00 | % | Considering the macroeconomic instability, the end of the ECB’s quantitative easing, the recent widening spread, the forecasted interest rate growth as well as local financing conditions, an estimated of 5% counterparty risk for this transaction. | |||
Discount rate | 14.38 | % |
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5:- INVESTMENTS IN ASSOCIATES
a. | The Group has the following indirectly interest in the associates and joint ventures, as at December 31, 2018 and 2017: |
Interest of holding (percentage) as at December 31, | ||||||||||
Company name | Country | 2018 | 2017 | |||||||
Insightec Ltd (b below) | USA | - | 25 | % | ||||||
Gamida Ltd (Note 8) | Israel | - | 18 | % | ||||||
PC (c below) | Netherlands | 44.9 | % | 44.9 | % |
b. | Insightec Ltd. (“Insightec”): |
1. | Insightec Ltd. (the “Company”) was incorporated in the State of Israel in March 1999 and commenced operations in the development, production and marketing of magnetic resonance imaging guided focused ultrasound treatment equipment shortly thereafter. The Company operates in one operating segment. |
As for December 31, 2018, the Company holds (directly and indirectly, through Elbit Medical), 22% of Insightec’s voting and equity rights (18% on a fully diluted basis). Yet, due to the fact that the Group invested in preferred shares and regular shares which are subordinated to the share granted in the last rounds of investment, the Group share in Insightec loss is 41.5%. Starting 2017, the investment in Insightec was reset and therefore the Company ceased to withdraw its share in Insightec’s loss.
Substantially all of Insightec’s current sales are derived from a few applications of Insightec’s products. Other applications of Insightec’s technology are in the early stages and there can be no assurance that these applications will be successful. Insightec is continuing research and development for additional applications for such products.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5:- INVESTMENTS IN ASSOCIATES (Cont.)
b. | Insightec Ltd. (“Insightec”) (cont.): |
2. |
On February 1,In January, 2018 Insightec Ltd. (“Insightec “), completed investment round pursuant to which Koch Disruptive Technologies together with other investors invested in Insightec a total amount of USD 150 million, in consideration for the issuance of a new series of preferred stock of Insightec (Preferred E share). The main terms of the Transaction are as follows:
a) | The Transaction reflects a pre money valuation for Insightec of approximately USD 460 million (on a fully-diluted basis). |
b) | Holders of Preferred E share shall have preferred rights in the event of a dividend distribution and certain material events as set forth in the transaction documents. |
c) | The transaction documents also set forth the rights of Koch Disruptive Technologies (who invested in total USD 100 million) and other major shareholders of Insightec (in an amended Securityholders Agreement and amended Articles of Association), including, that following the consummation of the Transaction, Insightec’s board of directors shall consist of a maximum of nine (9) board members. Each of the four major shareholders in Insightec (including Elbit Medical) will be entitled to appoint one director for as long as each of them holds at least 5% of the outstanding share capital of Insightec. The directors appointed by three of the major shareholders (including the one appointed by Elbit Medical) may together appoint up to four (4) additional directors. The CEO of Insightec will also serve as director. |
The Series E Preferred Shares of Insightec issued, immediately following their issuance, approximately 29.1% of the outstanding share capital (24.7% on a fully-diluted basis) of Insightec’s share capital. The investment round was executed in two stages, the first stage of $ 90 million ended on December 31, 2017, PCand the second stage of $ 60 million ended on 31 January 2018. Elbit Medical did not participate in the investment rounds.
Following the completion of the second closing, Elbit Medical holds approximately 22% (18% on a fully-diluted basis) and York which participated in round E and D holds directly 23% of Insightec issued and outstanding share capital (19% on a fully diluted basis).
In view of the examination of the composition of the Board of Directors and the ability of Elbit Medical to influence the appointment of four additional directors, as noted in Section B, Elbit Medical still has completedsignificant influence despite the saledecrease in the holding percentage to approximately 18% on a fully diluted basis.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5:- INVESTMENTS IN ASSOCIATES (Cont.)
b. | Insightec Ltd. (“Insightec”) (cont.): |
3. |
On February 23, 2017 PC concluded the sale of a 26,057 sqm plot of land in Shumen, Bulgaria for approximately EUR 1 million (NIS 4 million). PC recorded a gain of Euro 0.2 million (NIS 0.8 million) and revenue of EUR 1 million (NIS 3.9 million) from the disposal.
On March 2, 2017, an indirect subsidiary of the PC, has completed the sale of SPV holding Belgrade Plaza commercial center (the “SPV”), to a subsidiary of BIG Shopping Centers Ltd. (the “Purchaser”).
The shopping center, which was over 97% pre-let, opened on 20th of April 2017 and PC had remained responsible for the development and leasing of the asset until the opening.
Upon completion of the transaction, PC has received an initial payment of EUR 31.7 million (NIS 125 million) from the purchaser, further EUR 2 million (NIS 8 million) has been received following the opening, further payment of EUR 13.35 million (NIS 53 million) has been received during September 2017 and additional payments are contingent upon certain operational targets and milestones being met. The Purchaser has provided a guarantee to secure these future payments. The received consideration is after the deduction of the bank loan (circa EUR 15.4 million) (NIS 60 million).
The final agreed value of Belgrade Plaza, which will comprise circa 32,300 sqm of GLA, will be calculated based on a general cap rate of 8.25% as well as the sustainable NOI after 12 months of operation, which PC estimates will be approximately EUR 6.2-6.5 million per annum.
Further instalments will be due to PC during the first year of operation based on this 12-month figure. The NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.
PC recorded revenue of EUR 62.5 million (NIS 246 million) from the disposal and a gain of EUR 3.2 million (NIS 13 million). Expected future purchase price adjustment are not included.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On June 19, 2017, PC has signed the final sale agreement for the disposal of its 2.47-hectare plot in the center of Kielce, Poland, for EUR 2.28 million (NIS 9 million).
PC received a down payment of EUR 0.465 million (NIS 1.8 million) when the preliminary sale agreement was signed at 2016 and the remaining EUR 1.815 million (NIS 7.2 million) has been paid to PC during June 2017.
PC recorded revenue of EUR 2.2 million (NIS 9 million) from the disposal no gain was recorded.
In July 2017, PC has signed the final sale agreement for the disposal of a 1.8-hectare plot in the city of Leszno for EUR 0.81 million (NIS 3 million). PC recorded revenue of EUR 0.81 million (NIS 3 million) from the disposal.
On August 7, 2017 PC has completed the sale of a plot totaling approximately 32,000 sqm in Timisoara, Romania, for Euro 7.25 million (NIS 30.9 million) and a plot totaling approximately 30,000 sqm in Constanta, Romania, for Euro 1.3 million. (NIS 5.5 million).
On October 2, 2017 PC’s subsidiary has concluded the transaction with an international investor, NEPI Rockcastle (the “Buyer”), on the termination of land use right and preliminary easement agreement which created certain easement rights over the Arena Plaza plot registered in favor of PC subsidiary In consideration for termination of the land use right and the preliminary easement agreement, PC’s subsidiary received the net sum of EUR 2.5 million (NIS 10.4 million) and recorded revenue in the amount of EUR 2.5 million (NIS 10.4 million).
On November 21, 2017 PC has completed the sale of shares with an investment fund (the “Purchaser”) regarding the sale of SPV holding of the Torun Plaza shopping and entertainment center in Poland. PC has received a net cash of approximately Euro 28.3 million,(NIS 117.1 million). This net cash is after the deduction of the bank loan (circa EUR 43.3 million) (NIS 179.3). The above-mentioned sums do not include the earn out payments in an amount of EUR 0.35 million (NIS 1.4 million), reduced by NAV adjustment of EUR 0.2 million (NIS 0.8 million). PC recorded revenue of EUR 71.6 million (NIS 296.4 million) from the disposal and recorded a loss from the sale in amount of EUR 1.5 million (NIS 6.4 million) (not including the earn-out payment mentioned).
Following the sale of “MUP” plot in Belgrade, Serbia, PC was entitled to an additional contingent consideration of EUR 0.6 million (NIS 2.5 million) once the purchaser successfully develops at least 69,000 sqm above ground. The consideration was received in September 2017 and is recorded as revenue from disposal of trading properties.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
● | In September, 2018 the U.S. Food and Drug Administration (FDA) has approved Exablate Neuro™ compatibility for the MRI Scanners from Siemens Healthineers (models: Magnetom Skyra, Prisma and Prismafit) to treat patients with essential tremor (ET) Who do not respond to medication. |
Additional information in respectIn December, 2018 Insightec announced the European CE Mark approval of trading property:
The following table summarizes general information regarding the Group’s significant trading property projects.Exablate Neuro™ compatibility from Siemens Healthineers, to treat patients with essential tremor (ET), Tremor Dominant Parkinson’s Disease and Neuropathic Pain.
Purchase/ | Rate of ownership | As of December 31, | As of December 31, | |||||||||||||||
transaction | by the | 2017 | 2017 | 2016 | ||||||||||||||
Project | Location | date | group (%) | Nature of rights | Carrying Amount (MNIS) | |||||||||||||
Operational | ||||||||||||||||||
Suwalki Plaza | Poland | Jun-06 | 100 | Ownership | Sold | 163.5 | ||||||||||||
Torun Plaza | Poland | Feb-07 | 100 | Ownership | Sold | 281.8 | ||||||||||||
Undeveloped lands designated for development | ||||||||||||||||||
Sport-Star Plaza | Serbia | Dec-07 | 100 | Ownership | Sold | 226.2 | ||||||||||||
Undeveloped lands not designated for development | ||||||||||||||||||
Casa Radio (see c1 above) | Romania | Feb-07 | 75 | Leasing for 37 years | (*)262.5 | (*)296.4 | ||||||||||||
Lodz residential | Poland | Sep-01 | 100 | Ownership/ Perpetual usufruct | 1.7 | 2.0 | ||||||||||||
Timisoara Plaza | Romania | Mar-07 | 100 | Ownership | Sold | 28.3 | ||||||||||||
Lodz - plaza | Poland | Sep-09 | 100 | Perpetual usufruct | 16.2 | 20.6 | ||||||||||||
Kielce Plaza | Poland | Jan-08 | 100 | Perpetual usufruct | Sold | 8.9 | ||||||||||||
Lesnzo Plaza | Poland | Jun-08 | 100 | Perpetual usufruct | Sold | 3.2 | ||||||||||||
Miercurea Csiki Plaza | Romania | Jul-07 | 100 | Ownership | 4.2 | 4.0 | ||||||||||||
Constanta Plaza | Romania | July-09 | 100 | Ownership | Sold | 5.3 | ||||||||||||
Shumen Plaza | Bulgaria | Nov-07 | 100 | Ownership | Sold | 3.2 | ||||||||||||
Arena Plaza Extension | Hungary | Nov-05 | 100 | Land use rights | Sold | 6.1 | ||||||||||||
Helios Plaza | Greece | May-02 | 100 | Ownership | 13.7 | 13.3 | ||||||||||||
Bangalore (see d below ) | India | Mar-08 | 100 | Ownership | 113.7 | 154.6 | ||||||||||||
Chennai (see d below) | India | Dec-07 | 100 | Ownership | 73.4 | 84.5 | ||||||||||||
Other small plots, grouped | 7.2 | 8.6 | ||||||||||||||||
492.6 | 1,310.5 |
In July, 2018, ‘the U.S. Food and Drug Administration (FDA) has approved the initiation of a clinical study using Insightec’s MR-guided Focused Ultrasound (MRgFUS) to treat patients with Alzheimer’s disease (the “Study”). The Study is a prospective, multi-center, single-arm study to evaluate the safety and efficacy of using Insightec’s Exablate Neuro low-frequency focused ultrasound to disrupt the blood brain barrier in patients diagnosed with Alzheimer’s disease. |
● | The Centers for |
● | On February 25, 2019, Insightec informed that an additional Local Medicare Contractor of the Centers for Medicare and Medicaid Services (the “CMS”), Noridian Medicare, has posted a positive Local Coverage Determination for MR-guided focused ultrasound (MRgFUS) for the incisionless treatment for essential tremor that has not responded to medication, effective April 1, 2019. Noridian coverage will include 13 states. At this stage, Noridian Medicare administers benefits to approximately 7 million Medicare beneficiaries. Following the updated insurance cover by Noridian as |
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5:- INVESTMENTS IN ASSOCIATES (Cont.)
c. | Investment in |
From December 2018 onwards as a result of irrevocably transfer its voting rights in PC to trustee, the Company had lost the control over PC and started to account its investment in PC using the equity method. See Note 19b with respect of details of the loss of control in PC. The Company measured the investment in PC shares upon loss of control based on fair value which was negligible.
Going concern and liquidity position of the PC:
PC board and management announced that the Company is unable to serve its entire debt according to the current repayment schedule. Moreover, following the recent default of purchaser of Bangalore project as of PC’s financial statements signature date to meet payments schedule according to the amendment agreement signed in March 2018 (see Note 6a2b, and default of purchaser of Chennai Project to complete the sale transaction (see to Note 6a2a), it is expected that PC will not be able to meet its entire contractual obligations in the following 12 months.
As of December 31, 2018, PC is not in compliance with few with their covenants as defined in the restructuring plan. This may entitle the bondholders to declare that all or a part of their respective (remaining) claims become immediately due and payable.
In the case that the bondholders would declare their remaining claims to become immediately due and payable, PC would not be in a position to settle those claims and would need to enter to an additional debt restructuring or might cease to be a going concern. As at the date of these financial statements the bondholders have not taken steps to assert their rights.
On January 31, 2019 the bondholders of PC Series A and Series B approved a partial deferral of the scheduled Principal payment as of December 31, 2018 to July 1, 2019.
A combination of the abovementioned conditions indicates the existence of a material uncertainty that casts significant doubt about the PC’s ability to continue as a going concern.
Going concern and liquidity position of PC has no effect on the Company’s financial statements.
d. | As for loss of |
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ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES
The Group has the following interest in the joint ventures, as at December 31, 2018 and 2017:
Interest of holding (percentage) as at December 31, | ||||||||||
Company name | Country | 2018 | 2017 | |||||||
EPI | Cyprus | 50 | % | 50 | % | |||||
Kochi | India | 50 | % | 50 | % |
The movement in equity accounted investees (in aggregation) was as follows:
2018 | ||||
Balance as at 1 January | 5,592 | |||
Initial recognition (see Note 19) | 77,048 | |||
Effect of movements in exchange rates | (209 | ) | ||
Balance as at 31 December | 82,431 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI: |
From 31 December 2018 onwards, the Company accounts for its investment in EPI using the equity method. See Note 19 with respect of details of the loss of control on EPI. |
The Company and PC each holds 47.5% of the shares of of Elbit Plaza India Real Estate Holdings Limited (“EPI”) which holds plots in Bangalore and Chennai, India (see section 2 below). The remaining 5% equity rights are held by the Company’s former Executive Vice Chairman (VC) of the Board. The VC Shares shall not be entitled to receive any distributions or payment from the EPI until the Group’s investments (principal and interest calculated in accordance with a mechanism provided for in the agreement) in EPI have been fully repaid. The Company and PC each have the right to appoint 50% of the board members of EPI.
The summarized financial information of EPI is as follows:
2018 | ||||
Current assets | 8,415 | |||
Trading properties-non current | 199,213 | |||
Other current liabilities | (53,532 | ) | ||
Net assets (100%) | 154,096 | |||
Carrying amount of interest in joint venture (50%) | 77,048 |
2018 | ||||
Reverse of write-downs | 13,831 | |||
Other expenses | (1,110 | ) | ||
Total net profit and comprehensive income (100%) | 12,721 | |||
Total results from investee (50%) | 6,361 |
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI (cont.): |
2. | Additional information in respect of trading property in India: |
The following information relates to trading property held by Elbit-Plaza India Real Estate Holding Limited (“EPI”), the total amount of which as of December 31, 2017,2018, amounts to NIS 187.1199 million. EPI is jointly controlled by the Company and PC (see note 7c).
Chennai, India: |
In December 2007, EPI executed agreements for the establishment of a special purpose vehicle (“Chennai Project SPV”) together with a local developer in Chennai (“Local Partner”). The Chennai Project SPV acquired 74.73 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai (“Property”).
On September 16, 2015, EPI has obtained a backstop commitment from the Local Partner for the purchase of its 80% shareholding in the Chennai SPV by January 15, 2016, for a net consideration of approximately INR 161.7 Crores (NIS(NIS 87 million). Since the Local Partner had breached its commitment, EPI exercised its rights and forfeited the Local Partner’s 20% holdings in the Chennai Project SPV. Accordingly, as of the balance sheet date EPI has 100% of the equity and voting rights in the Chennai Project SPV.
During 2016, Chennai Project SPV has signed a Joint Development Agreement with a local developer (“Developer” and “JDA”, respectively) with respect to the Property.
Under the terms of the JDA, the Chennai Project SPV granted the property development rights to the Developer” who shall bear full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices.
Development will commence subject to the obtainment of the required governmental/ municipal approvals and permits, and it is intended that 67% of the Property will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale.
The Chennai Project SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units.
In order to secure its obligation, the Developer paid a total refundable deposit of INR 10 Crores (NIS 5.5 million) following the signing and registration of the JDA.
The JDA may be terminated in the event that the required governmental approvals for establishment of access road to the Property has not been achieved within 12 (twelve) months period from the execution date of the JDA. The required approvals have not yet been obtained at the target date, but none of the parties has canceled the agreement at this juncture.date. Upon such termination, the Developer shall be entitled to the refund of the relevant amounts paid as Refundable Deposit and any other cost related to such access road or the title over the Property. The JDA may also be terminated by the Chennai Project SPV, inter alia, if the Developer has not obtained certain development milestone and/or breached the terms of the JDA.
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ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI (cont.): |
Additional information in respect of trading property in |
Chennai, India |
Due to this fact,On July 5, 2018 EPI signed a term sheet (“Term Sheet”) with the financial statementsDeveloper for the sale of the SPV includeProperty for a provisiontotal consideration of approximately Euro 13.2 million (INR 1,060 million). The closing of the transaction was expected in an amount of INR 30 Crores (NIS 16 million) for cost reimbursement, including INR 10 Crores (NIS 5.5 million) advanced payment received.February 2019. As the transaction was not completed the Term Sheet was terminated by EPI.
In February 2019 the Chennai Project SPV issued notice to Developer terminating the JDA due to its failure to obtain the access road. The said termination of JDA has been disputed by the Developer. Therefore, the Chennai Project SPV has initiated arbitration proceeding against the developer in accordance with the Arbitration Rules of the Singapore International Arbitration Centre, in accordance with the JDA Agreement to protect its rights.
Net realizable value measurement of Chennai projectproject:
The valuation of the property is based on the comparable method. As for December 31, 2018 and 2017 the Group measured the net realizable value of the project which was INR 1,351 million (NIS 73 million);
The following main parameters have been considered to arrive at the land value of the subject property:
Parameter | Premium (Discount) | ||||
Applicable Land Value INR million/acre | |||||
Discount for shape and contiguity | -20 | % | |||
Additional cost to be incurred at the site due to illegal excavation | -5 | % | |||
Total discount on account | -58 | % |
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI (cont.): |
2. | Additional information in respect of trading property in India: |
b) | Bangalore: |
In March, 2008 EPI entered into a share subscription and framework agreement (the “Agreement”), with a third partythird-party local developer (the “Partner”), and a wholly owned Indian subsidiary of EPI which was designated for this purpose (“SPV”), to acquire together with the Partner, through the SPV, up to 440 acres of land in Bangalore, India (the “Project”) in certain phases as set forth in the Agreement. As of December 31, 2017,2018, the Partner has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest in the Plot and have also signed a Joint Development Agreement with the SPV in respect of the Plot.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2015 agreement
On December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Partner (the “Sale Agreement”). The total consideration upon completion of the transaction was INR 3,210321 million crores (approximately EUR 4240.2 million) which should have been paid no later than September 30, 2016 (“Long Stop Date”). On November 15, 2016, the Partner informed EPI that it will not be able to execute the advance payments.
As a result of the foregoing, the CompanyEPI has received from the escrow agent the sale deeds in respect of additional 8.38.7 acres (the “Additional Property”) which has been mortgaged by the Partner in favourfavor of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favourfavor of the SPV. In addition, as per the Sale Agreement, the Company took actions in order to get full separation from the Partner with respect to the Plot and specifically the execution of the sale deed with respect of the 10% undivided interest, all as agreed in the Sale Agreement.
As a result of the failure of the Partner to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, EPI has 100% control over the SPV and the partner is no longer entitled to receive the 50% shareholding.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI (cont.): |
2. | Additional information in respect of trading property in India: |
b) | Bangalore (cont.): |
2017 agreementNew payment structure for sale of Project in Bangalore, India:
In June 2017, EPI signed a revised sale agreement with the former partner (the “Purchaser”).
The Purchaser and EPI have agreed that the purchase price will be amended to INR 338 Crores (approximately Euro 44.242.4 million) instead of the INR 321 Crores (approximately Euro 4240.2 million) agreed in the previous agreement. As part of the agreement, INR 110 Crores (approximately Euro 14.413.8 million) willwere supposed to be paid by the Purchaser in instalments until the Final Closing. The Final Closing will take placewas scheduled on September 1, 2018, when the final instalment of INR 228 Crores (approximately Euro 29.8 million) willwere supposed to be paid to EPI.
If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement will remain in place until the Final Closing.
2018 agreement
In January 2018, the Purchaser has notified EPI that due to a proposed zoning change (initiated by the Indian authorities) which could potentially impact the development of the land, all remaining payments under the Agreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Purchaser’s claims, having no relevance to the existing Agreement, and started to evaluate its legal options.
Since the signing of the revised agreement, the Purchaser has INR 46 Crores (approximately EUR 6.06 million) were paid non-refundable advance payments totaling INR 55 Crores (circa NIS 30 million).till March 2018.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In March 2018, the Company signed an amended revised agreement as follows: Thethe Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately NIS 190EUR 44.5 million). Following; the signing of the revised agreement the Purchaser paid EPI additional INR 10 Crores (approximately NIS 5 million) further to the INR 45 Crores (approximately NIS 25 million) that were already paid during the recent year. Additional INR 83 Crores (approximately NIS 45 million) will be paid by the Purchaser in unequal monthly installments until the Final Closing. The Final Closing will take place on 31 August 2019 when the final installment of circa INR 212 Crores (approximately NIS 115EUR 26.9 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certainall amounts paid to date by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the Final Closing.
As of 31 December 2017 advances received fromOn February 4, 2019 the Company announced that the Purchaser defaults on payments and that EPI is considering all legal measures available to it to protect its interest.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI (cont.): |
2. | Additional information in respect of trading property in India: |
b) | Bangalore (cont.): |
New payment structure for sale of Project in Bangalore, India (cont.):
During March 2019, the Company announced that the Purchaser has further paid to EPI INR 9.25 cores (approximately EUR 1.15 million).
During April 2019 EPI has reached an understandings with the purchaser according to which:
(i) the closing date for the transaction will be extended to November 2019 (instead of August 2019) (the “Closing Date”); and (ii) the consideration will be increased to approximately €45.64 (INR 356 crores) (instead of INR 350 crores) (the “Consideration”). The Closing Date can be further extended to August 2020, subject to mutually agreed payment terms.
As for the approval date of the financial reporting the purchaser paid in total INR 80 crores (approximately EUR 10.26 million) against INR 90 crores (approximately EUR 11.5 million) that was supposed to be paid by end of April 2019 according to mutual understating. The Company part out of total consideration is 50%.
On May 13, 2019, the Company announced that the Purchaser defaulted on payments of INR 10 crores (approximately EUR 1.27 million) according to the new understandings signed on April 2019.
EPI has initiated legal process to protect its interest while it continues to negotiate with the Purchaser for payment of the amount of NIS 21.8 million are included in the financial statements as part of other non-current liabilities.due.
Environmental update on Bangalore project - India:
On May 4, 2016, the National Green Tribunal (“NGT”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“Order”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.
The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several storm-water crossing it.
An appeal was filed before the Supreme Court of India against the Order. TheOn March 2019, the Supreme Court has stayedset aside the operationOrder thereby restoring the position as it existed before the Order was passed by NGT.
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ELBIT IMAGING LTD. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6:- INVESTMENTS IN JOINT VENTURES (Cont.)
a. | Investment in EPI (cont.): |
2. | Additional information in respect of trading property in India: |
b) | Bangalore (cont.): |
Net realizable value measurement of Bangalore project
As for December 31, 20172018 and 20162017 the Group measured the net realizable value of the project.
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The net realizable value of the project is INR 235 crores (approximately EUR 29.5 million); (2017 - INR 209.1 crores million approximately EUR 27.4). The plot in Bangalore is still in land stage and therefore the value of the plot has been derived using land comparable method. The valuation of the property reflects the risk related to NGT order described above, the interest that the partner still holds in the plot (10% as described above), the size of the plot and the non-contiguous land parcel. The decrease in the value during 2017 is attributable mainly to the proposed change in zoning regulations. The local authorities have proposed a revised master plan for Bangalore under which it is proposed to change certain regulations pertaining to zoning of the plot which if given effect might adversely affect the development prospects on the plot. The Company being aggrieved by the proposed change was entitled to and has filed the necessary objections with the concerned authorities and believes that the current zoning regulations will be maintained. Management believes that the current discount rate used towards this end is an appropriate estimation in the current circumstances.
The following main parameters have been considered to arrive at the land value of the subject property:property by land sale comparison method:
Parameter | Premium (Discount) | ||||
Applicable land value (INR Mn/acre) | |||||
Discount on account of | % | ||||
Presence of minority shareholder | -20 | % | |||
Discount on account of possible change in zoning (open space/parks) | -25 | % |
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ELBIT IMAGING LTD.
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NOTES TO
The Company has rights under certain share subsection agreement to hold 50% shareholding in Indian SPV (“Project SPV”). The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired 13 acres (“Property A”) for a total consideration of INR 1,495 million (NIS
On
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NOTE 7:- ADDITIONAL INFORMATION AS TO INVESTMENTS IN MATERIAL SUBSIDIARIES AND CHANGES THEREOF Elbit Medical Technologies:
Elbit Medical Technologies Ltd., is an Israeli company traded on the TASE (“Elbit Medical”) which holds the medical business of the Group through the holdings of two portfolio companies: Between October and December 2018, the Company completed the sale of 60,087,537 ordinary shares of Elbit medical which represent 26% of Elbit Medical’s outstanding share capital to an SPV related to the Exigent Capital Group (“SPV”) for a price per share of NIS 0.96 for the total consideration of NIS 58 million. Furthermore, following the acquisition according to the agreement signed the SPV is entitled to one board member out of seven board members. See also Note 21. After the sale, the Company’s control over Medical remained unchanged. The effect of the sale on the financial statements is an increase in the Company shareholder equity attributed to the shareholder of the Company in the amount of NIS 85 million.
As for December 31,
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NOTE 8:- FINANCIAL ASSET THROUGH PROFIT AND LOSS Gamida Cell Ltd. (“Gamida”):
Upon completion of the issuance, Gamida adopted a new article of association. All of Gamida shares were converted into ordinary shares, including Elbit Medical’s shares. According to the new article of association of Gamida, the Board of Directors of Gamida (excluding external directors, if any) will be divided into three classes nearly equal in number as practicable. The term of office of each class shall expire after one year and when their successors are elected and qualified. The general meeting may elect up to one third of the directors elected for a three-year term, instead of the directors whose term of office expired at that annual meeting.
Elbit Medical holds (through a subsidiary) 2,685,590 shares, the fair value of which as of December 31, 2018 (taking into account the discount as a result of lock up period) is approximately NIS 86 million. Refer also to Note 20(d). F-63
NOTE 10:- PAYABLES AND OTHER CREDIT BALANCES
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On February 20, 2014 two series of notes were issued by the Company:
The first series of notes (“Series H”) was in the aggregate principal amount of NIS 448 million, The second series of notes (“Series I”) was in the aggregate principal amount of NIS 218 million
NOTE 11:- BORROWINGS (Cont.)
The following table present the terms of the Company’s
The Company’s notes as for December 31,
For collaterals see
The Company has open repurchase plan in the amount of 56 million NIS. F-66
NOTE 11:- BORROWINGS (Cont.)
On February 19, 2018 Elbit Medical has completed a public offering of notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit Medical’s holdings in Insightec Ltd. and Gamida Cell Ltd. (the “Notes”). The
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F-68
NOTE 12:- INCOME TAXES (Cont.)
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NOTE 12:- INCOME TAXES (Cont.)
The following is reconciliation between the income tax expenses computed on the pretax income at the ordinary tax rates applicable for the Company (“the theoretical tax”) and the tax amount included in the consolidated statement of operations:
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NOTE 12:- INCOME TAXES (Cont.)
The Company and certain Israeli subsidiaries have
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NOTE 13:- COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS
Certain legal claims have been filed against the Group’s
In the opinion of the managements of the Group, which is based, inter alia, on legal opinions as to the probability of the claims,
Following are the Group’s material claims as of December 31,
In November 1999, a number of institutional and other investors (the “Plaintiffs”), holding shares in Elscint Ltd.(a subsidiary of the Company which was merged into the Company (“Elscint”) instituted a claim against the Company, Elscint, the Company’s former controlling shareholders, past officers in the said companies and others. Together with the claim a motion was filed to certify the claim as a class action on behalf of everyone who was a shareholder in Elscint on September 6, 1999 and until the submission of the claim, excluding the Company and certain other shareholders.
The Company’s share in the aforementioned compensation
Accordingly, the Company shall pay the Israeli Tax Authority an amount of approximately NIS 11.5 million for the relevant period. On November 19, 2018, the Company has reached a settlement agreement with the Israeli Tax Authority in connection with VAT
As for December 31, 2018 the Company’s net liability to the VAT authority is NIS 10.8 million out of F-72
NOTE 13:- COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.)
As of December 31,
The General Meeting of the Company’s shareholders has approved the grant of prospective indemnification undertaking to the Company’s directors
In November 2010, the shareholders’ of Elbit Medical
The total indemnification that Elbit Medical Technologies shall pay to each of the indemnified parties (in addition to amount received from the insurance companies according to the insurance policy) shall not exceed USD 40 million. The maximum indemnification amount shall not be affected by payment according to any insurance policy or its existence unless the indemnification amount claimed was already covered by the insurance companies or by any third party.
F-73
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