CONFORMED COPY
--------------
As filed with the Securities and Exchange Commission on June 12, 1998
Registration No. 333-6136
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
POST-EFFECTIVE AMENDMENT NO. 2
ON
FORM F-3
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENESIS DEVELOPMENT AND CONSTRUCTION LTD.
(Exact Name of Registrant as Specified in Its Charter)
ISRAEL NONE
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 HASIKMA STREET
P.O. BOX 70068
HAIFA 31700, ISRAEL
TEL.: 972-4-824-4868
FAX: 972-4-824-5885
(Address and Telephone Number of Principal Executive Offices)
ELI ARAN
GENESIS DEVELOPMENT AND CONSTRUCTION, INC.
20 SQUADRON BOULEVARD
NEW CITY, NEW YORK 10956
TEL: (914) 634-0300
FAX: (914) 634-8077
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
ROBERT L. WINIKOFF, ESQ.
ELLIOT BRECHER, ESQ.
COOPERMAN LEVITT WINIKOFF
LESTER & NEWMAN, P.C.
800 THIRD AVENUE
NEW YORK, NEW YORK 10022
TEL: (212) 688-7000
FAX: (212) 755-2839
APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF SALE TO PUBLIC:
As soon as practible after this Registration Statement becomes effective.
<PAGE>
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [X]
If this Form is filed to registered additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
-------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
<PAGE>
EXPLANATORY NOTE
This Registration Statement relates in part (i) to the 8,900,000 Class A
Ordinary Shares and 3,300,000 redeemable Class B Warrants issuable by Genesis
Development and Construction Ltd. upon exercise of certain redeemable Class A
Warrants and redeemable Class B Warrants and (ii) to the resale by certain
Selling Securityholders of 1,000,000 Class A Warrants, 1,000,000 Class B
Warrants or 2,000,000 Class A Ordinary Shares or a combination thereof.
Following the Prospectus relating to the securities issuable upon exercise of
certain warrants are the following pages of the Prospectus relating to the
resale of certain securities by the Selling Securityholders: alternate front
cover page and sections entitled "Table of Contents," "Use of Proceeds,"
"Selling Securityholders" and "Plan of Distribution" to be used in lieu of the
corresponding front cover page and sections of the Prospectus relating to the
securities issued upon exercise of certain warrants.
<PAGE>
PROSPECTUS
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GENESIS DEVELOPMENT AND CONSTRUCTION LTD.
8,900,000 CLASS A ORDINARY SHARES AND
3,300,000 REDEEMABLE CLASS B WARRANTS
Genesis Development and Construction Ltd. (the "Company") is
offering 3,300,000 Class A Ordinary Shares, NIS 0.1 par value (the "Class A
Ordinary Shares"), and 3,300,000 redeemable Class B Warrants (the "Class B
Warrants") issuable upon exercise of certain redeemable Class A Warrants (the
"Class A Warrants" and, together with the Class B Warrants, the "Warrants").
The Company is also offering 5,600,000 Class A Ordinary Shares issuable upon
exercise of certain Class B Warrants. The Warrants were issued, or are
issuable upon exercise of other securities that were issued, pursuant to (i)
the Company's initial public offering in January 1997 (the "IPO") or (ii) the
Company's private placement in November 1996 (the "Private Placement").
Each Class A Warrant entitles the holder to purchase one Class A
Ordinary Share and one Class B Warrant at an exercise price of $6.50, subject
to adjustment, at any time until January 29, 2002. Each Class B Warrant
entitles the holder to purchase one Class A Ordinary Share at an exercise
price of $8.75, subject to adjustment, at any time until January 29, 2002.
The Warrants are subject to redemption by the Company at $.05 per Warrant on
30 days' prior written notice if the closing bid price of the Class A Ordinary
Shares on The Nasdaq SmallCap Market (or the last reported sale prices of the
Class A Ordinary Shares on a national securities exchange or on The Nasdaq
National Market) averages in excess of $9.10 per share with respect to the
Class A Warrants and $12.25 per share with respect to the Class B Warrants
(subject to adjustment in each case) for 30 consecutive trading days ending
within 15 days of the date of notice of redemption.
The Company has agreed not to solicit Warrant exercises other than
through D.H. Blair Investment Banking Corp., the underwriter of the IPO
("Blair"), unless Blair declines to make such solicitation. Upon any exercise
of the Warrants, the Company will pay Blair a fee of 5% of the aggregate
exercise price for Warrant exercises solicited in writing by Blair or its
representatives or agents, subject to certain conditions. See "Use of
Proceeds," "Plan of Distribution" and "Description of Securities--Redeemable
Warrants."
The Company's Class A Ordinary Shares, Class A Warrants and Class B
Warrants are quoted on The Nasdaq SmallCap Market ("Nasdaq") under the symbols
GDCOF, GDCWF and GDCZF, respectively. On June 9, 1998, the closing bid
prices of these securities on Nasdaq were $5.0, $2.0625 and $0.5,
respectively.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------------------
The date of this Prospectus is June , 1998.
<PAGE> 2
TABLE OF CONTENTS
Page
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Available Information 3
Information Incorporated by Reference 3
Forward-Looking Statements 4
Presentation of Financial Information 4
Enforceability of Civil Liabilities 5
Prospectus Summary 7
Risk Factors 11
Use of Proceeds 21
Plan of Distribution 21
Description of Securities 22
Legal Matters 27
Experts 27
Consolidated Financial Statements F-1
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus. This Prospectus does not constitute an offer or a solicitation in
any jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the circumstances of the Company or the facts set forth
herein since the date hereof.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "SEC"). Such reports and other information filed
by the Company can be inspected and copied at the public reference facilities
of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the following SEC regional offices: Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the SEC at
prescribed rates by writing to the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549.
The Company has filed a Post-Effective Amendment to its Registration
Statement on Form F-3 to Form F-1 (the "Registration Statement") with the SEC
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. For further information, reference is made
to the Registration Statement, copies of which may be obtained from the Public
Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the SEC
maintains a World Wide Web site (http://www.sec.gov) that contains reports and
other information regarding registrants that file electronically with the SEC.
As a foreign issuer, the Company will be exempt from the rules under
the Exchange Act prescribing the furnishing and content of proxy statements,
and its officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16
of the Exchange Act. Under the Exchange Act, the Company will not be required
to publish financial statements as frequently or as promptly as United States
companies. However, the Company intends to distribute to its shareholders
annual reports in English containing consolidated financial statements,
prepared in accordance with Israeli GAAP and reconciled with U.S. GAAP, which
will be examined by the Company's independent public accountants and will
include their report thereon, and such other interim reports as it deems
appropriate.
INFORMATION INCORPORATED BY REFERENCE
The following documents, which have been filed with the SEC (File
No. 0-29078) pursuant to the Exchange Act, are incorporated herein by
reference: (i) the Company's Annual Report on Form 20-F for the fiscal year
ended December 31, 1996; and (ii) the Company's registration statement on Form
8-A for a description of the Company's securities, including any amendment or
report filed for the purpose of updating that description. In addition, the
Company hereby incorporates by reference into this Prospectus all documents
filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, after the date of this Prospectus and prior to the termination
<PAGE> 4
of the offering contemplated hereby, which documents shall be deemed to be a
part hereof from their respective dates of filings. The Company will provide
without charge to each person to whom a Prospectus is delivered, upon the
written or verbal request of such person, a copy of any and all of the
documents that have been incorporated herein by reference (other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference in such documents). Any such request should be directed to Genesis
Development and Construction Ltd., 10 Hasikma Street, Haifa 31700, Israel,
Attention: Secretary, telephone number 011-972-4-824-4868.
Any statement contained in a document, all or a portion of which is
incorporated by reference in this Prospectus, will be deemed to be modified or
superseded for the purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document that
also is incorporated by reference in this Prospectus modifies or supersedes
such statement. Any statement so modified will not be deemed a part of this
Prospectus, except as so modified, and any statement so superseded will not be
deemed part of this Prospectus.
FORWARD-LOOKING STATEMENTS
THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS AND IN
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, CONCERNING, AMONG OTHER
THINGS, THE ABILITY OF THE COMPANY TO COMPETE IN THE ISRAELI REAL ESTATE
INDUSTRY AND THE STRENGTH OF SUCH INDUSTRY, INVOLVE RISKS AND UNCERTAINTIES,
AND ARE SUBJECT TO CHANGES IN THE ISRAELI ECONOMY, CONTINUING IMMIGRATION, THE
AVAILABILITY OF LAND, AND THE CONTINUED AVAILABILITY OF RAW MATERIALS AND
LABOR. FURTHERMORE, THE COMPANY OPERATES IN AN INDUSTRY SECTOR WHERE
SECURITIES VALUES MAY BE VOLATILE AND MAY BE INFLUENCED BY ECONOMIC AND OTHER
FACTORS BEYOND THE COMPANY'S CONTROL. IN THE CONTEXT OF THE FORWARD-LOOKING
INFORMATION PROVIDED IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, PLEASE REFER TO THE DISCUSSIONS OF RISK FACTORS DETAILED IN,
AS WELL AS OTHER INFORMATION CONTAINED IN, THIS PROSPECTUS.
PRESENTATION OF FINANCIAL INFORMATION
The Company prepares its financial statements in accordance with
accounting principles generally accepted in Israel ("Israeli GAAP"). As
applicable to the Consolidated Financial Statements, Israeli GAAP differs in
certain respects from accounting principles generally accepted in the United
States ("U.S. GAAP"). See Note 29 of Notes to Consolidated Financial
Statements. In accordance with applicable Israeli accounting rules, the
Company maintains its accounts and presents its financial statements in New
Israeli Shekels ("NIS"), adjusted for changes in the Israeli Consumer Price
Index ("CPI") through the latest balance sheet date ("Adjusted NIS"). This
presentation permits the financial information to be set forth in constant
terms as measured by changes in the CPI. Except as otherwise described herein,
all financial information in this Prospectus (including financial information
with respect to previous years) is presented in Adjusted NIS of December 1997,
and amounts stated in dollars have been translated from Adjusted NIS at the
representative exchange rate published by the Bank of Israel (the
<PAGE> 5
"Representative Rate") on December 31, 1997 (NIS 3.536 = $1.00). Such dollar
amounts have been included solely for the convenience of the reader and should
not be construed as a representation that the NIS amounts actually represent
such dollar amounts or could be converted into dollars at that rate. See Note
2(b) to Notes to Consolidated Financial Statements. The Federal Reserve Bank
of New York does not certify for customs purposes a noon buying rate of cable
transfers in NIS. All references in this Prospectus to "dollars" or "$" are to
U.S. dollars and all further references in this Prospectus to "NIS" are to
Adjusted NIS, unless the context otherwise indicates. The Representative Rate
on June 9, 1998 was NIS 3.667 = $1.00.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is incorporated under the laws of the State of Israel.
Its officers and certain of its directors and experts named herein reside
outside of the United States. Most of the assets of the Company are presently
located outside of the United States. Service of process upon individuals or
firms which are not resident in the United States may be difficult to obtain
within the United States. Furthermore, since substantially all of the
Company's assets presently are located outside of the United States, a
judgment obtained in the United States against the Company may not be
collectible within the United States. The Company has been informed by its
legal counsel in Israel, M. Seligman & Co., that, in such counsel's opinion,
there is doubt as to the enforceability of civil liabilities under the
Securities Act or the Exchange Act, in original actions instituted in Israel.
However, subject to certain time limitations, Israeli courts are empowered to
enforce foreign (including United States) final executory judgments for
liquidated amounts in civil matters, obtained after completion of due process
before a court of competent jurisdiction which recognizes similar Israeli
judgments, provided such judgments or the enforcement thereof are not contrary
to Israeli law, public policy, security or the sovereignty of the State of
Israel. The enforcement of judgments is conditioned upon (a) adequate service
of process being affected and the defendant having had a reasonable
opportunity to be heard, (b) such judgment having been obtained before a court
of competent jurisdiction according to the rules of private international law
prevailing in Israel, (c) such judgment not being in conflict with any other
valid judgment in the same matter between the same parties, (d) such judgment
not having been obtained by fraudulent means and (e) an action between the
same parties in the same matter not being pending in any Israeli court at the
time the lawsuit is instituted in the foreign court. A specific permit of the
Controller of Foreign Currency of the Bank of Israel is required before
transferring out of Israel proceeds of a foreign judgment enforced in Israel.
The Company has appointed its wholly owned United States subsidiary, Genesis
Development and Construction, Inc., 20 Squadron Boulevard, New City, New York
10956 as agent for service of process in any action in any Federal or state
court sitting in the City of New York arising out of this offering or any
purchase or sale of securities in connection therewith. Consent has not been
given by the Company for such agent to accept service of process in connection
with any other claim.
The usual practice in an action to recover an amount in a
non-Israeli currency is for the Israeli court to render judgment for the
<PAGE> 6
equivalent in Israeli currency at the rate of exchange in force on the date
thereof. Pending collection, the amount of the judgment of an Israeli court
stated in Israeli currency will ordinarily be linked to the CPI plus interest
at the annual rate (set by Israeli law) prevailing at such time. Judgment
creditors must bear the risk that they will be unable to convert their award
into foreign currency that can be transferred out of Israel. All judgment
creditors must bear the risk of unfavorable exchange rates.
<PAGE> 7
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL DATA
(INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO) APPEARING ELSEWHERE
IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. THE
TRANSLATION OF CERTAIN NIS AMOUNTS INTO DOLLARS APPEARING IN THIS PROSPECTUS
HAVE BEEN MADE FOR THE CONVENIENCE OF THE READER AT THE REPRESENTATIVE RATE
PREVAILING AT DECEMBER 31, 1997 (NIS 3.536 = $1.00) AS PUBLISHED BY THE BANK
OF ISRAEL.
THE COMPANY
The Company is engaged in the business of real estate development
and construction management for residential and public properties primarily
in Israel. The Company acts as a general contractor, subcontracting all of its
construction activities to independent subcontractors, and manages these
projects with on-site project managers and field engineers. In addition, the
Company provides consulting, management and financial management services in
connection with real estate activities conducted by other developers and
contractors.
Over 90% of the land in Israel is owned by the Government of the
State of Israel (the "Israeli Government"). As a result, the rate of new
development and construction is essentially determined by the Israeli
Government. The Israeli Government currently awards building projects
primarily through a competitive bidding process in which bidders must
demonstrate, among other things, the quality of their work and their ability
to complete projects in accordance with specifications and timing
requirements. A substantial portion of the Company's projects have been
awarded through, and the Company intends to continue to participate in, this
competitive bidding process. The Israeli Government also awards projects to
developers through a raffle process where it predetermines the purchase price
for rights in an undeveloped parcel of land and awards the rights to
developers pursuant to a raffle.
The real estate industry in Israel has undergone rapid and
significant expansion in recent years. According to the Israeli Central Bureau
of Statistics (the "ICBS"), for the years 1990 through 1997, Israel
experienced an average population growth rate of approximately 3.3% per year,
primarily as a result of immigration from the countries formerly constituting
the Soviet Union. Although the rate of immigration decreased during 1996 and
1997, as reported by the ICBS, immigration has and continues to provide the
Israeli economy with a highly educated and cost competitive labor force which
has stimulated the country's economic growth. This growth, together with an
increasing population, has led to an increase in demand for residential
properties and the need for additional public buildings.
<PAGE> 8
Israel's limited supply of land requires the Israeli Government to
make efficient use of the resources available in order to plan for its
continually growing population. As the percentage of agriculture in Israel's
gross domestic product, exports and employment has fallen in recent years, the
Israeli Government is under pressure to re-zone agricultural land for urban
development.
According to data provided by the Association of Contractors and
Builders in Israel, the current demand for housing is estimated at between
approximately 40,000 and 45,000 new units per year, made up of primarily young
couples buying their first homes, and of new immigrants leaving the temporary
rental market. The policy of the Israeli Government has been to promote home
ownership, both by making new land available to developers through a
competitive bidding process and by offering various entitlement programs to
purchasers of residential properties. In addition, Israel's commercial
mortgage banks have become more competitive and sophisticated in recent years,
offering flexible residential mortgages to their customers as well as
providing construction loans and other financial arrangements to developers.
However, the Israeli banks are subject to certain limits imposed by directives
issued by the Israeli Examiner of Banks.
The Company was incorporated in Israel in November 1992 and
commenced operations in July 1995. In November 1996, the Company changed its
name from Schnapp Equity Limited to Genesis Development and Construction Ltd.
The Company's principal executive offices are located at 10 Hasikma Street,
Haifa 31700, Israel, and its telephone number is 972-4-824-4868. The Company
conducts its construction activities through its subsidiaries. All references
in this Prospectus to the "Company" shall include such subsidiaries unless the
context otherwise requires.
RECENT DEVELOPMENTS
NEW PROJECTS
In December 1997, the Company was engaged as the general contractor
for the construction of 85 land-attached residential units in Modi'in, Israel.
Pursuant to the terms of the engagement, the Company is required to complete
construction by December 1999.
In December 1997, the Company entered into an agreement with The
Engel Group ("Engel") to purchase the rights to a parcel of land in Carmiel,
Israel. Although the Israel Land Administration (the "ILA") has recommended
zoning to permit construction of approximately 167 residential units on this
parcel, the Company will seek permission to build approximately 300
residential units of which approximately 220 units have been designated for
rental.
<PAGE> 9
In April 1998, the Company was awarded a construction project by the
Israeli Government's Ministry of Defense. In order to participate in this
project, the Company obtained a special security rating from the Ministry of
Defense which will enable it to participate in other classified military
projects in the future. In addition, the Company's subsidiary, Genesis
Construction Performance (1994) Ltd. ("Genesis Construction"), formerly known
as T.S.M.G. Construction Company Ltd., obtained C-1 and B-1 classifications,
which enable the Company to undertake infrastructure development, road, sewage
and drainage construction projects.
The Company received an order to enlarge its project for the
construction of a gymnasium in Tel Aviv, Israel, to include an air-
conditioning system, electrical systems, sports facilities and related
development construction.
ZONING APPROVALS
In January 1998, the authorities of the German government approved
the construction of approximately 250 land-attached residential units in the
first phase of the Company's project for the construction of a residential
neighborhood in Rassnitz, Germany. The Company acquired of a 36% interest in
this project in March 1997 and an additional 14% interest in April 1997.
In March 1998, the authorities of the Israeli government approved
the construction by the Company of approximately 1,000 residential units in
Rehovot, Israel. The Company acquired the rights to the parcel of land, which
is the site of this project, from the ILA in March 1997.
EXTENSIONS OF TIME TO COMPLETE PROJECTS
The Company has been granted an extension to complete the
construction of 65 residential units in Kfar Yona, Israel. Under the terms of
its initial engagement as a subcontractor by Engel, the Company was required
to complete this project by September 1997. Pursuant to the extension, the
Company is required to complete construction by June 1998. The penalty for
late completion provided for in the initial agreement was not assessed.
The Company has been granted an extension to complete the
construction of two gymnasiums in Holon, Israel. Under the terms of its
initial engagement by the Local Government Economic Services Ltd. (the
"LGES"), the Company was required to complete this project by December 1997.
Pursuant to the extension, the Company is required to complete construction by
June 1998. The penalty for late completion provided for in the initial
agreement was not assessed.
The Company has been granted an extension to complete the
construction of an administrative, science and technology building in Lev
Hasharon, Israel. Under the terms of its initial agreement as a subcontractor
for this LGES project, the Company was required to complete this project by
February 1998. Pursuant to the extension, the Company is required to complete
construction by July 1998. The penalty for late completion provided for in
the initial agreement was not assessed.
<PAGE> 10
The Company has been granted extensions to complete the construction
of three art and science centers on behalf of various municipalities in
different parts of Israel. Under the terms of its initial agreement as a
subcontractor for this Mifal Hapayis project, the Company was required to
complete these projects between December 1997 and March 1998. The extension is
the result of an order to enlarge the project to include a fire extinguishing
system, as well as delays in the completion of related development
construction which is being carried out by other contractors retained by Mifal
Hapayis. No penalties were assessed for late completion of theses projects. A
schedule for completion of these projects has not been determined. Mifal
Hapayis is a quasi-governmental institution which runs the Israel national
lottery and uses its revenues for the benefit of the public, generally for
financing the construction of public facilities.
SUMMARY FINANCIAL DATA
The following summary consolidated financial data have been derived
from the audited financial statements of the Company included elsewhere in
this Prospectus. Such consolidated financial data have been prepared in
accordance with Israeli GAAP which differs in certain respects from U.S. GAAP.
See Note 29 of Notes to Consolidated Financial Statements. The following
summary financial data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
STATEMENT OF OPERATIONS DATA:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1997
----------------------------------------------
CONVENIENCE
ADJUSTED NIS ADJUSTED NIS TRANSLATION($)
------------ ------------ --------------
<S> <C> <C> <C>
Revenues 23,297,148 124,359,135 35,169,439
Costs of revenues (20,457,407) (88,743,589) (25,097,169)
Gross profit 2,839,741 35,615,546 10,072,270
Operating expenses (2,240,109) (7,112,980) (2,011,589)
Operating income 599,632 28,502,566 8,060,681
Net income 48,646 23,208,432 6,563,471
Earnings per share (1) 0.02 4.56 1.29
Weighted average number of
shares (1) 3,000,000 5,085,754 5,085,754
</TABLE>
(1) See Note 21(c) and 29 of Notes to Consolidated Financial Statements.
<PAGE> 11
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------
CONVENIENCE
ADJUSTED NIS TRANSLATION($)
------------ --------------
<S> <C> <C>
Working capital 38,776,767 10,966,281
Total assets 147,313,184 41,660,968
Total liabilities 91,233,473 25,801,321
Retained earnings 22,232,582 6,287,495
Total shareholders' equity 56,079,711 15,859,647
</TABLE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND
INVOLVE A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY, ITS BUSINESS AND AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.
THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN SHOULD BE READ AS BEING APPLICABLE TO ALL
RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS OR
IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS AND IN
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
BUSINESS, MARKET AND SHAREHOLDER CONSIDERATIONS
LIMITED OPERATING HISTORY. The Company commenced operations in July
1995 and has a limited operating history to date. Potential investors should
be aware of the delays, expenses and difficulties encountered by an enterprise
in this early stage, many of which may be beyond the Company's control,
including, but not limited to, the competitive environment in which the
Company operates, problems relating to regulatory compliance, marketing
problems and that costs and expenses may exceed current estimates. There can
be no assurance that the Company will be able to successfully implement its
business strategies, obtain additional real estate development and
construction projects, successfully complete its projects according to
specification and in a timely manner or operate on a profitable basis.
RISKS OF REAL ESTATE INDUSTRY. The real estate industry in Israel
is cyclical and significantly affected by changes in general economic
<PAGE> 12
conditions, such as employment levels, availability of debt financing,
interest rates, levels of immigration, government fiscal policies, general and
local economic conditions that may affect the demand for public buildings and
housing and various other factors. Since 1996, the Israeli economy and real
estate market have experienced a slow down, resulting in a reduction in demand
and prices and a decrease in construction starts. In addition, there is a
limited amount of land available for residential and public development in
Israel. The real estate industry is also subject to the potential for
significant variability and fluctuations in real estate values. In addition,
contractors are subject to various risks, many of which are outside the
control of the contractor. Such risks include the conditions of supply and
demand in local markets, availability of government projects, delays in
construction schedules, cost overruns and availability and cost of land,
materials and labor. There can be no assurance that the occurrence of any of
the foregoing will not have a material adverse effect on the Company. See "--
Delays in Completion of Construction Projects" and "--Dependence on Suppliers;
Possibility of Labor Shortages" below.
FIXED PRICE CONTRACTS; PENALTY CLAUSES. A substantial portion of
the Company's construction and development projects are, and will be in the
future, awarded by the Israeli Government through a competitive bidding
process. The Company relies upon engineers, architects, subcontractors and
others to provide Management with a breakdown of the projected costs for each
particular project in order for the Company to formulate its bid. Bids are
priced based upon, among other factors, the Company's estimate of selling
prices as well as its estimate of the costs of completing the project,
including the time and labor involved in designing, planning and scheduling a
facility and the materials, equipment and labor necessary for its
construction. In the event the Company's costs for a project exceed its
projections as a result of various factors, all of which may be beyond the
Company's control, the Company will be required to bear such costs. In such
event, the Company's projected gross profit on a project would be reduced or
eliminated, or the Company may suffer a loss. In addition, most of the
Company's contracts contain penalty provisions in the event of a delay in the
completion of a particular project. Such penalty provisions require the
Company to pay various amounts according to the extent of the delay. Penalty
payments may also reduce or eliminate the Company's projected gross profit on
a particular project or result in a loss. See "--Delays in Completion of
Construction Projects" below.
NEED FOR ADDITIONAL FINANCING. The industry in which the Company
competes is capital intensive and requires substantial up-front expenditures
for land development contracts and construction. Accordingly, the Company
requires substantial amount of cash on hand and construction loans from banks
to implement its business plan. If the Company is not successful in obtaining
sufficient capital to fund its planned expansion and other expenditures, new
projects may be constrained. Any such delay or abandonment could adversely
affect the Company's future results of operations.
The Company is regularly required to obtain construction loans from
banks to finance the construction of projects and to secure, by means of
guarantee, the payments received from unit purchasers or the governmental
authority requisitioning the work pending completion of construction. The
<PAGE> 13
Company has no long-term arrangements with any bank with respect to obtaining
construction loans in the future, and there can be no assurance that such
financing, if available, will be on terms acceptable to the Company.
Furthermore, fluctuations in interest rates may adversely affect the terms of
the financing available from banks. The Israeli Examiner of Banks has issued
directives that are intended to limit the overall amount of credit extended to
contractors and real estate developers to up to 20% of all loans issued by the
bank. These directives have created difficulties for developers, such as the
Company, in obtaining bank financing for real estate projects. The Company
believes that this limitation requires banks to carefully select developers to
whom they will provide financing.
POTENTIAL FOR TAXATION AS A PASSIVE FOREIGN INVESTMENT COMPANY. In
the event that the Company were deemed to be a passive foreign investment
company (a "PFIC") for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), special provisions of the Code would apply to certain
shareholders of the Company and could impose adverse tax consequences on such
shareholders. The Company believes that it was not a PFIC in 1997, and it will
evaluate its status for 1998. 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. Accordingly,
there can be no assurance that the Company will not become a PFIC.
OUTSTANDING SECURED INDEBTEDNESS. At December 31, 1997, the Company
had indebtedness of approximately NIS 17,920,000 ($5,068,000) which is secured
by the Company's rights with respect to its projects. The Company is subject
to all of the risks associated with substantial indebtedness, including the
risk that cash flow may not be sufficient to make required payments on
indebtedness, and the inability of the Company to obtain additional financing
in the future for working capital, capital expenditures or other purposes.
Accordingly, in the event of a default in payment of outstanding indebtedness
with respect to a loan relating to a project, the Company may lose all or a
portion of its investment in a particular project and the Company may be
forced to cease operations or materially reduce its business activities.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL. The
Company's success to date has depended in large part on the skills and efforts
of Moshe Schnapp, the Company's President, chief executive officer and
founder. The loss of Mr. Schnapp would have a material adverse effect on the
development and success of the Company's business. The Company's success also
depends to a significant extent on the performance and continued service of
certain other key employees and independent contractors. Other than an
employment agreement with Mr. Schnapp, the Company does not have employment
contracts with any of its employees. The Company presently is the beneficiary
under a $ 2 million "key-man" insurance policy on the life of Mr. Schnapp. The
Company's failure to attract additional qualified personnel or to retain the
services of key personnel and independent contractors could have a material
adverse effect on the Company's operating results and financial condition.
DELAYS IN COMPLETION OF CONSTRUCTION PROJECTS. The Company will
derive substantially all of its revenue from real estate development and
construction of residential and public projects. Accordingly, the Company is
subject to a number of risks relating to these activities. Such risks include
the unavailability of materials and labor, the abilities of sub-contractors to
<PAGE> 14
complete work competently and on schedule, the surface and subsurface
condition of the land underlying the project, and other ordinary risks of
construction or FORCE MAJEURE occurrences that may hinder or delay the
successful completion of a particular project. In addition, the Company will
agree to cause the completion of substantially all of its projects for an
agreed upon price and by a certain date (subject to limited exceptions). If
construction of a project does not proceed in accordance with the anticipated
schedule, the Company will, in most instances, be required to make penalty
payments according to the extent of the delay. See Note 20 to Notes to
Consolidated Financial Statements. Furthermore, the Company's anticipated
revenues from certain of its residential projects will depend upon the
Company's ability to sell the units at the estimated unit sales prices. The
failure to complete a particular project on schedule or at the anticipated
price may reduce or eliminate the Company's projected gross profit on a
particular project or result in a loss. See "--Fixed Price Contracts; Penalty
Clauses" above.
DEPENDENCE ON SUPPLIERS; POSSIBILITY OF LABOR SHORTAGES. The
building industry may from time to time experience fluctuating prices and
supply for raw materials, as well as shortages of labor and other materials.
Cement is the principal raw material utilized in the construction of Israeli
homes and buildings. Nesher Israel Cement Enterprises Ltd. ("Nesher") is
presently Israel's principal producer of cement. Most other cement must be
imported. Accordingly, the Company's business is materially dependent upon
Nesher for its cement. Although the Israeli Government regulates the services
and prices charged by monopolies such as Nesher, the lack of competition in
the Israeli cement market may have an effect on cement prices and, as a
result, the costs of construction. In the past the construction industry in
Israel largely relied upon Palestinian labor. Due to the current tension
between Israel and the Palestinians, the entrance of Palestinians into Israel
is from time to time restricted. As a result, the construction industry now
employs foreign labor brought to Israel under governmental supervision.
Although there is currently no shortage of labor in Israel, there is no
assurance as to the continuing availability of such foreign labor. The
Israeli Government has limited issuing new licenses for foreign workers
seeking employment in Israel. Although the Company believes that there is
presently a sufficient number of foreign laborers to satisfy the Company's
current demands, there can be no assurance that the Israeli Government will
not respond to political and social conditions with protectionist measures
such as the expulsion of existing foreign laborers, or that as the Company's
demand for workers increases, there will be a sufficient number of foreign and
other workers available to satisfy such demands. A shortage of such labor
could cause increased costs and delays in construction of projects and could
have an adverse affect on the Company's operations.
DEPENDENCE UPON SUBCONTRACTORS. The Company relies upon
subcontractors for its construction and development activities. The Company
does not have any long-term arrangements with any of its subcontractors. There
can be no assurance that in the future the Company will be successful in
entering into subcontracting arrangements on terms acceptable to the Company
or at all. The Company's reliance upon subcontractors subjects the Company to
a number of risks such as performance delays and the financial problems of the
subcontractor and makes the Company substantially dependent upon such third
party subcontractors to complete its projects in a timely manner and in
<PAGE> 15
accordance with specifications. Furthermore, the Company's present policy does
not require subcontractors to obtain performance guarantees to the Company
with respect to projects. To the extent the Company ultimately determines to
undertake its own construction and development activities, if ever, it will
require substantial additional personnel, equipment and financial resources.
See "--Delays in Completion of Construction Projects" above.
DEPENDENCE ON THE ENGEL GROUP. During the years ended December 31,
1996 and 1997, approximately 42% and 32%, respectively, of the Company's
revenues were derived through contracts with Engel, pursuant to which the
Company acted as subcontractor for projects awarded to Engel. Although the
Company intends to continue to work with Engel on projects, the Company
expects to reduce its dependence on Engel and increasingly focus on
contracting directly with government entities in the future. The inability of
the Company to contract directly for its own projects, and to locate and
obtain new projects, would have a material adverse impact on the Company's
business.
RISKS OF COMPETITION. The real estate industry in Israel is highly
competitive and fragmented. Participants compete not only for buyers, but also
for desirable properties and financing. Furthermore, as most land in Israel is
owned by the Israeli Government, substantially all the Company's projects will
be obtained primarily through a public bidding process. The Company will be
required to place competitive bids for residential and public projects with
the various Israeli governmental authorities. Some of the Company's
competitors, including Engel, have longer operating histories and greater
financial, marketing and sales resources than the Company, all of which may be
necessary to pre-qualify for certain government project bids and may hinder
the Company's ability to bid for or participate in such government projects.
In addition, the Company will also compete with these contractors for projects
awarded pursuant to government raffles. There can be no assurance that the
Company will be successful in winning projects for which it submits bids or
which are awarded pursuant to government raffles or will otherwise be
successful in competing in the Israeli real estate industry.
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE
VOTING RIGHTS; POSSIBLE DEPRESSIVE EFFECT ON THE PRICE OF THE COMPANY'S
SECURITIES. By virtue of certain voting agreements, Mr. Schnapp has sole
voting authority over and may be deemed to beneficially own to an aggregate of
3,000,000 of the Company's Class B Ordinary Shares, NIS 0.1 par value ("Class
B Ordinary Shares" and, together with the Class A Ordinary Shares, the
"Ordinary Shares"). Such voting agreements will expire upon the earlier to
occur of (i) September 30, 2001 with respect to 600,000 Class B Ordinary
Shares and October 23, 2001 with respect to the remaining 1,200,000 Class B
Ordinary Shares, and (ii) the date on which Mr. Schnapp ceases to be the chief
executive officer of the Company. The Class B Ordinary Shares and the Class A
Ordinary Shares are identical in all respects except that the Class B Ordinary
Shares have five votes per share while the Class A Ordinary Shares have one
vote per share. Without giving effect to the exercise of the Warrants, the
Class B Ordinary Shares represent approximately 57% of the Company's
outstanding capital stock and approximately 87% of the total voting power. Mr.
Schnapp is able to elect all of the Company's directors and otherwise control
the Company's operations. The disproportionate vote afforded the Class B
<PAGE> 16
Ordinary Shares could also serve to impede or prevent a change of control of
the Company. As a result, potential acquirers may be discouraged from seeking
to acquire control of the Company through the purchase of Class A Ordinary
Shares, which could have a depressive effect on the price of the Company's
securities and will make it less likely that shareholders receive a premium
for their shares as a result of any such attempt.
DEPENDENCE UPON GOVERNMENT CONTRACTS. To date, the Company's
operations have been substantially dependent upon obtaining government
contracts and upon compliance with the laws and regulations governing
government contracts. These laws and regulations tend to decrease the
Company's flexibility in the conduct of its business. As a general matter, the
Company's business is highly sensitive to the Israeli Government's resolutions
and policies regarding real estate development.
MORTGAGE FINANCING. Most purchasers of residential units from the
Company finance their acquisitions through third-party lenders providing
mortgage financing. In general, demand for real estate is adversely affected
by increases in interest rates, property costs and unemployment and by
decreases in the availability of mortgage financing. If mortgage interest
rates increase, the ability of prospective buyers to finance the purchase
price of property will be adversely affected. The Company's business
activities will be dependent upon the availability and cost of mortgage
financing. In addition, the Israeli Government has established entitlement
programs for the purposes of encouraging home ownership. Most programs have
been targeted to newly married couples and immigrants and the Company believes
that the availability of mortgage financing for newlyweds and new immigrants
by the Israeli Government has and continues to be an important factor in the
number of new home sales. Any limitations or restrictions on the availability
of such financing could adversely affect the Company's revenues.
POTENTIAL LIABILITY AND INSURANCE. Substantially all of the
Company's construction contracts relating to projects for which it acts as the
principal contractor provide that the Company is responsible for maintaining
and supervising each construction site. The Company is liable for any damages
to a project and any injury sustained by any person on a construction site.
Under these contracts, the Company is required to obtain sufficient insurance,
including insurance for property damage, personal injury and workers
compensation. Although the Company currently maintains liability and workers
compensation insurance that it believes is adequate as to both risk and
amounts for each of its projects, successful claims could exceed the limits of
the Company's insurance and could have a material adverse effect on the
Company's business, financial condition or operating results. Moreover, there
can be no assurance that the Company will be able to obtain such insurance on
commercially reasonable terms in the future or that any such insurance will
provide adequate coverage against potential claims. In addition, a claim
asserted against the Company could be costly to defend, could consume
management resources and could adversely affect the Company's reputation and
business, regardless of the merit or eventual outcome of such claim.
REGULATORY MATTERS; GOVERNMENT OWNERSHIP OF LAND. Real estate
development is heavily regulated in Israel at the regional and municipal
levels. The Company and its competitors are subject to rules and regulations
<PAGE> 17
concerning zoning, building design, construction and similar matters which
impose restrictive zoning and density requirements.
The Israeli Government owns approximately 90% of the land in Israel.
Through its administrative body, the Israel Land Administration, the Israeli
Government grants long-term leases for the use of its land. Accordingly, the
availability of land for construction and development will be dependent upon
the policies of the Israeli Government at any particular time. Availability of
land and the demand for housing will affect the prices that the Company will
be required to pay for rights to develop the land. Additional laws and
regulations could be implemented in the future governing the Company's
business. Any failure or alleged failure to comply with these laws and
regulations, or the cost of compliance with future laws and regulations, may
adversely affect the Company. Furthermore, the Company believes that many
potential purchasers of new homes will rely on government entitlement
programs. Accordingly, sales to these customers may be adversely affected by
delays in obtaining, or the unavailability of, such funds caused by budget
constraints or the bureaucratic process.
The Company's subsidiary, Genesis Construction, through which the
Company conducts all of its construction and development activities, possesses
a C-5 classification, which enables the Company to undertake construction
projects of an unlimited financial scope and an unlimited project size, as
well as C-1 and B-1 classifications, which enable the Company to undertake
infrastructure development, road, sewage and drainage construction projects.
The Company's ability to retain this classification will depend upon its
ability to continue to employ or retain professionals with experience in the
construction business who are approved by the appropriate authorities.
FLUCTUATION IN OPERATING RESULTS DUE TO SEASONAL FACTORS. As a
result of various factors, including reduced work hours, vacations and travel
abroad, Israel experiences a traditional slow-down of business activity during
the summer months and a recurring decrease in real estate activities. In
addition, the Israeli Building Cost Index is usually higher in the summer
months than the rest of the year. The Company's operating results during the
third quarter of each fiscal year may be adversely affected by these factors.
SHARES AVAILABLE FOR FUTURE SALE; EFFECT OF OUTSTANDING OPTIONS AND
WARRANTS. Sales of a substantial number of Ordinary Shares in the public
market could adversely affect the market price for the Ordinary Shares. All
of the 2,300,000 Class A Ordinary Shares outstanding as of the date hereof are
freely tradeable and the 3,000,000 Class B Ordinary Shares are tradeable
subject to compliance with Rule 144 promulgated under the Securities Act. As
of the date hereof, an additional 8,900,000 Class A Ordinary Shares are
issuable upon the full exercise of the Company's Warrants and 730,000 Class A
Ordinary Shares are issuable upon exercise of outstanding options. The
issuance of Class A Ordinary Shares and Class B Warrants upon the exercise of
the Warrants has been registered under the Securities Act, and the Class A
Ordinary Shares issuable upon exercise of the options may be resold pursuant
to a currently effective registration statement. Unit purchase options, which
may be exercised commencing January 30, 1999, were issued to Blair and its
designees in connection with the IPO. An additional 600,000 Class A Ordinary
Shares are issuable upon full exercise of such unit purchase options and the
<PAGE> 18
components thereof. The existence of the Company's outstanding Warrants and
options could aversely affect the Company's ability to obtain future
financing. The price which the Company may receive for the Class A Ordinary
Shares issued upon exercise of such Warrants and options will likely be less
than the market price of the Class A Ordinary Shares at the time such Warrants
and options are exercised. Moreover, the holders of the Warrants and options
might exercise them at a time when the Company would, in all likelihood, be
able to obtain needed capital by a new offering of its securities on terms
more favorable than those provided by the Warrants.
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has from time
to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of the Company's
securities. Factors such as fluctuations in the Company's operating results,
announcements of new construction projects, changes in analysts'
recommendations regarding the Company and general market conditions may have a
significant effect on the market price of the Company's securities. No
assurance can be given that the market price of the Company's securities will
be sustained over time.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be unable to sell the securities issuable upon
exercise of the Warrants to holders residing in jurisdictions where such
securities are not presently qualified for sale. In such event, the Company
would be unable to issue Class A Ordinary Shares and/or Class B Warrants to
those persons desiring to exercise their Warrants unless and until the
underlying securities could be qualified for sale in jurisdictions in which
such purchasers reside, or an exemption to such qualification exists in such
jurisdiction. In addition, the Class A Warrants and Class B Warrants will not
be exercisable unless at the time of exercise the Company has a current
prospectus covering the securities underlying the Warrants. No assurances can
be given that the Company will be able to effect any required registration or
qualification or maintain a current prospectus.
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF WARRANTS. The Warrants are
subject to redemption by the Company on at least 30 days' prior written
notice, if the average of the closing bid prices (or the last reported sale
prices of the Class A Ordinary Shares on a national securities exchange or on
The Nasdaq National Market) of the Class A Ordinary Shares for 30 consecutive
trading days ending within 15 days of the date on which the notice of
redemption is given exceeds $9.10 per share with respect to the Class A
Warrants and $12.25 per share with respect to the Class B Warrants. If the
Warrants are redeemed, holders of Warrants will lose their right to exercise
the Warrants, except during such 30-day notice of redemption period. Upon the
receipt of a notice of redemption of the Warrants, the holders thereof would
be required to: (i) exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for them to do so; (ii) sell the Warrants at
the then current market price (if any) when they might otherwise wish to hold
the Warrants; or (iii) accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption.
<PAGE> 19
NO DIVIDENDS. The Company has paid no cash dividends to its
shareholders since its inception and does not plan to pay dividends in the
foreseeable future. The Company intends to reinvest earnings, if any, in the
development and expansion of its business. Any future payments will be within
the discretion of the Company and will depend, among other factors, on the
Company's result of operations, financial condition and contractual
restrictions.
Although the Company does not anticipate paying any cash dividends
on its Ordinary Shares in the foreseeable future, any payments made would be
made in NIS and converted into dollars for shareholders residing in the United
States. As a result, currency fluctuations between the NIS and the dollar
could have an adverse effect on distributions received by such holders of
Ordinary Shares.
RISKS RELATING TO OPERATIONS IN ISRAEL
LOCATION IN ISRAEL. The Company is incorporated under the laws of
the State of Israel, where its principal offices are located and substantially
all of its current business activities are conducted. Since the establishment
of the State of Israel in 1948, a state of hostility has existed, varying in
degree and intensity, between Israel and certain Arab countries. In addition,
Israel and companies doing business with Israel have been the subject of an
economic boycott by certain Arab countries. Although Israel has entered into
agreements with certain Arab countries, the Palestine Liberation Organization
and the Palestinian Authority, and various declarations have been signed in
connection with efforts to resolve some of the aforementioned problems, no
prediction can be made as to whether a full resolution of these problems will
be achieved or as to the nature of any such resolution. To date, Israel has
not entered into a peace treaty with either Lebanon or Syria, with whom Israel
shares its northern borders. The Company is directly affected by the
political, economic and military conditions in Israel. The operations of the
Company could be materially adversely affected if major hostilities involving
Israel should occur.
EFFECTS OF INFLATION AND DEVALUATION IN ISRAEL; IMPACT ON MONETARY
ASSETS AND LIABILITIES. In the early to mid-1980's, Israel's economy was
subject to a period of widespread inflation and its currency experienced
devaluation. Although the rates of inflation and devaluation have been reduced
substantially since 1986, they are still relatively high and there remains an
exposure to possible losses on account of such inflation and devaluation. In
the event that inflation rates in Israel were to return to their previously
high levels as would have a significant negative impact on Israel's economy as
a whole, then the Company's business, financial condition or results of
operation could be materially adversely affected. Most of the Company's
contracts for the purchase of raw materials and for construction are linked to
the Israeli Building Cost Index ("BCI"). The BCI is an index which reflects
the costs of raw materials in the building industry, and the changes in such
index reflect the fluctuations of such costs. The Company's agreements to pay
subcontractors as well as most arrangements providing for payments to the
Company are also generally linked to the BCI. To the extent the Company enters
into agreements for payments by or to the Company which are instead linked to
<PAGE> 20
the CPI, the difference in fluctuations of the two indexes may adversely
affect the Company's financial results.
MILITARY SERVICE. All male adult citizens of Israel under the age
of 51 are, unless exempt, obligated to perform approximately 30 days of
military reserve duty annually. Additionally, all such citizens are subject to
being called to active duty at any time under emergency circumstances. Most of
the officers, directors and employees of the Company currently are obligated
to perform annual military reserve duty. While the Company has operated
effectively under these requirements in the past, there can be no assurance
that such requirements will not have a material adverse effect on the
Company's business, financial condition or results of operations in the
future, particularly if emergency circumstances occur.
DIFFICULTY OF EFFECTING SERVICE OF PROCESS AND COLLECTION OF
JUDGMENTS. Service of process upon the Company and its directors and officers
and Israeli experts named herein, most of whom reside outside the U.S., may be
difficult to effect within the U.S. Furthermore, since substantially all of
the Company's assets presently are located outside the U.S., any judgment
obtained in the U.S. against the Company may not be collectible within the
U.S.
The Company has been informed by its legal counsel in Israel, M.
Seligman & Co., that there is doubt as to the enforceability of civil
liabilities under the Securities Act or the Exchange Act in original actions
instituted in Israel. However, subject to certain time limitations, Israeli
courts may enforce foreign (including U.S.) final, non-appealable executory
judgments for liquidated amounts in civil matters, obtained after completion
of due process before a court of competent jurisdiction (according to the
rules of private international law prevailing in Israel) that recognizes and
enforces similar Israeli judgments, provided that (i) adequate service of
process has been effected and the defendant has had a reasonable opportunity
to be heard, (ii) such judgments are not contrary to Israeli law, public
policy, security or the sovereignty of the State of Israel, (iii) such
judgments do not conflict with any other valid judgment in the same matter
between the same parties, (iv) such judgments have not been obtained by
fraudulent means and (v) an action between the same parties in the same matter
is not pending in any Israeli court or tribunal at the same time the lawsuit
is instituted in the foreign court. The Company has appointed its wholly owned
United States subsidiary, Genesis Development and Construction, Inc., 20
Squadron Boulevard, New City, New York 10956 as the Company's agent to receive
service of process in any action against the Company arising out of the
offering made hereby or any purchase or sale of securities in connection
therewith, including actions under the U.S. federal securities laws. Consent
has not been given by the Company for such agent to accept service of process
in connection with any other claim.
Foreign judgments enforced by Israeli courts generally will be
payable in Israeli currency and a special permit of the Controller of Foreign
Exchange will be required to convert the Israeli currency into dollars and
transfer such dollars out of Israel.
<PAGE> 21
USE OF PROCEEDS
Holders of Warrants are not obligated to exercise their Warrants and
there can be no assurance that such holders will choose to exercise all or any
of their Warrants. In the event that all of the 3,300,000 outstanding Class A
Warrants are exercised, the net proceeds to the Company would be $20,377,500,
after deducting expenses of this offering and assuming that all such Warrants
exercises were solicited by Blair. In the event that all of the 5,600,000
Class B Warrants are exercised, the Company would receive additional net
proceeds be $46,550,000, after deducting expenses of this offering and
assuming that all such Warrants exercises were solicited by Blair. Upon any
exercise of the Warrants, the Company will pay Blair a fee of 5% of the
aggregate exercise price for Warrant exercises solicited in writing by Blair
or its representatives or agents, subject to certain conditions. See
"Description of Securities--Redeemable Warrants."
The Company intends to use the net proceeds received upon exercise
of the Warrants, if any, to fund certain costs of the Company's existing and
future projects and the remainder for general corporate purposes and working
capital to support anticipated growth.
Under existing foreign exchange regulations in Israel, the net
proceeds of a public offering outside of Israel are to be transferred to
Israel and converted into NIS immediately after the consummation of such
offering. The Company has obtained a special permit from the Israeli
Controller of Foreign Exchange to invest the proceeds of this offering outside
of Israel. Pending the use of the net proceeds from this offering as described
above, such net proceeds will be invested by the Company in the United States
or Israel in low-risk, interest-bearing fixed income investments with interest
and principal linked to the dollar or the CPI, or deposited in
interest-bearing bank accounts.
PLAN OF DISTRIBUTION
The securities offered hereby by the Company are being offered
directly by the Company pursuant to the terms of the Warrants.
The Company has agreed not to solicit Warrant exercises other than
through Blair, unless Blair declines to make such solicitation. Upon any
exercise of the Class A or Class B Warrants, the Company will pay Blair a fee
of 5% of the aggregate exercise price for Warrant exercises solicited in
writing by Blair or its representatives or agents, if (i) the market price of
the Company's Class A Ordinary Shares on the date the Warrant is exercised is
greater than the then exercise price of the Warrants; (ii) the exercise of the
Warrant was solicited in writing by a member of the NASD; (iii) the Warrant is
not held in a discretionary account; (iv) disclosure of compensation
arrangements was made both at the time of the offering and at the time of
exercise of the Warrants; and (v) the solicitation of exercise of the Warrant
was not in violation of Regulation M (as hereinafter defined) and certain
other rules promulgated under the Exchange Act. The Warrant Agreement requires
that each holder of the Warrant designates in writing that the exercise of the
Warrant was solicited by a member of the NASD.
<PAGE> 22
Regulation M may prohibit D.H. Blair & Co., Inc. ("Blair & Co.")
from engaging in any market making activities with regard to the Company's
securities for up to five business days (or such other applicable period as
Regulation M may provide) prior to any solicitation by Blair of the exercise
of Warrants until the later of the termination of such solicitation activity
or the termination (by waiver or otherwise) of any right that Blair may have
to receive a fee for the exercise of Warrants following such solicitation. As
a result, Blair & Co. may be unable to provide a market for the Company's
securities during certain periods while the Warrants are exercisable.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of an aggregate
of 42,000,000 Class A Ordinary Shares, par value NIS 0.1 per share, and
3,000,000 Class B Ordinary Shares, par value NIS 0.1 per share. As of the date
hereof, 2,300,000 Class A Ordinary Shares and 3,000,000 Class B Ordinary
Shares are outstanding. The following statements are summaries of certain
provisions of the Company's Memorandum and Articles of Association and the
Companies Ordinance. These summaries do not purport to be complete and are
qualified in their entirety by reference to the full Memorandum and Articles
of Association which are incorporated herein by reference.
CLASS A ORDINARY SHARES
Holders of Class A Ordinary Shares have one vote per share on each
matter submitted to a vote of the shareholders and a ratable right to the net
assets of the Company upon liquidation. Holders of the Class A Ordinary Shares
do not have preemptive rights to purchase additional Class A Ordinary Shares
or other subscription rights. The Class A Ordinary Shares carry no conversion
rights and are not subject to redemption or to any sinking fund provision.
Subject to the rights of holders of shares with special rights with
respect to dividends which may be authorized in the future, holders of Class A
Ordinary Shares are entitled to participate in the payment of dividends
pro-rata in accordance with the amounts paid-up or credited as paid up on the
nominal value of such Class A Ordinary Shares at the time of payment (without
taking into account any premium paid thereon). In the event of the winding-up
of the Company, holders of Class A Ordinary Shares are entitled to the nominal
paid-up value of the shares and to a pro-rata share of surplus assets
remaining over liabilities, subject to rights conferred on any class of shares
which may be issued from time to time, determined on the same basis as for
payment of dividends.
The Board of Directors is entitled to declare and authorize the
payment of an interim dividend (a dividend that is declared by the Board of
Directors during the course of the year, which is then deducted from the
amount of the final annual dividend that must be approved by the shareholders)
in such amounts as appear in its discretion to be justified by the position of
the Company. The Board of Directors may recommend a final dividend with
respect to any fiscal year out of profits available for dividends. Declaration
of a final dividend requires shareholder approval by ordinary resolution as
<PAGE> 23
described below. Such resolution may reduce, but not increase, such dividend
from the amount recommended by the Board of Directors.
At a general meeting in which a dividend is declared, the
shareholders are entitled to decide that the dividends shall be paid, in whole
or in part, by way of the distribution of specific assets.
In the case of registered joint holders of shares, each of them may
give effectual receipt for any dividend payable on the shares.
CLASS B ORDINARY SHARES
The Class B Ordinary Shares and the Class A Ordinary Shares are
substantially identical on a share-for-share basis, except that the holders of
Class B Ordinary Shares have five votes per share on each matter considered by
shareholders and the holders of Class A Ordinary Shares have one vote per
share on each matter considered by shareholders, and holders of each class
will vote as a separate class with respect to any matter requiring class
voting by the Companies Ordinance.
Each Class B Ordinary Share is automatically converted into one
Class A Ordinary Share upon (i) the death of the original holder thereof, or,
if such shares are subject to a shareholders agreement or voting trust
granting the power to vote such shares to another original holder of Class B
Ordinary Shares, then upon the death of such other original holder, (ii) the
sale or transfer to any person other than the following transferees: (a) a
trust for the sole benefit of members of the transferor's immediate family and
which is controlled by the transferor; or (b) any other holder of Class B
Ordinary Shares thereof, or (iii) the failure of the Company to achieve net
income before provision for income taxes and exclusive of extraordinary
earnings, as audited and determined by the Company's independent public
accountants in accordance with U.S. GAAP ("Pretax Income"), of at least
$1,000,000 for the year ending December 31, 1998 or, for each of the
succeeding five year periods, the Company's Pretax Income does not exceed the
minimum Pretax Income for the previous year by at least 10%.
Presently, there are 3,000,000 Class B Ordinary Shares issued and
outstanding. The difference in voting rights increases the voting power of the
holders of Class B Ordinary Shares and accordingly has an anti-takeover
effect. The existence of the Class B Ordinary Shares may make the Company a
less attractive target for a hostile takeover bid or render more difficult or
discourage a merger proposal, an unfriendly tender offer, a proxy contest, or
the removal of incumbent management, even if such transactions were favored by
the shareholders of the Company other than the holders of Class B Ordinary
Shares. Thus, the shareholders may be deprived of an opportunity to sell their
shares at a premium over prevailing market prices in the event of a hostile
takeover bid. Those seeking to acquire the Company through a business
combination will be compelled to consult first with the holders of Class B
Ordinary Shares in order to negotiate the terms of such business combination.
Any such proposed business combination will have to be approved by the Board
of Directors, which may be under the control of the holders of Class B
Ordinary Shares, and if shareholder approval were required, the approval of
<PAGE> 24
the holders of Class B Ordinary Shares will be necessary before any such
business combination can be consummated.
REDEEMABLE WARRANTS
CLASS A WARRANTS. Each Class A Warrant entitles the registered
holder to purchase one Class A Ordinary Share and one Class B Warrant, at an
exercise price of $6.50, subject to adjustment, at any time until January 29,
2002. The Class A Warrants are redeemable by the Company on 30 days' prior
written notice at a redemption price of $.05 per Class A Warrant, if the
"closing price" of the Company's Class A Ordinary Shares for any 30
consecutive trading days ending within 15 days of the notice of redemption
averages in excess of $9.10 per share (subject to adjustment by the Company,
as described below, in the event of any reverse stock split or similar
events). "Closing price" shall mean the closing bid price, if listed in the
over-the-counter market on Nasdaq, or the closing sale price if listed on the
Nasdaq National Market or a national securities exchange. The notice of
redemption will be sent to the registered address of the registered holder of
the Class A Warrant. All Class A Warrants must be redeemed if any are
redeemed; provided, however, that the Class A Warrants underlying the Unit
Purchase Options (as defined below) may only be redeemed under limited
circumstances. Redemption of the Class A Warrants is subject to certain
restrictions relating to the Company's status as a Passive Foreign Investment
Company for U.S. tax purposes.
CLASS B WARRANTS. Each Class B Warrant entitles the registered
holder to purchase one Class A Ordinary Share at an exercise price of $8.75
per share, subject to adjustment, at any time until January 29, 2002. The
Class B Warrants are redeemable by the Company on 30 days' prior written
notice at a redemption price of $.05 per Class B Warrant, if the closing price
of the Company's Class A Ordinary Shares for any 30 consecutive trading days
ending within 15 days of the notice of redemption averages in excess of $12.25
per share (subject to adjustment by the Company, as described below, in the
event of any reverse, stock split or similar events). The notice of redemption
will be sent to the registered address of the registered holder of the Class B
Warrant. All Class B Warrants must be redeemed if any are redeemed; provided,
however, that the Class B Warrants underlying the Unit Purchase Options may
only be redeemed under limited circumstances. Redemption of the Class B
Warrants is subject to certain restrictions relating to the Company's status
as a Passive Foreign Investment Company for U.S. tax purposes.
GENERAL. The Class A Warrants and Class B Warrants were issued
pursuant to a the Warrant Agreement among the Company, Blair and American
Stock Transfer & Trust Company as warrant agent (the "Warrant Agent"), and are
evidenced by warrant certificates in registered form. The exercise price of
the Warrants and the number and kind of Class A Ordinary Shares or other
securities and property to be obtained upon exercise of the Warrants are
subject to adjustment in certain circumstances including a stock split of, or
stock dividend on, or a subdivision, combination or recapitalization of, the
Ordinary Shares or the issuance of Ordinary Shares at less than the market
price of the Class A Ordinary Shares. Additionally, an adjustment would be
made upon the sale of all or substantially all of the assets of the Company
for less than the market value, a merger or other unusual events (other than
share issuances pursuant to employee benefit and stock incentive plans for
<PAGE> 25
directors, officers and employees of the Company) so as to enable holders of
Warrants to purchase the kind and number of shares or other securities or
property (including cash) receivable in such event by a holder of the kind and
number of Class A Ordinary Shares that might otherwise have been purchased
upon exercise of such Warrants. No adjustment for previously paid cash
dividends, if any, will be made upon exercise of the Warrants.
The exercise prices of the Warrants were determined by negotiation
between the Company and Blair and should not be construed to be predictive of,
or to imply that, any price increases will occur in the Company's securities.
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date (or earlier redemption date) of
such Warrants at the offices of the Warrant Agent with the form of "Election
of Purchase" on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
certified or bank check payable to the order of the Company) for the number of
Warrants being exercised. Class A Ordinary Shares issuable upon exercise of
Warrants and payment in accordance with the terms of the Warrants will be
fully paid and non-assessable. The Warrants do not confer upon the holders of
Warrants any voting or other rights of the shareholders of the Company.
Upon notice to the holders of Warrants, the Company has the right in
its sole discretion to reduce the exercise price or extend the expiration date
of the Warrants.
The description above is subject to the provisions of the Warrant
Agreement, which has been filed as an exhibit to the registration statement,
of which this Prospectus forms a part, and reference is made to such exhibit
for a detailed description thereof summarized here.
UNIT PURCHASE OPTIONS
The Company has issued to Blair and its designees, for nominal
consideration, Unit Purchase Options (the "Unit Purchase Options") to purchase
up to 200,000 units substantially identical to the Units, except that the
Warrants included therein are subject to redemption by the Company for $.05 at
any time after the Unit Purchase Options have been exercised and the
underlying Warrants are outstanding. The Unit Purchase Options will be
exercisable during the three year period commencing January 30, 1999 at an
exercise price of $6.00 per unit, subject to adjustment in certain events to
protect against dilution, and are not transferable until January 30, 1999
except to officers of Blair or to members of Blair's selling group in the IPO
or officers thereof. The Company has agreed to register the securities
issuable upon exercise thereof under the Securities Act on two separate
occasions (the first at the Company's expense and the second at the expense of
the holders of the Unit Purchase Option) during the five year period
commencing January 30, 1998. The Unit Purchase Options include a provision
permitting the holder to elect a cashless exercise of such options. The
Company has also granted certain piggyback rights to holders of the Unit
Purchase Options.
<PAGE> 26
SHAREHOLDERS MEETINGS, VOTING RIGHTS AND RESOLUTIONS
An Ordinary General Meeting of holders of Ordinary Shares of the
Company is held at least once every year, not later than 15 months after the
last Ordinary General Meeting, at such time and at such place as may be fixed
by the Company's Board of Directors. Such Ordinary General Meetings are called
"ordinary meetings," and all other general meetings of the Company are called
"extraordinary meetings". The Board of Directors may, at its discretion,
convene an extraordinary meeting, and it is obliged to do so upon the request
in writing of the holders of at least 10% of the outstanding Ordinary Shares
of the Company.
The quorum required for a meeting of shareholders consists of at
least two shareholders of record, present in person or by proxy together
holding more than 25% of the voting power of the outstanding shares conferring
a right to vote. A shareholders meeting will be adjourned for lack of a quorum
fifteen minutes after the time appointed for such meeting or such longer time
as the Chairman of the meeting shall determine and, in such a case, shall be
adjourned to the third business day following the date of the original meeting
at the same time and place, or any time and place fixed by the chairman of the
meeting. At such a reconvened meeting, if a quorum is not present within half
an hour from the time appointed for such adjourned meeting the shareholder(s)
present shall be a quorum.
Holders of Class A Ordinary Shares are entitled to one vote and
holders of Class B Ordinary Shares are entitled to five votes for each share
on all matters submitted to a vote of shareholders, subject to certain
limitations and any special rights attaching to any class of shares which may
be authorized by the shareholders in the future. Voting is done by a poll. An
ordinary resolution (such as resolutions for the declaration of dividends and
the appointment of auditors) requires approval by the holders of a majority of
the voting power of shares represented at the meeting, in person or by proxy,
and voting thereon. A special resolution or extraordinary resolution (such as
resolutions amending the Memorandum or Articles of Association of the Company
or regarding certain changes in capitalization, mergers, consolidations,
winding up, authorization of a class of shares and other changes as specified
in the Companies Ordinance and the Company's Articles of Association) requires
approval of the holders of at least 75% of the voting power of shares
represented at the meeting, in person or by proxy, and voting thereon.
PURCHASE, HOLDING AND TRANSFER OF ORDINARY SHARES
No preemptive rights are attached to the Ordinary Shares.
Neither the Memorandum or the Articles of Association of the Company
nor the laws of the State of Israel restrict in any way the ownership or
voting of Ordinary Shares by non-residents.
Fully-paid Ordinary Shares are issued in registered form and may be
transferred freely (subject to applicable United States securities laws). Each
shareholder of record is entitled to receive at least 7 days' prior notice of
general shareholders' meetings. An extraordinary resolution can be adopted
only if shareholders are given at lease 21 days' prior notice of the meeting
<PAGE> 27
at which such resolution will be voted on. Notwithstanding the foregoing, all
shareholders entitled to vote may agree on a shorter period or on a waiver of
the notice requirement for a shareholders' meeting or for a special
resolution. For the purposes of determining the shareholders entitled to
receive notice, the Board may fix a record date which will not be more than 15
days prior to the date of the meeting.
MODIFICATIONS OF CLASS RIGHTS
Shares which confer preferential or subordinate rights relating to,
among other things, dividends, voting and payment of capital, can be created
only by a special resolution of the shareholders. The rights attached to a
class of shares may be altered by a special resolution of the shareholders of
the Company, provided that the holders of three-quarters of the issued shares
of that class approve such change by agreement in writing, subject to the
terms of such class and special requirements of Israeli law. The provisions of
the Articles of Association of the Company pertaining to general meetings
shall also apply to every extraordinary meeting of a class of shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Ordinary Shares and warrant
agent for the Warrants is American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by
M. Seligman & Co., Tel Aviv, Israel. Certain other legal matters relating to
this offering will be passed upon for the Company by Cooperman Levitt Winikoff
Lester & Newman, P.C., New York, New York and M. Seligman & Co. As to matters
of Israeli law, Cooperman Levitt Winikoff Lester & Newman, P.C. is relying and
will rely upon the opinion of M. Seligman & Co. As to matters of United States
law, M. Seligman & Co. is relying and will rely upon the opinion of Cooperman
Levitt Winikoff Lester & Newman, P.C.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1996 and 1997 and for each of the years then ended and the financial
statements of the Company for the period from July 1, 1995 (commencement of
operations) to December 31, 1995 included in this Prospectus and in the
documents incorporated herein by reference have been audited by Kost Levary &
Forer, a member of Ernst & Young International, independent auditors, as set
forth in their report with respect thereto, and are included herein in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
<PAGE> 28
Members of Cooperman Levitt Winikoff Lester & Newman, P.C. own in
the aggregate a 28% interest in a corporation which holds a 54.9% joint
venture interest in the Company's Rehovot project.
<PAGE> F-1
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
ADJUSTED TO THE NIS OF DECEMBER 1997
INDEX
Page
--------
Report of Independent Auditors F-2
Consolidated Financial Statements -
in Adjusted New Israeli Shekels (NIS):
- Balance Sheets F-4
- Statements of Operations F-6
- Statements of Changes in Shareholders' Equity F-7
- Statements of Cash Flows F-8
Notes to the Consolidated Financial Statements F-10
<PAGE> F-2
Kost Levary & Forer
A Member of
Ernst & Young International
REPORT OF INDEPENDENT PUBLIC AUDITORS
TO THE SHAREHOLDERS OF
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Genesis
Development and Construction Ltd. and Subsidiaries ("the Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1997 and for the period from July 1,
1995 (Commencement of Operations) to December 31, 1995. 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 audits. We did not audit the 1997 financial statements of the foreign
wholly owned subsidiaries of the Company which statements reflect total assets
constituting 20% as of December 31, 1997 and total revenues constituting 26%
of the related consolidated totals for the year ended December 31, 1997.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to data included for
these subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States and Israel, including those prescribed by the
Israeli Auditor's Regulations (Mode of Performance) 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits and the reports of the other auditors provide a reasonable
basis for our opinion.
The aforementioned financial statements have been prepared on the basis of the
historical costs adjusted to reflect the changes in the general purchasing
power of the Israeli currency as measured by the changes in the Israeli
Consumer Price Index, in accordance with Opinions No. 36 and 50 of the
Institute of Certified Public Accountants in Israel.
<PAGE> F-3
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1997 and 1996, and the consolidated results of their operations
and cash flows for each of the two years in the period ended December 31, 1997
and for the period from July 1, 1995 to December 31, 1995, in conformity with
generally accepted accounting principles in Israel which differ in certain
respects from those followed in the United States (see Note 29 to the
financial statements).
Haifa, Israel KOST, LEVARY and FORER
March 23, 1998 Certified Public Accountants (Israel)
A member of Ernst & Young International
<PAGE> F-4
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
ADJUSTED IN NIS OF DECEMBER 1997
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------- ------------- -------------
CONVENIENCE
TRANSLATION
(NOTE2A)
ADJUSTED NIS U.S.$
----------------------------- -------------
<S> <C> <C> <C>
ASSETS (Notes 20 and 22)
CURRENT ASSETS:
Cash and cash equivalents 5,275,578 13,946,797 3,944,230
Bank deposits and marketable securities in
restricted deposits (Note 3) 16,008,801 47,873,401 13,538,858
Contract receivables (Note 4) 4,014,036 9,810,276 2,774,399
Prepaid expenses and other accounts
receivables (Note 5) 3,505,055 5,633,300 1,593,127
Related party receivables (Note 6) - 6,254,030 1,768,675
Cost and estimated earnings in excess of
billings on uncompleted contracts (Note 7) 2,865,784 16,537,042 4,676,765
Loan to affiliated companies (Note 8) - 3,383,895 956,984
------------- ------------- -------------
Total current assets 31,669,254 103,438,741 29,253,038
------------- ------------- -------------
LONG-TERM RECEIVABLES AND DEPOSITS
Related parties (Note 9) - 7,647,943 2,162,880
Other (Note 9) - 3,624,400 1,025,000
------------- ------------- -------------
- 11,272,343 3,187,880
------------- ------------- -------------
LONG-TERM INVESTMENTS
Equity in Joint Ventures (Note 10) - 12,753,547 3,606,772
Land under development (Note 11) - 16,930,000 4,787,896
------------- ------------- -------------
- 29,683,547 8,394,668
------------- ------------- -------------
FIXED ASSETS (Note 12):
Cost 1,350,801 3,321,139 939,236
Less accumulated depreciation (133,478) (402,586) (113,854)
------------- ------------- -------------
Total fixed assets 1,217,323 2,918,553 825,382
------------- ------------- -------------
OTHER ASSETS 1,327,370 - -
------------- ------------- -------------
34,213,947 147,313,184 41,660,968
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> F-5
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
ADJUSTED IN NIS OF DECEMBER 1997
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------- ------------- -------------
CONVENIENCE
TRANSLATION
(NOTE2A)
ADJUSTED NIS U.S.$
----------------------------- -------------
<S> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank credits and short-term loans (Note 13) 7,568,148 17,919,896 5,067,844
Bridge Notes (Note 14) 7,009,426 - -
Trade payables (Note 15) 7,192,527 37,552,822 10,620,142
Accrued expenses and other liabilities (Note 16) 994,358 3,249,951 919,104
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 7) 9,549,242 3,154,827 892,202
Related parties (Note 17) 1,093,282 112,777 31,894
Current maturities of long-term debt 52,064 2,671,701 755,571
------------- ------------- -------------
Total current liabilities 33,409,047 64,661,974 18,286,757
------------- ------------- -------------
LONG-TERM LIABILITIES
Long-term loans, net of current maturities
(Note 18) 628,759 19,919,039 5,633,212
Deferred tax liabilities (Note 23c) - 3,536,000 1,000,000
------------- ------------- -------------
628,759 23,455,039 6,633,212
------------- ------------- -------------
SEVERANCE PAY, net (Note 19) 33,049 77,802 22,003
------------- ------------- -------------
MINORITY INTEREST - 3,038,658 859,349
------------- ------------- -------------
SHAREHOLDERS' EQUITY
Share capital (Note 21)
Authorized: 42,000,000 Class A Ordinary
Shares of NIS 0.01 par value and 3,000,000
Class B Ordinary Shares of NIS 0.10 par value;
Issued and outstanding: 2,300,000 Class A
Ordinary Shares and 3,000,000 Class B Ordinary
Shares (1996:3,000,000 Class B Ordinary Shares) 325,513 576,523 163,044
Additional paid-in capital 793,429 33,270,606 9,409,108
Retained earnings (accumulated loss) (975,850) 22,232,582 6,287,495
------------- ------------- -------------
Total shareholders' equity 143,092 56,079,711 15,859,647
------------- ------------- -------------
34,213,947 147,313,184 41,660,968
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> F-6
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
ADJUSTED IN NIS OF DECEMBER 1997
<CAPTION>
For the period
from July 1, 1995
(commencement of
operations) to
December 31, For the year ended December 31,
---------------------------------------------
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 25a):
Contracting - 23,297,148 89,628,729 25,347,491)
Sale of real estate development
rights - - 13,547,318 3,831,255
Sale of real estate development
rights to related parties - - 18,744,334 5,301,000
Consulting 132,534 - 2,438,754 689,693
------------- ------------- ------------- -------------
132,534 23,297,148 124,359,135 35,169,439
------------- ------------- ------------- -------------
Cost of revenues (Note 25a)
Contracting Costs - (20,457,407) (83,143,683) (23,513,485)
Cost of sale of real estate
development rights - - (1,500,478) (424,343)
Cost of sale of real estate
development rights to related
parties - - (4,099,428) (1,159,341)
------------- ------------- ------------- -------------
- (20,457,407) (88,743,589) (25,097,169)
------------- ------------- ------------- -------------
Gross profit 132,534 2,839,741 35,615,546 10,072,270
------------- ------------- ------------- -------------
Operating expenses
Selling, administrative and
general expenses (Note 25c) (314,740) (1,900,486) (7,112,980) (2,011,589)
Consulting fees to related party (808,965) (339,623) - -
------------- ------------- ------------- -------------
Total operating expenses (1,123,705) (2,240,109) (7,112,980) (2,011,589)
------------- ------------- ------------- -------------
Operating income (loss) (991,171) 599,632 28,502,566 8,060,681
Financial income (expenses),
net (Note 25d) (33,325) 266,106 786,715 222,487
Amortization of Bridge Notes
issuance costs - (817,092) (843,438) (238,529)
------------- ------------- ------------- -------------
Income (loss) before taxes
on income (1,024,496) 48,646 28,445,843 8,044,639
Taxes on income (Note 23) - - (5,237,411) (1,481,168)
------------- ------------- ------------- -------------
Income (loss) for the period (1,024,496) 48,646 23,208,432 6,563,471
============= ============= ============= =============
Earnings (loss) per share (0.43) 0.02 4.56 1.29
============= ============= ============= =============
Weighted average number of shares 2,401,644 3,000,000 5,085,754 5,085,754
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> F-7
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ADJUSTED TO THE NIS OF DECEMBER 1997
<CAPTION>
Retained
Additional Earnings
Share paid-in (Accumulated
Shares capital capital deficit) Total
------------- ------------- ------------- ------------- -------------
Adjusted NIS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 176,000 25,950 - - 25,950
Issuance of ordinary shares 44,000 5,205 736,627 - 741,832
Issuance of ordinary shares(a) 680,000 75,328 (75,328) - -
Loss for the period - - - (1,024,496) (1,024,496)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1995 900,000 106,483 661,299 (1,024,496) (256,714)
Income for the year - - - 48,646 48,646
Issuance of ordinary shares(b) 2,100,000 219,030 (219,030) - -
Bridge warrants (Notes 13
and 20e) - - 351,160 - 351,160
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1996 3,000,000 325,513 793,429 (975,850) 143,092
Issuance of shares to public
net of offering expenses 2,300,000 251,010 32,477,177 - 32,728,187
Income for the year - - - 23,208,432 23,208,432
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 5,300,000 576,523 33,270,606 22,232,582 56,079,711
============= ============= ============= ============= =============
Convenience translation into U.S. dollars
(Note 2a)
---------------------------------------------------------------
Balance at January 1, 1997 92,057 224,386 (275,976) 40,467
Issuance of share to public net of
offering expenses 70,987 9,184,722 - 9,255,709
Income for the year - - 6,563,471 6,563,471
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 163,044 9,409,108 6,287,495 15,859,647
============= ============= ============= ============= =============
</TABLE>
(a) Represents a 3.09 for one share dividend.
(b) Represents a 2.33 for one share dividend
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> F-8
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ADJUSTED TO THE NIS OF DECEMBER 1997
<CAPTION>
For the period
from July 1, 1995
(commencement of
operations) to
December 31, For the year ended December 31,
---------------------------------------------
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) (1,024,496) 48,646 23,208,432 6,563,471
Adjustments required to reconcile
net income (loss) to cash
flows from operating activities:
Gain on sale of marketable
securities - (218,143) (536,986) (151,863)
Depreciation and amortization 27,050 106,428 269,108 76,105
Amortization of Bridge Notes
issuance costs - 817,092 843,438 238,529
Provision for severance pay - 33,049 44,753 12,656
Erosion of principal of certain
monetary items (12,924) (72,849) (174,894) (49,461)
Increase in contract receivables - (4,014,036) (5,796,240) (1,639,208)
Increase in prepaid expenses and
other accounts receivables (1,291,406) (1,357,288) (2,971,682) (840,407)
Increase in related party receivables - - (6,254,030) (1,768,675)
Increase in long-term receivables - - (11,116,176) (3,143,715)
Increase in trade payables 30,176 7,162,351 30,360,295 8,586,056
Increase in accrued expenses and
other liabilities 292,551 601,980 2,305,593 652,034
Increase (decrease) in costs in
excess of billings on uncompleted
contracts 1,565,901 5,117,557 (20,065,673) (5,674,681)
Increase in related parties
liabilities - - 112,777 31,894
Increase in deferred tax liabilities - - 3,536,000 1,000,000
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities (413,148) 8,224,787 13,764,715 3,892,735
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (539,451) (811,350) (1,970,338) (557,223)
Investment in cash and marketable
securities in restricted deposit (616,422) (26,591,074) (53,271,153) (15,065,371)
Proceeds from sale of marketable
securities - 11,416,838 21,943,539 6,205,752
Short-term loan to a related party (184,240) 184,240 - -
Loan to an affiliated company - - (3,383,895) (956,983)
Long-term deposits - - (156,167) (44,165)
Increase in Equity in Joint Ventures - - (12,753,547) (3,606,772)
Increase in Land Under Development - - (16,930,000) (4,787,896)
------------- ------------- ------------- -------------
Net cash used in investing
activities: (1,340,113) (15,801,346) (66,521,561) (18,812,658)
------------- ------------- ------------- -------------
</TABLE>
<PAGE> F-9
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ADJUSTED TO THE NIS OF DECEMBER 1997
<CAPTION>
For the period
from July 1, 1995
(commencement of
operations) to
December 31, For the year ended December 31,
---------------------------------------------
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Loan from shareholder 1,142,253 - - -
Loan from shareholder repaid - - (1,093,282) (309,186)
Short-term loan from related
parties, net 1,653,527 (1,553,872) - -
Issuance of share capital (including
capital surplus) 741,832 - 39,959,735 11,300,830
Long-term loans received 122,270 594,590 22,225,027 6,285,358
Long-term loans paid - (36,037) (140,216) (39,654)
Capital contributed by minority
interest - - 3,038,658 859,349
Bank credits, net 336,380 7,231,769 10,351,748 2,927,531
Bridge Notes received - 7,009,426 - -
Bridge Notes repaid - - (7,009,426) (1,982,304)
Bridge notes issuance costs - (1,660,529) - -
Bridge warrants - 351,159 - -
Offering expenses - (1,327,370) (5,904,179) (1,669,734)
------------- ------------- ------------- -------------
Net cash provided by financing
activities 3,996,262 10,609,136 61,428,065 17,372,190
------------- ------------- ------------- -------------
Net increase in cash and cash
equivalents 2,243,001 3,032,577 8,671,219 2,452,267
Cash and cash equivalents at
beginning of period - 2,243,001 5,275,578 1,491,963
------------- ------------- ------------- -------------
Cash and cash equivalents at the
end of period 2,243,001 5,275,578 13,946,797 3,994,230
------------- ------------- ------------- -------------
Supplemental disclosure of cash
flows information:
Cash paid during the year for:
Interest 61,309 515,347 56,489 15,975
============= ============= ============= =============
Income taxes - - 124,321 35,159
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> F-10
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:- GENERAL
a. Genesis Development and Construction Ltd. ("Genesis"), an Israeli
corporation, was incorporated in 1992 and was inactive until July 1,
1995, at which time it commenced its activity. Genesis and its
subsidiaries operate in Israel, United States, Germany and Russia
through its American and European subsidiaries (collectively the
"Company" unless the context otherwise requires).
The Company is engaged in three segments of the real estate industry:
(i) development and construction, (ii) real estate sales transactions
and (iii) provision of consulting, management and financial management
services in connection with construction activity of others.
b. Concentration of risks that may have a significant impact on the
Company are as follows:
1. Real Estate Industry
--------------------
The real estate industry in Israel is cyclical and significantly
affected by changes in general economic conditions, such as
employment levels, availability of debt financing, interest rates,
levels of immigration, government fiscal policies, general and
local economic conditions that may affect the demand for public
buildings and housing and various other factors. In addition,
there is a limited quantities of land available for residential
and public development in Israel. The real estate industry is
also subject to the potential for significant variability and
fluctuations in real estate values. In addition, contractors are
subject to various risks, many of which are outside the control of
the contractor. Such risks include the conditions of supply and
demand in local markets, availability of government projects,
delays in construction schedules, cost overruns and availability
and cost of land, materials and labor.
2. Dependence on Suppliers
-----------------------
The building industry may from time to time experience fluctuating
prices and supply for raw materials, as well as shortages of labor
and other materials. Cement is the principal raw material
utilized in the construction of Israeli homes and buildings.
Nesher Israel Cement Enterprises Ltd. ("Nesher") is presently
Israel's principal producer of cement. Most other cement must be
imported. Accordingly, the Company's business is materially
dependent upon Nesher for its cement.
The construction industry employs mainly foreign labor brought to
Israel under government supervision. Although there is currently
no shortage of labor in Israel, there is no assurance as to the
continuing availability of such foreign labor. A shortage of such
labor would cause delays in construction of projects and a
decrease in the Company's profitability.
<PAGE> F-11
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:- GENERAL (Continued)
3. Dependence on Engel
-------------------
During the years ended December 31, 1996 and 1997, approximately
42% and 32%, respectively, of the Company's revenues were derived
through contracts with Yaakov Engel Construction Enterprise
Company Ltd. and its subsidiaries ("Engel"), pursuant to which
the Company acted as subcontractor for projects awarded to Engel.
Although the Company intends to continue to work with Engel on
projects, the Company expects to reduce its dependence on Engel
and increasingly focus on contracting directly with government
entities in the future. (See Note 25a).
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Israel, which differ in certain
respects from those followed in the United States, as described in Note 29.
The significant accounting policies applied on a consistent basis are as
follows:
a. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and their accompanying notes. Actual results could
differ from those estimates.
b. Financial statements in adjusted Israeli currency:
1.a) All figures in the accompanying financial statements are presented
in adjusted New Israeli Shekels (NIS) which have a constant
purchasing power (NIS of December 1997, which was published in
January 1998), based upon the changes in the Israeli Consumer
Price Index (CPI). The Government of Israel publishes the CPI
each month.
b) The financial statements are prepared in accordance with the
Opinions of the Institute of Certified Public Accountants in
Israel (the "Israeli Institute") and based on the accounts of
the Company maintained in nominal NIS.
c) The adjusted amounts of non-monetary assets do not necessarily
represent realizable or current economic value, but only the
original historical cost of those assets in terms of adjusted NIS.
The term "cost" in these financial statements signifies cost in
adjusted NIS.
<PAGE> F-12
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.a) Non-monetary items (mainly fixed assets, construction costs and
shareholders' equity items derived from cash flow from
shareholders) have been adjusted on the basis of the CPI at the
time the related transactions were carried out. The components of
the statement of income relating to non-monetary items (mainly
depreciation) have been adjusted on the same basis used for the
adjustment of the related balance sheet items.
b) Monetary items (items whose amounts in the balance sheet reflect
current or realizable values) are presented in the balance sheet
as of December 31, 1997 in their nominal amounts (figures for the
preceding periods have been adjusted to the December 1997 CPI).
c) The components of the statements of operations (except for
financing) relating to transactions carried out during the period
- revenues, costs, etc., have been adjusted on a monthly basis
according to the basis of the CPI at the time the related
transactions were carried out. Erosion of monetary balances
relating to the aforesaid transactions has been included in
financial income or expenses.
d) The components of the statement of operations relating to
provisions included in the balance sheet, such as liability in
respect of employee rights upon retirement and provisions for
vacation pay have been determined on the basis of the changes in
the balances of the related balance sheet items after their
relative cash flows are taken into account.
e) The financing component represents financial income and expenses
in real terms, as well as the erosion of monetary items during the
year.
3. Convenience translation into U.S. dollars:
The adjusted financial statements as of December 31, 1997 have
been translated into U.S. dollars using the representative
exchange rate of the U.S. dollar as at December 31, 1997 (U.S. $1
- NIS 3.536), as published by the Bank of Israel. The
translations were made solely for the convenience of the readers.
It should be noted that the adjusted New Israeli Shekel figures do
not necessarily represent the current cost amounts of the various
elements presented and that the translated U.S. dollar figures
should not be construed as a representation that the Israeli
currency amounts actually represent, or could be converted into
dollars.
<PAGE> F-13
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
4. Data regarding CPI, Israeli Building Cost Index ("BCI") and
exchange rate of foreign currency:
a) Most of the Company's contracts for construction are linked
to the Israeli BCI. Set forth below is certain information
concerning the CPI, the BCI and rate of exchange into U.S.
dollars:
<TABLE>
<CAPTION>
Exchange
rate of one
U.S. dollar CPI*) BCI*)
------------- ------------- -------------
<S> <C> <C> <C>
At the end of the period:
December 1997 NIS 3.536 153.1 points 165.7 points
December 1996 NIS 3.251 143.1 points 153.0 points
December 1995 NIS 3.135 129.4 points 141.6 points
Changes during the period:
December 1997 (12 months) 8.77% 7.00% 8.30%
December 1996 (12 months) 3.70% 10.59% 8.05%
December 1995 (6 months) 6.24% 5.46% 1.51%
Real increase (decrease) in the CPI and BCI
relative to the exchange rate of the dollar
during the period:
<CAPTION>
CPI*) BCI*)
------------- -------------
<S> <C> <C>
December 1997 (12 months) (1.6%) (0.4%)
December 1996 (12 months) 6.6% 4.2%
December 1995 (6 months) (0.3%) (4.5%)
*) According to the CPI and BCI index for
the month ending on balance sheet date
on an average basis of 1993 = 100 and
of 1992 = 100, respectively.
</TABLE>
b) Assets and liabilities in foreign currency or linked
thereto are included in the financial statements according
to the representative exchange rate as published by the
Bank of Israel on balance sheet date (figures for the
preceding periods have been adjusted to the December 1997
CPI).
c) Assets and liabilities linked to the CPI are included in
the financial statements according to the index, last
published prior to December 31, 1997.
d) Assets and liabilities linked to the BCI are included in
the financial statements according to the index, last
published prior to December 31, 1997 (figures for the
preceding periods have been adjusted to the December 1997
CPI).
<PAGE> F-14
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
5. Adjustments of financial statements on the basis of the exchange
rate of foreign currency:
The financial statements of the foreign subsidiaries, which are
operating independently of the Company, are adjusted on the basis
of the exchange rates of the relevant foreign currency. The
amounts included in the financial statements of those companies
have been included in the consolidated financial statements
according to Interpretation No. 8 of Opinion No. 36 of the Israeli
Institute. Under this interpretation, at each balance sheet date,
the balance sheet and the results of operations for the year then
ended are translated into NIS at the rate of exchange prevailing
at the end of the year for each foreign currency. Figures for
preceding years are adjusted to year end Israeli CPI. The
differences arising from the translation into NIS, which includes
related changes in the Israeli CPI, is carried to the "cumulative
translations adjustment" in shareholders' equity. In the current
year, the cumulative transactions adjustments, which are to be
related to foreign subsidiaries firstly consolidated, were
immaterial and, therefore, were not recognized.
c. Principles of consolidation:
The consolidated financial statements include the financial statements
of Genesis and its wholly owned subsidiaries listed below. Significant
inter-company balances and transactions are eliminated in
consolidation.
Subsidiaries included in consolidation:
Israeli subsidiaries
--------------------
* Genesis Construction Performance (1994) Ltd. ("GCP"), formerly
T.S.M.G. Construction Company Ltd. and its wholly owned
subsidiaries
* Shnapp TSLT Investment and Assets Ltd. - and its wholly owned
subsidiary.
Foreign subsidiaries
--------------------
* Genesis Development and Construction Inc. ("GDC USA")
(incorporated under the laws of the state of Delaware, U.S.A.) and
its subsidiary (51% interest)
* Genesis Europe SPRL - (incorporated under the laws of Belgium)
* AB Stone B.V. (incorporated under the laws of Netherlands) and its
subsidiary (50% interest).
d. Cash equivalents:
Cash equivalents are short-term, highly liquid investments that are
readily convertible into cash with maturities at the date acquired of
three months or less, such as short-term deposits.
<PAGE> F-15
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Investments in debt and equity securities:
Investments in marketable debt and equity securities, designated for
sale in the short term are presented at market value. Variations in
market value are carried to the statement of operations.
f. Investments in affiliates:
The investments in companies, partnership and joint ventures, over
which the Company can exercise significant influence (generally,
entities in which the Company holds 20% to 50% of ownership or voting
rights) are presented using the equity method of accounting.
The significant accounting policies of these affiliates are
substantially the same as those used by the Company.
g. Allowance for doubtful accounts:
The allowance for doubtful accounts is determined with respect to
specific accounts receivables that are doubtful of collection.
h. Fixed assets:
The assets are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
The annual depreciation rates are as follows:
%
---------
Office space 4
Office furniture and equipment 7-20
Motor vehicles 15
i. Revenue recognition:
a. Revenue from fixed price contracts is recognized on the percentage
of completion method. The percentage of completion method is also
used for condominium projects in which the Company is a real
estate developer and all units have been sold prior to the
completion of the preliminary stage and at least 25% of the
project has been carried out.
Percentage of completion is measured by the percentage of costs
incurred to balance sheet date to estimated total costs. Selling,
general, and administrative costs are charged to expense as
incurred. Profit incentives are included in revenues when their
realization is reasonably assured.
<PAGE> F-16
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
Provisions for estimated losses on uncompleted projects are made
in the period in which such losses are first determined, in the
amount of the estimated loss of the full contract.
Differences between estimates and actual costs and revenues are
recognized in the year in which such differences are determined.
The provision for warranties is provided at a certain percentage
of revenues, based on the past experience of the Company's
management.
The asset "cost and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess
of amounts billed. The liability "billings in excess of costs
and estimated earnings on uncompleted contracts" represents
billings in excess of revenues recognized.
b. Revenue from projects built for sale is recognized on the
completed contract method when both of the following conditions
have been met:
* at least 90% of the project has been completed, and
* at least 75% of the units in the project have been sold
c. Consulting and financial services contracts to manage construction
activity of others, including financial management, are recognized
only to the extent of the fee revenue. The fee revenue is based
on the profits generated by the project and is recognized upon
completion of the project when the profit is known.
d. Profit on sale of a partial interest in real estate is recognized
by the full accrual method when all of the following criteria are
met:
1. The sale is consummated.
2. The buyer's initial and continuing investments are adequate to
demonstrate a commitment to pay for the property.
3. The Company's receivable is not subject to future subordination.
4. The Company has transferred to the buyer the usual risks and
rewards of ownership in a transaction that is in substance a sale
and does not require a substantial continuing involvement in the
property or the interest sold.
5. The Company does not have an option to repurchase the interest
rights in the project and the purchaser cannot require the Company
to repurchase the interest rights in the project.
<PAGE> F-17
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Deferred taxes:
1. Deferred taxes are computed in respect of temporary differences
between the amounts included in these financial statements and
those considered for tax purposes.
2. Since undistributed profits of Israeli subsidiaries can be
distributed tax free to the Company, no deferred income taxes have
been provided for the realization of investments in subsidiaries.
3. Taxes that would apply in the event of the realization of
investments in foreign subsidiaries have been taken into account
in determining the deferred taxes.
k. Concentration of risks:
Financial instruments that potentially subject the Company to
concentrations of credit risks consist principally of accounts
receivables derived from construction contracts of major customer (see
Note 25a), bank deposits and marketable securities and cash and cash
equivalents deposited in major banks in Israel and of investment in
joint venture. Management believes that the financial institutions
that hold the Company's investments are financially sound, and
accordingly, minimal credit risk exists with respect to these
investments.
l. Earnings (Loss) per share:
Earnings (Loss) per share are computed based on the weighted average
number of ordinary shares outstanding during each year, in accordance
with Opinion No. 55 of the Israeli Institute.
m. Segment reporting:
The Company is engaged ,by itself and through its wholly owned
subsidiaries, in three segments of the real estate industry:
(a) development and construction
(b) real estate sales transactions
(c) provision of consulting, management and financial management
services in connection with construction activity of others.
<PAGE> F-18
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Continued)
n. Impact of recently issued accounting standards:
In June 1997, the FASB issued the Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" and No. 131,
"Disclosure About Segments of an Enterprise and Related Information".
These statements are effective for fiscal years beginning after
December 15, 1997. These statements do not have measurement effects on
the financial statements, however they do require additional
disclosures.
NOTE 3:- CASH AND MARKETABLE SECURITIES IN RESTRICTED DEPOSITS
According to the construction loan agreements between the Company and
various banks, all receipts and revenues generated from projects,
financed by these various banks, are deposited in special accounts. As
of December 31, 1997, the restricted deposits comprise cash and
marketable securities which are released to fund the development of the
projects. The hypothecation, exchange or transfer of the said deposits
are subject to the approval of the banks.
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Bank time deposits 4,917,676 38,403,780 10,860,798
Marketable debt securities 11,091,125 9,362,069 2,647,644
Equity securities - 107,552 30,416
------------- ------------- -------------
16,008,801 47,873,401 13,538,858
============= ============= =============
</TABLE>
<PAGE> F-19
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: - CONTRACT RECEIVABLES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Billed
Completed contracts 448,146 1,636,927 462,932
Contracts in progress 2,664,189 7,273,746 2,057,055
Unbilled 672,549 224,808 63,577
Notes receivable 229,152 674,795 190,835
------------- ------------- -------------
4,014,036 9,810,276 2,774,399
============= ============= =============
</TABLE>
NOTE 5: - PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Short-term loans (a) 1,170,656 2,507,918 709,253
Short-term loan (b) - 1,700,000 480,769
Loan, as short-term deposit (c) 996,883 571,610 161,654
VAT and income tax receivable
(See Note 16) 362,397 - -
Prepaid expenses and other
receivables 84,768 425,698 120,390
Advances to suppliers 46,914 428,074 121,061
Deferred Bridge Notes issuance
costs (d) 843,437 - -
------------- ------------- -------------
3,505,055 5,633,300 1,593,127
============= ============= =============
</TABLE>
<PAGE> F-20
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: - PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE (Continued)
(a) The Company has been engaged to arrange construction loans
or credit lines for certain projects and to provide the
necessary security required by the lender. The Company was
required to advance a short-term loan to the contractor for
these projects. The loans were repaid in February 1998.
(b) A short-term loan was given to a third party and is linked
to the US dollar. The loan matures in August 1998 and is
secured by a lien on a parcel of land. The loan bears no
interest and is presented at its discounted value.
(c) An unlinked loan, at the prime interest rate (which derives
from the base interest rate determined by the Bank of
Israel), was given to a third party, involved in a trade-
off deal and construction services contract. The loan
functioned as a short-term deposit to guarantee the
construction services provided by the Company to the third
party, which is the owner of 40% interest in the lot
situated on privately owned land in Derech Hayam. The loan
and accumulated interest was repaid in March 1998.
(d) The Company completed a bridge financing in November 1996.
Bridge Notes were payable on the earlier of one year from
the issuance of the Bridge Notes and the closing of the
Company's IPO. The IPO was completed on February 4, 1997
and issuance costs were amortized within the period from
November 26, 1996 to February 4, 1997.
NOTE 6:- RELATED PARTY RECEIVABLES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Unaddiliated Israeli Company (a) - 5,077,374 1,435,910
American Entity (b) - 1,176,656 332,765
------------- ------------- -------------
- 6,254,030 1,768,675
============= ============= =============
</TABLE>
<PAGE> F-21
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6:- RELATED PARTY RECEIVABLES (Continued)
(a) In September 1997, the Company sold 50% of its interest in a
subsidiary to an unaffiliated Israeli Company ("UIC"), in
consideration of $3,300,000 of which $1,800,000 was paid in
September 1997. The remaining balance is receivable in two equal
installments of $750,000 each in April and December 1998. The
remaining balance bears no interest and is presented at its
discounted value (See Note 27e).
(b) This receivable represents the share in expenses incurred by the
Rehovot Joint Venture and to be reimbursed to the joint venture by
the American Entity, U.S. investors in the Rehovot Project (See
Note 27d).
NOTE 7:- COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Cost incurred on uncompleted
contracts 24,623,282 95,717,317 27,069,376
Estimated earnings 2,310,415 1,670,794 472,511
------------- ------------- -------------
26,933,697 97,388,111 27,541,887
Less: Billings to date (33,617,155) (84,005,896) (23,757,324)
------------- ------------- -------------
(6,683,458) 13,382,215 3,784,563
============= ============= =============
Included in the accompanying
balance sheets under the
following captions:
Costs and estimated earnings
in excess of billings on
uncompleted contracts 2,865,784 16,537,042 4,676,765
Billing in excess of costs and
estimated earnings on
uncompleted contracts (9,549,242) (3,154,827) (892,202)
------------- ------------- -------------
(6,683,458) 13,382,215 3,784,563
============= ============= =============
</TABLE>
<PAGE> F-22
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LOAN TO AFFILIATED COMPANIES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Short-term loan to
Stipula B.V. (a) - 3,163,895 894,767
Short-term loan to AS. (b) - 220,000 62,217
------------- ------------- -------------
- 3,383,895 956,984
============= ============= =============
</TABLE>
a) The loan was given to Stipula I B.V. (A.B. Stone subsidiary) to
finance the acquisition of a 21.87% interest in the share capital
of Engel (see not 27e). The loan is linked to U.S. dollars and
will mature no later than December 31, 1998. The interest rate has
not yet been determined.
b) The loan was given to Alir Schnapp Industrial Buildings Ltd.
("AS") to finance the acquisition of an industrial building in
Migdal Haemek. The loan is linked to CPI and will mature in
December 1998. (See Note 20p). The Company's share in AS equity
is immaterial.
<PAGE> F-23
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9- LONG-TERM RECEIVABLES AND DEPOSITS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Notes receivables linked to
U.S. dollar (a) - 10,608,000 3,000,000
Unlinked notes receivables (b) - 876,241 247,806
Long-term bank deposits ( c ) - 156,167 44,165
------------- ------------- -------------
- 11,640,408 3,291,971
Less: current portion - (368,065) (104,091)
------------- ------------- -------------
- 11,272,343 3,187,880
============= ============= =============
The said balance was presented
as follows:
Related parties - 7,647,943 2,162,880
Other - 3,624,400 1,025,000
------------- ------------- -------------
- 11,272,343 3,187,880
Maturities:
Second year - 207,625 58,717
Third year - 207,625 58,717
Fourth year - 92,926 26,280
Thereafter until 2003 - 10,764,167 3,044,166
------------- ------------- -------------
- 11,272,343 3,187,880
============= ============= =============
</TABLE>
a. The Company has long-term receivables (promissory notes) from the
American Entity relating to the sale of 55% interest in the Rehovot
Project (Note 27d). The principal of these promissory notes, which
bear interest at the rate of 8.5% per annum, are payable on December
31, 2003.
Accrued interest is payable on the last business day of each calendar
quarter commencing March 31, 1998.
<PAGE> F-24
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9- LONG-TERM RECEIVABLES AND DEPOSITS (Continued)
b. Unlinked notes receivables are related to a completed project in Lev-
Hasharon and bear interest at an annual rate of 17%. The unlinked
notes receivables are payable in 39 monthly installments of principal
and interest, ending in July 2001.
c. Long-term bank deposits are linked to the CPI, and bear interest at an
annual rate of 4%. These deposits are registered in the shareholders'
name as a trustee for the Company and mature in 2012.
NOTE 10 - EQUITY IN JOINT VENTURES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Rehovot project (a) - 453,534 128,262
Germany and Russian projects (b) - 6,450,592 1,824,262
Southampton ( c ) - 5,849,421 1,654,248
------------- ------------- -------------
- 12,753,547 3,606,772
============= ============= =============
</TABLE>
a) The equity in Joint Venture in the Rehovot project represents the
Company's shares in the costs associated directly to the project.
(See Note 27d).
b) The Company has sold 50% of its interest in the German and Russian
projects to UIC. The remaining 50% represent the cost of its
investment in the joint venture for each project. The German
project is expected to be completed by December 2002 and the
Russian project in September 1998. (See Note 27c).
c) GDC USA acquired on May 6, 1997, through its 51% owned subsidiary,
a parcel of land in Southampton, New York on which to develop 33
single-family luxury homes. The project is currently under site
development.
<PAGE> F-25
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11- LAND UNDER DEVELOPMENT
In December 1997, the Company acquired from Engel the rights to a
parcel of land in Carmiel on which to develop 167 residential units, in
consideration of NIS 16.9 million. The Company is seeking permission
for approximately 300 units of which approximately 220 are designated
for rental. The project is currently under site development.
NOTE 12: - FIXED ASSETS
<TABLE>
<CAPTION>
Furniture
and office Office
Vehicles equipment Space Total
------------- ------------- ------------- -------------
Adjusted NIS
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996:
Cost (1)(2) 635,834 181,891 533,076 1,350,801
Accumulated depreciation (108,708) (11,241) (13,529) (133,478)
------------- ------------- ------------- -------------
Depreciated cost 527,126 170,650 519,547 1,217,323
============= ============= ============= =============
Balance as of December 31, 1997:
Cost (1) (2) 2,046,488 722,657 551,994 3,321,139
Accumulated depreciation (290,149) (76,907) (35,530) (402,586)
------------- ------------- ------------- -------------
Depreciated cost 1,756,339 645,750 516,464 2,918,553
============= ============= ============= =============
Convenience Translation
Balance as of December 31, 1997
Cost 578,758 204,371 156,107 939,236
Accumulated depreciation (82,056) (21,750) (10,048) (113,854)
------------- ------------- ------------- -------------
Depreciated cost 496,702 182,621 146,059 825,382
============= ============= ============= =============
</TABLE>
(1) Including vehicles at the cost of adjusted NIS 476,832 registered
in the shareholders' name, and a director's name as trustees for
the Company, and vehicles acquired under a long-term lease at the
cost of adjusted NIS 701,716 (1996: NIS 185,991).
(2) For charges, see Notes 20 and 22.
<PAGE> F-26
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: - BANK CREDITS AND SHORT-TERM LOANS
<TABLE>
<CAPTION>
a. Composed as follows: Annual Interest Rates December 31, December 31,
-----------------------
1996 1997 1996 1997 1997
---------- ---------- ------------- ------------- -------------
Convenience
translation
(Note 2a)
% % Adjusted NIS U.S. $
---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Bank credits - unlinked 19.6 15.5-17.5 7,568,148 10,728,164 3,033,983
Bank credits - linked to
the U.S.$ - 6.25 - 7,191,732 2,033,861
------------- ------------- -------------
7,568,148 17,919,896 5,067,844
============= ============= =============
</TABLE>
b. As to pledges to secure bank credit (see Notes 20 and 22)
NOTE 14: - BRIDGE NOTES
In November 1996, the Company completed the bridge financing pursuant
to which it issued $2,000,000 aggregate principal amount of Bridge
Notes and Bridge Warrants to purchase 1,000,000 Class A ordinary shares
(see Note 21e), in which it received net proceeds of NIS 5,437,816
($1,537,844). The Bridge Notes are payable, together with interest at
the rate of 10% per annum, on the earlier of one year from the issuance
of the Bridge Notes and the closing of the Company's initial public
offering ("IPO"). The IPO was completed in February 1997 and the
Bridge Notes were fully paid.
NOTE 15: TRADE PAYABLES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Accounts payable 2,590,660 33,154,341 9,376,228
Notes payable 4,601,867 4,398,481 1,243,914
------------- ------------- -------------
7,192,527 37,552,822 10,620,142
============= ============= =============
</TABLE>
<PAGE> F-27
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16:- ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
VAT and income tax payable
(See Note 5) - 1,707,770 482,966
Other 139,205 971,055 274,620
Wages and related benefits 272,939 528,694 149,518
Expenses payable 532,214 42,432 12,000
------------- ------------- -------------
994,358 3,249,951 919,104
============= ============= =============
</TABLE>
NOTE 17:- RELATED PARTIES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Loan from shareholder* 1,043,454 - -
Salary payable (See Note 27a) 49,828 112,777 31,894
------------- ------------- -------------
1,093,282 112,777 31,894
============= ============= =============
</TABLE>
<PAGE> F-28
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17:- RELATED PARTIES (Continued)
* Pursuant to an Investment Agreement with a shareholder, the
Company received on December 30, 1995 a loan of $300,000 bearing
no interest and payable in full on June 30, 1997. The Company has
also granted to the shareholder an option exerciseable at any time
prior to the maturity date, to convert the loan into a number of
Class B Ordinary Shares which represents 20% of the total Ordinary
Shares then outstanding. In September 1996, the Company agreed to
pre-pay in full the outstanding amount of the loan on the
thirtieth day after the closing of the IPO of the Company with the
above option canceled upon the completion of the IPO. The
shareholder also agreed not to exercise the option prior to the
maturity date. The IPO was completed in January 1997, the option
was canceled and the loan was repaid in March 1997.
NOTE 18:- LONG-TERM DEBT
<TABLE>
<CAPTION>
a. Composed as follows: December 31, December 31,
1996 1997 1996 1997 1997
---------- ---------- ------------- ------------- -------------
Convenience
translation
Annual (Note 2a)
Interest rates % Adjusted NIS U.S. $
---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
From a leasing company
- linked to the U.S.
dollar - 7.5 - 418,901 118,467
From a leasing company
- linked to the CPI 7.00 6.6 - 7.7 90,397 207,823 58,773
From bank - unlinked - 17.15 - 136,847 38,701
From bank - linked to
the U.S. dollar - 6.31 - 8.25 - 19,210,042 5,432,704
From bank - linked
to CPI*) 5.55 5.3 - 5.5 350,463 2,617,127 740,138
Notes payable - - 239,963 - -
------------- ------------- -------------
680,823 22,590,740 6,388,783
Less current maturities (52,064) (2,671,701) (755,571)
------------- ------------- -------------
628,759 19,919,039 5,633,212
============= ============= =============
</TABLE>
*) Includes NIS 337,820 (1996: 350,463) collateralized by a mortgage
on the Company's
office space.
b. Aggregate maturities of long-term loans maturing serially from 1998 to
2011:
<PAGE> F-29
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18:- LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
First year - current maturities 52,064 2,671,701 755,571
Second year 295,394 19,240,194 5,441,231
Third year 34,966 215,831 61,038
Fourth year 19,372 139,503 39,452
Fifth year 20,475 85,801 24,265
Thereafter 258,552 237,710 67,226
------------- ------------- -------------
680,823 22,590,740 6,388,783
============= ============= =============
</TABLE>
c. As to pledges to secure loans see Note 22.
d. As to capital lease commitments see Note 20r.
NOTE 19: - SEVERANCE PAY
The Company's liability for severance pay for its employees, pursuant to
Israeli Law, is fully provided for. Part of the liability is funded through
insurance policies and severance pay fund.
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997 1997
------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
---------------------------------------------
<S> <C> <C> <C>
Severance pay 94,032 274,553 77,645
Less: amount funded* (60,983) (196,751) (55,642)
------------- ------------- -------------
33,049 77,802 22,003
============= ============= =============
</TABLE>
<PAGE> F-30
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: - SEVERANCE PAY (Continued)
*) The amount funded can be withdrawn under the provisions of the Law
for Severance Pay.
Severance pay expense for the six month period ended December 31,
1995 and for the years ended December 31, 1996 and 1997 amounted
to adjusted NIS - none NIS 94,032 and NIS 180,521, respectively.
NOTE 20 :- CONTINGENT LIABILITIES AND COMMITMENTS
All the amounts described in the following projects are approximate amounts
and are linked to the Israeli BCI, unless stated otherwise.
a. Mifal Hapayis Community Centers
The Company has entered into an agreement with Engel pursuant to which
Engel is required to engage the Company as the subcontractor for the
construction of each of the identical art and science centers in
different municipalities throughout Israel awarded to Engel ("the
Mifal Hapayis projects"). The Company will receive 95%, approximately
NIS 8.6 million, of the revenues actually received by Engel for each of
the projects. Through September 1996, Engel entered into agreements
for the construction of five Mifal Hapayis Centers. Orders for the
construction of these projects have been issued. The Company has
engaged subcontractors to complete a portion of three projects in
consideration of 80% - 88% of the gross project revenues. The Company
is committed to complete all the projects by April 1998, otherwise a
penalty amount of NIS 2,500 will be payable for each day of delay. The
Company expects to complete the projects on time.
In October 1996, the Company agreed to release Engel from its
commitment to engage the Company as a subcontractor in further Mifal
Haypayis projects. The compensation payable to the Company for each
released project will amount to NIS 300,000.
b. Kfar Yona:
In June 1997, the Company was awarded a project for the
development and construction of 34 residential units. The price
per unit has been set pursuant to the tender at approximately NIS
185,000. The Company is committed to complete the project by May
1998 otherwise a penalty amount of $300 for each unit will be
payable for each month of delay. The Company expects to complete
the project on time.
<PAGE> F-31
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 :- CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
c. Petah Tikva Youth Village:
In November 1995, the Company entered into an agreement with Engel
for the construction of an agricultural Youth Village in
consideration of NIS 3.1 million. The Company has engaged a
subcontractor to complete the entire project in consideration of
NIS 2.9 million. The Company is committed to complete the project
by August 1998, otherwise a penalty in the amount of NIS 4,000
will be payable for each day of delay. The Company expects to
complete the project on time.
d. Gymnasiums:
In January 1997, the Company received additional project awards
for the construction of two gymnasiums in Holon and one gymnasium
in Tel-Aviv, in consideration of approximately NIS 11.5 million.
An order for the construction has been issued. The Company is
committed to complete the project by June 1998 otherwise a penalty
in the amount of NIS 4,000 will be payable for each day of delay.
The Company expects to complete the project on time.
e. Carmiel:
In March 1997, the Company acquired a parcel of the land for the
construction of 31 residential units, in consideration of
approximately NIS 2 million. The Company is committed to complete
the project by December 1998 otherwise a penalty in the amount of
NIS 1,000 will be payable for each month of delay. The Company
expects to complete the project on time.
f. Kfar Yona:
In March 1997, the Company agreed to complete an Engel project in
Kfar Yona (65 residential units) in consideration of NIS 7.2
million. The Company is committed to complete the project by June
1998, otherwise a penalty amount $300 for each unit will be
payable for each month of delay. The Company expects to complete
the project on time.
g. Rehovot:
In March 1997, the Company was awarded rights to develop a parcel
of land of approximately 77,000 sq.m. in consideration of NIS 2
million. The development plan requires evictions, a zoning change
and the approval by the municipal and regional authorities. The
Company has received in March 1998 the rezoning approval from the
regional council for the construction of approximately 1000 units.
<PAGE> F-32
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 :- CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
g. Rehovot: (Continued)
The Company is committed to complete the development by March
2002.
h. Kiryat Shmuel:
In November 1997, the Company acquired a 50% interest in a project
for the construction of 58 residential units in consideration of
approximately NIS 5 million. The remaining rights are held by a
local contractor. Construction is scheduled to commence at the
beginning of 1998 and to be completed within 18 months. The
construction permits were received after the balance sheet date.
The Company expects to complete the project on time.
i. Dovrat:
In June 1997, the Company was engaged to act as the general
contractor for the construction of up to 250 semi-detached
residential units in the town of Dovrat. The Company has entered
into a joint venture agreement with another contractor for the
construction of this project, with each party holding a 50%
interest. The first phase of construction has commenced and
consists of 52 units to be completed in 1998. The Company expects
to complete the first phase of the project on time.
j. Nofim:
In June 1997, the Company was awarded a project for the
construction of a gymnasium by the municipality of Haifa, as one
of the winners in a bid conducted by the Local Government Economic
Services Ltd. ("LGES"). The Company is committed to complete
the project in August 1998 otherwise a penalty in the amount of
NIS 4,000 will be payable for each day of delay. The Company
expects to complete the project on time.
k. Haifa
In September 1997, the Company entered into a project together
with a local contractor and a third party for the development of
two apartment buildings containing approximately 80 moderately
priced residential units on a parcel of land in Haifa, located in
the vicinity of the Technion Israel Institute. The Company has
acquired a 25% interest in the project in consideration of
$376,000. Construction will commence upon the issuance of the
construction permit by the municipality.
<PAGE> F-33
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 :- CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
l. Modi'in:
In December 1997, the Company was awarded a project to serve as
general contractor for a project for the construction of 85
residential units in Modi'n. The Company is committed to complete
the project by December 1999. The Company expects to complete the
project on time.
m. Guarantees:
The Company received an authorization to employ foreign workers by
the Ministry of Interior. In order to secure the fulfillment of
the authorization's condition, the Company deposited, with the
Ministry of Interior, notes payable in the amount of NIS 136,000.
n. Bank guarantees:
In order to guarantee the proceeds on apartments sold and on other
construction projects, the Company has provided bank guarantees
expiring upon the completion of the project.
Adjusted NIS
-------------------
1. Bank guarantees under the Law of Apartment Sales 9,415,000
2. Bank guarantees as security for performance 31,749,000
o. Contractors registration:
GCP has been registered in the Contractors Registrar Office as a
building contractor for projects involving unlimited financial
scope and unlimited size. The registration depends on employment
of two professional workers approved by the Contractors Registrar.
This condition was fully met by GCP.
p. Investment in Alir Schnapp Industrial Buildings Ltd. ("AS"):
The Company owns 18.8% interest in AS. According to the agreement
between the Company and the remaining AS shareholders, the Company
is committed to loan a total amount of up to $100,00 without
changes in ownership interest. (See Note 8).
q. Capital lease:
The Company leased vehicles for periods expiring from May 1999 to
September 2002. Following is a summary of future payments under
capitalized lease:
<PAGE> F-34
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 :- CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
<TABLE>
<CAPTION>
ADJUSTED NIS
------------
<S> <C>
Year ending December 31, 1998 219,120
Year ending December 31, 1999 195,166
Year ending December 31, 2000 178,064
Year ending December 31, 2001 143,911
Year ending December 31, 2002 75,204
------------
Total capitalized lease payment 811,465
Imputed interest 184,741
------------
Present value of capitalized lease payments 626,724
Current portion 161,935
------------
Long-term capitalized lease obligations 464,789
============
</TABLE>
r. Lease Commitments
In December 1996, the Company leased additional office space as
from January 1, 1997, under long-term operating lease agreements.
Following is a summary of future payments for this lease:
<TABLE>
<CAPTION>
ADJUSTED NIS
------------
<S> <C>
Year ending December 31, 1998 217,981
Year ending December 31, 1999 78,500
Year ending December 31, 2000 23,338
Year ending December 31, 2001 23,338
------------
343,157
============
</TABLE>
<PAGE> F-35
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 :- SHARE CAPITAL
a. Share Capital is Composed as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
Authorized Issued & Authorized Issued &
Outstanding Outstanding
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Class A ordinary shares
NIS 0.10 par value 42,000,000 - 42,000,000 2,300,000
Class B ordinary shares
NIS 0.10 par value 3,000,000 3,000,000 3,000,000 3,000,000
</TABLE>
The Class A Ordinary Shares and the Class B Ordinary Shares are
essentially identical, except that each Class A Ordinary Share is
entitled to one vote and each Class B Ordinary Share is entitled to
five votes, and Class B Ordinary Shares have no voting rights in regard
to certain resolutions relating to the amendment of the rights of the
Class B Ordinary Shares.
b. Each Class B Ordinary share will automatically be converted into one
Class A Ordinary Share upon:
i. the death of the holder thereof (the "Original Holder") or, if
such shares are subject to a shareholders' agreement or voting
trust agreement granting the power to vote such shares to another
Original Holder, then upon the death of such other Original
Holder.
ii. the sale or transfer to any person other than the following
transferees:
a. a trust for the sole benefit of members of the transferors
immediate family and which is controlled by the transferor;
and
b. any other holder of Class B Ordinary Shares thereof; or
iii. the failure of the Company to achieve net income before provision
for income taxes and exclusive of extraordinary earnings and
charges to income resulting from the release from the Deference
Program of the Performance Shares (as such terms are defined
below) as audited and determined by the Company's independent
public accountants in accordance with U.S. GAAP, as set forth in
the reconciliation thereof in the Company's consolidated financial
statements ("Pretax Income") of at least $1,000,000 (the
"Target Pretax Income Amount") for the year ending December 31,
<PAGE> F-36
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 :- SHARE CAPITAL (Continued)
1998, or for each of the succeeding five years ending December 31,
2003 - the failure of the Company to achieve Pretax Income
exceeding the Target Pretax Income for the previous year by at
least 10%.
c. As of January 30, 1997 (effective date of IPO) 2,660,000 Class B
Ordinary Shares ("Program Shares") are subject to a share
deference program ("Deference Program"). The Program Shares
include 1,064,000 Class B Ordinary Shares held by the President of
the Company through his wholly owned corporation and 984,200 Class
B Ordinary Shares held by a director as trustee of a trust for the
benefit of his wife.
As long as the Program Shares are subject to the Deference
Program, they shall not be assignable, transferable or convertible
into Class A Ordinary Shares as stated above.
(a) 866,667 of the Program Shares will be automatically
released from the Deference Program, on a pro-rata basis,
if one or more of the following conditions are met:
i. the Company's net income before provision for income
taxes and exclusive of any extraordinary earnings as
audited and determined by the Company's independent
public accountants in accordance with U.S. GAAP (the
"Minimum Pretax Income"), as set forth in the
reconciliation thereof in the Company's consolidated
financial statements, amounts to at least $5.3
million for the fiscal year ending December 31, 1997,
or December 31, 1998; or
ii. the Minimum Pretax Income amounts to at least $7.0
million for the fiscal year ending December 31, 1999;
or
iii. the Minimum Pretax Income amounts to at least $9.3
million for the fiscal year ending December 31, 2000.
If none of the above conditions are met, the said 866,667
Program Shares will be converted into deferred shares,
entitling their Holders to no rights other than the right
to receive an amount not in excess of the par value (NIS
0.1) of the deferred shares upon the dissolution of the
Company.
<PAGE> F-37
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 :- SHARE CAPITAL (Continued)
(b) An additional 433,333 of the Program Shares will be
released from the Deference Program, on a pro-rata basis,
if one or more of the following conditions is met:
i. the Minimum Pretax Income amounts to at least $6.8
million for the fiscal year ending December 31, 1997,
or December 31, 1998; or
ii. the Minimum Pretax Income amounts to at least $8.9
million for the fiscal year ending December 31, 1999;
or
iii. the Minimum Pretax Income amounts to a least $11.9
million for the fiscal year ending December 31, 2000.
If none of the above conditions are met, the said 433,333 Program
Shares will be converted into deferred shares, entitling their
Holders to no rights other than the right to receive an amount not
in excess of the par value (NIS 0.1) of the deferred shares upon
the dissolution of the Company.
(c) The remaining 1,360,000 Program Shares will be released
from the Deference Program, on a pro-rata basis, if one or
more of the following conditions are met:
i. the Minimum Pretax Income amounts to at least $8.0
million for the fiscal year ending December 31, 1997,
or December 31, 1998; or
ii. the Minimum Pretax Income amounts to at least $10.5
million for the fiscal year ending December 31, 1999;
or
iii. the Minimum Pretax Income amounts to a least $14.0
million for the fiscal year ending December 31, 2000.
If none of the above conditions are met, the said 1,360,000
Program Shares will be converted into deferred shares,
entitling their Holders to no rights other than the right
to receive an amount not in excess of the par value (NIS
0.1) of the deferred shares upon the dissolution of the
Company.
(d) The Minimum Pretax Income amounts set forth above:
i. shall be calculated exclusive of any extraordinary
earnings and any charge to income resulting from
release or the Program Shares and
<PAGE> F-38
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 :- SHARE CAPITAL (Continued)
ii. shall be increased proportionately, with certain
limitations, in the event additional Ordinary Shares
or securities convertible into, exchangeable for or
exercisable into Ordinary Share without payment of
additional consideration are issued after completion
of the IPO; provided, however, that, with respect to
any Class A Ordinary Shares issued upon exercise of
the Warrants not previously called for redemption by
the Company underlying the Units offered hereby, so
long as any portion of the net proceeds received by
the Company upon such exercise is not utilized by the
Company, but such proceeds ("Invested Proceeds")
are instead invested in short-term high interest
bearing securities or accounts, then the adjustment
to the Minimum Pretax Income amounts set forth above
shall be an amount (net of taxes) equal to 8% per
annum multiplied by such amount of Invested Proceeds
from the date of exercise.
Any money, securities, rights or property distributed
in respect of the Program Shares, including any
property distributed as dividends or pursuant to any
stock split, merger, recapitalization, dissolution or
total or partial liquidation of the Company, shall be
subject to the Deference Program until release of the
Program Shares.
(e) The conversion of the Program Shares to deferred shares as
described above shall not require any resolution of the
general meeting of the Company's shareholders.
(f) Since the above conditions were fully met, in the reporting
year the 2,660,000 Class B Ordinary Shares are released
from the Deference Program.
d. Share Option Plan
In November 1996, the Board of Directors of the Company adopted a share
option plan (the "Share Option Plan") pursuant to which 300,000 Class
A Ordinary shares were reserved for issuance upon the exercise of
options to be granted to employees of the Company. During the 18
months following the completion of the Offering, such exercise price
will be equal to the greater of (i) the IPO price of the Units and (ii)
the fair market value of the Class A Ordinary Shares at the time of
grant. Thereafter, such exercise price may not be less than 70% of the
average closing price, as reported by Nasdaq, of the Class A Ordinary
Shares during the 90 calendar days prior to the date of grant.
<PAGE> F-39
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 :- SHARE CAPITAL (Continued)
In November 1997, the Board of directors of the Company adopted a new
share option pursuant to which 400,000 Class A Ordinary Shares were
reserved for issuance upon the exercise of options to be granted to
employees and officers of the Company. The exercise price per share
shall be as follows: (i) for all options exercised before July 30,
1998, the exercise price per Share shall be equal to the greater of the
IPO per share price or the fair market value of the common stock of the
Company on the Date of Grant; (ii) for all Options exercised more than
18 months after the Effective Date, the exercise price shall be 70% of
the average closing price of the Class A Ordinary Shares of the Company
during the 90 days which preceded the date of exercise.
As of December 31, 1997, the Company has not granted any options to
purchase Class A Ordinary Shares, (See also Note 28b).
e. Bridge Warrants
The Bridge Warrants (Note 14), entitle the holders to purchase one
Class A Ordinary Share commencing one year from the date of their
issuance. Upon the Bridge Warrants were exchanged for the Selling
Securityholders' Warrants, each of which are identical to the Class A
Warrants included in the Units. The Selling Securityholders have
agreed, not to exercise and not to sell the Selling Securityholders'
Warrants for a period of one year from the closing of the offering.
f. Issue of Shares within the framework of an IPO
On January 30, 1997, the Company completed an IPO consisting of
2,300,000 Units, each Unit consisting of Class A Ordinary Shares, one
redeemable class A warrant at the price per Unit price of $5. The net
proceeds from the issuance amounted to NIS 32,477,177.
g. Redeemable Warrants
Within the framework of the Company's IPO, the Company issued 2,300,000
Redeemable Class A warrants and 2,300,000 Redeemable Class B warrants.
CLASS A WARRANTS
Each Class A Warrants entitles the registered holder to purchase one
Class A Ordinary share and one Class B Warrant, at an exercise price of
$6.50, until January 2002. Beginning one year from the date of the
IPO, the Class A Warrants are redeemable by the Company on 30 days'
prior written notice at a redemption price of $.05 per Class A Warrant,
if the "closing price" of the Company's Class A Ordinary Shares for
any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $9.10 per share (subject to adjustment
by the Company, in the event of any reverse stock split or similar
events).
<PAGE> F-40
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 :- SHARE CAPITAL (Continued)
CLASS B WARRANTS
Each Class B Warrant entitles the registered holder to purchase one
Class A Ordinary Share at an exercise price of $8.75 per share at any
time after issuance until January 2002. Beginning one year from the
date of IPO, the Class B Warrants are redeemable by the Company on 30
days' prior written notice at a redemption price of $.05 per Class B
Warrant, if the closing price of the Company's Class A Ordinary Shares
for any 30 consecutive trading days ending within 15 days of the notice
of redemption averages in excess of $12.25 per share (subject to
adjustment by the Company, in the event of any reverse, stock split or
similar events).
Through December 31, 1997, none of the Warrants have been exercised.
NOTE 22:- CHARGES
a. As collateral for capital lease liabilities to a leasing company,
a fixed charge has been placed on motor vehicles and equipment.
b. As collateral for a liability to a mortgage bank, a pledge was
registered on the Subsidiary's office space.
c. As collateral for liabilities to banks, a charge has been placed
on short-term deposit, on marketable securities, on revenues from
the projects and on motor vehicles.
As of the balance sheet date, the balance of liability
collateralized totals adjusted approximately NIS 41 million.
NOTE 23:- TAXES ON INCOME
a. Taxation of contractors:
The Income Tax Ordinance (New Version) 1961 ("Ordinance")
distinguishes between two types of contractors performing work
over more than one year ("Progressive Works").
(i) a "customer contractor" initially reports income from
progressive works in the tax year in which at least 25% of the
predicted monetary scope or the quantitative scope of the work is
concluded.
(ii) a "development contractor" reports his income according to
the "completion of work" method, i.e. in the first tax year in
which the building receives a certificate of completion from the
local authority.
The ordinance provides rules for spreading financing, management and
general expenses as well as interest expense over the period of
construction.
<PAGE> F-41
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23:- TAXES ON INCOME (Continued)
b. Measurement of results for tax purposes are made in accordance
with the Income Tax (Inflationary Adjustments) Law, 1985 (the
"Inflationary Adjustments Law").
In accordance with the Inflationary Adjustments Law, the results
for tax purposes are measured in real terms, in accordance with
the changes in the Israeli CPI.
c. Taxes on Income
Taxes on Income included in the statements of operation:
<TABLE>
<CAPTION>
For the six
months ended
December 31, For the year ended December 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Israel - - 1,603,740 453,546
Europe - - 97,671 27,622
Deferred:
Israel - - 3,536,000 1,000,000
------------- ------------- ------------- -------------
- - 5,237,411 1,481,168
============= ============= ============= =============
</TABLE>
<PAGE> F-42
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23:- TAXES ON INCOME (Continued)
d. Deferred tax:
Deferred tax liabilities (assets) are composed of the following:
<TABLE>
<CAPTION>
For the six
months ended
December 31, For the year ended December 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax applied in the event of
the distribution of income
of foreign subsidiaries - - 3,536,000 1,000,000
Difference between the reported
income recognition and the
tax reporting - 45,776 354,443 100,238
Provision for severance pay,
vacation and recreation - (32,470) (99,302) (28,083)
Net operating loss carryforward - (184,875) (452,608) (128,000)
- (171,569) 3,338,533 944,155
Valuation allowance * - 171,569 197,467 55,845
- - 3,536,000 1,000,000
</TABLE>
*) The deferred tax asset valuation allowances are primarily
related to deferred tax assets of foreign operations.
e. Tax loss carryforwards:
At December 31,1997, a foreign subsidiary has net operating loss
carryforwards of approximately $128,000, which may be utilized
against future taxable income through 2012.
f. Tax assessments:
Final assessments have not yet been received by the Company and
its subsidiary since incorporation.
g. A reconciliation of the theoretical tax expense, assuming all
income is taxed at the statutory rate applicable to income of the
Company and the actual tax expense, is as follows:
<PAGE> F-43
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23:- TAXES ON INCOME (Continued)
<TABLE>
<CAPTION>
For the six
months ended
December 31, For the year ended December 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
Translation
(Note 2a)
Adjusted NIS U.S.$
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Theoretical tax expense (benefit)
computed at rate of 36% (379,063) 17,513 10,310,459 2,915,854
Nondeductible expenses and
others, net 23,136 17,317 1,121,656 317,210
Exempt income - - (6,265,792) (1,772,000)
Carryforward losses for which no
deferred taxes are recognized 355,927 (34,830) 71,088 20,104
------------- ------------- ------------- -------------
Actual tax expense - - 5,237,411 1,481,168
============= ============= ============= =============
</TABLE>
NOTE 24:- LINKAGE TERMS OF MONETARY BALANCES
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Foreign Linked to
Currency Israel CPI Unlinked Total
------------- ------------- ------------- -------------
Adjusted NIS
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 5,275,578 - - 5,275,578
Bank deposits and marketable
securities in restricted
deposits 1,087,118 - 14,921,683 16,008,801
Contracts receivable - 3,784,883 229,153 4,014,036
Prepaid expenses and other
accounts receivables - 1,408,879 2,096,176 3,505,055
Related party receivable - - - -
Loan to an affiliated company - - - -
------------- ------------- ------------- -------------
6,362,696 5,193,762 17,247,012 28,803,470
============= ============= ============= =============
Short-term loan and bank credit - - 7,568,148 7,568,148
Bridge Notes 7,009,426 - - 7,009,426
Trade payables - - 7,192,527 7,192,527
Accrued expenses and other
liabilities 98,381 12,167 833,810 944,358
Related parties - - 49,828 49,828
Shareholder 1,043,454 - - 1,043,454
Long-term liabilities
(including current maturities) - 440,860 239,972 680,832
Severance pay - - 33,049 33,049
------------- ------------- ------------- -------------
8,151,261 453,027 15,917,334 24,521,622
============= ============= ============= =============
</TABLE>
<PAGE> F-44
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24:- LINKAGE TERMS OF MONETARY BALANCES
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Foreign Linked to
Currency Israel CPI Unlinked Total
------------- ------------- ------------- -------------
Adjusted NIS
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 11,920,685 - 2,026,112 13,946,797
Bank deposits and marketable
securities in restricted
deposits 37,938,364 - 9,935,037 47,873,401
Contracts receivable - - 9,810,276 9,810,276
Prepaid expenses and other
accounts receivables 1,700,000 - 5,109,956 6,809,956
Related party receivable 5,077,374 - - 5,077,374
Loan to an affiliated company 3,383,895 - - 3,383,895
------------- ------------- ------------- -------------
60,020,318 - 26,881,381 86,901,699
============= ============= ============= =============
Short-term loan and bank credit 7,191,732 - 10,728,164 17,919,896
Bridge Notes - - - -
Trade payables - - 37,552,822 37,552,822
Accrued expenses and other
liabilities - - 3,249,951 3,249,951
Related parties - - - -
Shareholder - 112,277 - 112,277
Long-term liabilities
(including current maturities) 19,628,943 2,824,950 136,847 22,590,740
Severance pay - - 77,802 77,802
------------- ------------- ------------- -------------
26,820,675 2,937,227 51,745,586 81,503,488
============= ============= ============= =============
</TABLE>
<PAGE> F-45
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25:- SELECTED STATEMENT OF OPERATIONS DATA
a. Major customers data
<TABLE>
<CAPTION>
For the six
months ended
December 31, For the year ended December 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
translation
(Note 2a)
Adjusted NIS U.S. $
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues from:
Engel (see Note 20) (1) 89,776 9,758,367 39,569,787 11,190,551
LGES (see Note 20) (2) - - 17,201,693 4,864,732
American Entity (See Note 27d)(3) - - 20,796,118 5,881,255
UIC (See Note 27e)(4) - - 11,495,534 3,251,000
Others 42,758 13,538,781 35,296,003 9,981,901
------------- ------------- ------------- -------------
132,534 23,297,148 124,359,135 35,169,439
============= ============= ============= =============
(1) Percentage of total revenues 67.7% 41.9% 31.8% 31.8%
============= ============= ============= =============
(2) Percentage of total revenues - - 13.8% 13.8%
============= ============= ============= =============
(3) Percentage of total revenues - - 16.7% 16.7%
============= ============= ============= =============
(4) Percentage of total revenues - - 9.3% 9.3%
============= ============= ============= =============
Contracting costs:
Engel projects (5) - 8,185,940 35,710,343 10,099,079
LGES (6) - - 14,881,337 4,208,523
American Entity (7) - - 2,279,207 644,572
UIC (8) - - 3,320,698 939,111
Others - 12,271,467 32,552,004 9,205,884
------------- ------------- ------------- -------------
- 20,457,407 88,743,589 25,097,169
============= ============= ============= =============
(5) Percentage of total revenues - 35.1% 28.7% 28.7%
============= ============= ============= =============
(6) Percentage of total revenues - - 12.0% 12.0%
============= ============= ============= =============
(7) Percentage of total revenues - - 1.8% 1.8%
============= ============= ============= =============
(8) Percentage of total revenues - - 2.7% 2.7%
============= ============= ============= =============
b. Revenues classified by
geographical areas
Israel 132,535 23,297,148 92,067,483 26,037,184
Europe - - 32,291,652 9,132,255
------------- ------------- ------------- -------------
132,535 23,297,148 124,359,135 35,169,439
============= ============= ============= =============
</TABLE>
<PAGE> F-46
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25:- SELECTED STATEMENT OF OPERATIONS DATA (Continued)
<TABLE>
<CAPTION>
For the six
months ended
December 31, For the year ended December 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
translation
(Note 2a)
Adjusted NIS U.S. $
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
c. Selling, administrative and general expenses include:
Bad debt* 153,700 - - -
============= ============= ============= =============
Rental expense - 5,266 37,356 10,565
============= ============= ============= =============
* Uncollectible payment in advance to a subcontractor which did not perform the required
construction.
d. Financial income (expenses)
Erosion of monetary items and
other, net 56,972 (200,943) (1,563,710) (442,226)
Interest income, including gain
on marketable securities - 986,688 4,972,253 1,406,180
Foreign exchange gain - 103,673 444,460 125,696
Interest expenses:
Long-term loans - (51,861) (106,583) (30,142)
Short-term loans and bank
credits (90,297) (571,451) (2,959,705) (837,021)
------------- ------------- ------------- -------------
(33,325) 266,106 786,715 222,487
============= ============= ============= =============
</TABLE>
NOTE 26:- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
a. Cash and cash equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
b. Marketable securities in a restricted deposit:
The fair value for marketable securities in the restricted deposits is
based on quoted market price.
c. Long and short-term debt:
The carrying amounts of the Company's borrowings under its short-term
revolving credit arrangements and long-term debt approximate their fair
value, since they bear interest or linked to CPI.
<PAGE> F-47
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26:- FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
d. The carrying amounts and fair value of the Company's financial
instruments of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Fair Value
Amount
------------- -------------
Adjusted NIS
-----------------------------
<S> <C> <C>
Cash and cash equivalents 13,946,797 13,946,797
Cash and marketable securities in
restricted deposits 47,873,401 47,873,401
Short-term debt 17,919,896 17,919,896
Long-term debt 22,590,740 22,590,740
</TABLE>
NOTE 27:- TRANSACTIONS WITH RELATED PARTIES
a. Employment agreement
In November 1997, the Company entered into a three-year employment
agreement with its President, which is to become effective upon the
closing of Bridge Financing of the Company. The agreement provides for
an annual base salary of NIS 707,200, plus a NIS 176,800 bonus during
any year in which the Company meets the minimum target for release of
Program Shares (Note 21c) for such year. If such target for any given
year is not met, the president will be required to convert his Class B
ordinary shares with a market value of NIS 176,800 into deferred
shares.
The Company has paid to the President and a member of his family
salaries and related charges amounting to adjusted NIS 337,760 and NI
990,931 for the years ended December 31, 1996 and 1997, respectively.
b. For a transaction of the loan from a shareholder, see Note 17.
c. The Company, through its subsidiary, has paid to the Chairman of the
Board, salaries and related charges amounted to NIS - none and NIS
415,480 for the years ended December 31, 1996 and 1997, respectively.
d. Rehovot project
In March 1997 the Company was awarded rights to develop a parcel of
land of approximately 77,000 sq.m. in consideration of NIS 2 million.
Under the development agreement signed in July 1997 between the Company
and the Israeli Land Authorities (ILA), the Company is responsible of
the evictions and is committed to complete the development plan and the
project by March 2002.
<PAGE> F-48
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 27:- TRANSACTIONS WITH RELATED PARTIES (Continued)
d. Rehovot project (continued)
In June 1997, the Company, through its foreign subsidiary, has sold to
13 private US investors ("American Entity") a 55% interest of the
project in consideration of $6,000,000 of which $3,000,000 was paid in
December 1997; the remaining balance is covered by promissory notes,
bearing an annual interest rate of 8.5% and payable in December 2003.
The American Entity includes the Chairman of the Board and eight
members of the Company's U.S. Counsel, who acquired a 3.2% (in
consideration of $350,000) interest and a 15.6% (in consideration of
$1,700,000) interest in the total development rights, respectively.
The Company and the American Entity signed also a joint venture
agreement ("the Partnership") for the construction of the project.
According to the joint venture agreement the Company will receive 9.09%
of the Partnership's profit as entrepreneur's fee. The remaining
partnership's profits will be allocated as follows:
i. the first $9,000,000 of the net Partnership profits shall be
allocated to the American Entity.
ii. the remaining net Partnership profits shall be allocated to the
partners on a pro rata basis in the Partnership.
Partnership losses shall be allocated to the partners on a pro rata
basis in the partnership.
The American Entity is also required to prepay the principal amount of
the promissory notes in an amount equal to their pro rata share of any
partnership distributions.
The above transaction was reflected in the consolidated financial
statements as a related party transaction. Revenues of NIS 7,105,340,
profit of NIS 6,326,611 and notes receivable of NIS 3,624,400 have been
presented separately.
e. Germany and Russian project
In April 1997 the Company acquired through its Dutch subsidiary A.B.
Stone B.V. ("AB Stone") all the shares of STIPULA I B.V. ("STIPULA"), a
Dutch company in consideration of $2,000,000. STIPULA is engaged in a
joint venture with Engel in a project in Germany for the construction
of approximately 250 residential units and in another joint venture
with two Israeli companies in a project in Russia to erect an office
building. In 1997, the Company provided a loan to STIPULA of
$1,500,000 in order to complete the acquisition of 50% interest in the
project in Germany. In September 1997 AB Stone sold 50% of its share
in STIPULA to an unaffiliated Israeli Company ("UIC") traded on the Tel
Aviv Stock Exchange in consideration of $3,000,000 of which $1,800,000
<PAGE> F-49
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 27:- TRANSACTIONS WITH RELATED PARTIES (Continued)
e. Germany and Russian project (Continued)
was paid in September 1997 and the remaining balance is to be paid in
two installments of $750,000 each in April and December 1998.
This transaction was executed with UIC in which the father of the
Company's CFO is holding approximately 25% interest in UIC, is acting
as Chairman of UIC Board and the Company's CFO is a member of the Board
of UIC.
The above transaction was also reflected in the consolidated financial
statements as a related party transaction. Revenues of NIS 11,495,534,
profit of NIS 8,174,836 and current receivable of NIS 5,077,374 have
been presented separately.
NOTE 28:- SUBSEQUENT EVENTS
a. New Subsidiaries
After balance sheet date, the Company through its foreign subsidiary
established the following subsidiaries:
* 50% interest in ENSIS LTD. - was founded in Israel and engaged in
rental real estate projects
* EDGE HAARGAZIM Ltd., wholly owned - was founded in Israel and engaged
in rental real estate project.
b. Grant of Options
On January 20, 1998, the Company has granted under the Share Option
Plan (Note 21d) to the Company's CFO 200,000 options exercisable units
up to 200,000 Class A Ordinary Shares and to an officer of a foreign
subsidiary 400,000 options exercisable units up to 400,000 Class A
Ordinary Shares. Each option may be exercised no later than July 30,
1998 and in return for the payment of an exercise price of $5. Options
not exercised by July 30, 1998, shall automatically expire on August 1,
1998.
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS
a. The consolidated financial statements of the Company conform with
accounting principles generally accepted in Israel, which differ in
certain significant respects from those followed in the United States,
as described below:
<PAGE> F-50
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
1. Effect of inflation:
The Company, in accordance with the Israeli GAAP, comprehensively
includes the effects of price level changes in the accompanying
financial statements as described in Note 2a. Such Israeli
accounting principles measure the effects of price level changes
in the inflationary Israeli economy and, as such, this is
considered a more meaningful presentation than financial reporting
based on historical cost for Israeli and U.S. accounting purposes.
As permitted by the U.S. Securities and Exchange commission rules
for foreign private issuers whose financial statements
comprehensively include the effects of inflation, price level
adjustments have not been reversed in the accompanying
reconciliation of Israeli accounting principles to U.S. accounting
principles.
2. Revenue recognition:
According to the Israeli GAAP, the Company recognizes revenue as
follows:
a) Completed contract method:
Revenue from projects built for sale is recognized on the
completed contract method when both of the following
conditions have been met:
* at least 90% of the project has been completed, and
* at least 75% of the units in the project have been sold.
Under the U.S. GAAP the completed contract accounting is
acceptable:
* When financial position and results of operations would
not differ significantly from those that would result from
using percentage-of-completion accounting.
* When there are inherent hazards relating to contract
conditions or general factors that would raise questions
about a company's ability to accurately estimate a
contract.
b) Percentage of completion method:
Revenue from fixed prices construction contracts, and from
buildings where all units have been sold, is recognized on
the percentage of completion method. Revenue is recognized
where at least 25% of the project has been carried out.
According to U.S. GAAP, the percentage-of-completion method
is applicable when all of these conditions are met:
<PAGE> F-51
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
* The contractor can make reasonably dependable estimates
* The contract includes provision that specify both parties'
enforceable rights regarding goods and services to be
provided as received, consideration to be exchanged, and
the manner and terms of settlements.
* Both buyer and contractor can be expected to satisfy their
obligation under the contract terms.
Earned revenue is the amount of gross profit earned on a
contract for a period plus the costs incurred on the contract
during the period. Cost of earned revenue is the cost
incurred during the period. Gross profit earned on a
contract is computed by multiplying the total estimated gross
profit on the contract by the percentage of completion. The
percentage of completion is determined by measuring progress
toward completion in terms of cost incurred to date to
estimated total contract costs. When the current estimates of
total contract revenues and contract cost indicate a loss, a
provision for the entire loss on the contract is recognized.
The percentage-of-completion is also applicable if individual
units in condominium projects are being sold separately and
all following criteria are met:
* Construction is beyond a preliminary stage (construction is
not beyond a preliminary stage if engineering and design
work, execution of construction contracts, site clearance
and preparation, excavation and completion of the building
foundation are incomplete).
* The buyer is committed to the extent of being unable to
require a refund except for non-delivery of the unit.
* Sufficient units have already been sold to assure that the
entire property will not revert to rental property.
* Sales prices are collectible.
* Aggregate sales proceeds and costs can be reasonably
estimated.
Certain Company's projects are beyond the preliminary stage,
but not beyond the completion of 25% of those projects.
3. Accrued severance pay, net:
The amounts funded in regard to liabilities in respect of employee
rights upon retirement are presented as a deduction from the
liabilities in Note 14. Whereas according to U.S. GAAP, such
amounts funded would be presented in the balance sheet as long-
term assets.
<PAGE> F-52
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
3. Accrued severance pay, net: (Continued)
The amount funded in regard to liabilities in respect of employee
rights upon retirement as of December 31, 1996, and December 31,
1997 is in adjusted NIS 0 and NIS 57,000 respectively.
4. Treatment of Program Shares under Deference Program
Under Israeli accounting principles, the Deference Program (see
Note 21c) does not require the recognition of compensation
expense. The Company has decided not to adopt the measurement
requirements of FAS No. 123 for purposes of this reconciliation.
However, for the purpose of this reconciliation between Israeli
GAAP and U.S. GAAP (APB Opinion No. 25), the Deference Program
arrangement is accounted for as a variable stock award plan.
Therefore, the release from the Deference Program of the Program
Shares held by officers, directors and employees of the Company is
deemed compensatory. Accordingly, compensation expenses will be
measured based on the fair value of the shares at each balance
sheet date for the period or periods during which such shares are,
or become probably of being, released from Deference program. The
total compensation expense will be amortized over the vesting
period.
In the reporting year, the Company attained all of the earnings
thresholds required for such release of all Performance shares.
The compensation expense was calculated on the basis of the market
price of the Company's stock as of December 31, 1997.
5. Consideration of Foreign subsidiaries
Under Israeli GAAP, the results of operations for the year are
translated into NIS at the rate of exchange prevailing at the end
of the year for each foreign currency.
Under U.S. GAAP, such translation into NIS is calculated using the
annual average rate of exchange for each foreign currency.
This difference was not material in the reporting year.
6. Treatment of marketable securities:
Marketable securities designated for sale in short-term are
carried at market value, which is not materially different from
their cost.
<PAGE> F-53
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
6. Treatment of marketable securities: (Continued)
Under U.S. GAAP, these investments have been designated as
marketable securities available for sale and recorded in the
balance sheet at their current market value. Unrealized gains and
losses are recorded in a separate component of shareholders'
equity.
7. Earnings (Loss) per share:
Under Israeli GAAP, earning (loss) per share is computed based on
the weighted average number of Ordinary shares outstanding during
the period, including Program Shares.
Under U.S. GAAP, the Program Shares under the Deferrence Program
are excluded from the weighted average number of shares
outstanding during each period presented. For purposes of
computing earnings per share, the Program shares are treated as
unissued shares through December 31, 1997 as their issuance is
contingent upon the Company's attainment of specified earning
levels.
As stated above, the Performance shares were released and the
computation of earning per share for the year ended December 31,
1997 is based on the weighted average number of ordinary shares
outstanding including Program shares released.
b. The effect of the material differences between the Israeli and the U.S.
GAAP of the above mentioned items on the financial statements is as
follows:
<PAGE> F-54
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
1. On consolidated statements of income.
<TABLE>
<CAPTION>
For the six
months ended
December 31, For the year ended December 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
Convenience
translation
(Note 2a)
Adjusted NIS U.S. $
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) as reported,
according to the Israeli GAAP (1,024,496) 48,646 23,208,432 6,563,471
Unrealized gain on marketable
securities - (98,159) (185,448) (52,446)
Estimated earnings on projects beyond a
preliminary stage and less 25% of the
construction wage - 287,265 440,612 124,607
Compensation expense related to
performance shares released - - (28,217,280) (7,980,000)
Reclassification of amortization of
Bridge notes issuance costs - - 843,438 238,529
------------- ------------- ------------- -------------
Net income (loss) according to the U.S.
GAAP before extraordinary items (1,024,496) 237,752 (3,910,246) (1,105,839)
Extraordinary item:
Amortization of Bridge Notes issuance
costs - - (843,438) (238,529)
------------- ------------- ------------- -------------
Net income (loss) according to the
U.S .GAAP (1,024,496) 237,752 (4,753,684) (1,344,368)
============= ============= ============= =============
Basic earnings (loss) per
ordinary share:
As reported, according to the
Israeli GAAP (0.43) 0.02 4.56 1.29
============= ============= ============= ============
As per the U.S. GAAP
Income (loss) before extraordinary item (3.76) 0.70 (0.77) (0.22)
Extraordinary item - - (0.16) (0.04)
------------- ------------- ------------- ------------
Net income (loss) (3.76) 0.70 (0.93) (0.26)
============= ============= ============= ============
Weighted average number of shares
outstanding under the U.S. GAAP 272,186 340,000 5,085,754 5,085,754
============= ============= ============= ============
</TABLE>
The Minimum Pretax Income as defined in Note 21c for the year ended December
31, 1997 amounted to NIS 29,544,445 ( $8,355,329).
<PAGE> F-55
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
2. On Balance Sheet Items.
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1996 1997 1997
-------------------------------------------------------------------------------------------------------------
Convenience
Translation
As per As per (Note 2a)
As re[prted Adjustment U.S.GAAP As reported Adjustment U.S.GAAP U.S.$
------------- ------------- ------------- ------------- ------------- ------------- -------------
Adjusted NIS
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost and estimated
earnings in excess
of billings on
uncompleted
contracts (1) 2,865,784 68,240 2,934,024 16,537,042 (141,032) 16,396,010 4,636,881
Total assets 34,213,947 68,240 34,282,187 147,313,184 (141,032) 147,172,152 41,621,084
Billings in excess
of costs and estimated
earnings on uncompleted
contracts (1) 9,549,242 (219,025) 9,330,217 3,154,827 (703,291) 2,451,536 693,308
Share capital and
Paid-in capital (2) - - - 33,847,129 28,217,280 62,064,409 17,552,152
Unrealized gain on
marketable securities - 98,159 98,159 - 283,607 283,607 80,206
Retained earnings
(accumulated loss) (975,850) 189,106 (786,744) 22,232,582 (27,938,628) (5,706,046) (1,613,701)
Total Shareholders'
Equity 143,092 189,106 332,198 56,079,711 562,259 56,641,970 16,018,657
</TABLE>
(1) Recognition of estimated earnings on projects beyond a preliminary stage,
but not beyond the completion of 25% of those projects.
(2) Compensation expense related to performance shares released.
3. Additional disclosure regarding marketable securities:
The following is a summary of available-for-sale securities as
presented on December 31, 1997 pursuant to provisions of FASB
Statement No. 115:
<PAGE> F-56
GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND
U.S. GAAP ON THE
FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As reported As reported
Gross in these in these
unrealized financial Estimated financial
Cost gain statements fair value statements
------------- ------------- ------------- ------------- -------------
Convenience
translation
(Note 2a)
Adjusted NIS U.S. $
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Available-for-sale
securities:
Short-term debentures 9,082,734 279,335 9,362,069 9,362,069 2,647,644
Shares 103,280 4,272 107,552 107,552 30,416
------------- ------------- ------------- ------------- -------------
9,186,014 283,607 9,469,621 9,469,621 2,678,060
============= ============= ============= ============= =============
</TABLE>
<PAGE>
ALTERNATE PAGES
PROSPECTUS
- ----------
GENESIS DEVELOPMENT AND CONSTRUCTION LTD.
1,000,000 CLASS A WARRANTS
1,000,000 CLASS B WARRANTS
2,000,000 CLASS A ORDINARY SHARES
This Prospectus relates to an offer by certain investors identified
elsewhere herein (the "Selling Securityholders") of a maximum of 1,000,000
redeemable Class A Warrants (the "Class A Warrants") issued to the Selling
Securityholders in connection with a private placement by Genesis Development
and Construction Ltd. (the "Company") in November 1996 (the "Private
Placement"). If all of the Class A Warrants are exercised by the Selling
Securityholders prior to resale, a maximum of 1,000,000 Class A Ordinary
Shares, NIS 0.1 par value (the "Class A Ordinary Shares") and 1,000,000
redeemable Class B Warrants (the "Class B Warrants" and, together with the
Class A Warrants, the "Warrants") may be offered for resale by the Selling
Securityholders. If all of the Class B Warrants are exercised by the Selling
Securityholders prior to resale, a maximum of an additional 1,000,000 Class A
Ordinary Shares may be offered for resale by the Selling Securityholders. If
only a portion of the Warrants are exercised by the Selling Securityholders
prior to resale, a combination of the Class A Ordinary Shares, Class A
Warrants and Class B Warrants may be offered for resale by the Selling
Securityholders. The Company will not receive any proceeds from the sale of
the securities by the Selling Securityholders.
Each Class A Warrant entitles the holder to purchase one Class A
Ordinary Share and one Class B Warrant at an exercise price of $6.50, subject
to adjustment, at any time until January 29, 2002. Each Class B Warrant
entitles the holder to purchase one Class A Ordinary Share at an exercise
price of $8.75, subject to adjustment, at any time until January 29, 2002.
The Warrants are subject to redemption by the Company at $.05 per Warrant on
30 days' prior written notice if the closing bid price of the Class A Ordinary
Shares on The Nasdaq SmallCap Market (or the last reported sale prices of the
Class A Ordinary Shares on a national securities exchange or on The Nasdaq
National Market) averages in excess of $9.10 per share with respect to the
Class A Warrants and $12.25 per share with respect to the Class B Warrants
(subject to adjustment in each case) for 30 consecutive trading days ending
within 15 days of the date of notice of redemption.
The distribution of the Class A Ordinary Shares, Class A Warrants
and Class B Warrants (collectively the "Securities") by the Selling
Securityholders, or by pledgees, donees, distributees, transferees or other
successors in interest, may be affected from time to time by underwriters who
may be selected by the Selling Securityholders and/or broker-dealers, in one
or more transactions (which may involve crosses and block transactions) on The
Nasdaq SmallCap Market or other over-the-counter markets or, in special
offerings, exchange distributions or secondary distributions pursuant to and
<PAGE>
ALTERNATE PAGES
in accordance with rules of such over-the-counter markets or exchanges, in
negotiated transactions or otherwise, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. In connection with the distributions of the Securities or otherwise,
the Selling Securityholders may enter into hedging or option transactions with
broker-dealers and may sell Securities short and deliver the Securities to
close out such short positions. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Selling Securityholders" and "Plan of Distribution."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company has agreed to pay all expenses of registration in
connection with this offering. All brokerage commissions and other similar
expenses incurred by the Selling Securityholders will be borne by such Selling
Securityholders. The aggregate proceeds to the Selling Securityholders from
the sale of the Securities will be the purchase price of the Securities sold,
less the aggregate brokerage commissions and underwriters' discounts, if any,
and other expenses of issuance and distribution not borne by the Company.
The Securities being offered hereby by the Selling Securityholders
have not been registered for sale under the securities laws of any state or
jurisdiction as of the date of this Prospectus. Brokers or dealers effecting
transactions in the Securities should confirm the registration thereof under
the securities law of the state in which such transactions occur, or the
existence of any exemption from registration.
The Company's Class A Ordinary Shares, Class A Warrants and Class B
Warrants are quoted on The Nasdaq SmallCap Market ("Nasdaq") under the symbols
GDCOF, GDCWF and GDCZF, respectively. On June 9, 1998, the closing bid prices
of these securities on Nasdaq were $5.0, $2.0625 and $0.5, respectively.
The date of this Prospectus is June , 1998.
<PAGE> A-2
ALTERNATE PAGES
TABLE OF CONTENTS
PAGE
Available Information 3
Information Incorporated by Reference 3
Forward-Looking Statements 4
Presentation of Financial Information 4
Enforceability of Civil Liabilities 5
Prospectus Summary 7
Risk Factors 11
Use of Proceeds 21
Selling Securityholders 21
Plan of Distribution 21
Description of Securities 22
Legal Matters 27
Experts 27
Consolidated Financial Statements F-1
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS SET FORTH
HEREIN SINCE THE DATE HEREOF.
<PAGE> A-3
ALTERNATE PAGES
USE OF PROCEEDS
THE SECURITIES OFFERED HEREBY ARE FOR THE ACCOUNT OF THE SELLING
SECURITYHOLDERS. ACCORDINGLY, THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS
FROM THE SALE OF SUCH SECURITIES BY THE SELLING SECURITYHOLDERS. SEE "SELLING
SECURITYHOLDERS."
SELLING SECURITYHOLDERS
A MAXIMUM OF 1,000,000 CLASS A WARRANTS MAY BE OFFERED BY SELLING
SECURITYHOLDERS. IF ALL OF THE CLASS A WARRANTS ARE EXERCISED BY THE SELLING
SECURITYHOLDERS PRIOR TO RESALE, A MAXIMUM OF 1,000,000 CLASS A ORDINARY
SHARES AND 1,000,000 CLASS B WARRANTS MAY BE OFFERED FOR RESALE BY THE SELLING
SECURITYHOLDERS. IF ALL OF THE CLASS B WARRANTS ARE EXERCISED BY THE SELLING
SECURITYHOLDERS PRIOR TO RESALE, A MAXIMUM OF AN ADDITIONAL 1,000,000 CLASS A
ORDINARY SHARES MAY BE OFFERED FOR RESALE BY THE SELLING SECURITYHOLDERS. IF
ONLY A PORTION OF THE WARRANTS ARE EXERCISED BY THE SELLING SECURITYHOLDERS
PRIOR TO RESALE, A COMBINATION OF THE CLASS A ORDINARY SHARES, CLASS A
WARRANTS AND CLASS B WARRANTS MAY BE OFFERED FOR RESALE BY THE SELLING
SECURITYHOLDERS.
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO
THE SELLING SECURITYHOLDERS. THE NUMBER OF SECURITIES THAT MAY ACTUALLY BE
SOLD BY THE SELLING SECURITYHOLDERS WILL BE DETERMINED BY SUCH SELLING
SECURITYHOLDERS, AND MAY DEPEND UPON A NUMBER OF FACTORS, INCLUDING, AMONG
OTHER THINGS, THE MARKET PRICE OF THE COMPANY'S SECURITIES. THERE ARE NO
MATERIAL RELATIONSHIPS BETWEEN ANY SELLING SECURITYHOLDERS AND THE COMPANY,
NOR HAVE ANY SUCH MATERIAL RELATIONSHIPS EXISTED WITHIN THE PAST THREE YEARS,
EXCEPT THAT GARY J. STRAUSS, WHO SERVES AS A DIRECTOR OF THE COMPANY, IS A
SELLING SECURITYHOLDER.
<TABLE>
<CAPTION> MAXIMUM
NUMBER OF MAXIMUM MAXIMUM NUMBER OF
CLASS A NUMBER OF NUMBER OF CLASS A
WARRANTS CLASS A CLASS B ORDINARY
OWNED WARRANTS WARRANTS SHARES
BEFORE OFFERED OFFERED OFFERED
SELLING SECURITYHOLDER OFFERING FOR SALE FOR SALE(1) FOR SALE(2)
- ---------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
R. HARWOOD BEVILLE 25,000 25,000 25,000 50,000
MICHAEL BOLLAG 37,500 37,500 37,500 75,000
DAVID BROWN 37,500 37,500 37,500 75,000
MICHAEL CAYRE 12,500 12,500 12,500 25,000
CHUN CHIEN AND SHU LIN CHANG 25,000 25,000 25,000 50,000
COHEN FAMILY TRUST DATED 10/3/80 12,500 12,500 12,500 25,000
CT HOLDING LTD. 25,000 25,000 25,000 50,000
JACK DUSHEY 25,000 25,000 25,000 50,000
ROSE EISEN 12,500 12,500 12,500 25,000
SHIMON ELBAZ 50,000 50,000 50,000 100,000
MORRIS FRIEDMAN 6,250 6,250 6,250 12,500
ALLA GERSHUNI 6,250 6,250 6,250 12,500
MITCHELL GORDON 12,500 12,500 12,500 25,000
BARBARA GRAE 6,250 6,250 6,250 12,500
SETH AND BETH GRAE 6,250 6,250 6,250 12,500
TATIANA HIRSU 6,250 6,250 6,250 12,500
STANLEY HOFFMAN 37,500 37,500 37,500 75,000
DAVID AND UTA-HE HUNGERFORD 50,000 50,000 50,000 100,000
BADR IDBEIS 50,000 50,000 50,000 100,000
</TABLE>
<PAGE> A-4
ALTERNATE PAGES
<TABLE>
<CAPTION> MAXIMUM
NUMBER OF MAXIMUM MAXIMUM NUMBER OF
CLASS A NUMBER OF NUMBER OF CLASS A
WARRANTS CLASS A CLASS B ORDINARY
OWNED WARRANTS WARRANTS SHARES
BEFORE OFFERED OFFERED OFFERED
SELLING SECURITYHOLDER OFFERING FOR SALE FOR SALE(1) FOR SALE(2)
- ---------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
JACK JUDGE 6,250 6,250 6,250 12,500
MELVIN KATTEN 12,500 12,500 12,500 25,000
ROGER KEESEE 25,000 25,000 25,000 50,000
JAY KESTENBAUM 12,500 12,500 12,500 25,000
GEORGE KUPFRIAN 25,000 25,000 25,000 50,000
ERNEST LA FROSCIA 50,000 50,000 50,000 100,000
MARTIN AND LAURA LEFKOWITZ 25,000 25,000 25,000 50,000
REGINA LEHRER 12,500 12,500 12,500 12,500
HARRIET LEIBOWITZ 12,500 12,500 12,500 25,000
ARNOLD LUPIN 12,500 12,500 12,500 25,000
RUEBEN MARK 12,500 12,500 12,500 25,000
MATTHEW MCCABE 25,000 25,000 25,000 50,000
DAVID MILLER 25,000 25,000 25,000 50,000
ALBERT MILSTEIN 12,500 12,500 12,500 25,000
GORDON MOGERLEY 25,000 25,000 25,000 50,000
MOMENTUM ENTERPRISES MONEY
PURCHASE TRUST 12,500 12,500 12,500 25,000
MICHAEL AND SANDRA MOORS 25,000 25,000 25,000 50,000
NANO-CAP HYPER GROWTH
PARTNERSHIP L.P. 12,500 12,500 12,500 25,000
ROY AND MARLENA SCHAEFFER 6,250 6,250 6,250 12,500
MICHAEL SEAGO 25,000 25,000 25,000 50,000
DONALD SHAPIRO 12,500 12,500 12,500 25,000
GARY STRAUSS 25,000 25,000 25,000 50,000
NORMAN AND IRENE THOMS 25,000 25,000 25,000 50,000
MICHAEL TORNICHA 25,000 25,000 25,000 50,000
MARTIN WATZ 12,500 12,500 12,500 25,000
IZAAK WILDER 6,250 6,250 6,250 12,500
LOUIS WOLCOWITZ 12,500 12,500 12,500 25,000
WOLFSON DESCENDANTS' 1983 TRUST 62,500 62,500 62,500 125,000
</TABLE>
(1) Assumes none of the Class A Warrants are resold but are exercised and the
underlying Class B Warrants are offered for sale.
(2) Assumes none of the Class A Warrants or Class B Warrants are resold but
are exercised and the underlying Class A Ordinary Shares are offered for sale.
The Selling Securityholders identified above may have sold,
transferred or otherwise disposed of all or a portion of their Securities
since the date on which they provided the information regarding their
securities in transactions exempt from the registration requirements of the
Securities Act. Additional information concerning the above listed Selling
Securityholders may be set forth from time to time in prospectus supplements
to this Prospectus. See "Plan of Distribution."
Pursuant to a certain agreement between the Company and the Selling
Securityholders, the Company has agreed to file the Registration Statement to
which this Prospectus forms a part for the purpose of registering the
potential resale of the Securities.
<PAGE> A-5
ALTERNATE PAGES
PLAN OF DISTRIBUTION
Sales of the Securities may be made from time to time by the Selling
Securityholders, or, subject to applicable law, by pledges, donees,
distributes, transferees or other successors in interest. Such sales may be
made on The Nasdaq SmallCap Market, in another over-the-counter market, on a
national securities exchange (any of which may involve crosses and block
transactions), in privately negotiated transactions or otherwise or in a
combination of such transactions at prices and at terms then prevailing or at
prices related to the then current market price, or at privately negotiated
prices. In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Section 4(1) of the Securities Act or Rule 144
promulgated thereunder may be sold under such provisions rather than pursuant
to this Prospectus. Without limiting the generality of the foregoing, the
Securities may be sold in one or more of the following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to sell
such securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) an exchange distribution in accordance with the rules of
such exchange; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting sales, brokers or
dealers engaged by the Selling Securityholders may arrange for other brokers
or dealers to participate in the resales.
In connection with distributions of the Securities or otherwise, the
Selling Securityholders may enter into hedging transactions with
broker-dealers. In connection with such transactions, broker-dealers may
engage in short sales of the securities registered hereunder in the course of
hedging the positions they assume with the Selling Securityholders. The
Selling Securityholders may also sell Securities short and deliver such
Securities to close out such short positions. The Selling Securityholders may
also enter into option or other transactions with broker-dealers which require
the delivery to the broker-dealer of the Securities registered hereunder,
which the broker-dealer may resell pursuant to this Prospectus. The Selling
Securityholders may also pledge the Securities registered hereunder to a
broker or dealer and upon a default, the broker or dealer may effect sales of
the pledged securities pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Securityholders in amounts
to be negotiated in connection with the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales and any
such commission, discount or concession may be deemed to be underwriting
discounts or commissions under the Securities Act.
<PAGE> A-6
ALTERNATE PAGES
Information as to whether underwriters who may be selected by the
Selling Securityholders, or any other broker-dealer, is acting as principal or
agent for the Selling Stockholder, the compensation to be received by
underwriters who may be selected by the Selling Securityholders, or any
broker-dealer, acting as principal or agent for the Selling Securityholders
and the compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to
this Prospectus (the "Prospectus Supplement"). Any dealer or broker
participating in any distribution of the Securities may be required to deliver
a copy of this Prospectus, including the Prospectus Supplement, if any, to any
person who purchases any of such securities from or through such dealer or
broker.
The Company has advised the Selling Securityholders that during such
time as they may be engaged in a distribution of the securities included
herein they are required to comply with Regulation M promulgated under the
Exchange Act. In general, Regulation M precludes the Selling Securityholders,
any affiliated purchasers and any broker-dealer or other person who
participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is
the subject of the distribution until the entire distribution is complete. A
"distribution" is defined in the rules as an offering of securities that is
distinguished from ordinary trading activities and depends on the "magnitude
of the offering and the presence of special selling efforts and selling
methods." Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security.
It is anticipated that the Selling Securityholders will offer all of
the Securities for sale. Further, because it is possible that a significant
number of such Securities could be sold at the same time hereunder, such
sales, or the possibility thereof, may have a depressive effect on the market
price of the Company's securities.
<PAGE> II-1
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses incurred in
connection with the offering described in the Registration Statement:
Accounting Fees and Expenses $ 5,000
Legal Fees and Expenses $10,000
Miscellaneous $ 5,000
Total Expenses $20,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 96(41) and 96(42) of the Companies Ordinance permit a
company's articles of association to provide that (i) the company may insure
the liability of a director or officer in whole or in part for the breach of
his duty of care to the Company or to others, or for the breach of his
fiduciary duty to the extent he acted in good faith and had a reasonable basis
to believe that the act would not prejudice the company as well as for
monetary liabilities charged against him as a result of an act or omission he
committed in connection with his serving as an officer or director of the
company; and (ii) the company may indemnify an officer or director in
connection with his service as officer or director, for monetary liability
incurred pursuant to a judgment, including a settlement or arbitration
decision approved by a court, in an action brought against him by a third
party as well as for reasonable legal expenses incurred in an action brought
against him by or on behalf of the company or others, or as a result of a
criminal charge of which he was acquitted.
These provisions are specifically limited in their scope by Section
96(44) of the Companies Ordinance, which provides that a company may not
indemnify an officer or director nor enter into an insurance contract which
would provide coverage for any monetary liability incurred as a result of the
following: (a) a breach by the director or officer of his fiduciary duty
unless he acted in good faith and had a reasonable basis to believe that the
act would not prejudice the company; (b) a breach by the director or officer
of his duty of care if such breach was done intentionally or in disregard of
the circumstances of the breach or its consequences; (c) any act or omission
done with the intent to derive an illegal personal benefit; or (d) any fine or
penalty levied against the director or officer as a result of a criminal
offense.
Article 120 of the Articles of Association of the Company provides
as follows:
"120. Notwithstanding the above, the Company is authorized to the
fullest extent permitted by the Companies Ordinance, as the same may be
amended or supplemented in the future, to:
<PAGE> II-2
120.1. Insure the liability of its Office Holders, as defined in
the Companies' Ordinance (hereinafter referred to as "Office Holder") for the
following:
120.1.1. breach of duty of care by any Office Holder owed to the
Company or to any other person; and
120.1.2. breach of fiduciary duty by any Office Holder owed to the
Company to the extent that such Office Holder acted in good faith and had a
reasonable basis to assume that the action would not prejudice the Company;
and
120.1.3. any financial liability imposed on any Office Holder for
the benefit of a third party as a result of any act or omission such office
holder committed as an Office Holder of the Company; and
120.2. 120.2.1. indemnify the Office Holders in respect of the
following events (hereinafter referred to as "Indemnifiable Events") as
follows:
(a) Any amount for which any Office Holder becomes liable according
to a judgement, including a judgement given by way of compromise
or an arbitrator's award approved by a court concerning his acts
or omissions within the framework of his performance of his
duties as an Office Holder of the Company.
(b) All reasonable litigation expenses, including attorney's fees
expended by an Office Holder or for which he is liable according
to a judgement in any legal proceedings which have been filed
against him by or on behalf of any company or by any other
person or under any criminal charge from which he is acquitted -
all by reason of any act or omission committed by him in his
capacity as an office holder of the company.
(c) The above mentioned Insurance and indemnity shall not relate to
any of the following acts:
(i) Breach of the fiduciary duty towards the company, except
acts performed in good faith on the reasonable assumption
that such acts would not adversely affect the interests of
the Company.
(ii) Breach of the duty of care committed willfully or in
reckless disregard of the circumstances or the
consequences of the breach.
(iii) Any act intended to generate unlawful personal gain.
(iv) Any penalty or fine imposed for a criminal offense.
120.2.2. The Company's obligation to indemnify shall not apply to
any event insured by a "Directors' and Officers' Liability Insurance Policy"
(hereinafter "D&O Policy") in effect.
<PAGE> II-3
Notwithstanding the foregoing, the Company shall indemnify the
Office Holder in respect of any amount for which he is liable and which
exceeds the amount actually paid by the insurer, and the Company shall also
indemnify the Office Holder in respect of the amount of the deductible under
the D&O Policy in effect.
120.2.3. The Company shall advance to the Office Holder amounts
estimated by it to cover reasonable litigation costs, including attorneys'
fees, in respect of which the Office Holder shall be entitled to indemnity.
120.2.4. The Company shall be entitled to assume the conduct of his
defense in such legal proceedings and/or to assign the proceedings to such
lawyer as the Company shall select for such purpose (part from any lawyer
which the Office Holder finds unacceptable on reasonable grounds).
The Company and/or such lawyer shall be entitled to act exclusively
within the framework of such proceeding and to settle such proceedings as they
shall deem fit provided that no criminal proceedings shall be settled without
the consent of the Office Holder.
The Office Holder shall sign, at the request of the Company, any
documentation empowering the Company and/or such lawyer to handle his defense
to such proceedings on his behalf and to represent him in everything
pertaining thereto in accordance with the foregoing.
The Office Holder shall cooperate with the Company and/or with such
lawyer in every reasonable manner required of him by either of them within the
framework of their conduct concerning such legal proceedings, provided the
Company shall see to it that all expenses involved therein are covered in a
manner whereby he shall not be required to pay or finance the same himself."
The Company has entered into an agreement with each of its officers
and directors, giving effect to the above provision.
ITEM 16. EXHIBITS
4.1 Form of Certificate of Class A Ordinary Shares*
4.2 Form of Certificate of Class B Ordinary Shares*
4.3 Form of Class A Warrant*
4.4 Form of Class B Warrant*
4.5 Form of Warrant Agreement*
5 Opinion of M. Seligman & Co.*
23(a) Consent of Kost Levary & Forer
23(b) Consent of M. Seligman & Co. (included in Exhibit 5 hereof)*
24 Power of attorney (included in signature page)
- -------------------------
* Previously filed to this Registration Statement
<PAGE> II-4
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement, to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)91) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
<PAGE> II-5
(2) For purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE> II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Haifa, State of Israel, on the
11th day of June, 1998.
GENESIS DEVELOPMENT AND CONSTRUCTION LTD.
By: /S/ Moshe Schnapp
----------------------------------------
Moshe Schnapp, President
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Moshe Schnapp and Eli Aran his or her
true and lawful attorneys-in-fact and agent, acting alone, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to
file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, acting alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent,
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- -----
/s/Moshe Schnapp President and Director June 11, 1998
- ----------------------------
Moshe Schnapp (Principal Executive Officer)
/s/Eli Aran Chairman and Director June 11, 1998
- ----------------------------
Eli Aran
<PAGE> II-7
SIGNATURE TITLE DATE
--------- ----- -----
/s/Shalom Rosenberg Director June 11, 1998
- ----------------------------
Shalom Rosenberg
/s/Gary Strauss Director June 11, 1998
- ----------------------------
Gary Strauss
/s/Yaron Yenni Secretary and Director June 11, 1998
- ----------------------------
Yaron Yenni (Principal Accounting
and Financial Officer)
GENESIS DEVELOPMENT AND CONSTRUCTION, INC.
/s/Eli Aran Authorized Representative in June 11, 1998
- ----------------------------
Eli Aran the United States
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts" and
to the use of our report dated March 23, 1998, in the registration statement
(Post-Effective Amendment No. 2 on Form F-3 to Form F-1, Registration Number
333-6136) and related Prospectus of Genesis Development and Construction Ltd.
KOST, LEVARY and FORER
Certified Public Accountants (Israel)
A member of Ernst & Young International
Haifa, Israel
June 12, 1998
