<PAGE>
As filed with the Securities and Exchange Commission on October ________, 2000
Registration No. 333-39254
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------
EXPORT EREZ USA, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 52-2237043 2390
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification Number) Classification Code Number)
</TABLE>
------------------------
Industrial Zone Erez
P.O. Box 779
Ashkelon, Israel 78101
telephone 011 972 7 689 1611
fax 011 972 7 689 9287
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
Joseph Postbinder, President
Industrial Zone Erez
P.O. Box 779
Ashkelon, Israel 78101
telephone 011 972 7 689 1611
fax 011 972 7 689 9287
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
<TABLE>
<S> <C>
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date
of this Registration Statement.
</TABLE>
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, check the following box. /X/
If this Form is filed to register 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 registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<PAGE>
The Registrant amends this Registration Statement on the date or dates as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until the Registration Statement shall become
effective on the date as the SEC, acting pursuant to said Section 8(a), may
determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Aggregate Registration
Securities to be Registered Registered Price Per Share(1) Offering Price Fee (2)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of common stock held by 1,000,000 $0.3078 $ 307,800 $ 86.18
Selling Securityholders
-----------------------------------------------------------------------------------------------------------------
Shares of common stock 250,000 0.3078 76,950 21.54
underlying warrants
-----------------------------------------------------------------------------------------------------------------
TOTAL 1,250,000 0.3078 $ 384,750 $107.73(3)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no current market for the securities and the dollar amount of
the shares to be registered is de minimis based upon the estimated per
share of Common stock book value ($0.3078).
(2) Estimated solely for the purpose of calculating the registration fee
based on Rule 457(f)(2).
(3) Previously paid.
<PAGE>
PROSPECTUS Subject to Completion, Dated October __, 2000
[Legend for Red Herring Prospectus ]
The information contained in this prospectus is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which an offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of that state.
EXPORT EREZ USA, INC.
1,000,000 shares of common stock to be sold by its holders, and
250,000 shares of common stock underlying warrants to be sold by the holders
This registration statement relates to the offer and sale of 1,000,000
shares of common stock, $.0001 par value per share, and 250,000 shares of common
stock underlying warrants, of Export Erez USA, Inc. a Delaware corporation (may
be referred to as the "Company") to be sold by the holders. All costs incurred
in the registration of the shares are being borne by Export Erez USA.
There has been no market for Export Erez USA's common stock and a
public market may not develop, or that, if any market does develop, it may not
be sustained.
The shares will become tradeable on the effective date of this
prospectus. The selling securityholders will receive the proceeds from the sale
of their shares and Export Erez USA will not receive any of the proceeds from
the sales. The selling securityholders, directly or through agents, dealers or
representatives to be designated from time to time, may sell their shares on
terms to be determined at the time of sale. See "Plan of Distribution." The
selling securityholders reserve the sole right to accept or reject, in whole or
in part, any proposed purchase of the shares being offered for sale.
These securities involve a high degree of risk. See "Risk Factors" contained in
this prospectus beginning on page 5.
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.
<TABLE>
<CAPTION>
=====================================================================================================
Underwriting Discounts and Proceeds to Company or
Price to Public (1) Commissions(2) Other Persons
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Unknown $ 0 (3)
-----------------------------------------------------------------------------------------------------
Total Unknown $ 0 (3)
=====================================================================================================
</TABLE>
(1) All the shares are being sold by the selling securityholders in
separate transactions at prices to be negotiated at that time.
(2) The shares are being sold by the selling securityholders and Export
Erez USA has no agreements or understandings with any broker or dealer
for the sales of the shares. A selling securityholder may determine to
use a broker-dealer in the sale of its securities and the commission
paid to that broker-dealer, if any, will be determined at that time.
Prior to the involvement of any broker-dealer, that broker-dealer must
seek and obtain clearance of the compensation arrangements from the
National Association of Securities Dealers, Inc. In the event, Export
Erez USA will file a post-effective amendment identifying the
broker-dealer(s).
(3) Export Erez USA will not receive any proceeds from the sale of the
shares.
One or more broker-dealers may be the principal market makers for the
shares being offered . Under these circumstances, the market bid and asked
prices for the securities may be significantly influenced by decisions of the
market makers to buy or sell the securities for their own account. The market
making activities of any market makers, if commenced, may subsequently be
discontinued.
-----------------
The date of this Prospectus is October __, 2000
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of information contained elsewhere in this
prospectus. Reference is made to, and this summary is qualified by, the more
detailed information set forth in this prospectus, which should be read in its
entirety.
Risk Factors
There are substantial risk factors involved in investment in Export
Erez USA. Investment in Export Erez USA is speculative and investors may not
receive any return from their investment. See "Risk Factors".
Export Erez USA and Subsidiaries
Export Erez USA, Inc. is a recently-created holding company whose
subsidiaries, Export Erez, Ltd. and Mayotex. Ltd., have been operating in excess
of ten years. References in this prospectus to "Export Erez USA" include Export
Erez, Ltd. and to Mayotex, Ltd., as applicable. Export Erez USA, through its
subsidiaries is engaged in the production and marketing of textile products
designed to provide personal protection such as bulletproof vests, and
associated heavy fabric products such as tents and other camping equipment.
Export Erez Ltd. primarily produces and markets the textile products and Mayotex
Ltd. is primarily engaged in weaving, improving, processing, dyeing, cutting and
sewing of the fabric to make the heavy-duty and sometimes bulletproof fabrics
used by Export Erez Ltd.
Joseph Postbinder, president and a director of Export Erez USA, serves
as chief executive officer of Export Erez Ltd. and Mayotex Ltd.
Export Erez USA was incorporated on March 24, 1999 as a Delaware
corporation named Acanthus Acquisition Corporation, which changed its name to
Export Erez USA, Inc. on May 19, 1999.
Export Erez USA maintains its executive offices at the Industrial Zone
Erez, Israel. Its telephone number is 011 972 7 689 1611 and its fax number is
011 972 7 689 9287.
Selling Securityholders
This prospectus relates to the registration for sale of the securities
held by 64 of the securityholders of Export Erez USA. These shareholders will be
able to sell their shares on terms to be determined at the time of sale,
directly or through agents, dealers or representatives to be designated from
time to time. Export Erez USA will not receive any proceeds from the sale of the
securities by the selling securityholder.
Trading Market
There is currently no trading market for the securities of Export Erez
USA. Export Erez USA intends to apply initially for its securities to be traded
in the over-the-counter market on the NASD OTC Bulletin Board or, if and when
qualified, on the Nasdaq SmallCap Market. Export Erez may not now or ever
qualify for listing of its securities on the NASD OTC Bulletin Board and may not
now or at any time in the future qualify for quotation on the Nasdaq SmallCap
Market. See "Risk Factors--Absence of Trading Markets" and "Description of
Securities--Admission to Quotation on Nasdaq SmallCap Market or the NASD OTC
Bulletin Board".
Selected Financial Data
The following table sets forth the selected consolidated financial data
for Export Erez USA for the years ended December 31, 1999 and 1998,
respectively. The financial information set forth below is derived from, and
should be read in conjunction with, the more detailed financial statements
(including the notes thereto) appearing elsewhere in this prospectus.
2
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Year Ended Year Ended 6 Months 6 Months
December 31, December 31, December 31, Ended June Ended June
1999 1999 1998 30, 2000 30, 1999
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Items:
-----------------------
Revenues $4,490,898 $4,490,898 $4,568,498 2,546,069 2,564,754
Cost of sales 3,121,674 3,121,674 3,589,167 1,576,637 1,609,042
Selling, general and
administrative expenses 701,993 701,993 649,694 435,399 323,855
Income from operations 667,231 667,231 329,637 534,033 631,857
Interest income, interest expense
and other income 89,859 89,859 30,017 (59,949) (22,283)
Income before income taxes 757,090 757,090 359,654 474,084 609,574
Income taxes 163,015 163,015 130,068 (224,545) (232,106)
Net income 594,075 594,075 229,586 249,539 377,468
Net income per share
(basic and diluted) .05 50.52 19.52 0.02 0.03
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Balance Sheet Items
-------------------
Cash 681,291 681,291 670,759 649,106
Marketable securities 1,393,123 1,393,123 -- --
Trade accounts receivable 875,557 875,557 685,343 1,454,086
Other inventory 690,195 690,195 590,239 700,462
Total current assets 3,780,105 3,780,105 2,057,847 2,848,397
Total assets 5,030,243 5,030,243 3,099,383 4,519,079
Current liabilities 3,450,857 3,450,857 2,153,793 2,399,769
Long term obligations 144,456 144,456 166,828 206,675
Total shareholders' equity 1,434,930 1,434,930 778,762 1,912,635
</TABLE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a high
degree of risk and should be purchased only by persons who can afford to lose
their entire investment. Therefore, each prospective investor should, prior to
purchase, consider very carefully the following risk factors, as well as all of
the other information set forth elsewhere in this prospectus and the information
contained in the financial statements, including all notes thereto.
Special note regarding forward-looking statements
This prospectus may contain certain forward-looking statements and
information relating to Export Erez USA that are based on its beliefs and its
principals as well as assumptions made by and information currently available to
them. These statements include, among other things, the discussions of its
business strategy and expectations concerning its market position, future
operations, expansion opportunities, and profitability. When used in these
documents, the words "anticipate," "feel," "believe," "estimate," "expect,"
"plan," and "intend" and similar expressions, as they relate to Export Erez USA
or its principals, are intended to identify forward-looking statements. Such
statements reflect the current view of Export Erez USA respecting future events
and are subject to certain risks, uncertainties, and assumptions, including the
meaningful and important risks and uncertainties noted, particularly those
related to its operations, results of operations, and growth strategy,
liquidity, competitive factors and pricing pressures, changes in legal and
regulatory requirements, general economic conditions, and other factors
described in this prospectus.
Risks of doing business adjacent to the Gaza Strip places company at risk for
unrest
3
<PAGE>
Export Erez USA's operations are in an industrial area adjacent to the
occupied Gaza Strip. Gaza and its vicinity suffers from adverse economic
conditions and political unrest, and any business, particularly an Israeli
business, is subject to numerous risks. These risks are dynamic and difficult to
quantify and include, among others, the risks of internal political or civil
unrest, war, a general strike or government restrictions. The status of the area
and its future administration is dependent on the ongoing peace process and
negotiations among Israel, the Palestinian Authority and other nations and
parties involved in the Middle East peace process.
A change in economic policies may undermine economic and legal stability of the
region
The Israeli government and the Palestinian Authority have adopted
policies encouraging economic development, but conditions might change
unexpectedly which may have an adverse impact on ownership and may result in a
loss without recourse of property or assets of Export Erez USA. The civil
justice system in Israel is considered stable, but the stability of any legal
system that may be set up by the Palestinian Authority, should the Palestinian
Authority gain jurisdiction over any dispute, is uncertain. The likelihood of
any foreign or Israeli-owned company successfully prevailing in any dispute with
the Palestinian Authority or any private litigant under any proposed Palestinian
legal system is difficult to quantify or predict.
The Israeli economy is volatile and subject to hyperinflation which would
adversely impact Export Erez USA
The Israeli economy has been volatile for decades, with high taxation,
high military spending, high social welfare costs and a generally high inflation
rate, which has in the past included periods of hyperinflation. Financial
statements, contracts and business transactions are generally drawn and
contemplated to adjust for inflation, but a period of hyperinflation would
adversely impact Export Erez USA's business.
Domestic and foreign government regulation could hinder Export Erez USA's
operations
Export Erez USA will be subject to and affected by significant United
States and Israeli government regulation, as well as regulation by the
Palestinian Authority. Government laws and regulations, whether existing today
or adopted in the future, or during or following civil or political unrest,
could adversely affect Export Erez USA's ability to market and sell its
products, and could impair Export Erez USA's profitability. See "Business -
Regulation."
Enforceability of certain civil liabilities difficult because officers and
directors reside outside the United States
Export Erez USA's officers and directors reside outside the United
States and a substantial portion of its assets are located outside the United
States. It would be difficult for an investor to sue, for any reason, Export
Erez USA or any of its officers or directors. If an investor was able to obtain
a judgment against Export Erez USA or any of its officers or directors in a
United States court based on United States securities laws or other reasons, it
would be very difficult, if not impossible, to enforce such judgment in Israel.
Export Erez USA only commenced operations in 1999 and has a limited history of
operations
Export Erez USA commenced operations in 1999 and has only a limited
history of operations. Although its subsidiaries, Export Erez, Ltd. and Mayotex,
Ltd., have been in operation in Israel for over ten years the current corporate
structure, utilizing Export Erez USA as a parental holding company, is
relatively new and may not be as effective or efficient and may not produce the
same operating results as when the subsidiaries acted more independently.
Export Erez USA is entering new markets which may not prove profitable
Export Erez USA is expanding its business and moving into new markets
with which it is not familiar and in which it has no substantial reputation.
These future operations may not be profitable. Revenues and profits, if any,
will depend upon various factors, including market acceptance of its products,
market awareness, dependability of its distribution network, and general
economic conditions. Export Erez USA may not achieve its expansion goals and it
failure to achieve its goals would have an adverse impact on it.
4
<PAGE>
Export Erez USA may need additional financing to develop its expansion program
Export Erez USA may attempt to finance future purchases and
acquisitions using shares of Export Erez USA's common stock, preferred stock,
options, cash, borrowed funds or a combination. Export Erez USA may not be able
to effect its expansion plans or may suffer other adverse consequences if it is
unable to obtain additional capital when needed. Future events, including the
problems, delays, expenses and difficulties frequently may lead to cost
increases that could make Export Erez USA's available sources of capital
insufficient to fund its proposed operations. Export Erez USA may seek
additional sources of capital, including an additional offering of its equity
securities, an offering of debt securities or obtaining financing through a bank
or other entity. Export Erez USA has not established a limit as to the amount of
debt it may incur nor has it adopted a ratio of its equity to a debt allowance.
If Export Erez USA needs to obtain additional financing, that financing may not
be available from any source, or it may be available on terms not acceptable to
it, or a future offering of securities may not be successful.
Issuance of future shares may dilute investors' share value
The future issuance of all or part of the remaining authorized common
stock, whether for acquisitions, payment for services, benefit plans, or other
items, may result in substantial dilution in the percentage of Export Erez USA's
common stock held by its existing shareholders. The Certificate of Incorporation
of Export Erez USA authorizes the issuance of 100,000,000 shares of common stock
of which 12,500,000 shares (13%) are outstanding and 20,000,000 shares of
preferred stock of which none (0%) are outstanding. Moreover, any common stock
issued in the future may be valued on an arbitrary basis by Export Erez USA. The
issuance of Export Erez USA's shares for future services or acquisitions or
other corporate actions may have the effect of diluting the value of the shares
held by investors, and might have an adverse effect on any trading market,
should a trading market develop for Export Erez USA's common stock.
Export Erez USA may encounter business problems outside its control which
adversely impact on it
The defense industry is small but extremely competitive and the
commercial success of any product is often dependent on factors beyond the
control of Export Erez USA. Export Erez USA may not be able to manufacture or
market its products because of industry conditions, general economic conditions,
competition from other manufacturers and distributors, or lack of acceptance for
its products by consumers or retail outlets. Export Erez USA may also incur
uninsured losses for liabilities which arise in the ordinary course of business
in the manufacturing industry, or which are unforeseen, including but not
limited to trademark infringement, product liability, and employment liability.
See "Business."
There is no current trading market for Export Erez USA's securities
If the common stock of Export Erez USA is not listed on the NASD OTC
Bulletin Board or on the Nasdaq SmallCap Market or if a public trading market
does not otherwise develop, investors may have difficulty selling their common
stock should they desire to do so. Currently, there is no trading market for
Export Erez USA's common stock and one may not develop. Export Erez USA intends
to apply for listing of its common stock on the NASD OTC Bulletin Board or, if
and when qualified, for listing on the Nasdaq SmallCap Market. No market makers
have committed to becoming market makers for Export Erez USA's common stock, and
none may do so. If a trading market does in fact develop for the common stock
offered hereby, it may not be sustained.
Penny stock regulation may impair shareholders' ability to sell Export Erez
USA's stock
If trading in Export Erez USA's stock begins, its common stock may be
deemed a penny stock. Penny stocks generally are equity securities with a price
of less than $5.00 per share other than securities registered on certain
national securities exchanges. Penny stocks are subject to "penny stock rules"
that impose additional sales practice requirements on broker-dealers who sell
the securities to persons other than established customers and accredited
investors and these additional requirements may restrict the ability of broker-
dealers to sell a penny stock. See "Description of Securities-Penny Stock
Regulation".
5
<PAGE>
Management and affiliates own enough shares to control shareholder vote
Export Erez USA's executive officers and directors, together with
entities affiliated with them, own approximately 92% of the outstanding common
stock. As a result, these executive officers and directors will control matters
that require stockholder approval such as election of directors, approval of a
corporate merger, increasing or decreasing the number of authorized shares,
adopting corporate benefit plans, effecting a stock split, amending Export Erez
USA's certificate of incorporation or other material corporate actions.
Export Erez USA's operations are dependent on expertise of its key officers
The loss of Mr. Postbinder's services for any reason would have a
material adverse effect on Export Erez USA's business and operations and its
prospects for the future. Joseph Postbinder is president and a director of
Export Erez USA and managing director of Export Erez Ltd. and Mayotex Ltd. See
"Management". All decisions concerning the conduct of the business of Export
Erez USA, including the products, manufacturing and marketing by Export Erez USA
are made by or significantly influenced by Mr. Postbinder. Export Erez USA does
not have "key man" life insurance on the lives of Mr. Postbinder or any of its
executive officers.
Export Erez USA has never paid dividends
Investors can not expect to receive a return on their stock investment
in the form a dividend. Export Erez USA has never paid cash dividends on its
common stock and no cash dividends are expected to be paid on the common stock
in the foreseeable future. Export Erez USA anticipates that for the foreseeable
future all of its cash resources and earnings, if any, will be retained for the
operation and expansion of its business.
The possibility of Export Erez USA issuing preferred stock with certain
preferences may depress market price of the common stock
Export Erez USA has 20,000,000 shares of non-designated preferred stock
authorized which it may issue from time to time by action of the board of
directors. As of the date of this prospectus, Export Erez USA has not designated
or issued any shares of preferred stock. However, the board of directors may
designate voting and other preferences without shareholder consent which
designations may give the holders of the preferred stock voting control and
other preferred rights such as to liquidation and dividends. The authority of
the board of directors to issue stock without shareholder consent may have a
depressive effect on the market price of Export Erez USA's common stock even
prior to any designation or issuance of the preferred stock.
The possibility of issuing preferred stock for anti-takeover effect could
prevent takeovers favored by shareholders
The board of directors has the authority, without further approval of
Export Erez USA's stockholders, to issue preferred stock, having the rights,
preferences and privileges as the board of directors may determine. Preventing a
change in control of the company could have the effect of preventing
shareholders from receiving a premium price for their shares or may prevent a
takeover which some of the shareholders favor because they might perceive it
would result in better management of the company.
Additional shares entering market pursuant to Rule 144 without additional
capital contribution
An increase in the number of shares of Export Erez USA available for
public sale without any increase to the company's capitalization could decrease
the market price of the company's shares. After a one-year holding period these
shares will, subject to Rule 144 of the General Rules and Regulations of the
Securities and Exchange Commission, will become eligible for trading without any
additional payment to the company or any increase to Export Erez USA's
capitalization. Of the 12,500,000 shares of common stock currently outstanding
985,000 are restricted shares held by non-affiliates of Export Erez USA (8%)
which shares are subject to limitations on transferability. The one-year holding
period expired on May 20, 2000 for 500,000 of these shares and will expire on
May 25, 2001 for the other 485,000 of these shares. Affiliates of Export Erez
USA, including the shares held by directors of Export Erez USA who are selling
securityholders, will be subject to the limitations of Rule 144, including its
volume limitations in the sale of their shares.
6
<PAGE>
An aggregate of 11,515,000 (92%) of the outstanding shares of the company are
held by affiliates and subject to the limitations of Rule 144 including the
shares held by affiliates which are registered in this prospectus. See "Plan of
Distribution-Sales by Affiliates".
Selling securityholders may sell securities at any price or time
After effectiveness of this prospectus, the 62 non-affiliated selling
securityholders may offer and sell their shares at a price and time determined
by them without subject to Rule 144. The timing of sales and the price at which
the shares are sold by the selling securityholders could have an adverse effect
upon the public market for the common stock, should one develop. See "Plan of
Distribution-Sales by Selling Securityholders".
Officers and directors have limited liability and have indemnity rights
The Certificate of Incorporation and By-Laws of Export Erez USA provide
that Export Erez USA indemnify its officers and directors against losses
sustained or liabilities incurred which arise from any transaction in that
officer's or director's respective managerial capacity unless that officer or
director violates a duty of loyalty, did not act in good faith, engaged in
intentional misconduct or knowingly violated the law, approved an improper
dividend, or derived an improper benefit from the transaction. Export Erez USA's
Certificate of Incorporation and By-Laws also provide for the indemnification by
it of its officers and directors against any losses or liabilities incurred as a
result of the manner in which the officers and directors operate Export Erez
USA's business or conduct its internal affairs, provided that in connection with
these activities they act in good faith and in a manner which they reasonably
believe to be in, or not opposed to, the best interests of Export Erez USA, and
their conduct does not constitute gross negligence, misconduct or breach of
fiduciary obligations.
AVAILABLE INFORMATION
Export Erez USA has filed with the Securities and Exchange Commission
(the "SEC") a registration statement on Form SB-2 under the Securities Act with
respect to the securities offered hereby. This prospectus does not contain all
the information contained in that registration statement. For further
information regarding Export Erez USA and the securities offered hereby,
reference is made to the registration statement, including all exhibits and
schedules thereto, which may be inspected without charge at the public reference
facilities of the SEC's Washington, D.C. office, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or on the SEC's home page on the World Wide Web at
http://www.sec.gov. Each statement contained in this prospectus with respect to
a document filed as an exhibit to the registration statement is qualified by
reference to the exhibit for its complete terms and conditions.
Export Erez USA will be subject to the informational requirements of
the Exchange Act and in accordance therewith will file reports and other
information with the SEC. Reports, proxy statements and other information filed
by Export Erez USA can be inspected and copied on the SEC's home page on the
World Wide Web at http://www.sec.gov or at the public reference facilities of
the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as
well as the following Regional Offices: 7 World Trade Center, Suite 1300, New
York, N.Y. 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies can be obtained from the SEC by mail at
prescribed rates. Request should be directed to the SEC's Public Reference
Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Export Erez USA intends to furnish its stockholders with annual reports
containing audited financial statements and other reports as may be required by
law. Export Erez USA may issue other unaudited interim reports to its
shareholders as it deems appropriate.
EXPORT EREZ USA, INC.
Export Erez USA is a newly formed company that, through its
subsidiaries, manufactures textile products with special qualities, such as high
degrees of strength, durability and waterproofing. Export Erez USA was
incorporated on March 24, 1999 as a Delaware corporation named Acanthus
Acquisition Corporation, which changed its name to Export Erez USA, Inc. on May
19, 1999. As of April 21, 2000, Export Erez USA became the owner of all of the
shares
7
<PAGE>
of Export Erez Ltd. and Mayotex Ltd., operating companies organized under the
laws of the State of Israel, through which it conducts its operations in the
State of Israel and in the Gaza Strip.
BUSINESS
Operations
Export Erez Ltd. was formed and registered on January 23, 1983 under
the name R.T.V. Ltd. as a limited shares company under the Companies Ordinance
of the State of Israel and changed its name to Export Erez Ltd. on April 25,
1987. Export Erez Ltd. primarily produces and markets textile products designed
to provide personal protection, such as bulletproof vests, and associated heavy
fabric products, such as tents and other camping equipment. It has been a
supplier to the Israeli military for over 10 years.
Mayotex Ltd. was formed and registered on March 7, 1990 as a limited
liability company under the Companies Ordinance of the State of Israel. Mayotex
is engaged in weaving, improving, processing, dyeing, cutting and sewing of
fabric to make the heavy-duty and sometimes bulletproof fabrics used by Export
Erez Ltd. to manufacture its finished products and goods.
Export Erez USA's facilities are staffed by a Palestinian workforce,
hired with the cooperation of the Palestinian Authority. Should the Middle East
peace process continue to lead to a decrease in hostilities and normalization of
relations with the Arab and Islamic world, Export Erez USA believes that its
history of cooperation and employment with the Gazan Palestinians and the
Palestinian Authority will lead to opportunities to penetrate markets in the
Arab and Islamic world.
Products
Export Erez USA's products are designed for four major markets. The
major product group is aimed at the Israeli and international defense market.
Export Erez USA's military products include bulletproof clothing and combat
vests, flak jackets, dust protectors, padded coats, plus sleeping bags, bags and
totes, weapons straps and belts. Products under development include ballistic
helmets, stab-resistant fabric, ceramic ballistic plates and one- way protective
windows.
The second product group is aimed at the civilian market, including
police, prison and security forces, and includes camping and sporting equipment
such as tents and sleeping bags and heavy-duty clothing including overalls and
coveralls. Export Erez USA's civilian defense and security products include a
bulletproof executive vest, and adaptations of Export Erez USA's military
products.
The third product group is aimed at the industrial market and includes
special industrial fabrics and cloth tapes.
The fourth product group is aimed at animal owners, and includes dog
collars and leashes, items for horses and riders and protective equipment.
The following table details Export Erez USA's current product line, its
current and future target markets and geographic areas.
<TABLE>
<CAPTION>
Present Future
Product description Target market Geographical area Target market Geographical area
------------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Dust protectors
and various covers Military Israel Military, civilian Israel, international
Padded coats Military Israel Military, civilian Israel, international
Range of protective
vests and flak jackets Military Israel, international Military, civilian Israel, international
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Present Future
Product description Target market Geographical area Target market Geographical area
------------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Cooling jackets Military Israel Military Israel, international
Range of overalls Military Israel, international Military, civilian, industrial Israel, international
Vests Military Israel, international Military, civilian Israel, international
Sleeping bags Military Israel Military, civilian Israel, international
Carriers for
grenade launchers Military Israel, international Military Israel, international
Individual bags
and totes Military Israel Military, civilian Israel, international
Tents Military Israel Military, civilian Israel, international
Camp beds Military Israel Military, civilian Israel, international
Personal belts
and weapon straps Military Israel Military, industrial Israel, international
Woven fabrics:
canvas, corduroy, Military, civilian,
nylon industrial Israel Military, civilian, industrial Israel, international
Range of tapes Military, industrial Israel, international Military, civilian, industrial Israel, international
Bags for riders Civilian - animals Israel, international Civilian Israel, international
Horse blankets
and saddles Civilian - animals Israel, international Civilian Israel, international
Collars, harnesses
and leads Civilian - animals Israel, international Civilian Israel, international
Protective
vests for riders Civilian - animals Israel, international Civilian Israel, international
Leg protectors Civilian - animals Israel, international Civilian Israel, international
</TABLE>
Export Erez USA is currently developing new products for military and
civilian markets, including ballistic helmets, stab-resistant fabric, ceramic
ballistic plates and one-way protective windows. Export Erez USA is also
developing a new generation of complex products for protective vests used by
security forces and armies all over the world, using purchased materials. The
vests will offer a very high level of protection with minimum weight and maximum
flexibility.
Customers
Export Erez Ltd. has customers in the military and security categories
in over a dozen countries in the Mediterranean, Europe, Africa, and Asia for its
various heavy bags and carriers, protective vests, flak jackets and sleeping
bags. Export Erez Ltd. has customers in the United States and several Latin
American countries for its various vests, bags, pouches and binoculars.
Export Erez USA's customers can be divided into four main groups:
o Defense customers, members of the security services who need personal
equipment: clothing, sleeping bags, tents, etc., as well as personal
protection equipment, such as bullet proof vests, helmets, flak jackets
etc. This type of equipment must meet developed "human engineering"
requirements, providing comfort as well as maximum protection,
preventing penetration by bullets and knives, protection against fire,
collisions and other hazards.
o Civilian customers, which includes young or older hikers who need
equipment such as sleeping bags, tents, rucksacks, and clothing adapted
for specific needs such as mountain climbing, or hiking in cold
climates.
9
<PAGE>
o Civilian defense customers, including members of civilian security
forces such as police officers, private security firms, airport
security, personal bodyguards, and event security guards. The
requirements of these customers for protective equipment are similar to
those of military security forces. However, since their work is mainly
in a civilian environment, it is also important to pay attention to
esthetic appearance, with protective features made as unobtrusive as
possible.
o Animal sports fans and animal owners. Export Erez USA divides this
category into two groups: Individual pet owners, for whom animal
accessories are supplied at three price levels and qualities. Animal
sport groups who buy equipment for specific animal sports. In the case
of horse riding equipment, "human engineering" is very important to
ensure maximum comfort for the animal and the rider.
In addition to the Israeli Ministry of Defense, Israeli police forces
and Israeli prison service, Export Erez USA has supplied products such as vests,
bed sheets, tapes, cannon covers, tents, belts, battle vests, dog accessories,
various bags, and special carriers for weapons for approximately 20 Israeli
commercial enterprises. Similar products have also been sold to at least 20
military, institutional, and civilian industrial customers in Cyprus, Italy,
England, Greece, Holland, Germany, Latvia, Switzerland, Slovakia, Paraguay,
Peru, Uruguay and the United States.
Export Erez USA has several contract bids pending for sale of certain
of its products to the Israel Military and Israel Police. However, Export Erez
USA may not be successful in obtaining these contracts. Typically the contracts
are awarded to specifically supply certain products and do not usually continue
as on-going supply contracts. In 1999, one customer accounted for more 50% of
Export Erez's sales revenues and to date in 2000 this customer has accounted for
more than 30% of sales revenues.
Marketing
Export Erez USA has developed a marketing strategy designed to
penetrate various markets by complying with stringent quality standards
institutes in targeted countries.
Below are some of the steps Export Erez USA is taking in order to
penetrate different markets with its next generation of products:
Locating domestic entities to market the products.
Initiating contacts with chambers of commerce in international
embassies.
Actively participating in tenders and bids for contracts in military,
police and civilian markets worldwide. Export Erez USA is negotiating
for contract bids with the governments of Germany, Turkey, Argentina,
Chile and Brazil and the United Nations.
Actively participating in international exhibitions of military and
police security equipment. Export Erez USA recently participated in
Milipol in Paris, and Fidae in Chile and exhibited at the IFSEC 2000
security show in the United Kingdom.
Advertising on the Internet: Export Erez USA is investing resources in
developing this area of e-commerce, expanding to new countries and
finding new contacts in areas relating to its activities.
Advertising in professional publications appearing annually, such as
The Israel Defense Sales Directory ("SIBAT").
Appearing in international databases, such as BDI (Kompass) various
"yellow pages" directories, Dun & Bradstreet, and other directories.
Distributing brochures describing Export Erez USA's procedures and
products.
10
<PAGE>
Export Erez USA has divided its marketing division into the following sections:
o One section specializing in locating and submitting government
bids.
o One section specializing in the civilian sector.
o The export marketing division operated by Export Erez USA
consists of a marketing manager who operates on a
self-employed basis and manages a team of employees. This
marketing team carries out market surveys, market
segmentation, and seeks out new markets for the products, and
new engagements with international chambers of commerce. The
marketing team earns commissions that are determined in
advance, according to the scope and nature of the deal. Export
Erez USA's policy is to pay commissions of 2% to 10%.
o The civilian market is handled by two offices, each dealing
with a different geographical region and a different basket of
products.
Major Competitors
Export Erez Ltd.'s share of the Israeli defense market for applicable
products in 1998 was approximately 25% of a total market of $10,000,000. Export
Erez USA has two major competitors: Archidatex with approximately 25% of the
applicable market and Rabintex with approximately 35%. Export Erez Ltd.'s share
of the Israeli civilian market for applicable products in 1998 was approximately
10% of a total market of $14,000,000 with 40% controlled by other Israeli
companies and 50% made up by imported goods.
Internationally, Export Erez Ltd.'s competitors in the defense market
include companies such as Point Blank, Safari Land of Ontario, California and
A.B.A. in the United States, R.B.R. International Ltd. and L.B.A. in England,
Indigo in Spain, Systema Compositi in Italy, Hellenic Arms Industries in Greece
and Barman in Sweden. In each case, the competing manufacturers specialize in a
more limited product line than does Export Erez USA.
In the civilian market, Export Erez USA is aware of approximately 20
companies manufacturing similar products. A number of major manufacturers with
resources and reputations far greater than those of Export Erez USA compete for
the same market. Export Erez USA intends to market its products over the
Internet as well as through a network of distributors. Export Erez USA may not
be able to locate a market for its civilian products large enough to recoup its
costs.
Inventory
Export Erez USA keeps low inventories for most of its products and
components, except for straps, which are used in a wide range of Export Erez
USA's products. Inventory usually is held after production for an average of 54
days. Inventory normally accounts for approximately 15-17% of Export Erez USA's
total assets.
Raw Materials
Export Erez USA's products include raw materials such as fabric
purchased in Israel and abroad, specialized composite materials such as Kevlar
produced by Dupont Ltd., Twaron produced by Akzo Ltd., Dyneema produced by
D.S.M. Ltd. and Spectra and Gold Flex produced by Allied-Signal. Other
specialized materials include specialized glass mixed with polycarbonate and
various resins. Export Erez USA obtains its supplies by purchasing on the basis
of an open letter of credit, by specialized documentary credit, or in the case
of suppliers that Export Erez USA has dealt with for years, on open account.
Management believes that its suppliers are stable, and it foresees no
problems or disruption in a steady supply of materials. A disruption to its
supply of materials could have an adverse impact on Export Erez USA.
Seasonality
Sales of Export Erez USA's military and security clothing products and
industrial products are not seasonal in nature. Sales of Export Erez USA's
camping equipment and clothing may experience slight increases during certain
seasons.
11
<PAGE>
Property
Export Erez USA's executive offices, manufacturing, production and
distribution facilities encompass two buildings in the Erez Industrial Area
adjacent to Gaza. One building, owned by Joseph Postbinder, is leased to Export
Erez USA for $7,119 per month for 2,500 square meters. The second building is
owned directly by Export Erez USA and is unencumbered by any mortgage or debt,
and contains 1,400 square meters of usable space. Export Erez USA also has a
factory in the Netivot Industrial Area, which is leased for $1,900 per month for
380 square meters.
Patents and trademarks
Export Erez USA does not have any patents or trademarks registered in
its name.
Regulation
The operations of Export Erez USA are subject to extensive regulation
by United States and Israeli authorities and are subject to various laws and
judicial and administrative decisions imposing requirements and restrictions on
part or all of its operations.
The following are among the rules and procedures all companies must
follow in order to participate in Ministry of Defense and other government bids
in Israel:
The bidder must be registered as a recognized supplier.
The bidder must have government certification and is authorized to
participate in bids only up to the limit of its approved security
classification.
National Priority Area and local product: goods produced in Israel are
given priority over foreign bidders according to Israeli bid
regulations.
The bidder must offer an attractive price. The bidder must keep to
contractual schedules and milestones.
The goods must pass final quality control tests before delivery.
Every bid is different, and different documents may be required. There
are no special taxes on bids apart from the Israeli Value Added Tax ("VAT").
Because Export Erez USA's business is highly regulated, the laws, rules
and regulations applicable to Export Erez USA are subject to regular
modification and change and future laws, rules or regulations may be adopted
which could make compliance much more difficult or expensive or otherwise
adversely affect the business or prospects of Export Erez USA.
Employees
Export Erez USA, including its subsidiaries Export Erez Ltd. and
Mayotex Ltd., has approximately 130 full-time employees, including its executive
officers. Export Erez USA does not have a collective bargaining agreement with
its employees and is not aware of any labor disputes. The majority of Export
Erez Ltd.'s employees are Palestinian Gazans, hired through and with the
cooperation of the Palestinian Authority. Subject to political and military
circumstances, Export Erez USA believes that it has good relations with its
employees.
DIVIDEND POLICY
Export Erez USA presently does not intend to pay cash dividends on its
common stock in the foreseeable future and intends to retain future earnings, if
any, to finance the expansion and development of its business. Any future
decision of Export Erez USA's board of directors to pay dividends will be made
in light of Export Erez USA's earnings,
12
<PAGE>
financial position, capital requirements and other relevant factors then
existing.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONDITION AND RESULTS OF OPERATIONS
This section should be read in conjunction with Export Erez USA's
financial statements and the relevant notes thereto, as well as the business
information presented in other parts of the registration statement of which this
prospectus is a part.
Overview
Export Erez USA's strategic objectives are as follows:
o To develop high tech products, including: stab-proof fabric, ballistic
helmets, ballistic ceramic boards and one-way protective windows by the
year 2001.
o To increase its share of the local defense market to about 35% by the
year 2004.
o To increase its share of the local civilian market to about 25% by the
year 2004.
o To penetrate the international defense market with business worth about
$1 million in 1999, growing by about $1.5 million per annum to the year
2004.
o To extend activity in the international civilian market starting with
activity worth about $0.3 million in 1999, growing by about $0.5-0.75
million per annum to the year 2004.
Results and Plan of Operations
During 1999, bulletproof vests developed by Export Erez USA were sent
to laboratories in the United States for testing, and following the tests, the
products were deemed to have met the American N.I.G. standard. Obtaining this
standard is intended to provide Export Erez USA's products with entree into the
American market, and to encourage development of other markets.
During 1999, Export Erez USA enlarged its Internet Web site in order to
participate in the worldwide trend towards more electronic trade. The web site
is located at www.exporterez.co.il.
Expanding its product range requires Export Erez USA to make
considerable investments in research and development, and penetrating markets
outside Israel also involves heavy expenses. Export Erez USA intends to develop
the following products between 2000 and 2003: anti-stab cloth, ballistic
helmets, ballistic ceramic plates, one-way protective windows.
Export Erez USA intends to spend funds, when and if available, if ever,
on commencing production and marketing of new products, construction of a new
manufacturing and office complex, new equipment and upgrading its existing
equipment.
Export Erez USA intends to apply for listing on the NASD OTC Bulletin
Board or for quotation of its securities on the Nasdaq SmallCap Market. Export
Erez USA anticipates that it will offer additional shares of its common stock to
the public with a view toward raising additional capital with which to effect
its development plans. Management also believes that if Export Erez USA is able
to establish a public trading market on the NASD OTC Bulletin Board or Nasdaq
SmallCap Market will increase Export Erez USA's visibility to government
authorities and additional potential civilian customers.
In March 1999, Export Erez USA signed a limited partnership agreement
with Orlite Ltd., a public company whose stock is traded on the Tel-Aviv stock
exchange, for the production of ballistic helmets for export from Israel only.
13
<PAGE>
The partnership operated throughout 1999 on a limited basis only, because the
approval required from the Business Restrictions Authority has not yet been
given. This approval is expected in the course of the year 2000.
The Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
In 1999, revenues decreased from $4,568,498 in 1998 to $4,490,898
whereas exports grew by 102% from $357,600 in 1998 to $722,900 in 1999. The form
of the relationship with a number of large customers was altered this year.
Export Erez USA worked on orders while the raw materials were supplied by the
customer. As a result of this system, there was a decrease in sales and
consumption of raw materials dropped accordingly by 8.4%, from $2,331,000 to
$2,134,000. The cost of sales and processing decreased from $3,589,167 in 1989
to $3,121,674 in 1999. Export Erez USA's gross profit rose from $979,331 in 1998
to $1,369,224 in 1999.
General and administrative costs decreased slightly from $458,451 to
$457,218 in 1999.
Most company sales are the result of winning tenders in both the
domestic market and the world market. The tenders are obtained through agents
which the company operates in the local and overseas market. Below is the
composition of sales for 1999 and 1998:
1998 ($) 1999 ($) Change in %
-------- -------- -----------
Sales to the local market 4,190,433 3,777,781 -9.47
Export sales 378,065 713,117 88.8
4,568,498 4,490,898 -1.69
--------- --------- -----
Sales fell by 1.69% in dollar terms, as a result of a fall in sales to
the local market. There are two explanations for this decrease:
1. The type of arrangement with one customer for the sale of
protective jackets: raw materials were supplied by the
customer, and as a result the selling price was about 40% of
the regular price. When this form of arrangement is
neutralized, sales for 1999 should be $5,400,000, a rise of
18.2% compared to 1998. The arrangement with the customer is
due to end during the first quarter of 2000.
2. A change in the dollar exchange rate from NIS3.8 in 1998 to
NIS4.156 in 1999, a rise of 9.3%. The consumer price index in
Israel rose by only 1.3% in 1999. Most sales in the domestic
market are linked to the shekel so in dollar terms there is a
decrease in sales due to this change. The rise in the exchange
rate of the dollar above the rise in the consumer price index
in 1999 is unusual.
The main costs comprising the cost of sales are raw materials and wages
consisting of 96% of costs in 1998 and 95% in 1999. Cost of sales in 1999 fell
by 13% from $3,589,167 in 1998 to $3,121,674 in 1999. Part of the decrease was
in raw material purchases, from $2,313,000 to $2,007,812 in 1999, a drop of
13.1%. This change is explained by the type of arrangement with a customer
described in the previous section, where the customer provided the raw materials
and the company only had the labor costs.
Export Erez focuses its production activities at the Erez Border site
and employs Arab workers from Palestinian Autonomy in order to keep labor costs
down, and indeed these costs fell in 1999 to $858,592 compared to $1,023,111 in
1998, a drop of 16%.
The rise in the exchange rate of the dollar from NIS3.8 in 1998 to
NIS4.15 in 1999 contributed to the drop in dollar terms of these costs, because
the wages of the production workers change according to the level of prices in
the local market, and these prices rose less than the rises in the dollar
exchange rate.
Administration and General costs fell slightly from $458,451 in 1998
to $457,218 in 1999. Export Erez's gross profit rose by 28.4% from $979,331 in
1998 to $1,369,224 in 1999.
14
<PAGE>
The Six Month Period Ending June 30, 2000 Compared to the Six Month Period
Ending June 30, 1999
Sales in the 6 months ending June 30, 2000 totaled $2,546,069 compared
to $2,564,754 in the previous year due to a slight drop in sales. At the end of
the first quarter of 1999, the form of engagement established by Export Erez
with certain of its customers changed, and those customers supplied their own
raw materials. As a result of this change, revenues from sales decreased, but at
the same time the cost of sales also dropped increasing gross profit. The
breakdown of sales for the six months ended June 30 is as follows:
June 30, 1999 June 30, 2000 Change
------------- ------------- ------
Sales to the local market 2,187,682 1,994,892 -8.8%
Export sales 377,072 551,177 +46%
--------- ---------
2,546,069 2,564,754
--------- ---------
Sales to the local market fell by 8.8%. This drop in sales is explained
partly by the nature of the relationship with a customer who supplied the raw
materials, and the selling price of the products only reflected the labor; as
mentioned above, this relationship ended at the beginning of 2000.
Part of the drop in sales is explained by reduction in demand in the
local market. The Israeli Ministry of Defense, which is a large customer of
Export Erez, reduced its purchases in the last half year. In our view,
fluctuations in demand will continue by a few percentage points up or down. In
order to expand its sales, Export Erez has increased its sales agents, with the
focus on export. Exports increased by 46.1% compared to the same half year
period in 1999. Export Erez anticipates that this growth trend in exports may
continue and by the end of 2000 Export Erez projects its exports will reach
about $1,250,000.
The cost of production in the first six months of 2000 was $1,576,637
compared to $1,609,042, a drop of 2%. The cost of production remains almost
identical to the cost in the previous half year.
Cost of sales in the six months of 2000 totaled $96,292 compared to
$76,585 in the six months of 1999, an increase of 26%. This increase is
explained by the company's marketing efforts to increase its exports.
General and administrative costs in the six months of 2000 were
$339,107 compared to $247,270 in the first six months of 1999, an increase of
37%. The increase results primarily from $153,900 of non-cash stock based
compensation expense. Otherwise the general and administrative costs decreased
25%. The 25% drop in costs is the result of greater efficiency and a drop in the
costs of professional services-accountant and legal counsel. In the first half
of 1999, Export Erez incurred high expenses to upgrade it from a private company
to a reporting company.
Open Orders
Unfulfilled open orders at March 31, 2000 totaled $1,600,000 and are
scheduled for filling within the next 4 months.
Liquidity and Capital Resources
Export Erez USA's current activities are financed by short term bank
loans balanced by short term deposits. The decision regarding the amount of the
loans was derived from considerations of the yield on the deposit which is
generally in foreign currency (receipts from overseas sales), compared to the
cost of short term loans. Export Erez USA has positive working capital (current
assets less current liabilities).
15
<PAGE>
MANAGEMENT
Officers and Directors
The following table sets forth certain information with respect to Erez
USA's directors, executive officers and key consultants:
Name Position
Joseph Postbinder Chairman, President and Director
Meira Postbinder Vice President of Financing, Secretary, Treasurer and
Director
Dan Zarchin Vice President of Marketing and International Business
Development and Director
Tsippy Moldovan Deputy Managing Director of Finance and Director
Shlomo M. Lev-Yehudi Director
All directors hold office until the next annual meeting of stockholders
and until their successors are elected. Officers are elected to serve, subject
to the discretion of the board of directors, until their successors are
appointed. Directors do not receive cash compensation for their services to
Export Erez USA as directors, but are reimbursed for expenses actually incurred
in connection with attending meetings of the board of directors.
Joseph Postbinder, 53, Chairman, president and a director of Export
Erez USA and Chief Executive Officer of Export Erez Ltd. and Mayotex, has a
technical background in fine mechanics. He has been in charge of Export Erez
since he founded Export Erez USA in 1983. He is the husband of Meira Postbinder.
Meira Postbinder, 54, manages the financing division and is a director
of Export Erez USA and Export Erez Ltd. which positions she has held for more
than the last five years. She is the wife of Joseph Postbinder.
Dan Zarchin, 52, Manager of Marketing and International Business
Development and a director of Export Erez USA, is a textile engineer. He is a
consultant to Export Erez USA and has been doing business as Zarchin
Consultants, Tel-Aviv, Israel, since 1981. Previously, he was Marketing Manager
for Kibbutz Noam-Urim, Israel. The kibbutz's products included textile goods.
Mr. Zarchin received a Bachelor of Arts degree in Textile Engineering from the
College of Textile Science in Philadelphia, Pennsylvania in 1973 and a Masters
of Business Administration from Tel-Aviv University, Tel-Aviv, Israel, in 1979.
Tsippy Moldovan, 45, is the Deputy Managing Director of Finance and a
director for Export Erez USA and has been the Deputy Managing Director of
Finance of Export Erez Ltd. for the past 12 years. Mrs. Moldovan attended
Buchnich Accounting School in Ashkelon, Israel, and completed course work in
economics and management accounting from the Mishlav School, Tel Aviv, Israel.
Shlomo M. Lev-Yehudi, 73, has been a director of Export Erez USA since
April 2000. Mr. Lev-Yehudi has been a certified public accountant in Tel-Aviv,
Israel since 1957, and was Export Erez USA's accountant from 1987 until 1997.
Certain Relationships and Possible Conflict of Interest
Export Erez USA leases a building, owned by Joseph Postbinder,
president and a director of Export Erez USA, for $7,119 per month for 2,500
square meters. The terms of the lease were not the result of an arms' length
transaction.
16
<PAGE>
Executive Compensation
No officer or director received compensation from Export Erez USA in
excess of US$100,000 in 1999 or 1998.
Employment Agreements
Export Erez USA has not entered into any employment agreements with its
executive officers or other employees to date. Erez USA may enter into
employment agreements with them in the future.
Indemnification of Officers, Directors, Employees and Agents
The Certificate of Incorporation and By-Laws of Export Erez USA provide
that Export Erez USA shall, to the fullest extent permitted by applicable law,
as amended from time to time, indemnify all directors of Export Erez USA, as
well as any officers or employees of Export Erez USA to whom Export Erez USA has
agreed to grant indemnification.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers provided that this provision shall not eliminate or limit the
liability of a director
For any breach of the director's duty of loyalty to the corporation or
its stockholders; For acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
Under Section 174 (relating to liability for unauthorized acquisitions
or redemptions of, or dividends on, capital stock) of the General
Corporation Law of the State of Delaware; or
For any transaction from which the director derived an improper
personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's By-Laws, any agreement, vote of shareholders or otherwise.
The effect of this law requires Export Erez USA to indemnify the
officers and directors of Export Erez USA for any claim arising against such
persons in their official capacities if such person acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers or persons controlling
Export Erez USA pursuant to the foregoing provisions, it is the opinion of the
Securities and Exchange Commission that such indemnification is against public
policy as expressed in the act and is therefore unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the effective
date of this prospectus regarding the beneficial ownership of Export Erez USA's
common stock by each officer and director of Export Erez USA and by each person
who owns in excess of five percent of Export Erez USA's common stock.
<TABLE>
<CAPTION>
Percentage of Shares of Class Owned(2)
Shares of common stock Prior to After
Name, Position and Address Beneficially Owned(1) Offering Offering
-------------------------- ---------------------- -------- --------
<S> <C> <C> <C>
Joseph Postbinder 11,490,212(3) 92% 92%
Chairman, President and
Director
36 Htziunut Street
Gani Barnea Ashkelon, Israel 78741
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares of Class Owned(2)
Shares of common stock Prior to After
Name, Position and Address Beneficially Owned(1) Offering Offering
-------------------------- ---------------------- -------- --------
<S> <C> <C> <C>
Meira Postbinder 9,788(3) * *
Vice President of Financing
Secretary, Treasurer, and Director
36 Htziunut Street
Gani Barnea Ashkelon, Israel 78741
Dan Zarchin (4) 5,000 * 0
Vice President of Marketing
Director
16 Hannahal Street
Raanana, Israel
Tsippy Moldovan (4) 10,000 * 0
Managing Director of Finance,
Director
34 Hazionut Street
Ashkelon, Israel
Shlomo M. Lev-Yehudi 0 0 0
Director
1 Klee Street
Tel-Aviv 62336, Israel
All officers and directors
as a whole (4 persons) 11,515,000 92% 92%
</TABLE>
* Less than 1% percent
(1) Based upon 12,500,000 shares outstanding as of September 15, 2000.
(2) Does not include 250,000 shares which may be issued upon exercise of
warrants.
(3) Meira Postbinder is the spouse of Joseph Postbinder.
(4) The named officer is also a selling securityholder. The percentage of
shares held after completion of the offering assumes the sale of all
the shares offered by the named selling securityholder.
SELLING SECURITYHOLDERS
Export Erez USA is registering for offer and sale by its' holders
1,000,000 shares of common stock and 250,000 shares of common stock issuable
upon the exercise of outstanding warrants. The selling securityholders will
offer their securities for sale on a continuous or delayed basis pursuant to
Rule 415 under the Securities Act. See "Risk Factors-Additional shares, if
issued, may come into market as shares become available for resale pursuant to
Rule 144" and "Selling Securityholders May Sell Shares at any Price or Time."
All of the shares registered hereby will become tradeable and/or
exercisable on the effective date of the registration statement of which this
prospectus is a part.
18
<PAGE>
The following table sets forth the beneficial ownership of the
securities of Export Erez USA held by each person who is a selling
securityholder.
<TABLE>
<CAPTION>
Number of Percent of Common Number of Percent of Common
Name and Address of Shares Owned Stock Owned Shares Offered Stock Owned
Beneficial Owner Prior to Offering Prior to Offering(1) For Sale After Offering(2)
<S> <C> <C> <C> <C>
Keylani Abed Alcarim Atia (9) 5,000 * 5,000 0%
Beit Lehia 190
2, Israel
Hashem Sa'eed Abuamuna (9) 5,000 * 5,000 0%
Nasirat 8
4, Israel
Maged Ali-Nasralla 5,000 * 5,000 0%
Sagahia 33
4 Gaza, Israel
Magdi Ali-Nasralla 5,000 * 5,000 0%
Sagahia
Gaza, Israel
Gbar Amin-Nasar (9) 5,000 * 5,000 0%
Beit Hanoon 86
1, Israel
Saned Amin-Nasar (9) 5,000 * 5,000 0%
Beit Hanoon, Israel
Shafir Amir 5,000 * 5,000 0%
Ha'ayala 9
46 Ashkelon, Israel
Salman Mahamed Asma'il (9) 5,000 * 5,000 0
Beit Hanoon 27
5, Israel
Joseph Berzak (3) 25,000 * 25,000 0%
36 Seshet Hayamin Street
Suite 22
Kasar Shaba 44269 Israel
Sherri Carmel (9) 5,000 * 5,000 0%
Nissanit 428 D.N
Chof Aza, Israel
Beno Dvir 5,000 * 5,000 0%
Tsahal 91
Tsahala, Tel Aviv, Israel
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of Common Number of Percent of Common
Name and Address of Shares Owned Stock Owned Shares Offered Stock Owned
Beneficial Owner Prior to Offering Prior to Offering(1) For Sale After Offering(2)
<S> <C> <C> <C> <C>
Ofra Dvir 5,000 * 5,000 0%
Tsahal 91
Tsahala, Tel Aviv, Israel
Shimone Eden 5,000 * 5,000 0%
Ashdod 4
Ashkelon, Israel
Guillermo Eisik(9) 5,000 * 5,000 0%
Efriam Tsor 306
8 Ashkelon, Israel
Stella Maris Eisik 5,000 * 5,000 0%
Efraim Tsor 306
8 Ashkelon, Israel
Jaber Elabed-Nasralla (9) 15,000 * 15,000 0%
Elnatzar 1082
52 Gaza, Israel
Abed Elcarim-Marish 5,000 * 5,000 0%
Sagahi 92
4 Gaza, Israel
Ra'ad Gabar-Nasralla (9) 5,000 * 5,000 0%
Sagahia 424
4 Gaza, Israel
Avital Gerson 15,000 * 15,000 0%
Montifiori 14
9 Ashkelon, Israel
Doron Gerson 15,000 * 15,000 0%
Montifiori 14
9 Ashkelon, Israel
Avraham Gura 10,000 * 10,000 0%
Nordoy 12
16 Naharia, Israel
Hagit Gura 10,000 * 10,000 0%
Nordoy 12
16 Naharia, Israel
Yehudit Gura 10,000 * 10,000 0%
Nordoy 12
16 Naharia, Israel
Hiam Guzansky 10,000 * 10,000 0%
Remez 31
Rishon Letsion, Israel
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of Common Number of Percent of Common
Name and Address of Shares Owned Stock Owned Shares Offered Stock Owned
Beneficial Owner Prior to Offering Prior to Offering(1) For Sale After Offering(2)
<S> <C> <C> <C> <C>
Haya Guzansky 10,000 * 10,000 0%
Remez 31
Rishon Letsion, Israel
Walid Hassan-Elhelo (9) 5,000 * 5,000 0%
Gabalia 2
10, Israel
Jovanda, Ltd. (4) 287,500 2.4% 287,500 0%
18034 Ventura Boulevard
Suite 119
Encino, California 91316
Ruti Kricheli 5,000 * 5,000 0%
Eshtaol 32
3 Ashkelon, Israel
Ronit Lankesner 15,000 * 15,000 0%
Robert Sold 28
1 Kiriat Yam, Israel
Batia Levi (9) 5,000 * 5,000 0%
Givat Tsion 1319
5 Ashkelon, Israel
Wa'al Machreesh-Nasralla 5,000 * 5,000 0%
Elremal 130
61 Gaza, Israel
James K. McKillop (5) 175,000 1.4% 175,000 0%
1875 Century Park East
Suite 1165
Los Angeles, California 90067
Tssipi Muldovan (8) 10,000 * 10,000 0%
Hatsionut 34
Ashkelon, Israel
Hanna Pearl (9) 5,000 * 5,000 0%
Rambam 19
8 Ashkelon, Israel
Sharon Peleg 5,000 * 5,000 0%
Macabi 1
7 Nes Tsiona, Israel
Pierce Mill Associates, Inc. (6) 175,000 1.4% 175,000 0%
1504 R Street, NW
Washington, DC 20009
George Pompan (9) 5,000 * 5,000 0%
Hana Senesh 10
6 Azor, Israel
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of Common Number of Percent of Common
Name and Address of Shares Owned Stock Owned Shares Offered Stock Owned
Beneficial Owner Prior to Offering Prior to Offering(1) For Sale After Offering(2)
<S> <C> <C> <C> <C>
Carol Postbinder (7) 10,000 * 10,000 0%
Herzel 2
9 Naharia, Israel
Rachel Postbinder (7) 10,000 * 10,000 0%
Herzel 2
9 Naharia, Israel
Sharon Postbinder (7)(9) 15,000 * 15,000 0%
Yutvata 6
1 Ashkelon, Israel
Aliza Rubin 15,000 * 15,000 0%
Dov Bryer 11
22 Ashkelon, Israel
Moshe Rubin (9) 15,000 * 15,000 0%
Dov Bryer 11
22 Ashkelon, Israel
Ravit Rubin 15,000 * 15,000 0%
Eli Cohen 6
10 Ashkelon, Israel
Gehad Sa'adi Nasralla (9) 5,000 * 5,000 0%
Sagahia
Gaza, Israel
Salah Sa'adi-Nasralla (9) 5,000 * 5,000 0%
Sagahia 269
17 Gaza, Israel
Aviva Sacagiu 10,000 * 10,000 0%
Nechemia 17
Hertzelia, Israel
Sara Sacagiu 10,000 * 10,000 0%
Rosenblum Hertzel 13
43 Beer Sheva, Israel
Tsipora Sacagiu 10,000 * 10,000 0%
Caf Tet Benovember 3
3 Petach Tikva, Israel
Yasha Sacagiu 10,000 * 10,000 0%
Nechemia 17
Hertzelia, Israel
Yosef Sacagiu 10,000 * 10,000 0%
Rosenblum Hertzel 13
43 Beer Sheva, Israel
Naomi Salev 10,000 * 10,000 0%
Bialik 128
1 Ashkelon, Israel
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of Common Number of Percent of Common
Name and Address of Shares Owned Stock Owned Shares Offered Stock Owned
Beneficial Owner Prior to Offering Prior to Offering(1) For Sale After Offering(2)
<S> <C> <C> <C> <C>
Radia Shafik-Nasralla 15,000 * 15,000 0%
Sagahia 424
4 Gaza, Israel
Mariam Shafir 15,000 * 15,000 0%
Hashikma 2
Ashkelon, Israel
Oded Shafir 15,000 * 15,000 0%
Hashikma 2
Ashkelon, Israel
Clara Solomon 10,000 * 10,000 0%
Elfasy 12
35 Beer Sheva, Israel
David Solomon 10,000 * 10,000 0%
Elfasy 12
35 Beer Sheva, Israel
Itzhak Torgaman (9) 5,000 * 5,000 0
Ramat Eshcol 2039
2 Ashkelon, Israel
Orly Torgaman 5,000 * 5,000 0%
Ramat Escol 2039
2 Ashkelon, Israel
Nissim Vaknin 10,000 * 10,000 0%
Escol 3
6 Ashkelon, Israel
Moosa Yousof-Matar (9) 5,000 * 5,000 0%
Gabalia Tel Zatar 300
15, Israel
Nabil Yousof-Matar (9) 5,000 * 5,000 0%
Gabalia Tel Zatar 415
15, Israel
Danny Zarchin (8) 5,000 * 5,000 0%
Hanachal 16
Ranana, Israel
Yoseph Zarchin 5,000 * 5,000 0%
Zlotziski 12
42 Tel Aviv, Israel
Joseph Zeewi (3) 25,000 * 25,000 0%
El-Al Building
32 Ben Yehuda Street
Tel Aviv 63805 Israel
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of Common Number of Percent of Common
Name and Address of Shares Owned Stock Owned Shares Offered Stock Owned
Beneficial Owner Prior to Offering Prior to Offering(1) For Sale After Offering(2)
<S> <C> <C> <C> <C>
Total 1,000,000 shares
250,000 shares underlying warrants
</TABLE>
* Less than 1% percent
(1) Based upon 12,500,000 shares outstanding as of September 15, 2000.
(2) Assumes sale of all shares offered by named selling securityholder.
(3) Provides legal services in Israel to Export Erez USA.
(4) Includes 125,000 shares of common stock issuable upon exercise of
warrants and 225,000 shares of common stock. The named shareholder is a
private company controlled by Peter Zoltan who may be deemed the
beneficial owner of its shares. The named securityholder serves as a
consultant to Export Erez USA.
(5) Includes 62,500 shares issuable upon exercise of warrants and 112,500
shares of common stock. The named securityholder serves as a consultant
to Export Erez USA.
(6) Includes 62,500 shares issuable upon exercise of warrants and 112,500
shares of common stock. James M. Cassidy is the sole shareholder and
officer of Pierce Mill Associates, Inc. and may be deemed the
beneficial owner of its securities. James M. Cassidy is the principal
of Cassidy & Associates, the law firm which assisted the company in
preparation of this prospectus.
(7) The named selling securityholder is an adult relative of Joseph
Postbinder who is chairman, president and the majority shareholder of
the company.
(8) The named shareholder is a director of the company.
(9) The named shareholder is an employee of the company.
Other than as footnoted above, none of the selling securityholders have
held any position or office with the company nor has had any other material
relationship with the company for the past three years.
PLAN OF DISTRIBUTION
Sales by Selling Securityholders
After effectiveness of this prospectus, the 62 non-affiliated selling
securityholders may offer and sell their shares at a price and time determined
by them without subject to Rule 144. In addition, the National Securities Market
Improvement Act of 1996 limits the authority of states to impose restrictions
upon sales of securities made pursuant to Sections 4(1) and 4(3) of the
Securities Act of companies which file reports under Sections 13 or 15(d) of the
Exchange Act. Section 4(1) provides that sales by any person that is not the
issuer or an underwriter or a dealer are exempt from the registration statement
provisions of the Securities Act of 1933. Sales by selling securityholders will
be made pursuant to Section 4(1) and as a result of the National Securities
Market Improvement Act no state registration of the sales will be required.
Section 4(3) of the Securities Act provides an exemption from the
registration provisions of the Securities Act for transactions by a dealer for
transactions occurring within 40 days of the effective date of a registration
statement for the securities or prior to the expiration of 40 days after the
first date upon which the security was offered to the public.
Sales by the selling securityholders in the secondary market may be
made pursuant to Section 4(1) (sales other than by an issuer, underwriter or
broker). It is anticipated that following the effective date of this prospectus
the selling securityholder's shares will be eligible for resale in the secondary
market in each state.
Sales by Affiliates
Sales of the securities by affiliates of Export Erez are subject to the
volume limitations imposed by Rule 144 even after registration of such
securities. An affiliate who holds unrestricted securities may sell, within any
three month period, a number of the shares of Export Erez that does not exceed
the greater of one percent of the then outstanding shares of the class of
securities being sold or, if Export Erez's securities are trading on the Nasdaq
Stock Market or an exchange at some time in the future, the average weekly
trading volume during the four calendar weeks prior to such sale.
24
<PAGE>
Resales of the Securities under State Securities Laws
The National Securities Market Improvement Act of 1996 ("NSMIA") limits
the authority of states to impose restrictions upon sales of securities made
pursuant to Sections 4(1) and 4(3) of the Securities Act of companies which file
reports under Sections 13 or 15(d) of the Securities Exchange Act. Sales of the
securities in the secondary market will be made pursuant to Section 4(1) of the
Securities Act (sales other than by an issuer, underwriter or broker). It is
anticipated that following the effective date the selling securityholders'
securities will be eligible for resale in the secondary market in each state.
If Export Erez USA meets the requirements of the NASD OTC Bulletin
Board it will apply for listing thereon. When and if should qualify, if ever, it
intends to apply for quotation of its securities on the Nasdaq SmallCap Market.
Export Erez USA may not qualify for listing of its securities on the NASD OTC
Bulletin Board or may never satisfy the qualifications to be quoted on the
Nasdaq SmallCap Market. If it should be accepted for listing thereon, then the
underwriters may engage in passive market making transactions in Export Erez
USA's common stock in accordance with Rule 103 of Regulation M.
Following the completion of this offering, one or more broker-dealers
may act as the principal market makers for the securities offered hereby. Under
these circumstances, the market bid and asked prices for the securities may be
significantly influenced by decisions of the market makers to buy or sell the
securities for their own account. The market making activities of any market
makers, if commenced, may subsequently be discontinued.
DESCRIPTION OF SECURITIES
Authorized Capital
The total number of authorized shares of stock of Export Erez USA is
one hundred million (100,000,000) shares of common stock with a par value of
$.0001 per share of which 12,500,000 shares are outstanding and twenty million
(20,000,000) shares of non-designated preferred shares with a par value of
$.0001 per share of which none are designated and outstanding. The board of
directors is authorized to issue additional shares, on the terms and conditions
and for the consideration as the board of directors may deem appropriate without
further stockholder action.
Common stock
Holders of shares of common stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of common stock
do not have cumulative voting rights. Holders of common stock are entitled to
share ratably in dividends, if any, as may be declared from time to time by the
board of directors in its discretion from funds legally available therefor. In
the event of a liquidation, dissolution or winding up of Export Erez USA, the
holders of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. All of the outstanding shares of
common stock are fully paid and non-assessable.
Holders of common stock have no preemptive rights to purchase Export
Erez USA's common stock. There are no conversion or redemption rights or sinking
fund provisions with respect to the common stock.
Warrants
Export Erez USA is registering 250,000 shares of common stock
underlying warrants that have been issued to three securityholders. The warrants
are exercisable at an exercise price of $1.00 per share for a term of five years
commencing on the date of issue.
Incorporation
Export Erez USA, Inc. (the "Company") was incorporated under the laws
of Delaware in 1999 under the name Acanthus Acquisition Corporation, which
changed its name to Export Erez USA, Inc. on May 19, 1999. Export Erez USA's
Certificate of Incorporation, By-Laws and corporate governance, including
matters involving the issuance,
25
<PAGE>
redemption and conversion of securities, are subject to the provisions of the
Delaware General Corporation Law, as amended and interpreted from time to time.
Noncumulative Voting
Each holder of common stock is entitled to one vote per share on all
matters on which that class of stockholders is entitled to vote. Shares of
common stock do not have cumulative voting rights. The holders of more than 50
percent of the shares voting for the election of directors can elect all the
directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any person to the board of directors.
Preferred Stock
Export Erez USA's Certificate of Incorporation authorizes the issuance
of 20,000,000 shares of preferred stock, $.0001 par value per share. In the case
of voluntary or involuntary liquidation, dissolution or winding up of Export
Erez USA, holders of shares of preferred stock are entitled to receive the
liquidation preference before any payment or distribution is made to the holders
of common stock or any other series or class of Export Erez USA's stock
hereafter issued that ranks junior as to liquidation rights to the preferred
stock, but holders of the shares of the preferred stock will not be entitled to
receive the liquidation preference of their shares until the liquidation
preference of any other series or class of Export Erez USA's stock hereafter
issued that ranks senior as to liquidation rights to the preferred stock has
been paid in full. After payment in full of the liquidation preference of the
shares of the preferred stock, the holders of the shares will not be entitled to
any further participation in any distribution of assets by Export Erez USA.
Neither a consolidation or merger of Export Erez USA with another corporation,
nor a sale or transfer of all or part of Export Erez USA's assets for cash,
securities or other property will be considered a liquidation, dissolution or
winding up of Export Erez USA.
The board of directors is authorized to provide for the issuance of
additional shares of preferred stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each a series, and to fix the
designation, powers, preferences and rights of the shares of each series and the
qualifications, limitations or restrictions on the shares without any further
vote or action by the shareholders. Any future issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Export Erez USA without further action by the shareholders and may adversely
affect the voting and other rights of the holders of common stock.
Penny Stock Regulation
If trading in Export Erez USA's stock begins, its common stock may be
deemed a penny stock. Penny stocks generally are equity securities with a price
of less than $5.00 per share other than securities registered on certain
national securities exchanges or quoted on the Nasdaq Stock Market, provided
that current price and volume information with respect to transactions in the
securities is provided by the exchange or system. Export Erez USA's securities
may be subject to "penny stock rules" that impose additional sales practice
requirements on broker-dealers who sell the securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of the securities
and have received the purchaser's written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule prescribed by the SEC relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock rules" may restrict the ability of broker-dealers to sell Export Erez
USA's securities. The foregoing required penny stock restrictions will not apply
to Export Erez USA's securities if the securities maintain a market price of
$5.00 or greater. The price of Export Erez USA's securities may never reach a
market price of $5.00 or greater.
26
<PAGE>
Additional Information Describing Stock
Reference is made to Export Erez USA's Certificate of Incorporation and
By-Laws which are included in the registration statement of which this
prospectus is a part and which are available for inspection at its offices.
Reference is also made to the applicable statutes of the State of Delaware which
may contain additional information concerning rights and liabilities of
shareholders.
Admission to Quotation on Nasdaq SmallCap Market or NASD OTC Bulletin Board
If Export Erez USA meets the qualifications, it intends to apply for
quotation of its securities on the NASD OTC Bulletin Board or the Nasdaq
SmallCap Market. Until Export Erez USA meets the qualifications, its securities
may be quoted in the daily quotation sheets of the National Quotation Bureau,
Inc., commonly known as the "pink sheets". If Export Erez USA's securities are
not quoted on the NASD OTC Bulletin Board, a securityholder may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, Export Erez USA's securities. The OTC differs from national and regional
stock exchanges in that it (1) is not situated in a single location but operates
through communication of bids, offers and confirmations between broker-dealers
and (2) securities admitted to quotation are offered by one or more
broker-dealers rather than the "specialist" common to stock exchanges. To
qualify for quotation on the NASD OTC Bulletin Board, an equity security must
have one registered broker-dealer, known as the market maker, willing to list
bid or sale quotations and to sponsor the company listing. If it meets the
qualifications for trading securities on the NASD OTC Bulletin Board Erez USA's
securities will trade on the NASD OTC Bulletin Board until a future time, if at
all, that Erez USA applies and qualifies for admission for listing on the Nasdaq
SmallCap Market. Export Erez USA may not now and it may never qualify for
listing on the OTC Bulletin Board or accepted for listing of its securities on
the Nasdaq SmallCap Market.
To qualify for admission for listing on the Nasdaq SmallCap Market, an
equity security must, in relevant summary,
(1) be registered under the Exchange Act;
(2) have at least three registered and active market makers, one
of which may be a market maker entering a stabilizing bid;
(3) for initial inclusion, be issued by a company with $4,000,000
in net tangible assets, or $50,000,0000 in market capitalization, or $750,000 in
net income in two of the last three years (if operating history is less than one
year then market capitalization must be at least $50,000,000);
(4) have at a public float of at least 1,000,000 shares with a
value of at least $5,000,000;
(5) have a minimum bid price of $4.00 per share; and (6) have at
least 300 beneficial shareholders.
Trading of Shares
There are no outstanding options, options to purchase, or securities
convertible into the shares of Erez USA which are not being registered hereby.
Export Erez USA has not agreed with any shareholders to register their shares
for sale, other than for this registration. Export Erez USA does not have any
other public offerings in process or proposed.
Transfer Agent and Registrar
Export Erez USA currently serves as its own transfer agent. Export Erez
USA intends to apply to StockTrans, Inc., Ardmore, Pennsylvania, to act as
transfer agent for its securities.
27
<PAGE>
Reports to Shareholders
Export Erez USA will furnish to holders of its securities annual
reports containing audited financial statements examined and reported upon, and
with an opinion expressed by, an independent certified public accountant. Export
Erez USA may issue other unaudited interim reports to its shareholders as it
deems appropriate.
CONDITIONS IN ISRAEL
The following information is intended to advise prospective investors
of certain conditions in Israel that could affect Export Erez USA.
Political conditions
Since the establishment of the State of Israel in 1948, a state of
hostility existed, varying as to degree and intensity, among Israel and various
Arab countries. A peace agreement was signed between Israel and Egypt in 1979
and limited relations have been established. A peace treaty with the Hashemite
Kingdom of Jordan was signed in 1994, ending the state of war along Israel's
longest border.
Since December 1987, civil unrest has existed in the territories which
came under Israel's control in 1967. In September 1993, Israel and the Palestine
Liberation Organization ("PLO") signed a Declaration of Principles outlining
interim Palestinian self-government arrangements. In May 1994, Israel and the
PLO signed an agreement in Cairo in which the principles of the September 1993
declaration were implemented. In accordance with this agreement, Israel has
transferred the civil administration of the Gaza Strip and Jericho to the
Palestinian Authority and the Israeli army has withdrawn from these areas. In
September 1995, Israel and the PLO signed an interim agreement to further
implement the principles of the September 1993 declaration. The interim
agreement provides for the gradual redeployment of Israel military forces in the
West Bank and the transfer of certain powers and governmental responsibilities
to a Palestinian elected council.
Despite reported progress towards peace between Israel, Arab states and
the Palestinians, no prediction can be made as to whether a full resolution of
these problems will ever be achieved, or as to the nature and timing of any
resolution. The permanent status arrangements between Israel and the
Palestinians have yet to be determined, and peace treaties with Syria, Lebanon
and other Arab states have yet to be concluded.
Generally, all adult male citizens and permanent residents of Israel
under the age of 51 are, unless exempt, obligated to perform up to 44 days of
military reserve duty annually. Additionally, all residents are subject to being
called to active duty at any time under emergency circumstances. Many of the
male employees of Export Erez USA are currently obligated to perform annual
reserve duty. While Export Erez USA has operated effectively under these
requirements in the past, no assessment can be made as to the full impact of the
requirements on Export Erez USA in the future, particularly if emergency
circumstances occur.
Certain countries and companies continue to participate in a boycott of
Israeli companies and others doing business in Israel or with Israeli companies.
Export Erez USA does not believe that any boycott has had a material adverse
impact on Export Erez USA's current operations, but future restrictive laws,
policies or practices towards Israel or Israeli businesses may have an adverse
impact on Export Erez USA's business in the future.
Economic conditions
Israel's economy has been subject to numerous de-stabilizing factors,
including a period of rampant inflation in the early to mid 1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. For these and associated reasons, the Israeli government has
intervened in sectors of the Israeli economy, utilizing among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
control of wages, prices and exchange rates, and has frequently reversed or
modified its policies in all these areas. However, the Israeli government may
not be successful in the future in attempts to keep prices and exchange rates
stable. To the extent that a significant portion of Export Erez USA's business
is conducted in Israel and any future revenues are collected in New Israeli
Shekels, price and exchange rate instability could have a material adverse
effect on Export Erez USA. Since
28
<PAGE>
the institution of the Israeli Economic Program in 1985, the rate of inflation,
while continuing, has been significantly reduced, and the rate of devaluation
has been substantially diminished.
Trade agreements
Israel is a member of a number of international organizations,
including the United Nations, the International Bank for Reconstruction and
Development, the International Monetary Fund and the International Finance
Corporation. Israel is a longstanding signatory of the General Agreement on
Tariffs and Trade and is an original Member of the World Trade Organization
("WTO"), which provides for the liberalization of international trade in goods
and services. Within the WTO, Israel is eligible for certain preferential
treatment as a developing country, and in certain instances may be eligible for
trade preferences under the Generalized System of Preferences.
Assistance from the United States
The State of Israel receives significant economic and military
assistance from the United States, amounting to an annual average of
approximately $3 billion over the last few years. In addition, in 1992, the
United States approved the issuance of up to $10 billion of loan guarantees
during U.S. fiscal years 1993 to 1998 to help Israel absorb a large influx of
new immigrants primarily from the former Soviet Union. Under the loan guarantee
program, Israel may issue up to $2 billion in principal amount of guaranteed
loans each year, subject to reduction in certain circumstances. If the grants
for economic and military assistance or the U.S. loan guarantees are eliminated
or significantly reduced, the Israeli economy in general, and Export Erez USA in
particular, could be materially adversely affected.
LEGAL MATTERS
Legal Proceedings
Export Erez USA is not a party to any litigation and management has no
knowledge of any threatened or pending litigation against it. Export Erez Ltd.
is periodically is engaged in collection litigation for payment of delinquent
accounts in the ordinary course of business in amounts not deemed material.
Legal Opinion
Cassidy & Associates, Washington, D.C. has given its opinion as
attorneys-at-law that the shares registered pursuant to the terms of this
prospectus have been or will be fully paid and non-assessable. Cassidy &
Associates has passed on the validity of the securities being issued but
purchasers of the securities offered by this prospectus should not rely on
Cassidy & Associates with respect to any other matters.
James M. Cassidy, a principal of Cassidy & Associates, is an officer
and director and controlling shareholder of Pierce Mill Associates, Inc., a
selling securityholder, which owns 112,500 shares of the common stock of Export
Erez USA and a warrant to purchase 62,500 shares of common stock at an exercise
price of $1.00 per share.
EXPERTS
The financial statements in this prospectus have been included in
reliance upon the report of Weinberg & Company, P.A., Certified Public
Accountants, and upon the authority of that firm as expert in accounting
FINANCIAL STATEMENTS
The combined audited financial statements for the fiscal years ended
December 31, 1999 and December 31, 1998 and the unaudited financial statements
for the period ended June 30, 2000.
29
<PAGE>
EXPORT EREZ LTD. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
EXPORT EREZ, LTD AND SUBSIDIARY
TABLE OF CONTENTS
-----------------
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGES 2 - 3 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
PAGE 4 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(LOSS) FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
PAGE 5 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
PAGE 6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
PAGES 7 - 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,
1999 AND 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Export Erez Ltd. and Subsidiary
We have audited the accompanying consolidated balance sheets of Export Erez Ltd.
and Subsidiary as of December 31, 1999 and 1998 and the related consolidated
statements of income and comprehensive income (loss), changes in shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. 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 provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Export Erez Ltd. and
Subsidiary as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for the years then ended, in conformity with United States
generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 29, 2000
<PAGE>
EXPORT EREZ LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 681,291 $ 670,759
Investment in marketable securities 1,393,123 --
Trade accounts receivable, net 875,557 685,343
Trade accounts receivable - related parties, net 6,864 5,841
Other receivables and debit balances 100,654 78,822
Inventory 690,195 590,239
Deferred taxes 32,421 26,843
---------- ----------
TOTAL CURRENT ASSETS 3,780,105 2,057,847
---------- ----------
INVESTMENTS AND DEPOSITS
Investment in marketable securities 602,993 382,546
Deposits for the severance of employer-employee relations 252,442 223,715
---------- ----------
TOTAL INVESTMENTS AND DEPOSITS 855,435 606,261
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Cost, less accumulated depreciation of $384,341 in
1999 and $317,657 in 1998 394,703 435,275
---------- ----------
TOTAL ASSETS $5,030,243 $3,099,383
------------ ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
EXPORT EREZ LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Short-term bank credit $ 2,012,542 $ 482,531
Trade accounts payable 1,233,710 1,192,899
Other accounts payable and credit balances 204,605 478,363
----------- -----------
Total current liabilities 3,450,857 2,153,793
----------- -----------
LONG - TERM LIABILITIES
Deferred taxes 3,007 2,753
Provision for the severance of employer-employee relations 141,449 164,075
----------- -----------
Total liabilities 3,595,313 2,320,621
----------- -----------
CONTINGENT LIABILITIES AND COMMITMENTS
SHAREHOLDERS' EQUITY
Ordinary shares, $0.3078 par value, 12,010 shares authorized,
11,760 issued and outstanding 3,620 3,620
Additional paid-in capital 3,115 3,115
Retained earnings 1,443,392 849,317
Accumulated other comprehensive loss (15,197) (77,290)
----------- -----------
Total shareholders' equity 1,434,930 778,762
----------- -----------
Total liabilities and shareholders' equity 5,030,243 3,099,383
------------------------------------------ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
EXPORT EREZ, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES $ 4,490,898 $ 4,568,498
Cost of sales and processing 3,121,674 3,589,167
----------- -----------
Gross profit 1,369,224 979,331
----------- -----------
OPERATING EXPENSES
Selling expenses 244,775 191,243
General and administrative expenses 457,218 458,451
----------- -----------
TOTAL OPERATING EXPENSES 701,993 649,694
----------- -----------
INCOME FROM OPERATIONS 667,231 329,637
----------- -----------
OTHER INCOME
Financial income, net 88,934 25,703
Other income - net 925 4,314
----------- -----------
TOTAL OTHER INCOME 89,859 30,017
----------- -----------
INCOME BEFORE INCOME TAXES 757,090 359,654
Income tax expense 163,015 130,068
----------- -----------
NET INCOME $ 594,075 $ 229,586
----------- -----------
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain (loss) 927 (107,796)
Unrealized gain on available-for-sale securities 61,166 74,280
----------- -----------
Other comprehensive income before tax 62,093 (33,516)
Income tax (expense) benefit related to items of other comprehensive income (22,353) 12,066
----------- -----------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX 39,740 (21,450)
----------- -----------
COMPREHENSIVE INCOME $ 633,815 $ 208,136
=========== ===========
Net income per ordinary share - basic and diluted $ 50.52 $ 19.52
=========== ===========
Weighted average number of shares outstanding during the period - basic and diluted 11,760 11,760
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
EXPORT EREZ, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
Number Additional Retained Comprehensive
of Shares Amount Paid-In Capital Earnings Income (Loss) Total
----------- ----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 11,760 $ 3,620 $ 3,115 $ 619,731 $ (43,774) $ 582,692
Foreign currency translation loss -- -- -- -- (107,796) (107,796)
Unrealized gain on available for-sale
securities -- -- -- -- 74,280 74,280
Net income 1998 -- -- -- 229,586 -- 229,586
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 11,760 3,620 3,115 849,317 (77,290) 778,762
Foreign currency translation gain -- -- -- -- 927 927
Unrealized gain on available-sale-securities -- -- -- -- 61,166 61,166
Net income 1999 -- -- -- 594,075 -- 594,075
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 11,760 $ 3,620 $ 3,115 $ 1,443,392 $ (15,197) $ 1,434,930
-------------------------- =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net profit for the year $ 594,075 $ 229,586
Adjustments to reconcile net profit to net cash provided by operating activities:
Loss from investment in marketable securities 37,560 --
Depreciation and amortization 70,010 79,238
Decrease (increase) in provision for the severance of employer-employee relations (51,276) (54)
Deferred taxes (5,286) (26,388)
Loss (gain) from sale of fixed assets (925) (4,314)
Decrease (increase) in trade accounts receivable (190,164) (39,175)
Decrease in other receivables and debit balances (21,609) 114,965
Decrease (increase) in inventory (99,014) (111,128)
Increase (decrease) in trade accounts payable 38,839 221,446
Increase (decrease) in other accounts payable and credit balances (250,062) (150,336)
----------- -----------
Net cash provided by operating activities 122,148 313,840
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (28,796) (103,285)
Proceeds from sale of fixed assets 925 7,890
Deposits for the severance of employer - employee relations -- (26,300)
Investment in current marketable securities (1,543,577) --
Investment in marketable securities (243,551) (40,298)
Proceeds from sale of marketable securities 197,034 --
----------- -----------
Net cash used in investing activities (1,617,965) (161,993)
----------- -----------
Cash flows from financing activities:
Short-term bank credit, net 1,505,236 237,398
----------- -----------
Net cash provided by financing activities 1,505,236 237,398
----------- -----------
Effect of exchange rate changes on cash 1,113 (89,880)
----------- -----------
Net increase in cash and cash equivalents 10,532 299,365
Cash and cash equivalents at beginning of year 670,759 371,394
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 681,291 $ 670,759
---------------------------------------- =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Note 1 - Descriptions of Business
---------------------------------
Export Erez Ltd. ("the Company") was incorporated in Israel and
commenced operations in 1983 under the name R.T.V Ltd., which was
changed to Export Erez Ltd. in 1987.
The Company manufactures textile products designed mainly for the
defense industry, although in recent years it has penetrated additional
markets in Israel and overseas, in both military and civilian
industries.
The Company's wholly owned subsidiary Mayotex Ltd., was incorporated in
Israel in 1990. Mayotex is engaged in weaving fabric and tapes, which
it sells to the Company and to other customers. It also produces end
products for civilian market requiring fabric with special qualities
(high degrees of strength, waterproofing, etc.) Mayotex is producing
animal products as stripes, collars, etc.
Note 2 - Significant Accounting Policies
----------------------------------------
a. Basis of Presentation
The accompanying consolidated financial statements are presented in
United States dollars under United States Generally Accepted Accounting
Principles.
b. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary. All intercompany accounts and transactions
have been eliminated in consolidation.
c. Foreign Currency Translation and Transactions
The accompanying consolidated financial statements are presented in
United States dollars. The functional currency of Export Erez, Ltd. and
its subsidiary is the New Israeli Shekel (NIS). Financial statements
for these entities are translated into United States dollars at
year-end exchange rates as to assets and liabilities and weighted
average exchange rates as to revenues and expenses. Capital accounts
are translated at their historical exchange rates when the capital
transactions occurred.
Foreign currency transaction gains or losses from transactions
denominated in currencies other than NIS are recognized in net income
in the period the gain or loss occurs. During 1999 and 1998, gains of
$20,497 and $47,022, respectively are included in financial
income-interest on short term loans, net.
7
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
d. Comprehensive Income (Loss)
The Company accounts for Comprehensive Income (Loss) under the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement No.
130"). Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components, and is effective
for fiscal years beginning after December 15, 1997.
The foreign currency translation gains (losses) resulting from the
translation of the financial statements of Export Erez, Ltd. and its
subsidiary expressed in New Israeli Shekels (NIS) to United States
dollars are reported as Other Comprehensive Income (Loss) in the
Statement of Income and as Accumulated Other Comprehensive Income
(Loss) in the Statement of Shareholders' Equity.
The unrealized gains and losses, net of tax, resulting from the
valuation of available-for-sale securities at their fair market value
at year end are reported as Other Comprehensive Income (Loss) in the
Statement of Income and as Accumulated Other Comprehensive Income
(Loss) in the Statement of Shareholders' Equity.
Amounts reported in net income and other comprehensive income for the
years ended December 31, 1999 and 1998 are presented net of an assumed tax rate
of 36% as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income:
Loss on sales of securities $(37,559) $ --
Income tax benefit 13,521 --
-------- --------
$(24,038) $ --
Other comprehensive income:
Holding gain arising during period, net of tax $ 15,108 $ 47,539
Reclassification adjustment, net of tax 24,038 --
-------- --------
Net gain recognized in other comprehensive income $ 39,146 $ 47,539
======== ========
</TABLE>
e. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that effect the reported amounts of assets
and liabilities and disclose the nature of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
8
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
f. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
g. Investment in Marketable Securities
The Company's policy is to invest in various equity or debt
instruments. The Company accounts for such investments in accordance
with Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities." ("SFAS 115")
Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each
balance sheet date. Trading securities are carried at fair value, with
unrealized trading gains and losses included in earnings.
Available-for-sale securities are carried at fair value, with
unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. Investments classified as
held-to-maturity are carried at amortized cost. In determining realized
gains and losses, the cost of the securities sold is based on the
specific identification method.
h. Allowance for Doubtful Accounts
The allowance for doubtful accounts has been determined by specifically
identifying debts which collectability is uncertain.
i. Inventories
Inventories are valued at the lower of cost or market value using the
first-in first-out method for raw materials. The cost includes expenses
of freight-in transportation. The specific identification method is
used for finished goods since all orders are custom orders for
customers.
j. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful life of the assets.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"), assets are generally evaluated
on a market-by-market basis in making a determination as to whether
such assets are impaired. At each year-end, the Company reviews its
long-lived assets for impairment based on estimated future
nondiscounted cash flows attributed to the assets. In event such cash
flows are not expected to be sufficient to recover the recorded value
of the assets, the assets are written down to their estimated fair
values.
9
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
k. Revenue Recognition
Revenues from sales of products are recognized upon invoicing and
shipment to customers. The Company provides a warranty on goods ranging
from three to four years. The Company's policy is to establish a
reserve for warranty expenses. Based upon historical experience of no
warranty claims, the Company has not established a reserve at December
31, 1999 and 1998.
l. Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109.
"Accounting for Income Taxes" ("Statement No. 109"). Under Statement
No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
m. Earnings per Share
Basic earnings per share are computed based on the weighted average
number of Ordinary Shares outstanding during each year. Diluted
earnings per share are computed based on the weighted average number of
Ordinary Shares outstanding during each year including Ordinary Share
equivalents. There were no Ordinary Share equivalents outstanding at
December 31, 1999 and 1998. Accordingly, a reconciliation between basic
and diluted earnings per share is not presented.
Note 3 - Trade Accounts Receivable
----------------------------------
a. Third Parties
1999 1998
--------- ---------
Customers in Israel
Open accounts $ 631,601 $ 387,482
Post dated checks received from customers 101,908 70,980
Overseas customers 157,418 226,881
Less allowance for doubtful accounts (15,370) --
--------- ---------
$ 875,557 $ 685,343
========= =========
b. Related Parties
1999 1998
--------- ---------
Customers in Israel
Open accounts - related parties (See Note 18) $ 81,551 $ 80,404
Less allowance for doubtful accounts (74,687) (74,563)
--------- ---------
$ 6,864 $ 5,841
========= =========
10
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Trade accounts receivable - related parties are due from two companies (the
"affiliates") whereby the principal shareholder of the Company is a principal
shareholder of those affiliates. The receivable resulted from the sale of
products in the normal course of business. Certain amounts are in dispute and
the Company has initiated legal proceedings. Although the Company believes it
will prevail in the legal proceedings, full collection is doubtful. Therefore,
an allowance has been established.
Note 4 - Other Receivables and Debit Balances
---------------------------------------------
1999 1998
-------- --------
Government institutions $ 30,300 $ 51,323
Employees and institutions for wage 13,720 12,851
Advances to suppliers and service providers 52,524 7,098
Prepaid expenses 904 4,450
Lease deposit 3,206 3,100
-------- --------
$100,654 $ 78,822
======== ========
Note 5 - Investment in Marketable Securities
--------------------------------------------
a. The investments in marketable securities represent
participation certificates in mutual funds. GAAP in the United
States requires that an investment in equity securities not
classified as held-to-maturity or trading securities shall be
classified as available for sale and reported at fair value.
Unrealized holding gains and losses shall be reported in a
separate component of shareholders' equity as part of other
comprehensive income, until realized. The Company classifies
available for sale securities which it intends to hold more
than one year as non-current. A reconciliation of original
cost to fair market value for securities held at December 31
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Investment in marketable securities, at cost $1,860,670 $ 308,266
Unrealized gain 135,446 74,280
---------- ----------
Investment in marketable securities at fair value 1,996,116 382,546
Less current portion 1,393,123 --
---------- ----------
Non-current portion $ 602,993 $ 382,546
========== ==========
</TABLE>
Note 6 - Inventories
--------------------
Inventories at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials $ 397,823 $ 359,848
Work in progress 107,667 78,526
Finished goods 184,705 151,865
---------- ----------
$ 690,195 $ 590,239
========== ==========
</TABLE>
11
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Note 7 - Business Segments
--------------------------
During 1999 and 1998 the Company operated and managed its operations in one
business segment. Therefore, segment information has not been presented.
Note 8 - Fixed Assets
---------------------
Fixed assets consisted of the following at December 31:
Estimated Useful
1999 1998 Life
--------- --------- ----------------
Buildings $ 160,583 $ 160,316 15-25 Years
Motor Vehicles 191,132 193,831 5-7 Years
Office Equipment and Furniture 108,808 91,419 3-14 Years
Equipment 318,521 307,366 5 Years
--------- ---------
$ 779,044 $ 752,932
Less: Accumulated Depreciation 384,341 317,657
--------- ---------
$ 394,703 $ 435,275
========= =========
Note 9 - Short Term Bank Credit
-------------------------------
a. Comprised as follows:
Interest Rates 1999 1998
-------------- ---------- ----------
Overdraft 14%-18% $ 613,980 $ 381,565
Loans linked to CPI 12% 1,398,562 100,966
---------- ----------
$2,012,542 $ 482,531
========== ==========
The overhead credit is a revolving credit facility due on demand. The
loans linked to CPI consists of $1,226,013 due in full in January 2000
and $172,549 due in monthly principal and interest installments
totaling approximately $16,790 through December 2000. The $1,226,013
was fully paid off in January 2000.
b. With respect to liens - see Note 15.
12
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Note 10 - Trade Accounts Payable
--------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Open accounts $ 461,052 $ 462,466
Post-dated checks given to suppliers 772,658 730,433
---------- ----------
$1,233,710 $1,192,899
========== ==========
</TABLE>
Note 11 - Other Accounts Payable and Credit Balances
----------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Employees and institutions for wage $ 40,959 $ 62,588
Related parties (See Note 18) 381 4,871
Advances from customers -- 174,870
Accrued expenses 163,266 236,034
---------- ----------
$ 204,606 $ 478,363
========== ==========
</TABLE>
Note 12 - Deposits and Provisions for the Severance of Employer-Employee
Relations
--------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deposits for the severance of employer-employee relations $ 252,442 $ 223,715
Provision for the severance of employer-employee relations $ 141,449 $ 164,075
</TABLE>
Under the Israeli Severance Pay Law, the Company and its subsidiary are required
to make severance payments to terminated employees who have been employed at
least one year. The calculation is based on the employee's latest salary and the
period employed where the employee is entitled to one month of severance pay for
each year employed based on the last months salary. For certain employees,
including officers, the obligation for severance pay is discharged by payment of
premiums to insurance companies under approved plans.
Certain classes of the Company's employees are included in the comprehensive
defined contribution pension plan for industrial workers and the Company is
contributing to a pension fund in order to secure a pension for such employees.
The Company contributes 13% of the employee's salary each week to the pension
fund. Contributions charged to operations were approximately $28,000 and $25,000
in 1999 and 1998, respectively. Part of the Company's contributions relates to
the Company's liability for severance pay for the period commencing from the
date when the employee joined the program. The amount required to cover the
liability of the Company for severance pay to such employees prior to their
joining the program was deposited with a severance pay fund. For employees other
than those referred to above, the Company's liability is covered by regular
payments to severance pay funds.
13
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
The amounts maintained with insurance companies and the pension fund are not
under control of the Company and therefore are not reflected in the financial
statements. The deposits presented in the balance sheet include profits
accumulated to balance sheet date. The amounts deposited may be withdrawn only
after fulfillment of the obligations under the Severance Pay Law as discussed
above.
Note 13 - Taxes on Income
-------------------------
The Company is taxed in Israel at a flat rate of 36% and is subject to
the Israel Income Tax Law (Inflation Adjustment) of 1985. Under this
law, results of operations for income tax purposes are measured in real
terms in accordance with the changes in the Israeli Consumer Price
Index (CPI). The inflation adjustment is expressed as financing costs
or income and is applied as an adjustment to book income for purposes
of computing income taxes.
Income tax expense expressed in U.S. Dollars in 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current Israel $ 173,483 $ 139,746
Deferred (10,468) (9,678)
--------- ---------
$ 163,015 $ 130,068
========= =========
</TABLE>
The actual tax expense differs from the "expected" tax expense for the
year ended March 31, 2000 (computed by applying Israel flat tax rate of
36 percent to income before taxes) as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computed "expected" tax expense $ 272,553 $ 129,475
Non-tax deductible expenses 9,052 8,599
Inflationary adjustment (8,208) 310
Tax exempt revenues or taxable at different rate (110,382) (8,316)
--------- ---------
$ 163,015 $ 130,068
========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred taxes benefit - current - in respect of:
Allowance for doubtful accounts $ 32,421 $ 26,843
========= =========
Deferred taxes liability - non current - in respect of:
Depreciable fixed assets $ 3,007 $ 2,753
========= =========
</TABLE>
14
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Note 14 - Contingent Liabilities and Commitments
------------------------------------------------
Contracts
a. Under a lease agreement dated January 1, 1998 between the Company and a
principal shareholder in the Company, the Company leases an industrial
building located at Erez Industrial Zone. (See Note 18)
The lease is for a 12 months period and is renewable for an additional
period of 12 months at the end of each rent period. The annual rent
payments total approximately $85,500 based on the average exchange rate
for the latest period presented.
b. Under a lease agreement effective January 1, 1998 between the Company
and M.L. Investments Ltd. ("M.L."), the Company leases from M.L. an
industrial building located near the city of Netivot.
The lease is for a period of 2 years and is renewable up to an
additional 3 years. The annual rent payments total approximately
$12,632 based on the average exchange rate for the latest period
presented. The contract was extended to December 31, 2000 at the same
conditions.
c. Long Term Contracts
At March 16, 1999 the Company signed a limited partnership ("the
partnership") agreement, unlimited at time, with Orlight Industries
(1959) Ltd. ("O.I."). According to the agreement the partnership will
operate in the field of production and marketing of helmets, for
exporting purposes only. The partnership will not conduct any business
relations with any Israeli entity.
The Company will enable the partnership full production environment for
the production of helmets, including manpower, production area,
production lines maintenance, office, management and marketing
services, all of which will be charged by the Company at cost. O.I.
will grant the partnership the know-how and technical support, and will
bear the costs of designing a production line. All know-how that will
be granted by O.I. to the partnership is the exclusive property of O.I.
Each party has a first refusal option in providing the partnership
production services or any other services, at a price offered to the
partnership by a third party plus 10%. If the partnership wishes to
purchase goods from the Company, the Company is obliged to sell the
goods at cost plus 10%.
The Company is obliged not to operate at the partnership operational
field for a period of 3 years after the partnership ceases to operate.
As of December 1998 and 1999 there have been no investments in the
partnership.
15
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Note 15 - Liens
---------------
a. To secure its short term liabilities, the Company has registered
unlimited charges on its assets in favor of Bank Hapoalim, Ltd. and
Bank Leumi Ltd as detailed below:
1. Current liens on all assets, securities, notes and other trade
instruments which are deposited with Bank Hapoalim, Ltd, and
Bank Leumi Ltd. which consist of the following at December 31:
1999 1998
---------- ----------
Cash and cash equivalents $ 161,318 $ 163,578
Investments in marketable securities 92,002 479,267
---------- ----------
$ 253,320 $ 642,845
========== ==========
2. The amounts of credit secured with these liens are shown in
the following items (See Note 9) of the Company's balance
sheets:
1999 1998
---------- ----------
Short term credit $2,012,542 $ 482,531
========== ==========
b. To insure the liabilities of the Company to the Israeli Ministry of
Defense and Anidatex, Ltd. (a customer of the Company) the Company
provided $29,201 and $19,430, respectively (translated using the
average exchange rate for the latest period presented) in revolving
Bank guarantees.
Note 16 - Share Capital
-----------------------
a. At December 31, 1999 and 1998 the share capital of the Company is as
follows:
Number of Shares
-------------------------------------
Issued and
Outstanding Share Capital Outstanding Authorized
------------------------- --------------- ---------------
1999 $ 3,620 11,760 12,010
=============== =============== ===============
1998 $ 3,620 11,760 12,010
=============== =============== ===============
Note 17 - Financial Instruments
-------------------------------
a. Fair Value of Financial Instruments
The Company's financial instruments are principally non-derivative
assets and non-derivative liabilities (non-derivative assets include
cash and cash equivalents, deposits in banks and other financial
institutions, marketable securities, trade accounts receivable,
receivables and other debit balances; non-derivative liabilities
include short-term credit from banks and others, trade accounts
payable, and payables and other credit balances). Because of the nature
of these financial instruments, fair value generally equals or
approximates the amounts presented in the financial statements.
16
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
b. Interest Rate Risk
The interest rates of the loans are disclosed in Note 9 to the
financial statements.
c. Concentrations of Credit Risk
At December 31, 1999 and 1998, the Company held cash and cash
equivalents, in the total amount of $681,291 and $670,759 respectively
and most of these amounts were deposited with Israeli banks. Under
Israeli law, the Bank of Israel insures all bank deposits without
limits on the amount. Therefore, the Company does not anticipate losses
in respect to these items.
The majority of the Company's sales are made to Government institutions
and the private market in Israel. Consequently, the exposure to credit
risks relating to trade receivables is limited.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. An appropriate allowance for
doubtful accounts is included in the accounts.
Note 18 - Related Parties
-------------------------
a. Transactions with Related Parties
The Company has signed lease agreements with the principal shareholder
in the Company. (See Note 14a)
b. Income and Expenses from Transactions with Related Parties
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Expenses
Salaries and related expenses $ 69,005 $ 80,926
Lease and rent expenses 84,919 94,196
</TABLE>
c. Balances with Related Parties
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Trade accounts receivable, net $ 6,864 $ 5,841
Other accounts payable and credit balances 381 4,871
(See Note 3(b))
</TABLE>
17
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Note 19 - Supplementary Information to Statements of Operations Including
Concentrations
---------------------------------------------------------------
a. Sales:
1. Composed as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Local Israel sales $ 3,777,781 $ 4,190,433
Export sales 713,117 378,065
----------- -----------
Total sales $ 4,490,898 $ 4,568,498
=========== ===========
</TABLE>
2. Sales to Single Customers Exceeding 10% of Sales
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Customer A $ 2,073,623 $ 2,602,038
=========== ===========
</TABLE>
b. Cost of Sales and Processing:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Purchases of raw materials $ 2,106,825 $ 2,423,824
Salaries and related expenses 858,592 1,023,111
Maintenance 34,858 46,747
Lease and rent 146,998 131,527
Quality control 14,113 4,573
Shipment 8,327 13,875
Depreciation 36,808 42,839
Vehicles maintenance 14,166 13,799
Changes in inventory (99,013) (111,128)
----------- -----------
$ 3,121,674 $ 3,589,167
=========== ===========
</TABLE>
c. Selling Expenses:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Sales commissions and consulting fees $ 179,869 $ 85,307
Advertising and sales promotion 64,906 105,936
----------- -----------
$ 244,775 $ 191,243
=========== ===========
</TABLE>
18
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
d. General and Administrative Expenses:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Salaries and related expense $ 107,025 $ 120,291
Professional services 173,662 75,559
Office maintenance 38,169 30,685
Rent -- 4,907
Bank services 16,373 19,707
Insurance 11,580 11,251
Security 36,217 53,494
Vehicles maintenance 14,538 21,210
Depreciation and amortization 33,201 41,503
Doubtful debt expenses 15,378 67,393
Other 11,075 12,451
----------- -----------
$ 457,218 $ 458,451
=========== ===========
</TABLE>
e. Financial Income, Net:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Interest on short-term bank credit $ (78,085) $ (50,223)
Interest on short-term loan, net (45,944) (9,885)
Loss on sale of marketable securities, net (37,559) --
Dividend income from marketable securities 217,603 --
Interest income from short-term deposits and securities 32,919 85,811
----------- -----------
$ 88,934 $ 25,703
=========== ===========
</TABLE>
f. Other Income (Expenses):
Other income is gain (loss) from the sale of fixed assets.
Note 20 - Agreement
-------------------
In November 1998 the Company executed an agreement with a consultant whereby the
consultant will provide services with regard to assisting the Company to become
a public company in the United States. The fee to be paid by the Company is
$140,000 and a 5-year transferable warrant to acquire up to 250,000 registered
shares of the Company's common stock at an exercise price of $1.00 per share. As
of December 31, 1999 the Company paid $35,000.
Note 21 - Subsequent Events
---------------------------
In April 2000 the Company was acquired by Export Erez USA, Inc. ("Export USA"),
an inactive reporting shell, in exchange for 11,500,000 shares of Export USA.
Immediately subsequent to the closing the stockholders of Export Erez, Ltd.
become stockholders of approximately 95.83% of Export USA. This transaction is
treated as a recapitalization of the Company.
19
<PAGE>
EXPORT EREZ, LTD AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
Had the acquisition occurred on January 1, 1999 for balance sheet purposes and
December 1, 1999 for purposes of the statement of operations, only the equity
section of the balance sheet and earnings per share computation in the statement
of operations would have changed as follows:
Stockholder' Equity (Unaudited)
-------------------------------
<TABLE>
<CAPTION>
Pro-Forma
Historical Adjustments Pro-Forma
------------------------------- --------------------------
Export Erez Export Erez Export Erez
Ltd. USA, Inc. USA, Inc.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common stock $ 3,620 $ 50 (1) (2,470) $ 1,200
Additional paid-in capital 3,115 75 (1) 2,345 5,535
Retained earnings (deficit) 1,443,392 (125) (1) 125 1,443,392
Accumulated other comprehensive income (loss) (15,197) -- (15,197)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY $ 1,434,930 $ -- $ -- $ 1,434,930
=========== =========== =========== ===========
</TABLE>
Earnings Per Share (Unaudited)
------------------------------
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
----------------------------
Historical as Historical
Presented Restated Pro-Forma
------------- ----------- ---------
<S> <C> <C> <C>
Earnings per share - basic and diluted $ 50.52 $ 0.05 $ 0.05
Weighted average shares outstanding 11,760 11,500,000 12,000,000
</TABLE>
(1) The accompanying unaudited pro-forma financial statement information
shows the combined stockholders' equity of Export Erez, Ltd. and Export
Erez USA, Inc. giving effect to the recapitalization as of March 31,
2000.
(2) The earnings per share pro-forma financial information gives effect to
the recapitalization as if it occurred on January 1, 1999 (pro-forma)
and giving retroactive effect to the recapitalization of the original
Export Erez Ltd. stockholders only (historical restated).
20
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
-------------------
EXPORT EREZ USA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES 1 - 2 CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 (UNAUDITED)
AND DECEMBER 31, 1999
PAGE 3 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
PAGE 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
PAGES 5 - 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30,
2000
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
June 30, 2000
(Unaudited) December 31, 1999
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 649,106 $ 681,291
Investment in marketable securities -- 1,393,123
Trade accounts receivable, net 1,454,086 875,557
Trade accounts receivable - related parties, net 5,971 6,864
Other receivables and debit balances 5,839 97,448
Inventory 700,462 690,195
Deferred taxes 32,933 32,421
---------- ----------
Total current assets 2,848,397 3,776,899
---------- ----------
INVESTMENTS AND DEPOSITS
Investment in marketable securities 986,100 602,993
Deposits for the severance of employer-employee relations 266,677 252,442
---------- ----------
TOTAL INVESTMENTS AND DEPOSITS 1,252,777 855,435
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 417,905 397,909
---------- ----------
TOTAL ASSETS $4,519,079 $5,030,243
------------ ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, 2000
(Unaudited) December 31, 1999
------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term bank credit $ 990,493 $ 2,012,542
Trade accounts payable 905,526 1,233,710
Other accounts payable and credit balances 503,750 204,605
----------- -----------
TOTAL CURRENT LIABILITIES 2,399,769 3,450,857
----------- -----------
LONG - TERM LIABILITIES
Deferred taxes 2,140 3,007
Long-term loan 40,717 --
Provision for the severance of employer-employee relations 163,818 141,449
----------- -----------
TOTAL LONG-TERM LIABILITIES 206,675 144,456
----------- -----------
TOTAL LIABILITIES 2,606,444 3,595,313
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value, 20,000,000 shares
authorized, none issued and outstanding 9 9
Common stock, $0.0001 par value, 100,000,000 shares
authorized, 12,500,000 and 11,500,000 issued and
outstanding 1,250 1,150
Additional paid-in capital 159,385 5,585
Retained earnings 1,692,932 1,443,392
Accumulated other comprehensive income (loss) 59,068 (15,197)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,912,635 1,434,930
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,519,079 5,030,243
------------------------------------------ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
REVENUES $ 2,546,069 $ 2,564,754
Cost of sales and processing 1,576,637 1,609,042
------------ ------------
Gross profit 969,432 955,712
------------ ------------
OPERATING EXPENSES
Selling expenses 96,292 76,585
General and administrative expenses 339,107 247,270
------------ ------------
TOTAL OPERATING EXPENSES 435,399 323,855
------------ ------------
INCOME FROM OPERATIONS 534,033 631,857
------------ ------------
OTHER INCOME (LOSS)
Interest, dividends and gain (loss) on sale of securities income, net (62,238) (23,225)
Other income - net 2,289 942
------------ ------------
TOTAL OTHER INCOME (LOSS) (59,949) (22,283)
------------ ------------
INCOME BEFORE INCOME TAXES 474,084 609,574
Income tax expense (224,545) (232,106)
------------ ------------
NET INCOME $ 249,539 $ 377,468
---------- ------------ ------------
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain 20,038 5,468
Unrealized gain on available-for-sale securities 54,228 46,245
------------ ------------
Other comprehensive income before tax 74,266 51,713
Income tax (expense) benefit related to items of other comprehensive income (26,736) (18,617)
------------ ------------
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX 47,530 33,096
------------ ------------
COMPREHENSIVE INCOME $ 297,069 $ 410,564
-------------------- ============ ============
Net income per ordinary share - basic and diluted $ 0.02 $ 0.03
============ ============
Weighted average number of shares outstanding during the period - basic and diluted 11,796,703 11,500,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended June 30, 2000 Ended June 30, 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 249,539 $ 377,468
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Gain from investment in marketable securities (3,269) --
Stock based compensation 153,900 --
Depreciation and amortization 36,736 35,104
Decrease (increase) in provision for the severance of employer-
employee relations 9,901 (17,937)
Deferred taxes (915) 3,571
Loss (gain) from sale of fixed assets (2,289) (942)
Decrease (increase) in trade accounts receivable (564,386) (123,080)
Decrease in other receivables and debit balances 93,263 (21,346)
Decrease (increase) in inventory 640 62,712
Increase (decrease) in trade accounts payable (348,104) (268,368)
Increase (decrease) in other accounts payable and credit
balances 296,276 150,678
----------- -----------
Net cash provided (used) by operating activities (78,708) 197,860
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (53,880) (10,317)
Proceeds from sale of fixed assets 2,446 942
Investment in marketable securities (318,626) (235,652)
Proceeds from sale of marketable securities 1,420,141 --
----------- -----------
Net cash provided (used) in investing activities 1,050,081 (245,027)
----------- -----------
Cash flows from financing activities:
Short-term bank credit, net (1,117,165) (263,189)
Long-term bank credit, net 102,789 --
----------- -----------
Net cash used in financing activities (1,014,376) (263,189)
----------- -----------
Effect of exchange rate changes on cash 10,818 11,370
----------- -----------
Net decrease in cash and cash equivalents (32,185) (298,986)
Cash and cash equivalents at beginning of period 681,291 670,759
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 649,106 $ 371,773
------------------------------------------ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
-------------------
NOTE 1 BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission
for interim financial information. Accordingly, they do not include all
the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations.
It is management's opinion that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a
fair financial statement presentation. The results for the interim
period are not necessarily indicative of the results to be expected for
the year.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's Form SB-2 for the year ended
December 31, 1999.
NOTE 2 INVENTORY
------ ---------
Inventory at June 30, 2000 consisted of the following:
Raw materials $ 514,331
Work in process 75,346
Finished goods 110,785
-----------
$ 700,462
===========
NOTE 3 LONG-TERM LOAN
------ --------------
On February 1, 2000, the Company borrowed $122,150 at an interest rate
of 10.8%. The terms are 24 monthly payments commencing March 1, 2000
with each payment consisting of a fixed amount of principal along with
accrued interest. As of June 30, 2000, the balance of the loan was
$102,663 of which $61,946 is included in short-term bank credit and
$40,717 is included in long-term loan.
NOTE 4 RECAPITALIZATION
------ ----------------
On April 21, 2000, the Company consummated an Agreement and Plan of
Reorganization (the "Agreement") with Export Erez Ltd., a Company
incorporated in Israel, ("Export Ltd.") whereby all of the shareholders
in Export Ltd. had their shares converted into 11,500,000 shares or
approximately 96% of the common stock of the Company.
5
<PAGE>
EXPORT EREZ USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
-------------------
Under Generally Accepted Accounting Principles, a company whose
stockholders receive over fifty percent of the stock of the surviving
entity in a business combination is considered the acquirer for
accounting purposes. Accordingly, the transaction was accounted for as
an acquisition of the Company and recapitalization of the Export Ltd.
The financial statements subsequent to the acquisition includes the
following: (1) the balance sheet consists of the net assets of the
Company at historical costs (zero at the acquisition date) and the net
assets of Export Ltd. at historical cost. (2) the statement of
operations consists of the operations of the Export Ltd. for the period
presented and the operations of the Company from the recapitalization
date.
As a result of the recapitalization, $2,420 was reclassified from
common stock to additional paid-in capital in the accompanying June 30,
2000 balance sheet. For comparative purposes, $2,470 was reclassified
from common stock to additional paid-in capital in the accompanying
December 31, 1999 balance sheet in order to conform to the June 30,
2000 presentation.
NOTE 5 STOCKHOLDERS' EQUITY
------ --------------------
On May 25, 2000 the Company issued 500,000 common shares to 60
employees, consultants and service providers for past services
rendered. For financial accounting purposes the shares were valued at
the selling security holders offering price of $.3078 per share as
indicated in the Company's Form SB-2, as amended. Accordingly the
Company recognized an expense of $ 153,900 which is included in general
and administrative expenses.
NOTE 6 SEGMENTS
------ --------
JUNE 30,
--------------------------
2000 1999
---------- ----------
Sales - Israel $1,994,892 $2,187,682
Sales - Non-Israel 551,177 377,072
---------- ----------
$2,546,069 $2,564,754
========== ==========
6
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations may not
be relied on as having been authorized by Export Erez USA or by any of the
underwriters. 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 affairs of Export Erez USA since the date of this
prospectus. This prospectus does not constitute an offer to sell, or
solicitation of any offer to buy, by any person in any jurisdiction in which it
is unlawful for any such person to make such offer or solicitation. Neither the
delivery of this prospectus nor any offer, solicitation or sale made hereunder,
shall under any circumstances create any implication that the information herein
is correct as of any time subsequent to the date of the prospectus.
------------------------
TABLE OF CONTENTS
Page
Prospectus Summary..............................................................
Risk Factors....................................................................
Available Information ..........................................................
Export Erez USA.................................................................
Business........................................................................
Dividend Policy.................................................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................................................
Management......................................................................
Security Ownership of Certain Beneficial
Owners and Management ...............................................
Selling Securityholders.........................................................
Plan of Distribution............................................................
Description of Securities.......................................................
Conditions in Israel ...........................................................
Legal Matters...................................................................
Experts.........................................................................
Financial Statements............................................................
Until ________ all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligations to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
EXPORT EREZ USA, INC.
1,000,000 shares of common stock to be sold by the
holders, and
250,000 shares of common stock underlying
warrants, to be sold by the holders
----------
PROSPECTUS
----------
October ____, 2000
======================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Export Erez USA is incorporated in Delaware. Under Section 145 of the
General Corporation Law of the State of Delaware, a Delaware corporation has the
power, under specified circumstances, to indemnify its directors, officers,
employees and agents in connection with actions, suits or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees or agents,
against expenses incurred in any action, suit or proceeding. The Certificate of
Incorporation and the By-Laws of Export Erez USA provide for indemnification of
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware.
The General Corporation Law of the State of Delaware provides that a
certificate of incorporation may contain a provision eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director:
For any breach of the director's duty of loyalty to the corporation or
its stockholders;
For acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
Under Section 174 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital
stock) of the General Corporation Law of the State of
Delaware; or
For any transaction from which the director derived an improper
personal benefit.
Export Erez USA's Certificate of Incorporation contains such a provision.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling Export Erez USA pursuant to the foregoing provisions, it is the
opinion of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission.
Filing Fee - Securities and Exchange Commission $ 108
Fees and Expenses of Accountants 40,000
Fees and Expenses of legal counsel 100,000
Blue Sky Fees and Expenses 3,500
Printing and Engraving Expenses 10,000
Miscellaneous Expenses 3,700
Total $157,308
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In exchange for services rendered to Export Erez USA, pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as transactions by an
issuer not involving any public offering, on May 20, 1999, Export Erez USA
issued 112,500 shares of its common stock to Pierce Mill Associates, Inc.,
112,500 shares of its common stock to James McKillop, 225,000 shares of its
common stock to Jovanda Ltd., and 25,000 shares of its common stock to each of
Joseph Berzak and Joseph Zeewi.
II-1
<PAGE>
In exchange for services rendered to Export Erez USA, pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as transactions by an
issuer not involving any public offering, on May 20, 1999, Export Erez USA
issued warrants for the purchase of: 62,500 shares of its common stock to Pierce
Mill Associates, Inc., 62,500 shares of its common stock to James McKillop, and
125,000 shares of its common stock to Jovanda Ltd., all at an exercise price of
$1.00 per share for an exercise term of 5 years from the date of issue.
Pursuant to the exchange with Export Erez Ltd., on March 31, 2000
Export Erez USA issued 11,490,212 shares to Joseph Postbinder and 9,788 shares
of its common stock to Meira Postbinder pursuant to Section 4(2) of the
Securities Act of 1933, as amended, as transactions by an issuer not involving
any public offering.
On May 25, 2000, Export Erez USA issued an aggregate of 500,000 shares
of its common stock to 60 employees, consultants and service providers none of
whom were United States residents and the offering of such securities occurred
outside the United States.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2.1 Agreement and Plan of Reorganization between Export Erez Ltd. and
Export Erez USA
3.1** Certificate of Incorporation of Export Erez USA, Inc., as amended
3.2** By-Laws of Export Erez USA, Inc.
4.1** Form of common stock certificate
4.2* Form of warrant
5.1* Opinion of Cassidy & Associates
10.1 Lease for executive office space with Joseph Postbinder
10.2 Limited partnership agreement with Orlite Ltd.
10.3 Service agreement with TPG Capital Corporation
21.1** Subsidiaries of Export Erez USA, Inc.
24.1 Consent of Weinberg & Company, certified public accountants
24.3* Consent of Cassidy & Associates (included in Exhibit 5)
27.1* Financial Data Schedule
-----
* To be filed by Amendment.
** Previously filed.
(b) The following financial statement schedules are included in this
Registration Statement.
None
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
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(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment to the registration statement) which, individually or
in the aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 is that 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.
(c) The undersigned registrant hereby undertakes that:
(i) 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)(1) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose 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.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and has duly caused
this amendment to its Registration Statement on Form SB-2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Israel on the 4th
day of October 2000.
EXPORT EREZ USA, INC.
By: /s/ Joseph Postbinder
-------------------------------
President
By: /s/ Meira Postbinder
-------------------------------
Vice President of Financing
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph Postbinder Chairman, President October 4, 2000
-------------------------- and a Director
/s/ Meira Postbinder Vice President of Financing October 4, 2000
-------------------------- and a Director
/s/ Shlomo M. Lev-Yehudi Director October 4, 2000
--------------------------
/s/ Tsippy Moldovan Director October 4, 2000
--------------------------
/s/ Dan Zarchin Director October 4, 2000
--------------------------
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EXHIBIT INDEX
Exhibit Description
------- -----------
2.1 Agreement and Plan of Reorganization between Export Erez Ltd. and
Export Erez USA
3.1** Certificate of Incorporation of Export Erez USA, Inc., as amended
3.2** By-Laws of Export Erez USA, Inc.
4.1** Form of common stock certificate
4.2* Form of warrant
5.1* Opinion of Cassidy & Associates
10.1 Lease for executive office space with Joseph Postbinder
10.2 Limited partnership agreement with Orlite Ltd.
10.3 Service agreement with TPG Capital Corporation
21.1** Subsidiaries of Export Erez USA, Inc.
24.1 Consent of Weinberg & Company, certified public accountants
24.3* Consent of Cassidy & Associates (included in Exhibit 5)
27.1* Financial Data Schedule
-----
* To be filed by Amendment.
** Previously filed.
