UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2008
Commission file number: 0-30394
METALINK LTD.
(Translation of registrant's name into English)
YAKUM BUSINESS PARK, YAKUM 60972, ISRAEL
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): [_]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): [_]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ____________
The information contained in this Report on Form 6-K is hereby incorporated by
reference into the registrant's Registration Statements on Form F-3 File Nos.
333-145431, 333-104147 and 333-13806 and on Form S-8, File Nos. 333-121901,
333-12064, 333-88172, 333-112755 and 333-149657.
The following are included in this Report on Form 6-K:
1. Interim Unaudited Consolidated Financial Statements of Metalink Ltd. as of
June 30, 2008 and Management's Discussion and Analysis of Financial
Condition and Results of Operations for the six months ended June 30, 2008.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METALINK LTD.
Date: September 29, 2008 By: /s/ Yuval Ruhama
--------------------
Yuval Ruhama
Chief Financial Officer
|
METALINK LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
METALINK LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 F-2
Consolidated Statements of Operations for the periods ended June 30, 2008, and 2007 F-3
Statements of Shareholders' Equity and Comprehensive Loss for the period ended June 30, 2008, and
the year ended December 31, 2007 F-4
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2008, and 2007 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-11
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METALINK LTD.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2008 2007
------------- ----------------
(UNAUDITED)
-------------
(IN THOUSANDS EXCEPT SHARE DATA)
--------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,799 $ 7,291
Short-term investments 5,966 17,233
Trade accounts receivable 1,261 677
Other receivables 1,030 2,284
Prepaid expenses 456 456
Inventories 2,611 1,765
------------- ----------------
Total current assets 14,123 29,706
------------- ----------------
LONG-TERM INVESTMENTS 756 2,200
------------- ----------------
SEVERANCE PAY FUND 2,085 2,534
------------- ----------------
PROPERTY AND EQUIPMENT, NET 4,245 4,182
------------- ----------------
$ 21,209 $ 38,622
============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,089 $ 1,564
Other payables and accrued expenses 4,214 4,979
------------- ----------------
Total current liabilities 5,303 6,543
------------- ----------------
ACCRUED SEVERANCE PAY 3,185 3,748
------------- ----------------
SHAREHOLDERS' EQUITY
Ordinary shares of NIS 0.1 par value (Authorized - 50,000,000 shares,
issued and outstanding 24,389,232 and 24,377,232 shares as of June 30, 2008
and December 31, 2007, respectively) 701 701
Additional paid-in capital 155,627 154,703
Accumulated other comprehensive income (loss) (56) 48
Accumulated deficit (133,666) (117,236)
------------- ----------------
22,606 38,216
------------- ----------------
Treasury stock, at cost; 898,500 as of June 30, 2008 and December 31, 2007 (9,885) (9,885)
------------- ----------------
Total shareholders' equity 12,721 28,331
------------- ----------------
Total liabilities and shareholders' equity $ 21,209 $ 38,622
============= ================
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F-2
METALINK LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
------------------------------ ------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenues $ 2,673 $ 2,539 $ 3,333 $ 4,885
Cost of revenues:
Costs and expenses 900 1,312 1,404 2,406
Royalties to the Government of Israel 82 68 105 140
------------- ------------- ------------- -------------
Total cost of revenues 982 1,380 1,509 2,546
============= ============= ============= =============
GROSS PROFIT 1,691 1,159 1,824 2,339
------------- ------------- ------------- -------------
Operating expenses:
Gross research and development 6,563 5,542 15,055 10,722
Less - Royalty bearing and other grants 138 506 936 1,090
------------- ------------- ------------- -------------
Research and development, net 6,425 5,036 14,119 9,632
------------- ------------- ------------- -------------
Selling and marketing 1,353 1,391 3,110 2,707
General and administrative 735 614 1,443 1,145
------------- ------------- ------------- -------------
Total operating expenses 8,513 7,041 18,672 13,484
============= ============= ============= =============
OPERATING LOSS (6,822) (5,882) (16,848) (11,145)
Financial income, net 177 256 418 570
------------- ------------- ------------- -------------
NET LOSS $ (6,645) $ (5,626) $ (16,430) $ (10,575)
============= ============= ============= =============
Loss per ordinary share:
Basic $ (0.28) $ (0.28) $ (0.70) $ (0.53)
============= ============= ============= =============
Diluted $ (0.28) $ (0.28) $ (0.70) $ (0.53)
============= ============= ============= =============
Shares used in computing loss per ordinary share:
Basic 23,490,643 19,916,856 23,498,760 19,864,665
============= ============= ============= =============
Diluted 23,490,643 19,916,856 23,498,760 19,864,665
============= ============= ============= =============
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F-3
METALINK LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE DATA)
NUMBER OF NUMBER OF ADDITIONAL DEFERRED
OUTSTANDING TREASURY SHARE PAID-IN STOCK-BASED
SHARES SHARES CAPITAL CAPITAL COMPENSATION
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2006 20,653,826 898,500 $ 614 $ 133,119 $ -
Changes during 2007:
Exercise of employee options 523,406 - 13 2,156 -
Employee stock-based compensation - - - 1,494 -
Issuance of shares 3,200,000 - 74 17,934 -
Other comprehensive income:
Unrealized gain on marketable securities - - - - -
Change in fair market value of derivatives hedging - - - - -
Loss for the year - - - - -
------------ ------------ ------------ ------------ ------------
Total comprehensive loss
BALANCE AT DECEMBER 31, 2007 24,377,232 898,500 $ 701 $ 154,703 $ -
============ ============ ============ ============ ============
Changes during 2008:
Exercise of employee options 12,000 - - 2 -
Employee stock-based compensation - - - 924 -
Expenses related to issuance of shares - - - (2) -
Other comprehensive income:
Unrealized loss on marketable securities - - - - -
Change in fair market value of derivatives hedging - - - - -
Loss for the period - - - - -
------------ ------------ ------------ ------------ ------------
Total comprehensive loss
BALANCE AT JUNE 30, 2008 24,389,232 898,500 $ 701 $ 155,627 $ -
============ ============ ============ ============ ============
ACCUMULATED
TREASURY OTHER TOTAL
STOCK COMPREHENSIVE ACCUMULATED COMPREHENSIVE
(AT COST) INCOME (LOSS) DEFICIT INCOME (LOSS) TOTAL
------------ ------------- ------------ ------------- ------------
BALANCE AT DECEMBER 31, 2006 $ (9,885) $ (52) $ (92,913) $ - $ 30,883
Changes during 2007:
Exercise of employee options - - - - 2,169
Employee stock-based compensation - - - - 1,494
Issuance of shares - - - - 18,008
Other comprehensive income:
Unrealized gain on marketable securities - 57 - 57 57
Change in fair market value of derivatives hedging - 43 - 43 43
Loss for the year - - (24,323) (24,323) (24,323)
------------ ------------- ------------ ------------- ------------
Total comprehensive loss $ (24,223)
=============
BALANCE AT DECEMBER 31, 2007 $ (9,885) $ 48 $ (117,236) $ 28,331
============ ============= ============ ============
Changes during 2008:
Exercise of employee options - - - - 2
Employee stock-based compensation - - - - 924
Expenses related to issuance of shares - - - - (2)
Other comprehensive income:
Unrealized loss on marketable securities - (61) - (61) (61)
Change in fair market value of derivatives hedging - (43) - (43) (43)
Loss for the period - - (16,430) (16,430) (16,430)
------------ ------------- ------------ ------------- ------------
Total comprehensive loss $ (16,534)
=============
BALANCE AT JUNE 30, 2008 $ (9,885) $ (56) $ (133,666) $ 12,721
============ ============= ============ ============
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F-4
METALINK LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
SIX-MONTH
PERIOD
ENDED JUNE 30
----------------------
2008 2007
--------- ----------
(UNAUDITED)
----------------------
(IN THOUSANDS)
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (16,430) (10,575)
Adjustments to reconcile net loss to net cash used in operating
activities (Appendix) 126 1,087
--------- ----------
NET CASH USED IN OPERATING ACTIVITIES (16,304) (9,488)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable debt securities and certificates of deposits - (13,235)
Proceeds from maturity and sales of marketable debt securities and
certificates of deposits 12,591 21,578
Purchase of property and equipment (779) (571)
--------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 11,812 7,772
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares and exercise of options, net - 858
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 858
========= ==========
Decrease in cash and cash equivalents (4,492) (858)
Cash and cash equivalents at beginning of year 7,291 4,775
--------- ----------
Cash and cash equivalents at end of the period 2,799 3,917
========= ==========
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F-5
METALINK LTD.
APPENDIX TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
SIX-MONTH
PERIOD
ENDED JUNE 30
------------------------
2008 2007
---------- ----------
(UNAUDITED)
------------------------
(IN THOUSANDS)
------------------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization $ 718 $ 660
Amortization of marketable debt securities and deposit
premium and accretion of discount (35) 34
Increase (decrease) in accrued severance pay, net (114) 63
Stock-based compensation 924 640
Capital loss (gain) (19) 40
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in assets:
Trade accounts receivable (584) (73)
Other receivables and prepaid expenses 1,322 (1,174)
Inventories (846) 1,335
Increase (decrease) in liabilities:
Trade accounts payable (475) (565)
Other payables and accrued expenses (765) 127
---------- ----------
$ 126 $ 1,087
========== ==========
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F-6
METALINK LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1 - GENERAL
Metalink Ltd. (the "Company"), an Israeli fabless semiconductor
Company, is engaged in the research and development of high-throughput
wireless local area network chipsets, develops and markets high
performance broadband access chip sets used by telecommunications and
networking equipment manufacturers. Company's broadband silicon
solutions enable very high speed streaming video, voice and data
transmission and delivery throughout worldwide communication networks.
The Company operates in one business segment. The Company generates
revenues from the sale of its products mainly in Asia, Europe and North
America.
NOTE 2 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENT PREPARATION
The accompanying unaudited condensed consolidated financial statements
of Metalink Ltd. and its subsidiaries (collectively referred to in this
report as the "Company"), of which these notes are a part, have been
prepared in accordance with generally accepted accounting principles in
the United States for interim financial information. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles in the United States for
complete financial statements. In the opinion of our management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation of the financial information as of
and for the periods presented have been included.
The results for the interim periods presented are not necessarily
indicative of the results that may be expected for any future period.
The unaudited condensed interim consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and notes for the year ended December 31, 2007 included in
our Annual Report on Form 20-F.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
A. The significant accounting policies followed in the preparation
of these interim financial statements are identical to those
applied in the preparation of the latest annual financial
statements.
B. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
C. Recently Issued Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of
Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162
identifies the sources of accounting principles and the framework
for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with
generally accepted accounting principles in the United States.
This Statement is effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles". We do not expect that
the adoption of SFAS No. 162 to have a material impact on our
consolidated financial statements.
F-7
METALINK LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
C. Recently Issued Accounting Pronouncements (Cont.)
In June 2008, the FASB Emerging Items Task Force reached a
consensus on EITF Issue No. 07-5, "Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity's Own
Stock. The Consensus was reached on the following three issues:
1. How an entity should evaluate whether an instrument
(or embedded feature) is indexed to its own stock.
2. How the currency in which the strike price of an
equity-linked financial instrument (or embedded
equity-linked feature) is denominated affects the
determination of whether the instrument is indexed to
an entity's own stock.
3. How an issuer should account for market-based
employee stock option valuation instruments.
This consensus will affect entities with (1) options or warrants
on their own shares (not within the scope of Statement 150),
including market-based employee stock option valuation
instruments;3 (2) forward contracts on their own shares,
including forward contracts entered into as part of an
accelerated share repurchase program; and (3) convertible debt
instruments and convertible preferred stock. Also affected are
entities that issue equity-linked financial instruments (or
financial instruments that contain embedded equity-linked
features) with a strike price that is denominated in a foreign
currency.
The consensus is effective for fiscal years (and interim periods)
beginning after December 15, 2008. The consensus must be applied
to outstanding instruments as of the beginning of the fiscal year
in which the Issue is adopted as a cumulative-effect adjustment
to the opening balance of retained earnings for that fiscal year.
Early application is not permitted. We do not expect that the
adoption of EITF 07-5 to have a material impact on our
consolidated financial statements.
F-8
METALINK LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 4 - STOCK-BASED COMPENSATION
A. In January 2006, the Company adopted SFAS No. 123(R),
"Share-Based Payment" ("SFAS No. 123(R)"). As a result of the
adoption of SFAS No. 123(R), the Company's net loss for the
six-month periods ended June 30, 2008 and 2007 includes $924 and
$640 of compensation expenses related to the Company's
share-based compensation awards, respectively. Until the initial
adoption of SFAS No. 123(R) the Company accounted for employees
and directors stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and in accordance with FASB
Interpretation No. 44 ("FIN 44").
For purposes of estimating fair value in accordance with SFAS No.
123(R) in the six-month periods ended June 30, 2008 and 2007, the
Company utilized the Black-Scholes option-pricing model. The
following assumptions were utilized in such calculations (all in
weighted averages):
SIX MONTH PERIOD ENDED JUNE 30,
2008 2007
------------- ---------
UNAUDITED
Risk-free interest rate 2.25% 4.56%
Expected life (in years) 2.51 2.74
Expected volatility 38% 37%
Expected dividend yield none none
|
Upon adoption of SFAS No. 123(R) the Company started to utilize
the simplified method, prescribed in Staff Accounting Bulletin
("SAB") 107 of the U.S. Securities and Exchange Commission (SEC),
to determine the expected life used in fair valuation of newly
granted awards. The calculation of awards' fair value prior to
the adoption of FASB 123R was not changed.
F-9
METALINK LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 4 - STOCK-BASED COMPENSATION (CONT.)
B. A summary of the status of the Company's stock option plans
including Restricted Stock Units (RSU's) for employees and
directors as of June 30, 2008, 2007 and changes during the
periods then ended are as follows:
JUNE 30, 2008 JUNE 30, 2007
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ---------- ---------- ---------
Options outstanding at
beginning of year 4,533,398 $ 6.41 3,761,629 $ 4.46
Granted during six months period 1,833,082 2.57 550,500 6.67
Forfeited during six months period (873,634) 5.67 (241,991) 5.27
Exercised during six months period (12,000) 0.17 (194,213) 4.43
---------- ----------
Outstanding at end of six months period 5,480,846 5.26 3,875,925 6.13
========== ==========
Options exercisable at end
of six months period 2,423,985 6.61 2,120,501 6.64
========== ==========
Weighted average fair
value of options granted
during six months period $ 0.62 $ 1.94
========== ==========
|
The following table summarizes information relating to stock
options outstanding as of June 30, 2008:
OPTIONS & RSU'S OUTSTANDING OPTIONS & RSU'S EXERCISABLE
--------------------------------------------- ---------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
JUNE 30, CONTRACTUAL EXERCISE JUNE 30, EXERCISE
EXERCISE PRICE 2008 LIFE (IN YEARS) PRICE 2008 PRICE
-------------- -------------- --------------- -------- -------------- --------
$ 0.00 - 2.66 1,442,064 4.92 $ 1.82 320,044 $ 1.38
$ 2.76 - 3.28 41,700 3.62 3.05 41,700 3.05
$ 3.39 - 4.00 450,290 3.09 3.83 113,148 3.92
$ 4.04 - 5.00 1,141,716 2.49 4.68 854,183 4.66
$ 5.04 - 7.00 1,316,200 3.18 6.12 359,534 6.11
$ 7.01 - 8.95 649,242 2.49 7.46 295,742 7.64
$ 9.00 - 22.06 439,634 2.23 13.87 439,634 13.87
-------------- --------------
5,480,846 3.33 5.26 2,423,985 6.41
============== ==============
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F-10
METALINK LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 4 - STOCK-BASED COMPENSATION (CONT.)
C. Options issued to consultants
In April 2000, the Company adopted the "Share Option Plan - 2000"
to provide for the grant of options to members of the advisory
board of the Company and independent contractors. The options are
exercisable over up to ten years. As of June 30, 2008, 253,000
options have been granted under this plan to certain sales
representatives and advisors of the Company at an exercise price
of $1.83 - $22.06 per share. The Company accounted for these
options under the fair value method of FAS No. 123 and EITF
96-18. The fair value was determined using the Black-Scholes
pricing model with the following assumptions: risk-free interest
rate of 1.95%-6.50%; volatility rate of 37%- 109%; dividend
yields of 0% and an expected life of one to ten years.
NOTE 5 - SUBSEQUENT EVENTS
Subsequent to the balance sheet date, on September 9, 2008 the
Company has entered into a short term secured loan agreement with
an institutional investor.
According to the loan agreement, the lender agreed to extend to
the company a loan of $3.5 million at the first stage ("First
Loan") and, at the request of the Company, an additional loan of
up to $4.5 million ("Second Loan"). The key terms of the loan
agreement are as follows:
o The outstanding principal amount (including of the
Second Loan, if any) is due and payable in one
payment 12 months after the first closing;
o The outstanding principal amount will accrue interest
at an annual rate of 10% payable, in cash or ordinary
shares, at the Company's election, on a quarterly
basis;
o The loan may be prepaid by the Company at any time
and is subject to a mandatory prepayment upon a
change of control; and
o The loan is secured by a first priority fixed charge
on all of the Company's intellectual property and a
first priority floating charge on all of its other
assets.
The transaction documents contain customary representations,
warranties and covenants, including various limitations on, among
other things, the Company's ability to incur additional debt or
sell the collateral, without the consent of the lender.
In addition, in consideration for the First Loan, the Company
issued to the lender five-year warrants to purchase up to a total
of 2,000,000 ordinary shares at exercise prices per share of
$0.01 (for 1,000,000 warrants) and $0.50 (for the balance),
subject to adjustments. In consideration for the Second Loan, if
any, the Company undertook to issue to the lender five-year
warrants to purchase up to a total of 2,200,000 ordinary shares
at exercise prices per share of $0.01 (for 1,870,000 warrants)
and $0.50 (for the balance), subject to adjustments.
The First Loan was received on September 10, 2008.
F-11
SIX MONTHS ENDED JUNE 30, 2008 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2007
REVENUES. Total revenues decreased 31.8% to $3.3 million in the first six
months of 2008 from $4.9 million in the first six months of 2007. The decrease
in our revenues in the first six months of 2008 compared to the first six months
of 2007 is a result of a decline in demand for both our SHDSL and VDSL products.
COST OF REVENUES. Our cost of revenues decreased by 40.7% to $1.5 million
in the first six months of 2008 from $2.5 million in the first six months of
2007 as a result of the revenue decrease. Cost of revenues, as a percentage of
revenues, decreased in the first six month of 2008 to 45.3% from 52.1% in the
first six month of 2007.
GROSS RESEARCH AND DEVELOPMENT. Gross research and development expenses
increased by 40.41% to $15.1 million in the first six months of 2008 from $10.7
million in the first six months of 2007. Said increase is attributed mainly to
enhancement of our Wireless LAN products research and development efforts,
primarily attributable to personal and related expenses and to subcontractors
related expenses.
RESEARCH AND DEVELOPMENT, NET. Grants from the Office of the Chief
Scientist, totaling $0.9 million in the first six months of 2008 compared with
grants from the Office of the Chief Scientist of $1.1 million in the first six
months of 2007, are applied as reductions to gross research and development
expenses. Research and development expenses, net, increased by 46.6% to $14.1
million in the first six months of 2008 from $9.6 million in the first six
months of 2007.
SELLING AND MARKETING. Selling and marketing expenses increased by 14.9% to
$3.1 million in the first six months of 2008 from $2.7 million in the first six
months of 2007. This increase is primarily attributable to an increase in
personnel and related expenses and travel expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 26.0% to $1.4 million in the first six months of 2008 from $1.1 million in
the first six months of 2007. This increase is primarily attributable to
personal and related expenses and to professional expenses.
Stock-based Compensation. Stock-based compensation expenses increased by
44.4% to $924 thousand in the first six months of 2008 from $640 thousand in the
first six months of 2007. The increase is attributable to an increase in option
grants to employees .Stock-based compensation expenses as a percentage of
revenues in the first six months of 2008 were 27.72% compared to 13.1% in the
first six months of 2007.
OPERATING LOSS. Based on the foregoing, we recorded an operating loss of
$16.8 million in the first six month of 2008 compared to $11.1 million in the
first six month of 2007.
FINANCIAL INCOME, NET. Financial income, net were $418 thousand in the
first six months of 2008, compared to $570 thousand in the first six months of
2007.
Liquidity and Capital Resources
As of June 30, 2008, we had cash and cash equivalents of $2.8 million,
short-term investments of $6.0 million and long-term investments of $0.8
million. Our long-term investments of $0.8 million were held in auction rate
securities which are pledged to secure a credit line of $0.4 million. Recently,
as part of the ongoing credit and financial market crisis, our auction-rate
securities have failed to receive sufficient order interest from potential
investors to clear successfully, resulting in auction failures. The result of a
failed auction is that the liquidity for holders is limited until there is a
successful auction or until such time as another market for the auction-rate
securities develops.
As of December 31, 2007, we had cash and cash equivalents of $7.3 million,
short-term investments of $17.2 million and long-term investments of $2.2
million.
Net cash used in operating activities was $16.3 million for the first six
months of 2008. Net cash used in operating activities during the first six
months of 2007 was $9.5 million. Net cash used in operating for the first six
months of 2008 consisted primarily of net loss adjusted for the increase in
inventories and Trade accounts receivable and decrease in trade accounts payable
and Other payables and accrued expenses and offset by a decrease in Other
receivables and prepaid expenses.
Net cash provided by investing activities was $11.8 million for the first
six months of 2008 whereas investing activities for the first six months of 2007
provided $7.8 million. In the first six months of 2008, $12.6 million of cash
was provided from maturity and sales of marketable debt securities and
certificate of deposits held in our treasury, offset by $779 thousands that was
used for the purchase of property and equipment. We hold treasury securities
primarily in instruments denominated in U.S. dollars, with the goals of capital
preservation and generation of income, at fixed rates.
Net cash provided by financing activities was $0 for the first six months
of 2008 and $858 thousands for the first six months of 2007.
BRIDGE LOAN. On September 9, 2008 we entered into a short term secured loan
agreement with an institutional investor.
According to the loan agreement, the lender agreed to extend us a loan of
$3.5 million at the first stage ("First Loan") and, at our request, an
additional loan of up to $4.5 million ("Second Loan"). The key terms of the loan
agreement are as follows:
o The outstanding principal amount (including of the Second Loan, if
any) is due and payable in one payment 12 months after the first
closing;
o The outstanding principal amount will accrue interest at an annual
rate of 10% payable, in cash or ordinary shares, at our election, on a
quarterly basis;
o The loan may be prepaid by us at any time and is subject to a
mandatory prepayment upon a change of control; and
o The loan is secured by a first priority fixed charge on all of ours
intellectual property and a first priority floating charge on all of
our other assets.
The transaction documents contain customary representations, warranties and
covenants, including various limitations on, among other things, our ability to
incur additional debt or sell the collateral, without the consent of the lender.
In addition, in consideration for the First Loan, we issued to the lender
five-year warrants to purchase up to a total of 2,000,000 ordinary shares at
exercise prices per share of $0.01 (for 1,000,000 warrants) and $0.50 (for the
balance), subject to adjustments. In consideration for the Second Loan, if any,
we undertook to issue to the lender five-year warrants to purchase up to a total
of 2,200,000 ordinary shares at exercise prices per share of $0.01 (for
1,870,000 warrants) and $0.50 (for the balance), subject to adjustments.
As of the date of this filling, the First Loan was received.
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