UNITED STATES SECURITIES AND EXCHANGE COMMISSION




Washington, D.C. 20549





FORM 20-F/A


(Amendment No. 1)





(Mark One)





£

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934





OR




£

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





OR




£

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





OR




S

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



Date of event requiring this shell company report: August 31, 2011





Commission file number:  000-29884





R.V.B. HOLDINGS LTD.


(Exact name of Registrant as specified in its charter)





R.V.B. Holdings Ltd.
Israel(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)








Platinum House, 21 Ha'a'rba'ah St., Tel Aviv, 64739, Israel


(Address of principal executive offices)





Ofer Naveh, +972-3-684-5500, +972-3-684-5500, Platinum House, 21 Ha'a'rba'ah St., Tel Aviv, 64739, Israel


(Name, Telephone, E-mail and/or Facsimile number and Address of the Registrant’s Contact Person)





With a copy to:





Dr. Shachar Hadar


Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.


One Azrieli Center, Round Building, Tel Aviv 67021, Israel


Phone Number: +972-3-607-4444; Fax Number: +972-3-607-4422














Securities registered or to be registered pursuant to Section 12(b) of the Act: None.




Securities registered or to be registered pursuant to Section 12(g) of the Act: Ordinary Shares, par value NIS 1.00 per share.




Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None




Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: N/A.




Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act.




Yes o No x










If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.




Yes o No o




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.




Yes x No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer o       Accelerated filer o      Non-accelerated filer x




Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:




U.S. GAAP o




International Financial Reporting Standards as issued by the International Accounting Standards Board x




Other o




If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant elected to follow.




Item 17 o Item 18 o




If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).




Yes o No o









EXPLANATORY NOTICE
  This Amendment No. 1 (this “Amendment”) amends the shell company report on Form 20-F, originally filed with the Securities and Exchange Commission on September 7, 2011 (the “Shell Company Report”) and is being filed solely to: (i) revise “Item 16F. Change in Registrant’s Certifying Accountant” appearing on page 51 of the Shell Company Report; (ii) revise “Item 18. Financial statements” appearing on page 52 of the Shell Company Report; and (iii) revise the Exhibit index in the Shell Company Report to include exhibits 15.1 and 15.2 and (iv) attach the financial statements of E.E.R. Environmental Energy Resources (Israel) Ltd. as of, and for the year ended December 31, 2010.
  No other changes have been made to the Shell Company Report. This Amendment speaks as of the date of the initial filing of the Shell Company Report. Other than as described above, this Amendment does not, and does not purport to, amend, update or restate any other information or disclosure included in the Shell Company Report or reflect any events that have occurred after the date of the initial filing of the Shell Company Report.










TABLE OF CONTENTS





PageINTRODUCTION
1PART I
2Item 1.
Identity of Directors, Senior Management and Advisors
2Item 2.
Offer Statistics and Expected Timetable
2Item 3.
Key Information
2Item 4.
Information on the Company
11Item 5.
Operating and Financial Review and Prospects
19Item 6.
Directors, Senior Management and Employees
26Item 7.
Major Shareholders and Related Party Transactions
33Item 8.
Financial Information
35Item 9.
Offer and Listing
36Item 10.
Additional Information
37Item 11.
Quantitative and Qualitative Disclosures about Market Risk
50Item 12.
Description of Securities Other than Equity Securities
50PART II
51Item 13.
Defaults, Dividend Arrearages and Delinquencies
51Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
51Item 15 and 15T.
Controls and Procedures
51Item 16.
Reserved
51Item 16A.
Audit Committee Financial Expert
51Item 16B.
Code of Ethics
51Item 16C.
Principal Accountant Fees and Services
51Item 16D.
Exemptions from the Listing Standards for Audit Committees
51Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
51Item 16F.
Change in Registrant’s Certifying Accountant
51Item 16G.
Corporate Governance
51PART III
52Item 17.
Financial Statements
52Item 18.
Financial statements
52Item 19.
Exhibits
52SIGNATURE
53










INTRODUCTION




R.V.B. Holdings Ltd., (RVB) (Formerly B.V.R. Systems (1998) Ltd.), is an Israeli company that was formed in January 1998 to receive all of the assets and liabilities of the defense-related business of BVR Technologies Ltd. in accordance with the terms of a reorganization plan. RVB (then, BVR) commenced operations as an independent company effective as of January 1, 1998. In November 2009, RVB sold substantially all of its assets and liabilities, including the brand name "B.V.R.", to Elbit Systems Ltd. ("Elbit") and, subsequent to the sale, in January 2010 changed its name to R.V.B. Holdings Ltd. RVB was controlled by Mr. Aviv Tzidon until March 2010, when Greenstone Industries Ltd. ("Greenstone"), purchased from A.O. Tzidon (1999) Ltd. and Aviv Tzidon the control of RVB. In August 2011, RVB acquired all of E.E.R. Environmental Energy Resources (Israel) Ltd.'s ("EER") shares held by Greenstone and by S.R. Accord Ltd. ("Accord"), and, as of the date of this shell company report, holds 38.5% of EER's share capital (34.3% on a fully-diluted basis) and 60.2% of EER's voting rights.




The following is the shell company report on Form 20-F of R.V.B. Holdings Ltd. The terms “we”, “us”, “our”, “the Company” and “RVB”, as used in this annual report, mean R.V.B. Holdings Ltd. (formerly B.V.R. Systems (1998) Ltd.) unless otherwise indicated.




All references herein to “dollars” or “US$” are to United States Dollars, and all references to “Shekels” or “NIS” are to New Israeli Shekels.




FORWARD LOOKING STATEMENTS




In addition to historical information, this shell company report on Form 20-F contains forward-looking statements. Some of the statements discussed in "Item 3.D. Risk Factors" and elsewhere in this report contain forward-looking statements. Statements that use the terms “believe”, “anticipate”, “expect”, “plan”, “intend”, “estimate”, “project” and similar expressions in the affirmative and the negative are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on current assumptions, expectations, estimates and projections with respect to, among others, the financial conditions and business results of EER and RVB and the benefits of the EER Transaction. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.  Factors that could cause actual results to differ from our expectations or projections include the risks and uncertainties relating to our business described in this shell company report under "Item 3.D. Risk Factors," "Item 5. Operating and Financial Review and Prospects" and elsewhere in this shell company report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as required by applicable law. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents that we file from time to time with the Securities and Exchange Commission (the "SEC").




To the extent that this shell company report contains forward-looking statements (as distinct from historical information), we desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and we are therefore including this statement for the express purpose of availing ourselves of the protections of the safe harbor with respect to all forward-looking statements.









PARTI




ITEM 1.   Identity of Directors, Senior Management and Advisors




1A. Directors and Senior Management




For a description of the names and functions of our directors and senior management, please see “Item 6A. Directors and Senior Management” of this shell company report. The business address of all of our directors and senior management is Platinum House, 21 Ha'a'rba'ah St., Tel Aviv, 64739, Israel.




1B. Advisers




Our Israeli and U.S. legal counsel is Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., with offices at One Azrieli Center (Round Building), Tel Aviv, 67021, Israel.




1C. Auditors




For the last two years our independent auditors have been Somekh Chaikin, a member firm of KPMG International, with offices at 17 Ha'a'rba'ah St., Tel Aviv, 61006, Israel. On August 22, 2011, our shareholders approved the appointment of Brightman Almagor Zohar & Co., a member of Deloitte Touche Tohmatsu, with offices at One Azrieli Center (Round Building), Tel Aviv, 67021, Israel, as our independent auditors for the 2011 fiscal year and the period ending at the close of the next annual general meeting.




ITEM2.   Offer Statistics and Expected Timetable




In July 2011, we entered into the following agreements, in connection with the purchase of EER shares by RVB:  (i) a share purchase agreement, dated as of July 3, 2011, by and among RVB, Greenstone, Accord Mazal Resources B.V. ("Mazal") and EER (the "EER Share Purchase Agreement"); (ii) an option agreement between RVB and Mazal, dated July 3, 2011 (the "Option Agreement"); (iii) a voting agreement between Greenstone and Mazal, dated July 3, 2011 (the "Voting Agreement"); (iv) a shareholders' agreement between RVB and Mazal, dated July 3, 2011 (the "Shareholders Agreement"); (v) a services agreement between RVB, Mr. Moshe Stern and M. Stern Holding Ltd. ("Stern Holding"), a company under Mr. Stern's control, dated July 3, 2011 (the "Services Agreement"); and (vii) a management agreement between RVB and Greenstone, dated July 14, 2011 (the "Management Agreement") (collectively, the "EER Transaction").




On August 22, 2011, our shareholders approved the EER Transaction (following an approval by our audit committee and board of directors), together with a form of additional share purchase agreement, to be entered into between RVB and certain EER shareholders who elect to join the EER Transaction and sell their holdings in EER to RVB, in exchange for RVB shares (the "Additional SPA"). On August 31, 2011, we completed the EER Transaction and purchased a total of 7,996,210 EER shares from Greenstone, our controlling shareholder, and Accord. The closing of the Additional SPA is expected during September or October 2011, at which time we expect to issue a total of up to 96,100,358 RVB shares, in exchange for the EER shares of those additional EER shareholders who elected to become parties to the Additional SPA.




For information regarding the EER Transaction and the Additional SPA, see "Item 7.B. Related Party Transactions – EER Transaction" in this shell company report.




ITEM3.   Key Information




A.            Selected Consolidated Financial Data




You should read the following selected consolidated financial data in conjunction with the section of this shelf company report entitled “Item 5 - Operating and Financial Review and Prospects” and our consolidated financial statements and the notes thereto included elsewhere in this shell company report.




The selected data presented below under the captions “Statement of Operations Data,” and “Statements of Financial Position Data” as of and for each of the years in the five-year period ended December 31, 2010, are derived from the audited consolidated financial statements of RVB Holdings Ltd. The consolidated financial statements as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010, are included elsewhere in this shell company report. The selected data should be read in conjunction with the consolidated financial statements and the related notes. The 2006 selected data was derived from consolidated financial statements that have been prepared in accordance with Israeli GAAP. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by The International Accounting Standards Board (IFRS).




In November 2009, we sold our business to Elbit Systems Ltd. (Elbit) pursuant to an asset purchase agreement executed on July 19, 2009 (the "Asset Purchase Agreement"), as more fully described below under Item 10.C. "Material Contracts." The sale of our business to Elbit was completed on November 19, 2009 (the "Elbit Transaction"). On August 31, 2011, we completed the EER Transaction, following which we became the controlling shareholder of EER. For additional information, see "Item 7.B. Related Party Transactions – EER Transaction" in this shell company report.




2




You should read the selected consolidated financial data together with the section entitled “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this shell company report.




Year endedDecember 31,2006(In thousands)Statement of Operations Data:In accordance with Israeli GAAPRevenues

US$ 10,103Cost of revenues


(7,866
)Gross profit


2,237Operating expenses:Research and development


615Selling and marketing


1,430General and administrative


2,155Total operating expenses


4,200Operating loss


(1,963
)Financial expenses, net


(185
)Other expenses, net


-Loss before taxes on  income


(2,148
)Income tax expense


(75
)Net loss for the year


(2,223
)Basic and diluted loss per share


(0.02
)Weighted- average number of ordinary shares of nominal NIS 1.00 par value outstanding (in thousands) used incalculation of the basic and diluted earnings (loss) per share


112,361




Year endedDecember 31,2006(In thousands)Reconciliation to U.S. GAAP:Net loss under Israeli GAAP


(2,223
)Compensation expense for all stock-based awards using the modifiedprospective method


(596
)Loss under U.S. GAAP


(2,819
)Basic and diluted net loss per share under U.S. GAAP


(0.03
)Weighted average number of ordinary shares outstanding  (in thousands) used in basic

loss per share calculation according  to  U.S. GAAP


112,361Weighted average number of ordinary shares outstanding  (in thousands) used in diluted loss per share calculation according  to  U.S. GAAP


112,361




3





Year ended December 31,2010


2009


2008


2007(In thousands)Statement of Operations Data:Revenues


-


US$ 37,113


US$ 31,566


US$ 13,106Cost of  revenues


-



(28,293
)


(23,282
)


(10,746
)Inventory write off


-



-



-



(699
)Gross profit


-



8,820



8,284



1,661Operating expenses:Research and development


-



1,499



1,213



959Selling and marketing


-



1,852



2,128



2,240General and administrative


693



4,041



2,773



2,508Total operating expenses


693



7,392



6,114



5,707Other income (Elbit Transaction)


867



30,206



-



-Operating profit (loss)


174



31,634



2,170



(4,046
)Financial income


275



28



219



231Financial expenses


(8
)


(2,255
)


(766
)


(249
)Financial income (expenses), net


267



(2,227
)


(547
)


(18
)Profit (loss) before taxes on  income


441



29,407



1,623



(4,064
)Income tax expense


-



-



-



-Net profit  (loss) for the year


441



29,407



1,623



(4,064
)Earnings (loss) per share:Basic earnings (loss) per share (in US$)


0.0037



0.25



0.01



(0.03
)Diluted  earnings (loss) per share (in US$)


0.0037



0.25



0.01



(0.03
)Weighted- average number of ordinary shares of   nominal NIS 1.00 par value outstanding (in thousands) used in calculation of the basic earnings (loss)  per share


117,971



117,069



116,952



116,861Weighted- average number of ordinary shares of nominal NIS 1.00 par value outstanding (in thousands) used in calculation of diluted earnings (loss)  per share


117,971



117,098



116,958



116,861




Year endedDecember 31,2006(In thousands)Consolidated Statement of Position Data:In accordance with Israeli GAAPCash and cash equivalents

US$ 3,421Total assets


13,293Short-term bank credit and loans


636Share capital


25,861Shareholders' equity


5,406U.S. GAAP:Total assets


14,604Shareholders' equity

US$ 5,406




4




Year ended December 31,2010


2009


2008


2007(In thousands)Consolidated statement of position:Cash and cash equivalents

US$ 23,094


US$ 29,886


US$ 4,249


US$ 1,520Bank deposit


10,537



-



-



-Total assets


34,421



35,585



21,412



10,160Short-term bank credit and loans


120



120



120



1,086Share capital


26,406



26,157



25,891



25,861Shareholders' equity


33,583



33,142



3,388



1,711




B.            Capitalization and Indebtedness




The following table shows the capitalization of the Company as of December 31, 2011, (i) on an actual basis, and (ii) on a pro forma basis, adjusted to give effect to the EER Transaction, the Additional SPA as if the EER Transaction and the Additional SPA (with all additional EER shareholders that are not parties to the EER Share Purchase Agreement), and the Dividend distribution (as defined under "Item 8. Financial Information – Dividend Policy"), have been completed as of January 1, 2010 (*):




As of December 31, 2010Actual


Pro forma (*)(unaudited)(In thousands, except share data)Equity:Share capital: Ordinary shares, par value NIS 1.00 per share: 400,000,000 shares authorized; 118,900,535 actual shares issued and outstanding; and 138,955,428 shares issued and outstanding, on a Pro forma basis (*)

US$ 26,406


US$ 59,052Treasury shares (1,040,000 Ordinary shares par value NIS 1.00)


(167
)


(167
)Share premium and other capital reserves


16,833



(8,399
)Accumulated deficit


(9,489
)


(33,661
)Equity attributable to owners of the Company


33,583



19,825Non-controlling interests


-



3,305Total equity


33,583



23,130




(*)           See - "Item 18. Financial Statements" below in this shell company report.




C.            Reasons for the Offer and Use of Proceeds




Not applicable.




D.            Risk Factors




Investing in our securities involves significant risk. You should carefully consider the risks described below as well as the other information contained in this annual report before making an investment decision.  Any of the following risks could materially adversely affect our business, financial condition, results of operations and cash flows. In such case, you may lose all or part of your original investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.




Risks Related to our Business




You may have difficulty enforcing a judgment issued by a court in the United States against us in Israel.




We are organized under the laws of Israel and our headquarters are in Israel. All of our officers and directors reside outside of the United States. Therefore, you may not be able to enforce any judgment obtained in the United States against us or any of such persons. You may not be able to enforce civil actions under United States securities laws if you file a lawsuit in Israel. In addition, if a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency.




5




Currency fluctuations may affect the value of our assets and decrease our earnings.




The devaluation of the US dollar against the NIS may decrease the value of our assets and could impact our business. We anticipate that a significant portion of our expenses will continue to be denominated in NIS.




If we are considered to be a passive foreign investment company, either presently or in the future, U.S. Holders will be subject to adverse U.S. tax consequences.




We will be a passive foreign investment company, or a PFIC, if 75% or more of our gross income in a taxable year, including our pro rata share of the gross income of any company, U.S. or foreign, in which we are considered to own, directly or indirectly, 25% or more of the shares by value, is passive income. Alternatively, we will be considered a PFIC if at least 50% of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value, including our pro rata share of the assets of any company in which we are considered to own, directly or indirectly, 25% or more of the shares by value, are held for the production of, or produce, passive income. If we were to be a PFIC, and a U.S. Holder does not make an election to treat us as a “qualified electing fund,” or QEF, or a “mark to market” election, “excess distributions” to a U.S. Holder, and any gain recognized by a U.S. Holder on a disposition of our ordinary shares, would be taxed in an unfavorable way. Among other consequences, our dividends would be taxed at the regular rates applicable to ordinary income, rather than the 15% maximum rate applicable to certain dividends received by an individual from a qualified foreign corporation. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to the determination of PFIC status. In addition, under the applicable statutory and regulatory provisions, it is unclear whether we would be permitted to use a gross loss from sales (sales less cost of goods sold) to offset our passive income in the calculation of gross income. In light of the uncertainties described above, we have not obtained an opinion of counsel with respect to our PFIC status and no assurance can be given that we will not be a PFIC in any year. If we determine that we have become a PFIC, we will then notify our U.S. Holders and provide them with the information necessary to comply with the QEF rules. If the IRS determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, however, it might be too late for a U.S. Holder to make a timely QEF election, unless the U.S. Holder qualifies under the applicable Treasury regulations to make a retroactive (late) election. U.S. Holders who hold ordinary shares during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. Holders who made a timely QEF or mark-to-market election.




Your rights and responsibilities as a shareholder will be governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.




We are incorporated under Israeli law. The rights and responsibilities of the holders of our Ordinary Shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing his power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. See “Item 10. Additional Information – B. Memorandum and Articles of Association”




Risks Relating to the EER Transaction




On August 22, 2011, our shareholders approved the EER Transaction (following an approval by our audit committee and board of directors), together with a form of additional share purchase agreement, to be entered into between RVB and certain EER shareholders who elect to join the EER Transaction and sell their holdings in EER to RVB, in exchange for RVB shares (the "Additional SPA"). On August 31, 2011, we completed the EER Transaction and purchased a total of 7,996,210 EER shares from Greenstone, our controlling shareholder, and Accord. The closing of the Additional SPA is expected during September or October 2011, at which time we expect to issue a total of up to 96,100,358 RVB shares, in exchange for the EER shares of those additional  EER shareholders who elected to become parties to the Additional SPA.




For information regarding the EER Transaction and the Additional SPA, see "Item 7.B. Related Party Transactions – EER Transaction" in this shell company report.




The EER Transaction may not result in the benefits that RVB currently anticipates.




Achieving the expected benefits of the EER Transaction depends, among other things, on the ability to develop, market and build waste to energy facilities based on EER's PGM technology. The EER Transaction process also may result in the need to invest unanticipated additional cash resources, which may divert funds that RVB expects to use for pursuing new opportunities and other purposes and therefore, the benefits of the EER Transaction will not be realized and, as a result, RVB’s operating results may be adversely affected and its share price may decline.




6




The market price of our shares may decline following the completion of the EER Transaction




The market price of RVB shares may decline following the completion of the EER Transaction, and might not meet the forecasts and valuation conducted by the Company and its consultants prior to the EER Transaction.




RVB, a publically held company, is subject to certain limitations in its efforts to synergize the operations of RVB and EER.




Some transactions between RVB and EER, including any termination of such transactions, will require the approval of EER's Board of Directors, and, under certain circumstances, may require the approval of the shareholders of EER and are subject to the receipt of applicable permits and approvals. In addition, any dividend or distribution from EER requires the approval of the directors of EER. As such, RVB may be limited in its ability to fully realize the synergies and other benefits of the EER Transaction.




Our aggregate indemnification under the EER Share Purchase Agreement is capped at US$5,000,000, and our indemnification right is valid until December 31, 2012.




According to the EER Share Purchase Agreement, each Shareholder (as defined therein), shall hold harmless and indemnify us from and against certain damages relating to, among others, inaccuracies in or breaches of any representation or warranty of such Shareholder, breaches of any covenant or obligation of such Shareholder, and proceedings relating to any such inaccuracy or breach. However, the total liability of the Shareholders is limited in the aggregate to US$5,000,000 and the total liability of each Shareholder is limited to its pro rata portion of such amount (i.e. the percentage of the ordinary shares held by each Shareholder out of the total aggregate holdings of the indemnifying shareholders in EER). In addition, any demand by RVB for indemnification related to damages, can be made no later than December 31, 2012. Consequently, if we incur damages or liabilities that are higher than US$5,000,000, or if we incur damages or liabilities, or discover such damages or liabilities, after December 31, 2012, or if any Shareholder defaults on his obligation to indemnify us under the EER Share Purchase Agreement, we would be required to bear the costs ourselves. We cannot be certain that we will have sufficient funds available to bear these costs. Further, the payment of these costs may have a material adverse effect on our business, financial condition, results of operations and cash flows.




Risks Relating to EER




EER has a history of losses and it may incur future losses and may not achieve profitability.




EER is currently focusing on research and development, as well as on the introduction of its technology and penetration into relevant markets. EER has limited operating history and consequently it has incurred net losses in each of the last three fiscal years. EER has incurred net losses of NIS 28.4 million (US$7.6 million) in 2010, NIS 28.6 million (US$7.3 million) in 2009 and NIS 32.4 million (US$9.0 million) in 2008. As of December 31, 2010, EER accumulated deficit was NIS 164.4 million (US$41.1 million).




As of the date of this shell company report, EER has no source of income from the sale of products, licensing or research and development activities. In addition, EER has not yet established and operated a commercial plant which implements its technology. Therefore, EER expects that, at least for the coming years, it will continue to operate with operational losses. EER's losses could continue as EER expands its commercialization efforts, increases its marketing expenses and continues to invest in research and development. Due to the above, the extent of EER's future operating losses and the timing of becoming profitable are uncertain. In addition, EER has limited experience in commercializing its technology and is faces a number of challenges with respect to its commercialization efforts, including, among others:




·
EER relies on external finance for its business activity, and it may not have adequate financial or other resources;




·
EER may not be able to introduce its technology to the relevant markets;




·
EER may fail to obtain or maintain regulatory approvals for its facilities and products or may face adverse regulatory or legal actions relating to its facilities and services even if the necessary regulatory approvals are obtained;




·
EER may face technical and engineering difficulties relating to the development, scale-up and implementation of its technology;




7




·
EER's research and development activity is conducted in collaboration with third parties, and its success depends on their efforts. In the event that such third parties discontinue their collaboration with EER, that could adversely affect EER's research and development and engineering capabilities;




·
EER may not be able to maintain and operate its demonstration facility in Israel, due to, among others, its inability to renew its business license or the lease agreement relating to the ground on which the demonstration facility is located;




·
EER depends on a small number of employees who possess both executive and technical expertise, the departure of which may affect its business; and




·
EER may face third party claims of intellectual property infringement.




The occurrence of any one or more of these events may limit EER's ability to successfully commercialize its technology, which in turn could prevent EER from generating significant revenues and could harm its business, financial condition and results of operations.




EER relies on external funding for the commercialization of its technology and services.




As part of its business model, EER may enter into joint projects with third parties for the establishment of waste treatment facilities that would implement EER's technology. The estimated cost of establishing such plants ranges between tens of millions to hundreds of millions US dollars. Therefore, EER's partners, and in some cases EER itself, might need to raise significant funds on a project by project basis. External financing may not be available on a timely basis, at an attractive cost of capital, or at all. In addition, EER and/or its partners may face difficulties in raising funds for their joint projects, since EER's Plasma Gasification-Melting (PGM) technology, has not yet proven itself commercially in the field of municipal solid waste and medical waste and, therefore, senior lenders or equity providers may be reluctant to extend funds for such projects. Moreover, some of EER's target markets have previously been adversely affected by global economic slowdowns and recessions which have led to reduced consumer and governmental spending. Current and future economic slowdowns and recessions may have an adverse effect on EER's and its partners' ability to raise capital or debt at an attractive cost of capital. Consequently, EER and/or its potential partners may face difficulty to raise sufficient funds to take on new projects or establish new plants and thus EER may not be able to introduce its technology to the relevant markets. In addition, any such external financing may be dilutive to us or may require us to grant a lender a security interest in our or EER's assets.




EER may require additional funding for its ongoing operations and for the commercialization of its technology and services




EER's current day to day operations require substantial amounts of financial resources. As of the date of this shell company report, EER has no source of income, and it has not yet established and operated a commercial plant which implements its technology. There is no assurance that EER will be able to raise external financing on a timely basis, at an attractive cost of capital, or at all. If adequate external financing on acceptable terms is not available, EER may not be able to continue its operations, develop its technology or market its technology and services.




EER's ability to commercialize its technology depends on collaboration with third parties




EER's business strategy includes entering into cooperative arrangements with third parties for establishing plants and marketing EER's technology and services worldwide. There is no certainty that EER will be able to negotiate such arrangements on acceptable terms, if at all, or that such arrangements will be successful in yielding commercially viable products. If EER is unable to establish such arrangements, it would require additional working capital to undertake such activities on its own and would require extensive marketing expertise that EER does not currently posses. In addition, EER could encounter significant delays in introducing its technology into certain markets or find that penetrating such markets would not be feasible without, or would be adversely affected by the absence of, such arrangements. To the extent that EER enters into such joint venture arrangements, its revenues will depend upon the robustness, stability and efforts of third parties. There is no certainty that any such arrangements will be successful.




EER operates in a competitive market, and its technology has not yet proven itself commercially in the field of solid waste and medical waste




EER's Plasma Gasification-Melting (PGM) technology has been developed to convert solid waste into synthesis gas and products suitable for construction materials or other uses. The core of the technology was developed at the Kurchatov Institute in Russia. This technology has been used for more than two decades for the treatment of low and intermediate level radioactive waste in Russia. The PGM technology is applicable for treatment of, among others, municipal solid waste (MSW), municipal effluent sludge, industrial waste and medical waste. The waste treatment market is a conservative market and new technologies are not easily accepted. Therefore, traditional applied technologies in the treatment of solid waste still enjoy greater market recognition compared to PGM technology and other advanced technologies, and some companies that offer solutions based on these traditional technologies have substantial experience in establishing and operating waste treatment facilities and greater financial capabilities compared to EER. In addition there is no certainty that potential customers will prefer the technology of EER over the technologies of EER's competitors, either those using traditional technologies or those using other kinds of advanced technologies for waste treatment. Additionally, the development of a more effective or cheaper technology by a competitor will have an adverse effect on EER.




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Moreover, Plasma based, gasification based and Plasma gasification based technologies are implemented by different companies for the treatment of municipal solid waste (MSW), municipal effluent sludge, industrial waste and medical waste for more than a decade. Some of the prominent competitors in the field of PGM include Thermoselect, Ebara, S4 Energy Solution, Alter NRG and Plasco Energy Group. Most of these companies enjoy greater financial capabilities compared to EER, and some of them are located in Europe or in the U.S., and thus they are geographically closer to the EER's target markets.




EER faces uncertainty relating to the costs of potential projects and the pricing of its services




EER currently faces uncertainty relating to the pricing and construction costs of solid waste treatment facilities, and its marketing costs. Failure to assess its future costs correctly could result in substantial losses to EER.When calculating the profitability of potential projects, EER makes several assumptions relating to its expected income from waste treatment fees (Tipping Fees) and energy sales, as well is its expected capital and operational costs. These assumptions are based on the existing prices in the relevant markets, and, among others, the existence of certain governmental subsidies and incentive plans for "green" technologies. Price reductions or changes in such governmental subsidies and incentive plans in these markets may affect the profitability of potential project and may result in losses to EER.




EER may encounter engineering difficulties relating to the scale up its technology




As of the date of this shell company report, EER has not yet established and operated a commercial plant that implements its technology. The testing and demonstrations of EER's technology are done mostly in EER's demonstration facility in Israel and are limited in their duration due to the restrictions contained in EER’s operating license. While demonstrations conducted in recent years have proven that EER's technology is feasible for commercial use, EER may face unforeseeable challenges and engineering difficulties and may not be able to successfully scale up its technology for commercial use.




EER's research and development activity is conducted in collaboration with third parties, and its success depends on their efforts




As of the date of this shell company report, some of the research and development activity relating to EER's technology is conducted at the Royal Institute of Technology of Sweden, in collaboration with EER. Some research and development activity is also conducted in collaboration with additional third parties. The successful development of EER's technology depends on the resources, stability and efforts of such third parties. In the event that such third parties discontinue their collaboration with EER, that could adversely affect EER's research and development capabilities.




Changes in the legislation, standards and regulations relating to EER’s field of operations may adversely affect its operations and profitability




EER's business activity is regulated by environmental laws and regulations in the markets in which it operates. More specifically, EER's business activity is bound by the provisions of the Israeli Clean Air Law, the Israeli Hazardous Substances Law (and the Hazardous Waste License obtained in connection therewith) and additional environmental laws and regulations. In addition, EER's international business activity is expected to be subject to international and regional conventions and directives, as well as local laws, regulations and standards, relating to environmental, hazard control, medical and radioactive waste treatment, and other aspects that may be related to the establishment and operation of waste treatment facilities. EER spends substantial amounts of cash in order to comply with these regulations. Any changes in legislation, standards and regulations or any policy changes undertaken by various authorities pertaining to environmental protection under the jurisdictions EER operates in could have a significant effect on the activity of EER.




Intellectual property is extremely important to EER's business, and its inability to protect its intellectual property would harm EER's competitive position




As of June 28, 2011, EER has had nine active families of patent applications and patents. In addition to patents, EER relies on confidentiality agreements and similar mechanisms to protect its know-how and intellectual property, the core of which was historically developed at the Kurchatov Institute in Russia. These measures are limited in terms of their effectiveness in protecting EER’s intellectual property and could therefore prove inadequate in limiting unauthorized use of EER’s know-how. Additionally, such measures do not guarantee that other parties may not claim rights in certain know-how that is being used by EER in its research and development activities. There is also no assurance that pending patent applications will be approved, that any patents will be broad enough to protect EER's technology, will provide it with competitive advantages or will not be challenged or invalidated by third parties, or that the patents of others will not have an adverse effect on EER's ability to do business.




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EER's business may suffer if EER becomes involved in disputes or protracted negotiations regarding its intellectual property rights or the intellectual property rights of third parties




EER is subject to the risk of adverse claims and litigation alleging infringement by EER of the intellectual property rights of others. There are increasing numbers of patents and patent applications in EER's industry. Third parties may assert infringement claims in the future, alleging infringement by EER's current or future technology or applications. EER may institute or otherwise be involved in litigation to protect its registered patents and/or trade secrets or know-how, challenge the validity of proprietary rights of others or defend against alleged infringement by EER of proprietary rights of others. This type of litigation is costly and diverts management’s attention from its day-to-day responsibilities of running EER's business. In addition, an adverse determination in such litigation could:




·
limit the value of EER's trade secrets or know how;




·
subject EER to significant liabilities to third parties;




·
require EER to seek licenses from third parties; or




·
prevent EER from commercializing and marketing its technology and service, any of which could have a material adverse effect on EER's business, financial condition and results of operations.




EER has received grants from the Office of the Chief Scientist in Israel, and it is therefore obligated to pay certain royalties to the Israeli government from sales of its products, and it is bound by the provisions of the Israeli Research and Development Law




EER has received grants from the government of Israel through the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor, or the Office of the Chief Scientist, for the financing of a portion of its research and development expenditures in Israel, pursuant to the Encouragement of Industrial Research and Development Law 5744-1984, or the R&D Law. Under the R&D Law, royalties on the revenues derived from sales of products (and related services) developed (in all or in part) according to, or as a result of, the Office of the Chief Scientist funded plans are payable to the Israeli government, at annual rates which are determined under the Encouragement of Industrial Research and Development Regulations (Rate of Royalties and Rules for the Payment thereof), 1996, or the R&D Regulations, up to the aggregate amount of the grants received by the Office of the Chief Scientist, plus annual interest (as defined in the R&D Regulations). Any intellectual property developed using the Office of the Chief Scientist funds must be fully and originally owned by the Israeli company which received such funds. The R&D Law restricts the ability to transfer abroad know-how funded by the Office of the Chief Scientist. Transfer of such know-how to a foreign entity requires prior approval from the Office of the Chief Scientist, and is subject to payment of a redemption fee to the Office of the Chief Scientist calculated according to formulas provided under the R&D Law. As of the date of this shell company report, EER has received a total of NIS 1.7 million (approximately US$0.4 million), out which an amount of NIS 1.5 million (approximately US$0.35 million) has not yet been repaid by EER.




If EER transfers outside of Israel know-how and technology, which were developed according to, or as a result of, the Office of the Chief Scientist funded plans, without obtaining the approval of the Office of the Chief Scientist, it may also be subject to criminal charges. In recent years, the government of Israel has accelerated the rate of repayment of the Office of Chief Scientist grants and may further accelerate them in the future. These restrictions on transferring technologies and/or manufacturing outside of Israel continue to apply even after EER have repaid any grants, in whole or in part.




EER's dependence on a single Demo Facility magnifies the risk of an interruption in its business operations




As of the date of this shell company report, EER does not own any other facility other than an operational demonstration facility, located near the village of I’billin, in Northern Israel (the "Demo Facility"). The current business license relating to the operation of the Demo Facility, which is subject to certain conditions set forth by the Israeli Ministry of Environmental Protection, is valid until December 31, 2011. The business license must be renewed on an annual basis. In the event that EER is unable to renew its business license, or if EER will not be able to meet the conditions of the new license, it could have a significant effect on its activity.




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In addition, in September 2007, EER has entered into a lease agreement with respect to the ground on which the Demo Facility is located (the "Lease Agreement"). The original term of the Lease Agreement was three years, and EER had an option to extend the term of the rent for additional two years. EER has exercised the option in 2010, and consequently the term of the Lease Agreement was extended until July 2012. Pursuant to the terms of the Lease Agreement, the Demo Facility is the property of EER, and EER is responsible for disassembling the Demo Facility and removing it from the property at the end of the lease period. As of the date of this shell company report, there is no certainty that the term of the Lease Agreement will be extended beyond July 2012. The disassembly and the transfer of the Demo Facility to another location may require substantial investments, and may not be economically feasible for EER. Therefore, if the Lease Agreement is not extended beyond 2012, that could have a significant effect on EER's business activity. In addition, any event affecting the Demo Facility, including natural disaster, labor stoppages or armed conflict, or EER's lack of financial resources to operate the plant, may disrupt or indefinitely discontinue EER's research and development, operational and marketing capabilities and could significantly impair its business.




Because of EER's small size, it depends on a small number of employees who possess both executive and technical expertise, and the loss of any of these key employees would hurt EER's ability to implement its business strategy and to compete effectively in its target markets




Because of EER's small size and its reliance on employees with either executive or advanced technical skills, its success depends significantly upon the continued contributions of its officers and key personnel. All of EER's key management and technical personnel have unique expertise, which might be in high demand among its competitors, and the loss of any of these individuals could cause EER's business to suffer.




In addition, EER's business operations depend heavily on the knowledge and efforts of Mr. Moshe Stern. Mr. Stern is the original founder of EER, and is responsible for the establishment and maintenance of most of EER's business relationships and collaborations. Until the closing of the EER Transaction, Mr. Stern was the chief executive officer of EER. Following the closing of the EER Transaction, Mr. Stern resigned from his position as the chief executive officer of EER, and is no longer an employee of EER. However, Mr. Stern is currently providing business development services to RVB, pursuant to the Services Agreement, and therefore EER (which is now a subsidiary of RVB) can still benefit from his knowledge and skills. If, in the future, EER is not able to benefit from Mr. Stern's knowledge and skills, that may adversely affect its relationship with existing and potential partners, its ability to raise funds its ability to commercialize its technology and services.




EER might not be able effectively manage its growth




If the commercialization of EER's technology and services is successful, EER's business will need to grow. Continued growth would subject EER to numerous challenges, including, among others, implementing appropriate operational and financial systems and controls, and increasing and training its manpower within a short period of time to cope with the EER's administrative, marketing, engineering and operational needs. EER's expected growth may place significant demands on its management and require financial and operational resources. If EER is unable to manage its growth, its business, financial condition and results of operations could be harmed.




ITEM4.    Information on the Company




A.            History and Development of the Company




Our legal and commercial name is R.V.B. Holdings Ltd. Our office is located at Platinum House, 21 Ha'a'rba'ah St., Tel Aviv, 64739, Israel, and our telephone number is +972 (3) 684-5500.




We were incorporated as an Israeli corporation under the name B.V.R. Systems (1998) Ltd., in January 1998 to receive all of the assets and liabilities of the defense-related business of BVR Technologies Ltd., or BVR-T, in accordance with the terms of a reorganization plan. The reorganization plan was consummated, and BVR commenced operations as of January 1, 1998. In January 2010, we changed our name to R.V.B. Holdings Ltd.. Our corporate governance complies with the Israeli Companies Law, 1999, as amended (the "Companies Law").




On July 19, 2009, we entered into an asset purchase agreement with Elbit Systems Ltd., whereby Elbit acquired substantially all of our assets and business for cash consideration of approximately US$34 million and assumed substantially all of our business related liabilities (the "Elbit Transaction"). The sale of our business to Elbit was completed on November 19, 2009.  For more information related to the Elbit Transaction see "- Item 10C. Material Contracts" below.




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On March 24, 2010, Greenstone exercised its option to purchase from Aviv Tzidon and A.O. Tzidon (1999) Ltd., a company wholly owned by Aviv Tzidon (collectively: "Tzidon"), the control of the Company. As part of the closing of the option exercise by Greenstone, A.O. Tzidon (1999) Ltd. purchased from HSN General Managers Holdings Limited Partnership (“HSN”) all of its holdings in the Company, namely 20,000,000 of our Ordinary Shares, which constitute part of the shares sold by Tzidon to Greenstone, at a price per share of US$0.215 and an aggregate consideration of US$4,300,000, pursuant to a share purchase agreement between HSN and Tzidon, dated February 6, 2011. On March 15, 2011, pursuant to an agreement entered into by and among Greenstone and Tzidon on December 12, 2010 and the option awarded to Greenstone to purchase up to 65% but not less than 50.14% of our issued share capital as of that date, Tzidon sold to Greenstone: (i) 76,680,848  of our ordinary shares, constituting 65% of our issued and outstanding share capital as of that date (not taking into account 1,040,000 of our dormant shares); and (ii) 1,800,000 options exercisable into 1,800,000 of our ordinary shares.




On August 22, 2011, our shareholders approved the EER Transaction (following an approval by our audit committee and board of directors), together with the Additional SPA. On August 31, 2011, we completed the EER Transaction and purchased a total of 7,996,210 EER shares from Greenstone, our controlling shareholder, and Accord. The closing of the Additional SPA is expected during September or October 2011, at which time we expect to issue a total of up to 96,100,358 RVB shares, in exchange for the EER shares of those additional EER shareholders who elected to become parties to the Additional SPA. For information regarding the EER Transaction and the Additional SPA, see "Item 7.B. Related Party Transactions – EER Transaction" in this shell company report.




From October 1998 until March 2001, our ordinary shares traded on the NASDAQ National Market. Between March 2001 and February 2003, our Ordinary Shares traded on the NASDAQ Small Cap Market under the symbol BVRSF.  From February 2003 until March 2010 our shares traded on the Over the Counter Bulletin Board under the symbol BVRSF.OB. Since March 2010, our ordinary shares have traded under the symbol, RVBHF.OB which reflects our name change to R.V.B. Holdings Ltd.




Capital Expenditures




We had no capital expenditures during the first eight months of 2011, and during 2010. Our capital expenditures totaled US$0.2 million in the year ended December 31, 2009 and US$0.3 million in the year ended December 31, 2008.




B.            Business Overview




General




On August 31, 2011, the EER Transaction was completed, following which we have become the controlling shareholder of EER. For additional information, see "Item 7.B. Related Party Transactions – EER Transaction" in this shell company report.




Below is a description of EER's business. As of the date of this shell company report, we do not have any other business activity besides EER's business.




EER's industry




With the rapid growth in the world's population, the waste generation volume is becoming an increasing concern around the world. The world's population is producing approximately 2.5 billion tons of municipal solid waste (MSW) each year. Certain factors, such as the rate of growth in the general population, improvements in the quality of life and continuous increase in the global GNP, contribute to the accelerated growth in the production of MSW. In order to cope with the constant growth in the production of waste, the global waste management industry is undergoing certain changes, among which the transfer from traditional waste disposal methods to a resource recovery processes. In light of these changes, the development of new technology is required in order to convert certain types of waste into recycled materials or energy.




Nations around the world vary in their progress towards the facilitation of these changes. Countries like Germany, Japan, Denmark and the Netherlands, which are characterized as 'mature markets' already have clear regulatory, fiscal and policy frameworks in place for such matters, and over the last few years, they placed substantial investments in the development of modern waste treatment solutions. On the other hand, some countries, like UK, Italy, Spain, Greece, Canada, Australia, some Gulf Arab States and parts of East and South East Asia, are characterized as immature markets. These countries are expected to show rapid growth in the amount of waste treatment over the next ten to fifteen years, due to the increase of new regulations which aim to direct the waste streams from traditional waste treatment methods, such as landfill, to the alternative technology sector. Other countries, as some EU Member States, some countries in the Middle East, South Africa, Latin America and the Caribbean, are characterized as embryonic markets. In these countries, there is little governmental investment in the development or the adoption of "green" advance technologies, and the relevant regulation is considered obsolete. The US, one of EER's primary target markets, can be divided into different categories, some US states are mature, some are emerging and some are embryonic.




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There are currently three main waste disposal methods, employed by different companies and governments around the world:




·
Recycling - Recycling is the process of sorting waste and reusing the items from which utility can still be derived. This method is not always economically feasible, as it requires substantial amount resources for sorting waste. In addition, large percent of waste is not recyclable.




·
Landfill - the most traditional and common method, which involves disposal of waste by burial in landfill sites. This method, though it is common, is a main factor for pollution of air, ground and underground water. Therefore, in recent years, some countries, such as Germany, Austria, Belgium, the Netherlands, and Switzerland, have banned the disposal of untreated waste in landfills.




·
Waste to Energy (WTE) -this method is divided into three main methods: biological, physical and thermal. The thermal treatment is divided to three main processes: Incineration, Thermal Gasification/ Pyrolisys and Plasma Gasification. The Incineration process has a lot of disadvantages, such as the emission of toxic gases and ashes which require additional separate treatment, and therefore the Thermal process is more attractive.




Each year, approximately 170 million tons of municipal solid waste is treated in about 900 waste treatment facilities around the world. The WTE market was estimated to be worth US$7 billion in 2010, and its estimated annual growth is 6-10%. Thus, the WTE market is expected to be worth about US$ 27 billion in 2021.




The main entrance barriers to the solid waste market include acquisition and development costs, licensing costs, depending on local regulation in each country in which the technology is implemented, facilities establishment Costs, Large competitors and willingness of finance institutions to finance the establishment of facilities based on new technologies.




The global economic crisis has caused, among others, to a decrease in the investments in the advanced technologies, including the PGM technology. According to EER's estimation, in spite of the recovery from the crisis during 2009 and 2010, it is still very difficult for EER and its customers to obtain financing for its activity and facilities from private investors and especially from institutional investors.




Competition




Many companies around the world are in the business of developing advanced technologies for the treatment of solid waste, and such companies can compete with EER in its target markets. Some of these companies use different variations of the plasma gasification technology, and some use other WTE technological solutions.




Below is a description of the main new thermal treatment technologies (NTTT), which compete with EER's PGM technology:




·
Gasification technology - thermal reaction under a lack of oxygen which creates fuel gas, which causes an early heat of the waste, a process which increases the energetic efficiency.




·
Pyrolysis technology - a similar process to the Gasification. The waste is first processed in an early process for the creation of refuse derived fuel.




·
Plasma technology - Gasification of the materials with the highest temperatures (approximately 800 degrees) under special conditions.




·
Thermal Hydrolysis technology - technology based on "cold incineration ". This technology cannot be used for treatment with solid waste.




·
Hybrid facilities - technologies combined facilities. The PGM technology belongs to this technology.




These are the main advantages of the PGM technology:




·
Decreased operating costs due to the combination of three processes in one union continuous process.




·
Decreased operating costs due to the fact that the pollution level in this technology is lower, compared to other technologies.




·
The ability to handle a wide spectrum of waste without the necessity of any preliminary sorting or treatment.




·
The solid residue of the process is an environmentally benign material which can be used as raw material in construction.




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In addition, Pursuant to EER's estimation, its ability to prove the implementation of the PGM technology by a demonstration facility may provide it a competitive advantage compared to the other NTTT.




EER's major competitors in the field of waste treatment include:




·
Thermoselct – a Swiss origin Pyrolysis/Gasification technology, which has been implemented in Japan by JFE and licensed in the US by IWT. Thermoselct has several commercial installations in Japan that are processing selective portion of municipal solid waste (“MSW”) and industrial waste. Thermoselct MSW project in Germany failed to provide desired output and is currently closed.




·
JFE is a large Japanese engineering company, active in various waste treatment areas, also with own proprietary solutions.




·
Ebara – a Japanese gasification technology with several installations in Japan for MSW. It is estimated that its technology currently is too expensive to be implemented in Europe.




·
Westinghouse (AlterNRG) – Plasma Arc technology, implemented by AlterNRG, a Canadian listed company. There are several installations in Japan, but no success yet in other countries.




·
Plasco Energy – Canadian Plasma Arc technology company, aiming for MSW conversion. It has built a large demonstration plant that is not working currently on a continuous MSW waste stream. Plasco Energy has raised significant funds to establish its first commercial facility and to support a vast worldwide business development activity related to waste treatment.




·
InEntech (S4) – MIT Plasma technology. Significant funds were invested in the technology so far. Several installations are located in Asia and one in US. It has formed together with Waste Management, a joint venture, for the implementation of its technology.




Other companies in the field include, Nippon Steel (Japan), Entech, S4 Energy Solution, GEM, Enerkem, Nexterra and OE that mostly have gasification technology for specific waste streams.




Material Agreements




The Kurchatov Institute Agreement




On June 6, 2000, EER Ltd., has entered into an agreement with the Kurchatov Institute, which was amended on February 12, 2002 (the “Kurchatov Agreement”) (the agreement and the rights and obligations of EER Ltd. thereunder were later assigned to EER). Under the terms of the Kurchatov Agreement, Kurchatov Institute assigned and transferred to EER Ltd. all then present and future intellectual property rights and know-how related to the Demo Facility (which was designed, manufactured and constructed for EER by Kurchatov Institute's subsidiary under a separate agreement) and to the Additional Projects (as defined below) (collectively, the "IP Rights"). According to the Kurchatov Agreement, EER Ltd. shall cover all the expenses related to the assigning, registration and recordation of the IP Rights. According to the Kurchatov Agreement, The Kurchatov Institute shall fully cooperate with EER Ltd. for the purposes of utilizing the PGM technology with regard to Municipal Solid Waste ("MSW"), Medical Waste (“MW”), Low Radio Active Waste (“LRAW”) and PGM Compatible Industrial Waste (“IW”), including, but not only, for the designing and construction of plants and installations by EER Ltd., its licensee(s) and/or other purposes (the "Additional Projects"). Upon EER’s request, the Kurchatov Institute shall assign to EER any know-how or intellectual property rights relating to such technologies to be used outside the territories comprising the former Soviet Union, provided the financial and other legal and reasonable interests of the Kurchatov Institute have been satisfied. The Kurchatov Institute and its affiliates shall exclusively work with EER Ltd. on any of the aforementioned applications of the PGM Technology, and shall not assist, directly or indirectly, any individual or entity to engage in any activity in the fields of SMW, MW, LRAW and IW. In addition, the Kurchatov Institute undertook to provide EER Ltd. its know-how and experienced highly qualified specialists in order to obtain the required scientific and technical qualifications in the works related to the Projects, as will be mutually agreed by the parties. In consideration for Kurchatov Institute’s undertakings under the Kurchatov Agreement, EER shall pay Kurchatov Institute a royalty in the amount of 1% of the purchase price actually received by EER from the sale of the Additional Projects.




The PyroGenesis Agreement




On December 5, 2005, EER entered into an agreement for the purchase of equipment with PyroGenesis Inc. (“PyroGenesis” and the “PyroGenesis Agreement”), under which EER purchased from PyroGenesis a Non-Transferred Arc Plasma Torch System (the “Equipment”) which was installed in the Demo Facility, for an aggregate amount of US$810,000 (the “Purchase Price”). The Purchase price did not include spare and wear parts, and certain other components. Pursuant to the PyroGenesis Agreement, PyroGenesis was provided with a right of first refusal for the supply of any and all future torch systems required by EER.




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The Radon Center Agreement




On December 28, 2005, EER entered into an agreement on partnership, R&D collaboration and joint activity with the Radon Center (the “Radon Agreement”), under which the parties agreed to enter into a scientific cooperation, including research and experiment actions, relating to the Technology. According to the Radon Agreement, EER may use, from time to time, Radon Center’s test facility for Low Radio Active Waste treatment, in order to perform experiments and demonstrations. The original term of the Radon Agreement was 5 years, and it has not been renewed. However, even though the Radon agreement expired, EER and the Radon Center continue their collaboration.




The Lease Agreement




In September 2007, EER entered into the Lease Agreement with Naser Recycling Ltd. (the "Naser"), with respect to the ground on which the Demo Facility is located. The original term of the Lease Agreement was three years, and EER had an option to extend the term of the rent for additional two years. EER has exercised the option in 2010, and consequently the term of the Lease Agreement was extended until July 2012. The rent for the entire extension period (NIS 600,000 in the aggregate, not including VAT (approximately US$175 thousands)) was paid in advance. This amount is based on a monthly fee of NIS 25,000, which is approximately US$7 thousands. Pursuant to the terms of the Lease Agreement, the Demo Facility is the property of EER, and EER is responsible for disassembling the Demo Facility and removing it from the property at the end of rental period. As of the date of this shell company report, there is no certainty that the term Lease Agreement will be extended beyond July 2012.




The Primus Agreement




In December 2009, EER entered into an exclusive representation agreement with Primus Security & Consulting, LLC ("Primus" and the “PrimusAgreement”), pursuant to which Primus shall provide strategic consulting and intermediary services related to identifying and accessing parties in the U.S. and in other countries, that might be interested in long-term relationships with EER, for the utilization of EER's Technology. According to the Primus Agreement, Primus has the exclusive right to market and sell projects using EER's Technology, which shall expire in December 2011, following which the parties will negotiate and decide whether or not to extend it for additional period. Primus is entitled to a monthly fee of US$10,000, and is also entitled to additional payments following certain events, including (but not limited to) the closing and the successful establishment of joint ventures introduced by Primus, successful raise of capital for projects by Primus and certain events related to EER's subsidiary in Texas. In addition, Primus is entitled to receive up to 15% of the shares awarding distribution rights (without voting rights) of any U.S. subsidiary formed by EER to accommodate projects introduced by Primus. The Primus Agreement expires in December 2011.




KTH Agreement




On June 4, 2009, EER entered into a cooperation agreement with KTH (the “KTH Agreement”). Under the terms of the KTH Agreement, which is valid for a term of 5 years, KTH undertook to provide EER with technical and scientific support in the ongoing development of the PGM process, including full access to laboratories and facilities of KTH. In the event that EER requests KTH to perform any particular project, EER shall send to KTH a specific work order, specifying the tasks to be performed and the consideration to be paid to KTH for performance of such work. The parties agreed that EER shall have and retain all rights and interests in the PGM process. Any publication of work by KTH which is related to or involving the cooperation between the parties shall require the prior written consent of EER.




The SNC Agreement




On September 15, 2010, EER entered into a memorandum of understanding (the “SNC MOU”) with SNC-Lavalin Engineers & Constructors Inc. (“SLE&C”) which, to the best of EER’s knowledge, is a private company and a subsidiary of SNC-Lavalin Group Inc., a company whose shares are listed for trade on the Toronto Stock Exchange, Canada (“SNCL-G”), and among the leading engineering and construction corporations in the world. The SNC MOU establishes methods of cooperation between EER and SLE&C in respect to projects aimed at exploiting PGM Technology. According to the SNC MOU, the parties will cooperate in identifying projects where technology can be applied to the PGM, bidding implementation, establishment and operation. In the event that the parties are not able to reach an understating regarding the cooperation on a particular project, the interested party will be allowed to do so on its own, while the other will be obligated to refrain from acting on it, unless such party: (i) can establish that it was aware of such project, prior to its identification by the other party, and had determined to pursue such project independently; or (ii) obtains the consent of the other party. Each party shall bear its own cost of pursuing such project and all related expenses until a definitive contract with a client is signed and comes into effect. The parties agreed that none of SLE&C, any client or third party will obtain any rights in the Technology, unless expressly agreed in writing by EER. The SNC MOU may be terminated upon a 30 day prior notice and terminates automatically on December 31, 2012.




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The LOI with Approved Storage & Waste Hauling Inc.




On January 25, 2011, EER entered into a letter of intent with Approved Storage & Waste Hauling Inc. ("ASWH" and the "ASWH LOI"), relating to the formation of a joint venture for an initial pilot project (the "Pilot Project"). According to the ASWH LOI, the Pilot Project will process Regulated Medical Waste in an initial capacity of 15-30 short tons per day, and will be owned by a newly formed U.S. company mutually owned by EER and ASWH. The terms of the Pilot Project would be determined in a definitive agreement, the closing of which shall be 45 days from the expiration date of the LOI. EER and ASWH agreed on certain terms to be included in the definitive agreement, which relate, among other things, to pricing, investment, legal structure and ownership of the Pilot Project. According to the ASWH LOI, the definitive agreement would also include provisions relating to exclusivity on certain geographic areas. According to its terms, the ASWH LOI shall have terminated on December 31, 2011, but it was extended until December 31, 2012. EER and ASWH are currently working with the local and state regulatory bodies to prepare the permitting package for the project.




The Mid West LOI




On March 21, 2011, EER entered into a letter of intent (the “Mid-West LOI") with a third party located in the U.S. (the "US Company"), for the purposes of developing, constructing and operating PGM facilities in five states in the U.S. using EER’s Technology (the “Facilities”). Under the terms of the Mid-West LOI, the US Company will forward to EER all relevant data regarding EER’s plan to develop and operate a PGM facility in one out of the five states (the "First Project”). Per the US Company's request, EER shall provide with all necessary information regarding the Technology, subject to appropriate confidentiality undertakings by the US Company. The US Company shall grant to EER an equity position equal to 14.25% of its then fully diluted share capital (the "US Company Shares”). In exchange for such shares, EER shall produce a Preliminary Engineering Design study for the First Project (the “Study”), which cost shall not exceed US$3,000,000. If the cost exceeds such amount, EER shall not be entitled to additional shares. The US Company shares shall only be transferred to EER upon completion of the Study. The Study will comprise as least 45% of the total work and expense required for the completed front end engineering design for the First Project. Such completed front end engineering design or any further study to be performed by EER shall be funded through the finance raised by the US Company in connection with the First Project. The US Company shall be responsible for obtaining and maintaining all the relevant licenses, permits and approvals from any relevant authority in order to establish and operate the First Project, and EER will be responsible to provide any technical and financial data to meet these requirements. EER shall grant an exclusive license to the US Company to operate all facilities in the five states. The US Company is responsible for obtaining financing for the construction of the first Project. EER shall receive a royalty equal to 5% of the Syngas generated total revenues of the first Plant. All the above mentioned understandings are preliminary and subject to the execution of a definitive agreement between the parties. According to the Mid-West LOI, the US Company and EER shall sign within 6 months from the date of the Mid-West LOI, a binding agreement for the delivery of the First Project and with respect to the US Company Shares, the Study, the technology licenses and royalties and any other agreements as the parties may determine. The definitive agreements shall require the approval of the board of directors of each of the parties. In the event the definitive agreements are not executed by the parties within the 6 months stipulated above, then the Mid-West LOI shall expire and shall have no further force and effect and neither party shall have any further liability in connection therewith. During the period in which the Mid-West LOI is in force, EER and the US Company shall not approach to any other entity in connection with a project using PGM Technology within the geographical scope of the Mid-West LOI. The parties have explicitly agreed that no license to any patent or other intellectual property of either party is granted by the Mid-West LOI.




The Greenstone-EER Management Service Agreement




On February 13, 2002, EER entered into a management service agreement with Urdan Industries Ltd. (currently Greenstone) (the “Greenstone Agreement”), pursuant to which Greenstone undertook to provide EER with management services, office services, accountant services and office rental in accordance with EER needs. In consideration for such services, EER undertook to pay Greenstone the sum of NIS 20,000 per month (plus VAT) linked to the Consumer Price Index (in this section – “the management fees”), as of January 2002 (approximately NIS 24,000 as of the date of this shell company report). The term of the management agreement was set at one year, at the end of which the agreement will be renewed automatically for additional one-year periods, and may be terminated by one month’s notice by either party. From the end of 2004 to December 31, 2010, services were provided by Accord and management fees were paid to them, and as of January 1, 2011 the services are provided by Leader Holdings and Investments Ltd (the parent company of Greenstone; “Leader”), and the management fees are paid to Leader.




Following the completion of the EER Transaction, this management agreement was assigned by Leader to Greenstone.




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The Houston Project




Since 2008, EER has been working on the establishment of a medical waste facility located in La Porte, Texas (in the area of Houston, Texas) which can handle 25 tons of waste per day (the "Houston Facility"). In October 2010, EER has secured an option to purchase or lease the land on which Houston Facility is to be located. The option has been extended and it is now valid until January 2012. In September 2010, EER received a permit by rule (PBR) from the Texas State environmental authority which is due to the low emission from the PGM process exempts EER from the need to obtain full federal type 5 air permit. The PBR permits EER to begin construction of the Houston project. In addition, in November 2009 EER received waiver of the Texas State health authority, according to which EER's PGM process is deemed an approved technology for the treatment of municipal waste, and therefore EER does not have to go through an additional microbiological testing procedure.




The PBR allow EER to begin construction on the Houston project however, in order to fully operate the Houston Project, EER still needs to obtain a registration document for untreated waste. EER is in the process of obtaining the registration document, and it expects to obtain it by October 2011.




The final license required to operate the Houston project is a registration document of the untreated waste scheduled to arrive at the facility. The registration for the untreated waste to be received for facility is in the final stages and is awaiting the full allowance within the next 60 days.




EER is currently working with Primus to secure a waste stream for the plant and to obtain the necessary funding to construct the Houston Facility.




The Plazma MOU




In May, 2011, EER and SLE&C, have entered into a memorandum of understanding (the "Plazma MOU") with Zaklad Zagospodarowania Odpadow "PLAZMA" Sp.z. o.o ("Plazma"), a Polish company, pursuant to which EER, SLE&C and Plazma shall cooperate for the purpose of designing, engineering, constructing and operating a waste treatment facility, based on EER's Technology, in Poland. Plazama will work exclusively with EER and SLE&C on the development of the facility, with EER acting as the technology provider and SLE&C as consultant and provider of certain engineering services. Plazma shall be solely responsible for constructing the facility in Poland, including, but not limited to, obtaining finance, obtaining all necessary licenses and regulatory approvals, and preparing a business plan and a financial model for the facility. EER and SLE&C have agreed to assist and provide necessary information during the process. EER has also agreed to consider taking an equity position in the project. The scope of work to be performed by EER in connection with the project shall be agreed upon by the parties. According to the Plazma MOU, the parties shall negotiate and enter into a definitive agreement within twelve months of the date of the Plazma MOU, or else the Plazma MOU shall expire.




Research and Development




EER’s research and development activity is conducted in Israel, at the Royal Institute of Technology of Sweden (under the KTH Agreement), and at SNC (under the SNC Agreement). In 2007, the development stage of the Technology has ended, and EER is currently working on improvements to the Technology.




In 2004, the Chief Scientist Office at the Ministry of Industry, Trade and Labor, approved EER’s request to receive financial assistance for research and development in connection with the products of EER. The approval was conditioned on abiding by the provisions of the Israeli R&D Law, including, among others, payment of royalties from the sale of products developed with the assistance of the Chief Scientist up to a 100% refund of the grant amounts received by EER. Under the terms of the R&D Law, any intellectual property developed using the Office of the Chief Scientist funds must be fully and originally owned by the Israeli company which received such funds. The R&D Law restricts the ability to transfer abroad know-how funded by the Office of the Chief Scientist. Transfer of such know-how to a foreign entity requires a prior approval from the Office of the Chief Scientist, and is subject to payment of a redemption fee to the Office of the Chief Scientist calculated according to formulas provided under the R&D Law.




As of the date of this shell company report, EER has received a total of NIS 1.7 million (approximately US$0.4 million), out which an amount of NIS 0.2 million (approximately US$0.05 million) has been repaid to date by EER.




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Intellectual Property




As of June 28, 2011,  EER has had nine active families of patent applications and patents, as describes below:




·
Apparatus for Processing Waste. This application generally describes the overall plant, comprising waste input means, a waste processing chamber to hold a column of waste, one or more plasma torches, a control system, and post processing means. A patent has been granted in the U.S., Europe (validated in 13 countries), Israel, India, Japan, Korea, Argentina, Singapore, Taiwan and Hong Kong. The application is awaiting examination in Thailand.




·
System and Method for Removing Blockages in a Waste Converting Apparatus. This application repeats the description of the processing chamber and describes the problems of blockage that can arise during operation of the system due to incomplete breakdown of the waste into gaseous and liquid products. A patent has been granted in the U.S., Europe (validated in 10 countries), Israel, India, Korea, Argentina, Singapore, Taiwan, Thailand, and Hong Kong. The application is awaiting examination in Japan.




·
Apparatus for Processing Waste with Distribution/Mixing Chamber for Oxidising Fluid. The description and claims are mainly concerned with the shape of the vertical shaft processing chamber, which is constructed such that it does not have a uniform cross-section but is provided with a transition between its upper and lower parts. Patents have been granted in the U.S., Europe (validated in 13 countries), Israel, Argentina, Singapore, Taiwan, Hong Kong, India, Japan, and Korea. The application is awaiting examination in Thailand.




·
System and Method for Decongesting Waste Disposal Apparatus. The principal claims in this application are directed towards the presence of a fluxing agent inlet to provide flux to overcome the decongestion problems. A patent has been granted in the US, Europe (validated in 10 countries), Israel, India, Korea, Argentina, Singapore, Taiwan and Hong Kong. Japan and Thailand have been abandoned.




·
Recycling System for a Waste Processing Plant. This application is related to the post processing system of the waste processing plant, i.e. to the part of the plant whose job it is to collect and purify the gaseous products that exit the processing chamber so that they can either be stored for reuse or safely released to the atmosphere. A patent has been granted in the US, Israel, China, Korea, Singapore, and Taiwan. The examination has begun in Japan, India, and Europe. The application is awaiting examination in Thailand and Hong Kong.




·
Control System for a Waste Processing Apparatus. This application describes and claims a control system for operating an air lock arrangement used to introduce the waste into the top of the processing chamber. A patent has been granted in the US, Israel, Europe (validated in 13 countries), China, Singapore, Taiwan, Japan and Korea. The examination has begun in India. The application has been abandoned in Hong Kong.




·
Transceiver Unit, Apparatus, System and Method for Detecting the Level of Waste in a Furnace. The application describes and claims a unique microwave transducer assembly that is used as a sensor to determine the level of the waste inside the feeding conduit that extends into the vertical shaft of the processing chamber. A patent has been granted in Singapore. All other applications have been abandoned.




·
System for Controlling the Level of Potential Pollutants in a Waste Treatment Plant. This application describes and claims a system placed at the entrance to the waste treatment plant for sorting the waste entering the plant according to the concentration of specified chemicals in the waste. A patent has been granted in the US, Europe (Validation in 4 countries) Israel, Singapore, China, Australia and Taiwan. An examination has begun in Japan. The application is awaiting examination in Canada, India, Korea, and Hong Kong.




·
An Improved Plasma Torch for Use in a Waste Processing Chamber. This application describes and claims an improved plasma torch design. The unique feature of the torch is a sleeve that surrounds the portion of the torch that extends into the processing chamber. A patent has been granted in Israel, Europe (validated in 6 countries), and Singapore. The application has been allowed in Australia. The examination has begun in China and Japan. The application is awaiting examination in Canada, Taiwan, US, India, Korea and Hong Kong.




Government Regulations




The Encouragement of Industrial Research and Development Law, 5744-1984




EER has received grants from the government of Israel through the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor, or the OCS, for the financing of a portion of its research and development expenditures in Israel, pursuant to the Encouragement of Industrial Research and Development Law 5744-1984, or the R&D Law. Under the R&D Law, royalties on the revenues derived from sales of products (and related services) developed (in all or in part) according to, or as a result of, the OCS funded plans are payable to the Israeli government, at annual rates which are determined under the Encouragement of Industrial Research and Development Regulations (Rate of Royalties and Rules for the Payment thereof), 1996, or the R&D Regulations, up to the aggregate amount of the grants received by the Office of the Chief Scientist, plus annual interest (as defined in the R&D Regulations). Any intellectual property developed using the OCS funds must be fully and originally owned by the Israeli company which received such funds. The R&D Law restricts the ability to transfer abroad know-how funded by the Office of the Chief Scientist. Transfer of such know-how to a foreign entity requires prior approval from the Office of the Chief Scientist, and is subject to payment of a redemption fee to the OCS calculated according to formulas provided under the R&D Law. As of the date of this shell company report, EER has received a total of NIS 1.7 million (approximately US$0.4 million), out which an amount of NIS 1.5 million (approximately US$0.35 million) has not yet been repaid by EER.




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C.            Organizational Structure




We currently own 38.5% of EER's share capital (and 60.2% of its voting rights), which, as of the date of this shell company report, is our only subsidiary. Greenstone beneficially owns approximately 55.6% of our outstanding share capital (excluding 1,040,000 dormant shares, and including 20,054,893 shares to be issued to Accord in connection with the closing of the EER Share Purchase Agreement). As of August 31, 2011, Leader Holdings & Investments Ltd., a company organized under the laws of the State of Israel (“Leader”) is the holder of 48.2% of the equity interest of Greenstone.




D.            Property, Plant and Equipment




We currently do not have any material fixed assets. EER, our majority owned subsidiary following the completion of the EER Transaction, owns an operational demonstration facility, located near the village of I’billin, in Northern Israel (the "Demo Facility"). EER is leasing the ground on which the Demo Facility is located. The Demo Facility is capable of treating up to 20 metric ton per day of solid waste. According to the terms of Demo Facility's current business license, the plant is allowed to treat unsorted municipal solid waste. As of the date of this shell company report, the plant does not currently produce and commercial products. For additional information, see "Item 3.D. Risk Factors – Risks related to EER – EER's dependence on a single Demo Facility magnifies the risk of an interruption in its business operations", in this shell company report.




Item5.     Operating and Financial Review and Prospects




The following operating and financial review and prospects should be read in conjunction with “Item 3.A Selected Financial Data” and our consolidated financial statements and accompanying notes appearing elsewhere in this annual report. Our financial statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board or IFRS, which differ in certain respects from U.S. Generally Accepted Accounting Principles, or U.S. GAAP.  Following our January 1, 2008 adoption of IFRS, we are no longer required to reconcile our financial statements prepared in accordance with IFRS to U.S. GAAP.




We sold substantially all of our assets to Elbit Systems Ltd. on November 19, 2009.  Our consolidated financial statements reflect the sale of our advanced defense training and simulation systems business to Elbit. As we have not initiated or acquired a new operating business during the year ended December 31, 2009, the results of our operations prior to the consummation of Elbit Transaction are not reported as "discontinued operations" in our consolidated financial statements in accordance with IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations".




On August 31, 2011, we completed the EER Transaction and purchased 7,996,210 ordinary shares of EER from Greenstone and Accord. We expect to purchase additional shares of EER from additional EER shareholders, who elected to become parties to the Additional SPA (see "Item 7.B. Related Party Transactions – EER Transaction" below for additional information). Since RVB has no business activity as of the date of the transaction, and thus does not meet the definition of a Business under IFRS 3, and since the majority of the shareholders of RVB following the closing of the EER Transaction are former shareholders of EER, the EER Transaction does not meet the definition of a 'Business Combination' under IFRS 3. For accounting purposes, the EER Transaction together with the Additional SPA is treated as a capital transaction of EER. See "— Unaudited Condensed Consolidated Pro Forma Financial Information" below in this shell company report.




General




Prior to the consummation of the Elbit Transaction, we were engaged in the development, manufacture and marketing of advanced defense training and computer-based simulation systems for military applications.




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Most of our revenues were generated in U.S. Dollars, and a significant proportion of our expenses was incurred in U.S. Dollars or was linked to the U.S. Dollar. Consequently, we use the U.S. Dollar as our functional currency. Transactions and balances originally denominated in U.S. Dollars are presented in the financial statements in their original amounts, and non-dollar transactions and balances have been translated into U.S. Dollars using the exchange rates in effect on the date of a transaction or balance. Our Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB).




We derived a substantial portion of our revenues from government contracts, the majority of which were fixed-price, as opposed to cost-plus type contracts. Under fixed-price contracts, the price is generally not subject to adjustment for costs actually incurred in the performance of the contract.




In most of our projects, we received advance payment at the commencement of the project and progress or milestone payments according to our performance or achievement of specific milestones. In most cases, the advance payments that we received prior to incurring the cost of fulfilling the contract created a positive project cash flow. Our contracts generally contained provisions that allowed for termination or suspension as a result of factors beyond our control, such as a state of war, force majeure, or other circumstances seriously disrupting the public safety, peace or good order of the customer’s country. In the event that a contract under which an advance or progress payment had been paid was canceled, we were required to return such payments or a portion of them to the customer.




We generally attempted to expend funds for projects in accordance with the rate of performance in order to reduce risks of financial exposure resulting from early termination of a contract. Upon such termination, we would, in most cases, be entitled to reimbursement for our incurred contract costs and to payment of a proportionate share of our fee or profit for the work actually performed.




Revenues related to work in progress under long-term contracts are recognized on the basis of the “percentage-of-completion” method. Cost includes direct costs of materials, labor, subcontractor and other direct costs and allocated indirect manufacturing costs. The percentage of completion is measured on the basis of cost (the ratio of the costs incurred to the total estimated costs), which reflect the progress of the contract completion. Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments to the extent that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract was able to be estimated reliably, we recognized the contract revenue and expenses in profit or loss in proportion to the percentage of completion of the contract. When the outcome of a construction contract was not able to be estimated reliably, we recognized the contract revenue only to the extent of contract costs incurred that were likely to be recoverable. An expected loss on a contract is recognized immediately in profit or loss.




With respect to the sale of products acquired from third parties as shelf products and where the cost of adaptation thereof for a customer’s specific needs is not material, the related revenue is recognized after completion and delivery.




Provision for estimated losses on uncompleted contracts are made in the period in which such losses are first determined in the amount of the estimated loss on the entire contract.




Royalties and commission revenues are generally recognized when the related payments are received by the third party. We determine such revenues through confirmation of payments subject to royalties and commissions directly from the third party.




Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.




Critical Accounting Policies




The preparation of our financial statements, in conformity with IFRS  requires us to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These are our management’s best estimates based on experience, various facts, external circumstances, reasonable assumption and historical data.  Actual results could differ from those estimates.




Certain specific accounting policies we utilize require higher degrees of judgment than others in their application. These include going concern, revenue recognition on long-term contract work and income taxes. In addition, Note 2 to our Consolidated Financial Statements includes a further discussion of our significant accounting policies regarding revenue recognition.




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Revenue Recognition




During the periods covered by the consolidated financial statements prior to the Elbit Transaction, we accounted for our revenues on fixed price long-term contract work on the percentage of completion method.  This method of accounting requires us to calculate project profit to be recognized in each reporting period for each project based upon our predictions of future outcomes which include estimates of the total cost to complete (such as assumptions relative to future labor performance and costs, materials costs and subcontractor charges) and estimates of project schedule and completion date.




At the onset of each contract, we prepared a detailed analysis of our estimated cost to complete the project.  Our project personnel evaluated the estimated costs at the project level.  Significant projects were reviewed in detail by senior management on a quarterly basis.




Our estimates of revenues and expenses on long-term contracts could change periodically in the normal course of business. Such changes would be reflected in results of operations as a change in accounting estimate in the period the revisions are determined. For all the contracts, provisions for estimated losses on uncompleted individual contracts were made in the period in which such losses were first determined, in the amount of the estimated loss on the entire contract




Royalties and commission revenues resulting from the cooperation agreement with Israel Aircraft Industries Ltd. ("IAI") were recognized when the Company received confirmation of payments subject to royalties and commissions from IAI.




Revenue from services rendered was recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion was assessed by reference to surveys of work performed.




Income Taxes




Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers projected taxable income and tax planning strategies in making this assessment.  In order to fully realize the deferred tax asset, the Company will need to generate future taxable income prior to the expiration of the deferred tax assets governed by the tax code.  Based on the level of historical taxable losses, management believes that it is more likely than not that the Company will not realize the benefits of these deductible differences.




Critical Accounting Estimates regarding EER's financial statements




The preparation of EER's financial statements, in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These are management’s best estimates based on experience, various facts, external circumstances, reasonable assumption and historical data.  Actual results could differ from those estimates.




Following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application. For a further description of EER's material accounting policies, please read Note 2 to EER's financial statements for the year ended December 31, 2010, starting on page F-1 of this shell company report.




Property, Plant and Equipment




Property, plant and equipment (currently, only the Demo Facility) represent a significant proportion of the asset base of EER. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to EER's financial position and performance.




The useful lives of EER's assets are determined by management at the time the asset is acquired and reviewed at least annually for appropriateness. The useful lives are based on historical experience as well as anticipation of future events, which may impact their life, such as changes in technology.




Intangible Assets




Intangible assets with finite useful lives (acquisition and development costs of know-how to implement new technology for the treatment of solid waste, bio-medical waste and low and intermediate radioactive waste) are carried at cost less accumulated amortization and accumulated impairment losses. The know-how is depreciated over a period of 12.5 years, based on the remaining useful life of the main patent registered thereto as of the date of commencement of depreciation.




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Impairment of Long-Lived Assets




EER periodically evaluates the net realizable value of long-lived assets, including other intangible assets and tangible fixed assets, relying on a number of factors, including business plans and projected future cash flows.




Assets that are subject to amortization are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.




A.            Results of Operations




On November 19, 2009, after receipt of all required approvals we sold substantially all of our assets and liabilities to Elbit , for a total cash consideration of approximately US$34 million, out of which US$4.8 million were held in escrow, see Note 4 to our Consolidated Financial Statements. As a result of the Elbit Transaction, we recorded, in the 2009 statement of operations, a net gain of US$30.2 million, after deducting attribute transaction costs in the amount of US$ 655 thousand. In addition, transaction related expenses in the amount of US$471 thousand were recorded in the General and administrative expenses.




During 2010, Elbit notified us that the purchased projects were not balanced in the amount of US$970 thousand and we disputed Elbit's claims. At the end of 2010 we reached a final settlement with Elbit according to which, a payment of US$242 thousand will be transferred to Elbit and US$728 thousand will be transferred to us. We've recognized the aforementioned amount of US$728 thousand as other income in 2010, due to the fact that we did not recognize this amount as an asset in the balance sheet of 2009.




As of December 31, 2010 all of the Company’s escrow accounts were released back to the Company.




Our operating cycle until the Elbit Transaction was generally twenty four months. Since the Elbit Transaction and until the EER transaction we did not conduct any operations. Therefore, in accordance with IFRS, the normal operating cycle for the period ended 2010, is twelve months.




Year Ended December 31, 2010 Compared to Year Ended December 31, 2009.




On November 19, 2009 we completed the Elbit Transaction.  Accordingly, it should be noted that during the year ending December 31, 2010 we had no operating activity and as such the comparison of our operating results of the year ended December 31, 2010 to the year ended December 31, 2009 is not applicable.




General and Administrative Expenses.




General and administrative expenses consist primarily of salaries and related costs of welfare and administration, finance and general management personnel, professional fees, office, vehicle and rental expenses. General and administrative expenses in fiscal 2010 were US$0.7 million, a decrease of US$3.3 million, or 83%, from US$4 million in fiscal 2009. The decrease in general and administrative expenses was primarily attributed to the sale of business to Elbit.




Operating Loss




As a result of the foregoing and the income from Elbit Transaction, resulting in a net gain of US$0.9 million, we had an operating profit of US$0.2 million in fiscal 2010, compared to an operating profit of US$31.6 million in fiscal 2009.




Financial Expenses, Net.




Financial expenses consist primarily of interest paid on loans, bank charges, losses from foreign exchange erosion of monetary balances and losses from derivatives instruments. Financial income consists primarily of interest earned from short-term deposits and interest on non-current receivables. Financial income, net in fiscal 2010 was approximately US$0.3 million compared to expenses of US$2.2 million in fiscal 2009. The increase in financial income net is attributed to increase in interest on bank deposits due to the Elbit transaction proceeds.




Year Ended December 31, 2009 compared to Year Ended December 31, 2008




Revenues




Revenues in fiscal 2009 were US$37.1 million, an increase of 18% compared to revenues of US$31.6 million in fiscal 2008.  The increase was primarily attributed to the increase of the order backlog in 2008 of US$29 million and to revenues from royalties in fiscal 2009 which contributed US$3.2 million. Revenues from sales of our live and embedded training systems products accounted for 70% and 71% in fiscal 2009 and 2008, respectively. Revenues derived from our virtual and constructive simulator products accounted for 29% and 30% of our revenues in fiscal 2009 and 2008, respectively.  The geographical breakdown of our revenues in fiscal 2009 was as follows: approximately 76% of our revenues were in Asia, 12% in Europe, 11% in Africa and 1% in America.  In fiscal 2008, approximately 89% of our revenues were in Asia, 5% in Europe, 4% in America and 1% in Israel. The fluctuations in the proportion of our revenues attributed to geographic areas are the result of the completion of several contracts, which we had with various countries. Our agreements are multi-year contracts, and we generally recognize revenues on the percentage of completion method, recognizing expenses when incurred.




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Gross Profit




Gross profit in fiscal 2009 was approximately US$8.8 million, an increase of US$0.5 million from a gross profit of US$8.3 million in fiscal 2008. The increase in gross profit was primarily due to the increase of the revenues in fiscal 2009. As a percentage of revenues, gross margins decreased slightly from an overall gross margin of 26% in fiscal 2008 to an overall gross margin of 24% in fiscal 2009. Our gross margin is influenced by various factors, such as the type and size of a project, and the portion of projects performed by subcontractors.




Research and Development Costs




Research and development expenditures consist primarily of salaries, subcontractors and other personnel related expenses related to design, development and enhancement of our products and, to a lesser extent, depreciation and other expenditures.  Research and development expenses in fiscal 2009 were US$1.5 million, an increase of US$0.3 million from fiscal 2008. Research and development expenses increased primarily from continuing development of new products and from development ofgeneric infrastructure for future projects.




Selling and Marketing Expenses




Selling and marketing expenditures consist primarily of costs relating to payroll expenses, sales commissions, subcontractors and consultants, travel expenses, demonstrations, exhibitions and participation in trade shows. Selling and marketing expenditures in fiscal 2009 were US$1.9 million, a decrease of US$0.2 million, or 13%, from US$2.1 million in fiscal 2008 attributed to the fact that there was a decrease in marketing activities in fiscal 2009.




General and Administrative Expenses




General and administrative expenses consist primarily of salaries and related costs of welfare and administration, finance and general management personnel, professional fees, office, vehicle and rental expenses. General and administrative expenses in fiscal 2009 were US$4 million, an increase of US$1.3 million, or 46%, from US$2.8 million in fiscal 2008. The increase in general and administrative expenses was primarily attributed to an increase in the professional fees due to the sale of business to Elbit.




Operating Profit (Loss)




As a result of the foregoing and the income from Elbit Transaction a net gain of US$30.2 million, we had an operating profit of US$31.6 million in fiscal 2009, compared to an operating profit of US$2.2 million in fiscal 2008. As a percentage of revenues, operating profit increased from an operating profit of 7% in fiscal 2008, to an operating profit of 85% in fiscal 2009.




Financial Expenses, Net




Financial expenses consist primarily of interest paid on loans, bank charges, losses from foreign exchange erosion of monetary balances and losses from derivatives instruments. Financial income consists primarily of interest earned from short-term deposits and interest on non-current receivables. Financial expenses, net in fiscal 2009 were approximately US$2.2 million compared to expenses of US$0.5 million in fiscal 2008. The increase is attributed to increase in interest on short term loans from bank and others.




Impact of Inflation and Devaluation on Results of Operations, Liabilities and Assets




Prior to the Elbit Transaction, the dollar cost of our operations was influenced by the extent to which inflation in Israel is or is not offset, or is offset on a lagging basis, by the devaluation of the NIS in relation to the dollar. When the rate of inflation in Israel exceeds the rate of devaluation of the NIS against the dollar, companies experience increases in the dollar cost of their operations in Israel.  Unless offset by a devaluation of the NIS, inflation in Israel has a negative effect on our profitability, as we received payment in dollars or dollar-linked NIS for all of our sales, while we incurred a portion of our expenses in NIS.




23




The following table presents information about the rate of inflation in Israel, the rate of devaluation of the NIS against the dollar, and the rate of inflation in Israel adjusted for the devaluation:





Year ended

December  31

Israeli inflation % rate


Devaluation of the NIS

rate %


Israeli inflation adjusted for devaluation %2006


(0.1
)


(8.2
)


8.12007


3.4



(9.0
)


12.42008


3.8



(1.1
)


4.92009


3.9



(0.7
)


4.62010


2.7



(6
)


8.7




Devaluation of the NIS in relation to the dollar has the effect of reducing the dollar amount of any of our expenses or liabilities payable in NIS, unless those expenses or payables are linked to the dollar or to another currency.  This devaluation also has the effect of decreasing the dollar value of any asset that consists of NIS or receivables payable in NIS, unless the receivables are linked to the dollar or to another currency.  Conversely, any increase in the value of the NIS in relation to the dollar has the effect of increasing the dollar value of any unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and expenses.




Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations as recently experienced in Israel and, particularly larger periodic devaluations or revaluations, will have an impact on our profitability and period-to-period comparisons of our results. In 2009 and 2010, the devaluation of the dollar against the NIS exceeded the rate of inflation in Israel, and we experienced an increase in the dollar cost of our operations in Israel.




The consideration received from Elbit upon consummation of the Elbit Transaction was denominated in U.S. dollars and has since been deposited in U.S. dollar denominated accounts.  Some of the liabilities we retained were denominated in other currencies (most notably severance payments in Israel).  As a result of the devaluation of the U.S. dollar against the NIS, the value of those liabilities increased.  We currently conduct our business in Israel and a significant portion of our expenses are in NIS.  We therefore expect to continue to be affected by changes in the prevailing NIS/U.S. dollar exchange rate in the future.  Further as we are exploring business opportunities around the world, our investment in prospective businesses may be denominated in non U.S. dollar currencies, and due to the fluctuations in the exchange rates in recent years, we cannot anticipate the impact that the prevailing exchange rate will have on our future investments.




The effects of foreign currency remeasurements are reported in our consolidated financial statements in the statement of operations.




In the past, we entered into currency future contracts and put and call option contracts to reduce our exposure to fluctuations of specific currencies against the dollar, resulting primarily from firm commitments in such currencies. As of December 31, 2010, we had no derivative financial instruments.




Effective Corporate Tax Rate




Israeli companies are generally subject to corporate tax at a rate of 24% in 2011 (25% in 2010). The Israeli corporate tax rate is scheduled to be gradually reduced to 18% by the year 2016 (23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016 and thereafter).




B.            Liquidity and Capital Resources




Historically we have met our financial requirements primarily through the private sale of equity securities, customer payments and advances and the utilization of bank credit lines.  In addition, we raised capital through equity financings in 2004 and in 2006. In March 3, 2009, we entered into an agreement in principle with Milestones Upgrading Ltd. ("Milestones") for the investment of US$3 million in share capital and the grant of a convertible loan of US$2 million. Pursuant to the execution of this agreement in principle, the investor provided us with a US$1.5 million loan which was considered part of the US$2 million loan amount to be granted under the definitive agreement. Milestones did not consummate the investment and in December 2009 we entered into a settlement agreement with Milestones pursuant to which we repaid the loan including interest in a total amount of US$1.7 million.  For more information on the Milestones settlement see Item 10C. Material Contracts.




On May 28, 2009, we announced that we entered into an agreement with Golan Investments for the investment of US$3.5 million in the Company by means of a debenture, of which US$2 million was provided to the Company on May 31, 2009 and the balance of US$1.5 million was provided on June 21, 2009 (the "Golan Debenture").  In addition to the debenture, Golan Investments received a warrant to purchase three (3) million ordinary shares of the Company at an exercise price of US$0.18 per share, which is exercisable for a period of five (5) years and will terminate in May 2014. The debenture became due twelve (12) months from the issue date in the amount of US$3.85 million, and provided that it may be extended for additional consideration. Immediately following the Elbit Transaction, we repaid the Golan Debenture, within the initial twelve (12) month term, in the amount of US$4.55 million, in accordance with its terms. The warrants granted to Golan Investments for the purchase of three (3) million ordinary shares of the Company remain outstanding as of the date of this report.




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Upon consummation of the Elbit Transaction, we fully repaid our short-term debt to banks in the amount of US$1.75 million. The total obligation for credit received from banks and for bank guarantees provided in favor of the Company was transferred to Elbit and we were released from all outstanding guarantees for the period following the Elbit transaction.




As of December 31, 2010, we had cash and bank deposits of approximately US$33.6 million and a positive working capital of approximately US$33.6 million.




Prior to the Elbit Transaction, our operating cash flow was influenced by cash advances from customers’ offset and by cash used in the performance of ongoing projects. Operating activities for the year 2009 and 2008, provided (or used) cash of approximately (US$11.5) million and US$9.6 million, respectively. For fiscal 2009, cash used from changes in assets and liabilities of (US$11.2) million primarily consisted of an increase in trade receivables of (US$10.5) million which were sold to Elbit. For fiscal 2008 cash derived from changes in assets and liabilities of US$7.3 million consisted primarily of an increase in deferred revenues of US$7.9 million and an increase in trade payables of US$2.9 million.




Investing activities for fiscal 2010, 2009 and 2008 provided (or used) cash of approximately (US$5.8) million, US$37 million and (US$5.9) million, respectively. Cash flows used in investing activities in fiscal 2010 consisted primarily of US$4.6 million proceeds from transaction with Elbit and a release of deposit in escrow, US$0.2 million decrease in restricted bank deposits (net of interest received) and US$10.5 million deposits in bank.




Cash flows provided of investing activities in fiscal 2009 consisted primarily of proceeds from the transaction with Elbit of US$28.8 million and a decrease in restricted bank deposits (net of interest received) and deposits in escrow of US$8.6 million. The decrease in restricted bank deposits resulted from the transfer of the entire obligation for credit received from banks and for bank guarantees to Elbit.




Cash flows used in investing activities in fiscal 2008 consisted primarily of the purchase of fixed assets and intangible assets in the amount of US$0.4 million and an increase in restricted bank deposits (net of interest received) of US$5.6 million.




Financing activities for fiscal 2010, 2009 and 2008 provided (or used) cash of approximately of US$0 million, US$0.2 million and (US$0.9) million respectively.




Cash flows used in financing activities in fiscal 2008 consisted primarily of repayment of short-term bank credit and loan in the total amount of US$1 million.




C.            Research and Development, Patents and Licenses




Our policy was to devote a significant portion of our personnel and financial resources to developing new products.  Following the sale of our assets to Elbit in November 2009, we conduct no research and development activities.




Our gross research and development expenditures were US$0 in 2010, US$1.5 million in 2009 and US$1.2 million in 2008.




D.            Trend Information




Not applicable.




E.             Off-Balance Sheet Arrangements




We do not have any off-balance sheet arrangements which have or are reasonably likely to have a material current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of our Company.


F.             Tabular Disclosure of Contractual Obligations




As of December 31, 2010, we had no contractual obligations of the type required to be disclosed in this section.




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G.            Safe Harbor




All information included in Item 5.E of this Item is deemed to be a “forward looking statement” as that term is defined in the statutory safe harbors, except for historical facts.  The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 shall apply to all forward-looking information provided in Item 5.E and F of this Item.




ITEM 6.    Directors, Senior Management and Employees




A.            Directors and Senior Management




The following table lists the name, age and position held by our executive officer and directors, as of August 15, 2011:





Name

Age

PositionYitzhak Apeloig

52

Director and Chairman of the Board of DirectorsYair Fudim

62

Director and Chief Executive OfficerJonathan Regev

47

External DirectorAlicia Rotbard

62

External DirectorGedaliah Shelef

51

Director




Yitzhak Apeloig is servin as a director of our Company since March 2011. Mr. Apeloig serves as chairman of the board of directors of Leader Holdings & Investments Ltd, Greenstone Industries Ltd., E.E.R. Environmental Energy Resources (Israel) Ltd. and Polar Communications Ltd. Mr. Apeloig has served as a chairman of the board of directors and CEO of Anigad Ltd. since 2005. From 2003 to 2005 Mr. Apeloig served as chairman of the board of directors of Telit Communications PLC and its main subsidiary Dai Telecom SPA, located in Italy. From 2001 to 2003 Mr. Apeloig served as CEO of Polar Infrastructures Ltd. From 1994 to 2001 Mr. Apeloig served as CFO and member of board of management of Polar Investments Ltd. From 1992 to 1994 Mr. Apeloig served as CFO and member of board of management of Magal Security Systems Ltd. Mr. Apeloig has been a member of the board of directors of the following companies, among others: M.G.A.R Computerized Collection Center Ltd., Leader Hanpakot (1993) Ltd, Leader Croatia B.V, Prioricity Ltd., Dip Tech Ltd., Fomat Ltd, Technomatica Ltd. Mr. Apeloig holds a B.A. in Accounting and Economics from the Tel Aviv University.




Yair Fudim is serving as a director of our Company since March 2011. Mr. Fudim has been serving as Chief Executive Officer of Leader Holdings & Investments Ltd. since April 1991 and as Chief Executive Officer of Greenstone Industries Ltd. since February 2010. Mr. Fudim has served as chairman of the board of directors of Leader Capital Markets Ltd., and has been a member of the board of directors of the following companies, among others: Leader Hanpakot (1993) Ltd., Leader Financial Analysis (1999) Ltd., Leader Trust Company Ltd., Leader & Co Investment House Ltd., Leader & Co Finance (2001) Ltd., Leader & Co Capital Ltd., Leader Financial Assets Management (2005) Ltd., Leader & Co Asset Management Ltd., Leader Resources Ltd., Leader Resources Trustees Ltd., Leader Real Estate (2006) Ltd., Polar Communications Ltd., Koonras Technologies Ltd., E.E.R. Environmental Energy Resources (Israel) Ltd., Yariv Assets and Holdings (1980) Ltd., Zimmcor Alubin (1973) Ltd., RonRom Consulting Services Ltd. Mr. Fudim holds a B.A. in Economics and an MBA from the Hebrew University of Jerusalem.




Alicia Rotbard is serving as our external director since July 2008. In 1989 Ms. Rotbard founded DOORS Information Systems, Inc. and she served as its Chief Executive Officer until 2002. Since 1989 she has served as President and Chief Executive Officer of Quality Computers Ltd. and from 1980 to 1985, she served as Deputy General Manager of the Tel-Aviv Stock Exchange, managing its computer department and operations.  Ms. Rotbard holds a B.Sc. in Mathematics and Physics from the Hebrew University of Jerusalem.




Jonathan Regev is serving as our external director since April 2010. Since 2007, Mr. Regev has been serving as Chief Executive Officer of Abnet Communications Ltd.  From 2004 to 2006, Mr. Regev served as the Chief Financial Officer of Oblicore Inc.  From 2000 to October 2004, Mr. Regev worked at Amdocs Management Limited in various positions including as Chief Operating Officer and Chief Financial Officer of Amdocs' CRM Division. From 1998 to 2000, Mr. Regev worked as the Director of Corporate Treasury, Budget Control and Chief Finnacial Officer Deputy of Nilit Ltd. From 1995 to 1997 he worked as the Controller and Director of Corporate Economics of the Strauss Group in Israel and from 1992 to 1995, Mr. Regev worked as Head of Industrial Control and Economic Department of the Manufacturing Division of Tadiran Electrical Appliances Ltd.  Mr. Regev holds an M.A. in Economics from the Technion-Israel Institute of Technology and a Bs. in Physics from the Tel Aviv University.




26




Gedaliah Shelefis serving as a director of our Company since March 2011. Mr. Shelef has served as executive director of Environmental System Ltd. since 1991. Mr. Shelef has served as a professor emeritus of the Technion-Israel Institute of Technology (the "Technion") since 2004. From 1968 to 1971 Mr. Shelef served as Chief Sanitary Engineer and Head of the Division of Environmental Health of the Ministry of Health, Israel. From 1990 to 1992 Mr. Shelef served as a member of the advisory committee of the U.S. Environmental Protection Agency. From 1981 to 2004 Mr. Shelef served as head of the Environmental Laboratory and Research Group at the Technion. From 1972 to 1992 Mr. Shelef served as a member of the board of director or the board of governors of the following companies and institutes, among others: National Building Research Institute (1988-1990) and Tahal Consulting Engineers Ltd. (1989-1993), Coastal and Marine Engineering Research Institute of the Technion and the Port Authority (1985-1990), Coastal and Marine Engineering Research Institute of the Technion and the Port Authority (1985-1990), Transportation Research Institute of the Technion and the Ministry of Transportation (1985-1990), Technion (1983-1985), International Association of Water Pollution Research (1976-1980), Israel Oceanographic and Limnological Research Company Ltd (1971-1976). Mr. Shelef holds a Ph.D. in Hydraulics and Sanitary Engineering from the University of California, Berkley.




B.            Compensation




Members of our board of directors, other than the previous chairman of our board of directors and our external directors, do not receive cash compensation for their service on the board of directors or any committee of the board of directors. Our external directors received an aggregate of approximately US$35,500 for the year ended December 31, 2010. In addition, the previous chairman of our board of directors who provided chief executive officer services was paid a total of US$164,150 for the year ended December 31, 2010.




In March, 2011, our audit committee and board of directors resolved that, as of the date of Ms. Rotbard election as an external director of the Company, the Company’s external directors (Alicia Rotbard and Jonathan Regev) shall be paid the maximum amount allowed under the Companies Regulations (Rules regarding Compensation and Expense Reimbursement of External Directors) 2000, currently, an annual fee of approximately NIS 59 thousands and a participation fee of approximately NIS 3 thousands per meeting.




On March 27, 2011, our  audit committee and board of directors approved, in accordance with the Israeli Companies Regulations (Relieves for Transactions with Interested Parties) of 2000 (the "Regulations"), the compensation terms of Mr. Gedaliahu Shelef as follows: Mr. Gedaliahu Shelef shall be entitled to compensation equal to the "Maximum Amount" under the Companies Regulations (Rules Regarding the Compensation and Expenses of External Directors), 2000 for companies similarly classified based on their shareholding equity and to reimbursement of travel expenses in accordance with these regulations (the "Compensation Terms"). The Company’s audit committee and board of directors determined that the Compensation Terms complies with the terms of Section 1A of the Regulations.




For information regarding options to purchase our ordinary shares, issued to certain officers and members of our board of directors, see "Item 6.D. Share Ownership" below.




C.            Board Practices




Our articles of association provide for a board of directors of not less than two and no more than nine members.  Each director, with the exception of the external directors, is elected to serve until the next annual general meeting of shareholders, and so long as an annual general meeting is not convened, unless their office is vacated prior thereto in accordance with the provisions of our articles of association and the Companies Law.




Our articles of association provide that any director may, by written notice, appoint another person to serve as an alternate director and may cancel such appointment.  According to the Companies Law, a person may not serve as an alternate director for more than one director and a person who is already serving as a director, a person who is not qualified to be appointed as a director, or a person who is already serving as an alternate director for another director may not serve as an alternate director. To our knowledge, no director currently has appointed any other person as a alternate director.




External Directors




Under the Companies Law, companies incorporated under the laws of Israel whose shares have been offered to the public in or outside of Israel are required to appoint no less than two external directors.  The Companies Law provides that a person may not be appointed as an external director if the person is a relative of a controlling shareholder or if the person or the person’s relative, partner, employer or anyone to whom that person is subordinate to, whether directly or indirectly, or any entity under the person’s control, has, as of the date of the person’s appointment to serve as external director, or had, during the two years preceding that date, any affiliation with the company, any entity controlling the company, any relative of the company's controlling shareholder or any entity controlled by the company or by its controlling entity; and in the event that the company we will not have a controlling shareholder or a shareholder holding 25% or more of the voting rights in the company - any affiliation to the chairman of the board of directors, to the general manager (chief executive officer), to a shareholder holding 5% or more of the company's shares or voting rights, or to the senior financial officer as of the date of the person’s appointment.




27




The term affiliation includes:




·
an employment relationship;




·
a business or professional relationship maintained on a regular basis;




·
control; and




·
service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering.




Without derogating from the above, a person may not serve as an external director if the person or the person’s relative, partner, employer, someone to whom he is subordinated, directly or indirectly, or any entity under the person’s control has business or professional relationship with an entity which an affiliation with is prohibited as detailed above, even if such relationship are not ordinarily (excluding negligible relationship). In addition, a person who received compensation other than the compensation permitted by the Israeli Companies Law may not serve as an external director.




The term “relative” is defined as a spouse, sibling, parent, grandparent, descendant, spouse’s descendant, sibling and parent and the spouse of each of the foregoing.




The term “office holder” is defined as a general manager, chief business manager, deputy general manager, vice general manager, director or manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person’s title.




No person can serve as an external director if the person’s position or other business creates, or may create, a conflict of interests with the person’s responsibilities as a director or may otherwise interfere with the person’s ability to serve as a director.  If at the time an external director is appointed all current members of the board of directors, who are not controlling shareholders or their relatives, are of the same gender, then the external director to be appointed must be of the other gender.  In addition, a person who is a director of a company may not be elected as an external director of another company if, at that time, a director of the other company is acting as an external director of the first company.




A person shall be qualified to serve as an external director only if he or she possesses accounting and financial expertise or certain professional qualifications. At least one external director must possess accounting and financial expertise and the other external directors are to possess professional qualifications as defined by regulations to the Companies Law.  Financial and accounting expertise require such external director to possess a high level of understanding in business matters, such that he or she can read and understand financial statements in depth and be able to raise issues with respect to the manner in which the financial data is presented therein. A company's board of directors is to determine such candidate's qualifications based on his or her education, experience and skills regarding financial and control matters in companies of similar size and in a similar industry and knowledge of preparation and approval of financial statements under the Companies Law and the Israeli Securities Laws.




The regulations promulgated under the Companies Law define an external director with requisite professional qualifications as a director who satisfies one of the following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (2) the director either holds an academic degree in any other field or has completed another form of higher education in the company’s primary field of business or in an area which is relevant to his or her office as an external director in the company, or (3) the director has at least five years of experience serving in any one of the following, or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a company with a substantial scope of business, (b) a senior position in the company’s primary field of business or (c) a senior position in public administration.




According to the Companies Law, the board of directors of a public company must establish the minimum number of board members that are to have accounting and financial expertise while considering, inter alia, the nature of the company, its size, the scope and complexity of its operations and the number of directors.




28




Until the lapse of two years from termination of office, a company, its controlling shareholder or a corporation controlled by the controlling shareholder may not grant that former external director, nor his spouse or children, any benefits, either directly or indirectly, including the prohibition to engage one of the persons above to serve as an office holder at the company or at a corporation controlled by the controlling shareholder, nor employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person.  The abovementioned prohibition also applies for a relative who is not the former external director's spouse or children - until the lapse of one year period from the date that the external director has ceased to act as an external director.




External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:




·
The total number of votes for the appointment of the external directors, excluding abstentions, shall include the votes of at least a majority of the shares represented at the meeting in person or by proxy, which are not held by controlling shareholders of the company nor by shareholders who have a personal interest in the appointment (excluding a personal interest which did not result from the shareholder’s relationship with the controlling shareholder); or




·
The total number of votes against the appointment of the external directors, among the non-controlling shareholders of the company, shall not exceed 2% of the aggregate voting rights in the company.




An external director is entitled to compensation and reimbursement of expenses as provided in regulations promulgated under the Companies Law and is otherwise prohibited from receiving any compensation, directly or indirectly, in connection with services provided as an external director, except for certain exculpation, indemnification and insurance provided by the company, as specifically allowed by the Companies Law. We compensate our two external directors in accordance with regulations promulgated under the Companies Law.




The initial term of an external director is three years and may be extended, subject to certain circumstances and conditions, for two additional terms of three years. An external director may be removed by the same special majority of the shareholders required for his or her election, if he or she ceases to meet the statutory qualifications for appointment or if he or she violates his or her fiduciary duty to the company. An external director may also be removed by order of an Israeli court if the court finds that the external director is permanently unable to exercise his or her office, has ceased to meet the statutory qualifications for his or her appointment, has violated his or her fiduciary duty to the company, or has been convicted by a court outside Israel of certain offenses detailed in the Companies Law.




If the vacancy of an external directorship causes a company to have fewer than two external directors, the company’s board of directors is required under the Companies Law to call a special general meeting of the company’s shareholders as soon as possible to appoint such number of new external directors so that the company thereafter has two external directors.




Each committee of a company’s board of directors, which exercises board powers, is required to include at least one external director and the audit committee must include all of the company’s external directors.




At the Company's annual general meeting held on July 10, 2008, we appointed Ms. Alicia Rotbard to serve as external director and on Augusts 22, 2011, our annual general meeting of shareholders re-appointed Ms. Rotbard to serve as external director. In April 2010, pursuant to the decision of an extraordinary meeting of shareholders, we appointed Jonathan Regev as an external director of the Company.




Exculpation, Insurance and Indemnification of Directors and Officers




Under the Companies Law, an Israeli company may not exempt an office holder from liability with respect to a breach of his fiduciary duty, but may exempt in advance an office holder from his or her liability to the company, in whole or in part, with respect to a breach of his duty of care, provided, that the company is so permitted under its articles of association.




Office Holder Insurance




Our articles of association provide that, subject to the provisions of the law, we may enter into a contract for the insurance of the liability of any of our office holders with respect to:




·
a breach of his or her duty of care to us or to another person;




·
a breach of his or her fiduciary duty to us, provided that the office holder acted in good faith and had reasonable basis to beleive that the act would not harm us; or




·
a monetary obligation imposed on him or her in favor of another person.




29




Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of an Office Holder in the Company, including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law.




Indemnification of Office Holders




Our articles of association provide that we may indemnify an office holder against:




·
a monetary obligation imposed on him or her or incurred by him or her in favor of another person pursuant to a judgment, including a judgment given in settlement or a court approved settlement or an arbitrator’s award concerning an act performed in his or her capacity as an office holder;




·
Reasonable legal fees, including attorney’s fees, incurred by the office holder in consequence of an investigation or proceeding filed against him by an authority that is authorized to conduct such investigation or proceeding, provided that such investigation or proceeding (i) concludes without the filing of an indictment against the office holder or (ii) concluded with the imposition of a monetary payment on the office holder in lieu of criminal proceedings, but the criminal offense in question  does not require the proof of criminal intent, all within the meaning of the Law or in connection with a financial sanction;




·
reasonable litigation costs, including attorneys’ fees, incurred by the office holder or charged to him or her by a court, in proceedings we institute against him or her or instituted on our behalf or by another person, or in a criminal charge from which he or she was acquitted, or a criminal charge in which he or she was convicted for a criminal offense that does not require proof of intent, in each case relating to an act performed in his or her capacity as an office holder; and




·
Any other obligation or expense in respect of which it is permitted or will be permitted under the statutes to indemnify an office holder, including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law.




In addition, our articles of association provide that we may give an advance undertaking to indemnify and may retroactively indemnify an office holder therein with respect to certain matters as detailed in the articles of association.




Limitations on Insurance and Indemnification




The Companies Law provides that a company may not indemnify an office holder nor enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following:




·
a breach by the office holder of his or her fiduciary duty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;




·
a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;




·
any act or omission done with the intent to derive an illegal personal benefit; or




·
any fine levied against the office holder.




In addition, under the Companies Law, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our Audit Committee and our Board of Directors and, in specified circumstances, by our shareholders.




We have obtained liability insurance for our directors and officer.




Audit Committee




Under the Companies Law, the board of directors of a public company must establish an audit committee. The audit committee must consist of at least three directors and must include all of the company’s external directors. The audit committee may not include the chairman of the board, any director employed by the company or providing services to the company on an ongoing basis (other than as a member of the board of directors), a controlling shareholder or any of a controlling shareholder’s relatives. The members of the audit committee are also required to meet the independence requirements established by the SEC in accordance with the requirements of the Sarbanes-Oxley Act.




30




Under a recent amendment to the Israeli Companies Law's provisions regarding the audit committee, which will become effective mid-September 2011, the majority of the members of the audit committee will be required to be "independent" (as defined below) and the chairman of the audit committee will be required to be an external director. In addition, under the amendment the following will be disqualified from serving as members of the audit committee: the chairman of the board, the controlling shareholder and his relatives, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of its income from the controlling shareholder. Whoever is disqualified from serving as member of the audit committee may not be present at the audit committee meetings, unless the chairman of the audit committee determined that such person is required to be present at the meeting or if such person applies one of the exemptions in the Israeli Companies Law.




The term "Independent Director" is defined as an external director or a director who meets the following conditions and who is appointed or classified as such according to the Companies Law: (1) The qualifying conditions for appointed as an external director (as set forth above)  are satisfied and the audit committee approved it; (2) He does not serve as a director at the company for over nine consecutive years, and for that matter any interruption of up to two years in his service will not stop the continuity of his service.




Our audit committee provides assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting and internal control functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. The audit committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the audit committee is required to identify deficiencies in the management of the company, including by consulting with the internal auditor or the independent accountants, and recommending remedial actions to the board of directors, and is responsible for reviewing and approving certain related party transactions, as described below. The audit committee may not approve such a related party transaction unless at the time of approval the two external directors were serving as members of the audit committee and at least one of them was present at the meeting at which the approval was granted.




Under a recent amendment to the Israeli Companies Law's provisions regarding the audit committee, which will become effective mid-September 2011, additional functions to be performed by the audit committee include, among other things, the following: determination whether certain related party actions and transactions are "material" or "extraordinary" for purposes of the requisite approval procedures; to assess the scope of work and compensation of the company's independent accountant; and to assess the company's internal audit system and the performance of its internal auditor.




Internal auditor




Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee.  The role of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure.  Under the Companies Law, the internal auditor may not be an interested party or an office holder or a relative of an interested party or of an office holder, nor may the internal auditor be the company’s independent auditor or the representative of the same.




An “interested party” is defined in the Companies Law as (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as a director or as a chief executive officer of the company.




Employee Share Option Plans




On June 27, 2010, our board of directors approved to offer to all our former employees and service providers with outstanding options (which were working in our company until the Elbit transaction was consummated and who have agreed to sign a new contract with Elbit), to repurchase their options at a purchase price equal to US$0.23 minus the options exercise price.




In July 2010 we provided to our former employees and service providers an offer to purchase their outstanding options and in September 2010, we repurchased 2,186,000 options for a total consideration of US$107,490.




On June 29, 2011, our board of directors approved our 2011 share options plan (the "2011 Plan"). Under the 2011 Plan, we may grant to any of our and our affiliates' (i.e. present or future company that either controls or is controlled by RVB) employees, officers and directors options to purchase our ordinary shares. The total number of the shares reserved for issuance under the 2011 Plan was set up to be 5% of the issued and outstanding share capital of RVB as of January 1 each year. The options under the 2011 Plan shall become vested and exercisable, in accordance with the following vesting schedule: (i) 33% of the options shall vest on the first anniversary of the date of grant; and (ii) 8.375% of the options shall vest on the last business day of each subsequent fiscal quarter following the first anniversary of the date of grant, such that all options shall become vested and exercisable by the third anniversary of the date of grant (the "Vesting Schedule"). As of the date of this shell company report, no options were issued under the 2011 Plan.




31




For information regarding options to purchase the our ordinary shares, issued to certain officers and members of our board of directors, see "Item 6.D. Share Ownership" below




Employees




The following table sets forth for the last three fiscal years, the number of our employees engaged in the specified activities.  Data reported for 2009 reflects the Company's employees as of November 19, 2009, the closing date of the Elbit Transaction:







Year ended December 31,Activity

2010


2009


2008Production & Research and Development


-



111



116Marketing and Sales


-



4



6Administration and Management


-



13



14Total


-



128



136




Since February 10, 2011 until August 31, 2011, we did not have any employees, except Mr. Yair Fudim, who has been our chief executive officer since March 2011. Until March 2011, Mr. Aviv Tzidon served as our Chief Executive Officer on a consulting basis. EER, our only subsidiary, employs 15 employees in Israel.




We are subject, like all Israeli employers, to labor laws and regulations in Israel. These laws principally concern matters like paid annual vacation, paid sick days and other conditions of employment. In addition, Israeli law generally requires severance pay, which may be funded by managers’ insurance described below (or by other funds), upon the retirement or death of an employee or termination of employment, subject to the provisions of the law.  Provisions for severance pay amount to approximately 8.33% of wages. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is broadly parallel to the United States Social Security Administration.  These amounts also include payments by the employee for national health insurance.  The total payments to the National Insurance Institute are equal to approximately 16.25% of the wages (up to a specified amount), of which the employee contributes approximately 66% and the employer contributes approximately 34%. As above stated, currently we have no employees.




We and any Israeli employees we may employ in the future will be subject to certain provisions of the general collective bargaining agreements between the Histadrut, the General Federation of Labor in Israel, and the Coordination Bureau of Economic Organizations, including the Industrialists Association, by order of the Israel Ministry of Labor and Welfare.




We have engaged a third party outsourcing financial services firm to assist us with the preparation of our annual report, our financial statements and with maintaining  certain internal control and adequate  documentation for our internal controls over financial reporting under the supervision of our Chief Executive Office.




D.            Share Ownership




On August 22, 2011, our shareholders approved (following the approval of our audit committee and board of directors), among others: (i) the grant to each of our directors, Gedaliah Shelef, Alicia Rotbard and Jonathan Regev, options to purchase 900,000 ordinary shares of the Company, with an exercise price of US$0.2145 per (adjusted for future dividend). The options are granted under the 2011 Plan; and (ii) the grant to Yair Fudim, of options to purchase RVB shares representing, on a fully diluted basis (as defined in the Management Agreement, i.e. assuming exercise of the Put Option by Mazal and excluding: (i) options granted to directors, officers and employees of RVB or its affiliates or EER, after the execution of the Services Agreement; (ii) options granted to Greenstone pursuant to the Management Agreement; and (iii) options granted pursuant to the Services Agreement ("Fully Diluted Basis")), approximately 0.3% of RVB's issued and outstanding share capital as of the date of the grant, with an exercise price of US$ 0.2145 per share (adjusted for future dividend). The options shall become vested and exercisable, in accordance with the Vesting Schedule. The options described in this paragraph will be granted following the closing of the Additional SPA, which is expected during September or October 2011. Other than as described above, none of our directors and officers beneficially own more than 1% of our outstanding equity securities.




32




Item 7.     Major Shareholders and Related Party EER Transactions




A.            Major Shareholders




The following table sets forth certain information regarding the beneficial ownership of our Ordinary Shares as of September 1, 2011 by each person or entity known to own beneficially more than 5% of our outstanding ordinary shares based on information provided to us by the holders or disclosed in public filings with the Securities and Exchange Commission.




Name

Number of Ordinary

Shares BeneficiallyOwne(1)


Percentage of

Outstanding Ordinary

Shares(2)Greenstone Industries Ltd.(3)

21 Ha'arba'ah St.

Tel Aviv, 64739, Israel


130,905,848



76.07
%Polar Communications Ltd.

Platinum House

21 Ha’arbah St.

Tel Aviv, 64739, Israel


6,252,207
(4)


5.3
%Bank Leumi Le Israel Ltd

34 Yehuda Halevi St.

Tel- Aviv, Israel


6,111,111



5.19
%





(1)
Shares beneficially owned include shares that may be acquired pursuant to options that are exercisable within 60 days of August 31, 2011.




(2)
Based on 118,900,535 RVB shares outstanding as of August 31, 2011, not taking into account 1,040,000 dormant shares held by RVB and 20,054,893 RVB shares to be issued to Accord in connection with the closing of the EER Transaction.




(3)
The information is based on Amendment no. 5 to Schedule 13 filed by Greenstone, dated September 1, 2011 (the "Amended Schedule 13D"). The total number of RVB shares beneficially owned by Greenstone (i.e. 130,905,848), consists of (i) 76,680,848 RVB shares held by Greenstone; (ii) 1,800,000 RVB shares issuable under an option held by Greenstone; and (iii) 52,425,000 RVB shares beneficially owned by Mazal, which Greenstone may be deemed to beneficially own by virtue of the Voting Agreement (even though according to the Amended Schedule 13D, Greenstone disclaims beneficial ownership over shares beneficially owned by Mazal). Greenstone has sole dispositive power solely with respect to items (i) and (ii) above (i.e. over 78,480,48 RVB shares).




(4)
Polar Communications Ltd. is controlled by Leader, our controlling shareholder. The figures in this row include 3,181,807 RVB shares held by Koonras Technologies Ltd., a wholly-owned subsidiary of Polar Communications Ltd.




As of September 1, 2011, there were a total of 3 registered holders of our ordinary shares with addresses in the United States. Such United States holders were, as of such date, the registered holders of 223,375 ordinary shares representing approximately 0.19% of our outstanding share capital. The number of registered holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held by a U.S. nominee company, CEDE & Co., which held approximately 16.9% of our outstanding ordinary shares as of said date).




B.            Related Party Transactions




Agreement with Aviv Tzidon




On January 4, 2010, our shareholders meeting approved the payment to Aviv Tzidon, of a one time bonus of NIS 1,000,000 in his instrumental role in bringing the Elbit Transaction to a successful completion. We have recorded the bonus as an expense in the 2009 financial statements. In addition, our shareholders approved in the same meeting, the appointment of Aviv Tzidon as our chief executive officer in consideration for a gross monthly fee of NIS 50,000.. Aviv Tzidon's engagement with the Company was terminated in March 2011, and he is no longer serving as our chief executive officer.




Agreement with Consult Wise Pte Ltd.




On January 1, 2007, we entered into an agreement with Consult Wise Pte Ltd., a Singaporean company. Mr. Maayan Tzidon (Aviv Tzidon's brother) held at such time 50% of the issued and outstanding shares of Consult Wise. Pursuant to this agreement, we agreed to pay Consult Wise US$3,500 per month for the provision of marketing services and US$3,500 per month to support our operations in Singapore. Consult Wise may receive commissions on purchase orders issued by customers introduced to us pursuant to its marketing services. On April 19, 2009 this agreement was renewed for an additional two year period, retroactively from January 1, 2009 until December 31, 2010.  This agreement was terminated in November 2009, following the Elbit Transaction.




33




Agreement with Eyepoint Ltd.




On March 1, 2004, the Company entered into a consulting agreement with Eyepoint Ltd., an Israeli company, which, at that time, was wholly owned by Mr. Dekel Tzidon, Mr. Aviv Tzidon's brother. Pursuant to this consulting agreement, Mr. Dekel Tzidon served as our Vice President of Research & Development and Chief Technological Officer. In July 2008, Mr. Dekel Tzidon resigned as our Vice President of Research & Development and Chief Technological Officer but continued to work for us on a part-time basis.. Moreover, since November 2009 Mr. Dekel Tzidon has been provided consulting services to the Company, on a limited basis, pursuant to a consulting agreement between the Company and Eyepoint Ltd. which expired on June 30, 2010. In addition, on January 4, 2010, our shareholders meeting approved a bonus payment of US$76,500 to Mr. Dekel Tzidon for his efforts and contribution in bringing the Elbit Transaction to a close. We have recorded the bonus as an expense in 2009 financial statements. Such bonus payment was previously approved by our Audit Committee and Board of Directors in their respective meetings held November 19, 2009.




The EER Transaction




On August 22, 2011, our shareholders approved the EER Transaction (following an approval by our audit committee and board of directors), together with the Additional SPA. At that meeting, our shareholders also approved the grant to Mr. Yair Fudim, of options to purchase ordinary shares of the Company representing, on a Fully Diluted Basis, approximately 0.3% of the Company's issued and outstanding share capital as of the date of grant, with an exercise price of US$0.2145 per share (adjusted for future dividend), which shall become vested and exercisable in accordance with the Vesting Schedule. These options will be granted following the closing of the Additional SPA, which is expected during September or October 2011.




On August 31, 2011 (the "Closing Date"), we completed the EER Transaction and purchased a total of 7,996,210 EER shares from Greenstone, our controlling shareholder, and Accord. The closing of the Additional SPA is expected during September or October 2011, at which time we are expected to issue a total of 96,100,358 RVB shares, in exchange for the EER shares of those additional EER shareholders who elected to become parties to the Additional SPA.




Below is description of the EER Transaction, including a summary of the terms and conditions of the EER Share Purchase Agreement, the Option Agreement, the Voting Agreement and the Services Agreement, and the actions that took place at the Closing Date in connection therewith:




(i)
At the Closing Date, pursuant to the EER Share Purchase Agreement, we acquired all of EER's shares held by Greenstone (6,274,760 ordinary shares of EER), for a total cash consideration of US$15,686,900. In addition, we acquired all of EER’s share capital held by Accord (1,721,450 ordinary shares of EER), in exchange for 20,054,893 RVB shares (each EER share was exchanged for 11.65 ordinary RVB shares);




(ii)
The EER Share Purchase Agreement sets forth, among others, that prior to the Closing Date, we will cause Bank Leumi L’Israel Ltd., to release Greenstone, Accord and S.R. Accord Technologies Ltd., from all their obligations according to guarantees provided by them to the bank, with regard to the EER’s debt of US$714,000 (principal) as of July 3, 2011. As of the date of this shell company report, this has not been completed yet;




(iii)
In addition, pursuant to the EER Share Purchase Agreement, we were provided with the opportunity, until the lapse of 24 months following the Closing Date, to make an investment from time to time in EER’s share capital in an aggregate amount of up to US$8,000,000 by purchasing EER ordinary shares at a price per share of US$2.5;




(iv)
Pursuant to the Option Agreement, we granted Mazal an option to sell to RVB or to whom RVB may direct, no later than December 31, 2016, Mazal’s holdings in EER, in exchange of RVB shares at the same exchange ratio applied for the purchase of EER's shares pursuant to the Share Purchase Agreement (the "Put Option"), and Mazal granted us the option to buy all of Mazal's holdings in EER, upon the occurrence of certain reorganization events on or prior to December 31, 2016 (the "Call Option");




(v)
Pursuant to the Voting Agreement, Greenstone and Mazal agreed to coordinate the voting of RVB shares held by such parties, including with respect to the appointment of directors to the board of directors of RVB;




34




(vi)
Pursuant to the Shareholders Agreement, Mazal undertook to vote its EER shares in the same manner as then voted on such matter by RVB and/or as instructed by RVB in its sole discretion. The Shareholders Agreement also contains certain provisions concerning rights of first refusal, pursuant to which, if Mazal proposes transfer in any way any of the Mazal EER shares, to one or more third parties except to a permitted transferee, then RVB shall have a right of first refusal with respect to such transfer;




(vii)
Pursuant to the Management Agreement, Greenstone will provide RVB with management and accounting services, for a total consideration of NIS 25,000 per month plus VAT, and, in addition, options to purchase ordinary shares of the Company representing, on a Fully Diluted Basis, approximately 3.5% of the Company's issued and outstanding share capital as of the date of grant, with an exercise price of US$0.2145 per share (adjusted for future dividend), which shall become vested and exercisable in accordance with the Vesting Schedule. The options described in this paragraph will be granted following the closing of the Additional SPA, which is expected during September or October 2011; and




(viii)
Pursuant to the Services Agreement, Stern Holding will provide business development services to RVB, for a total monetary consideration of NIS 50,000 per month plus VAT, as well as certain expenses. In addition, according the Services Agreement, Stern Holding shall options to purchase ordinary shares of the Company representing, on a Fully Diluted Basis, approximately 3.5% of the Company's issued and outstanding share capital as of the date of grant, with an exercise price of US$0.2145 per share (adjusted for future dividend), which shall become vested and exercisable in accordance with the Vesting Schedule. The options described in this paragraph will be granted following the closing of the Additional SPA, which is expected during September or October 2011.




Following the completion of the EER Transaction, we have become the controlling shareholder of EER.




C.            Interests of Experts and Counsel




Not applicable.




ITEM8.    Financial Information




A.            Consolidated Statements and Other Financial Information




The Financial Statements required by this item are found at the end of this shell company report, beginning on page F-1.




Legal Proceedings




HarTech  Settlement Agreement




In May 2009, we initiated legal action in Tel Aviv District Court against HarTech Systems Limited ("HarTech"), HarTech Technologies Limited, Mr. Ofer Har, and three employees of the HarTech companies (the "Defendants") for infringement of our intellectual property rights relating to our simulation and live training software. Our action sought to enjoin the Defendants from further breach of our intellectual property rights.  Our initial claim requested damages for infringement in the amount of approximately US$2.5 million (NIS 10 million) as well as additional costs and injunctive relief.




In June 2009, we requested that the court require the Defendants to deposit the source code of the disputed intellectual property in escrow.  The source code was deposited in escrow in exchange for a bank guarantee of approximately US$13,000 (NIS 50,000).




In August 2009, HarTech filed a counterclaim seeking recovery for non-payment of fees due under a consulting agreement between the Company and HarTech in the amount of approximately US$241,000  (NIS 907,000) as well as damages to the Defendant's reputation, stemming from our lawsuit, in the amount of approximately US$660,000 (NIS 2,500,000 ).




In January 2011, we entered into a settlement agreement with HarTech and the Defendants whereby the parties settled all claims against one another, and pursuant to which, HarTech will pay us an aggregate amount of US$180,000 in two equal installments, the first have been paid on June 1, 2011 and the second installment to be paid no later than June 1, 2012.




Significant Changes




There have been no material changes in our financial position since December 31, 2010 except as otherwise disclosed in this shell company report.




35




Dividend Policy




We have no dividend policy. On June 29, 2011, we declared a cash dividend (the "Dividend"), in the amount of US$0.0848 per ordinary share of RVB, which was to be paid to our shareholders as of record as of the close of business on August 30, 2011, contingent upon and subject to the closing of the EER Share Purchase Agreement. The closing of the EER Transaction, on August 31, 2011, satisfied the condition precedent for the payment of the Dividend. The payment of the Dividend is expected on or about September 12, 2011.




ITEM9.    The Offer and Listing




A. Offer and Listing Details




Our Ordinary Shares are listed and traded on the Over the Counter Bulletin Board under the symbol RVBHF.OB.




The following table sets forth, for the periods indicated, the range of high and low sales prices of our Ordinary Shares:




High

Low2006Year ending December 31, 2006

US$ 0.28

US$ 0.152007Year ending December 31, 2007

US$ 0.24

US$ 0.142008Year ending December 31, 2008

US$ 0.20

US$ 0.112009Year ending December 31, 2009

US$ 0.26

US$ 0.052010Year ending December 31, 2010

US$ 0.18

US$ 0.052009First Quarter

US$ 0.15

US$ 0.09Second Quarter

US$ 0.20

US$ 0.12Third Quarter

US$ 0.23

US$ 0.18Fourth Quarter

US$ 0.19

US$ 0.112010First Quarter

US$ 0.17

US$ 0.08Second Quarter

US$ 0.18

US$ 0.12Third Quarter

US$ 0.16

US$ 0.09Fourth Quarter

US$ 0.15

US$ 0.052011First Quarter

US$ 0.17

US$ 0.12Second Quarter

US$ 0.17

US$ 0.15Third Quarter

US$ 0.17

US$ 0.15Most Recent Six MonthsAugust 2011

US$ 0.17

US$ 0.12July 2011

US$ 0.19

US$ 0.09June 2011

US$ 0.15

US$ 0.15May 2011

US$ 0.16

US$ 0.16April 2011

US$ 0.17

US$ 0.16March 2011

US$ 0.17

US$ 0.13February 2011

US$ 0.15

US$ 0.12




36




B.            Plan of Distribution




Not applicable.




C.            Markets




Our Ordinary Shares traded on the Nasdaq Capital Market until February, 2003 under the ticker symbol BVRSF.  Our Ordinary Shares were then delisted from the Nasdaq Capital Market after we failed to comply with its required listing standards. Our Ordinary Shares traded on the Over-the-Counter Bulletin Board under the symbol “BVRSF.OB” from February, 2003 until March 2010.  Following the Elbit Transaction and our name change to R.V.B. Holdings Ltd, we changed our ticker symbol and on March 2, 2010, our Ordinary Shares began trading on the Over-the-Counter Bulletin Board under the symbol "RVBHF.OB".




D.            Selling Shareholders




Not applicable.




E.             Dilution




Not applicable.




F.             Expenses of the Issue




Not applicable.




ITEM10. Additional Information




A.            Share Capital




Not applicable.




B.            Memorandum and Articles of Association




Objects and Purposes




We are a public company registered under the Israeli Companies Law as R.V.B. Holdings Ltd, registration number 52-004362-1. We adopted new Articles of Association on August 22, 2011.  Pursuant to Article 4.2 of our Articles of Association, our objective is any purpose stated in the Company's memorandum of association and to engage in any lawful activity.




Transactions Requiring Special Approval




An “office holder” is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any person assuming the responsibilities of any of the foregoing positions without regard to such person’s title and a directort or any manager who is directly subject to the general manager.




The Companies Law imposes a duty of care and a fiduciary duty on all office holders of a company.  The duty of care requires an office holder to act with the level of care which a reasonable office holder in the same position would have acted under the same circumstances.  The duty of care includes a duty to use reasonable means to obtain:




·
information on the appropriateness of a given act or action to be approved or performed by the officer holder by virtue of his or her position; and




·
all other important information pertaining to such an act or action.




The fiduciary duty requires an office holder to act in good faith for the interests of the company and includes a duty to:




·
refrain from any conflict of interest between the performance of the office holder’s duties in the company and his or her personal affairs;




·
refrain from any activity that is competitive with the company;




·
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or for others; and




·
disclose to the company any information or documents relating to a company’s affairs which the office holder has received due to his or her position as an office holder.




37




Each person listed in the table under “Item 6 – Directors, Senior Management and Employees – A. Directors and Senior Management” is an office holder.




The Companies Law requires that an office holder disclose to the company any personal interest that he or she may have, and all related material information known to him or her, in connection with any existing or proposed transaction by the company.  The disclosure is required to be made promptly and in any event, no later than the board of directors meeting in which the transaction is first discussed.  If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by his or her relative.




Under the Companies Law,  A “personal interest” is defined as the personal interest of a person in an action or in a transaction of the company, including the personal interest of such person’s relative or the interest of any other corporate body in which the person and/or such person’s relative is a director or general manager, a 5% shareholder or holds 5% or more of the voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest also includes a personal interest of a person who votes according to a proxy of another person, even if the other person has no personal interest, and a personal interest of a person who gave a proxy to another person to vote on his behalf – all whether the discretion how to vote lies with the person voting or not.




Under the Companies Law, an extraordinary transaction is a transaction:




·
not in the ordinary course of business;




·
not on market terms; or




·
likely to have a material impact on the company’s profitability, assets or liabilities.




Under the Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve the transaction, unless the company’s articles of association provide otherwise.  A transaction that is adverse to the company’s interest may not be approved.  If the transaction is (i) an extraordinary transaction with an office holder or third party in which the office holder has a personal interest, or (ii) an engagement by the company with an office holder who is not a director regarding his or her service and employment conditions, including an undertaking to indemnify, exculpate or insure such office holder, then it also must be approved by the audit committee, before the board approval. In the event that an amendment is made to an existing engagement with an office holder, such amendment does not require board approval to the extent that it is immaterial to the existing engagement. Arrangements with a director regarding such director’s service and employment condition, including exculpation, indemnification or insurance, and an arrangement with a director regarding compensation for non-directorial duties in the company, require the approval of each of the audit committee, the board of directors and the shareholders, in that order.




A director who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at this meeting or vote on this matter. However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of an office holder with a personal interest is required, such office holder may be present at the meeting. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting and vote on the matter if a majority of the directors or members of the audit committee have a personal interest in the approval of such transaction. If a majority of the directors has a personal interest in a transaction, such transaction requires approval of the shareholders of the Company.




Under the Companies Law, the disclosure requirements which apply to an office holder also apply to a controlling shareholder of a public company.  A shareholder is presumed to have “control” of the company and thus to be a controlling shareholder of the company if the shareholder holds 50% or more of the “means of control” of the company.  “Means of control” is defined as (1) the right to vote at a general meeting of a company or a corresponding body of another corporation; or (2) the right to appoint directors of the corporation or its general manager.  For the purpose of approving transactions with controlling shareholders, the term also includes any shareholder that holds 25% or more of the voting rights in a public company if no other shareholder owns more than 50% of the voting rights in the company. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint holders. Extraordinary transactions of a public company with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding his or her terms of employment, require the approval of the audit committee, the board of directors and the shareholders of the company.  The shareholder approval must satisfy either of the following criteria:




·
the votes for the approval includes the votes of a majority of the total votes of shareholders who are present and voting at the meeting and who have no personal interest in the transaction (the votes of abstaining shareholders shall not be included in the number of the said total votes); or




·
the total number of votes against the approval, among the shareholders who are present at the meeting and who have no personal interest in the transaction shall not exceed 2% of the aggregate voting rights in the company.




38




In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years, unless, with respect to transactions not involving the receipt of services or compensation, the audit committee approves a determination that a longer term is reasonable under the circumstances.




The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.




For information concerning the direct and indirect personal interests of certain of our office holders and principal shareholders in certain transactions with us, see “Item 7 – Major Shareholders and Related Party Transactions – B. Related Party  Transactions.”




Directors’ Compensation




Under the Companies Law, all arrangements as to compensation of office holders who are not directors require approval of the board of directors. Arrangements as to compensation of directors also require audit committee approval, prior to board approval, as well as shareholder approval.




Under regulations promulgated under the Companies Law regarding payment of compensation to external directors, compensation of external directors shall be comprised of annual compensation and a per meeting payment ranging as stated in the regulations.  These amounts are adjusted twice a year in accordance with the Israeli consumer price index. With regard to a company, which shares are traded in an exchange outside of Israel, and is subject to laws which impose upon the external directors duties which exceed the duties imposed upon them under Israeli law, the maximum amount payable to the external directors is NIS 115,400 per annum and NIS 3,470 per meeting. The approval of the shareholders of the Company is required for such compensation, unless it is between the maximum and fixed amounts set forth in these regulations. Alternatively, the compensation of external directors may be linked to the compensation of other directors subject to certain restrictions. Additionally, external directors may be entitled to compensation in stock (including by way of granting options to purchase the Company’s stock), provided that such compensation is granted within the framework of a stock incentive plan applicable to all other directors and further provided the amount of stock granted or purchasable shall not fall below the lowest amount granted to any other director and shall not exceed the average amount of stock granted to all other directors. In 2008, these regulations were amended to allow an increased compensation to external directors who are considered “expert external directors” under these regulations.




Directors’ Borrowing Powers




Our Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company. Such borrowing powers may be exercised by a majority of the board in accordance with our Articles of Association.




Rights attached to our Shares




Dividend Rights. Our Board of Directors may decide on a distribution, subject to the provisions set forth under the Companies Law and our articles of association.  Under the Companies Law, dividends may be paid out of net earnings, as calculated under that law, for the two years preceding the distribution of the dividend and retained earnings, provided that there is no reasonable concern that the dividend will prevent the company from satisfying its existing and foreseeable obligations as they become due.




Voting Rights. Holders of Ordinary Shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders.  These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.  The Ordinary Shares do not have cumulative voting rights in the election of directors.  As a result, holders of Ordinary Shares that represent more than 50% of the voting power have the power to elect all the directors to the exclusion of the remaining shareholders.




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Liquidation Rights. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of Ordinary Shares in proportion to their respective holdings.  This liquidation right may be affected by the grant of preferential dividends or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.




Redemption Provisions. We may, subject to applicable law, issue redeemable preference shares and redeem the same.




Capital Calls. Under our memorandum of association and the Companies Law, the liability of our shareholders is limited to the par value of the shares held by them.




Preemptive, First Refusal and Co-Sale Rights. All outstanding Ordinary Shares are validly issued, fully paid and non-assessable and do not have preemptive rights, rights of first refusal or co-sale rights.




Transfer of Shares. Fully paid Ordinary Shares are issued in registered form and may be transferred pursuant to our Articles of Association, unless such transfer is restricted or prohibited by another instrument and subject to applicable securities laws.




Modification of Rights




Unless otherwise provided by our articles of association, rights attached to any class may be modified or abrogated by a resolution adopted in a general meeting approved by an ordinary majority of the voting power represented at the meeting in person or by proxy and voting thereon, subject to the sanction of a resolution passed by an ordinary majority of the shares of such class present and voting as a separate general meeting of the holders of such class.




Shareholders’ Meetings and Resolutions




The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy, who hold or represent between them at least 25% of the outstanding voting shares, unless otherwise required by applicable rules.  A meeting adjourned for lack of a quorum generally is adjourned to one day thereafter at the same time and place or any other day, time and place as the board may designate. At such reconvened meeting the required quorum consists of any number shareholders present in person or by proxy.




Under the Companies Law and our articles of association, all resolutions of our shareholders require a simple majority of the shares present, in person or by proxy, and voting on the matter.




Under the Companies Law, each and every shareholder has a duty to act in good faith in exercising his rights and fulfilling his obligations towards us and other shareholders, and to refrain from abusing its power in the company, such as in voting in the general meeting of shareholders on the following matters:




·
any amendment to the articles of association;




·
an increase of our authorized share capital;




·
a merger; or




·
approval of certain actions and transactions that require shareholder approval.




In addition, each and every shareholder has the general duty to refrain from depriving other shareholders of their rights.




The remedies generally available upon a breach of contract will also apply to a breach of the shareholder duties mentioned above, and in the event of discrimination against other shareholders, additional remedies are available to the injured shareholder.




In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or any other power with respect to a company, is under a duty to act with fairness towards the company.  The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.




Our annual general meetings are held once in every calendar year at such time (within a period of not more than fifteen months after the last preceding annual general meeting) and at such place as determined by our board.  All general meetings other than annual general meetings are called special meetings.  Our board may, whenever it thinks fit, convene a special meeting at such time and place as it determines, and shall be obligated to do so upon a requisition in writing in accordance with the Companies Law.




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Limitation on Owning Securities




The ownership of our Ordinary Shares by nonresidents of Israel is not restricted in any way by our memorandum of association and articles of association or the laws of the State of Israel, except for citizens of countries, which are in a state of war with Israel, who may not be recognized as owners of our Ordinary Shares.




Acquisitions under Israeli Law




Merger




The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a majority of each party’s shareholders, by a majority of each party’s shares that are voted on the proposed merger at a shareholders’ meeting.




The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, taking into account the financial condition of the merging companies.  If the board of directors has determined that such a concern exists, it may not approve a proposed merger.  Following the approval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.




For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding abstentions) that are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control of the other party to the merger or any one on their behalf including their relatives or corporations controlled by any of them, vote against the merger. In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders.




If the transaction would have been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the company has approved the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered to the shareholders.




Under the Companies Law, each merging company must send a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger, as provided by the regulations promulgated under the Companies Law.  Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure the rights of creditors.




In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.




Full tender offer




A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company.




A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class.




If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of the shares.




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Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition the Israeli court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.




If the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.




The description above regarding a full tender offer shall also apply, with necessary changes, when a full tender offer is accepted and the offeror has also offered to acquire all of the company’s securities.




Special tender offer




The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of at least 25% of the voting rights in the company.  This rule does not apply if there is already another holder of at least 25% of the voting rights in the company.




Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company.




These requirements do not apply if the acquisition (i) occurs in the context of a private offering, on the condition that the shareholders meeting approved the acquisition as a private offering whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as a private offering whose purpose is to give the acquirer 45% of the voting rights in the company, if there is no person who holds 45% of the voting rights in the company; (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company.




The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the special tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of the offer; in counting the votes of offerees, the votes of a holder of control in the offeror, a person who has personal interest in acceptance of the special tender offer, a holder of at least 25% of the voting rights in the company, or any person acting on their or on the offeror’s behalf, including their relatives or companies under their control, are not taken into account.




In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention.




An office holder in a target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting from his acts, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company.  However, office holders of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.




If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not respond to the special offer or had objected to the special tender offer may accept the offer within four days of the last day set for the acceptance of the offer.




In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it and any corporation controlled by them shall refrain from making a subsequent tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.




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C.            Material Contracts




Elbit Transaction




On July 19, 2009, we entered into an Asset Purchase Agreement with Elbit Systems Ltd., whereby Elbit acquired substantially all of our assets and business for a cash consideration of approximately US$34 million and to assume substantially all of our business related liabilities.  The purchase price of US$34 million was based on the assumption that the purchased projects were balanced, or consistent with the presented stage of execution.




The shares of our Singapore based wholly-owned subsidiary, BVR S Pacific PTE were included in the assets bought by Elbit.




An amount of US$1,500,000 was placed in escrow for a period of 120 days following the November 19, 2009 closing date of the Elbit Transaction (the "Closing Date"), at which time the parties would determine the actual adjustment amount, if any, of up to the US$1.5 million  held in escrow. In March 2010, the Company received a letter from Elbit which claimed that, according to the terms of the escrow agreement and the Asset Purchase Agreement, Elbit was entitled to a purchase price adjustment of nine hundred seventy thousand five hundred forty U.S. Dollars (US$970,540) from the money held in escrow.  We disputed Elbit's claim and on November 21, 2010, entered into an agreement with Elbit pursuant to which we paid Elbit US$242,635 as full and final settlement of adjustment of the projects.  The balance of the escrow amount was released to us.




The Asset Purchase Agreement included representations and warranties made by us for the benefit of Elbit, with respect to our structure and various aspects of our business. These representations and warranties generally survived for a period of eighteen (18) months from the November 19, 2009 closing date of the Elbit Transaction.  As a guarantee for such representations and warranties we issued a pledge in favor of Elbit in an amount of US$1,500,000, pursuant to a pledge agreement entered into between us and Elbit, executed as of the Closing Date. On November 21, 2010 we entered into an amendment to the Asset Purchase Agreement such that the survival period of the representations of the warranties was amended until November 21, 2010, and the pledge agreement was cancelled and the US$1,500,000 pledge to the benefit of Elbit was released.




As at the Closing Date, there were certain assets that were unable to be transferred to Elbit (“Non-transferable Assets and Liabilities”). Therefore we entered into an agreement with Elbit, regarding such Non-transferable Assets and Liabilities which stipulates that until such Non-transferable Assets and Liabilities are able to be transferred to Elbit, we shall provide Elbit with the benefit of each of the non-transferable assets and Elbit shall satisfy or perform any liability, back-to-back with our obligations. Both parties agreed that Elbit shall be responsible for the fulfillment of the undertaking under any contract with respect to non-transferable assets and shall provide the products and/or services, via the Company. As of the date hereof there is one agreement that is subject to this back-to-back agreement.




The foregoing description of the Asset Purchase Agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the Asset Purchase Agreement filed by us as Exhibit 4.1 of Item 19, of our annual report on form 20-F for the year ending 2009 incorporated by reference herein.




Agreement with Milestones Upgrading Ltd.




On March 3, 2009, we entered into an agreement in principle with Milestones Upgrading & Industries Company Ltd., or Milestones Upgrading Ltd., for the investment of US$3 million in our share capital at a price per share of US$0.156, and the grant of a convertible loan in the amount of US$2 million (the "Agreement in Principal"). Pursuant to the Agreement in Principle which was executed in March 2009, Milestones Upgrading Ltd. provided us with a loan in the amount of US$1.5 million, as part of the US$2 million loan to be granted under the definitive agreements. In May 2009, Milestones Upgrading Ltd. informed the Company that it had encountered technical difficulties that may prevent it from actualizing its investment in the Company. As such, Milestones Upgrading Ltd. requested an extension of the negotiation period, as detailed in the Agreement in Principle, in order to ascertain if they would be able to resolve their difficulties.  In a letter sent to Milestones Upgrading Ltd., in May 2009, we advised Milestones Upgrading Ltd. that as Milestones Upgrading Ltd. completed its due diligence review without any comments to us, and as the parties reached a form of definitive agreement acceptable to both parties, we were of the position that a binding agreement was entered into between the parties. Milestones responded to the letter in May 2009 disclaiming our claims.




On May 4, 2009, we filed a motion for a declaratory judgment against Milestones Upgrading Ltd. declaring that: (i) the Agreement in Principal is binding upon Milestones Upgrading Ltd.; (ii) Milestones Upgrading Ltd. is in breach of the Agreement in Principal; and (iii) the US$1.5 million loan issued by Milestones Upgrading Ltd. to us is part of the convertible loan which was to be provided under the decisive agreement.




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In December 2009, we entered into a settlement agreement with Milestones Upgrading Ltd. pursuant to which we repaid the loan, including interest, in the amount of US$1,687,000.




Agreement with Yuval Golan Investments Ltd and Michael Golan Securities Holdings Ltd.




On May 28, 2009, we entered into an agreement with Yuval Golan Investments Ltd. and Michael Golan Securities Holdings Ltd., or collectively Golan Investments, whereby the Company issued a US$3.5 million debenture to Golan Investments (the "Golan Agreement").  Pursuant to the terms of the Golan Agreement, Golan Investments provided US$2 million to the Company on May 31, 2009, and US$1.5 million  on June 21, 2009.  In addition to the debenture, Golan Investments received a warrant to purchase three (3) million ordinary shares of the Company at an exercise price of US$0.18, which was exercisable for a period of five (5) years.  The debenture became due twelve (12) months from the issue date in the amount of US$3.85 million. The Golan Agreement provided that, in the event that a merger or acquisition of the Company occurred within twelve (12) months of the Effective Date of the Golan Agreement, the debenture became due, in the amount of US$4.55 million.  The Golan Agreement further provided that if the Company did not repay the debenture within twelve (12) months from the date of issue, then (a) as of the commencement of the second year of the term of the debenture, the debenture will bear a return rate of 15% per annum; (b) upon a merger or acquisition transaction of the Company during the second year of the term of the debenture, the Company will  repay to Golan Investments an amount of US$5,600,000;  and (c) the Company will issue to Golan Investments additional warrants to purchase 6,000,000 Ordinary Shares, at an exercise price per share of US$0.18, exercisable for a period of four years commencing as of the date of entitlement.




The debenture was repaid within the initial twelve (12) months term in the amount of US$4.55 million, in November 2009.




For a summary of our other material contracts, including the EER Transaction, see:  “Item 7 – Major Shareholders and Related Party EER Transactions – B. Related Party EER Transactions.”




D.            Exchange Controls




Under current Israeli regulations, we may pay dividends or other distributions in respect of our Ordinary Shares either in non-Israeli or Israeli currencies.  If we make these payments in Israeli currency, they will be freely converted into non-Israeli currencies at the rate of exchange prevailing at the time of conversion.  Because exchange rates between the NIS and the dollar continuously fluctuate, a U.S. shareholder will be subject to the risk of currency fluctuations between the date when we declare NIS-denominated dividends and the date we pay them in NIS.  See “— Item 3. Key Information— D. Risk Factors.”




Non-residents of Israel may freely hold and trade our securities pursuant to the general permit issued under the Israeli Currency Control Law, 1978.  Neither our memorandum of association nor the laws of the State of Israel restrict the ownership of our Ordinary Shares by non-residents in any way, except with respect to citizens of countries which are in a state of war with Israel.




E.             Taxation




Israeli Tax Considerations and Government Programs




The following is a summary of the current tax structure applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of certain Israeli and United States tax consequences to purchasers of our Ordinary Shares and certain Israeli Government programs benefiting us.  To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax authorities in question.  The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.




HOLDERS OF OUR ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES, ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.




General Corporate Tax Structure




Israeli companies are generally subject to corporate tax at a rate of 24% in 2011 (25% in 2010). The Israeli corporate tax rate is scheduled to be gradually reduced to 18% by the year 2016 (23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016 and thereafter).




Special Provisions Relating to Taxation under Inflationary Conditions




The Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the "Inflationary Adjustments Law", was designed to deal with taxation issues caused by rapid inflation. Under the Inflationary Adjustments Law, taxable results of Israeli companies up to and including the year 2007 were measured on a real basis, taking into account the rate of change in the Israeli Consumer Price Index.




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On February 26, 2008 the Income Tax Law (Inflationary Adjustments) (Amendment No. 20) (Restriction of Period of Application) – 2008 (the "Amendment") was approved by the Israeli Parliament. According to the Amendment, the Inflationary Adjustments Law will no longer be applicable subsequent to the 2007 tax year, subject to certain transitional provisions which their objectives are to prevent distortion of the taxation calculations.




Capital Gains Tax on Sales of Our Ordinary Shares




Capital gains tax is imposed on the disposal of capital assets by an Israeli resident and on the disposal of such assets by a non- Israel resident, if those assets are either: (i) located in Israel; (ii) shares or rights to shares in an Israeli resident company, or (iii) represent, directly or indirectly, rights to assets located in Israel. The Israeli Income Tax Ordinance distinguishes between “Real Capital Gain” and “Inflationary Surplus”. The Real Capital Gain on the disposition of a capital asset is the amount of total capital gain in excess of Inflationary Surplus. Inflationary Surplus is generally computed on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of disposal of the capital asset.




Real Capital Gain generated by a company is generally subject to tax at the corporate tax rate (24% in 2011). The Real Capital Gain accrued by individuals on the sale of an asset purchased on or after January 1, 2003 is taxed at the rate of 20%. However, if the individual shareholder is a “Controlling Shareholder” (i.e.,  a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s “means of control” (including,  among others, the right to company profits, voting rights, the right to the company’s liquidation proceeds and the right to appoint a company director) at the time of sale or at any time during the preceding 12 month period)), such gain will be taxed at the rate of 25%. The Real Capital Gain accrued on the sale of an asset purchased prior to January 1, 2003 will be subject to tax on a time based apportionment. The marginal tax rate for individuals (up to 45% in 2011) will be applied to the portion of the gain attributable to the holding period commencing at the acquisition date and terminating on January 1, 2003 The rates applicable to assets purchased after January 1, 2003 (generally, 20%/25%) shall be applied to the remainder of the gain realized.




Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a tax rate of 24% for a corporation in 2011 and a marginal tax rate of up to 45% for an individual in 2011).




Notwithstanding the foregoing, capital gains generated from the sale of securities by a non-Israeli shareholder may be exempt under the Israeli Income Tax Ordinance from Israeli taxes provided that all the following terms and conditions are satisfied: (i) the securities were purchased upon or after the registration of the securities on a stock exchange (this requirement generally does not apply to shares purchased on or after January 1, 2009); (ii) the seller of the securities does not have a permanent establishment in Israel to which the generated capital gain is attributable; and (iii) if the seller is a corporation, less than 25% of its means of control are held, directly and indirectly, by Israeli resident shareholders. In addition, the sale of the securities may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the Convention between the Government of the United States of America and the Government of Israel with respect to Taxes on Income (the “ Israel-U.S. Double Tax Treaty ”) exempts U.S. residents from Israeli capital gains tax in connection with such sale, provided that: (i) the U.S. resident owned, directly or indirectly, less than 10% of the Israeli resident company’s voting power at any time within the 12-month period preceding such sale; (ii) the seller, if an individual, has been present in Israel for less than 183 days (in the aggregate) during the taxable year; and (iii) the capital gain from the sale was not generated through a permanent establishment of the U.S. resident in Israel.




Either the purchaser of the securities, the stockbrokers who effected the transaction or the financial institution holding the traded securities through which the payment to the seller is made is obligated, subject to the above-referenced exemptions, to withhold tax on the Real Capital Gains resulting from a sale of securities at the rate of 24% for a corporation and at the rate of 20% for individual.




A detailed return, including a computation of the tax due, must be filed and an advance payment must be paid on January 31 and June 30 of each tax year for sales of securities traded on a stock exchange made in the 6 months period prior to each of the aforementioned filing dates. However, if all tax due was withheld at source according to applicable provisions of the Israeli Income Tax Ordinance and the regulations promulgated thereunder, the  return does not need to be filed and an advance payment does not need to be made. Capital gains are also reportable on an annual income tax return.




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Taxation of Dividends




A distribution of dividend from income derived during any period for which the Israeli company is not entitled to reduced tax rates applicable to an Approved Enterprise/Benefited Enterprise/Privileged Enterprise under the Law for the Encouragement of Capital Investments-1959, to an Israeli resident individual, will generally be subject to tax at a rate of 20%. However, a 25% tax rate will apply if the dividend recipient is a “Controlling Shareholder” at the time of distribution or at any time during the preceding 12 months period. If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from tax in Israel provided that the income from which such dividend was distributed was derived or accrued within Israel.




The aforementioned rates may be reduced by an applicable double tax treaty. Thus, under the Israel – U.S. Double Tax Treaty the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends – the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company's income which was entitled to a reduced tax rate applicable to an Approved Enterprise (see above) – the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income has been derived through a permanent establishment of the U.S. resident in Israel.




An Israeli resident company whose shares are listed on a stock exchange is obligated to withhold tax, upon the distribution of a dividend attributable to an Approved/Benefited Enterprise's income, from the amount distributed, at the following rates: (i) Israeli resident corporation – 15%, (ii) Israeli resident individual – 15%, and (iii) non-Israeli resident – 15%, unless a reduced tax rate is applicable under a double tax treaty.  If the dividend is distributed from income, which is not attributable to the Approved/Benefited Enterprise, the following withholding tax rates will apply: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% (iii) non-Israeli resident – 20%, unless a reduced tax rate is applicable under a double tax treaty.




United States Federal Income Tax Considerations




The following is a discussion of the material U.S. federal income tax consequences to a “U.S. Holder” (as defined below) of the acquisition, ownership, and disposition of our ordinary shares. This discussion assumes that you hold your ordinary shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion does not purport to be a complete analysis of all of the potential United States federal income tax consequences that are relevant to a particular U.S. Holder’s acquisition, ownership, or disposition of our ordinary shares in light of such holder’s particular circumstances, nor does it address the United States federal income tax consequences to holders subject to special tax rules, including without limitation: banks and financial institutions; brokers; dealers in securities or currencies; traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; tax-exempt entities; insurance companies; persons liable for alternative minimum tax; persons that actually or constructively own or have owned 10% or more of our voting shares; persons that hold ordinary shares as part of a straddle or a hedge, constructive sale, synthetic security, conversion, or other integrated transaction; partnerships and other pass-through entities (and persons holding their ordinary shares through a partnership or other pass-through entity); U.S. Holders whose functional currency is not the U.S. dollar; expatriates and former long-term residents of the United States; and persons that are not U.S. Holders. In addition, this discussion does not address the tax consequences arising under the tax laws of any state, local, or non-United States jurisdiction or under United States federal tax laws other than United States federal income tax laws.




If any entity that is classified as a partnership for United States federal income tax purposes holds ordinary shares, the tax treatment of a partner in such partnership will depend upon the status of the partner and the activities of the partnership. An entity that is classified as a partnership for United States federal income tax purposes and persons holding ordinary shares through such a partnership are urged to consult their own tax advisors regarding the United States federal income tax consequences of the acquisition, ownership, and disposition of our ordinary shares.




No legal opinion from U.S. legal counsel or ruling from the U.S. Internal Revenue Service, or IRS, has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of our ordinary shares. This discussion is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this discussion.




This discussion is based on the Code, the Treasury regulations thereunder, or the Treasury Regulations, administrative pronouncements and interpretations, and judicial decisions, all as currently in effect as of the date hereof. These authorities are subject to change, repeal, or revocation, possibly on a retroactive basis, which could result in United States federal income tax consequences that differ from those discussed below.




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For purposes of this discussion, you are a “U.S. Holder” if you are a beneficial owner of ordinary shares and you are for United States federal income tax purposes: (i) an individual who is a citizen or resident of the United States; (ii) a corporation or other entity taxable as a corporation that is created or organized under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate the income of which is subject to United States federal income taxation regardless of its source; or (iv) a trust (a) if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust, or (b) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.




Each prospective investor is urged to consult its own tax advisors regarding the tax consequences of the acquisition, ownership, and disposition of ordinary shares under United States federal, state, local, non-United States, and other tax laws.




Taxation of Distributions on Ordinary Shares




Subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any actual or deemed distribution by us (including any Israeli taxes withheld therefrom) with respect to your ordinary shares will be included in your gross income as a dividend to the extent such distribution is paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. A distribution in excess of our current and accumulated earnings and profits will first be treated as a tax-free return of capital to the extent of your adjusted tax basis in our ordinary shares. Thereafter, to the extent that such distribution exceeds your adjusted tax basis in our ordinary shares, the distribution will be treated as gain from the sale or exchange of such ordinary shares. We do not intend to determine our earnings and profits on the basis of United States federal income tax principles.Therefore, you should expect that a distribution will be treated as a dividend for United States federal income tax reporting purposes. Dividends will not be eligible for the dividends received deduction allowable to United States corporations in respect of dividends received from other United States corporations.




If you are a non-corporate U.S. Holder, including an individual, dividends you receive in taxable years beginning before January 1, 2013, will be subject to United States federal income tax at the rates applicable to capital gains, provided that (i) we are a “qualified foreign corporation” and (ii) holding period and other requirements are satisfied. A qualified foreign corporation includes a non-United States corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program and that the United States Treasury Department has determined to be satisfactory for purposes of the qualified dividend provisions of the Code. The United States Treasury Department has determined that the income tax treaty between Israel and the United States (the “Treaty”) is satisfactory for purposes of the qualified dividend provisions of the Code. In addition, a foreign corporation not otherwise treated as a qualified foreign corporation shall be so treated with regard to any dividend paid by such corporation if the stock with respect to which the dividend is paid is readily tradable on an established securities market in the United States. A qualified foreign corporation does not include a non-United States corporation that is a PFIC for the taxable year in which a dividend is paid or that was a PFIC for the preceding taxable year. Accordingly, dividends on our ordinary shares will be eligible for these lower rates of taxation, provided that: (i) we are not a PFIC for the taxable year the dividend is paid or for the preceding taxable year, (ii) we are eligible for the benefits of the Treaty or our ordinary shares are readily tradable on an established securities market in the United States, and (iii) you satisfy holding period and other requirements. You should consult your own tax advisors regarding the application of these rules.




Any tax withheld under Israeli law with respect to distributions on our ordinary shares at a rate not exceeding the rate provided in the Treaty is, subject to a number of complex limitations, permitted to be claimed as a foreign tax credit against your United States federal income tax liability or as a deduction for United States federal income tax purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends on our ordinary shares will be foreign source income and will constitute either “passive category income” or “general category income.” The rules relating to United States foreign tax credits are complex and the availability of a foreign tax credit depends on numerous factors. You should consult your own tax advisors concerning the application of the United States foreign tax credit rules with regard to your particular circumstances.




The gross amount of distributions paid in New Israeli Shekels will be included by each U.S. Holder in gross income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the distributions are paid, regardless of whether the payment is in fact converted into U.S. dollars on such date. If you convert such New Israeli Shekels into U.S. dollars on the date of the payment, you should not be required to recognize any foreign currency gain or loss with respect to the receipt of the New Israeli Shekel distributions. If instead you convert such New Israeli Shekels into U.S. dollars at a later date, any currency gain or loss realized from the conversion of the New Israeli Shekels will be treated as United States source ordinary income or loss.




47




Taxation of Dispositions of Ordinary Shares




Subject to the PFIC rules discussed below, upon a sale or other taxable disposition of ordinary shares, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference, if any, between the amount realized and your adjusted tax basis in our ordinary shares. Your adjusted tax basis in our ordinary shares will be the cost to you of such shares, as determined under United States federal income tax principles. For taxable years beginning before January 1, 2013, capital gain from the sale or other taxable disposition of ordinary shares held by a non-corporate U.S. Holder, including an individual, will be taxed at a maximum rate of 15% if such ordinary shares have been held for more than one year and certain requirements are met. The deductibility of capital losses is subject to limitations. The gain or loss generally will be gain or loss from sources within the United States for United States foreign tax credit limitation purposes. You are urged to consult with your own tax advisor regarding the sourcing of gain or loss recognized on the sale of ordinary shares.




Passive Foreign Investment Company Consequences




Special United States federal income tax rules apply to United States persons that own shares of a PFIC. A non-United States corporation will be classified as a PFIC for United States federal income tax purposes for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either at least 75% of such corporation’s gross income is “passive income,” or on average at least 50% of the gross value of its assets is attributable to assets that produce, or are held for the production of, passive income. For this purpose, passive income includes, among other things, dividends, interest, certain rents and royalties, and gain from the disposition of property that produces such income. If we are classified as a PFIC for any taxable year in which a U.S. Holder has held our ordinary shares, we will continue to be classified as a PFIC with respect to such U.S. Holder for any subsequent taxable year in which such U.S. Holder continues to hold our ordinary shares, even if our income or assets would not cause us to be a PFIC in such subsequent taxable year, unless an exception applies.




If we are classified as a PFIC at any time that you hold our ordinary shares, you could be subject to additional taxes and a special interest charge in respect of gain recognized on the sale or other disposition of such ordinary shares and upon the receipt of “excess distributions” (as defined in the Code). In addition, no distribution that you receive from us would qualify for taxation at the preferential rate discussed in “—Taxation of Distributions on Ordinary Shares” above, if we were a PFIC for the taxable year of such distribution or for the preceding taxable year.




If we were a PFIC in any year, as a U.S. Holder, you would be required to file an annual return on United States IRS Form 8621 regarding your ordinary shares. You should consult with your own tax advisor regarding reporting requirements with regard to your ordinary shares.




To mitigate the adverse United States federal income tax consequences of the PFIC tax regime, you are permitted to make a “mark to market” election and thereby agree for the year of the election and each subsequent taxable year to recognize ordinary gain or loss (but only to the extent of prior ordinary gain) based on the increase or decrease in market value for such taxable year, provided that our ordinary shares are “marketable.” We believe that our ordinary shares should qualify as marketable stock (although there can be no assurance that this will continue to be the case). If you make the mark-to-market election, your tax basis in our ordinary shares will be adjusted to reflect any such ordinary gain or loss recognized for the year of the election and each subsequent taxable year. You should consult your own tax advisor regarding the making of a mark-to-market election.




Under United States federal income tax law, a U.S. person that owns shares of a PFIC is permitted to make a “qualified electing fund” election (a “QEF” election) to be taxed currently on such person’s pro rata share of the PFIC’s ordinary earnings and net capital gain, whether or not such earnings or gain is distributed in the form of dividends or otherwise. However, in order for you to make a QEF election with respect to our ordinary shares, we would have to provide information regarding your pro rata share of our ordinary earnings and net capital gain. We currently do not intend to provide such information in the event we are classified as a PFIC.




You should consult your own tax advisors concerning the United States federal income tax consequences of holding our ordinary shares if we were a PFIC in any taxable year, with regard to your particular circumstances.




48




Information Reporting and Backup Withholding




Unless an exception applies, information reporting will apply with respect to:





●
dividend payments or other taxable distributions made to you within the United States, and
  ●
the payment of proceeds to you from the sale of ordinary shares effected at a United States office of a broker (and under certain circumstances at a non-United States office of a broker).
  Additionally, backup withholding will apply to such payments if you are a U.S. Holder that is not an exempt recipient and you:
  ●
fail to timely provide an accurate taxpayer identification number,
  ●
are notified by the IRS that you have failed to report all interest and dividends required to be shown on your United States federal income tax returns, or
  ●
in certain circumstances, fail to comply with other applicable requirements of the backup withholding rules.


A U.S. Holder that does not provide a correct taxpayer identification number could also be subject to penalties imposed by the IRS. If backup withholding applies to you, under current law 28% of the gross amount of any payments made to you with respect to our ordinary shares will be withheld and paid over to the IRS.




Backup withholding is not an additional tax. Rather, any amounts withheld from payments to you under the backup withholding rules will be allowed as a credit against your United States federal income tax liability and any excess refunded to you, provided the required information is timely furnished by you to the IRS and other requirements are met. You should consult your own tax advisor regarding the application of backup withholding with regard to your particular circumstances, the availability of an exemption from backup withholding, and the procedure for obtaining such an exemption, if available.




Recent Legislative Developments




U.S. federal income tax legislation enacted during 2010 requires certain U.S. Holders that are individuals, estates or trusts to pay up to an additional 3.8% tax on, among other things, interest, dividends and capital gains for taxable years beginning on or after January 1, 2013. In addition, U.S. federal income tax legislation enacted during 2010 generally requires a U.S. individual to report to the IRS certain interests owned by such individual in stock or securities issued by a non-U.S. person (such as our ordinary shares), if the aggregate value of all such interests exceeds $50,000. This new reporting requirement applies for taxable years beginning after March 18, 2010. Failure to report information required under this legislation could result in substantial penalties. You are urged to consult your own tax advisor regarding the effect, if any, of this legislation on your ownership and disposition of our ordinary shares.




F.             Dividends and Paying Agents




Not applicable.




G.            Statements by Experts.




Not applicable.




H.            Documents on Display




We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act), as amended, applicable to foreign private issuers and fulfill the obligation with respect to such requirements by filing reports with the Securities and Exchange Commission. You may read and copy any document we file with the Securities and Exchange Commission without charge at the Securities and Exchange Commission’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at such address, at prescribed rates. Please call the Securities and Exchange Commission at l-800-SEC-0330 for further information on the public reference room.




As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act.  In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.  A copy of each report submitted in accordance with applicable United States law is available for public review at our principal executive offices.




49




I.              Subsidiary Information




Not applicable.




ITEM11. Quantitative and Qualitative Disclosures about Market Risk




Market risk represents the risk of changes in the value of a financial instrument caused by fluctuations in interest rates, equity prices and foreign currency exchange rates.




Interest Rate Risk




As we currently have no credit lines we are not presently exposed to interest rate risk.




Equity Price Risk




As of December 31, 2010, we did not have any marketable securities that were recorded at fair value. Hence there was no exposure to equity price risk.




Foreign Currency Exchange Risk




As of December 31, 2010, we had cash in New Israeli Shekels (NIS) or in funds linked thereto in the amount of US$430 thousand (out of US$23,094 thousands in cash and cash equivalents that we had in total). Market risk is estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in the year-end dollar exchange rate. Assuming such increase in the dollar exchange rate, the fair value of our cash and cash equivalents would decrease by US$39 thousand. As of December 31, 2010, we had accounts receivable in New Israeli Shekels (NIS) or in funds linked thereto in the amount of US$257 thousand. Market risk is estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in the year-end dollar exchange rate. Assuming such increase in the dollar exchange rate, the fair value of our accounts receivable would decrease by US$23 thousand. As of December 31, 2010, we had other receivables in New Israeli Shekels (NIS) or in funds linked thereto in the amount of US$341 thousand. Market risk is estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in the year-end dollar exchange rate. Assuming such increase in the dollar exchange rate, the fair value of our accounts receivable would decrease by US$31 thousand.As of December 31, 2010, we had accounts payable in New Israeli Shekels (NIS) or in funds linked thereto in the amount of US$319 thousand. Market risk is estimated as the potential increase in fair value resulting from a hypothetical 10% decrease in the year-end dollar exchange rate. Assuming such a decrease in the Dollar exchange rate, the fair value of our accounts payable would increase by US$29 thousand. As of December 31, 2010, we had other payable in New Israeli Shekels (NIS) or in funds linked thereto in the amount of US$87 thousand. Market risk is estimated as the potential increase in fair value resulting from a hypothetical 10% decrease in the year-end dollar exchange rate. Assuming such a decrease in the dollar exchange rate, the fair value of our accounts payable would increase by US$8 thousand.




ITEM12. Description of Securities Other Than Equity Securities




Not applicable.




50




PARTII




ITEM13. Defaults, Dividend Arrearages and Delinquencies




Not applicable.




ITEM14. Material Modifications to the Rights of Security Holders and Use of Proceeds




Not applicable.




ITEM 15.Controls and Procedures




Not applicable.




ITEM16. Reserved




ITEM 16A.         Audit Committee Financial Expert




Not applicable.




ITEM 16B.                      Code of Ethics




Not applicable.




ITEM 16C.         Principal Accountant Fees and Services




Not applicable.




ITEM16D.         Exemptions from the Listing and Standards of Audit Committees




Not applicable.




ITEM 16E.          Purchases of Equity Securities by the Issuer and Affiliated Purchasers




Not applicable.




ITEM 16F.          Change in Registrant’s Certifying Accountant
  Somekh Chaikin, a member firm of KPMG International (Somekh Chaikin), was previously the principal accountants for the Company. On August 22, 2011, the firm was dismissed and Brightman Almagor Zohar & Co., a member firm of Deloitte Touche Tohmatsu Limited (Deloitte), was engaged as principal accountants. The decision to change accountants was recommended by the audit committee of the board of directors.
  During the fiscal years ended December 31, 2010 and 2009 and through August 22, 2011, there were no: (i) disagreements with Somekh Chaikin on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Somekh Chaikin, would have caused Somekh Chaikin to make reference in connection with their opinion to the subject matter of the disagreement, or (ii) reportable events.
  The audit reports of Somekh Chaikin on the consolidated financial statements of the Company as of and for the years ended December 31, 2010 and 2009 did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
  A letter from Somekh Chaikin is attached as Exhibit 15.2 hereto.
  Item 16G.         Corporate Governance
  Not applicable.


51





PART III




ITEM 17.            Financial Statements




Not applicable.




ITEM 18.            Financial Statements




(i)             Financial Statements of RVB as of and for the year ended December 31, 2010 (incorporated by reference to the Registrant's annual report on Form 20-F, filed with the SEC on February 14, 2011);
  (ii)             Financial Statements of EER as of, and for the year ended December 31, 2010 (filed herewith);
  (iii)            Unaudited Interim Condensed Financial Statements of EER as of, and for the period ended, June 30, 2011 (previously filed);


(iv)            Unaudited Condensed Consolidated Pro Forma Financial Information of RVB as of the year ended December 31, 2010 (incorporated by reference to "Proposal 1 – Unaudited Condensed Consolidated Pro Forma Financial Information" included in Exhibit 99.1 to the Registrant's Form 6-K, dated July 20, 2011)




ITEM 19.            Exhibits




The exhibits filed with or incorporated into this annual report are listed on the index of exhibits below.




Exhibit No.
Description1.1
Memorandum of Association of Registrant (previously filed);1.2
Articles of Association (previously filed);Form of Indemnification Agreement (incorporated by reference to Appendix G of Exhibit 99.1 to the Registrant's Form 6-K, dated July 20, 2011)4.1
Share Purchase Agreement among the Registrant, Greenstone Industries Ltd., S.R. Accord Ltd., Mazal Resources B.V. and E.E.R. Environmental Energy Resources (Israel) Ltd., dated July 3, 2011 (incorporated by reference to Appendix A of Exhibit 99.1 to the Registrant's Form 6-K, dated July 20, 2011);4.2
Form of additional Share Purchase Agreement between the Registrant and certain E.E.R. Environmental Energy Resources (Israel) Ltd. shareholders (incorporated by reference to Appendix B of Exhibit 99.1 to the Registrant's Form 6-K, dated July 20, 2011);4.3
Option Agreement between the Registrant and Mazal Resources B.V., dated July 3, 2011(incorporated by reference to Appendix C of Exhibit 99.1 to the Registrant's Form 6-K, dated July 20, 2011);4.4
Voting Agreement between Greenstone Industries Ltd. and Mazal Resources B.V., dated July 3, 2011 (incorporated by reference to Exhibit 99.3 to the Registrant's Form 6-K, dated July 20, 2011);4.5
Translation of a Services Agreement between the Registrant, Mr. Moshe Stern and M. Stern Holding Ltd., dated July 3, 2011 (incorporated by reference to Exhibit 99.4 to the Registrant's Form 6-K, dated July 20, 2011);4.6
Management Agreement between the Registrant and Greenstone, dated July 14, 2011(incorporated by reference to Exhibit 99.5 to the Registrant's Form 6-K, dated July 20, 2011);4.7
Shareholders' Agreement between the Registrant and Mazal, dated July 3, 2011(incorporated by reference to Exhibit 99.6 to the Registrant's Form 6-K, dated July 20, 2011);4.8
Asset Purchase Agreement between the Registrant and Elbit Systems Ltd. dated July 19, 2010(incorporated by reference to Exhibit 4.1 to the Registrant's annual report on Form 20-F, dated June 29, 2010);4.9
The Registrant's 2011 Share Option Plan (previously filed).15.1
Consent of Brightman Almagor & Co. (filed herewith).15.2
A letter from Somekh Chaikin (filed herewith).







52




SIGNATURE




The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this shell company report on its behalf.




R.V.B. HOLDINGS LTD.By:
/s/ Ofer SandelsonName: Ofer SandelsonTitle:   Chief Executive Officer





Date: March 19, 2012


53




ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 FINANCIAL STATEMENTS
 AS OF DECEMBER 31, 2010
  
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 FINANCIAL STATEMENTS
 AS OF DECEMBER 31, 2010
  TABLE OF CONTENTS
  PageINDEPENDENT AUDITORS' REPORT
F-3FINANCIAL STATEMENTSStatements of financial position
F-4Statements of comprehensive income
F-5Statements of changes in shareholders' equity
F-6- F-8Statements of cash flows
F-9 - F-10Notes to financial statements
F-11- F-65
  F - 2
 
 
 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF
 E.E.R.ENVIRONMENTALENERGY RESOURCES (ISRAEL) LTD
 
 We have audited the accompanying statements of financial position of E.E.R. Environmental energy resources (Israel) Ltd (hereinafter- "the Company") as of December 31, 2010 and 2009, and the statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the board of directors and management, as well as evaluating the overall financial statements presentation. We believed that our audit provides a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and their results of operations, changes in equity and cash flows for each of the three years in the period ended December 31, 2010, in conformity with International Financial Reporting Standards (IFRS) and the Securities Regulations (Annual Financial Statements) - 2010.
 
 Without qualifying our opinion, we hereby draw you attention to note 1b regarding the Company's dependence on obtaining additional financing from Greenstone Industries Ltd (hereinafter – “Greenstone”) and/or through the raising of capital from external entities for the purpose of continuing its business activities. The financing from Greenstone is subject to the approval of Greenstone’s institutions pursuant to any law applicable at the time, in accordance with the financial needs of the Company.
 
 Brightman Almagor Zohar & Co.
 Certified Public Accountants
 A member firm of Deloitte Touche Tohmatsu Limited
 
 Tel Aviv March 9, 2011
 F - 3
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 CONDENSED STATEMENT OF FINANCIAL POSITION
  As of December 312 0 1 0


2 0 0 9Note


NIS in thousandAssetsCurrent assetsCash and cash equivalents


5



203



1,168Accounts receivable


6



880



905Prepaid expenses in respect of receiving a guarantee from interested parties


14a(4) (9),(10),(11)



-



2,619Loan provided to the CEO of the Company


7



772



883Total current assets






1,855



5,575Non-current assetsLoan provided to the CEO of the Company


7



974



1,841Fixed assets, net


8



49,568



58,727Intangible assets, net


9



13,952



16,392Total non-current assets






64,494



76,960Total assets






66,349



82,535Liabilities and shareholders' equityCurrent liabilitiesCredit from banks


11



16,073



16,281Convertible shareholders' loans


11



15,399



15,553Accounts payable and accruals


10



2,211



2,963Total current liabilities






33,683



34,797Non-current liabilitiesShareholders' loans


11



15,048



15,645Options at fair value through profit and loss


15b(4)



745



-Liability to the Chief Scientist


14b



1,570



1,740Liability in respect of dismantling and removal of fixed assets


2(i)



270



265Total non-current liabilities






17,633



17,650Shareholders' equity






15,033



30,088Total liabilities and shareholders' equity






66,349



82,535
  Yitzhak  Apeloig

Chairman of the Board

Moshe Stern

Director and CEO

Natalie Tsabary

Controller
 
 Approval date of the financial statements: March 9, 2011.
 
 The accompanying notes are an integral part of the financial statements.
 
 F - 4
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 STATEMENT OF COMPREHENSIVE INCOME
  For the year ended on December 312 0 1 0


2 0 0 9


2 0 0 8Note


NIS in thousandOperating expenses and facility maintenance


16



10,128



11,961



16,412Marketing expenses


17



4,671



5,070



5,559Administrative and general expenses


18



6,168



6,978



7,468Other expenses


8



351



-



-Loss from ordinary activities






(21,318
)


(24,009
)


(29,439
)Financing income


19



65



112



390Financing expenses


19



(7,180
)


(4,725
)


(3,327
)Total financing expenses, net






(7,115
)


(4,613
)


(2,937
)Loss for the year






(28,433
)


(28,622
)


(32,376
)Other comprehensive profit (loss)Translation differences from functional currency to presentation currency






(1,185
)


121



(2,030
)Total comprehensive loss for the period






(29,618
)


(28,501
)


(34,406
)
 The accompanying notes are an integral part of the financial statements.
  F - 5
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
 For the year ended on December 31, 2010Share capital


Premium on shares


Receipts on account of options


Capital reserve from translation differences


Capital reserve from transactions with shareholders


Capital reserve

in respect

of share-based payments

and equity

component of convertible loans


Accumulated losses


TotalNIS in thousandBalance as of January 1, 2010


1



147,423



-



(3,607
)


690



21,578



(135,997
)


30,088Changes in 2010 -Distribution of bonus shares


1,591



(1,591
)


-



-



-



-



-



-Issuance of shares (see notes

15b(2)(3) and (4))


40



9,838



653



-



-



-



-



10,531Share-based payment


-



-



-



-



-



1,938



-



1,938Equity component of convertible loans(see note 14a(4) and (8))


-



1,996



-



-



-



62



-



2,058Share-based payment in respect

of guarantees receivedfrom shareholders(see note 14a(4), (9) and (10))


-



-



-



-



-



36



-



36Loss for the period


1,631



10,243



653



-



-



2,036



-



14,563Capital reserve in respect of

translation differences


-



-



-



(1,185
)


-



-



-



(1,185
)Loss for the year


-



-



-



-



-



-



(28,433
)


(28,433
)Total comprehensive loss

for the year


-



-



-



(1,185
)


-



-



(28,433
)


(29,618
)Balance as of December 31, 2010


1,632



157,666



653



(4,792
)


690



23,614



(164,430
)


15,033
 The accompanying notes are an integral part of the financial statements.
  F - 6
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 (cont.)
  For the year ended on December 31, 2009Share capital


Premium on shares


Capital

reserve from translation differences


Capital reserve from transactions with shareholders


Capital reserve in respect of share-based payments


Accumulated losses


TotalNIS in thousandBalance as of January 1, 2009


1



147,423



(3,728
)


690



11,079



(107,375
)


48,090Changes in 2009 -Share-based payment


















3,651







3,651Equity component of convertible loans(see note 14a(4) and (8))


-



-



-



-



2,312



-



2,312Share-based payment in respect of guaranteesreceived from shareholders(see note 14a(4), (9) and (10))


-



-



-



-



4,536



-



4,536Loss for the period


-



-



-



-



10,499



-



10,499Translation differences in respect

of presentation currency


-



-



121



-



-



-



121Loss for the year


-



-



-



-



-



(28,622
)


(28,622
)Total comprehensive loss for the year


-



-



121



-



-



(28,622
)


(28,501
)Balance as of December 31, 2009


1



147,423



(3,607
)


690



21,578



(135,997
)


30,088
  The accompanying notes are an integral part of the financial statements.
 
 F - 7
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 (cont.)
  For the year ended on December 31, 2008Share capital


Premium on shares


Capital

reserve from translation differences


Capital reserve from transactions with shareholders


Capital reserve in respect of share-based payments


Equity component of convertible loans


Accumulated losses


TotalNIS in thousandBalance as of January 1, 2008


1



143,948



(1,698
)


-



5,830



192



(74,999
)


73,274Changes in 2008 -Expiry of conversion

component of 'shareholders loans






192



-



-



-



(192
)


-



-Issuance of shares (net of issueexpenses of NIS 0.2 million)


*



3,283



-



-



-



-



-



3,283Share-based payment


-



-



-



-



5,249



-



-



5,249Capital reserve in respect of loans

from shareholders


-



-



-



690



-



-



-



690Loss for the year


-



3,475



-



690



5,249



(192
)


-



9,222Translation differences in respect

of presentation currency


-



-



(2,030
)


-



-



-



-



(2,030
)Loss for the year


-



-



-



-



-



-



(32,376
)


(32,376
)Total comprehensive loss for the year


-



-



(2,030
)


-



-



-



(32,376
)


(34,406
)Balance as of December 31, 2008


1



147,423



(3,728
)


690



11,079



-



(107,375
)


48,090
 
 * Less than NIS 1,000
 
 The accompanying notes are an integral part of the financial statements
 
 F - 8
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 STATEMENTS OF CASH FLOWS
 
 For the year ended on December 312 0 1 0


2 0 0 9


2 0 0 8NIS in thousandCash flows from operating activityLoss for the year


(28,433
)


(28,622
)


(32,376
)Adjustments required to present cash flows from operating activity (Appendix)


16,323



16,741



15,793Net cash used in operating activity (*)


(12,110
)


(11,881
)


(16,583
)Cash flows from investment activityReceipt of insurance refunds


-



914



-Investment in fixed assets


(9
)


(1,031
)


(1,424
)Net cash used in investment activity


(9
)


(117
)


(1,424
)Cash flows from financing activityShort-term credit, net


-



8,927



-Proceeds from the issuance of shares


11,272



-



3,283Receipt of loans from shareholders which are convertible into Company shares


-



2,029



3,623Net cash provided by financing activity


11,272



10,956



6,906Decrease in cash and cash equivalents


(847
)


(1,042
)


(11,101
)Balance of cash and cash equivalents at the start of the year


1,168



2,201



14,043Effect of changes in exchange rates on foreign currency cash balances


(118
)


9



(741
)Balance of cash and cash equivalents at end of the year


203



1,168



2,201(*)  Including cash interest payments in the amount of


197



181



392(*)  Including cash interest received in the amount of


24



3



192
  The accompanying notes are an integral part of the financial statements.
 
 F - 9
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 STATEMENTS OF CASH FLOWS (CONTINUED)
  Appendix– Adjustments required to present the cash flows from operating activity
  For the year ended on December 312 0 1 0


2 0 0 9


2 0 0 8NIS in thousandIncome and expenses not involving cash flows:Depreciation and amortization


7,032



7,483



9,030Increase (decrease) in liability in respect of employee benefits


54



-



(71
)Interest accrued on loans, net


4,137



2,669



664Loan which became a grant to the CEO of the Company


1,460



1,525



-Bonus in respect of options to shareholders in connection withthe provision of a guarantee


2,645



1,751



1,724Other expenses – capital loss from derecognition of fixed assets


351



-



-Recognition of interest on shareholders' loans against a capital reserve


-



-



690Share-based payments


1,938



3,651



5,24917,617



17,079



17,286Changes in asset and liability items:Decrease (increase) in accounts receivable


(51
)


(275
)


1,221Increase (decrease) in accounts payable and accruals


(1,243
)


(63
)


(2,714
)(1,294
)


(338
)


(1,493
)16,323



16,741



15,793
 
 The accompanying notes are an integral part of the financial statements.
  F - 10
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
  NOTE1 - GENERAL
 
 a.
General description of the Company and its operation:
 
 Environmental Energy Resources (Israel) Ltd, (hereinafter – the Company) is engaged in the development of new technology for the treatment of bio-medical waste, municipal solid waste and low and intermediate level radioactive waste.
 
 At the beginning of 2007, the Company completed the construction of a sampling facility in Israel to implement the Company’s technology for thermal treatment and removal of municipal solid waste (hereinafter – the facility) and commenced a year of trial running the system.
 
 At the start of 2008, the Company began depreciating the facility after a successful first year of trial running the system.
 
 In the years 2007-2009, the sampling facility was operated several times.
 
 Regarding the lease of the property on which the sampling facility is located, see note 14(a)(2) below.
 
 The Company has numerous patents, either registered or at various stages of application, relating to its field of activity.
 
 b.
As of the date of approval of the financial statements, the Company has no revenues and has a negative cash flow from operating activity, a working capital deficiency, continued dependence on short-term credit and continued operating losses.
 
 To continue its current operations the Company is dependent on obtaining additional financing resources from existing and/or external shareholders. Greenstone Industries Ltd, one of the Company's main shareholders (hereinafter – "Greenstone") has undertaken to provide the Company with additional financing as may be required to ensure its continued operation on a smaller scale, which does not include extensive business development in the foreseeable future, as this term is defined in Opinion 58 of the Institute of Certified Public Accountants in Israel and in IAS1. The said undertaking is subject to the approval of Greenstone's institutions pursuant to the law at the time being in force, in accordance with the financing needs of the Company.
 
 On December 12, 2010 Greenstone announced that it has entered into an agreement with Aviv Tzidon and the company he controls (hereinafter – “the sellers”), unrelated parties to Greenstone and/or the Company, pursuant to which Greenstone extended a loan to the sellers, jointly and severally, while at the same time the seller gave Greenstone an option, for a three month period, to purchase their shares (controlling shares) in R.V.B. Holdings Ltd (hereinafter – “RVB”).
  RVB is a public Israeli company whose shares are listed for trading on the OTC Bulletin Board (“OTCBB”). In November 2009 RVB sold its entire operations and since then RVB has no business operation and most of its assets are cash and cash equivalents.
  To the best of the Company’s knowledge, Greenstone is exploring the possibility to integrate the Company’s operations into RVB, if and insofar as the option is exercised.
 
 F - 11
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE1 – GENERAL (continued):
 
 If the plan to integrate the Company’s operations into RVB is completed and/or the Company raises capital from other sources, as aforesaid, which are sufficient to finance its daily activities, Greenstone’s undertaking to provide financing for the Company's continued operation will be revoked.
 
 In addition, based on past experience, the Company has also been able to raise capital from existing and/or external shareholders, which were adequate to finance its daily operations. These, among others, include investments by Greenstone and a group of private investors, in the amount of $2 million in January 2010 (see note 15(b)(2)), U-Trend’s investment in July 2010 in the amount of $4 million (see note 15(b)(4)) and financing from Greenstone at the start of 2011 (see note 23).
 
 c.
During 2010 Greenstone and the Company submitted a draft prospectus to the Securities Authority and the Tel Aviv Stock Exchange Ltd for the public offering of securities of the Company and the distribution of Company shares held by Greenstone as dividend in-kind to the shareholders of Greenstone ("the prospectus"). As of the date of this report, Greenstone and the Company decided, at this stage, to suspend the publication of the prospectus.
 
 d.
Definitions:
 
 The Company
-
EER – Environmental Energy Resources (Israel) Ltd.Interested parties
-
as defined in the Securities Law, 5728-1968 and the regulations stipulated thereunderRelated parties
-
As defined in IAS 24Controlling shareholders
-.
as defined in the Securities Regulations (Annual Financial Statements), 5771-2010CPI
-
The Consumer Price Index, as published by the Central Bureau of Statistics.Dollar
-
United States dollar
  NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES
 
 a.
Declaration regarding the implementation of International Financial Reporting Standards (IFRS):
 
 The Group's financial statements were prepared in accordance with International Financial Reporting Standards (hereinafter – "IFRS") and the clarifications thereto which were published by the International Accounting Standards Board (IASB). The main accounting policies set forth below were consistently applied to all accounting periods presented in these financial statements, with the exception of changes in the accounting policy arising from the implementation of standards, amendments to standards and new interpretations that have entered into effect on the date of preparation of the financial statements, and which are specified in Note 3a.
 
 b.
The financial statements are drawn up in accordance with Securities Regulations (Annual Financial Statements), 5771-2010 (hereinafter – "Regulations of Financial Statements").
 
 F - 12
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
  NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 c.
Presentation of the statement of financial position
 
 The Company’s assets and liabilities in the statement of financial position are classified according to current and non-current items. The Company’s operating cycle period is 12 months.
 
 d.
Basis for the preparation of the financial statements:
 
 The financial statements were prepared on the basis of the historical dollar cost, except for:
 
 ·
Financial assets and liabilities (cash and cash equivalents, deposits, short-term receivables, accounts payable and accruals and loans) are measured at a depreciated cost which is not materially different from their fair value.
 
 ·
Fixed assets and intangible assets are presented at the lower of the historical cost, net of accumulated depreciation and the recoverable amount.
 
 ·
Liabilities in respect of employee benefits, as specified in note 2t.
 
 ·
Share-based payments are measured in note 2r. below and are recognized in the income statement over the vesting period of the instruments that were granted.
 
 e.
Analysis of the expenses recognized in profit or loss
 
 The Company’s expenses in the statement of comprehensive income are presented based on the nature of expenses within the entity.
 
 f.
Foreign currency:
 
 (1)
Functional currency and operating currency:
 
 The currency of the main economic environment in which the Company operates is the US dollar (hereinafter – "the functional currency"). The Company elected to present the financial statements in shekels. As for exchange rates and changes therein during the presented periods see note 2v(3).
 
 (2)
Translation of transaction that are not in the functional currency
 
 In the preparation of the financial statements, transactions carried out in currencies other than the Company's functional currency (hereinafter – "foreign currency") are recorded at the exchange rates in effect on the dates of the transaction. At each reporting period, monetary items stated in foreign currency are translated according to the exchange rates in effect at that date; non-monetary items that are measured in terms of historical cost are translated according to the exchange rates in effect at the time of the transaction in connection with the non-monetary item.
 
 F - 13
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
  NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 f.
Foreign currency (continued):
 
 (3)
The method of recording exchange rate differences
 
 Exchange rate differences (primarily in respect of monetary balances that are not in the functional currency) are recognized in the income statement in the period in which they occurred.
 
 (4)
Translation of the Company's financial statements for the purpose of presentation in NIS
 
 For the purpose of presenting the dollar financial statements of the Company in NIS, the assets and liabilities are expressed in the exchange rates in effect at the balance sheet date. Revenue and expense items are translated according to the average exchange rates during the reporting period, unless there were significant fluctuations in the exchange rates during this period. In this case, the translation of these items is carried out according to the exchange rates on the date of the transactions, and the related translation differences are recognized in shareholders' equity under "capital reserve in respect of translation differences of foreign operations". These translation differences are recognized in the income statement on the date of disposal of the foreign operation in respect of which the translation differences were created.
 
 g.
Cash and cash equivalents
 
 Cash and cash equivalents include all highly liquid investments, including short-term bank deposits (up to three months from date of deposit) which are not restricted as to withdrawal or use and the period to maturity of which did not exceed three months at time of investment.
 
 h.
Fixed assets:
 
 A fixed asset is a tangible item, which is held for use in manufacture or the supply of goods or services, or rent for others, which is forecasted to be used for more than one period. The Company presents its fixed asset items according to the cost model.
 
 Under the cost model, fixed asset items are presented in the balance sheet at cost (net of received investment grants), net of accumulated depreciation and less accumulated impairment losses. The cost includes the cost of acquisition of the asset as well as costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
 
 Any component of a fixed-asset item having a cost that that is significant in relation to the total cost of the item is depreciated separately. The depreciation is carried out systematically over the estimated useful life of the asset by the straight line method from the time in which the asset is ready for its intended use. In the opinion of the Company's management, no significant residual value is expected at the end of the useful life.
 
 F - 14
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 h.
Fixed assets (continued):
 
 The annual rates of depreciation are as follows:
  Useful lives


Depreciation rates%Buildings


12.5



8Construction and miscellaneous


12.5



8Plasma, compressors and bellows


12.5



8Machinery and equipment


12.5



8Pipelines


12.5



8Crane and a reactor


12.5



8Taps and electricity


10



10Steam boilers


5



20Furniture and office equipment

3-17, mainly 3


6-33 (mainly 33%)
 
 The depreciation method and the useful life of the asset are reviewed by the Company's management at the end of each financial year. Changes are treated as changes in estimates and accounted for prospectively.
 
 Profit or loss created as a result of the sale or retirement of the asset is determined according to the difference between the proceeds from the sale of the asset and its book value, and carried to the statement of income.
 
 The cost of replacing part of a fixed asset item is recognized as an increase in the book value of that item when incurred, if it is expected that the future financial benefit embodied in the items will flow to the Group and that its cost can be measured reliably. Routine maintenance costs are expensed when incurred.
 
 i.
Liability in respect of costs for dismantling and removing an item and restoring the site on which the asset is located:
 
 The cost of a fixed-asset item includes, among others, costs to dismantle and remove the item and to restore the site on which the asset is located, for which the Company incurred an obligation, when the item was purchased or as a result of the use of this item during a certain period, that is not for the purpose of manufacturing inventory during that period.
 
 a.
Changes in said liability by the end of the period of depreciation of the item will be deducted from or added to the asset during the period in which they occurred.
 b.
Changes in said liability deriving from the passage of time are recognized in the statement of income as a financing cost as incurred.
 
 j.
Borrowing costs:
 
 The Company's borrowing costs are recognized in the income statement as they are incurred.
 
 F - 15
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 k.
Intangible assets except for goodwill:
 
 Intangible assets are identifiable non-monetary assets that lack a physical entity.
 
 The Company has intangible assets with a definite life.
 
 Intangible assets with a definite useful life are amortized on the straight line basis over its estimated useful life subject to impairment test. The change in the useful life assessment of an intangible asset with a definite life is accounted for prospectively.
 
 The useful life during which intangible assets with a finite useful life (know-how) are amortized is 12.5 years, based, among others, on the remaining life of the main registered patent on said know-how.
 
 The Company's intangible costs are recognized and measured in accordance with the way they were created, as follows:
 
 An intangible asset that has been created internally, as a result of the Company's development activities (or the development stage of an internal project) in respect of know-how for the treatment of waste is recognized, net of investments and participation grants, when all the conditions below have been met:
 
 ·
There is a technical feasibility that the asset will be completed, thus making it available for use or sale.
 ·
The company intends to complete the asset  and use it or sell it;
 ·
The company is capable of completing the asset and using it or selling it;
 ·
The asset is expected to generate future economic benefits;
 ·
The company has available technical, financial and other resources for completing the development of the asset and for using or selling the asset; and
 ·
The development costs that can be attributed to the asset can be reliably measured.
 
 Compliance with the above conditions has been tested in view of the existence of said technology in Russia, economic reviews based on which there is a market for the technology which will allow for economic benefits in the future, the existence of agreements relating to the development that permitted the reliable measurement of development costs and agreements with the shareholders regarding the provision of financing to the Company, which will enable the completion of the development.
 
 When an intangible asset created internally cannot be recognized, the development costs are carried to the income statement as they are incurred.
 
 Intangible assets that were created internally are amortized using the straight line method over their useful life, and are presented at cost, less amortization and any accumulated impairment losses.
 
 Concerning the grants received from the Chief Scientist and royalties paid in respect thereof, see note 2p.
 
 As for the amendment of IAS 7 “Cash flow Statements”, as part of the IASB’s annual improvements project for 2009, see note 3a.
 
 F - 16
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 L.
Impairment of intangible assets except for goodwill (continued):
 
 The company reviews - at each balance sheet date - whether any events have occurred or changes in circumstances have taken place, which might indicate that there has been an impairment of fixed assets and intangible assets.  When such indicators of impairment are present, the company estimates the recoverable amount of the assets in order to measure the amount of impairment loss that was created, if any. When it is not possible to assess the recoverable amount of a single asset, the group estimates the recoverable value of the cash-generating unit to which that asset belongs. Joint assets are also allocated to single cash-generating units if a reasonable and consistent basis for such allocation can be identified. If the joint assets cannot be allocated to single cash-generating units on the said basis, the joint assets are allocated to the smallest groups of cash-generating units in respect of which a reasonable and consistent basis for allocation can be identified.
 
 The recoverable amount is measured in relation to the Company’s value, which is derived from investments in the Company’s capital.
 
 If an impairment loss recognized in previous periods is reversed, the carrying value of the asset (or the cash-generating unit) is increased back to the estimated recoverable amount but not higher than the carrying value of the asset (or the cash-generating unit) that would have existed if an impairment loss had not been recognized in respect thereof in previous periods. The reversal of an impairment loss is immediately recognized in the statement of income.
 
 m.
Financial assets:
 
 (1)
General
 
 Financial assets are recognized in the balance sheet when the Company becomes a party to the contractual terms of the instrument. Where the purchase or sale of an investment are effected under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, the investment is recognized and derecognized on the trade (the date in which the Company has undertaken to buy or sell an asset).
 
 Investments in financial instruments are initially measured at fair value plus transaction costs, except for those financial assets classified as at fair value through profit or loss, where the transaction costs are carried to the income statement.
 
 The Company's financial assets are loans and receivables. The classification is dependent on the nature and purpose of holding the financial asset and it is determined at the initial date of recognition of the financial asset.
 
 As of the Amendment of IFRS 7 "Financial Instruments: Disclosure", see note 3c.
 
 As for the Amendment of IAS 39 "Financial Instruments: Recognition and Measurement", as part of the IASB's annual improvements project for 2009 regarding the scope of the standard, see note 3a.
 
 As for the publication of IFRS 9 "Financial Instruments", see note 3c.
 
 F - 17
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 m.
Financial assets (continued):
 
 (2)
Loans and receivables
 
 Deposits, loans and other receivables with fixed or determinable payments that are not quoted in an active market, are classified as loans and receivables. The value of these financial assets is not materially different than their fair value.
 
 (3)
Impairment of financial assets:
 
 Financial assets, other than those classified at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been adversely impacted.
 
 Indicators of impairment may include:
 
 ·
Significant financial difficulties by the issuer or the debtor;
 ·
Failure to meet the current payments of the principal or interest;
 ·
Expectation that the debtor will face bankruptcy or reorganization of his debts.
 
 If in a subsequent period the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss up to the extent of the initial impairment.
 
 Such reversal of the impairment loss is limited in amount, such that the book value of the investment in the asset on the date on which the impairment loss was reversed shall not exceed the amount of the depreciated cost of the asset that existed on that date had the impairment not been previously recognized.
 
 The carrying value of all financial assets is amortized in respect of impairment losses.
 
 n.
Financial liabilities and equity instruments issued by the Company:
 
 (1)
Classification as a financial liability or an equity instrument
 
 Non-derivative financial instruments are classified as either financial liabilities or as equity instrument in accordance with the substance of the contractual arrangement.
 
 An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of direct issue costs.
 
 Financial liabilities of the Company are measured in accordance with their classification as other financial liabilities, at amortized cost (not at fair value through profit or loss).
  F - 18
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 n.
Financial liabilities and equity instruments issued by the Company (continued):
 
 (2)
Loans convertible into shares of the Company
 
 Loans convertible into shares of the Company, the principal and/or interest payments in respect thereof are not linked to a currency other than the functional currency, or the Consumer Price Index, constitute a hybrid financial instrument. On the date of receipt of the loans with a conversion option, the convertible loan components are separated, while the liability component is presented under long-term liabilities and the equity component is presented under shareholders' equity. The fair value of the liability component is determined based on the acceptable interest rate in a market of financial instruments with similar characteristics, which do not include a conversion option. The remaining proceeds in respect of the convertible loans are attributed to the conversion option therein and are presented in the shareholders' equity under "equity component of convertible loans". This component is recognized and included in the equity and is not re-measured during subsequent periods. The issue costs are allocated relative to the components of hybrid financial instrument in accordance with the allocation of the proceeds.
 
 (3)
Options to purchase Company shares
 
 a.
Proceeds from the issuance of options to purchase Company shares, which confer upon their holder the right to acquire a fixed number of ordinary shares in return for a fixed amount of cash, are presented in shareholders’ equity under “Receipts on account of options”. For this matter, an exercise price which varies at each possible exercise date, but at the issuance date, it was possible to determine the exercise price at each exercise date, is accounted as a fixed price.
 
 b.
Proceeds from the issuance of option to purchase Company shares, which confer upon their holder the right to acquire a fixed number of ordinary shares in return for a variable amount of cash, are presented under current liabilities, and are classified as liabilities at fair value through profit and loss. In this respect, the exercise amount linked to the Consumer Price Index or to foreign currency is considered a variable amount.  Regarding the accounting treatment of financial liabilities at fair value through profit and loss, see note 15(b)(4).
  As for the amendment of IAS 32 “Financial Instruments: Presentation”, regarding the classification as equity (under certain conditions) of rights to acquire equity instruments stated in a currency which is not the Company’s functional currency, see note 3c.
 (4)
Financial liabilities at fair value through profit and loss
 
 A financial liability is classified at fair value through profit and loss if it is held for trading purposes or designated as a financial liability at fair value through profit and loss.
 
 The Company’s financial liabilities, which are included in this category, include options for the purchase of Company shares at an exercise price linked to the Consumer Price Index and/or foreign currency and derivatives on equity instruments of the Company.
 
 F - 19
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 n.
Financial liabilities and equity instruments issued by the Company (continued):
 
 (4)
Financial liabilities at fair value through profit and loss (continued):
 
 A financial liability is classified as held for trading purposes if:
 
 ·
It was primarily created for the purpose of repurchase in the near future; or
 ·
It constitutes part of a portfolio of identifiable financial instruments, which are jointly managed by the Company, which have a proven pattern of generating profits in a short period; or
 ·
It is a non-designated derivative, which is effective as a hedge instrument.
 
 Financial liabilities at fair value through profit and loss are presented at fair value. Each profit or loss arising from changes in fair value is recognized in profit or loss. The net profit or loss, which is recognized in the statement of income, includes interest paid in respect of the financial liability. On the date of initial recognition transaction costs are included in the statement of income.
 
 (5)
Other financial liabilities
 
 Other financial liabilities (credit, loans, accounts payable) are initially measured at fair value, net of transaction costs. The value of these financial liabilities is not materially different than their fair value.
 
 (6)
Interest-free loans from shareholders
 
 A loan received is presented on the initial recognition date at fair value, while the difference between the amount of the loan and its fair value is carried to shareholders' equity.
 
 Regarding the accounting treatment of said loans, see note 11.
 
 (7)
Splitting proceeds from the issuance of a block of securities
 
 When issuing a block of securities, the proceeds are allocated to the various components of the block as follows: The proceeds are first allocated to financial liabilities measured at fair value through profit and loss and to other financial liabilities, which are measured at fair value only on the date of initial recognition, while the remainder is allocated to equity instruments. When the block of securities includes hybrid financial instruments, the other financial liabilities are recognized at the amount of the difference between the hybrid instrument and the fair value of financial liabilities measured at fair value through profit and loss. When several equity instruments are issued as part of a block of securities, the proceeds of the block is attributed in accordance with their proportionate fair value. The fair value of each component of the block which is measured at fair value as aforesaid is determined based on the market price of the securities close to the date of issue. Issuance costs are allocated between each one of its components proportionately to the value determined for each issued component. Issue costs allocated to financial liabilities measured at fair value through profit and loss are recognized in the statement of income on the date of issue. Issuance costs allocated to other financial liabilities are presented as a deduction from the liability and are recognized in the statement of income using the effective interest rate. Issuance costs allocated to equity instruments are presented as a deduction from the equity.
 
 F - 20
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 o.
Leasing of real estate by the Company
 
 Payments made under operating leases are recognized in the statement of income on a straight-line basis over the term of the lease.
 
 Regarding the amendment to IAS 17 “Leases” as part of the IASB’s annual improvements project for 2010, see note 3a.
 
 p.
Government grants and grants from the Chief Scientist
 
 Grants received from the Chief Scientist (prior to the Amendment to IAS 20), which the Group is required to repay with the addition of interest payments, provided the conditions associated with the grant are met, and which do not constitute forgivable loans, are recognized on the date of initial recognition, the amount to be repaid is presented as a liability at its nominal value without reflecting the benefit that arises from the capitalization of the grant at a capitalization rate that reflects the level of risk of the research and development project.
 
 q.
Provisions:
 
 A provision is recognized if, as a result of a past event, the group has a present legal or constructive obligation as a result of past event, and it is probable that an outflow of economic benefits, which can be estimated reliably, will be used to settle the obligation.
 
 The amount recognized as a provision, reflects management's best estimate of the amount required in order to settle the obligation on the balance sheet date, whilst taking into account the risks and uncertainties connected with the obligation. When the provision is measured using the forecasted cash flows in order to settle the liability, the book value of the provision is the current value of the forecasted cash flows.
 
 When the entire amount or a portion thereof, which is required to settle the commitment at the balance sheet date is expected to be reimbursed by a third party, the Group recognized the asset, in respect of said reimbursement, up to the amount of the recognized provision, only when it is virtually certain that the indemnification will be received and that it can be reliably measured.
 
 r.
Share-based payments:
 
 Share-based payments to employees and others who provide similar services, which are settled in equity instruments of the Group, are measured at fair value on the grant date. On the grant date, the Company measures the fair value of the granted equity instruments by using the Black and Scholes model. If the equity instruments granted to them have not vested until these employees have completed a defined period of service, have met performance conditions or defined market conditions are met, the company recognizes the share-based payment transactions in its financial statements over the vesting period against an increase in its shareholders' equity, under "Capital reserve in respect of share-based payment". At each balance sheet date, the Company estimates the number of equity instruments that are expected to vest. Any change in the estimate relative to previous periods is recognized in the income statement over the remaining vesting period.
 
 F - 21
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 r.
Share-based payments (continued):
 
 In share-based payment transactions that are settled in equity instruments, which relate to a guarantee provided by the shareholders, the expense in respect of the guarantee received and the corresponding increase in the shareholders' equity are presented at the value of the equity instruments granted on the date the guarantee was provided, by using the Black and Scholes model, and is recognized the income statement over the period of the guarantee.
 
 s.
Taxes on income
 
 In view of losses for tax purposes accrued by the Company and given the fact that as of the reporting date there was no certainty as to the realization of these losses in the foreseeable future, the Company does not recognize deferred taxes in respect of carry-forward losses and in respect of temporary differences in the value of certain assets and liabilities, between the financial reporting and reporting for tax purposes.
 
 t.
Employee benefits:
 
 (1)
Post-employment benefits
 
 In accordance with labor laws and labor agreements in Israel and in line with the Company's practices, the Company is required to pay severance pay to dismissed employees, and in some cases, to employees that resign from their employment voluntarily.
 
 The Company has defined benefit plans in accordance with Article 14 of the Severance Pay Law. In respect of these plans, the actuarial and economic risks are not imposed on the Company. In said plans, during the employment period, an entity makes fixed payments to a separate entity without having a legal or constructive obligation to make additional payments if the fund has not accumulated sufficient amounts. Deposits with the defined benefit plan are included as an expense during the deposit, parallel to receiving services from the employee. The Company makes current deposits with pension funds and insurance companies in respect of its liabilities to pay severance pay to some of its employees.
 
 (2)
Short-term employee benefits
 
 Short-term employee benefits include wages, vacation days, sick leave, convalescence and deposits with the National Insurance Institute, which are paid within one year of the period in which the employee provides the related service. These benefits are recognized as an expense upon the provision of services.
  F - 22
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 t.
Employee benefits (continued:
 
 (3)
Loan provided to the CEO of the Company
 
 Short-term employee benefits are benefits payable during a period which does not exceed 12 months from the period in which the benefit-entitling service was provided.
 
 Short-term employee benefits in the Company include the Group’s liability in respect of a loan given to the CEO of the Company. These benefits are recognized in the statement of income as incurred. The benefits are measured on a non-capitalized basis which the Company is expected to pay. See also note 7.
 
 u.
Earnings per share
 
 The Company does not include data on the earnings per share in its financial statements since its ordinary shares and potential ordinary shares are not listed, or in the process of listing for trading on public markets.
 
 v.
Exchange rates and linkage basis:
 
 (1)
Balances in or linked to foreign currency are presented according to the representative exchange rate published by the Bank of Israel at the balance sheet date.
 
 (2)
Balances linked to the CPI are presented according to the last known CPI at the balance date.
 
 (3)
Data in respect of changes in the CPI and the dollar's exchange rate are as presented as follows:
 
 The dollar's


CPI in IsraelExchange rate


Actual CPI


Known CPI(NIS to 1 $)


Points


PointsDate of the financial statementsAs of December 31, 2010


3.549



108.0



107.6As of December 31, 2009


3.775



105.2



105.2Rate of changeFor the year ended December 31, 2010


(5.99
)


2.7



2.3For the year ended December 31, 2009


(0.71
)


3.9



3.8For the year ended December 31, 2008


(1.14
)


3.8



4.5
 
 F - 23
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 3 – NEW FINANCIAL REPORTING STANDARDS AND PUBLISHED NTERPRETATIONS TO THESE STANDARDS:
 
 a.
New standards and interpretations that came into effect, which do not affect the current and/or previous accounting periods:
 
 The following new standards, interpretations and amendments, which came into effect in 2010 do not have a material impact on the current reporting period and/or prior periods, but may have an affect on future periods.
 
 ·
Amendment to IAS 39 "Financial Instruments: Recognition and Measurement" (regarding the designation of exposure to inflationary risks as hedged items
  The Amendment, inter alia, determines that changes in cash flows arising from exposure to inflationary risks, can be designated as hedged items. In addition, the Amendment determines that the intrinsic value, in contrast to the time value of acquired options, qualifies as a hedging instrument of a single-party risk arising from a projected transaction. The Amendment is to be applied retroactively for annual reporting periods commencing on or after January 1, 2010.
  ·
Amendment to IAS 1 "Presentation of Financial Statements"
 
 Pursuant to the Amendment to IAS 1 "presentation of financial statements", the liability component of an instrument which, as elected by the counter-party, can be settled by the issue of the entity's equity instruments, is to be classified as current or non-current based on the settlement date by way of the transfer of cash or other assets and not based on the settlement date by way of conversion. The Amendment is to be applied retroactively for annual reporting periods commencing on or after January 1, 2010.
  ·
Amendment to IAS 7 "Statements of Cash flows"
 The Amendment to IAS 7 clarifies that only expenses that lead to an asset being recognized in the statement of financial position can be classified as cash flows used in investment activity. The Amendment is to be applied retroactively for annual reporting periods commencing on or after January 1, 2010.
 
 ·
Amendment to IAS 17 "Leases"
  The Amendment to IAS 17 determines that land leases will be classified as a financing lease or operating lease using the general principles set forth by the standard. The Amendment is to be applied for annual reporting periods commencing on or after January 1, 2010. The Amendment is to be applied retroactively for existing leases when the required information is available on the date of commencement of the lease. When the required information is not available, land leases will be re-examined on the date of adoption of the standard.
  F - 24
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 3 – NEW FINANCIAL REPORTING STANDARDS AND PUBLISHED NTERPRETATIONS TO THESE STANDARDS (continued):
 
 a.
New standards and interpretations that came into effect, which do not affect the current and/or previous accounting periods (continued):
 
 ·
Amendment to IAS 39 "Financial Instruments: Recognition and Measurement" (regarding the scope of the standard, the date of classification of profits and losses of hedging instruments and an early repayment option in debt instruments).
  Amendment to IAS 39 “Financial Instruments: Recognition and Measurement” establishes certain revisions in the scope of the Standard. In addition, the Standard prescribes that the date of classification to profit and loss of gains and losses attributed to the hedging instrument in a cash flow hedge will be made on the date on which the projected cash flows affected the profit and loss. These amendments are to be applied on a prospective basis to all valid contracts for annual reporting period commencing on or after January 1, 2010. The Amendment also includes a clarification regarding the accounting treatment of a pre-payment option embedded in a debt contract, regarding the separation of an embedded derivative. The Amendment to is applied retroactively for annual reporting periods commencing on or after January 1, 2010.
 b.
New standards and clarifications which have been published but are not yet in effect and have not been adopted early by the Group, which are expected or may have a material effect on future periods:
 
 ·
IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments"
 
 The interpretation determines the accounting treatment for financial liabilities extinguished with equity instruments and states that when such an event occurs, the liability will be extinguished, while the difference between its carrying amount on that date and the fair value of the consideration paid, which is measured at the fair value of the issued equity instruments, will be recognized in the statement of income.
 
 The interpretation is to be applied retroactively to annual reporting periods commencing on or after January 1, 2011.
 
 At this stage management is unable to estimate the effect of this interpretation on its financial position and operating results.
 
 c.
New published standards and clarifications, which have been published but are not yet in effect and have not been adopted early by the Group, and which are not expected to have a material impact on the financial statements:
 
 ·
IFRS 9 "Financial Instruments"
 
 The new Standard sets forth provisions for the classification and measurement of financial assets and liabilities. The Standard prescribes that all financial instruments are to be accounted for as follows:
 
 F - 25
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 3 – NEW FINANCIAL REPORTING STANDARDS AND PUBLISHED NTERPRETATIONS TO THESE STANDARDS (continued):
 
 c.
New published standards and clarifications, which have been published but are not yet in effect and have not been adopted early by the Group, and which are not expected to have a material impact on the financial statements (continued):
 
 ·
IFRS 9 "Financial Instruments" (continued):
 
 §
After initial recognition, debt instruments are to be classified and measured at amortized cost or at fair value through profit and loss. The measurement model will be determined taking into account the entity’s business model regarding the management of financial assets and in accordance with the characteristics of the projected cash flows generated by the same financial assets.
 
 §
A debt instrument, which according to the tests has been measured at amortized cost, can be designated at fair value through profit and loss only if the designation removes an inconsistency in recognition and measurement, which would have been created had the asset been measured at amortized cost.
 
 §
Capital instruments are to be measured at fair value through profit and loss.
 
 §
Upon initial recognition, capital instruments can be designated at fair value when profits or losses are recognized in other comprehensive income. Such designated instruments shall no longer be subject to impairment tests and any profit or loss in respect thereof will not be transferred to the statement of income, including upon the disposal thereof.
 
 §
Embedded derivatives in financial assets will not be separated from the host contract. Instead, hybrid contracts are to be measured in their entirety at amortized cost or at fair value, in accordance with the business model tests and projected cash flows.
 
 §
Debt instruments will be reclassified from amortized cost to fair value and vice versa only when the entity changes its business model for the management of financial assets.
 
 §
Investments in equity instruments, without a quoted market price, including derivatives on these instruments, will always be measured at fair value. The alternative of measuring at cost under certain circumstances has been cancelled. At the same time, the Standard states that under specific circumstances, cost can be an adequate estimate of fair value.
 
 The Standard also prescribes the following provisions regarding financial liabilities:
 
 §
The change in the fair value of a liability that upon initial recognition is designated at fair value through profit and loss, which is attributable to changes in the credit risk of the liability, is directly recognized in other comprehensive income, unless this recognition creates or increases accounting mismatch.
 
 F - 26
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 3 – NEW FINANCIAL REPORTING STANDARDS AND PUBLISHED NTERPRETATIONS TO THESE STANDARDS (continued):
  c.
New published standards and clarifications, which have been published but are not yet in effect and have not been adopted early by the Group, and which are not expected to have a material impact on the financial statements (continued):
 
 ·
IFRS 9 "Financial Instruments" (continued):
 
 §
When the financial liability is repaid or extinguished, the fair value amount that was recognized in other comprehensive income will not be classified to profit or loss.
 §
All derivatives, whether assets or liabilities, are to be measured at fair value, including a derivative financial instrument that constitutes a liability, which is related to an unquoted equity instruments, whose fair value cannot be measured reliably.
 
 The provisions of the standard are to be applied retroactively, with certain exceptions as specified in the Standard, to annual reporting periods commencing on or after January 1, 2013. Early adoption is permitted. Entities that opted for early application of the standard prior to January 1, 2012, are entitled not to apply the standard retroactively. In addition, subject to the Standard’s transitional provisions, early adoption of the said provisions may be applied to financial assets only without the adoption of said provision to financial liabilities.
 
 ·
Amendment to IAS 32 "Financial Instruments: Presentation"
 
 The Amendment stipulates that derivative instruments that were issued as part of the issue of rights to existing shareholders, which allow the holder to buy a fixed number of equity instruments in return for a fixed amount of cash or another financial asset, which is stated in a currency that is not the entity's functional currency, will be classified as equity instruments only, provided the rights have been offered to all the holders of the entity's equity instruments, pro rata to their holding rate. The Amendment is to be applied retroactively for annual reporting periods commencing on or after January 1, 2011.
 
 The Company’s management estimates that the implementation of this interpretation does not have a material impact on the Company’s financial statements.
 
 ·
Amendment to IAS 1 "Presentation of Financial Statements"
 
 The Amendment to IAS 1 "Presentation of Financial Statements", prescribes that items of other comprehensive income are to be presented in the statement of changes in shareholders equity or in the notes, in accordance with the Company’s accounting policy. The Amendment is to be applied retroactively for annual reporting periods commencing on or after January 1, 2011.  Early adoption is permitted.
 
 F - 27
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 3 – NEW FINANCIAL REPORTING STANDARDS AND PUBLISHED NTERPRETATIONS TO THESE STANDARDS (continued):
 
 c.
New published standards and clarifications, which have been published but are not yet in effect and have not been adopted early by the Group, and which are not expected to have a material impact on the financial statements (continued):
 
 ·
Amendment to  IFRS 7 “Financial instruments: Disclosure”
 
 The Standard includes disclosure requirements regarding the entity’s exposure to risks in respect of transfers of financial assets, under which the transferor is left with a certain degree of continued exposure to the assets (“continued involvement”) and regarding transferred financial assets that were derecognized in their entirety, which were carried out close to the end of the reporting period.
 
 The provisions of the Standard are to be applied prospectively as of annual periods commencing on January 1, 2012. Early adoption is permitted. The new disclosures are not required in respect of reporting periods that precede the date of initial application of the Standard.
  ·
Amendment to IFRS 7 "Financial Instruments: Disclosure"
 The Amendment encourages qualitative disclosures in regard to quantitative disclosure, which is required to assist users of the financial statements to create a picture of the nature and extent of the risks arising from financial instruments.
 
 In addition, the Amendment clarifies the level of required disclosure with respect to credit risk and collateral and provides a relief for loans whose terms have been renegotiated. The Amendment is to be retroactively applied to annual reporting periods commencing on or after January 1, 2011. Early adoption is permitted.
 
 NOTE 4 – CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF NCERTAINTY ESTIMATION:
 
 In the Company's accounting policy, which is described in note 2 above, the Company is required in certain cases to use accounting judgment regarding estimates and assumptions in connection with the book value of assets and liabilities that are not necessarily found in other sources. The related estimates and assumptions are based on past experience and other factors which are considered relevant. Actual results may be different than these estimates.
 
 The estimates and assumptions are reviewed by management on a continuous base. Changes to accounting estimates are recognized only in the period in which the change in the estimate was made, provided the change only affects that period, or are recognized in said period and in future periods in cases where the change affects both the current period and future periods.
 
 Accordingly:
 
 ·
Each annual reporting period, the Company's management reviews the estimated useful life of the waste treatment facility it owns. This assessment also takes into account the Company’s estimates regarding the likelihood of renewal of the lease agreements for the land on which the said facility is located, see note 8a, an estimate which remained unchanged in 2010. See also note 14(a)(2).
 
 F - 28
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 4 – CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF NCERTAINTY ESTIMATION  (continued):
 
 ·
Management continuously reviews the likelihood of recovery of intangible assets (know-how) it has developed, in accordance with the forecasted income from these assets, which is determined based on economic assessments made by the Company.
 
 ·
Management exercises discretion in choosing adequate assessment techniques for financial instruments, which have no quoted price in an active market. The assessment techniques used by management are those applied by market participants. The fair value estimate of financial instruments that are not listed for trading in an active market includes several assumptions, which are not supported by observed market rates and prices. For additional details on the assumptions used by the group, see note 15.
  NOTE 5 – CASH AND CASH EQUIVALENTS:
 
 Composed as follows:
  Interest rateAs of December 31


As of December 312 0 1 0


2 0 1 0



2 0 0 9%


NIS in thousandCash:In dollars


-



15



681In shekels


-



46



256Deposits:In shekels


1.85
%


142



231203



1,168
 
 
 NOTE 6 – ACCOUNTS RECEIVABLE:
 
 Composed as follows:
 
 As of December 312 0 1 0



2 0 0 9NIS in thousandDebtors (Linked to NIS)Institutions


80



273Employees


50



74130



347Accounts receivablePrepaid expenses


734



496Others


16



62750



558880



905
 
 F - 29
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 7 – LONG-TERM LOAN PROVIDED TO THE CEO OF THE COMPANY (FORMER PRESIDENT OF THE COMPANY):
 
 The loan to the CEO of the Company bears a dollar interest at the rate of LIBOR + 2%. In 2007 an agreement was signed under which the terms of the loan provided by the Company were changed, stipulating that said loan would be repaid by December 31 2014, out of dividends (as defined below) which the CEO will receive from the Company. For the purpose of this agreement, the proceeds from the sale of shares of the Company by a company held by the CEO and dividends that this company will receive from the Company, shall be considered as dividend received by the interested party. The effective interest rate in respect of this loan is the stated interest rate. The Company did not anticipate any deterioration in the expected amounts to be received following the change in terms of the loan.
 
 In February 2009, the agreement with the CEO of the Company was amended, such that the loan shall be repaid under the following conditions
 
 ·
25% of the amount of the loan principal with the addition of interest and linkage differentials accumulated until that date will become a grant at the end of each calendar year, from February 1, 2010 and until the end of the employment period (December 31, 2012), provided that employer-employee relations continue to exist between the CEO and the Company. Until the date of this report a total of NIS 2,986,000 was recognized in the statement of income. In addition, the balance of the loan as of December 31, 2010 was NIS 1,746,000, of which NIS 772,000 is presented as a loan extended, as part of current assets.
 
 ·
As of December 31, 2011, if the CEO is dismissed by the Company the outstanding loan will become a grant beginning on the date of termination of employer-employee relations between the CEO and the Company and the Company will gross up the outstanding loan, including the interest accrued in respect thereof as required by the law.
 
 ·
The Company will gross up the amount of the grant given to the interested party, when and as it may be required by law.
 
 Forgiveness of the loan constitutes a further incentive to Stern to continue his contribution to E.E.R. and to prevent his departure, which could hurt the Company’s activities at a stage when it's success is largely dependent on Stern. On February 1, 2010, 25% of the principal of the loan to the CEO, plus interest and linkage differences accrued up to that date have become a grant. See also note 2(t)(3).
 
 F - 30
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 8 – FIXED ASSETS
 
 a.
Composition and changes:
  Furniture &


Samplingequipment


Facility (*)


TotalNIS in thousandCostAs of January 1, 2010


747



72,062



72,809Changes in the accounting year -Translation differences


(44
)


(4,316
)


(4,360
)Additions


2



7



9Derecognitions


-



(397
)


(397
)As of December 31, 2010


705



(**) 67,356



68,061As of January 1, 2009


748



72,302



73,050Changes in the accounting year -Translation differences


(5
)


(353
)


(358
)Receipt of insurance returns


-



(914
)


(914
)Additions


4



1,027



1,031As of December 31, 2009


747



72,062



72,809Accumulated depreciationAs of January 1, 2010


567



13,515



14,082Changes in the accounting year -Translation differences


(37
)


(1,002
)


(1,039
)Additions


78



5,418



5,496Derecognitions


-



(46
)


(46
)As of December 31, 2010


608



17,885



18,493As of January 1, 2009


460



7,894



8,354Changes in the accounting year -Translation differences


(2
)


(151
)


(153
)Additions


109



5,772



5,881As of December 31, 2009


567



13,515



14,082Depreciated cost:As of December 31, 2010


97



49,471



49,568As of December 31, 2009


180



58,547



58,727The cost as of December 31, 2010 includes:Capitalized expenses


-



8,332



8,332After offsetting a grant from the Chief Scientist of:


-



962



962Fixed assets set up by the Company


-



67,356



67,356The cost as of December 31, 2009 includes:Capitalized expenses


-



8,332



8,332After offsetting a grant from the Chief Scientist of:


-



962



962Fixed assets set up by the Company


-



72,062



72,062
 
 F - 31
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 NOTE 8 – FIXED ASSETS (continued):
  (*)
As of January 1, 2008 and after completing the year of trial running the sampling facility for the treatment of solid waste ("the facility"),  the Company began depreciating the facility as stated in Note 2h.
  (**)
Including NIS 51 million in respect of construction components, NIS 6 million in respect of components of the plasma system, compressors, bellows and supportive systems and NIS 2 million in respect of a crane and a reactor.
  b.
Charges:see note 22.
  NOTE 9 – OTHER INTANGIBLE ASSETS
 
 a.
Composition and changes:
  Know-how forimplementing thewaste treatmenttechnologyNIS in thousandCostAs of January 1, 2010


19,493Changes in the accounting year -Translation differences


(1,167
)Additions


-As of December 31, 2010


18,326As of January 1, 2009


19,523Changes in the accounting year -Translation differences


(30
)Additions


-As of December 31, 2009


19,493Accumulated depreciationAs of January 1, 2010


3,101Changes in the accounting year -Translation differences


(263
)Additions


1,536As of December 31, 2010


4,374As of January 1, 2009


1,562Changes in the accounting year -Translation differences


(63
)Additions


1,602As of December 31, 2009


3,101Depreciated cost as of December 31, 2010


13,952Depreciated cost as of December 31, 2009


16,392
 
 F - 32
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 9 – OTHER INTANGIBLE ASSETS (continued):
 
 b.
The depreciation of intangible assets is presented in the statement of comprehensive income under administrative and general expenses.
  c.
Material intangible assets:
 
 The balance includes acquisition and development costs of know-how to implement new technology for the treatment of solid waste, medical waste and low and intermediate radioactive waste.
 
 As of January 1, 2008 and after completing one year of trial running the sampling facility for the treatment of solid waste ("the facility") the Company began depreciating the know-how, as stated in note 2k.
 
 The know-how is depreciated over a period of 12.5 years, based on the remaining useful life of the main patent registered thereto as of the date of commencement of depreciation.
 
 The Company has numerous patents, either registered or at various stages of application, in respect of said know-how.
 
 d.
Additional information:
 
 For additional information, including the review of impairment of other intangible assets, see notes 2k and 2L.
 
 For information on charges see note 22.
 
 NOTE 10 – ACCOUNTS PAYABLE AND ACCRUALS:
 
 Composed as follows:
  As of December 312 0 1 0


2 0 0 9NIS in thousandSuppliers (**) (mainly in NIS) Open accounts


287



297Checks repayable


30



163Accrued expenses


464



260Employees and institutions in respect of payroll


811



1,354Interest payable to shareholders (in dollars)


589



626Related parties (*)


30



2632,211



2,963
  (*)   Current accounts receivable and payable in shekels(**) The average credit period provided by suppliers is Net 30, in respect of which the Groupdoes not pay interest. The Group usually pays its suppliers within the credit period.
  F - 33
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 11 – CREDIT FROM BANKS AND OTHER CREDIT PROVIDERS:
 
 a.
Composition of financial liabilities measured at amortized cost:
 
 Annual


Current liabilities


Non-current liabilities


Totalinterest


As of December 31


As of December 31


As of December 31rate


2 0 10


2 0 0 9


2 0 10


2 0 0 9


2 0 10


2 0 0 9%


NIS in thousandBanks – loans:In dollars


0.9-10.9(2)



16,073



16,281



-



-



16,073



16,281Shareholders- loans:In dollars


Libor+2 (3)



-



-



15,048



15,645



15,048



15,645Shareholders – convertible loans:In dollars


(4)



13,632



13,732



-



-



13,632



13,732In dollars


(5)



1,767



1,821



-



-



1,767



1,821Shareholders – total convertible loans






15,399



15,553



-



-



15,399



15,553Total financial liabilities measured at amortized cost






31,472



31,834



15,048



15,645



46,520



47,479
 
 (1)
Not materially different than the effective interest rate.
 
 (2)
As of the fourth quarter of 2009 - $2 million of the loans provided by a bank have not been renewed, are considered as credit in arrears and bear an irregular interest rate of 10.9% per annum (as of December 31, 2010), which accrued to the loan balance. The Company is negotiating with the bank with respect to the arrangement of the said loans and the terms thereof. See also note 14(a)(14).
 
 (3)
In management's opinion, constitutes the market interest rate. See d. below.
 
 (4)
These loans are renewed annually. The loans bear no interest and on the date of renewal are measured at fair value. See also notes 2n(5) and 14(a)(4)
 
 (5)
These loans are renewed annually and bear interest of LIBOR + 2.5%. See also note 14(a)(8).
 
 b.
Repayment dates as of December 31, 2010:
  NIS in thousandFirst year (*)


31,472Non-determined period of repayment


15,04846,520
  (*)  The loans are for one year and renewable
 
 F - 34
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 11 – CREDIT FROM BANKS AND OTHER CREDIT PROVIDERS (continued):
 
 c.
Charges: see note 22.
 
 e.
To finance the Company's business activity, in the past some of its shareholders provided loans that amount to $15 million (prior to the accrual of interest). The shareholders' loans bear interest of LIBOR+2%, which in the Company’s opinion is the market interest rate. Most of the loans were converted on December 31, 2007. The outstanding loans will be repaid in annual installments out of the Company’s cash flows, to be determined by the Board of Directors of the Company.
 
 NOTE 12 – EMPLOYEE BENEFITS:
 
 a.
Composed as follows:
  As of December 312 0 10


2 0 0 9NIS in thousandShort-term employee benefits:Payroll, wages and social benefits


740



944Short-term vacation


71



410811



1,354
 
 b.
Post-employment benefits:
 
 (1)
Defined benefit plan:
 
 Plans in respect of severance pay
  Labor laws and the Severance Pay Law in Israel require the Company to pay severance pay upon dismissal or retirement of employees including those who left under certain other circumstances. The calculation of liability in respect of employee severance benefits is made pursuant to an employment agreement in effect and is based on the employee's wages which, according to management, creates the entitlement to severance pay.
 
 The Company's employees are signed on Section 14 to the Severance Pay Law, 5723-1963,pursuant to which its regular deposits with pension funds and/or insurance policies, exempt the Company from any further liability to the employees, for which said amounts were deposited. The Group deposits 81/3% of the monthly salary of its employees in Plan A. The Group will not have a legal or constructive obligation to make additional payments if the plan does not have sufficient assets to pay the entire employee benefits relating to the employee's service during the current period and in previous periods.
  The total amount of expenses recognized in the statement of income in respect of defined benefit plans in the year ended December 31, 2010 is NIS 180,000 (2009:      NIS 250,000, 2008: NIS 310,000).
  F - 35
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 12 – EMPLOYEE BENEFITS (continued):
 
 (2)
Additional information:
 
 (a)    Paid vacation days
 
 In accordance with the Annual Vacation Law, 1951, the Company's employees are entitled to several paid vacation days in respect of each year of employment. Pursuant to said law, the number of vacation days per year to which each employee is entitled is determined in accordance with the seniority of said employee.
 
 An employee is entitled, with the consent of the Company, to use the vacation days and accumulate up to 60 vacation days.
 
 An employee terminating his employment before using his accumulated vacation leave is entitled to payment in respect of the balance of vacation leave.
 
 (b)    Paid sick leave
 
 As of December 31, 2010, the Company has 14 employees. Based on past experience, management estimates that in the year ahead about 70 days of paid sick leave will be used.
 
 (c)    Related parties
 
 For information regarding current liabilities in respect of employee benefits given to related parties, see note 21c.
 
 NOTE 13 – INCOME TAX
 
 a.
On February 26, 2008, the Knesset approved the third reading of the Income Tax Law (Adjustments for Inflation) (Amendment No. 20) (Limitation of Period of Application), 2008 (hereinafter – "the Amendment"), under which the application of the inflation adjustment law will end in the tax year 2007, while as of the tax year 2008, most of the provisions of the Law will be cancelled, with certain clauses remaining in effect as transitional provisions so as to prevent distortions in tax calculations.
 
 Pursuant to the amendment, in the tax year 2008 and thereafter, the adjustment of revenues for tax purposes shall no longer be calculated on a real basis. In addition, the linkage of amounts of depreciation on fixed assets and the amounts of carry forward losses for tax purposes to the CPI shall be discontinued, such that these amounts will be adjusted to the CPI until the end of the tax year 2007, and their linkage to the CPI shall be discontinued as of this date.
 
 On July 23, 2009, the Law for Economic Efficiency (Legislative Amendments for Implementation of the Economic Plan for the years 2009 and 2010), 2009 (hereinafter – “the Arrangements law”), was published. Pursuant to the Arrangements law, corporate tax rates of 27%, 26% and 25% applicable to companies in the years 2008, 2009 and 2010, respectively, will be gradually reduced from 24% in the tax year 2011 to 18% in the tax year 2016.
 
 F - 36
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 13 – INCOME TAX (continued):
 
 b.
The Company has received final tax assessment up until the tax year 2005.
 
 c.
The Company has carryforward tax losses in the amount of NIS 188 million.
 
 d.
In view of the lossesfor tax purposes and since the Company does not anticipate any taxable income in the foreseeable future, the Company has not recorded deferred tax assets in respect of carryforward losses in the amount of NIS 33 million, and in respect of temporary differences in the value of assets and liabilities between the financial statements and the report for tax purposes in the amount of NIS 14 million.
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES:
 
 a.
Commitments:
 
 (1)
In November 2008, a subsidiary was established in Texas, USA. The Texas Company was established for the purpose of executing an agreement signed in February 2008 (hereinafter – "the Texas agreement") between EER and Primus Security & Consulting LLC, a partnership incorporated in the USA (hereinafter – "Primus").
 
 In January 2009, EER was issued 1,000 shares of the Texas Company which, as of the date of this report, constitute its entire issued share capital.
 
 The Texas agreement covers the establishment of facilities for the treatment of medical waste using the PGM technology within the State of Texas (hereinafter – "the facilities in Texas"), which will be owned and operated by the Texas company, either directly or indirectly. Pursuant to the Texas agreement, Primus was appointed the exclusive representative of EER in the State of Texas, inter alia, to obtain the necessary approvals for operation of the technology in Texas.
 
 As of the reporting date, the Texas company has obtained two of the required permits for the operation of the technology in Texas (an authorization by the Texas Department of State Health pursuant to which a special permit is not required because the technology is widely known, and an air emissions permit). As of the reporting date, the Texas company is in the process of obtaining a permit for the treatment of untreated waste (“Treatment Permit”) for the operation of one of the first facility in Texas, which is designed to treat 7,000 tons of waste per annum ("the first Texas facility"). In the Company’s opinion, the Treatment Permit in connection with the first facility in Texas is expected to be obtained within 6 months from the date of this report. In October 2010 the Texas company acquired, for an insignificant amount, an option for the acquisition of land in Texas, which is suitable for the construction of the first Texas facility, for a consideration of $444,000; the above option may be exercised by the Company until the end of March 2011.
 
 In addition, as of the date of publication of this report, the Texas company is in the process of achieving the necessary investments to acquire land in Texas for building the first Texas facility, and contracting with local hospitals to guarantee the transfer of medical waste to the first facility, once it commences operation.
 
 F - 37
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 In accordance with the Texas agreement, Primus is entitled to a monthly payment of $10,000. In addition, Primus shall be entitled to royalties as follows in connection with the first Texas facility: $50,000 after obtaining the Treatment Permit for the first Texas facility, $200,000 after preparing the grounds for the first Texas facility and $250,000 after operation of the first Texas facility. If additional facilities are built in Texas, Primus shall be entitled to a consideration of up to $350,000 in respect of each additional facility. Should Primus assist in obtaining financing from third parties to build facilities in Texas, it will be entitled to a fee of 6% of the financing amount (if the financing is obtained through investment in capital) or 4% of the financing amount (if financing is obtained through loans).
 
 In addition, under the Texas agreement, Primus shall be entitled to receive up to 10% of the shares which carry rights to receive profits (with no voting right) of the subsidiaries of the Company in Texas, which will be established for the purpose of operating the Texas facilities (“subsidiaries of the company in Texas”); however, if Primus ceases in assisting the Company in Texas with respect to licensing and financing its operations and the controlling shareholder in Primus (which serves as director in the company in Texas) ceases to be a director in the company in Texas by February 2011, Primus shall be entitled to receive only 6.66% of the aforesaid shares of the subsidiaries of the company in Texas. As of the reporting date, no subsidiaries of the company in Texas have been established.
 
 As of the date of the financial statements, the said company has not yet commenced operations.
 
 (2)
The Company has a leasing agreement with a third party for the land on which the sampling facility is located, in respect of which it paid a one-off amount of $90,000.
 
 In 2007 the Company extended the leasing agreement for the area on which the sampling facility was set up in Israel for a period of 5 years, including an extension option for a further period that will end on July 25, 2012. In accordance with the established conditions, the rental price is $60,000 per annum (about $72,000 during the option period). In February 2010, the Company informed the lessor that it wished to exercise the option and in return the lessor informed the Company that he was raising the rent during the option period to NIS 35,000 per month.
  In addition to the rental fees and should the facility become commercial, the lessee will be entitled to receive the following proceeds:
 
 (a)
Payment in the amount of 20% of the total profits to be generated from the revenues from the facility, should the facility obtain a legal license for waste treatment, and as long as the facility operates on this property during the leasing period (and thereafter – should an additional period be agreed upon in writing).
 (b)
10% of the selling price of the facility is it is sold and remains on the property for an additional leasing period.
 (c)
15% of the selling price of the facility – if the facility is relocated to another area.
 
 At the end of the lease period, the Company’s sole obligation will be to dismantle the sampling facility, remove it and vacate the leased land.
 
 The value of embedded derivative in these revenues is not material.
 
 F - 38
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 Certain shareholders have provided guarantees in favor of the lessor to secure the Company's liabilities in regard to the leasing agreement, up to a total of $800,000.
 
 Subsequent to informing the lessor of its desire to exercise the option and extend the agreement from July 17, 2010 to July 15, 2012 (in this section – “the option period”), on June 27, 2010, the Company and the lessor signed an addendum to the lease contract, pursuant to which the monthly rental price in the option period would be NIS 25,000 plus VAT to be paid two years in advance at the start of the option period, for the entire option period. It was further agreed that the iron construction and electricity room, which constitute part of the sampling facility, would be used as collateral to secure the Company’s commitments pursuant to the lease contract, up to a sum of $400,000. The parties also agreed to cancel the guarantees to secure the Company’s obligations under the lease contract, which had been provided by Greenstone, S.R. Accord Ltd (formerly – The Shrem Fudim Group Ltd) or any other company from the S.R. Accord Group Ltd.
 
 In 2008, the Company rented offices in Ramat-Gan (replacing its previous offices) for a period of 5 years including an option that ends on September 30, 2013, and pays annual rent and maintenance fees in the amount of NIS 250,000 linked to the Consumer Price Index.
 
 (3)
In 2007 a subsidiary was established in Russia in order to promote the process of setting up of facilities for radioactive waste and in addition it is entitled, among others, to treat medical waste throughout Russia (where foreign companies are generally not permitted to do so) as well as promote the Company's business elsewhere in the world. The Company holds 74% of the shares of the subsidiary and the remaining shares are held by a third party.
 
 As of the balance sheet date, the said company has not commenced operation.
 
 (4)
At the Company's request, certain shareholders ("the guarantors") have undertaken, for the purpose of securing the receipt of bank loans by the Company, to provide guarantees aggregating $5.5 million ("guarantees"). The distribution of the amount of the guarantees has been determined in accordance with the pro-rata holding of the guarantors in the issued share capital of the Company.
 
 The guarantees give each of the guarantors (separately) the right to invest in the share capital of the Company the amount of guarantees provided therefrom, in whole or in part, at a price of $5.402.4 per share after adjusting the price to distribution of bonus shares, as stated in note 15b(5), (which, as of the date of approval of the financial statements, reflects a pre-money company valuation of $88 million). The guarantors shall have the right to convert the guarantees even if the Company does not exercise the full guarantee amounts.
 
 The guarantors are entitled to a guarantee fee at an annual rate of 2% of the amounts of the guarantee which as of 2009 can be converted, see below.
 
 F - 39
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (4)
Continued:
 
 The Company received loans in the amount of $3.5 million from its shareholders in exchange for receiving some of the aforementioned guarantees. As of January 1, 2008 the loans do not bear interest (as for the charging of a notional interest rate, see note 11). The amount of the aforementioned loans is added to prior guarantee and loan amounts that were given to the Company by the guarantors, such that the entire outstanding guarantees and loans provided in return for the guarantees as of the balance sheet date amount to $5.5 million (the entire amount to which the shareholders have committed).
 
 As aforesaid, the Company received loans aggregating $3.5 million from its shareholders and $2 million guarantees to a bank. See also note 11.
 
 The value of the right to invest in the share capital of the Company, which was computed in accordance with the B&S model, amounted to NIS 3.4 million and was accounted for as a pre-paid expense in respect of the guarantee fee, which is recognized in the income statement of the Company over a period of two years – the period which the Company estimated that the guarantee will be in effect. The parameters used in the calculation of the fair value are: a share price of $5.4024, after adjusting the price to the distribution of bonus shares, as stated in Note 15(b)(5), representing the stock price according to the latest equity offering, an identical exercise price, the expected volatility of companies operating in this field overseas of 20%, the life of the option – two years, (which is the period that the Company estimated the guarantee would be in effect), as aforesaid, and a risk-free interest of 5%.
 
 In March 2009, a renewed agreement was signed between the guarantors to the Company that regulates the issue of loans and guarantees provided by the guarantors to the Company since 2006. Below are the highlights of the renewed agreement:
 
 The distribution of the guarantee amounts was determined in accordance with the percentage of the guarantors' holding in the issued share capital of the Company. The guarantees were provided separately, rather than jointly and separately, such that the Bank can receive payment from each of the guarantors only up to the amount in respect of which the guarantees were provided. The guarantors are entitled to a guarantee fee at an annual rate of 2% of the amounts of the guarantees ("guarantee fees"). In addition, the guarantors have undertaken to indemnify each other in the event that the guarantees provided by one of them are exercised, such that each of the guarantors is liable for a portion of the guarantee amount which was exercised in accordance with their pro-rata share in the guarantees.
 
 The guarantees give each of the guarantors (separately) the right to invest in the share capital of the Company the amounts provided by virtue of the guarantees, in whole or in part, with the addition of the guarantees fee that the guarantors are entitled thereto, in whole or in part, at a price of $5.4024 per share, after adjusting the price to the distribution of bonus shares, as stated in Note 15(b)(5).
 
 F - 40
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (4)
Continued:
 
 The value of the right to invest in the share capital of the Company, which was computed in accordance with the B&S model, amounted to NIS 1.2 million (in addition to the amount that was recognized on the date of the first allocation of the guarantee of NIS 1.2 million) and was accounted for as a pre-paid expense in respect of the guarantee fee, which is recognized in the income statement of the Company over a period of one year – the contractual period. The parameters used in the calculation of the fair value are: price per share of $6.475, after adjusting the price to the distribution of bonus shares, as stated above, representing the price per share in company valuations at that time, an exercise price of $5.4024, the expected volatility of companies operating in this field abroad  -41%, the life of the option – one year, which constitutes the contractual term of the guarantee, as aforesaid, and a risk-free dollar interest of 0.6% per annum.
 
 As for the loans, each of the guarantors has the right to convert the loan principal and interest in respect thereof to shares of the Company ("the conversion right"). The term of the conversion right will end at the earliest of: (a) repayment of the loans; (b) future capital raising by the Company of at least $10 million (except as a result of the conversion of existing loans that are convertible into shares of the Company); (c) Initial Public Offering of securities of the Company; (d) a merger agreement, including the sale of more than 50% of the shares of the Company or the sale of most of its assets and intellectual property rights.
 
 The conversion of the loans will be at a price based on the share price to be determined in the aforementioned future capital raising, IPO or M&A transaction, and in any case at a price that shall not be less than $5.4024 per one share of the Company, after adjusting the price to the distribution of bonus shares, as stated above. If the guarantors do not exercise their right to convert the loans (in whole or in part) to shares of the Company and if the Company does not repay the loans (in whole or in part), then at the end of each calendar year the term of the loans will be extended by one year. Subsequent to the balance sheet date, the guarantors approved the extension of the guarantee for an additional year.
 
 In any case, the loans shall be repaid prior to the distribution of dividends or the repayment of any other loan that was extended to EER by any of its shareholders.
 
 The value of the right to convert the loans to share capital of the Company was calculated as residual, after determining the value of a similar loan without a conversion option (at a discount rate of 15%) amounting to NIS 2 million (in addition to the amount recognized on the date of the guarantee agreement in the amount of NIS 2 million), which is added to the effective interest on the loan and recognized in the Company’s statement of income over a one-year period – the contractual period
 
 During the reporting period, shareholders loans in the amount of $3.5 million and guarantees provided to the Company in the amount of $2 million were renewed. The guarantees give each of the guarantors (separately) the right to invest in the share capital of the Company the amounts provided by virtue of the guarantees, in whole or in part, with the addition of the guarantees fee that the guarantors are entitled thereto, in whole or in part, at a price per share of $5.4024, after adjusting the price to the distribution of bonus shares, as aforesaid.
 
 F - 41
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (4)
Continued:
 
 The value of the right to invest in the share capital of the Company, which was computed in accordance with the B&S model, amounted to NIS 36,000 and was accounted for as a pre-paid expense in respect of the guarantee fee, which is recognized in the income statement of the Company over a period of one year – the contractual period. The parameters used in the calculation of the fair value are: a price per share of $2.946, after adjusting the price to the distribution of bonus shares as aforesaid, representing the effective stock price according to the secondary equity offering on the date of renewal, an exercise price of $5.4024, the expected volatility of companies operating in this field abroad of 29%, the life of the option is one year, which is the period of the guarantee agreement, and a risk-free dollar interest of 0.5% per annum.
 
 The value of the right to convert loans to shares of the Company was calculated as a residual, after determining the value of a similar loan without a conversion option (using a discount rate of 15%), and amounted to NIS 1,772,000, added to the effective interest on the loan, and recognized in the Company’s statement of income over a period of one year – the contractual period. Since the values at which the Company carries out capital transactions have declined compared to the same period in 2009, without a corresponding decline in the conversion price of these loans into shares, part of the capital component is carried to premium on shares in the statement of changes in shareholders’ equity, and in the lenders’ opinion, constitutes an investment in the Company’s capital.
 
 (5)
At the start of 2008, the Company signed agreements with a foreign corporation ("the foreign investor"), regarding an investment in the Company of an aggregate amount of $23.75 million, in consideration for 10% of the Company's share capital. This investment was to be carried out in two stages. During 2008 the parties agreed to amend the agreement. Among others, it was agreed that the amount of the consideration would increase and that part of it would be paid as a fee (such that the net amount of the consideration to the Company would not change materially) and that the full amount of the consideration would be paid to the Company within 120 business days, as of April 17, 2008 ("the investment period"). The Company allotted the trustee the shares that should have been transferred to the foreign investor against payment of the consideration ("the shares intended for the foreign investor").
 
 In October 2008, the foreign investor announced that although he was very interested in investing in the technologies and partnership in the Company's businesses in Russia and worldwide, due to losses it incurred following the global financial crisis it is unable, for now, to make said investment until their financial situation clears up. In light of the aforesaid, and since the investment period has ended, the investments did not take place. Therefore, the Company has decided to forfeit the shares intended for the foreign investor.
 
 F - 42
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (6)
In July 2008, a Memorandum of Understanding ("memorandum of understanding") was signed between the Company and Brigdmart Limited (which operates under the commercial name Gowing & Pursey) ("G&P"), a company that operates in London and engages in the collection, transportation and sorting of domestic and commercial waste.
 
 In November 2008, pursuant to said memorandum of understanding, an agreement was signed between the Company and G&P and William Elliott ("Elliott").
 
 Under the agreement, the Company and G&P will set up a joint company in England ("EER-UK"), in which the Company will hold 75% of the shares of EER-UK, G&P will hold 20% of the shares of EER-UK and the designated manager of EER-UK, Elliott, will hold 5% of the shares of EER-UK.
 
 Under the agreement, it was decided to set up a facility with the capacity to treat 30,000 tons of waste per year. G&P will transfer land to EER-UK in consideration for an agreed cost, which will be suitable for the construction of said facility. The designated space will be suitable for further development when the parties decide to expand the facility.
 
 Under the agreement, G&P has undertaken to provide waste for treatment in the facility for a period of 20 years and pay EER-UK a minimum (ex-works) price of £60 per ton of waste in the first year.
 
 The financing for the construction and operation of the facility in England is to be provided by third parties, while the Company has undertaken to make every effort to obtain such external financing.
 
 On the date of establishment of the UK company, one share of the company (which, as of the date of this report, constitutes the entire issued share capital of the UK company) was allocated to Elliott. Under the UK agreement, the UK company should is expected to issue shares such that the Company holds 75% of the shares of the UK company, G&P holds 20% of the shares of the UK company and Elliott (who is designated to be CEO of the UK company) holds 5% of its shares. As of the date of this report, only one share of the UK company was issued and it is held by Elliot. In May 2010 the Company was informed by Elliot that the UK company was delisted from trading due to non-compliance with reporting requirements.; the parties to the UK agreement will reconsider their plans for the UK company.
 
 As of the reporting date, the UK agreement has expired due to failure to fulfill the suspending condition regarding location of the designated land by G&P. The parties to the UK agreement continue to cooperate in the purpose of promoting the construction of the UK facility, however, no timetables have been established and there is no certainty that this cooperation will generate results. Therefore, as of the reporting date, the UK agreement is immaterial to the Company.
 
 To the best of the Company’s knowledge, during 2010, due to absence of business activities, EER (UK) Ltd, which was established in the UK in August 2008 to carry out an agreement between EER and UK parties who engage in the collection, transportation and sorting of domestic and commercial waste, was delisted from trading.
  F - 43
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (7)
Pursuant to an agreement from June 2000 with the Kurchatov Institute (which was amended in February 2002), Kurchatov Institute transferred to the Company the entire know-how that was developed and/or which will be developed in the Kurchatov Institute in connection with technology for the treatment of solid municipal waste through gasification and melting (know-how that constituted the basis for the PGM (Plasma-Gasification-Melting) technology) and the entire intellectual property relating to this know-how, and has also undertaken to provide the Company with scientific and technical assistance in connection with the establishment of an experimental facility that will use this know-how. The Company is obligated to pay royalties to the Kurchatov Institute at a rate of 1% of the proceeds received from the sale of facilities for the treatment of solid municipal waste or medical waste, in Israel or abroad.
 
 (8)
In January 2009, several of the Company’s shareholders ("the lenders") extended the Company a loan of $0.5 million, which bears an annual interest rate of LIBOR+2.5%. The date of repayment is 18 months from the date of extension of the loan (unless it has been converted to shares) and shall be extended by the lenders for additional periods of one year each in the event it is not repaid.
 
 Each of the lenders has the right to convert the principal of the loan and the interest in respect thereof to ordinary shares of the Company. The term of the right will end at the earliest of:
 (a)
Repayment of the loan.
 (b)
Future raising of capital by the Company of at least $10 million (except as a result of the conversion of existing loans that are convertible into shares of the Company).
 (c)
Initial Public Offering by the Company.
 (d)
M&A transaction, including the sale of more than 50% of the shares of the Company or the sale of most of its assets and intellectual property rights.
 
 The conversion price of the loan shall be based on the price per share, to be determined in the future capital raising or the IPO or the M&A transaction as aforesaid, and in any case at no less than $8.75146 per share, after adjusting the price to the distribution of bonus shares as stated in Note 15(b)(5), which reflects a pre-money company value of $143 million.
 
 If the guarantors do not exercise their right to convert the additional loan (in whole or in part) to shares of the Company and if the Company does not repay the amount of the additional loan (in whole or in part), then at the end of each calendar year the additional loan term shall be extended by one year. In any case, the additional loan will be repaid before the distribution of dividends or the repayment of any other loan extended to the Company by any of its shareholders.
 
 The above loan was renewed in July 2010 for an additional period of one year in accordance with the loan agreement.
 
 F - 44
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (8)
Continued:
 
 The value of the right to convert the loan to share capital of the Company was calculated as a residual, after determining the value of a similar loan without a conversion option (using a discount rate of 15%), and amounted to NIS 3.0 million which, together with the effective interest on the loan, is included in the Company's statements of income over a one-year period – the contractual period. Since the values at which the Company carries out capital transactions have fallen from the same period of 2009, without a corresponding decline in the conversion price of these loans into shares, part of the capital component is carried to premium on shares in the statement of changes in shareholders’ equity, and in the lenders’ opinion, constitutes an investment in the Company’s capital.
 
 (9)
In May 2009 the board of directors of Greenstone Industries Ltd, one of the shareholders of the Company (hereinafter "Greenstone"), following the approval of Greenstone's audit committee and the approval of the general meeting on July 16, 2009, approved an agreement between Greenstone and the Company, the highlights of which are as follows:
 
 The Company asked Greenstone to provide a guarantee to a banking corporation (hereinafter in this section – "the new guarantee"), in respect of credit extended to the Company by the banking corporation (hereinafter in this section – "the bank") up to an amount equivalent to $1.25 million ("the maximum guaranteed amount"). The amount that Greenstone will effectively guarantee out of the maximum guaranteed amount - "the effectively guaranteed amount".
 
 Greenstone has agreed to provide the new guarantee (the date of the provisions of new guarantee to the bank – "the date of new guarantee") and to secure it – to deposit the effectively guaranteed amount, unless the bank agrees to receive from Greenstone other collateral (hereinafter in this section – "the collateral"), in accordance with an agreement dated May 6, 2009 between Greenstone and the Company (hereinafter in this section – "the guarantee agreement" and "the date of the guarantee agreement", respectively).
 
 The new guarantee and collateral will be effective for a period of 18 months from the date of the new guarantee, and it will be automatically renewed for periods of 12 month each subject to Greenstone's right to inform the Company in writing of the cancellation of the guarantee at least 30 days before the end of the 18-month or 12- month periods, as the case may be, all subject to the Company's repayment prior to the end of each of the said periods of the effectively guaranteed amount and the bank's release of Greenstone from the new guarantee (including the collateral) (hereinafter in this section – "the new guarantee period").
 
 In return for providing the new guarantee and collateral the Company will pay Greenstone a guarantee fee of 2% per annum of the maximum guaranteed amount (hereinafter in this section – "the guarantee fee"), which shall be paid by the Company to Greenstone at the end of the new guarantee period or on the date of exercise of the "investment right" as set forth below (the earlier of the two dates), unless it is included in the proceeds of the new shares as stated below.
 
 F - 45
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (9)
Continued:
 
 If the bank exercises the new guarantee, without derogating from any right or remedy available to Greenstone pursuant to the law or agreement, the Company undertakes to pay Greenstone, within 7 business days from the date of Greenstone's demand, all the amount that Greenstone will pay the bank as well as related amounts to be incurred by Greenstone, including expenses (hereinafter – "the New Guarantee's Obligations").
 
 The Company's current and future obligations ("the guaranteed obligations") to Greenstone, S.R. Accord Ltd, one of the shareholders of the Company (“SRA”), Shrem Fudim Technologies, another shareholder of the Company ("SFT") and to the Korean investor, who is also one of the shareholders of the Company (the above four shall be collectively referred to as "the guaranteed creditors"), including with respect to loans provided to the Company by the guaranteed creditors and their guarantees to loans received by the Company (as stated above and below in this section), are secured by charges on the Company's assets (as defined above), pari passu, between the guaranteed creditors in accordance with the amount of the Company's debt to them ("the participating debts"). It is hereby clarified that the "determining date" as it concerns the amount of the participating debt of each guaranteed creditor will be determined in accordance with the bond for the benefit of a guaranteed creditor or another date to be determined by the court or with Greenstone's written consent ("the determining date for allocation").
 
 The Company's debts to Greenstone in respect of the new guarantee are included in the obligations which are secured by charges on the Company's assets, such that they are to be included in the "pari passu" as part of the participating debts as aforesaid.
 
 During the exercise period Greenstone will have the right to invest up to the maximum guaranteed amount, in its entirety or in part (in accordance with Greenstone's decision), in addition to the amount of the guarantee fee, in its entirety or in part (in accordance with Greenstone's decision), in the share capital of the Company, by way of allocation, based on a "Company valuation for investment" (as it is defined in the agreement).
 
 The value of the right to invest in the share capital of the Company, which was calculated using the B&S model, amounted to NIS 1.0 million and was treated as a prepaid expense in respect of the guarantee fee, which is charged to the Company's statement of income over a period of one and a half years – the contractual period. The parameters which were used to calculate the fair value are: a share price of $6.475, after adjusting the price to the distribution of bonus shares as stated in Note 15(b)(5), which reflects the value per share based on valuations carried out at that time, an exercise price of $6.80669, after adjusting the price to the distribution of bonus shares as aforesaid, (reflecting a company value of NIS 420 million), expected volatility of companies operating in this field abroad – 48%. The life of the option is one and a half years, representing the contractual period of the guarantee, as aforesaid, and a risk-free dollar interest rate of 0.7% per annum. See also section 11 below.
  F - 46
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (9)
Continued:
 
 The value of the right to investment in the Company’s share capital, on the date of renewal of the guarantee in 2010, was immaterial.
 
 (10)
In July 2009 the board of directors of Greenstone, following the approval of Greenstone's audit committee and general shareholders' meeting on July 16, 2009, approved an agreement for the provision of an additional guarantee to the bank to secure credit up to an amount equivalent to $1 million, which the bank will extend to the Company, the highlights of which are set forth below:
 
 In return for providing the additional guarantee and collateral to secure it, the Company will give Greenstone rights, as set forth below:
 
 The Company will pay Greenstone a guarantee fee of 2% per annum of the maximum guaranteed amount (hereinafter – "the guarantee fee").
 
 If the bank exercises the additional guarantee, then without derogating from any remedy or right available to Greenstone vis-à-vis the Company pursuant to the law or agreement, the Company must indemnify Greenstone, within seven days from the date of Greenstone's first request, in respect of the full amounts which Greenstone incurred following the exercise of the guarantee, plus the acceptable commercial interest rate on that time from the date of exercise of the additional guarantee by the bank and the date of actual payment by the Company to Greenstone (the above will jointly be referred to as "the indemnification amount"). Up to 30 days after the end of the additional guarantee period (including any extensions thereof), including if the additional guarantee had been exercised, cancelled or expired prior to that date, Greenstone shall have the right to invest in the share capital of the Company, by way of an issue of shares of the Company, up to the maximum guaranteed amount, all or in part (in accordance with Greenstone's decision), with the addition of the guarantee fee, all or in part (in accordance with Greenstone's decision) (hereinafter – "the separate investment right").
 
 The separate investment right will be exercised by Greenstone once until the end of the 30 day period, as aforesaid, based on a company value on the date of the investment notification, which will be the lesser of the following two amounts: (a) 65% of the average company values in initial capital raisings, in cash (that have been completed after the date of provision of the additional guarantee) at a cumulative amount up to the maximum guaranteed amount, against the issue of shares or securities convertible to shares of the Company; or (b) $65 million.
 
 In addition, Greenstone will have the right at any time until the end of the additional guarantee period (including the extensions thereof) to repay the bank directly or the Company so the Company will repay the bank the additional credit extended to the Company, either in its entirety or in part (in accordance with Greenstone's decision) ("the repaid amount" and "the Company's right of repayment", respectively). In this case Greenstone will become a creditor of the Company in respect of the repaid amount, under the same terms the bank had been a creditor of the Company in respect of the additional credit to the Company.
 
 F - 47
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (10) Continued:
 
 In the event that the bank exercises the additional guarantee or Greenstone exercises its right of repayment, it shall be entitled, concurrently or thereafter at any time, to convert the guarantee fee, the indemnification amount or the repaid amount, in its entirety or in part (in accordance with Greenstone's decision) to shares of the Company, by way of issuing Company shares to Greenstone ("the conversion right"). To remove any doubt, the conversion right is in addition to the separate investment right.
 
 The conversion right will be exercised by Greenstone based on the Company value on the date of the conversion notification by Greenstone which shall be the lesser of the two said amounts, mutatis mutandis as the case may be.
 
 In August 2009, the above guarantee was provided against a bank loan.
 
 The value of the right to invest in the share capital of the Company, which was calculated in August 2009 using the B&S model, amounted to NIS 2.3 million and was treated as a prepaid expense in respect of the guarantee fee, which is charged to the Company's statement of income over a one-year period – the contractual period. The parameters that were used to calculate the fair value are: a share price of $6.475, after adjusting the price to the distribution of bonus shares, as stated in note 15(b)(5), which reflects the value per share based on valuations carried out at the time, an exercise price of $4.21367 (reflecting a company value of NIS 65 million), expected volatility of companies operating in this field abroad – 48%. The life of the option is one year, representing the guarantee period, as aforesaid, and a risk-free dollar interest rate of 0.4% per annum. See also section 11 below.
 
 The value of the right to invest in the Company’s share capital, on the date of renewal of the guarantee in 2010, was immaterial.
  (11)
The balance of prepaid expenses in respect of guarantees in thousands of NIS:
 
 31.12.2010



31.12.2009In respect of section 4 above


-



280In respect of section 9 above


-



635In respect of section 10 above


-



1,704Total


-



2,619
  F - 48
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (12)
Officer liability insurance – further to previous insurance policies, in September 2010 the Company purchased a directors and officers liability insurance policy (in this section – “the policy”), which covers the liability of officers of the Company. The purchased policy has a liability limit of $15 million per claim and cumulatively for the insurance period (in accordance with the terms of the policy), as well as a coverage for legal expenses in Israel in the amount of up to $3 million. The annual premium paid by the Company in respect of the policy totaled $11,000. The policy is effective until August 31, 2011.
 
 The insurance deductible paid by the Company in respect of claims against officers of the Company amounts to $7,500 for claims in Israel and $35,000 for claims in the US and/or Canada. The policy covers the insurance liability in respect of claims filed in and outside Israel, worldwide, including the US and Canada, pursuant to international laws and jurisdictions (the policy is interpreted in accordance with Israeli laws).
  (13)
On September 20, 2010 the Company signed a Memorandum of Understanding ("Memorandum of Understanding") with SNC - Lavlalin Engineers & Constructors Inc. (hereinafter – "SLE&C").
 
 To the best of the Company's knowledge, SLE&C is a private company, the subsidiary of SNC – Lavlalin Group Inc., a company whose securities are listed on the Toronto Stock Exchange (hereinafter - "SNCL-G"). To the best of the Company's knowledge, SNCL-G is one the leading engineering and construction corporations in the world.
 
 The Memorandum of Understanding lays out means of cooperation between the Company and SLE&C in projects for solid waste treatment technology ("PGM"), which is owned by the Company (in this section  - "the projects" and "the technology", respectively), whereby the companies will cooperate to promote the projects.
 
 Pursuant to the Memorandum of Understanding, the Company and SLE&C will cooperate to identify projects where the technology can be implemented, submit proposals for the execution, establishment and operation of these projects. If the parties to the Memorandum of Understanding do not reach agreements regarding cooperation in a particular project, then the party interested in promoting the project will be entitled to do so, while the other party will be precluded from taking action.
 
 The Memorandum of Understanding will be effective 30 days after one of the parties notifies the other of the cancellation of the Memorandum of Understanding, or until December 31, 2012, whichever is earlier.
 
 In the Company's opinion, signing the Memorandum of Understanding will give it access to global projects for waste treatment using thermal technology and allow it to implement these projects together with SLE&C, which has extensive experience in providing engineering and project management services
 
 F - 49
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 14 – COMMITMENTS AND CONTIGENT LIABILITIES (continued):
 
 a.
Commitments (continued):
 
 (14)
Regarding guarantees as stated in section (4) above, to secure a bank loan totaling NIS 8 million, the Company is negotiating with the bank to change the terms of the loan including with respect to collateral, repayment of part of the loan and spreading the remaining loan across a longer time span.
 
 b.
Contingent liabilities:
 
 During 2004 the Chief Scientist approved the Company's application to obtain financial assistance for conducting research and development in connection with the Company's products. The approval was contingent on the Company's compliance with the provisions of the Law of Encouragement of Research and Development in Industry, 1984, and on fulfillment of the terms of the approval that include, inter alia, the payment of royalties in respect of revenues from products developed with the assistance of the Chief Scientist.
 
 As of the balance sheet date, the Company has received grants in the amount of NIS 1.7 million, the liability in respect thereof was recorded in full in accordance with IAS 20.
 
 In August 2010 the Company paid royalties of NIS 0.2 million to the Chief Scientist.
  NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES:
 
 Share capital:
 As of December 312 0 1 0


2 0 0 9Thousand of sharesOrdinary shares of NIS 0.1 par value each:Registered


50,000,000



391,000Issued and paid up


16,323,000



15,413
 
 Each share confers to its holder the right to participate in the distribution of dividends, the distribution of the Company's excess assets in the event of liquidation and a single voting right for each share. See also note 15(b)(5).
 
 F - 50
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES (continued):
 
 a.
Details on stock options granted to employees:
 
 As of December 31, 2010


As of December 31, 2009No. of options


Weighted average of exercise price


No. of options


Weighted average of exercise priceOptions granted to employees which are:In circulation at the start of year


2,323,000


$
4.817



2,323,000


$
4.817Granted


500,000


$
3.522



-



-Forfeited


(481,667
)

$
3.083



-



-In circulation at the end of year


2,341,333


$
4.862



2,323,000


$
4.817
 
 In November 2005, 588,000 options were allotted (400,000 of which in exchange for old rights previously conferred) to employees and in the Company and officers (some of whom are interested parties) for the acquisition of up to 588,000 ordinary shares of the Company. The exercise price for each option is $2.7273 per share, after adjusting the price to the distribution of bonus shares.. The options can be exercised immediately and 438,000 options will expire at the end of 5 years from the day of their allotment, 150,000 options have no expiry date. In December 2010, 438,000 options expired.
 
 In addition, 129,000 options were allotted to employees, officers in the Company and others. The exercise price for each option is $6.64894 per share, after adjusting the price to the distribution of bonus shares. Pursuant to the original plan, the options can be exercised in three tranches, except for 63,000 options which have no expiry date. The tranches will vest in 12/06, 12/07 and 12/08, respectively, and will expire at the end of 3 years from the vesting date. The Company has extended the term of the first tranche by one year, such that it will expire in December 2010. In December 2010, 43,667 options from said plan expired.
 
 In December 2006, the Company allotted 323,000 options to officers (some of whom are interested parties in the Company), employees and others, for the acquisition of up to 323,000 ordinary shares of the Company. The exercise price for each option is $5.4024 per share, after adjusting the price to the distribution of bonus shares, as stated below. 71,000 options will vest during a period of 3 years commencing on January 1, 2007, such that each month 2.78% of the allotted options will vest. The remaining options are exercisable immediately upon their allotment day. The options will expire at the end of 5 years. The calculation was based on the stock price in accordance with equity offerings prior to the allocation of said options ($5,400 per share) and the standard deviation of companies operating in this field overseas (about 26%). The calculation also included an interest rate based on the yield on dollar-linked government bonds for a period of 2.5 years, of about 5%, and an option life of 2.5 years (2.5-5.5 years for 71,000 options for which a vesting period exists), which represents the vesting period and half of the period between the end of the vesting period and the end of the option life. The value of the above options is NIS 1 million, which was expensed over the vesting period.
 
 F - 51
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES (continued):
 
 a.
Details on stock options granted to employees (continued):
 
 In January 2007, the Company allotted 226,000 options to officers (some of whom are interested parties in the Company) and employees, for the acquisition of up to 226,000 ordinary shares of the Company. The exercise price for each option is $5.4024 per sharee, after adjusting the price to the distribution of bonus shares. The remaining options are exercisable immediately and will expire 5 years after the day of their allotment. Accordingly, in 2007 the Company recorded an expense of NIS 0.6 million in respect of the above options The parameters used in the calculation of the fair value are a share price of $5.4024, after adjusting the price to the distribution of bonus shares as stated below, representing the stock price according to the last equity offering on that date, an identical exercise price, the expected volatility of companies operating in this field abroad - 26%, the life of the option – 2.5 years, which represents the vesting period and half of the period between the end of the vesting period and the end of the option life and a risk-free interest of 5%.
 
 In August 2007, the Company allotted 510,000 options to officers (some of whom are interested parties in the Company) and employees, for the acquisition of up to 510,000 ordinary shares of the Company. The exercise price for each option is $5.4024 per share, after adjusting the price to the distribution of bonus shares as stated below. The options will vest during a period of 3 years starting from August 1, 2007, such that each month 2.78% of the allotted options will vest. The options will expire at the end of 5 years from the vesting day. The value of the above options which was computed according to the B&S formula is NIS 2.5 million, which is expensed over the vesting period.
 
 The parameters used in the calculation of the fair value consist of a share price of $5.4024, after adjusting the price to the distribution of bonus shares as stated below, representing the stock price according to the equity offering on that date, an identical exercise price, the expected volatility of companies operating in this field overseas - 33%-41%, the life of the option – 2.5-5.5 years, representing the vesting period and half of the period between the end of the vesting period and the end of the option life and a risk-free interest of 5%.
 
 In February 2008, the Company allotted 555,000 options to the CEO of the Company for the acquisition of up to 555,000 ordinary shares of the Company. The exercise price for each option is $5.4024 per share, after adjusting the price to the distribution of bonus shares as stated below. The options will vest during a period of 3 years from the date of allotment, such that each month 2.78% of the allotted options will vest. The options will expire at the end of 5 years from the vesting day. The economic value of each option as aforesaid (according to the Black and Scholes model) is $4,000-4,500. The economic value of all the options was recognized as an expense over the options vesting period. The value of these options, which was calculated based on the B&S formula is NIS 8.5 million, and will be expensed over the vesting period.
 
 The calculation was based on the stock price in accordance with equity offerings made prior to the allocation of said options ($9.1 per share) and the standard deviation of companies operating in this field overseas (30%-33%). The calculation also included an interest rate based on the yield on dollar-linked government bonds for a period of 2.5-5.5 years, of 2.1%-2.8%, and an option life of 2.5-5.5 years, which represents the vesting period and half of the period between the end of the vesting period and the end of the option life.
 
 F - 52
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES (continued):
 
 a.
Details on stock options granted to employees (continued):
 
 In May 2010, the Board of Directors approved an allotment of 500,000 additional options to employees and officers of the Company (hereinafter – “the new options”), of which 300,000 options to the CEO of the Company. The terms of the new options will be identical in every respect whatsoever (including an exercise price of NIS 12.5, unlinked, for each option, and an exercise period to be determined in the prospectus) to the options that will be issued to the public. If the public offering is not completed, the new options will be non-marketable and their terms will be similar to the options which the Company plans to issue to the public, as aforesaid. This resolution was approved by the general meeting of shareholders of the Company, which was held on June 10, 2010. The fair value of the new options, which calculated in accordance with the B&S model, amounted to NIS 0.5 million and was recognized in the Company’s statement of income on the date of allotment. The parameters used in the calculation of the fair value are a share price of NIS 7.647, representing the effective price per share in the equity offering in July 2010, as described in Note 15(b)(4) below, an exercise price of NIS 12.5, and the expected volatility of companies operating in this field abroad - 33%. The life of the option is 4 years, which represents the contractual period of the options and a risk-free dollar interest of 1.35% per year.
 
 During the reporting period the Company recorded a total expense of NIS 3.7 million in respect of these options and options that were previously allotted to employees and officers, in accordance with the provisions of IFRS 2.
 
 Given the aforesaid, as of the date of approval of the financial statements, there are 2,341,333 options that were allotted to employees, officers and others, which constitute 10.3% of the fully-diluted share capital of the Company.
 
 b.
Additional details regarding the share capital and premium on shares:
 
 (1)
In June 2008, the Company signed an agreement to raise capital in the amount of up to $2 million ("the investment"), in consideration for 1.3% of the Company's share capital, representing a Company value of $150 million (prior to the investment). The investment was carried out by a limited partnership ("the partnership"), the partners in which are several investors who are not interested parties in the Company. As of the date of approval of the financial statements, a total amount of $1 million was raised (NIS 3.3 million after issuing costs as aforesaid) and the agreement expired. The broker in this transaction was allotted shares of the Company which, at the date of the offering, constituted 0.03% of the share capital of the Company, such that after said allotment the transaction included an effective price per share of $8.7395, after adjusting the price to the distribution of bonus shares, as stated below, reflecting an effective pre-money company value of $135 million. In addition, the broker in this transaction was paid a fee of $52,000.
  F - 53
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES (continued):
 
 b.
Additional details regarding the share capital and premium on shares (continued):
 
 (2)
In January 2010 the Company raised a total of $2 million from Greenstone and from a group of private investors organized by the CEO of the Company (in this section – "the Group of Investors"). Half of this amount was raised from Greenstone and half from the group of investors, at a price of $4.21367 per share, after adjusting the price to the distribution of bonus shares, as stated below ("the 2010 investment"). Greenstone and the Group of Investors completed their investment based on a pre-money company value of $65 million. For the Group of Investors’ share in the 2010 investment, the Company paid the broker a fee of $50,000. In addition, the Company reimbursed Greenstone for expenses totaling $50,000.
 
 Pursuant to agreements between the Company and Greenstone and between the Company and the Group of Investors, it has been determined that if during a period of 12 month from the date of transfer to the Company of the 2010 investment, a minimum cumulative sum of $4 million is invested in the share capital of the company (not from the conversion of existing loans to the Company or existing guarantees for the Company or the exercise of options by existing shareholders) (in this section – "the additional investments") and the weighted average price per allocated share in the additional investment is lower the price of the 2010 investment, i.e. below $4.21367 per share, after adjusting the price to the distribution of bonus shares, as stated below, then at the end of the 12-month period the amount of Company shares allocated to the Company and to the Group of Investors in respect of the 2010 investment will be increased retroactively, in accordance with the difference between the price per share in the 2010 investment and the weighted average price per share in the additional investments, without additional payment by Greenstone or the Group of Investors (in this section – the Ratchet allotment”). This right expired in January 2010. As part of the 2010 investment, Greenstone undertook to vote in the meeting of shareholders of the Company, to amend the Company’s Articles of Association, such that Mazal, one of the shareholders of the Company (“Mazal”) shall be entitled to appoint 3 members of the Company’s board of directors, as long as Mazal (alone or together with the CEO of the Company) holds 20% of the share capital of the Company. In addition, Greenstone agreed to a corresponding change in the Founders Agreement.
 
 Furthermore, Greenstone and the Group of Investors were granted options to invest additional amounts in the Company, up to the 2010 Investment, in consideration for the allocation of shares of the Company at the price per share in the 2010 Investment. These options are exercisable at the earlier of the completion of the first initial public offering by the Company or two years from the date of completion of the 2010 Investment.  The proceeds of the capital raising were allocated between the share capital and the option, such that the option was attributed a total of NIS 609,000. The parameters used in the calculation of the fair value of the option are: a share price of $2.946, after adjusting the price to the distribution of bonus shares, as stated below, representing the effective value per share in the capital raising, as described in (1) above, an exercise price of $4.21367, the expected volatility of companies operating in this field abroad – 41%. The expected life of the option is two years, which constitutes the contractual period and the risk-free dollar interest rate is 0.95% per year.
  F - 54
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES (continued):
 
 b.
Additional details regarding the share capital and premium on shares (continued):
 
 (3)
Subsequent to raising $2 million from Greenstone and the Group of Investors, as stated in (2) above, the Company raised a total of $140,000 (in this section – "the investment amount") from several other private investors (in this section – "the investors"). This investment was also made at $4.21367 per share, after adjusting the price to the distribution of bonus shares, as stated below, which reflected a pre-money company value of $65 million. In addition, the Company has undertaken to the investors to make a Ratchet Allotment and gave them an investment option at similar terms to those described in (2) above (subject to adjusting the financial data to the investment amount). This right expired in January 2011. The proceeds of this capital raising were allocated between the share capital and the option, such that the option was attributed a total of NIS 44,000. The parameters used in the calculation of the fair value of the option are: a share price of $2.946, after adjusting the price to the distribution of bonus shares, as stated below, which reflected the effective value per share in the capital raising, an exercise price of $4.21367, expected volatility of 41% for companies operating in this field abroad. The expected life of the option is two years, which constitutes the contractual period and the risk-free dollar interest rate is 0.95% per year.
 
 (4)
On July 22, 2010 an agreement was signed between the Company and U-Trend (hereinafter – "U-Trend" and "the investment agreement", respectively), the highlights of which are set out below:
 
 a.
U-Trend invested in the Company a total of NIS 4 million ("the first part of the agreement") against the allotment of 400,000 shares of the Company and 800,000 non-marketable options (each option shall be exercisable until July 31, 2014 to one share of the Company for an exercise price of NIS 12.5, unlinked).
 
 b.
If by March 31, 2011, the public offering is completed under the conditions stipulated in the U-Trend Agreement, then U-Trend shall be required to invest an additional NIS 12 million in the Company ("the remaining investment"), which will be transferred to the Company over a period of 18 months from the date of completion of the listing of the Company's securities on the Tel-Aviv Stock Exchange Ltd, in quarterly payments of NIS 2 million each ("the quarterly payments"). The quarterly payments will be linked to the Consumer Price Index, provided the linkage addition does not exceed 3% in an annual calculation.
 
 Against each quarterly payment U-Trend will receive 200,000 shares and 400,000 marketable options of the Company, and in total 1.2 million shares and 2.4 million marketable options, subject to the adjustment mechanism stipulated in the U-Trend Agreement, pursuant to which, in some cases, due to a decline in the Company's stock price on the stock exchange (if the public offering is completed), additional shares of the Company will be allotted to U-Trend, for a total amount not exceeding 850,000 shares. In the event of a significant drop in the Company's stock price on the stock exchange, the remaining investment will not be made, in whole or in part.
  F - 55
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
  NOTE 15 – SHARE CAPITAL AND PREMIUM ON SHARES (continued):
 
 b.
Additional details regarding the share capital and premium on shares (continued):
 
 (4)
(Continued):
 
 c.
The U-Trend Agreement stipulates that if Greenstone does not invest NIS 4 million in the Company for the partial repayment of loans taken by the Company from Bank Leumi Le'Israel Ltd, U-Trend shall not be required to make the remaining investment.
 
 d.
The Company will pay U-Trend a fee at the rate of 5% of the investments actually made by U-Trend, plus VAT, including in respect of the first part of the investment, which was paid on July 29, 2010.
 
 e.
Upon the execution of the first part of the investment, and as long as the Company has not become a public company, U-Trend shall be entitled to appoint an observer on the Company's board of directors.
 
 f.
If the listing on the stock exchange is completed, then during a period of up to 18 months from the completion of the listing U-Trend shall be entitled to management fees in the amount of up to NIS 40,000 per month plus VAT.
 
 g.
As of the date of these reports, the Company has decided to suspend the listing, as stated in Note 1c.
 
 h.
The previous agreement signed between the Company, U-Trend and Greenstone on May 12, 2010 was cancelled, without any of the parties making any claims in connection thereto.
 
 As of December 31, 2010 the value of the option is NIS 745,000, and the calculation parameters are an exercise price of $3.52 and expected volatility of 36% for companies operating in the same sector abroad. The life of the option is 3.5 years, which constitutes the contractual period and the risk-free dollar interest rate is 1% per annum. The fair value adjustment of the option created financing expenses of NIS 3,000 during the reporting period.
 
 (5)
On May 25, 2010, the following resolutions were made:
 
 a.
The general meeting of shareholders of the Company decided to adopt a new Articles of Association (including increasing the registered capital to 50,000,000 ordinary shares of NIS 0.1), issue new letters of indemnification and waivers for officers of the Company, as well as purchase a new directors and officers insurance policy.
 
 b.
The Board of Directors of the Company approved the issue of 999 bonus shares in respect of each share of NIS 0.1 p.v. of the Company. The issue of bonus shares was made without consideration in May 2010, as the Company converted some of the share premium to share capital, in accordance with Section 304 of the Companies Law, 1999.
 
 F - 56
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 NOTE 16 – OPERATING AND FACILITY MAINETNANCE EXPENSES:
  Composed as follows:
 
 For the year ended December 312010


2009


2008NIS in thousandPayroll and related expenses


2,420



2,960



4,138Share-based payment


72



-



-Car maintenance


321



344



537Professional services


555



735



2,307Maintenance of the facility's site


737



1,388



1,116Depreciation and amortization (*)


5,998



6,370



8,110Other


25



164



204Total operating and facility maintenance expenses


10,128



11,961



16,412
  (*)See notes 8a and 9c regarding the depreciation of a facility and knowhow for waste treatment as of January 1, 2008.
  NOTE 17 – MARKETING AND BUSINESS DEVELOPMENT EXPENSES
 
 Composed as follows:
 
 For the year ended December 312010


2009


2008NIS in thousandPayroll and related expenses


431



779



926Share-based payment


916



1,825



2,624Loan turned into a grant (see note 7)


730



762



-Management fees (see note 21)


514



567



660Car maintenance


11



66



132Professional services


1,759



885



659Overseas travel


227



160



411Advertising and commission to agents


83



26



147Total marketing and business development expenses


4,671



5,070



5,559
  F - 57
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 18 – ADMINISTRATIVE AND GENERAL EXPENSES:
 
  Composed as follows:
 For the year ended December 312010


2009


2008NIS in thousandPayroll and related expenses


389



654



732Share-based payment


948



1,826



2,625Loan turned into a grant (see note 7)


730



763



-Management fees (see note 21)


802



847



936Car maintenance


93



184



89Professional services


927



406



825Office maintenance


869



835



1,047Depreciation and amortization


1,034



1,113



921Taxes


10



20



37Other


366



330



256Total administrative and general expenses


6,168



6,978



7,468
 
 NOTE 19 – FINANCING INCOME (EXPENSES), NET:
 
 Composed as follows:
 
 For the year ended December 312010


2009


2008NIS in thousandFinancing expensesLong-term loans


(363
)


(428
)


(2,417
)Short-term loans


(6,527
)


(4,161
)


(889
)Others


(287
)


(136
)


(21
)(7,180
)


(4,725
)


(3,327
)Financing incomeLong-term loans


41



66



109Short-term deposits


21



46



195Others


-



-



8665



112



390(7,115
)


(4,613
)


(2,937
)
 
 NOTE 20 – FINANCIAL INSTRUMENTS:
 
 a.
Capital management policy
 
 The Company's capital structure consists of debt, which includes the loans described in note 11 “credit from banks and other credit providers” and the shareholders' equity, which includes issued share capital, capital reserves and retained earnings as described in the statement of changes in shareholders' equity.
 
 F - 58
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 20 – FINANCIAL INSTRUMENTS (continued):
 
 b.
The main accounting policies
 
 Details on the main accounting policies and the adopted accounting methods, including the terms for recognition, the measurement basis and the basis for recognizing revenue and expenses in connection with each group of financial assets, financial liabilities and capital instruments, are set forth in note 2.
 
 c.
Groups of financial instruments:
 
 As of December 312 0 1 0


2 0 0 9NIS in thousandFinancial assetsLoans and receivables (including cash and cash equivalents)


2,095



4,301Financial liabilitiesFinancial liabilities measured at amortized cost


50,571



52,447Financial liabilities at fair value through profit and loss


745



-
 
 d.
Objectives and policy concerning risk management
 
 The Company's activities expose it to risks associated with various financial instruments, such as: market risks (including currency risks), cash flows risks in respect of interest rate. The Company's risk management plan focuses on activities to minimize any potential adverse effects on the Company's financial performance.
 
 Risk management is carried out by the Company's finance division in accordance with a policy determined from time to time by the board of directors. The finance division identifies and assesses financial risks. The board of directors lays down principles for the overall risk management, as well as the specific policy for exposure to certain risks, such as exchange rate risks, interest rate risks and credit risks.
 
 e.
Currency risk:
 
 The Company also operates in currencies which are not its functional currency (dollar), mainly NIS, and it is exposed to currency risks as a result of changes in exchange rates of different currencies, mainly that of the NIS. The currency risk primarily emanates from current expenses in foreign currency (NIS).
 
 During 2010 there was no change in the Company’s exposure to currency risk or in the way the Company manages or measures the risk.
 
 The carrying values of financial assets and liabilities in foreign currency are set forth in notes 5, 6 and 10, respectively.
 
 F - 59
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 20 – FINANCIAL INSTRUMENTS (continued):
 
 e.
Currency risk (continued):
 
 Sensitivity analysis of foreign currency:
 
 A positive figure in the table denotes an increase in the profit or loss or an increase in shareholders' equity when the NIS appreciated against the dollar; or a decrease in the profit or loss and a decrease in shareholders' equity when the NIS depreciates against the dollar.
 
 The effect of a 5% increase (decrease) in the NIS against the dollar (*)
  The effect of the NISAs of December 312 0 1 0


2 0 0 9NIS in thousandProfit or loss (**)


175



266
 
 (*)
Represents management's assessments regarding a reasonable change in the exchange rate. The sensitivity analysis was made with respect to the average exchange rate in 2010 and in 2009.
 
 (**)
As of the balance sheet date, balances not in the functional currency were immaterial. Sensitivity analyses were based on expenses in NIS during the period of calculation.
 
 f.
Interest rate risk:
 
 The Company is exposed to an interest rate risk since it extends and takes loans at floating interest rates.
 
 The Company’s exposure to interest rates on financial assets and liabilities are described in the section on liquidity risk management which is set forth below.
 
 During 2010 there were immaterial changes in the company’s exposure to interest rate risk.
 
 Sensitivity analysis of interest rates:
 
 The sensitivity analysis is determined on the basis of exposure to interest rates of financial instruments at the balance sheet date. The sensitivity analysis on liabilities that bear a floating interest rate was prepared under the assumption that the amount of the liability as of the balance sheet date was the same throughout the reporting year.
 
 Assuming that interest rates would have increased (decreased) by 2% and other parameters remained constant, the effect would be as follows (*):
 
 §
The Company's loss for the year ended on December 31, 2010 would have increased (decreased) by NIS 900,000 (2009: increased (decreased) by NIS 626,000). The change primarily stems from the Company’s exposure to interest rates relative to its loans at a floating interest rate; and,
 
 §
The shareholders' equity would have increased (decreased) by said amounts.
 
 F - 60
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 20– FINANCIAL INSTRUMENTS (continued):
  f.
Interest rate risk (continued):
 
 (*)
A 2% change represents management's assessments concerning a reasonable change in the interest rate. The sensitivity analysis was calculated with respect to the Company’s interest-bearing balances as of December 31 of the relevant year.
 
 g.
Liquidity risk management
 
 The ultimate responsibility for liquidity risk management lies with the Board of Directors, which has outlines an appropriate work plan for the management of liquidity risks based on management's requirements for short-term, medium-term and long-term financing and liquidity. The Company manages liquidity risk by maintaining measures, loan measures and by continuously monitoring present and forecasted cash flows. See also note 1.
 
 Risk and liquidity risk tables:
 
 (1)   Financial liabilities that do not constitute derivative financial instruments
 
 As for financial liabilities that do not constitute derivative financial instruments, see note 11 above.
 
 (2)   Non-derivative financial assets
 
 As for non-derivative financial assets, see notes 5, 6 and 7 above.
 
 h.
Fair value of financial instruments:
 
 The financial instruments of the Company mainly include cash and cash equivalents, deposits, accounts receivable, long-term loans provided, short-term credit from banks, accounts payable and accruals and long-term financial liabilities. Due to the nature of said financial instruments, their carrying value approximates their fair value, see below.
 
 (1)
Financial instruments included under current asset items – (cash and cash equivalents, deposits and accounts receivable). The balance sheet value of these current assets as of December 31, 2010 is an approximation of their fair value.
 
 (2)
Financial instruments included under long-term receivables – the fair value of non-marketable loans at a floating interest rate – the balance sheet value as of December 31, 2010 approximates the fair value.
 
 (3)
Financial instruments included under current liabilities – (short-term credit, accounts payable and accruals). The balance sheet value as of December 31, 2010 approximates the fair value.
 
 (4)
Financial instruments included under long-term liabilities – the fair value of non-marketable liabilities at a floating interest rate – the balance sheet value as of  December 31, 2010 approximates the fair value.
 
 F - 61
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 20– FINANCIAL INSTRUMENTS (continued):
 
 h.
Fair value of financial instruments (continued):
 
 For the fair value measurement of its financial instruments, the Group classifies its financial instruments, which are measured in the statement of financial position at their fair value, in accordance with a scale that comprises the three levels below:
 
 Level 1:
Quoted prices (unadjusted) in active markets for identical financial assets and liabilities.
  Level 2:
Data which is not quoted prices that are included in Level 1, which are observed directly (i.e., prices) or indirectly (data derived from prices), for financial assets and liabilities.
  Level 3:
Data for financial assets and liabilities that are not based on observed market data.
  The classification of financial instruments which are measured at fair value, is based on the lowest level, which is used substantially to measure the fair value of the entire instrument.
 
 The Company has a financial instrument that is measured at fair value, options at fair value through profit and loss, at level 3, which as of December 31, 2010, amounted to NIS 745,000.
 
 In respect of this instrument, in 2010 the Company recorded financing expenses of NIS 4,000.
 
 NOTE 21– TRANSACTIONS WITH INTERESTED PARTIES AND RELATED PARTIES
 
 a.
Transactions with interested parties and related parties:
 
 On February 1, 2010 the Company's CEO at that time announced the termination of his employment at the Company. Thus, his employment at the Company ended on April 12, 2010 and the President of the Company was appointed in his place.
 
 The Company and some of its shareholders have an agreement for the provision of management services. In addition, the Company has agreements for the receipt of loans and guarantees from its shareholders.
 
 ·
Agreement with the CEO of the Company – the employment agreement stipulates that as of July 1, 2009 the Company would pay Stern and a company he controls wages and management fees, whose total cost to the Company would be NIS 105,000 a month (half of which as monthly salary and half as management fees), linked to the Consumer Price Index of December 2008 (in this section – “the monthly payment”). As of July 2009, the agreement was amended such that the monthly payment was reduced by 25%, i.e. to NIS 82,000 a month in December 2010 NIS, and as of May 2010, the CEO would be reimbursed by NIS 5,000 a month for car expenses. In addition, it was agreed that there would not be any employer-employee relations between the Company and the CEO. The effect on the Company’s profit and loss and/or shareholders’ equity, if the new wages applied in prior period, is immaterial. The amendment of the said agreement was approved at the general meeting of shareholders of the Company on June 10, 2010.
  F - 62
 
 ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 21 – TRANSACTIONS WITH INTERESTED PARTIES AND RELATED PARTIES (continued):
 
 a.
Transactions with interested parties and related parties (continued):
  ·
In February 2002 the Company and Greenstone entered into an agreement (in this section – “the management agreement”) for the provision of management services to the Company, office services, accounting services and office space, in accordance with the Company’s needs as they shall be from time to time (in this section – “the services’). In return for the services, the Company has undertaken to pay a total of NIS 20,000 a month (plus VAT) linked to the Consumer Price Index (in this section – “the management fees”), as of January 2002. The term of the management agreement was set at one year, at the end of which the agreement will be renewed automatically for additional one-year periods, and may be terminated by one month’s notice by either party. From the end of 2004 to December 31, 2010, services were provided by SRA and management fees were paid to them, and as of January 1, 2011 the services are provided by Leader Holdings and Investments Ltd (the parent company of Greenstone; “Leader”), and the management fees are paid to Leader.
  ·
Regarding a loan provided to one of the shareholders, see note 7.
 
 ·
Regarding options granted to an interested party, see note 15a.
 
 b.
The amounts recorded in respect of transactions with interested parties and related parties are presented below:
  For the year ended December 312 0 1 0


2 0 0 9


2 0 0 8NIS in thousandManagement fees to the CEO of the Company (excluding share-based payment)


1,028



1,131



1,320Loan to the CEO of the Company which became a grant


1,460



1,525



-Payroll expenses in respect of former CEO


348



791



868Management fees to SRA


288



280



276Share-based payment to the CEO


1,643



3,312



4,548Financing expenses


5,794



4,136



3,261Financing income


41



66



109
 F - 63
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 21 – TRANSACTIONS WITH INTERESTED PARTIES AND RELATED PARTIES (continued):
 c.
Balances with interested parties and related parties:
 
 As of December 312 0 1 0


2 0 0 9NIS in thousandOutstanding loan to the CEO of the Company (see note 7)


1,746



2,724Long-term loans (see note 11)


15,048



15,645Short-term convertible loans – see notes 14a(4) and 14a(8)


15,399



15,553Accounts payable and accruals (see note 10)


619



889
 d.
As to guarantees and loans extended by shareholders, options to interested parties and additional information, see also notes 14a and 15.
 
 e.
Remuneration of key executives:
  For the year ended December 312 0 10


2 0 0 9


2 0 0 8NIS in thousandShort-term benefits


2,579



3,356



3,949Share-based payment


1,797



3,535



4,9374,376



6,891



8,886
 
 NOTE 22 – CHARGES AND COLLATERAL
 
 a.
The Company registered three charges unlimited in time to ensure compliance with the conditions related to the receipt of loans from shareholders as stated in note 14a and note 11, including interest accrued thereon, damages, expenses, fees and additional amounts arising from the terms of linkage as agreed or as will be agreed in the future.
 
 (1)
A chargeover its sampling facility in Israel, which was built pursuant to a construction agreement dated August 28, 2000 and pursuant to a lease agreement and an addendum dated December 22, 2002. The charge includes all the rights to use the facility, as well as all the rights concerning the facility, buildings and all the assets attached to the land, built and/or to be built.
  (2)
A first-ranking fixed charge over the Company’s intellectual property, including any approved patent, patent pending and future patent.
  F - 64
  ENVIRONMENTAL ENERGY RESOURCES (ISRAEL) LTD.
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE 22 – CHARGES AND COLLATERAL (continued):
 
 (3)
A first-ranking floating chargeover the Company's plant and all the Company's present and future assets, property and interests, both tangible and intangible, including any other property, intellectual property, as well as any approved or pending patent and future patents. The third charge was created against loans provided to the Company.
  Total liabilities secured by charges (including guarantees), as of December 31, 2010 is NIS 46.5 million.
 
 b.
As for the guarantees provided by shareholders of the Company, see note 14a.
 
 NOTE 24 – EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
 
 a.
At the beginning of 2011 Greenstone transferred a total of $0.5 million to the Company.
 
 b.
During January 2011 the Company signed a Memorandum of Understanding with a company that was incorporated in the State of New York, USA, regarding cooperation between the parties to raise capital to establish a project in New York, for the treatment of medical waste using the Company’s technology. Pursuant to the Memorandum of Understanding, the parties would work to sign a detailed agreement which, as of the date of publication of this report, has not yet been signed.