Israeli telecoms UAV co takes off for Wall Street

Light & Strong is going head-to-head with Google, Facebook, and Airbus.

One Israeli company likely to soon go public on Wall Street is an unusual story. While this company, Light & Strong, names companies of the caliber of Google, Facebook, and Airbus among its competitors, its financial statements bear a going concern warning, and it obviously has a rather long way to go before it measures up. In the past, Light & Strong was part of an Israeli defense now in liquidation, and its current owners, known both for their business activity and for their participation in an Israeli reality show, managed an investment fund that made losses for its investors.

Light & Strong recently submitted a prospectus for a $13.3 million offering on Wall Street (the desired company valuation has not yet been set). Founded in 2007, the company operates from the Kannot industrial zone, providing special components to the defense industries. Among other things, it operates in the field of composite materials and serves as a subcontractor for the construction of the external casing for some of Israel Aerospace Industries Ltd.'s (IAI) (TASE: ARSP.B1) unmanned aerial vehicles (UAVs), and for Elbit Systems Ltd.'s (Nasdaq: ESLT; TASE: ESLT) Hermes 450 pilots' helmets.

Light & Strong was formerly part of SDS - Star Defense Systems Ltd. (TASE:SDS), which encountered financial difficulties and entered liquidation proceedings last year. Its current owners, Gal Erez and Ofer Amir, entered the picture in July 2014, when they acquired control of the company from the liquidators of SDS,

Capital market veterans Erez and Amir paid NIS 1.45 million ($380,000) for 93.3% of the company's share capital, meaning that they acquired Light & Strong at a company value of NIS 1.55 million. They later issued more shares and invested NIS 1 million more in the company in equal shares. After a few more deals, one of them with Ephraim Menashy, Erez and Amir currently hold 35.3% each of Light & Strong, while Menashy owns 7.9%.

A few months after they acquired the company, its value rose substantially - at least according to a share deal that took place. At the end of 2014, shares amounting to 9.5% of the company's capital were issued for $1.4 million, reflected a $15 million valuation for Light & Strong. The reason for the offering was apparently also the basis for its revised value: the company decided to develop its new growth engine, a UAV based on solar energy, and needed capital for it.

The principal use: cellular coverage

According to Light & Strong's vision, it will develop its new UAVs for both civilian purposes, including telecommunications coverage, and military needs. According to the company's prospectus, the main use of this kind of UAVs of this type is a need for technology that will provide continuous cellular coverage and access to broadband to remote areas.

At the same time, Light & Strong will continue to support its existing customers in its traditional business. The company is planning to develop a UAV whose flight can be programmed a year in advance without disturbance. At present, the company says, there is no commercial UAV of this type based on solar energy that can fly consecutively for more than two weeks.  "By creating a solar powered UAV that can fly at near space altitude (above weather) for up to one year of duration without interruption the company believes it can offer an innovative UAV that can revolutionize the industry," Light & Strong's prospectus says.

Light & Strong, however, is not the only company thinking about this niche. In its prospectus, the company notes that it faces competition from Google, which is also developing a UAV; aircraft manufacturer Airbus, which acquired a UK company also developing solar energy UAVs, and Facebook, which also acquired a UK company operating in a similar niche. There is no doubt that these major companies have a significant advantage over Light & Strong - if not in technology, then certainly in finances. According to the reports attached to its prospectus, Light & Strong is far from achieving a net profit, and a going concern warning was attached to them.

The company's revenue totaled $4.1 million in 2014, 12.6% more than in 2013. While the company reported no R&D expenses at all in 2013, it had begun work on UAV development by the end of 2014, and reported $2.1 million in R&D expenses for that year. Its 2014 operating loss was $2.5 million, compared with a $1.4 million loss in 2013. The company had only $343,000 left in cash at the end of 2014.

Light & Strong's CEO is former SDS senior executive Uri Orbach. Erez is company chairman, and Amir is a director. Former IAI senior executive Shlomo Tsach is CTO.

Published by Globes [online], Israel business news - www.globes-online.com - on June 28, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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