Report of Foreign Issuer (6-k)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 6-K
Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934

 

For the month of September 2014

 

Commission File Number: 001-13138

 

Pointer Telocation Ltd.
(Translation of registrant's name into English)

 

14 Hamelacha Street, Rosh Ha'ayin, Israel 48091
(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F x Form 40-F o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

 

 

Pointer Telocation Ltd.

 

Pointer Telocation Ltd. is publishing its unaudited interim consolidated financial statements as well as its Operating and Financial Review and Prospects, as of June 30, 2014.

 

Exhibits

 

Exhibit 1		Pointer Telocation’s consolidated interim financial statements as of June 30, 2014.
Exhibit 2		Pointer Telocation’s Operating and Financial Review and Prospects as of June 30, 2014.

 

 

This Form 6-K is being incorporated by reference into all effective registration statements filed by the Registrant under the Securities Act of 1933.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: September 22, 2014

POINTER TELOCATION LTD. By: /s/ Yossi Ben Shalom —————————————— Yossi Ben Shalom Chairman of the Board of Directors

 

 

 

Exhibit 1

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2014

 

IN U.S. DOLLARS

 

UNAUDITED

 

INDEX

 

	Page
Interim Consolidated Balance Sheets	2 - 3
Interim Consolidated Statements of Income and Comprehensive income	4 - 5
Interim Statements of Changes in Shareholders' Equity	6 - 7
Interim Consolidated Statements of Cash Flows	8 – 10
Notes to Interim Consolidated Financial Statements	11 - 22

 

- - - - - - - - - - - -

 

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

		June 30,				December 31,
		2014				2013
		Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	11,790			$	3,349
Restricted cash			65				81
Trade receivables (net of allowance for doubtful accounts of $ 1,328 and $ 1,270 at June 30, 2014 and December 31, 2013, respectively)			21,356				19,793
Other accounts receivable and prepaid expenses			2,563				2,033
Inventories			6,359				6,038
Total current assets			42,133				31,294
LONG-TERM ASSETS:
Long-term accounts receivable			537				546
Severance pay fund			9,517				9,349
Property and equipment, net			13,438				13,975
Other intangible assets, net			2,471				2,936
Goodwill			55,878				55,127
Total long-term assets			81,841				81,933
Total assets		$	123,974			$	113,227

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

2

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

 

		June 30,				December 31,
		2014				2013
		Unaudited
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit and current maturities of long-term loans		$	8,787			$	10,643
Trade payables			14,958				14,793
Deferred revenues and customer advances			8,396				7,753
Other accounts payable and accrued expenses			8,748				10,768
Total current liabilities			40,889				43,957
LONG-TERM LIABILITIES:
Long-term loans from banks			16,776				9,301
Long-term loans from others			1,161				1,301
Deferred taxes and other long-term liabilities			6,596				5,712
Accrued severance pay			10,620				10,317
			35,153				26,631
COMMITMENTS AND CONTINGENT LIABILITIES
EQUITY:
Pointer Telocation Ltd's shareholders' equity:
Share capital
Ordinary shares of NIS 3 par value -
Authorized: 8,000,000 shares at June 30, 2014 and December 31, 2013; Issued and outstanding: 7,688,564 and 5,565,558 and shares at June 30, 2014 and December 31, 2013, respectively			5,705				3,878
Additional paid-in capital			129,418				120,996
Accumulated other comprehensive income			1,995				1,456
Accumulated deficit			(86,608	)			(89,220	)
Total Pointer Telocation Ltd.'s shareholders' equity			50,510				37,110
Non-controlling interest			(2,578	)			5,529
Total equity			47,932				42,639
Total liabilities and equity		$	123,974			$	113,227

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

3

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

U.S. dollars in thousands (except per share data)

 

		Six months ended June 30,								Three months ended June 30,								Year ended December 31,
		2014				2013				2014				2013				2013
		Unaudited
Revenues:
Products		$	17,170			$	15,816			$	8,054			$	8,394			$	34,662
Services			35,719				29,564				17,820				14,841				63,195
Total revenues			52,889				45,380				25,874				23,235				97,857
Cost of revenues:
Products			10,342				9,198				4,946				4,817				20,763
Services			24,553				21,343				12,344				10,783				45,497
Total cost of revenues			34,895				30,541				17,290				15,600				66,260
Gross profit			17,994				14,839				8,584				7,635				31,597
Operating expenses:
Research and development			1,766				1,470				908				800				3,244
Selling and marketing			5,523				4,894				2,832				2,569				10,398
General and administrative			5,901				4,653				2,944				2,370				10,539
Other expenses			-				-				-				-				403
Amortization of intangible assets			567				510				230				129				967
Total operating expenses			13,757				11,527				6,914				5,868				25,551
Operating income			4,237				3,312				1,670				1,767				6,046
Financial expenses, net			812				598				308				260				1,077
Other income, net			6				7				9				1				3,299
Income before taxes on income			3,431				2,721				1,371				1,508				8,268
Taxes on income			1,014				467				414				303				1,337
Income after taxes on income			2,417				2,254				957				1,205				6,931
Equity in gains of affiliate			-				182				-				70				340
Net income		$	2,417			$	2,436			$	957			$	1,275			$	7,271

 

4

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

U.S. dollars in thousands (except per share data)

 

		Six months ended June 30,								Three months ended June 30,								Year ended December 31,
		2014				2013				2014				2013				2013
		Unaudited
Other comprehensive income (loss):
Currency translation adjustments of foreign operations		$	367			$	593			$	413			$	(102	)		$	1,006
Realized currency translation adjustments of foreign operations			-				-				-				-				(50	)
Realized losses on derivatives designated as cash flow hedges			-				(24	)			-				-				(24	)
Total comprehensive income			2,784				3,005				1,370				1,173				8,203
Net Income attributable to:
Equity holders of the parent		$	2,612			$	1,778			$	1,146			$	971			$	6,320
Non-controlling interests			(195	)			658				(189	)			304				951
		$	2,417			$	2,436			$	957			$	1,275			$	7,271
Total comprehensive income (loss) attributable to:
Equity holders of the parent		$	3,151			$	2,081			$	1,575			$	887			$	6,649
Non-controlling interests			(367	)			924				(205	)			286				1,554
		$	2,784			$	3,005			$	1,370			$	1,173			$	8,203
Earnings per share attributable to Pointer Telocation Ltd.'s shareholders:
Basic net earnings per share		$	0.36			$	0.32			$	0.15			$	0.17			$	1.14
Diluted net earnings per share		$	0.35			$	0.32			$	0.14			$	0.17			$	1.10

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

5

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share data)

 

						Pointer Telocation Ltd.'s Shareholders
		Number of shares				Share capital				Additional paid-in capital				Accumulated Other comprehensive income				Accumulated Deficit				Non- controlling interest				Total equity
Balance as of January 1, 2013			5,555,558			$	3,871			$	120,290			$	1,127			$	(95,540	)		$	5,598			$	35,346
Issuance of shares in respect of Stock-based compensation			10,000				7				20				-				-				-				27
Stock-based compensation expenses			-				-				354				-				-				20				374
Dividend payable to non-controlling interest			-				-				-				-				-				(1,311	)			(1,311	)
Expiration of options in subsidiary			-				-				332				-				-				(332	)			-
Other comprehensive income			-				-				-				329				-				603				932
Net income attributable to Non -controlling interest			-				-				-				-				-				951				951
Net income attributable to Pointer shareholders			-				-				-				-				6,320				-				6,320
Balance as of December 31, 2013			5,565,558				3,878				120,996				1,456				(89,220	)			5,529				42,639
Issuance of share capital (net of issue expenses of USD 383 thousands)			2,123,006				1,827				19,615				-				-				-				21,442
Stock-based compensation expenses			-				-				175				-				-				-				175
Acquisition of non-controlling interests			-				-				(11,368	)			-				-				(7,740	)			(19,108	)
Other comprehensive income			-				-				-				539				-				(172	)			367
Net income attributable to Non -controlling interest			-				-				-				-				-				(195	)			(195	)
Net income attributable to Pointer shareholders			-				-				-				-				2,612				-				2,612
Balance as of June 30, 2014 (unaudited)			7,688,564			$	5,705			$	129,418			$	1,995			$	(86,608	)		$	(2,578	)		$	47,932

 

Accumulated other comprehensive income for six month that ended on June 30, 2014:

 

Accumulated foreign currency translation differences, net			1,995
Accumulated other comprehensive income			1,995

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

6

 

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share data)

 

						Pointer Telocation Ltd.'s Shareholders
		Number  of				Share				Additional paid-in				Accumulated other comprehensive				Accumulated				Non- controlling				Total
		shares				capital				capital				income				deficit				interest				equity
Balance as of January 1, 2013			5,555,558			$	3,871			$	120,290			$	1,127			$	(95,540	)		$	5,598			$	35,346
Stock-based compensation expenses			-			$	-			$	58			$	-			$	-			$	-			$	58
Exercise of options in subsidiary			-				-				332				-				-				(332	)			-
Other comprehensive income			-				-				-				302				-				265				567
Net income attributable to non-controlling interest			-				-				-				-				-				658				658
Net income attributable to Pointer shareholders			-				-				-				-				1,778				-				1,778
Balance as of June 30, 2013 (unaudited)			5,555,558			$	3,871			$	120,680			$	1,429			$	(93,762	)		$	6,189			$	38,407

 

Accumulated other comprehensive income for six month that ended on June 30, 2013:

 

Accumulated foreign currency translation differences, net			1,429
Accumulated other comprehensive income		$	1,429

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

7

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

 

		Six months ended June 30,								Three months ended June 30,								Year ended December 31,
		2014				2013				2014				2013				2013
		Unaudited
Cash flows from operating activities:
Net income		$	2,417			$	2,436			$	957			$	1,275			$	7,271
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,475				1,913				1,194				830				4,049
Gain from obtaining control in a subsidiary previously accounted for by the equity method			-				-				-				-				(3,299	)
Accrued interest and exchange rate changes of debenture and long-term loans			9				(19	)			4				5				21
Accrued severance pay, net			125				(67	)			138				(27	)			(397	)
Gain from sale of property and equipment, net			(97	)			(166	)			(32	)			(98	)			(195	)
Equity in gains of affiliate			-				(182	)			-				(70	)			(340	)
Amortization of stock-based compensation			175				58				127				25				374
Decrease  in restricted cash			16				10				1				5				27
Decrease (Increase) in trade receivables, net			(1,705	)			(1,478	)			378				535				(1,270	)
Decrease  (Increase) in other accounts receivable and prepaid expenses			(629	)			(257	)			(69	)			136				148
Decrease  in inventories			(217	)			(94	)			(481	)			(59	)			(685	)
Deferred income taxes			804				432				319				271				1,272
Decrease (increase) in long-term accounts receivable			(9	)			32				(50	)			9				(4	)
Increase  in trade payables			493				(428	)			1,117				(250	)			1,290
Increase (decrease) in other accounts payable and accrued expenses			(1,342	)			1,259				(988	)			(157	)			1,449
Net cash provided by operating activities			2,515				3,449				2,615				2,430				9,711

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

8

 

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

 

		Six months ended June 30,								Three months ended June 30,								Year ended December 31,
		2014				2013				2014				2013				2013
		Unaudited
Cash flows from investing activities:
Purchase of property and equipment			(2,248	)			(2,436	)			(1,094	)			(1,409	)			(4,663	)
Proceeds from sale of property and equipment			867				798				160				128				1,216
Investment and loans/Repayments in affiliate, net			-				66				-				34				137
Acquisition of subsidiary (a)			-				-				-				-				(3,973	)
Net cash used in investing activities			(1,381	)			(1,572	)			(934	)			(1,247	)			(7,283	)
Cash flows from financing activities:
Receipt of long-term loans from banks			12,927				3,681				1,490				2,333				7,127
Repayment of long-term loans from banks			(4,803	)			(5,598	)			(2,597	)			(2,420	)			(10,137	)
Repayment of long-term loans from others			(366	)			-				(251	)			-				-
Proceeds from issuance of shares, net			10,065				-				6				-				7
Repurchase of shares from non-controlling interests			(7,740	)			-				-				-				-
Short-term bank credit, net			(2,582	)			(1,046	)			(1,382	)			(670	)			563
Net cash provided by (used in) financing activities			7,501				(2,963	)			(2,734	)			(757	)			(2,440	)
Effect of exchange rate changes on cash and cash equivalents			(194	)			(194	)			(227	)			(351	)			(324	)
Increase (decrease) in cash and cash equivalents			8,441				(1,280	)			(1,280	)			75				(336	)
Cash and cash equivalents at the beginning of the period			3,349				3,685				13,070				2,330				3,685
Cash and cash equivalents at the end of the period		$	11,790			$	2,405			$	11,790			$	2,405			$	3,349

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

9

 

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

 

				Six months ended June 30,								Three months ended June 30,								Year ended December 31,
				2014				2013				2014				2013				2013
				Unaudited
(a)		Acquisition of subsidiary:
		Working capital (Cash and cash equivalent excluded)		$	-			$	-			$	-			$	-		$	130
		Property and equipment			-				-				-				-			2,486
		Other intangible assets			-				-				-				-			1,690
		Goodwill			-				-				-				-			4,894
		Long term loans from banks and others			-				-				-				-			(1,342	)
		Investment in subsidiary previously accounted for by the equity method			-				-				-				-			(3,885	)
				$	-			$	-			$	-			$	-		$	3,973
(b)		Non-cash activity:
		Purchase  of property and equipment		$	179			$	-			$	179			$	-		$	392
		Purchase of property and equipment at finance lease		$	-			$	-			$	-			$	-		$	3
		Dividend payable for non-controlling interest in a consolidated subsidiary		$	-			$	-			$	-			$	-		$	1,311
		Issuance of shares in respect of acquisition of non-controlling interests in subsidiary		$	11,385			$	-			$	-			$	-		$	-
(c)		Supplemental disclosure of cash flow activity:
		Cash paid during the year for:
		Interest		$	1,900			$	-			$	298			$	-		$	1,189
		Income taxes		$	238			$	19			$	101			$	7		$	114

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

10

 

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1:      SIGNIFICANT ACCOUNTING POLICIES

 

a.        Unaudited interim financial information:

 

The accompanying consolidated balance sheet as of June 30, 2014, consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 and consolidated statements of cash flows for the three and six months ended June 30, 2014 and 2013 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company's consolidated financial position as of June 30, 2014, the Company's consolidated results of operations for the three and six months ended June 30, 2014 and 2013 and the Company's consolidated cash flows for the three and six months ended June 30, 2014 and 2013.

 

The balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

 

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2013 included in the Company's Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission ("SEC") on March 27, 2014.

 

Results for the three and six months ended June 30, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014.

 

b.        Use of estimates:

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

c.

Principles of consolidation:

 

Our consolidated financial statements include the accounts of the Company and its' wholly and majority owned subsidiaries, referred to herein as the group.

 

Intercompany transactions and balances including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.

 

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POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

  

NOTE 1:-    SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

d.        Recent Accounting Pronouncement

On May 2014, the Financial Accounting Standards ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" ("ASU 14-09") which creates a comprehensive set of guidelines for the recognition of revenue under the principle: "Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The requirements of ASU 14-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and will require either retrospective application to each prior period presented or retrospective application with the cumulative effect of initially applying the standard at the date of adoption. Greystone is currently evaluating the impact this ASU will have on our financial position and results of operations.

 

e.        Acquisition of non-controlling interests Shagrir Systems Ltd. ("Shagrir"):

 

On January 15, 2014, the Company acquired an additional 45.5% interest in Shagrir, increasing its ownership interest to 100%, in consideration of cash payment of approximately $7.7 million, and issue of 994,357 Ordinary shares with total fair value of approximately $11.4 million (representing the quoted price of the Company's share at the transaction date). The difference of $11.4 million between the consideration and the carrying amount of the interests acquired was recognized in reserve from transactions with non-controlling interests. In respect with the acquisition, the Company's subsidiary Shagrir received two long term loans from two banks in the aggregate amount of approximately $11.5 million. These loans will be repaid over 5 years and bear annual interest of 3.5%-4.23%.

 

f.         On March 9 2014, the Company issued 1.13 million of its ordinary shares for total consideration of approximately $10.4 million (The shares were valued at $9.25 per share, the fair market value on the date of issuance). The Company recorded an amount of approximately $0.4 million as issuance expenses.

 

NOTE 2:-     INVENTORIES

 

		June 30,				December 31,
		2014				2013
		Unaudited
Raw materials		$	2,229			$	2,189
Work in process			417				232
Finished goods			3,713				3,617
		$	6,359			$	6,038

 

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POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3:-     COMMITMENTS AND CONTINGENT LIABILITIES

 

a.        Charges:

 

As collateral for its liabilities, the Company has recorded floating charges on all of its assets, including the intellectual property and equipment, in favor of banks.

 

b.        Collateral:

 

1.        To secure Shagrir's obligations for providing services to several of its customers, Shagrir provided such customers with a bank guarantee in the amount of about $ 2,321 in effect between January 2009 and January 2016.

 

2.        The Company obtained bank guarantees in the amount of $ 255 in favor of its lessor and customs.

 

3.        As of June 30, 2014, the use of $ 65 has been restricted following B.C.R.A. (Central Bank of Argentina) regulations.

 

c.        Royalties:

 

The Company has undertaken to pay royalties to the BIRD Foundation ("BIRD"), at the rate of 5% on sales proceeds of products developed with the participation of BIRD up to the amount received, linked to the U.S. dollar. The contingent obligation as of June 30, 2014 is $ 2,444. No royalties were accrued or paid during 2014 and 2013.

 

d.        Litigation:

 

As of June 30, 2014, several claims were filed against Shagrir, mainly by customers. The claims are in an amount aggregating to approximately $ 2,204. The substance of the claims is the malfunction of Shagrir's products, which occurred during the ordinary course of business. Shagrir's management, based on the opinion of its legal counsel, is of the opinion that no material costs will arise to Shagrir in respect to these claims. Therefore, Shagrir has not recorded any provision regarding these claims.

 

e.        Commitments:

 

1.         The Company and DBSI Investments Ltd. ("DBSI"), an equity owner in the Company (see Note 6), are parties to a management services agreement pursuant to which DBSI provides management services in consideration of annual management fees of $180. The previous three year agreement commenced on August 1, 2011, and on April 2014, the shareholders of the Company approved an additional three year period commencing August 1, 2014.

 

2.         During 1998, the Company entered into an agreement with Shagrir, for the supply of the services and equipment required to set up reception bases to be positioned throughout Israel. An addendum to the agreement was entered into in 2004 (the "First Addendum"). The agreement was for a period of 10 years with an option to extend it by an additional 10 years. During 2008, the Company and Shagrir entered into a second addendum to the agreement that extended the agreement by a period of 5 years, until 2013. During 2014 the Company and Shagrir entered into a third addendum to the agreement that extended the agreement by a period of 5 years, until 2018.

 

13

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3:-        COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 

3.        Shagrir entered into a management services agreement with the Company, pursuant to which the Company agreed to provide management services to Shagrir, in consideration of NIS 2 million per year.

 

f.         Covenants:

 

In respect of the bank loans provided to the Company for the purpose of funding the 2007 acquisition transaction, pursuant to which the Company acquired the activities and assets of Cellocator Ltd. ("Cellocator") and the acquisition of Pointer Brazil and in connection with the utilization of its credit facilities, the Company is required to meet certain financial covenants as follows:

 

1.        The ratio of the shareholders’ equity to the total consolidated assets will not be less than 20% and the shareholders equity will not be less than $ 20,000, starting December 31, 2007.

 

2.        The ratio of the Company and its subsidiaries' debt (debt to banks, convertible debenture and loans from others that are not subordinated to the bank less cash) to the annual EBITDA will not exceed 4 in 2010 and thereafter.

 

3.        The ratio of Pointer Telocation Ltd.'s debt (debt to banks, convertible debenture and loans from others was not subordinated to the bank less cash) to the annual EBITDA will not exceed 4.2 in 2013-2014, 3.5 in 2015, 3 in 2016 and 2.5 in 2017 and thereafter.

 

As of June 30, 2014, the Company is in compliance, and expects to remain in compliance, with the financial covenants of its credit facilities in 2014.

 

Under the credit facility (in respect of the loans denominated in NIS) from the bank, Shagrir is required to meet financial covenants.

 

The financial covenants are:

 

1.        The ratio of the debt to the bank to the annual EBITDA will not exceed 5.5.

 

2.        The ratio of the annual EBITDA to the current maturities (the loan principal plus interest) of long-term loans from the bank will not be less than 1, at any time.

 

14

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

  

NOTE 3:-     COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 

3.        The shareholders' equity, including loans from shareholders, will not be less than NIS 50 million, at any time

 

4.        Shagrir shall not declare any distribution of dividends without the prior written consent of the bank.

 

As of June 30, 2014, Shagrir is in compliance and expect to remain in compliance with the financial covenants of its credit facility.

 

g.        In December 2011 one of the Company's Argentinean subsidiaries received a notification from the C.N.C. (Telecommunication Authority Agency) stating that the subsidiary is subject to a new tax (1% over sales related to data transmission) that had not been applicable to the subsidiary in the past.

 

As of the issuance of these financial statements, the subsidiary had only answered this notification but plans to appeal in the near future. Management has recorded a provision for the full amount (i.e. capital plus interest for $193).

 

NOTE 4:-     NET EARNINGS PER SHARE

 

The following table sets forth the computation of basic and diluted net earnings per share from continuing operations:

 

		Six months ended June 30,								Three months ended June 30,								Year ended December 31,
		2014				2013				2014				2013				2013
		Unaudited
Numerator:
Numerator for basic net earnings per share - Net income from continuing operations		$	2,612			$	1,778			$	1,146			$	971			$	6,320
Numerator for diluted net earnings per share - Net income from continuing operations		$	2,612			$	1,778			$	1,146			$	971			$	6,320
Denominator:
Denominator for basic net earnings per share - weighted-average number of shares outstanding (in thousands)			7,201				5,556				7,689				5,556				5,558
Denominator for diluted net earnings per share - adjusted weighted average shares and assumed exercises (in thousands)			7,542				5,556				8,030				5,556				5,697
Basic net earnings per share from continuing operations		$	0.36			$	0.32			$	0.15			$	0.17			$	1.14
Diluted net earnings per share from continuing operations		$	0.35			$	0.32			$	0.14			$	0.17			$	1.10

 

15

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5:-      INCOME TAXES

 

The effective tax rate for the six months ended June 30, 2014 was 30% as compared to 17% for the six months ended June 30, 2013. The increase is due to an increase in the Israeli tax rate from 25% to 26.5%, and the consolidation of the Brazilian subsidiary in October 2013, whose effective tax rate is approximately 34%.

 

NOTE 6:-      BALANCES AND TRANSACTIONS WITH RELATED PARTIES

 

a.        Balances with related parties:

 

		June 30,				December 31,
		2014				2013
		Unaudited
Other accounts payable and accrued expenses:
DBSI (see note 3e(1))		$	53			$	53

 

b.        Transactions with related parties:

 

		Six months ended June 30,								Three months ended June 30,								Year ended December 31,
		2014				2013				2014				2013				2013
		Unaudited
Sales to affiliate		$	-			$	361			$	-			$	232			$	596
Management fees to DBSI (see Note 3e(1))		$	90			$	90			$	45			$	45			$	180

 

16

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7:-      SEGMENT INFORMATION

 

a.        The following segment identification is identical to the segment used in the latest annual consolidated financial report.

 

b.        The following presents segment results of operations for the six months ended June 30, 2014 (unaudited):

 

		Cellocator segment				Pointer segment				Total
Segments revenues		$	11,265			$	46,955			$	58,220
Intersegments revenues			(5,331	)			-				(5,331	)
Revenues from external customers		$	5,934			$	46,955			$	52,889
Segments operating income		$	958			$	4,775			$	5,733
Segments assets		$	25,208			$	100,982			$	126,190

 

The Pointer segment revenues include revenue from services in the amount of $ 35,728.

 

The following reconciles segment operating profit and segments assets to net operating profit and assets as reported in the interim consolidated statements of income:

 

Segments operating income		$	5,733
Intercompany gains on intersegment sales			(1,496	)
Operating income		$	4,237
Segments assets		$	126,190
Intercompany elimination			(2,216	)
Total assets		$	123,974

 

c.        The following presents segment results of operations for the six months ended June 30, 2013 (unaudited):

 

		Cellocator segment				Pointer segment				Total
Segments revenues		$	11,895			$	38,508			$	50,403
Intersegments revenues			(5,023	)			-				(5,023	)
Revenues from external customers		$	6,872			$	38,508			$	45,380
Segments operating income		$	1,551			$	1,587			$	3,138
Segments assets		$	17,898			$	82,816			$	100,714

 

The Pointer segment revenues include revenue from services in the amount of $ 29,495.

17

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7:-       SEGMENT INFORMATION (Cont.)

 

The following reconciles segment operating profit and segments assets to net operating profit and assets as reported in the interim consolidated statements of income:

 

Segments operating income		$	3,138
Intercompany gains on intersegment sales			174
Operating income		$	3,312
Segments assets		$	100,714
Intercompany elimination			(1,064	)
Total assets		$	99,650

 

d.        The following presents segment results of operations for the three months ended June 30, 2014 (unaudited):

 

		Cellocator segment				Pointer segment				Total
Segments revenues		$	5,867			$	23,008			$	28,875
Intersegments revenues			(3,001	)			-				(3,001	)
Revenues from external customers		$	2,866			$	23,008			$	25,874
Segments operating profit		$	711			$	2,105			$	2,816
Segments assets		$	25,208			$	100,982			$	126,190

 

The Pointer segment revenues include revenue from services in the amount of $17,818.

 

The following reconciles segment operating profit and segments assets to net operating profit and assets as reported in the interim consolidated statements of income:

 

Segments operating income		$	2,816
Intercompany gains on intersegment sales			(1,164	)
Operating income		$	1,652
Segments assets		$	126,190
Intercompany elimination			(2,216	)
Total assets		$	123,974

 

18

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7:-        SEGMENT INFORMATION (Cont.)

 

e.        The following presents segment results of operations for the three months ended June 30, 2013 (unaudited):

 

		Cellocator segment				Pointer segment				Total
Segments revenues		$	6,013			$	19,733			$	25,746
Intersegments revenues			(2,511	)			-				(2,511	)
Revenues from external customers		$	3,502			$	19,733			$	23,235
Segments operating profit		$	697			$	883			$	1,580
Segments assets		$	17,898			$	82,816			$	100,714

 

The Pointer segment revenues include revenue from services in the amount of $ 14,772.

 

The following reconciles segment operating profit and segments assets to net operating profit and assets as reported in the interim consolidated statements of income:

 

Segments operating income		$	1,580
Intercompany gains on intersegment sales			187
Operating income		$	1,767
Segments assets		$	100,714
Intercompany elimination			(1,064	)
Total assets		$	99,650

 

f.         The following presents segment results of operations for the year ended December 31, 2013:

 

		Cellocator segment				Pointer segment				Total
Segments revenues		$	24,268			$	81,990			$	106,258
Intersegments revenues			(8,401	)			-				(8,401	)
Revenues from external customers		$	15,867			$	81,990			$	97,857
Segments operating profit		$	3,065			$	4,890			$	7,955
Segments assets		$	36,513			$	78,930			$	115,443
Depreciation, amortization and impairment expenses		$	291			$	3,758			$	4,049
Expenditures for assets		$	135			$	4,528			$	4,663

19

 

POINTER TELOCATION LTD. AND SUBSIDIARIES

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7:-       SEGMENT INFORMATION (Cont.)

 

The Pointer segment revenues include revenue from services in the amount of $ 63,141.

 

The following reconciles segment operating profit and segments assets to net operating profit and assets as reported in the consolidated statements of income:

 

Segments operating income		$	7,955
Intercompany adjustments on intersegment sales			(1,909	)
Operating income		$	6,046
Segments assets		$	115,443
Intercompany elimination			(1,779	)
Total assets		$	113,664

 

NOTE 8:-       SUBSEQUENT EVENTS

 

a.    On September 9, 2014, the Company acquired a 100% interest in Global Telematics S.A. Proprietary Limited ("Global Telematics"), a provider of commercial fleet management and vehicle tracking solutions in South Africa.

 

- - - - - - - - - - - - - - - - - - -

 

20

 

 

 

Exhibit 2

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The information contained in this section should be read in conjunction with (1) our unaudited condensed interim consolidated financial statements as of June 30, 2014 and for the six months then ended and related notes included elsewhere in this report and (2) our consolidated financial statements and related notes included in our Annual Report on Form 20-F for the year ended December 31, 2013 and the other information contained in such Annual Report, particularly the information in Item 5 - “Operating and Financial Review and Prospects”. Our financial statements have been prepared in accordance with generally accepted accounting principles in United States (“US GAAP”).

 

Forward-Looking Statements

 

The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The use of the words “may,” “believe,” “will,” “projects,” “expects,” “plans” or “intends,” or words of similar import, identifies a statement as “forward-looking.” The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on the assumption that the Company will not lose a significant customer or customers or experience increased fluctuations of demand or rescheduling of purchase orders, that our markets will be maintained in a manner consistent with our historical experience , that our products will remain accepted within their respective markets and will not be replaced by new technology, that competitive conditions within our markets will not change materially or adversely, that we will retain key technical and management personnel, that our forecasts will accurately anticipate market demand, and that there will be no material adverse change in our operations or business. 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 addition, our business and operations are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements. 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 our annual report on Form 20-F.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

A.

RESULTS OF OPERATIONS

  

Six months Ended June 30,

 

(in thousands of U.S. Dollars – except weighted average number of ordinary shares,

and basic and diluted income per ordinary share)

 

		2014				2013
Statement of Income Data:
Revenues:
Products			17,170				15,816
Services			35,719				29,564
Total Revenues			52,889				45,380
Cost of revenues:
Products			10,342				9,198
Services			24,553				21,343
Amortization of intangible assets			-				-
Total Cost of Revenues			34,895				30,541
Gross profit			17,994				14,839
Operating Expenses:
Research and development, net			1,766				1,470
Sales and marketing expenses			5,523				4,894
General and administrative			5,901				4,653
Amortization of intangible assets			567				510
Total operating income			4,237				3,312
Financial expenses, net			812				598
Other income			6				7
Income before tax on income			3,431				2,721
Taxes on income			1,014				467
Income after taxes on income			2,417				2,254
Equity in  gains of affiliate			-				182
Net income (loss)			2,417				2,436
Net income (loss) attributable to non-controlling interest			(195	)			658
Net income attributable to Pointer Telocation Ltd. Shareholders			2,612				1,778
Basic net earnings per share attributable to Pointer Telocation Ltd. shareholders			0.36				0.32
Diluted net earnings per share attributable to Pointer Telocation Ltd. shareholders			0.35				0.32
Basic weighted average number of shares outstanding (in thousands)			7,201				5,556
Diluted weighted average number of shares outstanding (in thousands)			7,542				5,556

  

Six Months Ended June 30, 2014 Compared with Six Months Ended June 30, 2013

 

Revenues. Revenues increased by $7.5 million or 16%, from $45.3 million in the six months ending June 30, 2013 to $52.9 million in the six months ending June 30, 2014.

 

The revenues from the sale of our products increased by $1.4 million, or 8.6%, from $15.8 million in the six months ending June 30, 2013 to $17.2 million in the six months ending June 30, 2014. This increase is primarily attributable to increased volume of our Cellocator products, partially offset by price erosion.

 

The revenues from our services increased by $6.1 million, or 21%, from $29.6 million in the six months ending June 30, 2013 to $35.7 million in the six months ending June 30, 2014.

 

The increase was primarily attributable to an increase in revenues from fleet management and stolen vehicle recovery services provided in the Israeli and Brazilian markets (which results have been consolidated since October 2013).

 

 

Revenues from our services in the six months ending June 30, 2014 accounted for 67.5% of our total revenues as compared with 65% in the six months ending June 30, 2013.

 

Our international revenues in the six months ending June 30, 2014 accounted for 31% of total revenues, comparing to 26% in the six months ending June 30, 2013.

 

Cost of Revenues. Our cost of revenues increased by $4.4 million to $34.9 million for the six months ending June 30, 2014 as compared to $30.5 million for the same period in 2013. This increase is associated with an increase of $7.5 million in our revenues from products and services.

 

Gross Profit. Our gross profit increased to $18 million in the six months ending June 30, 2014, as compared to $14.8 million for the same period in 2013.Gross profit accounted for 34% of total revenues in the six months ending June 30, 2014 compared to 32.6% of total revenues in the six months ending June 30, 2013. Our gross margin on products sales in the six months ending June 30, 2014 was 40% compared to 42% in the six months ending June 30, 2013. We continued to face price erosion that was partially offset by operational efficiency and cost reduction but was mostly compensated for by an increase in volumes. Gross margin in services was approximately 31% in the six months ending June 30, 2014 as compared to 28% in the six months ending June 30, 2013. Gross margin in services increased mainly due to the increase in revenues from services and efficiency in cost of services.

 

Research and Development Costs. Research and development expenses were $1.8 million in the six months ending June 30, 2014, comparing to $1.5 million in the six months ending June 30, 2013. The increase in research and development costs are mostly a result of our continual efforts to introduce new technologies to the market.

 

Sales and Marketing Expenses. Sales and marketing costs increased by $0.6 million to $5.5 million in the six months ending June 30, 2014 from $4.9 million in the six months ending June 30, 2013. The increase is due to the increase in sales and marketing efforts in Israel, the United States and Mexico, and the consolidation of our Brazilian subsidiary’s results which commenced in October 2013.

 

General and Administrative Expenses. General and administrative expenses increased by $1.3 million to $5.9 million in the six months ending June 30, 2014 from $4.6 million in the six months ending June 30, 2013. The increase is due to the consolidation of our Brazilian subsidiary’s results which commenced in October 2013, increases in salary and stock-based compensation and efforts to expand our operation.

 

Amortization of Intangible Assets. Amortization of intangible assets was $0.5 million in the six months ending June 30, 2014 and 2013.

 

Operating Profit. As a result of the foregoing, we recorded a $4.2 million operating profit in the six months ending June 30, 2014 compared to an operating profit of $3.3 million in the six months ending June 30, 2013.

 

 

Financial Expenses (Net). Financial expenses increased from $0.6 million in the six months ending June 30, 2013 to $0.8 million in the six months ending June 30, 2014. This increase is due to loans incurred in connection with the financing of the acquisitions of our Brazilian subsidiary and Shagrir.

 

Taxes on income.  Taxes on income were $1 million in the six months ending June 30, 2014 comparing to $0.5 million in the six months ending June 30, 2013. The effective tax rate for the six months ended June 30, 2014, was 30% as compared to 17% for the six months ended June 30, 2013. The increase is due to the consolidation of our Brazilian subsidiary in which the effective tax rate is approximately 34% and an increase in tax rates in Israel from 25% to 26.5%.

 

Equity in losses (gains) of our Brazilian affiliate. In the six months ending June 30, 2013, we recorded equity in gains of our Brazilian affiliate, Pointer do Brazil Commercial S.A., in the amount of $182 thousand. Subsequent to the acquisition of our Brazilian subsidiary in October 2013, the Brazilian subsidiary’s results are consolidated and not recorded as equity in gains.

 

Net Income. We recorded net income of $2.4 million in the six months ending June 30, 2014 and 2013.

 

Net Income (loss) attributable to non-controlling interests. We recorded net loss attributable to non-controlling interests in the amount of $0.2 million in the six months ending June 30, 2014, compared to $0.7 million income in the six months ending June 30, 2013.

 

Net Income attributable to Pointer shareholders. In the six months ending June 30, 2014, we recorded net income of $2.6 million, compared to $1.8 million in the six months ending June 30, 2013.

 

Impact of Exchange Rate Fluctuations on Results of Operations, Liabilities and Assets

 

Our results of operations, liabilities and assets were largely impacted by the fluctuations of exchange rates between the U.S. Dollar and the New Israeli Shekel (“NIS”), and to a lesser extent between the U.S. Dollar and the Argentine Peso, the Mexican Peso, the Euro and the Brazilian Real.

 

During the six months ended June 30, 2014, the exchange rate of the U.S. Dollar in relation to the NIS decreased by 1%, while the Israeli Consumer Price Index (“CPI”) did not change. During the six months ended June 30, 2013 there was a decrease of 2.6% in the exchange rate of the U.S. Dollar in relation to the NIS and an increase of 1.3% in the Israeli CPI.

 

During the six months ended June 30, 2014, the rate of inflation in Israel did not have a material effect on our business to date. However, our U.S. Dollar costs will increase if inflation in Israel exceeds the revaluation of the NIS against the U.S. Dollar.

 

Regarding our operations in Argentina and the fact that most of the revenues of our subsidiary Pointer Localizacion Y Asistencia S.A (“PLA”) are not denominated in U.S. Dollars, we believe that inflation in Argentina and fluctuations in the exchange rate between the U.S. Dollar and Argentinean Peso may have a significant effect on the business and overall profitability of PLA and as a consequence, on the results of our operations. From January 1, 2014 to June 30, 2014, the value of the Argentinean Peso increased by approximately 24.7% against the U.S. dollar. From January 1, 2014 until June 30, 2014 the U.S. Dollar – Argentinean Peso exchange rate fluctuated between 6.5143 and 8.1394 Pesos to the Dollar.

 

 

Regarding our operations in Mexico and the fact that most of the revenues of our Mexican subsidiary, Pointer Recuperacion de Mexico, SA de CV (“PRM”), are not denominated in U.S. Dollars, we believe that inflation in Mexico and fluctuations in the exchange rate between the U.S. Dollar and Mexican Peso may have a significant effect on the business and overall profitability of PRM and as a consequence, on the results of our operations. From January 1, 2014 to June 30, 2014, the value of the Mexican Peso increased by approximately 0.53% against the U.S. dollar. From January 1, 2014 until June 30 the U.S. Dollar – Mexican Peso exchange rate fluctuated between 12.8429 and 13.4521 Pesos to the Dollar.

 

B.

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2014, we had working capital of $1.2 million, our current assets to current liabilities ratio was 103%, we had cash and cash equivalents of $11.9 million and an unused credit facility of $9.1 million. We believe that we have access to sufficient capital to meet our requirements for at least the next twelve months.

 

Our credit facilities and loans contain a number of restrictive covenants that limit the operating and financial flexibility of Pointer and Shagrir. As of June 30, 2014 we are in compliance with the financial covenants of our credit facilities.

 

In the six months ended June 30, 2014, net cash provided by our continuing operating activities amounted to $2.5 million as compared to net cash provided from continuing operating activities of $3.4 million in the six months ended June 30, 2013. The decrease was primarily attributable to an increase in working capital in the six months ended June 30, 2014.

 

In the six months ended June 30, 2014, net cash used in our continuing investment activities was $1.4 million as compared to $1.6 million in the six months ended June 30, 2013. The decrease was primarily attributable to the decrease in purchases of property and equipment.

 

In the six months ended June 30, 2014, net cash provided by financing activities was $7.5 million as compared to net cash used in financing activities of $3 million in the six months ended June 30, 2013. The increase was primarily attributable to receipt of long term loans in association with the acquisitions of our Brazilian subsidiary and Shagrir, proceeds from the issuance of shares in a financing round in March 2014 for an aggregate amount of $10.4 million, and the acquisition of the remaining 45.5% issued share capital of Shagrir in January 2014 for aggregate consideration of $7.7 million.