EDGAR Submission Header Summary
Submission Form Type
6-K
XBRL Filing
Off
Period of Report
08-03-2016
Filer
Magal Security Systems Ltd
CIK
0000896494
CCC
gq*4tung
Selected Exchanges
Exchange
Confirming Copy
NASD
Off
Co-Registrants
Submission Contact
Yaron Kleiner
Contact Phone Number
972-54-2233054
Documents
4
Emails
[email protected]
Documents
6-K
zk1618789.htm
6-K
EX-99.1
exhibit_99-1.htm
Exhibit 99.1
EX-99.2
exhibit_99-2.htm
Exhibit 99.2
EX-99.3
exhibit_99-3.htm
Exhibit 99.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 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 August 2016
MAGAL SECURITY SYSTEMS LTD.
(Name of Registrant)
P.O. Box 70, Industrial Zone, Yahud 5610001 Israel
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒
Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐
No ☒
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ____________
This Report on Form 6-K is incorporated by reference into the Registrant's Form S-8 Registration Statements File Nos. 333-127340, 333-164696, 333-174127 and 333-190469.
Magal Security Systems Ltd.
EXPLANATORY NOTE
The following exhibits are attached:
99.1
Audited financial statements of Aimetis Corp. as of December 31, 2015 and for the year ended December 31, 2015.
99.2
Unaudited Pro Forma Condensed Combined Financial Information.
99.3
Consent of Deloitte LLP.
SIGNATURE
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.
MAGAL SECURITY SYSTEMS LTD.
(Registrant)
By: /s/Saar Koursh
Saar Koursh
Chief Executive Officer
Date: August 3, 2016
EXHIBIT INDEX
99.1
Audited financial statements of Aimetis Corp. as of December 31, 2015 and for the year ended December 31, 2015.
99.2
Unaudited Pro Forma Condensed Combined Financial Information.
99.3
Consent of Deloitte LLP.
Exhibit 99.1
Consolidated financial statements of
Aimetis Corp.
December 31, 2015
Aimetis Corp.
December 31, 2015
Table of contents
Independent Auditors’ Report
1-2
Consolidated statement of earnings and comprehensive income
3
Consolidated balance sheet
4
Consolidated statement of changes in shareholders’ deficiency
5
Consolidated statement of cash flows
6
Notes to the consolidated financial statements
7-14
Deloitte LLP
4210 King Street East
Kitchener ON N2P 2G5
Canada
Tel: 519-650-7600
Fax: 519-650-7601
www.deloitte.ca
Independent Auditors’ Report
To the Shareholders of
Aimetis Corp.
We have audited the accompanying financial statements of Aimetis Corp. (the “Company”), which comprise the consolidated balance sheet as of December 31, 2015, and the related
consolidated statements of earnings and comprehensive income, changes in shareholders’ deficiency, and cash flows for the year then ended, and the related notes to the consolidated
financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidation financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express
no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aimetis Corp. as of December 31, 2015, and the
results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Chartered Professional Accountants
Licensed Public Accountants
Kitchener, Canada
July 28, 2016
Page 2
Aimetis Corp.
Consolidated statement of earnings and comprehensive income
year ended December 31, 2015
(in Canadian dollars)
$
Revenue
Cost of revenue
Gross margin
10,726,777
1,539,586
9,187,191
Expenses
Selling and marketing
Research and development, net
General and administration
5,829,231
2,023,410
1,420,573
9,273,214
Loss from operations
(86,023)
Other income
Gain on foreign currency translation
Interest income, net
452,113
4,807
456,920
Income before taxes
Income tax expense
Net earnings and comprehensive income
370,897
(63,868)
307,029
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 3
Aimetis Corp.
Consolidated balance sheet
as of December 31, 2015
(in Canadian dollars)
$
Assets
Current assets
Cash
Trade receivable
Unbilled accounts receivables
Other accounts receivable and prepaid expenses (Note 5)
Inventories
3,527,549
2,342,525
12,785
1,069,509
126,301
7,078,669
Property and equipment, net (Note 6)
Total Assets
227,778
7,306,447
Liabilities
Current liabilities
Trade payables
Accrued expenses
Deferred revenues
Income taxes payable
Current portion of obligation under capital lease (Note 7)
279,245
657,932
1,250,195
34,539
22,654
2,244,565
Deferred revenues
Obligation under capital lease (Note 7)
Total Liabilities
626,053
27,916
2,898,534
Commitments and contingencies (Note 9)
Mezzanine equity
Preferred shares (Note 11)
7,842,589
Shareholders’ deficiency
Common shares (Note 10)
Additional paid in capital (Note 10)
Accumulated deficit
Total shareholders’ deficiency
Total liabilities and mezzaine equity and shareholders’ deficiency
3,386,985
196,890
(7,018,551)
(3,434,676)
7,306,447
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 4
Aimetis Corp.
Consolidated statement of changes in shareholders’ deficiency
year ended December 31, 2015
(in Canadian dollars)
Common shares
Balance, January 1, 2015
Stock based compensation (Note 10)
Stock options exercised (Note 10)
Mezzaine equity (Note 11)
Net earning and comprehensive income
Balance, December 31, 2015
Number of shares
Amount
$
5,760,989
16,667
5,777,656
3,354,525
32,460
3,386,985
Additional
paid in
capital
$
711,228
76,555
(9,960)
(580,933)
196,890
Accumulated
deficit
$
(7,325,580)
307,029
(7,018,551)
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 5
Total
shareholders'
deficiency
$
(3,259,827)
76,555
22,500
(580,933)
307,029
(3,434,676)
Aimetis Corp.
Consolidated statement of cash flows
year ended December 31, 2015
(in Canadian dollars)
$
Operating activities
Cash from operations
Net earnings
Items not affecting cash
Amortization
Stock based compensation (Note 10)
Changes in non-cash working capital components
Trade receivables
Inventories
Other accounts receivables and prepaid expenses
Trade payables
Accrued expenses
Deferred revenues
307,029
152,837
76,555
(256,144)
(6,373)
(94,759)
(34,122)
(295,165)
794,505
644,363
Investing activity
Purchase of property and equipment
(126,993)
Financing activities
Issuance of share capital
Repayments of obligation under capital lease
22,500
(20,505)
1,995
Change in cash
Cash, beginning of year
Cash, end of year
519,365
3,008,184
3,527,549
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 6
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
1.
Description of business
Aimetis Corp. (the “Company”) is incorporated under the Canada Business Corporations Act and its principal business is to distribute and maintain integrated intelligent video
management software for security surveillance and business intelligence applications.
2.
Significant accounting policies
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and
include the following significant accounting policies:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its three wholly owned subsidiaries, Aimetis GbmH (a subsidiary in Germany), Aimetis DMCC
(a subsidiary in Dubai) and Aimetis Corp. (an inactive subsidiary in the United States). All intercompany transactions and balances have been eliminated.
Foreign currency translation
a)
Balances denominated in foreign currency
Monetary assets and liabilities are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Non-monetary assets and liabilities are
translated at historical rates. Revenue and expenses are translated at the exchange rate in effect on the date of the transaction. The resulting exchange gains and
losses are included in earnings.
b)
Integrated foreign operations
The Company’s wholly owned subsidiaries, Aimetis GbmH and Aimetis DMCC, are considered to be integrated foreign operations. Monetary assets and liabilities are
translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates.
Revenue and expenses are translated at the exchange rate in effect on the date of the transaction. The resulting exchange gains and losses are included in earnings.
Inventories
Finished goods inventory held is valued at the lower of cost and net realizable value. Cost is determined on a weighted average basis. Net realizable value is the estimated
selling price less the estimated costs necessary to make the sale.
Inventory recognized as cost of revenue during the year amounted to $577,169.
Property and Equipment
Capital assets are stated at cost. Amortization is recognized on a straight-line basis over the estimated useful lives as follows:
Furniture and fixtures
Computer hardware
Computer software
Leasehold improvements
5 years
3 years
2 years
Term of lease
Impairment of long-lived assets
Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is
recognized when their carrying value exceeds the total undiscounted cash flows expected from their use and eventual disposition. The amount of the impairment loss is
determined as the excess of the carrying value of the asset over its fair value. Note that in 2015 there are no impairments.
Page 7
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
2.
Significant accounting policies (continued)
Financial instruments
Financial assets and financial liabilities are initially recognized at fair value when the Company becomes a party to the contractual provisions of the financial instrument.
Subsequent to initial recognition, financial instruments are measured at amortized cost. Debt issue costs are added to the carrying value of the asset or netted against the
carrying value of the liability and recognized over the expected life of the instrument using the straight-line method. Any premium or discount related to an instrument
measured at amortized cost is amortized over the expected life of the item using the straight-line method and recognized in net earnings as interest income or expense.
Bad Debt expense is recognized when there is a significant adverse change in the expected timing or amount of future cash flows related to a financial asset.
Trade receivable
Trade receivables arise from the sale of hardware and software products as well as provision of maintenance and support services. The Company evaluates collectability of
accounts receivable based on a combination of factors including the age of the receivable or a specific customer’s inability to meet its financial conditions. In these
circumstances, the Company records an allowance to reduce the receivable to an amount it deems collectible. The Company has determined that an allowance for doubtful
accounts is not necessary as of December 31, 2015.
Revenue recognition
Revenue is recognized when it is realized or realizable and earned. Revenue is considered realized or realizable and earned when there exists persuasive evidence of an
arrangement, the product has been delivered or the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably
assured. In addition to this general policy, the specific revenue recognition policies for each major category of revenue are included below.
For multiple-element arrangements, the Company allocates the total arrangement consideration to each separable element of an arrangement based upon the relative selling
price of each element and revenue is recognized upon delivery or completion of each element. The relative selling price is determined using Vendor Specific Objective Evidence
(“VSOE”) of selling price, when available. Where VSOE of selling price cannot be established, the Company attempts to determine the selling price for the deliverables using
third- party evidence. Generally, third-party evidence is not available as the Company’s product offerings differ from those of its competitors and competitor pricing is often
not available. In such cases where VSOE and third-party evidence cannot establish a selling price, the Company estimates the selling price for an element by determining the
price at which the Company would transact if the products or services were to be sold on a standalone basis. In establishing the estimated selling price, the Company
considers a number of factors including, but not limited to, geographies, customer segments and pricing practices.
Product revenue- Product revenues comprise of the following: i) hardware revenues which are recognized when hardware is shipped and ii) software licenses which are
recognized when the software is delivered based on sale price as the software is essential to the hardware. Customer acceptance for hardware and software occurs when
shipped and shipping term is at shipping point.
Service revenues- Services revenue are principally comprised of maintenance and support related revenues for products, which are deferred and recognized ratably over the
maintenance and support period.
Research and development expenditures
Research expenditures are expensed as incurred, reduced by Canadian exclusive investment tax credits.
Page 8
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
2.
Significant accounting policies (continued)
Investment tax credits
Investment tax credits are recognized in the period qualifying expenditures are incurred, provided that there is reasonable assurance of recovery. Investment tax credits earned
with respect to current expenditures for qualified research and development activities are included in the statement of earnings as a reduction of research and development
expenses. Investment tax credits are based on management’s estimates of amounts expected to be recovered and are subject to audit by taxation authorities.
Income taxes
The Company uses the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized based on the expected future tax
consequences of temporary differences between the carrying amount of balance sheet items and their corresponding tax basis, using the enacted and substantively enacted tax
rates for the years in which the differences are expected to reverse. Deferred income tax assets are recognized to the extent it is more likely than not that they will be realized.
Stock based compensation
The Company and its subsidiaries apply ASC 718 (“Compensation—Stock Compensation”). ASC 718 requires, with limited exception, that the cost of employee services
received in exchange for an award of equity instruments be measured based on the grant-date fair value. The costs are recognized over the requisite employee service period.
Share based compensation of $17,392, $17,889, and $41,274 are recorded in selling and marketing, research and development and general and administrative expenses
respectively based on employee’s division.
Use of estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management estimates include the determination of the collection of trade receivable, estimated lives of capital assets, revenue
recognition, investment tax credits, accruals and calculations relating to stock based compensation. Actual results could differ from these estimates.
3.
Changes in accounting principles generally accepted in the United States of America
Issued but not yet effective
Income taxes balances sheet classification of deferred taxes
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes”. This guidance requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. The
guidance is effective for interim and annual periods beginning after December 15, 2016, and may be applied either prospectively to all deferred tax liabilities and assets or
retrospectively to all periods presented.
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606 (ASU 2014-09)”, to supersede nearly all existing revenue recognition
guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods or services.
Page 9
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
3.
Changes in accounting principles generally accepted in the United States of America
Revenue recognition (continued)
ASU 2014-09 is effective for the Company in the first quarter of fiscal 2017 using either of two methods: (i) retrospective to each prior reporting period presented with the
option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the
date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of its pending adoption of
ASU 2014-09 on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, “Leases: Topic 842 (ASU 2016-02)”, to supersede nearly all existing lease guidance under GAAP. The guidance would
require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for the Company in the first
quarter of fiscal 2019 using a modified retrospective approach with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently
evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.
4.
Credit card facility
The Company has a credit card facility of $110,000, secured by the assets of the Company under a general security agreement. As at December 31, 2015 $23,112 was
outstanding on the facility.
5.
Other accounts receivable and prepaid expenses
Other accounts receivable and prepaid expenses consists of $275,746 of prepaid expenses, $26,576 of VAT receivable and $767,187 of investment tax credits. The Company is
eligible to file a claim for refundable research and development investment tax credits of $767,187 based on estimated eligible current expenditures of $1,848,642. The Company
has recorded credits of $767,187 as a reduction of research and development expense.
Any adjustments to the investment tax credits allowed, compared to the amount in the accounts, will be recorded in the year in which the claims are approved by the Canada
Revenue Agency.
6.
Property and equipment, net
Furniture and fixtures
Computer hardware
Computer software
Leasehold improvements
Cost
$
Accumulated
amortization
$
December 31, 2015
Net book
value
$
230,081
645,350
150,234
266,442
1,292,107
144,413
566,576
144,712
208,628
1,064,329
85,668
78,774
5,522
57,814
227,778
The leasehold improvements balance includes capital assets financed by a capital lease with an original cost of $166,920 and accumulated amortization of $129,363.
Page 10
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
7.
Obligation under capital lease
The following is a schedule of minimum annual lease payments under the capital lease agreement, which expires in December 2017.
$
2016
2017
26,470
29,344
55,814
(5,244)
50,570
(22,654)
27,916
Less: amount representing interest at 10%
Less: current principal portion
Interest incurred during the year relating to the capital lease obligation was $5,964. The net book value of the capital assets related to the capital lease at December 31, 2015 is
$37,557.
8.
Related party transactions
The Company rents its premises from Juscon Corporation, a company which is owned by a family member of a Board member. The Company’s leasehold improvement capital
lease is also with Juscon Corporation.
Related party transactions include:
Rent of $55,635 paid to Juscon Corporation.
Interest on repayments of obligation under capital lease of $5,964.
Related party balances include:
Leasehold improvement capital lease obligation of $50,570.
Related party transactions are recorded at their exchange amount.
9.
Commitments and contingencies
In the normal course of operations, the Company is subject to litigation and claims. Based on current information, the Company believes that the probable ultimate resolution of
all known existing litigation and claims will not have a material effect on the Company’s consolidated balance sheet, consolidated statement of earnings and comprehensive
income, consolidated statement of changes in shareholder’s deficiency and consolidated statement of cash flows.
The Company leases its premises under operating leases which expire between 2016 and 2019. The minimum annual lease payments for the next four years are as follows:
$
2016
2017
2018
2019
190,249
105,199
52,602
48,219
396,269
Page 11
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
10.
Common shares
Share capital consists of the following:
Authorized, unlimited number
Common voting shares
Issued
December 31, 2015
$
5,777,656 common shares
3,386,985
During 2015, the Company issued 16,667 common shares for cash proceeds of $22,500. An adjustment of $9,960 was recorded to additional paid in capital.
Stock options
The Company maintains a stock option plan for eligible employees, officers, directors and consultants of the Company. The maximum number of shares subject to purchase
under outstanding options may not exceed 920,000. The exercise price of options is based on the fair market value per share at the date of grant. The vesting period and expiry
date is determined by the board of directors.
A summary of the stock option plan activity is presented below:
Options
2015
$
Balance, beginning of year
Granted
Exercised
Forfeited or expired
Balance, end of year
Exercisable, end of year
727,500
25,000
(16,667)
(30,000)
705,833
339,166
December 31, 2015
Weighted
average
exercise
price 2015
$
1.33
1.95
1.34
1.28
Range of
exercise prices
$
Number of options
outing
$
Weighted
average remaining
contractual life
$
0.01 and 1.95
705,833
7.24
The Company estimated the fair value of these stock options at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions
for the current year: dividends of 0%; interest rate of 0.88%; annualized historical volatility of 21.35% and an expected life of 5 years. The Company has determined historical
volatility based on the S&P 600 Small Cap index. Volatility has been calculated using the daily historical closing values of the index selected for the period of time prior to the
grant date (or service inception date) of the equity stock option, or similar instrument, that is equal in length to the expected term of the equity share option or similar
instrument. Compensation expense recorded in the financial statements for the stock option awards was $76,555.
Page 12
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
11.
Mezzanine equity
Mezzanine equity consists of the following:
Class A preferred shares
Issued
December 31, 2015
$
3,333,334 Class A convertible voting preferred shares
7,842,589
Mezzanine equity in the consolidated balance sheet as of December 31, 2015 is comprised of the company’s class A preferred stock, including accrued dividends.
During 2010, the Company issued 3,333,334 Class A convertible, voting preferred shares, with an 8% cumulative dividend, for cash consideration of $4,568,183 (net of
transaction costs). The shares are convertible to common shares at any time at the option of the holder and will automatically be converted into fully paid common shares upon
the occurrence of a qualifying public offering by the Company. In the absence of a qualifying public offering or a sale of the Company by August 2015, holders of the preferred
shares may cause the Company to redeem the shares for an amount equal to the greater of (i) the fair value of the shares and (ii) the original purchase price of $1.50 per share
plus any accrued but unpaid dividends at that time.
The Class A preferred stock has been classified within the mezzanine (temporary) equity section of the Consolidated balance sheet because the shares are redeemable at the
option of the holder and therefore do not qualify as permanent equity. The preferred interests included within mezzanine equity were recorded at fair value on the date of
issuance and have been adjusted to the greater of their carrying amount or redemption value as of December 31, 2015. Adjustments to increase the carrying amount to
redemption value are recorded against additional paid in capital in the consolidated statement of changes in shareholders’ deficiency. Included within the mezzanine equity
balance of $7,842,589 are $2,842,589 of accrued dividends.
12.
Income taxes
The Company has a tax loss carry forward balance for Canadian income tax purposes totaling $586,046. The deferred tax asset has been fully recognized and offset by a
valuation allowance of $586,046 as it is probable that the tax loss will be realized. These losses will expire as follows:
$
2031
586,046
In addition, there is a pool of research and development expenditures of $3,591,265 available as future deductions from income for tax purposes. These research and
development expenditures can be carried forward indefinitely. The potential benefit of these deductible expenditures has not been reflected in these financial statements as it is
uncertain whether they will be utilized.
The Company’s wholly-owned subsidiary, Aimetis GbmH, and its Representative Office in China reported corporate income tax expense of $15,113 and $48,755, respectively.
The effective tax rate for the year ended December 31, 2015 is 17% and is entirely related to taxes in foreign jurisdictions. The difference from the amount computed using the
expected statutory federal tax rate of 26.5% is the result of tax rates in combined jurisdictions and utilization of unused tax losses as noted above.
Page 13
Aimetis Corp.
Notes to the consolidated financial statements
December 31, 2015
13.
Financial instruments
Currency risk
The Company is exposed to foreign currency fluctuations. During the year, the Company realized 65% of its revenue in U.S. dollars, 31% in Euros, and 4% in Canadian dollars.
The Company does not use derivative instruments to manage this risk.
Credit risk
Credit risk is the risk that counterparties fail to perform as contracted. The Company is exposed to credit risk on its trade receivable. At year-end, four customers represented
35%of the trade receivable balance. Credit risk is managed through credit evaluation, approval and monitoring.
Liquidity risk
The Company’s objective is to have sufficient liquidity to meet its liabilities when due. The Company monitors its cash balances and cash flows generated from operations to
meet its requirements. As at December 31, 2015, the most significant financial liabilities are: trade payable and accrued liabilities, obligations under capital lease, and preferred
shares.
14.
Subsequent events
The Company has evaluated subsequent events as of July 27, 2016 for potential recognition and/or disclosure. On April 1, 2016, the mezzanine shares were redeemed based on
face value plus cumulative dividends in the amount of $7,842,589.
Page 14
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On April 1, 2016, Senstar Corporation (“Senstar”), a wholly-owned subsidiary of Magal Security Systems, Ltd. (“Magal” or the “Registrant”), entered into a Share Purchase
Agreement (the “Agreement”) with Aimetis Corp. (“Aimetis”), a corporation incorporated under Canada Business Corporations act., Aimetis' shareholders and Marc Holtenhoff, as the
Holder Agent. Pursuant to the Agreement, Senstar purchased from Aimetis' shareholders, all of the issued and outstanding share capital of Aimetis (the “Acquisition”). Aimetis is a
Canadian-based company, headquartered in Waterloo, Ontario and is a leader in intelligent IP video management software (VMS).
The Acquisition was completed on April 1, 2016 (the “Closing”). After application of certain adjustments in connection with the Closing, Senstar paid to the shareholders of
Aimetis approximately CAD $19.8 million in cash (including CAD$1.1 million placed in escrow to secure potential indemnity obligations and up to an additional CAD$1.1 million payable
in cash, subject to achievement of future performance milestones based on fiscal year 2016 revenues).
The Agreement included customary provisions for transactions of this nature, including indemnity obligations concerning representations and warranties and covenants and a
portion of the cash consideration was paid into escrow in accordance with the Agreement.
The Registrant has accounted for the acquisition of Aimetis under the acquisition method of accounting, in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 805, “Business Combinations”. Under the acquisition method of accounting, the total purchase price is allocated to the tangible and
intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values. The preliminary allocation of the purchase price was based
upon management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are subject to adjustment.
The following unaudited pro forma condensed combined financial statements are based on the Registrant's historical consolidated financial statements and Aimetis’s historical
consolidated financial statements as adjusted to give effect to the April 1, 2016 acquisition of Aimetis. The unaudited pro forma condensed combined balance sheet as of December 31,
2015 gives effect to the Acquisition as if it had occurred on December 31, 2015 and is derived from the consolidated financial statements of Magal and Aimetis as of December 31, 2015.
The unaudited pro forma condensed combined statements of income for the year ended December 31, 2015 gives effect to the Acquisition as if it had occurred on January 1, 2015 and is
derived from the audited consolidated financial statements of Magal and Aimetis for the year ended December 31, 2015.
The unaudited pro forma condensed combined financial information has been prepared for informational purposes only and is not necessarily indicative of the combined
financial position or results of operations in future periods or the results that actually would have been realized had the acquisition actually occurred on the dates indicated above. The
adjustments necessary to present fairly the unaudited pro forma condensed combined financial information have been made based on available information and, in the opinion of
management, are reasonable. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
This unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes, the audited consolidated financial
statements for the year ended December 31, 2015 and notes thereto of Magal contained in its Annual Report on Form 20-F filed with the SEC on March 29, 2016; and the historical
audited financial statements and notes thereto of Aimetis included in Exhibit 99.1 of the Current Report on Form 6-K to which this exhibit is attached.
-1-
Magal Security Systems Ltd.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2015
Magal Security
Systems Ltd.
Aimetis Corp.
Pro Forma
Adjustments
(U.S. dollars in thousands)
Pro Forma
Combined
Note
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term bank deposits
Restricted deposits
Trade receivables, net
Unbilled accounts receivable
Other accounts receivable and prepaid expenses
Inventories
$
Total current assets
27,319
3,055
786
13,706
5,597
2,107
7,879
$
2,544
1,689
9
771
91
$
(15,101)
1,586
-
3(A)
$
3(B)
60,449
5,104
LONG-TERM INVESTMENTS AND RECEIVABLES:
Long-term trade receivables
Long-term deposits and restricted bank deposits
Severance pay fund
Deferred income taxes
617
136
1,761
1,055
-
-
617
136
1,761
1,055
Total long-term investments and receivables
3,569
-
-
3,569
PROPERTY AND EQUIPMENT, NET
5,415
164
-
5,579
INTANGIBLE ASSETS, NET
1,313
-
4,892
2
6,205
GOODWILL
4,250
-
5,556
2
9,806
Total assets
$
74,996
$
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
-2-
5,268
(13,515)
14,762
3,055
2,372
15,395
5,606
2,878
7,970
$
(3,067)
52,038
$
77,197
Magal Security Systems Ltd.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2015
Magal Security
Systems Ltd.
Pro Forma
Adjustments
Aimetis Corp.
Pro Forma
Note
Adjustments
(U.S. dollars in thousands)
Pro Forma
Combined
Note
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
$
Trade payables
Customer advances/deferred
revenues
Other accounts payable and
accrued expenses
Current maturities of other
long-term payables
Payment obligation related to
the acquisition
3,185
$
201
-
2,520
902
10,748
498
-
1,017
-
16
-
-
16
-
-
77
-
77
Total current liabilities
16,453
1,617
1,017
18,735
-
35
838
-
251
2,660
-
3,784
-
-
(429)
3(C)
(352)
15
173
20
-
665
2,660
452
-
(201)
-
Total long-term liabilities
2,848
472
464
-
5,656
(5,656)
3(G)
3(G)
Mezzanine equity - Preferred
Shares
Total Magal shareholders'
equity (deficiency)
Non-controlling interest
55,783
(88)
(2,477)
-
2,477
-
Total shareholders' equity
55,695
(2,477)
2,477
Total liabilities and
shareholders' equity
$
74,996
$
5,268
-
3(E)
LONG-TERM LIABILITIES:
Long-term payables
Deferred income taxes
Customer advances/deferred
revenues
Accrued severance pay
$
(3,067)
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
-3-
$
3(F)
3(C)
(1,017)
-
2,993
3(D)
12,263
3(D)
54,766
(88)
(1,017)
$
-
3,386
54,678
$
77,197
Magal Security Systems Ltd.
Unaudited Pro Forma Condensed Combined Statement of Income
Year ended December 31, 2015
Magal Security
Systems Ltd.
Revenues
Cost of revenues
$
63,736
32,722
Pro Forma
Aimetis Corp.
Adjustments
Note
U.S. dollars in thousands (except per share information)
$
8,409
1,207
$
(419)
708
Gross profit (loss)
31,014
7,202
Operating expenses:
Research and development, net
Selling and marketing
General and administrative
4,814
14,785
7,026
1,586
4,569
1,114
601
135
-
Total operating expenses
26,625
7,269
736
Operating income (loss)
Financial income, net
4,389
642
(67)
358
(1,863)
-
Income (loss) before income taxes
Taxes on income (tax benefit)
5,031
1,923
291
51
(1,863)
(417)
Net income (loss)
$
Less - loss attributable to non-controlling interests
3,108
$
(33)
Net income (loss) attributable to Magal shareholders
$
3,141
Basic and diluted earnings per share
$
0.19
240
240
$
(1,127)
$
$
3(H)
3(I)
Pro Forma
Combined
(1,446)
37,089
3(J)
3(K)
7,001
19,489
8,140
34,630
2,459
1,000
3,459
1,557
3(L)
$
$
(1,446)
71,726
34,637
1,902
(33)
$
1,935
$
0.12
Weighted average number of shares used in computing basic net
earnings per share
16,347,948
16,347,948
Weighted average number of shares used in computing diluted net
earnings per share
16,410,711
16,410,711
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
-4-
Notes To The Unaudited Pro Forma
Condensed Combined Financial Information
U.S. dollars in thousands
Note 1. Basis of Pro Forma Presentation
The Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 2015 give effect to the Acquisition as if it had been consummated on January 1,
2015. The Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2015 gives effect to the Acquisition as if it had been consummated on December 31, 2015.
The unaudited pro forma condensed combined financial information has been prepared for informational purposes only and is not necessarily indicative of the combined financial
position or results of operations in future periods or the results that actually would have been realized had the acquisition actually occurred on the dates indicated above. The
adjustments necessary to present fairly the unaudited pro forma condensed combined financial information have been made based on available information and, in the opinion of
management, are reasonable. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed combined information has been derived from the historical financial statements of Magal and Aimetis that are either included in or referenced in this
filling. The Aimetis historical financial statements have been translated from Canadian dollars to U.S. dollars using historic exchanges rates. The average exchange rates applicable to
Aimetis during the periods presented for the pro forma condensed combined statement of income and the period end exchange rate applicable to Aimetis for the pro forma condensed
combined balance sheet are as follows:
Average exchange rate for year ended December 31, 2015 (Aimetis pro forma condensed combined statement of income)
Period end exchange rate as of December 31, 2015 (Aimetis pro forma condensed combined balance sheet)
USD/CAD
1.2757
1.3866
Based on Magal's management's preliminary review of the respective summaries of significant accounting policies of Aimetis and preliminary discussions among the respective
management teams, the nature and amount of any adjustments to the historical financial statements of Aimetis to conform its accounting policies to those of Magal are not expected to
be material. Further review of accounting policies may result in additional revisions to Aimetis's policies and classifications to conform to those of Magal.
Assumptions and estimates underlying the unaudited pro forma adjustments are described in these notes and should be read in conjunction with the unaudited pro forma condensed
combined financial information. Since the unaudited pro forma condensed combined financial information has been prepared based upon preliminary estimates, the final amounts may
differ materially from the information presented.
The Acquisition is reflected in the unaudited pro forma condensed combined financial information as an acquisition of all the outstanding shares of Aimetis by Magal in accordance
with ASC Topic 805, "Business Combinations". Under these accounting standards, the total estimated purchase price is calculated as described in Note 2, and the assets acquired and
the liabilities assumed from Aimetis are measured and recorded at their estimated fair values. For the purpose of measuring the estimated fair value of the assets acquired and liabilities
assumed, Magal estimated the fair values as the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants as of the
measurement date. The fair value measurements utilize estimates based on key assumptions of the Acquisition. The unaudited pro forma adjustments included herein are preliminary
and will be adjusted as additional information becomes available and as additional analyses are performed. The final purchase price allocation and the final amounts of the assets
acquired and liabilities assumed in the Acquisition may differ materially from the values recorded in the Unaudited Pro Forma Condensed Combined Balance Sheet.
-5-
Estimated transaction costs have been excluded from the Unaudited Pro Forma Condensed Combined Statements of Income as they reflect charges directly related to the Acquisition
and do not have an ongoing impact. However, the anticipated transaction costs are reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet as an increase to other
accounts payable and accrued expenses and a decrease to retained earnings. In addition, the unaudited pro forma condensed combined financial information does not include one-time
costs directly attributable to the transaction, employee retention costs as per the Agreement that are expected to be paid subject to completion of thirteen months of employment with
Aimetis, as those costs are not considered part of the purchase price, or are not expected to have a continuing impact.
Magal and Aimetis expect to incur costs associated with integrating the operations of their respective businesses. The unaudited pro forma condensed combined financial information
does not reflect the costs of any integration activities or benefits as a result of synergies that might result from the acquisition.
The unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to be indicative of the Company’s financial
position or results of operations which would actually have been obtained had the Acquisition been completed as of the date or for the periods presented, or of the financial position or
results of operations that may be obtained in the future.
Note 2. Estimated Purchase Consideration and Preliminary Purchase Price Allocation
The following table shows a summary of the estimated purchase price:
Cash
Fair value of contingent payment obligation
13,515
77
Total purchase price
13,592
Preliminary purchase price allocation:
The preliminary allocation of the estimated purchase price to the fair values of assets acquired and liabilities assumed includes unaudited pro forma adjustments. The Company has
performed a preliminary valuation analysis of the fair market value of the acquired Aimetis assets and liabilities assumed. Based on the total consideration for the Acquisition, the
Company has estimated the allocations to such assets and liabilities. The preliminary allocation of the estimated purchase price is as follows:
Net current assets (including cash of $2,544)
Technology
Customer relationships
Adjustment to deferred revenue
Deferred tax assets
Deferred tax liabilities
Goodwill
3,179
4,557
335
630
798
(1,463)
5,556
Total purchase price
13,592
Under business combination accounting, the total purchase price was allocated to Aimetis’s net tangible and intangible assets and liabilities based on their estimated fair values as set
forth above. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.
-6-
The fair value of Aimetis assets and liabilities was determined by management, based on the market participant approach with the assistance of an initial valuation drafted study
performed by a third party valuation firm using an income approach and based on estimates and assumptions of management. The preliminary allocation of the purchase price was
based upon managements' preliminary valuation of the fair value of tangible and intangible net assets acquired and liabilities assumed.
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will
be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in
the pro forma adjustments.
Note 3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
A. To record the cash paid for the acquisition and the cash deposited to an escrow account:
Cash paid for the acquisition
Cash deposited to an escrow account for a contingent payment obligation
Cash deposited to an escrow account for retention costs.
(13,515)
(793)
(793)
(15,101)
B. To record the amounts deposited in an escrow account to be distributed in the future accordance with the terms of Agreement.
C. To record the fair value adjustment to Aimetis’s deferred revenues.
D. To record the costs associated with the Acquisition.
E.
To record the fair value of the contingent payment obligation.
F.
To record an adjustment of the deferred tax liability arising from the estimated fair value adjustments for intangibles assets acquired (other than goodwill) and deferred revenue,
offset by deferred tax assets related to acquired tax loss carryforwards.
G.
To record elimination of the preferred shares of Aimetis and Aimetis’s equity upon consolidation.
H. To record amortization of deferred revenues adjustment. Deferred revenues are amortized over their contractual term.
I.
To record amortization of acquired technology. Technology is amortized over its estimated useful life of 7 years using the straight-line method.
J.
To record the ineligibility for SR&ED (Scientific Research and Experimental Development) due to change of control.
K. To record amortization of acquired customer relationships. Customer relationships are amortized over their estimated useful life of 7 years using the accelerated method.
L.
To record the tax impact following Notes (H), (I) and (K) and the income tax benefit related to the adjusted current period loss of Aimetis.
-7-
Exhibit 99.3
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements on Form S-8 (Registration Nos. 333-127340, 333-164696, 333-174127 and 333-190469) of Magal Security Systems
Ltd. of our report dated July 28, 2016, related to the consolidated financial statements of Aimetis Corp. as of and for the year ended December 31, 2015, appearing in this Current Report
on Form 6-K of Magal Security Systems, Ltd.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Kitchener, Canada
August 3, 2016