EX-99 2 exhibit_1.htm EXHIBIT 1 exhibit_1.htm
Exhibit 1
 
 
POINTER TELOCATION LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2013
IN U.S. DOLLARS
UNAUDITED

INDEX


 
 
 
POINTER TELOCATION LTD. AND SUBSIDIARIES
 
INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
 
   
June 30,
    
December 31,
  
   
2013
    
2012
  
   
Unaudited
        
             
ASSETS
            
             
CURRENT ASSETS:
            
Cash and cash equivalents
   $ 2,405     $ 3,685  
Restricted cash
     98       108  
Trade receivables
     18,039       16,215  
Other accounts receivable and prepaid expenses
     2,312       2,069  
Inventories
     4,215       3,982  
                 
Total current assets
     27,069       26,059  
                 
LONG-TERM ASSETS:
                
Long-term accounts receivable
     527       582  
Severance pay fund
     9,812       9,034  
Property and equipment, net
     11,002       10,364  
Investment and long term loans to affiliate
     860       814  
Other intangible assets, net
     1,770       2,242  
Goodwill
     48,610       47,190  
                 
Total long-term assets
     72,581       70,226  
                 
Total assets
   $ 99,650     $ 96,285  
 
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,
  
   
2013
    
2012
  
   
Unaudited
        
             
LIABILITIES AND SHAREHOLDERS' EQUITY
            
             
CURRENT LIABILITIES:
            
Short-term bank credit and current maturities of long-term loans
   $ 9,154     $ 11,129  
Trade payables
     10,965       11,248  
Deferred revenues and customer advances
     8,789       6,954  
Other accounts payable and accrued expenses
     6,955       7,251  
                 
Total current liabilities
     35,863       36,582  
                 
LONG-TERM LIABILITIES:
                
Long-term loans from banks
     8,907       9,339  
Long-term loans from shareholders and others
     1,083       925  
Other long-term liabilities
     4,315       3,765  
Accrued severance pay
     11,075       10,328  
                 
      25,380       24,357  
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, 2013 and December 31, 2012; Issued and outstanding: 5,555,558 shares at June 30, 2013 and December 31, 2012
     3,871       3,871  
Additional paid-in capital
     120,680       120,290  
Accumulated other comprehensive income
     1,429       1,127  
Accumulated deficit
     (93,762 )     (95,540 )
                 
Total Pointer Telocation Ltd's shareholders' equity
     32,218       29,748  
                 
Non-controlling interest
     6,189       5,598  
                 
Total equity
     38,407       35,346  
                 
Total liabilities and shareholders' equity
   $ 99,650     $ 96,285  
 
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,
  
   
2013
    
2012
    
2013
    
2012
    
2012
  
   
Unaudited
        
Revenues:
                              
Products
   $ 15,816     $ 15,516     $ 8,394     $ 7,691     $ 30,402  
Services
     29,564       27,258       14,841       13,475       54,430  
                                         
Total revenues
     45,380       42,774       23,235       21,166       84,832  
                                         
Cost of revenues:
                                        
Products
     9,198       9,280       4,817       4,655       17,988  
Services
     21,343       19,074       10,783       9,647       38,573  
Amortization of intangible assets
     -       121       -       61       181  
                                         
Total cost of revenues
     30,541       28,475       15,600       14,363       56,742  
                                         
Gross profit
     14,839       14,299       7,635       6,803       28,090  
                                         
Operating expenses:
                                        
Research and development
     1,470       1,389       800       673       2,716  
Selling and marketing
     4,894       4,445       2,569       2,186       9,067  
General and administrative
     4,653       4,808       2,370       2,220       9,232  
Amortization of intangible assets
     510       1,005       129       501       1,987  
                                         
Total operating expenses
     11,527       11,647       5,868       5,580       23,002  
                                         
Operating income
     3,312       2,652       1,767       1,223       5,088  
Financial expenses, net
     598       927       260       462       1,628  
Other income (expenses), net
     7       (9 )     1       (2 )     (5 )
                                         
Income before taxes on income
     2,721       1,716       1,508       759       3,455  
Taxes on income (Note 6)
     467       546       303       257       861  
                                         
Income after taxes on income
     2,254       1,170       1,205       502       2,594  
Equity in gains (losses)  gains of affiliate
     182       (81 )     70       (33 )     38  
                                         
Income from continuing operations
     2,436       1,089       1,275       469       2,632  
Loss from discontinued operations, net
     -       700       -       518       995  
                                         
Net income (loss)
   $ 2,436     $ 389     $ 1,275     $ (49 )   $ 1,637  
 
 
4
 
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,
  
   
2013
    
2012
    
2013
    
2012
    
2012
  
   
Unaudited
        
                               
Other comprehensive income (loss):
                              
                               
Currency translation adjustments of foreign operations
   $ 593     $ (921 )   $ (102 )   $ (1,575 )   $ 299  
Realized gains (losses) on derivatives designated as cash flow hedges
     (24 )     (161 )     -       (82 )     224  
Unrealized gains on derivatives designated as cash flow hedges
     -       295       -       32       14  
                                         
Total comprehensive income (loss)
   $ 3,005     $ (398 )   $ 1,173     $ (1,674 )   $ 2,174  
                                         
Profit from continuing operations attributable to:
                                        
Equity holders of the parent
     1,778       722       971       421       1,833  
Non-controlling interests
     658       367       304       48       799  
                                         
      2,436       1,089       1,275       469       2,632  
                                         
Loss from discontinued operations attributable to:
                                        
Equity holders of the parent
     -       357       -       219       630  
Non-controlling interests
     -       343       -       299       365  
                                         
    $ -     $ 700     $ -     $ 518     $ 995  
Total comprehensive income (loss) attributable to:
                                        
Equity holders of the parent
     2,081       (343 )     887        (1,088 )     1,493  
Non-controlling interests
     924       (55 )     286       (586 )     681  
                                         
    $ 3,005     $ (398 )   $ 1,173     $ (1,674 )   $ 2,174  
                                         
Earnings per share attributable to Pointer Telocation Ltd's shareholders:
                                        
Basic net earnings per share
   $ 0.32     $ 0.07     $ 0.17     $ 0.04     $ 0.23  
                                         
Diluted net earnings per share
   $ 0.32     $ 0.07     $ 0.17     $ 0.04     $ 0.23  
 
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
    
Share
    
Additional paid-in
    
Accumulated other comprehensive
    
Accumulated
    
Non-
controlling
    
Total
  
   
shares
    
capital
    
capital
    
income
    
deficit
    
interest
    
equity
  
                                           
Balance as of January 1, 2012
     4,860,024       3,353       119,147       837       (96,743 )     5,207       31,801  
Issuance of shares, net
     694,034       517       1,425       -       -       -       1,942  
Issuance of shares in respect of Stock-based compensation
     1,500       1       4       -       -       -       5  
Purchase of subsidiary
     -       -       -       -       -       133       133  
Stock-based compensation expenses
     -       -       265       -       -       -       265  
Dividend paid to non-controlling interest
     -       -       -       -       -       (1,215 )     (1,215 )
Exercise of options in subsidiary
     -       -       (323 )     -       -       323       -  
Purchase of non controlling interest
     -       -       (228 )     -       -       228       -  
Sale of subsidiary
     -       -       -       -       -       241       241  
Other comprehensive income
     -       -       -       290       -       247       537  
Net income attributable to Non controlling interest
     -       -       -       -       -       434       434  
Net income attributable to Pointer shareholders
     -       -       -       -       1,203       -       1,203  
                                                         
Balance as of December 31, 2012
     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 nine month that ended on June 30, 2013:
 
Accumulated loss on derivative instruments
   $ -  
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.
 
 
6
 
POINTER TELOCATION LTD. AND SUBSIDIARIES
 
INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share data)

         
Pointer Telocation Ltd. shareholders
      
   
Number
of
    
Share
    
Additional paid-in
    
Accumulated other comprehensive
    
Accumulated
    
Non-controlling
    
Total
   
shares
    
capital
    
capital
    
income (loss)
    
deficit
    
interest
    
equity
                                         
Balance as of January 1, 2012
     4,860,024       3,353       119,147       837       (96,743 )     5,207       31,801  
                                                         
Issuance of shares, net
     50,000       39       99       -       -       -       138  
Issuance of shares in respect of Stock-based compensation
     1,500       1       4       -       -       -       5  
Purchase of subsidiary
     -       -       -       -       -       133       133  
Stock-based compensation expenses
     -       -       168       -       -       -       168  
 Exercise of options in subsidiary
     -       -       (323 )     -       -       323       -  
Purchase of non controlling interest
     -       -       (228 )     -       -       228       -  
Other comprehensive income
     -       -       -       (708 )     -       (79 )     (787 )
Net income attributable to Non controlling interest
     -       -       -       -       -       24       24  
Net income attributable to Pointer shareholders
     -       -       -       -       365       -       365  
                                                         
Balance as of June 30, 2012 (unaudited)
     4,911,524       3,393       118,867       129       (96,378 )     5,836       31,847  

Accumulated other comprehensive income for nine month that ended on June 30, 2012:

Accumulated gain on derivative instruments
   $ (78 )
Accumulated foreign currency translation differences, net
     207  
         
Accumulated other comprehensive income
   $ 129  
 
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,
  
   
2013
    
2012
    
2013
    
2012
    
2012
  
   
Unaudited
        
Cash flows from operating activities:
                              
                               
Net income
   $ 2,436     $ 389     $ 1,275     $ (49 )   $ 1,637  
Adjustments required to reconcile consolidated net income to net cash provided by operating activities:
                                        
Depreciation, amortization and impairment
     1,913       3,059       830       1,709       5,546  
Accrued interest and exchange rate
     (19 )     4       5       (10 )     118  
changes of long-term loans to affiliate
     -       28       -       28       -  
Accrued severance pay, net
     (67 )     (45 )     (27 )     (8 )     91  
Gain from sale of property and equipment, net
     (166 )     (124 )     (98 )     (86 )     (271 )
Equity in losses (gains) of affiliate
     (182 )     81       (70 )     33       (38 )
Stock-based compensation
     58       168       25       67       265  
Decrease in restricted cash
     10       6       5       4       15  
Decrease (increase) in trade receivables, net
     (1,478 )     (2,317 )     535       721       (1,572 )
Decrease (increase) in other accounts receivable and prepaid expenses
     (257 )     (641 )     136       (382 )     46  
Decrease (increase) in inventories
     (94 )     883       (59 )     81       732  
Deferred income taxes, net
     432       464       271       100       847  
Decrease  in long-term accounts receivable
     32       233       9       77       234  
Increase  (decrease) in trade payables
     (428 )     973       (250 )     808       965  
Increase (decrease) in other accounts payable and accrued expenses
     1,259       941       (157 )     (527 )     (274 )
Net cash provided by operating activities
     3,449       4,102       2,430       2,566       8,341  
                                         
Cash flows from investing activities:
                                        
Purchase of property and equipment
     (2,436 )     (2,398 )     (1,409 )     (1,091 )     (4,033 )
Proceeds from sale of property and equipment
     798       746       128       314       1,733  
Investment and loans/Repayments in affiliate, net
     66       (717 )     34       12       (669 )
Acquisition of subsidiary (a)
     -       (251 )     -       -       (251 )
Purchase of business activity (b)
     -       (3,125 )     -       -       (3,125 )
                                         
Net cash used in investing activities
     (1,572 )     (5,745 )     (1,247 )     (765 )     (6,345 )
                                         
Cash flows from financing activities:
                                        
Receipt of long-term loans from banks
     3,681       7,637       2,333       4,456       11,670  
Repayment of long-term loans from banks
     (5,598 )     (5,658 )     (2,420 )     (3,051 )     (12,253 )
Dividend paid to non-controlling interest
     -       -       -       -       (1,215 )
Proceeds from issuance of shares
     -       143       -       138       1,947  
Short-term bank credit, net
     (1,046 )     263       (670 )     (1,867 )     (347 )
                                         
Net cash provided by (used in) financing activities
     (2,963 )     2,385       (757 )     (324 )     (198 )
                                         
Effect of exchange rate changes on cash and cash equivalents
     (194 )     125       (351 )     94       419  
Increase (decrease) in cash and cash equivalents
     (1,280 )     867       75       1,571       2,217  
Cash and cash equivalents at the beginning of the period
     3,685       1,468       2,330       764       1,468  
                                         
Cash and cash equivalents at the end of the period
   $ 2,405     $ 2,335     $ 2,405     $ 2,335     $ 3,685  
 
 
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,
  
     
2013
    
2012
    
2013
    
2012
    
2012
  
     
Unaudited
        
(a)
Acquisition of subsidiary:
                              
                                 
 
Property and equipment
   $ -     $ 22     $ -     $ -     $ 22  
 
Technology
     -       58       -       -       58  
 
Goodwill
     -       304       -       -       304  
 
Non controlling Interest
     -       (133 )     -       -       (133 )
                                           
      $ -     $ 251     $ -     $ -     $ 251  
                                           
(b)
Purchase of business activity:
                                        
 
Working capital
   $ -     $ 27     $ -     $ -     $ 27  
 
Property and equipment
     -       112       -       -       112  
 
Customer list
     -       1,364       -       -       1,364  
 
Goodwill
     -       1,669       -       -       1,669  
 
Accrued severance pay, net
     -       (23 )     -       -       (23 )
 
Employees accruals
     -       (24 )     -       -       (24 )
                                           
      $ -     $ 3,125     $ -     $ -     $ 3,125  
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 
9
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 1:
SIGNIFICANT ACCOUNTING POLICIES

 
a.
Unaudited interim financial information:

The accompanying consolidated balance sheet as of June 30, 2013, consolidated statements of operations for the three and six months ended June 30, 2013 and 2012 and consolidated statements of cash flows for the three and six months ended June 30, 2013 and 2012 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, 2013, the Company's consolidated results of operations for the three and six months ended June 30, 2013 and 2012 and the Company's consolidated cash flows for the three and six months ended June 30, 2013 and 2012.
 
The balance sheet at December 31, 2012 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, 2012 included in the Company's Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission ("SEC") on March 19, 2013.
 
Results for the three and six months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ending December 31, 2013.

 
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.

 
10
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 1:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
c.
In November 2011, Shagrir, together with T.M.C. Transportation Ltd. ("TMC"), signed an agreement for the establishment of a limited partnership, TMC Systems, LP ("the partnership"). Shagrir holds 51% of the partnership's capital. The activities of TMC were transferred to the partnership. The partnership was established at January 1 2012.
 
The partnership engages in the solutions for management, control and collection of travel fares from taxis and transportation service fleets.
 
Shagrir granted a shareholders' loan to the partnership in an amount of NIS 2.5 million. This loan carries an annual interest rate of prime plus 4%.

On August 1, 2012, Shagrir signed an agreement to sell the partnership’s entire share capital to Gastech Mobile Communication solution Ltd. for its par value. In addition, Shagrir sold the rights to receive payments from a loan which Shagrir had provided to the partnership in the amount of NIS 2.5 million including interest and linkage to the Israeli CPI for NIS 1 million. As a result the partnership's results are presented as loss from discontinued operations on consolidated statement of income.

The following table presents the results from discontinued operations:
 
   
Period ended
June 1
2012
    
Period ended
August 1
2012
  
             
Revenues
     2       3  
Cost of revenues
     120       143  
                 
Gross loss
     (118 )     (140 )
                 
Operating expenses:
                
Sales and marketing
     48       60  
General and administrative
     165       181  
Impairment of goodwill and intangible asset
     354       348  
                 
Operating loss
     (684 )     (729 )
                 
Financial expense, net
     16       18  
                 
Net loss
     (700 )     (747 )


 
*) 
As a result of the partnership's sale a loss was recorded in the amount of $248, and is considered to be a loss on discontinued operation.
 
**)
Cash flow from discontinued operation was immaterial and as such no discontinued operation presented on the cash flow statement.
 
 
11
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 1:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
d.
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.

NOTE 2:-
INVENTORIES

   
June 30,
    
December 31,
  
   
2013
    
2012
  
   
Unaudited
        
             
Raw materials
   $ 1,681     $ 2,060  
Work in process
     284       135  
Finished goods
     2,250       1,787  
                 
    $ 4,215     $ 3,982  
 
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 $ 3,196, in effect until April 2017.

 
2.
The Company obtained bank guarantees in the amount of $ 108 in favor of its lessor and customs.

 
3.
As of June 30, 2013, the use of $ 98 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, 2013 is $ 2,473. No royalties were accrued or paid during 2013 and 2012.

 
12
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 3:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 
d.
Litigation:

As of June 30, 2013, several claims were filed against Shagrir, mainly by customers. The claims are in an amount aggregating to approximately $ 341. 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), have entered into a management services agreement pursuant to which DBSI shall provide management services in consideration of annual management fees of $ 180 for a period of three years commencing on August  1, 2011.

 
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. The Company and Shagrir will negotiate to renew the agreement prior to its expiry during 2013
 
 
3.
Shagrir entered into a management services agreement with its shareholders, pursuant to which the shareholders will grant management services to the Shagrir, in consideration of NIS 1 million per year. This amount is split between the Company (NIS 0.12 million) and the other shareholders of Shagrir.
 
 
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 Cellocator, 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 5 in 2008, 4.5 in 2009 and 4 in 2010 and thereafter.

 
13
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 3:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 
3.
The ratio of the Company’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 in 2008, 3.5 in 2009 and 2.5 in 2010 and thereafter.

As of June 30, 2013 the Company is in compliance and expects to remain in compliance with the financial covenants of our credit facilities in 2013.

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.

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

 
4.
Shagrir will not decide on any distribution of dividends in Shagrir without prior written consent from the bank. Shagrir received such consent from the bank prior to its dividend distribution in May and September 2009.

As of June 30, 2013, Shagrir is in compliance and expect to remain in compliance with the financial covenants of its credit facility in 2013.

 
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. Nonetheless, management has recorded a provision for the full amount (i.e capital plus interest for $193) that were recorded as of June 30, 2013.

 
14
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 4:-
NET EARNINGS (LOSS) PER SHARE

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

   
Six months ended
June 30,
    
Three months ended
June 30,
    
Year ended
December 31,
  
   
2013
    
2012
    
2013
    
2012
    
2012
  
   
Unaudited
        
Numerator:
                              
Numerator for basic net earnings per share - Net income from continuing operations
   $ 1,778     $ 722     $ 971     $ 421     $ 1,833  
Effect of diluting securities
     -       -       -       -       -  
                                         
Numerator for diluted net earnings per share - Net income from continuing operations
   $ 1,778     $ 722     $ 971     $ 421     $ 1,833  
                                         
Denominator:
                                        
                                         
Denominator for basic net earnings per share - weighted-average number of shares outstanding (in thousands)
     5,556       4,865       5,556       4,868       5,166  
Effect of diluting securities (in thousands)
     -       -       -       -       -  
      5,556       4,865       5,556       4,868       5,166  
Denominator for diluted net earnings per share - adjusted weighted average shares and assumed exercises (in thousands)
                                        
                                         
Basic net earnings per share from continuing operations
   $ 0.32     $ 0.14     $ 0.17     $ 0.08     $ 0.35  
                                         
Diluted net earnings per share from continuing operations
   $ 0.32     $ 0.14     $ 0.17     $ 0.08     $ 0.35  

 
15
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 4:-
NET EARNINGS (LOSS) PER SHARE (Cont)

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

   
Six months ended
June 30,
    
Three months ended
June 30,
    
Year ended
December 31,
  
   
2013
    
2012
    
2013
    
2012
    
2012
  
   
Unaudited
        
Numerator:
                              
Numerator for basic net earnings per share - Net loss from discontinuing operations
   $ -     $ (357 )   $ -     $ (219 )   $ (630 )
Effect of diluting securities
     -       -       -       -       -  
                                         
Numerator for diluted net earnings per share - Net loss from continuing operations
   $ -     $ (357 )   $ -     $ (219 )   $ (630 )
                                         
Denominator:
                                        
                                         
Denominator for basic net earnings per share - weighted-average number of shares outstanding (in thousands)
     -       4,865       -       4,868       5,166  
Effect of diluting securities (in thousands)
     -       -       -       -       -  
Denominator for diluted net earnings per share - adjusted weighted average shares and assumed exercises (in thousands)
     -       4,865       -       4,868       5,166  
                                         
Basic net loss per share from discontinuing operations
   $ -     $ (0.07 )   $ -     $ (0.04 )   $ (0.12 )
                                         
Diluted net loss per share from discontinuing operations
   $ -     $ (0.07 )   $ -     $ (0.04 )   $ (0.12 )
 
NOTE 5:-
INCOME TAXES

The effective tax rate for the six-months ended June 30, 2013 was 17% as compared to 20% for the six months ended June 30, 2012. The effective tax rate for the six months ended June 30, 2013 and June 30, 2012 was impacted mainly due to utilization of previously unrecognized tax losses.
 
 
16
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 6:-
BALANCES AND TRANSACTIONS WITH RELATED PARTIES

 
a.
Balances with related parties:

   
June 30,
    
December 31,
  
   
2013
    
2012
  
   
Unaudited
        
             
Other accounts payable and accrued expenses:
            
DBSI (see Note 3e(1))
   $ 52     $ 52  
                 
    $ 52     $ 52  
 
 
b.
Transactions with related parties:

   
Six months ended
June 30,
    
Three months ended
June 30,
    
Year ended
December 31,
  
   
2013
    
2012
    
2013
    
2012
    
2012
  
   
Unaudited
        
                               
Management fees to DBSI (see Note 3e(1))
   $ 90     $ 90     $ 45     $ 45     $ 180  
Sales to affiliate
   $ 361     $ 822     $ 232     $ 458     $ 1,187  
 
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, 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.
 
 
17
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
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  

 
c.
The following presents segment results of operations for the six months ended June 30, 2012 (unaudited):

   
Cellocator
segment
    
Pointer
segment
    
Total
  
                   
Segments revenues
   $ 10,752     $ 34,959     $ 45,711  
Intersegments revenues
     (2,936 )     -       (2,936 )
                         
Revenues from external customers
   $ 7,816     $ 34,959     $ 42,775  
                         
Segments operating profit (loss)
   $ (386 )   $ 2,842     $ 2,456  
                         
Segments assets
   $ 16,585     $ 78,321     $ 94,906  

The Pointer segment revenues include revenue from services in the amount of $ 27.

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
   $ 2,456  
Intercompany gains on intersegment sales
     196  
         
Operating income
   $ 2,652  
         
Segments assets
   $ 94,906  
Intercompany elimination
     (1,393 )
         
Total assets
   $ 93,513  
 
 
18
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 7:-
SEGMENT INFORMATION (Cont.)

 
d.
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 $ 15.

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  
 
 
e.
The following presents segment results of operations for the three months ended June 30, 2012 (unaudited):

   
Cellocator
segment
    
Pointer
segment
    
Total
  
                   
Segments revenues
   $ 5,199     $ 17,225     $ 22,424  
Intersegments revenues
     (1,257 )     -       (1,257 )
                         
Revenues from external customers
   $ 3,942     $ 17,225     $ 21,167  
                         
Segments operating profit (loss)
   $ (1,093 )   $ 2,185     $ 1,092  
                         
Segments assets
   $ 16,585     $ 78,321     $ 94,906  

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

 
19
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
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
   $ 1,092  
Intercompany gains on intersegment sales
     131  
         
Operating income
   $ 1,223  
         
Segments assets
   $ 94,906  
Intercompany elimination
     (1,393 )
         
Total assets
   $ 93,513  
 
 
f.
The following presents segment results of operations for the year ended December 31, 2012:

   
Cellocator
segment
    
Pointer
segment
    
Total
  
                   
                   
Segments revenues
   $ 22,660     $ 68,540     $ 91,200  
Intersegments revenues
     (6,368 )     -       (6,368 )
                         
Revenues from external customers
   $ 16,292     $ 68,540     $ 84,832  
                         
Segments operating profit
   $ 1,731     $ 3,015     $ 4,746  
                         
Segments assets
   $ 12,522     $ 85,003     $ 97,525  
                         
Depreciation and amortization expenses
   $ 561     $ 4,985     $ 5,546  
                         
Expenditures for assets
   $ 156     $ 3,877     $ 4,033  

The Pointer segment revenues include revenue from services in the amount of $ 54.

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
   $ 4,746  
Intercompany losses on intersegment sales
     342  
         
Operating income
   $ 5,088  
         
Segments assets
   $ 97,525  
Intercompany elimination
     (1,240 )
         
Total assets
   $ 96,285  
 
 
20
 
 
POINTER TELOCATION LTD. AND ITS SUBSIDIARIES
 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
 
NOTE 8:-
SUBSEQUENT EVENTS

 
a.
On July 30, 2013, the Israeli Parliament (the Knesset) approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget Law") which consists of, among others, fiscal changes whose main aim is to enhance the long-term collection of taxes.

These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5%, cancelling the lowering of the tax rates applicable to preferred enterprises (9% in development area A and 16% in other areas), taxing revaluation gains and increasing the tax rates on dividends within the scope of the Law for the Encouragement of Capital Investments to 20% effective from January 1, 2014.

The deferred tax balances included in the financial statements as of June 30, 2013 are calculated according to the tax rates that were in effect as of the balance sheet date and do not take into consideration the possible effects of the Amended Budget Law. These effects will be included in the financial statements starting from the actual enactment date, namely in the third quarter of 2013.

The Company examines the effect of the change in tax rates on the deferred tax balances as of June 30, 2013.

 
b.
On September 12, 2013, a shareholders meeting of the Company approved a Compensation Policy for the Company's directors and officers.

 
c.
On July 8, 2013, the Board of Directors approved a compensation plan for senior executive and employees of the Company that includes performance based grant and share based stock options convertible to 312,984 of the Company's ordinary shares. The option vesting period is 2-4 years.
 
 
d.
On September 16, 2013, the Company signed an agreement to acquire 51.2% of the issued share capital of Pointer do Brasil Comercial S.A. ("Pointer Brasil"). Following the completion of the transaction Pointer will hold 100% of the issued share capital of Pointer Brasil. The closing of the transaction is expected to take place in October 2013. In consideration for the shares the Company will pay approximately US$ 4.3 million in cash, for which it is to receive financing from banks, and shall repay loans to the selling shareholder and to a local bank, over a period of eighteen months, in an aggregate amount of approximately US$ 1.2 million.

21