EX-99.1 2 exhibit_99-1.htm EXHIBIT 99.1
 
Exhibit 99.1
 
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
AS OF JUNE 30, 2016

U.S. DOLLARS IN THOUSANDS

UNAUDITED
 
INDEX

 
Page
   
Condensed Interim Consolidated Balance Sheets
F-2 - F-3
   
Condensed Interim Consolidated Statements of Operations
F-4
   
Condensed Interim Consolidated Statements of Comprehensive Loss
F-5
   
Condensed Interim Consolidated Statements of Changes in Equity
F-6
   
Condensed Interim Consolidated Statements of Cash Flows
F-7 - F-8
   
Notes to Condensed Interim Consolidated Financial Statements
F-9 - F-21


RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)

   
June 30,
2016
    
December 31,
2015
  
   
Unaudited
        
             
ASSETS
            
             
CURRENT ASSETS:
            
Cash and cash equivalents
  
$
2,067
    
$
1,754
  
Restricted deposits
    
602
      
609
  
Trade receivables (net of allowance for doubtful accounts of  $10 at June 30, 2016 and December 31, 2015)
    
2,932
      
4,038
  
Costs and estimated earnings in excess of billings on uncompleted contracts (Note 4)
    
2,184
      
2,207
  
Other accounts receivable and prepaid expenses
    
498
      
206
  
Inventories (Note 5)
    
7,042
      
6,565
  
                 
Total current assets
    
15,325
      
15,379
  
                 
LONG-TERM RECEIVABLES AND OTHER DEPOSITS
    
57
      
119
  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    
3,074
      
3,078
  
                 
Total assets
  
$
18,456
    
$
18,576
  

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
F - 2
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY
 
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)

   
June 30,
2016
    
December 31,
2015
  
   
Unaudited
        
             
LIABILITIES AND SHAREHOLDERS' EQUITY
            
             
CURRENT LIABILITIES:
            
Bank credit
  
$
1,322
    
$
2,416
  
Trade payables
    
1,289
      
1,961
  
Convertible Note and Loans from shareholders, net (Note 7)
    
102
      
1,634
  
Other accounts payable and accrued expenses
    
2,858
      
2,846
  
                 
Total current liabilities
    
5,571
      
8,857
  
                 
LONG-TERM LIABILITIES:
                
Convertible Note and Loans from shareholders, net (Note 7)
    
3,052
      
-
  
Accrued severance pay and other long term liability
    
671
      
660
  
                 
Total long-term liabilities
    
3,723
      
660
  
                 
EQUITY:
                
Share capital (Note 9) -
                
Ordinary shares of NIS 0.015 par value - Authorized: 75,000,000 shares at June 30, 2016 and 30,000,000 shares at December 31, 2015; Issued and outstanding: 32,920,241 at June 30, 2016 and 15,898,965 at December 31, 2015, respectively.
    
213
      
146
  
Additional paid-in capital
    
85,961
      
82,427
  
Accumulated other comprehensive income
    
329
      
387
  
Accumulated deficit
    
(77,874
)
    
(74,453
)
                 
Total RADA Electronic Industries shareholders' equity
    
8,629
      
8,507
  
                 
Non-controlling interest
    
533
      
552
  
                 
Total equity
    
9,162
      
9,059
  
                 
Total liabilities and equity
  
$
18,456
    
$
18,576
  

The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
F - 3
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY
 
CONDENSED  INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
U.S. dollars in thousands (except share and per share data)

   
Six months ended
June 30,
  
   
2016
    
2015
  
             
Revenues:
            
Products
  
$
4,479
    
$
6,498
  
Services
    
1,102
      
1,226
  
                 
     
5,581
      
7,724
  
Cost of revenues:
                
Products
    
4,823
      
5,823
  
Services
    
454
      
584
  
     
5,277
      
6,407
  
                 
Gross profit
    
304
      
1,317
  
                 
Operating costs and expenses:
                
Research and development,
    
316
      
399
  
Marketing and selling
    
1,060
      
1,086
  
General and administrative
    
950
      
832
  
                 
Total operating costs and expenses
    
2,326
      
2,317
  
                 
Operating loss
    
(2,022
)
    
(1,000
)
                 
Extinguishment and amortization of shareholders' convertible loans discount and beneficial conversion feature
    
1,096
      
1,223
  
 Other financial expenses, net
    
307
      
559
  
Total financial expenses, net (Note 10)
    
1,403
      
1,782
  
                 
Net loss
    
(3,425
)
    
(2,782
)
                 
Less: Net loss attributable to non-controlling interest
    
(4
)
    
(4
)
                 
Net loss attributable to Rada Electronic Industries' shareholders
  
$
(3,421
)
  
$
(2,778
)
                 
 Basic and Diluted net loss per Ordinary share
  
$
(0.12
)
  
$
(0.31
)
 Weighted average number of Ordinary shares used for computing basic and diluted net loss  per share
    
28,992,254
      
8,988,396
  

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

F - 4
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
U.S. dollars in thousands (except share and per share data)

   
Six months ended
June 30,
  
   
2016
    
2015
  
             
Net loss
  
$
(3,425
)
  
$
(2,782
)
Other comprehensive loss, net:
                
Change in foreign currency translation adjustment
    
(73
)
    
19
  
Total comprehensive loss
    
(3,498
)
    
(2,763
)
Less: comprehensive income (loss) attributable to non-controlling interest
    
(19
)
    
-
  
Comprehensive income (loss) attributable to RADA ElectronicIndustries' shareholders
  
$
(3,479
)
  
$
(2,763
)
 
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
F - 5
 
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands (except share data)
 
                   
Accumulated
                    
   
Number of Ordinary
    
Share
    
Additional paid-in
    
other comprehensive
    
Accumulated
    
Non controlling
    
Total
  
   
shares
    
capital
    
capital
    
income (loss)
    
deficit
    
interest
    
equity
  
                                           
Balance at January 1, 2015
    
8,988,396
    
$
119
    
$
70,884
    
$
536
    
$
(67,992
)
  
$
625
    
$
4,172
  
Issuance of Ordinary shares, net of issuance costs of $1,070
    
6,910,569
      
27
      
7,403
      
-
      
-
      
-
      
7,430
  
Beneficial conversion feature related to convertible loans from shareholders (Note 7)
    
-
      
-
      
4,140
      
-
      
-
      
-
      
4,140
  
Net loss
    
-
      
-
      
-
      
-
      
(6,461
)
    
(36
)
    
(6,497
)
Other comprehensive loss
    
-
      
-
      
-
      
(149
)
    
-
      
(37
)
    
(186
)
                                                         
Balance at December 31, 2015
    
15,898,965
    
$
146
    
$
82,427
    
$
387
    
$
(74,453
)
  
$
552
    
$
9,059
  
                                                         
Beneficial conversion feature related to convertible loans from shareholders (Note 7)
    
-
      
-
      
123
 
    
-
      
-
      
-
      
123
 
Extinguishment of convertible loan
    
-
      
-
      
(359
 )     
-
      
-
      
-
      
(359
 ) 
Share-based compensation to employees
                    
5
      
-
      
-
      
-
      
5
  
Issuance of shares and warrants, net of issuance costs of $169
    
17,021,276
    
$
67
      
3,765
      
-
      
-
      
-
      
3,832
  
Net loss
    
-
      
-
      
-
      
-
      
(3,421
)
    
(4
)
    
(3,425
)
Other comprehensive loss
    
-
      
-
      
-
      
(58
)
    
-
      
(15
)
    
(73
)
                                                         
Balance at June 30, 2016 (unaudited)
    
32,920,241
    
$
213
    
$
85,961
    
$
329
    
$
(77,874
)
  
$
533
    
$
9,162
  

The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
F - 6
 
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
U.S. dollars in thousands

   
Six months ended
June 30,
  
   
2016
    
2015
  
       
Cash flows from operating activities:
            
Net loss
  
$
(3,425
)
  
$
(2,782
)
                 
Adjustments required to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
    
302
      
338
  
Extinguishment and amortization expenses related to beneficial conversion feature of convertible loans
    
1,096
      
1,223
  
Severance pay, net
    
25
      
58
  
Share-based compensation to employees
    
5
      
-
  
Decrease (increase) in trade receivables, net
    
1,106
      
(995
)
Increase in other accounts receivable and prepaid expenses
    
(299
)
    
(173
)
Decrease in costs and estimated earnings in excess of billings, net
    
23
      
850
  
Increase in inventories
    
(490
)
    
(48
)
Increase (Decrease) in trade payables
    
(702
)
    
711
  
Increase (Decrease)in other accounts payable and accrued expenses
    
(2
)
    
413
  
                 
Net cash used by operating activities
    
(2,361
)
    
(405
)
                 
Cash flows from investing activities:
                
Change in restricted cash, net
    
71
      
-
  
Purchase of property, plant and equipment
    
(253
)
    
(144
)
Increase (decrease) in long-term receivables and deposits
    
6
      
(11
)
                 
Net cash used in investing activities
    
(176
)
    
(155
)
                 
Cash flows from financing activities:
                
Proceeds from (repayment of) short-term bank credit, net
    
(1,094
)
    
341
  
Repayments of  shareholder convertible loan
    
(2,988
)
    
-
  
Issuance of shares and warrants, net
    
3,832
      
-
  
Proceeds from  shareholder convertible loan
    
3,175
      
-
  
                 
Net cash provided by financing activities
    
2,925
      
341
  
                 
Effect of exchange rate changes on cash and cash equivalents
    
(75
)
    
8
  
                 
Increase (decrease) in cash and cash equivalents
    
313
      
(211
)
Cash and cash equivalents at the beginning of the period
    
1,754
      
1,786
  
                 
Cash and cash equivalents at the end of the period
  
$
2,067
    
$
1,575
  
 
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
F - 7
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
U.S. dollars in thousands

      
Six months ended
June 30,
  
     
2016
    
2015
  
         
(a)
Supplemental disclosures of cash flow activities:
            
               
 
Net cash paid during the period for income taxes
  
$
8
    
$
8
  
                   
 
Net cash paid during the period for interest
  
$
273
    
$
22
  
                   
(b)
Non-cash transactions
                
                   
 
Purchase of property, plant and equipment in credit
  
$
30
    
$
6
  
 
Transfer of inventory to property, plant and equipment
  
$
13
    
$
260
  

The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
F - 8
 
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

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

NOTE 1:-         GENERAL
 
a. RADA Electronic Industries Ltd. (the "Company") is an Israeli based defense electronics contractor that specialize in the development, manufacture and sale of data recording and management systems (such as digital video and data recorders, ground debriefing stations, head-up display cameras), inertial navigation systems for air and land applications, avionics solutions (such as aircraft upgrades, avionics for unmanned aircraft vehicles, ("UAVs"), store management systems and interface computers) and land radar for defense forces and border protection applications (active protective systems for armored fighting vehicles, hostile fire detection and perimeter surveillance). The Company also provides test and repair services using its CATS testers and test program sets for commercial aviation electronic systems mainly through its Chinese subsidiary.

The Company operates a test and repair shop using its Automated Test Equipment ("ATE") products in Beijing, China, through its 80% owned Chinese subsidiary, Beijing Huari Aircraft Components Maintenance and Services Co. Ltd. ("CACS" or the "subsidiary"). CACS was established with a Chinese third party, which owns the remaining 20% equity interest.

The Company is organized and operates as one operating segment.

b.
Revenues from major customers accounted for 46% and 64% of total revenues for the six month periods ended June 30, 2016 and 2015, respectively (see Note 11c).

c. Liquidity and Capital Resources:

Since incorporation, the Company incurred an accumulated deficit of $77,874.

On May 15, 2016, the Company's shareholders approved an investment transaction with a new investor (the "Investor") according to which the investor has become a controlling shareholder of the Company and the Company issued 17,021,276 Ordinary shares, in consideration for the aggregate amount of approximately $4,000, or a price per each share of $0.235 (the "Initial Investment”). The Company have also issued to the Investor, warrants to purchase: (i) 8,510,638 additional Ordinary shares at an exercise price per Ordinary share of $0.235 (resulting in an aggregate exercise price of $2,000) exercisable for a period of 24 months following the date of the Initial Investment and (ii) warrants to purchase an additional 7,272,727 Ordinary shares at an exercise price per Ordinary share of $0.275 (resulting in an aggregate exercise price of $2,000) exercisable for a period of 48 months following the date of the Initial Investment (collectively: the "Warrants").

F - 9
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

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

NOTE 1:- GENERAL (Cont.)

In addition, as part of the investment transaction, the Investor has agreed to grant the Company an option, exercisable in the discretion of either the Investor or the Company, to obtain a convertible loan from the Investor in the principal amount of up to $3,175, which may be used solely for the purpose of the repayment of the outstanding convertible loan and accrued interest to existing shareholders due on August 31, 2016.
 
During the term of the loan, the Investor will have the right, but not the obligation, at its sole discretion, to convert the then remaining convertible loan amount into Ordinary shares, par value NIS 0.015, at a price per share equal to the lower of: (i) $1.20, or (ii) a five percent (5%) discount to the FMV (the average of the closing prices of the Company's Ordinary shares over the 5 consecutive trading days ending on the last trading day prior to the date of conversion), but in no event less  than $0.235.
 
On June 16, 2016, the Company obtained the loan from the Investor and repaid the outstanding loan balance in the amount of $2,988 including accrued interest of $247 to its former controlling shareholder.

As of June 30, 2016 , the Company's cash position (cash and cash equivalents) totaled approximately $2,067. The Company’s current operating plan includes various assumptions concerning the level and timing of cash receipts from existing and anticipated orders in 2016, current credit facilities available, the abovementioned Initial Investment and cash outlays for operating expenses and capital expenditures. Management believes that these funds, together with its existing operating plan, are sufficient for the Company and its subsidiary to meet its obligations as they come due and to support its operations into the third quarter of 2017.

NOTE 2:- UNAUDITED INTERIM FINANCIAL INFORMATION

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments except as otherwise discussed) considered necessary for a fair presentation have been included
 
Operating results for the three and six month periods ended June 30, 2016, are not  necessarily indicative of the results that may be expected for the year ending December 31, 2016.

F - 10
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements of the Company as of December 31, 2015, set forth in the Company's Annual Report on Form 20-F as filed with the U.S. Securiteis and Exchange Commission on May 16, 2016, except for the following:

a. Accounting for share-based compensation:
 
The Company accounts for share-based payment in accordance with ASC 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's statement of operations.

The fair value for the Company's stock options granted to employees and directors was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
 
   
Six months ended June 30,
    
Six months ended June 30,
  
   
2016
    
2015
  
             
Dividend yield
  
0%
  
-
  
Risk-free interest rate
  
1.17%
  
-
  
Expected term (in years)
  
4.5
    
-
  
Volatility
  
76.13%
  
-
  
Forfeiture rate
  
10%
  
-
  
 
The dividend yield assumption is based on the Company's historical and expectation of future dividend payouts and may be subject to changes in the future.

The computation of expected volatility is based on realized historical share price volatility of the Company's share.

The risk-free interest rate assumption is the implied yield currently available on the U.S treasury yield zero-coupon issues with a remaining term equal to the expected life term of the Company's options.

The expected term of the options represents the period of time that the options are expected to be outstanding and is based on the simplified method, as allowed under Staff Accounting Bulleting No. 110, which is the mid point between the vesting date and the end of the contractual of the option.

F - 11
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
b. Recently Issued Accounting Standards:
 
ASU 2016-09 - Stock Compensation (Topic 718):
In March 2016, the FASB issued ASU 2016-9, “Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting”. This guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.
 
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606):
In April 2016, the FASB issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity's promise to grant a license with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The guidance is effective for the interim and annual periods beginning on or after December 15, 2017, or January 1, 2018, for the Company (early adoption is permitted for the interim and annual periods beginning on or after December 15, 2016). The guidance permits the use of either a retrospective or cumulative effect transition method. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.
 
NOTE 4:- CONTRACTS IN PROGRESS

Amounts included in the financial statements, which relate to costs and estimated earnings in excess of billings on uncompleted contracts are classified as assets. Billings in excess of costs and estimated earnings on uncompleted contracts are classified as liabilities. Summarized below are the components of the amounts:

Costs and estimated earnings in excess of billings on uncompleted contracts:

   
June 30,
    
December 31,
  
   
2016
    
2015
  
   
Unaudited
        
             
Costs incurred on uncompleted contracts
  
$
20,032
    
$
19,167
  
Estimated earnings
    
6,755
      
6,465
  
                 
     
26,787
      
25,632
  
                 
Less - billings and progress payments
    
24,603
      
23,425
  
                 
Costs and estimated earnings in excess of billings on uncompleted contracts
  
$
2,184
    
$
2,207
  

F - 12
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 5:- INVENTORIES

   
June 30,
    
December 31,
  
   
2016
    
2015
  
   
Unaudited
        
             
Raw materials and components
  
$
3,030
    
$
3,169
  
Work in progress, net *)
    
2,763
      
2,087
  
Finished goods
    
1,249
      
1,309
  
                 
   
$
7,042
    
$
6,565
  

*) Net of provision for losses on long-term contracts as of June 30, 2016 and December 31, 2015, in the amount of $27 and $27, respectively.

NOTE 6:- FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures its financial instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

 Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
 
 Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.

F - 13
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 6:- FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.)

The carrying amount of cash and cash equivalents, restricted deposits, trade receivables, other accounts receivable, bank credit and current maturities of long term loans, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments.

Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The following table presents the Company's assets measured at fair value on a recurring basis at June 30, 2016 and 2015:
 
   
June 30, 2016
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Derivatives:
                        
                         
Foreign currencies derivatives
  
$
-
    
$
3
    
$
-
    
$
3
  
                                 
Total
  
$
-
    
$
3
    
$
-
    
$
3
  
 
   
June 30, 2015
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Derivatives:
                        
                         
Foreign currencies derivatives
  
$
-
    
$
56
    
$
-
    
$
56
  
                                 
Total
  
$
-
    
$
56
    
$
-
    
$
56
  
 
NOTE 7:- BANK CREDIT AND LOANS

A. Loans and convertable note from shareholders:
 
    June 30,     December 31,  
   
2016
    
2015
  
   
Unaudited
        
             
Convertible note from shareholders
  
$
3,277
    
$
3,090
  
Less: debt discount
    
(123
)
    
(1,456
)
                 
   
$
3,154
    
$
1,634
  
 
In May 2016, as part of the investment transaction (see Note 1c), the Investor has agreed to grant the Company an option, exercisable in the discretion of either the Investor or the Company, to obtain a convertible loan from the Investor in the principal amount of up to $3,175, which may be used solely for the purpose of the repayment of the outstanding convertible loan and accrued interest to existing shareholders due on August 31, 2016.
F - 14
 
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

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

NOTE 7:-
BANK CREDIT AND LOANS (Cont.)

A. Lons and convertable note from shareholders (Cont.):
 
On June 16, 2016, the Company obtained the loan from the Investor and repaid an outstanding loan balance in the amount of $2,988 including accrued interest of $247 to its former controlling shareholder.

The convertible loan bears interest of LIBOR+6%, which shall be paid on a quarterly basis.
 
During the term of the loan, the Investor will have the right, but not the obligation, at its sole discretion, to convert the then remaining convertible loan amount into Ordinary shares, par value NIS 0.015, at a price per share equal to the lower of: (i) $1.20, or (ii) a five percent (5%) discount to the FMV (the average of the closing prices of the Company's Ordinary shares over the 5 consecutive trading days ending on the last trading day prior to the date of conversion), but in no event less  than $0.235.
 
The Company accounted for the repayment of the then outstanding loan as extinguishment of convertible debt instrument with beneficial conversion feature in accordance with ASC 470-20-40-3. As a result, the Company recorded the amount  of the requisition price to be allocated to the repurchase of the beneficial conversion feature in the amount of $359 against additional-paid-in capital and recognized a loss from extuinguishment of $37. In addition, the Company recorded  a beneficial conversion feature related to the June 2016  convertible loan as debt discount in the amount of $123. The discount is amortized over the term of the convertible loan using the interest method.
 
B. Bank Credit:
 
    June 30,     December 31,  
   
2016
    
2015
  
   
Unaudited
        
Bank Credit
  
$
1,322
    
$
2,416
  

The Company has an annual line of bank credit of $750 which was fully utilized as of June 30, 2016, and a line of credit for customers performance guarantees of approximately $625. As of June 30, 2016 the Company utilized $646.

In addition, the Company may secure borrowing with one of its banks against specific accounts receivables of up to $2,250. As of June 30, 2016, the Company secured borrowings against specific accounts receivables in the amount of $546 and short term loan of $26.

The annual average interest rate on the lines of credit is 3.5% at June 30, 2016.
 
The guarantees are secured by a first priority floating charge on all of the Company's assets and by a fixed charge on goodwill (intangible assets), unpaid share capital and insurance rights (rights to proceeds on insured assets in the event of loss).

The agreements with the banks prohibit the Company from: (i) selling or otherwise transferring any assets except in the ordinary course of business, (ii) placing a lien on the Company's assets without the bank's consent, or (iii) declaring dividend to its shareholders

F - 15
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES
 
a. The Company's research and development efforts have been partially financed through royalty-bearing programs sponsored by the Office of the Chief Scientist of Israel ("OCS"). In return for the OCS's participation, the Company is committed to pay royalties at a rate ranging from 3% to 5% of sales of the products whose research was supported by grants received from the OCS, up to 100% of the amount of such participation received linked to the U.S. dollar. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. As of June 30, 2016, the Company received total grants from the OCS in the amount of $5,545 including LIBOR interest. The total amount of royalties charged to operations for the priode ended June 30, 2016 and 2015 was approximately $50 and $28, respectively. As of June 30, 2016, the Company's contingent liability for royalties, net of royalties paid or accrued, totaled approximately $1,471. Research and development grants received from the OCS, amounted to $0, $0 in the period ended June 30, 2016 and 2015,  respectively.
 
b. Research and development projects undertaken by the Company were partially financed by the Binational Industrial Research and Development Foundation ("BIRD-F"). The Company is committed to pay royalties to the BIRD-F at a rate of 5% of sales proceeds generating from projects for which the BIRD-F provided funding up to 150% of the sum financed by the BIRD-F.
 
The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. As of June 30, 2016, the Company's total obligation for royalties, net of royalties paid or accrued, totaled approximately $2,066. Since the Company had stated to BIRD-F that no revenues were generated from the funded projects, BIRD-F agreed that no royalties are due until future revenues, if any, are received. No royalties were charged to operations for the six month periods ended June 30, 2016  and 2015.
 
c. The Company's offices in Netanya, Israel, are leased under a non-cancelable operating lease expiring on January 31, 2018. In addition, the Company's motor vehicles are leased under operating leases.
 
F - 16
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Annual minimum future rental commitments under these leases, at exchange rates in effect on June 30, 2016, are approximately as follows:

2017
  
$
621
  
2018
    
338
  
2019
    
39
  
         
   
$
998
  

Lease expense for the six months periods ended June 30, 2016 and 2015, were  $330 and $354, respectively.

d. Floating charges have been recorded on all of the Company's assets and specific charges have been recorded on certain assets in respect of the Company's liabilities to its banks and other creditors, including its shareholders.
 
e. The Company provides bank guarantees to its customers and others in the ordinary course of business. The guarantees which are provided to customers are to secure advances received at the commencement of a project or to secure performance of operational milestones. The total amount of bank guarantees provided to customers and others as of June 30, 2016, is approximately $646.
 
NOTE 9:- SHAREHOLDERS' EQUITY

a. Equity transactions:
 
On July 30, 2015, the Company announced the closing of an underwritten public offering of 6,910,569 Ordinary shares, offered at a price to the public of $1.23 per share.

On May 15, 2016, the Company's shareholders approved an investment transaction with a new investor according to which the investor became a controlling shareholder of the Company and the Company issued 17,021,276 Ordinary shares and Warrants (see Note 9c), in consideration for the aggregate amount of approximately $4,000.
 
b. Stock option plans:
 
In April 2015, the Company's Board of Directors approved the adoption of 2015 Share Option Plan (the "Plan"), which authorized the grant of options to purchase up to an aggregate of 3,000,000 Ordinary shares to officers, directors, consultants and key employees of the Company and its subsidiary. Options granted under the Plan expire within a maximum of ten years from adoption of the plan.

Each award agreement will provide the schedule under which such awards may be exercised (“Vesting Schedule”). The Vesting Schedule of an award will be determined by the Administrator provided that (to the extent permitted under Applicable Law) the Administrator, in its absolute discretion, shall have the authority to accelerate the vesting of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. Subject to the Vesting Schedule, Awards may be exercised into Award Shares during the ten (10) year period from the adoption date of the Plan unless otherwise determined by the Administrator (to the extent permitted under Applicable Law and the Plan).

F - 17
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 9:- SHAREHOLDERS' EQUITY (Cont.)
 
In June 2016, the Company granted options to certain employees and officers of the Company, to purchase a total 1,968,750 Ordinary shares at an exercise price of $0.45 per share. The options will vest as follows: 25% of the options granted to each employee will vest in June 2017, additional 75% shall vest in three equal annual installments of 25% each. These option shall be exercisable for 48 months following the date of the vesting.
 
As of June 30, 2016, 1,031,250 options are available for future grant under the Plan.

A summary of the Company’s activity for options granted to employees and directors under its 2016 incentive option plan is as follows:

   
Six months ended
June 30, 2016
  
    (Unaudited)  
   
Number of options
    
Weighted average exercise price
    
Aggregate Intrinsic Value Price
  
                   
Outstanding at the beginning of the period
    
-
    
$
-
        
Granted
    
1,968,750
      
0.45
        
Exercised
    
-
      
-
        
Forfieted
    
-
      
-
        
                       
Outstanding at the end of the period
    
1,968,750
    
$
0.45
    
$
237
  
                         
Exercisable
    
-
      
-
      
-
  
                         
Vested and expected to vest
    
1,771,875
    
$
0.45
    
$
230
  

Intrinsic value of exercisable options (the difference between the Company’s closing share price on the last trading day in the period and the exercise price, multiplied by the number of in-the-money options) represents the amount that would have been received by the employees and directors option holders had all option holders exercised their options on June 30, 2016. This amount changes based on the fair market value of the Company’s Ordinary share.

F - 18
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 9:- SHAREHOLDERS' EQUITY (Cont.)

During the six month periods ended June 30, 2016, the Company recognized stock-based compensation expense related to employees and directors stock options in the amount of $5, as follows:

 
Six months
ended
June 30,
    
Six months ended
June 30,
  
 
2016
     2015  
  Unaudited    
Unaudited
 
Cost of revenues
    
3
      
-
  
Marketing and selling
    
1
       -  
General and administrative
    
1
      
-
  
     
5
      
-
  

Unamortized compensation expenses related to employees and directors stock options to be recognized over an average time of approximately 3.5 years is approximately $543.

c. Warrants:
 
On May 18, 2016, the Company issued to the Investor (see Note 1c),  warrants to purchase: (i) 8,510,638 additional Ordinary shares at an exercise price per Ordinary share of $0.235 (resulting in an aggregate exercise price of $2,000), exercisable for a period of 24 months following the date of the Initial Investment and (ii) warrants to purchase an additional 7,272,727 Ordinary shares at an exercise price per Ordinary share of $0.275 (resulting in an aggregate exercise price of $2,000), exercisable for a period of 48 months following the date of the Initial Investment.
 
On May 18, 2016, as part of the investment transaction, the Company issued to a consultant, 1,021,276 warrants to purchase Ordinary shares at an exercise price per Ordinary share of $0.235 (resulting in an aggregate exercise price of $240), exercisable for a period of 18 months following the date of the Initial Investment.
 
The Company's  outstanding warrants as of June 30, 2016, are as follow:

 
Issuance date
  
Outstanding and exercisable
    
Excersice price
  
Exercisable through
                    
 
May 18, 2016
    
8,510,638
      
0.235
  
May 18, 2018
 
May 18, 2016
    
7,272,727
      
0.275
  
May 18, 2020
 
May 18, 2016
    
1,021,276
      
0.235
  
November 18, 2017

F - 19
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

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

NOTE 10:-   FINANCIAL EXPENSES, NET

   
Six months ended
June 30,
  
   
2016
    
2015
  
   
Unaudited
  
Income:
            
             
Foreign currency exchange differences
  
$
19
    
$
210
  
Interest on cash equivalents and restricted deposits
    
6
      
2
  
                 
     
(25
)
    
(212
)
Expenses:
                
                 
Extinguishment and amortization of shareholders' convertible loans discount and beneficial conversion feature
    
1,096
      
1,223
  
Interest on shareholders' convertible loans
    
151
      
374
  
Withholding taxes on interest of convertible loans from shareholders
    
45
      
82
  
                 
Bank commissions and others
    
71
      
63
  
Foreign currency exchange differences
    
42
      
247
  
Interest on loans from banks and other credit balances
    
23
      
5
  
                 
     
1,428
      
1,994
  
                 
Total financial expenses, net
    
1,403
      
1,782
  
 
NOTE 11:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

a. In accordance with Statement of ASC 280, "Segment Reporting", the Company is organized and operates as one business segment, which develops, manufactures and sells ATE products, avionics equipment and aviation data acquisition and debriefing systems (see also Note 1a).
 
F - 20
RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARY

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL  STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 11:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)

b. Revenues by geographic areas:
 
Revenues are attributed to geographic area based on the location of the end customers as follows:

   
Six months ended
  
   
June 30,
  
   
2016
    
2015
  
   
Unaudited
  
             
Israel
  
$
2,904
    
$
2,743
  
Asia
    
1,064
      
1,940
  
North America
    
630
      
2,271
  
Latin America
    
860
      
770
  
Europe
    
123
      
-
  
                 
Total
  
$
5,581
    
$
7,724
  

c. Major customers:
 
Revenues from single customers that exceed 10% of the total revenues in the reported years as a percentage of total revenues are as follows:

   
Six months ended
  
   
June 30,
  
   
2016
    
2015
  
   
Unaudited
  
             
Customer A
    
19
      
21
  
Customer B
    
15
      
6
  
Customer C
    
8
      
13
  
Customer D
    
4
      
13
  
Customer E
    
(*
    
11
  

*) Less than 1%
 
 
F - 21