Modsys International (MDSY) 10-Q 16 May 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 10, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Modsys International Ltd
Entity Central Index Key	1,029,581
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2,016
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		18,626,143

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Current Assets:
Cash and cash equivalents	$ 690	$ 1,479
Restricted cash	4	4
Trade accounts receivable, net	2,371	2,020
Other current assets	134	120
Total Current Assets	3,199	3,623
Non-Current Assets:
Property and equipment, net	164	246
Goodwill	25,803	25,803
Intangible Assets and others, net	3,017	3,175
Total Non-Current Assets	28,984	29,224
TOTAL ASSETS	32,183	32,847
Current Liabilities:
Short-term bank credit and others	2,457	2,736
Trade accounts payable	1,286	1,004
Deferred revenue	462	925
Other current liabilities	1,150	959
Total Current Liabilities	5,355	5,624
Non-Current Liabilities
Accrued severance pay, net	255	232
Loans from others	288	288
Other non-current liabilities	27	30
Total Non-Current Liabilities	570	550
Total Equity	26,258	26,673
TOTAL LIABILITIES AND EQUITY	$ 32,183	$ 32,847

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Income Statement [Abstract]
Revenue	$ 2,827	$ 2,286
Cost of revenue	1,662	1,700
Gross profit	1,165	586
Research and development costs	361	386
Selling, general and administrative expenses	1,144	1,320
Amortization of intangible assets	158	254
Total operating expenses	1,663	1,960
Operating loss	(498)	(1,374)
Financial expense, net	28	47
Loss before taxes on income	(526)	(1,421)
Taxes on income	1	13
Net loss	(527)	(1,434)
Less: Net income (loss) attributable to non-controlling interest	20	(55)
Net loss attributable to ModSys International Ltd. shareholders	$ (547)	$ (1,379)
Loss per share - basic:
Attributed to the shareholders	$ (0.03)	$ (0.08)
Weighted average shares outstanding, basic	18,595	17,863

Condensed Consolidated Stateme4

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Statement of Comprehensive Income [Abstract]
Net loss	$ (527)	$ (1,434)
Other comprehensive income
Total comprehensive loss	(527)	$ (1,434)
Comprehensive result attributable to non-controlling interest	20	(55)
Comprehensive loss attributable to ModSys International Ltd. shareholders	$ (547)	$ (1,379)

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (527)	$ (1,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	174	280
Increase (decrease) in accrued severance pay, net	23	(1)
Stock-based compensation	$ 112	$ 147
Change in fair value of derivatives
Changes in operating assets and liabilities:
Increase in trade receivables	$ (351)	$ (153)
Increase in other current assets	(14)	(52)
Increase in trade payables	282	373
Increase (decrease) in other liabilities and deferred revenues	(275)	255
Loss on disposal of assets	77
Net cash used in operating activities	(499)	(585)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(11)	(8)
Net cash used in investing activities	(11)	(8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term bank credit	(279)	950
Net cash provided by (used in) financing activities	(279)	950
NET CASH INCREASE (DECREASE) IN CASH AND CASH EQUVIALETS	(789)	357
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	1,479	449
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 690	$ 806

Summary of Significant Accounti

Summary of Significant Accounting Policies	3 Months Ended
	Mar. 31, 2016
Summary of Significant Accounting Policies [Abstract]
Summary of Significant Accounting Policies	Note 1 – Summary of Significant Accounting Policies: A. The Company ModSys International Ltd. (formerly known as BluePhoenix Solutions Ltd.) (together with its subsidiaries, the “Company”, “we”, or “Modern Systems”) is an Israeli corporation, which operates in one operating segment of information technology (“IT”) modernization solutions. Modern Systems develops and markets enterprise legacy migration solutions and provides tools and professional services to international markets through several entities including wholly-owned and majority-owned subsidiaries located in: the United States, the United Kingdom, Italy, Romania and Israel. These technologies and services allow business to migrate from their legacy mainframe and distributed IT infrastructures to modern environments and programming languages. The Company has incurred negative cash flow from operations and net losses in recent years. The Company currently uses its credit line with Comerica to support its negative cash flow position. Management believes that the Company’s current cash position is sufficient to support the ongoing operations for the foreseeable future. B. Recently Issued Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, which revises the guidance in ASC 718, Compensation - Stock Compensation, and will change how companies account for certain aspects of share-based payments to employees, including the income tax impact, classification on the statement of cash flows and forfeitures. The guidance is effective for reporting periods (interim and annual) beginning after December 15, 2017, for public companies. Early adoption is permitted. The Company is currently assessing the potential impact of this ASU on its consolidated financial position and results of operations. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This guidance results in a more faithful representation of the rights and obligations arising from operating and capital leases by requiring lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. This guidance is effective prospectively for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new guidance must be adopted using a modified retrospective approach. The Company is currently assessing the impact of this guidance. In August 2015, the FASB issued ASU No. 2015-15, “Presentation of Financial statements – Going concern (subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern” (“ASU 2015-14”). The new standard provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. ASU 2015-15 applies prospectively to annual periods ending after December 15, 2016, and to annual periods thereafter. Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2015-15 on its consolidated financial statements. C. Unaudited Interim Condensed Consolidated Financial Statements The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for the annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016. The interim financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. D. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. E. Principles of Consolidation The consolidated financial statements include the Company's and its subsidiaries' financial statements. The consolidated financial statements of subsidiaries are included in the condensed consolidated financial statements from the date that control is achieved until the date that control ceases. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its operating activities. In assessing control, legal and contractual rights are taken into account. Intercompany transactions and balances are eliminated upon consolidation.

Goodwill

Goodwill	3 Months Ended
	Mar. 31, 2016
Goodwill [Abstract]
Goodwill	Note 2 – Goodwill: The following is a summary of the change in the carrying amount of goodwill as of March 31, 2016 and December 31, 2015: March 31, December 31, 2016 2015 Unaudited Audited (in thousands) Balance as of January 1 Goodwill $ 67,618 $ 67,618 Accumulated impairment losses at the beginning of the period (41,815 ) (41,815 ) 25,803 25,803 Changes during the period Goodwill related to acquisition - - Balance at end of period Goodwill 67,618 67,618 Accumulated impairment losses at the end of the period (41,815 ) (41,815 ) $ 25,803 $ 25,803 Goodwill is not amortized, but rather is subject to an annual impairment test. The Company is one operating segment and one reporting unit related to its overall information technology modernization. The goodwill impairment tests are conducted in two steps. In the first step, the Company determines the fair value of the reporting unit. If the net book value of the reporting unit exceeds its fair value, the Company would then perform the second step of the impairment test which requires allocation of the reporting unit’s fair value of all of its assets and liabilities in a manner similar to an acquisition cost allocation, with any residual fair value being allocated to goodwill. The implied fair value of the goodwill is then compared to the carrying value to determine impairment, if any. The Company determines the fair value of a reporting unit using the market approach which is based on the market capitalization by using the share price of the Company in the NASDAQ stock exchange and an appropriate control premium.

Fair Value Measurements

Fair Value Measurements	3 Months Ended
	Mar. 31, 2016
Fair Value Measurements [Abstract]
Fair Value Measurements	Note 3 – Fair Value Measurements: The accounting guidance establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 2 – Observable inputs such as quoted prices for similar instruments and quoted prices in markets that are not active, and inputs that are directly observable or can be corroborated by observable market data. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities. Level 3 – Significant inputs to pricing that have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value of financial instruments. Financial assets and liabilities measured at fair value as of March 31, 2016 and December 31, 2015, are summarized below: Fair value measurements using input type March 31, 2016 Level 1 Level 2 Level 3 Total Cash and Cash Equivalents 686 - - 686 Restricted cash 4 - - 4 $ 690 $ - $ - $ 690 Fair value measurements using input type December 31, 2015 Level 1 Level 2 Level 3 Total Cash and Cash Equivalents 1,479 - - 1,479 Restricted cash 4 - - 4 Intangible asset – Technology - - 3,175 3,175 $ 1,483 $ - $ 3,175 $ 4,658

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 31, 2016
Commitments and Contingencies [Abstract]
Commitments and Contingencies	Note 4 – Commitments and Contingencies: A. Commitments: Israel’s Office of the Chief Scientist Ministry of Production in Italy. B. Contingencies: The Company evaluates estimated losses for indemnifications due to product infringement under FASB Topic ASC 450 “Contingencies”. At this time, it is not possible to determine the potential amount under these indemnification clauses due to lack of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, the Company has not incurred costs as a result of obligations under these agreements and has not accrued any liabilities related to such indemnification obligations in the Company’s financial statements.

Subsequent Events

Subsequent Events	3 Months Ended
	Mar. 31, 2016
Subsequent Events [Abstract]
Subsequent Events	Note 5 – Subsequent Events: On May 13, 2016, the Company received a commitment letter from Comerica Bank regarding its credit facility, according to which the covenant of trailing six month EBITDA was updated and an additional condition to maintain minimum cash at bank of $ 250 thousand was added. The remaining substantive provisions of the credit facility were not materially changed by the commitment letter.

Summary of Significant Accoun11

Summary of Significant Accounting Policies (Policies)	3 Months Ended
	Mar. 31, 2016
Summary of Significant Accounting Policies [Abstract]
The Company	A. The Company ModSys International Ltd. (formerly known as BluePhoenix Solutions Ltd.) (together with its subsidiaries, the “Company”, “we”, or “Modern Systems”) is an Israeli corporation, which operates in one operating segment of information technology (“IT”) modernization solutions. Modern Systems develops and markets enterprise legacy migration solutions and provides tools and professional services to international markets through several entities including wholly-owned and majority-owned subsidiaries located in: the United States, the United Kingdom, Italy, Romania and Israel. These technologies and services allow business to migrate from their legacy mainframe and distributed IT infrastructures to modern environments and programming languages. The Company has incurred negative cash flow from operations and net losses in recent years. The Company currently uses its credit line with Comerica to support its negative cash flow position. Management believes that the Company’s current cash position is sufficient to support the ongoing operations for the foreseeable future.
Recently Issued Accounting Pronouncements	B. Recently Issued Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, which revises the guidance in ASC 718, Compensation - Stock Compensation, and will change how companies account for certain aspects of share-based payments to employees, including the income tax impact, classification on the statement of cash flows and forfeitures. The guidance is effective for reporting periods (interim and annual) beginning after December 15, 2017, for public companies. Early adoption is permitted. The Company is currently assessing the potential impact of this ASU on its consolidated financial position and results of operations. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This guidance results in a more faithful representation of the rights and obligations arising from operating and capital leases by requiring lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. This guidance is effective prospectively for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new guidance must be adopted using a modified retrospective approach. The Company is currently assessing the impact of this guidance. In August 2015, the FASB issued ASU No. 2015-15, “Presentation of Financial statements – Going concern (subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern” (“ASU 2015-14”). The new standard provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. ASU 2015-15 applies prospectively to annual periods ending after December 15, 2016, and to annual periods thereafter. Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2015-15 on its consolidated financial statements.
Unaudited Interim Condensed Consolidated Financial Statements	C. Unaudited Interim Condensed Consolidated Financial Statements The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for the annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016. The interim financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Use of Estimates	D. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation	E. Principles of Consolidation The consolidated financial statements include the Company's and its subsidiaries' financial statements. The consolidated financial statements of subsidiaries are included in the condensed consolidated financial statements from the date that control is achieved until the date that control ceases. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its operating activities. In assessing control, legal and contractual rights are taken into account. Intercompany transactions and balances are eliminated upon consolidation.

Goodwill (Tables)

Goodwill (Tables)	3 Months Ended
	Mar. 31, 2016
Goodwill [Abstract]
Schedule of goodwill	March 31, December 31, 2016 2015 Unaudited Audited (in thousands) Balance as of January 1 Goodwill $ 67,618 $ 67,618 Accumulated impairment losses at the beginning of the period (41,815 ) (41,815 ) 25,803 25,803 Changes during the period Goodwill related to acquisition - - Balance at end of period Goodwill 67,618 67,618 Accumulated impairment losses at the end of the period (41,815 ) (41,815 ) $ 25,803 $ 25,803

Fair Value Measurements (Tables

Fair Value Measurements (Tables)	3 Months Ended
	Mar. 31, 2016
Fair Value Measurements [Abstract]
Summary of fair value measurement	Fair value measurements using input type March 31, 2016 Level 1 Level 2 Level 3 Total Cash and Cash Equivalents 686 - - 686 Restricted cash 4 - - 4 $ 690 $ - $ - $ 690 Fair value measurements using input type December 31, 2015 Level 1 Level 2 Level 3 Total Cash and Cash Equivalents 1,479 - - 1,479 Restricted cash 4 - - 4 Intangible asset – Technology - - 3,175 3,175 $ 1,483 $ - $ 3,175 $ 4,658

Goodwill (Details)

Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Schedule of goodwill
Goodwill, Beginning Balance	$ 67,618	$ 67,618
Accumulated impairment losses at the beginning of the period	(41,815)	(41,815)
Total, Beginning Balance	$ 25,803	$ 25,803
Changes during the period
Goodwill related to acquisition
Goodwill, Ending Balance	$ 67,618	$ 67,618
Accumulated impairment losses at the end of the period	(41,815)	(41,815)
Total, Ending Balance	$ 25,803	$ 25,803

Fair Value Measurements (Detail

Fair Value Measurements (Details) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 686	$ 1,479
Restricted cash	4,000	4,000
Intangible asset - Technology		3,175
Total fair value of assets	3,707	4,658
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	686	1,479
Restricted cash	4	$ 4
Intangible asset - Technology
Total fair value of assets	$ 690	$ 1,483
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents
Restricted cash
Intangible asset - Technology
Total fair value of assets
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents
Restricted cash
Intangible asset - Technology		$ 3,175
Total fair value of assets	$ 3,017	$ 3,175

Commitments and Contingencies (

Commitments and Contingencies (Details) - USD ($)	1 Months Ended	3 Months Ended
	Jul. 31, 2007	Mar. 31, 2016
Ministry of Production in Italy [Member]
Other Commitments [Line Items]
Proceeds from issuance of debt and other	$ 585,000
Percent of proceeds considered a grant	36.50%
Loan payment period	10 years
Maturity date	Sep. 30, 2018
Percent of proceeds considered long-term debt	63.50%
Long-term debt		$ 102,000
Ministry of Production in Italy [Member] | Minimum [Member]
Other Commitments [Line Items]
Debt instrument, minimum interest rate	0.87%
Israel's Office of the Chief Scientist [Member]
Other Commitments [Line Items]
Royal commitment, percent of funded product sales		3.00%
Royalty commitment, maximum percent of grant linked to product sales		100.00%
Contingent liability, maximum potential royalty payment		$ 183,000

Subsequent Events (Details)

Subsequent Events (Details) $ in Thousands	May. 13, 2016USD ($)
Subsequent Event [Member]
Subsequent Events (Textual)
Minimum cash at bank	$ 250