UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of April 2018
Commission File Number 333-206989
Ability Inc.
(Translation of registrant’s name into English)
Yad Harutzim 14
Tel Aviv 6770007, Israel
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
ABILITY INC.
On April 30, 2018, Ability Inc. (the “Company”) announced its financial results for the three months ended and for the year ended December 31, 2017. Additionally, on the same day, the Company filed its Annual Report on Form 20-F for the year ended December 31, 2017 (the “2017 Annual Report”).
2017 Fourth Quarter Financial Summary
Revenues for the three months ended December 31, 2017 were $1.9 million, compared to $2.5 million for the three months ended December 31, 2016. The revenues for the three months ended December 31, 2017 related primarily to sales to an Israeli integrator that have been sold to end users in Asia and to a reseller in Asia. The revenues for the three months ended December 31, 2016 related primarily to sales to a Latin American reseller.
Cost of revenues for the three months ended December 31, 2017 were $1.2 million, consistent with $1.2 million for the three months ended December 31, 2016.
Operating income for the three months ended December 31, 2017 was $25,000, compared to an operating loss of $(3.7) million for the three months ended December 31, 2016. The increase was due to lower selling and marketing expenses, primarily due to a discretionary bonus to one of the Company’s sales executives that was recorded during the three months ended December 31, 2016 and lower general and administrative expenses which related primarily to a $2.0 million refund in connection with agreement discharge agreement entered into with the Company’s insurer, that was received in February 2018, partially offset by lower revenues (see “Item 8A. Financial Information — Consolidated Statements and Other Financial Information — Legal Proceedings” in the 2017 Annual Report).
Net income for the three months ended December 31, 2017 was $34,000, or $0.01 per basic and diluted share, compared to net loss of $(3.8) million, or $(1.56) per basic and diluted share, for the three months ended December 31, 2016. EBITDA for the three months ended December 31, 2017 was $148,000, compared to a negative EBITDA of $(3.3) million for the three months ended December 31, 2016. Please refer to the financial tables below for a reconciliation of GAAP to Non-GAAP results.
2017 Full Year Financial Summary
Revenues for the year ended December 31, 2017 were $3.0 million, compared to $16.5 million for the year ended December 31, 2016. The decrease in revenues for the year ended December 31, 2017 was primarily due to the ongoing transition to a revenue stream more focused on ULIN, which the Company introduced in November 2015 and due to the fact that during the year ended December 31, 2017, the Company suspended recognizing revenues from one of its customers due to collectability issues, which resulted in lower revenues than anticipated.
Cost of revenues for the year ended December 31, 2017 were $3.0 million, compared to $8.6 million for the year ended December 31, 2016.The decrease in cost of revenues was primarily due to decreased costs for components for the Company’s solutions corresponding to the decrease in revenues year over year.
Operating loss for the year ended December 31, 2017 was $(9.0) million, compared to $(7.1) million for the year ended December 31, 2016. The increase was due to lower revenues, partially offset by lower cost of revenues, lower general and administrative expenses and lower selling and marketing expenses.
Net loss for the year ended December 31, 2017 was $(9.1) million, or $(3.71) per basic and diluted share, compared to $(8.1) million, or $(3.27) per basic and diluted share, for the year ended December 31, 2016. Negative EBITDA for the year ended December 31, 2017 was $(8.5) million, compared to $(6.4) million for the year ended December 31, 2016. Please refer to the financial tables below for a reconciliation of GAAP to Non-GAAP results.
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Balance Sheet Highlights
As of December 31, 2017, the Company had an accumulated deficit of $18.0 million, cash and cash equivalents of $1.9 million, and a negative working capital of $556,000, compared to accumulated deficit of $8.9 million, cash and cash equivalents of $11.8 million and working capital of $8.4 million as of December 31, 2016. Due to a significant decline in revenues and an increase in legal and professional services fees, the Company has suffered losses from operations, and it has an accumulated deficit that, among other reasons, raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent registered public accounting firm, in its report on its audited financial statements for the year ended December 31, 2017 expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon, among other things, cash flow from customers for ongoing projects, increase in sales, the Company’s controlling shareholders’ financial support of the Company, a decrease in litigation costs, the Company’s ability to remain listed on the NASDAQ Capital Market and favorable resolution of the pending lawsuits and SEC investigation. The Company expects to continue incurring losses and negative cash flows from operations in the foreseeable future. As a result of these expected losses and negative cash flows from operations, along with the Company’s current cash position, the Company only has sufficient cash on its balance sheet to finance its operations for a period of up to two months from the date hereof. On April 11, 2018, the Company obtained a six-month bank line of credit of NIS 11 million ($3.1 million) secured by its controlling shareholders, Anatoly Hurgin, who is also the Company’s Chief Executive Officer and Chairman of the Board, and Alexander Aurovsky, who is also the Company’s Chief Technology Officer and a director. If the Company utilizes the line of credit in full, it estimates that this will finance its operations for a further four to six months.
On December 27, 2017, the Company implemented a 1-for-10 consolidation of its ordinary shares with a market effective date of March 23, 2018.
The foregoing information for the year ended December 31, 2017 is qualified in its entirety by the Company’s 2017 Annual Report.
Forward-Looking Statements
This Report on Form 6-K may contain “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. Information regarding additional risks and uncertainties is contained in the Company on the Annual Report on Form 20-F for the year ended December 31, 2017.
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Ability Inc.
Condensed Consolidated Balance Sheets
December 31, | ||||||||
2017 | 2016 | |||||||
U.S. dollars in thousands | ||||||||
Audited | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 1,944 | $ | 11,840 | ||||
Restricted deposits | - | 1,758 | ||||||
Restricted deposit for put option | - | 12,028 | ||||||
Accounts receivable | 1,975 | 3,173 | ||||||
Inventory | 50 | 481 | ||||||
Accumulated costs with respect to Projects in excess of progress payments | - | 151 | ||||||
Due from controlling shareholders | - | 196 | ||||||
Income tax receivable | 162 | 267 | ||||||
Other receivables | 2,351 | 353 | ||||||
Total Current Assets | 6,482 | 30,247 | ||||||
NON-CURRENT ASSETS: | ||||||||
Restricted deposit for put option | 12,143 | - | ||||||
Property and equipment, net | 1,388 | 1,588 | ||||||
Total Non-Current Assets | 13,531 | 1,588 | ||||||
Total Assets | $ | 20,013 | $ | 31,835 | ||||
LIABILITIES & SHAREHOLDER'S EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accrued payroll and other compensation related accruals | $ | 135 | $ | 270 | ||||
Trade payables, accrued expenses and other accounts payable | 4,056 | 4,952 | ||||||
Put option liability | - | 11,900 | ||||||
Income tax payable | - | 32 | ||||||
Accrued expenses and accounts payable with respect to Projects | 2,541 | 4,734 | ||||||
Progress payments in excess of accumulated costs with respect to Projects | 306 | |||||||
Total Current Liabilities | 7,038 | 21,888 | ||||||
NON CURRENT LIABILITIES: | ||||||||
Put option liability | 12,143 | - | ||||||
Accrued severance pay | 241 | 245 | ||||||
Total Non-Current Liabilities | 12,384 | 245 | ||||||
Total Liabilities | 19,422 | 22,133 | ||||||
SHAREHOLDERS' EQUITY: | ||||||||
Ordinary shares $0.001 par value, 20,000,000 shares authorized, 2,576,415 shares issued and outstanding at December 31, 2017 and 2016* | 3 | 3 | ||||||
Preferred shares $0.001 par value, 500,000 shares authorized, no shares issued and outstanding at December 31, 2017 and 2016* | - | - | ||||||
Additional paid-in-capital | 18,560 | 18,560 | ||||||
Accumulated deficit | (17,972 | ) | (8,861 | ) | ||||
Total Shareholders' Equity | 591 | 9,702 | ||||||
Total Liabilities and Shareholders' Equity | $ | 20,013 | $ | 31,835 |
* | On December 27, 2017, the Company implemented a 1-for-10 consolidation of its ordinary shares with a market effective date of March 23, 2018, which was applied retrospectively for the calculation of the basic and diluted loss per ordinary share. |
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Ability Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
Three months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
U.S. dollars in thousands, except per share data | ||||||||||||||||
Unaudited | Audited | |||||||||||||||
Revenues | $ | 1,943 | $ | 2,538 | $ | 2,972 | $ | 16,508 | ||||||||
Cost of revenues | 1,231 | 1,164 | 2,957 | 8,617 | ||||||||||||
Gross profit | 712 | 1,374 | 15 | 7,891 | ||||||||||||
Selling and marketing expenses | 858 | 1,317 | 3,033 | 5,323 | ||||||||||||
General and administrative expenses | (171 | ) | 3,795 | 6,016 | 9,662 | |||||||||||
Operating income (loss) | 25 | (3,738 | ) | (9,034 | ) | (7,094 | ) | |||||||||
Financial income, net | (9 | ) | (116 | ) | 77 | (127 | ) | |||||||||
Income (loss) before income taxes | 34 | (3,622 | ) | (9,111 | ) | (6,967 | ) | |||||||||
Income taxes (benefit) expenses | - | 210 | - | 1,086 | ||||||||||||
Net income (loss) | 34 | (3,832 | ) | (9,111 | ) | (8,053 | ) | |||||||||
Weighted-average ordinary shares outstanding - Basic and diluted * | 2,459,088 | 2,459,088 | 2,459,088 | 2,459,088 | ||||||||||||
Loss per ordinary share - basic and diluted (U.S. dollars) | $ | 0.01 | $ | (1.56 | ) | $ | (3.71 | ) | $ | (3.27 | ) |
* | On December 27, 2017, the Company implemented a 1-for-10 consolidation of its ordinary shares with a market effective date of March 23, 2018, which was applied retrospectively for the calculation of the basic and diluted loss per ordinary share. |
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Ability Inc.
Condensed Consolidated Statements of Cash Flows
Year Ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
U.S. dollars in thousands | ||||||||
Audited | ||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (9,111 | ) | $ | (8,053 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 168 | 149 | ||||||
Amortization | 321 | 193 | ||||||
Impairment of inventory | - | 201 | ||||||
Impairment of fixed assets | - | 114 | ||||||
Capital (gain) loss from sale of property and equipment | 30 | (10 | ) | |||||
Change in operating assets and liabilities: | ||||||||
Restricted deposits | 1,758 | (1,433 | ) | |||||
Accounts receivable | 1,198 | 631 | ||||||
Inventory | (50 | ) | (311 | ) | ||||
Other receivables | (1,773 | ) | 1,459 | |||||
Interest earned on restricted deposit for put option | 128 | (128 | ) | |||||
Accrued payroll and other compensation related accruals | (135 | ) | 210 | |||||
Trade payables, accrued expenses and other accounts payable | (896 | ) | 3,108 | |||||
Income tax payable | 73 | (2,674 | ) | |||||
Accrued expenses and accounts payable with respect to Projects | (2,193 | ) | (2,233 | ) | ||||
Due to related company | - | (600 | ) | |||||
Progress payments in excess of accumulated costs with respect to Projects (accumulated costs with respect to Projects in excess of progress payments) | 457 | (1,170 | ) | |||||
Accrued severance pay | (4 | ) | (25 | ) | ||||
Total adjustments | (918 | ) | (2,519 | ) | ||||
Net cash used in operating activities | (10,029 | ) | (10,572 | ) | ||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
Purchase of Property and equipment | (187 | ) | (182 | ) | ||||
Proceeds from sale of Property and equipment | 124 | 10 | ||||||
Net cash used in investing activities | (63 | ) | (172 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Due from controlling shareholders, net | 196 | 378 | ||||||
Withholding taxes paid by the Company on behalf of the controlling shareholders' with respect to dividends distributed | - | (4,393 | ) | |||||
Withholding taxes paid by the controlling shareholders to the Company with respect to dividends distributed, to be paid by the Company to the Israeli Tax Authority | - | 770 | ||||||
Net cash provided by (used in) financing activities | 196 | (3,245 | ) | |||||
Net change In cash and cash equivalents | (9,896 | ) | (13,989 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR | 11,840 | 25,829 | ||||||
CASH AND CASH EQUIVALENTS AT END OF THE FISCAL PERIOD | $ | 1,944 | $ | 11,840 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the years for: | ||||||||
Interest and banks' charges | $ | 18 | $ | 36 | ||||
Income tax | $ | 7 | $ | 3,758 |
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Ability Inc.
Condensed Consolidated Statements of EBITDA
Three months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
U.S. dollars in thousands | ||||||||||||||||
Unaudited | Audited | |||||||||||||||
Net income (loss) | $ | 34 | $ | (3,832 | ) | $ | (9,111 | ) | $ | (8,053 | ) | |||||
Financial income, net | (9 | ) | (116 | ) | 77 | (127 | ) | |||||||||
Income taxes (benefit) expenses | - | 210 | - | 1,086 | ||||||||||||
Depreciation | 40 | 37 | 168 | 149 | ||||||||||||
Amortization | 83 | 193 | 321 | 193 | ||||||||||||
Impairment of inventory | - | 201 | - | 201 | ||||||||||||
Impairment of fixed assets | - | - | - | 114 | ||||||||||||
EBITDA (negative EBITDA) | $ | 148 | $ | (3,307 | ) | $ | (8,545 | ) | $ | (6,437 | ) |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ABILITY INC. | ||
By: | /s/ Anatoly Hurgin | |
Anatoly Hurgin | ||
Chief Executive Officer |
Date: April 30, 2018
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