FORM 6-K

 

 

For the Month of October 2016

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities and Exchange Act of 1934.

 

 

SIGNATURE

 

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: October 31, 2016

 

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Camtek Ltd. and its Subsidiaries

Interim Unaudited Condensed Consolidated Financial Statements as at June 30, 2016

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Contents

 

 

Interim Unaudited Condensed Consolidated Balance Sheets	F-3
Interim Unaudited Condensed Consolidated Statements of Operations	F-4
Interim Unaudited Condensed Consolidated Statements of Shareholders’ Equity	F-5
Interim Unaudited Condensed Consolidated Statements of Cash Flows	F-6 to F-7
Notes to the Interim Unaudited Condensed Consolidated Financial Statements	F-8 to F-19

 

Camtek Ltd. and its Subsidiaries

Consolidated Balance Sheets

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(In thousands)

 

					June 30,				December 31,
					2016				2015
		Note			U.S. Dollars (in thousands)
Assets
Current assets
Cash and cash equivalents		5A				23,944				30,833
Short-term restricted deposits						7,875				7,875
Trade accounts receivable, net						32,900				27,003
Inventories		5B				29,388				27,599
Due from affiliated companies						668				559
Other current assets		5C				2,303				1,712
Deferred tax asset						177				177
Total current assets						97,255				95,758
Property, plant and equipment, net		5D				13,983				13,531
Long term inventory		5B				2,307				1,979
Deferred tax asset						3,835				3,955
Other assets, net						248				248
Intangible assets, net		5E				865				795
						7,255				6,977
Total assets						118,493				116,266
Liabilities and shareholders’ equity
Current liabilities
Trade accounts payable						12,115				11,812
Other current liabilities		5F				31,025				30,712
Total current liabilities						43,140				42,524
Long term liabilities
Liability for employee severance benefits						866				772
Other long term liabilities		5G				4,775				4,768
						5,641				5,540
Total liabilities						48,781				48,064
Shareholders’ equity
Ordinary shares NIS 0.01 par value, 100,000,000 shares authorized at June 30, 2016 and at December 31, 2015;
37,440,552 issued shares at June 30, 2016 and at December 31, 2015;
35,348,176 shares outstanding at June 30, 2016 and at December 31, 2015		3				148				148
Additional paid-in capital						76,235				76,034
Retained earnings						(4,773	)			(6,082	)
						71,610				70,100
Treasury stock, at cost (2,092,376  as of June 30, 2016 and December 31, 2015)						(1,898	)			(1,898	)
Total shareholders' equity						69,712				68,202
Total liabilities and shareholders' equity						118,493				116,266

 

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

 

Camtek Ltd. and its Subsidiaries

(In thousands, except share data)

 

					Six months ended June 30,								Three months ended June 30,								Year ended December 31,
					2016				2015				2016				2015				2015
		Note			U.S. dollars								U.S. dollars								U.S. dollars
Revenues						51,738				47,162				27,280				25,412				99,275
Cost of revenues						28,667				26,488				14,537				14,557				56,149
Gross profit						23,071				20,674				12,743				10,855				43,126
Research and development costs						8,083				6,954				4,101				3,554				14,860
Selling, general and
administrative expenses		6A				12,881				11,489				6,907				6,208				23,587
Reorganization and impairment						-				-				-				-				138
Loss from litigation						-				-				-				-				14,600
						20,964				18,443				11,008				9,762				53,185
Operating income (loss)						2,107				2,231				1,735				1,093				(10,059	)
Financial expenses, net		6B				(367	)			(1,040	)			(135	)			(193	)			(1,877	)
Income (loss) before income taxes						1,740				1,191				1,600				900				(11,936	)
Income tax						(431	)			(492	)			(315	)			(253	)			1,823
Net income (loss)						1,309				699				1,285				647				(10,113	)
Net income (loss) per ordinary share:
Basic						0.04				0.02				0.04				0.02				(0.30	)
Diluted						0.04				0.02				0.04				0.02				(0.30	)
Weighted average number of
ordinary shares outstanding:
Basic						35,348				31,518				35,348				32,530				33,352
Diluted						35,359				31,654				35,358				32,742				33,352

 

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

 

 

Camtek Ltd. and its Subsidiaries

Interim Unaudited Condensed Consolidated Statements of Shareholders’ Equity

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Consolidated Statements of Cash Flows

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The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and do not include all of the information required for full annual financial statements. They should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2015 annual consolidated financial statements, which were filed with the U.S. Securities and Exchange Commission as part of the Company’s annual report on Form 20-F for the year ended December 31, 2015.

In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) 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 ended December 31, 2015 or for any other future period.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations. This ASU limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have a major effect on an entity’s operations and financial results. The Company elected to early adopt this ASU as of January 1, 2014.

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F - 11

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F - 13

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Operating and Financial Review and Prospects.

 

A.	Operating Results

 

General

 

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes to those statements included therein, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.

 

Segment Information

 

Until the end of 2013, we operated under one reporting segment. As of the first quarter of 2014, following a change in the role of the Company's chief operating decision-maker (the "CODM") the Company operates under two reportable segments.

 

The Company's segment information has been prepared in accordance with ASC 280, "Segment Reporting." Operating segments are defined as components of an enterprise engaging in business activities about which separate financial information is available and such information is evaluated regularly by the CODM in deciding how to allocate resources and assess performance. The Company's CODM is its Chief Executive Officer, who evaluates the Company's performance and allocates resources based on segment revenues and operating income.

 

The Company's reportable segments are as follows: semiconductor fabrication industry ("Microelectronics Segment") and PCB industry ("PCB Segment").

 

Microelectronics Segment: The semiconductor fabrication industry produces integrated circuits on silicon (or other semiconductor materials) wafers; each wafer contains numerous integrated circuits dices which are small block of semiconducting material on which a given functional circuit is fabricated.

 

PCB Segment: A PCB is the basic platform that supports and interconnects a broad range of electronic components, such as integrated circuit devices, resistors, capacitors, coils and the like, and enables them to operate as an electronic system. PCBs consist of traces, or lines, of conductive material, such as copper, laminated on either a rigid or a flexible insulating base.

 

Overview

 

We design, develop, manufacture and market automated solutions dedicated for enhancing production processes and yield for the semiconductor fabrication and PCB industries, principally based on two core technologies: AOI and FIT.

 

In addition to revenues derived from the sale of systems and related products, we generate revenues from providing maintenance and support services for our products. We generally provide a one-year warranty with our systems. Accordingly, service revenues are not earned during the warranty period.

 

Critical Accounting Policies

 

Critical accounting policies are those that are, in management’s view, most important to the portrayal of a company’s financial condition and results of operations and most demanding on their calls on judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. We believe our most critical accounting policies relate to:

 

Revenue Recognition.  The Company recognizes revenue from sales of its products when the products are installed at the customer’s premises and are operating in accordance with its specifications, signed documentation of the arrangement, such as a signed contract or purchase order, has been received, the price is fixed or determinable and collectability is reasonably assured. In the limited circumstances when the products are installed by a trained distributor acting as an end user, revenue is recognized upon delivery to the distributor assuming all other criteria for revenue recognition are met.

 

Our revenue recognition policy requires that we use judgment to determine whether collectability is reasonably assured. Judgment is used for each customer on a case-by-case basis, and, among other factors, we take into consideration the individual customer’s payment history and its financial strength, as demonstrated by its financial reports or through a third‑party credit check. In some cases, we secure payments by a letter of credit or other instruments.

 

Service revenues consist mainly of revenues from maintenance contracts and are recognized ratably over the contract period.

 

We apply ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, and therefore for multiple-element arrangements the overall arrangement fee is allocated to each element (both delivered and undelivered items) based on management’s best estimate of their selling price where other sources of evidence are unavailable. The revenue relating to the undelivered elements is deferred using the relative selling price method utilizing vendor-specific-objective evidence ("VSOE") until delivery of the deferred elements.

 

Our multiple deliverables usually consist of product sales and non-standard warranties. A non-standard warranty is one that is for a period longer than 12 months. Accordingly, a non-standard warranty is deferred as unearned revenue and is recognized ratably as revenue commencing with and over the applicable warranty term.

 

We routinely evaluate our products for inclusion of any embedded software that is more than incidental thereby requiring consideration of ASC Subtopic 985-605, "Software Revenue Recognition".  Based on such evaluation, we concluded that none of our products have such embedded software.

 

Valuation of Accounts Receivable.  We review accounts receivable to determine which are doubtful of collection. In making this determination of the appropriate allowance for doubtful accounts, we consider information at hand regarding specific customers, including aging of the receivable balance, evaluation of the security received from customers, our history of write-offs, relationships with our customers and the overall credit worthiness of our customers. Changes in the credit worthiness of our customers, the general economic environment and other factors may impact the level of our future write-offs.

 

Valuation of Inventory.  Inventories consist of completed systems, partially completed systems and components, and are recorded at the lower of cost, determined by the moving – average basis, or market. We review inventory for obsolescence and excess quantities to determine that items deemed obsolete or excess inventory are appropriately reserved. In making the determination, we consider forecasted future sales or service/maintenance of related products and the quantity of inventory at the balance sheet date, assessed against each inventory item’s past usage rates and future expected usage rates. Changes in factors such as technology, customer demand, competing products and other matters could affect the level of our obsolete and excess inventory in the future.

In the first half of 2016 no inventory write off was made. In the year 2015 we wrote-off inventory in the amount of approximately $1.2 million. The write off amounts are included in the item line called "Cost of products sold", in the consolidated statements of operations. The write offs create a new cost basis and are a permanent reduction of inventory cost. The write-off in the amount of approximately $1.2 million in 2015 related to FIT product line and slow moving inventory; Inventory that is not expected to be converted or consumed in the following 12 months  is classified as non-current. As of June 30, 2016, a $2.3 million portion of our inventory was classified as non-current. Management periodically evaluates our inventory composition, giving consideration to factors such as the probability and timing of anticipated usage and the physical condition of the items, and then estimates a charge (reducing the inventory) to be provided for slow moving, technologically obsolete or damaged inventory. These estimates could vary significantly from actual requirements based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen or did not exist when the inventory write-offs were established.

Intangible assets. Patent registration costs are capitalized at cost and amortized, beginning with the first year of utilization, over its expected life of ten years.

Intangible assets as part of a business combination are recorded at their fair value and amortized based on their estimated revenue producing life span. Acquired in-process research and development is amortized starting at the initial date of recording revenues from the associated technology. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of the long lived asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as computed by subtracting the fair market value of the asset from its carrying value. In 2015, based on the Company’s annual impairment tests, we recorded an impairment of intangible assets in the amount of $40,000, related to the Printar acquisition.

Goodwill. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually in accordance with the provisions of ASC Topic 350, Intangibles - Goodwill and Other (Statement No. 142, Goodwill and Other Intangible Assets). We have set our annual impairment testing date at December 31. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our reporting units, the period over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit (see also "Intangible assets" above).

Provisions for contingent liabilities. A contingency (provision) in accordance with ASC Topic 450-10-05, Contingencies, is an existing condition or situation involving uncertainty as to the range of possible loss to the entity. A provision for claims is recognized if it is probable (likely to occur) that a liability has been incurred and the amount can be estimated reasonably. Provisions in general are highly judgmental, especially in cases of legal disputes. We assess the probability of an adverse event if the probability is evaluated to be probable, we are required to fully provide for the total amount of the estimated contingent liability. We continually evaluate our pending provisions to determine if accruals are required. It is often difficult to accurately estimate the ultimate outcome of a contingent liability. Different variables can affect the timing and amount we provide for certain contingent liabilities. Our assessments are therefore subject to estimates made by us and our legal counsel, adverse revision in our estimates of the potential liability could materially impact our financial condition, results of operations or liquidity.

Valuation of Long Lived Assets. We apply ASC Subtopic 360-10, "Property, Plant and Equipment".  This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of the long lived asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as computed by subtracting the fair market value of the asset from its carrying value. We prepared future cash flows based on our best estimates including projections and financial statements, future plans and growth estimates.

Income Taxes. We account for income taxes under ASC Subtopic 740-10 Income Taxes – Overall.  Deferred tax assets or liabilities are recognized in respect of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts as well as in respect of tax losses and other deductions which may be deductible for tax purposes in future years, based on tax rates applicable to the periods in which such deferred taxes will be realized. The rates applied are those enacted in law as of June 30, 2016. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and during which the carry-forwards are available. Valuation allowances are established when necessary to reduce deferred tax assets to the amount considered more likely than not to be realized.

Our financial statements include deferred tax assets, net, which are calculated according to the above methodology. If there is an unexpected critical deterioration in our operating results and forecasts, we would have to increase the valuation allowance with respect to those assets. We believe that it is more likely than not that those net deferred tax assets included in our financial statements will be realized in subsequent years.

Stock Option and Restricted Share Plans. We account for our employee stock-based compensation awards in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC Topic 718 requires that all employee stock‑based compensation is recognized as a cost in the financial statements and that for equity-classified awards such cost is measured at the grant date fair value of the award. We estimate grant date fair value using the Black‑Scholes-Merton option‑pricing model. When calculating this equity-based compensation expense we took into consideration awards that are ultimately expected to vest. Therefore, this expense has been reduced for estimated forfeitures.

 

Comparison of Period to Period Results of Operations

 

The following table presents consolidated statement of operations data for the periods indicated as a percentage of total revenues:

 

 

 

Six months Ended June 30, 2016 compared to Six months ended June 30, 2015

 

Revenues. Revenues increased by 10% to $51.7 million in 2016 from $47.2 million in 2015. Sales of all products increased by 14% to $45 million in 2016 from $39 million in 2015.

 

Gross Profit. Gross profit consists of revenues less cost of revenues, which includes the cost of components, production materials, labor, depreciation, factory and service center overheads and provisions for warranties. These expenditures are only partially affected by sales volume. Our total gross profit increased to $23.1 million in 2016 from $20.7 million in 2015, an increase of $2.4 million, or 12%. Our gross margin increased to 44.6% in 2016, compared to a gross margin of 43.8% in 2015, primarily due to increased sales.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of expenses associated with salaries, commissions, promotion and travel, professional services and rent costs. Our selling, general and administrative expenses increased by 12% to $12.9 million in 2016 from $11.5 million in 2015, mainly due to an increase in agents’ commissions and in professional services.

 

 

B.          Liquidity and Capital Resources

 

From our inception through June  30, 2016 we raised approximately $36.0 million from our initial public offering in 2000, approximately $6.1 million in a rights offering of ordinary shares to our then existing shareholders in 2002, $14.5 million from a private placement to Israeli institutional investors in 2006, $5.0 million as a convertible loan from FIMI Opportunity Fund, L.P. and FIMI Israel Opportunity Fund, L.P. (all of which was paid in three equal portions in 2008, 2009 and 2010), and $11.9 million in a public offering of our shares in May 2015.

 

Our working capital was approximately $54.1 million in 2016 and $53.2 million in 2015. The increase is mainly attributed to the increase in the trade accounts receivables.

 

Our capital expenditures during the first half of 2016 were approximately $0.8 million, mainly due to operating activities.

 

In March 2015 a $15 million bond was posted with the United States Court of Appeals in connection with the Company's appeal in the Rudolph patent litigation. The bond was secured by guarantee from Bank Mizrahi in respect of which the Company was required to place $7.9 million in a restricted deposit. In addition, this guarantee was secured by a lien that was previously placed on the Company’s facility in Israel, in accordance with agreements signed in August 2010 and August 2011 with Bank Leumi L’Israel and in August 2011 with Bank Mizrahi. Pursuant to the Court’s final judgment from February 3, 2016 in favor of Rudolph, the Company paid in August 2016 damages, including interest, totaling approximately $14.6 million, which had an adverse effect on our capital resources. As a result we may be required to seek additional credit facilities or debt or equity financing to support the growth of our business.

 

Cash flow from operating activities

 

Net cash and cash equivalents used by operating activities for the six and twelve months ended June 30 2016 and December 31, 2015 totaled $6.1 million and $1.6 million, respectively.

 

During 2016, cash used for operating activities was primarily attributed to an increase in trade accounts receivable of $5.8 million and an increase in inventories of $3.0 million, partially offset by net income of $1.3 million.

 

Cash flow from investing activities

 

Cash flow used in investing activities in 2016 was $0.8 million, primarily due to investment in fixed and intangible assets

 

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