ELRNF Elron Ventures Ltd (CE)

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Issuer

 

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

 

For the Month of August 2016

 

ELRON ELECTRONIC INDUSTRIES LTD.

(Translation of Registrant’s Name into English)

 

 3Azrieli Center, Triangle Building, 42nd Floor, Tel Aviv  • ISRAEL

(Address of Principal Corporate 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  þ 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)(7): ___

Indicate by check mark if 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 Exchange Act of 1934:

 

Yes  o No ☐

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-(2):  82-_______

English Translation of Registrant’s Reports filed with the Israeli Securities Authority on August 29, 2016 in connection with the Registrant's Financial Results for the Second Quarter of 2016.

 

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Elron Electronic Industries Ltd. Part II English Translation of Board of Directors Report for the Second Quarter of 2016

1. Board of Directors' Analysis of the Company's Business

 

1.1. Company Description

 

1.1.1. General

 

Elron Electronic Industries Ltd. ("Elron", the "Company") is an operational holding company focused on building technology companies. Elron's group of companies includes companies at various stages of development that are engaged in a variety of technology fields, such as developing medical devices and others. Elron's principal shareholder is Discount Investment Corporation Ltd. ("DIC") (50.32%), a company controlled by IDB Development Corporation Ltd. ("IDB").

 

Elron operates through consolidated companies (companies controlled by Elron and whose financial statements are consolidated with Elron's financial statements), associates (companies over which Elron has significant influence and which are included in its financial statements using the equity method), and other companies over which the Company does not have significant influence (included in the financial statements based on fair value) (the "Group Companies").

 

For details on the accounting method applied to the Group Companies in Elron's financial statements, Elron's holding percentage in the Group Companies, and their carrying value, see the annex to the Company's interim consolidated financial statements as of June 30, 2016 (the "Financial Statements").

 

The Financial Statements were prepared in accordance with International Financial Reporting Standards ("IFRS").

 

1.1.2. Main goal

 

Elron's main goal is to build value for its shareholders by enhancing and exiting its Group Company holdings (whether through their sale or through the public listing of their shares), while simultaneously seeking new investment opportunities in technology companies.

 

1.1.3. Strategy

 

In order to achieve this goal, Elron operates according to the following business strategy:

 

·

Identifying and exploiting investment opportunities in companies with innovative technology and significant exit potential, mainly in the field of medical devices and cyber.

 

·

Investing over the long term in order to maximize the possibility of enhancing the Group Companies' value.

 

·

Focusing on investments which afford Elron influence and active involvement in their management.

 

·

Actively enhancing the Group Companies' value by providing hands-on assistance to their management.

 

·

Exploiting opportunities to exit Group Companies.

 

Elron Electronic Industries Ltd.

Part II

English Translation of Board of Directors Report

for the Second Quarter of 2016

 

1.1.4. RDC

 

As part of its business strategy, Elron examines a broad range of cooperation and investment proposals, including through RDC – Rafael Development Corporation Ltd. ("RDC"), an Elron subsidiary.

 

RDC has first rights to commercialize military technologies developed by Rafael – Advanced Defense Systems Ltd. ("Rafael") in civilian markets. RDC seeks to identify technology projects and invest in companies that will either make civilian use of Rafael's military technologies or which will benefit from Rafael's technology, know-how and expertise.

 

1.1.5. Group companies

 

Elron's main Group Companies and its holding percentage in them as of the date of filing this report are as follows:

 

·

RDC (50.1%) - See description in section 1.1.4 above.

 

·

Pocared Diagnostics Ltd. (55% by Elron, 12% by RDC) ("Pocared") - Pocared is developing a real-time and automated system for infectious diseases diagnosis using optical technology, intended for use by major microbiological laboratories and hospitals, as an alternative to current microbiological practice of bacteria culturing. The system is designed to reduce the average diagnostic time and significantly increase output in comparison with current diagnostic practice.   The system's first application is diagnosis of Urinary Tract Infection .

 

·

BrainsGate Ltd. (30%) ("BrainsGate") - BrainsGate is developing a system for treating ischemic stroke. The system operates by electrically stimulating a nerve center located behind the nasal cavity using a miniature implantable electrode, in order to increase blood flow to the brain. The system is intended to significantly lengthen the approved stroke treatment window to 24 hours post-symptom onset, and to provide a more effective treatment than is currently available.

 

See Item 4.B – "Business Overview" of the Company's Annual Report for 2015 filed on Form 20-F with the Securities and Exchange Commission ("Elron's 2015 Annual Report") for details on the criteria for classifying a Group Company as a main company.

 

Additional Group Companies and Elron's holding percentage in them as of the date of filing this report are, among others, as follows:

 

·

Notal Vision Inc. (21%) ("Notal Vision") - Notal Vision develops, manufactures and provides a system and services for remote monitoring of age-related macular degeneration, or AMD, patients at risk of vision loss, in order to enable early detection of visual changes before the disease progresses to the point of significant vision loss or blindness.

 

·

CartiHeal (2009) Ltd. (35%) ("CartiHeal") - Cartiheal is developing an implant for repairing cartilage and osteochondral defects in loadbearing joints, such as the knee. The implant has a unique structure, composed of calcium carbonate with hyaluronic acid. The implant biodegrades in the implantation site, and promotes the repair of cartilage and subchondral bone.

 

·

Coramaze Technologies GmbH (28%) ("Coramaze") - Coramaze is a German company developing a device for functional mitral valve regurgitation – backflow in the left side of the heart, caused by an enlarged left ventricle that prevents the valve from closing properly.

 

·

SixGill Ltd. (22%) ("SixGill") - SixGill   develops and provides an automated system that crawls the Dark Web and extracts information to provide its customers with relevant intelligence and alerts regarding possible or ongoing cyber-attacks against the enterprise .

 

·

Alcide IO Ltd. (30%) ("Alcide") - Alcide is developing a security solution for emerging data center environments to enable visibility and security policy enforcement for hybrid data centers.

 

 

·

SecuredTouch Inc. (29% by RDC) ("SecuredTouch") -   SecuredTouch develops and provides   a real time identity verification platform for mobile apps and mobile websites, that profiles users based on their physical behavior with touchscreen devices, allowing for seamless and persistent identity verification.

 

·

RDSeed Ltd. (100% by RDC) ("RDSeed") - RDSeed invests in early stage companies in cyber, information technology and enterprise software. RDSeed's holdings as of the date of filing this report include:

 

o

Cloudyn Software Ltd. (40%) ("Cloudyn"), which provides solutions for the optimization of cloud computing costs and resources;

 

o

Open Legacy Technologies Ltd. (37%) ("Open Legacy"), which provides an open source solution for modernizing Legacy applications (such as for digital banking);

 

o

IronScales Ltd. ("IronScales") (16%), which is developing and providing a SaaS solution whose goal is to interactively teach employees how to detect and resist spear phishing attempts.

 

·

PlyMedia Israel (2006) Ltd. (25%) ("PlyMedia") - PlyMedia has developed and markets a digital advertising platform for ad networks.

 

1.1.6. Factors affecting the results of operations and capital resources

 

As a holding company, Elron's operating results mainly derive from:

 

·

its share in the net losses of Group Companies;

 

·

gains or losses from exit transactions or changes in holdings, and revaluation of investments recorded based on fair value;

 

·

its corporate activities.

 

Elron's capital resources in any given period are primarily affected by:

 

·

the extent of its investments;

 

·

proceeds from exit transactions;

 

·

available credit lines or loans;

 

·

dividends distributed to shareholders or received from Group Companies.

 

Most of the Group Companies are technology companies which have not yet generated significant revenues, if at all, and which invest considerable resources in development and record losses. As a result, Elron has recorded and is expected to continue to record losses in respect of their ongoing operations, based on the accounting method applied to them in the Financial Statements.

 

The technology field in which the Group Companies operate are characterized by a high degree of risk. The Group Companies' success is dependent, among other things, upon: their intellectual property and ability to protect it; their ability to raise financing; their ability to successfully complete their products' development and receive regulatory clearance to market them, including through clinical trials; their ability to make the transition from development to manufacturing stages; their ability to market their products on a significant commercial scale; their ability to develop additional products; and their ability to successfully compete in the markets in which they operate.

 

Elron's ability to effect exit transactions at significant values is affected, among other things, by economic conditions, market conditions in the hi-tech and/or the medical devices industry, the status of the venture capital industry, the status of the capital markets, various contractual and regulatory restrictions, and is also dependent on management's ability to successfully lead exit transactions, and the circumstances and characteristics of the group company whose sale is being considered .

 

 

In addition, Elron's and the Group Companies' ability to obtain external financing is affected by economic conditions, the status of the capital markets, and the status of the venture capital industry.

 

1.2. Description of Operations in the Period of this Report and Subsequently

 

1.2.1. Investments

 

·

In the first six months of 2016, Elron (directly and indirectly) invested approximately $17 million in the Group Companies. For further details see section 1.4 below and Note 3 to the Financial Statements.

 

·

Investment in Pocared - In January 2016, Elron and other shareholders invested in Pocared an amount of $5 million (Elron's share was approximately $4.5 million). In May 2016, some of Pocared's shareholders, including Elron, granted Pocared a loan in the amount of $2 million (Elron's share in this loan was approximately $1.95 million). In July 2016, subsequent to the reporting date, Elron, through RDC, and other shareholders invested in Pocared a total amount of $10 million (RDC's share was approximately $9 million). In addition, according to the investment agreement, the entire balance of loans granted to Pocared in the amount of approximately $5.2 million (principal plus accrued interest) was converted into shares (Elron’s share in the loans including interest was approximately $4.8 million). Following the completion of this investment agreement, Elron's consolidated holding in Pocared's outstanding share capital increased from approximately 58% to 67% and from approximately 60% to 68% on a fully diluted basis (effective holding of approximately 61% outstanding share capital and 60% on a fully diluted basis). (For further details see Note 3.A to the Financial Statements).

 

·

Investment in BrainsGate - in January 2015, an investment agreement in BrainsGate in the amount of $26 million was signed, with the participation of Medtronic and additional shareholders of BrainsGate, including Elron. The first installment in the amount of $11 million was invested immediately (Elron's share in the first installment was approximately $3.3 million). In July 2016, subsequent to the reporting date, the second installment was invested (Elron's share in the second installment was approximately $4.6 million). (For further details see Note 3.B to the Financial Statements).

 

·

New Investment in SixGill -   In April 2016, Elron completed its first investment in SixGill   in the amount of $2.5 million as part of a $3 million financing round together with another SixGill shareholder. Following this investment, Elron holds approximately 22% of SixGill's outstanding shares (for further details see Note 3.E to the Financial Statements).

 

·

New Investment in SecuredTouch - In May 2016, RDC completed its first investment in SecuredTouch, in the amount of $2.2 million as part of a $2.5 million financing round together with other SecuredTouch shareholders. Following this investment, RDC holds approximately 29% of SecuredTouch's outstanding shares (for further details see Note 3.F to the Financial Statements).

 

·

New Investment in Alcide - In June 2016, Elron completed its first investment in Alcide   in the amount of $1.5 million. Following this investment, Elron holds approximately 30% of Alcide's outstanding shares (for further details see Note 3.G to the Financial Statements).

 

1.2.2. Developments in Main Group Companies

 

·

BrainsGate's FDA Trial - Further to Item 4B of Elron's 2015 Annual Report and as conveyed to Elron by BrainsGate, in May 2016, the Data Safety and Monitoring Board ("DSMB") of BrainsGate's study conducted an interim analysis of the results of 600 patients, after their follow-up period ended in April 2016. The purpose of the interim analysis was to support the continuation of the study according to the current format or to cease the study. Based on the interim analysis, the DSMB unanimously recommended to continue with the study in its current format. BrainsGate is continuing to recruit patients for the study and as of the date of filing this report, has recruited approximately 647 patients.

 

Elron Electronic Industries Ltd.

Part II

English Translation of Board of Directors Report

for the Second Quarter of 2016

 

·

Pocared's FDA Trial - Further to Item 4B of Elron's 2015 Annual Report, as conveyed to Elron by Pocared in March 2016 regarding its FDA trial, the examination of the trial results conducted by Pocared revealed that there was a malfunction in some of the calibration components of its systems, which led to incorrect results. The source of the malfunction was identified and its substance was examined, inter alia, by running raw data collected in the trial on a system with properly calibrated components, and the results thereof met Pocared's expectations. Pocared has taken steps to prevent the recurrence of the malfunction and is preparing to conduct a new trial, the aim of which is to demonstrate the efficiency and performance of the system for the purposes of submission to the FDA, similar to the aims of the current trial which was stopped. Pocared is expected to conduct the new trial during 2017.

 

Pocared's above estimates are forward-looking in nature, as defined in Israel Securities Law, 5728-1968, and are based on Pocared's estimations of its development and business potential, Pocared's intentions and strategy on the date of this report, and information existing in Pocared on the date of this report. These estimates, in whole or in part, may not materialize, or may materialize in a manner materially different than expected. The principal factors that may affect this are developments in Pocared's field of operation, failure to obtain regulatory approvals to continue development, obtaining the required financing for Pocared or the failure to do so, inability to realize technologies, modifications in technologies, discovery of a malfunction in Pocared's systems, delays or malfunctions in development or manufacturing, modifications in the business plan, goals and/or strategy, or if any risk associated with the course of the trial occurs.

 

1.2.3. Financing

 

·

Dividend - On March 10, 2016, the board of directors resolved to make an application to the Court for a dividend distribution of $15 million, constituting an amount of $0.504307 per share, not out of the Company's profits, pursuant to Section 303 of the Israeli Companies Law, 1999 (the "Companies Law").The decision of the board of directors was taken after the directors determined that considering the Company's assets and liabilities, the solvency criterion pursuant to the Companies Law has been met, namely that there is no reasonable concern that such dividend distribution would prevent the Company from meeting its existing and expected obligations, as and when they fall due, and that such dividend distribution is for the benefit of the Company and its shareholders.   In June 2016, the Court approved the distribution of this dividend. On August 29, 2016, subsequent to the reporting date, and in accordance with the approval of the Court, the Company's board of directors approved the distribution of a dividend in the amount of $15 million, not out of the Company's profits. The dividend's distribution is expected in September 2016.

 

·

As of the date of filing this report, Elron's and RDC's non-consolidated liquid resources amounted to approximately $54.0 million and $59.0 million, respectively. These amounts include Elron's and RDC's short term bank deposits in the amounts of $8.6 million and $38.0 million, respectively and other short term investments in securities by Elron in the amount of approximately $25.2 million. As of the date of filing this report, Elron and RDC have no debt.

 

 

As previously mentioned, the income and loss attributable to Elron's shareholders generally comprises of: I) Elron's share in the losses of Group Companies, II) gains and losses from exit transactions, revaluation of investments, and changes in holdings, III) corporate operating expenses, and also IV) taxes on income:*

 

 

* The results summarized in the table are presented net of non-controlling interest.

 

 

I)	Losses in respect of Group Companies

 

Elron's share in the net losses of Group Companies:

 

As previously mentioned, most of the Group Companies are technology companies which have not yet generated significant revenues, if at all, and which invest considerable resources in research and development and in marketing activities. According to accounting principles, these companies' investments in the development of their products are recorded as they occur in their statement of income as an increase in R&D expenses (insofar as these expenses are not capitalized as intangible assets as is permitted, according to accounting principles, only when technological feasibility has been established). Therefore, as the Group Companies increase their investments in order to develop their products and advance their business, they cause Elron to record greater losses in respect of its share in their losses.

 

The loss Elron recorded in the second quarter and first half of 2016 in respect of its share in the net losses of Group Companies (net of non-controlling interest) resulted mainly from the losses of Pocared,  BrainsGate , CartiHeal and Coramaze.

 

The loss Elron recorded in the second quarter and first half of 2015 in respect of its share in the net losses of Group Companies (net of non-controlling interest) resulted mainly from the losses of Pocared, RDSeed, BrainsGate and CartiHeal .

 

II)	Gain from disposal and revaluation of investee companies and changes in holdings, net

 

Gains from disposal, changes in holdings, and revaluation of investments recorded at fair value in the second quarter and first half of 2016 resulted mainly from a $0.6 million gain recorded in the first half and a $0.3 million gain recorded in the second quarter, due to an increase in the value of contingent consideration assets from the sale of companies .

 

Gains from disposal, changes in holdings, and revaluation of investments recorded at fair value in the second quarter and first half of 2015 resulted mainly from a $10.1 million gain recorded due to the initial consolidation of Pocared .

 

III)	Corporate operating expenses

 

Corporate operating expenses include general and administrative expenses.

 

IV)	Taxes on Income

 

Taxes on income in the first half of 2016, resulted mainly from Elron's share in the tax expenses recorded by RDC in respect of the sale of Kyma Medical Technologies Ltd. ("Kyma", sold in September 2015).

 

In the first half of 2015 no taxes on income were recorded.

 

 

		For the six months ended June 30,								For the three months ended June 30,
		2016				2015				2016				2015
		Unaudited
		$ thousands															Explanation
Selling and marketing expenses			224				955				147				604
General and administrative expenses			2,915				3,204				1,542				1,755		See analysis of Elron's and consolidated companies' operating expenses below.
Equity in losses of associates, net			5,103				5,233				2,097				1,828		Elron's share in the net losses of its associates results from its holdings in certain investments that are accounted for under the equity method.   As most of the Group Companies are companies whose operations have not yet generated significant revenues, if at all, and invest considerable resources in research and development and in marketing activities, Elron expects to continue to record losses in respect of these companies' ongoing operations in accordance with the accounting method applied to them in Elron's financial statements. In addition, see the analysis of the results of operations of main associate below.
Financial expenses			266				60				564				43		Financial expenses in the first half of 2016 resulted mainly from a decrease in the value of marketable investments measured at fair value.   Financial expenses in the second quarter of 2016 resulted mainly from USD-NIS exchange rate fluctuations, primarily in NIS bank deposits held by RDC.
Other expenses, net			20				32				3				32
Total expenses			12,140				15,059				5,720				8,173
Loss before taxes on income			(9,587	)			(3,010	)			(4,525	)			(6,249	)

 

 

 

1.3.3. Analysis of the consolidated operating expenses

 

Operating expenses in the second quarter and first half of 2016 amounted to $3,056 and $6,751 thousand, respectively, compared with to $6,211 and $9,625 thousand, respectively, in the second quarter and first half of 2015, and comprised mainly of research and development expenses, net, selling and marketing expenses, and general and administrative expenses of Elron's and consolidated companies' corporate operations, as detailed below:

 

 

1.3.4. Analysis of the results of operations of main associate