ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
2019 ANNUAL REPORT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
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Consolidated Financial Statements:
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F-2
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F-3
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F-4
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F-5
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F-6
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F-8
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Financial Statement Schedule:
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F-43
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Report of Independent Registered Public Accounting Firm
To the Supervisory Board of Directors and
Stockholders of ICTS International N.V. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ICTS International N.V. (“Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and
comprehensive income (loss), shareholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2019 and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2019, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter – Impact of COVID-19
We draw your attention to Note 1, which describes the subsequent event resulting in additional risks and uncertainties impacting the Company. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standard Codification Topic 842,
leases effective January 1, 2019 under the modified retrospective method.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States of America) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Mayer Hoffman McCann CPAs
(The New York Practice of Mayer Hoffman McCann P.C.)
We have served as the Company's auditor since 2007.
New York, New York
June 15, 2020
See accompanying notes to the consolidated financial statements.
NOTE 1 – ORGANIZATION
Description of Business
ICTS International N.V. (“ICTS”) was registered at the Department of Justice in Amstelveen, Netherlands on October 9, 1992. ICTS and subsidiaries (collectively referred to as “ICTS” or the
"Company") operate in three reportable segments: (a) corporate (b) airport security and other aviation services and (c) authentication technology. The corporate segment does not generate revenue and contains primarily non-operational expenses. The
airport security and other aviation services segment provides security and other services to airlines and airport authorities, predominantly in Europe and the United States of America. The authentication technology segment is predominantly involved
in the development and sale of authentication security software to financial and other institutions, predominantly in the United States of America and Europe.
Liquidity and Financial Condition
Accounting Standard Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern requires a Company’s management to assess an entity’s ability to
continue as a going concern, and to provide related footnote disclosure in certain circumstances, as following:
As of December 31, 2019 and 2018, the Company has a working capital (deficit) of $27,627 and $(7,839) and shareholders deficit of $35,685 and $34,856, respectively. During the years ended
December 31, 2019, 2018 and 2017, the Company incurred income (loss) from continuing operations of $(7,253), $(11,064), and $5,865, respectively, and cash flows provided by (used in) operating activities of $(9,092), $7,416 and $9,076,
respectively.
The Company has a line of credit in the Netherlands up to €12,000 ($13,200 as of June 1, 2020), which will expire in March 2021 and additional line of credit in the United States of America up to $10,000, which
will expire in October 2021 (see notes 9 and 20). As of May 31, 2020, the Company’s borrowings under the line of credit in Netherlands were approximately €11,504 ($12,654) and had approximately €15,865 ($17,452) in cash, resulting in
availability of €16,361 ($17,997), but the Company was in default of certain financial covenants. The Company is currently working with this lender in regards with this default. The Company anticipates that it will be able to extend its
lines of credit.
In June 2020, the Company amended the agreement with the entity related to the main shareholder to extend the period of the notes until June 30, 2021. The maximum amount of the notes will be $3,500, excluding
interest (see note 12).
The COVID-19 outbreak has developed rapidly in 2020, with a significant number of infections. The Company is dependent mostly in Europe and the United States of America for its business on the
airline industry. In addition, the decisions taken by various governments have affected economic activity and the Company’s business as following:
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•
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Decrease of travel by flights, reducing the demand for services the Company provide as part of its Airport Security and other aviation services. As a result, our cumulative revenues in the first four months at 2020 was
approximately $8,255 lower than our 2019 revenues in the same period with the major negative impact identified in March and April, which has been continuing in May and June so far and many of the Company’s employees were laid off and
/ or ordered to stay home. The Company’s operating results have declined significantly in 2020 and our liquidity has been negatively impacted.
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•
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Governments in some of the countries in which we operate have also announced the implementation of government assistance measures, which may mitigate the impact of the COVID-19 outbreak on our
results and liquidity. In the United States of America, the Government has approved a payroll support of $13,680 to the American subsidiary of the Company. In the Netherlands, the government has approved a support of €8,250
($9,075 as of June 1, 2020) for the period April 1, 2020 until June 30, 2020, under the NOW program. In addition, once the current support period will expire, the Company is entitled to request additional support for the
period July 1, 2020 until October 31, 2020 and is expecting to get €6,900 ($7,590 as of June 1, 2020). In Germany, the Company is eligible for payroll support up to 60% of the employee’s payroll (on individual basis) in
case the employees meet the support plan requirements. The Company has already applied for this support starting from April 2020. These available governmental support plans might be extended and/or changed according to the
future COVID-19 developments. In addition the Dutch and the German governments are providing through local banks long term loans up to 10 years to companies that meet certain requirements. The Company is evaluating the
terms of those loans and its eligibility to such loans.
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•
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Depending on the duration of the COVID-19 crisis and continued negative impact on economic activity, the Company might experience further negative results and liquidity restrains. The exact impact on our activities in the remainder
of 2020 and thereafter cannot be predicted.
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Alternate Sources of Liquidity
In July 2019, ABC Technologies B.V. (“ABC”), a subsidiary of ICTS issued preferred shares to an investor for a subscription price of $60 million in cash representing 24% of the outstanding
share capital of ABC and 23.077% of the outstanding share capital of ABC and its subsidiary on a fully diluted basis. ABC will retain $20 million on the sale proceeds for general working capital purposes and $40 million were transferred to its
parent company, ICTS International N.V. (see note 13).
In July 2019, the Company repaid $30 million to the entity related to the main shareholder who provided the Company loans as convertible notes (see note 12).
In November 2019, ABC issued preferred shares to a new investor for a subscription price of $20 million in cash representing 7.401% of the outstanding share capital of ABC and 7.143% of the
outstanding share capital of ABC and its subsidiaries on a fully diluted basis (see note 13).
The Company’s business plan for twelve months from the issuance of these consolidated financial statements projects income from operations, positive cash flows and includes the receipt of government funding from
the United States of America and the Netherlands discussed above. In the event that one of the lenders recall the loan, the Company has other current available liquidity to ensure the financing of its operations. If the impact of COVID-19
negatively impacts the Company beyond its current forecast, the Company could also receive additional funding in the Netherlands under the NOW program and from Germany. Furthermore, the Company has alternate sources of liquidity that it
could access to ensure its ability to continue as a going concern. There can be no assurance that management will be successful in achieving its business plan.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The significant accounting policies
are as follows:
Functional Currency
The accompanying consolidated financial statements are presented in United States dollars. The Company has determined that the functional currency of its foreign subsidiaries is the local currency,
which is predominantly the Euro. For financial reporting purposes, the assets and liabilities of such subsidiaries are translated into United States dollars using exchange rates in effect at the balance sheet date. The revenue and expenses of such
subsidiaries are translated into United States dollars using average exchange rates in effect during the reporting period. Resulting translation adjustments are presented as a separate category in shareholders' deficit called accumulated other
comprehensive loss.
Use of Estimates
The preparation of financial statements in conformity with US 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
The most significant estimates and assumptions included in these consolidated financial statements consist of the: (a) calculation of the allowance for doubtful accounts, (b) determination of the
fair value of stock options, (c) recognition of contingent liabilities (d) valuation allowance of deferred income taxes, (e) determination of goodwill impairment (f) determination of future lease periods of existing lease contracts, and (g)
determination of interest rates used in order to calculate the present value of the operating lease liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of ICTS International N.V. and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents.
Restricted Cash
Restricted cash as of December 31, 2019 consists of: (a) $733 held in bank accounts that serve as cash collateral for outstanding letters of credit and (b) $1,760 held in several bank accounts in
the Netherlands, which is restricted for payments to local tax authorities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Restricted Cash (Continued)
Restricted cash as of December 31, 2018 consists of: (a) $233 held in a bank account that serves as cash collateral for outstanding letters of credit and (b) $2,883 held in several bank accounts in
the Netherlands, which is restricted for payments to local tax authorities.
The following table provides a reconciliation of cash and restricted cash reported on the balance sheet that sum to the total of the same such amounts shown in the statements of cash flows.
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December 31,
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2019
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2018
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Cash and cash equivalents
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$
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52,352
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$
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12,801
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Restricted cash
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2,493
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3,116
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Total cash, cash equivalents and restricted cash shown in the
statement of cash flows
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$
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54,845
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$
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15,917
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Accounts Receivable
Accounts receivable represent amounts due to the Company for services rendered and are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on
historical collection experience, factors related to a specific customers and current economic trends. The Company writes off accounts receivable against the allowance for doubtful accounts when the balance is determined to be uncollectible. As
of December 31, 2019 and 2018, the allowance for doubtful accounts is $418 and $240, respectively.
Investments
The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 820, “Fair Value Measurement”. Topic 820 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements. Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value should be based on assumptions that market participants would use.
In determining the fair value, the Company assesses the inputs used to measure fair value using a three-tier hierarchy, as follows:
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Level 1 -
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Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Companies have the ability to access at the measurement date.
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Level 2 -
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Inputs to the valuation methodology include:
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Quoted prices for similar assets or liabilities in active markets;
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•
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Quoted prices for identical or similar assets or liabilities in inactive markets;
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Inputs other than quoted prices that are observable for the asset or liability;
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•
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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Level 3 -
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Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company accounts for investments in the equity securities of companies which represent an ownership interest of 20% to 50% and the ability to exercise significant influence, provided that
ability does not represent control, using the equity method. The equity method requires the Company to recognize its share of the net income (loss) of its investees in the consolidated statement of operations until the carrying value of the
investment is zero.
Property and Equipment
Equipment and furniture, internal-use software, leasehold improvements and vehicles are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. The estimated useful lives used in determining depreciation are as follows:
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Years
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Equipment and facilities
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3-7
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Internal- use software
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4-7
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Vehicles
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3-7
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Leasehold improvements are amortized using the straight-line method over the shorter of the total term of the lease or the estimated useful lives of the assets.
Capitalized Internal-Use Software Costs
The Company capitalizes the cost of internal-use software that has a useful life in excess of one year in property and equipment. These costs consist of payments made to third party consultants for
the installation and integration of software and related travel costs. Software maintenance and training costs, including related travel costs, are expensed in the period in which they are incurred.
Goodwill
Goodwill represents the excess purchase price over the fair value of the net tangible and intangible assets of an acquired business. Goodwill is assessed for impairment by reporting unit on an
annual basis or when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company would record a goodwill impairment charge for the difference between the carrying value and the fair value of the goodwill,
not to exceed the carrying amount of the goodwill. During the years ended December 31, 2019, 2018 and 2017, the Company recognized a goodwill impairment of $0, $1,563 and $0, respectively (see note 8).
Long-Lived Assets
The Company reviews long-lived assets, other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The
Company assesses recoverability by determining whether the net book value of the related asset will be recovered through the projected undiscounted future cash flows of the asset. If the Company determines that the carrying value of the asset may
not be recoverable, it measures any impairment based on the fair value of the asset as compared to its carrying value. During the years ended December 31, 2019, 2018, and 2017, the Company did not record any impairment charges on its long-lived
assets.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Employee rights upon retirement
The Company is required to make severance payments to its Israeli employees upon dismissal of an employee or upon a termination of employment in certain circumstances. The Israeli pension and
severance pay liability to the employees is covered mainly by deposits made at insurance companies. For its employees who are employed under the Section 14 of the Israeli Severance Pay Law, 1963 (“Section 14”), the Company makes deposits with
certain insurance companies for accounts controlled by each applicable employee in order to secure the employees’ rights upon termination. In addition, the related obligation and amounts deposited on behalf of the applicable employees for such
obligations are not presented on the Company’s consolidated balance sheets, as the amounts funded are not under the control of management of the Company and the Company is legally released from the obligation to pay any severance payments to the
employees once the required deposits amounts have been paid.
For employees not under Section 14, severance liabilities are recorded based on the length of service and their latest monthly salary. The Company’s liabilities for the Israeli employees amounted
to $1,493 and $1,498 as of December 31, 2019 and 2018, respectively and are included in other liabilities in the Company’s consolidated balance sheets. The deposits made at insurance companies to cover these liabilities amounted to $1,264 and
$1,305 as of December 31, 2019 and 2018, respectively and are included in other assets in the Company’s consolidated balance sheets.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new standard introduced a number of changes and simplified previous guidance, primarily the recognition of lease assets and
lease liabilities by lessees for those leases classified as operating leases. The new standard retained the distinction between finance leases and operating leases and the classification criteria between the two types remains substantially similar.
Also, lessor accounting remained largely unchanged from previous guidance. However, key aspects of the new standard were aligned with the revenue recognition guidance in Topic 606.
The Company applied the modified retrospective approach without adjusting comparative periods, as of January 1, 2019.
The Company has performed a comprehensive assessment of the impact of the adoption of new lease accounting guidance including reviewing its existing lease contracts, scoping the relevant contracts
that include a lease as well as assessing the impact to business processes and related disclosure requirements.
The new standard provides a number of optional practical expedients in transition. The Company chose to apply the following permitted practical expedients:
Not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard.
Short-term lease recognition exemption for all leases with a term shorter than 12 months. This means, that for those leases, the Company does not recognize ROU assets or lease
liabilities.
Applying the practical expedient to not separate lease and non-lease components for all of the Company’s leases as a lessee.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (Continued)
The Company as a lessee
Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. A lease is a finance lease if it meets
any one of the criteria below, otherwise the lease is an operating lease:
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
The lease term is for the major part of the remaining economic life of the underlying asset.
The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds
substantially all of the fair value of the underlying asset.
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of lease term.
Based on the criteria above, all of the Company's leases are classified as operating leases.
Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, while the ROU assets are also adjusted for any
prepaid or accrued lease payments. The Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments.
The lease term is the non-cancellable period of the lease plus periods covered by an extension or termination option if it reasonably certain that the Company will exercise the option.
After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the
discount rate hasn’t been updated as a result of a reassessment event).
The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or
accrued rent if relevant and any unamortized initial direct costs. Lease expenses are recognized on a straight-line basis over the lease term. Lease terms will include options to extend or terminate the lease when it is reasonably certain that the
Company will exercise or not exercise the option to renew or terminate the lease.
Variable lease payments that depend on an index or a rate
On the commencement date, the lease payments shall include variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate), initially measured
using the index or rate at the commencement date.
The Company does not remeasure the lease liability for changes in future lease payments arising from changes in an index or rate unless the lease liability is remeasured for another reason.
Therefore, after initial recognition, such variable lease payments are recognized in profit or loss as they are incurred.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (Continued)
Impact of the new standard
The most significant impact is reflected in: (i) the recognition of approximately $12,632 ROU assets and $12,606 lease liabilities on the Company's balance sheet for its operating leases of
offices, vehicles and equipment (see table below) and (ii) the requirement to provide significant new disclosures regarding leasing activities and to enable users of financial statements to assess the amount, timing and uncertainty of cash flows
arising from leases. However, the adoption of this standard does not have a material impact on consolidated statements of income and consolidated statements of cash flows (see note 7).
The table below presents the effects on the consolidated statement of financial position as at January 1, 2019, in respect of leases existing as of that date:
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According to the previous accounting policy
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The change
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As presented according to Topic 842
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Dollars in thousands
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As of January 1, 2019:
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Assets:
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Prepaid expenses
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26
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(26
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)
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-
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Operating leases ROU
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-
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12,632
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12,632
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26
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12,606
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12,632
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Current liabilities:
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Current maturity of lease liabilities
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-
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2,859
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2,859
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Non-current liabilities:
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Lease liabilities
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-
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9,747
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9,747
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Convertible Debt Instruments
The Company evaluates convertible debt instruments to determine whether the embedded conversion option needs to be bifurcated from the debt instrument and accounted for as a freestanding derivative
instrument or considered a beneficial conversion option. An embedded conversion option is considered to be a freestanding derivative when: (a) the economic characteristics and risks of the embedded conversion option are not clearly and closely
related to the economic characteristics and risks of the host instrument, (b) the hybrid instrument that embodies both the embedded conversion option and the host instrument is not re-measured at fair value under otherwise applicable US GAAP with
changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded conversion option would be considered a derivative instrument subject to certain requirements (except when the host
instrument is deemed to be conventional).
When it is determined that an embedded conversion option should not be bifurcated from its host instrument, the embedded conversion option is evaluated to determine whether it contains any
intrinsic value which needs to be discounted from the carrying value of the convertible debt instrument.
The intrinsic value of an embedded conversion option is considered to be the difference between the fair value of the underlying security on the commitment date of the debt instrument and the
effective conversion price embedded in the debt instrument.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Contingent Liabilities
The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the normal course of its business activities. Liabilities for such
contingencies are recognized when: (a) information available prior to the issuance of the consolidated financial statements indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and
(b) the amount of loss can reasonably be estimated.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The Company's comprehensive income (loss) consists of the Company’s net income (loss) and foreign currency translation adjustments. Accumulated other comprehensive loss consist of the Company’s
accumulated foreign exchange currency translation adjustments.
Stock-Based Compensation
Stock-based compensation to employees, including stock options, are measured at the fair value of the award on the date of grant based on the estimated number of awards that are ultimately expected
to vest. The compensation expense resulting from stock-based compensation to management and administrative employees is recorded over the vesting period of the award in selling, general and administrative expense on the accompanying consolidated
statements of operations and comprehensive income (loss). Compensation expense resulting from stock-based compensation to operational employees is recorded over the vesting period of the award in cost of revenue.
Stock-based compensation issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the stock-based compensation, whichever is
more readily determinable.
Non-Controlling Interests
The Company’s non-controlling interests represent the minority shareholder’s ownership interests related to the Company’s subsidiaries. The Company reports its non-controlling interests in
subsidiaries as a separate component of equity in the consolidated balance sheets and reports net income (loss) attributable to the non-controlling interests in the consolidated statement of operations.
Redeemable Non-Controlling Interests
Certain non-controlling interests in a subsidiary are entitled to predefined Exit Rights that, for accounting purposes, constitute a contingent redemption event that is outside of the Company’s
control. As such, these non-controlling interests are presented as temporary equity between liabilities and equity on the Company’s consolidated balance sheets.
After initial recognition, at the fair value of the investment less directly attributable transaction costs, the carrying value of redeemable non-controlling interests is adjusted for the
non-controlling interests share in the subsidiary’s profits and Other Comprehensive Income (Loss). The Company does not adjust the carrying value of the redeemable non-controlling interests to the deemed liquidation values of such shares as long as
the liquidation events triggering the Exit Rights is not considered probable of occurring.
Revenue Recognition
Revenue is recognized when the promised services are performed for our clients, and the amount that reflects the consideration we are entitled to receive in exchange for those services is
determined. The Company’s revenues are recorded net of any sales taxes.
As of January 1, 2018, the Company adopted Topic 606 and all subsequent amendments to the ASU, using the modified retrospective approach.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Based on the Company’s evaluation process and review of our contracts with customers, the timing and amount of revenue recognized under the new guidance is consistent with our revenue recognition
policy under previous guidance. The new guidance has not had a material impact on our results of operations, cash flows or financial condition.
In order to determine the revenue, we (1) identify the contract with the client, (2) identify the performance obligations, usually it’s based on the hours spent, (3) determination of the
transaction price, (4) allocation of the transaction price to the performance obligation and (5) we recognize revenue as performance obligation is satisfied.
A performance obligation is a promise in a contract to transfer a distinct service to the client, and it is the unit of account in the new accounting guidance for revenue recognition. The majority
of our contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in our contracts and, therefore, is not distinct.
The following table presents the Company’s revenues according to the Company’s segments:
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Year ended December 31,
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2019
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2018
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2017
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Airport Security and Other Aviation Services
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$
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309,548
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|
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$
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329,150
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$
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292,393
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Authentication Technology
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23,759
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16,071
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5,289
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Total revenues
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$
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333,307
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|
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$
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345,221
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$
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297,682
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The following table presents the Company’s revenues generated from customers by geographical area based on the geographical location of the customers invoicing address:
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Year ended December 31,
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2019
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|
2018
|
|
|
2017
|
|
Germany
|
|
$
|
137,207
|
|
|
|
41
|
%
|
|
$
|
134,646
|
|
|
|
39
|
%
|
|
$
|
125,896
|
|
|
|
42
|
%
|
The Netherlands
|
|
|
97,700
|
|
|
|
29
|
%
|
|
|
121,465
|
|
|
|
35
|
%
|
|
|
103,862
|
|
|
|
35
|
%
|
United States
|
|
|
73,719
|
|
|
|
22
|
%
|
|
|
69,548
|
|
|
|
20
|
%
|
|
|
54,891
|
|
|
|
18
|
%
|
Other countries
|
|
|
24,681
|
|
|
|
8
|
%
|
|
|
19,562
|
|
|
|
6
|
%
|
|
|
13,033
|
|
|
|
5
|
%
|
Total revenues
|
|
$
|
333,307
|
|
|
|
100
|
%
|
|
$
|
345,221
|
|
|
|
100
|
%
|
|
$
|
297,682
|
|
|
|
100
|
%
|
Airport Security and Other Aviation Services Segment
In the airport security and other aviation services, for performance obligations that we satisfy over time, revenues are recognized by consistently applying a method of measuring hours spent on
that performance obligation. We generally utilize an input measure of time (hours and attendance for specific time framed service like specific flights) of the service provided. Performance obligations are satisfied over the course of each month
and continue to be performed until the contract has been terminated or cancelled.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Pricing and Reduction to Revenues
We generally determine standalone selling prices based upon the prices included in the client contracts, using expected costs plus margin, or other observable prices. The price as specified in our
client contracts is generally considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar client in similar circumstances. Certain client contracts have variable consideration, including
quality thresholds or other similar items that could reduce the transaction price. These amounts may be constrained and revenue is recorded to the extent we do not expect a significant reversal or when the uncertainty associated with the variable
consideration is resolved. Our variable consideration amounts, if any, are not material, and we do not expect significant changes to our estimates.
Contracts
Our client contracts generally include standard payment terms acceptable in each of the countries, states and territories in which we operate. The payment terms vary by the type and location of our
clients and services offered. Client payments are typically due in 30 to 60 days after invoicing, but may be a shorter or longer term depending on the contract. Our client contracts in the material countries are generally long term between three to
five years. The timing between satisfaction of the performance obligation, invoicing and payment is not significant.
Practical Expedients and Exemptions
Because nearly all our contracts are based on input measure of time of service provided (as hours or attendance) no exemptions need to be made. We have no material contracts with material revenues
expected to be recognized subsequent to December 31, 2019 related to remaining performance obligations.
Revenue Service Types
The following is a description of our revenue service types, including Airport Security, Airline Security, Cargo Security, Other Airport Services, General Security Services and Other.
Airport Security
Staffing or manning for specialized airport security are usually based on long term contract issued via a public tender procedure. We recognize revenue given the unit of measure (hours) provided in
the given time period and the specific price for specific hours agreed upon in the contracts. Quality and criteria of staffing are described in the contracts and are measured in the given time period. Deviations, if any, are discussed with the
customer before invoicing and will be reflected in the invoice showing the approved hours and other cost elements as agreed upon price.
Most contracts have an hourly rate that reflects an all-in tariff based on a full cost price calculation. In some of the contracts the hourly rates are split between a component based on hours and
a component based on specific costs in a specific time period but always linked to the service provided in given time period. Revenue is recognized at the time period set in the contract.
Airline Security
Staffing or manning for airline security are usually based on long term contracts issued via a public tender procedure. We recognize revenue according to the unit of measure provided (usually
attendance for specific time framed service like specific flights). The time framed specialized security services are in this case are the executed number of flights. When the manning for the security of these flights are delivered, the Company
invoices the customer according to the agreed flight tariff.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Cargo Security
Staffing or manning for specialized cargo security are usually based on long term contract, sometimes publicly tendered. Contracts are based on hourly planned and executed screening services.
Revenue is recognized based on the realized screening hours and contractually agreed upon hourly rate.
Other Airport Services
Airport Services include wheelchair attendants, pre-departure skycaps, bag-runners, agents, guards, charter security screening, janitorial, and cabin cleaning to major U.S. and foreign carriers in
airports throughout the United States of America. Our contracts may include either single or multiple performance obligations and vary by airport and airline. We recognize revenue given the unit of measure (hours) provided in the given time period
and the specific price for specific hours or attendance for specific event, time framed service as agreed upon in the contracts.
General Security Services
Security Services include providing armed and un-armed guards to private schools and places of worship, video surveillance and patrol. Contracts for security services generally include only a
single performance obligation. We generally recognize revenue for security guard services. We recognize revenue for security guard given the unit of measure (hours) provided in the given time period. Revenue from video surveillance and patrol is
recognized based upon a fixed monthly rate.
Other Services
Other services include revenues from (incidental) specialized security manning services, training services and ad hoc work performed on and off airports. Revenue is recognized over time as
services are being performed, using the input of service delivered during the time period, according to the contractual agreed price.
Authentication Technology Segment
In the authentication technology segment, the Company offers authentication services on a cost per click basis, with a minimum yearly commitment which means the customer pays the Company according
to the higher of (a) number of times the customer used the system in order to authenticate IDs or (b) according to the yearly minimum commitment. According to the agreement with the customers, each chargeable click has an agreed price and revenue
is being recognized accordingly.
Pricing and Reduction to Revenues
We generally determine standalone selling prices based upon the prices included in the client contracts, using expected costs plus margin, or other observable prices. The price as specified in our
client contracts is generally considered the selling price as agreed with the customer. Certain client contracts have variable consideration which are based on quantity of usage. These amounts may be constrained and revenue is recorded to the
extent we do not expect a significant reversal or when the uncertainty associated with the variable consideration is resolved. Our variable consideration, if any, amounts are not material, and we do not expect significant changes to our estimates.
Contracts
Our client contracts generally include standard payment terms acceptable in each of the countries, states and territories in which we operate. The payment terms vary by the type and location of our
clients and services offered. The minimum commitment is usually being paid in advance. Client payments are typically due in 30 days after invoicing, but may be a shorter or longer term depending on the contract. Our client contracts are usually for
a one-year period with a renewal option. The timing between satisfaction of the performance obligation, invoicing and payment is not significant.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance. Deferred revenues at December 31, 2019 and 2018 were $1,652 and $2,001, respectively shown as part
of the accrued expenses and other current liabilities and $268 and $111 shown as other liabilities. Revenue recognized for the years ended December 31, 2019, 2018 and 2017 that was included in the deferred revenue at the beginning of each year was
$2,001, $854 and $360, respectively.
Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant.
Cost of Revenue
Cost of revenue represents primarily payroll and employee related costs associated with employees who provide services under the terms of the Company's contractual arrangements, insurance and depreciation and
amortization.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of payroll and related costs.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs during the years ended December 31, 2019, 2018 and 2017 are $828, $528 and $316, respectively.
Value Added Tax
Certain of the Company’s operations are subject to Value Added Tax (“VAT”) applied on the services sold in those respective countries. The Company is required to remit the VAT collected to the tax
authorities, but may deduct the VAT paid on certain eligible purchases.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities resulting from a change in tax rates is recognized in the period that
includes the enactment date. A valuation allowance is established when realization of net deferred tax assets is not considered more likely than not.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
Uncertain income tax positions are determined based upon the likelihood of the positions being sustained upon examination by taxing authorities. The benefit of a tax position is recognized in the
consolidated financial statements in the period during which management believes it is more likely than not that the position will not be sustained. Income tax positions taken are not offset or aggregated with other positions. Income tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of income tax benefit that is more than 50 percent likely of being realized if challenged by the applicable taxing authority. The portion of the benefits
associated with income tax positions taken that exceeds the amount measured is reflected as income taxes payable.
The Company recognizes interest related to uncertain tax positions in interest expense. The Company recognizes penalties related to uncertain tax positions in selling, general and administrative
expenses.
Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period.
Diluted income (loss) per share is determined in the same manner as basic income (loss) per share, except that the number of shares is increased to include potentially dilutive securities using the treasury stock method.
The Company had a loss from continuing operations for the years ended December 31, 2019 and 2018. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share
because the impact of all dilutive potential common share is anti-dilutive due to the net losses in 2019 and 2018. Potentially dilutive securities were excluded from the computation of diluted income (loss) per share as the conversion rate of the
convertible note payable to related party was higher than the market price of the Company’s common stock as of December 31, 2019 and 2018, as the effect of including them is anti-dilutive.
The Company had an income from continuing operations for the year ended December 31, 2017. Potentially dilutive securities were excluded from the computation of diluted income (loss) per share as
the conversion rate of the convertible note payable to related party was higher than the weighted average computed price of the Company’s stock for the year 2017 as the effect of including them is anti-dilutive.
The following table summarizes the number of shares of common stock attributable to potentially dilutive securities outstanding for each of the periods which were excluded from the calculation of
diluted income (loss) per share:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of convertible notes
|
|
|
|
|
|
|
|
payable to related party at a price of $0.40
|
|
|
5,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Shares issuable upon conversion of convertible notes
|
|
|
|
|
|
|
|
|
|
payable to related party at a price of $1.50
|
|
|
-
|
|
|
|
14,731,267
|
|
|
|
16,652,333
|
|
Shares issuable upon conversion of accrued interest
|
|
|
|
|
|
|
|
|
|
payable to related party at a price of $0.75
|
|
|
-
|
|
|
|
11,779,776
|
|
|
|
16,815,677
|
|
Total
|
|
|
5,000,000
|
|
|
|
26,511,043
|
|
|
|
33,468,010
|
|
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities,
income taxes payable, VAT payable, notes payable-banks, long-term loan payable and loan payable to related party approximate their carrying values due to the short-term nature of the instruments. The carrying values of the convertible notes
payable to a related party and other liabilities are not readily determinable because: (a) these instruments are not traded and, therefore, no quoted market prices exist upon which to base an estimate of
fair value and (b) there were no readily determinable similar instruments on which to base an estimate of fair value.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
Financial instruments which are subject to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable.
The Company maintains cash and cash equivalents and restricted cash in accounts with financial institutions in the United States of America, Europe, Japan and Israel. As of December 31, 2019,
accounts at financial institutions located in the United States of America are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250 per institution. As of December 31, 2019, cash, cash equivalents and restricted cash of $249 is
being held in the United States of America, of which $16 is uninsured. Bank accounts located in Europe, Japan and Israel, totaling $54,596 as of December 31, 2019, are uninsured.
The Company renders services to a limited number of airlines and airports through service contracts and provides credit without collateral. Some of these airlines and airports may have
difficulties in meeting their financial obligations, which can have a material adverse effect on the Company's consolidated financial position, results of operations and cash flows. To mitigate this risk, the Company regularly reviews the
creditworthiness of its customers through its credit evaluation process.
Revenue from two customers represented 69% of total revenue during the year ended December 31, 2019, of which one customer accounted for 41% and the other customer accounts for 28% of total
revenue. Accounts receivable from these two customers represented 57% of total accounts receivable as of December 31, 2019.
Revenue from two customers represented 72% of total revenue during the year ended December 31, 2018, of which one customer accounted for 38% and the other customer accounts for 34% of total
revenue. Accounts receivable from these two customers represented 55% of total accounts receivable as of December 31, 2018.
Revenue from two customers represented 76% of total revenue during the year ended December 31, 2017, of which one customer accounted for 42% and the other customer accounted for 34% of total
revenue. Accounts receivable from these two customers represented 53% of total accounts receivable as of December 31, 2017.
Both customers mentioned above, have been principle customers in the last three years.
Risks and Uncertainties
The Company is currently engaged in direct operations in numerous countries and is therefore subject to risks associated with international operations (including economic and/or political
instability and trade restrictions). Such risks can cause the Company to have significant difficulties in connection with the sale or provision of its services in international markets and have a material impact on the Company's consolidated
financial position, results of operations and cash flows.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Risks and Uncertainties (Continued)
The Company is subject to changes in interest rates based on Central Banks Federal Reserve actions and general market conditions. The Company does not utilize derivative instruments to manage its
exposure to interest rate risk.
Furthermore, as a result of its international operations, the Company is subject to market risks associated with foreign currency exchange rate fluctuations. The Company does not utilize
derivative instruments to manage its exposure to such market risk. As such, significant foreign currency exchange rate fluctuations can have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Reclassification
Certain amounts have been reclassified in prior years balance sheets, statements of operations and statements of cash flows to conform with current period presentation.
Recently Issued Accounting Pronouncements
Accounting Standards Update 2020-01
In January 2020, the FASB issued an update for Investments-Equity Securities (Topic 321) and Investments-Equity method and Joint Ventures (Topic 323). This ASU, among other things, clarifies that a
company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, for the purposes of applying the measurement alternative in accordance with topic 321 immediately
before applying or upon discontinuing the equity method. The amendment is affective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. The adoption of this standard is
not expected to have a material effect on the Company’s operating results or financial condition.
Accounting Standards Update 2019-12
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions
to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard will become effective for interim and annual
periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard is not expected to have material effect on the Company’s operating results or financial condition.
NOTE 3 – BUSINESS COMBINATION
Acquisition in Sweden
In July 2018, the Company acquired 100% of the outstanding shares of Detact Security Solution AB. The purpose of the acquisition was to penetrate the Swedish aviation and cargo markets.
Consideration of the acquisition was 9,500 SEK ($1,065 as of the purchase date), of which 6,500 SEK ($729 as of the purchase date) was paid in cash upon the signing of the purchase contract and 3,000 SEK ($336 as of the purchase date) was held in
escrow for a period of three months or longer in case of disagreement between the parties. As of December 31, 2018, the funds in the escrow account were not released to the seller as a result of disagreement between the parties.
The acquisition was accounted for as a purchase and accordingly a purchase price was allocated to the assets acquired and liabilities assumed at their fair value.
NOTE 3 – BUSINESS COMBINATION (CONTINUED)
Acquisition in Sweden (Continued)
The following represents the allocation of the purchase price as of the purchase date in SEK and the translation to United States Dollars as of the purchase date:
|
|
SEK
|
|
|
U.S. Dollars
|
|
Cash
|
|
|
663
|
|
|
|
74
|
|
Accounts receivable
|
|
|
8,902
|
|
|
|
999
|
|
Other current assets
|
|
|
445
|
|
|
|
50
|
|
Fixed assets
|
|
|
1,189
|
|
|
|
133
|
|
Goodwill
|
|
|
9,005
|
|
|
|
1,010
|
|
Other assets
|
|
|
1,039
|
|
|
|
116
|
|
Total identifiable assets acquired
|
|
|
21,243
|
|
|
|
2,382
|
|
|
|
|
|
|
|
|
|
|
Notes Payables-banks
|
|
|
4,734
|
|
|
|
531
|
|
Accounts Payable
|
|
|
182
|
|
|
|
20
|
|
Other current liabilities
|
|
|
5,787
|
|
|
|
649
|
|
Non current liabilities
|
|
|
1,039
|
|
|
|
117
|
|
Total liabilities assumed
|
|
|
11,742
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,501
|
|
|
|
1,065
|
|
Goodwill associated with the new acquisition of Detact Security Solution AB was 9,005 SEK ($1,007 as of December 31, 2018) and deductible for income tax purposes. The goodwill consists principally
of the expectations of future earnings and profits from expanding this business. In December 2018, the Company evaluated the goodwill and concluded the goodwill should be fully impaired (see note 8).
Acquisition in Spain
In January 2018, the Company acquired 100% of the outstanding shares of Abydos Consultores de Sistemas S.L.U. The purpose of the acquisition was to increase the Company’s activities in Spain.
Consideration of the acquisition was €183 ($226 as of the purchase date), in cash upon the signing of the purchase contract. The name of Abydos Consultores de Sistemas S.L.U. was changed into I-SEC Aviation Security S.L.
The acquisition was accounted for as a purchase and accordingly a purchase price was allocated to the assets acquired and liabilities assumed at their fair values.
NOTE 3 – BUSINESS COMBINATION (CONTINUED)
Acquisition in Spain (Continued)
The following represents the allocation of the purchase price as of the purchase date in Euros and the translation to United States Dollars as of the purchase date:
|
|
EUR
|
|
|
U.S. Dollars
|
|
Cash
|
|
|
29
|
|
|
|
36
|
|
Accounts receivable
|
|
|
142
|
|
|
|
175
|
|
Fixed assets
|
|
|
88
|
|
|
|
108
|
|
Other assets
|
|
|
11
|
|
|
|
14
|
|
Goodwill
|
|
|
188
|
|
|
|
232
|
|
Total identifiable assets acquired
|
|
|
458
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
Notes payables-banks
|
|
|
11
|
|
|
|
14
|
|
Accounts payable
|
|
|
19
|
|
|
|
23
|
|
Accrued expenses and other current liabilities
|
|
|
126
|
|
|
|
155
|
|
Other liabilities
|
|
|
119
|
|
|
|
147
|
|
Total liabilities assumed
|
|
|
275
|
|
|
|
339
|
|
|
|
|
183
|
|
|
|
226
|
|
Goodwill associated with the acquisition of Abydos Consultores de Sistemas S.L.U. was €188 ($232 as of December 31, 2018) and is deductible for income tax purposes. The goodwill arising from this
acquisition consist principally of the expectations of future earnings and profits from expending this business. In December 2018 the Company evaluated the goodwill and concluded that the goodwill should be fully impaired (see note 8).
Acquisition in Denmark
On July 19, 2017, the Company acquired 100% of the outstanding shares of Harsec A/S (“Harsec”) in Denmark. Harsec provides cargo security services in the Danish airports and is serving
international parcel companies. Consideration of the acquisition for the shares was 10,000 Danish Krone (“DKK”) ($1,579 as of the purchase date) in cash of which 90% was paid upon the signing of the purchase contract and 10% paid three months after
that. The acquisition was done in order to expand our services to the Danish market.
The acquisition was accounted for as a purchase and accordingly a purchase price was allocated to the assets acquired and liabilities assumed at their fair values.
The following represents the allocation of the purchase price as of the purchase rate in DKK and the translation to United States Dollars as of the purchase date:
|
|
DKK
|
|
|
U.S. Dollars
|
|
Cash
|
|
|
3,161
|
|
|
|
499
|
|
Accounts receivable
|
|
|
3,219
|
|
|
|
508
|
|
Other receivables
|
|
|
124
|
|
|
|
20
|
|
Fixed assets
|
|
|
665
|
|
|
|
105
|
|
Goodwill
|
|
|
4,478
|
|
|
|
707
|
|
Total identifiable assets acquired
|
|
|
11,647
|
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
1,647
|
|
|
|
260
|
|
Total liabilities assumed
|
|
|
1,647
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
1,579
|
|
NOTE 4 – DISCONTINUED OPERATIONS
During the year ended December 31, 2017, the Company committed to a plan to cease the aviation security operations of its subsidiary in Cyprus.
As of December 31, 2019 and 2018 the Company had no assets or liabilities in its consolidated balance sheets, that related to the discontinued operations.
A summary of the Company’s consolidated statements of operations from the above discontinued operations for the years ended December 31, 2019, 2018 and 2017 are as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
609
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
588
|
|
GROSS PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
289
|
|
|
|
116
|
|
Net loss
|
|
|
-
|
|
|
|
(289
|
)
|
|
|
(95
|
)
|
Less: Net loss attributable to non-controlling interests
|
|
|
-
|
|
|
|
123
|
|
|
|
47
|
|
LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE
|
|
|
|
|
|
|
|
|
|
TO ICTS INTERNATIONAL N.V.
|
|
$
|
-
|
|
|
$
|
(166
|
)
|
|
$
|
(48
|
)
|
NOTE 5 – INVESTMENTS
Artemis Therapeutics, Inc.
As of December 31, 2019, the Company owns 198,311 shares or 3.8% of the outstanding common stock of Artemis Therapeutics, Inc. (“ATMS”). As of December 31, 2019, ATMS has no operating business.
The Company suspended its use of the equity method to accounting for this investment in 2007 after its investment balance was reduced to zero.
As of December 31, 2019 and 2018, the Company’s share of the underlying net assets of ATMS is equal to the Company’s carrying value of its investment in ATMS ($0 at December 31, 2019 and 2018). The
market value of the Company's investment in ATMS as of December 31, 2019 and 2018 is $10 and $119, respectively.
The Company evaluated the stock price of ATMS but as ATMS share price is low, the number of shares that are being traded is low, and as ATMS still does not have any revenue, the Company determined
that the value of the investment is impaired and accordingly, valued the investment at zero.
White Line B.V.
In March 2017, the Company invested an amount of $2,000 in White Line B.V., a limited company incorporated in the Netherlands. White Line is a holding and finance company. Because White Line B.V.
is a private, closely-held company, there is no active market for this investment. Therefore, the Company measures the investment at cost minus impairment. In October 2017, the Company invested additional amount of $1,500 in White Line. The total
investment represented 10% of the issued and outstanding share capital of White Line.
The Company had an agreement with an entity related to its main shareholder, according to which, if the value of this investment decrease, the related party entity has guaranteed to repurchase this
full investment at a minimum amount of $3,500. The guaranty is effective after three years of the date of purchase and terminates after five years.
NOTE 5 – INVESTMENTS (CONTINUED)
White Line B.V. (Continued)
In December 2018, the Company reached into an agreement with the related party entity in order to preface the sale of the investment. The related party entity purchased the full investment from the
Company in December 2018, for $3,500 in exchange for reduction in the convertible notes payable to a related party.
Freezone I-SEC Korea Inc.
In April 2018, the Company signed a Joint Venture Agreement with a South Korean Company in order to establish a Joint Venture Company (“JVC”) and to provide aviation security and non-security
services in South Korea. Each one of the parties holds 50% (fifty percent) of the JVC’s equity. The Company uses the equity method for this investment. As of December 31, 2019, the Company’s investment is 381,332 KRW ($330). For the years ended
December 31, 2019 and 2018, the Company recognized a profit in its consolidated statements of operations of 105,092 KRW and 133,550 KRW, respectively ($91 and $124 as of December 31, 2019 and 2018, respectively) from its investment in the JVC. In
addition, each one of the partners, provided in June 2018 to the JVC a loan of 200,000 KRW in order to fund the working capital of the JVC. The loan bears interest of 1.3% per year. As of December 31, 2019 and 2018, the outstanding balance of the
loan was 0 and 200,000 KRW respectively ($0 and $180 as of December 31, 2019 and 2018, respectively), shown in the consolidated balance sheets as other assets.
Mesh Technologies, Inc.
In January 2019, the Company invested an amount of $50 in Mesh Technologies, Inc. (“Mesh”), a company incorporated in Delaware, USA. As of December 31, 2019, the investment represented 0.6% of the
issued and outstanding share capital of Mesh. Mesh is a technology company providing cross border payments technology by innovating on the existing payment rails of established card networks available in the market. As Mesh is a private, closely
held company, there is no active market for this investment. Therefore, the Company measures the investment at cost minus impairment.
Arrow Ecology & Engineering Overseas (1999)
In December 2019, the Company invested an amount of $1,750 in Arrow Ecology & Engineering Overseas (1999) Ltd (“Arrow”), a limited company incorporated in Israel. Arrow develops and operates a
sustainable green process to recycle mixed and sorted municipal solid waste. The Company purchased few types of shares representing 23.3% of Arrow’s equity for an amount of $22 and shareholders loans were purchased for a price of $1,728. The
Company uses the equity method for this investment. As the investment in Arrow was acquired at the end of December 2019, the Company did not recognise profit or loss regarding this investment for the year ended December 31, 2019.
The Company has an agreement with an entity related to its main shareholder, according to which, if the value of the investment decrease, the related party entity has guaranteed to repurchase this
full investment at a minimum amount of $1,750. The guarantee is effective immediately as of the date of purchase and terminates after three years. Some Directors and managers of Arrow are related parties of the Company.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment is as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Offices, equipment and facilities
|
|
$
|
8,866
|
|
|
$
|
7,489
|
|
Internal-use software
|
|
|
595
|
|
|
|
587
|
|
Vehicles
|
|
|
1,870
|
|
|
|
1,912
|
|
Leasehold improvements
|
|
|
2,352
|
|
|
|
1,957
|
|
|
|
|
13,683
|
|
|
|
11,945
|
|
Less: accumulated depreciation and amortization
|
|
|
9,097
|
|
|
|
7,682
|
|
Total property and equipment, net
|
|
$
|
4,586
|
|
|
$
|
4,263
|
|
Depreciation and amortization expense are $1,688, $1,897 and $1,416 for the years ended December 31, 2019, 2018 and 2017 respectively.
NOTE 7 - LEASES
The table below presents the effects on the amounts relating to the Company’s total lease cost:
|
|
Year ended December 31, 2019
|
|
Operating lease cost
|
|
$
|
3,421
|
|
Short-term lease cost
|
|
|
994
|
|
Total lease cost
|
|
$
|
4,415
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
Cash paid for amounts included in the measurement of Lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
2,901
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
541
|
|
|
|
|
|
|
Weighted-average remaining lease term - operating leases
|
|
4.1 years
|
|
|
|
|
|
|
Weighted-average discount rate - operating leases
|
|
|
5.0
|
%
|
NOTE 7 – LEASES (CONTINUED)
Supplemental balance sheet information related to operating leases was as follows:
|
|
December 31, 2019
|
|
Operating lease ROU assets
|
|
$
|
10,367
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
2,725
|
|
Operating lease liabilities
|
|
|
7,562
|
|
Total operating lease liabilities
|
|
$
|
10,287
|
|
Maturities of operating lease liabilities as of December 31, 2019 were as follows:
Year ending December 31,
|
|
|
|
2020
|
|
$
|
3,100
|
|
2021
|
|
|
2,063
|
|
2022
|
|
|
1,660
|
|
2023
|
|
|
1,610
|
|
2024
|
|
|
1,329
|
|
Thereafter
|
|
|
2,121
|
|
Total future minimum lease payments
|
|
|
11,883
|
|
Less: imputed interest
|
|
|
1,596
|
|
Total
|
|
$
|
10,287
|
|
NOTE 8 – GOODWILL
All the Company’s goodwill relates to its airport security and other aviation services segment. The change in goodwill during the year is as follows:
|
|
2019
|
|
|
2018
|
|
Balance as of the beginning of the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
2,220
|
|
|
$
|
1,044
|
|
Accumulated impairment losses
|
|
|
(1,525
|
)
|
|
|
-
|
|
|
|
|
695
|
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during the year
|
|
|
-
|
|
|
|
1,242
|
|
Impairment losses
|
|
|
-
|
|
|
|
(1,563
|
)
|
Exchange rate effect
|
|
|
(14
|
)
|
|
|
(28
|
)
|
|
|
|
681
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,182
|
|
|
|
2,220
|
|
Accumulated impairment losses
|
|
|
(1,501
|
)
|
|
|
(1,525
|
)
|
|
|
$
|
681
|
|
|
$
|
695
|
|
NOTE 8 – GOODWILL (CONTINUED)
At December 31, 2019, the Company performed a qualitative assessment to determine if it was more likely than not that the fair value of the reporting units exceeded its carrying value, including
goodwill. The qualitative assessment indicated that it was more likely than not that the fair value exceeded the carrying value of the reporting unit. At December 31, 2018, the qualitative assessment indicated that it was more likely than not that
the carrying value of the reporting unit exceeded fair value. At December 31, 2018, the qualitative assessment indicated that it was more likely than not that the carrying value of the reporting unit exceeded the fair value.
The quantitative impairment test includes comparing the carrying value of the reporting unit, including the existing goodwill and intangible assets, to the fair value of the reporting unit. If the
carrying amount of the reporting unit exceeds its fair value, a goodwill impairment charge is recorded for the amounts in which the carrying value of the reporting unit exceeds the fair value of the reporting unit, up to the amount of goodwill
attributed to the reporting unit.
During the years ended on December 31, 2019, 2018 and 2017, the Company recognized impairment charges of $0, $1,563 and $0, respectively.
The facts and circumstances that led to the impairment of goodwill during the year ended December 31, 2018 are as follows:
Procheck, a wholly-owned subsidiary of the Company since 1998 was advised by its only customer, that its services are not required, its contract would not be renewed and will end on December 31,
2018, following a change in the governmental security concept in the Netherlands. Upon expiration of the agreement, Procheck will be closed and the employment of its employees was terminated. The closing costs totaled €8,059 ($9,219 as of December
31, 2018). A goodwill impairment loss of $314 was recognized.
In January 2018, the Company acquired 100% of the outstanding shares of Abydos Consultores de Sistemas S.L.U (see note 3) and recorded goodwill of €188 ($215 as of December 31, 2018). The purpose
of the acquisition was to increase the Company’s activities in Spain. As the Company did not win any of the main bids on which it participated during 2018, revenue, operating profits and cash flows were lower than expected in 2018. The earnings
forecast for the next four years was revised and an impairment loss of €188 ($215 as of December 31, 2018) was recognized. The fair value of Abydos Consultores de Sistemas S.L.U. was estimated using the expected present value of future cash flows.
In July 2018, the Company acquired 100% of the outstanding shares of Detact Security Solution AB (see note 3) and recorded goodwill of 9,005 SEK ($1,007 as of December 31, 2018). The purpose of the
acquisition was to penetrate the Swedish aviation and cargo markets. After the acquisition, a major customer has terminated the contract with the Company. As a result, the revenue, operating profits and cash flows will be lower than expected. The
earnings forecast for the next four years was revised and an impairment loss of 9,005 SEK ($1,007 as of December 31, 2018) was recognized. The fair value of Detact Security Solution AB was estimated using the expected present value of future cash
flows.
As the Company maintains a valuation allowance for the carrying value of its net deferred tax assets for the locations affected by the goodwill impairment, there is no effect on the Company’s
deferred tax assets in the consolidated balance sheets (see note 16).
NOTE 9 – NOTES PAYABLE – BANKS
United States of America
The Company’s U.S. subsidiary is a party to a credit facility with a commercial lender, which provides a maximum borrowing capacity up to $10,000, subject to a borrowing base limitation. The
borrowing base limitation was equivalent to: (i) 85% of eligible accounts receivable, as defined, plus (ii) 80% of eligible unbilled receivables, as defined, plus (iii) 95% of a $500 standby letter of credit that was provided to the lender by an
entity related to the main Shareholder. Borrowings under the credit facility are secured by the U.S. subsidiary’s accounts receivable, unbilled receivables, equipment, cash and the $500 letter of credit that was provided to the lender by an entity
related to the main Shareholder.
In December 2019, the Company replaced the $500 stand by letter of credit which was provided to the lender by an entity related to the Company’s main shareholder to a letter of credit, provided by
the Company and with the same terms.
As of December 31, 2019 and 2018, the Company had approximately $6,475 and $9,033, respectively, outstanding under line of credit arrangement. As of December 31, 2019 and 2018, the Company had
$3,525 and $967, respectively, in unused borrowing capacity under the line of credit facility.
Borrowings made under the credit facility bear interest, which is payable monthly, at LIBOR plus 3% per annum (4.76% as of December 31, 2019).
The Company’s weighted average interest rate in the United States of America during the years ended December 31, 2019, 2018 and 2017 is 6.51%, 6.0% and 5.64% respectively. The Company is required
to maintain a minimum fixed charge coverage ratio. The credit facility expires in October 2021. During the year ended December 31, 2019, the Company was not in compliance of certain financial covenants, and a waiver was obtained from the commercial
lender.
Europe
The Company has a credit arrangement with a commercial bank, to provide it with up to €12,000 ($13,453 as of December 31, 2019) in borrowings until further notice. Borrowings under the line of
credit bear interest at one-month EURIBOR plus 3.5% with a minimum of 3.5% per annum (3.5% as of December 31, 2019). The Company is also subject to an unused line fee of 0.75% per annum, which is payable quarterly. The line of credit is secured by
accounts receivable of five of the Company’s European subsidiaries and tangible fixed assets of three of the Company’s European subsidiaries. The line of credit cannot exceed 80% of the borrowing base.
In April 2019, the Company amended the line of credit agreement with the commercial bank in order to temporarily increase the line of credit up to €16,000 ($17,936 as of December 31, 2019) under
the same terms and conditions through September 2019.
As of December 31, 2019 and 2018, the Company had €11,872 and €2,207 ($13,313 and $2,525 as of December 31, 2019 and 2018), respectively, in outstanding borrowings under the line of credit
arrangement.
The Company’s weighted average interest rate in Europe during the years ended December 31, 2019, 2018 and 2017, is 3.5%, 3.5% and 3.5% respectively.
In addition to the line of credit arrangement, a guarantee facility of €2,500 ($2,803 as of December 31, 2019) is provided to the Company by the same commercial bank. As of December 31, 2019 and
2018, the Company had €2,316 and €2,275 ($2,596 and $2,603 as of December 31, 2019 and 2018), respectively, of outstanding guarantees under the guarantee facility, which related to leases and performance guarantees for contracts.
As of December 31, 2019, the Company was not in compliance of the covenants of the agreement.
The line of credit agreement expired on December 31, 2019 and it was operating under the old terms and conditions until the renewal in May 2020 (see note 20).
NOTE 9 – NOTES PAYABLE – BANKS (CONTINUED)
Europe (Continued)
The Company has an additional credit arrangement in Sweden to provide it with up to 2,000 SEK ($215 as of December 31, 2019) in borrowings. Borrowings under the line of credit bear annual interest
of 2.8% and subject to annual extension by the financial institution. The line of credit is secured by accounts receivable of the Swedish subsidiary. As of December 31, 2019 and 2018, the Company had 1,115 SEK and 2,955 SEK ($120 and $331 as of
December 31, 2019 and 2018) respectively in outstanding borrowings under the line of credit facility. The Sweden subsidiary had an over advance of 955 SEK ($107) at December 31, 2018 which was subsequently repaid.
NOTE 10 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Accrued payroll and related costs
|
|
$
|
20,662
|
|
|
$
|
21,082
|
|
Accrued vacation
|
|
|
6,639
|
|
|
|
6,647
|
|
Accrual for minimum wage increase
|
|
|
-
|
|
|
|
508
|
|
Labor union contribution
|
|
|
2,089
|
|
|
|
2,197
|
|
Severance accrual for Procheck termination
|
|
|
-
|
|
|
|
7,728
|
|
Deferred revenue
|
|
|
1,652
|
|
|
|
2,001
|
|
Other
|
|
|
3,991
|
|
|
|
2,510
|
|
Total accrued expenses and other current liabilities
|
|
$
|
35,033
|
|
|
$
|
42,673
|
|
NOTE 11 – LOAN PAYABLE
In December 2018, the Company entered into an agreement with a financing company to provide it €2,000 ($2,242 as of December 31, 2019) as a loan until December 2020. The loan can be repaid earlier
but not before December 2019. In November 2019, the Company repaid €1,000 ($1,121 as of December 31, 2019) of the payable loan plus interest calculated through December 2019. The loan bears interest of ten percent per annum. Interest is being paid
quarterly.
NOTE 12 – DEBT TO RELATED PARTIES
Loan from Related Party
In March 2017, the Company signed a loan agreement with a related party, to provide the Company a loan of $2,000 for up to one year bearing 7% interest per annum. At December 31, 2019 and 2018,
the loan payable to the related party consist of $0 and $200, respectively, in principal and $0 and $168 respectively in accrued interest. Interest expense related to this loan is $8 and $59 for the years ended December 31, 2019 and 2018,
respectively.
NOTE 12 – DEBT TO RELATED PARTIES (CONTINUED)
Convertible Notes Payable to a Related Party
In May 2014, the Company entered into an arrangement with an entity related to its main shareholder, which replaced all previous arrangements between the parties, to provide it with up to $37,000
in revolving loans through December 2016. The term of the arrangement can be automatically extended for four additional six-month periods at the option of the holder. All outstanding borrowings from previous arrangements were applied to the
borrowing capacity of the new arrangement. Loans received under the arrangement bear interest, which is compounded semi-annually and payable at maturity, at the interest rate charged by the Company’s European commercial bank (LIBOR plus 6% for U.S.
dollar-denominated loans and the base rate plus 2% for Euro-denominated loans). The arrangement is secured by a 26% interest in one of the Company's European subsidiaries. In connection with the arrangement, the holder was granted an option to
convert outstanding notes payable (including accrued interest) under the arrangement into the Company's common stock at a price of $1.50 per share. The Company determined that the new arrangement did not represent a substantive modification and,
therefore, it was not necessary to evaluate whether the conversion feature qualified as a free-standing derivative instrument or contained any intrinsic value which would be considered beneficial.
In October 2015, the Supervisory Board of Directors approved to reduce the convertible price of the unpaid interest from $1.50 per share to $0.75 per share. In addition, the loan period was
extended until January 1, 2018. The terms of the arrangement can be automatically extended for four additional six months periods at the option of the holder. The Company determined that the new arrangement did not represent a
substantive modification and therefore it was not necessary to evaluate whether the conversion feature qualifies as a free-standing derivative instrument or contained any intrinsic value which would be considered beneficial.
In September 2016, the Supervisory Board of Directors approved an increase in the interest rates of the loan from the entity related to the main shareholder, by one percent, retroactively for the
whole period of the loan. The Company determined that the new arrangement did not represent a substantive modification and therefore it was not necessary to evaluate whether the conversion feature qualifies as a freestanding derivative instrument
or contained any intrinsic value, which would be considered beneficial.
In December 2017, the loan period was extended until January 1, 2019. The terms of the arrangement can be automatically extended for four additional six months periods at the option of the holder.
In October 2018, the loan period was extended until June 30, 2020. The terms of the arrangement can be automatically extended for four additional six months periods at the option of the holder.
In January 2019, the entity related to the main shareholder converted $2,889 accrued interest into 3,852,364 shares at a price of $0.75 per share.
In May 2019 the Company granted this entity, the option to convert up to $2,000 of the loan into the Company’s shares at a price of $0.40 per share, and all other conversion rights for the balance
of the debt except $2,611, which is convertible at a price of $0.75 per share, would eliminate. In December 2019, this entity converted the $2,611 accrued interest into 3,480,968 shares at a price of $0.75 per share.
In June 2019 the Board of Directors approved a one-time compensation of $8,139 to this entity for exchange rate and related losses suffered in connection with its convertible notes to the Company
during the years. Compensation was approved subject to closing of investment transaction in the Company’s subsidiary, ABC Technologies B.V., which happened in July 2019 (see note 13). As a result, the Company recorded $8,139 in connection with this
payment which is included in other expenses in the consolidated statement of operation and comprehensive income (loss)
In July 2019, the Company repaid $30,000 of the convertible notes.
The Company’s weighted average interest during the years ended December 31, 2019, 2018 and 2017 is 8.30%, 7.70% and 7.27%, respectively.
NOTE 12 – DEBT TO RELATED PARTIES (CONTINUED)
Convertible Notes Payable to a Related Party (Continued)
As of December 31, 2019 and 2018, convertible notes payable to this related party consist of $0 and $22,097 respectively, in principal and $2,000 and $8,835, respectively, in accrued interest.
Note Payable to Related Party
As of December 31, 2019 and 2018, notes payable to this related party consist of $1,033 and $0, respectively, in principal and $505 and $0, respectively in accrued interest. The principal was
repaid in February 2020.
Total interest expense related to these notes is $1,218, $2,687 and $2,706 for the years ended December 31, 2019, 2018 and 2017, respectively.
In June 2020, the Company amended the agreement with the entity related to the main shareholder to extend the period of the notes until June 30, 2021. The maximum amount of the notes will be $3,500, excluding
interest.
NOTE 13 – REDEEMABLE NON-CONTROLLING INTERESTS
On July 3, 2019, ABC entered into a Series A Preferred Subscription Agreement (the "Agreement") with TPG Lux 2018 SC I, S.a.r.l ("TPG"), according to which ABC issued 3,000,000 Series A Preferred
Shares ("Series A Shares") to TPG for a subscription price of US$60 million in cash representing approximately 24% of the outstanding share capital of ABC and 23.077% of the fully-diluted share capital of ABC (see note 14). Transaction costs
totaled $4,540 and were deducted from the redeemable non-controlling interests balance.
On November 7, 2019, ABC entered into a Series A and Series A-1 Preferred Subscription Agreement with Oak HC/FT Partners II, L.P. ("Oak"), according to which ABC issued 1,000,000 Series A Preferred
Shares and 23,622 Series A-1 Preferred Shares ("Series A-1 Shares" and together with Series A Shares – "the Preferred Shares") to Oak for a subscription price of US$20 million in cash representing approximately 7.401% of the outstanding share
capital of ABC and 7.143% of the fully-diluted share capital of ABC. For accounting purposes, the investment was allocated to the Series A and Series A-1 Preferred Shares on a relative fair value basis: $19,537 and $461, respectively. Transaction
costs totaled $1,513 and were deducted from the respective investment amounts.
Following the Oak investment, on November 7, 2019, TPG subscribed for 307,087 Series A-1 Shares at nominal value (US$0.001 per share) (“Bonus Issue Series A-1 Shares”) in order to preserve its
23.077% ownership interest in the fully diluted share capital of ABC.
The Preferred Shares Rights
Liquidation Preference: The holders of Series A Shares (“Series A Holders”) are entitled to a liquidation preference upon the occurrence of a sale, initial public offering (“IPO”), merger,
consolidation, reorganization, winding-up, dissolution or liquidation of ABC, pursuant to which the Series A Holders are entitled, on the occurrence of such event and in priority to the ordinary shares, to receive the greater of: (a) an amount
equal to the initial subscription price for the Series A Shares, plus all accrued but unpaid dividends in respect of the Series A Shares, less all dividends previously paid on the Series A Shares, and (b) the proceeds distributable in respect of
the Series A Shares had they been converted into ordinary shares. The initial subscription price for the Series A Shares (and calculations derived therefrom) are subject to customary adjustments as set forth in the agreements executed in
connection with the Sale.
Conversion Rights: The Series A Shares are subject to conversion into ordinary shares of ABC: (a) on the written request by any Series A Shareholder; and (b) immediately prior to a qualifying IPO
of ABC (being an IPO where the net aggregate gross proceeds to ABC exceed US$75 million and where the subscription price per share paid by the public is not less than 150% of the initial subscription price paid for the Series A Shares). Pursuant to
these conversion arrangements, the Series A Shares will convert into ordinary shares on a 1:1 basis (subject to certain agreed upon adjustments).
NOTE 13 – REDEEMABLE NON-CONTROLLING INTERESTS (CONTINUED)
The Preferred Shares Rights (Continued)
Anti-Dilution Protection: The Shareholders Agreements contain customary broad-based weighted average anti-dilution protection whereby, if further shares are issued by ABC at a price per new
security that is less than the initial subscription price paid for the Series A Shares, then the Series A Holders shall be entitled to receive additional Series A Shares (at no further cost) on a weighted-average basis, reflecting the value of
equity in ABC as determined based on the subscription price paid in the new issue of securities.
Pre-emption Rights: The Shareholders Agreements contain a restriction on issuing any securities ranking senior to or on party with the Series A Shares for as long as TPG and/or any subsequent
investor holds at least one third of the overall number of Series A Shares in issue as at the date of completion of the Sale. In addition, each shareholder holding in excess of 3% of the shares of ABC has the right to participate in any new
issuance of securities by the ABC, subject to customary exceptions.
Exit Rights: At any time from and after the fifth (5th) anniversary of completion of the issuance, upon written request by TPG, ABC is required to use reasonable endeavors to facilitate the sale by
TPG of the Preferred Shares (or, following conversion, ordinary shares) to a third party at a price in excess of 150% of the initial subscription price paid for the Series A Shares and subject to a right of first refusal in favor of the Company. In
the event that, three (3) months thereafter, a sale of the Preferred Shares held by TPG has not been consummated, upon written request by TPG, ABC is required to facilitate a sale of ABC within six (6) months after
such written request, and thereafter, TPG has the right to require ABC to facilitate a sale or IPO of ABC. On the exercise of such rights, each other shareholder (including the Company) is required
to cooperate with TPG regarding such sale or IPO and TPG has the right to exercise drag rights over the shares held by other shareholders in order to facilitate such exit event.
The Exit Right is part of the issuance of the Series A Shares, and was not entered into separately from the transaction that created the non-controlling interests. The Exit Right is not legally
detachable from the non-controlling interests because it is non-transferrable (i.e., the instrument cannot be transferred without the underlying preferred shares). Thus, the Exit Right would not be separately exercisable from the non-controlling
interests shares because the non-controlling interests shares will be settled when the Exit Right is exercised. As a result, the Exit Right would be considered embedded in the Series A Shares held by TPG.
Shares of redeemable convertible preferred stock are not mandatorily or currently redeemable. However, the Exit Right would constitute a contingent redemption event that is outside of the Company’s
control. As such, Series A Shares have been presented outside of permanent equity as redeemable non-controlling interests. The Company has adjusted the carrying value of the redeemable non-controlling interests to adjust for the non-controlling
interests share in ABC's profits and Other Comprehensive Income (Loss). The Company has not adjusted the carrying values of the redeemable non-controlling interests to the deemed liquidation values of such shares since a liquidation event was not
probable at any of the balance sheet dates. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made only if and when it becomes probable that such a liquidation event will occur.
The Series A-1 Preferred Shares do not entitle their holders to any liquidation or exit rights as the Series A Preferred Shares, and therefore are classified within permanent equity, as
non-controlling interests.
The anti-dilution provisions cited above have not been bifurcated from the host contract since they are to be settled into ABC's non-traded shares, thus the "net settlement" criteria is not met.
NOTE 13 – REDEEMABLE NON-CONTROLLING INTERESTS (CONTINUED)
The Preferred Shares Rights (Continued)
The following table sets forth for the year ended December 31, 2019 the movement in the Redeemable non-controlling interests:
|
|
2019
|
|
Balance as of the beginning of the year
|
|
$
|
-
|
|
Sale of ABC Technologies B.V. series A Shares, net
|
|
|
73,520
|
|
Net Income
|
|
|
774
|
|
Other Comprehensive Income - Translation adjustment
|
|
|
6
|
|
Balance as of the end of the year
|
|
$
|
74,300
|
|
NOTE 14 – STOCK-BASED COMPENSATION
ABC’s subsidiary has a Stock Option Plan which has reserved 500,000 shares of its common stock for its future issuance. As of December 31, 2019, the subsidiary has 13,000,000 authorized shares of
which 12,500,000 shares are issued and outstanding. Under the stock option plan, stock options may be granted to employees, officers, directors, consultants and service providers of the subsidiary at an exercise price as determined by the
subsidiary’s board of directors with expiration terms of not more than ten years after the date such option is granted. Options granted under the plan generally vest over a period of four years.
During the year ended December 31, 2017, the subsidiary granted 62,500 options to certain of its employees at an exercise price of €0.01 per share. The grant date fair value was determined to be
immaterial.
The following is a summary of the Company’s subsidiary stock options issued and outstanding:
|
|
Number of
options
|
|
|
Weighted average exercise price
|
|
|
Weighted average remaining contractual term
|
|
Options outstanding as of December 31, 2018
|
|
|
290,500
|
|
|
$
|
0.01
|
|
|
|
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
90,000
|
|
|
|
-
|
|
|
|
|
|
Options outstanding , end of the year
|
|
|
200,500
|
|
|
$
|
0.01
|
|
|
|
7.5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of December 31, 2019
|
|
|
156,625
|
|
|
$
|
0.01
|
|
|
|
7.5 years
|
|
Non-vested options consist of the following:
|
|
Number of
|
|
|
Weighted average
|
|
|
|
options
|
|
|
exercise price
|
|
Non-vested opions, as of December 31, 2018
|
|
|
160,250
|
|
|
$
|
0.01
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(61,375
|
)
|
|
|
-
|
|
Forfeited
|
|
|
(55,000
|
)
|
|
|
-
|
|
Non-vested options, as of December 31, 2019
|
|
|
43,875
|
|
|
$
|
0.01
|
|
NOTE 14 – STOCK-BASED COMPENSATION (CONTINUED)
During the years ended December 31, 2019, 2018 and 2017, there were no compensation expenses related to the issuance of stock option plan.
As of December 31, 2019, the Company does not have any unrecognized compensation cost related to stock options granted under the stock option plans.
NOTE 15 – OTHER EXPENSES, NET
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense to related parties (see Note 12)
|
|
$
|
(1,218
|
)
|
|
$
|
(2,746
|
)
|
|
$
|
(2,875
|
)
|
Interest expense and other bank charges
|
|
|
(1,479
|
)
|
|
|
(1,261
|
)
|
|
|
(1,073
|
)
|
Interest income
|
|
|
151
|
|
|
|
-
|
|
|
|
170
|
|
Revaluation and related costs reimbursed to related party
|
|
|
(8,139
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign currency gain (loss)
|
|
|
148
|
|
|
|
417
|
|
|
|
(2,450
|
)
|
Other income
|
|
|
19
|
|
|
|
4
|
|
|
|
56
|
|
Total other expense, net
|
|
$
|
(10,518
|
)
|
|
$
|
(3,586
|
)
|
|
$
|
(6,172
|
)
|
NOTE 16 – INCOME TAXES
The components of income (loss) before income tax benefit (expense) from continuing operations are as follows:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
(11,508
|
)
|
|
$
|
(13,107
|
)
|
|
$
|
1,602
|
|
Subsidiaries outside of the Netherlands
|
|
|
5,804
|
|
|
|
2,728
|
|
|
|
6,296
|
|
Income (loss) before income tax expenses
|
|
$
|
(5,704
|
)
|
|
$
|
(10,379
|
)
|
|
$
|
7,898
|
|
The current income tax expense from subsidiaries outside of the Netherlands is $1,492, $548 and $2,045 for the years ended December 31, 2019, 2018 and 2017, respectively. There was no current
income tax expense or benefit for the Netherlands for the years ended December 31, 2019, 2018 and 2017.
The deferred income tax benefit from subsidiaries outside of the Netherlands is $29, $87 and $12 for the years ended December 31, 2019, 2018 and 2017, respectively. There was no deferred income tax
expense for the Netherlands for the years ended December 31, 2019, 2018 and 2017.
Tax expenses from subsidiaries in the Netherlands include $86, $0 and $0, for the years ended December 31, 2019, 2018 and 2017, respectively, of tax related to previous years. Tax expenses from
subsidiaries outside the Netherlands include $0, $224 and $0 for the years ended December 31, 2019, 2018 and 2017, respectively, of tax related to previous years.
NOTE 16 – INCOME TAXES (CONTINUED)
The components of deferred tax assets and liabilities are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
$
|
20,171
|
|
|
$
|
17,627
|
|
Capital loss carryforwards
|
|
|
148
|
|
|
|
143
|
|
Allowance for doubtful accounts
|
|
|
14
|
|
|
|
13
|
|
Tax credit carryforwards
|
|
|
560
|
|
|
|
560
|
|
Accrued expenses and other
|
|
|
691
|
|
|
|
682
|
|
Total deferred tax assets
|
|
|
21,584
|
|
|
|
19,025
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
(62
|
)
|
|
|
(111
|
)
|
|
|
|
21,522
|
|
|
|
18,914
|
|
Valuation allowance
|
|
|
(21,046
|
)
|
|
|
(18,478
|
)
|
Deferred tax assets, net
|
|
$
|
476
|
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
The ultimate realization of the net deferred tax assets in each jurisdiction the Company does business in is dependent upon the generation of future taxable income in that jurisdiction during the
periods in which net operating loss carry forwards are available and items that gave rise to the net deferred tax assets become deductible. At present, the Company does not have a sufficient history of generating taxable income in the various
jurisdictions it does business in to conclude that it is more likely than not that the Company will be able to realize its net deferred tax assets in the near future and, therefore, a valuation allowance was established for the carrying value of
the net deferred tax assets, with the exception of few locations, which are currently generating taxable income. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion of the
valuation allowance in other jurisdictions.
In the United States of America, the Tax Cuts and Jobs act of 2017 was signed into law on December 2017. The law includes significant changes to the U.S. corporate income tax system, including a
Federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and limitation on net operating losses generated after December 31, 2017. The re-measurement of deferred tax assets and liabilities due to the
corporate rate deduction yielded a reduction in net deferred tax assets of $4,419 at December 31, 2017, which was offset by a full valuation allowance. The Company does not expect the legislation to have a near term impact on the Company’s current
taxes because of the expectation of net losses utilization in future years.
As of December 31, 2019, the Company has net operating losses carry forwards of $43,351 in the Netherlands, which expire in 2020 through 2027. As of December 31, 2019, the Company has net operating
loss carry forwards of $29,415 in the United States of America, which will expire in 2025 through 2037 and $5,862 in Israel, which do not expire. The ultimate utilization of such net operating loss carry forwards is limited in certain situations.
As of December 31, 2019, the Company has capital loss carry forwards of $643 in Israel. Such capital loss carry forwards do not expire and can be offset against future capital gains generated in
Israel.
As of December 31, 2019, the Company has $560 in tax credits for the welfare to work and work opportunity programs in the United States of America that expire in 2024 through 2029.
During the years ended December 31, 2019 and 2018 the valuation allowance increased by $2,568 and $2,577, respectively.
NOTE 16 – INCOME TAXES (CONTINUED)
The Company's effective income tax rate differs from the Netherlands' statutory rate of 25% as follows:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Effective loss (income) tax benefit from continuing operations at statutory rate
|
|
$
|
1,426
|
|
|
$
|
2,595
|
|
|
$
|
(1,975
|
)
|
Rate differential
|
|
|
1,024
|
|
|
|
682
|
|
|
|
(545
|
)
|
Non-deductible expense
|
|
|
(584
|
)
|
|
|
(565
|
)
|
|
|
(131
|
)
|
Adjustments to prior year tax losses
|
|
|
(429
|
)
|
|
|
(408
|
)
|
|
|
-
|
|
Tax rate change-impact on prior years
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,472
|
)
|
Changes in valuation allowance
|
|
|
(2,568
|
)
|
|
|
(2,577
|
)
|
|
|
5,368
|
|
Other
|
|
|
(418
|
)
|
|
|
(412
|
)
|
|
|
(278
|
)
|
Income tax expense from continuing operations
|
|
$
|
(1,549
|
)
|
|
$
|
(685
|
)
|
|
$
|
(2,033
|
)
|
As of December 31, 2019 and 2018 there are no unrecognized tax benefits. As of December 31, 2019 and 2018, the Company has income tax payable of $162 and $1,958, respectively.
The Company files income tax returns in the Netherlands and other foreign jurisdictions. Income tax returns for the tax years 2013 to 2019 are subject to examination in the Netherlands. In the
United States of America, Income tax returns for the years 2016 to 2018 are subject to examination. Income tax returns for the tax years 2014 to 2019 are subject to examination in foreign jurisdictions.
NOTE 17 - RELATED PARTY TRANSACTIONS
Entities related to two of the Company's Supervisory Board members provide legal services to the Company. Legal expense related to these services is $46, $35 and $47 for the years ended December
31, 2019, 2018 and 2017, respectively. Included in accounts payable on the accompanying consolidated balance sheets is $1 and $9 due for these services as of December 31, 2019 and 2018, respectively.
The Company engages the services of a related party to provide certain selling and management services to the authentication technology segment. The Company incurred expenses of $801, $715 and $254
for such services for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, since April 2018, the related party serves as a board member of the Company and was paid an amount of $28 and $15 as board fees, for the years ended
December 31, 2019 and 2018, respectively.
An entity related to the Company’s main shareholder provided a letter of credit of $1,000 to a commercial bank to guarantee a borrowing arrangement on behalf of one of the Company’s subsidiaries.
In December 2017, the Company agreed with the commercial bank to reduce the letter of credit to $700. In April 2018, the letter of credit was reduced to $500. In December 2019, the Company replaced the letter of credit by its own letter of credit.
The Company engages the services of a related party to provide certain selling services to its authentication technology segment. The Company incurred expenses of $106, $110 and $95 for such
services for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company engages the services of a related party to provide internal audit services. The Company incurred expenses of $170, $155 and $114 for such services for the years ended December 31, 2019,
2018 and 2017, respectively.
NOTE 17 - RELATED PARTY TRANSACTIONS (CONTINUED)
The chairman of the board, a related party, receives annual compensation of $50 for his services as chairman.
In August 2017, the Company engaged the services of a related party to provide certain selling and administrative services to its authentication technology segment. The Company incurred expenses of
$39 and $103 for such services for the years ended December 31, 2019 and 2018, respectively. In addition, the related party serves as a board member of the Company, and was paid an amount of $30 and $15 as board fees, for the years ended December
31, 2019 and 2018, respectively.
In April 2018, the Company issued 3,350,000 shares to certain directors and officers of the Company for a purchase price of $0.66 per share. In December 2018, additional 750,000 shares were issued
to two related parties for a price of $0.48 per share.
In May 2018, the Company engaged the services of a related party to provide certain administration services. The Company incurred expenses of $98 and $53 for such services for the years ended
December 31, 2019 and 2018, respectively.
In May 2019, the Company engaged the services of Arrow (see note 5) to provide some administrative services. The Company incurred expenses of $62 for such services for the year ended December 31,
2019.
In June 2019, the Company issued 3,000,000 shares to certain directors and officers of the Company for a purchase price of $0.40 per share.
In December 2019, the Company purchased shares and shareholders debt of Arrow for $1,750 (see note 5).
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Letters of Credit and Guarantees
As of December 31, 2019 and 2018, the Company has approximately $733 and $233, respectively, in outstanding letters of credit. Such letters of credit are being secured by the same amounts in
restricted cash with commercial banks (see note 2).
As of December 31, 2019 and 2018 the Company has €2,316 and €2,275 ($2,596 and $2,603 as of December 31, 2019 and 2018, respectively) in outstanding guarantees on its lines of credit arrangement in
Europe (see note 9), which relate to leases and performance guarantee for contracts.
Legal Proceedings
Claims by former employees
The Company is subject to wrongful termination claims made by certain former employees of one of its European subsidiaries. The aggregate amount of such claims is approximately $637.
NOTE 18 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum Wage Increase
In August 2015, the Company was informed about a court decision, which approved an increase to the minimum wage for the city of SeaTac, WA (location of SeaTac Airport). The increase to the minimum
wage was originally approved by a vote in King County, WA in 2013 (to be effective January 1, 2014); however, a court ruled that SeaTac employees were excluded from this increase because the airport was under the jurisdiction of the Port of Seattle
and not the city of SeaTac. In August 2015, this decision was overturned by the State Supreme Court and, accordingly, the Company is required to increase the minimum wage of its employees at SeaTac Airport according to the court decision,
effective January 1, 2014. After the settlements of the legal disputes in 2017 related to the minimum wage increase, the Company was obligated to pay out approximately $1,628. The accrued amount at December 31, 2018 is $508 (inclusive of interest
amounting to approximately $263) for the remainder of the settlement and is included in accrued expenses and other current liabilities (see note 10). The Company paid this amount in 2019 and the resulting balance owed at December 31, 2019 is zero.
Termination of contract
Following the termination of the Procheck contract in December 31, 2018, the Company has been negotiating with the customer compensation for the losses accrued as a result of
the termination. In December 2019 the Company started a legal procedure in order to settle the disagreement. The proceedings have been completed without material effect to the Company's financials.
General
The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. These claims are
primarily related to grievances filed by current and former employees for unfair labor practices or discrimination, and for passenger aviation claims. Management recognizes a liability for any matter when the likelihood of an unfavorable outcome is
deemed to be probable and the amount is able to be reasonably estimated. Management has concluded that such claims, in the aggregate, would not have a material adverse effect on the Company's consolidated financial position, results of operations,
or cash flows.
Agency Agreements
In April 2013, prior to the purchase of one of the current subsidiaries in Europe, the Company entered into an agency agreement with a third party to assist it with this transaction. According to
the agreement, in the event that the operations in that country are sold in the future, the third-party agent is entitled to a payment of €3,000 ($3,363 as of December 31, 2019).
In March 2016, the Company entered into an agreement with a third party to assist the Company with the possible sale of one of the Company’s subsidiaries. The fees depend on the outcome of the
assignment and are between 2% - 5% of the sale consideration but not less than $4,000. In February 2019 the agreement was amended. According to the amendment, in case that less than 50% of the voting stock or majority of the subsidiary assets are
being sold the transaction fee will be 5% of the sale consideration but not lower than $3,000 (see note 13).
In August 2017, the Company entered into an agreement with a third party to assist the Company with a possible sale of one of the Company’s subsidiaries. The fees depend on the outcome of the
assignment and are between 2% - 10% of the sale consideration but not less than € 2,000 ($2,242 as of December 31, 2019).
NOTE 19 – SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in three reportable segments: (a) corporate (b) airport security and other aviation services and (c) authentication technology. The corporate segment does not generate revenue
and contains primarily non-operational expenses. The airport security and other aviation services segment provides security and other aviation services to airlines and airport authorities, predominantly in Europe and the United States of America.
The authentication technology segment is predominantly involved in the development and sale of authentication security software to financial and other institutions, predominantly in Europe and the United States of America. All inter-segment
transactions are eliminated in consolidation. The accounting policies of the segments are the same as the accounting policies of the Company as a whole.
The operating results of these reportable segments are regularly reviewed by the chief operating decision.
|
|
|
|
|
Airport
Security
and Other
Aviation
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Total
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
309,548
|
|
|
$
|
23,759
|
|
|
$
|
333,307
|
|
Depreciation and amortization
|
|
|
46
|
|
|
|
1,328
|
|
|
|
314
|
|
|
|
1,688
|
|
Income (loss) from continuing operations
|
|
|
(11,740
|
)
|
|
|
(2,406
|
)
|
|
|
6,893
|
|
|
|
(7,253
|
)
|
Goodwill
|
|
|
-
|
|
|
|
681
|
|
|
|
-
|
|
|
|
681
|
|
Total assets from continuing operations
|
|
|
23,381
|
|
|
|
64,647
|
|
|
|
35,419
|
|
|
|
123,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
329,150
|
|
|
$
|
16,071
|
|
|
$
|
345,221
|
|
Depreciation and amortization
|
|
|
45
|
|
|
|
1,756
|
|
|
|
96
|
|
|
|
1,897
|
|
Income (loss) from continuing operations
|
|
|
(6,205
|
)
|
|
|
(9,163
|
)
|
|
|
4,304
|
|
|
|
(11,064
|
)
|
Goodwill
|
|
|
-
|
|
|
|
695
|
|
|
|
-
|
|
|
|
695
|
|
Total assets from continuing operations
|
|
|
329
|
|
|
|
66,373
|
|
|
|
8,385
|
|
|
|
75,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
292,393
|
|
|
$
|
5,289
|
|
|
$
|
297,682
|
|
Depreciation and amortization
|
|
|
46
|
|
|
|
1,333
|
|
|
|
37
|
|
|
|
1,416
|
|
Income (loss) from continuing operations
|
|
|
(9,569
|
)
|
|
|
16,078
|
|
|
|
(644
|
)
|
|
|
5,865
|
|
Goodwill
|
|
|
-
|
|
|
|
1,044
|
|
|
|
-
|
|
|
|
1,044
|
|
Total assets from continuing operations
|
|
|
4,089
|
|
|
|
63,742
|
|
|
|
3,536
|
|
|
|
71,367
|
|
NOTE 19 – SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
The following table sets forth, for the periods indicated, revenue generated from customers by geographical area based on the geographical location of the customer’s invoicing address:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
$
|
137,207
|
|
|
$
|
134,646
|
|
|
$
|
125,896
|
|
The Netherlands
|
|
|
97,700
|
|
|
|
121,465
|
|
|
|
103,862
|
|
United States
|
|
|
73,719
|
|
|
|
69,548
|
|
|
|
54,891
|
|
Other countries
|
|
|
24,681
|
|
|
|
19,562
|
|
|
|
13,033
|
|
Total
|
|
$
|
333,307
|
|
|
$
|
345,221
|
|
|
$
|
297,682
|
|
The following table sets forth, for the periods indicated, property and equipment, net of accumulated depreciation and amortization, by country:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Germany
|
|
$
|
516
|
|
|
$
|
225
|
|
The Netherlands
|
|
|
862
|
|
|
|
1,118
|
|
United States
|
|
|
354
|
|
|
|
624
|
|
Other countries
|
|
|
2,854
|
|
|
|
2,296
|
|
Total
|
|
$
|
4,586
|
|
|
$
|
4,263
|
|
Property and equipment, net, in other countries include $2,212 and $1,838 property and equipment in Israel, as of December 31, 2019 and 2018, respectively.
NOTE 20 - SUBSEQUENT EVENTS
In 2020, the Company renewed its line of credit facility agreement with the commercial bank. The new arrangement provides it with up to € 12,000 ($13,355 as of June 1, 2020) in borrowings until March 2021. Borrowings
under the line of credit bear interest at one-month EURIBOR plus 4.8% with a minimum of 4.8% per annum. The Company is also subject to unused line fee of 0.75% per annum, which is payable quarterly. The line of credit is secured by accounts
receivable of six of the Company’s European subsidiaries, tangible fixed assets and a bank guarantee of €2,000 provided by the parent company, ICTS International N.V. The line of credit cannot exceed 70% of the borrowing base. As part of the
agreement, also the guarantee facility of €2,500 was renewed until March 2021, with an interest of 2.5% per annum and an unused line fee of 0.75% per annum which is payable quarterly.
Valuation and
Qualifying Accounts
(US $ in thousands)
|
|
|
|
|
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(credit)
|
|
|
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
to
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
other
|
|
|
|
|
|
End of
|
|
|
|
of year
|
|
|
Expenses
|
|
|
accounts
|
|
|
Deductions
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
$
|
84
|
|
|
$
|
97
|
|
|
$
|
(78
|
)
|
|
$
|
-
|
|
|
$
|
103
|
|
Year ended December 31, 2018
|
|
|
103
|
|
|
|
303
|
|
|
|
(166
|
)
|
|
|
-
|
|
|
|
240
|
|
Year ended December 31, 2019
|
|
|
240
|
|
|
|
261
|
|
|
|
(83
|
)
|
|
|
-
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for net deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
$
|
21,269
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(5,368
|
)
|
|
$
|
15,901
|
|
Year ended December 31, 2018
|
|
|
15,901
|
|
|
|
-
|
|
|
|
2,577
|
|
|
|
-
|
|
|
|
18,478
|
|
Year ended December 31, 2019
|
|
|
18,478
|
|
|
|
-
|
|
|
|
2,568
|
|
|
|
-
|
|
|
|
21,046
|
|
(1) Write-off net of recoveries for the allowance for doubtful accounts.