Half-year Report

Note 1 - General:

Corporate information:

M.T.I Wireless Edge Ltd. (hereafter - "MTI", or the "Company") is an Israeli corporation. The Company was incorporated under the Companies Act in Israel on December 30, 1998 as a wholly-owned subsidiary of M.T.I Computers and Software Services (1982) Ltd. (hereafter - the "Parent Company") and commenced operations on July 1, 2000.

Since March 2006, the Company's shares have been traded on the AIM Stock Exchange.

The formal address of the company is 11 Hamelacha Street, Afek industrial Park, Rosh-Ha'Ayin, Israel.

The Company is engaged in the development, design, manufacture and marketing of antennas and accessories. Since June 11, 2015, via its subsidiary, Mottech Water solutions, MTI is also a leading provider of remote control solutions for water and irrigation applications based on Motorola IRRInet state of the art control, monitoring and communication technologies.

Note 2 - Significant Accounting Policies:

The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in International Accounting Standard No. 34 ("Interim Financial Reporting").

The interim consolidated financial information set out above does not constitute full year end accounts within the meaning of Israeli Companies Law. It has been prepared on the going concern basis in accordance with the recognition and measurement criteria of the International Financial Reporting Standards (IFRS). Statutory financial information for the financial year ended December 31, 2015 was approved by the board on February 16, 2016. The report of the auditors on those financial statements was unqualified.

The interim consolidated financial statements as of June 30, 2016 have not been audited.

The interim consolidated financial information should be read in conjunction with the annual financial statements as of December 31, 2015 and for the year then ended and with the notes thereto. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2015 are applied consistently in these interim consolidated financial statements.

Note 3 - operating SEGMENTS:

The following table's present revenue and profit information regarding the Group's operating segments for the six months ended June 30, 2016 and 2015, respectively and for the year ended December 31, 2015.

 (*) Results for one month ending on June 30, 2015.

Note 3- operating SEGMENTS (CONT.):

(*)  Results for seven months ending December 31, 2015.

Note 4-TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

The following transactions occurred with The Parent Company and other related parties:

Compensation of key management personnel of the Group:

*) Including Management fees for the CEO, Directors Executive Management and other related parties

All Transactions are made at market value.

Note 4 -TRANSACTIONS AND BALANCES WITH RELATED PARTIES (CONT.):

Balances with related parties:

Amendment to Service Agreement with controlling shareholder:

Following the receipt of recommendations of both the remuneration committee and the board of directors of the company, an amendment to the service agreement between the Company and the controlling shareholders (via their management company) was approved by a shareholders' meeting held on May 18, 2016. According to the amendment, the agreement is in place for 3 years starting June 1, 2016, after which it will be renewed for periods of 3 years in accordance to the relevant rules and regulations. Nevertheless the agreement can be terminated by either party by providing 90 days' notice. The agreement includes remuneration (per month) of:

1.     25,000 NIS to Mr. Zvi Borovitz (raise from 20K NIS prior to this approval) for his service as a chairman of the board of the company in capacity of at least 25% and

2.     65,000 NIS to Mr. Moni Borovitz (raise from 60K NIS prior to this approval) for his service as CFO of the company in capacity of at least 80%.

All amounts are prior to VAT which will be added to the invoices and are linked to the increase in the consumer price index.

In addition to the above, and in accordance to the remuneration policy adopted by the company, as required under rule 20 to the Israeli Companies Law, a bonus scheme was granted to each of the managers. The bonus scheme states that Zvi Borovitz and Moni Borovitz will be entitled (each one of them) to a bonus amounting 2.5% of the company's net profit exceeding 400,000 USD per year (raise from $250K prior to this approval), prior to any bonuses grant in the Company. In case of a loss in a year the bonus for the next year will be for a net profit exceeding 400,000 USD above the loss made in the previous year. In addition Mr. Moni Borovitz shall be entitled to a bonus equal to two months management fee, based on the meeting of targets specified by the remuneration committee at the beginning of each year.

A ceiling to the bonuses was set at 8 months management fees for Mr. Moni Borovitz and 100,000 USD for Mr. Zvi Borovitz. 

The agreement also states that the Company shall reimburse the management of the company for any expense made in performance of the manager's duty. The Company shall also provide each of the managers with a car and phones and will be responsible for all its related expenses, including all relevant taxes.   

Note 5 - SIGNIFICANT EVENTS:

a.  On January 12, 2016, following the approval of its shareholders, the Company adopted a change to its articles of association allowing the Company the ability to pay dividends by way of scrip, meaning the board would be able to announce a dividend which could be paid in cash or through the issue of new shares in the Company (the "Scrip Dividend Policy"). Under the Scrip Dividend Policy, shareholders could, in the future, be given the option to elect to receive dividends in new shares of the Company rather than in cash. The default arrangement will be for the payment of dividends in cash, and if the shareholder prefers to receive their dividends in new shares of the Company, then they would have to make an election. There would be no ability to make mixed elections and each shareholder would be able to choose either cash or new shares but not both. The decision to offer shareholders a scrip dividend alternative for future dividend payments will be at the sole discretion of the Board.

b.  During the first half of 2016 several employees exercised options to 155 thousand shares in exchange for approximately of $21 thousand.

c.  On April 1, 2016 the company paid a dividend of US 1.1 cents per share totaling approximately $567 thousand

d.  On May 2, 2016 shares in Mottech Water Management (Pty) Ltd. in South Africa ("Mottech SA") were allotted to its general manager. Following this allotment the Company owns 85% of Mottech SA.

e.  A new option scheme for key employees was approved at the Company's Annual General Meeting on May 18, 2016. Under the plan, options to purchase 800 thousands ordinary shares were granted (each option to one ordinary share). This represents approximately 1.5% of the Company's current issued and voting share capital on a fully diluted basis. The vesting period of the options shall be as follows: 2 years for 50% of the options, 3 years for additional 25% of the options and 4 years for the reminder of the option. Unexercised options expire six years after date of the grant after which they will be void. Options are forfeited when the employee leaves the Company. There is no cash settlement of the options.

The weighted average fair value of the options as at the grant date is 6 pence (approximately 9 cents) per option, and was estimated using a Black and Scholes option pricing model based on the following significant data and assumptions:

Share price - 19.88 pence (representing approximately 29 cents)

Exercise price - 27 pence (representing approximately 39 cents)

Expected volatility - 45.34%

Risk-free interest rate - 0.85%

And expected average life of options 4.375 years

The volatility measured at the standard deviation of expected share price returns is based on the historical volatility of the Company. The options were granted as part of a plan that was adopted in accordance with the provision of section 102 of the Israeli Income Tax Ordinance.