TIDMFTS
RNS Number : 2424J
F.T.S-Formula Telecom Solutions Ltd
26 March 2010
F.T.S. - FORMULA TELECOM SOLUTIONS LTD.
AND ITS SUBSIDIARIES
(An Israeli Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009
F.T.S. - Formula Telecom Solutions Limited
Annual report and financial statements for the year ended December 31, 20099
Directors
Dan Goldstein, Non-executive Chairman
Amos Sivan, Active Vice Chairman
Ronnen Yitzhak, Non-executive Director
Eliyahu Shushan, Non-executive Director
Yael Hershtik, Non-executive Director*
David Joel Rubin, Non-executive Director*
John Robert Camber Porter, Non-executive Director*
* Independent directors
Company Secretary:
Alon Raz (Chief financial Officer)
Registered office:
8 Maskit Street
Herzliya 46120
Israel
Chairman's Statement
I am pleased to report FTS' 2009 annual results for the twelve months ended 31
December 2009.
FTS sells next generation billing, policy control and infrastructure software
solutions for communications service providers. Our solutions enable providers
to address the key issues of today's communication market: customer retention
and revenue growth. By analyzing events from a business standpoint rather than
just billing them, FTS allows providers to better understand their customer base
and leverage business value from every event and interaction. FTS deploys its
full range of solutions to customers worldwide and has implemented solutions in
wireless, wire line, cable, content and broadband markets. The Company targets
operators in emerging markets with end-to-end billing and customer solutions, as
well as tier-1 & tier-2 operators in developed markets with add-on billing,
charging and policy control solutions.
The telecoms market is evolving with the growth in both wireline and wireless
broadband (WiMAX, LTE) IP-based communication and continuing consolidation in
the market. In response to market changes, providers are restructuring their
businesses and aligning vendors to their future needs. This is both a challenge
and long-term opportunity for FTS. FTS predicted these transformations in the
industry and has been working aggressively to adapt the Company to the new
market environment, as well as developing new products and services that meet
the customers' ever-changing requirements.
Leap Billing is an end-to-end converged solution based on telecom-specific
business processes that reflect the industry's best practices. The solution
allows new business practices to be instantly implemented and new services,
bundles and promotions to be rolled out immediately, without involving costly
billing integration projects. In this way, Leap Billing offers a long-term,
viable solution to the ever-evolving needs of telecom providers.
At the beginning of 2009 FTS introduced "FTS express", a billing appliance with
"out of the box" functionality, specially tailored for small operators and
Greenfields (ISP, VoIP, WiMAX, LTE, IPTV and content providers) as well as for
niche services of larger service providers. The re-focusing of the Company's
efforts in 2009 towards marketing and selling this new product resulted in a
decline in the sales due to a reduced focus on the Company's traditional core
business of large-scale, end-to-end projects. At the end of 2009 the company
decided to bring back Mr. Amos Sivan, in capacity of CEO to re-balance the
company's efforts to ensure sufficient focus on the company's core business and
guide the company back to growth at a time of global economic difficulties. Mr.
Sivan, FTS' founder previously served as CEO for 11 years, since the Company's
foundation. Since Mr. Sivan took office, he has taken immediate positive action
to adjust the level of expenses to current revenue and set the company on the
path to growth. Mr. Sivan has implemented a large-scale cost reduction plan and
has appointed a highly-experienced VP of Sales. The company believes that with
the new management team and the re-balancing of efforts between FTS express and
the Company's end-to-end solutions, it will come back on track in 2010.
Market response for the Company's suite of products is highly positive with
strong feedback from industry analysts, industry press, potential partners and
customers, stressing the real market need the Company is addressing and the
superiority of the solutions it presents. FTS expects to continue its marketing
efforts during 2010 to leverage this new momentum with a marketing and sales
campaign to launch the new strategy and products. The Company anticipates this
marketing campaign will result in market interest in its products and lead to
new bid proposals. It is expected that some of these will materialize into
contracts in 2010, although due to the global economic situation it might take
longer than initially expected.
Results
In the twelve months ended 31 December 2009 total revenue was $19,391m (2008:
$30.031m), the decrease of 35.4% was mainly due to longer implementation
processes than originally expected mainly due to the global economic situation.
Gross profit for the twelve months ended 31 December 2009 was $8.302m (2008:
$15.426m), gross margin was 43% compared to 51% in 2008, the decrease was mainly
due to the decline in the revenues.
Research and development expenditure: In the twelve months to 31 December 2009
was $3.232m (2008: $3.710m), a decrease of 12.9%. This decrease was mainly due
to diversion of R&D efforts towards delivery of projects and reduction of the
headcount.
Sales and marketing costs in the twelve months ended 31 December 2009 were
$2.564m (2008: $3.706m), a decrease of 30.8% mainly due to fewer commissions
paid to agents in light of the decline in the sales.
General and administrative costs in the twelve months ended 31 December 2009
were $5.021m (2008: $4.662m), an increase of 7.7%. This increase was mainly due
to provisions for doubtful debts in amount of 0.684m.
The Company's operating loss in the twelve months ended 31 December 2009 was
$2.515m (2008: operating income of US$3.348m), the main reason is the steep
decline in the revenues.
The net financial income, net for the twelve months ended 31 December 2009, were
$0.536m (2008: financial expenses, net of $1.496m) which mainly resulted from
gains from securities and bonds in amount of approximately $0.728m.
The tax expenses for the twelve months ended 31 December 2009 were 3.292m (2008:
tax expenses of 0.757m). The tax expenses were resulted mainly from writing off
of tax withholds in prior periods in amount of 1.309m dollars and writing off
deferred tax assets in amount of 1.875m.
Total comprehensive loss for the twelve months ended 31 December 2009 was
$5.271m (2008: total comprehensive income of $1.095m). The majority of the loss
is due to one-time items which relate to previous years such as: writing off
tax assets adjustments of tax provisions in the past and provision for doubtful
debts.
Outlook
The Telecom industry, as part of the global market, is experiencing a global
economic slowdown which creates challenges for BSS vendors. However, FTS has
taken positive steps to adjust its business to the needs of its customers, and
has reached a minimal negative EBITDA of just $0.409m, despite challenging
market conditions."
We believe that the change in FTS management along with the extensive, ongoing
efforts will result in increased revenues and profitability in forthcoming
years.
The Company is involved in a number of bid proposals which are at various stages
of the sales cycle. We expect some of these to crystallize into contracts in the
near future although it is difficult to predict the exact timing.
We also believe that our online charging and policy control solutions and the
FTS express will enable us to penetrate Tier-1 service providers in developed
markets, for their niche services. We expect to obtain growth in the future,
based on our extensive pipeline and consolidated roadmap of products and
solutions.
Dan Goldstein
Chairman
F.T.S - FORMULA TELECOM SOLUTIONS LIMITED
(An Israeli Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
+-------------------------------------------------+-----------+
| | Page |
+-------------------------------------------------+-----------+
| REPORT OF INDEPENDENT AUDITORSFINANCIAL | 1 |
| STATEMENTS: | |
+-------------------------------------------------+-----------+
| Consolidated Statements of Comprehensive Income | 2 |
| (Loss) | |
+-------------------------------------------------+-----------+
| Consolidated Statements of Changes in Equity | 3 |
+-------------------------------------------------+-----------+
| Consolidated Financial Position | 4-5 |
+-------------------------------------------------+-----------+
| Consolidated Statements of Cash Flows | 6-7 |
+-------------------------------------------------+-----------+
| Notes to Consolidated Financial Statements | 8-44 |
+-------------------------------------------------+-----------+
The amounts are stated in U.S. dollars ($).
______________________
_____________
Report of the independent auditors
To the shareholders of F.T.S - Formula Telecom Solutions Limited
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of F.T.S -
Formula Telecom Solutions Limited and its subsidiaries (hereafter- "the Group"),
which comprise the consolidated financial position as of 31 December 2009 and
2008, and the consolidated statements of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flow for each
of the two years then ended and a summary of significant accounting policies and
other explanatory notes.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation
of consolidated financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the
circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with International Standards
on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor's judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view
of the financial position of the Group as of December 31, 2009, and 2008 and of
its financial performance, its cash flows and its equity for each of the two
years then ended, in accordance with International Financial Reporting
Standards.
Tel-Aviv, Israel
March 25, 2010
+----------------------------------------+-------------------------+
| | Ziv Haft |
+----------------------------------------+-------------------------+
| | Certified Public |
| | Accountants (Isr.) |
+----------------------------------------+-------------------------+
| | BDO Member Firm |
+----------------------------------------+-------------------------+
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements of Comprehensive Income (loss)
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | Year ended |
| | | | December 31, |
+--------------------------------------------+-------+----------+------------------------------------+
| | | | 2009 | | 2008 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| |Notes | | $'000 | | $'000 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Revenues | 2,5 | | 19,391 | | 30,031 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Cost of sales | | | 11,089 | | |
| | | | | | 14,605 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Gross profit | | | 8,302 | | 15,426 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Research and development expenses | | | 3,232 | | 3,710 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Sales and marketing costs | | | 2,564 | | 3,706 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| General and administrative expenses, net | | | 5,021 | | 4,662 |
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Profit (loss) from operations | 3 | | (2,515) | | 3,348 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Finance expense | 6 | | 422 | | 1,726 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Finance income | 6 | | 958 | | 230 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Profit (loss) before tax | | | (1,979) | | 1,852 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Tax expense | 7 | | 3,292 | | 757 |
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Total comprehensive income (loss) for the | | | (5,271) | | |
| year | | | | | 1,095 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Earnings (loss) per share: | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| Basic and diluted (dollars per share) | 8 | | (0.1599) | | |
| | | | | | 0.0332 |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+-------+----------+------------+----------+------------+
The accompanying notes form an integral part of the financial statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements of Changes in Equity for the year ended
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | Share | | Additional | | Retained | | Treasury | | Total |
| | capital | | paid in | | earnings | | share | | |
| | | | capital | | | | reserves | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | $'000 |
+---------------------------+-----------------------------------------------------------------------------------------------------------------------------+
| | |
+---------------------------+-----------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Balance at January 1, | 1 | | 10,025 | | 11,096 | | (463) | | 20,659 |
| 2008 | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Changes during the year | | | | | | | | | |
| ended December 31, | | | | | | | | | |
| 2008: | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Profit for the year | - | | - | | 1,095 | | - | | 1,095 |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Total recognized income | - | | - | | 1,095 | | - | | 1,095 |
| for the year | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Issuance of employees' | - | | 57 | | - | | - | | 57 |
| stock options | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Balance at December 31, | 1 | | 10,082 | | 12,191 | | (463) | | 21,811 |
| 2008 | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Changes during the year | | | | | | | | | |
| ended December 31, | | | | | | | | | |
| 2009: | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Loss for the year | - | | - | | (5,271) | | - | | (5,271) |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Total recognized income | - | | - | | (5,271) | | - | | (5,271) |
| and | | | | | | | | | |
| expenses for the year | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Dividends | - | | - | | (4,182) | | - | | (4,182) |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Issuance of employees' | - | | 2 | | - | | - | | 2 |
| stock options | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| Balance at December 31, | 1 | | 10,084 | | 2,738 | | (463) | | 12,360 |
| 2009 | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
| | | | | | | | | | |
+---------------------------+-----------+-----------+--------------+-----------+-----------------+-----------+---------------+----------+-----------------+
The accompanying notes form an integral part of the financial statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Financial Position as of December 31, 2009
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | As of |
| | | | December 31, |
+----------------------------------------------+------+-----------+--------------------------------------------+
| | | | 2009 | | 2008 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| |Note | | $'000 | | $'000 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| ASSETS | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Non-current assets: | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Property and equipment | 10 | | 653 | | 602 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Intangible assets | 11 | | 6,343 | | 7,602 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Rental deposits | | | 57 | | 45 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Non-Current tax assets | | | 584 | | 1,911 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Deferred tax assets | 20 | | 785 | | |
| | | | | | 2,763 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Total non-current assets | | | 8,422 | | 12,923 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Current assets: | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Other receivables and prepaid expenses | 13 | | 624 | | 998 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Trade receivables | 14 | | 5,142 | | 5,618 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Financial assets through profit and loss | 15 | | 5,048 | | 4,249 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Cash and cash equivalents | 16 | | 8,616 | | |
| | | | | | 14,506 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | 1 | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Total current assets | | | 19,430 | | |
| | | | | | 25,371 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| TOTAL ASSETS | | | 27,852 | | |
| | | | | | 38,294 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| LIABILITIES | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Non-current liabilities: | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Employee benefits, net | 19 | | 498 | | 503 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Current Liabilities: | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Other payables | 17 | | 3,256 | | 3,156 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Trade payables | 21 | | 2,417 | | 4,411 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Customer advances and deferred revenue | 18 | | 3,063 | | 3,393 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Loans and borrowings | 22 | | 6,258 | | |
| | | | | | 5,020 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Total current liabilities | | | 14,994 | | |
| | | | | | 15,980 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| Total liabilities | | | 15,492 | | |
| | | | | | 16,483 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| TOTAL NET ASSETS | | | 12,360 | | |
| | | | | | 21,811 |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------------+------+-----------+----------------+----------+----------------+
The accompanying notes form an integral part of the financial statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Financial Position as of December 31, 2009
+----------------------------------------------------+-------------+----------+----------+----------+
| | Year ended | |
| | December 31, | |
+----------------------------------------------------+-----------------------------------+----------+
| | 2009 | | 2008 |
+----------------------------------------------------+-------------+----------+---------------------+
| | $'000 | | $'000 |
+----------------------------------------------------+-------------+----------+---------------------+
| | | | |
+----------------------------------------------------+-------------+----------+---------------------+
| Capital and reserves attributable to | | | |
| equity holders of the company | | | |
+----------------------------------------------------+-------------+----------+---------------------+
| Share capital | 1 | | 1 |
+----------------------------------------------------+-------------+----------+---------------------+
| Additional paid-in capital | 10,084 | | 10,082 |
+----------------------------------------------------+-------------+----------+---------------------+
| Treasury share reserve | (463) | | (463) |
+----------------------------------------------------+-------------+----------+---------------------+
| Retained earnings | 2,738 | | 12,191 |
+----------------------------------------------------+-------------+----------+---------------------+
| | | | |
+----------------------------------------------------+-------------+----------+---------------------+
| TOTAL EQUITY | 12,360 | | 21,811 |
| | | | |
+----------------------------------------------------+-------------+----------+---------------------+
| | | | |
+----------------------------------------------------+-------------+----------+---------------------+
| | | | | |
+----------------------------------------------------+-------------+----------+----------+----------+
The financial statements on pages 2 to 44 were approved and authorized for issue
by the Board of Directors on March 25, 2010, and were signed on its behalf by:
+-------------------+----------+--------------+----------------+-----------------+
| March 25, 2010 | | | | |
+-------------------+----------+--------------+----------------+-----------------+
| Date of approval | | Dan | Alon Raz | Amos Sivan |
| | | Goldstein | | |
+-------------------+----------+--------------+----------------+-----------------+
| of financial | | Chairman | Chief | Active Vice |
| statements | |of the Board | Financial | Chairman |
| | | | Officer | |
+-------------------+----------+--------------+----------------+-----------------+
The accompanying notes form an integral part of the financial statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements of Cash Flows
+----------------------------------------------------+-----------------+----------+---------------+
| | Year ended |
| | December 31, |
+----------------------------------------------------+--------------------------------------------+
| | 2009 | | 2008 |
+----------------------------------------------------+-----------------+----------+---------------+
| | $'000 | | $'000 |
+----------------------------------------------------+-----------------+----------+---------------+
| | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Cash flows from operating activities: | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Net profit (loss) | (5,271) | | 1,095 |
+----------------------------------------------------+-----------------+----------+---------------+
| | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Adjustments for: | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Depreciation and amortization | 2,106 | | 1,989 |
+----------------------------------------------------+-----------------+----------+---------------+
| Tax expense | 3,292 | | 757 |
+----------------------------------------------------+-----------------+----------+---------------+
| Employees' stock options | 2 | | 57 |
+----------------------------------------------------+-----------------+----------+---------------+
| Financial (Income) expense (exchange due to cash | (131) | | *170 |
| and cash equivalents) | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| (Gain) loss in financial assets through profit and | (726) | | 668 |
| loss | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Cash flows from activities before changes | | | |
| In working capital and provisions: | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Decrease in trade receivables | 476 | | 4,011 |
+----------------------------------------------------+-----------------+----------+---------------+
| Decrease in other receivables prepaid expenses | 374 | | 163 |
| and rental deposits | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| (Increase) decrease in rental deposits | (12) | | 17 |
+----------------------------------------------------+-----------------+----------+---------------+
| Increase (decrease) in trade payables | (1,982) | | 406 |
+----------------------------------------------------+-----------------+----------+---------------+
| Increase (decrease) in other payables | 100 | | (944) |
+----------------------------------------------------+-----------------+----------+---------------+
| Increase (decrease) in employee benefits | (5) | | 55 |
+----------------------------------------------------+-----------------+----------+---------------+
| Decrease in customer advances and deferred | (330) | | (1,132) |
| revenues | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Income tax received (paid) | 13 | | (387) |
+----------------------------------------------------+-----------------+----------+---------------+
| | | | |
+----------------------------------------------------+-----------------+----------+---------------+
| Net cash (used in) provided by operating | (2,094) | | |
| activities | | | 6,925 |
+----------------------------------------------------+-----------------+----------+---------------+
| | | | |
+----------------------------------------------------+-----------------+----------+---------------+
* Was not classified separately in 2008 (see Note 1).
The accompanying notes form an integral part of the financial statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements of Cash Flows
+----------------------------------------------------+-----------------+----------+-----------------+
| | Year ended |
| | December 31, |
+----------------------------------------------------+----------------------------------------------+
| | 2009 | | 2008 |
+----------------------------------------------------+-----------------+----------+-----------------+
| | $'000 | | $'000 |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Cash flows from operating activities brought | (2,094) | | 6,925 |
| forward | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Investing Activities: | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Capitalization of software development costs | (498) | | (1,401) |
+----------------------------------------------------+-----------------+----------+-----------------+
| Sale (purchase) of financial assets through profit | (73) | | 248 |
| and loss | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Purchase of property and equipment | (420) | | (256) |
+----------------------------------------------------+-----------------+----------+-----------------+
| Proceeds from sale of property and equipment | | | - |
| | 8 | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Net cash used in investing activities | (983) | | (1,409) |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Financing Activities: | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Dividends paid to the company's shareholders | (4,182) | | - |
+----------------------------------------------------+-----------------+----------+-----------------+
| Short-term bank borrowing, net | 1,142 | | (396) |
+----------------------------------------------------+-----------------+----------+-----------------+
| Interest received (paid) | 96 | | (321) |
+----------------------------------------------------+-----------------+----------+-----------------+
| Other short-term credit | - | | |
| | | | 170 |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Net cash used in financing activities | (2,944) | | (547) |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Effect of exchange rate changes on cash and cash | 131 | | * |
| equivalents | | | (170) |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Increase (decrease) in cash and cash equivalents | (6,021) | | 4,969 |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Cash and cash equivalents as of the beginning of | 14,506 | | |
| the year | | | 9,707 |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
| Cash and cash equivalents as of the end of the | | | |
| year | 8,616 | | 14,506 |
+----------------------------------------------------+-----------------+----------+-----------------+
| | | | |
+----------------------------------------------------+-----------------+----------+-----------------+
+----------------------------------------------------+-----------+----------+------------+
| | Year ended |
| | December 31, |
+----------------------------------------------------+-----------------------------------+
| | 2009 | | 2008 |
+----------------------------------------------------+-----------+----------+------------+
| | $'000 | | $'000 |
+----------------------------------------------------+-----------+----------+------------+
| | | | |
+----------------------------------------------------+-----------+----------+------------+
| Non-cash activities: | | | |
+----------------------------------------------------+-----------+----------+------------+
| Purchase of property and equipment against trade | | | |
| payables | 3 | | 15 |
+----------------------------------------------------+-----------+----------+------------+
| | | | |
+----------------------------------------------------+-----------+----------+------------+
* Was not classified separately in 2008 (see Note 1).
The accompanying notes form an integral part of the financial statements.
F.T.S - Formula Telecom Solutions Limited
Notes forming part of the consolidated financial statements for the year ended
December 31, 2009
NOTE 1 - ACCOUNTING POLICIES:
General:
F.T.S. - Formula Telecom Solutions Ltd (the "Company") was founded in January
1997 under the law of the state of Israel.
The Company is a global provider of convergent telecom management solutions for
mobile, fixed-line and advanced services operators. The Company provides a range
of versatile solutions to the market, which include convergent real-time prepaid
and postpaid billing and Customer Relationship Management ("CRM") order
management, infrastructure management, Electronic Bill Presentation software, as
well as call center implementations.
The Company operates in one operating segment.
Definitions:
In this financial information:
The Company - F.T.S - Formula Telecom Solutions Limited.
The Group - The Company and its subsidiaries.
Subsidiaries - Companies that are controlled by the
Company (as defined in IAS27) and whose accounts
are consolidated with those of the Company.
The parent company - Formula Vision Technologies (F.V.T.) Limited.
Related parties - As defined in IAS 24.
Basis of preparation:
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied to all
the years presented, unless otherwise stated.
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the
International Accounting Standards Board (IASB) and with those parts of the
Companies Law 1999 in Israel applicable to companies preparing their accounts
under IFRS. The financial statements have been prepared under the historical
cost convention, as modified by the revaluation of financial assets and
financial liabilities at fair value through profit or loss.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Assets and Liabilities in foreign currencies:
Henceforth are the details of the foreign currencies of the main currencies and
the percentage changes in the reporting period:
+--------------------------------------------------+----------+----------+----------+----------+
| | As of December 31, |
+--------------------------------------------------+-------------------------------------------+
| | 2009 | | 2008 | |
+--------------------------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------------------------+----------+----------+----------+----------+
| NIS (New Israeli Shekel) | 0.265 | | 0.263 | |
+--------------------------------------------------+----------+----------+----------+----------+
| Euro | 1.442 | | 1.393 | |
+--------------------------------------------------+----------+----------+----------+----------+
+--------------------------------------------------+----------+----------+---------+----------+
| | Year ended December 31, |
+--------------------------------------------------+------------------------------------------+
| | 2009 | | 2008 | |
+--------------------------------------------------+----------+----------+---------+----------+
| | % | | % | |
+--------------------------------------------------+----------+----------+---------+----------+
| | | | | |
+--------------------------------------------------+----------+----------+---------+----------+
| NIS (New Israeli Shekel) | 0.76 | | 1.15 | |
+--------------------------------------------------+----------+----------+---------+----------+
| Euro | 3.52 | | (5.30) | |
+--------------------------------------------------+----------+----------+---------+----------+
Changes in accounting policies:
Adoption of new and revised International Financial Reporting Standards (IFRS):
New standards, amendments to published standards and interpretations to existing
standards effective in 2009 adopted by the group.
- IFRS 8 - Operating Segments:
IFRS 8 ("the Standard") discusses operating segments and replaces IAS 14. The
Standard applies to companies whose securities are traded or are in the process
of filing with any securities stock exchange. The Standard is effective for
annual financial statements for periods beginning on January 1, 2009 or after.
The provisions of the Standard will be applied retrospectively, by restatement,
unless the necessary information is not available or impractical to obtain.
The Standard determines that an entity will adopt a management approach in
reporting on the financial performance of the operating segments. The segment
information would be the information that is internally used by management in
order to assess its performance and allocate resources to the operating
segments.
Furthermore, information is required to be disclosed about the products or
services (or group of products and similar services) from which the entity
derives its revenues, the countries in which these revenues or assets are
derived and major customers, irrespective of whether management uses this
information for making operating decisions. The implementation of the new
Standard has had no impact on the Company's reportable operating segments.
NOTE 1 - ACCOUNTING POLICIES (cont.):
- IAS 23 (Revised) - Borrowing Costs:
In accordance with the revised IAS 23, borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying
asset must be capitalized. A qualifying asset is an asset that necessarily takes
a substantial period of time to get ready for its intended use or sale and
includes fixed assets, investment property and inventories that take a
substantial period of time to get ready for sale. The possibility of immediately
carrying these costs as an expense has been removed. The revised Standard is
effective for the financial statements for the year beginning January 1, 2009 or
after. The implementation of IAS 23 (Revised) has had no impact on the reported
results or financial position of the Company.
- IAS 1 (Revised) - Presentation of Financial Statements:
IAS 1 (Revised) requires entities to present a second statement, a separate
"statement of comprehensive income" displaying , other than the net income taken
from the statement of income, all the items carried in the reported period
directly to equity that do not result from transactions with the shareholders in
their capacity as shareholders (other comprehensive income) such as adjustments
arising from translating the financial statements of foreign operations, fair
value adjustments of available-for-sale financial assets, changes in revaluation
surplus of fixed assets and such and the tax effect of these items carried
directly to equity, while properly allocated between the Company and the
minority interests. Alternatively, the items of other comprehensive income may
be displayed along with the items of the statement of income in a single
statement entitled "statement of comprehensive income" which replaces the
statement of income, while properly allocated between the Company and the
minority interests.
Items carried to equity resulting from transactions with the shareholders in
their capacity as shareholders (such as capital issues, dividend distribution
etc.) will be disclosed in the statement of changes in equity as will the
summary line carried forward from the statement of comprehensive income, while
properly allocated between the Company and the minority interests.
IAS 1 (Revised) also prescribes that in cases of restatement of comparative
figures as a result of the retroactive adoption of a change in accounting
policy, the entity must include an opening balance sheet disclosing the restated
comparative figures.
IAS 1 (Revised) is effective for annual financial statements for periods
beginning on January 1, 2009 or after. The effect of the adoption of IAS 1
(Revised) requires the Company to disclose the above items in the financial
statements, as was done by the Company.
NOTE 1 - ACCOUNTING POLICIES (cont.):
- IFRS 2 (Revised) - Share-based Payment:
Pursuant to the IFRS 2 (Revised) ("the revised Standard"), the definition of
vesting terms will only include service conditions and performance conditions
and the settlement of a grant that includes non-vesting conditions by the
Company or the counterparty, will be accounted for by way of vesting
acceleration and not by forfeiture. The Standard applied retrospectively for
financial statements for periods beginning on January 1, 2009.
Vesting conditions include service conditions which require the counterparty to
complete a specified period of service and performance conditions which require
specified performance targets to be met. Conditions that are other than service
and performance conditions will be viewed as non-vesting conditions and must
therefore be taken into account when estimating the fair value of the instrument
granted.
The implementation of IFRS 2 (Revised) has had no impact on the reported results
of financial position of the Company.
- IFRS 7 (Revised) - Financial Instruments: Disclosures (hereinafter: "IFRS
7 revised"):
The revised IFRS 7 stipulates the disclosure requirements in regards to fair
value of financial instruments and liquidity risk including analysis of all
financial instruments groups to 3 levels of fair value, and further disclosure
of financial instruments which were measured using estimation techniques which
are not based on estimated data (usually instruments which are not traded in an
active market). Furthermore, the definition of liquidity risk was changed so the
definition does not refer to financial liabilities which will be settled using
capital instruments or non financial assets, where regarding liquidity risk, the
revised IFRS 7 requires analysis of separate contractual payments dates for
financial liabilities which in essence are derivatives and financial liabilities
which are not derivatives.
The revised IFRS 7 is effective for annual financial statements beginning on
January 1, 2009 or after. In the first year of adoption, IFRS 7 does not require
the restatement of comparative numbers; therefore the application of the revised
IFRS 7 is prospective (see Note 25).
Impact of recently issued accounting standards prior to their adoption:
- IFRS 3 (Revised) - Business Combinations and IAS 27 (Revised) -
Consolidated and Separate Financial Statements:
IFRS 3 (Revised) and IAS 27 (Revised) ("the Standards") will be effective for
annual financial statements for periods beginning on January 1, 2010. The
combined early adoption of the two Standards is permitted from the financial
statements for periods beginning on January 1, 2008 or after.
NOTE 1 - ACCOUNTING POLICIES (cont.):
- IFRS 3 (Revised) - Business Combinations and IAS 27 (Revised) -
Consolidated and Separate Financial Statements (cont.):
The principal changes expected to take place following the adoption of the
Standards are:
(a) IFRS 3 currently prescribes that goodwill, as opposed to the acquirer's
other identifiable assets and liabilities, will be measured as the excess of the
cost of the acquisition over the acquirer's share in the fair value of the
identifiable assets, net on the acquisition date. According to the Standards,
goodwill can be measured at its full fair value and not only based on the
acquired part, this in respect of each business combination transaction measured
separately.
(b) A contingent consideration in a business combination will be measured at
fair value and changes in the fair value of the contingent consideration, which
do not represent adjustments to the acquisition cost in the measurement period,
will not be simultaneously recognized as goodwill adjustment. Normally, the
contingent consideration will be considered a financial derivative within the
scope of IAS 39 and will be presented at fair value through profit or loss.
(c) Direct acquisition costs attributed to a business combination transaction
will be recognized in the statement of income as incurred as opposed to the
previous requirement of carrying them as part of the consideration of the cost
of the business combination, which has been removed.
(d) A minority transaction, whether a sale or an acquisition, will be accounted
for as an equity transaction and will therefore not be recognized in the
statement of income or have any effect on the amount of goodwill, respectively.
(e) A subsidiary's losses, although resulting in the subsidiary's deficiency,
will be allocated between the parent company and minority interests, even if the
minority has not guaranteed or has no contractual obligation of sustaining the
subsidiary or carrying out another investment.
(f) On the loss of control of a subsidiary, the remaining investment in the
subsidiary, if any, will be revalued to fair value against gain and loss from
the sale and this fair value will represent the cost basis for the purpose of
subsequent treatment.
The Company believes that the effect of the Standards on its financial
condition, results of operations and cash flows is not expected to be material.
- IFRS 9 Financial Instruments:
In November 2009, the IASB issued IFRS 9, "Financial Instruments", which
represents the first phase of a project to replace IAS 39, "Financial
Instruments: Recognition and Measurement". IFRS 9 focuses mainly on the
classification and measurement of financial assets and it applies to all
financial assets within the scope of IAS 39.
NOTE 1 - ACCOUNTING POLICIES (cont.):
- IFRS 9 Financial Instruments (cont.):
According to IFRS 9, upon initial recognition, all the financial assets
(including hybrid contracts with financial asset hosts) will be measured at fair
value. In subsequent periods, debt instruments can be measured at amortized cost
if both of the following conditions are met:
- The asset is held within a business model whose objective is to hold
assets in order to collect the contractual cash flows.
- the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Subsequent measurement of all other debt instruments and financial assets will
be at fair value.
Financial assets that are equity instruments will be measured in subsequent
periods at fair value and the changes will be recognized in the statement of
income or in other comprehensive income (loss), in accordance with the election
of the accounting policy on an instrument-by-instrument basis. Nevertheless, if
the equity instruments are held for trading, they must be measured at fair value
through profit or loss. This election is final and irrevocable.
When an entity changes its business model for managing financial assets it shall
reclassify all affected financial assets. In all other circumstances,
reclassification of financial instruments is not permitted.
The Standard will be effective starting January 1, 2013. Earlier application is
permitted. Early adoption will be made with a retrospective restatement of
comparative figures, subject to the reliefs set out in the Standard.
The Company is evaluating the possible effect of the adoption of the new
Standard on the consolidated financial statements but is presently unable to
assess such effect, if any.
- Amendments to IFRS 2 - Group Cash-settled Share-based Payment
Transactions
In June 2009 the International Accounting Standards Board amended IFRS 2 to
clarify its scope and the accounting for group cash-settled share-based payment
transactions in the separate or individual financial statements of the entity
receiving the goods or services when that entity has no obligation to settle the
share based payment transaction. The amendments also incorporate the guidance
contained in the following Interpretations:
- IFRIC 8 Scope of IFRS 2
- IFRIC 11 IFRS 2- Group and Treasury Share Transactions.
The Company believes that the revised Standard will have no effect on its
reported results or financial position.
NOTE 1 - ACCOUNTING POLICIES (cont.):
- The Project for the improvement of the International Financial Reporting
Standards 2009:
In April 2009, the IASB issued amendments to 12 International Accounting
Standards (IAS), International Financial Reporting Standards (IAS) and
amendments to International Financial Reporting Standards (herewith: "the
amendments"), as part of the project for the improvement of the International
Financial Reporting Standards. Most of the amendments are performed
retrospectively from the various periods beginning January 1, 2010 or after.
Early adoption is possible subject to certain terms. According to the Group's
estimations, the effect of the amendments on the results, the financial
position, the equity and the cash flows of the Group is expected to be
immaterial.
In November 2009, the IASB issued amendments to IAS 24 Related Party
Disclosures. The amendments modify the definition of a related party and
simplify related party disclosures for government-related entities.
These amendments will be adopted in financial statements for the period
beginning 1 January 2011. The Group is not government-related; therefore the
disclosure exemptions will not affect the Group. However, some disclosures may
be affected by the changes in the detailed definition of a related party. This
may result in amendments to the relevant related party disclosures in the
financial statements.
Basis of consolidation:
Where the Company has the power, either directly or indirectly, to govern the
financial and operating policies of another entity or business so as to obtain
benefits from its activities, it is classified as a subsidiary. The consolidated
financial statements present the results of the Company and its subsidiaries
("the group") as if they formed a single entity. Intercompany transactions and
balances between group companies are therefore eliminated in full.
Business combination:
The consolidated financial statements incorporate the results of business
combinations using the purchase method. In the consolidated balance sheet, the
acquirer's identifiable assets, liabilities and contingent liabilities are
initially recognized at their fair value at the acquisition date. The results of
acquired operations are included in the consolidated income statement from the
date on which control is obtained. This policy was not applied in the
acquisition of FTS INC according to IFRS 3 due to application of IFRS 1-
'First-time Adoption of International Financial Reporting Standards' on
transition date at 1 January 2006:
The carrying amount of capitalized goodwill under IFRS on 31 December 2005 is
the same as it was under US GAAP. This amount was frozen and tested for
impairment under IFRS at 1 January 2006. The carrying amount was adjusted for
intangible assets that would have been required to be recognized in the
acquirer's separate financial statements in accordance with IAS 38 'Intangible
Assets', such as development costs.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Goodwill:
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given,
liabilities assumed and equity instruments issued, plus any direct costs of
acquisition.
Goodwill is capitalized as an intangible asset with any impairment in carrying
value being charged to the income statement. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed the fair
value of consideration paid, the excess is credited in full to the consolidated
income statement on the acquisition date.
Revenue recognition:
1. Revenues from services are recognized as follows:
In fixed fee contracts - according to International Accounting Standard No. 11
"Construction Contracts" pursuant to which revenues and costs are reported by
the "percentage of completion" method.
The percentage of completion is determined by dividing actual completion costs
by the anticipated completion costs.
Amounts billed in advance of services being performed are recorded as deferred
revenue. Unbilled receivables represent revenue earned but not yet billable
under the term of the fixed price contracts and all such amounts are expected to
be billed and collected during the succeeding 12 months.
In cases where a loss from a project is anticipated, a provision is made in the
period in which it first becomes evident, for the entire loss anticipated until
completion, as assessed by the Company's management.
Estimated gross profit or loss from long-term contracts may change due to
changes in estimates resulting from differences between actual performance and
original forecasts. Such changes in estimated gross profit are recorded in
results of operations when they are reasonably determinable by management, on a
cumulative catch-up basis.
2. Revenues from sales of products are recognized upon delivery, provided
no significant vendor obligations remain.
3. Revenues from maintenance services are recognized based on the
proportionate share of the maintenance services under the contract to be
provided in each year of account.
4. Revenues from professional services are recognized based on actual time
incurred.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Impairment of non-financial assets:
Impairment tests on goodwill and other intangible assets with indefinite useful
economic lives are undertaken annually on December 31. Other non-financial
assets are subject to impairment tests whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e. the higher
of value in use and fair value less costs to sell), the asset is written down
accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit
(i.e. the lowest group of assets in which the asset belongs for which there are
separately identifiable cash flows). Goodwill is allocated on initial
recognition to each of The Company's cash-generating units that are expected to
benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the administrative expenses line item in the
income statement, except to the extent they reverse gains previously recognized
in the statement of recognized income and expense. During the years 2009 and
2008 no impairment charges of non-financial assets were required.
Functional and reporting currency:
The majority of the revenues of the Company are generated in U.S. dollars. In
addition, a substantial portion of the Company's costs is incurred in U.S.
dollars. The Company's management believes that the U.S. dollar is the primary
currency of the economic environment in which the Company and its subsidiaries
operate. Thus, the functional and reporting currency of the Company is the U.S.
dollar.
Foreign currency:
Transactions entered into by group entities in a currency other than the
currency of the primary economic environment in which they operate (the
"functional currency") are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the balance sheet date. The majority of revenue and expenses are
translated at historical rate and the rest are translated at average rates of
exchange prevailing during the quarters. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are recognized
immediately in the consolidated income statement.
Financial assets:
The group classifies its financial assets into one of the following categories,
depending on the purpose for which the asset was acquired.
Company's accounting policy for each category is as follows:
NOTE 1 - ACCOUNTING POLICIES (cont.):
Fair value through profit or loss: This category comprises marketable
securities. They are carried in the balance sheet at fair value with changes in
fair value recognized in the consolidated income statement, in finance income or
expense line.
Loans and receivables: These assets are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They
arise principally through the provision of goods and trade receivables, but also
incorporate other types of contractual monetary asset. They are carried at
amortized cost less any allowance for impairment.
Financial liabilities:
The group classifies its financial liabilities into one of two categories,
depending on the purpose for which the asset was acquired.
The group's accounting policy for each category is as follows:
Fair value through profit or loss: This category comprises only out-of-the-money
derivatives) (see Financial assets for in the money derivatives). They are
carried in the balance sheet at fair value with changes in fair value recognized
in the consolidated income statement.
As of December 31, 2009 no such liabilities are held by the Company.
Other financial liabilities: Other financial liabilities include the following
items:
· Bank borrowings are initially recognized at fair value net of any
transaction costs directly attributable to the issue of the instrument. Such
interest bearing liabilities are subsequently measured at amortized cost using
the effective interest rate method, which ensures that any interest expense over
the period to repayment is at a constant rate on the balance of the liability
carried in the balance sheet. Interest expense in this context includes initial
transaction costs payable on redemption, as well as any interest or coupon
payable while the liability is outstanding.
.
· Chief Scientist Grants: Chief Scientist grants are recognized as a
liability according to IAS 37 up to the amount which is expected to be returned
to the Chief scientist. The variance between the amount received from the
scientist and the liability which was recognized in the balance sheet at the
time the grant was received is recognized as a refund of research expenses or as
a decrease in development costs which were capitalized, depending on which is
relevant. The provision for liability for the chief scientist is checked every
reporting period. The changes in the provision are recognized in the income
statement or against a research and development asset, depending on which is
relevant.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Impairment of Financial Assets and Cancellation:
The Company checks every balance date if there is an objective reason for the
impairment of a financial asset or a group of financial assets.
Fair Value of Financial Instruments:
1. The fair value is the amount for which an asset can be traded or a
liability can be removed, between a willing buyer and a willing seller, who act
logically, in a transaction which is not effected by special relations between
the sides.
2. The best evidence for fair value is quotable active market values.
Internally generated intangible assets (research and development costs):
Expenditure on internally developed products is capitalized if it can be
demonstrated that:
· it is technically feasible to develop the product for it to be
sold;
· adequate resources are available to complete the development;
· there is an intention to complete and sell the product;
· The Company is able to sell the product;
· sale of the product will generate future economic benefits; and
· expenditure on the project can be measured reliably.
Capitalized development costs are amortized over the periods The Company expects
to benefit from selling the products developed. The amortization expense is
included within the cost of sales line in the income statement.
Development expenditure not satisfying the above criteria and expenditure on the
research phase of internal projects are recognized in the income statement as
incurred.
Development costs are recognized in the consolidated statement of income seeing
as the Company does not meet the abovementioned conditions.
· Rights in software:
The annual amortization of rights in software is based on the straight-line
method over the remaining estimated economic life of the product including the
period being reported on. Amortization starts when the product is available for
general release to customers.
The Company is using the straight-line method over the useful life, which is
three years.
The Company periodically evaluates the recoverability of rights in software and
take into account events or circumstances that warrant revised estimates of
useful lives or that indicate that impairment exists.
· Patents and trademarks:
The Company is using the straight-line method over the useful life, which is 18
years.
NOTE 1 - ACCOUNTING POLICIES (cont.):
· Customer lists:
The Company is using the straight-line method over the useful life, which is 4
years.
Deferred taxation:
Deferred tax assets and liabilities are recognized where the carrying amount of
an asset or liability in the balance sheet differs to its tax base, except for
differences arising on:
· the initial recognition of goodwill;
· goodwill for which amortization is not tax deductible;
· the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; nor investments in subsidiaries and
jointly controlled entities where. The Company is able to control the timing of
the reversal of the difference and it is probable that the difference will not
reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the difference can
be utilized.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantially enacted by the balance sheet date and are expected
to apply when the deferred tax liabilities/ (assets) are settled/ (recovered).
Deferred tax balances are not discounted.
Property, plant and equipment:
Items of property, plant and equipment are initially recognized at cost. As well
as the purchase price, cost includes directly attributable costs and the
estimated present value of any future costs of dismantling and removing items.
The corresponding liability is recognized within provisions. Depreciation is
computed by the straight line method, based on the estimated useful lives of the
assets, as follows:
+------------------------------------+-------+----------------+
| | | Rate of |
| | | depreciation |
+------------------------------------+-------+----------------+
| | | |
+------------------------------------+-------+----------------+
| Motor vehicles | | 15% |
+------------------------------------+-------+----------------+
| Leasehold improvements | | 10% |
+------------------------------------+-------+----------------+
| Computers and equipment | | 33% |
+------------------------------------+-------+----------------+
| Office furniture and equipment | | 15%-16% |
+------------------------------------+-------+----------------+
Leasehold improvements are depreciated over the expected term of the lease
including optional extension, or over the estimated useful lives of the
improvements, whichever is shorter.
Cash and cash equivalents:
Cash equivalents are considered by the Company to be highly-liquid investments,
including, inter alia, short-term deposits with banks the maturity of which did
not exceed three months at the time of deposit and which are not restricted.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Company shares held by the Company:
Shares of the Company that are held by the Company are presented as a reduction
of equity, at their cost to the Company. Gains and losses upon the sale of these
shares, net of related income taxes, are carried to additional paid-in capital.
Share-based payments:
Where equity settled share options are awarded to employees, the fair value of
the options at the date of grant is charged to the consolidated income statement
over the vesting period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each balance
sheet date so that, ultimately, the cumulative amount recognized over the
vesting period is based on the number of options that eventually vest. Market
vesting conditions are factored into the fair value of the options granted. As
long as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Provision for warranty:
Based on past experience, the Company does not record any provision for warranty
of its products and services.
Employee benefits:
According to Israeli work laws, employment agreements in Israel and the
Company's practice, the Company is obligated to pay severance payments to its
employees upon dismissal and in some circumstances, even if the employee has
resigned or retired. The company's obligation for severance pay is dealt as a
"defined benefit plan".
The severance pay's provision, as shown in the balance sheet, represents the
present value of the defined benefit plan as of the balance sheet's date. The
provision is calculated by independent actuaries based on the "Projected Unit
Credit" method. The provision's present value is determined by the
capitalization of future expected cash flows (after taking in consideration
future wages growth's rate) on the basis of government bonds' interest rates
stated in the same currency as the benefits' payments.
The Company implements the Corridor method. There are no actuary gains or
losses, except for surplus in the corridor method. Therefore, with their
occurrence, the Company does not credit the actuary gains or losses that have
derived as a result of actuary assumptions and as a result of changes between
previous assumptions and the actual results, to the income statement.
The company acquires insurance polices and deposits in severances funds
according to its obligation.
The privilege to severance pay by the insurance policies is considered a return
of expenses, whereas it is certain that the insurance company will, fully or
partially, return the expenses needed to cover the severance pay obligation.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Transactions with controlling parties:
Transactions with controlling shareholders are disclosed in conformity with the
provisions of the International Accounting Standard 24 (related party
disclosures and transactions).
Earnings per Share (EPS):
Earnings per Share is determined and presented in accordance with IAS 33.
Basic net earnings per share are computed based on the weighted average number
of common shares outstanding during each year. Diluted earnings per share is
computed based on the weighted average number of common shares outstanding
during each year, plus dilutive potential common shares considered outstanding
during the year.
Critical accounting estimates and judgments:
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgments are continually evaluated based on historical experience
and other factors, including expectations of future events that are believed to
be reasonable under the circumstances. In the future, actual experience may
differ from these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
(a) Revenue recognition:
The group has recognized part of its revenue according to IAS 11 "construction
contracts." The revenue recognition depends on the percentage of completion
method which is determined on estimates of anticipated completion costs. A
change in these estimates may affect the revenue recognized in the income
statement.
(b) Employee Benefits:
The costs, assets and liabilities of the defined benefit schemes operating by
the group are determined using methods relying on actuarial estimates and
assumptions. Details of the key assumptions are set out in note 19. The group
takes advice from independent actuaries relating to the appropriateness of the
assumptions. Changes in the assumptions used may have a significant effect on
the consolidated income statement and the balance sheet.
Leases:
The tests for classifying leases as finance or operating leases depend on the
substance of the agreements and are made at the inception of the lease in
accordance with the principles below as set out in IAS 17.
The Group as lessee:
1. Finance leases:
Finance leases transfer to the Group substantially all the risks and benefits
incidental to ownership of the leased asset. At the commencement of the lease
term, the leased assets are measured at the fair value of the leased asset
NOTE 1 - ACCOUNTING POLICIES (cont.):
or, if lower, at the present value of the minimum lease payments. The liability
for lease payments is presented at its present value and the lease payments are
apportioned between finance charges and a reduction of the lease liability using
the effective interest method.
2. Operating leases:
Lease agreements are classified as an operating lease if they do not transfer
substantially all the risks and benefits incidental to ownership of the leased
asset. Lease payments are recognized as an expense in the statement of income on
a straight-line basis over the lease term.
After initial recognition, the leased liability is accounted for according to
the accounting policy accepted for this type of asset (see note 26).
Reclassification:
The Company reclassified 170$ thousand from the cash and cash equivalent in the
cash flow statement for the year ending December 31, 2008 due to the effect of
exchange rate changes. The Company didn't present the December 31, 2007 figure
since it believes that it doesn't add any significant information to the
investors of the Company.
NOTE 2 - REVENUES:
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | For the | | % | | For the | | % |
| | year | | | | year | | |
| | ended | | | | ended | | |
| | December | | | | December | | |
| | 31, 2009 | | | | 31, 2008 | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | $'000 | | | | $'000 | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Revenues | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer A | 3,947 | | 20 | | 5,276 | | 18 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer B | 2,211 | | 11 | | 2,724 | | 9 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer C | 1,358 | | 7 | | 3,091 | | 10 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer D | 1,157 | | 6 | | - | | - |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Others | 10,718 | | 56 | | 18,940 | | 63 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | 19,391 | | 100 | | 30,031 | | 100 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Sources of revenues | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Maintenance contracts | 8,735 | | 45 | | 11,131 | | 37 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Professional services | 6,535 | | 34 | | 5,015 | | 17 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Fixed fee contracts | 4,121 | | 21 | | 13,885 | | 46 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | 19,391 | | 100 | | 30,031 | | 100 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
NOTE 3 - PROFIT FROM OPERATIONS:
This has been arrived at after charging:
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | For the year ended December |
| | | | 31, |
+------------------------------------------+--------+----------+--------------------------------------------+
| | | | 2009 | | 2008 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | $'000 | | $'000 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Staff costs (see note 4) | | | 12,269 | | 13,372 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Material and subcontractors | | | 2,215 | | 5,179 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Deprecation of property and equipment | | | 2,106 | | 1,970 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Travel | | | 1,291 | | 1,633 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Operating lease expense | | | 1,399 | | 1,584 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Impairment of receivables | | | 629 | | (331) |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Commissions | | | 467 | | 1,432 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Consultants | | | 731 | | 665 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Advertising | | | 134 | | 211 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Others | | | 665 | | 968 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | 21,906 | | 26,683 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
NOTE 4 - STAFF COSTS:
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | For the year ended December |
| | | | 31, |
+------------------------------------------+--------+----------+--------------------------------------------+
| | | | 2009 | | 2008 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | $'000 | | $'000 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Staff costs (including directors) | | | | | |
| comprise: | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Wages and salary | | | 10,129 | | 11,041 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Allocation costs for social expenses | | | 1,281 | | 1,466 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Employees' national insurance and | | | 647 | | 665 |
| similar taxes | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Bonuses | | | 212 | | 200 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | 12,269 | | 13,372 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Directors and key management personal | | | | | |
| remuneration: | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Wages and salary | | | 1,839 | | 1,410 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Allocation costs for social expenses | | | 259 | | 210 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Employees' national insurance and | | | 82 | | 58 |
| similar taxes | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| Bonuses | | | 124 | | 124 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | 2,304 | | 1,802 |
+------------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+------------------------------------------+--------+----------+----------------+----------+----------------+
NOTE 5 - SEGMENTS:
Segment information:
The Company operates in four principal geographic segments: Europe, Asia, Africa
and United States. Revenue and cost of sale are attributed to geographic region
based on the location of the customers.
It is impossible to reliably allocate assets, liabilities, depreciations and
non-cash expenses to each segment because the Company develops and gives
services to customers on a world wide basis.
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| |Europe | | Asia | | Africa | | United | | Total |
| | | | | | | | States | | |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| | 2009 | | 2009 | | 2009 | | 2009 | | 2009 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| | $'000 | | $'000 | | $'000 | | $'000 | | $'000 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| | | | | | | | | | |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| Revenue | 7,486 | | 2,597 | | 2,241 | | 7,067 | | 19,391 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| | | | | | | | | | |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
| Gross Profit | 2,008 | | 697 | | 601 | | 4,996 | | 8,302 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+---------+
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| |Europe | | Asia | | Africa | | United | | Total |
| | | | | | | | States | | |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| | 2008 | | 2008 | | 2008 | | 2008 | | 2008 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| | $'000 | | $'000 | | $'000 | | $'000 | | $'000 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| | | | | | | | | | |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| Revenue | 10,161 | | 4,237 | | 8,427 | | 7,206 | | 30,031 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| | | | | | | | | | |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
| Gross Profit | 4,730 | | 1,973 | | 3,923 | | 4,800 | | 15,426 |
+-------------------------+--------+----------+--------+----------+---------+----------+---------+----------+----------+
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | For the | | % | | For the | | % |
| | year | | | | year | | |
| | ended | | | | ended | | |
| | December | | | | December | | |
| | 31, 2009 | | | | 31, 2008 | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | $'000 | | | | $'000 | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Revenues | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer A- Europe | 3,947 | | 20 | | 5,276 | | 18 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer B- Africa | 2,211 | | 11 | | 2,724 | | 9 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer C- Asia | 1,358 | | 7 | | 3,091 | | 10 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Customer D- Europe | 1,157 | | 6 | | - | | - |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| Others | 10,718 | | 56 | | 18,940 | | 63 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | 19,391 | | 100 | | 30,031 | | 100 |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
| | | | | | | | |
+---------------------------------+----------------+----------+-------------+----------+----------------+----------+-------------+
NOTE 6 - FINANCE INCOME AND EXPENSE:
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | 2009 | | 2009 | | 2008 | | 2008 |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | $'000 | | $'000 | | $'000 | | $'000 |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Finance expense | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Interest expense on financial | | (214) | | | | (355) | | |
| liabilities | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Net losses on financial | | - | | | | (668) | | |
| instruments classified as held | | | | | | | | |
| for trading | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Foreign currency | | - | | | | (596) | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Bank fees | | (208) | | | | (107) | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | (422) | | | | (1,726) |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Finance income | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Net gains on financial instruments | | 726 | | | | | | |
| classified as held | | | | | | | | |
| for trading | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Bank interest received | | 96 | | | | 230 | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| Foreign currency | | 136 | | | | - | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | 958 | | | | 230 |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | 536 | | | | (1,496) |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
| | | | | | | | | |
+------------------------------------+----------+---------------+----------+-------------+----------+---------------+----------+-----------------+
NOTE 7 - TAXES ON INCOME:
A. Tax Laws in Israel:
1.Law for the Encouragement of Capital Investments, 1959:
Pursuant to the provisions of the said law, the Company is eligible for tax
benefits resulting from implementation of programs for investment in assets, in
accordance with the letters of approval the Company received ("approved
enterprises"), which grant the Company the rights to exemption from tax for a
period of two years and subsequent to that period - to tax at a reduced rate of
25% of five years on income derived from the approved enterprise, subject to
fulfillment of the conditions stipulated in the letter of approval. Moreover,
the Company was approved an additional exemption and received a beneficiary
plant ("the expansion") for the part of revenues exceeding the Company's 2003
revenues.
The period in which the company will enjoy the tax exemption or reduced tax rate
is limited in the letter of approval to seven years from the first year in which
taxable income is earned. If the percentage of the company's share capital held
by foreign shareholders exceeds 25%, then it will be entitled to reduced tax
rates for a further three years, under certain conditions.
If the Company distributes dividends out of the exempt income of the first two
years of approved enterprise, it will be subject to tax at the rate of 25% on
the distributed income. If the Company distributes dividends from the income of
approved enterprise, the receivable will be subject to tax at the rate of
maximum 15% on the distributed income.
NOTE 7 - TAXES ON INCOME (Cont.):
A. Tax Laws in Israel (cont.):
The Company intends to permanently reinvest the amounts of tax-exempt income and
it does not intend to cause distribution of such dividends. Therefore, no
deferred income taxes have been provided in respect of such tax-exempt income.
The periods of benefits relating to the Company's Approved Enterprise were
started on 2002 and expired in 2008 and, with respect to the expansion will
expire, in 2010.
The Company received a second expansion. This is applied on increases in revenue
only. The Company is a technological company. Subject to fulfillment of the
conditions stipulated in the letter of approval, the company can decrease the
revenue base by 10% every year. The benefits of the second expansion will begin
on the first year that the Company will report taxable income.
2. Recent Israeli Tax Reform Legislation:
In July 2002, the Israeli parliament approved a law enacting extensive changes
to Israel's tax law generally effective January 1, 2003 (the "Tax Reform
Legislation"). An Israeli company that is subject to Israeli taxes on the income
of its non-Israeli subsidiaries will receive a credit for income taxes paid by
the subsidiary in its country of residence.
3. Tax rates:
The tax rate used for computing the provision for current taxes is 26%, with the
exception of approved enterprises - see 1. above.
On July 25, 2005, the corporate tax rate was reduced to 35% for the 2004 tax
year, 34% for the 2005 tax year, 31% for the 2006 tax year, 29% for the 2007,
27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax
year and thereafter.
In July 2009, the Israeli Parliament (the Knesset) passed the Economic
Efficiency Law (Amended Legislation for Implementing the Economic Plan for 2009
and 2010), 2009, which prescribes, among other things, an additional gradual
reduction in the Israeli corporate tax rate starting from 2011 to the following
tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and
thereafter - 18%.
B.Subsidiaries outside Israel:
Subsidiaries that are not Israeli resident are taxed in the countries where they
are resident, according to the tax laws in the respective countries.
C. Income tax assessments:
The Company has final tax assessments until and including 2006.
NOTE 7 - TAXES ON INCOME (Cont.):
D.Income Tax (Inflationary Adjustments) Law, 1985:
According to the law, until 2007, the results for tax purposes were measured
based on the changes in the Israeli CPI. In February 2008, the "Knesset"
(Israeli parliament) passed an amendment to the Income Tax (Inflationary
Adjustments) Law, 1985, which limits the scope of the law starting 2008 and
thereafter. Starting 2008, the results for tax purposes are measured in nominal
values, excluding certain adjustments for changes in the Israeli CPI carried out
in the period up to December 31, 2007. The amendment to the law includes, inter
alia, the elimination of the inflationary additions and deductions and the
additional deduction for depreciation starting 2008.
E. Composition:
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | 2009 | | 2009 | | 2008 | | 2008 |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | $'000 | | $'000 | | $'000 | | $'000 |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| Current tax expense: | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| Income tax on profits for the | | 1,314 | | | | 18 | | |
| year | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| Taxes from previous years | | - | | | | 244 | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | | | 1,314 | | | | 262 |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| Deferred tax expense: | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| Origination and reversal of | | 1,978 | | | | 495 | | |
| temporary differences | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | | | 1,978 | | | | 495 |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| | | | | | | | | |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
| Total tax expense | | | | 3,292 | | | | 757 |
+---------------------------------+----------+-------------+----------+-------------+----------+-----------+----------+-----------+
F. The reasons for the difference between the actual tax charge for the year
and the standard rate of corporation tax in Israel applied to profits for the
year are as follows:
+----------------------------------------------+----------+---------------+----------+-------------+
| | | 2009 | | 2008 |
+----------------------------------------------+----------+---------------+----------+-------------+
| | | $'000 | | $'000 |
+----------------------------------------------+----------+---------------+----------+-------------+
| | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
| Profit (loss) before tax | | (1,979) | | 1,852 |
+----------------------------------------------+----------+---------------+----------+-------------+
| Expected tax charge (income) based on the | | (515) | | 500 |
| standard rate | | | | |
| of corporation tax in Israel of 26% | | | | |
| (2008 - 27%) | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
| Utilization of tax benefit | | (604) | | (206) |
+----------------------------------------------+----------+---------------+----------+-------------+
| Tax benefit for an approved enterprise | | 113 | | (102) |
+----------------------------------------------+----------+---------------+----------+-------------+
| Losses and temporary differences for which | | 914 | | (111) |
| deferred taxes were not recorded | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
| Deferred tax assets written off during the | | 1,875 | | 299 |
| year | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
| Provision of foreign tax withhold create in | | 1,309 | | - |
| prior years | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
| Different tax rates for subsidiaries | | 202 | | 69 |
+----------------------------------------------+----------+---------------+----------+-------------+
| Taxes in respect of previous years | | - | | 244 |
+----------------------------------------------+----------+---------------+----------+-------------+
| Other | | (2) | | 64 |
+----------------------------------------------+----------+---------------+----------+-------------+
| | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
| Total tax expense | | 3,292 | | 757 |
+----------------------------------------------+----------+---------------+----------+-------------+
| | | | | |
+----------------------------------------------+----------+---------------+----------+-------------+
NOTE 8 - EARNINGS PER SHARE:
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | 2009 | | 2008 |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | $ | | $ |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| Earnings (losses) used in basic EPS | | | (5,271,084) | | 1,095,000 |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| Earnings (losses) used in diluted EPS | | | (5,271,084) | | 1,095,000 |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| Weighted average number of shares used | | | 32,956,012 | | 32,956,012 |
| in EPS | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| Basic net EPS | | | (0.1599) | | 0.0332 |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| Diluted net EPS | | | (0.1599) | | 0.0332 |
+----------------------------------------+---------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+---------+----------+----------------+----------+----------------+
The employee options have been excluded from the calculation of diluted EPS as
their exercise price is greater than the weighted average share price during the
year (i.e. they are out-of-the-money) and therefore it would not be advantageous
for the holders to exercise those options. The total number of options in issue
is disclosed in the note 24.
NOTE 9- DIVIDENDS
+--------------------------------------+--------+----------+----------------+----------+------------+
| | | | 2009 | | 2008 |
+--------------------------------------+--------+----------+----------------+----------+------------+
| | | | $'000 | | $'000 |
+--------------------------------------+--------+----------+----------------+----------+------------+
| | | | | | |
+--------------------------------------+--------+----------+----------------+----------+------------+
| Dividend of 0.13 (2008 - none) | | | 4,182 | | - |
| dollars per ordinary share proposed | | | | | |
| and paid during the year relating | | | | | |
| to the previous year's results | | | | | |
+--------------------------------------+--------+----------+----------------+----------+------------+
| | | | | | |
+--------------------------------------+--------+----------+----------------+----------+------------+
| | | | | | |
+--------------------------------------+--------+----------+----------------+----------+------------+
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT:
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | Motor | | Office | | Leasehold | | Computer | | Total |
| | vehicles | | furniture | | Improvements | | & | | |
| | | | & | | | | software | | |
| | | | equipment | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | $'000 | | $'000 | | $'000 | | $'000 | | $'000 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| At 31 December 2008: | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Cost | 72 | | 1,320 | | 1,279 | | 7,415 | | 10,086 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Accumulated | (50) | | (1,180) | | (1,197) | | (7,057) | | (9,484) |
| depreciation | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Net book value | | | | | | | | | |
| | 22 | | 140 | | 82 | | 358 | | 602 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| At 31 December 2009: | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Cost | 72 | | 1,412 | | 1,304 | | 7,670 | | 10,458 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Accumulated | (60) | | (1,213) | | (1,221) | | (7,311) | | (9,805) |
| depreciation | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Net book value | 12 | | 199 | | 83 | | 359 | | 653 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Year ended 31 | | | | | | | | | |
| December 2008: | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Opening net book | 33 | | 153 | | 182 | | 546 | | 914 |
| value | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Additions | - | | - | | - | | 221 | | 221 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Depreciation | (11) | | (13) | | (100) | | (409) | | (533) |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Closing net book | | | | | | | | | |
| value | 22 | | 140 | | 82 | | 358 | | 602 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Year ended 31 | | | | | | | | | |
| December 2009: | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Opening net book | 22 | | 140 | | 82 | | 358 | | 602 |
| value | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Additions | - | | 92 | | 25 | | 255 | | 372 |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Depreciation | (10) | | (33) | | (24) | | (254) | | (321) |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| Closing net book | 12 | | 199 | | 83 | | 359 | | 653 |
| value | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
| | | | | | | | | | |
+----------------------+---------------+----------+-----------------+----------+--------------------+----------+-----------------+----------+-----------------+
NOTE 11 - INTANGIBLE ASSETS:
Composition:
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | Rights | | Development | | Patents | | Customer | | Goodwill | | Total |
| | in | | Cost | | and | | list | | | | |
| | Software | | | | Trademarks | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | $'000 | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| At 31 December | | | | | | | | | | | |
| 2008: | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Cost | 827 | | 7,004 | | 142 | | 915 | | 3,535 | | 12,423 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Accumulated | (508) | | (3,504) | | (53) | | (756) | | - | | (4,821) |
| Amortization | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Net book value | | | | | | | | | | | |
| | 319 | | 3,500 | | 89 | | 159 | | 3,535 | | 7,602 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| At 31 December | | | | | | | | | | | |
| 2009: | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Cost | 827 | | 7,502 | | 142 | | 915 | | 3,535 | | 12,921 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Accumulated | (729) | | (4,872) | | (62) | | (915) | | - | | (6,578) |
| Amortization | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Net book value | 98 | | 2,630 | | 80 | | - | | 3,535 | | 6,343 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Year ended 31 | | | | | | | | | | | |
| December 2008: | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Opening net book | 328 | | 3,375 | | 97 | | 322 | | 3,535 | | 7,657 |
| value | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Additions | 177 | | 1,224 | | - | | - | | - | | 1,401 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Amortization | (186) | | (1,099) | | (8) | | (163) | | - | | (1,456) |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Closing net book | | | | | | | | | | | |
| value | 319 | | 3,500 | | 89 | | 159 | | 3,535 | | 7,602 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Year ended 31 | | | | | | | | | | | |
| December 2009: | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Opening net book | 319 | | 3,500 | | 89 | | 159 | | 3,535 | | 7,602 |
| value | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Additions | - | | 498 | | - | | - | | - | | 498 |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Amortization | (221) | | (1,368) | | (9) | | (159) | | - | | (1,757) |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| Closing net book | 98 | | 2,630 | | 80 | | - | | 3,535 | | 6,343 |
| value | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
| | | | | | | | | | | | |
+--------------------+---------------+----------+-----------------+----------+------------------+----------+---------------+----------+---------------+----------+-----------------+
The amortization expense is included within the cost of sales in the income
statement.
NOTE 12 - SUBSIDIARIES:
The principal subsidiaries of F.T.S - Formula Telecom Solutions Limited, all of
which have been included in these consolidated financial statements, are as
follows:
+-------------------------------------------------------+----------+--------+----------+--------+
| | | Percentage of ownership |
| | | and control |
+-------------------------------------------------------+----------+----------------------------+
| | | 2009 | | 2008 |
+-------------------------------------------------------+----------+--------+----------+--------+
| | | % | | % |
+-------------------------------------------------------+----------+--------+----------+--------+
| | | | | |
+-------------------------------------------------------+----------+--------+----------+--------+
| F.T.S- Formula Telecom Solutions Inc. (Formerly known | | 100 | | 100 |
| as Viziqor Solutions Inc.) | | | | |
+-------------------------------------------------------+----------+--------+----------+--------+
| F.T.S- Formula Telecom Solutions Bulgaria | | 100 | | 100 |
+-------------------------------------------------------+----------+--------+----------+--------+
| F.T.S. Global Limited | | 100 | | 100 |
+-------------------------------------------------------+----------+--------+----------+--------+
| Formula Telecom Limited (Russia) | | 100 | | 100 |
+-------------------------------------------------------+----------+--------+----------+--------+
NOTE 13 - OTHER RECEIVABLES AND PREPAID EXPENSES:
+--------------------------------------------+--------+----------+------------+----------+------------+
| | | | 2009 | | 2008 |
+--------------------------------------------+--------+----------+------------+----------+------------+
| | | | $'000 | | $'000 |
+--------------------------------------------+--------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+--------+----------+------------+----------+------------+
| Prepaid expenses | | | 548 | | 792 |
+--------------------------------------------+--------+----------+------------+----------+------------+
| Government authorities | | | 57 | | 170 |
| | | | | | |
+--------------------------------------------+--------+----------+------------+----------+------------+
| Short term leasing deposits | | | 14 | | 29 |
+--------------------------------------------+--------+----------+------------+----------+------------+
| Employees | | | | | |
| | | | 5 | | 7 |
+--------------------------------------------+--------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+--------+----------+------------+----------+------------+
| Total | | | 624 | | |
| | | | | | 998 |
+--------------------------------------------+--------+----------+------------+----------+------------+
| | | | | | |
+--------------------------------------------+--------+----------+------------+----------+------------+
NOTE 14 - TRADE RECEIVABLES:
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | 2009 | | 2008 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | $'000 | | $'000 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Trade receivables | | | 4,805 | | 3,790 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Unbilled receivables | | | 3,587 | | 4,393 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Less provision for impairment of | | | (3,250) | | (2,565) |
| receivables | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
| | | | 5,142 | | 5,618 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Balance of | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Customer A | | | 688 | | 469 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Customer B | | | 433 | | 345 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Customer C | | | 365 | | 281 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Customer D | | | 384 | | 194 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| Others | | | 3,272 | | 4,329 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | 5,142 | | |
| | | | | | 5,618 |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+--------------------------------------------+--------+----------+-----------------+----------+-----------------+
As at 31 December 2009 trade receivables of $612 thousand (2008- $250 thousand)
were past due but not impaired.
NOTE 14 - TRADE RECEIVABLES (cont.):
They relate to the customers with no default history. The ageing analysis of
these receivables is as follows:
+----------------------------------------------------+----------+--------------+----------+--------------+
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+--------------+----------+--------------+
| | | $'000 | | $'000 |
+----------------------------------------------------+----------+--------------+----------+--------------+
| | | | | |
+----------------------------------------------------+----------+--------------+----------+--------------+
| Up to 3 months | | - | | - |
+----------------------------------------------------+----------+--------------+----------+--------------+
| 3 to 6 months | | 612 | | - |
+----------------------------------------------------+----------+--------------+----------+--------------+
| 6 to 12 months | | - | | 250 |
+----------------------------------------------------+----------+--------------+----------+--------------+
| | | | | |
+----------------------------------------------------+----------+--------------+----------+--------------+
| | | | | 250 |
| | | 612 | | |
+----------------------------------------------------+----------+--------------+----------+--------------+
| | | | | |
+----------------------------------------------------+----------+--------------+----------+--------------+
Unbilled receivables:
+--------------------------------------------+----------+--------+----------+----------+---------------+----------+----------+---------------+----------+
| | | | 2009 | | 2008 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | $'000 | | $'000 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Actual completion costs | | | 3,409 | | 9,377 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Profit earned | | | 924 | | 537 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Billed revenue | | | (1,310) | | (5,670) |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Total Unbilled receivables - Projects | | | 3,023 | | 4,244 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Other Unbilled receivables | | | 564 | | 149 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Total Unbilled receivables | | | 3,587 | | 4,393 | |
+-------------------------------------------------------+--------+---------------------+---------------+---------------------+---------------+----------+
| | | | | | | |
+-------------------------------------------------------+--------+---------------------+---------------+---------------------+---------------+----------+
| | | | | | | | | | |
+--------------------------------------------+----------+--------+----------+----------+---------------+----------+----------+---------------+----------+
The balance of Unbilled receivables represents undue amounts at balance sheet
date (no past due amounts).
Movement in impairment of receivables:
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | 2009 | | 2008 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | $'000 | | $'000 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Balance at beginning of the year | | | 2,565 | | 3,052 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Provided during the year | | | 685 | | (487) |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | 3,250 | | 2,565 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Receivable written off during the year as | | | - | | - |
| uncollectable | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Balance at end of the year | | | 3,250 | | 2,565 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
The company believes that there is no need for further impairment of receivables
according to past experience with its customers.
NOTE 15 - FINANCIAL ASSETS THROUGH PROFIT AND LOSS:
+----------------------------------------------------+----------+----------------+----------+---------------+
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+----------------+----------+---------------+
| | | $'000 | | $'000 |
+----------------------------------------------------+----------+----------------+----------+---------------+
| | | | | |
+----------------------------------------------------+----------+----------------+----------+---------------+
| Fair value through profit and loss | | 5,048 | | 4,249 |
+----------------------------------------------------+----------+----------------+----------+---------------+
| | | | | |
+----------------------------------------------------+----------+----------------+----------+---------------+
| | | | | |
+----------------------------------------------------+----------+----------------+----------+---------------+
| Other financial assets presented separately in the | | | | |
| financial position: | | | | |
+----------------------------------------------------+----------+----------------+----------+---------------+
| Trade receivables | | 5,142 | | |
| | | | | 5,618 |
+----------------------------------------------------+----------+----------------+----------+---------------+
| | | | | |
+----------------------------------------------------+----------+----------------+----------+---------------+
| Total Financial Assets | | 10,190 | | 9,867 |
+----------------------------------------------------+----------+----------------+----------+---------------+
NOTE 16 - CASH AND CASH EQUIVALENTS:
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | $'000 | | $'000 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| In NIS (New Israeli Shekel) | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
| Cash on hand and in banks | | 773 | | 484 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| Deposits (*) | | 5 | | |
| | | | | 4 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | 778 | | |
| | | | | 488 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
| In other currency | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
| Cash on hand and in banks in USD | | 2,401 | | 8,453 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| Cash on hand and in banks in EURO | | 1,812 | | - |
+----------------------------------------------------+----------+---------------+----------+----------------+
| Deposits in Euro (*) | | 1,549 | | 2,427 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| Deposits in US dollars (*) | | 2,076 | | 3,138 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | 7,838 | | 14,018 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | 8,616 | | |
| | | | | 14,506 |
+----------------------------------------------------+----------+---------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+----------------+
(*) Most of the deposits are not linked and bear interest of 1% - 2% as of
December 31, 2009.
NOTE 17 - OTHER PAYABLES:
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | 2009 | | 2008 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | $'000 | | $'000 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Accrued expense | | | 956 | | 1,043 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Employees and other wage and salary | | | 1,481 | | 1,130 |
| related liabilities | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Government Authorities | | | 379 | | 373 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| Other | | | 440 | | |
| | | | | | 610 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
| | | | 3,256 | | |
| | | | | | 3,156 |
+--------------------------------------------+--------+----------+---------------+----------+---------------+
NOTE 18 - CUSTOMER ADVANCES AND DEFERRED REVENUE:
+--------------------------------------------+----------+--------+----------+----------+---------------+----------+----------+---------------+----------+
| | | | 2009 | | 2008 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | $'000 | | $'000 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Actual completion costs | | | (2,093) | | - |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Profit earned | | | (3,577) | | - |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Total Payment | | | 6,680 | | - |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Total Customer Advances and Deferred | | | 1,010 | | - |
| Revenue - Projects | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Other Customer Advances | | | 2,053 | | 3,393 |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| | | | | | |
+--------------------------------------------+-------------------+----------+--------------------------+----------+-------------------------------------+
| Total Customer Advances and Deferred Revenue | | | 3,063 | | 3,393 | |
+-------------------------------------------------------+--------+---------------------+---------------+---------------------+---------------+----------+
| | | | | | | |
+-------------------------------------------------------+--------+---------------------+---------------+---------------------+---------------+----------+
| | | | | | | | | | |
+--------------------------------------------+----------+--------+----------+----------+---------------+----------+----------+---------------+----------+
NOTE 19 - EMPLOYEE BENEFITS:
A. Expenses recognized in the statement of income:
+------------------------------------------------+----------+--------------+----------+--------------+
| | | 2009 | | 2008 |
+------------------------------------------------+----------+--------------+----------+--------------+
| | | $'000 | | $'000 |
+------------------------------------------------+----------+--------------+----------+--------------+
| | | | | |
+------------------------------------------------+----------+--------------+----------+--------------+
| Current service cost | | 379 | | 432 |
+------------------------------------------------+----------+--------------+----------+--------------+
| Interest cost on benefit obligation | | 96 | | 106 |
+------------------------------------------------+----------+--------------+----------+--------------+
| Expected return on plan assets | | (72) | | (68) |
+------------------------------------------------+----------+--------------+----------+--------------+
| Transfer to compensation | | 19 | | - |
+------------------------------------------------+----------+--------------+----------+--------------+
| | | | | |
+------------------------------------------------+----------+--------------+----------+--------------+
| Total employee benefit expenses | | 422 | | |
| | | | | 470 |
+------------------------------------------------+----------+--------------+----------+--------------+
B. The plan assets (liabilities), net:
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | 2009 | | 2008 |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | $'000 | | $'000 |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| Liabilities for employee | | | 1,990 | | 2,039 |
| benefits | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| Fair value of plan assets | | | (1,575) | | |
| | | | | | (1,364) |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | 415 | | 675 |
| | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| Net unrecognized actuarial | | | 83 | | (172) |
| gains (losses) *) | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| | | | | | |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
| Total liabilities, net | | | 498 | | |
| | | | | | 503 |
+----------------------------------------+--------+----------+-----------------+----------+-----------------+
*) Cumulative amounts for the value of the obligation and the value of the
rights in the plan assets.
C. The movement in the fair value of the plan assets:
+----------------------------------------+--------+----------+---------------+----------+---------------+
| | | | 2009 | | 2008 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| | | | $'000 | | $'000 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| Balance at January 1, | | | 1,364 | | 1,301 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| Exchange differences | | | 11 | | 15 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| Expected return | | | 53 | | 68 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| Contributions by employer | | | 428 | | 420 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| Benefits paid | | | (312) | | (258) |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| Net actuarial gain (loss) | | | 31 | | (182) |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| | | | 1,575 | | |
| | | | | | 1,364 |
+----------------------------------------+--------+----------+---------------+----------+---------------+
| | | | | | |
+----------------------------------------+--------+----------+---------------+----------+---------------+
NOTE 19 - EMPLOYEE BENEFITS (cont.):
D. Changes in the present value of defined benefit obligation:
+----------------------------------------+--------+----------+----------------+----------+----------------+
| | | | 2009 | | 2008 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| | | | $'000 | | $'000 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| Balance at January 1, | | | 2,039 | | 1,749 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| Exchange differences | | | 14 | | 21 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| Interest cost | | | 96 | | 106 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| Current service cost | | | 379 | | 432 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| Benefits paid | | | (313) | | (259) |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| Net actuarial gain | | | (225) | | (10) |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| | | | 1,990 | | |
| | | | | | 2,039 |
+----------------------------------------+--------+----------+----------------+----------+----------------+
| | | | | | |
+----------------------------------------+--------+----------+----------------+----------+----------------+
E. The expenses and income in the income statement from employee benefits
are included as salary and wage expenses in the relevant clauses.
The expenses are presented in the statement of income as follows:
+-------------------------------------------------+-+----------+-+---------+
| | | 2009 | | 2008 |
+-------------------------------------------------+-+----------+-+---------+
| | | $'000 | | $'000 |
+-------------------------------------------------+-+----------+-+---------+
| | | | | |
+-------------------------------------------------+-+----------+-+---------+
| Cost of sales | | 223 | | 249 |
+-------------------------------------------------+-+----------+-+---------+
| Selling and marketing expenses | | 39 | | 43 |
+-------------------------------------------------+-+----------+-+---------+
| General and administrative expenses | | 160 | | 178 |
+-------------------------------------------------+-+----------+-+---------+
| | | | | |
+-------------------------------------------------+-+----------+-+---------+
| | | 422 | | 470 |
+-------------------------------------------------+-+----------+-+---------+
F. Supplementary information:
1. The Company's liabilities for severance pay retirement and pension
pursuant to Israeli law are fully covered - in part by managers' insurance
policies, for which the Company makes monthly payments and accrued amounts in
severance pay funds and the rest by the liabilities which are included in the
financial statements.
2. The amounts accrued in managers' insurance funds are registered under the
name of the employees, and therefore such amounts are not stated in the
financial information as liability for termination of employee-employer
relationships or amounts funded.
3. The amounts funded displayed above include amounts deposited in severance
pay funds with the addition of accrued income. According to the Severance Pay
Law, the aforementioned amounts may not be withdrawn or mortgaged as long as the
employer's obligations have not been fulfilled in compliance with Israeli law.
G. The principal assumptions used in determining the obligation for the
defined benefit plan:
+----------------------------------------+--------+----------+----------+----------+---------+
| | | | 2009 | | 2008 |
+----------------------------------------+--------+----------+----------+----------+---------+
| | | | % | | % |
+----------------------------------------+--------+----------+----------+----------+---------+
| | | | | | |
+----------------------------------------+--------+----------+----------+----------+---------+
| Discount rate | | | 5.55 | | 5.03 |
+----------------------------------------+--------+----------+----------+----------+---------+
| Expected rate of return on | | | 5.03 | | 6.44 |
| plan assets | | | | | |
+----------------------------------------+--------+----------+----------+----------+---------+
| Future salary increases | | | 5.69 | | 4.96 |
+----------------------------------------+--------+----------+----------+----------+---------+
NOTE 19 - EMPLOYEE BENEFITS (cont.):
H. The amounts for the current year and the previous year
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| | | | 2009 | | 2008 |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| | | | $'000 | | $'000 |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| | | | | | |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| Plan Liabilities | | | 1,990 | | 2,039 |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| Plan Assets | | | 1,575 | | 1,364 |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| Deficit | | | 415 | | 675 |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| Experience adjustments on liabilities | | | (249) | | (2,049) |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| Experience adjustments on assets | | | 31 | | (1,546) |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| | | | | | |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
| | | | 3,762 | | 483 |
+----------------------------------------+--------+----------+----------------+----------+-----------------+
NOTE 20 - DEFERRED TAX ASSETS:
Deferred tax is calculated on temporary differences under the liability method
using the tax rate of 15%-25% (2008 - 15%-26%) at the year the deferred tax
assets are recovered.
The movement on the deferred tax account is as shown below:
+----------------------------------------------------+----------+------------------+----------+----------------+
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+------------------+----------+----------------+
| | | $'000 | | $'000 |
+----------------------------------------------------+----------+------------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+------------------+----------+----------------+
| At 1 January | | 2,763 | | 3,258 |
+----------------------------------------------------+----------+------------------+----------+----------------+
| Exchange difference | | (1,978) | | (495) |
+----------------------------------------------------+----------+------------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+------------------+----------+----------------+
| At 31 December | | 785 | | |
| | | | | 2,763 |
+----------------------------------------------------+----------+------------------+----------+----------------+
| | | | | |
+----------------------------------------------------+----------+------------------+----------+----------------+
Deferred tax assets have been recognized in respect of all differences giving
rise to deferred tax assets because it is probable that these assets will be
recovered.
Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances
net.
Details of the deferred tax amounts charged to reserves are as follows:
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Composition: | As at | | Recognized | | As at |
| | December | | during the | | December |
| | 31, 2009 | | year | | 31, 2008 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| | $'000 | | $'000 | | $'000 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| | | | | | |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Allowances and reserves | 693 | | 71 | | 622 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Research and development | (86) | | (94) | | 8 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Vacation accrual | 63 | | (69) | | 132 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Employee severance liabilities | 115 | | (11) | | 126 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Net operating losses carried forward | - | | (1,875) | | 1,875 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| | | | | | |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
| Total | 785 | | (1,978) | | 2,763 |
+-------------------------------------------+-------------+----------+-----------------+----------+---------------+
NOTE 21 - TRADE PAYABLES- CURRENT:
+----------------------------------------------------+----------+----------------+------------+----------------+
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+----------------+------------+----------------+
| | | $'000 | | $'000 |
+----------------------------------------------------+----------+----------------+------------+----------------+
| | | | | |
+----------------------------------------------------+----------+----------------+------------+----------------+
| Trade payables | | 734 | | 2,273 |
+----------------------------------------------------+----------+----------------+------------+----------------+
| Accrued Expenses | | 1,422 | | 1,441 |
+----------------------------------------------------+----------+----------------+------------+----------------+
| Checks to the payment | | 261 | | 697 |
+----------------------------------------------------+----------+----------------+------------+----------------+
| | | | | |
+----------------------------------------------------+----------+----------------+------------+----------------+
| | | 2,417 | | 4,411 |
+----------------------------------------------------+----------+----------------+------------+----------------+
NOTE 22 - LOANS AND BORROWINGS:
+----------------------------------------------------+----------+---------------+----------+---------------+
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+---------------+----------+---------------+
| | | $'000 | | $'000 |
+----------------------------------------------------+----------+---------------+----------+---------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+---------------+
| Fair value through profit or loss- held for | | 6,258 | | 5,020 |
| trading | | | | |
+----------------------------------------------------+----------+---------------+----------+---------------+
| | | | | |
+----------------------------------------------------+----------+---------------+----------+---------------+
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| Breakdown: | |
+---------------------------------+-------------------------------------------------------------------------------------+
| Short Term Credit From Banks: |Linkage | |Interest | | 2009 | | 2008 |
| | Base | | Rate | | | | |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| | | | % | | $'000 | | $'000 |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| | | | | | | | |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| Discount Bank- Overdraft | - | | - | | 717 | | - |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| | | | | | | | |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| Leumi Bank | * | |3.3 | | 3,028 | | - |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| Poalim Bank | * | | 3.25 | | 2,013 | | 5,020 |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| Discount Bank | * | | 3.25 | | 500 | | - |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| | | | | | | | |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| | | | | | 6,258 | | 5,020 |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
| | | | | | | | |
+---------------------------------+---------+----------+----------+----------+---------------+----------+---------------+
* The linkage base is London Interbank Offered Rate
* See Note 25 for further Details and Note 26 for covenants.
NOTE 23 - SHARE CAPITAL:
+----------------------------------------------------+-------------+----------+-------------+
| | Authorized |
+----------------------------------------------------+--------------------------------------+
| | 2009 | | 2008 |
+----------------------------------------------------+-------------+----------+-------------+
| | Number | | Number |
+----------------------------------------------------+-------------+----------+-------------+
| | | | |
+----------------------------------------------------+-------------+----------+-------------+
| Ordinary shares of no par value | 261,504,012 | | 261,504,012 |
+----------------------------------------------------+-------------+----------+-------------+
| | | | |
+----------------------------------------------------+-------------+----------+-------------+
+----------------------------------------------------+------------+----------+-----------------+
| | Issued and fully paid |
+----------------------------------------------------+-----------------------------------------+
| | 2009 | | 2008 |
+----------------------------------------------------+------------+----------+-----------------+
| | Number | | Number |
+----------------------------------------------------+------------+----------+-----------------+
| | | | |
+----------------------------------------------------+------------+----------+-----------------+
| Ordinary shares of no par value each at beginning | 32,956,012 | | 32,956,012 |
| of the year | | | |
+----------------------------------------------------+------------+----------+-----------------+
| Employee share options exercised | - | | |
| | | | - |
+----------------------------------------------------+------------+----------+-----------------+
| | | | |
+----------------------------------------------------+------------+----------+-----------------+
| At end of the year | 32,956,012 | | 32,956,012 |
+----------------------------------------------------+------------+----------+-----------------+
| | | | |
+----------------------------------------------------+------------+----------+-----------------+
NOTE 24 - EMPLOYEE STOCK OPTION PLAN:
On July 21, 2005, the Company granted 72 options to purchase 576,000 ordinary
shares of the Company.
The Company has elected to accelerate the vesting period of all its employee
share options. As of December 31, 2005 all of the Company's options were fully
vested.
On February 15, 2007, the board of directors approved a maximum pool of up to
975,000 shares reserved for issuance upon exercise of options that may be
granted pursuant to the 2005 share option plan. In July 2007, the Company's
Board of Directors adopted an option plan pursuant to which the Company will
grant options to employees of the Company to purchase up to an aggregate of
855,000 Ordinary Shares. In accordance with this plan, employees of FTS and its
subsidiaries were granted on August 19th, 2007, for no consideration, 741,700
options, each of which may be exercised for one Ordinary Share of the Company at
an exercise price of GBP 0.6-0.97 per share. Any option not exercised within 10
years will expire.
The exercise price of options outstanding at the end of the year ranged between
0.97-1.57 USD and their weighted average contractual life was 7.5 years. Most of
the options were exercisable by December 31, 2009.
Most of 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.
A summary of the status of the Company stock option plan as of December 31, 2009
and 2008 is as follows:
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | 2009 | | 2008 |
+---------------------------------+----------------------------------------+----------+----------------------------------------+
| | Number | | Weighted | | Number | | Weighted |
| | of | | average | | of | | average |
| | options | | exercise | | options | | exercise |
| | | | price | | | | price |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | $ | | | | $ |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Options outstanding at | 1,259,100 | | 1.220 | | 1,292,300 | | 1.471 |
| beginning of year | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Changes during the year: | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Granted | 9,400 | | 1.344 | | 86,100 | | 1.211 |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Exercised | - | | - | | - | | - |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Forfeited | (82,200) | | 1.344 | | (119,300) | | 1.215 |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Options outstanding at end of | 1,186,300 | | 1.350 | | 1,259,100 | | 1.220 |
| year | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| Options exercisable at year-end | 1,172,900 | | 1.350 | | 576,000 | | 1.375 |
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
| | | | | | | | |
+---------------------------------+---------------+----------+-------------+----------+---------------+----------+-------------+
NOTE 25 - FINANCIAL INSTRUMENTS - RISK MANAGEMENT:
The Company is exposed through its operations to one or more of the following
financial risks:
· Liquidity risk.
· Foreign currency risk.
· Credit risk.
NOTE 25 - FINANCIAL INSTRUMENTS - RISK MANAGEMENT (cont.)
· Other risks.
Liquidity risk:
Liquidity risk arises from the group's management of working capital and the
finance charges and principal repayments on its debt instruments. It is the risk
that the group will encounter difficulty in meeting its financial obligations as
they fall due.
The group's policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. To achieve this aim, it
seeks to maintain cash balances and other credit facilities to meet expected
requirements for a period of at least 90 days. The group also seeks to reduce
liquidity risk by fixing interest rates (and hence cash flows) on a portion of
its long-term borrowings, this is further discussed in the 'interest rate risk'
section above.
The Board receives rolling 12-month cash flow projections on a quarterly basis
as well as information regarding cash balances and (as noted above) the value of
the group's investments in corporate bonds.
The liquidity risk of each group entity is managed centrally by the group
treasury function. Each operation has a facility with group treasury, the amount
of the facility being based on budgets. The budgets are set locally and agreed
by the board in advance, enabling the group's cash requirements to be
anticipated. Where facilities of group entities need to be increased, approval
must be sought from the group finance director. Where the amount of the facility
is above a certain level agreement of the board is needed
Foreign currency risk:
Foreign exchange risk arises when company operations enter into transactions
denominated in a currency other than their functional currency. Management does
not mitigate that risk.
Credit risks:
Financial instruments which have the potential to expose the Company to credit
risks are mainly cash and cash equivalents, bank deposit accounts, trade
receivables, other receivables and long term debts.
Most of the Company's cash and cash equivalents and short-term investment as of
December 31, 2009, and 2008 were deposited in Israeli and European banks. The
Company is of the opinion that the credit risk in respect of these balances is
minimal.
Trade receivables are customer obligations due under normal trade terms. The
Company performs continuing credit evaluations of its customers' financial
condition and although the Company generally does not require collateral,
letters of credit may be required from our customers in certain circumstances.
Senior management reviews trade receivables on a monthly basis to determine if
any receivable will potentially be unrecoverable. The Company includes any
trade receivable balances that are determined to be unrecoverable in the
company's allowance for doubtful accounts. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
NOTE 25 - FINANCIAL INSTRUMENTS - RISK MANAGEMENT (cont.)
Credit risks (cont.):
In general, the exposure to the concentration of credit risks relating to trade
receivables is limited, due to the strength of the Company's customers. The
Company performs ongoing credit evaluations of its customers for the purpose of
determining the appropriate allowance for doubtful receivables. An appropriate
allowance for doubtful receivables is included in the accounts.
-Other risks:
The price risk consists mainly of the fluctuation in value of trade receivables
due to changes in exchange rates.
Fair value
The carrying amount of cash and cash equivalents, short-term investments, trade
receivables, other accounts receivable, trade payables and other accounts
payable approximate their fair value.
Classification of financial instruments by fair value hierarchy:
The financial instruments presented in the balance sheet at fair value are
grouped into classes with similar characteristics using the following fair value
hierarchy which is determined based on the source of input used in measuring
fair value:
+----------+----------+----------------------------------------------------+
| Level 1 | - | Quoted prices (unadjusted) in active markets for |
| | | identical assets or liabilities. |
+----------+----------+----------------------------------------------------+
| | | |
+----------+----------+----------------------------------------------------+
| Level 2 | - | Inputs other than quoted prices included within |
| | | Level 1 that are observable either directly or |
| | | indirectly. |
+----------+----------+----------------------------------------------------+
| | | |
+----------+----------+----------------------------------------------------+
| Level 3 | - | Inputs that are not based on observable market |
| | | data (valuation techniques which use inputs that |
| | | are not based on observable market data). |
+----------+----------+----------------------------------------------------+
Financial assets measured at fair value:
December 31, 2009:
+-------------------------------+-+---------+--+---------+--+---------+----------+
| | |Level 1 | |Level 2 | | Level 3 |
+-------------------------------+-+---------+--+---------+--+--------------------+
| | | $'000 |
+-------------------------------+-+----------------------------------------------+
| Financial assets at fair | | 5,048 | | - | | - | |
| value through profit or loss | | | | | | | |
+-------------------------------+-+---------+--+---------+--+---------+----------+
| Loans and borrowings | | 6,258 | | - | | - | |
+-------------------------------+-+---------+--+---------+--+---------+----------+
NOTE 26 - COMMITMENTS AND CONTINGENCIES:
Lawsuits:
1. On December 5, 2001, a class action complaint was filed in the United
States District Court for the Southern District of New York against Formula
Telecom Solutions Inc. (Formerly known as Viziqor Solutions Inc.). On April 22,
2002 an amended complaint was filed by two plaintiffs purportedly on behalf of
persons purchasing Daleen Technologies, Inc.'s common stock between September
20, 1999 and December 6, 2000.
The individual defendants, Messrs. Corey, Schell and Daleen, have entered into
tolling agreements with the plaintiffs resulting in their dismissal from the
case without prejudice. The remaining defendants include Daleen Technologies,
Inc. (now known as Formula Telecom Solutions, Inc.-The "Company") and certain of
the underwriters from the Company's initial public offering ("IPO"). More than
300 similar class action lawsuits filed in the Southern District of New York
against numerous companies and their underwriters have been consolidated for
pre-trial purposes before one judge under the caption "In re Initial Public
Offering Securities Litigation." The complaint includes allegations of
violations of (i) Section 11 of the Securities Act of 1933 by all named
defendants, (ii) Section 15 of the Securities Act of 1933 by the individual
defendants and (iii) Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated there under by the underwriter defendants. Specifically,
the plaintiffs allege in the complaint that, in connection with the IPO, the
defendants failed to disclose "excessive commissions" purportedly solicited by
and paid to the underwriter defendants in exchange for allocating shares of the
Company's common stock in the IPO to the underwriter defendants' preferred
customers Plaintiffs further allege that the underwriter defendants had
agreements with preferred customers tying the allocation of shares sold in the
IPO to the preferred customers' agreements to make additional aftermarket
purchases at pre-determined prices. Plaintiffs further allege that the
underwriters used their analysts to issue favourable reports about the Company
to further inflate the Company's share price following the IPO. Plaintiffs claim
that the defendants knew or should have known of the underwriters' actions and
that the failure to disclose these alleged arrangements rendered the prospectus
included in the Company's registration statement on Form S-1 filed with the SEC
in September 1999 materially false and misleading. Plaintiffs seek unspecified
damages and other relief. In June 2003, the Company approved the terms of a
proposed settlement involving the plaintiffs, the insurance companies and
numerous issuers, including the Company and the individual defendants that
includes a waiver by the insurance companies of any retention amounts under the
policies. Court approval of the settlement is required and has been in process
for some time. The insurance company has taken responsibility for payment of all
attorney fees since June of 2003. In accordance with the terms of the Stock
Purchase Agreement, Woodmont Holdings, Inc. (formerly known as Viziqor Holdings,
Inc.) is obligated to indemnify the Company for all costs associated with this
matter.
NOTE 26 - COMMITMENTS AND CONTINGENCIES (cont.):
1. (Cont.):
In October 2004, the district court granted the plaintiffs' motion for class
certification in six "focus" cases out of the more than 300 consolidated class
actions.
In February 2005, the district court also preliminarily approved the terms of a
proposed settlement involving the plaintiff classes, the insurance companies and
the issuers, including the Company and the individual defendants that included a
waiver by the insurance companies of any retention amounts under the policies.
In December 2006, however, the United States Court of Appeals for the Second
Circuit ruled on the underwriter defendants' appeal from the district court's
October 2004 order and reversed, concluding that none of the six "focus" cases
could be certified as a class action. As a result of the Second Circuit's order
denying class certification, the plaintiff classes, the insurance companies and
the issuers were forced to terminate the proposed settlement in June 2007.
Subsequently, the Company renewed the terms of an agreement among the issuer
defendants and their insurance companies under which the insurance companies
have agreed to pay the issuers' defence costs on a pooling basis. In September
2007, the plaintiffs filed another motion for class certification in the six
"focus" cases but withdrew this motion in October 2008 without prejudice to
re-file. To the extent the parties are unable to reach a settlement; the Company
intends to defend vigorously against the plaintiffs' claims. The Company does
not for-see any expenses regarding this case.
2. On March 2006, Mr. Gordon Quick ("Plaintiff") filed a claim against
several defendants including Formula telecom solutions Inc. ("Company") pursuant
to which the plaintiff asserted a breach of agreement by the Company relating to
an employment agreements and bonus retention agreement executed solely between
the Plaintiff and a former related company of the Company known as Woodmont
Holdings Inc. The Plaintiff seeks to impose liability against the Company for
the breach of contract by Woodmont. The plaintiff has withdrawn his claim, but
the Company received legal council that has advised them that when the IPO case
is settled (see 1 above), the plaintiff will renew his claim and therefore a
provision has been classified for this potential claim.
3. Due to a dispute revealed between the Company and its customer in
connection with a toll road project performed by the Company for the customer
("Customer" and "Project" respectively), the Company was notified by the
Customer of the termination of the Project. Parties have raised certain claims
and demands one against the other, mainly with respect to the scope of the
Project, payments due to the Company, damages incurred by each party in
connection with the Project and the fulfilment (or non fulfilment) of the
parties' obligations relating to the Project. The Company rejects the Customer's
claims. Customer initiated preliminary legal proceedings against the Company in
which he has asked to forfeit the performance bond granted by the Company to
Customer in pursuant to the agreement in approximately 500 thousand US$.
Following proceedings which took place in both district and high court pursuant,
Customer's
NOTE 26 - COMMITMENTS AND CONTINGENCIES (cont.):
3. (Cont.):
request was denied and it was ruled by the supreme court that the
performance bond granted by the Company to Customer in pursuant to the agreement
may not be forfeited other than through the separate arbitration procedures
which needs to take place. Parties have agreed to refer the entire dispute to an
arbitrator according to the agreement. Adv. Dan Arbel (former Judge) was
appointed as arbitrator to settle the dispute. Parties' has yet to file their
claims and responses in connection with the dispute.
Covenants:
Under the terms of the Company's loans, the Company is committed to financial
ratios and covenants as follows:
Leumi Bank
1. The total Tangible Shareholder's Equity of the Company should be no
less than 12 million USD and its capital should be no less than 30%, of the
Company's total balance.
2. The Company's EBITDA should be at least 2 million USD.
3. The Company should have at least 5 million USD in cash.
Hapoalim Bank
1. The total Tangible Shareholder's Equity of the Company should be no
less than 11 million USD and its capital should be no less than 30%, of the
Company's total balance.
2. The Company's EBITDA should be at least 2 million USD.
3. The Company should have at least 5 million USD in cash.
The Company fails to meet the first two terms in both banks due to the
distribution of dividends and the loss from operation recorded during this year.
Guarantees:
The Company obtained performance guarantees in the amount of $938 thousand in
order to secure its contractual commitments.
NOTE 26 - COMMITMENTS AND CONTINGENCIES (cont.):
Lease commitments:
Future minimum lease commitments under non-cancellable operating leases as at
December 31, 2009 are as follows:
+------------------------------------------+--------+----------+----------+----------+---------+
| | | | | | 2009 |
+------------------------------------------+--------+----------+----------+----------+---------+
| | | | | | $'000 |
+------------------------------------------+--------+----------+----------+----------+---------+
| | | | | | |
+------------------------------------------+--------+----------+----------+----------+---------+
| 2010 | | | | | 807 |
+------------------------------------------+--------+----------+----------+----------+---------+
| 2011 | | | | | 799 |
+------------------------------------------+--------+----------+----------+----------+---------+
| 2012 | | | | | 751 |
+------------------------------------------+--------+----------+----------+----------+---------+
| 2013 | | | | | 167 |
+------------------------------------------+--------+----------+----------+----------+---------+
Rent expenses for the years ended December 31, 2009, and 2008 were approximately
$854 thousand
and $1,143 thousand, respectively.
NOTE 27 - SUBSEQUENT EVENTS
The financial statements were authorized for issue by the board as a whole
following their approval on March 25, 2010.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UNOWRRWAOURR
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