PILAT TECHNOLOGIES INTERNATIONAL LTD.
("PTI", the "Group" or the "Company")
Results for the Nine Months and Third Quarter ended 30 September 2008
London and Tel Aviv 28 November 2008 - Pilat Technologies International Ltd,
the AIM quoted human resources management consultancy, software and services
group, announces its results for the nine months and third quarter ended
30 September 2008. PTI is also quoted on the Tel Aviv Stock Exchange.
SUMMARY
Sales up 15% for the nine months and 11% for the quarter compared with 2007
Operating loss of �297,000 for the nine months (2007 loss of �9,000)
Positive cash generation in third quarter
Dividend of 1.5p paid on 30 October 2008
Subject to shareholder approval at the EGM on 4 December 2008, Pilat will
cancel its quotation on AIM on 12 December 2008 but maintain its full listing
on the Tel-Aviv Stock Exchange
Through three main subsidiaries, Pilat Europe, Pilat North America and Pilat
Israel, the Group provides consultancy, advanced web based software
applications and data processing and analysis services in the fast growing
field of Human Capital Management.
Pilat has a wide and varied client base including many major global corporations
and international public sector bodies. The Company works across all sectors
with organisations employing from a few hundred to hundreds of thousands of
staff. Pilat has extensive industry experience in Financial Services, Energy
and Telecommunications and sector specific offerings in Healthcare, Public
Housing, Local Government and Education.
The shares of PTI are quoted on both AIM and the Tel Aviv Stock Exchange.
Enquiries:
Pilat Technologies International Ltd 00 972 3 767 9200
Chaim Helfgott, Corporate Secretary
Jonathan Berger, Chief Financial Officer
Hanson Westhouse Limited 0113 246 2610
Tim Feather
Matthew Johnson
CONSOLIDATED BALANCE SHEET
British pounds in thousands
September 30, December 31,
2008 2007 2007
Unaudited Audited
CURRENT ASSETS
Cash and cash equivalents 1,737 1,940 2,411
Short term investments 68 144 147
Trade receivables 2,422 1,733 2,013
Other accounts receivable 196 161 1) 219
Income tax receivable 75 48 1) 59
4,498 4,026 4,849
NON-CURRENT ASSETS
Long - term loans and receivables 31 38 25
Employees benefits assets 64 41 52
Fixed assets, net 290 301 297
Deferred taxes 23 9 7
Intangible assets 225 - 14
633 389 395
TOTAL ASSETS 5,131 4,415 5,244
1) Reclassified
The accompanying notes are an integral part of the interim consolidated
financial statements.
September 30, December 31,
2008 2007 2007
Unaudited Audited
CURRENT LIABILITIES
Current maturities of long-term bank 8 11 10
loans
Trade payables 400 263 359
Other accounts payable 1,430 1,107 1) 1,481
Dividend payable 398 - -
Income tax payable 11 - 1) 53
Liabilities related to discontinued 16 - -
operations
2,263 1,381 1,903
NON-CURRENT LIABILITIES
Liabilities to banks - 6 6
Employees benefits liabilities 5 4 3
Liabilities related to discontinued - 12 13
operations
5 22 22
SHAREHOLDERS' EQUITY
Share capital 50 50 50
Additional paid-in capital 7,084 7,083 7,083
Capital reserve 61 41 45
Cumulative foreign currency translation
adjustments 422 (239) (103)
Accumulated deficit (4,658) (3,827) (3,660)
Less-shares held by subsidiaries (96) (96) (96)
2,863 3,012 3,319
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 5,131 4,415 5,244
1) Reclassified
The accompanying notes are an integral part of the interim consolidated
financial statements.
CONSOLIDATED STATEMENTS OF INCOME
British pounds in thousands (except for net earnings (loss) per share amounts)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
2008 2007 2008 2007 2007
Unaudited Unaudited Audited
Revenues 6,516 5,656 2,116 1,898 7,873
Cost of revenues 4,152 3,303 1,412 1,087 4,623
Gross profit 2,364 2,353 704 811 3,250
Research and development costs 555 370 181 127 500
Selling and marketing expenses 745 676 239 217 880
General and administrative expenses 1,332 1,316 435 444 1,621
Other expenses , net 29 - - - 2
Operating income (loss) (297) (9) (151) 23 247
Capital gain from sale of fixed assets 1 3 - 3 3
Financial income 40 52 42 17 74
Financial expenses (117) (46) (2) (42) (100)
Net income (loss) before taxes on income (373) - (111) 1 224
Taxes on income 38 30 21 (3) (27)
Net income (loss) (335) 30 (90) (2) 197
Net earnings (loss) per share
(in British Pence):
Basic Net earnings (loss) per share (1.30) 0.11 (0.35) (0.01) 0.75
Diluted Net earnings (loss) per share (1.30) 0.11 (0.35) (0.01) 0.73
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
British pounds in thousands
Cumulative Less -
foreign shares
Additional currency
Share paid-in Capital translation Accumulated held by
capital capital reserve adjustments deficit subsidiaries Total
Balance at January 1, 2007
(audited) 49 7,078 32 ((251 (3,857) (96) 2,955
Cumulative foreign
currency translation
adjustments - - - 148 - - 148
Total income for the year
recognized directly in
equity - - - 148 - - 148
Net income - - - - 197 - 197
Total income for the year - - - 148 197 - 345
Options exercise into
shares 1 5 - - - - 6
Amounts assigned to
employees and director
stock-based compensation - - 13 - - - 13
Balance at December 31,
2007 (audited) 50 7,083 45 ((103 (3,660) (96) 3,319
Cumulative foreign
currency translation
adjustments - - - 525 - - 525
Total income for the
period recognized directly
in equity - - - 525 - - 525
Loss - - - - (335) - (335)
Total income and expense
for the period - - - 525 (335) - 190
Options exercise into
shares - 1 - - - - 1
Amounts assigned to
employees and director
stock-based compensation - - 16 - - - 16
Dividends paid/declared - - - - (663) - (663)
Balance at September 30,
2008 (unaudited) 50 7,084 61 422 (4,658) (96) 2,863
Balance at January 1, 2007
(audited) 49 7,078 32 (251) (3,857) (96) 2,955
Cumulative foreign
currency translation
adjustments - - - 12 - - 12
Total expense for the
period recognized directly
in equity - - - 12 - - 12
Net income - - - - 30 - 30
Total income and expense
for the period - - - 12 30 - 42
Options exercise into
shares 1 5 - - - - 6
Amounts assigned to
employees and director
stock-based compensation - - 9 - - - 9
Balance at September 30,
2007 (unaudited) 50 7,083 41 (239) (3,827) (96) 3,012
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
British pounds in thousands
Less -
Cumulative
Additional foreign shares
Share paid-in Capital currency
translation Accumulated held by
capital capital reserve adjustments deficit subsidiaries Total
Balance at July 1, 2008
(unaudited) 50 7,084 55 270 (4,170) (96) 3,193
Cumulative foreign currency
translation adjustments - - - 152 - - 152
Total income for the period
recognized directly in
equity - - - 152 - - 152
Loss - - - - (90) - (90)
Total income and expense
for the period - - - 152 (90) - 62
Options exercise into
shares - - - - - - -
Amounts assigned to
employees and director
stock-based compensation - - 6 - - - 6
Dividends paid/declared - - - - (398) - (398)
Balance at September 30,
2008 (unaudited) 50 7,084 61 422 (4,658) (96) 2,863
Balance at July 1, 2007
(unaudited) 50 7,083 39 (320) (3,825) (96) 2,931
Cumulative foreign currency
translation adjustments - - - 81 - - 81
Total expense for the
period recognized directly
in equity - - - 81 - - 81
Net income - - - - (2) - (2)
Total income and expense
for the period - - - 81 (2) - 79
Options exercise into
shares - - - - - - -
Amounts assigned to
employees and director
stock-based compensation - - 2 - - - 2
Balance at September 30,
2007 (unaudited) 50 7,083 41 (239) (3,827) (96) 3,012
CONSOLIDATED STATEMENTS OF CASH FLOWS
British pounds in thousands
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
2008 2007 2008 2007 2007
Unaudited Unaudited Audited
Cash flows from operating
activities:
Net income (loss) (335) 30 (90) (2) 197
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities (a) (261) (83) 104 (66) 179
Net cash provided by (used in)
operating activities (596) (53) 14 (68) 376
Cash flows from investing
activities:
Purchase of fixed assets (76) (81) (13) (27) (102)
Proceeds from sale of fixed assets 12 27 - 27 21
Short and long term investments, net 103 (14) 83 (10) 6
Purchase of intangible assets (170) - (16) - (16)
Net cash provided by (used in)
investing activities (131) (68) 54 (10) (91)
Cash flows from financing
activities:
Repayment of long-term loans from
banks (9) (16) (3) (5) (18)
Shares issue 1 6 - - 6
Dividends paid (265) - - - -
Net cash used in financing (273) (10)
activities (3) (5) (12)
Effect of exchange rate changes on
cash and cash equivalents 326 27 105 67 94
Increase (decrease) in cash and cash (674) (104)
equivalents 170 (16) 367
Cash and cash equivalents at the
beginning of the period 2,411 2,044 1,567 1,956 2,044
Cash and cash equivalents at the end
of the period 1,737 1,940 1,737 1,940 2,411
CONSOLIDATED STATEMENTS OF CASH FLOWS
British pounds in thousands
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
2008 2007 2008 2007 2007
Unaudited Audited
(a) Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
income:
Income and expenses not
involving cash flows:
Stock - based compensation 16 9 6 2 13
Depreciation and amortization 141 107 45 35 145
Deferred taxes (9) (33) (7) 7 (37)
Increase(decrease) in employees
benefits assets/ liabilities,
net (6) (21) (2) (14) (25)
Capital gain from sale of fixed
assets (1) (2) - (2) (3)
Changes in operating assets and
liability items:
Decrease (increase) in trade
receivables, other accounts
receivable and long-term loans
and receivables (99) 111 89 171 1) (163)
Decrease (increase) in income
tax receivables (4) (9) (4) (18) 1) (20)
Increase (decrease) in trade
payables and other accounts
payable (256) (201) 1 (211) 1) 260
Increase (decrease) in income
tax payable (43) (44) (24) (36) 1) 9
(261) (83) 104 (66) 179
(b) Non cash investing and financing
activities
Sale of fixed assets - - - - 7
Purchase of intangible assets 50 - - - -
Dividend declared 398 - 398 - -
(c) Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 2 3 1 1 4
Income taxes 2 2 1 1 48
Dividend 265 - - - -
Cash received during the period
for:
Interest 40 52 11 18 67
1) Reclassified
Note: General
These financial statements have been prepared in accordance with the
International Financial Reporting Standards (hereinafter - the IFRS standards)
in an abbreviated format as of September 30, 2008, and for the periods of nine
months and three months ended on that date (hereinafter - the interim
consolidated financial statements). The Company's annual financial statements
as at December 31, 2007 and for the year then ended, the last annual financial
statements that were prepared in accordance with generally accepted accounting
principles in Israel should be reviewed in connection with certain notes, such
as information in respect of commitments, contingent liabilities and claims,
and similar items.
The IFRS standards on the basis of which the accounting policies in the
consolidated interim financial statements have been set, are the same IFRS
standards that will be in force or which can be adopted early in the first
annual financial statements in accordance with the IFRS standard, as at
December 31, 2008 and for the year then ended, and accordingly, they are
subject to changes that may occur in them and to their implementation in those
annual financial statements. As a result, the financial policies that will be
implemented in the annual financial statements, as aforesaid, in so far as it
is relevant to these interim financial statements, will only be finally
determined at the time of the preparation of the abovementioned annual
financial statements.
The Company has adopted the IFRS standards for the first time in 2008 and
accordingly the time of the transition to reporting in accordance with the
IFRS standards is January 1, 2007. Before the adoption of the IFRS standards,
the Company prepared its financial statements in accordance with generally
accepted accounting principles in Israel. The Company's last annual financial
statements in accordance with generally accepted accounting principles in
Israel were prepared as at December 31, 2007 and for the year then ended.
See Note 7 on the subject of the reconciliation between the reporting in
accordance with generally accepted accounting principles in Israel and the
reporting in accordance with the IFRS standards.
The Company's interim consolidated financial statements are presented in New
Israeli Shekels in Hebrew and filed with the Israeli Securities Authority and
are similar, in all material respects, to these interim financial statements.
The format for the preparation of the interim consolidated financial
statements
The interim consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for the preparation of financial
statements for interim periods, as set forth in International Financial
Reporting Standard IAS 34 - Financial reporting for interim periods, and also
in accordance with the disclosure requirement in Part D of the Securities
Regulations (Periodic and immediate reports) 1970.
Note 2: Principal accounting policies
The following are the main accounting policies that the Company has
implemented in these financial statements, with the adoption of the IFRS
standards for the first time, and which have been implemented consistently
throughout the periods that are presented:
A. The basis of linkage in the financial statements
The Company's financial statements have been prepared on the
basis of cost, except for investment property, land and buildings, derivatives
and financial instruments, liabilities in respect of share based payment
arrangements, liabilities to return properties to original state, liabilities
in respect of benefits to employees and assets that are presented at
calculated cost in accordance with IFRS 1, which are measured in accordance
with their fair values.
Consolidated financial statements
The consolidated financial statements include the financial statements of
companies in which the Company exercises control (subsidiary companies).
Control exists where the Company has the ability, directly and indirectly, to
direct the financial and operating policies of the Company that is controlled.
The affect of potential voting rights that can be exercised as of the balance
sheet date are taken into account in the testing for control. The
consolidation of the financial statements is carried out as from the time that
control is achieved, and up to the time that control is discontinued.
Material, mutual balances and transactions and profits and losses that derive
from transactions between companies in the group have been eliminated in full
in the consolidated financial statements.
The financial statements of the Company and of the consolidated companies have
been prepared as of identical dates and for identical periods. The accounting
policies in the financial statements of the consolidated company have been
implemented in a uniform and consistent manner to the manner in which they
were implemented in the Company's financial statements.
B. The functional currency and foreign currency
1. The functional currency and the presentation currency
The financial statements are presented in Pounds Sterling.
The Company's functional currency is the New Israeli Shekel.
The functional currency, which is the currency that best
reflects the economic environment in which the Company operates and its
transactions, has been determined separately for each company in the Group and
the state of its financial position and the results of its operations are
measured in accordance with this currency. Where the functional currency of a
company in a group is different from the presentation currency, that company
constitutes foreign
activity and the figures in its financial statements are
translated for the purpose of their inclusion in the consolidated financial
statements as follows:
a. Assets and liabilities at each balance sheet date (including the
comparative figures) are translated in accordance with the closing rate at
each balance sheet date. Goodwill and all of the adjustments of fair value to
the carrying value of the assets and the liabilities at the time of the
acquisition are treated as assets and liabilities and translated in accordance
with the closing rate, at each balance sheet date.
b. Income and expenses in each of the periods that are presented in the
statement of income (including the comparative figures) are translated in
accordance with average exchange rates in each of the periods that are
presented, however, in cases in which there has been significant fluctuations
in the exchange rates, the income and expenses are translated in accordance
with the exchange rates that were in force at the time of the transactions
themselves.
c. Share capital, capital reserves and other capital movements are translated
in accordance with the exchange rates at the time that they occurred.
d. The accumulated earnings are translated on the basis of the opening
balance, which was translated in accordance with the exchange rate at that
time and the relevant additional movements during the course of the period,
which have been translated as aforesaid in sections b and c above.
e. All of the exchange differences that have been created are reflected as a
separate item under shareholders' equity, in a capital reserve "adjustments
deriving from the translation of financial statements".
Loans between companies in the group, which there is no intention to clear and
which are not expected to be cleared in the foreseeable future and accordingly
they essentially constitute part of the investment in overseas activities, are
dealt with as part of the investment, where the exchange differences from
these loans are reflected in that same section of the shareholders' equity, as
aforesaid in section e) above.
Exchange differences in respect of a loan in foreign currency, which
constitutes the hedging of a net investment in foreign activity, are reflected
after setting off the tax effects, to that same section of the shareholders'
equity, as aforesaid in section e) above. At the time that the net investment
is realized, these exchange differences are reflected under financing income
or expenses.
2. Transactions in foreign currency
Transactions that are denoted in foreign currency are recorded when they are
initially recognized in accordance with the exchange rates at the time of the
transaction. Monetary assets and monetary liabilities that
are denoted in foreign currency have been translated into the functional
currency in accordance with the exchange rate as of the balance sheet date.
Exchange differences are reflected in the statement of income. Non-monetary
assets and liabilities that are denoted in foreign currency are presented in
accordance with their fair values and translated into the functional currency
in accordance with the exchange rate at the time that the fair value was
determined.
3. Following are data regarding the exchange rate of the British pound in
relation to the NIS:
Exchange rate
of
As of one British
pound
NIS
September 30, 2008 6.2876
September 30, 2007 8.138
December 31, 2007 7.7105
Change during the period %
September 2008 (nine months) (18.45)
September 2007 (nine months) (1.81)
September 2008 (three (5.77)
months)
September 2007 (three (4.33)
months)
December 2007 (12 months) (6.97)
C. Cash equivalents
Highly liquid investments, which include deposits in
entities for the short-term, whose original period did not exceed three months
from the time of the investment and which are not restricted by a charge are
considered to be cash equivalents.
D. Short-term deposits
Deposits in banking entities for the short-term, whose original periods did
not exceed three months from the time of the investment. The deposits are
presented in accordance with the terms under which they were deposited.
E. The provision for doubtful debts
The provision for doubtful debts is determined specifically in respect of
debts, whose collection, in the opinion of the Company's management, lies in
doubt. Moreover, the Company records a provision in respect of groups of
customers, which is evaluated collectively in respect of impairment in value,
based on their credit risk characteristics. Customer debts, where impairment
has occurred in their value, will be written down at the time at which it is
determined that these debts are non-recoverable.
F. Financial instruments
Financial assets to which IAS 39 applies are recognized at the time that they
are originally recognized in accordance with their fair value, with the
addition of the transaction costs that relate directly to them, except in
respect of investments that are presented at fair value with the changes
therein being reflected in the statement of income.
Following the initial recognition, the accounting treatment of investments in
financial assets is based on their classification into one of the following
four groups.
- Financial assets, which are measured at fair value through the statement of
income.
- Investments that are held to redemption.
- Loans and debit balances.
- Financial assets that are available for sale.
1. Loans and debit balances
The loans and debit balances are financial assets that are non-derivative
having fixed payments or where it can be determined that there is not an
active market for them. Following the initial recognition, loans and debit
balances are measured at cost and depreciated in accordance with the effective
interest rate, whilst taking transaction costs into account and after setting
off any provisions for impairment in value. Profits and losses are reflected
in the statement of income when the loans and debit balances are disposed of
or if an impairment in value is recognized in respect of them, and also as the
result of systematic amortization.
2. Interest bearing loans and credit
Loans and interest bearing credit balances are initially recognized in
accordance with their fair value and less the transactions costs that can be
directly attributed (for example the costs of raising loans). Following the
initial recognition, the loans and interest bearing credit are presented at
amortized cost whilst using the effective interest method, taking the
transactions costs that can be directly attributed into account. Profits and
losses are recognized in the statement of income at the time of the closing of
the loan and as a result of systematic amortization.
3. Treasury shares
Shares in the Company that are held by consolidated companies are presented in
accordance with cost, which is set-off against the Company's shareholders'
equity. Profits or losses in respect of the purchase, sale or cancellation of
treasury shares are reflected directly in shareholders' equity.
G. Impairment in the value of monetary assets
The Group tests for the existence of impairment in value of financial assets
or a group of financial assets at each balance sheet date.
1. Assets that are presented at depreciated cost
If objective evidence exists that a loss exists from impairment in value in
respect of loans and debtors that are presented at their amortized cost, the
amount of the loss that is reflected in the statement of income is measures as
the difference between the carrying value of the asset and the present value
of the estimated future cash flows (which do not include future credit losses
that have not yet been incurred), discounted in accordance with the original
effective interest rate for the financial asset (the effective interest rate
that was calculated at the time of the initial recognition). The carrying
value of the asset is reduced by means of the recording of a provision. The
amount of the loss is reflected in the statement of income.
2. Assets that are available for sale
If objective evidence exists that a loss exists from impairment in value, the
amount of the loss is measured as the difference between the cost (less
payments on account of principal and amortization) and the fair value, less
any loss from impairment in value that was reflected in the statement of
income in the past. This loss is transferred from the shareholders' equity to
the statement of income. The cancellation of a loss from impairment in value
is not reflected in the statement of income. The cancellation of a loss from
the impairment in value in respect of debt instruments is reflected in the
statement of income if the increase in the fair value of the instrument can be
objectively attributed to an event that occurred subsequent to the loss in
respect of impairment in value being reflected in the statement of income.
H. Fixed assets
Fixed asset items are presented at cost with the addition of direct
acquisition cost, less accumulated depreciation, less losses from impairment
in value that have accumulated and less investment grants that have been
received in respect of them and which are not included in expenses for the
purposes of routine maintenance. The cost includes spare parts and ancillary
equipment that can be used only in connection with plant and machinery.
The cost of assets that have been set up independently include the cost of the
materials, direct labor costs and financing costs as well as additional costs
that can be attributed directly to the bringing of the asset to its present
location and status, in a manner that it will be able to operate in the manner
that management planned, as well as the costs of the dismantling and removal
of the items and the rehabilitation of the site where the item was located.
Depreciation is calculated at equal annual rates, on the straight line method,
over the useful lives of the assets, as follows:
% Main %
Software and computers 33
Motor vehicles 15-25 (Primarily 15%)
Office furniture and 6-20 (Primarily 6%)
equipment
Leasehold improvements (Over the length of the lease
period, including option
periods)
The cost of a fixed asset item includes an initial estimate of the cost of the
dismantling and removal of the item and the rehabilitation of the site where
the item was located, in respect of which a commitment arises for the Company,
where the item is acquired or as the result of the use of the item over a
certain period of time, other than for the purpose of the production of
inventory during the course of that period.
The components of a fixed asset item, having a cost that is material in
relation to the overall cost of the item, are depreciated separately, in
accordance with the components method. The depreciation is calculated in
accordance with the equal depreciation method at annual rates that are
calculated to be sufficient to depreciate the assets over the length of their
estimated useful lives.
Leasehold improvements are depreciated in accordance with the straight line
method over the course of the rental period (including the option period for
an extension that is held by the Group and which it intends to exercise) or in
accordance with the estimated useful lives of the assets.
The residual value and the estimated useful lives of an asset are examined at
least at the end of the year and changes are treated as a change in accounting
estimate by way of from henceforth. See section J below in respect of the
testing for impairment in the value of fixed assets.
The Group recognizes the replacement cost of part of a fixed asset item as
part of the value of the fixed asset item in the accounting records, where the
cost has been incurred, and it is expected that the economic benefits that are
connected to the item will flow to the Group and the cost of the item can be
reliably measured. Routine maintenance costs are reflected in the statement of
income as incurred.
The depreciation of an asset is discontinued at the earlier of the time at
which the asset is classified as held for sale and the time at which the asset
is disposed of. An asset is removed from the accounting records at the time
that it is sold or when it is no longer expected that there will be economic
benefits from the use of the asset. A profit or loss on the removal of the
asset (which is calculated as the difference between the net consideration
from the disposal and the depreciated cost in the accounting records), is
included in the statement of income in the period in which the asset is
disposed of.
A fixed asset that has been received in an exchange transaction is measured in
accordance with its fair value, unless the transaction has no commercial
significance or where it is not possible to reliably measure the fair value of
the fixed asset that is received or which is given. A transaction has
commercial significance if it leads to a change in the amount, the timing and
the risk of the future cash flows from the asset.
The transition from fixed assets to investment property is carried out where
the owners re-designate the asset from self use or where a new rental
agreement commences, or where the construction work has been completed.
I. Intangible assets
Intangible assets that are acquired separately are measured at the time of
their initial recognition in accordance with cost with the addition of direct
acquisition costs. Intangible assets that are acquired in business
combinations are recorded in accordance with the fair value at the time of the
acquisition. Following the initial recognition, intangible assets are
presented in accordance with their cost less accumulated amortization and less
accumulated losses from impairment in value. Costs in respect of intangible
assets which have been developed internally, except for capitalized
development costs, are reflected in the statement of income as incurred.
In accordance with evaluations made by the Company's management, the
intangible assets have defined useful lives. The assets are amortized over the
length of their useful economic lives, and impairment in value are tested for
in respect of them where signs exist indicating that an impairment has
occurred in the value of an intangible asset. The amortization period and the
method of depreciation in respect of an intangible asset with a defined useful
life are examined at least once a year. A change in the useful lives or the
patterns of the expected consumption of the economic benefit that is expected
to derive from the asset are to be treated as a change in the period or the
method of amortization and are to be reported as a change in accounting
estimate.
Amortization expenses in respect of intangible assets with a defined useful
life are reflected in the statement of income.
The useful lives of the intangible assets are as follows:
Customer portfolios - 3 to 6 years.
Research and development costs
Research costs are expensed as incurred. Development expenditure on an
individual project is recognised as an intangible asset when the Group can
demonstrate the technical feasibility of completing the intangible asset so
that it will be available for use or sale, its intention to complete and its
ability to use or sell the asset, how the asset will generate future economic
benefits, the availability of resources to complete the asset and the ability
to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the
cost model is applied requiring the asset to be carried at cost less any
accumulated amortisation and accumulated impairment losses. Amortisation of
the asset begins
when development is complete and the asset is available for use. It is
amortised over the period of expected future benefit. During the period of
development, the asset is tested for impairment annually.
Software development costs
Software development costs are capitalised only if it's possible to measure in
a reliable way the development costs, the software reaches technological
feasibility, expected economic future benefits from the development, and there
is intention and enough sources to complete the development and to use the
software. An expense that capitalised include the costs of material, direct
wage and overhead expenses that can attributed directly to the preparation of
the assets to his specific use. Other development costs are credited to the
income statement when they are created.
Development costs that are capitalised are measured in accordance with their
cost, less depreciation and loss from accumulated impairment.
J. Impairment in the value of non-monetary assets
The Company examines the need to test for the impairment in the carrying value
of non-monetary assets where there are signs that as the result of events or
of changes in the circumstances there are indications that the carrying value
is not recoverable. In cases in which the carrying value of non-monetary
assets exceeds their recoverable amount, the assets are written down to the
recoverable amount. The recoverable amount of an asset is the higher of the
net selling price and the value in use. In the evaluation of the value in use,
the cash flows that are expected are discounted in accordance with a pre-tax
discount rate that reflects the specific risks for each asset. In respect of
an asset that does not produce independent cash flows, the recoverable amount
is determined for the cash generating unit to which the asset belongs.
Losses from impairment in value are reflected in the statement of income under
losses from impairment, except for impairment in value of an asset that has
been revalued in the past and where the revaluation has been reflected in a
capital reserve, in which case the impairment is reflected against the capital
reserve, up to the amount of the revaluation and the balance is reflected in
the statement of income.
The following criteria are implemented in the testing for impairment in value
for the following specific assets:
1. Goodwill
The Company tests goodwill for impairment in value once a
year on December 31, or more frequently if events or changes in the
circumstances indicate that impairment in value has occurred.
Impairment in value is determined in respect of goodwill by
means of the testing of the recoverable amount of a cash generating unit (or a
group of cash generating units) to which the goodwill relates. Where the
recoverable amount of a cash generating unit (or a group of cash generating
units) is lower than the carrying value of the cash generating unit (or a
group of cash generating units) to which the goodwill has been allocated, a
loss on impairment in value is recognized. Losses from the impairment in value
of goodwill are not netted off.
2. Intangible assets with an indefinite useful life.
The testing for impairment in value is carried out once a year on December 31,
or more frequently if events or changes in the circumstances indicate that
impairment in value has occurred.
K. Taxes on income
Taxes on income in the statement of income include current taxes and deferred
taxes. The tax expenses in respect of current taxes or deferred taxes are
reflected in the statement of income, except where they relate to items that
are reflected directly under shareholders' equity, in which case the tax
effect is also reflected under the relevant item under shareholders' equity.
1. Current taxes
The liability in respect of current taxes is determined whilst using the tax
rates and the tax laws that have been enacted, or show enactment has been
effectively completed, up to the balance sheet date, and also the adjustments
that are required in respect of the liability to taxation in respect of
previous years.
2. Deferred taxes
Deferred taxes are calculated in respect of timing differences between the
amounts that are recorded in the financial statements and the amounts that are
taken into account for tax purposes, except for a limited number of
exceptions.
The deferred tax balances are calculated in accordance with the tax rates that
are expected to apply when those taxes are expected to be reflected in the
statement of income or under shareholders' equity, based on the tax laws that
have been enacted, or show enactment that has been effectively completed, up
to the balance sheet date. The amount at which deferred taxes are stated in
the statement of income reflects the changes in the abovementioned balances in
the reporting period.
The taxes that would apply in the event of the disposal of the investments in
investee companies have not been taken into account in the calculation of
the deferred taxes, so long as the sale of the investments in the investee
companies is not expected in the foreseeable future. Similarly, no deferred
taxes have been taken into account in respect of the distribution of profits
by investee companies as dividends, since the distribution of a dividend does
not involve an additional liability or as a result of the Company's policy not
to initiate the distribution of a dividend that would result in an additional
tax liability.
Deferred taxes that relate to items that are reflected directly under
shareholders' equity are also reflected under the same items under
shareholders' equity.
Deferred tax assets and deferred tax liabilities are presented in the balance
sheet as non-current assets and as long-term liabilities, respectively.
Deferred taxes are set-off if a legal right exists that can be enforced and
which enables the setting off of a current tax asset against a current tax
liability and the deferred taxes relate to the same entity, which is
chargeable to tax to the same tax authority.
L. Share based payment transactions
The Company's employees are entitled to benefits by way of
share based payments in consideration for capital instruments (hereinafter -
transactions that are cleared with capital).
The cost of the transactions that are cleared with capital
is recognized in the statement of income together with the parallel increase
in shareholders' equity over the period in which the terms of the performance
and/or the service are met and ends at the time at which the relevant
employees are entitled to remuneration (hereinafter - the vesting period). The
cumulative expense is recognized in respect of transactions that are cleared
with capital instruments at each reporting date up to the time of vestments,
reflecting the degree to which the vesting period has passed and the Group's
best estimate in respect of the number of capital instruments that will vest
at the end of the period. The charge or the credit in the statement of income
reflects the change in the cumulative expense that has been recognized at the
beginning and at the end of the period.
The expense in respect of grants that will not vest at the
end of the day is not recognized, except for grants whose vesting is dependent
on market terms, which are handled as grants which have vested, with no
connection to the existence of the terms in the market, on the assumption that
all of the performance terms have been met.
Where the Company makes changes in the terms of the grant
that is cleared with capital instruments, an additional expense is recorded
over and above the original expense that was calculated. An additional expense
is recognized in respect of a change that increases the overall fair value of
the share based payment arrangement
or which benefits the employee in accordance with the fair
value at the time of the change.
The cancellation of a grant that is to be cleared with a
capital instrument is treated as of it had vested at the date of the
cancellation and the expenses that have not yet been recognized in respect of
the grant are recognized immediately. In addition, if the grant that was
cancelled is intentionally replaced by a new grant the cancelled grant and the
new grant are both treated as a change in the original grant as described in
the previous paragraph.
M. Liabilities in respect of benefits to employees
The group maintains a number of post employment benefit
schemes. The schemes are generally financed by deposits in insurance companies
and these are designated as defined deposit schemes and also as defined
benefit schemes.
1. Short-term benefits for employees
The short-term benefits to employees include salaries,
holiday pay, sick leave, recuperation pay and deposits for National Insurance,
and these are recognized as an expense when the services are provided. The
liability in respect of a cash bonus or a profit participation scheme is
recognized where the Group has a legal commitment or a deduced commitment to
pay the said amount in respect of service that has been given by the employee
in the past and where the amount can be reliably estimated.
2. Post retirement benefits
The Group has defined deposit schemes, in accordance with section 14 of the
Severance Pay Law, according to which the Group consistently makes payments
without it having a legal or inferred liability to make additional payments
even if sufficient funds have not accumulated in the funds in order to pay all
of the benefits to an employee that relate to the employee's service in the
current period and in previous periods. Deposits in the defined deposit
schemes are recorded as an expense at the time of the deposit in the scheme in
parallel to the receipt of labor services from the employee and no additional
provision is required in the accounting records.
Moreover, the Group operates a defined benefits scheme in respect of the
payment of severance pay in accordance with the Severance Pay Law. In
accordance with the Law, employees are entitled to receive severance pay when
they are dismissed or when they retire. The severance pay is calculated in
accordance with the last monthly salary of the employee at the time of the
termination of their employment, multiplied by the number of years for which
they were employed.
The Company deposits monies in respect of its liabilities to pay severance pay
for some of its employees, in a routine manner, in pension funds and in
insurance companies (hereinafter - plan assets).
The cost of the payment of severance pay is determined in accordance with the
forecast actuarial value of the forecast unit of entitlement. Actuarial gains
and losses are reflected in the statement of income in the period in which
they arise.
N. The recognition of income
Income is recognized in the statement of income when it can be reliably
measured, it is expected that the economic benefits that are connected to the
transaction will flow to the Company and where the costs that have been
incurred or which will be incurred in respect of the transaction can be
reliably measured. Income is measured in accordance with the fair value of the
consideration for a transaction, less trade discounts, quantity discounts and
returns.
Income from transactions where the sale is made on credit, which include a
financing transaction are recorded at their present value, such that the
difference between the fair value of the transaction and denoted amount of the
consideration is recognized in the statement of income as financing income,
whilst using the effective interest method.
The following are specific directives in respect of the Group's income, which
have to be complied with in order for income to be recognized:
Income from the provision of services
Income from the provisions of services is recognized in accordance with the
stage of the completion of the transaction as of the balance sheet date. In
accordance with this method, the income is recognized in the reporting periods
in which the services have been provided. In the event that the results of a
contract cannot be measured in a reliable manner, the income is recognized
only in the event that it is possible to recoup the expenses that have been
incurred.
Revenues from software transactions
Software transactions comprise multi - component sales (e.g. software,
installation, integration, upgrades, support, training, consulting, etc.). The
Company examines the components of the transaction, including those supplied
on the basis "if and when available", in order to decide whether the
components can be identified separately.
The Company recognizes revenues from the sale of goods as software
transactions only after the transfer of the significant risks and yields
derived from ownership of the goods to the buyer, where an essential but not
satisfactory condition is the condition of delivering the software, whether
physically, electronically, granting the right of use, or permission to make
existing copies. The Company recognizes revenues connected with the provision
of services from software transactions, whose results can be reliably
measured, according to the stage of completion of the transaction on the
balance sheet date. Should the services be provided in a number of steps,
which cannot be determined, over a defined period, revenues are recognized by
the straight line method over the defined period, unless proof exists that
another method would better reflect the stage of completion.
The reporting of income on the gross basis or on the net
basis
In cases in which the Group operates as an agency or as a
broker without bearing the risks and being entitled to the yields that are
derived from the transaction, its income is presented on the net basis.
Conversely, in cases in which the Group acts as the main supplier and bears
the risks and is entitled to the yields that are derived from the transaction,
its income is presented on the gross basis.
O. Earnings per share
The earnings per share has been calculated in accordance
with the number of ordinary shares. Only shares that were actually in
existence in the course of the period are included in the calculation of the
basic earnings per share. Potential ordinary shares (convertible securities
such as convertible bonds, options warrants and options to employees) are only
included in the diluted earnings per share in the event that their impact
dilutes the earnings per share, because their conversion reduced the earnings
per share or increases the loss per share from continuing activities. In
addition, convertible securities that were converted during the course of the
period have been included in the diluted earnings per share only up to the
time of their conversion, and from that time they have been included in the
basic earnings per share. The Company's share of the profits of investee
companies has been calculated in accordance with its share in the earnings per
share of those same investee companies as multiplied by the number of shares
that the Company holds.
P. Disclosure in respect of new IFRS standards in the period
before their implementation
1. IFRS 8 - Operating segments
IFRS 8 (hereinafter - the standard), deals with operating
segments and replaces IAS 14. The standard will apply to companies whose
securities are registered, or which are in the process of registration, for
trade on any securities exchange. The standard is to be applied in respect of
financial statements for periods commencing on January 1, 2009 and early
implementation is possible. The provisions of the standard are to be
implemented retrospectively by way of restatement, unless the information that
is required in accordance with the provisions of the standard is not available
and it is not practical to find it.
The standard determines that an entity is to adopt the
"management approach" in its reporting on the financial performance of the
operating segments. The segmental information is to be the information that
the management uses internally for the purposes of evaluating segmental
performance and for the purposes of making decisions on the way in which
resources are to be allocated to the operating segments
Moreover, information is to be provided on the subject of
the income that derives from the entity's products or from the services that
it provides (or from a group of similar products or services), the countries
from which the income or the assets derive as well as the main customers, and
this without taking into account whether the management uses this information
for the purposes of its operating decisions.
The Company after examining the standard and its impact on
the financial statements does not believe that it will change its segmental
reporting from the current presentation.
2. IAS 23 (Amended) - Credit costs
In accordance with the amended IAS 23, it is mandatory to
capitalize credit costs that relate directly to the acquisition and setting up
or production of a qualifying asset. A qualifying asset is an asset for which
a significant period of time is required for its preparation for its intended
use or for its sale and it is recorded under fixed assets, investment property
or inventory that requires an extended period of time in order to bring it to
a state in which it can be sold. The possibility of reflecting these costs
immediately as an expense has been cancelled.
The amended standard will apply as from the financial
statements for periods commencing on January 1, 2009. The early implementation
of the standard is possible.
In the Company's opinion, the standard is not expected to
have a material impact on its financial position, the results of its
activities or its cash flows.
3. IAS 1 (Amended) - Presentation of financial statements
In accordance with the amendment to IAS 1, there is also a
requirement to present an additional, separate report - "the statement of
overall income", in which there are to be presented, besides the amount of the
net income, which is taken from the statement of income, all of the items that
have been reflected during the reporting period directly under shareholder's
equity and which do not derive from transactions with shareholders (overall
other income), such as adjustments deriving from the translation of overseas
activities, adjustments of fair value for financial assets that are classified
as available for sale, adjustments to the revaluation reserve in respect of
fixed assets and similar items, as well as the tax effect of these item, which
was also reflected directly under shareholders' equity, with an appropriate
attribution between the Company and the minority interests. Alternatively, it
is possible to details of the overall other income together with the items in
the statement of income in one report, which is to be called "the statement of
overall income", which will replace the statement of income, with an
appropriate attribution between the Company and the minority interests. Only
the
transactions with shareholders (such as issues of capital,
the distribution of a dividend and similar items) are to be presented in the
statement of changes in shareholders' equity, as well as a summary row, which
is to be carried over from the statement of overall income, with an
appropriate attribution between the Company and the minority interests.
Moreover, the amendment determines that in cases where there is a change in
the comparative figures as the result of a change in the accounting
policy,which is implemented retrospectively, restatement or reclassification,
a balance sheet at the beginning of the period is also to be presented for the
comparative figures in respect of which the change was made.
The amendment of IAS 1 will apply in respect of the annual
financial statements for periods commencing on January 1, 2009. The early
implementation of the standard is possible.
The impact of the amendment to IAS 1 will be to require the
Company to give the disclosure that is required, as aforesaid, in the
financial statements.
4. IFRS 3 (Amended) - Business combinations and IAS 27 (Amended) -
Consolidated and separate financial statements
The amended IFRS 3 and IAS 27 (hereinafter - the standards) are to be
implemented in respect of the annual financial statements for periods
commencing on January 1, 2010. The early implementation of the two standards
is possible from the annual financial statements for periods commencing on
January 1, 2008.
The following are the main changes that are expected to apply following the
implementation of the standards:
- At present IFRS 3 determines that goodwill, in contrast to other identified
assets and liabilities of an acquired company is measured as the surplus of
the cost of acquisition over the acquiring company's share of the fair value
of the net identified assets at the time of the acquisition. In accordance
with the standards, it is possible to elect in respect of each business
combination transaction, to measure the goodwill on the basis of its full fair
value and not only in accordance with the part that has been acquired.
- A contingent consideration in a business combination is to be measured in
accordance with its fair value, where changes in the fair value of the
contingent consideration, which do not constitute adjustments to the cost of
acquisition in the period of measurement, are not to be recognized in parallel
as an adjustment of goodwill. Generally, the contingent consideration is to be
considered to be a financial derivative, to which IAS 39 applies, which is to
be presented at fair value with changes therein being reflected in the
statement of income.
- Direct acquisition costs, which relate to a business combination transaction
are to be recognized in the statement of income as incurred, whereas the
current requirement is to reflect them as part of the consideration for the
cost of the business combination has been cancelled.
A transaction with the minority interests, whether it is a
sale or a purchase, is to be treated as a transaction on the capital plain and
therefore itwill not lead to recognition as a gain or loss and nor will it
affect the amount of the goodwill, respectively.
- Losses of a subsidiary company, even if they lead to a capital deficit for
the subsidiary company, are to be allocated between the parent company and the
minority interests, even if the minority is not a guarantor or if it has no
contractual commitment to support the subsidiary company or to make an
additional investment.
- At the time of the loss of control in a subsidiary company, the balance of
the holding, if it exists, is to be revalued as its fair value against the
gain or loss on the disposal and this fair value will form the basis for its
cost for the purposes of its continuing treatment.
In the Company's opinion, the standards are not expected to have a material
impact on its financial position, the results of its activities or its cash
flows.
5. IFRS 2 - Share based payments
In accordance with IFRS 2, as amended, (hereinafter - the amended standard),
the definition of the terms for vesting is to include only service terms and
performance terms, and in addition, the clearance of a grant, which includes
terms that are not vesting terms, whether by the Company and whether by the
other side, are to be treated by away of the acceleration of the vesting and
not by way of forfeiture. The standard is to be implemented retrospectively in
respect of financial statements for periods commencing on January 1, 2009. The
early implementation of the standard is possible.
Vesting terms include service terms, which commit the opposite party to
complete a defined period of service, and also performance terms, which
require the meeting of defined targets for performance. Terms that do not fall
within the bounds of service terms or performance terms are to be considered
to be terms that are not vesting terms and therefore they are to be taken into
account in the estimate of the fair value of the instrument that is granted.
The Company is examining the impact of the amended standard on the financial
statements, but it is unable to evaluate its results at this stage.
6. IAS 19 (amended)- employee benefits
In accordance to amendment IAS- 19, a group of other long term benefits will
also include employee benefits for which the entitlement is gained over a
short period of time yet the expected utilization period occurs a year from
the end of the entitlement period, such as benefits for accumulative vacation
and sick days which are expected to be used within a year of the date of the
balance sheet. Therefore these benefits must now be acknowledged in the
financial reports by actuary calculation taking into consideration future
salary and capitalization to current value. The standard shall be implemented
retroactively starting from the financial reports for the periods starting
January 1, 2009. An early implementation is possible.
The company estimates that the amended standard will not have a substantial
influence to its financial situation, the results of its actions and its cash
flow.
NOTE 3:- GEOGRAPHIC SEGMENTS
Nine months ended September 30, 2008
North
Israel Europe America Adjustments Total
Unaudited
British pounds in thousands
Revenue from external
customers 2,958 2,079 1,479 - 6,516
Inter segment sales - 61 - (61) -
Total revenues 2,958 2,140 1,479 (61) 6,516
Segment results 51 121 (20) - 152
General joint expenses
unallocated (449)
Operating loss (297)
Nine months ended September 30, 2007
North
Israel Europe America Adjustments Total
Unaudited
British pounds in thousands
Revenue from external
customers 2,185 1,945 1,526 - 5,656
Inter segment sales - 142 - (142) -
Total revenues 2,185 2,087 1,526 (142) 5,656
Segment results 123 274 (27) - 370
General joint expenses
unallocated (379)
Operating loss (9)
Three months ended September 30, 2008
North
Israel Europe America Adjustments Total
Unaudited
British pounds in thousands
Revenue from external
customers 970 681 465 - 2,116
Inter segment sales - 16 - (16) -
Total revenues 970 697 465 (16) 2,116
Segment results (55) 67 (36) - (24)
General joint expenses
unallocated (127)
Operating loss (151)
Three months ended September 30, 2007
North
Israel Europe America Adjustments Total
Unaudited
British pounds in thousands
Revenue from external
customers 746 696 456 - 1,898
Inter segment sales - 42 - (42) -
Total revenues 746 738 456 (42) 1,898
Segment results 21 115 (1) - 135
General joint expenses
unallocated (112)
Operating income 23
Year ended December 31, 2007
North
Israel Europe America Adjustments Total
Audited
British pounds in thousands
Revenue from external
customers 3,114 2,658 2,101 - 7,873
Inter segment sales - 232 - (232) -
Total revenues 3,114 2,890 2,101 (232) 7,873
Segment results 221 442 84 - 747
General joint expenses
unallocated (500)
Operating income 247
Note 4: Share based payments
In January 2008, 295,000 non- marketable options, which are exercisable into
regular shares of the Company of par value 0.01 NIS each, were granted to
employees of the Company. The exercise price of the options on conversion into
shares is �0.14, for employees outside Israel and 1.265 NIS for Israeli
employees constituting the market value of 1.1% of total shares on the day on
which the share options were granted.
The fair value of the options was estimated at the time of the grant using the
binomial model, in accordance with the terms and the data according to which
the share options were granted.
The contractual lifetime of the share options, in the event that they do vest,
is 5 years from the time that they were granted.
The following are the data that were used in the measurement of the fair value
of the share options in accordance with the binomial model for the costing of
options in respect of the abovementioned plan.
The expected fluctuation in the share price- 65%
The risk free interest rate -5.3%
The contractual lifetime of the share options -5 years
The weighted average share price -�0.14
In accordance with the above data, the fair value of the options was
determined to be �34 thousands at the time of the grant.
In May 2008, 10,000 options were exercised by an employee outside Israel which
was granted to him in previous years.
Note 5: Material events during the course of the period
1. In January 2008 the Company signed an acquisition contract of activity of
salary surveys, training and consultancy in the sphere of salaries and
remuneration, in total cost of �191 thousands, all of which were attributed to
intangible assets.
2. In January 2008 the Company has signed an acquisition contract of activity
engaged in the conducting of salary surveys, in total cost of �23 thousands,
which attributed to intangible assets.
3. The company declared a dividend of 1p per ordinary share, The total sum of
the dividend was �265 thousands, paid on 26 June, 2008.
4. The company declared an additional dividend of 1.5 p per
ordinary share, The total sum of the dividend was �398 thousands to be paid on
30 October, 2008.
5. On July 2008, Pilat Israel Ltd. ('Pilat Israel') a fully owned subsidiary,
received notification from the Israeli Registrar of Databases (the
'Registrar') claiming that Pilat Israel is in violation of the law governing
databases (the 'Law') in relation to two databases managed by Pilat Israel.
Furthermore, Pilat Israel was notified that due to the mentioned violation and
in light of the findings, it is the registrar's intention to instruct
cancelling the registration of these two databases, and unless a satisfactory
response is received from Pilat Israel, it will be executed on August 15,
2008.
Pilat Israel disagrees with the registrar's claims and its
position is that it complies with all instructions of the law, as it applies
to the maintenance and use of its databases. The use of databases by Pilat
Israel is similar to other assessment and recruitment companies operating in
Israel.
Pilat intends to take all necessary action in order to
prevent the proposed cancellation of the registrations by the Registrar.
On August 14, 2008 Pilat has reached an agreement with the
registrar for postponement in execution of deleting the databases, the
postponement is to November 30, 2008 and a meeting on the matter has been
scheduled to November, 2008.
Note 6: Events after the balance sheet date
1. The company was notified on 14 October 2008
that with effect from 27 November 2008 David Sapiro, Chief Executive officer
since January 2004, will resign as the Company's General Manager and Board
member.
2. The Directors of the company announce that on
or around 3 November, 2008 a circular will be posted to the company's
shareholders ("shareholders") to convene a General Meeting at which a
resolution will be proposed to approve the cancellation the admission of the
company's ordinary shares to trading on AIM ("the cancellation").
It is expected that, subject to shareholder
approval at the General Metting on 4 December,2008, The cancellation will take
effect at 8:00 AM on 12 December, 2008.
Pilat's ordinary shares will continue to be
traded on the Tel Aviv Stock Exchange ("TASE").
Note 7:- Disclosure regarding adoption of international financial reporting
standards (IFRS)
As described in Note 2A, these interim financial statements
are prepared in accordance with the IFRS standards. The Company has adopted
the IFRS standards and accordingly the time of the transition to reporting in
accordance with the IFRS standards is January 1, 2007. The Company has
prepared an opening balance sheet as of the time of the transition, from which
the reporting in accordance with the IFRS standards has commenced.
Prior to the adoption of the IFRS standards, the Company
prepared its financial statements in accordance with generally accepted
accounting principles in Israel.
The last interim financial statements that the Company
prepared in accordance with generally accepted accounting principles in Israel
were prepared as of September 30, 2007 and for the period of nine months and
of three months ended on that date. The first annual financial statements in
accordance with the IFRS standards will be the financial statements as at
December 31, 2008 and for the year ended on that date.
Accordingly, the Company presents the following adjustments
between the reporting in accordance with generally accepted accounting
principles in Israel and the reporting in accordance with the IFRS standards
as of January 1, 2007 (the time of the transition to reporting in accordance
with the IFRS standards), as at December 31, 2007 and for the year ended on
that date and as of September 30, 2007 and for the period of nine and three
months ended on that date.
IFRS 1 in respect of the initial adoption of the IFRS
standards determines, as a matter of principle, that the implementation of the
IFRS standards in the opening balance sheet as of the transition to reporting
in accordance with the IFRS standards is to be done retrospectively (ab
initio).
IFRS 1 permits a number of subjects in respect of which the retrospective
implementation at the time of the transition to reporting in accordance with
the IFRS standards is not required.
The Group has elected to adopt the following easements:
1. Share based payments
IFRS 2, which deals with share based payment transactions, has not been
implemented in respect of capital instruments, which were granted before
November 7, 2002 and which vested before the time of the transition. The Group
has not implemented IFRS 2 in respect of liabilities that were cleared before
the time of the transition in respect of share based payments transactions,
which are cleared in cash
2. Employee benefits
The Group recognizes all of the net actuarial gains or losses that had
accumulated as of January 1, 2007 and has reflected them in the balance of
retained Earnings under shareholders' equity
Note 7 :- Disclosure regarding adoption of international financial
reporting standards (IFRS) - (cont)
January 1, 2007 September 30, 2007 December 31, 2007
Effect of Effect of Effect of
Israeli transition Israeli transition Israeli transition
Note GAAP to IFRS IFRS GAAP to IFRS IFRS GAAP to IFRS IFRS
British pounds in thousands
CURRENT
ASSETS
Cash and
cash
equivalents 2,044 - 2,044 1,940 - 1,940 2,411 - 2,411
Short term
investments 144 - 144 144 - 144 147 - 147
Trade
receivables 1,828 - 1,828 1,733 - 1,733 2,013 - 2,013
Other 298
accounts
receivable 1,5 208 (1(39) 1) 169 229 (68) 161 298 1) (79) 1) 219
Income tax -
receivable 5 - (139 (139 - 48 48 1) 59 1) 59
4,224 - 4,224 4,046 (20) 4,026 4,869 (20) 4,849
NON-CURRENT
ASSETS
Loans and
receivables 14 - 14 38 - 38 25 - 25
Employees
benefits
assets 2 - 20 20 - 41 41 - 52 52
Fixed
assets, net 350 - 350 301 - 301 297 - 297
Deferred
taxes 1 2 (2) - 5 4 9 2 5 7
Intangible
assets - - - - - - 14 - 14
366 18 384 344 45 389 338 57 395
TOTAL
ASSETS 4,590 18 4,608 4,390 25 4,415 5,207 37 5,244
1) Reclassified
Note 7 :- Disclosure regarding adoption of international financial reporting
standards (IFRS) - (cont)
January 1, 2007 September 30, 2007 December 31, 2007
Effect of Effect of Effect of
Israeli transition Israeli transition Israeli transition
Note GAAP to IFRS IFRS GAAP to IFRS IFRS GAAP to IFRS IFRS
British pounds in thousands
CURRENT
LIABILITIES
Current
maturities of
long-term
bank loans 18 - 18 11 - 11 10 - 10
Trade payable 334 - 334 263 - 263 359 - 359
Other
accounts
payable 1,5 1,266 1) (63) 1) 1,203 1,107 - 1,107 1,534 1) (53) 1) 1,481
Income tax
payable 5 - 1) 44 1) 44 - - - - 1) 53 1) 53
1,618 (19) 1,599 1,381 - 1,381 1,903 - 1,903
NON-CURRENT
LIABILITIES
Liabilities
to banks 15 - 15 6 - 6 6 - 6
Employees
benefits
liabilities 2 12 (9) 3 31 (27) 4 16 (13) 3
Liabilities
related to
discontinued
operations 12 - 12 12 - 12 13 - 13
Deferred
taxes 1,2 - 24 24 - - - - - -
39 15 54 49 (27) 22 35 (13) 22
TOTAL
LIABILITIES 1,657 (4) 1,653 1,430 (27) 1,403 1,938 (13) 1,925
SHAREHOLDERS'
EQUITY
Share capital 49 - 49 50 - 50 50 - 50
Additional
paid-in
capital 7,078 - 7,078 7,083 - 7,083 7,083 - 7,083
Capital
reserve 4 - 32 32 5 36 41 8 37 45
Cumulative
foreign
currency
translation
adjustments (251) - (251) (241) 2 (239) (103) - (103)
Accumulated
deficit (3,847) (10) (3,857) (3,841) 14 (3,827) (3,673) 13 (3,660)
Less-shares
held by
subsidiaries (96) - (96) (96) - (96) (96) - (96)
2,933 22 2,955 2,960 52 3,012 3,269 50 3,319
TOTAL
LIABILITIES
AND
SHAREHOLDERS'
EQUITY 4,590 18 4,608 4,390 25 4,415 5,207 37 5,244
1) Reclassified
Note 7:- Disclosure regarding adoption of international financial reporting
standards (IFRS) - (cont)
b. The following are adjustments to the statement of income between
reporting in accordance with GAAP and in accordance with IFRS
For the Nine months ended For the Three months ended For the year ended
September 30, 2007 September 30, 2007 December 31 2007
Effect of Effect of Effect of
Israeli transition Israeli transition Israeli transition
Note GAAP to IFRS IFRS GAAP to IFRS IFRS GAAP to IFRS IFRS
� thousands - excluding data on net earnings per share
Revenues 5,656 - 5,656 1,898 - 1,899 7,873 - 7,873
Cost of
revenues 2,4 3,330 (27) 3,303 983 (10) 973 4,649 (26) 4,623
Gross profit 2,326 27 2,353 915 10 925 3,224 26 3,250
Research and
development
costs 370 - 370 206 - 206 500 - 500
Selling and
marketing
expenses 676 - 676 211 - 211 880 - 880
General and
administrative
expenses 2,4 1,322 (6) 1,316 488 (3) 485 1,626 (5) 1,621
Other
expenses, net - - - - - - 2 - 2
Operating
income (loss) (42) 33 (9) 10 13 23 216 31 247
Capital gain
from sale of
fixed assets 3 - 3 3 - 3 3 - 3
Financial
income 3 52 - 52 17 - 17 74 - 74
Financial
expenses 3 (46) - (46) (42) - (42) (100) - (100)
Net income
before taxes
on income (33) 33 - (12) 13 1 193 31 224
Taxes on
income
(expenses) 2 39 (9) 30 (1) (2) (3) (19) (8) (27)
Net income 6 24 30 (13) 11 (2) 174 23 197
Net earnings
per share (in
British pence):
Basic net earnings 0.02 0.09 0.11 (0.05) 0.04 (0.01) 0.67 0.08 0.75
Diluted net earnings 0.02 0.09 0.11 (0.05) 0.04 (0.01) 0.65 0.08 0.73
Note 7:- Disclosure regarding adoption of international financial reporting
standards (IFRS) - (cont)
c. Notes to the adjustment of the balance sheet as at January 1, 2007 and
September 30, 2007 and December 31, 2007, and the statement of income for the
nine and three months ended September 30, 2007 and for the year ended December
31, 2007 between reporting in accordance with Israeli GAAP and in accordance
with the IFRS
1. Deferred taxes
According to Israeli GAAP, deferred taxes are presented as short-term assets
in other receivables. Upon the transition to reporting in accordance with
IFRS, according to International Accounting Standard (IAS) 12 - "taxes on
income", all deferred taxes balances are presented as non-current assets.
2. Benefits to employees
According to Israeli GAAP, the balance sheet liability for severance pay is
measured on the basis of the number of years of employment and the latest
monthly salary of each employee according to the "shut down method". The
funded amount for severance pay is measured in accordance with the redemption
value on the balance sheet date.
According to International Accounting Standard 19 - IAS 19 - "benefits to
employees" a severance pay plan of the Company is considered as a defined
benefit plan, and therefore the liability for employees benefits must be
presented on an actuarial basis. The actuarial calculation takes into account
future salary increases and the employees' turnover rate as the basis of the
evaluation of the timing and size of future payments.
According to IAS 19 the actuarial calculation must be based on the rate of
interest of investment grade, shekel denominated, corporate bonds, whose due
-date is closely matched to the period of the liability relating to the
severance pay. However the interest rate used in calculating the actuarial
liability is based on interest rates for Israeli Government bonds with similar
due dates, as in the Company's opinion, the market for investment grade shekel
denominated corporate bonds is limited. The subject of discount rate is being
examined and it is possible that in future the interest rate used will be of
suitable corporate bond. Should the interest rate change the impact of the use
of a higher interest rate will reduce the actuarial liability on the one hand
and increase the current financing expenses for the actuarial liability on the
other hand.
According to the provisions of IFRS 1, the Company has chosen the exemption
according to which it recognizes in its retained earning all net actuarial
profits or losses as at January 1, 2007.
3. Financing revenues and expenses
According to Israeli GAAP, financing expenses and revenues were presented net
in the statement of income. According to IFRS standards financing expenses and
financing revenues must be presented separately in the statement of income.
4. Share-based payments
According to the provisions of Accounting Standard No. 24 of the Israel
Accounting Standards Board - "Share-based Payments", the Company recognized a
benefit for grants to employees only regarding share-based payment
transactions made before March 15, 2005, and which have not yet vested by
January 1, 2006.
Upon the transition to reporting in accordance with IFRS standards, the
Company has adopted the provisions of International IFRS 2, "Share-based
Payments", which state that the financial benefit must be measured for the
granting of such capital instruments, made before March 15, 2005, but after
November 7, 2002, and which have not yet vested on January 1, 2007.
5. Income tax
According to Israeli GAAP, income tax assets and income tax
liabilities were presented in other accounts receivable and other accounts
payable respectively. according to IFRS standards, Income tax assets and
income tax liabilities will be shown on a separate line in the balance sheet.
END
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