TIDMFTS
RNS Number : 9113D
F.T.S-Formula Telecom Solutions Ltd
30 March 2011
In the Final Results, released on 9 March 2011 at 12.47 under
RNS number 6263C, an escrow amount of $1.3 million was classified
as a current debtor which should have been classified as a
non-current asset under the terms of the purchase agreement. This
reclassification has been made to the balance sheet with the
consequential changes to Note 8 and Note 14 of these accounts.
F.T.S. - FORMULA TELECOM SOLUTIONS LTD .
AND ITS SUBSIDIARIES
(An Israeli Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2010
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' 2010 annual results for the twelve
months to 31 December 2010.
FTS develops and sells advanced billing & customer care,
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.
In today's telecoms market, operators, and especially mobile
operators, are faced with unprecedented rapid growth rates in data
traffic, following the increased use of smartphones as well as the
availability of attractive eat-all-you-can flat-rate plans. As a
result, service providers, which need to ensure the capacity and
the quality of service on their networks, are faced with increasing
costs, which are growing faster than data services revenue growth.
As a response, operators worldwide are increasingly deploying
policy control tools. Policy control enables operators to control a
specific customer's experience, using traffic-management techniques
and based on that customer's subscriber profile. As wireless
operators head to all-IP networks, we expect the demand for policy
control solutions to grow rapidly. FTS' Leap Policy Control is
pre-integrated with charging, billing and subscribers' data,
thereby enabling monetization of data services and the policy
management tools.
FTS' Leap Policy Control is deployed worldwide, either as a
stand-alone solution which resides side-by-side with the operator's
existing billing system, or as a part of a full, end-to-end billing
environment provided by FTS.
Leap Billing is an end-to-end converged solution based on
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, billing is no longer the traditional bottleneck for
launching new services. Instead, with Leap Billing, the service
provider's billing system becomes a business enabler for offering
new marketing plans or services, with a rapid time-to-market. 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
software 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. FTS express is mainly offered through 3rd
party partners, including global and regional systems integrators,
value added resellers and technology partners.
On December 10, 2010 PAETEC Holding Corp. (NASDAQ GS: PAET), a
FORTUNE 1000 company, and FTS announced that PAETEC's wholly-owned
subsidiary, PAETEC Software Corp. had signed a definitive agreement
to acquire the entire assets and assume certain liabilities of
Formula Telecom Solutions, Inc., a wholly-owned subsidiary of FTS,
in a $13 million all-cash transaction. The acquisition included the
Leap RevChain billing system which PAETEC has been using to deliver
its invoices to customers for over 12 years. The transaction was
completed on December 27th, 2010.
FTS bought FTS Inc., in December 2005 and ran the business,
which primarily targeted service providers in the North American
market, successfully and profitably until the sale to PAETEC.
The sale of FTS Inc.'s assets is evidence of FTS' experience in
identifying market needs and trends, operating successfully in
diverse markets and offering unique solutions for the billing
industry. Following the sale of FTS Inc., FTS continues to offer
solutions that will assist leading carriers worldwide to increase
both revenues and customer satisfaction, as well as use their BSS
as an enabler to drive the creation of new products and services.
Market interest in the Company's products is leading to new bid
proposals. It is expected that some of these bids will materialize
into contracts in 2011, although due to the global economic
situation as well as the BSS industry's typical long sale cycles it
might take longer than initially expected.
Results
In the twelve months to 31 December 2010 total revenue was
$10,502m (2009: $12,324m), the decrease of 14.7% was mainly due to
longer implementation processes than originally expected primarily
caused by the global economic situation.
Gross profit for the twelve months to 31 December 2010 was
$2,520m (2009: $3,320m), gross margin was 23.9% compared to 26.9%
in 2009.
Research and development expenditure: In the twelve months to 31
December 2010 was $1,045m (2009: $1,830m), a decrease of 42.9%.
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 to 31 December
2010 were $1,299m (2009: $2,163m), a decrease of 39.8% mainly due
to fewer commissions paid to agents in light of the decline in the
sales and reduction of the headcount.
General and administrative costs in the twelve months to 31
December 2010 were $2,467m (2009: $3,554m), a decrease of 30.6%.
This decrease was mainly due to provisions for doubtful debts and
provision for other expenses.
The Company's operating loss in the twelve months to 31 December
2010 was $2,291m (2009: operating loss of US$4,227m), the main
reason for the reduction in the loss is due to the reduction in all
items of expenses.
The net financial income, net for the twelve months to 31
December 2010 were $0.278m (2009: financial income, net of $0.533m)
which mainly resulted from gains from securities and bonds and
difference of exchange rates.
The tax expenses for the twelve months to 31 December 2010 were
$1,496m (2009: tax expenses of $3,292m). The tax expenses were
resulted mainly from writing off tax assets.
The net income from discontinued operations for the twelve
months to 31 December 2010 was $9,345m (2009: net income from
discontinued operations of US$1,715m).
Total comprehensive income for the twelve months to 31 December
2010 was $5,280m (2009: total comprehensive loss of $5,271m). The
majority of the income is due to income gain from selling the
activity of the North American subsidiary.
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 $0.409m, despite challenging market
conditions.
We believe that our extensive, ongoing efforts will result in
increased revenues and profitability in forthcoming years.
The Company is involved in a number of bid proposals which are
at various stages of the sales cycle. We expect some of these to
crystallize into contracts in the near future although it is
difficult to predict the exact timing.
We also believe that our online charging and policy control
solutions and the FTS express software appliance will enable us to
further penetrate into the Tier-1 service providers markets, for
their niche services. We expect to obtain growth in the future,
based on our extensive pipeline and consolidated roadmap of
products and solutions.
Dan Goldstein
Chairman
F.T.S - FORMULA TELECOM SOLUTIONS LIMITED
(An Israeli Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS: 1
Consolidated Statements of Comprehensive Income
(Loss) 2
Consolidated Statements of Changes in Equity 3
Consolidated Financial Position 4-5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-41
The amounts are stated in U.S. dollars ($).
______________________
_____________
Independent Auditors' Report to the Shareholders of
F.T.S - Formula Telecom Solutions Limited
We have audited the accompanying consolidated statements of
financial position of F.T.S - Formula Telecom Solutions Limited and
its subsidiaries. (hereafter- "the Group"), as of 31 December 2010
and 2009 and the related consolidated statements of comprehensive
income, consolidated statements of changes in equity and
consolidated statements of cash flows for the years ended 31
December 2010 and 2009. These financial statements are the
responsibility of the Company's management and Board of Directors.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in Israel including those prescribed by the
Auditors' Regulations (Auditor's Mode of Performance) (Israel),
1973. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management and Board of Directors, as well as evaluating the
overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
the company and its subsidiaries as of 31 December 2010 and 2009,
and the results of operations, changes in equity and the cash flows
of the Group for the years ended 31 December 2010 and 2009 in
accordance with International Financial Reporting Standards
(IFRS).
Tel-Aviv, Israel March 8, 2011
Ziv Haft
Certified Public Accountants
(Isr.)
BDO Member Firm
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements of Comprehensive Income
Year ended
December 31,
------------------
2010 *) 2009
-------- --------
Notes $'000 $'000
-----
Revenues 2,5 10,502 12,324
Cost of sales 6,838 9,004
Impairment 1,144 -
-------- --------
Gross profit 2,520 3,320
Research and development expenses 1,045 1,830
Sales and marketing costs 1,299 2,163
General and administrative expenses, net 2,467 3,554
-------- --------
loss from operations 3 (2,291) (4,227)
Finance expense 6 640 425
Finance income 6 362 958
-------- --------
loss before tax (2,569) (3,694)
Tax expense 7 1,496 3,292
-------- --------
Profit from continuing operations (4,065) (6,986)
Profit from discontinued operation 8 9,345 1,715
-------- --------
Total comprehensive income (loss) for the
year 5,280 (5,271)
======== ========
Earnings (loss) per share:
Basic and diluted (dollars per share) from
continuing operations 10 (0.1243) (0.2136)
======== ========
Basic and diluted (dollars per share) from
discontinued operation 0.2858 0.0524
======== ========
*) reclassified see Note 8
The accompanying notes form an integral part of the financial
statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements Financial Position
Additional Treasury
Share paid in Retained share
capital capital earnings reserves Total
------------ ---------- ---------------- ------------ ----------------
$'000
--------------------------------------------------------------------------
Balance at
January 1,
2009 1 10,082 12,191 (463) 21,811
Changes
during the
year ended
December 31,
2009:
Total recognized
loss for the
year - - (5,271) - (5,271)
Dividends - - (4,182) - (4,182)
Share based
payment - 2 - - 2
------------ ---------- ---------------- ------------ ----------------
Balance
at
December
31,
2009 1 10,084 2,738 (463) 12,360
Changes
during the
year ended
December 31,
2010:
Total recognized
income for the
year - - 5,280 - 5,280
------------ ---------- ---------------- ------------ ----------------
Balance
at
December
31,
2010 1 10,084 8,018 (463) 17,640
============ ========== ================ ============ ================
The accompanying notes form an integral part of the financial
statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements Financial Position
As of
December 31,
------------------
2010 2009
-------- --------
Note $'000 $'000
----- -------- --------
ASSETS
Non-current assets:
Property and equipment 11 291 653
Intangible assets 12 493 6,343
Rental deposits 7 57
Non-Current tax assets 34 584
Other long term receivables 8 1,300 -
Deferred tax assets 21 - 785
-------- --------
Total non-current assets 2,125 8,422
Current assets:
Other receivables and prepaid expenses 14 375 624
Trade receivables 15 2,267 5,142
Financial assets through profit and loss 16 - 5,048
Cash and cash equivalents 17 17,832 8,616
-------- --------
1
Total current assets 20,474 19,430
-------- --------
TOTAL ASSETS 22,599 27,852
-------- --------
LIABILITIES
Non-current liabilities:
Employee benefits, net 20 481 498
-------- --------
Current Liabilities:
Other payables 18 1,615 3,256
Trade payables 22 2,267 2,417
Customer advances and deferred revenue 19 596 3,063
Loans and borrowings 23 - 6,258
-------- --------
Total current liabilities 4,478 14,994
-------- --------
Total liabilities 4,959 15,492
-------- --------
TOTAL NET ASSETS 17,640 12,360
======== ========
The accompanying notes form an integral part of the financial
statements.
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements Financial Position (Cont.)
Year ended
December 31,
------------------
2010 2009
-------- --------
$'000 $'000
-------- --------
Capital and reserves attributable to
equity holders of the company
Share capital 1 1
Additional paid-in capital 10,084 10,084
Treasury share reserve (463) (463)
Retained earnings 8,018 2,738
-------- --------
TOTAL EQUITY 17,640 12,360
======== ========
The financial statements on pages 2 to 41 were approved and
authorized for issue by the Board of Directors on March 8, 2011,
and were signed on its behalf by:
March 8, 2011
--------------------- -------------- ---------------- ---------------------
Date of approval Dan Goldstein Alon Raz Amos Sivan
of financial Chairman Chief Financial Active Vice Chairman
statements of the Board 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,
----------------------
2010 2009
---------- ----------
$'000 $'000
---------- ----------
Cash flows from operating activities:
profit (loss) for the year 5,280 (5,271)
Adjustments for:
Depreciation and amortization 1,368 2,106
Impairment of intangible assets 1,144 -
Tax expense 1,496 3,292
Employees' stock options - 2
Financial expense (Income) (exchange due to
cash and cash equivalents) 233 (131)
Gain from sale of discontinued operations (7,704) -
Gain loss in financial assets through profit and loss
(285) (726)
Cash flows from activities before changes
In working capital and provisions:
Decrease in trade receivables 1,022 476
Decrease in other receivables prepaid expenses 183 374
Increase in other long term receivables (1,300) -
Decrease (increase) in rental deposits 50 (12)
Decrease in trade payables (112) (1,982)
Increase (decrease) in other payables (1,621) 100
Decrease in employee benefits (17) (5)
Decrease in customer advances and deferred revenues (2,149) (330)
Income tax received (paid) (24) 13
---------- ----------
Net cash used in operating activities (2,436) (2,094)
========== ==========
F.T.S - Formula Telecom Solutions Limited
Consolidated Statements of Cash Flows
The accompanying notes form an integral part of the financial
statements.
Year ended
December 31,
----------------------
2010 2009
---------- ----------
$'000 $'000
---------- ----------
Cash flows from operating activities brought forward (2,436) (2,094)
Investing Activities:
Capitalization of software development costs - (498)
Sale (purchase) of financial assets through profit
and loss, net 5,333 (73)
Purchase of property and equipment (74) (420)
Proceeds from sale of discontinued operations 13,000 -
Proceeds from sale of property and equipment 21 8
---------- ----------
Net cash (used in) provided by investing
activities 18,280 (983)
---------- ----------
Financing Activities:
Dividends paid to the company's shareholders - (4,182)
Short-term bank borrowing, net (6,091) 1,334
Interest received (paid) (167) (96)
Tax on behalf of previous years dividend (137) -
---------- ----------
Net cash used in financing activities (6,395) (2,944)
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents (233) 131
---------- ----------
Increase (decrease) in cash and cash equivalents 9,216 (5,890)
Cash and cash equivalents as of the beginning
of the year 8,616 14,506
---------- ----------
Cash and cash equivalents as of the end of the
year 17,832 8,616
========== ==========
Year ended
December 31,
---------------
2010 2009
------- ------
$'000 $'000
------- ------
Non-cash activities:
Purchase of property and equipment against trade
payables 5 3
======= ======
The accompanying notes form an integral part of the financial
statements.
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.
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 IAS 27 (2008)) 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.
NIS - New Israeli Shekel.
Dollar or $ US Dollar
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,
--------------------
2010 2009
---------
NIS (New Israeli Shekel) 0.282 0.265
Euro 1.335 1.442
Year ended December
31,
---------------------
2010 2009
------------ -------
% %
------------ -------
NIS (New Israeli Shekel) 6.37 0.76
Euro (7,42) 3.52
Changes in accounting policies
Adoption of new and revised International Financial Reporting
Standards (IFRS):
- IFRS 3 (Revised) - Business Combinations and IAS 27 (Amended)
- Consolidated and Separate Financial Statements:
According to the new Standards:
The definition of a business was expanded such that it also
includes activities and assets that are not conducted as a business
as long as it is capable of being operated as a business.
For each business combination, an acquirer can choose to measure
non-controlling interests, and consequently the goodwill, either at
full fair value or at the proportionate share of the fair value of
the net identifiable assets of the acquiree on the acquisition
date.
Contingent consideration in a business combination is measured
at fair value and changes in the fair value of the contingent
consideration, which do not represent adjustments to provisional
amounts in the measurement period, are not recognized as goodwill
adjustments. If the contingent consideration is classified as a
derivative within the scope of IAS 39, it will be measured at fair
value with changes in fair value recognized in profit or loss.
Direct acquisition costs attributed to a business combination
are recognized in profit or loss as incurred rather than as part of
the acquisition cost.
Subsequent recognition of a deferred tax asset for acquired
temporary differences which did not meet the recognition criteria
at acquisition date is recorded in profit or loss and not as an
adjustment to goodwill.
A subsidiary's losses, even if resulting in a capital deficiency
in the subsidiary, will be allocated between the parent company and
non-controlling interests, even if the non-controlling interests
have not guaranteed or have no contractual obligation for
supporting the subsidiary or of investing further amounts.
A transaction, whether sale or purchase, with non-controlling
interests is accounted for as an equity transaction. Accordingly,
the acquisition of non-controlling interests by the Group is
recognized as an increase or decrease in equity (retained earnings)
and is calculated as the difference between the consideration paid
by the Group and the proportionate amount of the non-controlling
interests acquired and derecognized on the acquisition date.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Upon the disposal of an interest in a subsidiary that does not
result in a loss of control, an increase or decrease is recognized
in equity (retained earnings) for the amount of the difference
between the consideration received by the Group and the carrying
amount of the non-controlling interests in the subsidiary which has
been added to the equity attributable to the equity holders of the
Company (as for non-controlling interests share of other
comprehensive income, the Company reattributes the cumulative
amounts recognized in other comprehensive income between the equity
holders of the Company and the non-controlling interests).
Identifiable assets and liabilities on the acquisition date are
classified and designated on the basis of the contractual terms,
economic conditions and other pertinent conditions as they exist at
the acquisition date, except for classifications of leases and
insurance contracts.
In a business combination achieved in stages, the acquirer
remeasures its previously held equity interest in the acquiree at
its acquisition date fair value and recognizes the resulting gain
or loss, if any, including reclassification of amounts included in
other comprehensive income. Upon the loss of control of a
subsidiary, any retained interest is revalued to fair value with
the resulting difference included in the gain or loss from the sale
and this fair value represents the cost basis for the purpose of
subsequent accounting.
Cash flows from transactions with non-controlling interests
(with no change in control status) are classified in the statement
of cash flows as financing activities (and are no longer classified
as investing activities).
The Standards have been adopted prospectively from January 1,
2010. The initial adoption of the Standard did not have any
material effect on the consolidated financial statements.
- IFRS 5 - Non-current Assets Held for Sale and Discontinued
Operations:
a) According to the amendment to IFRS 5, when the parent decides
to sell part of its interest in a subsidiary so that after the sale
the parent retains a non-controlling interest, such as rights
conferring significant influence, all the assets and liabilities
attributed to the subsidiary are classified as held for sale and
the relevant provisions of IFRS 5 are applicable, including
presentation as discontinued operations.
b) Another amendment specifies the disclosures required in
respect of non-current assets (or disposal groups) that are
classified as held for sale or discontinued operations. Pursuant to
the amendment, only the disclosures required in IFRS 5 are
provided. Disclosures in other IFRSs apply to such assets only if
they require specific disclosures in respect of those non-current
assets or disposal groups.
The Standards have been adopted prospectively from January 1,
2010. The initial adoption of the amendment did not have any
material effect on the consolidated financial statements.
- IAS 7 - Statement of Cash Flows:
According to the amendment to IAS 7, only cash flows that are
recognized as an asset may be classified as cash flows from
investing activities.
The amendment was applied retrospectively commencing from
January 1, 2010. The initial adoption of the amendment did not have
any material effect on the consolidated financial statements.
NOTE 1 - ACCOUNTING POLICIES (cont.):
- IAS 36 - Impairment of Assets:
The amendment to IAS 36 clarifies the required accounting unit
to which goodwill will be allocated for the purpose of testing the
impairment of goodwill. According to the amendment, the highest
possible level for allocating goodwill recognized in a business
combination is an operating segment as defined in IFRS 8,
"Operating Segments", before aggregation for reporting
purposes.
The amendment has been applied prospectively commencing from
January 1, 2010. The initial adoption of the amendment did not have
any material effect on the consolidated financial statements.
The initial adoption of the amendment did not have any material
effect on the consolidated 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.
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.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Revenue recognition (cont.):
2. 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.
3. Revenues from professional services are recognized based on
actual time incurred.
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.
Impairment of non-financial assets:
The Company evaluates the need to record an impairment of the
carrying amount of non-financial assets whenever events or changes
in circumstances indicate that the carrying amount is not
recoverable. If the carrying amount of non-financial assets exceeds
their recoverable amount, the assets are reduced to their
recoverable amount. The recoverable amount is the higher of fair
value less costs of sale and value in use. In measuring value in
use, the expected future cash flows are discounted using a pre-tax
discount rate that reflects the risks specific to the asset. The
recoverable amount of an asset that does not generate independent
cash flows is determined for the cash-generating unit to which the
asset belongs. Impairment losses are recognized in comprehensive
income statement.
An impairment loss of an asset, other than goodwill, is reversed
only if there have been changes in the estimates used to determine
the asset's recoverable amount since the last impairment loss was
recognized. Reversal of an impairment loss, as above, shall not be
increased above the lower of the carrying amount that would have
been determined (net of depreciation or amortization) had no
impairment loss been recognized for the asset in prior years and
its recoverable amount. The reversal of impairment loss of an asset
presented at cost is recognized in profit or loss. A reversal of an
impairment loss on a revalued asset is recognized in other
comprehensive income.
However, to the extent that an impairment loss on the same
revalued asset was previously recognized in profit or loss, a
reversal of that impairment loss is also recognized in profit or
loss.
The following criteria are applied in assessing impairment of
these specific assets:
1. Goodwill in respect of subsidiaries:
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated, at the acquisition date, to each
of the Group's cash-generating units that is expected to benefit
from the synergies of the combination.
The Company reviews goodwill for impairment once a year as of
December 31 or more frequently if events or changes in
circumstances indicate that there is impairment.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Impairment of non-financial assets (cont.):
Goodwill is tested for impairment by assessing the recoverable
amount of the cash-generating unit (or group of cash-generating
units) to which the goodwill has been allocated. An impairment loss
is recognized if the recoverable amount of the cash-generating unit
(or group of cash-generating units) to which goodwill has been
allocated is less than the carrying amount of the cash-generating
unit (or group of cash-generating units). Any impairment loss is
allocated first to goodwill. Impairment losses recognized for
goodwill cannot be reversed in subsequent periods.
2. Intangible assets with an indefinite useful life/development
costs capitalized during the development period:
The impairment test is performed annually, on December 31, or
more frequently if events or changes in circumstances indicate that
there is impairment.
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:
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.
NOTE 1 - ACCOUNTING POLICIES (cont.):
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 comprehensive
income statement.
As of December 31, 2010 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.
-- Trade payables and other short-term monetary liabilities,
which are initially recognized at fair value.
Derecognition of financial instruments:
Financial assets: A financial asset is derecognized when the
contractual rights to the cash flows from the financial asset
expire or the Company has transferred its contractual rights to
receive cash flows from the financial asset or assumes an
obligation to pay the cash flows in full without material delay to
a third party and has transferred substantially all the risks and
rewards of the asset, or has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset.
Financial liabilities: A financial liability is derecognized
when it is extinguished, that is when the obligation is discharged
or cancelled or expires. A financial liability is extinguished when
the debtor (the Group):
-- discharges the liability by paying in cash, other financial
assets, goods or services; or
-- is legally released from the liability.
Where an existing financial liability is exchanged with another
liability from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such
an exchange or modification is accounted for as an extinguishment
of the original liability and the recognition of a new liability.
The difference between the carrying amounts of the above
liabilities is recognized in profit or loss. If the exchange or
modification is not substantial, it is accounted for as a change in
the terms of the original liability and no gain or loss is
recognized on the exchange.
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. As of December 31, 2010 no such assets are
held by the Company.
Customer lists:
The Company is using the straight-line method over the useful
life, which is 4 years. As of December 31, 2010 no such assets are
held by the Company.
NOTE 1 - ACCOUNTING POLICIES (cont.):
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;
-- 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. 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.
The Group recognizes in the carrying amount of an item of
property, plant and equipment the cost of replacing part of such
item when that cost is incurred if it is probable that economic
benefits associated with the item will flow to the Group and the
cost of the item can be measured reliably. Costs of day-to-day
servicing expenses are recognized in profit or loss when
incurred.
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.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the income statement over the remaining vesting period.
Provision for warranty:
Based on past experience, the Company does not record any
provision for warranty of its products and services.
Employee benefits:
The Group has several employee benefit plans:
1. Short-term employee benefits: Short-term employee benefits
include salaries, paid annual leave, paid sick leave, recreation
and social security contributions and are recognized as expenses as
the services are rendered. A liability in respect of a cash bonus
or a profit-sharing plan is recognized when the Group has a legal
or constructive obligation to make such payment as a result of past
service rendered by an employee and a reliable estimate of the
amount can be made.
2. Post-employment benefits: The plans are normally financed by
contributions to insurance companies and classified as defined
contribution plans or as defined benefit plans.
The Group has defined contribution plans pursuant to Section 14
to the Severance Pay Law under which the Group pays fixed
contributions and will have no legal or constructive obligation to
pay further contributions if the fund does not hold sufficient
amounts to pay all employee benefits relating to employee service
in the current and prior periods. Contributions to the defined
contribution plan in respect of severance or retirement pay are
recognized as an expense when contributed simultaneously with
receiving the employee's services and no additional provision is
required in the financial statements.
The Group also operates a defined benefit plan in respect of
severance pay pursuant to the Severance Pay Law. According to the
Law, employees are entitled to severance pay upon dismissal or
retirement. The liability for termination of employee-employer
relation is measured using the projected unit credit method. The
actuarial
NOTE 1 - ACCOUNTING POLICIES (cont.):
Employee benefits (cont.)
assumptions include rates of employee turnover and future salary
increases based on the estimated timing of payment. The amounts are
presented based on discounted expected future cash flows using a
discount rate determined by reference to yields on Government bonds
with a term that matches the estimated term of the benefit
obligation.
In respect of its severance pay obligation to certain of its
employees, the Company makes current deposits in pension funds and
insurance companies ("the plan assets"). Plan assets comprise
assets held by a long-term employee benefit fund or qualifying
insurance policies. Plan assets are not available to the Group's
own creditors and cannot be returned directly to the Group.
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 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.
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) All
Transactions are measured on fair value and the changes recorded in
equity.
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.
NOTE 1 - ACCOUNTING POLICIES (cont.):
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 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 27).
NOTE 1 - ACCOUNTING POLICIES (cont.):
New IFRSs in the period prior to their adoption
- IFRS 7 - Financial Instruments: Disclosure:
The amendments to IFRS 7 deal with the following issues:
a) Clarification of the Standard's disclosure requirements. In
this context, emphasis is placed on the interaction between the
quantitative disclosures and the qualitative disclosures about the
nature and extent of risks arising from financial instruments. The
Standard also reduces the disclosure requirements for collateral
held by the Company and revises the disclosure requirements for
credit risk. The amendment should be applied retrospectively
commencing from the financial statements for periods beginning on
January 1, 2011. Earlier application is permitted.
b) New disclosure requirements about transferred financial
assets including disclosures regarding unusual transfer activity
near the end of a reporting period. The objective of the amendment
is to assist users of financial statements to assess the risks to
which the Company may remain exposed from transfers of financial
assets and the effect of these risks on the Company's financial
position. The amendment is designed to enhance the reporting
transparency of transactions involving asset transfers,
specifically securitization of financial assets. The amendment
should be applied prospectively commencing from the financial
statements for periods beginning on January 1, 2012. Earlier
application is permitted.
The relevant disclosures will be included in the Company's
financial statements.
- IFRS 9 - Financial Instruments:
a) In November 2009, the IASB issued IFRS 9, "Financial
Instruments", the first part of Phase 1 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.
According to IFRS 9, all financial assets (including hybrid
contracts with financial asset hosts) should be measured at fair
value upon initial recognition. In subsequent periods, debt
instruments should 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.
Notwithstanding the aforesaid, upon initial recognition, the
Company may designate a debt instrument that meets both of the
abovementioned conditions as measured at fair value through profit
or loss if this designation eliminates or significantly reduces a
measurement or recognition inconsistency ("accounting mismatch")
that would have otherwise arisen.
Subsequent measurement of all other debt instruments and
financial assets should be at fair value.
NOTE 1 - ACCOUNTING POLICIES (cont.):
Financial assets that are equity instruments should be measured
in subsequent periods at fair value and the changes recognized in
profit or loss or in other comprehensive income, in accordance with
the election by the Company on an instrument-by-instrument basis
(amounts recognized in other comprehensive income cannot be
subsequently transferred to profit or loss). Nevertheless, if
equity instruments are held for trading, they should 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 is effective commencing from January 1, 2013.
Earlier application is permitted. Upon initial application, the
Standard should be applied retrospectively, except as
specified.
b) In October 2010, the IASB issued certain amendments to IFRS 9
regarding de-recognition and financial liabilities. According to
those amendments, the provisions of IAS 39 will continue to apply
to de-recognition and to financial liabilities for which the fair
value option has not been elected (designated as measured at fair
value through profit or loss); that is, the classification and
measurement provisions of IAS 39 will continue to apply to
financial liabilities held for trading and financial liabilities
measured at amortized cost.
The changes arising from these amendments affect the measurement
of a liability for which the fair value option had been chosen.
Pursuant to the amendments, the amount of the adjustment to the
liability's fair value that is attributable to changes in credit
risk should be presented in other comprehensive income. All other
fair value adjustments should be presented in profit or loss. If
presenting the fair value adjustment of the liability arising from
changes in credit risk in other comprehensive income creates an
accounting mismatch in profit or loss, then that adjustment should
also be presented in profit or loss rather than in other
comprehensive income.
Furthermore, according to the amendments, derivative liabilities
in respect of certain unquoted equity instruments can no longer be
measured at cost but rather only at fair value.
The amendments are effective commencing from January 1, 2013.
Earlier application is permitted provided that the Company also
adopts the provisions of IFRS 9 regarding the classification and
measurement of financial assets (the first part of Phase 2). Upon
initial application, the amendments should be applied
retrospectively, except as specified in the amendments.
The Company believes that the amendments are not expected to
have a material effect on the financial statements.
- IAS 24 - Related Party Disclosures:
The amendment to IAS 24 clarifies the definition of a related
party in order to simplify the identification of such relationships
and to eliminate inconsistencies in its application. In addition,
Government-related companies are provided a partial exemption of
disclosure requirements for transactions with the Government and
other Government-related companies. The amendment should be applied
retrospectively commencing from the financial statements for annual
periods beginning on January 1, 2011. Earlier application is
permitted.
The relevant disclosures will be included in the Company's
financial statements.
NOTE 2 - REVENUES:
For the For the
year ended year ended
December December
31, 2010 % 31, 2009 %
----------- ------ ----------- ------
$'000 $'000
----------- -----------
Revenues
Customer A 1,998 19 3,947 32
Customer B 1,902 18 2,211 18
Customer C 1,843 17 1,358 11
Customer D 1,746 17 1,157 9
Others 3,013 29 3,651 30
----------- ------ ----------- ------
10,502 100 12,324 100
=========== ====== =========== ======
Sources of revenues
Maintenance contracts 5,531 53 6,017 49
Professional services 938 9 2,426 20
Fixed fee contracts 4,033 38 3,881 31
----------- ------ ----------- ------
10,502 100 12,324 100
=========== ====== =========== ======
NOTE 3 - PROFIT FROM OPERATIONS:
For the year ended
December 31,
----------------------
2010 2009
---------- ----------
This has been arrived at after charging: $'000 $'000
---------- ----------
Staff costs (see note 4) 5,425 8,577
Material and subcontractors 2,236 1,849
Deprecation of property and equipment 1,258 2,017
Travel 531 1,115
Operating lease expense 716 1,029
Impairment of intangible assets 1,144 -
Impairment of receivables 1,311 704
Commissions 186 332
Consultants 507 531
Advertising 88 134
Reversal of contingencies (884) -
Others 275 263
---------- ----------
11,650 16,551
========== ==========
NOTE 4 - STAFF COSTS:
For the year ended
December 31,
----------------------
2010 2009
---------- ----------
$'000 $'000
---------- ----------
Staff costs (including directors) comprise:
Wages and salary 4,405 6,437
Allocation costs for social expenses 755 1,281
Employees' national insurance and similar
taxes 213 647
Bonuses 52 212
---------- ----------
5,425 8,577
========== ==========
Directors remuneration:
Wages and salary 355 539
Allocation costs for social expenses 70 62
Employees' national insurance and similar
taxes 9 9
---------- ----------
434 610
========== ==========
The amounts se out above include remuneration in respect of the
following directors:
Employees
national
Allocation insurance
costs for and similar
Emoluments social expenses taxes Total
----------- ----------------- ------------- ------
2010
-----------------------------------------------------
$'000
-----------------------------------------------------
Amos Sivan 306 70 9 385
John Robert Camber
Porter 29 - - 29
David Joel Rubin 10 - - 10
Yael Hershtik 10 - - 10
----------- ----------------- ------------- ------
Total 355 70 9 434
=========== ================= ============= ======
Employees
national
Allocation insurance
costs for and similar
Emoluments social expenses taxes Total
----------- ----------------- ------------- ------
2009
-----------------------------------------------------
$'000
-----------------------------------------------------
Amos Sivan 488 62 9 559
John Robert Camber
Porter 31 - - 31
David Joel Rubin 10 - - 10
Yael Hershtik 10 - - 10
----------- ----------------- ------------- ------
Total 539 62 9 610
=========== ================= ============= ======
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 worldwide
basis.
Europe Asia Africa Total
-------- -------- -------- ---------
2010
---------------------------------------
$\'000
---------------------------------------
Revenue 5,643 2,806 2,053 10,502
Gross Profit 1,354 674 492 2,520
Europe Asia Africa Total
-------- -------- -------- ---------
2009
---------------------------------------
$'000
---------------------------------------
Revenue 7,486 2,597 2,241 12,324
Gross Profit 2,017 700 603 3,320
NOTE 6 - FINANCE INCOME AND EXPENCE:
2010 2010 2009 2009
-------- -------- ------------- --------
$'000 $'000 $'000 $'000
-------- -------- ------------- --------
Finance expense
Interest expense on financial
liabilities (214) (214)
Foreign currency (306) -
Bank fees (120) (211)
-------- -------------
(640) (425)
Finance income
Net gains on financial
instruments classified as
held for trading 282 726
Bank interest received 80 96
Foreign currency - 136
-------- -------------
362 958
-------- --------
(278) 536
======== ========
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
NOTE 7 - TAXES ON INCOME (cont.):
A. Tax Laws in Israel (cont.):
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.
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 25%, 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%.
NOTE 7 - TAXES ON INCOME (cont.):
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.
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:
2010 2010 2009 2009
----- ------- ------- -------
$'000 $'000 $'000 $'000
----- ------- ------- -------
Current tax expense:
Income tax on profits for the
year 711 1,314
Taxes from previous years - -
----- -------
711 1,314
Deferred tax expense:
Origination and reversal of temporary
differences 785 1,978
----- -------
785 1,978
------- -------
Total tax expense 1,496 3,292
======= =======
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:
2010 2009
----------- ----------
$'000 $'000
----------- ----------
Profit (loss) before tax ( 2,569) (1,979)
Expected tax charge (income) based on the standard
rate of corporation tax in Israel of 25% (2009
- 26%) (642) (515)
Utilization of tax benefit - (604)
Tax benefit for an approved enterprise - 113
Losses and temporary differences for which
deferred taxes were not recorded 604 914
Deferred tax assets written off during the
year 785 1,875
Provision of foreign tax withhold create in
prior years 704 1,309
Different tax rates for subsidiaries (2) 202
Other 47 (2)
----------- ----------
Total tax expense 1,496 3,292
=========== ==========
NOTE 8 - DISCONTINUED OPERATIONS:
In December 2010, the group sold the USA operation for a cash
consideration of $13,000 thousand, from which the buyer deposited
$1,300 thousand for the period of two years (the "Escrow Amount")
with an Escrow Agent in order to secure the indemnification
obligations included in the Purchase Agreement. Therefore, this
amount was classified to long term receivables.
The USA segment is the only operation presented as discontinued
operations in 2010. The comparative information for 2009 was
restated to present income generated and expenses incurred by FTS
discontinued operations.
Result of discontinued operation:
2010 2009
---------- --------
Revenues 7,931 7,067
Expenses (6,291) 5,352
---------- --------
Profit for the year 1,640 1,715
========== ========
Total comprehensive income attributable to owners
of the parents:
From continued operations 1,640 1,715
========== ========
From discontinued operations 10,985 -
========== ========
Statement of cash flows:
The statement of cash flows includes the following amounts
relating to discontinued operations:
2010 2009
----------- ----------
Operating activities, net (656) 2,549
Investing activities, net 12,969 (215)
Financing activities, net (10,000) (4,700)
----------- ----------
Net cash from discontinued operations 2,313 (2,366)
=========== ==========
Assets and liabilities at date of sale:
2010
--------
Trade and other receivable 1,919
Property, plant and equipment 148
Intangible assets 72
Goodwill 3,535
--------
5,674
========
Trade and other payables 60
Customer advances 318
------
378
======
NOTE 9 - DIVIDENDS:
2010 2009
------ ---------
$'000 $'000
------ ---------
In 2009 dividend of 0.13 dollars per ordinary
share proposed and paid during the year relating
to the previous year's results - 4,182
====== =========
NOTE 10 - EARNINGS PER SHARE:
2010 2009
------------ -----------
$ $
------------ -----------
losses used in basic and diluted EPS from
continuing operations (4,065,588) (6,986,084)
Earnings used in basic and diluted EPS from
discontinued operations 9,344,561 1,715,000
Weighted average number of shares used in EPS 32,696,012 32,696,012
============ ===========
Basic and diluted net EPS from continuing
operations (0.1243) (0.2136)
============ ===========
Basic and diluted net EPS from discontinuing
operations 0.2858 0.0524
============ ===========
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 11 - PROPERTY, PLANT AND EQUIPMENT:
Composition:
Office
Motor furniture & Leasehold Computer
vehicles equipment Improvements & software Total
----------- ----------- ------------ ----------- ----------
$'000 $'000 $'000 $'000 $'000
----------- ----------- ------------ ----------- ----------
At 31
December
2009:
Cost 72 1,412 1,304 7,670 10,458
Accumulated
depreciation (60) (1,213) (1,221) (7,311) (9,805)
----------- ----------- ------------ ----------- ----------
Net book
value 12 199 83 359 653
=========== =========== ============ =========== ==========
At 31
December
2010:
Cost 72 223 163 3,111 3,569
Accumulated
depreciation (71) (133) (127) (2,947) (3,278)
----------- ----------- ------------ ----------- ----------
Net book
value 1 90 36 164 291
=========== =========== ============ =========== ==========
Year ended 31
December
2009:
Opening net
book value 22 140 82 358 602
Additions - 92 25 255 372
Depreciation (10) (33) (24) (254) (321)
----------- ----------- ------------ ----------- ----------
Closing
net book
value 12 199 83 359 653
=========== =========== ============ =========== ==========
Year ended 31
December
2010:
Opening net
book value 12 199 83 360 654
Additions - (1,146) (986) (4,290) (6,422)
Depreciation (11) 1,036 951 4,074 6,050
Disposal - 2 (12) 19 9
----------- ----------- ------------ ----------- ----------
Closing
net book
value 1 91 36 163 291
=========== =========== ============ =========== ==========
NOTE 12 - INTANGIBLE ASSETS:
Composition:
Rights Patents
in Development and Customer
Software Cost Trademarks list Goodwill Total
-------- ----------- ---------- -------- --------- -----------
$'000 $'000 $'000 $'000 $'000 $'000
-------- ----------- ---------- -------- --------- -----------
At 31
December
2009:
Cost 827 7,502 142 915 3,535 12,921
Accumulated
Amortization (729) (4,872) (62) (915) - (6,578)
-------- ----------- ---------- -------- --------- -----------
Net book
value 98 2,630 80 - 3,535 6,343
======== =========== ========== ======== ========= ===========
At 31
December
2010:
Cost 827 7,639 142 778 3,535 12,921
Accumulated
Amortization (827) (7,146) (142) (778) (3,535) (12,428)
-------- ----------- ---------- -------- --------- -----------
Net book
value - (493) - - - 493
======== =========== ========== ======== ========= ===========
Year ended 31
December
2009:
Opening net
book value 319 3,500 89 159 3,535 7,602
Additions - 498 - - - 498
Amortization (221) (1,368) (9) (159) - (1,757)
-------- ----------- ---------- -------- --------- -----------
Closing net
book value 98 2,630 80 - 3,535 6,343
======== =========== ========== ======== ========= ===========
Year ended 31
December
2010:
Opening net
book value 276 2,451 80 - 3,535 6,342
Disposal - - (72) - (3,535) (3,607)
Amortization (276) (1,958) (8) - - (2,242)
-------- ----------- ---------- -------- --------- -----------
Closing net
book value - 493 - - - 493
======== =========== ========== ======== ========= ===========
The amortization expense is included within the cost of sales in
the comprehensive income statement.
NOTE 13 - 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
-------------------------
2010 2009
------------ -----------
% %
------------ -----------
F.T.S- Formula Telecom Solutions Inc. (Formerly
known as Viziqor Solutions Inc.) 100 100
F.T.S- Formula Telecom Solutions Bulgaria 100 100
F.T.S. Global Limited 100 100
Formula Telecom Limited (Russia) 100 100
NOTE 14 - OTHER RECEIVABLES AND PREPAID EXPENSES:
2010 2009
------ ------
$'000 $'000
------ ------
Prepaid expenses 274 548
Government authorities 13 57
Short term leasing deposits 43 14
Employees 9 5
Others 36 -
------ ------
Total 375 624
====== ======
NOTE 15 - TRADE RECEIVABLES:
2010 2009
---------- ----------
$'000 $'000
---------- ----------
Trade receivables 3,471 4,805
Unbilled receivables 956 3,587
Less provision for impairment of receivables (2,160) (3,250)
---------- ----------
2,267 5,142
========== ==========
Balance of
Customer A 1,373 228
Customer B 358 365
Customer C 263 40
Customer D 102 -
Others 171 4,509
---------- ----------
2,267 5,142
========== ==========
As at 31 December 2010 trade receivables of 1,373$ thousand
(2009- $612 thousand) were past due but not impaired.
They relate to the customers with no default history. The ageing
analysis of these receivables is as follows:
2010 2009
--------- -------
$'000 $'000
--------- -------
Up to 3 months - -
3 to 6 months 1,373 612
--------- -------
1,373 612
========= =======
Unbilled receivables:
2010 2009
-------- ----------
$'000 $'000
-------- ----------
Actual completion costs 385 3,409
Profit earned - 924
Billed revenue - (1,310)
-------- ----------
Total Unbilled receivables - Projects 385 3,023
Other Unbilled receivables 571 564
-------- ----------
Total Unbilled receivables 956 3,587
======== ==========
NOTE 15 - TRADE RECEIVABLES (cont.):
The balance of Unbilled receivables represents undue amounts at
balance sheet date (no past due amounts).
Movement in impairment of receivables:
2010 2009
---------- --------
$'000 $'000
---------- --------
Balance at beginning of the year 3,250 2,565
Provided during the year - 685
---------- --------
3,250 3,250
Receivable written off during the year
as uncollectable (1,090) -
---------- --------
Balance at end of the year 2,160 3,250
========== ========
The company believes that there is no need for further
impairment of receivables according to past experience with its
customers.
NOTE 16 - FINANCIAL ASSETS THROUGH PROFIT AND LOSS:
2010 2009
------ --------
$'000 $'000
------ --------
Fair value through profit and loss - 5,048
====== ========
NOTE 17 - CASH AND CASH EQUIVALENTS:
2010 2009
--------- --------
$'000 $'000
--------- --------
In USD
Cash on hand and in banks 4,601 2,401
Deposits (*) 12,244 2,076
--------- --------
16,845 4,477
--------- --------
In other currency
Cash on hand and in banks in EURO 411 1,812
Cash on hand and in banks in NIS 459 773
Deposits in Euro (*) 115 1,549
Deposits in NIS (*) 2 5
--------- --------
987 4,139
--------- --------
17,832 8,616
========= ========
(*) Most of the deposits are not linked and bear interest of 1%
- 2% as of December 31, 2010.
NOTE 18 - OTHER PAYABLES:
2010 2009
-------- --------
$'000 $'000
-------- --------
Accrued expense 92 956
Employees and other wage and salary related
liabilities 574 1,481
Government Authorities 450 379
Other 409 440
-------- --------
1,615 3,256
======== ========
NOTE 19 - CUSTOMER ADVANCES AND DEFERRED REVENUE:
2010 2009
---------- ----------
$'000 $'000
---------- ----------
Actual completion costs (2,821) (2,093)
Profit earned (783) (3,577)
Total Payment 3,968 6,680
---------- ----------
Total Customer Advances and Deferred
Revenue - Projects 364 1,010
Other Customer Advances 232 2,053
---------- ----------
Total Customer Advances and Deferred
Revenue 596 3,063
========== ==========
NOTE 20 - EMPLOYEE BENEFITS:
A. Expenses recognized in the statement of income:
2010 2009
-------- --------
$'000 $'000
-------- --------
Current service cost 297 379
Interest cost on benefit obligation 92 96
Expected return on plan assets (72) (72)
Transfer to compensation 16 19
-------- --------
Total employee benefit expenses 333 422
======== ========
B. The plan assets (liabilities), net:
2010 2009
---------- ----------
$'000 $'000
---------- ----------
Present value of the obligations 1,883 1,990
Fair value of plan assets (1,420) (1,575)
---------- ----------
463 415
========== ==========
Net unrecognized actuarial gains (losses)
*) 18 83
Total liabilities, net 481 498
========== ==========
*) Cumulative amounts for the value of the obligation and the
value of the rights in the plan assets.
NOTE 20 - EMPLOYEE BENEFITS (cont.):
C. The movement in the fair value of the plan assets:
2010 2009
-------- --------
$'000 $'000
-------- --------
Balance at January 1, 1,575 1,364
Exchange differences 101 11
Expected return 56 53
Contributions by employer 299 428
Benefits paid (835) (312)
Net actuarial gain (loss) 224 31
-------- --------
1,420 1,575
======== ========
D. Changes in the present value of defined benefit
obligation:
2010 2009
----------- ---------
$'000 $'000
----------- ---------
Balance at January 1, 1,990 2,039
Exchange differences (1,710) 14
Interest cost 93 96
Current service cost 297 379
Benefits paid 919 (313)
Net actuarial loss (gain) 294 (225)
----------- ---------
1,883 1,990
=========== =========
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:
2010 2009
-------- --------
$'000 $'000
-------- --------
Cost of sales 176 223
Selling and marketing expenses 28 39
General and administrative expenses 129 160
-------- --------
333 422
======== ========
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.
NOTE 20 - EMPLOYEE BENEFITS (cont.):
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:
2010 2009
------- -------
% %
------- -------
Discount rate 5.27 5.55
Expected rate of return on plan assets 5.55 5.03
Future salary increases 5.90 5.69
H. The amounts for the current year and the previous year
2010 2009
--------- ---------
$'000 $'000
--------- ---------
Plan Liabilities 1,883 1,990
Plan Assets 1,420 1,575
Deficit 463 415
Experience adjustments on liabilities 294 (225)
Experience adjustments on assets 224 31
NOTE 21 - DEFERRED TAX ASSETS:
Deferred tax is calculated on temporary differences under the
liability method using the tax rate of 15%-24% (2009 - 15%-25%) at
the year the deferred tax assets are recovered.
The movement on the deferred tax account is as shown below:
2010 2009
--------- -----------
$'000 $'000
--------- -----------
At 1 January 785 2,763
Exchange difference (785) (1,978)
--------- -----------
At 31 December - 785
========= ===========
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.
NOTE 21 - DEFERRED TAX ASSETS:
Details of the deferred tax amounts charged to reserves are as
follows:
Recognized
As at December during the As at December
Composition: 31, 2010 year 31, 2009
--------------- ----------- --------------
$'000 $'000 $'000
--------------- ----------- --------------
Allowances and reserves - (693) 693
Research and development - 86 (86)
Vacation accrual - (63) 63
Employee severance liabilities - (115) 115
--------------- ----------- --------------
Total - (785) 785
=============== =========== ==============
NOTE 22 - TRADE PAYABLES - CURRENT:
2010 2009
--------- ---------
$'000 $'000
--------- ---------
Trade payables 433 734
Accrued Expenses 1,687 1,422
Checks to the payment 147 261
--------- ---------
2,267 2,417
========= =========
NOTE 23 - LOANS AND BORROWINGS:
2010 2009
------ --------
$'000 $'000
------ --------
Fair value through profit or loss- held for trading - 6,258
====== ========
Breakdown:
Linkage Interest
Short Term Credit From Banks: Base Rate 2010 2009
----- --------
% $'000 $'000
-------- ----- --------
Discount Bank- Overdraft - - 717
Leumi Bank * 3.3 - 3,028
Poalim Bank * 3.25 - 2,013
Discount Bank * 3.25 - 500
----- --------
- 6,258
===== ========
* The linkage base is London Interbank Offered Rate
* See Note 26 for further Details.
NOTE 24 - SHARE CAPITAL:
Authorized
------------------------
2010 2009
----------- -----------
Number Number
----------- -----------
Ordinary shares of no par value 261,504,012 261,504,012
----------- -----------
Issued and fully paid
-----------------------
2010 2009
----------- ----------
Number Number
----------- ----------
Ordinary shares of no par value each at beginning
of the year 32,956,012 32,956,012
Employee share options exercised - -
----------- ----------
At end of the year 32,956,012 32,956,012
=========== ==========
NOTE 25 - 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 19(th) , 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, 2010 and 2009 is as follows:
2010 2009
---------------------- ----------------------
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
----------- --------- ----------- ---------
$ $
--------- ---------
Options outstanding at
beginning of year 1,186,300 1.350 1,259,100 1.220
Changes during the year:
Granted - - 9,400 1.344
Exercised - - - -
Forfeited (114,300) 1.283 (82,200) 1.344
----------- -----------
Options outstanding at end of
year 1,072,000 1.285 1,186,300 1.350
=========== ========= =========== =========
Options exercisable at
year-end 1,072,000 1.285 1,172,900 1.350
=========== ========= =========== =========
NOTE 26 - 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.
-- 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, 2010, and 2009 were deposited in
Israeli and American 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.
NOTE 26 - FINANCIAL INSTRUMENTS - RISK MANAGEMENT (cont.)
Credit risks (cont.):
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.
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 value 5,048 - -
through profit or loss
Loans and borrowings 6,258 - -
========== ======= =======
NOTE 27 - COMMITMENTS AND CONTINGENCIES:
Lawsuits:
1. On December 5, 2001, a class action complaint against Formula
Telecom Solutions Inc. (Formerly known as Viziqor Solutions Inc.)
was filed in the United States District Court for the Southern
District of New York. On April 22, 2002, an amended complaint was
filed by two plaintiffs purportedly on behalf of persons purchasing
the Company'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 law suits 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 alleges 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, (iii) Section 10(b) of the Securities Exchange Act of
1934 and Rule lOb-S promulgated there under by all named
defendants, and (iv) Section 20(a) of the Securities Exchange Act
of 1934 by the individual defendants. The plaintiffs allege 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 claim that the underwriters used their analysts to
issue favourable reports about the Company to further inflate the
Company's share price following the IPO, 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-i filed with the SEC in September 1999 materially false and
misleading. Plaintiffs seek unspecified damages and other
relief.
In October 2004, the district court granted in part 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, the United
States Court of Appeals for the Second Circuit reversed the
district court's order on class certification As a result of the
Second Circuit's order denying class certification, the plaintiffs,
the insurance companies and the issuers were forced to terminate
the proposed settlement in June 2007 Subsequently, the issuers and
their insurance companies renewed the terms of an agreement under
which the insurance companies agreed to pay the issuers' defence
costs on a pooling basis. In 2009, the parties, including the
Company, re-negotiated
NOTE 27 - COMMITMENTS AND CONTINGENCIES (cont.):
1. (Cont.):
the terms of a proposed settlement of the consolidated class
actions Under the terms of the settlement, the issuers'
contribution to the settlement amount will be funded by the
issuers' insurers. By order dated October 5, 2009, the district
court granted final approval of the settlement Several class
members have since appealed from this order. To the extent these
appeals result in a termination of the settlement, the Company
intends to defend vigorously against the plaintiffs' claims.
As of the date of this statement, there are no unasserted
possible claims or assessments that are probable of assertion and
that must be disclosed in accordance with International Accounting
Standard No 37.
The insurance company has taken responsibility for payment of
all attorney fees since June of 2003.
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 seeked 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. On October 2010, Plaintiff together with
other two former employees of Woodmont Holdings Inc have re-filed
their claim against the Company (filed in the united states
district court, Eastern district of Missouri, Eastern division)
amounting in total for the sum of US1.4 million. Company has moved
to dismiss the claim pursuant to Rules 12(b)(1), (6) and (7) of the
Federal Rules of Civil Procedure. On February 15th 2011, it was
ordered by court that Defendant Formula Telecom, Inc.'s Motion to
Dismiss Counts I, IV, and VII (Doc. No. 2) was granted. As of the
date hereof, plaintiff is entitled to file an appeal.
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 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
NOTE 27 - COMMITMENTS AND CONTINGENCIES (cont.):
3. (Cont.):
dispute. During preliminary proceedings of the arbitration,
Arbitrator has awarded Customer with the amounts of the performance
bond in approximately 500 thousand US$. On October 5th 2010,
Parties have reached a settlement and release agreement, which was
approved as a binding ruling award by the arbitrator, pursuant to
which for the mutual final discharge and release of the parties
claims and demand towards each other, it was agreed that Customer
shall retain the amount of the performance bond but will pay the
Company a sum of 150,000 NIS. The award has been executed by the
Parties and the dispute has been settled as set above,
Guaratees:
The Company obtained performance guarantees in the amount of $63
thousand in order to secure its contractual commitments.
Lease commitments:
Future minimum lease commitments under non-cancellable operating
leases as at December 31, 2010 are as follows:
2010
------
$'000
------
2011 336
2012 336
Rent expenses for the years ended December 31, 2010, and 2009
were approximately $716 thousand and $1,029 thousand,
respectively.
NOTE 28 - SUBSEQUENT EVENTS
On January 6, 2011 announces that the Board of Directors of the
group has decided to pay a dividend of 16p per share (total of
$8,160 thousand) before withholding tax of 20% (net dividend of
12.8p). The payment date was on January 28, 2011.
The financial statements were authorized for issue by the board
as a whole following their approval on March 8, 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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