Final Results

RNS Number : 9760X

Adamind Ltd

01 July 2008

 



1 July 2008

Adamind Ltd.

("Adamind" or "the Company")

Preliminary Results for the year ended 31 December 2007

Chairperson's Statement

Adamind announces its full year results for the year ended 31 December 2007. 

On 12 April 2007, following shareholder approval at an Extraordinary General Meeting, Adamind agreed to sell substantially all of its assets and assign certain related liabilities to Mobixell Networks (Israel) Ltd. ('Mobixell'), a wholly-owned subsidiary of Mobixell Networks Inc., a Delaware company. Adamind received as consideration $5,500,000 in cash (of which $550,000 is currently held in escrow and subject to certain inspections and approval).

Following completion of the foregoing transaction, Adamind became an "investing company", in accordance with the AIM Rules. 

Results

The income generated by the Company for the period was US$0.7M and net loss was $0.4M

Cash balances at the end of December 2007 were US$24M

Post-year end Events

On 14 April 2008, in accordance with the AIM Rules applied to investment companies, the Company's shares were suspended from trading on the London Stock Exchange. Trading in the Company's ordinary shares on the London Stock Exchange will be cancelled by no later than 14 October 2008.

The Company is actively engaged in distributing its cash balances back to its shareholders. To date, in its first distribution, the Company has distributed $19.2 million (gross) and is making every effort to ensure, wherever possible, shareholders are able to recover the amounts withheld from the first distribution as required by the Israeli Tax Authorities.

In line with the Company's stated strategy of returning cash to shareholders the Board of Directors resolved on 6 April 2008 to consummate the voluntary liquidation of the Company. Such liquidation is subject to, among other things, the approval of the Company's shareholders. The Company will continue to inform shareholders of the progress of the liquidation process.  

The final amount of cash available for return to shareholders, at the time of the Company's liquidation, is subject to tax and procedural issues in the UK, US and Israel. The Company is actively engaged in discussions with the relevant authorities in each of these areas and expects these discussions to be completed in 2009. Until these discussions have been completed the Company is unable to estimate the final amount payable to shareholders.

Corfin Communications
Harry Chathli, Clare Perks	[phone]

Landsbanki Securities
Simon Bridges, Bertie Clayton	[phone]

STATEMENT OF NET ASSETS IN LIQUIDATION

U.S. dollars in thousands

			31 December
		Note	2007
ASSETS
Cash and cash equivalents		3	$    22,907
Marketable securities		4	500
Accounts receivable		5	674
			24,081
LIABILITIES
Accounts payable			80
Accrued expenses and other liabilities		6	350
			430
NET ASSETS AVAILABLE FOR DISTRIBUTION (EQUITY)			$    23,651

The accompanying notes are an integral part of the financial statements.

2008
Date of approval of the		30.06.2008		30.06.2008
financial statements

  CONSOLIDATED BALANCE SHEET

U.S. dollars in thousands, except share and per share data

				31 December
		Note		2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		3		$    15,213
Short-term available-for-sale marketable securities		4		7,451
Trade receivables				1,535
Other accounts receivable and prepaid expenses		5		468
Total current assets				24,667
NON-CURRENT ASSETS:
Property and equipment, net				477
Intangible assets, net				2,087
Total non-current assets				2,564
				$    27,231
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Trade payables				$    577
Employees and payroll accruals				936
Accrued expenses and other liabilities		6		1,211
Deferred revenues				657
Total current liabilities				3,381
EQUITY:		8
Share capital -
Ordinary shares of NIS 0.01 par value - Authorized: 50,000,000 shares at 31 December 2006 and 2007; Issued and fully paid: 35,546,636 and 35,824,386 shares at 31 December 2006 and 2007, respectively				81
Additional paid-in capital				31,768
Net unrealized loss reserve				(46)
Accumulated deficit				(7,953)
Total equity				23,850
				$    27,231

The accompanying notes are an integral part of the consolidated financial statements.

  CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except share and per share data

				Year ended  31 December
		Note		2006		2007
Revenues				$   5,946		$    691
Cost of revenues				739		165
Gross profit				5,207		526
Operating expenses:
Research and development, net				3,002		819
Selling and marketing				5,550		1,057
General and administrative				2,137		2,562
Amortization of intangible assets				831		204
Impairment of intangible assets				1,165		-
Total operating expenses				12,685		4,642
Operating loss				7,478		4,116
Financial income, net		10e		(960)		(834)
Other income, net		1b		-		(3,105)
Tax expense		9f		-		200
Net loss				$    6,518		$    377
Basic and diluted net loss per share				$    (0.18)		$    (0.01)
Weighted average number of shares used in computing basic and diluted net loss per share				35,516,186		35,643,430

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 

U.S. dollars in thousands, except share data

														Total
		Ordinary shares				Additional paid-in		Net unrealized		Accumulated		Total		recognized income and
		Number		Amount		capital		loss reserve		deficit		equity		expenses
Balance as of 1 January 2006		35,388,636		$    80		$    31,285		$    -		$    (1,435)		$    29,930
Issuance of shares upon exercise of employee  options		158,000		1		64		-		-		65
Cancellation of issuance expense		-		-		298		-		-		298
Unrealized losses on available-for-sale marketable securities		-		-		-		(46)		-		(46)		$    (46)
Share-based compensation		-		-		121		-		-		121		-
Net loss		-		-		-		-		(6,518)		(6,518)		(6,518)
Balance as of 31 December 2006		35,546,636		81		31,768		(46)		(7,953)		23,850		$    (6,564)
Issuance of shares upon exercise of employee options		277,750		1		119		-		-		120
Issuance expenses related to shares issued in 2005		-		-		(213)		-		-		(213)
Reclassification upon disposal of available-for-sale marketable securities		-		-		-		46		-		46		$    46
Share-based compensation		-		-		225		-		-		225		-
Net loss		-		-		-		-		(377)		(377)		(377)
Balance as of 31 December 2007		35,824,386		$    82		$    31,899		$    -		$    (8,330)		$    23,651		$    (331)

The accompanying notes are an integral part of the consolidated financial statements. 

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands 

		Year ended  31 December
		2006		2007
Cash flows from operating activities:
Net loss		$    (6,518)		$    (377)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and capital loss		1,106		330
Impairment of intangible assets		1,165		-
Gain on sale of Company's assets		-		(3,105)
Decrease (increase) in trade receivables, other accounts receivable and prepaid expenses		(259)		407
Decrease in trade payables, employees and payroll accruals, accrued expenses and other liabilities		(87)		(1,808)
Increase in deferred revenues		84		615
Share-based compensation		121		225
Net cash used in operating activities		(4,388)		(3,713)
Cash flows from investing activities:
Purchase of property and equipment		(326)		(26)
Proceeds from sale of property and equipment		6		-
Proceeds from short-term available-for-sale marketable securities, net		9,341		6,997
Proceeds from short-term held-to-maturity marketable securities, net		9,420		-
Payment for the acquisition of Senstream Ltd. (1)		(782)		-
Proceeds from the sale of Company's assets, net of related expenses		-		4,529
Net cash provided by  investing activities		17,659		11,500
Cash flows from financing activities:
Proceeds from exercise of employees options		65		120
Issuance expenses		-		(213)
Net cash provided by (used in) financing activities		65		(93)
Increase in cash and cash equivalents		13,336		7,694
Cash and cash equivalents at the beginning of the year		1,877		15,213
Cash and cash equivalents at the end of the year		$    15,213		$    22,907
Supplemental disclosure of cash flow activities:
Cash received during the year for:
Interest		$    1,162		$    914
Non-cash financing activities:
Receivable in respect of sale of the Company's assets		$    -		$    550
Cancellation of issuance expense payable		$    298		$    -
(1)        Payment for the acquisition of Senstream Ltd.
Estimated fair value of assets acquired and liabilities assumed at the date of acquisition:
Working capital deficiency, excluding cash and cash equivalents		$    489		$    -
Property and equipment		(8)		-
Intangible assets		(1,280)		-
Accrued severance pay, net		17		-
		$    (782)		$    -

The accompanying notes are an integral part of the consolidated financial statements.

NOTE 1:-    GENERAL

a.    Adamind Ltd. ("the Company") was incorporated in Israel and commenced operations in 2004. The Company established a wholly-owned subsidiary in the U.S. ("Adamind Inc."), which was primarily engaged in marketing and sales in the U.S. Until the sale of its assets in April 2007 (see b), the Company was a provider of software that enabled mobile multimedia content and converged communications services.

b.    Sale of Company's assets 

In April 2007, the Company completed the sale to Mobixell Networks (Israel) Ltd. (a subsidiary of Mobixell Technologies Inc.) ("Mobixell Networks") of substantially all of the Company's tangible and intangible assets (excluding, among others, cash and cash equivalents and marketable securities) and related liabilities, in consideration of $ 5,500. The Transaction was approved by the Company's shareholders on 12 April 2007. Consummation of this Transaction resulted in a gain on the sale of $ 3,105 (net of transaction costs of $ 421). As part of the Transaction, 10% of the consideration ($550) was deposited in escrow. The escrow amount has not yet been released to the Company, as there is currently a dispute between Mobixell Networks and the Company with respect to a possible liability to the OCS (see Note 7). Since the Company believes that it will take all necessary actions to fulfill its obligation, the amount in escrow is presented as receivable in the statement of net assets in liquidation as of 31 December 2007.

In late 2007, the Company ceased the operations of its U.S. based subsidiary, Adamind Inc.

c.    Voluntary liquidation 

    On 16 January 2008, the Company's board of directors resolved to distribute $19,200 to the Company's shareholders. In March 2008, the Company obtained court approval for the distribution, resulting in an amount of $ 4,200 left in the Company in order to guarantee any future debt/liability until these debt/liability is no longer existed and the Company is dissolved. On 6 April 2008, the Company's board of directors resolved to commence the voluntary liquidation of the Company. On 17 April 2008, the Company distributed to its shareholders approximately $ 19,200, as a return of investment.

d.    On 14 April 2008, the Company's shares were suspended from trading on AIM and the shares are expected to be delisted no later than 14 October 2008.

e.    SenseStream Ltd. ("SenseStream")

On 17 February 2006, the Company completed the acquisition of all of the issued and outstanding share capital of a Hong Kong based company named SenseStream Limited for an initial consideration of $ 1,000 in cash and a contingent consideration of up to $ 1,000 in the Company's shares. The targets set forth in the acquisition agreement were not met and, accordingly, the Company was not required to issue any of its Ordinary shares to the former shareholders of SenseStream.

NOTE 1:-    GENERAL (Cont.)

Under the terms of the agreement, the Company paid an initial amount of $ 655 in cash to the shareholders of SenseStream and transferred $ 345 directly to SenseStream, in order to cover certain third parties liabilities. 

The transaction was accounted for under the purchase method of accounting, under which the Company is considered as the acquirer of SenseStream. Accordingly, the results of operations of SenseStream were included in the consolidated statements of operations of Adamind Ltd., commencing on 15 February 2006.

The estimated fair value of the identifiable assets and liabilities as of 15 February 2006, are as follows:

Current assets		$    27
Equipment		8
Acquired technology		92
Customer agreements		700
		827
Accrued expenses and other liabilities		(376)
Deferred revenues		(157)
		(533)
Fair value of net assets		294
Goodwill arising on acquisition		488
		$    782

The carrying value of the assets and liabilities were identical to their fair value except for acquired technology, customer agreements and goodwill, which had no carrying value.

From the date of acquisition to 31 December 2006, SenseStream contributed $ 515 to the net loss of the Company. If the combination had taken place at the beginning of 2006, the net loss for the Company would have been $ 6,554.

In 2007, the Company ceased the operations of SenseStream, Ltd.

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES

a.    General:

The financial statements of the Company and its subsidiaries have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Until 31 December 2007, the Company's financial statements are presented on a going concern basis. Subsequent to balance sheet date, the Company's board of directors decided to commence voluntary liquidation of the Company (see Note 1c). Accordingly, the going concern basis is no longer appropriate and as of 31 December 2007, the Company has applied the liquidation basis (see b below).

b.    Liquidation basis:

Under the liquidation basis of accounting, the Company measures its assets and liabilities in the statement of net assets in liquidation, based on their net realizable value. In respect of the assets and liabilities of the Company as of 31 December 2007, which are substantially all monetary items, the measurement of these items under the liquidation basis are not materially different from their measurement under the going concern basis.

c.    Going concern basis:

Until 31 December 2007, the financial statements are presented on a going concern basis.

The significant accounting policies applied in the financial statements, on this basis, are described below.

d.    Functional and presentation currency: 

Substantially all of the Company's sales are made outside Israel in non Israeli currencies, mainly the U.S. dollar. A substantial portion of the Company's expenses, mainly selling and marketing expenses is incurred in or linked to U.S. dollars. The funds of the Company are held in U.S. dollars. Therefore, the Company's management has determined that the U.S. dollar is the currency of the primary economic environment of the Company, and thus its functional and presentation currency.

e.    Principles of consolidation:

Subsidiaries are consolidated from the date on which control is transferred to the Company and cease to be consolidated from the date on which control is transferred out of the Company. Intercompany balances and transactions have been eliminated upon consolidation.

f.    Cash equivalents:

The Company considers all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents. 

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (Cont.)

g.    Investments in financial assets:

Investments in debt securities in accordance with International Accounting Standard No. 39, "Financial Instruments: Recognition and Measurement" ("IAS 39") are classified available-for-sale financial assets. These financial assets are recognized initially at fair value. 

Available-for-sale financial assets

After initial recognition, available-for-sale financial assets are measured at fair value with gains or losses being recognized as a separate component of equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of operations. 

The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market prices at the close of business on the balance sheet date.

h.    Revenue recognition: 

The Company and its subsidiaries generated revenues mainly from licensing the rights to use the Company's software products, and from royalty arrangements upon licensing of the Company's software to end-users. The Company also generated revenues from maintenance, support, training and professional services. The Company did not grant a right of return to its customers.

Revenues from software licensing arrangements are recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenues can be reliably measured. Revenues from professional services are recognized when the services are rendered.

Revenues from royalty arrangements are recognized in the period when such royalties are reported to the Company, provided that all other revenue recognition criteria are met. Royalties are recognized as revenues by the Company, consistently in the quarter following the quarter in which such royalties are earned. There is a consistent lag of one quarter between the period in which the royalties are earned based on sales to end users and the period in which such royalties are recognized as revenue by the Company.

Maintenance and support revenues are recognized on a straight-line basis over the term of the maintenance and support agreement. Deferred revenue includes unearned amounts received under maintenance and support contracts, and amounts received from customers but not recognized as revenues.

Income from interest is recognized as the income accrues.

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (Cont.)

i.    Research and development:

Research costs are expensed to operations as incurred. Development costs are also expensed to operations as incurred if such costs do not meet the criteria for capitalization as set forth in IAS 38, "Intangible Assets". In the years ended 31 December 2006 and 2007, no development costs were capitalized.

j.    Government grants:

Royalty-bearing grants from the Government of Israel for funding approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred. These grants are presented as a deduction from research and development expenses when there is reasonable assurance that the grants will not be repaid based on estimated future sales. Such grants are recorded as a liability when repayment is probable. Development grants that were deducted from research and development expenses amounted to $ 644 and $ 0 for the years ended 31 December 2006 and 2007, respectively (see Note 7).

k.    Income taxes:

The Company and its subsidiaries account for income taxes under the liability method of accounting. Under the liability method, deferred taxes are provided based on the differences between the financial reporting and tax basis of assets and liabilities and are measured at enacted tax rates that are expected to be applicable in the year in which the differences reverse. Deferred tax assets in respect of carry-forward losses and other temporary deductible differences are recognized to the extent that it is probable that they will be utilized.

l.    Basic and diluted net loss per share:

Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each period, plus dilutive potential Ordinary shares considered outstanding during the period, except when such potential shares are anti-dilutive. 

m.    Fair value of financial instruments:

The carrying amounts of cash and cash equivalents, trade and other accounts receivable, and trade and other payables approximate their fair value due to the short-term maturity of such instruments.

The fair values for marketable securities are based on quoted market prices.

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (Cont.)

n.    Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and trade receivables. 

The majority of the Company's cash and cash equivalents are invested in major banks in the United States and Israel, in Great British Pounds ("GBP") and as such, expose the Company to currency exchange risk. Management believes that the financial institutions that hold the Company's investments are financially sound and accordingly, minimal credit risk exists with respect to these investments. 

The Company's marketable securities include investments in government debentures and corporate debentures. Management believes that those corporations and governments are financially sound and that the portfolios are well-diversified, and accordingly, minimal credit risk exists with respect to these marketable securities.

As of 31 December 2007, the Company has no significant off-balance sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

o.    Share-based payment transactions:

The Company applies the provisions of IFRS 2, "Share-based Payment". IFRS 2 requires an expense to be recognized where the Company buys goods or services in exchange for shares or rights over shares ("equity-settled transactions"), or in exchange for other assets equivalent in value to a given number of shares of rights over shares ("cash-settled transactions"). The main impact of IFRS 2 on the Company is the expensing of employees' and directors' share options (equity-settled transactions).

The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which the instruments were granted. The fair value of Ordinary shares for the purpose of calculating the fair value of options and warrants were determined by management based on a number of factors. 

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ("the vesting date"). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. No expense is recognized for awards that do not ultimately vest.

NOTE 3:-    CASH AND CASH EQUIVALENTS

		31 December
		2006		2007
Current accounts		$    1,441		$    740
Short-term deposits in bank		13,772		22,167
		$    15,213		$    22,907

NOTE 4:-    MARKETABLE SECURITIES 

The Company invests in marketable debt securities, which at 31 December 2007 were classified as available-for-sale. The following is a summary of marketable debt securities:

		31 December 2006						31 December 2007
		Amortized		Unrealized		Market		Market
		cost *)		loss		value		value
Available-for-sale:
U.S. Treasury debentures		$     2,527		$    (15)		$     2,512		$    500
Corporate debentures		4,970		(31)		4,939		-
		$    7,497		$    (46)		$    7,451		$    500

The contractual maturity of the investments as of 31 December 2006 and 2007 are as follows:

		31 December 2006						31 December 2007
		Amortized		Unrealized		Market		Market
		cost *)		gain		value		value
Mature in one year		$    500		$    5,021		$    4,990		$    500
Mature in one to three years		-		2,476		2,461		-
		$    500		$    7,497		$    7,451		$    500

*)    Includes accrued interest.

NOTE 5:-    OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

		31 December
		2006		2007
Receivable in respect of sale of the Company's assets (Note 1b)		$    -		$    550
Government authorities		135		55
Prepaid expenses		149		-
Accrued interest receivable		54		10
Other		130		59
		$    468		$    674

NOTE 6:-    ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and income tax accrual		$    763		$    350
Commissions payable		77		-
Related company		-		-
Government authorities		370		-
Other		1		-
		$    1,211		$    350

NOTE 7:-    CONTINGENT LIABILITIES

Commitment to the Office of the Chief Scientist in Israel ("OCS"):

In 2006, the Company participated in royalty-bearing grant plans of the Government of Israel. In order to be entitled to such grants, the Company had to fulfill certain terms and reporting requirements. The Company has not yet received final approval from the OCS that it fulfills the terms of the grants. If such approval will not be received in full, the Company might need to repay a certain portion of the grant.

The audit by the OCS has not yet begun. Currently, the Company cannot estimate the outcome of such audit, if any, and as a result, did not record any provision for a possible refund of grants. 

NOTE 8:-    EQUITY

a.    Rights of Ordinary shares:

Ordinary shares confer upon their holders voting rights, the right to receive dividends, and the right to a share in excess assets upon liquidation of the Company.

b.    In February 2005, the Company completed an Initial Public Offering ("IPO") on the London Stock Exchange Alternative Investment Market ("AIM") under the symbol "ADA". The Company issued 11,363,636 Ordinary shares to institutional and other investors and raised approximately $ 28,000 before issuance expenses of approximately $ 2,900 

c.    Share-based payment plans:

Under the Company's 2004 Global Stock Option Plan ("the Plan"), options may be granted to officers, directors, employees and consultants of the Company or its subsidiaries. The Options expire on the tenth anniversary of the grant date. The options vest generally over four years. 

The Company reserved 4,235,000 Ordinary shares for issuance as options under the Plan. As of 31 December 2007, there are no shares available for future grants under the Plan.

A summary of the Company's share option activity and related information is as follows:

		Year ended 31 December
		2006				2007
		Number  of options		Weighted average exercise price		Number of options		Weighted average exercise price
Outstanding at beginning of year			3,432,675		$    0.70		3,479,525		$    0.97
Granted			856,000		$    1.92		-		$    -
Exercised			(158,000)		$    0.41		(277,750)		$    0.43
Forfeited			(651,150)		$    0.93		(1,577,600)		$    1.29
Outstanding at end of year			3,479,525		$    0.97		1,624,175	3,	$    0.71
Exercisable at end of year			1,241,588		$    0.56		1,547,675		$    0.64

In 2008, 1,078,925 options were exercised into Ordinary shares. All other options are deemed to be forfeited.

NOTE 8:-    EQUITY (Cont.)

The following table summarizes options outstanding and exercisable as of 31 December 2007:

Range of exercise price		Options outstanding as of 31 December 2007		Weighted average remaining contractual life (years)		Weighted average exercise price		Options exercisable as of 31 December 2007		Weighted average exercise price of options exercisable
$    0.42		1,358,675		5.38		$    0.42		1,342,175		$    0.42
$    0.62		50,000		0.16		$    0.62		50,000		$    0.62
$    1.9 - 2.06		28,125		0.27		$    1.97		28,125		$    1.97
$    2.39 - 2.53		44,375		2.52		$    2.52		44,375		$    2.57
$    2.64 - 2.85		143,000		6.04		$    2.68		83,000		$    2.7
		1,624,175				$    0.71		1,547,675		$    0.64

Most of the options granted to employees and directors have an exercise price equal to the fair market value of the shares at the grant date. The weighted average fair value of the options granted during 2006 was approximately $ 0.70.

The fair value of the share options is measured at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted.

The following are the inputs to the model used for the year ended 31 December 2006: risk-free interest rates in the range of 3.0% - 4.4%; dividend yield of 0%; a volatility factor of the expected market price of the Company's Ordinary shares in the range of 48% - 57%; and a weighted average expected life of the option for each year in the range of 1.5 - 4.5 years.

In the years ended 31 December 2006 and 2007, the Company recorded employee benefit expense in respect of options, in the amount of $ 121 and $ 225, respectively, with a corresponding increase in equity.

NOTE 9:-    INCOME TAXES

a.    Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:

Until 31 December 2005, results for tax purposes in Israel were measured in terms of earnings in NIS after certain adjustments for increases in Israel's Consumer Price Index ("CPI"). 

Commencing in 2006, the Company elected to measure its taxable income and file its tax return under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. Such an election obligates the Company for three years. Accordingly, commencing in 2006, results for tax purposes are measured in terms of earnings in U.S. dollars. 

b.    Tax rates:

On 25 July 2005, the Knesset (Israeli Parliament) approved the Law of the Amendment of the Income Tax Ordinance (No. 147), 2005, which prescribes, among others, a gradual decrease in the corporate tax rate in Israel to the following tax rates: 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 - 26% and 2010 and thereafter - 25%.

c.    Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"):

In respect of the Company's production facilities in Israel, the Company submitted applications for "Approved Enterprise" status under the Law. The main benefit arising from such status is the reduction in tax rates on income derived from "Approved Enterprises". Consequently, the Company is entitled to two years of a tax exemption and five years of a reduced tax rate (25%) on income from its "Approved Enterprises", beginning from the time that the Company first has taxable income. The period of tax benefits is subject to limits of 12 years from the commencement of production, or 14 years from the approval date, whichever is earlier. As the Company had no taxable income, the benefit periods have not yet commenced.

The entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by the Law, regulations published thereunder, and the letters of approval for the specific investments in "Approved Enterprises". In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest. As of 31 December 2007, the Company had not utilized any of the aforementioned tax benefits.

If tax-exempt profits are distributed to shareholders, they would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative system of benefits, currently 25% for an "Approved Enterprise". 

Income from sources other than the "Approved Enterprise" during the benefit period will be subject to tax at the regular rate prevailing at that time.

NOTE 9:-    INCOME TAXES (Cont.)

d.    Net operating loss carry-forward:

As of 31 December 2007, the Company has accumulated net operating loss carry-forwards for tax purposes amounting to approximately $ 5,000, which may be carried forward and offset against taxable income in the future for an indefinite period.

e.    Deferred tax assets:

As of 31 December 2007, deferred tax assets in respect of carry-forward losses and temporary differences have not been recorded due to the uncertainty of realization.

f.    The Company has certain tax exposures resulting from the operation of the Company in multiple tax jurisdictions and as a result of the sale of the Company's assets (see Note 1b). The Company has recorded a tax provision in an amount which the Company believes is sufficient to cover any potential exposures related to tax years for which a final assessment has not been received.

NOTE 10:-    SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED STATEMENTS OF OPERATIONS

The following represent the salaries and related benefits and depreciation expense for the various operating expenses:

			Year ended 31 December
			2006		2007
a.	Cost of revenues:
	Salaries and related benefits		$    318		$    168
	Depreciation		$    37		$    5
	Share-based compensation		$    10		$    18
b.	Research and development expenses:
	Salaries and related benefits		$    2,394		$    430
	Depreciation		$    116		$    38
	Share-based compensation		$    51		$    144

NOTE 10:-    SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED STATEMENTS OF OPERATIONS (Cont.)

			Year ended 31 December
			2006		2007
c.	Selling and marketing expenses:
	Salaries and related benefits		$    2,294		$    556
	Depreciation		$    78		$    26
	Share-based compensation		$    43		$    27
d.	General and administrative expenses:
	Salaries and related benefits		$    1,979		$    835
	Depreciation		$    37		$    14
	Share-based compensation		$    17		$    36
e.	Financial income, net
	Financial income:
	Interest on bank deposits and on marketable debt securities		$    1,174			$    964
	Financial expenses:
	Interest and other bank charges		(72)			(31)
	Foreign currency translation differences, net		(81)			(52)
	Amortization of discount on marketable debt securities		(61)			(47)
			(214)			(130)
			$    960			$    834

NOTE 11:-    TRANSACTIONS WITH RELATED PARTIES

The following transactions with Emblaze, which was the controlling shareholder of the Company until March 2006, are included in the financial statements:

		Year ended 31 December
		2006
Cost of revenues		$    83
Research and development, net		$    292
Selling and marketing		$    146
General and administrative		$    73

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FR IIFSRDSILIIT