Final Results

RNS Number : 2330Y

MTI Wireless Edge Limited

20 February 2013

 



20 February 2013

MTI WIRELESS EDGE LTD

FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

MTI Wireless Edge Ltd., (ticker: MWE) ("MTI" or the "Company"), a market leader in the manufacture of flat panel antennas for fixed wireless broadband, today announces its audited full year results for the year ended 31 December 2012.

2012 Highlights

·    Net profit, excluding one off litigation provision, increased to $110K (2011: $38k)

·    Revenues decreased 14% to $12.7m (2011: $14.7m)

·    Strong demand for new product line in 80Ghz - growth of 300% in 2012 to $1m in revenues

·    Gross profit decreased 13% to $4.4m (2011: $5.1m)

·    IP Litigation brought against the Company in 2005 concluded in settlement representing a cost of $300K to the Company, provisioned in Q1 2012

·    Cash generated from operation $0.4m, compared with use of cash for operation of $0.2m in 2011

·    Net cash, cash equivalents and marketable securities at the year-end of $7.15m, equivalent to 8.7 pence per share

·    Net value of offices of $3.2m, equivalent to 3.9 pence per share

·    Final dividend of 0.58 cents per share declared

Zvi Borovitz, Non Executive Chairman of MTI Wireless Edge, commented:

"I am pleased to report on our audited results for the financial year ended 31 December 2012 - another challenging one in terms of the global macro economy.  As we estimated in previous years, our investment in the 60 - 80 GHz products range has started to return as we have tripled this business segment this year. We continue to believe in our long term view of the market: the demand for our products, as part of the increasing demand for broadband, will strengthen in the coming years.

"We are also happy with our progress in RFID, which now represents 13% of our business, and see great potential in this market. We believe that these two markets, together with our key market for broadband wireless access, is where our growth will be in the future.

"Our overall ability to respond to market changes resulted in $0.3m net profit in the second half of 2012 and I would like to thank our management for acting quickly and efficiently under those circumstances. This has positioned the Company in a healthy situation to sustain profitability (excluding one-off litigation provisions) and positive cash generation as seen in 2012." 

Contacts

MTI Wireless Edge Dov Feiner, CEO Moni Borovitz, Financial Director	[phone]
Allenby Capital Nick Naylor Alex Price	[phone]
Newgate Threadneedle Graham Herring Alex White Robyn McConnachie	[phone]

About MTI Wireless

MTI is a developer and manufacturer of sophisticated antennas and antenna systems, including those sold for use in Fixed Broadband Wireless compliant systems. In 2009 the Company successfully put into operation its new manufacturing facility in India and in 2012 this contributed approximately 30% to the company's commercial production. MTI is now based in Israel and India, employing (as at 31 December 2012) a total of 76 people.

The Company produces antennas ranging in frequency from 2MHz to 90GHz, for both military and commercial applications, and has an international customer base. The continuing global recession meant that 2012 was a difficult year, mainly in the military segment, and overall revenues decreased by 14%. However, a fast management response and increased efficiency in the second half of the year ended this half with a net profit of $264k. The Directors believe that the fundamentals necessary for the Company to achieve long term growth are in place. Demand for its wireless broadband technology is accelerating and increasingly becoming a part of people's everyday broadband requirement. This, together with the developing market for Radio Frequency Identification (RFID), represents the key to the Company's future growth opportunities.

Chairman's Statement

I am pleased to report on our audited results for the financial year ended 31 December 2012 - another challenging one in terms of the global macro economy.  As we estimated in previous years, our investment in the 60 - 80 GHz products range has started to return as we have tripled this business segment this year. We continue to believe in our long term view of the market: the demand for our products, as part of the increasing demand for broadband, will strengthen in the coming years.

We are also happy with our progress in RFID, which now represents 13% of our business, and see great potential in this market. We believe that these two markets, together with our key market for broadband wireless access, is where our growth will be in the future.

Our overall ability to respond to market changes resulted in $0.3m net profit in the second half of 2012 and I would like to thank our management for acting quickly and efficiently under those circumstances. This has positioned the Company in a healthy situation to sustain profitability (excluding one-off litigation provisions) and positive cash generation as seen in 2012. 

We enter 2013 with confidence in the growth prospects of the business and its ability to increase profitability. The underlying drivers of our business, such as continued growth in data usage and increasing subscriber numbers, are part of long term trends which we expect to continue for the foreseeable future. This, together with the current backlog of $5.5m, provides us with confidence in both short and long term growth prospects.

Following a review of the business, the Board decided to distribute a final dividend of $0.58 cent per share. We strongly believe it is in the interest of shareholders to receive a yearly yield on their investment, while the Company is managing its earnings and cash generation. This level of dividend represents a balance between the current ongoing earnings and the stability which we like to show our investors. The dividend will be payable on 5 April 2013 to shareholders on the register as of 15 March 2013.

I would like to compliment our employees on their contribution to the Company and thank each and every one for their dedication and creativity, which has enabled us to achieve our results. I would also like to acknowledge with thanks the employees' families for their continued support.

Before concluding I would like to say few words in memory of our external director, Mr. Stewart Millman who passed away in June. This is the first annual report without him.  His untimely departure continues to have a strong impact on our board meetings as well as day by day business discussions. Stewart's wisdom and advice is dearly missed. His values and flawless conduct will always guide MTI in its behaviour and we shall forever treasure his memory. I am personally very sad and miss my dear friend. Rest in peace Stewart knowing that your legacy is treasured in this part of the world.

Zvi Borovitz

Non Executive Chairman

Chief Executive's Review

I am happy to start my report by announcing that we have cleared an old IP litigation this year and can now devote 100% of our time and efforts to developing the business. Without this settlement cost we would have finished the year with a net profit of $0.1m coupled with strong cash flow from operations.

Despite the decline in revenue we were able to improve our gross margin rate, indicating that we should view the future with confidence, when revenue levels return to those of 2011 and above. All business areas suffered a decline in revenue especially the military segment in which we saw a 42% decline. Nevertheless, the current backlog and order pipe line in the military segment mean that we expect growth in this part of the business in 2013.

While our key market for FBWA suffered a minor decline (3%) in 2012 as the industry continued to be impacted by the global recession, I am happy to say that the 60-80GHz part of this business is growing fast and I believe this will continue to be a strong growth engine in the coming years. It is used for the short range point to point backhaul market and this is becoming a major backhaul for wireless communication.

The RFID market, currently in its initial stages, continued to represent 13% of our business (as in 2011) and we strongly believe in potential of this sector. We strengthened our position with both existing and new customers in 2012 and see this trend continuing in 2013. Our plan is to ensure that MTI remains well positioned in this market to maximize benefits as RFID technology continues its world-wide growth.

Our immediate focus is to win further major deals and maintain support of our existing customer base in all business segments.  In 2013 we will continue to grow both our business and profits.  The main thrust of our strategy will be to increase operations in our facility in India, which generated 30% of our commercial antenna revenues in 2012.

To achieve this growth, the Company aims to expand its leadership in the antenna markets for fixed wireless communication as well as its military capabilities and portfolio. We are continuing to develop our 60 - 80GHz range of antennas, as well as our military capabilities, to strengthen our positioning in the market.

I would like to end my review by thanking our employees and their families for their hard work, dedication and support during the past year. It is their creativity, perfectionism and dedication that has led MTI to its position in the market and we see them as the key to our ongoing success.

Dov Feiner

Chief Executive Officer

M.T.I Wireless Edge Ltd.

Consolidated Statements of Comprehensive Income

			Year ended December 31,
			2012		2011
	Note		$'000		$'000
Revenues	2, 4		12,711		14,701
Cost of sales			8,291		9,642
Gross profit			4,420		5,059
Research and development expenses			1,152		1,176
Distribution expenses			1,721		1,925
General and administrative expenses			1,858		1,707
Profit (loss) from operations	3		(311)		251
Finance expense	5		186		456
Finance income	5		229		163
Loss before Income tax			(268)		(42)
Income tax	6		(75)		(80)
Total comprehensive income (loss)			(193)		38
Attributable to:
Owners of the parent			(312)		3
Non-controlling interest			119		35
			(193)		38
Earnings per share
Basic and Diluted (dollars per share)	7		(0.0060)		0.0001

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Changes in Equity

	Attributable to owners of the parent
	Share capital		Additional paid-in capital		Capital Reserve for share-based payment transactions		Retained earnings		Total attributable to owners of the  parent		Non-controlling interest		Total equity
	U.S. $ in thousands
Balance as at January 1, 2011	109		14,945		137		3,617		18,808		2		18,810
Changes during 2011:
Comprehensive income for the year	-		-		-		3		3		35		38
Dividends	-		-		-		(995)		(995)		-		(995)
Share based payment	-		-		39		-		39		-		39
Balance as at December 31, 2011	109		14,945		176		2,625		17,855		37		17,892
Changes during 2012:
Comprehensive income (loss) for the year	-		-		-		(312)		(312)		119		(193)
Share based payment	-		-		44		-		44		-		44
Balance as at December 31, 2012	109		14,945		220		2,313		17,587		156		17,743

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position

			As at December 31,				As at December 31,
			2012		2012		2011		2011
	Note		$'000		$'000		$'000		$'000
ASSETS
Non-current assets:
Property, plant and equipment	9		5,478				5,465
Investment property	10		1,310				1,345
Goodwill			406				406
Long-term prepaid expenses			45				24
Deferred tax assets	11		220				248
Total non-current assets					7,459				7,488
Current assets:
Inventories	12		2,947				2,996
Trade and other receivables	13		4,893				5,782
Other current financial assets	14		2,503				6,651
Cash and cash equivalents	15		4,648				625
Total current assets					14,991				16,054
TOTAL ASSETS					22,450				23,542
LIABILITIES
Non-current liabilities:
Loans from banks	16		1,813				2,063
Employee benefits	17		256				265
Provisions	18		172				96
Total Non-current liabilities					2,241				2,424
Current Liabilities:
Current tax payables			209				68
Trade and other payables	19		2,007				2,908
Current maturities of Loans	20		250				250
Total current liabilities					2,466				3,226
Total liabilities					4,707				5,650
TOTAL NET ASSETS					17,743				17,892

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position   (Cont.)

			As at December 31,				As at December 31,
			2012		2012		2011		2011
	Note		$'000		$'000		$'000		$'000
Capital and reserves attributable to    owners of the parent	23
Share capital			109				109
Additional paid-in capital			14,945				14,945
Capital reserve from share-based payment transactions			220				176
Retained earnings			2,313				2,625
					17,587				17,855
Non-controlling interests					156				37
TOTAL EQUITY					17,743				17,892

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows

		For the year ended December 31,				For the year ended December 31,
		2012		2012		2011		2011
		$'000		$'000		$'000		$'000
Operating Activities:
Profit (loss) for the year		(193)				38
Adjustments for:
Depreciation		482				493
Loss (gain) from short-term investments		(210)				294
Equity settled share-based payment expense		44				39
Finance expense		111				117
Income tax		(75)				(80)
Operating profit before changes      in working capital and provisions				159				901
Decrease (increase) in inventories		49				(29)
Decrease (increase) in trade receivables		901				(342)
Increase in other accounts receivables and prepaid expenses		(33)				(287)
Decrease in trade and other payables		(894)				(476)
Decrease in employee benefits		(9)				(7)
Increase in provisions		76				15
Interest paid		(111)				(117)
Income taxes received		244				124
				223				(1,119)
Cash generated from (used in) operations				382				(218)

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows   (Cont.)

		For the year ended December 31,					For the year ended December 31,
		2012			2012		2011		2011
		$'000			$'000		$'000		$'000
Cash flows from operating activities brought forward					382				(218)
Investing Activities:
Sale of short-term investment		4,358					1,703
Purchase of Property, plant and equipment		(467)					(524)
Net cash provided by investing activities					3,891				1,179
Financing Activities:
Dividend paid to the owners of the parent		-					(995)
Repayment of long-term loans from banks		(250)					(187)
Net cash used in financing activities					(250)				(1,182)
Increase (decrease) in cash and cash equivalents					4,023				(221)
Cash and cash equivalents at the beginning of the year					625				846
Cash and cash equivalents at the end of the year					4,648				625
							For the year ended December 31,
							2012		2011
							$'000		$'000
Non-cash transactions:
Purchase of Property, plant and equipment against trade payables							9		16

The accompanying notes form an integral part of these financial statements.

The directors of the Company are responsible for the financial information set out below.

1.     Accounting policies

General

M.T.I Wireless Edge Ltd. (hereafter - the Company) is an Israeli corporation. It was incorporated under the Companies Act in Israel on December 30, 1998 as a wholly- owned subsidiary of M.T.I Computers and Software Services (1982) Ltd. (hereafter - the Parent Company) and commenced operations on July 1, 2000 and since March 2006, the Company's shares have been traded on the AIM Stock Exchange.

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

The Company is engaged in the development, design, manufacture and marketing of antennas and accessories.

Certain operational and administrative services are provided by the Parent Company.

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.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of Employee benefit assets and financial assets and financial liabilities at fair value through profit or loss.

The Company has elected to present the statement of comprehensive income using the function of expense method.

Assets and Liabilities in foreign currency:

Henceforth are the details of the foreign currencies of the main currencies and the changes in the reporting period:

	Year ended December 31,
	2012		2011
NIS (in Dollar per 1 NIS)	0.268		0.262

	Year ended December 31,
	2012		2011
	%		%
NIS	2.36		(7.09)

Changes in accounting policies

Adoption of new and revised International Financial Reporting Standards (IFRS):

-        Amendments to IFRS 7  Financial Instruments - Disclosure:

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 has been applied retrospectively commencing from the financial statements for periods beginning on January 1, 2012 (see note 21).

1.     Accounting policies (Cont.)

Estimates and assumptions

The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported in the period of the change in estimate.

The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

-       Legal claims: In estimating the likelihood of outcome of legal claims filed against the Group, the companies rely on the opinion of their legal counsel. These estimates are based on the legal counsel's best professional judgment, taking into account the stage of proceedings and historical legal precedents in respect of the different issues. Since the outcome of the claims will be determined in courts, the results could differ from these estimates.

-       Pensions and other post-employment benefits: The liability, net in respect of post-employment defined benefit plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about, among others, discount rates, expected rates of return on assets, future salary increases and mortality rates. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty and the results may differ significantly.

Transactions with controlling parties

Transactions with controlling shareholders are disclosed in conformity with the provisions of IAS 24 (related party disclosures). All Transactions are measured at fair value and any changes from the transaction price are recorded in equity.

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 incurred to date by the total completion costs anticipated. 

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, as assessed by the Group's management.

2.   Revenues from the sale of goods are recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer and the seller no longer retains continuing managerial involvement. The delivery date is usually the date on which ownership passes.

3.   Finance income comprise interest income on amounts invested recognized in the income statement of. Interest income is recognized as it accrues using the effective interest method.

1.   Accounting policies (Cont.)

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 that entity 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.

Consolidated financial statements

Where relevant, the accounting policy in the financial statements of the subsidiaries changed to confirm with the policy applied in the financial statements of the Group.

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. Any direct costs of acquisition are charged to profit or loss.

Goodwill is recognized as an intangible asset with any impairment in carrying value being charged to the income statement. The Goodwill is not systematically amortized the Company reviews goodwill for impairment once a year.

Impairment of non-financial assets

Impairment tests on goodwill with indefinite useful economic lives are undertaken annually on December 31 or sooner when there are signs of impairment. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down and impairment charge is recognized accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit (i.e. the lowest Group's of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the Group's cash-generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill. 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.

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

1.     Accounting policies (Cont.)

years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.

Impairment charges are included in general and administrative expenses line item in the statement of comprehensive income. During the years 2011 and 2012 no impairment charges of non-financial assets were recognized.

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 operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

Foreign currency transactions

Transactions denominated in foreign currency (other than the functional currency) are recorded on initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange differences, other than those capitalized to qualifying assets or recorded in equity in hedging transactions, are recognized in profit or loss. Non-monetary assets and liabilities measured at cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognized immediately in the statement of comprehensive income, except for foreign currency borrowings qualifying as a hedge instrument.

Financial assets

The Group classifies its financial assets into one of the following 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 in marketable securities. They are carried in the statement of financial position at fair value with changes in fair value recognized in profit or loss.

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 provision for impairment.

Held-to-maturity investments: These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that The Group's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost, less any prevision for impairment. As at the two years ended December 31, 2012, no such assets are held by the Group.

1.     Accounting policies (Cont.)

Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise The Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognized directly in equity through other comprehensive income. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity through other comprehensive income and recognized in profit or loss. As at the two years ended December 31, 2012, no such assets are held by the Group.

Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Fair value

The fair value of investments that are actively traded in organized financial markets is determined by reference to market prices at the end of the reporting period. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flow or other valuation models.

Financial Liabilities

The Group classifies its financial liabilities as follows:

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 is at a constant interest rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs, 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 and subsequently measured at amortized cost using the effective interest rate method.

De-recognition 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 Group 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.

1.     Accounting policies (Cont.)

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 creditor (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 existing and new 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.

Impairment of financial assets:

The Group assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial asset or group of financial assets as follows.

Financial assets carried at amortized cost:

There is objective evidence of impairment of loans and receivables as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows.

Evidence of impairment may include indications that the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate at initial recognition). If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, which is limited to the amount of any previous impairment, is recorded in profit or loss.

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.

1.     Accounting policies (Cont.)

Capitalized development costs are amortized over the periods The Group expects to benefit from selling the products developed. The amortization expense is included within the research and development 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 statement of comprehensive income as incurred. As of December 31, 2012 no development costs are capitalized were qualified for capitalization.

Government grants:

grants received from the Israel-U.S. Bi-national Industrial Research and Development Foundation (henceforth "BIRD") as support for a research and development projects which grants include an obligation to pay back royalties that are conditional on future sales arising from the project, Grants received from the BIRD on or after January 1, 2009, which are recognized as a liability, are accounted for as forgivable loans, in accordance with IAS 20 (Revised), pursuant to the provisions of IAS 39, "Financial Instruments: Recognition and Measurement". Accordingly, when the liability for the loan is first recognized, it is measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grants received and the fair value of the liability is accounted for upon recognition of the liability as a grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method. Changes in the projected cash flows are discounted using the original effective interest and recorded in profit or loss in accordance with the provisions of IAS 39.AG8.

At the end of each reporting period, the Group evaluates, based on its best estimate of future sales, whether there is reasonable assurance that the liability recognized, in whole or in part, will be repaid. If there is such reasonable assurance, the appropriate amount of the liability is derecognized and recorded in profit or loss as an adjustment of research and development expenses. If the estimate of future sales indicates that there is no such reasonable assurance, the appropriate amount of the liability that reflects expected future royalty payments is recognized with a corresponding adjustment to research and development expenses.

Deferred tax

Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes as assets and liabilities. Deferred taxes are recognized directly in other comprehensive income or in equity if the tax relates to those items.

Deferred taxes are measured at the tax rates that are expected to apply in the period when the taxes are reversed in profit or loss, other comprehensive income or equity, based on tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred taxes in profit or loss represent the changes in the carrying amount of deferred tax balances during the reporting period, excluding changes attributable to items recognized outside of profit or loss.

Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is not probable that they will be utilized. In addition, temporary differences (such as carryforward losses) for which deferred tax

1.     Accounting policies (Cont.)

assets have not been recognized are reassessed and deferred tax assets are recognized to the extent that their recoverability has become probable. Any resulting reduction or reversal is recognized on " income tax".

Taxes that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as the disposal of such nvestments is not probable in the foreseeable future. In addition, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability, and if so, the Group's policy is not to initiate distribution of dividends that triggers an additional tax liability.

All deferred tax assets and deferred tax liabilities are presented in the statement of financial position as non-current assets and non-current liabilities, respectively. Deferred taxes are offset in the statement of financial position if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.

Taxes on income

Tax-exempt income derived from "approved enterprises" will be subject to tax in the event of distribution of dividends out of such income. Such additional tax has not been provided for in the financial statements, since the current policy of the Group is not to distribute dividends incurring additional tax.

Inventories

Inventories are initially recognized at cost, and subsequently at the lower of cost and net realizable value. Cost comprises all costs of purchase.

Weighted average cost is used to determine the cost of ordinarily interchangeable items.

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
buildings	3 - 4 %
Machinery and equipment	6 - 20 %
Office furniture and equipment	6 - 15 %
Computers	10 - 33 %
Vehicles	15 %

Leasehold improvements are depreciated over the term of the expected 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.

1.     Accounting policies (Cont.)

Investment property

An investment property is property (land or a building or both) held by the owner (lessor under an operating lease) or by the lessee under a finance lease to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services, for administrative purposes or for sale in the ordinary course of business.

Investment property is measured initially at cost, including costs directly attributable to the acquisition. After initial recognition, investment property is measured at cost, less investment grants, accumulated depreciation and accumulated impairment losses and accounted for as property, plant and equipment measured at cost.

Investment property is depreciated on a straight-line basis at annual rates of 3.13%, over its useful life.

Investment property is derecognized on disposal or when the investment property ceases to be used and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of the disposal.

Cash and cash equivalents

Cash equivalents are considered by the Group to be highly-liquid investments, including, inter alia, short-term deposits with banks, the maturity of which do not exceed three months at the time of deposit and which are not restricted.

Provision for warranty

The Group generally offers up to three years warranties on its products. Based on past experience, the Group does not record any provision for warranty of its products and services.

Share-based payments

Where equity settled share options are awarded to employees, the fair value of the options at the grant date is charged to the statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised 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 charged 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 statement of comprehensive income over the remaining vesting period.

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

1.     Accounting policies (Cont.)

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 since 2004 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 simultaneously with receiving the employee's services and no additional provision is required in the financial statements/ except for the unpaid contribution.

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 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 liability for employee benefits presented in the statement of financial position presents the present value of the defined benefit obligation less the fair value of the plan assets, less past service costs.

Actuarial gains and losses are recognized in profit or loss in the period in which they occur.

Earnings per Share (EPS)

Earnings per share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of Ordinary shares outstanding during the period. Basic earnings per share only include shares that were actually outstanding during the period. Potential Ordinary shares (convertible securities such as convertible debentures, warrants and employee options) are only included in the computation of diluted earnings per share when their conversion decreases earnings per share or increases loss per share from continuing operations. Further, potential Ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company.

1.     Accounting policies (Cont.)

Segment reporting

An operating segment is a component of the Group that meets the following three criteria:

1.     Is engaged in business activities from which it may earn revenues and incur expenses;

2.    Whose operating results are regularly reviewed by the Group's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and

3.     For which separating financial information is available.

The principles activities of the Group and its primary segments are:

-      Antennas produced for commercial market.

-      Antennas produced for the military market.

Entity wide disclosure:

-     Israel

-     North America

-     Europe

-     Asia

-     Other

Segment revenue and segment costs include items that are attributable to the relevant segments and items that can be distributed among segments. Non-distributed items include the Group's financial income and expenses and income tax.

1.     Accounting policies (Cont.)

New IFRSs in the period prior to their adoption

-        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", which 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 financial assets should be at fair value. 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 Group on an instrument-by-instrument basis. Amounts recognized in other comprehensive income cannot be subsequently recycled 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, 2015. 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

1.     Accounting policies (Cont.)

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, 2015. 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 IFRS 9.

The Group estimates that the amendments are not expected to have a material effect on the financial statements.

-        IFRS 10 - Consolidated Financial Statements:

In May 2011, the IASB issued a new Standard: IFRS 10, "Consolidated Financial Statements"

IFRS 10 supersedes IAS 27 regarding the accounting treatment of consolidated financial statements and includes also eliminate SIC 12, "Consolidation - Special Purpose Entities".

IFRS 10 does not prescribe changes to the consolidation procedures but rather modifies the definition of control for the purpose of consolidation and introduces a single consolidation model. According to IFRS 10, in order for an investor to control an investee, the investor must have power over the investee and exposure, or rights, to variable returns from the investee. Power is defined as the ability to influence and direct the investee's activities that significantly affect the investor's return.

According to IFRS 10, when assessing the existence of control, potential voting rights should be considered only if they are substantive, as opposed to the provisions of IAS 27 prior to its amendment which required consideration of potential voting rights only if they could be exercised immediately while disregarding management's intentions and financial ability to exercise such rights. IFRS 10 also prescribes that an investor may have control even if it holds less than a majority of the investee's voting rights (de facto control), as opposed to the provisions of the existing IAS 27 which permits a policy choice between two consolidation models - the de facto control model and the legal control model. IFRS 10 is to be applied retrospectively in financial statements for annual periods commencing on January 1, 2013, or thereafter.

The Group estimates that the adoption of IFRS 10 is not expected to have a material effect on the financial statements.

-        IFRS 12 - Disclosure of Interests in Other Entities:

IFRS 12 prescribes disclosure requirements for the Company's investees, including subsidiaries, joint arrangements, associates and structured entities. IFRS 12 expands the disclosure requirements to include the judgments and assumptions used by management in determining the existence of control, joint control or significant influence over investees, and in determining the type of joint arrangement. IFRS 12 also provides disclosure requirements for material investees.

The required disclosures will be included in the Group's financial statements upon initial adoption of IFRS 12.

1.     Accounting policies (Cont.)

The standard is effective for annual periods beginning on or after 1 January, 2013. The Group estimates that IFRS 12 is will not have a material impact on its financial statements.

-        IFRS 13  Fair Value Measurement:

IFRS 13 establishes guidance for the measurement of fair value, to the extent that such measurement is required according to IFRS. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. IFRS 13 also specifies the characteristics of market participants and determines that fair value is based on the assumptions that would have been used by market participants. According to IFRS 13, fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market. IFRS 13 requires an entity, when using a valuation technique to measure fair value, to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. IFRS 13 also includes a fair value hierarchy based on the inputs used to determine fair value as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - unobservable inputs (valuation techniques that do not make use of observable inputs).

IFRS 13 also prescribes certain specific disclosure requirements. The provisions of IFRS 13 are to be applied prospectively for financial statements for annual periods commencing on January 1, 2013 or thereafter. Earlier application is permitted. At initial application of IFRS 13, the new disclosures will not be required for comparative data.

The Group estimates that IFRS 13 is will not have a material impact on its financial statements.

-        IAS 19 (as revised in 2011) Employee Benefits:

The revised IAS 19 makes changes to the recognition and measurement of defined benefit plans and termination benefit and to the disclosures for all employee benefits within IAS 19. Set forth below is a summary of the key changes:

-    "Actuarial gains and losses" are renamed "re-measurements" and will be recognized immediately in OCI. Actuarial gains and losses will no longer be deferred using the "corridor" approach or recognized in profit or loss.

-    Past-service costs will be recognized immediately in the period of a plan amendment including unvested benefits.

-    Annual expense for a funded benefit plan will include net interest expense or income, calculated by applying the discount rate to the net defined benefit asset or liability. This will replace the "finance charge" and "expected return on plan assets" currently applied under IAS 19.

-    The distinction between short-term and long-term benefits for measurement purposes shall be based on when payment is expected in full, not when payment can be demanded.

1.     Accounting policies (Cont.)

-    A clarification that any benefit that has a future-service obligation is not a termination benefit. A liability for a termination benefit is recognized when the entity can no longer withdraw the offer of the termination benefit or recognizes any related restructuring costs.

The amendment is effective for periods beginning on or after 1 January 2013. Earlier application is permitted. The amendment should be applied retrospectively, except for:

a) An entity needs not to adjust the carrying amount of assets outside the scope of IAS 19 (2011) for changes in employee benefits costs that were included in the carrying amount before the date of initial application of the amendment.

b) Comparative information for the disclosures required in the amendment to IAS 19 about the sensitivity of the defined benefit obligation will not needed in financial statements for periods beginning before January 1, 2014.

The Group is studying the expected effect of IAS 19 on its financial statements and the timing of its application.

2.     Revenues

			For the year ended December 31,
			2012		2011
			$'000		$'000
Revenues arises from:
Sale of goods			10,278		11,642
Projects			2,433		3,059
			12,711		14,701

3.       Profit from operations

			For the year ended December 31,
			2012		2011
This has been arrived at after charging:			$'000		$'000
Wages and salaries			4,747		5,160
Depreciation			482		493
Material and subcontractors			6,050		7,173
Operating lease expense			48		57
Plant, Machinery & Usage			539		563
Travel & Exhibition			244		234
Advertising & Commissions			106		141
Consultants			231		255
Others			575		374
			13,022		14,450

4.       Segments

The accounting policy for operating segments is consistent with that described in Note 1 "Segment reporting".

1.   Segment information

               The Group's primary reporting format for reporting segment information is business segments.

		For the year ended December 31, 2012
		Commercial		Military		Total
		$'000		$'000		$'000
Revenue
External		10,686		2,025		12,711
Total		10,686		2,025		12,711
Segment income (loss)		399		(710)		(311)
Unallocated corporate expenses
Finance income, net						43
Loss before income tax						(268)
Other
Depreciation and other    non-cash expenses		434		48		482

		For the year ended December 31, 2011
		Commercial		Military		Total
		$'000		$'000		$'000
Revenue
External		11,213		3,488		14,701
Total		11,213		3,488		14,701
Segment income		128		123		251
Unallocated corporate expenses
Finance expenses, net						293
Loss before income tax						(42)
Other
Depreciation and other    non-cash expenses		419		74		493

(*) The Group cannot distinguish between Commercial and Military assets and liabilities, due to the fact that some of the assets and liabilities are used by both segments.

4.       Segments (Cont.)

2.     Entity wide disclosure.

		External revenue by location of customers
		2012		2011
		$'000		$'000
Israel		6,774		7,941
North America		2,589		3,794
Europe		2,040		1,944
Asia		862		634
Other		446		388
		12,711		14,701

Revenues reported in the financial statements for a group of similar products or services:

Due to the diversity of the company's product it is not practical to categories them to different groups.

3.     Additional information about revenues:

Revenues from major customers each of whom amount to 10% or more of total revenues reported in the financial statements:

		For the year ended December 31,
Revenues		2012		2011
		$'000		$'000
Customer A - Commercial segment		2,713		1,838
Customer B - Commercial segment		1,518		1,085
Others		8,480		11,778
		12,711		14,701

5.     Finance expense and income

	For the year ended December 31,
	2012	2012	2011	2011
	$'000	$'000	$'000	$'000
Finance expense
Interest on bank loans	111		117
Loses from financial assets classified as held  for trading	-		294
Interest and bank fees	75		45
		186		456
Finance income
Gains from financial assets classified as held  for trading	210		-
Interest received on bank deposits	8		9
Net Foreign exchange gain	11		154
		229		163
		(43)		293

6.     Income Tax

A.    Tax Laws in Israel:

1.  Law for the Encouragement of Capital Investments, 1959:

Pursuant to the provisions of the said law, the Group is eligible for tax benefits resulting from implementation of programs for investment in assets, in accordance with the letters of approval they received ("approved enterprises"), which grant the Group the right to exemption from tax for a period of two year and subsequent to such period - to tax at a reduced rate of 25% on income derived from the approved enterprise, subject to fulfilment of the conditions stipulated in the letter of approval.

The period in which the Group will enjoy the tax exemption or reduced tax rate is limited in each letter of approval to seven years from the first year in which taxable income is earned (actual - from the year 2005). If the percentage of a company's share capital held by foreign shareholders exceeds 25%, the Group will be entitled to reduced tax rates for a further five years.

From the year 2008 the Group decided to no longer take advantage of the reduced tax rate.

If the Group distributes dividends out of the exempt income of the approved enterprise, the Group will be subject to tax at the rate of 25% on the distributed income.

Amendments to the Law for the Encouragement of Capital Investments, 1959:

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The Amendment became effective as of January 1, 2011. According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income. Commencing from the 2011 tax year, the Group will be able to opt to apply (the waiver is non-recourse) the Amendment and from the elected tax year and onwards, it will be subject to the amended tax rates that are: 2011 and 2012 - 15%, 2013 and 2014 - 12.5% and in 2015 and thereafter - 12%.

The Group applied the Amendment effective from the 2011 tax year. Accordingly, the Group has adjusted its deferred tax balances as of December 31, 2011 by the amount of USD 14 thousand against income tax.

2.  Tax rates:

In July 2009, the Knesset passed the Economic Efficiency Law 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%.

On December 5, 2011, the Knesset passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Law") which, among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate. The Law also increases the corporate tax rate to 25% in 2012. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate were also increased accordingly.

6.     Income Tax (Cont.)

A.    Tax Laws in Israel (cont):

Since the company is applying the Amendments to the Law for the Encouragement of Capital Investments, 1959 the applicable corporate tax rate for 2011 and 2012 - 15%, 2013 and 2014 - 12.5% and in 2015 and thereafter - 12% and the real capital gains tax rate and the real betterment tax rate 25% for 2012 onwards.

B.    The principal tax rates applicable to the subsidiaries whose place of incorporation is outside Israel are:

A company incorporated in India - The statutory tax rate is 36% and the company is in exempt zone until end of March 2013. Nevertheless in the absence of taxable income the Indian regulation states that the company must pay Minimum Alternate tax rate which is 50% of the tax rate (the 36%) out of the accounting profit paid as an advanced for future years, if the Company becomes tax liable.

A company incorporated in Switzerland - The weighted tax rate applicable to a company operating in Switzerland is about 25% (composed of Federal, Cantonal and Municipal tax). Provided that the company meets certain conditions, the weighted tax rate applicable to its income in Switzerland will not exceed 10%.

C.    Income tax assessments:

The Company has tax assessments considered as final up and including the year 2005.

	For the year ended December 31,
	2012	2012	2011	2011
	$'000	$'000	$'000	$'000
Current tax expense
Income tax on profits for the year	62		47
		62		47
Deferred tax income
Origination and reversal of temporary  differences	28		(141)
Adjustment of deferred tax balances due to change in Tax rates of the benefit tracks	-		14
		28		(127)
Taxes in respect of previous years	(165)		-
		(165)		-
Total tax charge		(75)		(80)

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:

	For the year ended December 31,
	2012	2011
	$'000	$'000
Loss before income tax	(268)	(42)
Tax saving computed at the corporate rate in Israel of 15% (2011 - 15%)	(40)	(6)
Expenses not deductible for tax purposes	-	3
Income not subject to tax	(30)	36
Taxes resulting from different tax rates applicable to foreign subsidiaries	(35)
Losses and temporary differences for which deferred taxes were not recorded	195	(127)
Taxes in respect of previous years	(165)	-
Other	-	14
Total income tax	(75)	(80)

7.     Earnings per share

Net earnings (loss) per share attributable to equity holders of the Company

			For the year ended December 31,
			2012		2011
			$'000		$'000
Earnings (Loss) used in basic EPS			(312)		3
Earnings (Loss) used in diluted EPS			(312)		3
Weighted average number of shares used in basic EPS			51,571,990		51,571,990
Weighted average number of shares used in diluted EPS			51,571,990		51,571,990
Basic net EPS ($)			(0.0060)		0.0001
Diluted net EPS ($)			(0.0060)		0.0001

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 note 24.

8.     Dividends

			For the year ended December 31,
			2012		2011
			$'000		$'000
Dividend of 1.93 cents per ordinary share proposed and  paid during the year relating to the previous years results			-		995

The board of directors is proposing a dividend of 0.58 cents per share totaling US$ 299 thousands. This dividend has not been accrued at the reporting date.

9.     Property, plant and equipment

	Building	Machinery & equipment	Office furniture & equipment	Computer equipment	Vehicles	Total
	$'000	$'000	$'000	$'000	$'000	$'000
At 31 December 2011
Cost	4,562	4,038	254	1,152	-	10,006
Accumulated depreciation	310	2,970	201	1,060	-	4,541
Net book value	4,252	1,068	53	92	-	5,465
At 31 December 2012
Cost	4,572	4,309	261	1,195	130	10,467
Accumulated depreciation	431	3,230	209	1,113	6	4,989
Net book value	4,141	1,079	52	82	124	5,478
Year ended 31 December 2011
Opening net book value	4,116	1,204	60	126	-	5,506
Additions	258	129	1	29	-	417
Depreciation	122	265	8	63	-	458
Closing net book value	4,252	1,068	53	92	-	5,465
Year ended 31 December 2012
Opening net book value	4,252	1,068	53	92	-	5,465
Additions	11	271	7	41	130	460
Depreciation	122	260	8	51	6	447
Closing net book value	4,141	1,079	52	82	124	5,478

10.   Investment Property

Composition and movement of Rental properties:

		31.12.2012		31.12.2011
		$'000		$'000
Cost:
Balance at January 1		1,380		1,380
Additions during the year:
Transfer from property, plant and equipment		-		-
Total additions		1,380		1,380
Disposals during the year:
Realizations		-		-
Total disposals		-		-
Balance at December 31		1,380		1,380
Accumulated depreciation:
Balance at January 1		35		-
Additions during the year:
Depreciation		35		35
Total additions		70		35
Disposals during the year:
Realizations		-		-
Total disposals		-		-
Balance at December 31		70		35
Depreciated cost at December 31		1,310		1,345

On December 2011 the Company acquired from its largest shareholder, MTI Computers & Software Services (1982) Ltd. ("MTI Computers"), the leasehold interest of its head office located at 11 Hamelacha St., Afek Industrial Park, Rosh-Ha'Ayin, 48091, Israel (the "Property").

The Company occupies approximately 75 percent of the Property; therefore it had entered into a lease agreement with MTI Computers (which can sub lease part of the area) occupying approximately 1,100 square meters of the Property. The term of the lease is for an initial period of 5 years, with an option to extend the lease for an additional 5 year period (the "Option Period"). The rent for the leased area is US$ 10,000 per month throughout the initial period and will be increased by an amount of 10 percent for the Option Period. In addition to the monthly rental payments, the tenants will pay to the Company a monthly management payment of US$ 7,150 per month as a contribution towards certain expenses (including insurance, the use of the car park, maintenance services, rates, water and electricity). This amount will be increased by 3 percent on a yearly basis.

The Group estimates that there is no significant change in the fair value of the investment property since the acquisition date.

11.   Deferred Tax Assets

Deferred tax is calculated on temporary differences under the liability method using the tax rate at the year the deferred tax assets are recovered.

        The movement on the deferred tax account is as shown below:

		31.12.2012		31.12.2011
		$'000		$'000
At 1 January 2012		248		121
Profit and loss charge		(28)		127
At 31 December 2012		220		248

Deferred tax assets have been recognized in respect of all differences giving rise to deferred tax assets because it is probable that these assets will be recovered.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

        Details of the deferred tax amounts charged to reserves are as follows:

		Charged to reserves 2012		Charged to reserves 2011
		$'000		$'000
Accrued severance pay		43		48
Other provisions for employee-related obligations		29		30
Research and development expenses deductible over 3 years		148		91
Carry forward tax losses		-		79
		220		248

Deferred tax assets relating to carry forward operating losses of approximately $ 159 thousand were not recognized in 2012 because their utilization in the foreseeable future was not probable.

Deferred tax assets relating to carry forward capital losses of the Group total approximately $865 and $797 thousand as of December 31, 2011 and 2012 respectively were not recognized in the financial statements because their utilization in the foreseeable future is not probable.

12.   Inventories

		31.12.2012		31.12.2011
		$'000		$'000
Raw materials and consumables		1,827		2,054
Work-in-progress		104		18
Finished goods and goods for resale		1,016		924
		2,947		2,996

13.   Trade and other receivables

Balance as of		31.12.2012		31.12.2011
		$'000		$'000
Trade receivables		4,373		5,274
Other receivables		520		508
		4,893		5,782

        Trade receivables:

		31.12.2012		31.12.2011
		$'000		$'000
Trade receivables (*)		3,321		4,061
Unbilled receivables - Projects		1,018		1,157
Checks receivable		45		67
Allowance for doubtful accounts		(11)		(11)
		4,373		5,274

 (*)    Trade receivables are non-interest bearing. They are generally on 60-90 credit day terms.

As at 31 December 2012 trade receivables of $627K (2011 - $271K) were past due but not impaired.

They relate to the customers with no default history. The ageing analysis of these receivables is as follows:

		31.12.2012		31.12.2011
		$'000		$'000
Up to 3 months		217		182
3 to 6 months		353		13
6 to 12 months		57		76
		627		271

Unbilled receivables:				31.12.2012			31.12.2011
				$'000			$'000
Actual completion costs				2,326			3,592
Profit recognised				173			783
Billed revenue				(1,481)			(3,218)
Total Unbilled receivables - Projects					1,018			1,157

The balance of Unbilled receivables represents undue amounts at reporting date (no past due amounts).

Other receivables:

		31.12.2012		31.12.2011
		$'000		$'000
Prepaid expenses		48		180
Advances to suppliers		402		307
Employees (*)		15		18
Other receivables		55		3
		520		508

 (*)       Balances with employees are linked to the consumer price index and bear annual interest of 4%.

14.     Other current financial assets

		31.12.2012		31.12.2011
		$'000		$'000
Fair value through profit or loss*		2,413		6,203
Bank deposits		90		448
		2,503		6,651

* consist of marketable securities.

15.     Cash and cash equivalents

		31.12.2012		31.12.2011
		$'000		$'000
In New Israeli Shekels
Cash on hand and in banks		203		226
In U.S. dollars
Deposits with banks		4,445		399
Total		4,648		625

       The deposits are not linked and bear interest mainly up to 1% as of December 31, 2012 (2011 - 0.9%).

16.   Loans from banks

Composition:

		31.12.2012		31.12.2011
		$'000		$'000
US Dollars - unlinked		2,063		2,313
Less - current maturities		250		250
		1,813		2,063

The company received $ 2,500,000 loan for the purchase of the company building in Rosh ha'ayin, Israel, secured by a mortgage on the said asset. The loan is for 10 years, the repayment on a quarterly basis from April 2011 until January 2021 and bears interest at a fixed rate of 4.9%.

The bank loan is secured by a fixed charge over the Group's freehold land and building /property.

Maturity dates after the date of the statement of financial position as of December 31, 2012:

		First year		Second year		Third year		Fourth year		Fifth year		Sixth year and thereafter
		$'000
Long-term loan		250		250		250		250		250		813

17.   Employee benefits

A.    Composition:

	As at December  31
	2012		2011
	$'000		$'000
Present value of the obligations	769		812
Fair value of plan assets	(513)		(547)
	256		265

B.    Movement in plan assets:

	As at December  31
	2012		2011
	$'000		$'000
Year begin	547		578
Foreign exchange gains (losses)	13		(41)
Expected return	24		26
Return on plan assets	(9)		(10)
Benefit paid	(64)		-
Actuarial gain (loss)	2		(6)
Year end	513		547

C.    Movement in the liability for benefit obligation:

	As at December  31
	2012		2011
	$'000		$'000
At 1 January 2012	812		850
Foreign exchange losses (gains)	19		(60)
Interest cost	37		39
Current service cost	46		52
Benefits paid	(94)		(9)
Actuarial gain	(51)		(60)
At 31 December 2012	769		812

Supplementary information

1.       The Group's liabilities for severance pay retirement and pension pursuant to Israeli law and employment agreements are full covered - in part by managers' insurance policies, for which the Group 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.

17.   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.

4.       Principal nominal actuarial assumptions:

		As at December 31,  2012		As at December  31,  2011
Discount rate on plan liabilities		3.97%		4.56%
Expected rate of return on plan assets		4.09%		4.55%
Expected increase in pensionable salary		2%		2.5%

D.  The expenses and income in the statement of comprehensive income from employee benefits are included as salary and wage expenses in the relevant clauses.

Expenses recognized in the statement of income:

	For the year ended December 31,
	2012		2011
	$'000		$'000
Current service cost	46		52
Interest cost on benefit obligation	37		39
Expected return on plan assets	(24)		(26)
Net actuarial gain recognized in the year	(53)		(54)
Past service cost	9		10
Others	(24)		(28)
Total employee benefit income	(9)		(7)

The expenses are presented in the statement of income as follows:

	For the year ended December 31,
	2012		2011
	$'000		$'000
Cost of sales	(15)		6
Research and development expenses	(4)		2
Selling and marketing expenses	1		2
General and administrative expenses	3		2
Finance expense (income)	6		(19)
	(9)		(7)

18.   Provisions

		Legal disputes		Royalties to BIRD Foundation		Total
		$'000		$'000		$'000
At 1 January 2012		30		86		116
Paid		(30)		-		(30)
Charged to profit or loss		-		106		106
At 31 December 2012		-		192		192
Due within one year or less		-		20		20
Due after more than one year		-		172		172
		-		192		192

A.   The Group was involved in a legal dispute (see note 25C).

B.   During 2009 - 2012 the Company received a Conditional Grant from the Israel-U.S. Bi-national Industrial Research and Development Foundation (henceforth "BIRD"). The Company is obligated to repay BIRD the total Conditional Grant received, referred to as "the Repayment".  Repayments are made at the rate of 5% of each $ of reported sales revenue up to a maximum of 150% of its investment linked to the U.S. Consumer Price Index (CPI), from revenue generated by the Product's sales upon successful commercialization.

19.   Trade and other payables

		For the year ended December 31,
		2012		2011
		$'000		$'000
Trade payables		1,086		2,003
Employees' wages and other related liabilities		534		623
Advances from receivables		31		70
Accrued expenses		318		75
Government authorities		12		99
Others		-		17
Related parties		26		21
		2,007		2,908

20.   Current maturities of Loans

			For the year ended December 31,
	interest rate		2012		2011
	%		$'000		$'000
Current maturities of long-term bank loans	4.9		250		250

21.   Financial instruments - Risk Management

        The Group is exposed through its operations to one or more of the following financial risks:

·    Foreign currency risk

·    Credit risk

Foreign currency risk

Foreign exchange risk arises when Group operations enter into transactions denominated in a currency other than their functional currency. Management does mitigate that risk by holding some cash and cash equivalents and deposit accounts in Israeli NIS. The company also sell from time to time some forwards on the NIS/$ exchange rate to cover some of the costs of salaries.

In order to mitigate the currency risk the Company sold in December 2012 USD against the NIS in the following manner:

Date of transaction	$'000	Exchange rate
2.1.2013	300	3.9671
1.2.2013	300	3. 9697
1.3.2013	300	3.971
2.4.2013	180	3.974
1.5.2013	180	3.977
3.6.2013	180	3.981

Liquidity Risk

The Group have sufficient availability of cash to meet its obligations by cash management, including the short-term investment of cash surpluses and the raising of loans to cover cash deficits, subject to Group policies and guidelines.

Credit risks

Financial instruments which have the potential to expose the Group to credit risks are mainly deposits accounts, trade receivables, other receivables and long term debts.

The Group holds cash and cash equivalents and deposit accounts at large banks in Israel and in the Switzerland, thereby substantially reducing the risk of loss.

With respect to trade receivables, the Group believes that there is not a material credit risk for which a provision was not made in light of the fact that the Group's policy to assess the credit risk instruments of customers before entering contracts.

Moreover, the Group evaluates trade receivables on a day to day basis and adjusts the allowance for doubtful accounts accordingly.

Fair value

The carrying amount of cash and cash equivalents, short-term investments, trade receivables, other accounts receivable, credit from banks and others, trade payables and other accounts payable approximate their fair value.

21.   Financial instruments - Risk Management (Cont.)

Sensitivity tests relating to changes in market price of listed securities:

As at December 31, 2012 the Group investments were in various different liquid securities with maturity until June 2014. Most of the securities are 100% capital guaranteed at maturity and therefore under the assumption that the Group will not sell at loss before maturity and only parameter (the relevant for each fund herein "market price") is change, by increase or decrease of 5% in the market price the gain and the change in equity would not be more than US$ 100 thousand or 0, receptivity, compared to the value at 31 December 2012

The changes in the relevant risk variables were determined based on management's estimate as to reasonable possible changes in these risk variables.

The Group has performed sensitivity tests of principal market risk factors that are liable to affect its reported operating results or financial position. The sensitivity tests present the profit or loss and change in equity (before tax) in respect of each financial instrument for the relevant risk variable chosen for that instrument as of each reporting date. The test of risk factors was determined based on the materiality of the exposure of the operating results or financial condition of each risk with reference to the functional currency and assuming that all the other variables are constant.

The sensitivity tests for listed investments with quoted market price (bid price) were performed on possible changes in these market prices.

The Group is not exposed to cash flow risk due to interest rate since the long-term loan bares fixed interest.

The following table demonstrates the carrying amount and fair value of the groups of financial instruments that are presented in the financial statements not at fair value:

		Carrying amount				Fair value
		2012		2011		2012		2011
		$'000
Financial liabilities:
Long-term loan with fixed interest (1)		2,063		2,313		2,099		2,313

(1)        The fair value of long-term loan received with fixed interest is based on the computation of the present value of cash flows using interest rate currently available for loan with similar terms.

Classification of financial instruments by fair value hierarchy:

The financial instruments presented in the statement of financial position 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).

21.   Financial instruments - Risk Management (Cont.)

Financial assets measured at fair value:

December 31, 2012:

		Level 1		Level 2		Level 3
		$'000
Financial assets at fair value through profit or loss:
marketable securities		2,371		-		-

December 31, 2011:

		Level 1		Level 2		Level 3
		$'000
Financial assets at fair value through profit or loss:
marketable securities		6,203		-		-

Linkage terms of financial liabilities by groups of financial instruments pursuant to IAS 39:

December 31, 2012:

		Unlinked		Total
		$'000
Financial liabilities measured at amortized cost		2,063		2,063

22.    Subsidiaries:

The principal subsidiaries of Company, all of which have been consolidated in these consolidated financial statements, are as follows:

Name	Country of incorporation	Proportion of ownership interest at 31 December
		2012	2011
AdvantCom Sarl	Switzerland	100%	100%
Global Wave Technologies PVT Limited	India	80%	80%

On March 2008, the Company invested in establishing a wholly owned subsidiary Switzerland based AdvantCom Sarl, (hereafter AdvantCom). AdvantCom is engaged in selling and distributing of antennas and accessories and in manufacturing through an Indian subsidiary.

In 2008, AdvantCom Sarl established Global Wave Technologies PVT Limited (India), a wholly-owned subsidiary which specialises in selling and distributing and manufacturing of antennas and accessories. In February 2009, pursuant to the founder's agreement, 20 percent of the issued and outstanding share capital of GlobalWave Technologies PVT Ltd was allotted to third party investors in return for approximately $5,000. 

23.   Share capital

	Authorized
	2012		2012		2011		2011
	Number		NIS		Number		NIS
Ordinary shares of NIS 0.01 each	100,000,000		1,000,000		100,000,000		1,000,000

	Issued and fully paid
	2012		2012		2011		2011
	Number		NIS		Number		NIS
Ordinary shares of NIS 0.01 each at    beginning of the year	51,571,990		515,720		51,571,990		515,720
Changes during the year	-		-		-		-
At end of the year	51,571,990		515,720		51,571,990		515,720

24.     Share-based payment

An option scheme for key Directors and Employees was approved at the Company's Annual General Meeting on May 15, 2008. Under the plan, options for 1.5 million shares were granted on July 15, 2008. The vesting date of 1st April 2011 and an exercise price of 30 pence (representing approximately 60 cents at the time of grant, 47 cents as of December 31, 2012) per share. The fair value for each option according Black and Scholes option pricing method which was used is 5 pence (approximately 11 cents at the time of grant, 8 cents as of December 31, 2012).

A new option scheme for key Directors and Employees was approved at the Company's Annual General Meeting on May 20, 2011. Under the plan, options to purchase 1.2 million ordinary shares were granted (each option to one ordinary share). This represents approximately 2.3% of the Company's current issued and voting share capital of 51,571,990 ordinary shares. Among those 180,000 and 150,000 options were granted to the C.E.O and to the Finance Director respectively. Each option vest over a period of three years ending May 31, 2014, unexercised options expire eight years after date of the grant. Non vested options are forfeited when the employee leaves the Company and vested ones must be exercised within 90 days from such leave. There is no cashless settlement of the options.

The weighted average fair value of the options as at the grant date is 7 pence (approximately 11 cents) per option, and was estimated using a Black and Scholes option pricing model based on the following significant data and assumptions:

Share price - 12.75 pence (representing approximately 21 cents)

Exercise price - 13.5 pence (representing approximately 22 cents)

Expected volatility - 39.52%

Risk-free interest rate - 2.74%

Expected dividends - 0%

And expected average life of options 4.5 years

24.     Share-based payment (Cont.)

The volatility measured at the standard deviation of expected share price returns is based on the historical volatility of the Company.

The options were granted as part of a plan that was adopted in accordance with the provision of section 102 of the Israeli Income Tax Ordinance.

The following table lists the number of share options, the weighted average exercise prices of share options and modification in employee option plans during the current year:

	2012		2012		2011		2011
	weighted average exercise price		Number		weighted average exercise price		Number
	$				$
Outstanding at beginning of year	0.34		2,441,000		0.47		1,398,000
Granted during the year	-		-		0.21		1,200,000
Forfeited during the year	-		-		0.48		157,000
Exercised during the year	-		-		-		-
Lapsed during the year	-		-		-		-
Outstanding at the end of the year	0.34		2,441,000		0.34		2,441,000
Exercisable at the end of the year	0.47		1,241,000		0.47		1,241,000

The weighted average remaining contractual life for the share options outstanding as of December 31, 2012 was 4.81 years (2011 - 5.81 years).

The expense recognized in the financial statements for employee services received for the year ended December 31, 2012 and 2011 was US $44,000 and US $39,000 respectively.

25.     Commitments and guarantees

A.       Royalty commitments

The Group is committed to pay royalties to the Government of Israel on proceeds from sales of products in the research and development of which the Government participates by way of grants. Under the terms of Group's funding from the Israeli Government, royalties of 2%-3.5% are payable on sales of products developed from a project so funded, up to 100% of the amount of the grant received, including amounts received by the Parent Group through July 1, 2000.

The maximum royalty amount payable by the Group at December 31, 2012 is US$ 470,000.

During the year 2012 the Group did not pay any royalties.

B.       Guarantees

The Group has guarantees in favour of customers in the amount of US$ 590,000. The guarantees are mainly to guarantee advances received from customers and performance of contracts signed.

25. Commitments and guarantees (Cont.)

C.       liability

On July 3, 2005, Mars Antenna RF Systems Ltd. ("Mars") filed a complaint (Civil Case No. 05/1867) in the District Court of Tel Aviv-Yafo against the Group, the parent Group and the CEO of the Group (See note 18).

During the first quarter of 2012 the Group recognised an expense of $300K US into the general and administration costs as negotiations with Mars progressed and in November 2012 the parties signed a settlement agreement which received a court ruling.

26.     Transactions with related parties

The Parent Group and other related party provides certain services to the Group as follows:

	2012		2011
	$'000		$'000
Purchased Goods	268		165
Management Fee	282		259
Services Fee	160		160
Lease	(120)		(120)
	590		464

Compensation of key management personnel of the Group:

	2012		2011
	$'000		$'000
Short-term employee benefits *)	605		596

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

All Transactions are made on market value. As of December 31, 2012 the parent group and related party owed to the Group US $30,000 while in December 31, 2011 the Group owes to the parent group and related party US $5,000.

27.     Subsequent events

A.    The Board of directors have decided to declare a dividend of 0.58 cent per share being approximately $299,000

B.    The financial statements were authorized for issue by the board as a whole following their approval on February 19, 2013.

 

END

 

 

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