TIDMMTT
RNS Number : 1554L
Metal-Tech Ltd
30 April 2010
30 April 2010
Metal-Tech Ltd.
("Metal-Tech" or "the Company")
Results for the year ended 31 December 2009
Metal-Tech, the producer and recycler of specialty metals such as Tungsten and
Molybdenum, announces results for the year ended 31 December 2009.
Financial Summary:
· Revenue of $36.7m (2008: $138.3m)
· Loss attributed to equity holders of $17.5m (2008: $9.1m loss)
· Loss per share of $0.46 (2008: $0.24 loss)
· Operating expenses reduced 21% to $8.7m (2008: $10.9m)
· Reduction of level of bank debt by 17% since 31 December 2008 from US$33.7m
to US$27.9m at 31 December 2009
· Cash, cash deposits and restricted cash balance at 31 December 2009 were
$9.9m (31 December 2008: $15.1m)
· Cash generated from operations of approximately $2m
Operational Summary:
· Global economic conditions severely impacted demand for Molybdenum and
Tungsten
· Strong and healthy relationship with customers and focus on new accounts
· Tungsten revenue was up by 37% in H2 2009 compared with H1 2009 as recovery
started towards the end of the year
· Reduced operating costs throughout the business
· Strong focus maintained on R&D in strategic areas
· Actively searching for solutions to recommence production in Mongolia
· Following the end of the year, filed a Request for Arbitration against the
Republic of Uzbekistan related to that country's unlawful treatment of
Metal-Tech's 50 per cent. investment in Uzmetal Technology
Current Year and Outlook
· Continued focus on resolving issues while driving business forward
· Strong recovery in sales of Tungsten set to continue
· Prudent view not to anticipate sales of Molybdenum whilst looking at
options to resume production in the year
· Continued disciplined approach to cost control
Commenting on the results, Aik Rosenberg, Executive Chairman of the Company,
said: "2009 was a difficult year for the Company as it sought to counteract the
impact of the global economic downturn. We responded appropriately by cutting
our costs and reducing our inventories level whilst continuing our R&D
activities in our proprietary recycling and hydrometallurgy technologies and
supporting targeted new business initiatives.
"Looking ahead we have entered 2010 with improved demand for Tungsten from both
established and new customers and expect sales of the metal to be significantly
higher in 2010 than in the previous year. The management continues to take a
disciplined approach to cost control and by pursuing targeted business
development it has placed the Company in good position to take advantage of
market opportunities as they arise."
Enquiries:
Metal-Tech Ltd.
Ariel (Aik) Rosenberg
+972 544 215454
Panmure Gordon
Edward Farmer, Stuart Gledhill
+44 20 7459 3600
Corfin Communications
Harry Chathli, Alexis Gore
+44 20 7977 0020
Operational Review
2009 has been a tough year for the Company as it sought to counteract the impact
of the slowdown in global economic conditions as well as resolve operational
issues throughout its businesses, especially in Mongolia and Uzbekistan. The end
markets such as automotive, drilling, aviation, cutting tools, construction and
engineering, in which Metal-Tech's customers' products are used were impacted by
the downturn which resulted in revenues decreasing to US$36.7m (2008:
US$138.3m).
Specifically, there were no sales of Molybdenum in the second half of the year
and the Company does not expect any sales throughout 2010. However, sales of
Tungsten improved dramatically toward the end of the year and are expected to
continue. This was as a result of the management's strategy to improve the
Tungsten's marketing system. Gross margins were negative percentage (2008: 27%)
as a result of falling metal prices, along with the Company's continued success
at reducing inventory levels.
Throughout the year the Company took quick action in managing its operational
costs and to improve efficiency at the plant in Israel. Budget savings were made
throughout the business and reduced investments in non core activities. The
Company continues to focus on cash generation including the reduction of
inventory levels as well as the working capital invested. Accordingly as at 31
December 2009, the cash and cash deposits balance of the Company was $5.8
million (2008: $12 million) which is sufficient to meet the Company's current
financing costs and expected operating expenses. While there has been a focus on
cash generation, the financial expenses were higher principally as a result of
exchange rate movements and higher interest rates.
Focus on R&D
The Directors believe continued investment in R&D will keep it ahead of its
competition. Spending on R&D will be directed to support new business
development initiatives with emphasis on high return opportunities. As stated
previously, the Company invested in its South American projects such as the
Codelco Project and the development of new hydrometallurgy technologies for
recovering Molybdenum, Tungsten and other metals from lower grade raw materials.
In the second half the Company invested in new technologies in the expansion of
its Israeli plant recycling capability and efficiency improvements in
production. Additionally, this week the Company has entered into an MOU with a
leading mining company to commence continuous testing of the Company's
proprietary pressure leaching technology at its semi industrial pilot plant
facility at Ramat Hovav, Israel.
Update on Mongolian Operations
The Company's Mongolian plant is still not in operation and shall remain so
until a more favourable financial climate and conditions arise. Metal-Tech
remains in negotiations with its Mongolian partner to secure suitable terms for
the resumption of supply in raw materials to the Company's Mongolian operations.
Metal-Tech continues to seek ways of restarting production at the plant and the
Company is currently in advanced talks from interested third parties.
Update on Uzbekistan Action
In January 2010, having exhausted all legal channels in Uzbekistan, the
Directors felt that they had no recourse but to file a Request for Arbitration
against the Republic of Uzbekistan related to that country's unlawful treatment
of Metal-Tech's 50 percent investment in Uzmetal Technology, a joint venture to
produce high-quality molybdenum products. The Request for Arbitration, filed
with the International Centre for Settlement of Investment Disputes (ICSID)
based in Washington, D.C., asserted Uzbekistan's breach of the Israel-Uzbekistan
Bilateral Investment Treaty, as well as violations of various standards of
treatment under international law and Uzbek legislation.
Metal Tech is seeking damages because the Company claims that Uzbekistan
breached its obligations by denying Uzmetal Technology necessary inputs of
molybdenum concentrate in mid-2006, thereby forcing the joint venture to become
idle for lack of raw materials to process. The damage to Metal-Tech was
exacerbated when Uzbekistan and its state-owned companies (which owned the other
50 per cent. of Uzmetal Technology) later forced the joint venture into
bankruptcy and eventual liquidation.
The case has made some progress with Metal-Tech having nominated its arbitrator
and with the expectation that the Republic of Uzbekistan nominate their
arbitrator within days and the parties nominate the chairman of the tribunal
soon after. The Company is prepared to submit its case next.
Financial Review
Revenues for the year ending 31 December 2009 were US$36.7m, down from
US$138.3m. Loss attributed to equity holders was US$17.5m, down from a loss of
US$9.1m in 2008. Gross loss was US$9.9m.
During the period, cash and cash equivalents decreased from US$ 12m at 31
December 2008 to US$5.8 million at 31 December 2009. Overall working capital has
decreased by 50% compared to 31 December 2008. Inventory decreased by US$21.3m
from US$47.9m at 31 December 2008 reflecting an effort to reduce existing
inventory levels. Receivables decreased by US1.35 m due to lower sales. The
Company continues to have a good relationship with its banks who remain
supportive of the business. The Company has reduced its debts to its banks from
US$33.7m at 31 December 2008 to US$27.9m at 31 December 2009. The Company is
committed to reduce this level even further by the end of the current year.
General and Administrative expenses decreased to US$4.5m from US$7.9m in the
equivalent period last year as a result of cost cutting exercise, streamlining
of the business including a reduction in headcount and decreased investment in
new business development activity.
Outlook
The Company has entered 2010 with strong demand for Tungsten and expect sales of
the metal to be significantly higher in 2010 than in the previous year. Due to
the problems with the Mongolian plant, the Company has taken the prudent view
not to anticipate any sales of Molybdenum in 2010. Metal-Tech continues to seek
ways of restarting production at the plant and the Company is currently in
advanced talks from interested third parties. The management continues to take a
disciplined approach to cost control and by pursuing targeted business
development it has placed the Company in good position to take advantage of
market opportunities as they arise.
CONSOLIDATED BALANCE SHEET
U.S. dollars in thousands
+-----------------+---------+----------+---------+
| | | December 31 |
+-----------------+---------+--------------------+
| | Note | 2009 | 2008 |
+-----------------+---------+----------+---------+
| ASSETS | | | |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
| CURRENT ASSETS: | | | |
+-----------------+---------+----------+---------+
| Cash and cash | 4 | 5,879 | 12,012 |
| equivalents | | | |
+-----------------+---------+----------+---------+
| Restricted cash | 5 | 3,992 | 3,150 |
+-----------------+---------+----------+---------+
| Available for | 6 | 86 | 28 |
| sale | | | |
| investments | | | |
+-----------------+---------+----------+---------+
| Trade | 7 | 9,752 | 11,153 |
| receivables | | | |
+-----------------+---------+----------+---------+
| Other accounts | 8 | 1,067 | 5,343 |
| receivable | | | |
+-----------------+---------+----------+---------+
| Inventories | 9 | 26,544 | 47,902 |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
| | | 47,320 | 79,588 |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
| NON-CURRENT | | | |
| ASSETS: | | | |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
| Investment in | 11 | - | - |
| joint ventures | | | |
+-----------------+---------+----------+---------+
| Deferred | 2b | - | 377 |
| finance costs | | | |
+-----------------+---------+----------+---------+
| Property, plant | 10 | 26,232 | 29,616 |
| and equipment | | | |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
| | | 26,232 | 29,993 |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
| Total assets | | 73,552 | 109,581 |
+-----------------+---------+----------+---------+
| | | | |
+-----------------+---------+----------+---------+
The accompanying notes are an integral part of the consolidated financial
statements
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | December 31 |
+-----------------------------------------------------------+--------------------+-----------------------------------------+
| | Note | 2009 | 2008 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| LIABILITIES AND EQUITY | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| CURRENT LIABILITIES: | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Short-term bank credit | 12 | 5,915 | 10,562 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Short-term loans and current maturities | 13 | 20,174 | 16,923 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Trade payables | | 8,342 | 17,435 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Income taxes payable | | 6,981 | 6,317 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Other accounts payable | 14 | 4,385 | 5,834 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | 45,797 | 57,071 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| NON-CURRENT LIABILITIES: | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Long-term loans | 15 | 1,863 | 6,220 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Employee benefit obligations | 16 | 305 | 241 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Deferred tax liabilities | 17 | - | 79 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | 2,168 | 6,540 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Total liabilities | | 47,965 | 63,611 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| EQUITY: | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Equity attributable to the equity holders of the Company: | 20 | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Issued capital | | 2,399 | 2,399 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Share premium | | 23,892 | 23,892 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Other reserves | | 714 | 624 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Retained earnings (accumulated deficit) | | (1,418) | 16,051 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | 25,587 | 42,966 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Minority interests | | - | 3,004 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Total equity | | 25,587 | 45,970 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
| Total liabilities and equity | | 73,552 | 109,581 |
+-----------------------------------------------------------+--------------------+--------------------+--------------------+
The accompanying notes are an integral part of the consolidated financial
statements
+---------------+------+-----------------------+
| April 30, | | |
| 2010 | | |
+---------------+------+-----------------------+
| Date of | | Ariel Rosenberg |
| approval of | | |
| the | | |
+---------------+------+-----------------------+
| financial | | CEO and Chairman of |
| statements | | the Board Of |
| | | Directors |
+---------------+------+-----------------------+
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands (except share and per share data)
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | Year ended December 31 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+-----------------------------------------+
| | Note | 2009 | 2008 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Revenues | 24a,b | 36,742 | 138,333 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Cost of sales before write-down of inventories | 23a | 45,164 | 127,518 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Gross profit (loss) before write-down of inventories | | (8,422) | 10,815 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Write-down of inventories | 23a | 1,497 | 7,501 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Gross profit (loss) | | (9,919) | 3,314 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Research and development expenses ,net | 23b | 655 | 1,497 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Selling and marketing expenses | 23c | 1,230 | 1,454 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| General and administrative expenses | 23d | 4,562 | 7,914 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Impairment loss on property, plant and equipment | 10 | 2,227 | - |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Total operating expenses | | 8,674 | 10,865 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Operating loss | | (18,593) | (7,551) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Finance costs | 23e | (2,455) | (3,559) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Finance income | 23e | 426 | 449 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Other income (expense), net | | (16) | 545 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Share of profit of joint ventures | 2a,c | - | 1,593 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Loss before tax | | (20,638) | (8,523) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Income tax benefit (expense) | 17 | 165 | (41) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Loss for the year | | (20,473) | (8,564) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Other comprehensive income: | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Gain from cash flow hedges | | - | 85 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Total other comprehensive income | | - | 85 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Total comprehensive loss | | (20,473) | (8,479) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Profit (loss) attributable to: | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Equity holders of the Company | | (17,469) | (9,125) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Minority interests | | (3,004) | 561 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | (20,473) | (8,564) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Total comprehensive income (loss) attributable to: | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Equity holders of the Company | | (17,469) | (9,040) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Minority interests | | (3,004) | 561 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | (20,473) | (8,479) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Basic and diluted loss per share attributable to Ordinary equity holders of the Company | | (0.46) | (0.24) |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| | | | |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
| Weighted average number of shares used in computing basic and diluted net loss per share attributable to Ordinary equity holders of the Company | | 38,376,923 | 38,376,923 |
+-------------------------------------------------------------------------------------------------------------------------------------------------+--------------------+--------------------+--------------------+
The accompanying notes are an integral part of the consolidated financial
statements
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | Attributable to equity holders of the | | |
| | Company | | |
+---------------+----------------------------------------------------------------+-----------+----------+
| | | | | | | | Retained | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | Share | | Share | | Other | | earnings | | Total | Minority | Total |
| | capital | | premium | | reserves | | (accumulated | | | interests | equity |
| | | | | | | | deficit) | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Balance | 2,399 | | 23,892 | | 624 | | 16,051 | | 42,966 | 3,004 | 45,970 |
| as of | | | | | | | | | | | |
| January | | | | | | | | | | | |
| 1, 2009 | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Total | - | | - | | - | | (17,469) | | (17,469) | (3,004) | (20,473) |
| comprehensive | | | | | | | | | | | |
| loss | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Cost | - | | - | | 90 | | - | | 90 | - | 90 |
| of | | | | | | | | | | | |
| share | | | | | | | | | | | |
| based | | | | | | | | | | | |
| payment | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Balance | 2,399 | | 23,892 | | 714 | | (1,418) | | 25,587 | - | 25,587 |
| as of | | | | | | | | | | | |
| December | | | | | | | | | | | |
| 31, 2009 | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | Attributable to equity holders of the | | |
| | Company | | |
+---------------+----------------------------------------------------------------+-----------+----------+
| | Share | | Share | | Other | | Retained | | | Minority | Total |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | capital | | premium | | reserves | | earnings | | Total | interests | equity |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Balance | 2,399 | | 23,892 | | 425 | | 25,176 | | 51,892 | 3,027 | 54,919 |
| as of | | | | | | | | | | | |
| January | | | | | | | | | | | |
| 1, 2008 | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Total | - | | - | | 85 | | (9,125) | | (9,040) | 561 | (8,479) |
| comprehensive | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Cost | - | | - | | 114 | | - | | 114 | - | 114 |
| of | | | | | | | | | | | |
| share | | | | | | | | | | | |
| based | | | | | | | | | | | |
| payment | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Dividend | - | | - | | - | | - | | - | (584) | (584) |
| paid to | | | | | | | | | | | |
| minority | | | | | | | | | | | |
| interests | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| Balance | 2,399 | | 23,892 | | 624 | | 16,051 | | 42,966 | 3,004 | 45,970 |
| as of | | | | | | | | | | | |
| December | | | | | | | | | | | |
| 31, 2008 | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
| | | | | | | | | | | | |
+---------------+---------+-+---------+-+----------+-+--------------+-+----------+-----------+----------+
The accompanying notes are an integral part of the consolidated financial
statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
+----------+----------------------------------------+-+------------+--+-----------+----------+
| | Year |
| | ended December 31 |
+----------+---------------------------------------------------------------------------------+
| | | 2009 | | 2008 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cash flows from operating activities: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Loss for the year | | (20,473) | | (8,564) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Adjustments to reconcile net loss to net cash | | | | | |
| provided by operating activities: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Adjustments to the profit or loss items: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Depreciation | | 2,335 | | 2,306 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Impairment of property, plant and equipment | | 2,227 | | - | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Write-down of inventories | | 1,497 | | 7,501 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Amortization and impairment of deferred finance | | 528 | | 151 | |
| costs | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Share of earnings of joint ventures | | - | | (1,593) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Gain on sale of equity interest | | - | | (604) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Loss (profit) on marketable securities | | (58) | | 67 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Gain on sale of property, plant and equipment | | (73) | | (195) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Employee benefit obligations | | 64 | | (236) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Accrued interest and foreign exchange differences | | 1,183 | | 426 | |
| on short and long-term liabilities, net | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cost of share based payments | | 90 | | 114 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Deferred taxes | | (79) | | 41 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Income tax benefit | | (86) | | - | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Other | | - | | (94) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | 7,628 | | 7,884 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Working capital adjustments: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease (increase) in trade receivables, net | | 1,401 | | (610) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease in other accounts receivable | | 4,125 | | 4,646 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease in inventory | | 19,861 | | 14,124 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease in trade payables | | (9,093) | | (8,609) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Increase in related parties, net | | (211) | | 7 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease in other accounts payable | | (1,094) | | 2,260 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | 14,989 | | 11,818 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cash paid and received during the year for: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Interest received | | 18 | | 242 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Interest paid | | (904) | | (1,756) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Income tax received | | 834 | | - | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Income tax paid | | (121) | | (4,012) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | (173) | | (5,526) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Net cash provided by operating activities: | | 1,971 | | 5,612 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cash flows from investing activities: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Purchase of property, plant and equipment | | (1,148) | | (6,116) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Proceeds from sale of property, plant and | | 116 | | 411 | |
| equipment | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Proceeds from disposal of investment in joint | | - | | 5,737 | |
| venture | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease (increase) in restricted cash | | (842) | | 3,411 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Net cash provided by (used in) investing | | (1,874) | | 3,443 | |
| activities | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cash flows from financing activities: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Dividend paid | | (180) | | (731) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Dividend paid to minority interests | | - | | (584) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Proceeds from short -term loans | | 185 | | 10,267 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Repayment of long-term loans | | (1,607) | | (11,116) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Decrease in short-term bank credit, net | | (4,628) | | (818) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Net cash used in financing activities | | (6,230) | | (2,982) | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Increase (decrease) in cash and cash equivalents | | (6,133) | | 6,073 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cash and cash equivalents at the beginning of the | | 12,012 | | 5,939 | |
| year | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Cash and cash equivalents at the end of the year | | 5,879 | | 12,012 | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Significant non- cash transactions: | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| Purchase of property, plant and equipment on | | 73 | | - | |
| credit | | | | | |
+---------------------------------------------------+-+------------+--+-----------+----------+
| | | | | | | |
+----------+----------------------------------------+-+------------+--+-----------+----------+
The accompanying notes are an integral part of the consolidated financial
statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1:- GENERAL
a. Company description:
Metal-Tech Ltd., an Israeli corporation located in Ramat-Hovav ("the Company")
and its subsidiaries ("the Group") manufacture, process and market high purity
and quality Tungsten and Molybdenum oxide and powders. In addition, the Group is
engaged in research and development in the fields of metallurgy, recycling and
fuel conservation.
b. The Group is currently dependent on one main supplier for Molybdenum
raw material, which is the minority shareholder in the Company's subsidiary in
Mongolia ("EMC") - see Note 2b.
During the fourth quarter of 2008, there was a drop in Molybdenum market prices
by approximately 70%, and the Company decided to temporarily suspend its
production in its Mongolian plant. The employees of the plant are on temporary,
partly compensatory leave. In 2009, the subsidiary Company continued to
experience low demand due to the impact of the slowdown in global economic
conditions. As of the date the financial statements were approved, the plant is
still not in operation. This production hiatus has been used for upgrading
production lines and limited maintenance, while continually assessing the market
conditions and other strategic alternatives.
Due to the above, the Company estimated the recoverable amount of the
Mongolian subsidiary's property, plant and equipment. Based on the assessment,
an impairment loss in the amount of $ 2,606 was recorded in the statement of
comprehensive income, see note 10.
The global economic crisis and the suspension of production in Mongolia had a
negative impact on the subsidiary's operating results and cash flows. The
subsidiary was unable to repay bank loan installments that matured in 2009.
Subsequent to balance sheet date, in April 2010, the subsidiary and the bank
reached an agreement to reschedule the repayment of the loan installments due in
2009 and 2010 see Note 15.
In 2009, the subsidiary incurred losses totaling $ 11,233 and as of December 31,
2009, the subsidiary has a working capital deficiency in the amount of $ 12,562.
From the end of 2009 and continuing into 2010, there has been a partial recovery
of the market price of Molybdenum. The Company has been in negotiations with EMC
to secure suitable terms for resumption of supply of raw materials to the
subsidiary and to rearrange its credit line with EMC. The Company has also taken
steps to enable the subsidiary to obtain the funds necessary to finance its
operations in the initial stages of production. Company management believes that
the aforementioned factors are favorable for the renewal of production of the
subsidiary's plant in the second half of 2010. However, it is uncertain whether
the subsidiary will succeed in renewing plant production since the Company's
plans are dependent on factors that are not within its control, including
reaching an agreement with the subsidiary's principal supplier.
c. The global economic crisis and adverse affect on the pricing and demand
of the Group's products have had an impact on the Group's operations. In 2009
and 2008, the Group incurred losses of $ 20,473 and $ 8,479, respectively. In
order to improve its liquidity position, the Company reached an agreement with
several banks according to which short-term loans were refinanced into long-term
loans, see Note 15. Despite the uncertainty regarding the renewal of production
in the subsidiary's plant, as described in b. above, Company management expects
that in any event the outcome of this uncertainty will not have a material
adverse impact on the rest of the Group's liquidity position. Furthermore,
Company management believes that funds generated from the Group's operations and
its present funding resources will be sufficient to enable the Group to continue
as a going concern and meet its obligations for the foreseeable future.
NOTE 2:- INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES
+------------------------------+-+----------------+---------+--+---------+
| | | Country of | December 31 |
| | | incorporation | |
+------------------------------+-+----------------+----------------------+
| | | | 2009 | | 2008 |
+------------------------------+-+----------------+---------+--+---------+
| | | | % |
+------------------------------+-+----------------+----------------------+
| | | | | | |
+------------------------------+-+----------------+---------+--+---------+
| Uzmetal Technology Ltd. (a) | | Uzbekistan | - | | - |
+------------------------------+-+----------------+---------+--+---------+
| Shim Technology Ltd. (b) | | Mongolia | 70 | | 70 |
+------------------------------+-+----------------+---------+--+---------+
| Metek Metal-Tech SA (c) | | Switzerland | 100 | | 100 |
+------------------------------+-+----------------+---------+--+---------+
| BIT Metal BV (c) | | Netherland | - | | - |
+------------------------------+-+----------------+---------+--+---------+
| Metal- Tech CZ (c) | | Czech | 100 | | 80 |
+------------------------------+-+----------------+---------+--+---------+
| Jar Ltd. - Inactive | | Russia | 100 | | 100 |
| | | (Birubijan | | | |
| | | autonomous | | | |
| | | region) | | | |
+------------------------------+-+----------------+---------+--+---------+
| Soltek Ltd. - Inactive | | Israel | 100 | | 100 |
+------------------------------+-+----------------+---------+--+---------+
a. Uzmetal Technology Ltd. ("Uzmetal"):
In March 2000, the Company together with AGMK and UzKTZM (two state owned Uzbek
companies) established Uzmetal.The equity interest in Uzmetal is as follows: the
Company-50%, UzKTZM-30% and AGMK-20%. The Company financed and managed the
construction of a plant in Uzbekistan which was completed in 2002.
Uzmetal processed raw materials at the AGMK site and sold its production of
Molybdenum to the Company.
Uzmetal relied solely on AGMK's mine for its supply of raw materials. The Uzbek
government issued a decree according to which Uzmetal had exclusivity for all
Molybdenum-contained materials extracted from AGMK's mine. The exclusivity was
also set forth in the contract between Uzmetal and AGMK. In July 2006 the Uzbek
government issued another decree resulting in the cancellation of the
exclusivity clause in the contract between the companies. AGMK ceased supplying
Uzmetal with materials, and asked Uzmetal to sign the agreement annulment.
Uzmetal refused to sign. AGMK applied to the court for its approval of the
annulment. Due to the lack of raw materials, Uzmetal ceased its principal
operations in July 2006.
In January 2007, the court approved the annulment of the agreement. Uzmetal
appealed and lost and then Uzmetal appealed to the Uzbek Supreme Court. In
August 2007, the court declared Uzmetal bankrupt. In October 2007, the Appellate
court rejected the Company's claims with respect to cancelling a previous ruling
made and did not accept that the Company is a creditor of Uzmetal, while it did
accept that the Uzbek shareholders are creditors of Uzmetal. In addition, the
court decided to start a liquidation process.
Until June 30, 2006, Uzmetal was consolidated in the Company's financial
statements. As of July 1, 2006, the Company did not solely control Uzmetal. The
autopilot mechanism was eliminated due to the cancellation of the exclusivity
clause, the expiration of the distribution agreement and the cessation of
Uzmetal's operations. The Company does not have the decision making power to
obtain the majority of the benefits of the activities of Uzmetal, but it had
joint control. Accordingly, for the period commencing July 1, 2006 and ending
December 31, 2007, Uzmetal as a jointly controlled entity was accounted for in
the consolidated financial statements using the equity method.
As a result of the court decisions that the Company is no longer a creditor of
Uzmetal in 2007, the Company in 2007 recorded its share of the losses of Uzmetal
and a provision for impairment for the entire carrying amount of its investment
in Uzmetal in the aggregate amount of $ 7,619.
In 2008 the Company adjusted the provision relating to the activity of Uzmetal,
and recorded a gain in the amount of $ 713.
The Company does not have any further obligations or liabilities relating to
Uzmetal.
Subsequent to the balance sheet date, on January 26, 2010 the Company filed a
Request for Arbitration against the Republic of Uzbekistan related to
Uzbekistan's unlawful treatment of the Company's 50 percent investment in
Uzmetal. The Company is seeking damages in the Request for Arbitration, filed
with the International Centre for Settlement of Investment Disputes (ICSID)
based in Washington, D.C., and asserts Uzbekistan's breach of the
Israel-Uzbekistan Bilateral Investment Treaty, as well as violations of various
standards of treatment under international law and Uzbek legislation, by denying
Uzmetal necessary inputs of Molybdenum concentrate thereby forcing Uzmetal to
become idle and later together with its state owned companies forced the joint
venture into bankruptcy and eventual liquidation, on the basis of which the
Company is seeking damages.
The financial statements do not include any income in respect of said claim.
b. Shim Technology Co. Ltd . ("Shim-Tech"):
In September 2003, the Company together with Erdenet Co. Ltd. ("Erdenet"), a
Mongolian mining Company, established Shim-Tech. The equity interest in
Shim-Tech is as follows: the Company-70% and Erdenet -30%. In May 2004, the
Company entered into an agreement with Shim-Tech under which the Company
undertook to obtain financing and manage the procurement, planning, construction
and supply of peripheral equipment in a project for the construction of a
Molybdenum production plant in Mongolia, for a total amount of $ 23,850. The
project was to be financed as follows: (i) 30%- equity invested by the
shareholders; (ii) 34%-Company credit; (iii) 36%-National Mongolian bank credit
through a transfer from an Israeli bank secured by the Israeli Foreign Trade
Risks Insurance Corporation Ltd. ("IFTRIC") for 7 years. Erdenet signed a
guarantee in favor of the Israeli bank in respect of any amounts that have been
secured by IFTRIC to an amount of $ 10,000. This guarantee was recorded at its
fair value as a deferred finance cost which is amortized on a straight-line
basis over the term of the loan. Due to the uncertainty regarding the possible
exercise of said guarantee, the Company decided to record an impairment loss for
the remaining amount of $ 528 thousand. The expense was recorded in financial
expenses, See Note 15.
In 2009, due to the suspension of production (see Note 1 (b)) Shim Tech was
unable to repay loan payments in the principal amount of $1,034 and interest in
the amount of $243. As a result, the Company was charged an amount of $128 for
the portion of the loan not covered by IFTRIC.
In November 2009, the bank approached IFTRIC to recover the loan. IFTRIC can
take legal action against Shim Tech including placing Shim Tech in receivership.
As a result of the non-repayment of the loan, the remaining balance of the loan
in the amount of $4,324 is presented in current liabilities.
Subsequent to balance sheet date, in April 2010, Shim Tech and the bank reached
an agreement to reschedule the repayment of the loan installments due in 2009
and 2010, see Note 15.
During 2008 the Company invested in Shim Tech additional equity in the amount of
$2,784 with no corresponding investment by Erdenet or dilution of Erdenent's
interest. Accordingly, the Company recorded a loss in the amount of $835 which
was charged to the equity holders of the Company with a corresponding credit to
income for minority interest in the statement of comprehensive income.
The construction of the first production line of the plant was completed in
2006. The construction of the second production line of the plant has not yet
been completed as of December 31, 2009. Shim-Tech is engaged also in trading,
commercial and intermediary activities in Molybdenum concentrate within the
Group and with Erdenet. Erdenet has undertaken to supply, for 22 years starting
in 2004, its molybdenum concentrates in a quantity containing not less than
1,800 tons of Molybdenum per year solely to Shim-Tech and Shim-Tech is obligated
to sell all of its production of Molybdenum to the Company. The purchases from
Erdenet are determined by market price.
As per the addition to the aforesaid agreement, the parties have agreed on a
penalty/reward mechanism regarding the quantities of concentrate that will be
supplied by Erdenet on an annual basis. The Company and Erdenet are involved in
discussions regarding charge and credits related to this mechanism for 2007 and
2008, including the arranging of the credit line that Erdenet extended to
Shim-Tech as a supplier (as stated in Note 1(b)). In the opinion of the
Company's management, it is not expected that the final outcome of these
discussions will have a material negative effect on its financial statements.
As described in Note 1(b), the operation in Shim Tech plant has been suspended.
c. Metek Metal-Tech SA. ("MTSA"):
Metek Metal-Tech SA, a Swiss corporation, was established and commenced
operations in November 2004. MTSA is engaged in managing the Group's sales and
marketing activities of manufactured products outside of Israel.
During 2006, MTSA established a subsidiary in Czech. The equity interest was as
follows: MTSA - 80%, minority shareholder - 20% (Czech company). The Czech
subsidiary was engaged in operating a pilot of a spent catalyst recycling plant.
In 2009, the Company decided to cease operations of this pilot plant. The
equipment in the plant was transferred to the Company's plant in Israel. The
Company has determined that no provision for impairment loss is required.
In 2009, MTSA purchased the equity interest from the minority
shareholder for consideration of $ 175 and become the sole shareholder of Metal
-Tech CZ.
The payment exceeded the carrying value of the purchased minority
interest, and accordingly, the Company recorded a loss in the amount of $ 62
which was charged to other expenses in the statement of comprehensive income.
During 2006, MTSA established a JV in the Netherland, Bit Metal BV, with a local
partner for the purpose of trading other metals such as silicon metal and tin
concentrate. MTSA owned directly a 49% interest and an additional 1% indirectly
through an association established by the partners. The partners jointly
controlled this JV and the Company accounts for its interest in the JV using the
equity method.
As part of the establishment agreement, MTSA provided Bit Metal B.V a
subordinated loan of $ 3,000 in order to secure a credit line from the bank.
The loan bore interest at Libor + 1%.
On August 1, 2008, Metal -Tech Switzerland sold its equity interests in BIT
Metals BV to the other partner. The loan with accrued interest in the amount of
$3,354 was repaid. The equity in earnings until the date of sale amounted to $
880 and the gain on the sale was $604 (included in other income, see Note 11).
NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation of the financial statements:
The Company's financial statements have been prepared on a cost basis, except
for derivatives financial instruments and available for sale investments that
have been measured at fair value.
The preparation format of the financial statements:
These financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS"). These Standards comprise:
1. International Financial Reporting Standards (IFRS).
2. International Accounting Standards (IAS).
3. Interpretations issued by the IFRIC and by the SIC.
Consistent accounting policies:
The accounting policies adopted in the financial statements have been applied
consistently for all periods presented, except when otherwise indicated.
Changes in accounting policies in view of the adoption of new standards:
IAS 1 (Revised) - Presentation of Financial Statements:
Pursuant to a revision to IAS 1 (Revised), an additional separate statement,
"statement of comprehensive income", may be presented and display net income
taken from the statement of income and all items carried in the reported period
to equity that do not result from transactions with the shareholders in their
capacity as shareholders (other comprehensive income (loss)) such as adjustments
arising from translating financial statements, fair value adjustments of
available-for-sale financial assets, changes in the revaluation reserve of fixed
assets and the tax effect of these items carried to equity, allocated between
the Company and the minority interests. Alternatively, the items of other
comprehensive income may be displayed along with the items of the statement of
comprehensive income in a single statement entitled "statement of comprehensive
income" which replaces the statement of income, allocated between the Company
and the minority interests. Items carried to equity resulting from transactions
with the shareholders in their capacity as shareholders (such as capital issues,
dividend distribution etc.) will be disclosed in the statement of changes in
equity as will the summary line carried forward from the statement of
comprehensive income, allocated between the Company and the minority interests.
The Company decided to present a single statement. The revision was adopted on
January 1, 2009 with a retrospective application in comparative figures.
IFRS 8 - Operating Segments:
IFRS 8 deals with operating segments and replaces IAS 14. According to the
Standard, the Company adopted a "management approach" in reporting on the
financial performance of the operating segments. The segment information is the
information that is internally used by management in order to assess its
performance and allocate resources to the operating segments.
The Company adopted the provisions of IFRS 8 on January 1, 2009. As the Company
operates in one segment, the adoption of the Standard did not have a material
effect on the presentation of information in the financial statements.
IFRS 2 - Share-based Payment:
Pursuant to an amendment to IFRS 2, the definition of vesting terms will only
include service conditions and performance conditions and the cancellation of a
grant that includes non-vesting conditions by the Company or the counterparty
will be accounted for by way of acceleration of vesting and not by forfeiture.
Conditions that are other than service and performance conditions will be viewed
as non-vesting conditions and must therefore be taken into account when
estimating the fair value of the instrument granted.
This amendment was adopted on January 1, 2009 with a retrospective restatement
of comparative figures. The initial adoption of the Standard did not have any
material effect on the consolidated financial statements.
IFRS 7 Financial Instruments: Disclosures:
The amendment to IFRS 7 requires additional disclosures about fair value
measurement and liquidity risk. According to the amendment, additional
disclosures should be made, among others, as to the source of inputs used in
making the measurements, using a three level fair value hierarchy for all
financial instruments recognized at fair value. In addition, a reconciliation
between the beginning and ending balance for Level 2 fair value measurements is
required (source of inputs that is not based on market data), as well as
disclosure of significant transfers between levels in the fair value hierarchy.
The amendment was adopted as a prospective change from the financial statements
for the year beginning January 1, 2009 (there is no need to provide comparative
information).
IAS 20 - Government Grants:
Pursuant to an amendment to IAS 20, interest-free loans or loans with a
below-market rate of interest received by a company from the State will be
accounted for upon initial recognition and in subsequent periods pursuant to the
provisions of IAS 39, "Financial Instruments: Recognition and Measurement".
Accordingly, the loans will be initially measured at fair value and discounted
at market interest. The difference between the loan amount received and the fair
value will be accounted for thereafter as a Government grant according to the
provisions of the Standard.
The amendment was adopted as a prospective change from January 1, 2009 for
Scientist's grants received after that date.
b. Significant accounting judgments, estimates and assumptions:
The preparation of the Group's financial statements requires management to make
judgments, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and the disclosure of contingent
liabilities, at the reporting date. However, uncertainty about these assumptions
and estimates could result in outcomes that could require a material adjustment
to the carrying amount of on asset or liability in the future.
Estimates and assumptions:
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below.
Depreciation of property, plant and equipment:
Property, plant and equipment are depreciated on a straight-line basis over
their estimated useful lives. Changes in the expected level of usage and
technological developments could impact the economic useful lives and the
residual values of these assets, therefore future depreciation charges could be
revised.
Impairment of non-financial assets:
The Group assesses whether there are any indicators of impairment for all
non-financial assets at each reporting date. Non-financial assets are tested for
impairment when there are indicators that the carrying amounts may not be
recoverable.
When value in use calculations are undertaken, management must estimate the
expected future cash flows from the asset or cash-generating unit and choose a
suitable discount rate in order to calculate the present value of those cash
flows. Changes in the estimated future cash flows as well as the discount rate
could impact the determination of the recoverable amount.
Inventories:
Inventories are measured at the lower of cost or net realizable value. The
Company periodically evaluates the condition and age of inventories and their
estimated realizable value. The Company records appropriate provisions for
write-downs, which are subject to changes based on current market conditions,
see Note 9 for further details.
Deferred tax assets:
Deferred tax assets are recognized for unused tax losses to the extent that it
is probable that taxable profit will be available against which the losses can
be utilized. Significant management judgment is required to determine the amount
of deferred tax assets that can be recognized, based upon the likely timing and
level of future taxable profits together with future tax planning strategies.
Further details are given in Note 17.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its controlled subsidiaries. Significant intercompany transactions
and balances, and unrealized profits are eliminated in consolidation.
The financial statements of subsidiaries are prepared for the same reporting
period as the Company, using consistent accounting policies.
Minority interests of subsidiaries represent the minority shareholders'
proportionate interest in the comprehensive income (loss) of the subsidiary net
assets upon the acquisition of the subsidiary. They are presented in equity
separately from the equity attributable to the parent.
d. Functional and reporting currency:
The consolidated financial statements are presented in U.S. dollars, which is
the Company's functional and presentation currency. Each entity in the Group
determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded at the functional
currency rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional
currency rate of exchange ruling at the balance sheet date. All differences are
taken to the statement of comprehensive income. Non monetary items that are
measured in terms of historical cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions. Non monetary
items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
The functional currency of the foreign operations, BIT Metals B.V., is Euro. As
at the reporting date, the assets and liabilities of BIT Metals B.V. are
translated into the presentation currency of the Company (the U.S. dollar) at
the rate of exchange ruling at the balance sheet date and its statement of
comprehensive income is translated at weighted average exchange rates for the
year. The exchange differences arising on the translation are taken directly to
a separate component of equity. The Company sold its investment in this entity
in August 2008, (see Note 2(c)), and accordingly, the deferred cumulative amount
in equity relating to this entity was recognized in the statement of
comprehensive income.
e. Cash and cash equivalents:
The Company considers all highly liquid investments including unrestricted
short- term bank deposit originally purchased with maturities of three months or
less to be cash equivalents.
f. Restricted cash:
Restricted cash is primarily invested in certificates of deposit, which mature
within one year and serve as collateral for short-term loans.
g. Allowance for doubtful accounts:
The allowance for doubtful accounts is determined in respect of specific debts
whose collection, in the opinion of the Company's management, is doubtful.
h. Financial instruments:
(a) Financial assets - initial recognition
Financial assets within the scope of IAS 39 are classified as financial assets
at fair value through profit or loss, loans and receivables, held-to-maturity
investments, available-for-sale financial assets, or as derivatives designated
as hedging instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial assets at initial recognition.
The Group has not designated any financial assets as at fair value through
profit or loss, and for all reported periods had no held to maturity investment.
Financial assets are recognized initially at fair value plus, in the case of
investments not at fair value through profit or loss, directly attributable
transaction costs.
Purchases or sales of financial assets that require delivery of assets within a
time frame established by regulation or convention in the marketplace (regular
way purchases) are recognized on the trade date, i.e., the date that the Group
commits to purchase or sell the asset.
The Group's financial assets include cash and short-term deposits, trade and
other receivables, loan and other receivables, quoted and unquoted financial
instruments, and derivative financial instruments.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification
as follows:
1. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Such financial
assets are carried at amortized cost using the effective interest rate method.
Gains and losses are recognized in the statement of comprehensive income when
the loans and receivables are derecognized or impaired, as well as through the
amortization process.
2. Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial
assets that are designated as available-for-sale or are not classified in any
other categories. After initial measurement, available-for-sale financial assets
are measured at fair value with unrealized gains or losses recognized directly
in equity until the investment is derecognized, at which time the cumulative
gain or loss recorded in equity is recognized in the statement of comprehensive
income, or determined to be impaired, at which time the cumulative loss recorded
in equity is recognized in the statement of comprehensive income.
(b) Financial liabilities - initial recognition
Financial liabilities within the scope of IAS 39 are classified as financial
liabilities at fair value through profit or loss, loans and borrowings, or as
derivatives designated as hedging instruments in an effective hedge, as
appropriate. The Group determines the classification of its financial
liabilities at initial recognition.
The Group has not designated any financial liabilities as at fair value through
profit or loss.
Financial liabilities are recognised initially at fair value and in the case of
loans and borrowings, directly attributable transaction costs.
The Group's financial liabilities include trade and other payables, short-term
bank credit, loans and borrowings and derivative financial instruments.
Subsequent measurement
After initial recognition, interest bearing loans and borrowings are
subsequently measured at amortized cost using the effective interest rate
method.
Gains and losses are recognized in the statement of comprehensive income when
the liabilities are derecognized as well as through the amortization process.
(c) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated balance sheet if, and only if, there is a currently
enforceable legal right to offset the recognized amounts and there is an
intention to settle on a net basis, or to realize the assets and settle the
liabilities simultaneously.
(d) Fair value of financial instruments
The fair value of financial instruments that are actively traded in organized
financial markets is determined by reference to quoted market bid prices at the
close of business on the balance sheet date. For financial instruments where
there is no active market, fair value is determined using valuation techniques.
Such techniques may include using recent arm's length market transactions;
reference to the current fair value of another instrument that is substantially
the same; discounted cash flow analysis or other valuation models.
(e) Amortized cost of financial instruments
Amortized cost is computed using the effective interest method less any
allowance for impairment and principal repayment or reduction. The calculation
takes into account any premium or discount on acquisition and includes
transaction costs and fees that are an integral part of the effective interest
rate.
(f) Impairment of financial assets
The Group assesses at each balance sheet date whether there is any objective
evidence that a financial asset or a group of financial assets is impaired. A
financial asset or a group of financial assets is deemed to be impaired if, and
only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred
'loss event') and that loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be
reliably estimated. Evidence of impairment may include indications that the
debtors or a group of debtors is experiencing significant financial difficulty,
default or delinquency in interest or principal payments, the probability that
they will enter bankruptcy or other financial reorganization and where
observable data indicate that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or economic conditions that
correlate with defaults.
(g) Derecognition of financial instruments
Financial assets:
A financial asset is derecognized when the rights to receive cash flows from the
asset have expired.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is
discharged or cancelled or expires.
When an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts is
recognized in the statement of comprehensive income.
Derivative instruments:
Derivative instruments are recognized as either assets or liabilities in the
balance sheet at fair value. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship.
For derivative instruments that are designated and qualify as a fair
value hedge (i.e., hedging the exposure to changes in the fair value of an asset
or a liability or an identified portion thereof that is attributable to a
particular risk), the gain or loss on the derivative instrument as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in current earnings during the period of the change in fair values.
For derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk associated with a forecasted transaction), the
effective portion of the gain or loss on the derivative instrument is recognized
directly in equity and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. The ineffective portion is
recognized in the statement of comprehensive income.
The remaining gain or loss on the derivative instrument in excess of
the cumulative change in the present value of future cash flows of the hedged
item, if any, is recognized in current earnings during the period of change. For
derivative instruments not designated as hedging instruments, the gain or loss
is recognized in current earnings during the period of change.
For those derivatives designated as hedges and for which hedge accounting is
desired, the hedging relationship is formally designated and documented at its
inception. This documentation identifies the risk management objective and
strategy for undertaking the hedge, the hedging instrument, the hedged item or
transaction, the nature of the risk being hedged and how effectiveness will be
measured throughout its duration. Such hedges are expected at inception to be
highly effective in offsetting changes in fair value or cash flows and are
assessed on an ongoing basis to determine that they actually have been highly
effective throughout the reporting period for which they were designated.
i. Inventories:
Inventories are valued at the lower of cost or net realizable value. Net
realizable value is based on estimated selling price less any further costs
expected to be incurred to complete and make the sale. Cost is determined as
follows:
Raw materials - using the "first-in, first-out" method.
Work-in-progress and finished goods - Raw materials as above; labor and overhead
- an average based on normal operating capacity.
j. Property and equipment:
Property and equipment are stated at cost with the addition
of direct acquisition costs, less accumulated depreciation and impairment losses
and net of investment grants. Investment grants are recorded at the time the
Company is entitled to such grants. The cost of additions and substantial
improvements to property, plant and equipment is capitalized. The cost of
maintenance and repairs of property, plant and equipment is charged to expenses
when they do not extend the life of the asset or do not significantly increase
its capacity to generate revenue. Depreciation is calculated by the
straight-line method over the estimated useful lives of the assets at the
following annual rates:
+----------------------------------------+---------+
| | % |
+----------------------------------------+---------+
| | |
+----------------------------------------+---------+
| Buildings | 2.5 - |
| | 6.5 |
+----------------------------------------+---------+
| Machinery and equipment |10 - 20 |
+----------------------------------------+---------+
| Computers and peripheral equipment |20 - 33 |
+----------------------------------------+---------+
| Office furniture and equipment | 6 - 20 |
+----------------------------------------+---------+
| Motor vehicles |15 - 20 |
| | |
+----------------------------------------+---------+
An item of property, plant and equipment is derecognized upon
disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognizing of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the
asset) is included in the statement of comprehensive income in the year the
asset is derecognized.
The asset's residual values, useful lives and methods are
reviewed and adjusted if appropriate, at each financial year end.
As for testing the impairment of property and equipment, see
m below.
k. Intangible assets:
Separately acquired intangible assets are measured on initial recognition at
cost with the addition of costs directly attributable to the acquisition.
Intangible assets acquired in a business combination are included at the fair
value at the acquisition date. After initial recognition, intangible assets are
carried at their cost less any accumulated amortization and any accumulated
impairment losses. Expenditures relating to internally generated intangible
assets, excluding capitalized development costs, are recognized in the statement
of comprehensive income when incurred.
According to management's assessment, intangible assets have a finite useful
life. The assets are amortized over their useful life using the straight-line
method and reviewed for impairment whenever there is an indication that the
asset may be impaired. The amortization period and the amortization method for
an intangible asset with a finite useful life are reviewed at least at each
financial year end. Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in the asset are accounted
for as prospective changes in accounting estimates. The amortization charge on
intangible assets with finite useful lives is recognized in the statement of
comprehensive income.
Research and development expenses:
Research expenses are recognized in the statement of comprehensive income when
incurred. An intangible asset arising from a development project or from the
development of an internal project is recognized if the Company can demonstrate
the technical feasibility of completing the intangible asset so that it will be
available for use or sale; the Company's intention to complete the intangible
asset and use or sell it; the Company's ability to use or sell the intangible
asset; how the intangible asset will generate future economic benefits; the
availability of adequate technical, financial and other resources to complete
the intangible asset; and the Company's ability to measure reliably the
expenditure attributable to the intangible asset during its development.
l. Borrowing costs:
Borrowing costs directly attributable to the acquisition and construction of
property and equipment that necessarily takes a substantial period of time to
get ready for its intended use are capitalized as part of the cost of the
respective assets. All other borrowing costs are expensed in the period they
occur. Borrowing costs consist of interest and other costs that an entity incurs
in connection with the borrowing of funds.
m. Impairment of non-financial assets:
The Company evaluates the need to record an impairment of the carrying amount of
non-financial assets whenever events or changes in circumstances indicate that
the carrying amount is not recoverable. If the carrying amount of non-financial
assets exceeds their recoverable amount, the assets are reduced to their
recoverable amount. The recoverable amount is the higher of asset's fair value
less costs to sell and its value in use. In measuring value in use, the
estimated future cash flows are discounted using a pre-tax discount rate that
reflects the risks specific to the asset. The recoverable amount of an asset
that does not generate independent cash flows is determined for the
cash-generating unit to which the asset belongs. Impairment losses are
recognized in the statement of comprehensive income.
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 (less depreciation or amortization) had no
impairment loss been recognized for the asset in prior years and its recoverable
amount. The impairment loss of an asset presented at cost is carried to the
statement of comprehensive income. A reversal of that impairment loss is also
recognized in the statement of comprehensive income.
n. Taxes on income:
Taxes on income in the statement of comprehensive income comprise current and
deferred taxes. The tax results in respect of current or deferred taxes are
carried to the statement of comprehensive income except to the extent that the
tax arises from items which are recognized directly in equity. In such cases,
the tax effect is also carried to the relevant item in equity.
1. Income taxes:
The current tax liability is measured using the tax rates and tax laws
that have been enacted or substantively enacted by the balance sheet date as
well as adjustments required in connection with the tax liability in respect of
previous years.
2. Deferred taxes:
Deferred taxes are computed in respect of temporary differences between the
carrying amounts in the financial statements and the amounts attributed for tax
purposes, except in
a limited number of exceptions. Deferred taxes are carried directly to equity if
the tax relates to items that are taken to equity.
Deferred tax balances are measured at the tax rates that are expected to apply
to the period when the taxes are taken to the statement of comprehensive income
or to equity, based on tax laws that have been enacted or substantively enacted
by the balance sheet date. The amount for deferred taxes in the statement of
comprehensive income represents the changes in said balances during the reported
period, excluding changes attributable to items carried directly to equity.
Taxes that would apply in the event of the sale of investments in
investees have not been taken into account in computing the deferred taxes, as
long as the sale of the investments in investees is not expected in the
foreseeable future. Also, deferred taxes that would apply in the event of
distribution of earnings by investees as dividends have not been taken into
account in computing the deferred taxes, since the distribution of dividends
does not involve an additional tax liability or since it is the Company's policy
not to initiate distribution of dividends that triggers an additional tax
liability.
Deferred tax assets and deferred tax liabilities are presented in the balance
sheet as non-current assets and long-term liabilities, respectively. Deferred
taxes are offset if there is a legally enforceable right to set off a current
tax asset against a current tax liability and the deferred taxes relate to the
same taxpayer and the same taxation authority.
o. Employee benefits liability:
1. Short-term employee benefits:
Short-term employee benefits include salaries, paid annual leave, paid sick
leave, recreation and social security contributions and are recognized as
expenses as the services are rendered. A liability in respect of a cash bonus or
a profit-sharing plan is recognized when the Group has a legal or constructive
obligation to make such payment as a result of past service rendered by an
employee and a reliable estimate of the amount can be made.
2. Post-employment benefits:
The Company operates a defined benefit plan for severance pay pursuant to
Israel's Severance Pay Law. Under the law, Israel resident employees are
entitled to receive severance pay upon involuntary termination of employment, or
upon retirement, which is calculated based on the most recent monthly salary at
the time of termination, multiplied by the number of years of employment.
The Company funds its liability for severance pay by monthly payments to pension
funds and insurance companies ("plan assets"). The plan assets include profits
accumulated up to the balance sheet date. The plan assets may be withdrawn only
in accordance with Israel's Severance Pay Law or labor agreements.
The cost of providing severance pay is determined using the projected unit
credit method. Actuarial gains and losses are recognized immediately in the
statement of comprehensive income in the period in which they occur.
The liability recognized in the balance sheet represents the present value of
the defined benefit obligation reduced by the fair value of plan assets. Any
asset resulting from this calculation is limited to past service cost, plus the
present value of available refunds and reductions in future contributions to the
plan.
p. Share-based payment transactions:
Employees (including senior executives) of the Group receive
remuneration in the form of share-based payment transactions, whereby employees
render services as consideration for equity instruments ('equity-settled
transactions').
The cost of equity - settled transactions with employees is measured by
reference to the fair value on the date of grant. The fair value is determined
by an external valuer using an appropriate pricing model, further details of
which are given in Note 21.
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 Group's best estimate of the number of equity instruments that
will ultimately vest. The statement of comprehensive income charge or credit for
a period represents the movement in cumulative expense recognized as at the
beginning and end of that period.
Where the terms of an equity-settled award are modified, the minimum
expense recognized is the expense as if the terms had not been modified. An
additional expense is recognized for any modification, which increases the total
fair value of the share-based payment arrangement, or is otherwise beneficial to
the employee as measured at the date of modification.
q. Revenue recognition:
Sale of goods
The Group generates revenues mainly from the sale of Tungsten and Molybdenum
oxide and powders. The Group does not grant a right of return to its customers.
Revenues from Tungsten and Molybdenum oxide and powders sales are recognized
when the significant risks and benefits of ownership are transferred to the
buyer, it is probable that the economic benefits associated with the transaction
will flow to the Group, and the amount of revenues can be measured reliably.
Interest income
Interest income is recognized as interest accrues (using the effective interest
method). Interest income is included in finance income in the statement of
comprehensive income.
r. Interest in a joint venture:
The Group has interests in joint ventures which are jointly controlled entities.
A joint venture is a contractual arrangement whereby two or more parties
undertake an economic activity that is subject to joint control, and a jointly
controlled entity is a joint venture that involves the establishment of a
separate entity in which each venture has an interest. The Group accounts for
its interest in the joint venture using the equity method. The financial
statements of the joint venture are prepared for the same reporting year as the
Company, using consistent accounting policies. Adjustments are made to bring
into line any dissimilar accounting policies that may exist.
When the Group contributes or sells assets to the joint venture, any portion of
gain or loss from the transaction is recognized based on the substance of the
transaction. When the Group purchases assets from the joint venture, the Group
does not recognize its share in the profits of the joint venture from the
transaction until it resells the assets to an independent party.
After application of the equity method, the Group determines whether it
is necessary to recognize an additional impairment loss of the Group's
investment in its joint ventures. The Group determines at each balance sheet
date whether there is any objective evidence that the investment in the joint
venture is impaired. If this is the case, the Group calculates the amount of
impairment as being the difference between the fair value of the joint venture
and the acquisition cost and recognizes the amount in the statement of
comprehensive income.
s. Government grants:
Government grants are recognized where there is reasonable assurance that the
grant will be received and the Company will comply with the attached conditions.
Where the grants relate to assets such as fixed assets, they are presented as a
deduction from the carrying amount of the asset.
Government grants from the Office of the Chief Scientist in Israel for funding
research and development activities that include a liability to pay royalties to
the State depending on future sales from development are recognized upon receipt
as a liability if an outflow of economic benefits from the research activity is
probable and will lead to sales entitling the State to royalties. Amounts paid
as royalties are recognized as settlement of liability. When no such economic
benefits are probable, the receipts from the grant are deducted from research
and development costs in the statement of comprehensive income. In such event,
the royalty liability is accounted for as a contingent liability pursuant to IAS
37 until the date on which the liability is recognized once all the above
conditions are met.
t. Basic and diluted earnings per share:
Basic earnings per share have been computed using the weighted average number of
Ordinary shares outstanding during the period. Diluted earnings or loss per
share are computed based on the weighted average number of Ordinary shares
outstanding during each period, plus the effect of potential Ordinary shares
considered outstanding during the period, except if the effect of such potential
Ordinary shares is anti-dilutive.
u. Exchange rates and linkage basis:
1. Assets and liabilities in or linked to foreign currencies are included
in the financial statements according to the representative exchange rate as
published by the Bank of Israel at balance sheet date.
2. Assets and liabilities linked to the Israeli Consumer Price Index (CPI)
are included in the financial statements according to the relevant index for
each asset or liability.
Data regarding exchange rate of Euro and New Israeli Shekels (NIS) in relation
to the U.S dollar:
+--------------------+----+---------------+----+---------------+
| | |Exchange rate | |Exchange rate |
| | | of | | of |
+--------------------+----+---------------+----+---------------+
| As of | | Euro | | NIS |
+--------------------+----+---------------+----+---------------+
| | | | | |
+--------------------+----+---------------+----+---------------+
| December 31, 2009 | | 0.694 | | 3.775 |
+--------------------+----+---------------+----+---------------+
| December 31, 2008 | | 0.718 | | 3.802 |
+--------------------+----+---------------+----+---------------+
| December 31, 2007 | | 0.679 | | 3.846 |
+--------------------+----+---------------+----+---------------+
| | | | | |
+--------------------+----+---------------+----+---------------+
| Changes during the | | % | | % |
| year | | | | |
+--------------------+----+---------------+----+---------------+
| | | | | |
+--------------------+----+---------------+----+---------------+
| 2009 | | (3.3) | | (0.7) |
+--------------------+----+---------------+----+---------------+
| 2008 | | 5.7 | | (1.1) |
+--------------------+----+---------------+----+---------------+
v. Standards issued but not yet applied:
IFRS 3 (Revised) - Business Combinations and IAS 27 (Amended) - Consolidated and
Separate Financial Statements:
IFRS 3 (Revised) and the amendments to IAS 27 ("the Standards") will be
effective for annual financial statements for periods beginning on January 1,
2010. The combined early application of the two Standards is permitted from the
financial statements for periods beginning on January 1, 2008.
The principal changes expected to take place following the adoption of the
Standards are:
- The definition of a business was broadened so that it contains also
activities and assets that are not managed as a business as long as the seller
is capable of operating them as a business.
- IFRS 3 currently prescribes that goodwill, as opposed to the acquirer's
other identifiable assets and liabilities, will be measured as the excess of the
cost of the acquisition over the acquirer's share in the fair value of the
identifiable assets, net on the acquisition date. According to the Standards,
non-controlling interests, including goodwill, can be measured either at fair
value or at the proportionate share of the acquirer's fair value of net
identifiable assets, this in respect of each business combination transaction
measured separately.
- Contingent consideration in a business combination is measured at fair
value and changes in the fair value of the contingent consideration, which do
not represent adjustments to the acquisition cost in the measurement period, are
not simultaneously recognized as goodwill adjustments. If the contingent
consideration is classified as a liability it will be measured at fair value
through profit or loss.
- Direct acquisition costs attributed to a business combination
transaction are recognized in the statement of comprehensive income as incurred
as opposed to the previous requirement of carrying them as part of the
consideration of the cost of the business combination, which has been removed.
- Subsequent measurement of a deferred tax asset for acquired temporary
differences which did not meet the recognition criteria at acquisition date will
be against profit or loss and not as adjustment to goodwill.
- A transaction with the minority interests, whether a sale or an
acquisition, will be accounted for as an equity transaction and will therefore
not be recognized in the statement of comprehensive income or have any effect on
the amount of goodwill, respectively.
- A subsidiary's losses, even if resulting in a capital deficiency in a
subsidiary, will be allocated between the parent company and minority interests,
even if the minority has not guaranteed or has no contractual obligation for
sustaining the subsidiary or of investing further amounts.
- On the loss or achievement of control of a subsidiary, the remaining
investment, if any, will be revalued to fair value against gain or loss from the
sale and this fair value will represent the cost basis for the purpose of
subsequent treatment.
The Standards will be adopted prospectively and affect future acquisitions and
transactions with minority shareholders.
IFRS 9 - Financial Instruments:
In November 2009, the IASB issued IFRS 9, "Financial Instruments", which
represents the first phase of a project to replace IAS 39, "Financial
Instruments: Recognition and Measurement". IFRS 9 focuses mainly on the
classification and measurement of financial assets and it applies to all
financial assets within the scope of IAS 39.
According to IFRS 9, upon initial recognition, all the financial assets
(including hybrid contracts with financial asset hosts) will be measured at fair
value. In subsequent periods, debt instruments can be measured at amortized cost
if both of the following conditions are met:
- The asset is held within a business model whose objective is
to hold assets in order to collect the contractual cash flows.
- The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Subsequent measurement of all other debt instruments and financial assets will
be at fair value.
Financial assets that are equity instruments will be measured in subsequent
periods at fair value and the changes will be recognized as profit or loss the
statement of comprehensive income (loss), in accordance with the election of the
accounting policy on an instrument-by-instrument basis. Nevertheless, if the
equity instruments are held for trading, they must be measured at fair value
through profit or loss. This election is final and irrevocable. When an entity
changes its business model for managing financial assets it shall reclassify all
affected financial assets. In all other circumstances, reclassification of
financial instruments is not permitted.
The Standard will be effective starting January 1, 2013. Earlier application is
permitted. Early adoption will be made with a retrospective restatement of
comparative figures, subject to the reliefs set out in the Standard.
The Company is evaluating the possible effect of the adoption of the new
Standard on the consolidated financial statements but is presently unable to
assess such effect, if any.
IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations:
According to the amendment to IFRS 5, when the parent decides to sell part of
its interest in a subsidiary so that after the sale the parent retains a
non-controlling interest, such as rights conferring to significant influence,
all the assets and liabilities attributed to the subsidiary will be classified
as held for sale if the relevant criteria of IFRS 5 are met, including the
presentation as a discontinued operation. Further, an additional amendment
specifies the disclosures required in respect of non-current assets (or disposal
groups) that are classified as held for sale or discontinued operations.
Pursuant to the amendment, only the disclosures required in IFRS 5 will be
provided. Disclosures in other IFRSs apply to such assets only if they require
specific disclosures in respect of non-current assets or disposal groups. The
amendment will be prospectively adopted starting from the financial statements
for periods beginning on January 1, 2010. Earlier application is permitted.
The Company believes that the effect of the amendment on the financial
statements is not expected be material.
NOTE 4:- CASH AND CASH EQUIVALENTS
+------------------------------+--+----------+--+-----------+--+-----------+
| | | Annual | | |
+------------------------------+--+----------+--+--------------------------+
| | |interest | | |
+------------------------------+--+----------+--+--------------------------+
| | | rate *) | | December 31, |
+------------------------------+--+----------+--+--------------------------+
| | | % | | 2009 | | 2008 |
+------------------------------+--+----------+--+-----------+--+-----------+
| | | | | | | |
+------------------------------+--+----------+--+-----------+--+-----------+
| Cash in banks | | | | 2,139 | | 2,507 |
+------------------------------+--+----------+--+-----------+--+-----------+
| Short-term deposits | | 0.2 | | 3,740 | | 9,505 |
+------------------------------+--+----------+--+-----------+--+-----------+
| | | | | | | |
+------------------------------+--+----------+--+-----------+--+-----------+
| | | | | 5,879 | | 12,012 |
+------------------------------+--+----------+--+-----------+--+-----------+
*) As of December 31, 2009.
NOTE 5:- SHORT-TERM RESTRICTED CASH
+------------------------------+--+---------+--+-----------+--+-----------+
| | | | | | | |
+------------------------------+--+---------+--+-----------+--+-----------+
| | | | | December 31, |
+------------------------------+--+---------+--+--------------------------+
| | | | | 2009 | | 2008 |
+------------------------------+--+---------+--+-----------+--+-----------+
| | | | | | | |
+------------------------------+--+---------+--+-----------+--+-----------+
| In U.S. dollars | | | | 3,992 | | 3,150 |
+------------------------------+--+---------+--+-----------+--+-----------+
The balance as of December 2009 is pledged in order to secure a long-term bank
loan, see Note 15.
NOTE 6:- AVAILABLE FOR SALE INVESTMENTS
+------------------------------+--+----------+--+-----------+--+-----------+
| | | Annual | | | | |
+------------------------------+--+----------+--+-----------+--+-----------+
| | |interest | | | | |
+------------------------------+--+----------+--+-----------+--+-----------+
| | | rate *) | | December 31, |
+------------------------------+--+----------+--+--------------------------+
| | | % | | 2009 | | 2008 |
+------------------------------+--+----------+--+-----------+--+-----------+
| | | | | | | |
+------------------------------+--+----------+--+-----------+--+-----------+
| Marketable securities | | 2.29 | | 86 | | 28 |
+------------------------------+--+----------+--+-----------+--+-----------+
The securities are recorded at fair market value. In 2008, the Company recorded
a loss in the amount of $67 in the statement of comprehensive income, as the
investment had been determined to be impaired. In 2009 the Company reversed
impairment in the amount of $58 in the statement of comprehensive income.
*) As of December 31, 2009.
NOTE 7:- TRADE RECEIVABLES
+-----------------------------------------+--+-----------+--+-----------+
| | | December 31, |
+-----------------------------------------+--+--------------------------+
| | | 2009 | | 2008 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| Foreign | | 9,794 | | 11,646 |
+-----------------------------------------+--+-----------+--+-----------+
| Domestic - Israel | | 495 | | 198 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| | | 10,289 | | 11,844 |
+-----------------------------------------+--+-----------+--+-----------+
| Less - allowance for doubtful accounts | | 537 | | 691 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| | | 9,752 | | 11,153 |
+-----------------------------------------+--+-----------+--+-----------+
The movement in the allowance for doubtful accounts:
+------------------------------------------------------+--+-----------+
| At January 1, 2008 | | 203 |
+------------------------------------------------------+--+-----------+
| Charge for the year | | 488 |
+------------------------------------------------------+--+-----------+
| | | |
+------------------------------------------------------+--+-----------+
| At December 31, 2008 | | 691 |
+------------------------------------------------------+--+-----------+
| Charge for the year | | 308 |
+------------------------------------------------------+--+-----------+
| Derecognition of bad debts | | (462) |
+------------------------------------------------------+--+-----------+
| | | |
+------------------------------------------------------+--+-----------+
| At December 31, 2009 | | 537 |
+------------------------------------------------------+--+-----------+
The aging analysis of trade receivables is as follows:
+---------------+-+--------+-+----------+-+-------+-+-------+-+-------+-+-------+-+-------+
| | | | | | | Past due but not impaired |
+---------------+-+--------+-+----------+-+-----------------------------------------------+
| | | Total | | Neither | | < 30 | | 30 - | | 60 - | | 90 - | | >120 |
| | | | | past | | days | | 60 | | 90 | | 120 | | days |
| | | | | due nor | | | | days | | day | | day | | |
| | | | |impaired | | | | | | | | | | |
+---------------+-+--------+-+----------+-+-------+-+-------+-+-------+-+-------+-+-------+
| | | | | | | | | | | | | | | |
+---------------+-+--------+-+----------+-+-------+-+-------+-+-------+-+-------+-+-------+
| December 31, | | 9,752 | | 7,881 | | 266 | | 211 | | 485 | | 392 | | 517 |
| 2009 | | | | | | | | | | | | | | |
+---------------+-+--------+-+----------+-+-------+-+-------+-+-------+-+-------+-+-------+
| | | | | | | | | | | | | | | |
+---------------+-+--------+-+----------+-+-------+-+-------+-+-------+-+-------+-+-------+
| December 31, | | 11,153 | | 3,542 | | 2,516 | | 893 | | 1,421 | | 1,748 | | 1,033 |
| 2008 | | | | | | | | | | | | | | |
+---------------+-+--------+-+----------+-+-------+-+-------+-+-------+-+-------+-+-------+
NOTE 8:- OTHER ACCOUNTS RECEIVABLE
+-----------------------------------------+--+-----------+--+-----------+
| | | December 31, |
+-----------------------------------------+--+--------------------------+
| | | 2009 | | 2008 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| Government authorities (principally | | 414 | | 4,134 |
| VAT) | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| Prepaid expenses | | 345 | | 538 |
+-----------------------------------------+--+-----------+--+-----------+
| Advances to suppliers | | - | | 365 |
+-----------------------------------------+--+-----------+--+-----------+
| Deferred finance costs *) | | - | | 151 |
+-----------------------------------------+--+-----------+--+-----------+
| Employees | | 34 | | 29 |
+-----------------------------------------+--+-----------+--+-----------+
| Other | | 274 | | 126 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| | | 1,067 | | 5,343 |
+-----------------------------------------+--+-----------+--+-----------+
*) See Note 2 (b).
NOTE 9:- INVENTORIES
+-----------------------------------------+--+-----------+--+-----------+
| | | December 31, |
+-----------------------------------------+--+--------------------------+
| | | 2009 | | 2008 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| Raw materials | | 12,191 | | 20,299 |
+-----------------------------------------+--+-----------+--+-----------+
| Work in progress | | 4,500 | | 3,540 |
+-----------------------------------------+--+-----------+--+-----------+
| Finished goods | | 9,853 | | 24,063 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| | | 26,544 | | 47,902 |
+-----------------------------------------+--+-----------+--+-----------+
In 2009 due to declines in market prices of its principal products (see Note
1(c)), the Group recorded write-downs of inventories in the amount of $ 1,497
(2008- write down of $3,931, see note 23 (a)).
As for charges, see Note 19.
NOTE 10:- PROPERTY, PLANT AND EQUIPMENT
Composed as follows:
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | Land | |Machinery | | Computers | | Office | | Motor | | Total |
| | | and | | and | | | |furniture | | | | |
| | |buildings | |equipment | | and | | and | |vehicles | | |
| | | | | | |peripheral | |equipment | | | | |
| | | | | | | equipment | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Cost: | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of January | | 5,657 | | 35,819 | | 630 | | 852 | | 569 | | 43,527 |
| 1, 2009 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Additions during the | | 51 | | 1,027 | | 14 | | 4 | | 125 | | 1,221 |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Disposals during the | | - | | (3) | | (11) | | (4) | | (96) | | (114) |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of December | | 5,708 | | 36,843 | | 633 | | 852 | | 598 | | 44,634 |
| 31, 2009 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Accumulated | | | | | | | | | | | | |
| depreciation : | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of January | | 2,071 | | 11,045 | | 343 | | 232 | | 220 | | 13,911 |
| 1, 2009 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Additions during the | | 200 | | 1,878 | | 123 | | 67 | | 67 | | 2,335 |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Disposals during the | | - | | (2) | | (11) | | - | | (58) | | (71) |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of December | | 2,271 | | 12,921 | | 455 | | 299 | | 229 | | 16,175 |
| 31, 2009 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Depreciated cost at | | 3,437 | | 23,922 | | 178 | | 553 | | 369 | | 28,459 |
| December 31, 2009 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Less- impairment loss | | - | | (2,227) | | - | | - | | - | | (2,227) |
| (4) | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | 3,437 | | 21,695 | | 178 | | 553 | | 369 | | 26,232 |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Cost: | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of January | | 5,037 | | 31,061 | | 480 | | 527 | | 628 | | 37,733 |
| 1, 2008 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Additions during the | | 620 | | 4,923 | | 154 | | 325 | | 94 | | 6,116 |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Disposals during the | | - | | (165) | | (4) | | - | | (153) | | (322) |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of December | | 5,657 | | 35,819 | | 630 | | 852 | | 569 | | 43,527 |
| 31, 2008 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Accumulated | | | | | | | | | | | | |
| depreciation : | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of January | | 1,878 | | 9,186 | | 232 | | 178 | | 237 | | 11,711 |
| 1, 2008 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Additions during the | | 193 | | 1,866 | | 112 | | 54 | | 81 | | 2,306 |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Disposals during the | | - | | (7) | | (1) | | - | | (98) | | (106) |
| year | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Balance as of December | | 2,071 | | 11,045 | | 343 | | 232 | | 220 | | 13,911 |
| 31, 2008 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| Depreciated cost as of | | 3,586 | | 24,774 | | 287 | | 620 | | 349 | | 29,616 |
| December 31, 2008 | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
| | | | | | | | | | | | | |
+-------------------------+-+-----------+-+-----------+-+------------+-+-----------+-+----------+-+---------+
(1) As of December 31, 2009 and 2008, investment grants received amounted to
$ 5,151 and related accumulated depreciation amounted to $ 4,448 and $ 4,304,
respectively.
(2) Rights in real estate in Israel:
The Company's plant in Israel is located on land leased from the
Israel Land Administration.
The leases are for periods ending in 2042. The Company prepaid the
lease payments, which are being amortized over the term of the lease.
(3) Plant under construction as of December 31, 2009 amounted to $ 5,953 and
is included primarily in machinery and equipment.
(4) Due to the decline in prices of the Group's principal products (see Note
1(b) and 1(c)) and the general worldwide crises in financial and other markets,
the recoverable amounts of the Group's property, plant and equipment were
estimated. An impairment loss in the amount of $ 2,227 relating to the plant and
equipment of the subsidiary in Mongolia was recognized in the statement of
comprehensive income. The recoverable amounts were estimated based on value in
use. The calculations of value in use considered management's estimates of
future cash flows, based on budgets, which cash flows were discounted at a
pre-tax discount rate (18.8%). The budgets assume that the subsidiary in
Mongolia will resume operations within a year from December 31, 2009.
(5) Borrowing costs capitalized to investment property under construction
amount to approximately $291 for the years ended December 31, 2009 and 2008.
(6) As for charges, see Note 19.
NOTE 11:- INVESTMENT IN JOINT VENTURES
In 2007 the Company had a 50% interest in Uzmetal, and a 50% interest in BIT
Metals. As of December 31, 2007 the entire investment in Uzmetal had been
written off. In 2008 the Company adjusted the provision relating to the activity
of Uzmetal, and recorded a gain in the amount of $ 713- see Note 2(a).
On August 1, 2008 MTSA sold the investment in BIT, see Note 2(c).
NOTE 12:- SHORT-TERM BANK CREDIT
+------------------------+----+---------------+--+-----------+--+-----------+
| | | Annual | | | | |
| | | interest | | | | |
+------------------------+----+---------------+--+-----------+--+-----------+
| | | rate *) | | December 31, |
+------------------------+----+---------------+--+--------------------------+
| | | % | | 2009 | | 2008 |
+------------------------+----+---------------+--+-----------+--+-----------+
| | | | | | | |
+------------------------+----+---------------+--+-----------+--+-----------+
| U.S. dollars | |Libor+0.7-1.7 | | 2,581 | | 7,021 |
+------------------------+----+---------------+--+-----------+--+-----------+
| NIS | |Prime+1.7-3.5 | | 3,324 | | 3,541 |
+------------------------+----+---------------+--+-----------+--+-----------+
| Euro | | - | | 10 | | - |
+------------------------+----+---------------+--+-----------+--+-----------+
| | | | | | | |
+------------------------+----+---------------+--+-----------+--+-----------+
| | | | | 5,915 | | 10,562 |
+------------------------+----+---------------+--+-----------+--+-----------+
*) As of December 31, 2009.
(1) As of December 31, 2009, the Company has an unused credit line in the
amount of $ 481.
(2) As for an agreement with the banks in 2009, regarding a conversion of
short-term facilities to a long term loan during 2009, see Note 15.
(3) As for collateral, see Note 19.
NOTE 13:- SHORT-TERM LOANS AND CURRENT MATURITIES OF LONG-TERM LOANS
+-----------------------------+-+--------------+-+-----------+-+-----------+
| | | Annual | | | | |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| | | interest | | | | |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| | | Rate *) | | December 31, |
+-----------------------------+-+--------------+-+-------------------------+
| | | % | | 2009 | | 2008 |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| | | | | | | |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| In U.S. dollars | |Libor+2.23-3 | | 9,569 | | 14,760 |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| In NIS | | Prime+1.5 | | 239 | | 837 |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| In Euro | | Libor+2.25 | | 483 | | - |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| Current maturities of | | | | 5,560 | | 1,326 |
| long-term loans | | | | | | |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| Reclassification of loan to | | | | 4,323 | | - |
| current liabilities (3) | | | | | | |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| | | | | | | |
+-----------------------------+-+--------------+-+-----------+-+-----------+
| | | | | 20,174 | | 16,923 |
+-----------------------------+-+--------------+-+-----------+-+-----------+
*) As of December 31, 2009.
(1) As for collateral, see Note 19.
(2) As for an agreement with the banks in 2009, regarding a conversion of
short-term facilities to a long term loan during 2009, see Note 15.
(3) See Note 15.
NOTE 14:- OTHER ACCOUNTS PAYABLE
+-----------------------------------------+--+-----------+--+-----------+
| | | December 31, |
+-----------------------------------------+--+--------------------------+
| | | 2009 | | 2008 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| Employees and payroll accruals | | 962 | | 1,254 |
+-----------------------------------------+--+-----------+--+-----------+
| Dividend payable | | 29 | | 209 |
+-----------------------------------------+--+-----------+--+-----------+
| Accrued liabilities | | 2,874 | | 2,885 |
+-----------------------------------------+--+-----------+--+-----------+
| Advances from customers | | - | | 694 |
+-----------------------------------------+--+-----------+--+-----------+
| Related parties | | 38 | | 209 |
+-----------------------------------------+--+-----------+--+-----------+
| Other | | 482 | | 583 |
+-----------------------------------------+--+-----------+--+-----------+
| | | | | |
+-----------------------------------------+--+-----------+--+-----------+
| | | 4,385 | | 5,834 |
+-----------------------------------------+--+-----------+--+-----------+
NOTE 15:- LONG-TERM LOANS
a. Composed as follows:
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | Annual | | | | |
| | | interest | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | Rate *) | | December 31, |
+-----------------------------------+-+---------------+-+----------------------+
| | | % | | 2009 | | 2008 |
+-----------------------------------+-+---------------+-+---------+-+----------+
| Loans from banks: | | | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| NIS | | Prime+0.5 | | 101 | | - |
+-----------------------------------+-+---------------+-+---------+-+----------+
| U.S. dollar (1) (2) | |Libor+1.5-2.6 | | 11,231 | | 7,132 |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | | | 11,332 | | 7,132 |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| Less - current maturities | | | | 5,560 | | 1,326 |
+-----------------------------------+-+---------------+-+---------+-+----------+
| Less- reclassification of loan | | | | 4,323 | | - |
| to current liabilities | | | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | | | 1,449 | | 5,806 |
+-----------------------------------+-+---------------+-+---------+-+----------+
| Other long-term loans: | | | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| NIS - unlinked (3) | | - | | 414 | | 414 |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | | | | | |
+-----------------------------------+-+---------------+-+---------+-+----------+
| | | | | 1,863 | | 6,220 |
+-----------------------------------+-+---------------+-+---------+-+----------+
*) As of December 31, 2009.
(1) A loan from bank in the amount of $6,956 to Shim-Tech in connection with
the construction of the plant in Mongolia (2008- $7,132).
The borrowing is in the form of promissory notes for a period of seven
and a half years to finance the acquisition of equipment. United Bank Mizrahi
Ltd. financed 85% of the promissory notes and the remaining 15% was financed by
the Company. The borrowings are secured by the Israeli Foreign Trade Risks
Insurance Corporation Ltd ("IFTRIC") for 80% of the facility. In addition, EMC
signed a guarantee in favor of the United Bank Mizrahi Ltd. for all the
facilities granted (see Note 2(b)).
In 2009, due to the suspension of production in Mongolia (see Note 1 (b))
Shim-Tech was unable to repay loan payments in the principal amounts of $1,034
and interest in the amount of $243. As a result, the Company was charged an
amount of $128 for the portion of the loan not covered by IFTRIC.
In November 2009, the bank approached IFTRIC to recover the loan. IFTRIC
can take legal action against Shim-Tech including placing Shim-Tech in
receivership.
As a result of non- repayment of the loan, the remaining balance of the
loan in the amount of $4,323 is presented in current liabilities.
Subsequent to balance sheet date, in April 2010, Shim-Tech reached an
agreement with the bank and IFTRIC to reschedule the repayment of the loan
installments originally due in 2009 and 2010 as follows:
(i) Shim-Tech will pay $250 to the bank by April 20, 2010. The Company will
provide Shim-Tech with a loan to pay this amount. As of the approval date of the
financial statements this amount has been paid to the bank.
(ii) An amount of $1,260 is to be paid by Shim-Tech to the bank in six equal
monthly installments commencing from June 15, 2010.
(iii) The three quarterly installments due in May, August and November 2010, in
the total amount of $1,337 are to be paid in January, February and May 2011.
(iv) The loan installments due in 2011 and thereafter are to be paid as
originally scheduled. However, if Shim-Tech complies with all of its payment
obligations, the bank will consider the possibility of deferral of certain
payments, which is to be negotiated in the future.
The rescheduling of the debt as described above is conditional, among
others, upon the approval of EMC.
(2) In April 2009, the Company reached an agreement with three
banks (A, B and C), whereby it would convert short-term credit into a loan in
the amount of $4,000 that will be paid in 24 equal monthly installments ($1,333
from each bank).
As collateral for this loan, the Swiss subsidiary, Metal Tech SA (MTSA),
provided a bank guarantee for the amount of the loan that will be reduced as the
loan is repaid.
As of December 31, 2009, the remaining balance of the loans and the guarantee is
$ 2,773 and $ 2,992, respectively.
In December 2009, the Company reached another agreement with bank A whereby it
would convert short-term bank credits and short-term loans into long-term loans
in the amount of $6,000 that will be paid in 18 equal monthly installments. MTSA
will provide bank A a permanent guarantee of $ 1,000 that will not be reduced as
the loan is repaid. As of December 31, 2009 the Company converted an amount of $
1,500 into a long-term loan and MTSA provided the bank guarantee. The balance of
$ 4,500 was converted subsequent to the balance sheet date.
In February 2010, the Company made a commitment that any trade receivables will
not be factored without bank B approval.
As of the date of the approval of the financial statements, the Company is still
negotiating with bank C, regarding the following covenants and increasing the
Company's credit line:
1. The ratio of trade receivables and inventory in relation to total
short-term bank credit will not fall below a certain ratio.
2. Limitations as to declaration of dividends.
3. There will be no change in holdings of subsidiaries without prior
approval of the banks.
(3) Capital notes due to the Company's shareholders bear no interest and
have no maturity date. There is no material difference between the carrying
amounts of these notes and their fair value.
b. The long-term loans from banks are repayable in the following years
subsequent to the balance sheet date according to the original repayment
schedule:
+------------------------------------+--+-----------+--+-----------+
| | | 2009 | | 2008 |
+------------------------------------+--+-----------+--+-----------+
| | | | | |
+------------------------------------+--+-----------+--+-----------+
| First year - current maturities *) | | 5,560 | | 1,326 |
+------------------------------------+--+-----------+--+-----------+
| | | | | |
+------------------------------------+--+-----------+--+-----------+
| Second year | | 3,092 | | 1,484 |
+------------------------------------+--+-----------+--+-----------+
| Third year | | 1,305 | | 1,645 |
+------------------------------------+--+-----------+--+-----------+
| Fourth year | | 897 | | 1,302 |
+------------------------------------+--+-----------+--+-----------+
| Fifth year and thereafter | | 478 | | 1,375 |
+------------------------------------+--+-----------+--+-----------+
| | | | | |
+------------------------------------+--+-----------+--+-----------+
| | | **) | | 5,806 |
| | | 5,772 | | |
+------------------------------------+--+-----------+--+-----------+
| | | | | |
+------------------------------------+--+-----------+--+-----------+
| | | 11,332 | | 7,132 |
+------------------------------------+--+-----------+--+-----------+
*) 2009- include $1,149 that was due in 2009, see Note 15 (a) (1).
**) An amount of $4,323 was classified in current liabilities, see
Note 15 (a).
c. As for collateral, see Note 19.
NOTE 16:- EMPLOYEE BENEFIT OBLIGATIONS
a. Post-employment benefits:
According to the labor laws and Severance Pay Law in Israel, the Company is
required to pay compensation to an employee upon dismissal or retirement or to
make current contributions in defined contribution plans pursuant to Section 14
to the Severance Pay Law, as specified below. The Company's liability is
accounted for as a post-employment benefit. The computation of the Company's
employee benefit liability is made in accordance with employment contracts based
on the employee's salary and employment term which establish the entitlement to
receive the compensation.
The post-employment employee benefits are normally funded by contributions to
defined benefit plans or as defined contribution plans as detailed below.
b. Defined contribution plans:
Section 14 to the Severance Pay Law, 1963 applies to part of the compensation
payments, pursuant to which the fixed contributions paid by the Group into
pension funds and/or policies of insurance companies release the Group from any
additional liability to employees for whom said contributions were made. These
contributions represent defined contribution plans.
+-----------------------------------------+-+---------+--+----------+
| | | Year ended December |
| | | 31, |
+-----------------------------------------+-+-----------------------+
| | | 2009 | | 2008 |
+-----------------------------------------+-+---------+--+----------+
| | | | | |
+-----------------------------------------+-+---------+--+----------+
| Expenses in respect of defined | | 284 | | 335 |
| contribution plans | | | | |
+-----------------------------------------+-+---------+--+----------+
c. Defined benefit plans:
The Group accounts for that part of the payment of compensation that is not
covered by contributions in defined contribution plans, as above, as a defined
benefit plan for which an employee benefit liability is recognized and for which
the Group deposits amounts in central severance pay funds and in qualifying
insurance policies.
1. Amounts recognized in the consolidated statement of comprehensive
income in respect of the defined benefit plan are as follows:
+---------------------------------------+-+---------+-+---------+
| | |Year ended December |
| | | 31, |
+---------------------------------------+-+---------------------+
| | | 2009 | | 2008 |
+---------------------------------------+-+---------+-+---------+
| | | | | |
+---------------------------------------+-+---------+-+---------+
| Cost of current services | | 109 | | 133 |
+---------------------------------------+-+---------+-+---------+
| Interest | | 22 | | 36 |
+---------------------------------------+-+---------+-+---------+
| Expected return on plan assets | | (9) | | (11) |
+---------------------------------------+-+---------+-+---------+
| Net actuarial (gain) loss recognized | | 54 | | (16) |
| during the year | | | | |
+---------------------------------------+-+---------+-+---------+
| | | | | |
+---------------------------------------+-+---------+-+---------+
| Total expense included in the | | 176 | | 142 |
| consolidated statement of | | | | |
| comprehensive income | | | | |
+---------------------------------------+-+---------+-+---------+
2. The plan (assets) liabilities, net:
+----------------------------------------+--+----------+--+----------+----------+
| | | December 31, |
+----------------------------------------+--+-----------------------------------+
| | | 2009 | | 2008 |
+----------------------------------------+--+----------+--+---------------------+
| | | | | |
+----------------------------------------+--+----------+--+---------------------+
| Defined benefit obligation | | 643 | | 486 | |
+----------------------------------------+--+----------+--+----------+----------+
| Fair value of plan assets | | (338) | | (245) | |
+----------------------------------------+--+----------+--+----------+----------+
| | | | | | |
+----------------------------------------+--+----------+--+----------+----------+
| Total liabilities, net | | 305 | | 241 | |
+----------------------------------------+--+----------+--+----------+----------+
3. The amount included in the balance sheet in respect of the defined
benefit plan for severance pay is as follows:
+---------------------------------+--+-----------------+--+-----------------+
| | | December 31, |
+---------------------------------+--+--------------------------------------+
| | | 2009 | | 2008 |
+---------------------------------+--+-----------------+--+-----------------+
| | | | | |
+---------------------------------+--+-----------------+--+-----------------+
| Net liability as of January 1, | | 241 | | 477 |
+---------------------------------+--+-----------------+--+-----------------+
| Expense recognized in the | | 176 | | 142 |
| consolidated statement of | | | | |
| comprehensive income | | | | |
+---------------------------------+--+-----------------+--+-----------------+
| Contribution paid | | (116) | | (231) |
+---------------------------------+--+-----------------+--+-----------------+
| Benefits paid | | - | | (160) |
+---------------------------------+--+-----------------+--+-----------------+
| Exchange differences | | 4 | | 13 |
+---------------------------------+--+-----------------+--+-----------------+
| | | | | |
+---------------------------------+--+-----------------+--+-----------------+
| Net liability as of December | | 305 | | 241 |
| 31, | | | | |
+---------------------------------+--+-----------------+--+-----------------+
4. The actuarial assumptions used are as follows:
+--------------------------------+--+-----------+--+-----------+
| | | 2009 | | 2008 |
+--------------------------------+--+-----------+--+-----------+
| | | % | | % |
+--------------------------------+--+-----------+--+-----------+
| | | | | |
+--------------------------------+--+-----------+--+-----------+
| Discount rate | | 2.6 | | 3.1 |
+--------------------------------+--+-----------+--+-----------+
| Expected rate of return on | | 3.08 | | 3.6 |
| funds | | | | |
+--------------------------------+--+-----------+--+-----------+
| Future salary increase | | 3 | | 3 |
+--------------------------------+--+-----------+--+-----------+
| Inflation | | 2.6 | | 1.9 |
+--------------------------------+--+-----------+--+-----------+
| Rate of employee turnover, | | see 5 | | see 5 |
| disability early retirement | | | | |
+--------------------------------+--+-----------+--+-----------+
5. The rates of employee turnover are 13%, 8% and 5% withdrawal rates
until attaining age of 40, 50 and retirement age, respectively.
NOTE 17:- INCOME TAX
a. Israeli income tax:
1. Income Tax (Inflationary Adjustments) Law, 1985:
According to the law, until 2007, the results for tax purposes were adjusted for
the changes in the Israeli CPI.
In February 2008, the "Knesset" (Israeli parliament) passed an amendment to the
Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the
law starting 2008 and thereafter. Since 2008, the results for tax purposes are
measured in nominal values, excluding certain adjustments for changes in the
Israeli CPI carried out in the period up to December 31, 2007. Adjustments
relating to capital gains such as for sale of property (betterment) and
securities continue to apply until disposal. Since 2008, the amendment to the
law includes, among others, the cancellation of the inflationary additions and
deductions and the additional deduction for depreciation.
As explained in Note 3, the financial statements of the Company are measured in
U.S. dollars. The difference between the annual change in the Israeli CPI and in
the NIS/dollar exchange rate causes a further difference between taxable income
and the net income shown in the financial statements.
2. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959 ("the Law"):
On April 1, 2005, an amendment to the Law came into effect (the "Amendment") and
has significantly changed the provisions of the Law (the "Old Law"). Generally,
investment programs of the Company that have already obtained approval for an
Approved Enterprise by the Israeli Investment Center will continue to be subject
to the Old Law's provisions.
Regarding the "alternative benefits" track, the Amendment enacted major changes
in the manner in which tax benefits are awarded under the Law so that companies
no longer require Investment Center approval in order to qualify for tax
benefits. Such an enterprise is a "Beneficiary Enterprise," rather than the
previous terminology of Approved Enterprise. The period of tax benefits for a
new Beneficiary Enterprise commences in the "Year of Commencement." This year is
the later of: (1) the year in which taxable income is first generated by the
Company, or (2) the Year of Election.
If a company requested the "alternative benefits" track for an Approved
Enterprise under the Law, it is precluded from filing a Year of Election notice
for a Beneficiary Enterprise for three years after the year in which the
Approved Enterprise was activated (the "Cooling Period"). The Company has
elected the status of a Beneficiary Enterprise under the Amendment for its
fourth plan.
According to the Old Law, the Company is entitled to investment grants (at
percentages mentioned below of investment cost) and also to a tax benefit, which
grants the Company a tax exemption for a period of two years and a reduced tax
rate of 10%-25% (depending on the level of foreign investments in the Company)
for a period of five years. According to the Amendment, the Company is entitled
to tax benefits, which grants the Company a tax exemption for a period of ten
years. Pursuant thereto, the income of the Company derived from the following
"Approved Enterprise" and "Beneficiary Enterprise" programs will be eligible for
these benefits for periods stated below:
1. Benefit period for the first program commenced in 1989 and expired in
2002. The investment grants received for this program were 38% of investment
cost.
2. Benefit period for the second program commenced in 1994 and has expired
in 2007. The investment grants received for this program were 36% of investment
cost.
3. Benefit period for the third program commenced in 1999 and is to expire
in 2012. The investment grants received for this program were 24% of investment
cost.
4. Benefit period for the fourth program commenced in 2006 and is to expire
in 2017. This plan is tax exempt for a period of ten years.
The entitlement to the above benefits is conditional upon the Company fulfilling
the conditions stipulated by the above law, regulations published there under
and the letters of approval for the specific investments in "Approved
Enterprises" and "Beneficiary Enterprise". 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 December 31, 2009, management believes that the Company is meeting all of
the aforementioned conditions.
The period of tax benefits, detailed above, is subject to limits of the earlier
of 12 years from the commencement of production or the year of election, or 14
years from receiving the approval, whichever is earlier.
Since the Company is operating under more than one program and since part of its
taxable income is not entitled to tax benefits under the abovementioned law and
is taxed at the regular tax rate, its effective tax rate is the result of a
weighted combination of the various applicable tax rates.
By virtue of this law, the Company is entitled to claim accelerated depreciation
on equipment used by the "Approved Enterprise" during five tax years.
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"
and for "Beneficiary Enterprise".
Income from sources other than the "Approved Enterprise" or "Beneficiary
Enterprise" during the benefit period will be subject to tax at the regular rate
prevailing at that time.
The Company's retained earnings as of December 31, 2009; an amount of $4,624 is
tax-exempt and attributable to its Approved Enterprise programs. If such
tax-exempt income is distributed in a manner other than upon complete
liquidation of the Company, it would be taxed at the reduced corporate tax rate
applicable to such profits (currently 25%) and an income tax liability of up to
$1,156 would be incurred as of December 31, 2009.
In addition, as a result of the amendment, tax-exempt income attributed to the
Beneficiary Enterprise, will subject the Company to taxes upon any distribution
manner including complete liquidation. As of December 31, 2009, the Company had
$3,130 of tax-exempt income attributed to its Beneficiary Enterprise plan. In
case of distribution or complete liquidation of the Company, it would be taxed
at the reduced corporate tax rate of 25% and an income tax liability of up to $
783 would be incurred as of December 31, 2009.
3. The Company is an "industrial company" under the Law for the
Encouragement of Industry (Taxation), 1969 and as such is entitled to certain
tax benefits, including a deduction of the purchase or certain intangible
property rights at the rate of 12.5% per year beginning with the first year the
Company used such intangible property rights and the deduction of its public
offering expenses over three years.
b. Corporate tax structure:
The rate of the Israeli corporate tax is as follows: 2008 - 27%, 2009 - 26%,
2010 - 25%. Tax at a reduced rate of 25% applies on capital gains arising after
January 1, 2003, instead of the regular tax rate. In July 2009, the "Knesset"
(Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation
for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes,
among others, an additional gradual reduction in the rates of the Israeli
corporate tax and real capital gains tax starting 2011 to the following tax
rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and
thereafter - 18%.
The effect of the abovementioned change on the financial statements is
immaterial.
c. Non-Israeli subsidiaries are taxed according to the applicable laws
in their countries of residence. In Mongolia, the current applicable tax rate is
graded at the rate of 10% (2008: 10%) up to taxable income of MNT 3,000 million
($ 2,367) and 25% (2008: 25%) for taxable income in excess of MNT 3,000 million
($2,367). In Switzerland, the Company entered into a special tax program
according to which its effective tax rate for the income derived from foreign
sources will be 9.6%.
d. Tax assessments:
Final tax assessments:
The Company received final tax assessments through 2005. The subsidiary,
Shim-Tech, received final tax assessments through 2005. The subsidiary, MTSA,
has not received final tax assessments since its incorporation (2004).
e. Carry-forward losses for tax purposes and other temporary differences:
Carry-forward operating tax losses of the Company total approximately $ 20,067
as of December 31, 2009. Carry-forward capital losses total approximately $
7,166 as of that date.
Carry-forward operating tax loss of the subsidiaries total approximately $18,695
as of December 31, 2009.
Deferred tax assets relating to the carry-forward operating losses of
approximately $ 5,939 and to other temporary differences of approximately $
1,458 were not recognized because it is not probable they can be utilized.
As of December 31, 2009, deferred tax liabilities associated with investments in
subsidiaries and joint ventures which have not been recognized amounted to $
4,056, as their utilization in the foreseeable future is not probable.
f. Significant components of the Company's deferred tax assets
(liabilities) are as follows:
+-------------------------------------+--+-----------+--+-----------+
| | | December 31, |
+-------------------------------------+--+--------------------------+
| | | 2009 | | 2008 |
+-------------------------------------+--+-----------+--+-----------+
| Deferred tax liabilities | | | | |
+-------------------------------------+--+-----------+--+-----------+
| Property, plant and equipment | | (951) | | (697) |
+-------------------------------------+--+-----------+--+-----------+
| Unrealized intercompany profits | | (12) | | (3) |
+-------------------------------------+--+-----------+--+-----------+
| | | (963) | | (700) |
+-------------------------------------+--+-----------+--+-----------+
| Deferred tax assets | | | | |
+-------------------------------------+--+-----------+--+-----------+
| Inventory | | - | | 188 |
+-------------------------------------+--+-----------+--+-----------+
| Carry-forward tax losses | | 733 | | 344 |
+-------------------------------------+--+-----------+--+-----------+
| Other | | 230 | | 89 |
+-------------------------------------+--+-----------+--+-----------+
| | | 963 | | 621 |
+-------------------------------------+--+-----------+--+-----------+
| | | | | |
+-------------------------------------+--+-----------+--+-----------+
| Total deferred tax liabilities, net | | - | | (79) |
+-------------------------------------+--+-----------+--+-----------+
| | | | | |
+-------------------------------------+--+-----------+--+-----------+
g. Income tax benefit (expense) consists of the following:
+----------+-----------------------------------------+-+---------+-+-----------+----------+
| | | | Year ended December 31, |
+----------+-----------------------------------------+-+----------------------------------+
| | | 2009 | | 2008 | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| | | | | | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| Current | | - | | - | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| Adjustment in respect of current income tax of | | 86 | | - | |
| previous year | | | | | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| Deferred | | 79 | | (41) | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| | | | | | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| | | 165 | | (41) | |
+----------------------------------------------------+-+---------+-+-----------+----------+
| | | | | | | |
+----------+-----------------------------------------+-+---------+-+-----------+----------+
h. The difference between income taxes computed at statutory tax rate of
the Company and income tax expense in the consolidated statement of
comprehensive income is explained as follows:
+----------------------------------------+-+-----------+-+-----------+
| | |Year ended December 31, |
+----------------------------------------+-+-------------------------+
| | | 2009 | | 2008 |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Loss before tax | | (20,638) | | (8,523) |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Tax calculated at statutory tax rate | | (5,366) | | (2,301) |
| 26% (2008- 27%) | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Increase (decrease) due to: | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Different income tax rates of other | | 230 | | 379 |
| countries | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Temporary differences for which | | 3,181 | | 3,264 |
| deferred taxes were not recorded | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Non-deductible expenses | | 704 | | 202 |
+----------------------------------------+-+-----------+-+-----------+
| Differences in measurement basis | | 1,172 | | (1,235) |
| (local currency for tax purpose and | | | | |
| dollars book value) | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Exemption income tax | | - | | (197) |
+----------------------------------------+-+-----------+-+-----------+
| Adjustment in respect of current | | (86) | | - |
| income tax of previous year | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Other | | - | | (71) |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Income tax expense (benefit) | | (165) | | 41 |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Effective tax rate | | - | | - |
+----------------------------------------+-+-----------+-+-----------+
NOTE 18:- RELATED PARTIES
a. Transactions with related parties:
+----------------------------------------+-+-----------+-+-----------+
| | |Year ended December 31, |
+----------------------------------------+-+-------------------------+
| | | 2009 | | 2008 |
+----------------------------------------+-+-----------+-+-----------+
| Employee benefits and fees: | | | | |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Shareholders (1) | | 303 | | 465 |
+----------------------------------------+-+-----------+-+-----------+
| Former CEO, director and share holder | | 144 | | 69 |
| (1)(2) | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Former CEO and director (3) | | (25) | | 710 |
+----------------------------------------+-+-----------+-+-----------+
| Directors not employed by the Company | | 60 | | 118 |
+----------------------------------------+-+-----------+-+-----------+
| Key management personnel | | 561 | | 237 |
+----------------------------------------+-+-----------+-+-----------+
| | | 1,043 | | 1,599 |
+----------------------------------------+-+-----------+-+-----------+
b. Compensation of related parties and key management personnel:
+----------------------------------------+-+-----------+-+-----------+
| | |Year ended December 31, |
+----------------------------------------+-+-------------------------+
| | | 2009 | | 2008 |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Short-term employee benefits | | 993 | | 1,427 |
+----------------------------------------+-+-----------+-+-----------+
| Post-employment benefits | | 122 | | 392 |
+----------------------------------------+-+-----------+-+-----------+
| Share-based payments (2) (3) | | (72) | | (220) |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Total compensation | | 1,043 | | 1,599 |
+----------------------------------------+-+-----------+-+-----------+
+---------------------------------------------+-+-----------+-+-----------+
| c. Rent expenses | | 40 | | 57 |
+---------------------------------------------+-+-----------+-+-----------+
d. Balances with related parties:
+-------------------------------------+--+-----------+--+-----------+
| | | December 31, |
+-------------------------------------+--+--------------------------+
| | | 2009 | | 2008 |
+-------------------------------------+--+-----------+--+-----------+
| | | | | |
+-------------------------------------+--+-----------+--+-----------+
| Other accounts payable (4) | | 55 | | 266 |
+-------------------------------------+--+-----------+--+-----------+
| Dividend payable (5) | | 29 | | 209 |
+-------------------------------------+--+-----------+--+-----------+
| Long- term loans (6) | | 414 | | 414 |
+-------------------------------------+--+-----------+--+-----------+
(1) In accordance with the employment agreements with the former CEO and the
Chairman of the Board of Directors; both of whom are shareholders, according to
which each is entitled to a bonus equal to 5% of the annual increase in the net
profit of the Group subject to a maximum bonus cap of GBP 450 thousands each
(equal to three times their gross basic salary). There was no bonus in 2009 and
2008.
(2) In March 2008 the Company's CEO resigned his positions as CEO and a
director. As part of the severance agreement, the parties agreed that the former
CEO would receive a one-time grant of $324, mainly in consideration for a
non-competition clause. As a result of his resignation in 2009, the Company
recorded an expense of $76 (2008- $248). In 2008 the Company reversed the
expense in respect of the options granted to the former CEO in 2007 that had not
vested at the date of his resignation.
(3) In April 2008 the Company entered into an agreement with a new CEO who
shall also be a Director, whereby he is entitled to annual compensation of $387,
as well as an annual bonus contingent upon the financial results after twelve
months in office.
In addition, the CEO was granted stock options, a portion of which
vested immediately, and a portion conditional upon performance and vesting, see
Note 21.
The agreement further states that in the event his employment as CEO is
terminated, he will be entitled to one year's salary as a termination benefit.
On March 15, 2009, the new CEO resigned his position as CEO and director and
therefore he was entitled to a termination benefit of up to approximately $ 250.
The Company reversed an expense in respect of the options granted to
the former CEO in 2008 that had not vested at the date of his resignation, See
Note 21 (b) (2).
(4) Amounts owed to shareholders on a current account basis, and bear no
interest.
(5) See Note 20 (b).
(6) See Note 15(a) (2).
NOTE 19:- COMMITMENTS AND CONTINGENT LIABILITIES
a. In accordance with the provisions of the Law for the Encouragement of
Capital Investments, 1959, the Company and its subsidiaries in Israel received
grants from the State of Israel in respect of investments in their plants (see
Note 10). The conditions in the letters of approval extending the grants from
the State of Israel primarily include the requirements that the investments be
made according to the approved plan and that at least 30% of the investments be
financed by outstanding share capital. Non-fulfillment of these conditions would
require the refund of the grants linked to the Consumer Price Index in Israel
from the date of receipt plus interest. To guarantee fulfillment of the
conditions for receiving the grants, the Company and its subsidiaries have
recorded floating charges on all of their assets in favor of the State of
Israel. In the opinion of management, as of December 31, 2009, the Company and
its subsidiaries are meeting the required conditions.
b. Charges:
As collateral for the Company's liabilities, fixed charges have been placed on
motor vehicles and inventory.
Certain bank loans are collateralized by fixed charge on the Company's share
capital and goodwill and a floating charge (a continuing charge on the Company's
present and future assets but permitting the Company to dispose of such assets
in the ordinary course of business) on all of the assets of the Company and its
subsidiaries.
c. Royalty commitments:
Royalties to the Office of the Chief Scientist ("OCS"):
Under the research and development agreement of the Company with the OCS and
pursuant to applicable laws, the Company is required to pay royalties at the
rate of 3% of sales of products developed with funds provided by the OCS, up to
an amount equal to 100% of the OCS research and development grants received,
linked to the U.S. dollar plus interest on the outstanding amount received based
on the 12-month LIBOR rate at the date of grants received. The Company is
obligated to repay the Israeli Government for the grants received only to the
extent that there are sales of the funded products.
The Company did not accrue any royalties for each of the three years in the
period ended December 31, 2009 as no revenues were recorded.
As of December 31, 2009, the Company had a contingent obligation to pay
royalties in the amount of approximately $ 1,268. This obligation will be
recorded when payment becomes probable. In 2009 the Company received grants in
the amount of $234 for a project in slag processing. The Company recorded the
received amount as a liability as it didn't receive the final approval from OCS
regarding the financing of this project.
d. Regarding the bonus to former CEO and Chairman of the Board of
Directors, see Note 18.
e. In July 2006, the Uzbek government issued a regulation resulting in
cancellation of the exclusivity clause in the contract between Uzmetal and AGMK,
its main supplier. AGMK ceased supplying Uzmetal with materials, and asked
Uzmetal to sign the annulment agreement, which Uzmetal refused to do. AGMK
applied to a court of law for its approval of the annulment. The court approved
the annulment of the agreement. Uzmetal appealed and lost. During 2007, Uzmetal
appealed to the Uzbek Supreme Court. In August 2007, the court reached a
decision and declared Uzmetal bankrupt. In October 2007, the Appellate court
rejected the Company's claims with respect to cancelling a previous ruling made
and did not accept that the Company is a creditor of Uzmetal while it accepted
that the Uzbek shareholders are creditors of Uzmetal. In addition, the court has
decided to start a liquidation process. Subsequent to the balance sheet date the
Company requested Arbitration against the republic of Uzbekistan, See Note 2
(a).
f. MTSA is committed to pay marketing and operating commissions to certain
advisors at a rate of 0.7% and 3% of the gross amount of purchases of the
Mongolian subsidiary from its main supplier of Molybdenum raw material, which is
the minority shareholder of the Mongolian subsidiary. Commission expenses
recorded in the cost of sales were $ 57 for the year ended December 31, 2009
(2008-$2,246).
g. Open purchase orders and capital commitments:
As of December 31, 2009, commitments for the purchase of property and
equipment and inventory total approximately $311.
h. During the course of 2007 three separate legal actions were filed in
the Beer Sheva District Court, all three similar in their content, yet for
different financial amounts. All three have been filed claiming illnesses caused
by the exposure to contaminants in the air and water caused by the factories in
the Ramat Hovav Industrial Park, and all filed against the Ramat Hovav Local
Council and the State of Israel, The first action, filed by eight plaintiffs, is
for $12,185, including special damages, loss of future earnings, refund of legal
fees and punitive damages. The second action, filed by 15 plaintiffs, is for
$14,307. The third action, filed by 45 plaintiffs, is in the amount of $37,616.
The Ramat Hovav Local Council in turn named Metal-Tech as a third party to these
actions. On October 30, 2008, the Company filed a writ of defense as a third
party defendant named by the Ramat Hovav Council, and on February 1, 2009, as a
third party defendant named by the State of Israel. It is the opinion of the
Company's legal counsel that these lawsuits will continue for many years until a
final verdict will be given.
In view of the above and owing to various reasons including the fact
that the claims are convoluted and based on arguments of ecological damage and
given the large number of parties involved (and the difficulty to estimate the
distribution of responsibilities among them, if any), the exposure of
substantially all of the plaintiffs to other risk factors, the factual,
scientific and legal issues that need to be decided, the difficulty in
determining and proving the existence/non existence of a causal relation and the
absence of an accurate amount of the damage, at this stage, the Company and its
legal counsel are unable to assess the whether the plaintiffs' position
regarding the issue of the claims' specific causal relation will eventually be
accepted. Accordingly, no provision was included in respect of these claims in
the financial statements.
i. In July 2008 the Company entered into a joint venture (JV) MOU with a
company incorporated under the laws of the Republic of Chile (The partner). The
Company and the partner each own 50% of the JV.
The JV was established for the purpose of participating in "Corporation
Nacional del Cobre de Chile" (Codelco) bid for technological development for
slag processing. The Company will develop the technology needed for the bid; the
total cost of the development cost is estimated at $11,000 and includes the
estimated value of the technology that the Company will invest, in JV. The
partner will participate in financing the technological development up to the
amount of $5,500 in two phases.
In August 2008 the Company and the partner signed the agreement. Due to
the finalization of the agreement, the Company recognizes the amount received as
income as the expenses in the project are being incurred.
As of December 31, 2009, the Company recorded expenses in the amount
of $780 (2008- $341) and the partner paid the Company $210 according to the
financing schedule (2008- $333). An amount of $443 was recognized as a credit to
research and development expenses (of which $333 was received in 2008). The
remaining balance received in the amount of $99 has been recorded as a
liability.
NOTE 20:- EQUITY
a. The share capital is composed as follows:
+------------------------------------+--+-------------+--+-------------+
| | | Authorized | | Issued and |
| | | | |outstanding |
+------------------------------------+--+-------------+--+-------------+
| | | December 31, 2009 and 2008 |
+------------------------------------+--+------------------------------+
| | | | | |
+------------------------------------+--+-------------+--+-------------+
| Ordinary shares of NIS 0.2 par | | 100,000,000 | | 38,376,923 |
| value each | | | | |
+------------------------------------+--+-------------+--+-------------+
The Company's shares are traded on the London Stock Exchange Alternative
Investment Market ("AIM"), under the symbol "MTT".
b. Dividends:
In accordance with resolutions approved by the shareholders in meetings held in
May 2007 the Company declared dividends in the amount of $ 1,189, of which $249
was paid in July 24, 2007. An additional $731 was paid during 2008 and $180 was
paid during 2009 and the balance of $ 29 is presented as a liability.
NOTE 21:- SHARE-BASED PAYMENTS PLANS
a. The expense recognized for employee services received during the year is
shown in the following table:
+-----------------------------------------+--+---------+-+----------+
| | | 2009 | | 2008 |
+-----------------------------------------+--+---------+-+----------+
| | | | | |
+-----------------------------------------+--+---------+-+----------+
| Expense arising from equity-settled | | | | |
| share-based payment transactions | | | | |
| recorded in: | | | | |
+-----------------------------------------+--+---------+-+----------+
| Cost of goods sold | | 60 | | 169 |
+-----------------------------------------+--+---------+-+----------+
| General and administrative expenses *) | | 30 | | (55) |
+-----------------------------------------+--+---------+-+----------+
| | | | | |
+-----------------------------------------+--+---------+-+----------+
| Total expense arising from share-based | | 90 | | 114 |
| payment transactions | | | | |
+-----------------------------------------+--+---------+-+----------+
*) Net of reversal of expense of $303 due to forfeiture of options of former
CEO, see Note 18.
b. Description of the Company's Options Plan
1. 2007 Israeli Option Plan
In 2007, the Company adopted the 2007 Israeli Option Plan (the "2007 Plan"),
which complies with the Israeli tax reforms. Qualified options are held in trust
until the later of 24 months from the date of grant of the options, or the
vesting of the options based on a vesting schedule determined by a committee
appointed by the Company's Board of Directors. 1,918,846 options were reserved
for issuance as of December 31, 2007 under this plan. As of December 31, 2009,
613,301 options remain available for grant under the 2007 Plan and 823,691
options were forfeited (2008- 796,192). Each option under the plan is
exercisable into one ordinary share at an exercise price of GBP1.3. The 2007
Plan expires in June 2017.
Two third of the options under the 2007 plan are exercisable over a 24-months
period and one third of the options are exercisable over 36- months period, from
the date of grant. The fair value of the options granted was GBP0.748 ($1.5).
2. 2008 Israeli Option Plan- A
On September 17, 2008, the Company's Board of Directors approved a grant of
1,017,500 options to the new CEO (see Note 18).
Each option under the plan is exercisable into one Ordinary share at an exercise
price of 0.62 Pence.
The vesting conditions for 508,750 options (sub plan 1) are time-based and for
508,750 options (sub plan 2) are time based as well as performance based.
Subplan 1- options vest semi-annually over four years from April 14, 2008.
Subplan 2 - options vest semi-annually over four years from April 14, 2008 and
are also subject to an earnings per share ("EPS") performance target of an
annual increase in EPS of 10% in relation to the Company's EPS as of December
31, 2007 and measured in each vesting date on the basis of the most recent semi-
annual or annual published financial results of the Company.
The weighted average fair value of each option granted is GBP0.13 ($0.232) (see
c below).
As described in Note 18, the acting CEO resigned his position as CEO in 2009 and
therefore all 890,313 unvested options expired.
3. 2008 Israeli Option Plan - B
On November 20, 2008 the Company's Board of Director approved a grant of
2,500,000 options to the Company's employees, 183,504 options remain available
for grant under this plan. Each option under the plan is exercisable into one
Ordinary share at an exercise price of 18.5 pence.
The options vest in eight equal semi annual tranches, starting the on first
anniversary of the grant date (4.5 years in total) subject to meeting certain
market conditions.
In order to determine the number of options which should actually vest at the
end of every 6 months (the "Vesting Date"), the amount of options which are
scheduled to vest on each Vesting Date, together with options which were carried
forward from the previous Vesting Date, if at all, will be multiplied by two
percentage factors, which will be determined based on meeting two criteria, as
follows:
1. First, the percentage of options which will vest on each Vesting Date will
depend on Total Shareholder Return (share price appreciation plus dividends
("TSR") as follows:
(a) 100% if TSR is 20% or more on an annualized basis from the date of grant;
(b) 50% if TSR is at least 10% on an annualized basis from the date of grant;
(c) 0% if TSR is less than 10% on an annualized basis from the date of grant;
and pro rata on a straight line basis if TSR is between 50% and 100%.
2. The amount of vested options calculated pursuant to the TSR criteria will
then be multiplied by a further percentage factor, which depends on Earning per
Share Growth ("EPSG"), as follows:
(a) 100% if EPSG is 10% or more on an annualized basis from the date of grant;
(b) 50% if EPSG is at least 5% on an annualized basis from the date of grant;
(c) 0% if EPSG is less than 5% on an annualized basis from the date of grant;
and pro rata on a straight line basis if EPSG is between 50% and 100%.
TSR and EPSG will be measured semi-annually. Share price will be defined as the
average closing price for all trading days in the last month of the half year.
Each measurement will apply to all previous vesting periods, on a cumulative
basis. In other words, options not vested on a certain Vesting Date as a result
of the above calculations, shall be carried forward to the following scheduled
Vesting Date and added to the scheduled number of options due on such following
Vesting Date. The number of such added options together with the number of such
scheduled Options shall form the basis for the above calculations at the
following Vesting Date and so forth through the last Vesting Date.
The weighted average fair value of options granted is GBP0.06 ($0.09).
The options will expire after 10 years from vesting commence date.
As of December 31, 2009 1,431,240 options were forfeited.
c. The following table lists the inputs to the models used for the three
plans for the years ended December 31, 2009 and 2008:
+----------------------------------+-------------+-------------+-------------+
| | Option plan |
+----------------------------------+-----------------------------------------+
| | 2008 | 2007 |
+----------------------------------+---------------------------+-------------+
| | A | B | |
+----------------------------------+-------------+-------------+-------------+
| Dividend yield (%) | 1.07 | - | 1.29 |
+----------------------------------+-------------+-------------+-------------+
| Expected volatility (%) |44.72-48.41 |45.53-75.79 | 34.31-62.24 |
+----------------------------------+-------------+-------------+-------------+
| Risk -free interest rate (%) | 3.74-4.51 | 1.77-5.18 | 4.46-5.79 |
+----------------------------------+-------------+-------------+-------------+
| Post vest cancellation rate (%) | - | 9.8 | 6.45 |
+----------------------------------+-------------+-------------+-------------+
| Suboptimal factor | 2.76 | 2.51 | 2.75 |
+----------------------------------+-------------+-------------+-------------+
| Weighed average share price (EUR) | 0.38 | 0.185 | 1.48 |
+----------------------------------+-------------+-------------+-------------+
| Model used | Binomial |Monte-Carlo | Binomial |
+----------------------------------+-------------+-------------+-------------+
The assumptions used are based on historical data of the company and comparable
companies as the Company is traded for four years. The expected volatility
reflects the assumption that the historical volatility is indicative of future
trends, which may also not necessarily be the actual outcome.
The options granted are equity-settled plans and the fair value is measured at
the grant date.
d. Movements in the year:
The following table illustrates the number (No.) and weighted average exercise
prices (WAEP) of, and movements in, share options during the year:
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| | | 2009 | | 2008 |
+------------------------+-+-------------------------+-+-----------------------+
| | | No. | | WAEP | | No. | | WAEP |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| | | | | | | | | |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| Outstanding as of | | 3,854,350 | | 0.45 | | 1,305,545 | | GBP |
| January 1 | | | | | | | | 1.3 |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| Granted during the | | - | | - | | 3,333,996 | | GBP |
| year | | | | | | | | 0.32 |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| Forfeited during the | | (2,349,052) | | 0.36 | | (785,191) | | GBP |
| year | | | | | | | | 1.3 |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| | | | | | | | | |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| Outstanding as of | | 1,505,298 | | 0.59 | | 3,854,350 | | GBP |
| December 31 | | | | | | | | 0.45 |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| | | | | | | | | |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
| Exercisable as of | | 455,757 | | | | 127,188 | | |
| December 31 | | | | | | | | |
+------------------------+-+-------------+-+---------+-+-----------+-+---------+
The weighted average remaining contractual life for the share options
outstanding as of December 31, 2009 is 8.1 years (2008- 8.9 years).
The weighted average fair value of options granted during 2008 was GBP 0.08
($0.131).
e. The options granted to employees under those plans were offered to employees
who are not "controlling shareholders" as the term is defined in the Income Tax
Ordinance in Israel, through a trustee, based on Section 102 to the Income Tax
Ordinance.
NOTE 22:- FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
a. The Group's principal financial liabilities, other than derivatives,
are comprised of bank credit, bank loans and trade payables. The main purpose of
these financial instruments is to raise financing for the Group's operations.
The Group has various financial assets such as trade receivables and cash, which
arise directly from its operations.
The Group also enters into derivative transactions, primarily forward
currency and options contracts. The purpose is to manage the currency risks
arising from the Group's operations and its sources of finance.
It is, and has been throughout 2009 and 2008, the Group's policy that
no trading in derivatives shall be undertaken.
The main risks arising from the Group's financial instruments are cash
flow interest rate risk, liquidity risk, foreign currency risk and credit risk.
The Company's management reviews and agrees on policies for managing each of
these risks which are summarized below.
Interest rate risk:
The Group's exposure to the risk of changes in market interest rates
relates primarily to the Group's debt obligations with floating interest rates.
As of December 31, 2009, approximately 25% (2008- 22%) of the Group's borrowings
is at a fixed rate of interest. Due to the fact that the Group's long-term
borrowings bear a fixed rate of interest, no major exposure exists. The
following is sensitivity to a reasonably possible change in interest rates with
all other variables held constant: an increase/decrease of 1% in the interest
rate will result in decrease/increase in profit of the Company of approximately
$159 (2008-$ 256).
Foreign currency risk:
As of December 31, 2009, approximately 34% (2008-26%) of the Group's
financial assets and 29% (2008-23%) of the Group's financial liabilities were on
currencies other than the functional currency of the relevant entity (mainly
NIS). As such, changes in foreign exchange rates should have a limited impact on
the Group's financial performance. The Group has not presented a sensitivity
analysis to a reasonably possible change due to immateriality.
The Group also has transactional currency exposures. Such exposure
arises from sales or purchases by an operating unit in currencies other than the
Company's functional currency. Approximately 25% (2008- 12%) of the Group's
sales are denominated in currencies other than the functional currency of the
operating unit making the sale, whilst almost 74% (2008- 90%) of costs are
denominated in the unit's functional currency. See (d) for further details on
derivatives financial instruments.
Credit risk:
The Group trades mostly with recognized, creditworthy third parties. In
addition, receivable balances are monitored on an ongoing basis with the result
that the Group's exposure to bad debts is not significant. The maximum exposure
is the carrying amount as disclosed in Note 7. There are no significant
concentrations of credit risk within the Group.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, short term
deposits, short-term and long-term restricted cash and trade receivables.
Cash and cash equivalents are invested in U.S. dollars and in NIS in major banks
in Israel and abroad. 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.
Liquidity risk:
The Group monitors its risk to a shortage of funds. The Group's objective is to
maintain a balance between continuity of funding and flexibility through the use
of bank overdrafts and bank loans.
b. Concentration of liquidity risk:
The table below presents the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments:
December 31, 2009:
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| | | Less | | 1 to | | > 5 | | Total |
| | | than | | 2 | |years | | |
| | | one | |years | | | | |
| | | year | | | | | | |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| | | | | | | | | |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| Short-term bank credit | | 5,915 | | - | | - | | 5,915 |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| Loans from banks | | 10,291 | | - | | - | | 10,291 |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| Trade payables | | 8,342 | | - | | - | | 8,342 |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| Other accounts payable | | 11,366 | | - | | - | | 11,366 |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| Long term loans *) | | 10,529 | | 1,463 | | 414 | | 12,406 |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| | | | | | | | | |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
| | | 46,443 | | 1,463 | | 414 | | 48,320 |
+----------------------------------+-+--------+-+-------+-+-------+-+--------+
December 31, 2008:
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| | | Less | | 1 to | | 2 to | | 3 to | | 4 to | | > 5 | | Total |
| | | than | | 2 | | 3 | | 4 | | 5 | |years | | |
| | | one | |years | |years | |years | |years | | | | |
| | | year | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| Short-term | | 10,562 | | - | | - | | - | | - | | - | | 10,562 |
| bank credit | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| Loans from | | 15,597 | | - | | - | | - | | - | | - | | 15,597 |
| banks | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| Trade | | 17,435 | | - | | - | | - | | - | | - | | 17,435 |
| payables | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| Other | | 12,151 | | - | | - | | - | | - | | - | | 12,151 |
| accounts | | | | | | | | | | | | | | |
| payable | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| Long term | | 1,658 | | 1,739 | | 1,819 | | 1,392 | | 1,413 | | 418 | | 8,439 |
| loans | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| | | | | | | | | | | | | | | |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
| | | 57,403 | | 1,739 | | 1,819 | | 1,392 | | 1,413 | | 418 | | 64,184 |
+--------------+-+--------+-+-------+-+-------+-+-------+-+-------+-+-------+-+--------+
*) Regarding reclassification of long-term loan payments to banks in current
liabilities and agreements reached with banks subsequent to the balance sheet
date, see Note 15 (a) (1).
c. Fair value of financial instruments:
The carrying amounts of cash and cash equivalents, short-term restricted cash,
trade receivables, other accounts receivable, short-term bank credit, short term
loans, trade payables and other accounts payable approximate their fair value
due to the short-term maturity of such instruments.
The fair value of available for sale marketable securities is determined by
reference to quoted bid prices at the close of business on the balance sheet
date.
The carrying amounts of the Group's short-term loans approximate their fair
value as the interest rates are variable.
The fair value of long- term loan received with fixed interest in the carrying
amount of $ 6,956 is based on the computation of the present value of cash flows
using interest rate currently available for loan with similar terms is $6,305
(2008- $ 7,132, $ 7,280, respectively).
d. Derivative financial instruments:
To hedge against the risk of changes in the value of cash flows
resulting from forecasted transactions of foreign currency receipts related to
sales during the year, the Company has instituted a foreign currency cash flow
hedging program. The Company hedges portions of its forecasted receipts
denominated in Euros with forward contracts or with put and call options. These
forward contracts and options are designated as cash flow hedges. It is the
Group's policy to negotiate the terms of the hedge derivatives to match the
terms of the hedged item to maximize hedge effectiveness. As of December 31,
2009 the derivatives instruments are not qualified as hedge instrument, profit
or loss is recognized in the statement of comprehensive income.
On December 31, 2008 the Company held one open transaction of put and call
option, which was settled on January 5, 2009.
As of December 31, 2009, the Company has the following transactions in
derivatives:
Thirteen forward contracts, each for the exchange of a range of EUR 160 thousand -
EUR 500 thousand into dollars at rates of $ 1.349-$ 1.499, which are to be carried
out at the middle of each month during the period from January 5, 2010 to
December 15, 2010. The fair value of the forward contracts is an asset in the
amount $209, which presented in the other receivables balance.
The Company recorded profit of $ 142 and $ 56 during the years ended December
31, 2009 and 2008, respectively, related to the forward exchange contracts and
options.
e. Financial asset and liabilities measured at fair value through profit
and loss:
+----------+----------------------------------------+-+-----------+-+-----------+----------+
| | | December 31, | |
+---------------------------------------------------+-+-------------------------+----------+
| | | 2009 | | 2008 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Derivative financial instruments: | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Other account receivables | | 209 | | - |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Other account payable | | - | | 16 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | | | | | | |
+----------+----------------------------------------+-+-----------+-+-----------+----------+
The financial instruments presented in the balance sheet at fair value
are grouped into classes with similar characteristics using the following fair
value hierarchy which is determined based on the source of input used in
measuring fair value:
+----------+----------+----------------------------------------------------+
| Level 1 | - | quoted prices (unadjusted) in active markets for |
| | | identical assets or liabilities. |
+----------+----------+----------------------------------------------------+
| | | |
+----------+----------+----------------------------------------------------+
| Level 2 | - | inputs other than quoted prices included within |
| | | Level 1 that are observable either directly or |
| | | indirectly. |
+----------+----------+----------------------------------------------------+
| | | |
+----------+----------+----------------------------------------------------+
| Level 3 | - | inputs that are not based on observable market |
| | | data (valuation techniques which use inputs that |
| | | are not based on observable market data). |
+----------+----------+----------------------------------------------------+
Financial assets measured at fair value at level 2.
f. Capital management:
The primary objective of the Group's capital management is to ensure that it
maintains a strong credit rating and healthy capital ratios in order to support
its business and maximize shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of
changes in economic conditions.
NOTE 23:- SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
a. Cost of sales before write-down of inventories and fixed assets
impairment:
+----------+----------------------------------------+-+-----------+-+-----------+----------+
| | |Year ended December 31, | |
+---------------------------------------------------+-+-------------------------+----------+
| | | 2009 | | 2008 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Materials | | 36,268 | | 108,178 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Salaries and related benefits | | 3,103 | | 5,746 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Depreciation | | 2,335 | | 2,192 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Maintenance and repairs | | 731 | | 1,839 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Electricity, water and gas | | 1,097 | | 2,114 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Packaging, transportation and shipping | | 947 | | 2,253 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Other | | 683 | | 5,196 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | | | 45,164 | | 127,518 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | Write -down of inventories *) | | 1,497 | | 7,501 |
+----------+----------------------------------------+-+-----------+-+----------------------+
| | | | | | | |
+----------+----------------------------------------+-+-----------+-+-----------+----------+
*) Includes $3,931 related to inventories on hand as of December 31, 2008, see
Note 9.
b. Research and development expenses, net:
+----------+----------------------------------------+-+-----------+-+-----------+----------+
| | | | | | |
+----------+----------------------------------------+-+-----------+-+----------------------+
| Salaries and related benefits | | 740 | | 817 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| Subcontractors | | 99 | | 456 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| Supplies and materials | | 175 | | 104 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| Other | | 90 | | 141 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | 1,104 | | 1,518 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| Less - research and development grants and | | (449) | | (21) | |
| participations | | | | | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | | | | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | 655 | | 1,497 | |
+---------------------------------------------------+-+-----------+-+-----------+----------+
| | | | | | | |
+----------+----------------------------------------+-+-----------+-+-----------+----------+
c. Selling and marketing expenses:
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| Salaries and related benefits | | 621 | | 724 |
+----------------------------------------+-+-----------+-+-----------+
| Commissions | | 501 | | 628 |
+----------------------------------------+-+-----------+-+-----------+
| Travel | | 21 | | 57 |
+----------------------------------------+-+-----------+-+-----------+
| Other | | 87 | | 45 |
+----------------------------------------+-+-----------+-+-----------+
| | | | | |
+----------------------------------------+-+-----------+-+-----------+
| | | 1,230 | | 1,454 |
+----------------------------------------+-+-----------+-+-----------+
d. General and administrative expenses:
+----------------------------------------+-+----------+-+-----------+
| | | | | |
+----------------------------------------+-+----------+-+-----------+
| Salaries and related benefits | | 2,090 | | 2,896 |
+----------------------------------------+-+----------+-+-----------+
| Professional fees | | 924 | | 1,190 |
+----------------------------------------+-+----------+-+-----------+
| Business development | | 349 | | 1,121 |
+----------------------------------------+-+----------+-+-----------+
| Communications | | 276 | | 345 |
+----------------------------------------+-+----------+-+-----------+
| Travel | | 223 | | 631 |
+----------------------------------------+-+----------+-+-----------+
| Doubtful accounts | | 308 | | 488 |
+----------------------------------------+-+----------+-+-----------+
| Other | | 392 | | 1,243 |
+----------------------------------------+-+----------+-+-----------+
| | | | | |
+----------------------------------------+-+----------+-+-----------+
| | | 4,562 | | 7,914 |
+----------------------------------------+-+----------+-+-----------+
e.Finance costs and finance income:
+-----------------------------------------+-+---------+-+-----------+
| | | Year ended December |
| | | 31, |
+-----------------------------------------+-+-----------------------+
| | | 2009 | | 2008 |
+-----------------------------------------+-+---------+-+-----------+
| Finance costs: | | | | |
+-----------------------------------------+-+---------+-+-----------+
| Interest in respect of loans | | (1,057) | | (1,922) |
+-----------------------------------------+-+---------+-+-----------+
| Bank commissions and other expenses | | (301) | | (123) |
+-----------------------------------------+-+---------+-+-----------+
| Foreign exchange differences | | (569) | | (1,363) |
+-----------------------------------------+-+---------+-+-----------+
| Amortization and impairment of | | (528) | | (151) |
| deferred finance costs | | | | |
+-----------------------------------------+-+---------+-+-----------+
| | | | | |
+-----------------------------------------+-+---------+-+-----------+
| | | (2,455) | | (3,559) |
+-----------------------------------------+-+---------+-+-----------+
| Finance income: | | | | |
+-----------------------------------------+-+---------+-+-----------+
| Interest in respect of deposits | | 89 | | 272 |
+-----------------------------------------+-+---------+-+-----------+
| Foreign exchange differences | | 195 | | 44 |
+-----------------------------------------+-+---------+-+-----------+
| Interest in respect of loan to a joint | | - | | 77 |
| venture | | | | |
+-----------------------------------------+-+---------+-+-----------+
| Gain from derivative | | 142 | | 56 |
+-----------------------------------------+-+---------+-+-----------+
| | | | | |
+-----------------------------------------+-+---------+-+-----------+
| | | 426 | | 449 |
+-----------------------------------------+-+---------+-+-----------+
NOTE 24:- REVENUES BY GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
The Group manages its business on a basis of one reportable segment.
a. Revenues classified by geographical destinations based on the customer
location:
+----------+--------------------------------------+-+-----------+--+-----------+----------+
| | | Year ended December 31, | |
+-------------------------------------------------+-+--------------------------+----------+
| | | 2009 | | 2008 | |
+-------------------------------------------------+-+-----------+--+-----------+----------+
| | | | | | |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | United States | | 13,851 | | 33,386 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | China | | 2,861 | | 4,768 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Japan | | 1,493 | | 26,525 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Korea | | 1,034 | | 26,253 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Europe | | 10,514 | | 34,255 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Israel | | 768 | | 454 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | South Africa | | 5,359 | | 5,015 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | India | | - | | 5,970 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Others | | 862 | | 1,707 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | | | | | |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | | | 36,742 | | 138,333 |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | | | | | | |
+----------+--------------------------------------+-+-----------+--+-----------+----------+
b. Information about sales to major customers (as a percentage of total
revenues):
+----------+--------------------------------------+-+-----------+--+-----------+----------+
| | | Year ended December 31, | |
+-------------------------------------------------+-+--------------------------+----------+
| | | 2009 | | 2008 | |
+-------------------------------------------------+-+-----------+--+-----------+----------+
| | | | | | |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Customer A | | 12% | | 1% |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | | | | | |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | Customer B | | 4% | | 19% |
+----------+--------------------------------------+-+-----------+--+----------------------+
| | | | | | | |
+----------+--------------------------------------+-+-----------+--+-----------+----------+
c. The Company's long-lived assets by geographic area are as follows:
+-------------------------------------+-+-+-+-----------+--+-----------+----------+
| | | | | December 31, | |
+-------------------------------------+-+-+-+--------------------------+----------+
| | | | | 2009 | | 2008 | |
+-------------------------------------+-+-+-+-----------+--+-----------+----------+
| | | | | | | |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| Israel | | | | 8,879 | | 8,572 |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| Mongolia | | | | 17,306 | | 20,814 |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| Czech Republic | | | | 46 | | 229 |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| Switzerland | | | | 1 | | 1 |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| | | | | | | |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| | | | | 26,232 | | 29,616 |
+-------------------------------------+-+-+-+-----------+--+----------------------+
| | | | | | | | |
+-------------------------------------+-+-+-+-----------+--+-----------+----------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GMGFDZGZGGZM
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