RNS Number:8927K
Atia Group Limited
02 January 2008
PART 1
ATIA GROUP LTD.
(Formerly: KIDRON INDUSTRIAL HOLDINGS LTD)
CONDENSED FINANCIAL STATEMENTS
30th SEPTEMBER 2007
UNAUDITED
ATIA GROUP LTD.
(Formerly: KIDRON INDUSTRIAL HOLDINGS LTD)
CONDENSED FINANCIAL STATEMENTS AS AT 30th SEPTEMBER 2007
UNAUDITED
TABLE OF CONTENTS
Page
Report of the Board of Directors A - K
Auditor's Review Report 2 - 3
Condensed Company Balance Sheet As at 30 September 2007 4
Condensed Statements of Net Assets in Liquidation As at 31 December 2006 5
Condensed Consolidated Balance Sheet As at 30 September 2006 6
Condensed Profit and Loss Account For the period ending 30 September 2007 7
Condensed Consolidated Profit and Loss Account For the period ending 30 September 2006 and for 8
the year ended 31 December 2006
Statements of Reconised Gains and Losses 9
Condensed Statements of Changes in Shareholder's Equity 10 - 11
Company Condensed Statements of Cash Flows For the period ending 30 September 2007 12 - 13
Company Condensed Statement of Cash Flows Year ended 31 December 2006 14 - 15
Condensed Consolidated Statements of Cash Flows For the period ending 30 September 2006 16 - 17
Notes to the Condensed Financial Statements 18 - 42
ATIA GROUP LTD.
Report of the Board of Directors
For the nine month period ended 30th September 2007
We take pleasure in presenting the Report of the Board of Directors for the
nine-month period ended 30th September 2007, in accordance with Regulation 10 of
the Securities Regulations (Periodic and Immediate Reports) - 1970. The Report
of the Board of Directors should be read in conjunction with the audited
financial statements of the Company as at 31st December 2006 and the
accompanying notes, as well as with the periodic report for 2006.
A. The Company and its business environment
- Atia Group Ltd. (formerly - Kidron Industrial Holdings Ltd.)
(Hereinafter - the "Company") is a public company, the major activities of which
until the beginning of 2007 were the manufacture, import and marketing of
plastic products.
- During 2006, the Company experienced financial difficulties, as a
result of which, in December 2006, the Company ceased meeting its agreements
with banks in connection with the repayment of its debts.
- On 4 February 2007, the Company was forced to cease its major activity
- the manufacture and marketing of plastic products.
- On 7 February 2007, the Company issued termination notices to the vast
majority of its employees.
- On 15 February 2007, at the request of the Company, the Nazareth
District Court issued a stay of proceedings order (equivalent of Chapter 11
protection in the USA).
The court appointed Alon Fredkin, CPA (Isr.) as special executive and
trustee for the period of the stay and granted him the powers of the board of
directors.
- On 10 June 2007, the Nazareth District Court approved the creditors
arrangement proposed by the trustee of the creditors arrangement.
- On 5 July 2007, the general shareholders meeting ratified that
creditors arrangement that was approved by the court.
- The trustee for the period of the stay confirmed that, commencing on 15
July 2007; all of the pre-conditions for the going into effect of the creditors
arrangement had been fulfilled.
- On 3 September 2007, 172,034,669 shares of the Company were allotted to
Appswing Ltd. in a private placement, pursuant to an agreement dated 19 July
2007, whereby Appswing Ltd. undertook to convert all of the amounts the Company
owes it into 107,518,540 shares to be allotted to it against the aforementioned
debts.
In addition, the Company allotted Appswing 64,516,129 shares in return
for a cash amount of NIS 8,570 thousand.
After the allotment of the shares to Appswing and further to the going
into effect of the creditors agreement, the shareholders' equity of the Company
amounted to more than NIS 8 million.
- Trading in the shares of the Company on the Tel Aviv Stock Exchange
On 17 January 2005, the Company was given notice by the Tel Aviv Stock
Exchange as to its lack of compliance with the preservation rules set down in
the Stock Exchange's Regulations and guidelines.
In September 2006, the board of directors of the Stock Exchange
decided to transfer the securities of the Company to the preservation list.
On 14 February 2007, trading of the shares of the Company on the Tel
Aviv Stock Exchange was suspended, as a result of the appointment of a receiver
for a former subsidiary of the Company.
On 12 August 2007, the Company petitioned the Stock Exchange and the
Israel Securities Authority to restart the trading of the shares of the Company
as part of the preservation list, in view of the going into effect of the
creditors arrangement. In addition, the Company requested that, in the event
that the share allotment to Appswing Ltd. is completed by 3 September 2007 and
the minimum shareholders' equity requirements of the Company regarding the
percentage of Company shares held by the public are met, the renewal of trading
of the shares of the Company on the regular list would be approved.
On 15 August 2007, trading of the shares of the Company was renewed on
the preservation list.
Following the private placement on 3 September 2007 and the receipt of
confirmation of the compliance of the Company with the requirements of the Stock
Exchange regarding minimum shareholders' equity and the percentage of Company
shares held by the public, trading in the shares of the Company was renewed on
the regular list, commencing on 6 September 2007.
On 6 September 2007, the Company entered into a market making
agreement with Excellence Nashua Stock Exchange Services Ltd.
- For information pertaining to subsequent events, see item "N" below.
B. Financial position as at 30 September 2007
We present below a description of the Company's financial position as at 30
September 2007, together with the reasons for the changes in financial position,
which occurred since 31 December 2006:
Total assets in the balance sheet as at 30 September 2007 amounted to NIS 8.7
million, compared with NIS 37.7 million in the statement of net assets in
liquidation as at 31 December 2006.
Current assets as at 30 September 2007 amounted to NIS 8.7 million, compared
with NIS 37.7 million as at 31 December 2006. Current assets consisted
primarily of cash and cash equivalents.
Current liabilities as at 30 September 2007 amounted to NIS 0.3 million,
compared with NIS 80.2 million as at 31 December 2006.
The decrease in current liabilities derived mainly from the creditors
arrangement, which went into effect in July 2007.
The shareholders' equity of the Company as at 30 September 2007 amounted to NIS
8.4 million, compared with a deficit of NIS 45.5 million as at 31 December 2006.
The increase in shareholders' equity derived from the creditors arrangement and
from the allotment of shares to Appswing Ltd.
C. Liquidity ratios
30/9/07 30/9/06 31/12/06
Current assets / current liabilities (current ratio) 34.35 0.74 0.47
Current assets, less stocks / current liabilities (quick ratio) 34.35 0.58 0.47
D. Financial position as at 30 September 2007 (pro forma)
We present below a description of the Company's financial position as at 30
September 2007, on the basis of pro forma data, under the assumption that the
allotment of shares to companies controlled by the Atia Family were completed by
30 September 2007.
The Group has cash amounting to NIS 8,533 thousand as at 30 September 2007,
deriving mainly from the share issue in cash to Appswing Ltd.
The Group has accounts receivable and debit balances amounting to NIS 2,012
thousand as at 30 September 2007, including mainly advances to service providers
and prepaid expenses in connection with the construction project in Las Vegas,
and the balance of Appswing, an interested party, in an amount of NIS 376
thousand.
Total current assets of the Group as at 30 September 2007 amounted to NIS 72,109
thousand, including the buildings under construction and restricted cash.
- The Group's inventory of buildings under construction as at 30 September
2007 amounted to NIS 44,087 thousand and includes costs accumulated as at 30
September 2007 in respect of a building project in Las Vegas.
- Cash which cannot be withdrawn, in an amount of NIS 17,477 thousand,
constitutes deposits of the Group in a trust account in the U.S., in respect of
advanced received from the purchasers of apartments in the Las Vegas project.
The Group's investment real estate as at 30 September 2007 includes the fair
value as at 30 September 2007 of property in Samobor, Croatia, in an amount of
NIS 68,943 thousand, the value of which is based on valuations performed by an
external appraiser. The cost of the aforementioned property, in an amount of
NIS 51,358 thousand, includes the tax in respect of the purchase of the
property.
The current liabilities as at 30 September 2007, in an amount of NIS 75,581
thousand, include mainly an amount of NIS 17,477 thousand in respect of advances
from purchasers of apartments in the construction project in Las Vegas,
liabilities to suppliers and other creditors in an amount of NIS 6,273 thousand,
mainly in respect of the construction project in Las Vegas, liabilities to pay
the balance of the consideration to the sellers of the property in Samobor,
Croatia, in an amount of NIS 43,485 thousand, and a liability to interested
parties in an amount of NIS 8,616 thousand in respect of financing obtained from
them for the Las Vegas project.
Long-term liabilities as at 30 September 2007 include a reserve for deferred
taxes of NIS 3,479 thousand in respect of the revaluation of the property in
Samobor, Croatia to fair value, as mentioned above.
The pro forma shareholders' equity of the Company as at 30 September 2007
amounted to NIS 61,770 thousand and it derives from the following amounts: NIS
8.5 million from the issuance of shares to Appswing Ltd. and NIS 53 million in
respect of an allotment of shares to companies controlled by the Atia Family
against the acquisition of 100% of the shares of Sitnica d.o.o. And 100% of the
shares of Verge Living Corporation.
E. Results of operations for the nine and three month periods ending on 30
September 2007 and for the period ending on 30 September 2006
1-9/2007 7-9/2007 1-9/2006 7-9/2006 1-12/2006
NIS'000 NIS'000 NIS'000 NIS'000 NIS'000
Sales turnover - - 87,116 25,891 109,343
Gross profit (loss) - - 3,085 (38) 2,151
Operating loss (556) (556) (6,555) (3,244) (10,246)
Financing income (expenses), net 7 7 (1,449) (138) (1,990)
Operating loss after financing (549) (549) (8,004) (3,382) (12,236)
Other income, net - - 300 46 277
Gain on erasure of liabilities to banking - - 1,507 - 1,507
institutions
Taxes on income - - (615) (229) (913)
Group's portion in profit of investee company - - 54 - 54
Net loss on presentation of assets on basis - - - - (7,072)
of realisation values
Gain on discontinued operations and creditors 31,521 34,037 - - -
arrangement
Net income (loss) for the period 30,972 33,488 (6,758) (3,565) (18,383)
F. Analysis of the results of operations for the nine and three-month
periods ended 30 September 2007 and 30 September 2006
Sales - In February, the Company ceased its operations in the area of plastics.
During the same period last year, Group revenues amounted to NIS 87.1 million
for the nine months ended 30 September 2006 and NIS 25.9 million for the three
months then ended.
Gross profit - during the nine month period ended 30 September 2006, the gross
profit amounted to NIS 3 million, and during the three-month period then ended,
the Group had a negligible gross loss.
Selling, general and administrative expenses of the Group, for the third quarter
of 2007, amounted to NIS 0.6 million, compared with NIS 9.6 million for the nine
month period ended 30 September 2006 and NIS 3.2 million for the three month
period then ended. The reduction in selling, general and administrative
expenses when compared with the previous year derived from the cessation of the
Group's activity in the field of plastics in 2007.
The Company's operating loss for the third quarter of 2007 amounted to NIS 0.6
million, compared with NIS 6.6 million in the nine-month period ended 30
September 2006 and NIS 3.2 million in the three-month period then ended.
Net financing expenses - The Company earned financing income in the third
quarter of 2007 in an amount of NIS 7 thousand, compared with financing expenses
of NIS 1.4 million in the nine-month period ended 30 September 2006 and NIS 0.1
million for the three-month period then ended.
Taxes on income - The Company had no tax expense during the first nine months of
2007. The tax expense of the Group in concurrent periods of the previous year
derived from the provision for current taxes of the former subsidiary, Kidron
Plastics Ltd.
Gain on discontinued operations and creditors arrangement - In the first half of
2007, the Company incurred a loss on its plastics activities, which were
discontinued at the beginning of 2007, in an amount of NIS 2.5 million. In the
third quarter of 2007, the Company had a gain of NIS 34 million as a result of
the creditors arrangement.
G. Sources of financing
From current operations - Cash flows used for current operations amounted to NIS
403 thousand in the third quarter of 2007, compared with cash flows provided by
current operations in the first nine months of 2006, in an amount of NIS 1,477
thousand.
From investment activity - The Company had no cash flows from investment
operations in the first nine months of 2007. In the nine-month period ended 30
September 2006, cash flows used for investment activity amounted to NIS 1,588
thousand. This included an amount of NIS 1,738 thousand invested in fixed
assets and the proceeds from the sale of Invested Company in an amount of NIS
150 thousand.
From financing activity - Cash flows deriving form financing activity in the
first nine months of 2007 amounted to NIS 8,556 thousand, deriving from the
issuance of shares in an amount of NIS 8,570 thousand, less issuance costs of
NIS 14 thousand, compared with cash flows provided by financing activity in the
same period last year, in an amount of NIS 1,793 thousand, deriving mainly from
the receipt of a loan from an interested party in an amount of NIS 950 thousand,
receipt of credit of NIS 2,905 thousand, offset by the repayment of long-term
loans in an amount of NIS 2,062 thousand.
H. The following table presents the pro forma results of operations of the
Group for the year 2006 and for the nine and three-month periods ended 30
September 2007 and 30 September 2006, under the assumption that the allotment of
the shares to the companies controlled by the Atia Family was completed by 30
September 2007.
Pro forma Consolidated Profit and loss accounts
Nine months ended Three months ended Year ended
30th September 30th June 31st December
2007 2006 2007 2006 2006
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Change in fair value of investment property 17,487 - - - -
Rental revenues - - - - 13
______ ______ ______ ______ ______
Total revenues 17,487 - - - 13
______ ______ ______ ______ ______
Selling and marketing expenses 554 - 406 - -
General and administrative expenses 2,817 642 1,137 404 782
______ ______ ______ ______ ______
Operating income (loss) 14,116 (642) (1,543) (404) (769)
Financing expenses 3,207 - 1,459 - 1,271
______ ______ ______ ______ ______
Pre-tax income (loss) 10,909 (642) (3,002) (404) (2,040)
Taxes on income (3,363) - 38 - -
______ ______ ______ ______ ______
Net income (loss) from continuing operations 7,546 (642) (2,964) (404) (2,040)
Income (loss) from discontinued operations 31,521 (6,758) 34,037 (3,565) (18,383)
(including income from creditors
arrangement)
______ ______ ______ ______ ______
Net income (loss) 39,067 (7,400) 31,073 (3,969) (20,423)
______ ______ ______ ______ ______
______ ______ ______ ______ ______
I. Analysis of the pro forma results of operations for the nine and three
month periods ended 30 September 2007 and 30 September 2006
Revenues from the change in the fair value of investment property
During the nine-month period ended 30 September 2007, the Company recorded pro
forma revenues of NIS 17,487 thousand in respect of the revaluation of property
to fair value, in a subsidiary in Croatia.
The revenues from the change in the fair value of the investment real estate are
based on a valuation dated 11 July 2007, performed by an external, independent,
and professional property appraiser.
Selling and marketing expenses
In the nine-month period ended 30 September 2007, the Company's pro forma
selling and marketing expenses amounted to NIS 554 thousand.
In the three-month period ended 30 September 2007, the Company's pro forma
selling and marketing expenses amounted to NIS 406 thousand. These expenses
included the selling and marketing expenses of the Las Vegas construction
project, which cannot be capitalized.
General and administrative expenses
In the nine-month period ended 30 September 2007, the Company's pro forma
general and administrative expenses amounted to NIS 2,817 thousand, compared
with NIS 642 thousand in the nine-month period ended 30 September 2006.
In the three-month period ended 30 September 2007, the Company's pro forma
general and administrative expenses amounted to NIS 1,137 thousand, compared
with NIS 404 thousand in the nine-month period ended 30 September 2006.
In addition to the costs of the Company in Israel, the pro forma general and
administrative expenses in the third quarter of 2007 included the office
expenses and costs of the subsidiary in the U.S.
Financing expenses
In the nine-month period ended 30 September 2007, the Company's pro forma
financing expenses amounted to NIS 3,207 thousand.
In the three-month period ended 30 September 2007, the Company's pro forma
financing expenses amounted to NIS 1,459 thousand.
The financing expenses include the financing required by the U.S. subsidiary for
purposes of purchasing the property in Las Vegas and for purposes of financing
the additional costs of the project. The expenses are presented in the pro
forma financial statements on the basis of the credit that was actually utilized
from Verge Living Corporation (hereinafter - "Verge").
Tax expenses
In the nine-month period ended 30 September 2007, the Company's pro forma tax
expenses amounted to NIS 3,363 thousand.
In the three-month period ended 30 September 2007, the Company's pro forma tax
benefit amounted to NIS 38 thousand.
Income taxes derive mainly from the recording of the reserve for deferred taxes
in respect of the revaluation to fair value of the investment real estate in the
Croatian subsidiary.
J. Sources of financing
The Group financed its operations from the proceeds received from the issuance
of shares to Appswing Ltd. in an amount of NIS 8.5 million. The sources of
financing in the pro forma financial statements also include the shareholders'
equity of the Company deriving from the investment in the shares of Verge and
the shares of Sitnica in return for an allotment of the shares of the Company to
companies under the control of the Atia Family, loans from interested parties in
an amount of NIS 8.6 million, and advances from purchasers of apartments in the
Las Vegas project in an amount of NIS 17.5 million.
K. Qualitative report on the exposure to and management of market risks
The person responsible for management of market risks in the Company is Mr.
Yosef Attia, the CEO of the Company. The DEPUTY CEO of the Company, Mr. Shalom
Atia, assists him in respect of market risks in Croatia, and by the VP - Finance
of the Company in respect of the market risks in Israel.
As at 30 September 2007, the Company has no positions in derivatives.
As at 30 September 2007, the Company's cash balances amounted to NIS 8.2
million, of which an amount of NIS 7.8 was held in an unlinked current account
and weekly deposits, and an amount of NIS 0.4 million was held in dollars. On 2
November 2007, most of the aforementioned shekel amount was converted to dollars
and transferred as a loan to a U.S. subsidiary in an amount of $1.7 million (NIS
6.8 million). As a result, the exposure of the Company in respect of shekel
deposits which was relevant until 2 November 2007 is no longer relevant.
The following table presents sensitivity analyses of the fair value of the
Company's financial instruments as at 30 September 2007 (in NIS thousands):
Sensitivity analysis of changes in the exchange rate of the U.S. dollar
Profit (loss) on the change in Fair value of Profit (loss) on the change in
market factor asset market factor
The sensitive instrument 10%+ 5%+ Asset (liability) 5%- 10%-
Cash and cash equivalents 40 20 401 (20) (40)
____ ____ ____ ____ ____
Total financial instruments not for 40 20 401 (20) (40)
protection purposes
____ ____ ____ ____ ____
____ ____ ____ ____ ____
Sensitivity analysis of changes in the exchange rate of the pound sterling
Profit (loss) on the change in Fair value of Profit (loss) on the change in
market factor asset market factor
The sensitive instrument 10%+ 5%+ Asset (liability) 5%- 10%-
Suppliers and service providers (10) (5) (96) 5 10
____ ____ ____ ____ ____
Total financial instruments not for (10) (5) (96) 5 10
protection purposes
____ ____ ____ ____ ____
____ ____ ____ ____ ____
1. The subsidiary-prime crisis
The mortgage credit markets in the U.S. have been experiencing
difficulties as a result of the fact that many debtors are finding it difficult
to obtain financing (hereinafter - the "Sub-prime crisis"). The sub-prime
crisis derived from a number of factors, as follows: the increase in the volume
of repossessions of houses and apartments, the increase in the volume of
bankruptcies of mortgage companies, the significant decrease in accessible
resources for purposes of mortgage financing, and the decrease in the prices of
dwelling units.
According to the review report of other auditors (that was included in
the financial statements of the Company), the auditors draw attention to Note 4F
(7) pertaining to the fact that the financing of the construction project of the
Verge subsidiary is contingent upon the future impact of the sub-prime crisis on
the financial institutions operating in the U.S. The sub-prime crisis may
affect the ability of the Verge subsidiary to procure the financing needed to
complete the construction project and on the terms of the procured financing,
should such be procured. In addition, the crisis may affect the ability of the
customers of the Company to obtain mortgages, should they be necessary, and on
the terms of such mortgages.
2. Estimate of fair value of investment property
In the opinion of Company management, based on, among other things, on
the stand of the appraiser, the fair value of property is affected by changes in
the exchange rates of the euro and the kuna (Croatian currency) that are
relevant in Croatia and less affected by changes in the exchange rate of the
dollar. Therefore, in the opinion of Company Management, a decline in the
exchange rate of the dollar will have no effect on the fair value of the
property.
3. Changes in exchange rates
A significant portion of the activity of the Company is expected to be
conducted in various currencies, including the U.S. dollar and the Croatian kuna
(which is affected by the euro) and, as such, the Company is exposed to the
risks of changes in exchange rates.
4. The economic condition in countries in which the subsidiaries operate
The demand for housing in the areas in which the subsidiaries operate
is affected to a great extent from the local economic condition and may have a
negative impact on the operations of the companies.
5. Legal and regulatory requirements
The subsidiaries are subject to the legal and statutory requirements
in connection with issues involving the areas in which they operate.
Linkage balances of the Company
The following table presents the linkage balance sheet of the Company as at 30
September 2007:
Linked Linked Linked to Unlinked Non-monetary Total
to ICPI to US$ Sterling Pound assets
NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 NIS'000
Assets
Cash and cash equivalents - 401 - 7,797 - 8,198
Accounts receivable and debit - - - 422 35 457
balances
____ ____ ____ _____ ____ _____
Total assets - 401 - 8,219 35 8,655
____ ____ ____ _____ ____ _____
Liabilities
Suppliers and service providers - - 96 33 - 129
Accounts payable and credit balances - - - 123 - 123
Total liabilities -
____ ____ ____ _____ ____ _____
- - 96 156 - 252
____ ____ ____ _____ ____ _____
Excess of assets over liabilities - 401 (96) 8,063 35 8,403
(excess of liabilities over assets)
____ ____ ____ _____ ____ _____
____ ____ ____ _____ ____ _____
L. Critical accounting estimates
When preparing financial statements in accordance with generally accepted
accounting principles, Company Management is required to use estimates and
assessments in connection with transactions or matters, the final impact of
which on the financial statements cannot be accurately determined when the
estimates or assessments are made. The major basis for the determination of the
quantitative value of these estimates are assumptions which management decides
to adopt, taking into consideration certain circumstances in connection with the
estimate and the best knowledge available to Company Management at the time the
assumption is made. By their very nature, due to the fact that these estimates
and assumptions are results of discretion used in an environment of uncertainty,
sometimes very significant, changes in the underlying assumptions as a
derivative of changes which are not necessarily dependent upon Company
Management, as well as additional information in the future that was not in the
possession of the Company when the estimates were made, may result in changes in
the quantitative value of the estimate and also impact on the financial position
of the Company and the results of its operations. Therefore, even though
estimates and assumptions may be made using the best discretion of Management,
the final quantitative impact on transactions and matters, which require
estimation, may come to light only when such transactions or matters have been
completed. In certain circumstances, the final result of the matter involving
the estimate may be significantly different, especially from the quantitative
amount that was determined at the time the estimate was made.
The following are the accounting estimates that have a potentially significant
impact, which the Company has to address when preparing its financial
statements.
Estimate of the fair value of the investment real estate
The fair value of the property as at 30 September 2007 is NIS 68,943 thousand.
The fair value of the property was determined on the basis of a valuation
conducted by Dr. Ali Kreisberg, a partner in the firm of Giza, Zinger Even, a
professional appraiser in Israel, as at 11 July 2007. The appraisal was based
on the method of comparing the market value of the assets with similar assets
having similar characteristics in similar transactions, all at the time the
appraisal was made.
This information was based on a visit to the area of the property in Samobor,
Croatia. Other appraisers and real estate sites on the Internet provided
additional information. According to the valuation, the value of a square meter
of property, which was purchased, is $216 (equivalent to Euro160 and 1,182 Croatian
Kuna).
In making his evaluation, the appraiser assumed the following:
A. There are no rental agreements in respect of the property.
B. Since the property is comprised of adjacent lots, the property was
appraised as a single lot.
M. Contributions
The Company has no explicit policy on contributions. During the reporting
period, the Company made no contributions.
N. Subsequent events
1. On 30 October 2007, the general shareholders meeting of the Company
ratified the allotment of 907,934,502 shares as follows:
- 734,060,505 shares were allotted to Emvelco Corporation against the purchase
of shares of a company that manages a real estate project in the U.S.
- 172,873,997 shares were allotted to AP Holdings against the purchases of
shares in a company that has contractual rights in property in Croatia.
The aforementioned shares were allotted on 2 November 2007 in return
for 75,000 shares of Verge and 20,000 shares of Sitnica, which constitute 100%
of the share capital of those companies, respectively. The allotted shares
constitute 72% of the issued shares of the Company.
Verge is a company incorporated in Nevada, U.S.A, and it is engaged in
initiation of real estate projects in the U.S. Verge's principle asset is
property in Las Vegas, Nevada, on which it intends on constructing a project to
contain 309 condominium apartments and commercial space covering 3,000 square
meters.
Sitnica is a company incorporated in Croatia and it is engaged in the
trade and development of real estate in Croatia. Sitnica is the owner of
property covering an area of 70,740 square meters in Samobor, central Croatia.
For additional information pertaining to these transactions, see the
immediate filings of the Company dated 25 September 2007 (ref. no.
403477-01-2007) and 27 July 2007 (ref. no. 338440-01-2007), the contents of
which are contained in this report by reference.
2. Commencing on 1 November 2007, the Company hired Mr. Yosef Attia
(controlling shareholder and CEO of Emvelco Corporation) and Mr. Shalom Attia
(controlling shareholder and CEO of AP Holdings Ltd.) as CEO and VP - European
Operations, respectively, for a total cost to the Company in respect of each one
of $10,000. In addition, each of the above individuals will be entitled to an
annual bonus of 2.5% of the annual net pre-tax income of the Company in excess
of NIS 8 million.
3. On 2 November 2007, the Company granted a shareholders loan of $1.7
million to the Verge subsidiary for a period of 12 months. The loan is in
dollars and bears annual interest of 12%.
4. The Company approved the granting of writs of indemnification and
exemption to senior officers of the Company and the purchase of senior officer
indemnification insurance.
5. On 15 November 2007, the Company changed its name to Atia Group Ltd.
6. In November 2007, the Company provided a shareholders loan in an amount
of $1.7 million, for a period of 12 months to the Verge subsidiary. The loan is
dollar denominated and bears annual interest of 12%. The loan was used to repay
US$ 1.5 million of the loan given to Verge by Emvelco Corporation, the
controlling shareholder, which was not reclassified to equity of Verge.
O. Internal auditor of the Company
On 29 August 2007, Ms. Sharon Tabiv, CPA (Isr.) of the firm of Ziv Haft BDO was
appointed to the position of internal auditor of the Company. Ms. Tabiv
(hereinafter - the "Internal auditor") has a bachelor's degree in business
administration from the College of Management and is a certified public
accountant. The internal auditor is a partner in the accounting firm of BDO and
is not an employee of the Company.
The audit plan was formulated together with Company Management and the audit
committee, with the goal of having most of the issues that are material to the
Company audited, focusing at first on the issues that are high-risk. The
considerations on which the audit plan was determined include the following:
- Potential for savings and efficiency
- Risks that are inherent in the activities of the Company
- Regulations and ordinances that apply to the Company
- Weak points that management, the audit committee, or the internal auditor
believe exist - on a regular basis.
The internal auditor will conduct the audit in accordance with generally
accepted auditing standards. The auditor will be provided with unrestricted and
constant access to the information system and financial data for purposes of the
audit.
The internal auditor will report directly to the chairman of the board of
directors, in coordination with the audit committee.
To date, the internal auditor has not yet conducted any audit work at the
Company. Nevertheless, the Company intends on starting internal auditing during
the fourth quarter of 2007.
P. Peer review
In July 2005, the Israel Securities Authority issued instructions requiring
companies to provide disclosure of their consent to participate in a "peer
review", the goal of which is to advance a process of control pertaining to the
work of the external auditors and an assessment of the implementation of the
procedures required during the course of their audit work, all with the goal of
contributing to the existence of a progressive capital market.
During 2006, the Company granted its in-principle consent to the transfer of the
material required in the performance of a peer review.
Q. Directors having financial accounting expertise
In accordance with the Companies Regulations (Conditions and Tests of a Director
having Accounting and Financial Expertise and a Director having Professional
Qualifications) - 2005, the board of directors of the Company decided, in
accordance with article 92(A)(12) of the Companies Law and taking into
consideration the nature and scope of the activities of the Company, that the
minimum number of directors having accounting and financial expertise would be
two. In the opinion of the board of directors, this minimum would permit it to
meet its obligations under law and in accordance with the articles of
association of the Group, especially in connection with its responsibility to
examine the financial position of the Group and to prepare and approve the
financial statements.
In the opinion of the board of directors, this minimum number will permit it to
discharge its duties under the law and the articles of association of the Group,
especially in connection with its responsibility to examine the financial
position of the Group and to prepare and approve its financial statements.
The directors having accounting and financial expertise that currently serve on
the board of directors are: Yosef Attia, CPA (Isr.) Batya Kahana Avital, CPA
(Isr.) Yaron Yenni, Ramzi Gabbai, Iftach Mazor, and Meir Matana.
R. Adoption of International Financial Reporting Standards (IFRS)
In July 2006, the Israel Accounting Standards Board issued Accounting Standard
No. 29 - "Adoption of IFRS" (hereinafter - "Standard No. 29"). Standard No 29
stipulates that companies subject to the Securities Law - 1968 and that report
thereunder shall present their financial statements in accordance with IFRS,
commencing with reporting periods beginning on January 1, 2008 (i.e., the
financial statements for the first quarter of 2008).
Initial adoption of IFRS shall be carried out in accordance with the provisions
of IFRS No.1 - "Initial Adoption of IFRS". In financial statements presented in
accordance with IFRS for the first year of adoption, companies are required to
present comparative amounts for one year only.
In addition, Standard No. 29 requires companies that present their initial
financial statements in accordance with the IFRS for the periods commencing on
or after January 1, 2008 to include in a note in the financial statements of
2007 (which are presented in accordance with accounting principles generally
accepted in Israel) the balance sheet data as of December 31, 2007 and the
income statement data for the year then ended after subjecting such data to the
rules of recognition, measurement and presentation of IFRS standards.
As part of its preparations for the process of implementing IFRS, the Company
appointed CPA (Isr.) Dan Ofer, the VP - Finance of the Company, as the person in
charge of implementing the process.
The implementation process commenced with the identification of the expected
significant qualitative impact the transition to IFRS on the financial
statements of the Company.
The following is a description of the steps and work phases determined by
Company Management:
- Studying IFRS and assessing the impact on the Company.
- mapping the major qualitative discrepancies between accounting
principles generally accepted in Israel and IFRS.
- assessing the possible alternatives to accounting policy under IFRS
(including the election of leniencies in accordance with the provisions of IFRS
which deals with initial adoption of IFRS).
- assessing the impact of the adoption of IFRS on the financial
statements as at the date of transition (1 January 2007).
Qualitative description of the expected impact of the transition to IFRS on the
financial statements
As set out at length in Note 1B of the financial statements of the Company,
during the course of 2007, the Company was issued a stay of proceedings order,
further to which the Company completed a creditors arrangement in July 2007.
Accordingly, the financial statements of the Company as at the transition date
were presented in liquidation values as the financial statements of a business
in liquidation. Therefore, the transition to the implementation of IFRS is not
expected to have an impact on the balance sheet of the Company as at the date of
transition and as at 30 September 2007 and on the results of operations of the
Company for the period ended 30 September 2007.
Notwithstanding, we present below the major issues, which the Company believes,
at present, may have a significant impact on the pro forma financial statements
presented in Note 4 of the financial statements and on the operations of the
Company as a result of the transition to reporting in accordance with IFRS:
The functional currency of the Company and its investee companies
According to Israeli standards, the reporting currency of the Company is the
shekel. Furthermore, in view of the nature of the foreign subsidiaries of the
Company, they constitute autonomous units and are treated as such in the
consolidated financial statements of Company.
The accounting treatment under IFRS for the impact of changes in foreign
currency exchange rates follows the provisions of IAS 21, whereby the company
has to assess the functional currency of each component of the company (on the
basis of the company and each component separately - a subsidiary, branch or
other activity that constitutes any unit of the consolidated entity). The
company should measure its results and financial position and those of its
component on the basis of this currency.
After assessing the criteria, it was decided that the functional currency of the
Company is the shekel and the functional currencies of the subsidiaries is the
currency of the local environment in which the companies operate. Therefore,
the Company does not expect any impact of the transition to international
standards.
Recognition of revenues from the sale of apartments
According to accounting standards generally accepted in Israel, revenues from
sales of apartments are recognized in accordance with the percentage of
completion method set out in Accounting Standard No. 2 of the Israel Accounting
Standards Board. According to this method, revenues are recorded on the basis
of the product of the proceeds of the sale and the percentage of completion of
the project, but not before the proceeds of the project comprise at least 50% of
the total expected revenues of the project and the percentage completed has
reached at least 25%. In view of the fact that construction of the project by
the Las Vegas subsidiary has not yet commenced, no revenues on the sale of
apartments have been recognized in the pro forma statement of income prepared in
accordance with Israeli standards for all of the reported periods.
Recognition of revenues from the sale of apartments in accordance with IFRS is
handled pursuant to IAS 18, whereby revenue is recognized only when the work has
been completed (the finished work method) and the rest of the conditions for
revenue recognition have been fulfilled (all of the risks have been passed on to
the purchaser).
Capitalization of credit costs
Under Israeli standards, in accordance with Accounting Standard No. 3,
Capitalization of Credit Costs, credit costs can be capitalized to buildings
under construction if the construction is expected to last at least three years
from the commencement of construction. In connection with property, the
beginning of capitalization is the earlier of the date of the submission of the
request for the building permit or the date construction commenced.
The accounting treatment of capitalized credit costs under IFRS is pursuant to
the provisions of IAS No. 23, whereby credit costs may be capitalized if they
can be attributed directly to the purchase or construction of a qualifying
asset. A qualifying asset is an asset for which the preparation for the
intended use or sale requires a protracted period of time. The capitalization
period shall begin when expenses have been accrued in connection with the asset,
credit costs have been incurred, and the steps necessary for the preparation of
the asset for its intended use or sale have been taken.
Accordingly, upon the transition to reporting under international standards, it
will be possible to capitalize financing costs in respect of assets that do not
meet the definition of "qualifying assets" under Israeli standards.
Capitalization of direct costs to buildings under construction
According to Israeli standards and practice, general and administrative expenses
and selling and marketing expenses that can be attributed to specific building
projects constitute direct expenses of a project that can be carried to the cost
of the project.
According to International Standards, costs in respect of general and
administrative expenses and selling and marketing expenses may not be
capitalized.
The information presented above in respect of the impact of the transition to
IFRS is not necessary final and may change as a result of the issuance of new
IFRS, clarifications to IFRS (IFRICs) or changes in existing standards /
clarifications. In addition, this information may be affected by decisions /
interpretations to be made in connection with implementation of IFRS in Israel.
Moreover, the above relates to the quantitative ramifications if the transition
to IFRS and does not deal with all of the ramifications and changes that may
occur in the presentation and classification of different items in the financial
statements as a result of the adoption of IFRS.
S. The process of approval of the Company's financial statements
The board of directors of the Company is the organs that holds deliberations on
the financial statements of the Company and approves them, after the members of
the board receive the draft of the financial statements a few days prior to the
meeting at which financial statements are to be approved.
Representatives of the Company's external auditors and representatives of the
Company's legal counsel attend the meetings of the board of directors at which
the financial statements are discussed and approved. These representatives
usually add clarifications, as required, regarding the issues that arise in
connection with the financial statements to be approved and are at the disposal
of the members of the board regarding any questions or clarifications that may
be needed prior to the approval of the financial statements.
Following the discussions and responses to the questions the directors either
prepared that in advance or that arise during the meeting, the members of the
board of directors vote to approve or disapprove the financial statements.
On 28 November 2007, the board of directors passed a resolution to appoint a
balance sheet committee to be comprised of members of the audit committee of the
Company. From that date and henceforth, the members of the balance sheet
committee will hold detailed discussions in the presence of the external auditor
and the legal counsel, will hear a review of the CFO, will clarify the major
issues and will recommend to the board of directors that they approve the
financial statements, after giving expression to the comments made during the
discussion. At the meeting of the board of directors, at which the external
auditor is also present, the financial statements shall be reviewed in brief by
the CFO and all of the members of the board of directors may ask questions in
connection with the financial statements.
Yosef Attia Shalom Attia Dan Ofer
CEO, director, deputy chairman of Director CFO
the board, in accordance with the
consent of the board given
2 December 2007
2 December 2007
2 December 2007
The Board of Directors of
Atia Group Ltd.
(Formerly: Kidron Industrial Holdings Ltd.)
Ramat Gan
Dear Sirs:
Re: Review of the Unaudited Condensed Interim Financial Statements
for the nine and three-month periods ended 30 September 2007
At your request, we have reviewed the condensed balance sheet of Atia Group Ltd.
(formerly: KIDRON INDUSTRIAL HOLDINGS LTD.) (Hereinafter - the "Company") as at
30 September 2007, and the condensed profit and loss account, condensed
statements of recognised gains and losses, the condensed statements of changes
in shareholders' equity and the condensed statements of cash flows for the nine
and three month periods then ended.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel and included, inter alia,
reading the said financial statements, reading the minutes of the shareholders'
meetings and of the meetings of the Board of Directors and its committees, as
well as making inquiries of persons responsible for financial and accounting
matters.
As mentioned in Note 1A of the financial statements, in February 2007, a stay of
proceedings order (similar to US Chapter 11 protection) was issued and a special
executive officer were appointed for the period of the stay. On 10 June 2007,
the Nazareth District Court approved the creditors arrangement that was proposed
by the trustee of the creditors arrangement.
As a result of these processes, the Company changed its accounting policy
commencing on 31 December 2006 and started reporting in accordance with
accounting principles applicable to a business in liquidation.
Since the review performed is limited in scope and does not constitute an audit
in accordance with generally accepted auditing standards, we do not express an
opinion on the condensed financial statements.
During the performance of our review, nothing came to our attention that would
necessitate any material modifications to the condensed financial statements
referred to above in order for them to be in conformity with generally accepted
accounting principles and in accordance with Section D of the Securities
Regulations (Periodic and Immediate Reports), 1970.
In addition, at your request, we have reviewed the pro forma interim
consolidated balance sheet of the Company and its subs as at 30 September 2007,
and the pro forma consolidated profit and loss account for the nine and three
month periods ended on 30 September 2007, presented in Note 4 of the financial
statements.
Our review was conducted in accordance with the aforementioned procedures.
We were furnished with the reports of other auditors in connection with their
review of the interim financial statements of a subsidiary, the assets of which
as at 30 September constitute 45% of the total assets included in the pro forma
consolidated interim financial statements.
Since the review performed is limited in scope and does not constitute an audit
in accordance with generally accepted auditing standards, we do not express an
opinion on the aforementioned pro forma consolidated interim financial
statements.
During the performance of our review, including the review of the aforementioned
reports of the other auditors, nothing came to our attention that would
necessitate any material modifications to the pro forma financial statements
referred to above in order for them to be in conformity with generally accepted
accounting principles.
We draw attention to the contents of Note 3 regarding the allotment of shares
made by the Company subsequent to the balance sheet date.
In addition, in accordance with the contents of the aforementioned review report
of the other auditors, we draw attention to Note 4F(7)(b) pertaining to the fact
that the financing of the construction project of the Verge subsidiary is
contingent upon the future impact of the sub-prime mortgage crises on financial
institutions operating in the U.S. The sub-prime mortgage crises may affect the
ability of the Verge subsidiary to procure the financing needed to complete the
construction project and the terms of such financing, in any is procured, and
may impact on the ability of the customers of the Company in obtaining
mortgages, if needed and on the terms of such mortgages.
Fahn Kanne & Co.
Certified Public Accountants (Isr.)
The accompanying notes are an integral part of the financial statements.
CONDENSED COMPANY BALANCE SHEET
Convenience
translation
30 September 30 September
Note 2007 2007
NIS' 000 �' 000
(Unaudited) (Unaudited)
A S S E T S
Current Assets
Cash and cash equivalents 8,198 1,007
Accounts receivable and debit balances 5 457 56
_______ _______
Total Assets 8,655 1,063
_______ _______
_______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Suppliers and service providers 129 16
Accounts payable and credit balances 123 15
_______ _______
Total Liabilities 252 31
----------- -----------
Shareholders' Equity 8,403 1,032
----------- -----------
_______ _______
8,655 1,063
_______ _______
_______ _______
Yosef Attia Shalom Attia Dan Ofer
CEO, director, deputy chairman of Director CFO
the board, in accordance with the
consent of the board given
2 December 2007
Date of approval of financial statements: 2 December 2007.
The accompanying notes are an integral part of the financial statements.
CONDENSED STATEMENT OF NET ASSETS IN LIQUIDATION
31 December
2006
NIS' 000
(Audited)
A S S E T S
Current Assets
Cash and cash equivalents 45
Trade accounts receivables 63
Accounts receivable and debit balances 658
Investment in investee company 14,644
Fixed assets 22,300
_______
Total Assets 37,710
_______
_______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Credit from banking institutions 23,519
Suppliers and service providers 7,752
Accounts payable and credit balances 18,516
Loans from investment funds 14,644
Liabilities, the repayment of which is conditional 12,905
Loans from interested party 1,095
Liabilities attributed to the discontinued operation 1,800
_______
Total Liabilities 80,231
----------
Shareholders' Deficit (45,521)
----------
_______
37,710
_______
_______
Yosef Attia Shalom Attia Dan Ofer
CEO, director, deputy chairman of Director CFO
the board, in accordance with the
consent of the board given
2 December 2007
Date of approval of financial statements: 2 December 2007.
The accompanying notes are an integral part of the financial statements.
CONDENSED CONSOLIDATED BALANCE SHEET
30 September
2006
NIS' 000
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents 2,812
Trade accounts receivables 19,072
Accounts receivable and debit balances 2,102
Inventory 7,325
_______
31,311
-----------
Reserve for Liability for Employee Severance Pay 164
-----------
Fixed Assets 37,495
-----------
_______
68,970
_______
_______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Credit from banking institutions 21,596
Suppliers and service providers 22,372
Accounts payable and credit balances 4,629
Loans from interested party 950
_______
49,547
-----------
Long-term liabilities
Loans from banking institutions 20,201
Loans from investment funds 14,802
Suppliers and service providers 590
Deferred taxes 21
Liabilities, the repayment of which is conditional 12,905
_______
48,519
-----------
Liabilities Attributed to the Discontinued Operations 1,800
-----------
Shareholders' Deficit (30,896)
-----------
_______
68,970
_______
_______
Yosef Attia Shalom Attia Dan Ofer
CEO, director, deputy chairman of Director CFO
the board, in accordance with the
consent of the board given
2 December 2007
Date of approval of financial statements: 2 December 2007
CONDENSED PROFIT AND LOSS ACCOUNT
The accompanying notes are an integral part of the financial statements.
Convenience translation
Nine month period Three month Nine month period Three month
ended period ended ended period ended
30 September 30 September 30 September 30 September
Note 2007 2007 2007 2007
NIS' 000 NIS' 000 �' 000 �' 000
(Unaudited) (Unaudited)
General and administrative expenses (556) (556) (69) (69)
--------- --------- --------- ---------
Operating loss before finance (556) (556) (69) (69)
Financial income, net 7 7 1 1
______ ______ ______ ______
Operating loss after finance (549) (549) (68) (68)
Gain on discontinued operations and 4F5 31,521 34,037 3,873 4,182
creditors arrangement
______ ______ ______ ______
Net income for period 30,972 33,488 3,805 4,114
______ ______ ______ ______
______ ______ ______ ______
Profit per share - in NIS 0.16 0.14 0.02 0.02
______ ______ ______ ______
______ ______ ______ ______
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT
The accompanying notes are an integral part of the financial statements.
Nine month period Three month Year ended
ended period ended 31 December
30 September 30 September
2006 2006 2006
NIS' 000 NIS' 000 NIS' 000
(Unaudited) (Audited)
Sales 87,116 25,891 109,343
Cost of sales 84,031 25,929 107,192
______ ______ ______
Gross profit (loss) 3,085 (38) 2,151
Selling expenses 2,730 920 3,075
General and administrative expenses 6,910 2,286 9,322
______ ______ ______
9,640 3,206 12,397
--------- --------- ---------
______ ______ ______
Operating loss before finance (6,555) (3,244) (10,246)
Financial expenses, net (1,449) (138) (1,990)(*)
______ ______ ______
Operating loss after finance (8,004) (3,382) (12,236)
Other income, net 300 46 277
Gain on erasure of liabilities to banking institutions 1,507 - 1,507(*)
______ ______ ______
Loss before taxes on income (6,197) (3,336) (10,452)
Taxes on income (615) (229) (913)
______ ______ ______
Loss after taxes on income (6,812) (3,565) (11,365)
Group's portion in profit of investee company 54 - 54
______ ______ ______
Loss from continuing activities (6,758) (3,565) (11,311)
Net loss on presentation of assets on the basis of realizable - - (7,072)
values
______ ______ ______
Loss for the period (6,758) (3,565) (18,383)
______ ______ ______
______ ______ ______
Loss per share - in NIS
From discontinued operations (0.04) (0.02) (0.06)
From discontinuance of operations - - (0.04)
______ ______ ______
Total (0.04) (0.02) (0.10)
______ ______ ______
______ ______ ______
(*) Reclassified.
STATEMENTS OF RECOGNISED GAINS AND LOSSES
The accompanying notes are an integral part of the financial statements.
Convenience translation
Nine month Three month Year ended 31 Nine month Three month
period ended period ended December period ended period
ended
30 September 30 September 30 September 30
September
2007 2006 2007 2006 2006 2007 2007
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 �' 000 �' 000
(Unaudited) (Unaudited) (Audited) (Unaudited)
Total recognized gains 30,972 (6,758) 33,488 (3,565) (18,383) 3,805 4,114
(losses) for the period
______ ______ ______ ______ ______ ______ ______
______ ______ ______ ______ ______ ______ ______
The accompanying notes are an integral part of the financial statements.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Nine-month period ended 30 September 2007
(Unaudited)
Share Share Capital Capital gain from Accumulated Total
capital premium reserve transactions with deficit
controlling
shareholders
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 2006 42,724 71,166 327 - (138,355) (24,138)
(Audited)
Changes in 2006:
Loss for the year - - - - (18,383) (18,383)
______ ______ ____ _______ _______ _______
Balance as of 31 December 2006 42,724 71,166 327 - (156,738) (42,521)
(Audited)
Issuance of shares - 19,556 - - - 19,556
Capital gain from transactions - - - 396(*) - 396
with controlling shareholders
Income for the period - - - - 30,972 30,972
______ ______ ____ _______ _______ _______
Balance as of 42,724 90,722 327 396 (125,766) 8,403
30 September 2007
______ ______ ____ _______ _______ _______
______ ______ ____ _______ _______ _______
Nine-month period ended 30 September 2006
(Unaudited)
Share Share premium Capital Accumulated Total
capital reserve deficit
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 2006 (Audited) 42,724 71,166 327 (138,355) (24,138)
Loss for the period - - - (6,758) (6,578)
______ ______ ____ _______ _______
Balance as of 30 September 2006 42,724 71,166 327 (145,113) (30,896)
______ ______ ____ _______ _______
______ ______ ____ _______ _______
Nine-month period ended 30 September 2007
(Unaudited)
Share Share Capital Capital gain from Accumulated Total
capital premium reserve transactions with deficit
controlling
shareholders
�' 000 �' 000 �' 000 �' 000 �' 000 �' 000
Balance as of 1 January 2007 5,250 8,745 40 - (19,260) (5,225)
(Audited)
Issuance of shares - 2,403 - - - 2,403
Capital gain from transactions - - - 49(*) - 49
with controlling shareholders
Income for the period - - - - 3,805 3,805
______ ______ ____ _______ _______ _______
Balance as of 5,250 11,148 40 49 (15,455) 1,032
30 September 2007
______ ______ ____ _______ _______ _______
______ ______ ____ _______ _______ _______
(*) See Note 1B(5) 7.
The accompanying notes are an integral part of the financial statements.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (cont.)
Three-month period ended 30 September 2007
(Unaudited)
Share Share Capital Capital gain from Accumulated Total
capital premium reserve transactions with deficit
controlling
shareholders
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 July 2007 42,724 71,166 327 - (159,254) (45,037)
Issuance of shares - 19,556 - - - 19,556
Capital gain from transactions - - - 396(*) - 396
with controlling shareholders
Income for the period - - - - 33,488 33,488
______ ______ ____ _______ _______ _______
Balance as of 42,724 90,722 327 396 (125,766) 8,403
30 September 2007
______ ______ ____ _______ _______ _______
______ ______ ____ _______ _______ _______
Three-month period ended 30 September 2006
(Unaudited)
Share Share premium Capital Accumulated Total
capital reserve deficit
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 July 2006 42,724 71,166 327 (141,548) (27,331)
Loss for the period - - - (3,565) (3,565)
______ ______ ____ _______ _______
Balance as of 30 September 2006 42,724 71,166 327 (145,113) (30,896)
______ ______ ____ _______ _______
______ ______ ____ _______ _______
Three-month period ended 30 September 2007
(Unaudited)
Share Share Capital Capital gain from Accumulated Total
capital premium reserve transactions with deficit
controlling
shareholders
�' 000 �' 000 �' 000 �' 000 �' 000 �' 000
Balance as of 1 July 2007 5,250 8,745 40 - (19,569) (5,534)
Issuance of shares - 2,403 - - - 2,403
Capital gain from transactions - - - 49(*) - 49
with controlling shareholders
Income for the period - - - - 4,114 4,114
______ ______ ____ _______ _______ _______
Balance as of 5,250 11,148 40 49 (15,455) 1,032
30 September 2007
______ ______ ____ _______ _______ _______
______ ______ ____ _______ _______ _______
(*) See Note 1B(5) 7.
The accompanying notes are an integral part of the financial statements.
COMPANY CONDENSED STATEMENTS OF CASH FLOWS
Convenience translation
Nine month period Three month Nine month period Three month
ended period ended ended period ended
30 September 30 September 30 September 30 September
2007 2007 2007 2007
NIS' 000 NIS' 000 �' 000 �' 000
(Unaudited) (Unaudited)
Net cash flows from operating activities
Income for the period 30,972 33,488 3,805 4,114
Adjustments required to reconcile loss to net (31,330) (33,846) (3,849) (4,158)
cash from continued operating activities
(Appendix A)
______ ______ ______ ______
Net cash used in continued operating activities (358) (358) (44) (44)
Net cash used in discontinued operating (45) - (6) -
activities
______ ______ ______ ______
Net cash used in operating activities (403) (358) (50) (44)
--------- --------- --------- ---------
Cash flows from financing activities
Issuance of shares (*) 8,556 8,556 1,051 1,051
______ ______ ______ ______
Net cash provided by financing activities 8,556 8,556 1,051 1,051
--------- --------- --------- ---------
______ ______ ______ ______
Increase in cash and cash equivalents 8,153 8,198 1,001 1,007
Cash and cash equivalents, beginning 45 - 6 -
of the period
______ ______ ______ ______
Cash and cash equivalents, end of the period 8,198 8,198 1,007 1,007
______ ______ ______ ______
______ ______ ______ ______
(*) Less: Issuance costs in the amount of NIS 14 thousand.
The accompanying notes are an integral part of the financial statements.
COMPANY CONDENSED STATEMENTS OF CASH FLOWS (cont.)
Appendix A - Adjustments required to reconcile net income to net cash from
continued operating activities
Convenience translation
Nine month period Three month Nine month period Three month
ended period ended ended period ended
30 September 30 September 30 September 30 September
2007 2007 2007 2007
NIS' 000 NIS' 000 �' 000 �' 000
(Unaudited) (Unaudited)
Income and expenses not constituting a current
flow of funds:
Gain from discontinued operations and creditors (31,521) (34,037) (3,873) (4,182)
arrangement
Changes in assets and liabilities:
Increase in accounts receivable and debit (61) (61) (7) (7)
balances
Increase in suppliers and service providers 129 129 16 16
Increase in accounts payable and credit balances 123 123 15 15
______ ______ ______ ______
191 191 24 24
--------- --------- --------- ---------
______ ______ ______ ______
(31,330) (33,846) (3,849) (4,158)
______ ______ ______ ______
______ ______ ______ ______
Appendix B - Non-material cash flow operations
Conversion of liability to Appswing Ltd. for 11,000 11,000 1,352 1,352
share capital
______ ______ ______ ______
______ ______ ______ ______
Transfer to capital reserve from transactions 396 396 49 49
with controlling shareholders
______ ______ ______ ______
______ ______ ______ ______
The accompanying notes are an integral part of the financial statements.
COMPANY CONDENSED STATEMENTS OF CASH FLOWS (cont.)
Year ended
31 December
2006
NIS' 000
(Audited)
Net cash flows from operating activities
Loss for the year (18,383)
Adjustments required to reconcile loss to net cash from operating activities (Appendix A) 19,415
______
Net cash provided by operating activities 1,032
---------
Cash flows for investment activities
Purchase of fixed assets (1,995)
Proceeds from sale of investee company's shares 375
Receipt of loan from consolidated companies 1,214
______
Net cash used in investment activities (406)
---------
Cash flows for financing activities
Repayment of long-term loans (2,485)
Receipt of loan from interested party 1,095
Short-term credit from banking institutions, net (247)
______
Net cash used in financing activities (1,637)
---------
______
Decrease in cash and cash equivalents (1,011)
Cash and cash equivalents, beginning of the year 1,056
______
Cash and cash equivalents, end of the year 45
______
______
The accompanying notes are an integral part of the financial statements.
COMPANY CONDENSED STATEMENTS OF CASH FLOWS (cont.)
Appendix A - Adjustments required to reconcile loss to net cash for operating
activities
Year ended
31 December
2006
NIS' 000
(Audited)
Income and expenses not constituting a current flow of funds:
Provision for decline in value of fixed assets 17,931
Depreciation and amortization 5,870
Decrease in liability for employee severance pay, net 223
Capital gain on sale of fixed assets, net (21)
Interest and revaluation of long-term liabilities (3,105)
Company's share in income of investee companies, net and presentation of investments (14,785)
on basis of realizable values
______
6,113
---------
Changes in assets and liabilities:
Decrease in trade accounts receivable 9,285
Decrease in accounts receivable and debit balances 342
Decrease in inventory 1,054
Decrease in suppliers and service providers (9,946)
Increase in accounts payable and credit balances 12,567
______
13,302
---------
______
19,415
______
______
Appendix B - Non-material cash flow operations
Cancellation of post-dated checks of customers of subsidiaries 244
______
______
Sale of shares of affiliated company against accounts receivable 525
______
______
The accompanying notes are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine month period Three month
ended period ended
30 September 30 September
2006 2006
NIS' 000 NIS' 000
(Unaudited)
Net cash flows from operating activities
Loss for the period (6,758) (3,565)
Adjustments required to reconcile net loss to net cash from operating activities 8,235 5,823
(Appendix A)
______ ______
Net cash provided by operating activities 1,477 2,258
--------- ---------
Cash flows for investment activities
Purchase of fixed assets (1,738) (596)
Proceeds from sale of investee company 150 150
______ ______
Net cash used in investment activities (1,588) (446)
--------- ---------
Cash flows for financing activities
Receipt of loan from interested party 950 -
Repayment of long-term loans (2,062) (703)
Short-term credit from banking institutions, net 2,905 (222)
______ ______
Net cash provided by (used in) financing activities 1,793 (925)
--------- ---------
______ ______
Increase in cash and cash equivalents 1,682 887
Cash and cash equivalents, beginning of the period 1,130 1,925
______ ______
Cash and cash equivalents, end of the period 2,812 2,812
______ ______
______ ______
The accompanying notes are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
Appendix A - Adjustments required to reconcile loss to net cash for operating
activities
Nine month period Three month
ended period ended
30 September 30 September
2006 2006
NIS' 000 NIS' 000
(Unaudited)
Income and expenses not constituting a current flow of funds:
Company's share in income of investee companies, net (54) -
Reserve for the decline (increase) in investment of investee company 33 (22)
Depreciation and amortization 3,916 1,225
Decrease in liability for employee severance pay, net 84 22
Interest and erosion of long-term liabilities (2,575) (1,288)
______ ______
1,404 (63)
--------- ---------
Changes in assets and liabilities:
Decrease in trade accounts receivable 5,313 6,121
Increase in accounts receivable and debit balances (411) (100)
Decrease (increase) in inventory (957) 328
Increase (decrease) in suppliers and service providers 3,829 (1,077)
Increase (decrease) in accounts payable and credit balances (943) 614
______ ______
6,831 5,886
--------- ---------
______ ______
8,235 5,823
______ ______
______ ______
Appendix B - Non-material cash flow operations
Sale of shares of affiliated company against accounts receivable 728 728
______ ______
______ ______
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