RNS Number : 5856W
Atia Group Limited
12 June 2008
ATIA GROUP LTD.
(Formerly: KIDRON INDUSTRIAL HOLDINGS LTD.)
CONDENSED INTERIM FINANCIAL STATEMENTS
31st MARCH 2008
UNAUDITED
ATIA GROUP LTD.
(Formerly: KIDRON INDUSTRIAL HOLDINGS LTD.)
Condensed Interim Financial Statements
As at 31st March 2008
(UNAUDITED)
TABLE OF CONTENTS
Page
Report of the Board of Directors A - N
Auditor's Review Report 2
Condensed Interim Financial Statements (Unaudited)
Consolidated Balance Sheets 3
Consolidated Profit and Loss Accounts 4
Statements of Recognized Gains and Losses 4
Statements of Changes in Shareholders' Equity 5 - 6
Consolidated Statements of Cash Flows 7 - 9
Notes to the Condensed Interim Financial Statements prepared according 10 - 45
to IFRS
ATIA GROUP LTD.
Report of the Board of Directors
As at 31 March 2008
Atia Group Ltd. (hereinafter - the "Company") takes pleasure in presenting the Report of the Board of Directors the affairs of the
Company for the three months ended 31st March 2008.
This report reviews the major changes in the operations of the Company during the reported period. The report is presented in accordance
with the Securities Regulations (Periodic and Immediate Reports), 1970 (hereinafter - the "Securities Regulations") in a condensed format of
the affairs in which the Company is engaged and its is presented taking into account that the reader also has at his disposal the periodic
report including the report of the board of directors and the complete financial statements for 2007.
A. The Company and its business environment
1. The Company operates through a subsidiary in the field of residential construction in the U.S. and holds a real estate asset
through a subsidiary in Croatia.
2. On 2 November 2007, after obtaining the approval of the general shareholders meeting of the Company, the Company allotted
907,934,502 shares, as follows:
734,060,505 shares were allotted to Emvelco Corporation in consideration for 75,000 shares of Verge Living Corporation (hereinafter
- "Verge"), a company that manages a real estate project in the U.S. and 172,873,997 shares were allotted to AP Holdings in consideration
for 20,000 shares of Sitnica d.o.o. (hereinafter - "Sitnica"), a company that has contractual rights in property in Croatia.
The allotted shares constitute 72% of the issued share capital of the Company.
Verge is a company incorporated under the laws of the State of Nevada, U.S., and it is engaged in property development in the U.S. The
major asset of Verge is land in Las Vegas, Nevada, on which it intends on building a project to include 318 condominium apartments (the
number of units may be changed due to changes in the Municipal Building Plan) covering an area of approximately 28,800 square meters and
commercial space covering an area of approximately 3,600 square meters, as well as underground parking for approximately 650 vehicles.
Sitnica is a company incorporated under the laws of Croatia and it is engaged in the development and sale of real estate in Croatia.
Sitnica is the owner of contractual rights in real estate covering an area of approximately 74,701 square meters in the central Croatian
city of Samobor.
3. The following is a description of the projects in which the Company is involved:
a. Investment real estate - Samobor, Croatia
The investment real estate is in advanced stages of the approval of the municipal building plan for the construction of 360 dwelling
units.
The Company is in the advanced stages of negotiations with the Porr Group, a large group of companies with headquarters in Austria,
engaged in various fields of real estate in Eastern and Central Europe. The negotiations are expected to lead to an agreement whereby a
company in the Porr Group will purchase half of the holdings in Sitnica, a company incorporated in Croatia, which owns property in Samobor.
The Porr Group will assist the Company in obtaining the financing necessary to complete the purchase of the property in Samobor. (See also
below, subsequent events.)
To date, Sitnica has paid the property owners 10% of the total consideration (NIS 4,593 thousand) and the entire transfer tax of 5% of
the total purchase consideration (NIS 2,297 thousand). It has also completed the full purchase of 2 plots (for a total consideration of NIS
7,390 thousand). In connection with 18 plots (in a total amount of NIS 30,052 thousand), in accordance with the provisions of the purchase
agreements, the date for the payment of the consideration was postponed for half a year, until October - November 2008. In addition, in
connection with two plots (for a total amount of NIS 3,660 thousand), the date of payment of the consideration was postponed until the end
of June 2008, with the consent of the property owners. The balance of the consideration as yet unpaid to the property owners bears interest
at rate of 15% per annum. (See also below, subsequent events.)
b. Project under Construction, Las Vegas, USA
In December 2007, preparatory work commenced in connection with the construction of the project. The preparatory work includes
demolition and removal of the building which is located on the property designated for the project, and the moving of electric cables and
pipes that pass through the lot, so as to allow for construction of the project.
In January 2008, Verge entered into an agreement with TWG Consultants LLC (a third party, unrelated to the Company), a project
management company operating in Las Vegas (hereinafter - "TWG"), whereby TWG will provide management, consultancy, representation and
control services in connection with the Verge project in Las Vegas (hereinafter - the "Project"), during the entire duration of the project,
including handling the various aspects involving the general contractor, professional consultants, and the authorities, will cost the
project and will supervise the performance of its budget, monitor the project timetables, supervise the carrying out of various tasks
involving the project and assist in the bookkeeping of the project.
According to the purchase contracts of the apartment units of the Las Vegas project, Verge undertook to complete most of the work no
later than 24 months after the signing of the contracts and to transfer possession of the apartments within 30 days after that date.
The time limitation set out in these agreements complies with the requirements of U.S. law, whereby agreements for the sale of apartment
units that stipulate a time limit of up to 24 months are exempt from obtaining the approval of the U.S. Department of Housing and Urban
Development (hereinafter - the "H.U.D.").
A significant portion of the contracts were signed in June 2007, when Verge expected that it would complete the construction by the end
of the time limit. Since the time limit was included in the contracts, no request was submitted for H.U.D. approval.
At present, Verge foresees that it will not be able to complete the construction by the end of the time limit. Therefore, Verge
commenced a process of changing the purchase agreements so as to exclude any time limit. Accordingly, Verge intends on submitting the
revised agreements and the rest of the documents related to the Las Vegas project, for their approval by the H.U.D. Verge Management
notified the Company that it expects to receive the approval within six months.
The assessment of Verge Management regarding receipt of approval for the project documents and the amount of time it will take to obtain
such approval constitutes forward looking information and it is based on Verge's experience in similar approval processes. The assessment
may very well not be realized, due to, among other things, delays on the part of the authorities or unexpected demands received from them.
After receipt of the approval, Verge intends on contacting the apartment purchasers to offer them the option of signing the alternative
agreements without any time limit. The new agreements are contingent upon the consent of the apartment purchasers and Verge Management
foresees that 20% of the apartment purchasers will not elect to sign the alternative agreements and will terminate their agreements with
Verge.
The assessment of Verge Management regarding the percentage of apartment purchasers that will cancel their agreements with the Company
due to the change in the agreement format is forward looking information and it is based on discussions with apartment purchasers. The
assessment may very well not be realized, if the apartment purchasers change there minds, something which may very well happen due to, among
other things, changes in the economic situation in the U.S. or in the apartment market in Las Vegas.
Significant events occurring in connection with the Company since it commenced activities in its field of operations
1. A loan between the Company and the Verge subsidiary
On 2 November 2007, the Company granted a shareholders loan of $1.8 million to the Verge subsidiary for a period of 12 months.
The loan is in dollars and bears annual interest of 12%.
2. Commencement of work on the Las Vegas project
On 12 December 2007, Verge commenced preparatory work on the project in Las Vegas. The preparatory work includes demolition and
removal of the building which is located on the property designated for the project, and the moving of electricity cables and pipes that
pass through the lot, so as to allow for construction of the project.
3. Investment agreement with the Trafalgar investment fund
In January 2008, the Company entered into a Committed Equity Facility agreement with an international investment fund, Trafalgar
Capital Specialized Investment Fund (hereinafter - "Trafalgar") (hereinafter - the "Investment Agreement" or "CEF"), whereby Trafalgar
undertook to invest in the capital of the Company an amount of NIS 45,685 thousand over a three-year period, in return for an allotment of
ordinary shares of the Company. The major principles of the agreement were as follows:
a. The investment in the capital of the Company by Trafalgar will be done in stages, as required by the Company from time to time.
b. Against every amount invested by Trafalgar, the Company will allot to Trafalgar ordinary shares of the Company at a price equal to
94% of the average stock market price of the shares of the Company during the five days following the demand notification of the Company
that it requires funds pursuant to the investment agreement.
c. Unless agreed upon otherwise with Trafalgar, every amount invested shall be limited in such a way that the aggregate investment
amount during a calendar week does not exceed the lower of the following: (1) an amount that grants Trafalgar an allotment of shares equal
to 15% of the market trading volume in the Company's shares during the five consecutive day period preceding the investment amount demanded
by the Company; or (2) an amount that grants Trafalgar an allotment of the quantity of shares equal to 2.99% of the total number of shares
issued as of that date.
d. In return for its commitment to invest in the Company pursuant to the CEF, Trafalgar is entitled to an allotment of shares,
without consideration, with a value of up to $1,500 thousand, to be allotted to Trafalgar over a ten-month period, on the basis of the
market price of the share on the date the agreement was signed. 45% - 55% of the payment will be paid on the basis of the market price of
the share on the date of the signing of the agreement, and the balance will be paid on the basis of the average market price of the share
during the week preceding the date of the allotment. Notwithstanding the above, in the event that the approval of the publication of the
shelf-prospectus is not forthcoming from the Israel Securities Authority, all of the shares will not be allotted during the aforementioned
10 month period, and 32.5% of the payment will be paid through allotments to be made after receipt of approval of the aforementioned
authority.
e. The Company undertook to obtain all of the approvals required by law for the allotment, including to have the allotted shares
listed for trade.
f. Trafalgar will be entitled to receive from the Company a commission of 4% of all investment amounts demanded by the Company, which
commission shall be deducted from any investment amount transferred to the Company pursuant to the agreement.
g. A condition for the performance of any investment by Trafalgar is that the Company issue a shelf-prospectus whereby Trafalgar is
entitled to sell the shares it is allotted under the agreement during the course of trading on the stock market. The Company intends on
taking the steps to issue a shelf-prospectus on the basis of its 31 December 2007 financial statements. Trafalgar entered into an agreement
with Emvelco Corporation, one of the controlling shareholders of the Company, whereby in the event that the Company is unable to issue a
shelf-prospectus, Emvelco will sell Trafalgar shares from the available for trading shares held by Emvelco, of a quantity that is identical
to the quantity of the shares to be allotted to Trafalgar, against the shares to be allotted to Trafalgar which will be transferred to the
ownership of Emvelco.
h. Notwithstanding the above, it was agreed between the parties that, in the event that the shelf-prospectus is issued by the Company
no later than 30 June 2008, the discount rate to which Trafalgar will be entitled from the price of the share (as mentioned in 3b above)
will be 5% instead of 6% and the commission rate due Trafalgar as per item 3f above will be 3% (instead of 4%).
i. Trafalgar undertakes not to sell the shares of the Company short.
Concurrent with the signing of the investment agreement, as above, the Company entered into a loan agreement with Trafalgar whereby
Trafalgar would lend the Company an amount of $500 thousand, bearing interest at an annual rate of 8.5% to be repaid in installments in the
form of an allotment of shares in accordance with the mechanism set out in the investment agreement described above, until 30 April 2009.
Alternatively, the amount of the loan will be repaid in equal installments commencing in July 2008 through April 2009. Trafalgar shall be
entitled to a commission of 10% of each amount of the loan that is repaid in cash. The Company has the right to repay part of the loan in
cash and the rest of the loan in shares, in accordance with the CEF.
j. Further to the signing of the investment agreement with Trafalgar, the board of directors of the Company decided to allot
Trafalgar 69,375,000 ordinary shares of the Company, no par value each (the "offered shares") which, following the allotment, will
constitute 5.22% of the capital rights and voting rights in the Company, both immediately following the allotment and fully diluted. For
details of this private placement, see the immediate filing dated 28 March 2008 (ref. no. 2008-01-087906).
The offered shares will be allotted piecemeal, at the following dates:
18,920,454 shares will be allotted immediately following receipt of approval of the stock exchange to the listing for trade of the
offered shares.
25,227,273 of the offered shares will be allotted immediately following receipt of all of the necessary approvals in order for the
offered shares to be swapped on 30 April 2008 against a quantity of shares equal to those held by Emvelco Corp. at that same date.
The balance of the offered shares, a quantity of up to 25,277,272 shares, will be allotted immediately after receipt of the approval
of the Israel Securities Authority for the issuance of a shelf prospectus. Notwithstanding, if the approval of the shelf prospectus is not
granted by the Israel Securities Authority by the beginning of May 2008, only 12,613,636 shares will be allotted to Trafalgar at that same
date.
See also subsequent events, below.
4. Agreement for the management of the project in Las Vegas:
In January 2008, the subsidiary, Verge, entered into an agreement with TWG Consultants LLC (a third party, unrelated to the
Company), a project management company operating in Las Vegas (hereinafter - "TWG"), whereby TWG will provide management, consultancy,
representation and control services in connection with the Verge project in Las Vegas (hereinafter - the "Project"), during the entire
duration of the project, including handling the various aspects involving the general contractor, professional consultants, and the
authorities, will cost the project and will supervise the performance of its budget, monitor the project timetables, supervise the carrying
out of various tasks involving the project and assist in the bookkeeping of the project.
In return for the services to be provided by TWG under the agreement, it will be entitled to the following amounts:
a. Reimbursement of expenses, including the salary of an engineer and/or supervisor as required and an administrative employee in a
part-time position (at a total cost estimated at $12,500 a month) and reimbursement of office overhead expenses up to an amount of $20,000 a
month.
b. A monthly payment of $24,750.
c. An additional bonus of the higher of $1,000,000 or 5% of the earnings before taxes, depreciation and amortization (EBTDA). The
bonus will be paid on the basis of the progress of the work, commencing on the date that the accompanying loan is granted to the project,
with the final amount to be paid upon receipt of the temporary approvals for occupancy of 85% of the units in the project.
The term of the agreement was set at the earlier of 5 years or 6 months prior to the completion of the project. Notwithstanding the
above, each of the parties is entitled to terminate the agreement for any reason whatsoever, upon advance notice of 30 days.
5. Agreement between the Sitnica subsidiary and Mr. Shalom Atia:
Mr. Shalom Atia, a controlling shareholder of the Compay, will furnish Sitnica with credit of up to EUR1.2 million as a bridge
loan.
The bridge loan will be euro-denominated and will be non-interest bearing. The loan shall be repaid at the demand of Mr. Shalom
Atia, within 10 days following the furnishing of a payment demand.
The agreement to provide the loan is solely for the benefit of the Company.
The bridge loan is required by Sitnica to enable it to make a payment on account of the balance of the consideration for the
property in Samobor to third parties from whom the property was purchased, in accordance with the terms of the purchase agreement. At
present, Sitnica does not have liquid assets that would enable it to make the payment from its own resources and it requires external
financing. Financing through the bridge loan from a controlling shareholder will be the least expensive form of financing over any other
alternative and it will not place any restrictions or undertakings on the Company, except for the repayment of the loan principal.
The furnishing of the loan to the company by Mr. Shalom Atia is a transaction between a public company and its controlling
shareholder and, as such, it requires the approval of the audit committee of the Company.
The credit pursuant to the agreement (in an amount of EUR1.2 million) has already been granted to the Company. In the event that the
transaction is not approved, the Company will refund the credit to the controlling shareholder.
Following the appointment of a director on behalf of the public, as per A6 below, the Company intends on presenting the transaction
to the Audit Committee for approval, following which it will be presented to the board of directors for approval.
6. Resignation and appointment of a director on behalf of the public
On 26 March 2008, Mr. Meir Matana , who served as an external director of the Company, tendered his resignation. Following Mr.
Matana's resignation, only one external director is on the board and, therefore, according to article 279 of the Companies Law, the audit
committee is unable to grant its required approval to the transaction, as set out in A5 above.
At an extraordinary meeting on 14 May 2008, it was decided to appoint Mr. Yossi Peled as an external director of the Company.
7. Trading of the Company's shares on the stock exchange - non-compliance with the preservation rules
On 14 January 2008, the Company was notified by the Tel Aviv Stock Exchange that it was in non-compliance with the preservation rules,
on the basis of the 31 December 2007 data, due to the fact that the percentage of Company shares held by the public as at 31 December 2007
was 9.5%, lower than the required 15%.
The Company was notified as to its non-compliance, as above, and was granted a 6 month extension, until 30 June 2008 to comply with the
rules.
B. Financial position
The Company applied International Financial Reporting Standards (IFRS) for the first time in these
financial statements.
We present below the major changes occurring in the balance sheet items when compared with the financial
statements of the Company as at 31 December 2007:
The total balance sheet as at 31 March 2008 amounted to NIS 112,908 thousand, compared with NIS 115,169
thousand as at 31 December 2007.
Current assets as at 31 March 2008 amounted to NIS 44,144 thousand, compared with NIS 45,923 thousand as at 31 December 2007. The
major changes in current assets were as follows:
Cash and cash equivalents amounted to NIS 1,308 thousand, compared with NIS 1,249 thousand as at 31 December 2007.
Accounts receivable and debit balances amounted to NIS 772 thousand, compared with NIS 842 thousand as at 31 December 2007. The
balance mainly includes advances to service providers and prepaid expenses in connection with the Las Vegas construction project.
Restricted cash amounted to NIS 16,131 thousand, compared with NIS 17,306 thousand as at 31 December 2007. This balance constitutes
the Group's deposits in a trust account in the U.S. in respect of advances received from purchasers of apartments in the Las Vegas project.
Buildings under construction amounted to NIS 25,933 thousand, compared with NIS 26,526 thousand as at 31 December 2007, and it
includes the costs accrued until 31 March 2008 in respect of the construction of the project in Las Vegas.
Investment real estate amounted to NIS 68,661 thousand as at 31 March 2008, compared with NIS 69,121 thousand as at 31 December
2007. The balance relates to property in Somobar, Croatia, which is classified as investment real estate. This property is presented at fair
value which was determined on the basis of, among other things, an appraisal performed by an external appraiser in July 2007.
Current liabilities as at 31 March 2008 amounted to NIS 82,432 thousand, compared with NIS 80,198 thousand as at 31 December 2007.
The major changes in current liabilities were as follows:
Liabilities to interested parties as at 31 March 2008 amounted to NIS 8,850 thousand, compared with NIS 7,454 thousand as at 31
December 2007. This balance derived from the financing received from interested parties in respect of the Las Vegas and Samobor projects.
Current maturities of a long-term loan as at 31 March 2008 amounted to NIS 1,599 thousand, compared with no liability as at 31
December 2007. This amount derives from the long-term loan received from the Trafalgar Fund.
Liabilities to sellers of land as at 31 March 2008 amounted to NIS 42,268 thousand, compared with NIS 42,570 thousand as at 31
December 2007. The amount derives from the balance of the commitment to pay the consideration to the sellers of the property in Samobor,
Croatia.
Suppliers and service providers as at 31 March 2008 amounted to NIS 1,280 thousand, compared with NIS 2,519 thousand as at 31
December 2007, mainly in respect of the Las Vegas construction project. Accounts payable and credit balances amounted to NIS 1,517 thousand
as at 31 March 2008, compared with 1,158 thousand as at 31 December 2007.
The provision for real estate agents as at 31 March 2008 amounted to NIS 8,566 thousand, compared with NIS 9,191 thousand as at 31
December 2007. The U.S. subsidiary entered into agreements with real estate agents for the payment of commissions in respect of the sale of
apartments in the Las Vegas project. According to the agreement, the Company will pay commissions of between 3.8% - 5.8% in respect of every
apartment sold. 50% of the amount of the commission is paid to the agent upon the signing of the agreement and the other 50% will be paid to
the real estate agents upon the transfer of title of the apartment to the purchaser. As at 31 March 2008, the subsidiary has a liability of
$2.4 million in respect of the apartment sales agreements signed as at that date. This liability is included in the balance sheet under the
caption, "Provision for real estate agents".
Liabilities in respect of share allotment agreement as at 31 March 2008 amounted to NIS 2,221 thousand, deriving from the commitment
of the Company to allot shares to the Trafalgar investment fund, the quantity of which has not yet been determined (in consideration for an
amount of $625 thousand). The Company recorded the liability against a reduction in its shareholders' equity in the same amount. As at the
date of the drafting of the financial statements, no shares have been allotted to Trafalgar.
Advances from purchasers of apartments as at 31 March 2008 amounted to NIS 16,131 thousand, compared with NIS 17,306 thousand as at
31 December 2007. This balance constitutes the deposits of the Group in a trust account in the U.S., in respect of advances received from
purchasers of apartments in the Las Vegas project.
Long-term liabilities as at 31 March 2008 include a reserve for deferred taxes in an amount of NIS 3,101 thousand, compared with NIS
3,035 thousand as at 31 December 2007, in respect of investment real estate and loss carryforwards in Sitnica.
In addition, long-term liabilities include a loan received from the Trafalgar investment fund, amounting to NIS 178 thousand as at
31 March 2008.
Shareholders' equity as at 31 March 2008 amounted to NIS 27,197 thousand, compared with NIS 31,936 thousand as at 31 December 2007.
The decrease in this balance derives from the following: the loss for the period in an amount of NIS 1,950 thousand, issuance costs in an
amount of NIS 2,221 thousand in respect of the share allotment agreement with Trafalgar, adjustments deriving from differentials on the
translation of financial statements of investee companies in an amount of NIS 568 thousand.
C. Results of operations of the Group
The Company applied International Financial Reporting Standards (IFRS) for the first time in these financial statements.
According to IFRS, the Company did not record and revenues from the construction project of the Verge subsidiary in Las Vegas, since
as at the balance sheet date, the project is in its initial stages.
According to IFRS 3, Business Combinations, the allotment of shares in November 2007 to Verge was effected as a reverse acquisition.
Accordingly, the comparative amounts in the financial statements as at 31 March 2007 and 1 January 2007 are of Verge only. For more details
pertaining to the accounting treatment of a reverse acquisition, see Note 2 of the financial statements.
Consolidated profit and loss accounts:
Three month period Year ended
ended 31 March 31
December
2008 2007 2007
NIS'000 NIS'000 NIS'000
(Unaudited) (Audited)
Change in fair value of investment real - - 18,294
estate
---------- ---------- ----------
Selling and marketing expenses 439 4,485 29,621
General and administrative expenses 1,273 632 3,023
_______ _______ _______
1,712 5,117 32,644
---------- ---------- ----------
_______ _______ _______
Operating loss before financing (1,712) (5,117) (14,350)
Financing income 204 - 33
Financing expenses (452) - (1,831)
_______ _______ _______
Operating loss after financing and before (1,960) (5,117) (16,148)
tax
Tax benefit (expense) 10 - (3,541)
_______ _______ _______
Loss for the period (1,950) (5,117) (19,689)
_______ _______ _______
_______ _______ _______
D. Analysis of the results of operations
Selling and marketing expenses
In the three month period ended 31 March 2008, selling and marketing expenses amounted to NIS 439 thousand, compared with NIS 4,485
thousand in the same period last year and NIS 29,621 thousand in 2007. These expenses relate mainly to the advertising and marketing
expenses of the Las Vegas construction project which cannot be capitalized in accordance with IFRS.
General and administrative expenses
In the three month period ended 31 March 2008, general and administrative expenses amounted to NIS 1,273 thousand, compared with NIS 632
thousand in the same period last year and NIS 3,023 thousand in 2007. In addition to the costs of the Company in Israel, these expenses
included expenses in respect of professional services, and payroll and office costs of the subsidiaries in Croatia and the U.S.
Financing income
In the three month period ended 31 March 2008, financing income amounted to NIS 204 thousand. In the same period last year, the Group
had no financing income and in 2007, it had financing income of NIS 33 thousand. Financing income includes, among other things, interest in
deposits of Atia Group Ltd.
Financing expenses
In the three month period ended 31 March 2008, financing expenses amounted to NIS 452 thousand. In the same period last year, the Group
had no financing expenses and in 2007, it had financing expenses of NIS 1,831 thousand.
Taxes on income
In the three month period ended 31 March 2008, the tax benefit amounted to NIS 10 thousand in respect of deferred taxes, net. In the
same period last year, the Group had no taxes, while in 2007, the Company had tax expenses of NIS 3,541 thousand in respect of deferred
taxes, deriving mainly from the change in fair value of investment real estate in Croatia.
E. Cash and sources of financing
Cash used by the Group for current operations in the three month period ended 31 March 2008 amounted to NIS 3,063 thousand, compared
with NIS 8,898 thousand in the same period last year and NIS 26,332 thousand in 2007. The negative cash flow derived mainly from payments
made by the Group in respect of the construction project in Las Vegas.
Cash used by the Group for investment activities in the three month period ended 31 March 2008 amounted to NIS 397 thousand, compared
with NIS 38 thousand in the same period last year and compared with cash flows provided by investment activity in 2007 in an amount of NIS
5,025 thousand. Most of the cash was used in the investment in investment real estate in Croatia.
Cash provided by financing activities in the three month period ended 31 March 2008 amounted to NIS 3,042 thousand, compared with NIS
8,813 thousand in the same period last year and compared with an amount of NIS 22,545 thousand in 2007. The cash deriving from financing
activity derived from two sources: net loans received from interested parties, and a long term loan received from the Trafalgar investment
fund.
The balance of cash and cash equivalents as at 31 March 2008 amounted to NIS 1,308 thousand, compared with NIS 8 thousand as at 31 March
2007 and NIS 1,249 thousand as at 31 December 2007.
F. Qualitative report on the exposure to and management of market risks
During the reporting period, there were no significant changes in the exposure of the Company to market risks and the management of
such risks (as per the guidelines of the Securities Authority), when compared with the report of the Company on this issue for the year
ended 31 December 2007.
1. Names of the persons in charge
The person responsible for management of market risks in the Company is Mr. Yosef Atia, the CEO of the Company. He is assisted by the
Deputy CEO of the Company, Mr. Shalom Atia, in respect of market risks in Croatia, and by the VP - Finance of the Company, Mr. Danny Ofer,
in respect of the market risks in Israel.
2. Detailed description of the market risks to which the Company is exposed
a. The sub-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.
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.
b. Estimate of fair value of investment real estate
In the opinion of Company management, based on, among other things, the position of the appraiser, the fair value of real estate 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 real estate in Croatia.
c. 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.
d. 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.
e. Legal and regulatory requirements
The subsidiaries are subject to legal and regulatory requirements in various issues in the areas in which they operate.
G. Linkage balances of the Company
The following table presents the linkage balance sheet as at 31 March 2008:
Linked Linked to the Kuna Linked to Pound Unlinked Non-monetary assets Total
to US$ Sterling
NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 NIS'000
Assets
Cash and cash equivalents 85 1,059 35 129 - 1,308
Accounts receivable and debit 242 291 - 54 185 772
balances
Restricted cash 16,131 - - - - 16,131
Buildings under construction - - - - 25,933 25,933
Fixed assets, net - - - - 39 39
Intangible assets - - - - 64 64
Investment real estate - - - - 68,661 68,661
______ ______ ______ _____ _______ _______
Total assets 16,458 1,350 35 183 94,882 112,908
______ ______ ______ _____ _______ _______
______ ______ ______ _____ _______ _______
Liabilities
Loans from interested parties 7,060 1,790 - - - 8,850
Sellers of land - 42,268 - - - 42,268
Suppliers and service 1,009 51 45 175 - 1,280
providers
Provision for real estate 8,566 - - - - 8,566
agents
Accounts payable and credit 618 76 - 823 - 1,517
balances
Advances from purchasers of 16,131 - - - - 16,131
apartments
Long-term loans including 1,777 - - - - 1,777
current maturities
Liability in respect of share 2,221 - - - - 2,221
allotment agreement
Deferred taxes - - - - 3,101 3,101
______ ______ ______ _____ _______ _______
Total liabilities 37,382 44,185 45 998 3,101 85,711
______ ______ ______ _____ _______ _______
______ ______ ______ _____ _______ _______
Excess of assets over (20,924) (42,835) (10) (815) 91,781 27,197
liabilities (excess of
liabilities over assets)
______ ______ ______ _____ _______ _______
______ ______ ______ _____ _______ _______
The following table presents sensitivity analyses of the fair value of the Group's financial instruments to changes in market factors
to which they are exposed, as at 31 March 2008 (in NIS thousands):
Sensitivity analysis of changes in the exchange rate of the U.S. dollar
Profit (loss) on the change in market Fair value of asset, Profit (loss) on the change in market
factor base rate of NIS factor
3.553 to the dollar
The sensitive instrument 10% increase in 5% increase in Asset (liability) 5% decrease in 10% decrease in
dollar vs. shekel dollar vs. shekel dollar vs. shekel dollar vs. shekel
Cash and cash equivalents 9 4 85 (9)
(4)
Accounts receivable and debit 24 12 242 (24)
(12)
balances
Restricted cash 1,613 807 16,131 (1,613)
(807)
Loans from interested parties (706) (353) (7,060) 706
353
Suppliers and service (101) (50) (1,009) 101
50
providers
Accounts payable and credit (62) (31) (618) 62
31
balances
Provision for real estate (857) (428) (8,566) 957
428
agents
Advances from purchasers of (1,613) (807) (16,131) 1,613
807
apartments
Long-term loans including (178) (89) (1,777) 178
89
current maturities
Liabilities in respect of (222) (111) (2,221) 222
111
share allotment agreement
______ ______ ______ ______
______
Total financial instruments (2,093) (1,046) (20,924) 2,093
1,046
not for hedging purposes
______ ______ ______ ______
______
______ ______ ______ ______
______
Sensitivity analysis of changes in the exchange rate of the Croatian Kuna
Profit (loss) on the change in market Fair value of asset, Profit (loss) on the change in market
factor base rate of NIS factor
0.7689 to the kuna
The sensitive instrument 10% increase in kuna 5% increase in kuna Asset (liability) 5% decrease in kuna 10% decrease in
kuna
vs. shekel vs. shekel vs. shekel vs. shekel
Cash and cash equivalents 106 53 1,059 (106)
(53)
Accounts receivable and debit 29 15 291 (29)
(15)
balances
Loans from interested parties (179) (90) (1,790) 179
90
Sellers of land (4,227) (2,113) 942,268) 4,227
2,113
Suppliers and service (5) (3) (51) 5
3
providers
Accounts payable and credit (8) (4) (76) 8
4
balances
______ ______ ______ ______
______
Total financial instruments (4,284) (2,142) (42,835) 4,284
2,142
not for hedging purposes
______ ______ ______ ______
______
______ ______ ______ ______
______
H. Critical accounting estimates
When preparing financial statements in accordance with IFRS, Company Management is required to use estimates and assessments that impact
on the amounts presented in the financial statements.
These estimates often require the use of discretion in an environment of uncertainty and have a significant impact on the presentation
of data in the financial statements.
The following are the key assumptions and significant accounting estimates that were used in preparing the financial statements of the
Company. When formulating such assumptions and estimates, Company Management has to make assumptions regarding circumstances and events that
involve a significant degree of uncertainty. In using its discretion when determining the estimates, Company Management bases itself on past
experience, various facts, external factors, and assumptions regarding the reasonableness of the circumstances that suit each estimate.
Actual results may differ from Management estimates.
Estimate of the fair value of the investment real estate
The fair value of the property as at 31 March 2008 is NIS 68,661 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. Additional information was provided by other
appraisers and real estate sites on the Internet. According to the valuation, the value of a square meter of property which was purchased is
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.
I. Litigation
Verge, a subsidiary of the Company, has been conducting legal proceedings against three different parties, as follows:
1. In December 2007, American LLC (hereinafter - "American"), which served as the company listing agent, filed a complaint in
Bankruptcy Court (as American entered in 2007 into Chapter 11 in the Nevada Bankruptcy Court) and an Order to Show Cause to Require Turnover
of Funds.
In January 2008, Verge filed an answer denying wrong doing as well as a counterclaim. As of 31 December 2007, the American balance
on the books of Verge included an amount of $49 thousand in accounts receivable and debit balances (for the un-used portion of advances) and
approximately $56 thousand in accounts payable and credit balances for fees and expenses.
The Court set the trial for early January 2009, and also set a settlement conference for 31 July 2008.
2. On 21 November 2007, LM Construction filed a demand for an arbitration proceeding against Verge in connection with amounts
allegedly due for general contracting services provided by them during the construction of Verge's Sales Center. Verge agreed to enter into
arbitration, denies any wrong doing and filed a counterclaim for damages.
The amount of the suit is approximately $68 thousand and as part of the Group's conservative approach is included in accounts
payable and credit balances in the consolidated balance sheet.
3. On 25 April 2008, an attachment was registered in an amount of $1.2 million by a former consultant of Verge, without presenting
any of the documents needed to prove his demands. On 7 May 2008, the consultant notified Verge of his intention to register an additional
attachment in an amount of $7.35 million. According to Verge, by registering the attachments, the consultant caused damage which may very
well endanger the entire project. Therefore, Verge intends on filing a countersuit in respect of the false claim and the resultant damages.
J. Subsequent events
1. Revision of the agreement between Trafalgar and Emvelco
On 30 April 2008, further to the immediate report of the Company dated 3 February 2008 regarding its entering into an investment
agreement with the international investment fund, Trafalgar, and further to the immediate report in respect of the private placement to
Trafalgar, dated 28 March 2008, the Company announced that on 29 April 2008, Trafalgar and the parent company of the Company, Emvelco,
agreed to revise the agreement signed between them, whereby if the Company were not able to publicize a shelf prospectus, Emvelco would sell
to Trafalgar shares out of the available for trading shares held by it (when the shares are freed from the restrictions pursuant to article
15C of the Securities Law). According to the aforementioned revision, the share sales agreement will not apply to 69,375,000 ordinary shares
offered to Trafalgar and ATW, as set out in the allotment report.
2. Negotiations for a partnership in a subsidiary in Croatia
On 14 May 2008, the Company announced that it was in the advanced stages of negotiations with the Porr Group, a large group of
companies with headquarters in Austria, engaged in various fields of real estate in Eastern and Central Europe. The negotiations are
expected to lead to an agreement whereby a company in the Porr Group will purchase half of the holdings in Sitnica, a company incorporated
in Croatia, which owns property in Samobor. The Porr Group will assist the Company in obtaining the financing necessary to complete the
purchase of the property in Samobor.
3. The results of an extraordinary meeting on 14 May 2008
At an extraordinary meeting on 14 May 2008, the following resolutions were passed:
a. To appoint Mr. Yossi Peled as an external director of the Company and to approve payment to Mr. Peled of an annual remuneration
and a per meeting fee at amounts stipulated in the second and third appendices of the articles of the Company (rules pertaining to
remuneration and expenses to external directors) - 2000, as shall be from time to time.
b. To consolidate and redivide the share capital of the Company such that every one hundred (100) existing registered and issued
shares of the Company shall be consolidated into one (1) share.
The effective date for purposes of consolidating the capital is 21 May 2008 and commencing on 22 May 2008, the consolidated shares will
start being traded, as above.
Commencing 22 May 2008, the quantity of registered shares of the Company will be 50,000,000 shares and the quantities of paid in and issued
shares of the Company will be 12,591,667 shares.
4. An agreement that may cause a change in control
The controlling shareholder of the Company, Emvelco, notified the Company on 16 May 2008 that it had entered into an agreement
whereby, subject to the fulfillment of certain conditions as set out in the immediate report dated 17 May 2008 (reference no.
2008-01-135339), it may transfer the shares it holds in the Company to a third party, C. Properties Ltd., a Barbados-registered company.
5. Progress in connection with the purchase of properties in Croatia
The subsidiary, Sitnica d.o.o. ("Sitnica"), is the holder of rights in property (the "asset in Samobor") which is comprised of 22
adjacent plots, covering a total area of 74,701 square meters in the city of Samobor, in the vicinity of Zagreb, the capital of Croatia.
Sitnica's rights in the asset in Samobor are based on an agreement between Sitnica and Atia Projekt d.o.o. (the "Atia Projekt"), the
former parent company of Sitnica and a company that is wholly-owned by Mr. Shalom Atia, one of the controlling shareholders of the Company.
Pursuant to the agreement, Atia Projekt undertook to transfer to Sitnica the plots that constitute the asset in Samobor in their entirety,
free of any third party rights.
For information pertaining to the asset in Samobor and the agreement with Atia Projekt, see section 7.1 (B) in the description of
the business affairs of the Company in the Company's periodic report for 2007, issued on 31 March 2008 (reference number 2008-01-094251).
The plots that constitute the asset in Samobor were purchased by Atia Projekt for a total amount of EUR 8,832,670 (NIS 45,930
thousand) (excluding transfer tax of 5% of the total consideration) from various sellers during the period March through May 2007.
According to the purchase agreements, Atia Projekt paid the sellers 10% of the total consideration in respect of the plots and
registered appropriate caveats in its name with the Land Registry in Samobor. The sellers deposited with a notary public documents that will
enable to purchaser to register the plots in its name with the Land Registry upon the payment of the balance of the consideration.
Sitnica and Atia Projekt agreed to have the agreement between the parties revised such that Atia Projekt would irrevocably assign
and transfer to Sitnica all of it rights pursuant to the purchase agreement and Sitnica would undertake to pay the sellers the unpaid
balance of the consideration and would bear the cost of the transfer tax in an amount of 5% of the total purchase consideration.
According to the purchase agreement, the dates for payment of the balance of the consideration were set for the period March through
May 2008.
To date, Sitnica paid a total of EUR441,634 (NIS 2,297 thousand) in respect of the 5% transfer tax on the total consideration.
To date, Sitnica paid a total of EUR1,421,090 (NIS 7,390 thousand) in respect of the consideration for 2 plots covering an area of
12,919 square meters and the ownership rights in these plots were registered in Sitnica's name.
Regarding 18 plots, covering an area of 52,073 square meters, Atia Projekt notified the Company that its took advantage of the
provisions of the purchase agreements relating to those plots, and postponed the payment date of the balance of the consideration, an amount
of EUR5,779,176 (NIS 30,052 thousand) by half a year, to October - November 2008.
Regarding 2 plots, covering an area of 9,709 square meters, Atia Projekt reached verbal agreements with the sellers of the plots
whereby the payment date of the balance of the consideration, an amount of EUR703,912 (NIS 3,660 thousand) would be postponed until the end
of June 2008.
The unpaid balance of the consideration for the asset in Samobor bears (kuna) interest at a rate of 15% per annum.
In addition to the above, Sitnica entered into an agreement in the period April - May 2008 to purchase 4 additional plots, bordering
on the asset in Samobor, covering an area of 7,492 square meters, for a total amount of EUR1,034,200 (NIS 5,378 thousand) (excluding
transfer tax of 5% of the consideration). Upon the signing of the agreements, Sitnica paid the owners of the properties insignificant
amounts, with the major part of the consideration under the agreements scheduled for payment on dates to commence between mid-June to
mid-July 2008.
K. Activities of the 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.
In the first quarter of 2008, the internal auditor commenced performance of a risk assessment as the first phase of the internal audit
work process of the Company. An intelligent 5-year multi-year audit plan will be derived from the risk assessment.
L. Adjustment to IFRS
The financial statements as at 31 March 2008 are the first financial statements of the Company presented in accordance with IFRS. Prior
to adoption of IFRS, the Company presented its financial statements in accordance with accounting principles generally accepted in Israel.
The last financial statements of the Company presented in accordance with accounting principles generally accepted in Israel were those as
at 31 December 2007 and for the year then ended. In Note 9 of the financial statements, the Company presented reconciliations between
reporting under accounting principles generally accepted in Israel and reporting under IFRS as at 1 January 2007, 31 March 2007 and for the
three month period then ended, and as at 31 December 2007 and for the year then ended.
M. The process of approval of the Company's financial statements
The board of directors of the Company is the organ 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.
The meeting of the board of directors at which the financial statements are discussed and approved is attended by representatives of the
Company's external auditors and representatives of the Company's legal counsel. 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 that were either prepared in advance by the directors or that arise during the
meeting, the members of the board of directors vote to approve the financial statements.
Yosef Atia Shalom Atia Dan Ofer
CEO and Director, deputy chairman of the board, in accordance CFO
Director with the authorization of the board given on 29 May
2008
29 May 2008
The Board of Directors of
Atia Group Ltd.
(Formerly: Kidron Industrial Holdings Ltd.)
RE: Review of the Interim Consolidated Unaudited Financial
Statements for the Three Month Period ended 31 March 2008
At your request, we have reviewed the condensed interim consolidated balance sheet of Atia Group Ltd. (formerly: Kidron Industrial
Holdings Ltd.) as at 31 March 2008, the condensed interim consolidated statement of operations, the condensed statement of changes in
shareholders' equity and the condensed consolidated statement of cash flows for the three month period then ended.
Our review was made in accordance with procedures established by the Institute of Certified Public Accountants in Israel. These
procedures included reading the abovementioned condensed interim financial statements, reading minutes of meetings of the shareholders and
of the board of directors and its committees, and making inquiries of persons responsible for financial and accounting matters.
We have been furnished with reports of other accountants in respect of the review of the condensed interim financial statements of a
subsidiary, whose assets included in the consolidation constitute approximately 38% of total consolidated assets as at 31 March 2008.
A review is substantially less in scope than an audit in accordance with generally accepted auditing standards, and accordingly, we do
not express an opinion on the condensed interim consolidated financial statements.
In carrying out our review, including a review of the reports of the other auditors, as mentioned above, nothing came to our attention
that would indicate a need for any material modifications that should be made to the interim consolidated financial statements in order for
them to be considered to be interim financial statements presented in accordance with International Accounting Standard 34, Financial
Reporting for Interim Periods (IAS 34), and the disclosure requirements of the Securities Regulations (Periodic and Immediate Reports),
1970.
We draw your attention to Note 5D pertaining to the fact that the financing of the construction product 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
impact on the ability of the Verge subsidiary to procure the financing required to complete the construction project and on the terms of
such financing, if procured, and may have an impact on the ability of the customers of the Company to procure mortgages, if necessary, and
on the terms under which such mortgages will be procured.
Fahn Kanne & Co.
Certified Public Accountants (Isr.)
Tel-Aviv, 29 May 2008
CONSOLIDATED BALANCE SHEETS
Convenience
translation
into � (Note 2)
31 March 31 December 31 March
Note 2008 2007 2007 2008
NIS'000 NIS'000 NIS'000 �' 000
(Unaudited) (Audited) (Unaudited)
A S S E T S
Current Assets
Cash and cash equivalents 1,308 8 1,249 185
Accounts receivable and debit 772 2,593 842 109
balances
Restricted cash 16,131 - 17,306 2,284
Inventory of buildings under 25,933 23,459 26,526 3,671
construction
_______ _______ _______ _______
44,144 26,060 45,923 6,249
----------- ----------- ----------- -----------
Non-Current Assets
Fixed assets, net 39 62 47 6
Intangible assets 64 112 78 9
Investment real estate 68,661 - 69,121 9,720
_______ _______ _______ _______
68,764 174 69,246 9,735
----------- ----------- ----------- -----------
_______ _______ _______ _______
Total Assets 112,908 26,234 115,169 15,984
_______ _______ _______ _______
_______ _______ _______ _______
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Loans from interested parties 6 8,850 32,110 7,454 1,252
Current maturities of 5 1,599 - - 226
long-term loan
Sellers of land 42,268 - 42,570 5,984
Suppliers and service 1,280 - 2,519 181
providers
Accounts payable and credit 1,517 1,296 1,158 215
balances
Provision for real estate 8,566 - 9,191 1,213
agents
Liabilities in respect of 5 2,221 - - 314
share allotment agreement
Advances from purchasers of 16,131 - 17,306 2,284
apartments
_______ _______ _______ _______
82,342 33,406 80,198 11,669
----------- ----------- ----------- -----------
Long-Term Liabilities
Long-term loan 5 178 - - 26
Deferred taxes 3,101 - 3,035 439
_______ _______ _______ _______
3,279 - 3,035 465
----------- ----------- ----------- -----------
Shareholders' Equity (Deficit)
Share capital and premium 52,048 845 54,269 7,368
Translation differences in (204) 108 364 (29)
respect of activities abroad
Accumulated deficit (24,647) (8,125) (22,697) (3,489)
_______ _______ _______ _______
Total Shareholders' Equity 27,197 (7,172) 31,936 3,850
(Deficit)
----------- ----------- ----------- -----------
_______ _______ _______ _______
Total Liabilities and 112,908 26,234 115,169 15,984
Shareholders' Equity (Deficit)
_______ _______ _______ _______
_______ _______ _______ _______
Yosef Atia Shalom Atia Dan Ofer
CEO and Director, deputy chairman of CFO
Director the board,
in accordance with the
authorization of
the board given on 29 May
2008
Date of approval of financial statements: 29 May 2008.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Convenience
translation
into � (Note 2)
Three month period ended 31 March Year ended Three month period
31 ended 31 March
December
2008 2007 2007 2008
NIS' 000 NIS' 000 NIS' 000 �' 000
(Unaudited) (Audited) (Unaudited)
Change in fair value of - - 18,294 -
investment real estate
--------- --------- --------- ---------
Selling and marketing expenses 439 4,485 29,621 62
General and administrative 1,273 632 3,023 180
expenses
______ ______ ______ ______
1,712 5,117 32,644 242
--------- --------- --------- ---------
______ ______ ______ ______
Operating loss before (1,712) (5,117) (14,350) (242)
financing
Financing income 204 - 33 29
Financing expenses (452) - (1,831) (64)
______ ______ ______ ______
Operating income after (1,960) (5,117) (16,148) (277)
financing and before taxes on
income
Tax benefit (expenses) 10 - (3,541) 1
______ ______ ______ ______
Loss for the period (1,950) (5,117) (19,689) (276)
______ ______ ______ ______
______ ______ ______ ______
Loss per share attributed to
the shareholders of the
Company - in NIS
Basic loss per share (*) (0.15) (0.68) (2.19) (0.02)
______ ______ ______ ______
______ ______ ______ ______
Diluted loss per share (*) (0.15) (0.68) (2.19) (0.02)
______ ______ ______ ______
______ ______ ______ ______
(*) The calculation was made retroactively after taking into consideration the consolidation of the share capital that was conducted
on 21 May 2008. See also Note 8A.
STATEMENTS OF RECOGNIZED GAINS AND LOSSES
Convenience
translation
into � (Note 2)
Three month period ended 31 March Year ended Three month period
31 ended 31 March
December
2008 2007 2007 2008
NIS' 000 NIS' 000 NIS' 000 �' 000
(Unaudited) (Audited) (Unaudited)
Total recognized losses for (1,950) (5,117) (19,689) (276)
the period
______ ______ ______ ______
______ ______ ______ ______
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three month period ended 31 March 2008
(Unaudited)
Share Translation Accumulated deficit Total
capital and differences in
premium respect of
activities abroad
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 2007 845 - (3,008) (2,163)
(Audited)
Adjustments deriving from the - 364 - 364
translation of the financial
statements of investee
companies
Loss for the year - - (19,689) (19,689)
Share issue as part of the 4,891 - - 4,891
acquisition of Sitnica
Conversion of loans from 40,130 - - 40,130
interested parties into share
capital
Reverse acquisition 8,403 - - 8,403
______ _____ _______ ______
Balance as at 31 December 2007 54,269 364 (22,697) 31,936
(Audited)
Adjustments deriving from the - (568) - (568)
translation of the financial
statements of investee
companies
Issuance costs in respect of a (2,221) - - (2,221)
share allotment agreement (*)
Loss for the period - - (1,950) (1,950)
______ _____ _______ ______
Balance as at 31 March 2008 52,048 (204) (24,647) 27,197
(Unaudited)
______ _____ _______ ______
______ _____ _______ ______
(*) See Note 5A.
Three month period ended 31 March 2007
(Unaudited)
Share Translation Accumulated deficit Total
capital and differences in
premium respect of
activities abroad
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 2007 845 - (3,008) (2,163)
(Audited)
Adjustments deriving from the - 108 - 108
translation of the financial
statements of investee
companies
Loss for the period - - (5,117) (5,117)
_____ _____ ______ ______
Balance as at 31 March 2007 845 108 (8,125) (7,172)
(Unaudited)
_____ _____ ______ ______
_____ _____ ______ ______
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (cont.)
Three month period ended 31 March 2008
Convenience translation into � (Note 2)
(Unaudited)
Share Translation Accumulated deficit Total
capital and differences in
premium respect of
activities abroad
�' 000 �' 000 �' 000 �' 000
Balance as at 1 January 2008 7,682 52 (3,213) 4,521
(Audited)
Adjustments deriving from the - (81) - (81)
translation of the financial
statements of investee
companies
Issuance costs in respect of a (314) - - (314)
share allotment agreement
Loss for the period - - (276) (276)
_____ ____ ______ ______
Balance as at 31 March 2008 7,368 (29) (3,489) 3,850
(Unaudited)
_____ ____ ______ ______
_____ ____ ______ ______
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience
translation
into � (Note 2)
Three month period ended 31 March Year ended Three month period
31 ended 31 March
December
2008 2007 2007 2008
NIS' 000 NIS' 000 NIS' 000 �' 000
(Unaudited) (Audited) (Unaudited)
Net cash flows from operating
activities
Loss for the period (1,950) (5,117) (19,689) (276)
Adjustments required to (1,113) (3,781) (6,643) (158)
reconcile net cash from
operating activities (Appendix
A)
______ ______ ______ ______
Net cash used in operating (3,063) (8,898) (26,332) (434)
activities
--------- --------- --------- ---------
Cash flows from investment
activities
Purchases of fixed assets - (21) (21) -
Investments in intangible - (17) (21) -
assets
Investments in investment real (397) - (8,022) (56)
estate
Cash deriving from the - - 4,891 -
issuance of shares as part of
the acquisition of Sitnica
Purchase of companies - - 8,198 -
consolidated for the first
time (Appendix C)
______ ______ ______ ______
Net cash provided by (used in) (397) (38) 5,025 (56)
investment activities
--------- --------- --------- ---------
Cash flows for financing
activities
Receipt of loans from 1,230 8,813 22,545 173
interested parties, net
Receipt of long-term loans 1,812 - - 257
______ ______ ______ ______
Net cash provided by financing 3,042 8,813 22,545 430
activities
--------- --------- --------- ---------
Translation differences in 479 - (119) 68
respect of cash balances of
activities abroad
--------- --------- --------- ---------
______ ______ ______ ______
Increase (decrease) in cash 61 (123) 1,119 8
and cash equivalents
Cash and cash equivalents, 1,249 131 131 177
beginning of the period
Impact of exchange rate (2) - (1) -
fluctuations on foreign
currency-denominated cash
balances
______ ______ ______ ______
Cash and cash equivalents, end 1,308 8 1,249 185
of the period
______ ______ ______ ______
______ ______ ______ ______
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
Appendix A - Adjustments required to reconcile net cash from operating activities
Convenience
translation
into � (Note 2)
Three month period ended 31 March Year ended Three month period
31 ended 31 March
December
2008 2007 2007 2008
NIS'000 NIS'000 NIS'000 �' 000
(Unaudited) (Audited) (Unaudited)
Income and expenses not
constituting a current flow of
funds:
Change in fair value of - - (18,294) -
investment real estate
Depreciation and amortization 11 - 45 2
Impact of exchange rate 2 - 1 -
fluctuations on foreign
currency-denominated cash
balances
Interest on loans from - - 2,018 -
interested parties
Deferred taxes, net 84 - 3,541 12
______ ______ ______ ______
97 - (12,689) 14
--------- --------- --------- ---------
Changes in assets and
liabilities:
Decrease (increase) in 24 (1,551) 641 3
accounts receivable and debit
balances
Increase in restricted cash (145) - (18,495) (21)
Increase in buildings under (953) (1,619) (5,729) (135)
construction
Increase (decrease) in (649) - 2,079 (92)
suppliers and service
providers
Increase (decrease) in 291 (611) (767) 41
accounts payable and credit
balances
Increase in provision for real 77 - 9,822 11
estate agents
Increase in advances from 145 - 18,495 21
purchasers of apartments
______ ______ ______ ______
(1,210) (3,781) 6,046 (172)
--------- --------- --------- ---------
______ ______ ______ ______
(1,113) (3,781) (6,643) (158)
______ ______ ______ ______
______ ______ ______ ______
Appendix B - Material non-cash transactions
Recording of a liability against share 2,221 - - 314
allotment expenses
______ ______ ______ ______
______ ______ ______ ______
Conversion of loans from interested parties - - 40,130 -
into share capital
______ ______ ______ ______
______ ______ ______ ______
Capitalization of interest on interested-party 580 750 1,722 82
loans to buildings under construction
______ ______ ______ ______
______ ______ ______ ______
Investments in investment real estate against - - 42,690 -
sellers of land and suppliers and service
providers
______ ______ ______ ______
______ ______ ______ ______
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
Appendix C - Purchase of companies consolidated for the first time
Convenience
translation
into � (Note 2)
Three month period ended 31 March Year ended Three month period
31 ended 31 March
December
2008 2007 2007 2008
NIS'000 NIS'000 NIS'000 �' 000
(Unaudited) (Audited) (Unaudited)
Working capital, net, - - (205) -
excluding cash
Issuance of shares - - 8,403 -
______ ______ ______ ______
Net cash provided by purchase - - 8,198 -
of companies consolidated for
the first time
______ ______ ______ ______
______ ______ ______ ______
Appendix D - Additional information on cash flows
Cash received during the period in respect of:
Interest 9 - 33 1
______ ______ ______ ______
______ ______ ______ ______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS
NOTE 1 - GENERAL
A. The Company is engaged through a subsidiary in apartment construction in the U.S. and holds a real estate asset through a
subsidiary in Croatia.
B. The Company has investments in subsidiaries.
C. Definitions
The Company - Atia Group Ltd. (Formerly: Kidron Industrial Holdings
Ltd.)
Subsidiaries - Companies over which the Company exerts direct or
indirect control (as defined in IAS 27) and,
accordingly, the financial statements of which are
consolidated with those of the Company.
Investee companies - Subsidiaries
Group - The Company and its investee companies.
Interested parties - As defined in the Securities Regulations (Presentation
of Annual Financial Statements), 1993.
Related parties - As defined in IAS 24.
Controlling parties - As defined by the Securities Regulations (Financial
Statements Presentation of Transactions between an
Entity and its Controlling Shareholder), 1996.
Index, ICPI - The Israeli Consumer Price Index as publicized by the
Israeli Central Bureau of Statistics.
Dollar - The U.S. dollar.
Kuna - The Croatian currency.
Euro - The currency of the European Union.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. The measurement basis for the financial statements
In July 2006, the Israel Accounting Standards Board issued Accounting Standard No. 29, Adoption of International Financial Reporting
Standards (IFRS) (hereinafter - the "Standard") which stipulates that an entity that is subject to the Securities Law- 1968 and is required
to report in accordance with the regulations of the law, shall present its financial statements in accordance with International Financial
Reporting Standards (hereinafter - "IFRS"). This stipulation applies to periods commencing on or after 1 January 2008.
In view of the above, the interim consolidated financial statements of the Group as at 31 March 2008 and for the three-month period then
ended hereinafter (the "Interim Financial Statements") are presented in accordance with IFRS, on the basis of the provisions of IAS 34,
Reporting for Interim Periods. The transition date for implementing IFRS is 1 January 2007 and the balance sheet as at that date is the
opening balance.
International Financial Reporting Standards include:
A. International Financial Reporting Standards (IFRS)
B. International Auditing Standards (IAS)
C. Clarifications made by the International Financial Reporting Interpretations Committee (IFRIC) or by the committee that preceded
the IFRIC regarding interpretations of international accounting standards (SIC).
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. The measurement basis for the financial statements (cont.)
The consolidated financial statements of the Group for the year ended 31 December 2008 will be the first annual financial statements pf
the Group presented in accordance with IFRS. These interim financial statements are the first financial statements of the Company presented
on the basis of IFRS in accordance with the provisions of IAS 34. For purposes of the initial implementation of IFRS, the Group implemented
IFRS 1, First time Adoption of International Financial Reporting Standards.
The consolidated financial statements were presented in accordance with the IFRS that are relevant to the activities of the Group and
which are in effect at the reporting date of the company's first annual financial statements, including clarifications and interpretations
issued by the International Accounting Standards Board, and the International Financial Reporting Interpretations Committee (IFRIC).
In Addition, the interim financial statements are presented in accordance with the provisions of Chapter D of the Israeli Securities
Regulations (periodic and Immediate Reports) - 1970, except for regulations that do not allow for the implementation of IFRS or those items
permitted therein.
Prior to the adoption of IFRS, the Company presented its financial statements in accordance with accounting principles generally
accepted in Israel. The latest annual financial statements of the Company according to accounting principles generally accepted in Israel
were those presented for the year ended 31 December 2007.
The consolidated financial statements are presented in accordance with the historical cost convention, except for investment real estate
and financial instruments which are measured at fair value.
The Group elects to follow the following exemptions:
Business combinations and investments in investee companies
The Company elected to implement the provisions of IFRS 3, Business Combinations, only in respect of business combinations occurring
after 1 January 2007 (the transition date).
Accumulated translation differences
Translation differences in respect of autonomous investees in respect of periods that preceded the implementation date shall be carried
to retained earnings on the date of the initial implementation of IFRS.
B. Use of critical accounting estimates
Preparation of financial statements in conformity with international accounting standards requires management to make accounting
estimates and assumptions that involve discretion and affect the amounts of assets and liabilities presented in the financial statements,
the disclosure of contingent assets and contingent liabilities at the date of the financial statements and the amounts of revenues and
expenses during the reporting periods, and the accounting policies set out for the Group. Actual results could differ from those estimates.
According to IFRS 1, the Company is required, among other things, to disclose those accounting principles, the implementation of which
involve the use of estimates that are significantly sensitive to future events, the occurrence of which may impact on the reported amounts.
See Note 3 for details of the assumptions and estimates which are significantly sensitive to future events.
C. Functional currency and presentation currency of the financial statements
1. Each of the Group companies compiles its financial statements on the basis of the currency of the country and major economic
environment in which it operates or which constitutes the currency which has the greatest impact on the company (hereinafter - the
"functional currency").
2. The consolidated financial statements of the Group are presented in NIS, which constitutes the functional currency of the Company
and the presentation currency of the Group.
3. When translating the financial statements of subsidiaries (whose functional currency differs from that of the Company), the
Company implemented the following procedures:
a. Monetary and non-monetary assets and liabilities were translated using the closing rate in effect on each balance sheet date.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. Functional currency and presentation currency of the financial statements (cont.)
3. (cont.)
b. Income and expense items for each period in respect of which an income statement is presented were translated on the basis of the
average exchange rate during the relevant period. Notwithstanding, in cases on which there were significant fluctuations in exchange rates,
income and expense items were translated using the exchange rate in effect on the transaction date.
c. Share capital, capital reserves, and other changes in capital were translated using the exchange rate in effect on the transaction
date.
d. All exchange rate differentials resulting from the aforementioned accounting treatment were classified as a separate item in
shareholders' equity under the caption "Translation differences in respect of activities abroad" until the investment is realized.
e. In implementing the aforementioned procedures, the Company used the representative rate of exchange.
D. Assets, liabilities and transactions linked to the Index or in foreign currency
1. Assets and liabilities denominated in or linked to foreign currency are presented on the basis of the representative rate of
exchange as of the balance sheet date.
2. Transactions denominated in foreign currency are recorded upon initial recognition at the representative rate of exchange on the
date of the transaction. Exchange rate differences deriving from the settlement of monetary items, at exchange rates that are different than
those used in the initial recording during the period, or than those reported in previous financial statements, are carried to the profit
and loss accounts.
3. Assets and liabilities linked to the Israeli Consumer Price Index are presented on the basis of the linkage terms of each balance.
Balances linked by agreement to the "known index" were presented on the basis of the "known index" as of the balance sheet date (the Index
for February).
4. Linkage and exchange rate differentials are recorded when incurred, as part of financing income or financing expenses, as
applicable.
5. Data pertaining to the ICPI and to the foreign currency exchange rates are presented below:
ICPI Exchange rate of Exchange rate of kuna Exchange
(base dollar rate of
1993) euro
As at:
31 March 2008 191.33 3.553 0.7689 5.6169
31 March 2007 184.43 4.155 0.7508 5.5343
31 December 2007 191.15 3.846 0.7744 5.6592
Change during the period: % % % %
3 months ended 31 March:
2008 0.09 (7.62) (0.71) (0.75)
2007 (0.23) (1.66) (1.04) (0.54)
Year ended 31 December 2007 3.40 (8.97) 2.07 1.71
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
E. Consolidation of financial statements
The consolidated financial statements include the financial statements of the Company and companies in which it has "control", i.e.,
the direct or indirect ability to direct the financial and operational policies of such companies, as well as the ability to derive economic
benefit from their activities (hereinafter - "Subsidiaries"). In ascertain "control", potential voting rights which are exercisable as at
the balance sheet date are taken into consideration.
The purchase cost of a subsidiary is measured at fair value of the assets given, financial instruments issued and liabilities
generated, plus the direct purchase costs. Identifiable assets, identifiable liabilities and the contingent liabilities of the acquired
company were recognized in the consolidated balance sheets at their full fair value as at the purchase date, ignoring the share of the
minority if any.
The results of operations of subsidiaries purchased or sold during the reporting periods were included in the financial statements
of the Group or deducted therefrom commencing from the date on which effective control over the acquired company is achieved or the date of
the effective sale, as relevant.
For purposes of the consolidation, the amounts included in the financial statements of consolidated companies were taken into
account after the necessary adjustments required as a result of implementation of uniform accounting policies applied by the Group. Material
intercompany balances and transactions between the companies consolidated were cancelled in the consolidated financial statements. In
addition, income on sales between companies, which has not yet been realized outside of the Group, was also cancelled.
F. Cash and cash equivalents
Cash and cash equivalents include highly liquid investments, which include short-term bank deposits (with original maturity dates of
up to three months from date of deposit) that are not restricted as to withdrawal or use, with original terms to maturity of not more than
three months.
For purposes of preparing the cash flows statements, cash and cash equivalents are not net of overdrafts at banking institutions.
G. Restricted cash
The balance of restricted cash includes amounts which the Group deposited to secure its commitments to apartment purchasers.
H. Buildings under construction
The buildings under construction are presented at the lower of cost or the estimated net usage value. Cost includes direct identifiable
costs, subcontractors costs, joint indirect costs, and capitalized credit costs. Joint indirect costs were allocated to work in process on
the basis of various allocation keys. The net realization value is the estimated sales price during the normal course of business, less the
estimated costs to completion and the estimated costs required to carry out the sale.
In cases in which a loss is expected on buildings under construction, a provision for the full expected loss is recorded on the date the
loss was anticipated, based on the best estimate of Management regarding the expected loss.
I. Reverse acquisition
As part of the merger of the Company with Verge and Sitnica, the controlling shareholders of Verge and Sitnica obtained control over the
merged entity. Since the largest of the companies included in the transaction was Verge, it was determined that from an accounting
standpoint, Verge is the accounting acquirer of the other companies. Therefore, the transaction was accounted for as a reverse acquisition,
whereby Verge acquired the Company (for information on the purchase of Sitnica, see J below).
According to IFRS 3, the following reverse acquisition principles were implemented:
- The assets and liabilities of the accounting purchaser (the legal subsidiary - Verge) were recognized in the consolidated financial
statements at their book values immediate prior to the reverse acquisition transaction.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
I. Reverse acquisition (cont.)
- In view of the fact that the accounting acquiree (the Company) constituted a stock market shell as at the date of acquisition, no
goodwill or original difference was generated in respect thereof.
- Retained earnings and other equity items of the consolidated entity following the merger are those of the accounting acquirer,
which is the legal subsidiary, Verge, immediately prior to the business combination (although the legal capital structure, i.e., type and
number of shares, remains that of the legal parent company, the Company).
- Comparative amounts of the merged entity are those of the legal subsidiary, Verge. Accordingly, there is no expression given to the
former activity of the Company as part of the financial statements.
J. Combinations of businesses under common control
The investment of the Company in Sitnica, which constitutes a combination of businesses under common control, was treated under the
"Pooling of Interests" method. The "Pooling of Interests" method will be implemented by the acquiring entity, in connection with
transactions of combinations of businesses under common control, in accordance with the following principles:
a. The assets and liabilities of the acquired entity were initially recognized in the (consolidated) financial statements of the
acquiring entity at their book values in the (consolidated) financial statements of the controlling shareholder immediately prior to the
business combination transaction (in accordance with generally accepted accounting principles).
b. The difference between the consideration of the transaction and the book value of the net assets of the acquired company is
carried directly to retained earnings.
c. The consolidated financial statements of the acquiring company reflect the financial position and the results of operations of the
acquiring company and the acquired company, which are consolidated by way of a business combination, as if a business combination had been
effected on the date on which both companies came under common control. This manner of presentation shall be reflected in both the
consolidated financial statements of the acquiring entity for the current period, and the comparative amounts for prior periods, which were
restated in order to reflect the business combination in the manner described above.
I. Fixed assets
1. Fixed asset items are presented in accordance with the cost model - fixed asset items accounted for using the cost model are
presented at cost, net of accumulated depreciation. In addition to the purchase price, cost includes all of the costs that can be directly
attributed to bringing the item to the location and condition that enable it to operate in the manner intended by Management. Fixed assets
of subsidiaries are presented at their fair value on the date they were purchased by these companies.
2. Fixed assets are removed from the books upon realization or when no future economic benefits are expected to derive from their use
or disposal. Gain or loss deriving from the disposition of fixed assets are carried to the profit and loss accounts.
3. The residual value and useful life span of fixed asset items are assessed at least at the end of each fiscal year, with any
changes being treated as changes in accounting estimates.
4. Depreciation is calculated on the straight-line method, on the basis of the estimated useful lives of the assets or of an
identifiable component thereof.
Annual depreciation rates are as follows:
%
Computers 20 - 33
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
L. Investment real estate
Investment real estate is defined as real estate (land or buildings - or part of a building - or both) held (by the owners or by a lesse
under a financing lease) for purposes of generating rental income or for increase in value or both, and not for purposes of manufacturing or
the provision of goods or services or for administrative purposes, or for sale in the ordinary course of business.
Investment real estate assets are measured subsequent to initial recognition at fair value which reflects market conditions at each
balance sheet date. Changes in fair value after initial recognition are recognized in the profit and loss accounts. Such real estate is not
depreciated. For purposes of determining fair value of investment real estate assets, the Company based itself on an appraisal carried out
by external independent appraisers who are experts in valuating real estate and who possess the necessary know-how and experience.
M. Impairment of non-monetary assets
Depreciable assets are assessed for a possible decline in value when events or circumstances occur that may indicate that the book value
of the asset is not recoverable.
When the value of an asset in the consolidated balance sheet exceeds its recoverable value, the Company recognizes a loss on decline in
value in an amount equal to the difference between the book value of the asset and its recoverable value, which is the higher of its net
selling price and its value in use (the present value of the estimated future cash flows expected to derive from the use and disposal of the
asset). A loss in respect of a decline in value that was recognized in the past is cancelable, except if it relates to goodwill, only if
changes occurred in the estimates used to determine the recoverable value of the asset, subsequent to the date on which the last loss on
decline in value was recognized.
Impairment losses are carried to the profit and loss accounts.
N. Taxes on income
Current taxes
The tax liability in respect of current taxes is based on the tax rates and tax laws in effect as at the balance sheet date, as well
as on adjustments required in connection with the tax liability in respect of prior years.
Deferred taxes
Deferred taxes are computed in respect of temporary differences between the amounts presented in the financial statements and the
amounts taken into consideration for income tax purposes.
Deferred taxes were computed using the tax rates expected to be applicable when the deferred tax balances are carried to the profit
and loss accounts, based on the tax laws in effect at the balance sheet date. The amount of the deferred taxes included in the profit and
loss accounts derives from changes occurring in the balances during the current year (except for taxes deriving from the initial recognition
of a business combination and except for taxes related to transactions that were recognized directly to retained earnings). Deferred taxes
with debit balances are recognized up to the amount of taxable income expected in the future, against which such deferred taxes will be
utilized.
In calculating deferred taxes, taxes which may apply in the event of a sale of an investment in investee companies were not taken
into account, since management intends on holding on to such investments and not realizing them in the foreseeable future.
Deferred tax assets and liabilities are presented in the balance sheet as part of long-term liabilities.
The Company may bear an additional tax liability in the event of a distribution of a dividend from certain investee companies; this
additional tax was not included in the accounts in view of the policy of the Company not to initiate the distribution of a dividend that
would generate an additional tax liability in the foreseeable future.
Due to the uncertainty in connection with the utilization of the losses of the U.S. subsidiary, no deferred tax assets were included
in the financial statements.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
O. Revenue recognition
Revenues are recognized in the financial statements if the amount of the revenue can be measured reliably and as long as the revenue is
expected to be collectible. The income is measured on the basis of the fair value of the consideration of the transaction, net of discounts
and net of returns.
Income from credit transactions containing a financing component are recognized at their present value. The difference between the fair
value of the transaction and the denominated amount of the consideration is carried to the profit and loss accounts as financing income,
using the effective interest method.
Revenue recognition is based on the following principles:
Revenues from sales of apartments
Revenues from sales of apartments, less discounts granted, are recognized on the date that the risks and yields deriving from
ownership are transferred to the customer (usually on the date legal title is transferred, but in any event, not prior to delivery), and
subject to the Company's not having any additional significant performance commitments in connection with the transaction.
P. Capitalization of credit costs
Credit costs directly attributable to the purchase or construction of qualifying assets are carried to the cost of such assets over the
construction period (the period in which actions are taken to prepare the asset for its designated purpose). A qualifying asset is an asset
under construction or preparation, the preparation of which for intended use requires a significant period of time (mainly the buildings
under construction).
Q. Loans from banking institutions and others
Short-term loans and credit received from banking institutions and others are initially recognized in the financial statements on the
basis of fair value, less direct costs. Subsequent to initial recognition, these loans are presented at amortized cost, using the effective
interest method which also takes in account direct costs. The effective interest is carried to the profit and loss accounts as part of
financing income or financing expenses.
R. Advertising costs
Advertising costs are expensed when incurred.
S. Intangible assets
Software costs are presented at cost less accumulated amortization, on the straight line method over a three-year period commencing on
the date the software is initially used. Amortization expenses are carried to the profit and loss accounts as part of general and
administrative expenses.
T. Provisions for real estate agents
The U.S. subsidiary entered into agreements with real estate agents for payments of commissions in respect of the sale of apartments in
the Las Vegas project. According to the agreements, the Company pays commissions at rates of between 3.8% - 5.8% for each apartment sold.
50% of the commission is paid to the agent upon the signing of the agreement and the other 50% is to be paid when title is transferred to
the purchaser of the apartment. As at 31 March 2008, the subsidiary has a liability in an amount of $2.4 million in respect of agreements
for the sale of apartments that had been signed as at that date. This liability is included in the balance sheet in the item entitled
"Provision for real estate agents".
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
U. Financial Assets
Financial assets subject to IAS 39 are initially recognized at fair value plus transaction costs that can be directly attributed to the
purchase or issuance, except in respect of financial assets measure at fair value through profit and loss.
Loans and receivables -
Loans and receivables are non-derivative financial instruments that are either fixed-payment or can be fixed, which are not quoted on an
active market. Loans and receivables are presented as non-current assets, except for loans and receivables whose maturity dates do not
exceed 12 months subsequent to the balance sheet date, which are presented as part of current assets. Loans and receivables are presented at
amortized cost, on the basis of the effective interest method, taking transaction costs into account. Gains or losses car carried to the
profit and loss accounts when the investment is disposed of, in the event of a provision for impairment losses or as a result of systematic
amortization.
V. Financial Assets
The fair value of financial instruments traded on active markets is based on quotes from those markets as at the relevant balance sheet
date. The fair value of financial assets not traded on active markets is based on the market value of similar financial instruments or on
other valuation methods.
W. Transactions between an entity and its controlling shareholder
Assets and liabilities in respect of which a transaction was carried out between the Company and its controlling shareholder or between
companies under common control are recognized on the date of the transaction at fair value. The difference between the fair value and the
consideration stipulated in the transaction is carried to retained earnings, less the tax effect. A debit difference is considered to be a
dividend, thereby reducing retained earnings. A credit difference constitutes an investment of the shareholders and is carried to a separate
item in shareholders' equity, "Capital reserve in respect of a transaction with a controlling shareholder".
The fair value of an asset or liability is determined on the basis of accepted valuation methods in the absence of up-to-date market price
quotes of the assets and liabilities.
In the event that a loan is granted to or received from a controlling shareholder, the loan is presented at fair value at the date of
the transaction and, in subsequent periods, at amortized cost using the effective interest method. In respect of a loan for which no
maturity date is set, and in respect of which there is a commitment on the part of the shareholder not to demand repayment of the loans for
a number of years, the fair value is computed on the basis of management estimate regarding the first possible repayment period. In the
event that the first repayment date cannot be estimated, the loan shall be considered as having been granted or received for a period of one
year, and the fair value shall be determined yearly on the basis of the present value of the expected cash flows from the loan, discounted
at the Company's interest rate each year.
X. Earnings (loss) per share
Earnings (loss) per share are computed by dividing the income that is distributable to the ordinary shareholders by the weighted average
number of ordinary shares in circulation during the period.
For purposes of computing the diluted earnings (loss) per share, the income that is distributable to the ordinary shareholders and the
weighted average of ordinary shares in circulation are adjusted for the possible impact of potential ordinary shares, which may derive from
the exercise of convertible financial instruments (option warrants and convertible debentures) which have a dilutive effect.
For purposes of computing earnings per share, the share of the Company in the income of investee companies is computed on the basis of the
product of the earnings per share of the investee companies and the number of shares held by the Company.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
Y. Provisions for contingent liabilities
The Company includes in its financial statements provisions for contingent liabilities in respect of legal suits when the Group has a
legal or implied commitment to bear economic resources as a result of past events, it is expected (more reasonable that not) that it will
have to use economic resources to settle the commitment, and the amount of the commitment can be reliably estimated.
A provision that meets the recognition criteria is measured at the present value of the best possible estimate of Management in
connection with the expected cash flows that will be needed to settle the commitment as at the balance sheet date. The discount rate used to
compute present value reflects market assessments regarding the value of time in respect of the commitment.
Z. Summary of new financial reporting standards and clarification issued but not yet in effect, relevant to the operations of the
Company
1. IFRS 8 - Operating Segments
IFRS 8 deals with operating segments and replaces IAS 14, Segment Reporting. The Standard applies to companies, the shares of which
are listed for trade or are in the process of being listed for trade on any stock exchange.
The Standard stipulates that an entity provide segment reporting based on analyses of Company Management and on internal company
reports (the "management approach"), in order to supply more relevant information to shareholders and users of financial statements -
information on the position of the Company from the viewpoint of management. According to the Standard, an entity shall make disclosure of
information that will enable users of the financial statements to assess the nature and financial consequences of the business activities in
which the Company engages and the economic environment in which it operates.
In addition, information shall be provided in connection with revenues deriving for the products or services of the entity (or
groups of similar products or services), the policies from which the revenues or assets derive, and major customers, without taken into
consideration whether or not management uses such information in making its operational decisions.
The Standard shall apply in respect of annual financial reporting periods commencing on or after 1 January 2009. Early
implementation is recommended with disclosure of that fact required. The provisions of the Standard shall be applied retroactively, by way
of restatement, unless it is impractical to do so.
In the opinion of the Company, the impact of the new Standard is not expected to be material.
2. IAS 23 (Revised) - Credit Costs
IAS 23 (Revised) requires the capitalization of credit costs that are attributed directly to the purchase, construction or self
manufacturing of a qualifying asset. A qualifying asset is one that requires a significant period of time to prepare it for its intended use
or sale. The Standard does not permit the immediate expensing of financing costs of a qualifying asset, as was the accepted practice in the
past.
The Standard shall apply to the financial statements of periods commencing on or after 1 January 2009 and requires retrospective
adoption. Early implementation is allowed with disclosure of that fact required.
In view of the fact that the Company's policy is to capitalize credit costs to qualifying assets, in the opinion of the Company, the
revised Standard is not expected to affect the results of operations, financial position and cash flows of the Company.
3. IAS 32, Financial Instruments: Presentation (Revised) and IAS 1, Financial Statement Presentation (Revised)
According to the revisions of IAS 32 and IAS 1 (hereinafter - the "Standards"), certain financial instruments that are puttable, as
well as liabilities generated as a result of liquidation, have to be classified as equity, in the event that a number of criteria are met.
In addition, the entity is required to provide appropriate disclosure of puttable financial instruments that are classified as equity.
The revised Standards shall apply to annual financial reporting periods commencing on or after 1 January 2009. Early adoption is
allowed with disclosure of that fact required.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
Z. Summary of new financial reporting standards and clarification issued but not yet in effect, relevant to the operations of the
Company (cont.)
4. IAS 1 (Revised) - Financial Statement Presentation
IAS 1 (Revised) mandates the presentation of a separate Report of Comprehensive Income, as part of which the entity must present, in
addition to the net income for the period, all of the other items that were carried directly to shareholders' equity and which do not derive
from transactions with the shareholders of the Company. Among other things, the following items must be presented: translation differences
in respect of the financial statements of foreign operations, amounts carried to a revaluation reserve in respect of the revaluation of
fixed asset items, fair value adjustments in respect of assets classified as available for sale, deferred gains or losses in respect of
derivative financial instruments designed to hedge cash flows, etc., and the tax effects in respect of such items. The revised Standard
permits the presentation of comprehensive income items together with the profit and loss accounts, as part of a report entitled "Report on
Comprehensive Income". Items deriving from transactions with the Company's shareholders by virtue of the relationship between the Company and its shareholders (e.g., a share issue, dividends,
etc.) shall be presented as part of the statement of changes in shareholders' equity. In addition, the statement of changes in shareholders'
equity shall present a line summing up all of the items included in the Report on Comprehensive Income, providing proper allocation between
the Company and the minority shareholders.
The revised Standards shall apply to financial statements of periods commencing on or after 1 January 2009. Early implementation is
allowed with disclosure of that fact required.
5. IFRS 3 (Revised) - Business Combinations
IFRS 3 (Revised) sets out the principles for the accounting treatment of business combinations. The Standard sets out, among other
things, the rules of measurement of contingent consideration in business combinations, which shall be measured as a derivative financial
instrument. Transaction costs, directly connected to business combinations, shall be immediately expensed.
Minority rights shall be measured at the date of the business combination in an amount equal to their share in the fair value of the assets
(including goodwill), liabilities and contingent liabilities of the acquired entity.
In respect of business combinations in which control is achieved after a number of purchases (acquisition in stages), the assets,
liabilities and contingent liabilities of the acquired company shall be measured at the fair value at the date that control was achieved,
with the difference carried to the profit and loss accounts.
The revised Standard shall apply to annual financial reporting periods commencing on or after 1 July 2009. Early implementation is allowed,
on condition that it is accompanied by the early adoption of IAS 27 (Revised).
6. IAS 27 (Revised) - Consolidated and Separate Financial Statements
IAS 27 (Revised) sets out the principles of accounting treatment in consolidated and separate financial statements. Among other
things, the Standard stipulates that transactions with minority shareholders, as part of which the Company holds control in a subsidiary
prior to and following the transaction, shall be accounted for as equity transactions.
When control is lost, the remaining investment (including goodwill) shall be adjusted to fair value as at that date and the increase or
decrease as a result of the remeasurement shall be included in the gain and loss deriving from the realization.
The share of the minority in the losses of a subsidiary, which exceed its share in shareholders' equity, shall be allocated to the minority,
ignoring its commitments and its ability to carry out additional investments in the subsidiary.
The revised Standard shall be applied retroactively except for a number of cases in which it is to be applied prospectively, in respect of
annual financial reporting periods commencing on or after 1 July 2009. Early implementation is allowed, on condition that it is accompanied
by the early adoption of IAS 3 (Revised).
At present, Group Management is unable to estimate the impact of the implementation of the standard on its financial position and
the results of its operations.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
AA. Convenience translation
The financial statements at 31 March 2008 (including the profit and loss accounts and the balance sheets) have been translated into
Sterling using the representative exchange rate at that date (� 1 = NIS 7.0639). The translation has been made solely for the convenience of
the reader. The amounts presented in these financial statements should not be construed to represent amounts receivable or payable in
Sterling or convertible into Sterling, unless otherwise indicated in these statements.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The accounting estimates and assumptions used in the preparation of the financial statements are assessed on a regular basis and are
based on past experience and other factors, including future events, the occurrence of which is expected to occur with a reasonable degree
of certainty, in view of the current circumstances. The Group makes assumptions and estimates regarding future occurrences. By their very
nature, it is rare that the accounting estimates will be identical with actual results. The estimates and assumptions that contain the
greatest exposure to material changes in amount of assets and liabilities in the subsequent fiscal year are as follows:
A. Taxes on income and deferred taxes
* The Group is taxed in a larger number of jurisdictions and, accordingly, it has to use a significant amount of discretion in order
to determine its total provision for income taxes. The Group conducts many transactions, the final tax liability thereof is uncertain. The
Group records provisions in its books based on its assessments regarding the probability that it will have to make additional tax payments
in respect of these transactions. When the final tax liability determined by the tax authority is different than the tax liability recorded
in the books in prior periods, the difference will be carried to the profit and loss accounts in the period in which the final tax
assessment is made by the tax authorities.
* The Group records deferred tax assets and liabilities on the basis of the differences between the carrying values of the assets and
liabilities and their amounts taken into account for tax purposes. Group Management regularly assesses the recoverability of the deferred
tax assets included in its accounts, on the basis of historical taxable revenues, forecasted taxable revenues, the timing of the expected
reversal of the temporary differences and the implementation of tax planning strategy.
B. Provision for contingent liabilities
Provisions for contingent liabilities in respect of litigation are recorded on the books of the Group, on the basis of the
assessment of the Group's legal counsel and the discretion of Group Management regarding the probability that cash flows will be used to
settle liabilities, and on the basis of the estimate made by Management in respect of the present value of the expected cash flows that will
be required to settle the existing liabilities.
C. Investment real estate
Investment real estate assets are measured at fair value that reflects market conditions at each balance sheet date. Changes in fair
value are carried to the profit and loss accounts. The fair value of investment real estate assets is based on valuations performed by
independent outside appraisers who possess recognized professional experience and extensive experience in connection with investment real
estate of this type. The economic valuations are based on a method of comparing the market value of the assets against similar assets having
similar characteristics in similar transactions.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 4 - NON-COMPLIANCE WITH THE PRESERVATION RULES OF THE TEL AVIV STOCK EXCHANGE
On 14 January 2008, the Company was notified by the Tel Aviv Stock Exchange that, based on data from 31 December 2007, it was not in
compliance with the preservation rules, due to the fact that the percentage of shares of the Company held by the public as at 31 December
2007 amounted to 9.5%, lower than the required 15%.
The Company was given notice as to its non-compliance with the preservation rules and was granted an extension of 6 months, until 30
June 2008, to comply with the rules.
NOTE 5 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
A. Investment agreement with Trafalgar
In January 2008, the Company entered into a Committed Equity Facility agreement with an international investment fund, Trafalgar
Capital Specialized Investment Fund (hereinafter - "Trafalgar") (hereinafter - the "Investment Agreement" or "CEF"), whereby Trafalgar
undertook to invest in the capital of the Company an amount of up to NIS 45,685 thousand over a three-year period, in return for an
allotment of ordinary shares of the Company. The major principles of the agreement were as follows:
1. The investment in the capital of the Company by Trafalgar will be done in stages, as required by the Company from time to time.
2. Against every amount invested by Trafalgar, the Company will allot to Trafalgar ordinary shares of the Company at a price equal to
94% of the average stock market price of the shares of the Company during the five days following the demand notification of the Company
that it requires funds pursuant to the investment agreement.
3. Unless agreed upon otherwise with Trafalgar, every amount invested shall be limited in such a way that the aggregate investment
amount during any given calendar week does not exceed the lower of the following: (1) an amount that grants Trafalgar an allotment of shares
equal to 15% of the market trading volume in the Company's shares during the five consecutive trading day period preceding the investment
amount demanded by the Company; or (2) an amount that grants Trafalgar an allotment of the quantity of shares equal to 2.99% of the total
number of shares issued as of that date.
4. In return for its commitment to invest in the Company pursuant to the CEF, Trafalgar is entitled to a payment of $1,500 thousand,
to be paid by way of an allotment of shares (hereinafter - the "Remuneration Shares"), to be carried out in stages, as detailed below:
Part of the remuneration shares will be allotted to ATW Holdings Ltd. (hereinafter - "ATW") which acted as a broker in the
transaction between the Company and Trafalgar.
Out of the remuneration shares, a quantity of 69,375,000 shares will be allotted on the basis of the market share price at the date
of the signing of the investment agreement (the "Proposed Shares").
The value of the proposed shares constitutes 45% - 55% of the total value of the remuneration shares to which Trafalgar is entitled.
Of these shares, a quantity of up to 50,454,546 shares will be allotted to Trafalgar and a quantity of 18,920,454 shares will be allotted to
ATW, subject to receipt of approvals and at the dates set out below.
The balance of the remuneration shares will be allotted between Trafalgar and ATW as set out in the investment agreement, piecemeal,
according to the timetable and subject to the terms set out in the investment agreement, as detailed below. The Company will issue an
immediate filing regarding the allotment to Trafalgar and/or ATW which will be done on account of the remuneration shares, as above.
According to the investment agreement, remuneration shares will be allotted to Trafalgar and ATW as a commission, in a total amount
of $1,500 thousand, at prices and at dates as follows:
- ATW will be allotted shares of the Company at an amount equal to 15% of the commission (i.e., $225 thousand), at a weighted average
market share price on the date of the signing of the investment agreement - NIS 0.04 per share;
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 5 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (cont.)
A. Investment agreement with Trafalgar (cont.)
4. (cont.)
- At the earliest possible time, Trafalgar will be allotted shares of the Company at an amount equal to 20% of the commission (i.e.,
$300 thousand), at a weighted average market share price on the date of the signing of the investment agreement - NIS 0.04 per share. These
shares are scheduled to be sold to Emvelco, pursuant to an agreement signed between Emvelco and Trafalgar, as described below:
At the date of approval of the issuance of a shelf prospectus by the Company, Trafalgar will be allotted shares of the Company at an
amount equal to 20% of the commission (i.e., $300 thousand), at a weighted average market share price on the date of the signing of the
investment agreement - NIS 0.04 per share. However, if the Company does not receive approval for the issuance of the shelf prospectus,
whereby Trafalgar will be permitted to sell its shares without restriction, it will be allotted at the beginning of May 2008 half of the
quantity of shares as above (i.e., shares at a value of $150 thousand at a share price of NIS 0.04). These shares are also scheduled to be
sold to Emvelco pursuant to the agreement between Emvelco and Trafalgar, as described below. Upon the approval of the issuance of a shelf
prospectus, Trafalgar will be immediately allotted the second half of the aforementioned shares;
Within 6 months of the later of the date of the signing of the investment agreement or the receipt of approval of the issuance of
the shelf prospectus, Trafalgar will be allotted shares of the Company at a value equal to 10% of the amount of the commission (i.e., $150
thousand), at a weighted average market price of the share during the week that preceded the date of the allotment. However, if the Company
does not obtain approval for the issuance of a shelf prospectus whereby Trafalgar will be permitted to sell its shares without restriction,
it will be allotted at the beginning of August 2008 half of the quantity of shares as above (i.e., shares at a value of $75 thousand at the
aforementioned share price). These shares are also scheduled to be sold to Emvelco pursuant to the agreement between Emvelco and Trafalgar,
as described below. Upon the approval of the issuance of a shelf prospectus, Trafalgar will be immediately allotted the second half of the
aforementioned shares;
Within 10 months of the later of the date of the signing of the investment agreement or the receipt of approval of the issuance of
the shelf prospectus, Trafalgar will be allotted shares of the Company at a value equal to 10% of the amount of the commission (i.e., $150
thousand), at a weighted average market price of the share during the week that preceded the date of the allotment. However, if the Company
does not obtain approval for the issuance of a shelf prospectus whereby Trafalgar will be permitted to sell its shares without restriction,
it will be allotted at the beginning of August 2008 half of the quantity of shares as above (i.e., shares at a value of $75 thousand at the
aforementioned share price). These shares are also scheduled to be sold to Emvelco pursuant to the agreement between Emvelco and Trafalgar,
as described below. Upon the approval of the issuance of a shelf prospectus, Trafalgar will be immediately allotted the second half of the
aforementioned shares;
At the end of each month during the 10 month period commencing from the date of the signing of the investment agreement, ATW will be
allotted shares of the Company at a value equal to 25% of the amount of the commission (i.e., $375 thousand), at a weighted average market
price of the share during the week that preceded the date of the allotment. However, if the Company does not obtain approval for the
issuance of a shelf prospectus whereby ATW will be permitted to sell its shares without restriction, it will be allotted over the period
half of the quantity of shares as above (i.e., shares at a value of $187.5 thousand at the aforementioned share price). These shares are
also scheduled to be sold to Emvelco pursuant to the agreement between Emvelco and Trafalgar, as described below. Upon the approval of the
issuance of a shelf prospectus, ATW will be immediately allotted the second half of the aforementioned shares;
5. The Company undertook to obtain all of the approvals for the allotment, as required by law, including for purposes of registering
the allotted shares for trade.
6. Trafalgar will be entitled to receive from the Company a commission of 4% of all investment amounts demanded from it by the
Company, which commission shall be deducted from any investment amount transferred to the Company pursuant to the agreement.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 5 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (cont.)
A. Investment agreement with Trafalgar (cont.)
7. A condition for the performance of any investment by Trafalgar is that the Company issue a shelf-prospectus whereby Trafalgar is
entitled to sell the shares it is allotted under the agreement during the course of trading on the stock market. The Company intends on
taking the steps to issue a shelf-prospectus on the basis of its 31 December 2007 financial statements. Trafalgar entered into an agreement
with Emvelco Corporation, one of the controlling shareholders of the Company, whereby in the event that the Company is unable to issue a
shelf-prospectus, Emvelco will sell Trafalgar shares from the available-for-trading shares held by Emvelco, of a quantity that is identical
to the quantity of the shares to be allotted to Trafalgar, against the shares to be allotted to Trafalgar which will be transferred to the
ownership of Emvelco.
8. Notwithstanding the above, it was agreed between the parties that, in the event that the shelf-prospectus is issued by the Company
no later than 30 June 2008, the discount rate to which Trafalgar will be entitled from the price of the share (as mentioned in 2 above) will
be 5% (instead of 6%) and the commission rate due Trafalgar as per item 6 above will be 3% (instead of 4%).
9. Trafalgar undertakes not to sell the shares of the Company short.
Concurrent with the signing of the investment agreement, as above, the Company entered into a loan agreement with Trafalgar whereby
Trafalgar would lend the Company an amount of $500 thousand, bearing interest at an annual rate of 8.5% to be repaid in installments in the
form of an allotment of shares in accordance with the mechanism set out in the investment agreement described above, until 30 April 2009.
Alternatively, the amount of the loan will be repaid in equal installments commencing in July 2008 through April 2009. Trafalgar shall be
entitled to a commission of 10% of each amount of the loan that is repaid in cash. The Company has the right to repay part of the loan in
cash and the rest of the loan in shares, in accordance with the CEF.
In January 2008, the Company received the aforementioned loan.
Further to the signing of the investment agreement with Trafalgar, the board of directors of the Company decided to allot Trafalgar
69,375,000 ordinary shares of the Company, no par value each (the "offered shares") which, following the allotment, will constitute 5.22% of
the capital rights and voting rights in the Company, both immediately following the allotment and fully diluted.
The offered shares will be allotted piecemeal, at the following dates:
18,920,454 shares will be allotted immediately following receipt of approval of the stock exchange to the listing for trade of the
offered shares.
25,227,273 of the offered shares will be allotted immediately following receipt of the approval of the shelf prospectus by the
Israel Securities Authority. However, in the event that such approval is not forthcoming by the beginning of May 2008, Trafalgar will be
allotted at that date only 12,613,636 shares.
On 29 April 2008, the agreement between Emvelco and Trafalgar was revised, with the consent of both parties, whereby the share sale
agreement will not apply to the 69,375,000 ordinary shares offered to Trafalgar and to ATW.
25,227,273 of the offered shares will be allotted immediately following receipt of all of the necessary approvals in order for the
offered shares to be swapped on 30 April 2008 against a quantity of shares equal to those held by Emvelco Corp. at that same date.
In respect of the commitment of the Company to allot shares in a quantity that has not yet been determined (in consideration of $625
thousand), the Company recorded a liability in its financial statements as at 31 March 2008 in an amount of NIS 2,221 thousand against a
reduction in shareholders' equity in the same amount.
As at the date of the preparing of the financial statements, no shares have been allotted to Trafalgar.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 5 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (cont.)
B. Agreement for the management of the project in Las Vegas
In January 2008, the subsidiary, Verge Living Corporation, entered into an agreement with TWG Consultants LLC (a third party,
unrelated to the Company), a project management company operating in Las Vegas (hereinafter - "TWG"), whereby TWG will provide management,
consultancy, representation and control services in connection with the Verge project in Las Vegas (hereinafter - the "Project"), during the
entire duration of the project, including handling the various aspects involving the general contractor, professional consultants, and the
authorities, will cost the project and will supervise the performance of its budget, monitor the project timetables, supervise the carrying
out of various tasks involving the project and assist in the bookkeeping of the project.
In return for the services to be provided by TWG under the agreement, it will be entitled to the following amounts:
1. Reimbursement of expenses, including the salary of an engineer and/or supervisor as required and an administrative employee in a
part-time position (at a total cost estimated at $12,500 a month) and reimbursement of office overhead expenses up to an amount of $20,000 a
month.
2. A monthly payment of $24,750.
3. An additional bonus of the higher of $1,000,000 or 5% of the earnings before taxes, depreciation and amortization (EBTDA). The
bonus will be paid on the basis of the progress of the work, commencing on the date that the accompanying loan is granted to the project,
with the final amount to be paid upon receipt of the temporary approvals for occupancy of 85% of the units in the project.
The term of the agreement was set at the earlier of 5 years or 6 months prior to the completion of the project. Notwithstanding the
above, each of the parties is entitled to terminate the agreement for any reason whatsoever, upon advance notice of 30 days.
C. Litigation
Verge, a subsidiary of the Company, has been conducting legal proceedings against three different parties, as follows:
1. In December 2007, American LLC (hereinafter - "American"), which served as the company listing agents, filed a complaint in
Bankruptcy Court (as American entered in 2007 into Chapter 11 in the Nevada Bankruptcy Court) and an Order to Show Cause to Require Turnover
of Funds.
In January 2008, Verge filed an answer denying wrong doing as well as a counterclaim. As of 31 December 2007, the American balance
on the books of Verge included an amount of $49 thousand as a receivable (for the un-used portion of advances) and approximately $56,000 as
credit for fees and expenses.
The Court set the trial for early January 2009, and also set a settlement conference for 31 July 2008.
2. On 21 November 2007 LM Construction filed a demand for an arbitration proceeding against Verge in connection with amounts
allegedly due for general contracting services provided by them during the construction of Verge's Sales Center. Verge agreed to enter into
arbitration, denies any wrong doing and filed a counterclaim for damages.
The amount of the suit is approximately $68 thousand and as part of the Group's conservative approach is included in accounts
payable and credit balances in the consolidated balance sheet.
3. On 25 April 2008, an attachment was registered in an amount of $1.2 million by a former consultant of Verge, without presenting
any of the documents needed to prove his demands. On 7 May 2008, the consultant notified Verge of his intention to register an additional
attachment in an amount of $7.35 million. According to Verge, by registering the attachments, the consultant caused damage which may very
well endanger the entire project. Therefore, Verge intends on filing a countersuit in respect of the false claim and the resultant damages.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 5 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (cont.)
D. Sub-prime crisis
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 have an impact on the ability of the Verge subsidiary to procure
the financing required to complete its construction project and on the terms of the financing, if procured, and it may also impact in the
ability of the customers of the Company to procure mortgages, if necessary, and on the terms under which the mortgages will be obtained.
NOTE 6 - INTERESTED PARTIES
A. Balances of interested parties
Convenience translation
into � (Note 2)
31 March 31 December 31 March
2008 2007 2007 2008
NIS' 000 NIS' 000 NIS' 000 �' 000
(Unaudited) (Audited) (Unaudited)
Accounts payable and credit 373 - 160 53
balances
______ ______ ______ ______
______ ______ ______ ______
Loans received from interested 8,850 32,110 7,454 1,252
parties (*)
______ ______ ______ ______
______ ______ ______ ______
(*) The balance of loans from interested parties is comprised of the following two components:
1. A loan in an amount of $1,987 thousand (NIS 7,060 thousand) granted by Emvelco Corporation, the controlling shareholder in the
Company, to Verge. The loan includes an amount of $1,640,000 which Emvelco Corporation borrowed from a third party in order to provide Verge
with capital for its continued operations.
As of 31 December 2007, the balance of the loan payable of Verge to Emvelco amounted to $773 thousand. The two parties agreed to an
extension of the loan agreement between them, until Verge is able to repay Emvelco, with the target date being 31 December 2008. Interest
continues to accrue on the loan at a rate of 12% per annum.
2. A loan in an amount of Kuna 2,334 thousand (NIS 1,790 thousand) does not bear interest and is Kuna - denominated. The repayment
date has not yet been determined.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 6 - INTERESTED PARTIES (cont.)
B. Transactions with interest parties
Convenience
translation
into � (Note 2)
Three month period ended 31 March Year ended Three month period
31 ended 31 March
December
2008 2007 2007 2008
NIS' 000 NIS' 000 NIS' 000 �' 000
(Unaudited) (Audited) (Unaudited)
Management fees to interested 213 - 160 30
parties
______ ______ ______ ______
______ ______ ______ ______
Interest expense in respect of 580 750 3,740 82
loans from interested parties
(part of which was capitalized
to the inventory of buildings
under construction)
______ ______ ______ ______
______ ______ ______ ______
C. Benefits to interested parties
Convenience
translation
into � (Note 2)
Number of Three month period ended 31 March Year ended Three month period
individuals in 31 ended 31 March
December
2008 2008 2007 2007 2008
NIS' 000 NIS' 000 NIS' 000 �' 000
(Unaudited) (Audited) (Unaudited)
Interested parties who render
services to the Company (*)
Vice President and director 1 107 - 80 15
CEO and director 1 106 - 80 15
Fees of directors who are not 3 - - 41 -
employed by the Company
(*) Including through management companies owned by them.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 7 - GEOGRAPHIC SEGMENTS - CONSOLIDATED
1. Profit and loss data
Three month period ended 31 March 2008
(unaudited)
Israel (1) USA (2) Croatia (3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Segmental results (661) (1,001) (50) (1,712)
Financing income 204 - - 204
Financing expenses (452) - - (452)
Tax benefit - - 10 10
______ ______ ______ ______
Loss for the period (909) (1,001) (40) (1,950)
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
Three month period ended 31 March 2008
(unaudited)
Israel(1) USA(2) Croatia(3) Total Consolidated
�' 000 �' 000 �' 000 �' 000
Segmental results (94) (141) (7) (242)
Financing income 29 - - 29
Financing expenses (64) - - (64)
Tax benefit - - 1 1
______ ______ ______ ______
Loss for the period (129) (141) (6) (276)
______ ______ ______ ______
______ ______ ______ ______
2. Other data
31 March 2008
(unaudited)
Israel (1) USA (2) Croatia (3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Segmental assets 403 42,494 70,011 112,908
______ ______ ______ ______
______ ______ ______ ______
Segmental liabilities 5,041 33,384 47,286 85,711
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
31 March 2008
(unaudited)
Israel(1) USA(2) Croatia(3) Total Consolidated
�' 000 �' 000 �' 000 �' 000
Segmental assets 57 6,016 9,911 15,984
______ ______ ______ ______
______ ______ ______ ______
Segmental liabilities 714 4,726 6,694 12,134
______ ______ ______ ______
______ ______ ______ ______
(1) Management and head office
(2) Constitutes a real estate promotion segment
(3) Constitutes an investment real estate segment
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 7 - GEOGRAPHIC SEGMENTS - CONSOLIDATED (cont.)
2. Other data (cont.)
Three month period ended 31 March 2008
(unaudited)
Israel (1) USA (2) Croatia (3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Purchase cost of long-term - - 397 397
general assets
______ ______ ______ ______
______ ______ ______ ______
Depreciation and amortization - 11 - 11
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
Three month period ended 31 March 2008
(unaudited)
Israel (1) USA (2) Croatia (3) Total Consolidated
�' 000 �' 000 �' 000 �' 000
Purchase cost of long-term - - 56 56
general assets
______ ______ ______ ______
______ ______ ______ ______
Depreciation and amortization - 2 - 2
______ ______ ______ ______
______ ______ ______ ______
1. Profit and loss data
Year ended 31 December 2007
(audited)
Israel (1) USA (2) Croatia (3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Change in fair value of - - 18,294 18,294
investment real estate
______ ______ ______ ______
______ ______ ______ ______
Segmental results (964) (31,199) 17,813 (14,350)
Financing income 33 - - 33
Financing expenses (109) (1,722) - (1,831)
Taxes on income - - (3,541) (3,541)
______ ______ ______ ______
Income (loss) for the year (1,040) (32,921) 14,272 (19,689)
______ ______ ______ ______
______ ______ ______ ______
2. Other data
31 December 2007
(audited)
Israel(1) USA(2) Croatia(3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Segmental assets 1,155 44,600 69,414 115,169
______ ______ ______ ______
______ ______ ______ ______
Segmental liabilities 850 31,859 50,524 83,233
______ ______ ______ ______
______ ______ ______ ______
(1) Management and head office
(2) Constitutes a real estate promotion segment
(3) Constitutes an investment real estate segment
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 7 - GEOGRAPHIC SEGMENTS - CONSOLIDATED (cont.)
2. Other data (cont.)
Year ended 31 December 2007
(unaudited)
Israel(1) USA(2) Croatia(3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Purchase cost of long-term - 42 8,022 8,064
general assets
______ ______ ______ ______
______ ______ ______ ______
Depreciation and amortization - 45 - 45
______ ______ ______ ______
______ ______ ______ ______
1. Profit and loss data
Three month period ended 31 March 2007
(unaudited)
Israel (1) USA (2) Croatia (3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Segmental results and loss for - (5,117) - (5,117)
the period
______ ______ ______ ______
______ ______ ______ ______
2. Other data
31 March 2007
(unaudited)
Israel(1) USA(2) Croatia(3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Segmental assets - 26,234 - 26,234
______ ______ ______ ______
______ ______ ______ ______
Segmental liabilities - 33,406 - 33,406
______ ______ ______ ______
______ ______ ______ ______
Three month period ended 31 March 2007
(unaudited)
Israel(1) USA(2) Croatia(3) Total Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Purchase cost of long-term - 38 - 38
general assets
______ ______ ______ ______
______ ______ ______ ______
(1) Management and head office
(2) Constitutes a real estate promotion segment
(3) Constitutes an investment real estate segment
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 8 - SUBSEQUENT EVENTS
A. Consolidation of share capital
On 6 April 2008, it was decided to convene a special meeting of the shareholders of the Company for 14 May 2008. On the agenda of
the meeting was a decision to consolidate and redivide the share capital of the Company such that each 100 existing shares of the Company's
registered and issued capital of the Company will be consolidated into one share. At the special meeting which took place on 14 May 2008, it
was resoved to consolidate the share capital and it was further decided that the effective date of the consolidation is 21 May 2008 and that
commencing from 22 May 2008, the shares would be traded as the consolidated shares, as above.
B. Loan from a controlling shareholder
Mr. Shalom Atia, a controlling shareholder of the Company, will place at the disposal of Sitnica credit in an amount of up to EUR1.2
million, as a bridge loan. The bridge loan will be euro-denominated and shall bear no interest whatsoever. The loan will be returned on the
demand of Mr. Shalom Atia, within 10 days from the date of such demand.
The agreement regarding the placement of the bridge loan is solely for the benefit of the Company. Sitnica requires the bridge loan
to make payments on account of the consideration of the property in Samobor, to the third parties from which the property was purchased, in
accordance with the purchase agreement. At present, Sitnica has no liquid assets to enable it to make such payments and it has to rely on
external financing. Financing through the bridge loan from the controlling shareholder is the least expensive alternative and does not place
on Sitnica any restriction or commitment, except to repay the principal of the loan.
C. Negotiations regarding the sale of the shares of a subsidiary
Subsequent to the balance sheet date, the Company announced that it was in the advanced stages of negotiations with the Porr Group,
a large group of companies with headquarters in Austria, engaged in various fields of real estate in Eastern and Central Europe. The
negotiations are expected to lead to an agreement whereby a company in the Porr Group will purchase half of the holdings in Sitnica, a
company incorporated in Croatia, which owns property in Samobor. The Porr Group will assist the Company in obtaining the financing necessary
to complete the purchase of the property in Samobor.
D. Update of buildings under construction
According to the purchase contracts of the apartment units of the Las Vegas project, Verge undertook to complete most of the work no
later than 24 months after the signing of the contracts and to transfer possession of the apartments within 30 days after that date.
The time limitation set out in these agreements complies with the requirements of U.S. law, whereby agreements for the sale of
apartment units that stipulate a time limit of up to 24 months are exempt from obtaining the approval of the U.S. Department of Housing and
Urban Development (hereinafter - the "H.U.D.").
A significant portion of the contracts were signed in June 2007, when Verge expected that it would complete the construction by the
end of the time limit. Since the time limit was included in the contracts, no request was submitted for H.U.D. approval.
At present, Verge foresees that it will not be able to complete the construction by the end of the time limit. Therefore, Verge
commenced a process of changing the purchase agreements so as to exclude any time limit. Accordingly, Verge intends on submitting the
revised agreements and the rest of the documents related to the Las Vegas project, for their approval by the H.U.D. Verge Management
notified the Company that it expects to receive the approval within six months following the preparation of the financial statements.
After receipt of the approval, Verge intends on contacting the apartment purchasers to offer them the option of signing the
alternative agreements without any time limit. The new agreements are contingent upon the consent of the apartment purchasers and Verge
Management foresees that 20% of the apartment purchasers will not elect to sign the alternative agreements and will terminate their
agreements with Verge.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 8 - SUBSEQUENT EVENTS (cont.)
E. Update regarding investment real estate
In accordance with the purchase agreements in respect of the property in Croatia, payment dates for the consideration not yet paid
were set for March through May 2008.
Regarding 18 plots, covering a total area of 52,073 square meters, Atia Project notified the Company that it took advantage of
provisions in the purchase agreements regarding such plots and extended the payment date for the balance of the consideration, in a total
amount of NIS 30,052 thousand, for a period of six months, to October - November 2008.
Regarding 2 plots, covering a total area of 9,709 square meters, Atia Project reached oral agreements with the sellers of the plots
whereby the payment date for the balance of the consideration, an amount of NIS 3,660 thousand, was postponed until the end of June 2008.
As at the date of the preparation of the financial statements, Sitnica had paid a total of NIS 2,297 thousand in respect of the 5%
transfer tax on the total purchase consideration.
As at the date of the preparation of the financial statements, Sitnica had paid a total of NIS 7,390 thousand in respect of the
balance of the consideration for 2 plots covering an area of 12,919 square meters and the ownership rights to these plots were registered in
its name.
The unpaid balance of the consideration in respect of the asset in Samobor bears interest (in kuna) at a rate of 15% per annum.
In addition to the above, in April and May 2008, Sitnica entered into agreements to purchase four additional plots, adjacent to the
asset in Samobor, covering an area of 7,492 square meters, for a total amount of NIS 5,378 thousand (not including transfer tax of 5% of the
consideration). At the time of the signing of the agreements, Sitnica paid the owners of the properties insignificant amounts, with the
major part of the consideration as per the agreements to be paid at dates in the months of June and July 2008.
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)
In accordance with Note 2A, the interim condensed consolidated financial statements of the Group as at 31 March 2008 and for the
three-month period then ended (hereinafter - the "Interim Financial Statements") are presented in accordance with IFRS, as per the
provisions of International Accounting Standard 34, Interim Financial Reporting. The transition date for implementation of IFRS is 1 January
2007 and the balance sheet as at that date is the opening balance sheet.
The consolidated financial statements of the Group for the fiscal year ended December 31, 2008 will be the first annual financial
statements of the Group presented in accordance with IFRS. These interim financial statements ate the first financial statements of the
Company presented in accordance with IFRS, as per the provisions of IAS 34.
For purposes of the initial implementation of IFRS, the Group applied IFRS 1, Initial Adoption of IFRS.
We present below a reconciliation of reporting under accounting principles generally accepted in Israel and reporting under IFRS:
The data according to IFRS presented in these financial statements and in this note are different in certain items from those presented
in the adjustment note to IFRS which was included in the Company's financial statements for 2007. The following are the major changes:
* A correction to the Group's income for 2007 as a result of the recording of a liability to pay real estate agents as of 31 December
2007 in an amount of NIS 9,191 thousand, and the recording of additional selling expenses in an amount of NIS 9,823 thousand. The difference
of NIS 632 thousand was carried to a capital reserve for translation differences.
* The splitting up of the financing component into financing income and financing expenses in the profit and loss accounts.
* A correction to the Group's 2007 income as a result of the inclusion of the Company's solo activity data commencing only from the
date of the allotment of the shares to Verge.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS
Balance sheets and shareholders' equity (deficit) as at 1 January 2007
1 January 2007
Israeli GAAP Impact of transition IFRS
Note NIS' 000 NIS' 000 NIS' 000
(Audited)
A S S E T S
Current Assets
Cash and cash equivalents A - 131 131
Accounts receivable and debit A - 1,082 1,082
balances
Buildings under construction A - 21,480 21,480
Assets attributed to A 37,710 (37,710) -
discontinued operations
_______ _______ _______
37,710 (15,017) 22,693
----------- ----------- -----------
Non-Current Assets
Fixed assets, net A - 42 42
Intangible assets A - 97 97
_______ _______ _______
- 139 139
----------- ----------- -----------
_______ _______ _______
Total Assets 37,710 (14,878) 22,832
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Accounts payable and credit A - 1,931 1,931
balances
Liabilities attributed to A 80,231 (80,231) -
discontinued operations
_______ _______ _______
80,231 (78,300) 1,931
----------- ----------- -----------
Long-term Liabilities
Loans from Interested Parties A - 23,064 23,064
----------- ----------- -----------
Shareholders' Equity (Deficit)
Share capital and premium 113,890 (113,045) 845
Capital reserves 327 (327) -
Accumulated deficit (156,738) 153,730 (3,008)
_______ _______ _______
Total Shareholders' Equity A, C, D (42,521) 40,358 (2,163)
(Deficit)
----------- ----------- -----------
_______ _______ _______
Total Liabilities and 37,710 (14,878) 22,832
Shareholders' Equity(Deficit)
_______ _______ _______
_______ _______ _______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Balance sheets and shareholders' equity (deficit) as at 1 January 2007 (cont.)
Convenience translation into �
1 January 2007
Israeli GAAP Impact of transition IFRS
Note � 000 � 000 � 000
(Audited)
A S S E T S
Current Assets
Cash and cash equivalents A - 19 19
Accounts receivable and debit A - 153 153
balances
Buildings under construction A - 3,041 3,041
Assets attributed to A 5,338 (5,338) -
discontinued operations
_______ _______ _______
5,338 (2,125) 3,213
----------- ----------- -----------
Non-Current Assets
Fixed assets, net A - 6 6
Intangible assets A - 14 14
_______ _______ _______
- 20 20
----------- ----------- -----------
_______ _______ _______
Total Assets 5,338 (2,105) 3,233
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Accounts payable and credit A - 273 273
balances
Liabilities attributed to A 11,358 (11,358) -
discontinued operations
_______ _______ _______
11,358 (11,085) 273
----------- ----------- -----------
Long-term Liabilities
Loans from Interested Parties A - 3,266 3,266
----------- ----------- -----------
Shareholders' Equity (Deficit)
Share capital and premium 16,123 (16,003) 120
Capital reserves 46 (46) -
Accumulated deficit (22,189) 21,763 (426)
_______ _______ _______
Total Shareholders' Equity A, C, D (6,020) 5,714 (306)
(Deficit)
----------- ----------- -----------
_______ _______ _______
Total Liabilities and 5,338 (2,105) 3,233
Shareholders' Equity (Deficit)
_______ _______ _______
_______ _______ _______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Balance sheets and shareholders' equity (deficit) as at 31 March 2007
31 March 2007
Israeli GAAP Impact of transition IFRS
Note NIS' 000 NIS' 000 NIS' 000
(Unaudited)
A S S E T S
Current Assets
Cash and cash equivalents A - 8 8
Accounts receivable and debit A - 2,593 2,593
balances
Buildings under construction A - 23,459 23,459
Assets attributed to A 37,406 (37,406) -
discontinued operations
_______ _______ _______
37,406 (11,346) 26,060
----------- ----------- -----------
Non-Current Assets
Fixed assets, net A - 62 62
Intangible assets A - 112 112
_______ _______ _______
- 174 174
----------- ----------- -----------
_______ _______ _______
Total Assets 37,406 (11,172) 26,234
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Loans from interested parties A - 32,110 32,110
Accounts payable and credit A - 1,296 1,296
balances
Liabilities attributed to A 81,856 (81,856) -
discontinued operations
_______ _______ _______
81,856 (48,450) 33,406
----------- ----------- -----------
Shareholders' Equity (Deficit)
Share capital and premium 113,890 (113,045) 845
Capital reserves 327 (327) -
Translation differences in - 108 108
respect of activities abroad
Accumulated deficit (158,667) 150,542 (8,125)
_______ _______ _______
Total Shareholders' Equity A, C, D (44,450) 37,278 (7,172)
(Deficit)
----------- ----------- -----------
_______ _______ _______
Total Liabilities and 37,406 (11,172) 26,234
Shareholders' Equity (Deficit)
_______ _______ _______
_______ _______ _______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Balance sheets and shareholders' equity (deficit) as at 31 March 2007 (cont.)
Convenience translation into �
31 March 2007
Israeli GAAP Impact of transition IFRS
Note � 000 � 000 � 000
(Unaudited)
A S S E T S
Current Assets
Cash and cash equivalents A - 1 1
Accounts receivable and debit A - 367 367
balances
Buildings under construction A - 3,321 3,321
Assets attributed to A 5,295 (5,295) -
discontinued operations
_______ _______ _______
5,295 (1,606) 3,689
----------- ----------- -----------
Non-Current Assets
Fixed assets, net A - 9 9
Intangible assets A - 16 16
_______ _______ _______
- 25 25
----------- ----------- -----------
_______ _______ _______
Total Assets 5,295 (1,581) 3,714
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Loans from interested parties A - 4,546 4,546
Accounts payable and credit A - 183 183
balances
Liabilities attributed to A 11,588 (11,588) -
discontinued operations
_______ _______ _______
11,588 (6,859) 4,729
----------- ----------- -----------
Shareholders' Equity (Deficit)
Share capital and premium 16,123 (16,003) 120
Capital reserves 46 (46) -
Translation differences in - 16 16
respect of activities abroad
Accumulated deficit (22,462) 21,311 (1,151)
_______ _______ _______
Total Shareholders' Equity A, C, D (6,293) 5,278 (1,015)
(Deficit)
----------- ----------- -----------
_______ _______ _______
Total Liabilities and 5,295 (1,581) 3,714
Shareholders' Equity (Deficit)
_______ _______ _______
_______ _______ _______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Balance sheets and shareholders' equity as at 31 December 2007
31 December 2007
Israeli GAAP Impact of transition IFRS
Note NIS' 000 NIS' 000 NIS' 000
(Audited)
A S S E T S
Current Assets
Cash and cash equivalents 1,249 - 1,249
Accounts receivable and debit 842 - 842
balances
Restricted cash 17,306 - 17,306
Buildings under construction C, D 53,010 (26,484) 26,526
_______ _______ _______
72,407 (26,484) 45,923
----------- ----------- -----------
Non-Current Assets
Fixed assets, net 47 - 47
Intangible assets 78 - 78
Investment real estate 69,121 - 69,121
_______ _______ _______
69,246 - 69,246
----------- ----------- -----------
_______ _______ _______
Total Assets 141,653 (26,484) 115,169
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Loans from interested parties 7,454 - 7,454
Sellers of land 42,570 - 42,570
Suppliers and service 2,519 - 2,519
providers
Accounts payable and credit 1,158 - 1,158
balances
Provision for real estate 9,191 - 9,191
agents
Advances from purchasers of 17,306 - 17,306
apartments
_______ _______ _______
80,198 - 80,198
----------- ----------- -----------
Long-term Liabilities
Deferred taxes 3,035 - 3,035
----------- ----------- -----------
Shareholders' Equity
Share capital and premium 172,356 (118,087) 54,269
Capital reserves 327 (327) -
Capital reserve from 396 (396) -
transactions with controlling
shareholders
Translation differences in (1,165) 1,529 364
respect of activities abroad
Accumulated deficit (113,494) 90,797 (22,697)
_______ _______ _______
Total Shareholders' Equity A, C, D 58,420 (26,484) 31,936
----------- ----------- -----------
_______ _______ _______
Total Liabilities and 141,653 (26,484) 115,169
Shareholders' Equity
_______ _______ _______
_______ _______ _______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Balance sheets and shareholders' equity as at 31 December 2007 (cont.)
Convenience translation into �
31 December 2007
Israeli GAAP Impact of transition IFRS
Note � 000 � 000 � 000
(Audited)
A S S E T S
Current Assets
Cash and cash equivalents 177 - 177
Accounts receivable and debit 119 - 119
balances
Restricted cash 2,450 - 2,450
Buildings under construction C, D 7,504 (3,749) 3,755
_______ _______ _______
10,250 (3,749) 6,501
----------- ----------- -----------
Non-Current Assets
Fixed assets, net 7 - 7
Intangible assets 11 - 11
Investment real estate 9,785 - 9,785
_______ _______ _______
9,803 - 9,803
----------- ----------- -----------
_______ _______ _______
Total Assets 20,053 (3,749) 16,304
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Loans from interested parties 1,055 - 1,055
Sellers of land 6,026 - 6,026
Suppliers and service 357 - 357
providers
Accounts payable and credit 164 - 164
balances
Provision for real estate 1,301 - 1,301
agents
Advances from purchasers of 2,450 - 2,450
apartments
_______ _______ _______
11,353 - 11,353
----------- ----------- -----------
Long-term Liabilities
Deferred taxes 430 - 430
----------- ----------- -----------
Shareholders' Equity
Share capital and premium 24,400 (16,717) 7,683
Capital reserves 46 (46) -
Capital reserve from 56 (56) -
transactions with controlling
shareholders
Translation differences in (165) 216 51
respect o of activities abroad
Accumulated deficit (16,067) 12,854 (3,213)
_______ _______ _______
Total Shareholders' Equity A, C, D 8,270 (3,749) 4,521
----------- ----------- -----------
_______ _______ _______
Total Liabilities and 20,053 (3,749) 16,304
Shareholders' Equity
_______ _______ _______
_______ _______ _______
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Profit and loss accounts for the three month period ended 31 March 2007
Israeli GAAP Impact of transition IFRS
Note NIS' 000 NIS' 000 NIS' 000
(Unaudited)
Selling and marketing expenses A, C - 4,485 4,485
General and administrative A - 632 632
expenses
______ ______ ______
- 5,117 5,117
--------- --------- ---------
______ ______ ______
Loss from continuing - (5,117) (5,117)
operations
Loss from discontinued A (1,929) 1,929 -
operations and from creditors
arrangement
______ ______ ______
Loss for the period (1,929) (3,188) (5,117)
______ ______ ______
______ ______ ______
Basic loss per share (*) (1.08) 0.4 (0.68)
______ ______ ______
______ ______ ______
Diluted loss per share (*) (1.08) 0.4 (0.68)
______ ______ ______
______ ______ ______
Convenience translation into �
Israeli GAAP Impact of transition IFRS
Note � 000 � 000 � 000
(Unaudited)
Selling and marketing expenses A, C - 635 635
General and administrative A - 89 89
expenses
______ ______ ______
- 724 724
--------- --------- ---------
______ ______ ______
Loss from continuing - (724) (724)
operations
Loss from discontinued A (273) 273 -
operations and from creditors
arrangement
______ ______ ______
______ ______ ______
Loss for the period (273) (451) (724)
______ ______ ______
______ ______ ______
Basic loss per share (*) (0.15) 0.06 (0.09)
______ ______ ______
______ ______ ______
Diluted loss per share (*) (0.15) 0.06 (0.09)
______ ______ ______
______ ______ ______
(*) The calculation was made retroactively after taking into consideration the consolidation of the share capital that was conducted
on 21 May 2008. See also Note 8A.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Profit and loss accounts for the year ended 31 December 2007
Israeli GAAP Impact of transition IFRS
Note NIS' 000 NIS' 000 NIS' 000
(Audited)
Change in fair value of 18,294 - 18,294
investment real estate
--------- --------- ---------
Selling and marketing expenses A, C 106 29,515 29,621
General and administrative A 2,175 848 3,023
expenses
______ ______ ______
2,281 30,363 32,644
--------- --------- ---------
______ ______ ______
Operating income (loss) before 16,013 (30,363) (14,350)
financing
Financing income G 45 (12) 33
Financing expenses A, D, G (794) (1,037) (1,831)
______ ______ ______
Operating income (loss) after 15,264 (31,412) (16,148)
financing and before taxes on
income
Taxes on income (3,541) - (3,541)
______ ______ ______
Income (loss) from continuing 11,723 (31,412) (19,689)
operations
Income from discontinued 31,521 (31,521) -
operations and from creditors
arrangement
______ ______ ______
Net income (loss) for the year A 43,244 (62,933) (19,689)
______ ______ ______
______ ______ ______
Basic earnings (loss) per 11.15 (13.34) (2.19)
share (*)
______ ______ ______
______ ______ ______
Diluted earnings (loss) per 11.15 (13.34) (2.19)
share (*)
______ ______ ______
______ ______ ______
(*) The calculation was made retroactively after taking into consideration the consolidation of the share capital that was conducted
on 21 May 2008. See also Note 8A.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted in Israel and reporting under IFRS (cont.)
Profit and loss accounts for the year ended 31 December 2007 (cont.)
Convenience translation into �
Israeli GAAP Impact of transition IFRS
Note � 000 � 000 � 000
(Audited)
Change in fair value of 2,590 - 2,590
investment real estate
--------- --------- ---------
Selling and marketing expenses A, C 15 4,178 4,193
General and administrative A 308 120 428
expenses
______ ______ ______
323 4,298 4,621
--------- --------- ---------
______ ______ ______
Operating income (loss) before 2,267 (4,298) (2,031)
financing
Financing income G 6 (1) 5
Financing expenses A, D, G (112) (147) (259)
______ ______ ______
Operating income (loss) after 2,161 (4,446) (2,285)
financing and before taxes on
income
Taxes on income (501) - (501)
______ ______ ______
Income (loss) from continuing 1,660 (4,446) (2,786)
operations
Income from discontinued 4,462 (4,462) -
operations and from creditors
arrangement
______ ______ ______
Net income (loss) for the year A 6,122 (8,908) (2,786)
______ ______ ______
______ ______ ______
Basic earnings (loss) per 1.58 (1.89) (0.31)
share (*)
______ ______ ______
______ ______ ______
Diluted earnings (loss) per 1.58 (1.89) (0.31)
share (*)
______ ______ ______
______ ______ ______
(*) The calculation was made retroactively after taking into consideration the consolidation of the share capital that was conducted
on 21 May 2008. See also Note 8A.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 2007, 31 March 2007 and 31 December 2007 and to the profit and loss
accounts for the three-months ended 31 March 2007 and for the year ended 31 December 2007:
A. Reverse acquisition
In the financial statements presented in accordance with accounting principles generally accepted in Israel, the principles of reverse
acquisition were applied to a business combination transaction that occurred during 2007, as follows:
- The assets and liabilities of the accounting purchaser (the Verge subsidiary) were recorded in the consolidated financial
statements at their book values immediate prior to the reverse acquisition transaction.
- In view of the fact that the accounting acquiree (the Company) constituted a stock market shell as at the date of acquisition, no
goodwill or original difference was generated in respect thereof.
- The retained earnings and other equity items of the consolidated entity following the merger remained those of the Company, with
the effect of the recording of the net assets and liabilities of the accounting acquirer being reflected in an increase to share capital and
premium on shares.
- The comparative amounts of the merged entity remained those that were publicized in the past as part of the financial statements of
the Company, and accordingly, the former activity of the Company was presented as discontinued operations in accordance with Accounting
Standard No. 8 of the Israel Accounting Standards Board.
In implementing IFRS, in accordance with the principles of IFRS 3, there is no change in the economic concept - Verge was identified as
the accounting acquirer and, therefore, the principles of reverse acquisition were applied. Accordingly, the assets and liabilities of
Verge, the accounting acquirer, were recorded in the consolidated financial statements on the basis of their value in the books of the
accounting acquirer immediately prior to the reverse acquisition transaction. According to IFRS 3, consolidated financial statements
prepared after the reverse acquisition are described as the continuation of the financial statements of the legal acquired company (the
accounting acquirer) and therefore, the following differences exist between the accounting treatment and the treatment used under accounting
principles generally accepted in Israel:
- Retained earnings and other equity items of the consolidated entity following the merger are those of the accounting acquirer,
which is the legal subsidiary, Verge, immediately prior to the business combination (although the legal capital structure, i.e., type and
number of shares, remains that of the legal parent company, the Company).
- Comparative amounts of the merged entity are those of the legal subsidiary, Verge. Accordingly, there is no expression given to the
former activity of the Company as part of the financial statements.
Based on the above, and in view of the fact that the business combination transaction in 2007, as part of which the Company was
purchased by the Verge subsidiary by way of reverse acquisition, was carried out in accordance with the principles of IFRS 3, the balance
sheet of the Company as of 1 January 2007, which is presented in the financial statements presented in accordance with IFRS, is based on the
balance sheets of the accounting acquirer, Verge, as at 1 January 2007.
In this content, please note that, due to the fact that the financial statements of the Company as at 1 January 2007 (the statement of
net liquidated assets as at 31 December 2006), which were presented in accordance with accounting principles generally accepted in Israel,
were presented at realization values in accordance with accounting principles of businesses in liquidation, no change would be needed in
these financial statements were they required to be presented in accordance with IFRS.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 2007, 31 March 2007 and 31 December 2007 and to the profit and loss
accounts for the three-months ended 31 March 2007 and for the year ended 31 December 2007 (cont.):
A. Reverse acquisition (cont.)
In the balance sheets as at 1 January 2007 and 31 March 2007 presented in accordance with IFRS, changes occurred in the following items
in view of the fact that Verge's balance sheet items were included therein as from 1 January 2007 and not from the date of purchase:
- An increase in cash and cash equivalents in amounts of NIS 131 thousand and NIS 8 thousand, respectively.
- An increase in accounts receivable and debit balances in amounts of NIS 1,082 thousand and NIS 2,593 thousand, respectively.
- An increase in buildings under construction in amounts of NIS 21,480 thousand and NIS 23,459 thousand, respectively.
- A decrease in assets attributed to discontinued operations in amounts of NIS 37,710 thousand and NIS 37,406 thousand,
respectively.
- An increase in net fixed assets, net, in amounts of NIS 42 thousand and NIS 62 thousand, respectively.
- An increase in intangible assets in amounts of NIS 97 thousand and NIS 112 thousand, respectively.
- An increase in accounts payable and credit balances in amounts of NIS 1,931 thousand and NIS 1,296 thousand, respectively.
- An increase in short-term loans from interested parties in amounts of NIS 32,110 as at 31 March 2007.
- A decrease in liabilities attributed to discontinued operations in amounts of NIS 80,231 thousand and NIS 81,856 thousand,
respectively.
- An increase in long-term loans from interested parties in amounts of NIS 23,064 as at 1 January 2007.
- A decrease in shareholders' deficit in amounts of NIS 40,358 thousand and NIS 37,278 thousand, respectively.
In the profit and loss accounts for the three month period ended 31 March 2007 and for the year ended 31 December 2007 presented in
accordance with IFRS, there were changes in the following items, in view of the fact that the results of Verge were presented in them from
the beginning of the year and not from the date of acquisition:
- An increase in selling and marketing expenses in amounts of NIS 4,485 thousand and NIS 547 thousand, respectively.
- An increase in general and administrative expenses in amounts of NIS 632 thousand and NIS 1,401 thousand, respectively.
- An increase in financing expenses for the year ended 31 December 2007 in an amount of NIS 3,173 thousand.
- Erasure of a loss from discontinued operations in an amount of NIS 1,929 thousand and erasure of income from discontinued
operations and from creditors arrangement in an amount of NS 31,521 thousand.
The above amounts are before the effect of items C and D below.
In addition, the results of the Company (solo) for the year ended 31 December 2007 were taken into consideration only after the date of
purchase. The impact of the above was a reduction in general and administrative expenses in an amount of NIS 556 thousand and a reduction in
financing income in an amount of NIS 7 thousand for the year ended 31 December 2007.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 2007, 31 March 2007 and 31 December 2007 and to the profit and loss
accounts for the three-months ended 31 March 2007 and for the year ended 31 December 2007 (cont.):
B. Combinations of businesses under common control
In the financial statements presented under accounting principles generally accepted in Israel, the transaction as part of which the
Company acquired the Sitnica subsidiary was treated in accordance with Israel Securities Authority Decision 2-10 dated April 2007, The
Treatment of Transactions of Combinations of Businesses under Common Control. According to the decision of the authority, combinations of
businesses under common control are to be handled in accordance with a method that is similar to the Pooling of Interests method.
According to this method, in the financial statements of the Company, the assets and liabilities of Sitnica were recorded at their book
value in Sitnica's financial statements and the financial statements were presented in order to reflect the financial position and results
of operations of the Company and of Sitnica (after the effect of the treatment of the reverse acquisition as per "A" above) as if the
transaction had been conducted on the same day that the businesses came under the same control.
IFRS 3, Business Combinations, excludes combinations of businesses under common control. Moreover, there is no other international
standard that deals with the issue. On the basis of the preference order for accounting treatment under international standards, in the
absence of an international standard or interpretation, the Company implemented the pooling of interests method even though the financial
statements are presented in accordance with IFRS. The source for this method is the U.S. body of standards, and it is also the common
practice under international standards. Therefore, the transition to IFRS had no impact on the Company's accounting treatment of the
aforementioned transaction.
C. Capitalization of costs directly to buildings under construction
According to accounting principles generally accepted in Israel, general and administrative expenses and selling and marketing expenses
that can be specifically attributed to a specific building project constitute direct costs of the project and are carried to the cost of the
project. According to IFRS, these costs are expensed when incurred. The impact of the transition to IFRS as at 1 January 2007 and 31
December 2007 is a decrease in the inventory of buildings under construction in an amount of NIS 2,742 thousand and NIS 30,230 thousand,
respectively, against a decrease in retained earnings. In addition, in the profit and loss accounts for the year ended 31 December 2007,
there was an increase in selling and marketing expenses of NIS 28,968 thousand.
D. Capitalization of credit costs
According to Accounting Standard No. 3 of the Israel Accounting Standards Board, Capitalization of Credit Costs, credit costs can be
capitalized in respect of assets, the period of construction of which exceeds three years or the period of construction of which or volume
of investment in which deviates from the accepted construction period or accepted volume of investment in respect of assets of this type in
the same business. In connection with real estate assets, the commencement of capitalization is from the earlier of the date of submission
of the request to obtain a building permit or the date of commencement of work.
Under IFRS, capitalization of credit costs is treated in accordance with IAS 23 whereby it is possible to capitalize credit costs which
are directly attributed to the acquisition or construction of a qualifying asset. A qualifying asset is an asset, in respect of which the
period of time required for preparation for its intended use or sale is significant. The capitalization period will start when expenses were
incurred in respect of the asset, credit costs were incurred in respect of the asset and the steps necessary for preparation of the asset
for its intended use or for sale were taken.
Upon the transition to IFRS, credit costs that could not previously be capitalized were capitalized. Accordingly, the Company recorded
an increase to the inventory of buildings under construction as at 1 January 2007 and 31 December 2007 in an amount of NIS 1,204 thousand
and NIS 3,119 thousand, respectively, against an increase in retained earnings and a decrease in financing expenses in the profit and loss
accounts for 2007 in an amount of NIS 2,162 thousand.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 2007, 31 March 2007 and 31 December 2007 and to the profit and loss
accounts for the three-months ended 31 March 2007 and for the year ended 31 December 2007 (cont.):
E. Functional currency of the Company and its investees
The accounting treatment for the effects of changes in foreign currency exchange rates under IFRS is pursuant to IAS 21, whereby the
Company has to assess the functional currency of every component of the Company (on the basis of the Company and each component separately -
subsidiary, branch, or other activity that constitutes part of any unit of the consolidated entity). The Company should measure the results
of its operations and financial position or the results of its component on the basis of this currency. The functional currency is the
currency of the major economic environment in which the Company or its component operates (the major economic environment from which the
Company is influenced) and it constitutes the major currency in which the Company (or the component) generates and expends its cash flows.
After assessing the criteria, it was determined that the functional currency of the Company is the New Israeli shekel and the functional
currency of the subsidiaries is the currency of the local environment in which those companies operate. Therefore, the transition to
international standards had no impact.
F. Recognition of revenues from the sale of apartments
Under IFRS, recognition of revenues from the sale of constructed buildings is pursuant to IAS 18, whereby the revenue will be recognized
only when the work has been completed (the completed work method) and the rest of the conditions for revenue recognition have been met (all
of the risks have been transferred to the buyer). According to accounting principles generally accepted in Israel, recognition of revenues
from the sale of buildings is done pursuant to the percentage of completion method, but not before the proceeds from the sale of the project
constitute at least 50% of the total expected revenues from the project and the percentage completed has reached at least 25%.
As mentioned in Note 2 above, the construction of the Verge subsidiary's construction project has not yet commenced and, therefore, no
revenues have been recognized in respect thereof in the profit and loss accounts that were presented in accordance with accounting
principles generally accepted in Israel. Accordingly, there was no impact of the transition to IFRS.
G. Presentation of financing income and expenses
In accordance with accounting principles generally accepted in Israel, financing income and expense are presented in one net amount in
the profit and loss accounts. According to international standards, financing income and financing expenses have to be presented separately
in statement of operations.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
PREPARED ACCORDING TO IFRS (cont.)
NOTE 9 - ADJUSTMENT NOTE FURTHER TO THE ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 2007, 31 March 2007 and 31 December 2007 and to the profit and loss
accounts for the three-months ended 31 March 2007 and for the year ended 31 December 2007 (cont.):
H. The following table presents the impact of the above adjustments on the se of the Company:
As at As at As at
1 January 31 March 31 December
2007 2007 2007
NIS'000 NIS'000 NIS'000
(audited) (unaudited) (audited)
Cancellation of the shareholders' equity 42,451 44,450 -
in the Company prior to the allotment of
shares to Verge (reverse acquisition)
Inclusion of shareholders' equity of (2,163) (7,172) -
Verge instead of that of the Company
(reverse acquisition)
Cancellation of the capitalization of - - (29,599)
direct costs to the inventory of
buildings under construction (mainly
selling and marketing expenses)
Capitalization of the credit costs to - - 3,115
the inventory of buildings under
construction
_______ _______ _______
Total adjustments to shareholders' 40,358 37,278 (26,484)
equity
_______ _______ _______
_______ _______ _______
===========================
===============
This information is provided by RNS
The company news service from the London Stock Exchange
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