RNS Number:2559B
Kidron Industrial Holdings Ld
09 April 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. Company activities
1. Kidron Industrial Holdings Limited (hereafter - the Company) is a
public company engaged primarily in the manufacture, importing, and marketing of
plastic products.
2. On 31st August 2003, the Company changed its name from Technoplast
Industries Ltd. to its current name, Kidron Industrial Holdings Ltd.
B. Merger with Kidron Plastics Ltd.
Further to the in-principle agreement signed on 29th June 2003, the Company
signed an agreement on 31st August 2003 with Kidron Management and Holdings
(1961) Ltd., on its behalf and on behalf of others (hereinafter - "Kidron"),
whereby Kidron will transfer to the Company, by means of a stock swap, all of
the shares of Kidron Plastics Ltd. (hereinafter - "Kidron Plastics"), a company
active in the area of importing, marketing, and distribution of raw materials
for the plastics industry, against an allotment of Company shares which will
grant Kidron and others 77.27% of the issued and paid in share capital of the
Company. In addition, Kidron and others were granted an option to invest in the
Company an amount of U.S.$ 500 thousand in cash, for additional shares
(hereinafter - the "Merger Transaction").
According to the agreement, the merger transaction was contingent upon the
fulfilment of certain conditions, including the formulation of a creditors
arrangement for the Company (see C. below), the approval of the Tel Aviv Stock
Exchange, the approval of the tax authorities, and the approval of the Israel
Investment Centre.
On 13th May 2004, upon the approval of the creditors arrangement by the district
court, the Merger Transaction with Kidrom Plastics was consummated. At that
time, 117,201,486 no par value shares of the Company were issued to Kidron
Management and Holdings (1961) Ltd. and others, in consideration of 100% of the
shares of Kidron Plastics.
On that date, all of the directors serving on the Company's board of directors
resigned, except for the public directors, and new directors were appointed to
the board as representatives of Kidron.
Accounting ramifications of the Merger Transaction
From a legal standpoint, the Company purchased Kidron Plastics in return for
shares of the Company that were allotted to the controlling shareholders of
Kidron Plastics. However, since the controlling shareholders of Kidron Plastics
obtained control of the merged entity, it was determined that Kidron Plastics is
to be considered as the purchaser from an accounting standpoint and the Company
is to be considered as the acquired company. Therefore, the abovementioned
transaction was handled as a reverse acquisition.
Accordingly, the assets and liabilities of Kidron Plastics were presented at
their book value on the books of Kidron Plastics, and the assets and liabilities
of the Company were presented at their fair value as of the date of acquisition,
since the Company was considered to be the acquired company from an accounting
standpoint.
Cost of the acquisition
In the aforementioned acquisition transaction, it was stipulated that the basis
for determining the value of the transaction is the value of Kidron Plastics
Ltd., the accounting purchaser, which, prior to the merger, was a privately-held
company having stable operations. The value was determined as part of a company
valuation carried out by independent experts for Kidron Plastics and the Company
in advance of the signing of the merger transaction.
The cost of the acquisition, in an amount of NIS 2,116 thousand, was determined
on the basis of 22.27% of the fair value of Kidron Plastics Ltd. (the part of
Kidron Plastics that was transferred to the ownership of the shareholders of
Technoplast as part of the Merger Transaction).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1 - GENERAL (cont.)
B. Merger with Kidron Plastics Ltd. (cont.)
Calculation of the excess cost of the acquisition and the allocation thereof
The excess cost, in an amount of NIS 25 million, was calculated on the basis of
the book value of the Company as of the date of acquisition (13th May 2004).
Of the total amount of the excess cost, an amount of NIS 16.3 million was
attributed to liabilities in respect of discontinued operations (see also Note
23), and an amount of NIS 4.3 million was attributed to the discrepancy between
the book value and fair value of the working capital (mainly the balance of
trade accounts payable, as a result of the creditors arrangement). The balance
of NIS 4.4 million is goodwill. In December 2004, an amount of NIS 0.8 million
was charged to goodwill, due to the differences that became apparent in respect
of contingent liabilities in amounts different from those that were used in
calculating the goodwill.
In accordance with the agreements between the Company and banking institutions
and in accordance with the creditors arrangement from May 2004, in the third
quarter of 2005, the banking institutions erased the Company's debt to them in
an amount of NIS 11 million, plus interest and linkage differentials in an
amount of NIS 3.3 million. An additional balance in respect of one of the
banking institutions, in an amount of NIS 1.5 million, has still not been
erased.
The erasure of the principle of the loan received from one of the banking
institutions in an amount of NIS 11 million was recorded in the 2005 financial
statements as a correction to the balance of the goodwill generated on the
Merger Transaction with Kidron Plastics Ltd. from May 2004, as per Opinion No.
57 of the Institute of Certified Public Accountants in Israel.
Accordingly, the balance of the new negative excess cost that was generated was
allocated pro rata to the non-monetary balances of the Company as at the date of
the Merger Transaction (inventory and fixed assets).
Exercising the option
At the date of the Merger Transaction, the option was realized, whereby Kidron
was issued 28,412,482 shares in return for NIS 2,290 thousand in cash.
Profit and loss
The consolidated profit and loss account of Kidron Plastics and the Company
includes the results of operations of the Company for all of 2004, and the
results of operations of Kidron commencing in the second half of the second
quarter of 2004.
C. Creditor arrangement
On 13 May 2004, the Tel Aviv District Court approved a creditor arrangement for
the Company, the major provisions of which are as follows:
The guaranteed creditors (the banks), to whom the Company owed an amount of NIS
65 million (as at 31 March 2004), would receive the following:
- A payment of NIS 15 million within 6 months.
- An amount of NIS 28 million will be converted into U.S. dollars and paid
out over a 10-year period.
- Participation in profits up to an amount of NIS 10 million over a ten-year
period (25% of the Company's pre-tax income from operations and/or the sale of
injection mould plastic products, in excess of US$ 1.1 million).
- An amount of NIS 12 million will be erased, subject to the payment of the
NIS 15 million within six months of the approval of the creditor arrangement.
Unsecured creditors, to whom the Company owed an amount of NIS 13 million, would
receive the following:
- Two alternatives: Alternative A - A cash payment (within 90 days) of 25%
of their debt; Alternative B - A cash payment (within 90 days) of 15% of their
debt and 25% spread out over 5 years.
- Participation in profits, unlimited in time, of up to 25% of their debt (up
to 15% of the Company's pre-tax income from operations and/or the sale of
injection mould plastic products, in excess of U.S.$ 1.1 million).
- Erasure of 50% of their debt, and in the event of alternative B, erasure of
35% of the debt.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1 - GENERAL (cont.)
C. Creditor arrangement (cont.)
Creditors to whom the Company owed less than NIS 10,000 each will receive 70% of
their debt - Alternative C.
According to the creditors arrangement, in 2004 the Company paid an amount of
NIS 7.5 million to the banks and an amount of NIS 2.6 million to its unsecured
creditors.
In addition, in view of the protracted negotiations prior to the agreement with
the FITE Fund (hereinafter - the "Fund") (see Note 21D) between the Company and
the banks, pertaining to the amendment of the agreement signed with them on 3
May 2004, and against the background of the transaction with the Fund, an
addendum amendment to the agreement with the banks was signed on 27 July 2005,
whereby, among other things:
1. The Company undertook to notify the banks regarding any agreement or
arrangement that would be signed, if at all, between the Company and the Fund.
In addition, the Company is required to obtain the approval of the banks on any
agreement or arrangement with the Fund, should any be signed, regarding the
granting of additional securities to the Fund or allotment of the Company's
securities to the Fund that would grant the Fund control over the Company.
2. Upon the Company's meeting its commitment to repay a debt to the banks
in an amount of NIS 5.5 million, plus interest, and the payment of one quarterly
payment (second or third quarter) in respect of a dollar loan granted by the
banks to the Company as part of the Agreement with the Banks, the banks will
erase the Company's debt to them in an amount of NIS 12 million (erasure of the
debt in accordance with the Agreement with the Banks approved as part of the
creditors arrangement which the Company underwent in the past).
3. The percentage of the participation of the banks in the "residual
income" of the Company will be increased from 25% to 35% of the annual
percentage stipulated in the Agreement with the Banks, on condition that the
aggregate amount to which the banks are entitled to receive from the Company in
respect of the participation in the "residual income" does not change.
4. The amount of the loan to be obtained from the Fund will not be used to
advance or accelerate payments in respect of debts to creditors, to release
guarantees given by controlling shareholders to the Company, subsidiaries or
associated undertakings, or to reduce the debts of the Company that are
guaranteed by controlling shareholders.
In the third quarter of 2005, in accordance with agreements between the Company
and banking institutions and in accordance with the creditors arrangement from
May 2004, the banking institutions wrote off liabilities of the Company to the
institutions in an amount of NIS 11 million plus interest and linkage
differentials of NIS 3.3 million. An additional balance of NIS 1.5 million,
owed to one of the banking institutions, has not yet been written off.
As a result of the write-off of the interest expenses, the exchange rate
differentials and the linkage differentials that had been previously recorded
from the date of the merger transaction to the date of the write-off, the
Company recorded a one-time gain of NIS 1.4 million as a separate item in the
profit and loss accounts of 2005 and it also reduced its financing expenses by
an amount of NIS 1.9 million.
The trustee of the creditors arrangement received demands from unsecured
creditors who are suppliers and service providers for payment of NIS 16.7
million, of which the trustee approved, as at 31 December 2005, payment demands
of NIS 12 million, broken down as follows: payment demands under alternative A
in an amount of NIS 5.6 million; payment demands under alternative B in an
amount of NIS 6 million; and payment demands of NIS 0.4 million under
alternative C.
Based on the alternatives selected by the suppliers, an amount of NIS 2.6
million was paid in cash, an amount of NIS 1.5 million is to be spread out over
a five-year period, an amount of NIS 2.9 million is for participation in profits
for an unlimited length of time, as above, and an amount of NIS 5 million is to
be arased.
The trustee of the creditors' arrangement has not yet made a decision on the
claim of suppliers and former employees in an amount of NIS 1.8 million (part of
which are suits which were filed late). In addition, a payment demand was
received in respect of the right to receive 1.5% of the Company's European sales
turnover between February 2002 and January 2003.
In 2005, the Company paid its suppliers an amount of NIS 0.3 million under the
Creditors Arrangement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 1 - GENERAL (cont.)
D. Compliance with the preservation rules of the Tel Aviv Stock Exchange
On 17th January 2005, the Company was given notice by the Tel Aviv
Stock Exchange as to its lack of compliance with the preservation rules set down
in the Stock Exchange's Regulations and in the guidelines enacted thereunder,
since the Company's shareholders' equity in the last four annual financial
statements was below NIS 2 million. The Company was granted a continuance of 6
months, until 30 June 2005 in order to comply with the aforementioned Stock
Exchange rules. The board of directors of the Tel Aviv Stock Exchange, at its
September 2005 meeting, decided to transfer the Company's shares to the "
Preservation List".
E. Definitions
The Company - Kidron Industrial Holdings Ltd.
Subsidiaries - Companies and partnerships over which the Company has direct or indirect
control and, accordingly, the financial statements of which are consolidated
with those of the Company.
Associated undertaking - A company over which the Company exerts material influence, as defined in
Opinion No. 68 of the Institute of Certified Public Accountants in Israel
(hereinafter - the I.C.P.A.), except for subsidiaries, and the company's
investment therein is included on the equity basis.
Investee company - A subsidiary or an associated undertaking.
The Group - Kidron Industrial Holdings Ltd. and its investees.
Interested parties - As defined in the Israeli Securities Regulations (Preparation of Annual
Financial Statements) 1993.
Related parties - As defined in Opinion No. 29 of the Institute of Certified Public Accountants
in Israel.
Dollar - U.S. dollar
ICPI or Index - The Israeli Consumer Price Index, as published by the Israeli Central Bureau
of Statistics.
Euro - The currency of the European Union.
Adjusted amount - A nominal historical amount adjusted to the Index of December 2003, in
accordance with the provisions of Opinions 23 and 36 of the Institute of
Certified Public Accountants in Israel.
Reported amount - An adjusted amount as of 31 December, 2003, plus amounts in nominal values
added subsequent to 31 December, 2003, less amounts deducted subsequent to 31
December, 2003.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements are presented in accordance with the Israeli Securities
Regulations (Preparation of Annual Financial Statements) - 1993.
We present below the significant accounting policies which were consistently
applied in the preparation of the financial statements, except for the change in
respect of the transition to financial reporting in nominal values in 2004, as
explained in Note 2A below:
1. The measurement basis for the financial statements
A. Discontinuance of Adjustment of Financial Statements
On 1 January 2004, Standard No. 12, "Discontinuance of Adjustment of
Financial Statements" entered into force. According to the Standard, financial
statements are no longer adjusted for inflation commencing on that date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
1. The measurement basis for the financial statements (cont.)
B. Point of departure for financial statement presentation subsequent to 31
December 2003
1. In the past, the Company and its subsidiaries presented their financial
statements on the basis of historical cost, adjusted for changes in the Israeli
Consumer Price Index. The adjusted values, as above, presented in the financial
statements as of 31 December 2003 (the transition date), served as the point of
departure for nominal financial reporting as of 1 January 2004. Additions made
during the reporting period are presented in nominal shekel values.
2. The amounts of non-monetary assets do not necessarily reflect the
economic or realizable value of such assets. Rather, they reflect the reported
amount of the assets.
3. The term "cost" as used in the financial statements refers to cost in
reported amounts.
4. Comparative data for the prior periods were adjusted to the Israeli
Consumer Price Index of December 2003.
5. Condensed financial statement data of the Company in historical nominal
values, for tax purposes, which served as the basis for the aforementioned
financial statements in reported amounts, are presented in Note 24.
C. Financial statements in reported amounts
1. Balance sheet
a. Non-monetary items are presented in reported amounts.
b. Monetary items are presented in the balance sheet in nominal values as
of the balance sheet date.
c. The equity value of investments in investee companies is based on the
translated financial statements of those companies, in reported amounts.
2. Profit and loss accounts
a. Revenues and expenses deriving from non-monetary items or from reserves
included in the balance sheet are derived from the difference between the
reported amount at the beginning of the period and the reported amount at the
end of the period.
b. The remainder of the items of the profit and loss accounts, except for
the share of the Company in the results of operations of investee companies, are
presented in nominal amounts.
c. The share of the Company in the results of operations of investee
companies is based on the financial statements of those companies in reported
amounts.
D. Adjusted financial statements as of 31 December 2003
Until 31 December, 2003, the financial statements of the Company and
its investee were presented on the basis of the historical cost convention,
adjusted for changes in the general purchasing power of the Israeli currency
(NIS), in accordance with the provisions set out in opinions of the Institute of
Certified Public Accountants in Israel. The amounts in the financial statements
until that date were stated in adjusted shekels having identical purchasing
power (NIS of December 2003), on the basis of changes in the Index.
The adjustment of the financial statements was based on the accounts
of the Company and its Israeli subsidiaries. Such accounts are maintained on a
regular basis in nominal shekels.
The profit and loss accounts were adjusted as follows: revenues from
sales, purchases, etc. were adjusted for changes in the Index, from the date of
the transaction to the month of the balance sheet date. Expenses relating to
allowances included in the balance sheet and revenues and expenses deriving from
non-monetary items are based on an analysis of the adjusted changes in the
concurrent balance sheet item. The share of the Group in the results of an
investee company is based on the adjusted financial statements of that company.
The net financing component reflects financing income and expenses in real
terms, the erosion of monetary items during the year, gains and losses on the
sale and revaluation of quoted securities, and gains and losses on derivative
financial instruments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
2. Assets and liabilities denominated in, or linked to, foreign currency
A. 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.
B. Assets and liabilities linked to the Index are presented on the basis of
the linkage terms of each balance. Balances linked to the "known Index" are
presented on the basis of the "known Index" as of the balance sheet date (the
Index of November).
C. Linkage and exchange rate differentials are recorded as expenses or
income as incurred.
D. Data pertaining to the I.C.P.I. and exchange rates are presented below:
31 December,
2004 2005
Israeli Consumer Price Index (1993 basis) 180.74 185.05
Representative exchange rate of U.S. dollar / US$1 = NIS 4.308 4.603
Representative exchange rate of the Euro / Euro1 = NIS 5.8768 5.4465
E. Data pertaining to the rate of increase (decrease) of the ICPI and the
exchange rates of the U.S dollar and Euro are presented below:
Year ended 31 December,
2003 2004 2005
% % %
Israeli Consumer Price Index (1.9) 1.21 2.38
Representative exchange rate of U.S. dollar (7.6) (1.62) 6.85
Representative exchange rate of the Euro 11.3 6.21 (7.32)
3. Financial reporting in inflationary economies
In most countries, primary financial statements are prepared on the historical
cost basis of accounting without regard to changes in the general level of
prices.
In an inflationary economy, reporting of operating results and financial
position in the local currency, without making any adjustments is not always
helpful to the users of financial statements. Money loses purchasing power at
such a rate that comparison of amounts from transactions and other events that
have occurred at different times, even within the same accounting period, can be
misleading.
In an inflationary economy, financial statements, are useful only if they are
expressed in terms of the measuring unit, current at the balance sheet date.
Accordingly, Israeli GAAP requires that financial statements be prepared in
accordance with historical cost, adjusted for changes in the general purchasing
power of the Israeli shekel at the balance sheet date ("Stable currency
approach").
In accordance with the stable currency approach, the financial statements are
prepared using historical cost values which are adjusted for changes in the
general purchasing power of the currency at the balance sheet date.
The underlying premise in this approach is to translate the current and
comparative shekel amounts in the financial statements to constant shekel
(possessing fixed purchasing power), thereby neutralising the inflationary
effect.
4. Convenience translation
The financial statements at 31st December 2005 (including the profit and loss
account and the balance sheet) have been translated into Sterling using the
representative exchange rate at that date (# 1 = NIS 7.9406). 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
5. Consolidation of financial statements
A. The consolidated financial statements include the financial statements
of Kidron Industrial Holdings Limited and its subsidiaries.
B. Material inter-company balances and transactions between companies,
whose financial statements were consolidated into the consolidated financial
statements were eliminated in the consolidated financial statements.
6. Cash and cash equivalents
This item includes current bank balances that are available for withdrawal and
unrestricted short-term bank deposits, with original maturities of less than
three months.
7. Short-term investments
Restricted deposits with banking institutions are presented in the item entitled
"Short-term investments".
8. Stocks
The stocks are presented at the lower of cost or market. Cost is determined as
follows:
Products - Specific cost, plus standard cost of other direct costs.
Raw materials, consumables and purchased products - on the basis of "
first in - first out".
9. Allowance for doubtful debts
The allowance is calculated on specific debts, the collection of which is
doubtful in the opinion of the managements of the Company and its subsidiaries.
10. Investment in investee companies
Investments in investee companies are presented on the equity method on the
basis of the financial statements of those companies.
11. Other assets
Deferred expenses in respect of the costs of the Company incurred in recruiting
loans form investment funds (see Note 21D) are presented at cost, less
accumulated amortization. The costs are amortized using the interest method,
based on the unamortized loan principle.
12. Tangible assets
Tangible assets are presented at cost, net of investment grants received, and
net of accumulated depreciation. This item also includes the allocation of a
negative cost surplus.
Depreciation is computed on the straight-line method, over the estimated useful
lives, of tangible assets as follows:
%
Buildings 2
Machinery and equipment 4-20 (mainly 10%)
Vehicles 15
Office furniture and equipment 7-33 (mainly 10%)
Leasehold renovations For the rental period
Tangible assets under self-construction include payroll costs,
materials and other direct costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
13. Deferred taxes
1. Group companies compute deferred taxes in respect of temporary
differences between amounts included in the financial statements and amounts
taken into account for tax purposes. For details of the composition of deferred
taxes and the major items for which deferred taxes were computed, see Note 15D.
Deferred tax balances are computed according to the tax rate expected to apply
when the deferred tax balances are released to the profit and loss accounts,
based on the tax laws in effect as at the balance sheet date. The amount of
deferred taxes presented in the profit and loss account derives from the changes
in these balances during the current year.
2. In computing deferred taxes, the Company did not take into account
taxes that would be applicable in the event of a sale of investments in investee
companies, since the Company plans on holding such investments and has no
intention of selling them in the foreseeable future.
14. Assets and liabilities linked to the CPI or to foreign currency
Balances linked to the CPI are included on the basis of the CPI relevant to the
terms of the transaction.
Balances linked to or denominated in foreign currencies are included at the
relevant exchange rate prevailing on the balance sheet date, as published by the
Bank of Israel.
15. Loss per share
Loss per share is computed in accordance with the provisions of Opinion No. 55
of the Institute of Certified Public Accountants in Israel.
The effect of warrants is included in the computation of primary loss per share
only if their exercise is considered probable as at the balance sheet date.
16. Transaction between the Company and its controlling shareholder
Transactions between the Company and its controlling shareholder are presented
in accordance with the guidelines of the Securities Regulations (Financial
Statement Presentation of Transactions Between an Entity and its Controlling
Shareholders) - 1996.
Assets transferred from a controlling shareholder to the Company are presented
at their cost in the accounting records of the controlling shareholder. The
consideration paid by the Company in excess of the cost of the assets are
debited to a capital fund which is added to the accumulated deficit.
17. Discontinued operations
Discontinued operations are presented in accordance with the provisions of
Israeli Accounting Standard No. 8.
18. Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities reported in the financial
statements, the disclosure of contingent assets and liabilities as at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
19. Fair value of financial instruments
The Company and its subsidiaries have financial instruments which include, among
other things, cash and cash equivalents, quoted securities, and trade and other
debtors, as well as financial liabilities which include, among other things,
short-term credit, and trade and other creditors.
The fair value of these financial instruments is not materially different from
their book value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
20. Advertising expenses
Advertising costs are expensed when incurred.
21. Decline in asset value
Commencing in 2003, the Company implements Israeli Accounting Standard No. 15 -
Decline in Asset Value (hereinafter - the "Standard"). The standard sets down
procedures for the Company to implement in order to ensure that its assets are
presented at values that do not exceed their recoverable value. The recoverable
value of an asset is the higher of the net selling price and its usage value
(the present value of the estimated future cash flows deriving from the use and
disposal of the asset).
The Standard applies to all of the assets in the consolidated balance sheet
except for stocks, assets deriving from construction contracts and contracting
work, tax assets and monetary assets. The Standard also sets out presentation
and disclosure provisions pertaining to assets that have been impaired. When
the value of an asset in the consolidated balance sheet exceeds its recoverable
value, the Company must recognize a loss on decline in value, in an amount equal
to the difference between the carrying value of the asset and its recoverable
value. Such a loss, once recognized, will be reversed (except for a loss on
goodwill) only if changes have occurred in the estimates used to determine the
recoverable value of the asset, from the date the last such loss was recognized.
In 2003, the Company set up a reserve for decline in value of machinery and
equipment in an amount of NIS 7 million, which was based on an asset valuation
that was ordered by the Company from an external appraiser and adopted by the
Company's board of directors for purposes of the merger with Kidron Plastics
Ltd.- see Note 1B above.
22. Financial criteria
According to the guidelines of the Israeli Securities Authority, when a
long-term liability is payable on demand due to a breach of a restriction or
financial criterion, it must be presented in the balance sheet as a current
liability.
23. Revenue recognition
Revenues from sales of products are recognized upon transfer of ownership of the
product to the customer.
Revenues from commissions are recognized on the accrual basis. Entitlement to
the commission occurs when the customer makes payment to the supplier.
Revenues from rents are recognized pro rata over the rental period.
Revenues of a subsidiary from transactions in which it serves as an agent are
recognized as sales commissions in a net amount.
24. Initial implementation of new Accounting Standards
Israeli Accounting Standard No. 19 - Taxes on Income
The Company has been implementing Accounting Standard No. 19, "Taxes
on Income" ("Standard No. 19") of the Israel Accounting Standards Board, which
went into effect on 1 January 2005. Standard No. 19 prescribes the accounting
treatment in the financial statements of taxes on income and, among other
things, the principles for recognition, measurement, presentation and
disclosure.
The provisions of the Standard are similar to the accounting
principles applied by the Company prior to the implementation of Standard No.
19. Therefore, implementation of Standard No. 19 had no impact on the financial
statements of the reported periods.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
25. Disclosure of the impact of new accounting standards in the period prior
to initial implementation
A. Accounting Standard No. 21 - Earnings Per Share
In January 2006, the Israeli Accounting Standards Board issued
Accounting Standard No. 21 - "Earnings Per Share" (hereinafter - the "Standard")
which sets out the principles to be used in computing and presenting earnings
(loss) per share in the financial statements and which replaces Opinion No. 55
of the Institute of Certified Public Accountants in Israel pertaining to this
issue. Standards No. 21 must be implemented in respect of financial statements
of periods commencing on or after 1 January 2006 (hereinafter - the "Effective
Date").
Earnings per share data will be computed on the basis of the number of
shares (and not in terns of NIS 1 par value as was customary until the effective
date). Basic earnings per share is to be computed by dividing the profit of
loss attributed to common shareholders, divided by the average weighted number
of ordinary shares actually held during the reported period, with convertible
securities (such as convertible debentures, option warrants, and convertible
preferred shares) being taken into account only in respect of the calculation of
diluted earnings per share in the event that their effect is dilutive. This is
different than what was implemented prior to the effective date, whereby in
cases in which the chance of conversion of the convertible securities was
reasonable, that security was included in the calculation of the basic earnings
per share.
Standard 21 also stipulates that convertible securities that were
converted during the period should be included in the basic earnings per share
from the date of conversion. Potential shares that were cancelled or that
expired during the period should be included in the calculation of diluted
earnings per share only for that part of the period during which they were in
circulation.
According to the Standard, option warrants should be included in
diluted earnings when their exercise would result in the issuance of shares for
a consideration that is less than the average market price of ordinary shares
during the period. The effect of such option warrants is solely on the number
of shares. For purposes of the calculation, the number of shares deriving from
the exercise of the warrants should be added to the denominator of the equation,
and the number of shares that could have been purchased with the consideration
that would have been received as a result of the conversion of the option
warrants into shares at the average market price of the shares during the period
should be deducted from the denominator (this amount includes the balance of the
fair value of goods or work not yet supplied in respect of share-based payment
arrangements to which Accounting Standard No. 24 applies). On the other hand,
the method for calculating EPS under Opinion No. 55 of the Institute of
Certified Public Accountants in Israel also includes adjustments to earnings.
According to Standard No. 21, for purposes of computing EPS, the share
of a holding company in the earnings of its investees will be computed on the
basis of its share in earnings per share of those same investees, multiplied by
the weighted number of shares held by the holding company.
As mentioned above, the Standard applies to the financial statements
of periods commencing on or after 1 January 2006. The Standard should be
applied retrospectively by restating the comparative data of the earnings per
share relating to prior periods.
The Company believes that adoption of the Standard will have no
material impact on the earnings per share data.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
25. Disclosure of the impact of new accounting standards in the period prior
to initial implementation (cont.)
B. Accounting Standard No. 22 - Financial Instruments: Disclosure and
Presentation
In July 2005, the Israeli Accounting Standards Board issued Israeli
Accounting Standard No. 22 - "Financial Instruments - Disclosure and
Presentation" (hereinafter - the "Standard").
The Standard sets down the presentation provisions for financial
instruments and the fair disclosure required thereof in the financial
statements. The presentation provisions address the rules for the
classification of a financial instrument as a financial liability or an equity
instrument, the classification of interest, dividends, and losses and gains
related thereto, and the conditions that are required for the offset of a
financial asset against a financial liability.
The Standard applies to the financial statements for periods
commencing on or after 1 January 2006. Accounting Standard No. 22 requires
prospective application of its provisions. Accordingly, comparative amounts
presented in the financial statements of periods commencing on the effective
date of this Standard will not be restated.
Upon this Standard's going into effect, Opinion No. 48 "the Accounting
Treatment of Option Warrants" and Opinion No. 53 "the Accounting Treatment of
Convertible Liabilities" of the Institute of Certified Public Accountants in
Israel are cancelled.
The Company has been assessing the impact of the Standard on the
results of operations, financial position, and cash flows of the Company.
C. Accounting Standard No. 24, "Share-based Payments"
In September 2005, the Israeli Accounting Standards Board issued
Accounting Standard No. 24, "Share-based Payments" (hereinafter - "Standard No.
24" or the "Standard"). Standard No. 24 requires an entity to recognize in its
financial statements share-based payment transactions, including transactions
with employees or other parties that must be settled in cash, other assets or
equity instruments.
Regarding share-based payment transactions that are settled with
equity instruments and are with other than employees (or others rendering
similar services), the Standard requires that the entity measure the goods or
services received and the concurrent increase in shareholders' equity on the
basis of the fair value of the goods or services received, unless such fair
value cannot be reliably estimated. In such a case, the fair value of the goods
or services received and the concurrent increase in shareholders' equity, should
be measured on the basis of the fair value of the equity instruments granted.
Share-based payment transactions with employees or others rendering
similar services should be measured based on the fair value of the equity
instruments as of the grant date.
Regarding share-based payment transactions settled in cash, the
Standard stipulates that the goods and services purchased shall be measured
based on the fair value of the liability generated in respect thereof. The fair
value of such liabilities should be remeasured for each reporting period and
when the liabilities are settled, and any change in fair value should be
recognized during the current period.
The Standard sets out the rules of recognition, measurement and
disclosure pertaining to share-based payment transactions and the rules for
handling any changes in the terms of such transactions, or cancellation or
buy-back of equity instruments granted.
Standard No. 24 applies to reporting periods commencing on or after 1
January 2006. The transition provisions pertaining to share-based payment
transactions settled with equity instruments stipulate that the provisions of
the Standard must be implemented in respect of grants made subsequent to 15
March 2005 and which had not yet vested as of 1 January 2006, as well as in
respect of changes in the terms of such transactions. Comparative amounts have
to be restated, including adjustment of retained earnings for the earliest
period for which comparative amounts are presented.
The Company has been assessing the impact of the Standard on the
results of operations, financial position, and cash flows of the Company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
25. Disclosure of the impact of new accounting standards in the period prior
to initial implementation (cont.)
D. Accounting Standard No. 25, "Revenues"
In February 2006, the Israeli Accounting Standards Board issued
Standard No. 25 - "Revenues" (the "Standard"), stipulating the required
accounting treatment (recognition, measurement, presentation, and disclosure of
revenue recognition). The Standard applies to the financial statements of
periods beginning on or after 1 January 2006 (the date of commencement).
The provisions of the Standard must be implemented in respect of
revenues deriving from the following transactions or events: the sale of goods,
the supply of services or the use by others of assets of the Company that
generate interest, royalties or dividends.
Regarding these transactions, the Standard stipulates the conditions
for the recognition of such revenues.
The Standard further stipulates that a company shall measure its
revenues based on the fair value of the consideration received and/or the
consideration the entity is entitled to receive. When the arrangement contains
a financing transaction, the fair value of the consideration shall be determined
by discounting all of the future receipts. The difference between the fair
value and the par value of the consideration shall be recognized as interest
income, using the effective interest method.
In cases in which the gross positive flow of economic benefits
includes amounts collected on behalf of a third party, such amounts shall be
handled in accordance with Clarification No. 8 of Standard No. 25, Reporting
Revenues on the Gross Base or the Net Base ("Clarification No. 8").
Comparative amounts in the financial statements of periods commencing
on the effective date of the Standard shall be presented as they were in the
past. Notwithstanding, a company that presented its revenues in the past on the
Gross Basis instead of on the Net Basis that it should have presented will, in
accordance with Clarification No. 8, retroactively implement the provisions of
the Standard in respect of its revenues for all periods reported as comparative
figures in the financial statements of periods commencing on the effective date
of the Standard.
Assets and liabilities included in the financial statements as at 31
December 2005, at amounts different from what would have been recognized had the
provisions of the Standard been applied, shall be adjusted on 1 January 2006 to
the amounts that would have been recognized in accordance with the provisions of
the Standard. These amounts, shall be recognized as a cumulative effect of a
change in accounting method.
The Company has been assessing the impact of the Standard on the
results of operations, financial position, and cash flows of the Company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 3 - TURNOVER
The turnover and profit before taxation are attributable to one area of
operations, the manufacture and marketing of plastic products.
An analysis of turnover by geographical market is shown below.
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
In Israel (1) 48,477 69,414 89,557 11,278
Abroad 48,935 37,454 18,828 2,371
_______ _______ _______ _______
97,412 106,868 108,385 13,649
_______ _______ _______ _______
_______ _______ _______ _______
(1) Includes sales to major Customer A 37,308 51,662 59,178 7,452
______ ______ ______ ______
______ ______ ______ ______
Percentage from turnover 38.3% 48.3% 54.6% 54.6%
______ ______ ______ ______
______ ______ ______ ______
NOTE 4 - COST OF SALES
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Materials 46,343 64,801 60,930 7,673
Labour and related expenses 15,599 16,386 15,829 1,993
Outside contractors 8,282 6,819 8,330 1,049
Depreciation 8,268 6,836 6,108 769
Manufacturing overhead 7,856 8,283 8,013 1,009
Decrease/(increase) in finished goods stock (125) (2,291) 3,594 454
______ _______ _______ _______
86,223 100,834 102,804 12,947
______ _______ _______ _______
______ _______ _______ _______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 5 - SELLING, RESEARCH AND DEVELOPMENT, GENERAL AND ADMINISTRATION
EXPENSES
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Selling expenses
Wages and related expenses 2,814 1,654 1,179 148
Shipping and export expenses 6,915 7,624 2,503 315
Marketing commissions 2,190 605 381 48
Other 1,851 1,234 1,151 145
______ ______ ______ ______
13,770 11,117 5,214 657
--------- --------- --------- ---------
General and administrative expenses
Wages and related expenses 2,272 3,708 5,183 653
Travel and automobile maintenance (including 423 498 491 62
depreciation)
Professional services 1,700 1,618 989 125
Depreciation 97 134 40 5
Write-down of goodwill - 220 119 15
Allowance for doubtful debts 1,417 795 275 35
Other 1,499 3,145 3,161 398
______ ______ ______ ______
7,408 10,118 10,258 1,292
--------- --------- --------- ---------
______ ______ ______ ______
21,178 21,235 15,472 1,948
______ ______ ______ ______
______ ______ ______ ______
NOTE 6 - OTHER INCOME (EXPENSES)
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Capital loss on sale of fixed assets (1,855) (612) 9 1
Cancellation of reserve for decline in value of 970 - - -
investment in another company
Reserve for decline in value of fixed assets (6,903) - - -
Rent less depreciation, net - 434 413 52
Expenses relating to prior years, net (122) (2,813) (26) (3)
Other income/(expenses), net (538) (94) 202 25
_____ _____ _____ _____
(8,448) (3,085) 598 75
_____ _____ _____ _____
_____ _____ _____ _____
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 7 - NET FINANCING EXPENSES
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Interest on long-term loans 255(*) (1,023) (1,590) (200)
Interest on short-term loans, net (**) (3,722) (3,898) (1,587) (200)
Net increase (erosion) in the value of monetary items 583 1,104 (1,987) (250)
and other financing expenses
_____ _____ _____ _____
(2,884) (3,817) (5,164) (650)
_____ _____ _____ _____
_____ _____ _____ _____
(*) Includes interest in respect of long-term loans that were classified
as short-term credit in accordance with the directive of the Israel Securities
Authority.
(**) Including interest income and linkage differentials as a result of the
erasure of the loans to banking institutions (see Note 1B).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 8 - TAXATION
A. Benefits under the Law for The Encouragement of Capital Investment ("the
Law")
The Company obtained approval for five expansion plans, which entitle it to tax
benefits in respect of its "approved plants" in accordance with the Law. Tax
benefits are contingent upon compliance with the conditions and regulations
stipulated in the Law and the approval letter. According to the Law, if the
Company does not comply with the terms stipulated in the Law and approval
letter, it will have to repay the investment grant received, plus interest and
linkage differentials. In addition, the tax benefits will be revoked. Management
of the Company is of the opinion that the Company has complied with most of the
said conditions. In addition, the Company is entitled to accelerated
depreciation in respect of fixed assets used in "approved plants".
Details of the expansion plans are as follows:
Expansion Date of Amount of The Year in Approval The Base year Year in Shareholders'
Plan approval Investment Company is which from the Company's on which which entitlement
Number letter in US entitled Investment Investment entitlement to entitlement to tax
Dollars to an requirements Centre on to tax calculate to tax benefit
(thousands) Investment were fulfilment benefits tax benefit
Grant at fulfilled of an benefits ceases
the approved
following plan
rates
1 1988 730 38% 1988 Received Taxation at (a) (a) Taxation at a
2 1990 1,721 38% 1993 Received a rate of 1992 (b) rate of 15%
3 1993 7,391 38% 1995 Received 25% which 1995 2005 on dividends
4 1996 6,992 34% in 1996 Received is measured 1995 2005 distributed
respect of on the from income
an basis of derived from
investment the an "approved
of increase in plant".
US$ 6,025 turnover as
thousand. compared
24% in with the
respect of base year
an (for a
investment period of 7
of US$967 years from
thousand. the first
year in
which
taxable
income is
generated).
5 1997 9,516 Not 2000 Not yet Tax 1997 2008
entitled received exemption
to a grant for a
period of
ten years
(c)
(*) Expansion plan No. 5 which granted the Company a ten-year tax exemption
was cancelled by the Israeli Investment Centre. The Company's appeal of the
cancellation was rejected by the appeals committee. The Company is looking into
its options to prevent the cancellation of the approved plan.
a) Benefit period ended in 1995.
b) Benefit period ended in 2002.
c) Where dividends are distributed from tax-exempt income, the Company is
liable for Company tax at a rate of 25%.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 8 - TAXATION (cont.)
B. Benefits under the Law for the Encouragement of Industry (Taxation) 1969
The Company is an "Industrial Company" under the Law for the Encouragement of
Industry (taxation) 1969.
Under this law, the Company is entitled to deduct depreciation at higher rates,
as stipulated in the regulations under the Inflationary Adjustments Law.
C. Tax on profit included in the profit and loss accounts:
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Current taxes - 811 1,486 187
Net deferred tax - (174) 16 2
Current tax in respect of prior years (*) - (4,900) 261 33
Non-deductible excess expenses paid - - 22 3
_____ _____ _____ _____
Taxes on profit (tax benefit) - (4,263) 1,785 225
_____ _____ _____ _____
_____ _____ _____ _____
(*) See section F below.
D. Composition and changes in deferred taxes:
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2004 2005 2005
Reported Reported #
amounts amounts
1. Changes during the year
Deferred taxes, beginning of period - 138 17
Company initially consolidated (36) - -
Taxes expensed during the year 174 (16) (2)
_____ _____ _____
Deferred taxes, end of period 138 122 15
_____ _____ _____
_____ _____ _____
2. Deferred taxes are presented in the balance sheet, as
follows:
As part of accounts receivable and other debit balances 166 144 18
As part of long-term deferred taxes (28) (22) (3)
_____ _____ _____
138 122 15
_____ _____ _____
_____ _____ _____
3. Composition
Temporary differences in respect of the allowance for vacation pay 5 17 2
Temporary differences in respect of the redundancy provision, net (5) (6) (1)
Temporary differences in respect of the allowance for doubtful 161 127 16
debts
Temporary differences in respect of fixed assets (23) (16) (2)
_____ _____ _____
138 122 15
_____ _____ _____
_____ _____ _____
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 8 - TAXATION (cont.)
E. Reconciliation of taxes on income
We present below a reconciliation between the theoretical tax expense, assuming
that all the income of the Company and the subsidiary were taxed at the regular
rates and the actual tax expense as reported in the profit and loss account.
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Loss on ordinary activities before taxation (21,321) (22,103) (13,059) (1,644)
_____ ______ ______ ______
_____ ______ ______ ______
Ordinary tax rates 36% 35% 34% 34%
_____ ______ ______ ______
_____ ______ ______ ______
Tax benefit computed according to the ordinary tax (7,676) (7,736) (4,440) (559)
rates
Increase/(decrease) in the tax burden:
Non-deductible expenses 1,889 60 22 3
Deduction of "extraordinary settlements" (488) (500) (180) (23)
Tax in respect of prior years - (4,900) 261 33
Differences deriving from changes in tax rates - - 13 2
Amounts in respect of which deferred taxes were not 6,078(*) 8,813 6,109 769
provided, net
Other differences 197 - - -
_____ ______ ______ ______
Taxes on income included in the profit and loss - (4,263) 1,785 225
account
_____ ______ ______ ______
_____ ______ ______ ______
(*) Reclassified.
F. Tax assessments and tax loss carryforwards
1. The Company and a subsidiary has final tax assessments for the tax years
up to and including 2003.
Other subsidiaries have not been assessed since incorporation.
2. Assessment agreement
In April 2004, an assessment agreement was signed with the tax
assessment officer whereby the order issued against the Company in respect of
the 1998 tax year, for a payment of NIS 11.7 million, including interest and
linkage differentials, was cancelled. Concurrently, the amount of the Company's
tax loss carryforward would be reduced by an amount of NIS 22 million.
As a result of the aforementioned assessment agreement, the Company
erased a provision for taxes in an amount of NIS 5 million in the first quarter
of 2004.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 8 - TAXATION (cont.)
F. Tax assessments and tax loss carryforwards (cont.)
3. Taxes under inflationary conditions
The Company and its subsidiaries are subject to the Income tax Law
(Inflationary Adjustments) - 1985, whereby the results of operations are
measured for tax purposes in real terms. The various adjustments required under
this law are designed to adjust the results for tax purposes in nominal values
to end-of-year shekels (based on the changes in the Israeli Consumer Price
Index).
4. The Company has business tax loss carryforwards as at 31 December 2005
in an amount of NIS 86 million.
In addition, the Company has capital tax loss carryforwards in an
amount of NIS 20 million.
Due to the uncertainty of taxable income in the future, the Company did
not record a deferred tax asset.
5. Reduction in company tax rates
On 25 July 2005, the Israeli parliament passed the Amendment to the
Income Tax Ordinance (No. 147) - 2005, whereby, among other things, the
corporate tax rate would be gradually reduced to the following rates: 2006 -
31%, 2007 - 29%, 2008 - 27%, and 2009 - 26% and 2010 and thereafter - 25%. In
accordance with Amendment No. 140 from July 2004, the corporate tax rates were
reduced from the then current rate of 36% to 2004 - 35% and 2005 - 34%.
Publication of the Amendment had no material impact on the results of
Company operations.
As of 2005, the tax rate on the income of a subsidiary in the U.K. is
19%.
G. Approval of the Tax Commissioner to the merger
On 12 May 2004, the Deputy Tax Commissioner gave his approval where, by virtue
of the authority granted to him under paragraphs 103T and 103I(d) of the Income
Tax Ordinance and subject to conditions in the regulations, the plan for the
merger with Kidron Plastics Ltd. was approved.
According to paragraph 103 of the Income Tax Ordinance, during the period until
the end of 2006 (hereinafter - the relevant period), the following provisions
shall be applicable to the Company:
1. The Company shall hold all of the rights in Kidron Plastics Ltd.
2. Each of the holders of rights in the Company (interested parties) and
in Kidron Plastics Ltd. shall hold all of the rights he had immediately
following the merger.
Notwithstanding the above, should one of the events listed in subparagraphs (a)
through (c) below occur, it shall not be deemed to be a change in rights
following the merger, on condition that at no time during the relevant period
the rights of any of the holders of rights in the companies participating in the
merger do not fall below 51% of any of the rights in the absorbing company:
(a) One or more of the holders of rights in the merging companies sold in
a voluntary sale during the relevant period less than 10% of the rights he had
in the absorbing company immediately subsequent to the merger date, or - if the
other holders of rights agree - a higher percentage, on condition that the total
rights being sold from all of the holders of rights does not exceed 10% of all
of the rights in the Company, prior to the allotment to someone who was not a
holder of rights prior to the merger.
(b) New shares were allotted to someone who was not a holder of rights in
the Company prior to the allotment, of a percentage that does not exceed 25% of
the share capital prior to the allotment.
(c) Shares were offered to the public on the stock exchange, as defined in
paragraph 102, under a prospectus in which it was noted that the stock exchange
agreed to list the shares for trade.
H. Approval of the Tax Commissioner to the FITE agreement
In 2005, the Company obtained the approval of the tax authorities, whereby the
agreement with the FITE Fund (see Note 21D), including the allotment of options
to FITE, does not constitute a breach of the merger agreement between Kidron
Plastics Ltd. and the Company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 9 - NET EQUITY IN PROFITS OF ASSOCIATED UNDERTAKINGS
New Israel Shekels Convenience
translation
into # (Note 2)
Year ended Year ended 31st
31st December December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Company's share in net profits (losses) 574 (516) (149) (19)
___ ___ ___ ___
___ ___ ___ ___
NOTE 10 - TANGIBLE FIXED ASSETS
A. Composition and changes
New Israel Shekels
Real Machinery Vehicles Office Leasehold Total
estate and furniture & renovations
equipment equipment
Reported amounts
Cost
Balance at 31st December 2004 26,206 78,060 1,055 1,173 164 106,658
Additions during the year 11 1,090 163 111 - 1,375
Disposals during the year - (1,015) (588) - - (1,603)
______ _______ _____ _____ _____ _______
Balance at 31st December 2005 26,217 78,135 630 1,284 164 106,430
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Accumulated depreciation
Balance at 31st December 2004 3,666 44,201 503 766 61 49,197
Charge for the year 498 5,635 156 274 13 6,576
Disposals during the year - (953) (488) - - (1,441)
______ _______ _____ _____ _____ _______
Balance at 31st December 2005 4,164 48,883 171 1,040 74 54,332
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Allowance for decline in value
(1)
Balance at 31st December 2004 - (6,903) - - - (6,903)
and at 31st December 2005
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Excess cost (2) - (5,716) - - - (5,716)
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Net book value
31st December 2005 22,053 16,633 459 244 90 39,479
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
31st December 2004 22,540 26,956 552 407 103 50,558
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
1. The loss on decline in value is included in the item entitled
"Other Expenses" in 2003 (see Notes 2(21) and 6).
2. The excess cost generated on the allocation of the negative
excess cost resulting from the write-off of the Company's liabilities to banks
(see Note 1B). The excess cost is amortised over a five-year period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 10 - TANGIBLE FIXED ASSETS (cont.)
A. Composition and changes (cont.)
Convenience translation into # (Note 2)
Real Machinery Vehicles Office Leasehold Total
estate and furniture & renovations
equipment equipment
#
Cost
Balance at 31st December 2004 3,300 9,830 133 148 21 13,431
Additions during the year 1 137 21 14 - 173
Disposals during the year - (128) (74) - - (202)
______ _______ _____ _____ _____ _______
Balance at 31st December 2005 3,302 9,840 79 162 21 13,403
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Accumulated depreciation
Balance at 31st December 2004 462 5,566 63 96 8 6,195
Charge for the year 63 710 20 35 2 828
Disposals during the year - (120) (61) - - (181)
______ _______ _____ _____ _____ _______
Balance at 31st December 2005 524 6,156 22 131 9 6,842
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Allowance for decline in value
(1)
Balance at 31st December 2004 - (869) - - - (869)
and at 31st December 2005
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Excess cost (2) - (720) - - - (720)
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
Net book value
31st December 2005 2,777 2,095 58 31 11 4,972
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
31st December 2004 2,838 3,395 70 51 13 6,367
______ _______ _____ _____ _____ _______
______ _______ _____ _____ _____ _______
1. The loss on decline in value is included in the item entitled
"Other Expenses" in 2003 (see Notes 2(21) and 6).
2. The excess cost generated on the allocation of the negative
excess cost resulting from the write-off of the Company's liabilities to banks
(see Note 1B). The excess cost is amortised over a five-year period.
B. Other Information
(1) The lease of land in Migdal Ha'Emek expires in 2043. The lease of land
in Barkan expires in 2036.
(2) Liens on fixed assets - see Note 21G.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 11 - INVESTMENTS IN INVESTEE COMPANIES
A. Investment in subsidiaries
1. Composition in Company balance sheet:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 2005 2005
Reported Reported #
amounts amounts
Cost of shares (*) 5,484 (5,470) (689)
Company share in profit (loss) accumulated since acquisition (511) 812 102
_____ _____ _____
4,973 (4,658) (587)
Shareholders' loans (**) 4,517 4,517 569
_____ _____ _____
9,490 (141) (18)
_____ _____ _____
_____ _____ _____
(*) The cost presented is net of the allocation of original amounts
resulting from the merger transaction that was handled as a reverse purchase.
See Note 1B.
(**) The loan is non-interest bearing. The balance is linked to the CPI and
no maturity date has been set.
Of this amount, an amount of NIS 2,250 thousand is a shareholders'
loan that is subordinate to the subsidiary's liabilities to banks.
2. The investment in subsidiaries is presented as follows:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 2005 2005
Reported Reported #
amounts amounts
As part of long-term investments and debit balances 9,490 1,322 166
As part of long-term liabilities - (1,463) (184)
_____ _____ _____
9,490 (141) (18)
_____ _____ _____
_____ _____ _____
B. Investment in an associated undertaking
1. Composition in Company and Consolidated balance sheet:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 2005 2005
Reported Reported #
amounts amounts
Cost of shares 1,125 1,125 142
Company share in profit (loss) accumulated since acquisition (97) (246) (31)
_____ _____ _____
1,028 879 111
_____ _____ _____
_____ _____ _____
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 11 - INVESTMENTS IN INVESTEE COMPANIES (cont.)
B. Investment in an associated undertaking (cont.)
2. Details of the associated undertaking:
The Company owns 25.1% of the shares of AFIC Printing Products Ltd.
(hereinafter - "AFIC").
C. Details of investee companies:
1. The Company has 100% ownership and control over Kidron Industrial
Investments Ltd. (formerly Technoplast Investments (1993) Ltd.). During the
reporting period, this subsidiary was inactive.
2. The Company has 100% ownership and control over Kidron Plastics
Marketing Ltd.
3. The Company has 100% ownership and control (directly and indirectly)
over Kidron Plastics Limited Partnership.
D. Goodwill
Year ended31st December 2004
Reported amounts
Original amount Accumulated Unamortized
amortization balance
New Israel Shekels 5,215 220 4,995
For information pertaining to the write-off of the goodwill in 2005 - see Note
1B.
NOTE 12 - STOCKS
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 2005 2005
Reported Reported #
amounts amounts
Raw materials and consumables 1,640 4,198 529
Finished goods 5,764 2,170 273
_____ _____ _____
7,404 6,368 802
_____ _____ _____
_____ _____ _____
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 13 - DEBTORS
A. Composition:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004(**) 2005 2005
Reported Reported #
amounts amounts
Trade debtors (1) 25,174 24,385 3,071
Government institutions - 221 28
Employees 23 90 11
Deferred taxes (*) 166 144 18
Income receivable - 79 10
Prepaid expenses 211 179 23
Controlling shareholder 233 183 23
Other debtors and prepayments 83 46 5
______ ______ ______
25,890 25,327 3,189
______ ______ ______
______ ______ ______
(1) Net of allowance for doubtful debts 6,083 6,018 758
______ ______ ______
______ ______ ______
(*) See Note 8D.
(**) Reclassified.
B. As at 31 December 2005, the Company assigned debtor balances in a total
amount of NIS 8.8 million (as at 31 December 2004 - NIS 4.5 million) to
subsidiaries. Of this amount, an amount of NIS 8.5 million is the debt of a
major customer (ZAG Industries Ltd.).
NOTE 14 - BANK LOANS AND OVERDRAFTS
A. Composition:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
Interest 2004 2005 2005
rate % Reported Reported #
amounts amounts
Unlinked short-term bank credit 6.8-8 33,597 12,100 1,524
Credit linked to Euro Libor+2% - 2,316 292
Credit linked to US dollar Libor+2% 3,579 1,062 134
Credit linked to Pound Sterling Libor+2% - 240 30
Current maturities of long-term loans 1,751 2,980 375
______ ______ ______
38,927 18,698 2,355
Net of liabilities to banking institutions, (13,589) (1,529) (193)
expected to be written-off(*)
______ ______ ______
25,338 17,169 2,162
______ ______ ______
______ ______ ______
(*) See Note 1(c).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 14 - BANK LOANS AND OVERDRAFTS (cont.)
B. A subsidiary has an agreement with the First International Bank of
Israel Ltd. whereby, in addition to liens and guarantees granted to the bank to
secure the credit placed at the disposal of the subsidiary by the bank, the
subsidiary undertook to comply with the following restrictions:
1. The subsidiary's shareholders' equity will be positive, as long as the
bank still grants the credit to the subsidiary. Commencing with the financial
statements as at 31 December 2005, the shareholders' equity will be 20% of the
total balance sheet. Implementation of this condition was postponed by the bank
to the financial statements commencing with 31 March 2006.
Shareholders' equity for this purpose is defined as the total of all
of the paid-in capital of the Company, plus capital funds, undesignated retained
earnings and subordinate shareholders' loans, less loans granted to shareholders
and/or companies affiliated with the shareholders, and less intangible assets as
appearing in the quarterly and annual financial statements of the subsidiary.
2. The shareholders' loans granted by interested parties to Kidron
Management and Holdings (1961) Ltd. will not be repaid as long as the bank still
grants the credit to the subsidiary.
C. A subsidiary has agreements with banks whereby in addition to liens and
guarantees granted to the banks to secure the credit placed at the disposal of
the subsidiary by the banks, the subsidiary undertook to comply with the
following restrictions:
1. The subsidiary's tangible shareholders' equity as at 31 December 2005,
as defined in the agreements, shall not be less than U.S.$ 500 thousand and
shall not be less than 15% of the subsidiary's total balance sheet.
2. The shareholders' loans granted by the Group to the subsidiary, in an
amount of U.S.$ 500 thousand, will not be repaid as long as the banks still
grant the credit to the subsidiary. The aforementioned shareholders' loans will
be subordinate to the liabilities of the subsidiary to the banks.
3. The subsidiary will not grant loans in any amount to its shareholders.
4. Notwithstanding the contents of paragraphs 2 and 3 above, the
subsidiary will be entitled to repay the shareholders' loans to the Group and/or
to grant loans to its shareholders commencing 31 December 2005, subject to the
fact that the tangible shareholders' equity, as defined in the agreements, will
not be less than U.S.$ 500 thousand and will not be less than 15% of the
subsidiary's total balance sheet.
The total indebtedness of the Company to banks as at 31 December 2005
amounted to NIS 8.7 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 15 - CREDITORS
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 (3) 2005 2005
Reported Reported #
amounts amounts
Trade creditors(1) (2) 19,007 18,243 2,297
Employees and institutions 1,150 1,239 156
Provision for holiday pay 509 411 52
Institutions 1,060 1,723 217
Interested parties 4 128 16
Other creditors and credit balances 717 2,071 261
______ ______ ______
22,447 23,815 2,999
______ ______ ______
______ ______ ______
(1) Long-term supplier balances 1,190 890 112
______ ______ ______
______ ______ ______
(2) Contingent supplier balances 2,863 2,905 366
______ ______ ______
______ ______ ______
(3) Reclassified.
NOTE 16 - NON-CONVERTIBLE BANK LOANS
A. Composition:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
Linkage Interest 2004 2005 2005
basis rate % Reported Reported #
amounts amounts
Long-term bank loans: US$ Libor+2% 26,562 26,693 3,361
Unlinked Prime+2.5% 268 299 38
______ ______ ______
26,830 26,992 3,399
Less current maturities (1,751) (2,980) (375)
______ ______ ______
25,079 24,012 3,024
______ ______ ______
______ ______ ______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 16 - NON-CONVERTIBLE BANK LOANS (cont.)
B. The long-term non-convertible bank loans mature as follows:
New Israel Convenience
Shekels translation
(Note 2)
31st December 31st December
2005 2005
Reported amounts #
Year following balance sheet date:
2006 - current maturities 2,980 375
2007 3,020 380
2008 3,074 387
2009 3,080 388
2010 and thereafter 14,838 1,869
______ _____
26,992 3,399
______ _____
______ _____
C. See also Note 1C.
NOTE 17 - LOANS FROM INVESTMENT FUNDS
A. Composition in Company and Consolidated:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
Interest 2004 2005 2005
rate % Reported Reported #
amounts amounts
Linkage base
U.S. dollar 8% - 16,247 2,046
______ ______ _____
______ ______ _____
B. Maturity dates:
New Israel Convenience
Shekels translation
into # (Note 2)
31st December 31st December
2005 2005
Reported amounts #
2008 5,369 676
2009 5,369 676
2010 and thereafter 5,509(*) 694
______ _____
16,247 2,046
______ _____
______ _____
(*) Including an amount of NIS 139 thousand in respect of interest which
accrued at an annual rate of 2%, payable at the end of the loan period.
C. See also Note 21D.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 18 - REDUNDANCY PROVISION
A. In accordance with a collective agreement regarding the introduction of
comprehensive pension rights, the Company makes regular payments for some of its
employees to the "Mivtachim" pension fund, which confers pension rights when
they reach retirement age.
B. Several employees are provided for by the Company in managers' insurance
policies, which include a severance component.
C. The amounts accrued in the pension fund and in the managers' insurance
are not under the Company's control. Accordingly, these sums and the related
liabilities are not included in the financial statements.
D. The balance sheet liability for future redundancy pay represents the
balance of the liability that is not covered by the abovementioned deposits and
insurance policies.
There is a funded provision in a recognised severance fund for the entire
liability.
E. The liability and funded liability for redundancy pay at the balance
sheet date are as follows:
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 2005 2005
Reported Reported #
amounts amounts
Total liabilities (539) (460) (58)
Less - funded provision in redundancy fund 555 708 89
____ ____ ____
(16) 248 31
____ ____ ____
____ ____ ____
NOTE 19 - SHARE CAPITAL AND RESERVES
1. Share capital
A. Composition:
Authorised capital Issued and fully paid
31st December 31st December
2004 2005 2004 2005
Number of ordinary shares with no par value 450,000,000 450,000,000 179,197,588 179,197,588
__________ __________ __________ __________
__________ __________ __________ __________
B. The ordinary shares confer on their owners the right to vote and to
participate in shareholders' meetings, the right to receive income and the right
to participate in net assets upon liquidation of the Company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 19 - SHARE CAPITAL AND RESERVES (cont.)
C. The Company's shares are in registered form and are listed on the
Tel-Aviv Stock Exchange and, are also listed on the Primary List of the London
Stock Exchange.
D. On 27 April, 2003, the general shareholders meeting of the Company
authorized an increase in the share capital of the Company by an amount of NIS
100,000,000 by creating an additional 100,000,000 ordinary shares, par value NIS
1 each.
On 30th September 2003, the general shareholders meeting of the
Company passed a number of resolutions regarding an increase in the registered
share capital of the Company by an amount of NIS 315,000,000, by registering
315,000,000 ordinary shares, par value NIS 1 each, and by converting all of the
ordinary shares of the Company (including those deriving from the capital
increase) into ordinary shares with no par value.
Any and all rights that the par value NIS 1 ordinary share of the
Company had, without exception, will now be linked to the non-par valve shares
E. On 17 July 2002, a private placement was made of 2,350,000 option
warrants to Dekel HaGalil Ltd. (hereinafter - "Dekel"), a private company
wholly-owned by Mr. Daniel Stern, former General Manager of the Company. The
option warrants are non-negotiable and can be exercised into 2,350,000 ordinary
shares of the Company.
The option warrants were allotted without consideration and were not listed on
the stock exchange. The base exercise price of each option warrant is NIS 1,
linked to the Index of April 2002.
The options are exercisable into the quantity of shares that will reflect just
the benefit component that derives therefrom on the date of exercise, i.e., the
difference between the base exercise price of each option and the market price
per share of the Company's no par value shares on the Tel Aviv Stock Exchange on
the date of exercise. This allotment took place as part of the terms of Mr.
Stern's employment in his duties as General Manager of the Company.
On 11 November 2003, Mr. Daniel Stern resigned from the Company. It was agreed
that, upon his resignation, 1,468,750 options of the 2,350,000 options which
were allotted to Dekel HaGalil expired.
F. For information regarding the issuance of shares as part of the Merger
Transaction with Kidron Plastics Ltd., see Note 1B.
G. As part of the compromise agreement signed with the banks in 2004 in
connection with the Company's creditors' arrangement, the Company allotted the
banks 8,131,052 option warrants that comprise at present 2.95% of the
fully-diluted share capital of the Company. The exercise price of each option
was set at US$0.0178 per share. The options are exercisable until 12 May 2009.
H. As part of the agreement signed between the Company and the FITE Fund
(see also Note 16 D.), the Company allotted to the FITE Fund 44,770,404 option
warrants that constitute at present 19.9% of the issued share capital of the
Company. The exercise price of each warrant was set at US$ 0.041 per share.
For information regarding possible adjustments to the exercise price, see Note
16 D. The option warrants are exercisable from January 2007 until July 2009.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 19 - SHARE CAPITAL AND RESERVES (cont.)
2. Share capital and reserves
New Israel Shekels
Share Premium on Capital Profit Total
capital shares funds and loss
account
Adjusted amounts
Balance at 31st January 2003 42,724 43,608 327 (64,834) 21,825
Changes during 2003
Loss for the year - - - (37,335) (37,335)
______ ______ ____ _______ ______
Balance at 31st December 2003 42,724 43,608 327 (102,169) (15,510)
______ ______ ____ _______ ______
______ ______ ____ _______ ______
Reported amounts
Changes during 2004
Capital issue against shares of a - 25,268 - - 25,268
subsidiary(*)
Share issue in cash - 2,290 - - 2,290
Loss for the year - - - (21,193) (21,193)
______ ______ ____ _______ ______
Balance at 31st December 2004 42,724 71,166 327 (123,362) (9,145)
______ ______ ____ _______ ______
______ ______ ____ _______ ______
Changes during 2005
Capital issue against shares of a
subsidiary(*)
Loss for the year - - - (14,993) (14,993)
______ ______ ____ _______ ______
Balance at 31st December 2005 42,724 71,166 327 (138,355) (24,138)
______ ______ ____ _______ ______
______ ______ ____ _______ ______
Convenience translation into # (Note 2)
Share Premium on Capital Profit Total
capital shares funds and loss
account
#
Balance at 31st January 2003 5,380 5,492 41 (8,165) 2,748
Changes during 2003
Loss for the year - - - (4,702) (4,702)
______ ______ ____ _______ ______
Balance at 31st December 2003 5,380 5,492 41 (12,866) (1,953)
Changes during 2004
Capital issue against shares of a - 3,182 - - 3,182
subsidiary(*)
Share issue in cash - 288 - - 288
Loss for the year - - - (2,669) (2,669)
______ ______ ____ _______ ______
Balance at 31st December 2004 5,380 8,962 41 (15,535) (1,152)
Changes during 2005
Capital issue against shares of a
subsidiary(*)
Loss for the year - - - (1,888) (1,888)
______ ______ ____ _______ ______
Balance at 31st December 2005 5,380 8,962 41 (17,423) (3,040)
______ ______ ____ _______ ______
______ ______ ____ _______ ______
(*) See Note 1B.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 20 - INTERESTED PARTIES
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2004 2005 2005
Reported Reported #
amounts amounts
A. Balance sheet items
Debtors 233 187 24
___ ___ ___
___ ___ ___
Highest current debit balance during the year 654 233 29
___ ___ ___
___ ___ ___
B. Transactions with interested parties
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2003 2004 2005 2005
Adjusted Reported Reported #
amounts amounts amounts
Participation in office rent and administrative - 647 713 90
expenses
Management fees to an interested party company - 337 1,003 126
C. Benefits to interested parties
New Israel Shekels Convenience
translation
into # (Note 2)
31st December 31st December
2003 2004 2005 2005 No. of
Adjusted Reported Reported # people
amounts amounts amounts
Interested parties employed by the Company(*)
Remuneration of former General Manager 801 744 - - 1
General Manager and Director - 378 607 76 1
Other interested parties - 379 607 76 1
Directors' Remuneration (not employees of the 314 153 76 9 4
Company)
(*) Including through management companies owned by them.
D. Insurance and indemnification of senior officers
The general shareholders' meeting of the Company approved the
following items: the Company's engagement of an insurance company for the
purpose of obtaining an insurance policy for the indemnification of the
Company's senior officers, including a controlling shareholder in the Company
(hereinafter - the "Policy").
The limits of liability under the Policy are U.S.$ 5 million per claim
and per insurance period and the policy is renewable periodically. The
insurance applies to senior officers who serve from time to time and/or senior
officers who are controlling shareholders and who serve in the Company from time
to time.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 20 - INTERESTED PARTIES (cont.)
D. Insurance and indemnification of senior officers (cont.)
Granting a release from liability to senior officers who serve the
Company from time to time (the "Senior Officers"), including controlling
shareholders in the Company, whereby the Company releases the Senior Officers in
advance from there liability toward the Company in respect of damages caused and
/or that will be caused by them to the Company as a result of a breach of their
duty of care, and waives claims against them. The aforementioned shall not
apply to any act of commission or omission in respect of which the Company is
prevented from doing so by the provisions of the Companies Law - 1999
(hereinafter - the "Companies Law") as shall be in effect from time to time.
Granting an undertaking to indemnify directors and senior officers
serving from time to time in the Company, including the controlling shareholder,
subject to certain conditions.
E. Guarantees of controlling shareholders in the Company
The controlling shareholders of the Company, Mr. Michael Susz and/or
Kidron Management and Holdings (1961) Ltd. gave guarantees under agreed-upon
restrictions to secure the new credit lines granted by Bank Igud Ltd., Bank
Hapoalim Ltd., and First International Bank of Israel Ltd. to Kidron Plastics
Marketing Ltd. The guarantees were granted without the Company being asked to
give the controlling shareholders in the Company any consideration or
counter-commitment.
F. For information pertaining to commitments with interested parties - see
Note 21F.
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS
A. Contingent liabilities under the Law for the Encouragement of Capital
Investments are described in Note 14A.
B. New production agreement with Z.A.G.
Following the consummation of the Merger Transaction, the Company
signed a new production agreement with Z.A.G. Industries Ltd. (hereinafter - "
Z.A.G.") on 23rd May 2004 (hereinafter - the "production agreement"), whereby
Z.A.G. undertook to transfer to the Company at least 30% of Z.A.G.'s injection
production of plastic products in Israel (whether the production is done by
Z.A.G., subcontractors or third parties), but not less than US$9 million, at
agreed-upon prices.
The production agreement is for a period of 10 years, commencing with
the signing of the agreement. Notwithstanding the above, after four years of
operation, either party is entitled to terminate the production agreement upon
advance notice of 12 months. In the event such advance notice is given, the
other party has the right to extend the advance notice period by an additional
12 months (i.e., a total of 24 months).
On 29th August 2004, the Anti-trust Commissioner exempted this
agreement from the requirement to obtain approval as a restrictive agreement for
a period of ten years.
In addition, on 23rd May, another agreement was signed among Z.A.G.,
the Company and a limited partnership owned by Kidron Industrial Investments
Ltd. (formerly Technoplast Investments (1993) Ltd.), as limited partner with the
Company as the general partner. The Limited Partnership will manufacture and
have sole global marketing rights for agreed-upon products of Z.A.G. and
products of the Company.
For purposes of its operations, the Limited Partnership will purchase
production services from the Company at agreed-upon prices and will appoint
Z.A.G. as its sole representative in North America for purposes of marketing and
selling the products of the Limited Partnership for an agreed-upon
consideration.
The marketing of the products of the Limited Partnership to the rest
of the world will be done by the Limited Partnership, at its discretion.
The agreement is for a two-year period, commencing with the date of
signing, and will be automatically extended for additional periods of two years,
unless any of the parties notifies the other party prior to the end of the
agreement period of its desire to terminate the agreement at the end of the
agreement period (either original or extension). Such notice must be given at
least three months in advance, with the other party having the right to extend
the advance notice period by an additional three months (i.e., a total of six
months).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
B. New production agreement with Z.A.G. (cont.)
On 29th August 2004, the Anti-trust Commissioner exempted this
agreement from the requirement to obtain approval as a restrictive agreement for
a period of two years.
During the third quarter of 2004, in order to realize this agreement,
the following companies were set up: the Partnership, Kidron Plastics Marketing
Ltd. and Kidron Plastics (UK) Ltd.
In respect of the granting of the manufacturing and selling license of
Z.A.G. products, Plastics Partnership undertook to pay Z.A.G. 35% of Plastics
Partnership's earnings (hereinafter - the "Commission"). Z.A.G. was granted the
option to notify Plastics Partnership, during the first two years of the
agreement, of its desire to replace the commission mechanism with another
mechanism whereby Z.A.G. would be entitled to 50% of Plastics Partnership's
earnings and would participate in 50% of the any losses incurred by the
partnership (i.e., Z.A.G. would indemnify the partnership for an amount of up to
its share in the losses of the limited partnership).
The aforementioned agreements are independent of one another.
On 16 November 2005, the Company received notice that ZAG has no intention of
extending the Marketing Agreement. This notice comprises advance notification
whereby the Marketing Agreement will terminate on 23 May 2006. In accordance
with the right granted to the Company under the provisions of the Marketing
Agreement, the Company gave notice of the extension of the advance notification
period by another six months, so that the agreement will actually terminate on
23 November 2006. The aforementioned termination notification relates solely to
the Marketing Agreement and not to the manufacturing agreement with ZAG,
described at the beginning of this section. The Company and ZAG are looking
into possible alternatives to the Marketing Agreement.
Company Management believes that the termination of the agreement will have no
material impact on the results of the Company.
C. Agreement with Hydro Tinat Industries Ltd. (hereinafter - "Hydro")
During 2005, the Company signed an updated agreement with Hydro,
prescribing the continued provision of manufacturing services by the Company as
a subcontractor for Hydro. This agreement is the successor of a similar
agreement signed in 2004. Under the agreement, the Company will purchase all
raw materials and all the product parts which are not manufactured by the
Company, except for a motor that is manufactured by Hydro and supplied to the
Company by Hydro.
D. The FITE Agreement
On 16 May 2005, an agreement was signed (hereinafter - the "Agreement") between
the Company and the partnerships managed by FITE GP 2004 Ltd. (hereinafter - the
"General Partner") (the partnerships managed by the General Partner hereinafter
together - the "Fund"), whereby the Fund would provide loans to the Company in a
total amount of US$ 3.5 million (hereinafter - the "Loan"), and the Company
would allot to the Fund option warrants to purchase shares of the Company in
return for an investment of money in the Company (hereinafter - the "Private
Placement"), as detailed below.
On 27 July 2005, the Company received all of the necessary approvals needed to
consummate the transaction and the Company and the Fund consummated the
transaction, as follows:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
D. The FITE Agreement (cont.)
The agreement was comprised of two transactions, to be carried out in two
different stages.
The first transaction - In the first phase, the Fund would grant the Company a
loan in an amount of US$ 1 million (hereinafter - the "First Loan"). In the
event that the second transaction were not consummated (as detailed below), the
lenders would be entitled to demand repayment of the First Loan, plus dollar
interest at a rate of 10% per annum, following the issuance of the Company's
financial statements for the second quarter of 2005, and the Company would be
required to repay the said loan within 90 days following receipt of the payment
demand.
In the event that the conditions for the second transaction were not fulfilled
and the First Loan plus accrued interest was not repaid, the Company would have
two options: (a) it could convert for the lenders the entire amount of the loan
plus accrued interest into Company shares at a Company value of US$ 4 million
(pre-money), up to a maximum of 19.99% of the shares of the Company, with any
balance to be paid in cash, or (b) it could transfer to the lenders the shares
of Kidron Plastics Ltd. (which are owned by the Company).
Consummation of the First Transaction was subject to the fulfilment of a number
of procedural pre-conditions and to obtaining the approval of the Company's
board of directors and the approval of the banks to amend the agreement signed
with them on 3 May 2004. On 16 May 2005, the board of directors of the Company
approved the agreement.
The second transaction - In the second phase, the Fund would grant the Company a
loan in an amount of US$ 2.5 million (hereinafter - the "Additional Loan").
Upon the granting of the Additional Loan, the terms of the First Loan would be
equalized with the terms of the Additional Loan (the First Loan and the
Additional Loan shall be referred to hereinafter as the "Loan"). The Loan
amount (US$ 3.5 million) would bear interest at an annual rate of 8%, 6% of
which was to be paid in two semi-annual payments and the balance (2%) was to be
paid at the end of the loan period (within 5 years from the date of grant of the
First Loan), on condition that the options, as detailed below, are not
exercised. The Loan amount would be repaid in six equal annual instalments
commencing 3 years after the date of grant of the First Loan (or at an earlier
date upon demand of the lenders in the event that the options are fully
exercised).
Concurrent with the Additional Loan, the Company would grant the Fund options to
purchase shares of the Company (hereinafter - the "Options") in a total amount
of US$ 3.5 million, at an exercise price to be derived from a Company value of
US$ 7.5 million (pre-money), subject to certain adjustments deriving from, among
other things, the stock market price of the Company shares at various times,
subject to the restriction that the adjustments to the price of the shares of
the Company shall result in a market cap of less than US$ 4 million.
Consummation of the Second Transaction was contingent upon the fulfilment of a
number of pre-conditions including: compliance of the Company with a financial
index to measure the efficiency of the Company's plant in Migdal Ha'Emek,
approval of the general shareholders meeting of the Company, approval of the
Income Tax Authority, approval of the banks, approval of the Tel Aviv Stock
Exchange, and any other approvals required from third parties and by law. In
addition, consummation of the Second Transaction was contingent upon the signing
of a shareholders agreement between the controlling shareholders of the Company
and the Fund, whereby the parties to the shareholders agreement would undertake
to vote their shares when appointing directors in accordance with the
stipulations of the shareholders agreement.
As mentioned above, on 27 July 2005, the transaction was consummated (the first
and second phases were consummated simultaneously) and the following details
were corrected in the agreement:
In view of the deliberations with the Income Tax Authority, the agreement with
the Fund was amended as follows ("the amendment to the original agreement"):
1. The Fund has the right to convert the option warrants into 44,771,404
shares of the Company, which comprise 19.9% of the Company's issued share
capital.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
D. The FITE Agreement (cont.)
2. In the event that the Fund exercised the option warrants, creating a
gap between the quantity of shares to be actually allotted to the Fund and the
number of shares to which the Fund was entitled to receive under the original
agreement, the Company will be entitled to elect one of the following two
alternatives:
- To allocate to the Fund the balance of the shares in accordance with
the provisions of the original agreement.
- To pay the Fund a n amount in cash equal to the difference between the
value of the shares that were supposed to have been allocated to the Fund under
the original agreement and the shares actually allocated to the Fund in lieu of
the aforementioned allocation. For purposes of this calculation, the "value of
the shares" means the difference between the market value of the shares on the
stock exchange and the exercise price of the option.
E. Guarantees
The Company is a guarantor in favor of a former subsidiary, as part of
a discontinued operation, in an amount of U.S.$ 500 thousand. See also Note
23A.
In the past, the Company gave a guarantee to a certain bank to secure
the payment of the debts of Kidron Plastics Ltd., a subsidiary. The guarantee
replaced the guarantee that Kidron Management and Holdings (1961) Ltd. had
previously given to that bank. Removal of the guarantee of Kidron Management
and Holdings (1961) Ltd. was a precondition to the allotment agreement dated 31
August 2003. As at the balance sheet date, the debt of Kidron Plastics Ltd. to
the bank in respect of credit granted to Kidron Plastics Ltd. by the bank,
amounted to NIS 5 million and is used to finance inventories and receivables.
The Company and interested parties are guarantors to secure the
payment of the liabilities of a subsidiary to banks. As at 31 December 2005,
the outstanding balance of the liabilities o fthe subsidiary to the banks
amounted to NIS 9.5 million.
F. Litigation
1. In November 2005, a suit was filed against the Company by a supplier in
an amount of NIS 314 thousand. The plaintiff claims that the Company did not
pay for services rendered. On 15 January 2006, the Company filed its defense
brief. Upon the recommendation of the court, the parties submitted the claim to
arbitration. A date has not yet been set for the commencement of the process.
Due to the early stage of the process, Company Management, based on
its legal counsel, cannot evaluate the chances of success of the suit.
2. Subsequent to the balance sheet date, a supplier filed suit against the
Company in an amount of NIS 228 thousand, alleging that the Company did not pay
its debt for raw materials supplied. The Company filed a request to defend
itself, but a date for a hearing on the petition has not yet been set. Due to
the early stage of the audit, Company Management, based on its legal counsel,
cannot evaluate the chances of success of the suit.
3. Monetary suits were filed in the Tel Aviv District Labor Court against
the Company and against the manpower contractor the Company worked with, by the
employees of the manpower contractor. The suits, in an amount of NIS 92
thousand, were in respect of a failure to pay severance pay, unutilized annual
vacation pay, recreation pay, and advance notice pay.
The Company's legal counsel cannot presently assess the chances of the
defense against the suits and, therefore, no provision in respect thereof was
made in the financial statements.
4. For information regarding tax assessments, see Note 8F.
5. For information regarding the creditors' agreement, see Note 1C.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
G. Other commitments
1. As part of the allotment agreement signed in May 2004, the Company and
Kidron Management and Holdings (1961) Ltd. (hereinafter - "Kidron Management")
signed a management agreement, worded as follows: Kidron Management will render
business management services to the Company, including provision of active
chairmanship services, consultancy on matters of business development and
promotion, strategic consultancy, and assistance in managing the dealings of the
Company with the banks who are the major financers of the Company's operations.
Kidron's intention is that Mr. Michael Susz would serve as active chairman, even
though there is no guarantee that he would serve in this capacity for the entire
agreement period. In return, Kidron Management would receive management fees of
US$ 10 thousand a month. In addition, if the earnings of the Company before
interest, taxes, and depreciation (EBITDA), as reported in its annual
consolidated financial statements exceed NIS 3 million, Kidron Management would
be entitled to an aggregate annual bonus, as follows:
- On EBITDA of up to NIS 5 million, Kidron will be entitled to 2% of the
EBITDA.
- On EBITDA of between NIS 5 - 7 million, Kidron will be entitled to 3% of
the EBITDA over NIS 5 million.
- On EBITDA of between NIS 7 - 9 million, Kidron will be entitled to 4% of
the EBITDA over NIS 7 million.
- On EBITDA of more than NIS 9 million, Kidron will be entitled to 5% of the
EBITDA over NIS 9 million.
The aforementioned bonus in respect of the first year will be computed
proportionately to the part of the year after the agreement went into effect.
As part of the aforementioned agreement, it was stipulated that the
Company would participate in all of the maintenance costs of the office of
Kidron Management, pro rata with the floor space of the offices that are
earmarked to provide services to the Company as a percentage of Kidron
Management's entire office space. In addition, the Company will play Kidron
Management a proportional share of Kidron Management's expenses in respect of
secretarial services, facsimile, telephone, photocopying, computing, and
bookkeeping. As part of the second amendment, it was stipulated that the
Company's participation in Kidron Management's expenses would not exceed an
amount of NIS 300,000 per annum. Linked to the exchange rate of the U.S. dollar.
In addition, the Company will pay for the usage of a car and cellular
phone by the active chairman as well as his actual travel expenses.
2. In February 2003, the Company signed a long-term agreement pertaining
to real estate it owns in the Barkan industrial zone. In respect of this
agreement, the Company will receive annual rents (linked to changes in the
exchange rate of the US dollar) in an amount of US$ 140 thousand.
3. The Company is party to an agreement for the provision of management
services and consultancy to a subsidiary, in return for an amount of U.S.$ 8,333
a month.
4. A subsidiary is party to an agreement for the rental of 2 buildings
covering an area of 800 sq.m. in Haifa. The buildings are to be used for
maintaining and operating a workshop, for manufacturing, marketing, and
importing raw materials for industrial purposes. The agreement is valid until
31 December 2005.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
H. Liens
1. To secure compliance with the terms of the receipt of investment
grants, a lien, unlimited as to amount, was placed on the assets of the Company
in favour of the State of Israel.
2. To secure repayment of the Company's liabilities to banks, the Company
gave a lien on its machinery and equipment, and on a bank deposit and notes
deposited with the bank.
3. In 2003, the Company signed agreements whereby it placed a floating
lien in favour of banks, a fixed lien on the building and property in Barkan and
a fixed lien on the building and property in Migdal Ha'Emek, against the
increase of its credit line from one of the banks.
4. As at 31 December 2005, total liabilities of the Group to banking
institutions in an amount of NIS 53 million are secured by liens.
5. A subsidiary pledged in favour of the First International Bank of
Israel Ltd. All of its assets, including all existing and future rights of any
kind or type.
The amount secured by these liens totals NIS 5,303 thousand as at 31
December 2005.
6. As part of the FITE agreement (see Note 21D), the Company placed a
fixed first-degree line on the Company's shares in Kidron Plastics Ltd., in
favour of FITE.
NOTE 22 - BUSINESS SEGMENTS
A. General
Group companies are engaged in three main business segments:
Manufacturing and marketing as a subcontractor (including for Z.A.G.),
manufacturing of self manufactured products, and importing and marketing raw
materials for the chemical industry.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 22 - BUSINESS SEGMENTS (cont.)
B. Business segments
Consolidated 2005
1. Profit and loss data
a. Reported amounts - New Israel Shekels
New Israel Shekels
Year ended 31 December 2005
Production Production & Import & Total
of self marketing - marketing of consolidated
manufactured subcontracting raw materials
products (including for chemical
Z.A.G.) industry
Reported amounts
Sales turnover:
Outside customers 20,991 67,489 19,905 108,385
______ ______ ______ ______
______ ______ ______ ______
Segment results (726) (13,695) 4,530 (9,891)
Unallocated financing expenses (5,164)
Other expenses, net 598
Gain on erasure of liabilities to 1,398
banks
Taxes on income (1,785)
Net equity in losses of associated (149)
undertaking
______
Loss for the year (14,993)
______
______
b. Convenience translation
Convenience translation into # (Note 2)
Year ended 31 December 2005
Production Production & Import & Total
of self marketing - marketing of consolidated
manufactured subcontracting raw materials
products (including for chemical
Z.A.G.) industry
#
Sales turnover:
Outside customers 2,642 8,500 2,507 13,649
______ ______ ______ ______
______ ______ ______ ______
Segment results (91) (1,725) 570 (1,246)
Unallocated financing expenses (650)
Other expenses, net 75
Gain on erasure of liabilities to 177
banks
Taxes on income (225)
Net equity in losses of associated (19)
undertaking
______
Loss for the year (1,888)
______
______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 22 - BUSINESS SEGMENTS (cont.)
B. Business segments
Consolidated 2005
2. Other information
a. Reported amounts - New Israel Shekels
New Israel Shekels
31 December 2005
Import & marketing Others Total
of raw materials for consolidated
chemical industry
Reported amounts
Segmental assets 13,875 60,376 74,251
______ ______ ______
______ ______ ______
Segmental liabilities 10,045 88,344 98,389
______ ______ ______
______ ______ ______
General long-term assets - cost - attributed to 176 1,199 1,375
continuing operation
______ ______ ______
______ ______ ______
General depreciation and amortization 143 6,824 6,967
______ ______ ______
______ ______ ______
General non-cash expenses excluding 58 1,852 1,910
depreciation and amortization - attributed to
continuing operation
______ ______ ______
______ ______ ______
b. Convenience translation
Convenience translation into # (Note 2)
31 December 2005
Import & marketing Others Total
of raw materials for consolidated
chemical industry
# # #
Segmental assets 1,747 7,604 9,351
_____ _____ _____
_____ _____ _____
Segmental liabilities 1,265 11,126 12,391
_____ _____ _____
_____ _____ _____
General long-term assets - cost - attributed to 22 151 173
continuing operation
_____ _____ _____
_____ _____ _____
General depreciation and amortization 18 859 877
_____ _____ _____
_____ _____ _____
General non-cash expenses excluding 7 233 240
depreciation and amortization - attributed to
continuing operation
_____ _____ _____
_____ _____ _____
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 22 - BUSINESS SEGMENTS (cont.)
B. Business segments (cont.)
Consolidated 2004
1. Profit and loss data
a. Reported amounts - New Israel Shekels
New Israel Shekels
Year ended 31 December 2004
Production Production & Import & Total
of self marketing - marketing of consolidated
manufactured subcontracting raw materials
products (including for chemical
Z.A.G.) industry(*)
Reported amounts
Sales turnover:
Outside customers 41,335 54,037 11,496 106,868
______ ______ ______ ______
______ ______ ______ ______
Segment results (4,488) (12,782) 2,069 (15,201)
Unallocated financing expenses (3,817)
Other expenses, net (3,085)
Tax on profit on ordinary (637)
activities
Tax benefit in respect of 4,900
previous year
Net equity in losses of (516)
associated undertaking
______
Loss from continuing operations (18,356)
Loss from discontinued (2,837)
operations
______
Loss for the year (21,193)
______
______
(*) For the period from 13 May 2004.
2. Other information
a. Reported amounts - New Israel Shekels
New Israel Shekels
31 December 2004
Import & marketing of Others Total
raw materials for consolidated
chemical industry
Reported amounts
Segmental assets 9,680 83,509 93,189
_______ _______ _______
_______ _______ _______
Segmental liabilities 8,385 93,949 102,334
_______ _______ _______
_______ _______ _______
General long-term assets - cost - attributed to 26 1,317 1,343
continuing operation
_______ _______ _______
_______ _______ _______
General depreciation and amortization 140 7,345 7,485
_______ _______ _______
_______ _______ _______
General non-cash expenses excluding depreciation 44 125 169
and amortization - attributed to continuing
operation
_______ _______ _______
_______ _______ _______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 22 - BUSINESS SEGMENTS (cont.)
B. Business segments (cont.)
Consolidated 2003
1. Profit and loss data
a. Reported amounts - New Israel Shekels
New Israel Shekels
Year ended 31 December 2003
Production Production & Total
of self marketing - consolidated
manufactured subcontracting
products (including Z.A.G.)
Reported amounts
Sales turnover:
Outside customers 56,103 41,309 97,412
______ ______ ______
______ ______ ______
Segment results (6,985) (3,004) (9,989)
Unallocated financing expenses (2,884)
Other expenses, net (8,448)
Net equity in earnings of associated undertaking from 574
continuing operating
______
Loss from continuing operations (20,747)
Loss from discontinued operations (16,588)
______
Loss for the year (37,335)
______
______
2. Other information
New Israel Shekels
31 December 2003
Total consolidated
Reported amounts
General assets 87,286
Assets attributed to discontinued operation 55,790
_______
Total consolidated assets 143,076
_______
_______
General liabilities 87,549
Liabilities attributed to discontinued operation 71,037
_______
Total consolidated liabilities 158,586
_______
_______
Long-term assets - cost
General long-term assets - cost - attributed to continuing operation 1,245
General depreciation and amortization - attributed to continuing operation 15,340
General non-cash expenses excluding depreciation and amortization - attributed 1,088
continuing operation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 22 - BUSINESS SEGMENTS (cont.)
C. Geographical segments
1. Consolidated - in 2005
Revenues by source
Geographical segments
New Israel Shekels
Year ended 31 December 2005
Israel U.S.A. Europe Other Consolidated
Reported amounts
Sales turnover to outside customers 89,557 - 14,058 4,770 108,385
______ ______ ______ _____ ______
______ ______ ______ _____ ______
Convenience translation into # (Note 2)
Year ended 31 December 2005
Israel U.S.A. Europe Other Consolidated
# # # # #
Sales turnover to outside customers 11,278 - 1,770 601 13,649
_____ _____ _____ ____ ______
_____ _____ _____ ____ ______
2. Consolidated - in 2004
Revenues by source
Geographical segments
New Israel Shekels
Year ended 31 December 2004
Israel U.S.A. Europe Other Consolidated
Reported amounts
Sales turnover to outside customers 69,414 1,909 28,220 7,325 106,868
______ ______ ______ _____ ______
______ ______ ______ _____ ______
3. Consolidated - in 2003
Revenues by source
Geographical segments
New Israel Shekels
Year ended 31 December 2003
Israel U.S.A. Europe Other Consolidated
Adjusted amounts
Sales turnover to outside customers 48,477 8,807 34,077 6,051 97,412
______ ______ ______ _____ ______
______ ______ ______ _____ ______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 23 - LINKAGE BASIS
Linkage basis of monetary assets and liabilities as of 31st December 2005
(consolidated):
a. Reported NIS
New Israel Shekels
Denominated in Linked to the Unlinked Non-monetary Total
or linked to ICPI items
foreign
currency
Reported amounts
Assets
Cash and cash equivalents 1,053 - 77 - 1,130
Trade debtors 14,641 - 9,744 - 24,385
Other debtors 14 - 605 323 942
Stocks - - - 6,368 6,368
Long-term investments and debit - - 248 879 1,127
balances
Tangible assets - - - 39,479 39,479
Other assets - - - 820 820
______ ______ ______ _______ _______
Total assets 15,708 - 10,674 47,869 74,251
______ ______ ______ _______ _______
______ ______ ______ _______ _______
Liabilities
Bank loans and overdrafts (net of 3,618 - 10,571 - 14,189
current maturities)
Trade creditors 6,458 - 15,580 - 22,038
Other creditors 554 - 5,018 - 5,572
Deferred taxes - - - 22 22
Long-term loans 26,693 - 299 - 26,992
Loan from investment funds 16,247 - - - 16,247
Liabilities to banking institutions, - - 1,529 - 1,529
expected to be written-off
Liabilities to be repaid out of - - 10,000 - 10,000
future income
Liabilities attributed to 1,800 - - - 1,800
discontinued operations
______ ______ ______ _______ _______
Total liabilities 55,370 - 42,997 22 98,389
______ ______ ______ _______ _______
______ ______ ______ _______ _______
Surplus (deficit) of assets over (39,662) - (32,323) 47,847 (24,138)
liabilities
______ ______ ______ _______ _______
______ ______ ______ _______ _______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 23 - LINKAGE BASIS (cont.)
Linkage basis of monetary assets and liabilities as of 31st December 2005
(consolidated) (cont.):
b. Convenience translation
Convenience translation into # (Note 2)
Denominated in Linked to the Unlinked Non-monetary Total
or linked to ICPI items
Foreign
currency
Reported amounts
Assets
Cash and cash equivalents 133 - 10 - 143
Trade debtors 1,844 - 1,227 - 3,071
Other debtors 2 - 76 40 118
Stocks - - - 802 802
Long-term investments and debit - - 31 111 142
balances
Tangible assets - - - 4,972 4,972
Goodwill - - - 103 103
______ ______ ______ _______ _______
Total assets 1,979 - 1,344 6,028 9,351
______ ______ ______ _______ _______
______ ______ ______ _______ _______
Liabilities
Bank loans and overdrafts (net of 456 - 1,331 - 1,787
current maturities)
Trade creditors 813 - 1,962 - 2,775
Other creditors 70 - 632 - 702
Deferred taxes - - - 3 3
Long-term loans 3,362 - 38 - 3,400
Loan from investment fund 2,046 - - - 2,046
Liabilities to banking institutions, - - 193 - 193
expected to be written-off
Liabilities to be repaid out of - - 1,258 - 1,258
future income
Liabilities attributed to 227 - - - 227
discontinued operations
______ ______ ______ _______ _______
Total liabilities 6,974 - 5,414 3 12,391
______ ______ ______ _______ _______
______ ______ ______ _______ _______
Surplus (deficit) of assets over (4,995) - (4,070) 6,025 (3,040)
liabilities
______ ______ ______ _______ _______
______ ______ ______ _______ _______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(In thousands)
NOTE 24 - DISCONTINUED OPERATION
1. The sale of the shares in Smart Modular Storage Systems Ltd.
(hereinafter - "SMS")
On 16 March 2004, the board of directors of the Company approved the
sale of all of the shares and rights of the Company in SMS to a third party, in
return for the cancellation of the Company's guarantee of the debts of SMS to a
bank and in return for an amount equal to 15% of the annual net income of SMS in
excess of NIS 3 million, attributed to the shares being sold, but not to exceed
an aggregate amount of NIS 650 thousand linked to the Israeli Consumer Price
Index over a period of 60 months.
The Company included in the results of discontinued operations an
amount of NIS 2.8 million for the first quarter of 2004. In accordance with
Opinion No. 57 of the Institute of Certified Public Accountants in Israel, the
Company also included in the results of its operations for the first quarter,
the minority share in the shareholders' deficit of SMS, which exceeds SMS's
liabilities to the minority shareholders and the guarantees received from the
minority shareholders.
The Company waived the requirement that the purchaser undertake to
provide a guarantee in an amount of NIS 1.8 million in favor of a certain bank.
2. Summary of Profit and Loss Accounts
New Israeli Shekels
Year ended
31st December
2003 2004(1)
Adjusted Reported
amounts(2) amounts
Turnover 52,507 9,643
Cost of sales 43,715 8,476
_______ _______
Gross profit 8,792 1,167
Selling, research and development, general and administration expenses (20,900) (2,696)
_______ _______
Operating loss before other expenses (12,108) (1,529)
Other income (expenses), net (9,080) 152
_______ _______
Loss on ordinary activities before financial expenses (21,188) (1,377)
Net financial expenses (2,990) (1,738)
_______ _______
Loss on ordinary activities before taxation (24,178) (3,115)
Tax on profit on ordinary activities (41) -
_______ _______
Loss on ordinary activities after taxation (24,219) (3,115)
Minority share in loss of investee 7,631 278
_______ _______
Loss for the year (16,588) (2,837)
_______ _______
_______ _______
(1) Unaudited for the period ended 31 March 2004.
(2) Adjusted to the NIS of December 2003.
APPENDIX
LIST OF INVESTEE COMPANIES
AS AT 31 DECEMBER 2005
Voting rights Ownership
% %
Subsidiaries 100 100
Kidron Investments Ltd. (1) 100 100
Kidron Plastics Ltd. 100 100
Kidron Plastics Marketing Ltd. 100 100
Kidroon Plastics Limited Partnership 100 100
Kidron Plastics U.K. 100 100
Associated undertaking
AFIC Printing Products Ltd. 25.1 25.1
(1) Inactive companies
This information is provided by RNS
The company news service from the London Stock Exchange
END
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