Shefa Gems Annual Report 2019

← All annual reports

FY2019 Annual Report · Shefa Gems

Loading PDF…

B"H

SHEFA GEMS LTD.

Annual Report and Accounts

for the year ended 31 December 2019

Shefa Gems | Annual Report & Financial Statements 2019

Contents

Directors, Secretary & Advisers

2019 Highlights and Post Period End Events

Strategic Report - Chairman’s Statement and Operational Review

Business Review & Strategic Report

Chief Financial Officer’s Review

Principal Risks and Uncertainties

Directors & Management Biographies

Directors’ Report

Directors’ Remuneration and Interests

Corporate Governance Report

Directors’ Remuneration Report

Financial Statements

Directors, Secretary & Advisors

Shefa Gems | Annual Report & Financial Statements 2019

Directors & Management

Michael Rosenberg, OBE
Chairman of the Board

Tali Shalem
Chief Executive Officer

Yosef Itzack Taub
Director

James AH Campbell
Independent Non-Executive Director

Nathalie Schwarz
Independent Non-Executive Director

David Nachshon
Independent Non-Executive Director

Gershon Fraenkel
Independent Non-Executive Director

Zvi Nemeth
Independent Non-Executive Director

David Ben-David
Chief Financial Officer

Registered Office
90 Herzel Street, P.O.Box 720,
Netanya – 4210602, Israel

Operational Area & Laboratories
Southern Industrial Zone – Akko, Israel

Management Company
One Hundred & One Gold Holdings Ltd
(“101 Gold Holdings Ltd”). Netanya Israel

Financial Adviser
VSA Capital Limited
New Liverpool House, 15 Eldon Street,
London, EC2M 7LD

Broker
SI Capital Limited
13 Hanover Square London, W1S 1HN

Auditors and Reporting Accountants
Barzily & Co.
Har Hotzvim' 19 Hartom9, Jerusalem,
197775, Israel

Registrar
Computershare Investor Services (Jersey)
Limited, Queensway House, Hilgrove Street,
St Helier, Jersey, JE11ES

Legal advisers to the Company as to English
law
Axiom Stone Solicitors
1 Berkeley Street, Mayfair, London, W1J 8DJ

Legal advisers to the Company as to Israeli
law
ABDGM & Co Law Firm
Giborey Israel Street 24, Netanya – 42504,
Israel (P.O.B 8716)

Depositary
Computershare Investor Services Plc
The Pavilions
Bridgwater Road, Bristol, BS13 8AE

Shefa Gems | Annual Report & Financial Statements 2019

2019 Highlights and Post Period End Events

Kishon Mid-Reach

•

Inferred Mineral Resource

Kishon Mid-Reach Zones 1 and 2 upgraded to
an
following
Competent Person's Report ("CPR") update –
Gem Box suite has an approximate contained
revenue of US$41/t
(“TEE”)
Technical Economic Evaluation
completed, giving strong endorsement of the
quality and potential of Kishon Mid-Reach
project
independent gemmological
Received an
expert opinion and valuation of the precious
gemstone suite from Dr Gavrielov Gila
Received highest grade bulk sampling results
to date in the Kishon Mid-Reach Zone 2
Carmeltazite, found in the Carmel Sapphire™
recognised as a new mineral in nature

• Discovered the

first naturally occurring

•

Vanadium metal hydride
Prospecting Licence (869C9) for Zone 1
renewed for 12 months which led to the
formal grant of a Certificate of Discovery
Exploration results from drilling and bulk
sampling in the Kishon Mid-Reach Zone 1 and
2 amounted to approximately 15,000 carats
of gemstones
All exploration and prospecting permits
renewed for a further year, covering the
Kishon catchment (including Kishon Mid-
Reach Zones 1, 2, 3), Mount Carmel and the
Zevulun and Yizre'el valleys and their margins

Corporate and Financial

•

Appointed Michael Rosenberg OBE as
Chairman of the Board, separating the roles
of Chairman and Chief Executive Officer
Avi Taub (“Avi”), Chief Executive Officer of
the Company, passed away following a short
illness
Conducted a 10 for one share split of Shefa
Gems shares traded on the Standard List of
the London Stock Exchange to
improve
liquidity in the shares

•

fund

from new
its development

Raised £1.0 million equity
shareholders
to
activities
A total of £253,053 in convertible loan notes
were converted into shares at 5.0p per share.
• Granted a trademark for the Company’s new
name, Shefa Gems Ltd® by the UK Intellectual
Property Office
First jewellery collection using Shefa Gems
gemstones
Earth’
completed by renowned jewellery designer,
Yossi Harari

‘Heaven on

titled

•

Post Period Highlights

•

Paradigm Project Management (Pty) Ltd
("PPM"), completed its Technical Economic
Evaluation ("TEE") report placing the first
mine in Kishon Mid-Reach Zone 1 at the lower
end of the cost curve
Awarded the Certificate of Discovery for the
gemstone mine development in the Kishon
Mid-Reach, Zones 1 and 2 in March 2020, a
significant step towards future commercial
mining
Carmeltazite selected as Mineral of the Year
International Mineralogical
2018 by the
Association (IMA)
In April 2020, the Tel Aviv District Court
confirmed the provisional sale of the Israeli
former parent company and the distribution
of its shares in Shefa Gems Ltd to its own
shareholders. Further details will be provided
these arrangements have been
once
completed.
In May 2020, a total of £1,250,179
in
convertible loan notes were converted into
shares at an average price of 4.9p per share
Avi’s son Yosef (Yossi) Itzhak Taub joined the
Board as Director in January 2020 and a new
Executive Committee was created
Vered Toledo was appointed as CEO from
January 2020 and then succeeded by Tali
Shalem in June 2020

• Mr Zvi Nemeth replaced Hanoch Erlich on

board of directors in June 2020

Shefa Gems | Annual Report & Financial Statements 2019

Business Review & Strategic Report

Chairman’s
Operational Review

Statement

and

am delighted to report on the Company’s
audited results
for the year ended 31
December 2019, my first set of full year results

as Chairman of Shefa Gems.

My conviction in the potential of the Shefa Gems
project is as strong now as it has ever been, largely
due to the excellent progress that has been made,
particularly over the last 12-18 months. The
Company has reached multiple milestones in the
development of our Kishon Mid-Reach projects as
well as in the advancement of our ‘Mine-to-
Market’ strategy. Of course, the COVID-19
outbreak has impacted us all,
but for Shefa it does not change
the special nature of our unique
precious gem mine opportunity.

Mining strategy execution
There have been many positives
in our mining activities over the
course of the year. Kishon Mid-
Reach, Zones 1 and 2 were
upgraded from an Exploration
Project to an Inferred Mineral
Resource
the
Competent Person's Report
update.

following

Our Technical Economic Evaluation was also
completed along with an independent gemstone
valuation, both giving strong endorsements to the
unique quality of our stones and the commercial
potential of the Kishon Mid-Reach project.

Furthermore, all our prospecting licenses and
exploration permits have been renewed. Most
importantly, in March 2020, we were awarded a
Certificate of Discovery for the projected mine
development in the Kishon Mid Reach, Zones 1
and 2. The uniqueness of Shefa Gems’ Carmel

Sapphire™ gemstone was recognised as significant
to the commercial feasibility of the project. The
award of the Certificate of Discovery is a great
achievement and marks another key step towards
our goal of commercial mining.

Brand building
To strengthen the Company’s brand to reflect our
‘Mine-to-Market’ strategy, we renamed the
Company from ‘Shefa Yamim ‘to ‘Shefa Gems’.
This change has enabled the Company to focus on
building a global brand by leveraging the positive
value associated with our rare and unique
gemstones. We are very engaged in exploring the
best partners to ensure the success of our
strategy.

Throughout
the year, our
gemstones have been growing
internationally.
in reputation
Notably,
mineral
the
Carmeltazite, which is found in
our Carmel Sapphire™, received
official recognition as a new
mineral
in nature and was
selected by the International
Mineralogical Association (IMA)
as Mineral of the Year 2018.

strategy

So far we have collected a stock
of gemstones amounting to
approximately 15,000 carats of various stones
through our bulk sampling process from our
exploration activities in Kishon Mid-Reach Zone 1
and 2. We intend to utilise these as part of our test
marketing
to necessary
approvals. As a result, we were able to launch our
first
jewellery collection using our precious
gemstones, which was designed and created by
world-renowned jewellery designer Yossi Harari.
Marketed worldwide, our ‘Heaven on Earth’
jewellery collection was well received, bringing
recognition and awareness to the Shefa Gems
name.

subject

Shefa Gems | Annual Report & Financial Statements 2019

Business Review & Strategic Report

Strengthening of Board

Though there have been many highs, it has also
been a challenging year as our late Founder and
CEO, Avi Taub, passed away following a short
illness. Avi was instrumental to the growth and
development of the business and is sorely missed
by all in the Company. Post period, Vered Toledo,
previously our COO, was appointed as the new
CEO of Shefa Gems. Having worked closely with
Avi for many years, Vered continued his work,
bringing her expertise, vast experience and
relentless zeal for the Company. However, after
over 21 years with the company she decided in
June this year to retire and hand over her
responsibilities as CEO to Tali Shalem, the
daughter of Avi Taub.

We also welcomed Avi’s son, Yossi Taub, to join
the Board as a Director. Yossi and Tali have both
worked with their father in the development of
the company for many years and share Avi’s
passion and belief in the project.

In June 2020 Hanoch Erlich stepped down as a
director and was replaced by Mr Zvi Nemeth.

I was appointed as Chairman to the Board having
previously served as an
Independent Non-
Executive Director. The Company decided to
separate the roles of CEO and Chairman, in line
with high corporate governance standards.

Looking ahead

In the year ahead, the Company is poised to move
into an exciting new phase of its life. We will
continue to push forward with our goal of
first and only precious
developing
gemstones mine, whilst also developing our global
‘Mine-to-Market’ strategy, selling precious stones
from the Holy Land.

Israel’s

As a result of the COVID-19 situation, we have
taken action to reduce costs whilst ensuring that
all concerned are as safe as possible. We are not
yet able to assess the full impact of the outbreak
on the schedules for the promotion and obtaining

of necessary permits. However, it is our aim to
acquire these permits within the next 12 months.

It has been a pleasure to serve as Chairman to the
Company during this time of significant change
and development and I would like to thank the
Board, our management team and staff for their
hard work and commitment. I would also like to
thank our loyal shareholders for their ongoing
support. Naturally, we need to seek long term
financing for the business while it remains an
exploration company with little opportunity to
generate income, and the Board is working hard to
ensure that we can access those funds on suitable
terms. We continue to look ahead with optimism
and confidence.

Operational Review

Updated CPR – Maiden resource for Kishon Mid-
Reach project

the

Significantly,

The Kishon Mid-Reach Zone 1 and Zone 2 have
been upgraded to an Inferred Mineral Resource
following the completion of the CPR update in
December 2019.
report
concludes that the Company's overall Gem Box
suite is estimated to have a contained revenue of
US$41/t. This is led by the Carmel Sapphire™,
which due to its high intrinsic value and the
presence of large stones, is valued at US$35/t. A
contained revenue of US$41/t is considerably
higher than the project’s estimated operating cost
budget over the Life of Mine (“LoM”) of US$26/t,
with the potential to be as low as US$10-15/t, as
published in the TEE announced in February 2019.
This contained revenue also excludes any margin
the Company will gain from its multi-channel,
integrated, marketing strategy and
vertically
premium attracted to gems originating from the
Holy Land.

The CPR was prepared by Creo Design (Pty) Ltd in
accordance with the "South African Code for
Reporting of Exploration Results, Mineral
Resources and Mineral Reserves" (SAMREC Code),
as amended in 2016. The full CPR is available on

the Shefa Gems website.

Shefa Gems | Annual Report & Financial Statements 2019

Business Review & Strategic Report

Technical Economic Evaluation report

As stated previously,
in February 2019, an
independent TEE report for the potential first
mine of the Kishon Mid-Reach project in Zone 1
was completed. The report places the mine in
Kishon Mid-Reach Zone 1 at the lower end of the
cost curve and provides a base case for the work
and capital costs of bringing the Kishon Mid-Reach
project into production.

A summary of the key points are as follows:
• The mine will be able to process 1.5 Mt of
gravel over an 11-year Life of Mine, the
overburden removed would be 1.8 Mt.

• The capital expenditure for the development
of the mine using new equipment has been
estimated at US$11.30 million or US$7.5
million through contract mining.

• Operating cost budget over the Life of Mine
estimated at US$26/t processed or US$27/t
processed through contract mining; and
• Potential to halve unit operation cost to
US$10-15/t with
in
machinery to double processing capacity from
50tph to 100tph.

investment

small

Independent valuation of gemstones

In addition to the updated CPR and the TEE report,
Shefa Gems received an independent valuation of
its gemstone suite from expert gemmologist, Dr
Gavrielov who has over 40 years of experience in
the appraisal and purchase of precious stones for
use in jewellery. The report included valuations of
US$10,000 and US$7,000 per carat for Natural
MoissaniteTM (crystals rough till 4mm) and Blue
Carmel SapphireTM respectively. The Natural
Moissanite™ found by the Company, is the largest
in both volume and size ever found globally (single
crystals to >4mm). It was also noted that the
rarity,
limited supply all add
significant value to the Gem Box suite of
gemstones.
a
professional opinion regarding the value of the
suite of precious stones found in exploration
activities carried out by the Company.

location, and

assessment

provides

The

Shefa Gems works with internationally respected
geologists in the exploration field, who have
globally proven success
the discovery,
exploration and development of diamond and
precious stones mines. This includes Professor Bill
Griffin from the ARC Centre of Excellence for Core
to Crust Fluid Systems, Macquarie University,
Australia, and his research team, in which Shefa
Gems collaborated with to publish several
scientific articles during the last year.

Shefa Gems's
Gemstone
Natural Moissanite™
(crystals till <4mm
and rough only)
Blue Carmel
Sapphire™
(Cabochon cut)
Black Carmel
Sapphire™
(Cabochon cut)
Hibonite
Sapphire
Ruby
Spinel
Ilmenite
Garnet
Zircon
CPX
Mix KIM's (Garnet,
ilmenite, spinel,
CPX)
Rutile

Cut & Polished price per
carat (US$)

10,000

7,000

5,000

1000
500
500
150
105
50
100
45

Independent valuation of stones in Shefa's Gem Box

Business Review & Strategic Report

Shefa Gems | Annual Report & Financial Statements 2019

New discoveries

Carmeltazite

Carmeltazite, found in Shefa Gems' gemstone, the
Carmel Sapphire™, was classified as a newly
discovered mineral
International
by
Mineralogical Association Commission on New
Minerals, Nomenclature and Classification in early
2019. It was then selected as Mineral of the Year
2018 by the IMA. The Carmel Sapphire™ is not
found anywhere else in the world.

the

Discovery of
Vanadium metal hydride

the

first naturally occurring

the

Shefa Gems discovered
first naturally
occurring Vanadium metal hydride. Detailed in a
report titled, Discovery of the first natural hydride,
released
in April 2019 by W.L. Griffin, the
discovery is significant because the metal is only
stable
oxygen-depleted
environments, and this has not previously been
found on Earth.

extremely

The findings provide important evidence and
deepen the understanding of the evolution of the
magmatic activity beneath Mt Carmel which
eventually led to the formation of the gem mineral
association now being commercially developed by
Shefa Gems. As the Company continues to build
and deepen its knowledge of the region and gem-
forming process, this information will benefit
future exploration.

Zone 1 – Progressing to trial mining
with Certificate of Discovery

The Company has taken a major step towards trial
mining in Zone 1 with two notable developments
in recent months. The updated CPR, which
upgraded Zones 1 and 2 to an Inferred Mineral
Resource, as announced in December 2019. On 17
March 2020, Shefa Gems was awarded a
Certificate of Discovery for Zones 1 and 2. With
these developments, alongside the Company’s
progress
exploration
through the year, there
has been a notable shift
in the Kishon Mid-Reach
project from the pure
exploration phase to the
gemstone
mine
development phase. This
will support Shefa Gems
to continue advancing
towards
commercial
mining. Commencement
timing depends on the completion and processing
of technical, environmental, commercial and
other submissions with the relevant authorities.

Zone 2 - Bulk sampling completed and
a Certificate of Discovery received

the period,

Shefa Gems made excellent progress with the
completed excavation of four new bulk samples
and one mini bulk sample (weight 37 tonnes) from
target gravel horizons in the Kishon Mid-Reach
Zone 2. During
following the
processing and analysis of bulk samples, the
its highest-grade sample
Company received
results to date in Zone 2 of Kishon Mid-Reach.
One sample yielded a record Target Mineral
Assemblage (“TMA”) grade of 467 carats per
hundred tonnes (cpht). For comparison, the
aggregate results from the first five bulk samples
from the northern part of Kishon Mid Reach Zone
2, as announced on 31 January 2019, was 135
cpht, and the average TMA grade assumed in the
Technical and Economic Evaluation of Zone 1 was
153 cpht.

Business Review & Strategic Report

Shefa Gems | Annual Report & Financial Statements 2019

During the period, a total of 49 drilling
surveys (390 meters drilled), 30 bulk
and mini bulk samples were collected
from the Kishon Mid Reach Zone 2 and
gravel were
6,094
excavated.

tonnes of

As published in the updated CPR, a
total of 3,840 tonnes were treated (25
bulk samples) and 6,853.11 carats of
TMA found. The operations were
conducted on time and within the
expected budget. The
remaining
samples collected, are undergoing
treatment and analysis
the
Company's operational site in Akko.

On 17 March 2020 the Company
received the Certificate of Discovery
for both Zones 1 and 2 in the Kishon
Mid-Reach,
the
based
mineralogical results achieved.

Preparing for exploration in
Zone 3

Following the excellent progress and
encouraging results from exploration
campaigns in Zone 1 and Zone 2, Shefa
Gems is engaged in expanding its
efforts in Kishon Mid-Reach Zone 3.
The Company
is collecting and
analysing data from this area and
based on the results, together with
the international geological consultant
team, the Company will decide whether
to prepare further resource delineation
drilling campaigns in Zone 3 during 2020.

Shefa Gems | Annual Report & Financial Statements 2019

‘Heaven on Earth’ jewellery collection

Shefa Gems initiated a trial marketing initiative in collaboration with world-renowned jewellery designer and
three-time winner of the Couture Design Award, Yossi Harari, to create the ‘Heaven on Earth’ jewellery
collection.

The 31-piece collection was completed in February 2019. It was created from 24 Karat gold, 'gilver' (Harari's
own trademarked metal alloy that combines oxidized silver and 24 Karat gold) and Shefa Gems' precious
gemstones. The collection included the Carmel Sapphire™, Natural Moissanite™, black spinel, ilmenite,
garnet, sapphire, hibonite and ruby. The jewellery was handcrafted using ancient goldsmithing techniques
and developed in Yossi Harari's atelier in Istanbul.

The collaboration with Yossi Harari forms part of Shefa Gems’ ‘Mine-to-Market’ development strategy, which
includes exploration, mining, and designing and selling jewellery pieces containing its gemstones. It is
encouraging that since the launch, Shefa Gems has received wide interest from jewellery manufacturers,
retailers, and sales distribution channels, which the Company will look to utilise going forwards.

Business Review & Strategic Report

Shefa Gems | Annual Report & Financial Statements 2019

Renewal of Exploration and Prospecting permits and Prospecting Licences

The Ministry of Energy, Natural Resources Administration, Israel renewed a number exploration and
prospecting permits of the Company for a period of 12 months. In January 2019, two of the Company’s
prospecting permits were renewed, covering a total of 440,455 Dunams (44,045 hectares). In July 2019,
Exploration Permit 869B11 was renewed. 869B11 covers a total of 173,636 Dunams (17,363 hectares). The
Company’s first Prospecting Licence, over its alluvial exploration target, the Kishon Mid-Reach Zone 1 Project,
was renewed in August 2019. Post period, in February 2020 its prospecting permit Carmel (837A13) has been
renewed, covering a total of 314,478 Dunams (31,447 hectares), by the Ministry of Energy, Natural Resources
Administration, Israel.

Shefa Gems has three permits and licenses in total. In addition to permits Carmel 837A13, the Company has
exploration permits 869B11 covering 173,636 Dunams (17,363 hectares), and prospecting license 869C10
that covers an area of 252 Dunams (25.2 hectares) in the Kishon Mid-Reach Zone 1. The three permits extend
over an area of approximately 488,366 Dunams (48,836 hectares) that includes the Kishon River, the volcanic
bodies on Mount Carmel, the Zevulun and Yizre'el valleys and their margins - Tivon-Alonim Hills and Nazareth
range.

Award of Certificate of Discovery

In March 2020, the Quarries and Mines Branch of the Ministry of National Infrastructures of the State of
Israel awarded Shefa Gems a Certificate of Discovery for the development of its gemstone mine in the Kishon
Mid-Reach, Zones 1 and 2. The Inspector of Mines recognised the significance of Shefa Gem's unique Carmel
Sapphire™ gemstone to the commercial feasibility of the project. The Company must file an initial application
for mining rights within one year of grant of the Certificate of Discovery. It is a landmark development for
Shefa Gems and the culmination of the Company's successful exploration activities and market analysis. It
brings the Company closer to establishing Israel's first and only precious gemstone mine and signals the
beginning of the process towards future commercial mining.

Business Review & Strategic Report

Shefa Gems | Annual Report & Financial Statements 2019

Corporate Review

In June 2019, the Company changed its name to
Shefa Gems Ltd, and
in July 2019, the UK
Intellectual Property Office granted a trademark
for the name, Shefa Gems Ltd®. The change of
name aligns with the Company’s ‘Mine-to-Market’
strategy and its goal to create a global brand for its
rare gemstones discovered in the Kishon Mid-
Reach area.

In addition, the Company has been seeking to
address the lack of liquidity in the shares of Shefa
Gems and following recommendations from its
advisors, the Board of Directors resolved to a
subdivision ("share split") of Shefa Gems’ shares
traded on the Standard List of the London Stock
Exchange. The Company conducted a 10 for one
share split.

Board changes

Certain changes have been made to the board to
ensure the Company adheres to high corporate
governance standards. Michael Rosenberg, OBE,
previously an External Director and Independent
Non-Executive Director of Shefa Gems, was
appointed as Non-Executive Chairman of the
Company, effective from 1 May 2019.

It was with great regret and sadness that the
Company announced in October, former Chief
Executive Officer (CEO), Avi Taub, had passed
away following a short illness. Avi’s vision and
dedication played a huge role in the development
of Shefa Gems and he will be sorely missed.

Mr. Avi Taub Z"L

Post period,
in January 2020, Shefa Gems
appointed Vered Toledo as CEO of the Company.

Vered handed over her responsibility as CEO to
Tali Shalem in June 2020. Tali worked closely with
her father for over ten years from 2008 to 2018
before founding her own marketing company.

to deal with

Yosef (Yossi) Itzhak Taub was appointed as
Corporate Development Executive Director and
the Board of Directors created a new Executive
Committee
the day-to-day
management of the Company's affairs. The
current members are Michael Rosenberg, OBE,
(Non-Executive
(Chairman),
Director), Tali Shalem, CEO, Yosef Itzhak Taub
(Director) and David Ben David (CFO).

James Campbell

Financial Review

The launch of the ‘Heaven on Earth’ jewellery
interest the
collection, and the subsequent
Company received, provided a useful test market
for the potential value that can be obtained from
Shefa Gems’ gemstones. The Company
is
therefore pleased to note that sales of items in the
collection were made in the period amounted to
TNIS 254 (US$72,000).

Under the agreement between the Company and
first
Yossi Harari, regarding the Company's
jewellery collection, after
the
reimbursing
Company's expenses incurred in direct connection
with the collection, the profits resulting from the
sale of the jewellery will be divided equally
between the Company and Yossi Harari.

In 2019, the Company recorded a comprehensive
loss for the period, of 7,929 TNIS (in thousands)
(2018: TNIS 6,009 profit) equating to a loss per
share of NIS 0.049 (2018: 0.0431 profit). The loss
was attributed to general and administrative
expenses, and
to
adjustment of the value of a financial liability at
fair value. In addition, a reduction in the value of
the Company's assets
for exploration and
evaluation of precious stones was made.

financing expenses due

Business Review & Strategic Report

Shefa Gems | Annual Report & Financial Statements 2019

At the end of the year, the Company’s cash and
cash equivalents stood at TNIS 6 (2018: TNIS 209).
General and administrative expenses in 2019
decreased to TNIS 3,123 (2018: TNIS 3,410)

Placing and Subscription for £1 million

As announced in May 2019, Shefa Gems raised
from new
(before expenses)
£1.0 million
shareholders through a subscription and placing of
25,000,000 new ordinary shares of 0.10 NIS each
in the Company at an issue price of 4 pence per
share in May. The new Shareholders comprised
specialist institutional investors and sophisticated
High Net Worth
investors attracted to the
potential returns from advanced exploration and
early development stage mining projects.

The COVID-19 Pandemic

The COVID-19 outbreak has impacted everyone,
but for Shefa Gems it does not change the
opportunity that exists for our unique precious
stones mine. Nevertheless, Shefa Gems has taken
the prudent decision to reduce costs where
possible whilst ensuring that all concerned are as
safe as possible.

The Company’s current efforts revolve around
working with the various authorities to advance
the planning and regulation procedures that will
enable it to receive a mining license. The Company
does not know at this point what the effects of the
COVID-19 virus will be on the time schedule for
advancing and receiving the necessary permits
and approvals for the mining license .

Outlook

its

Following another excellent year of progress, the
Company’s primary focus for 2020 is to progress
planning towards the development of its mine and
continuing to establish
‘Mine-to-Market’
strategy. The award of the Certificate of Discovery
for Zones 1 and 2 is a landmark development for
Shefa Gems. It is a significant step towards the aim
of commencing trial mining during 2021 and
establishing the first and only precious gemstone
mine in Northern Israel and consequently begin
producing revenue.

Target 2020 Milestones:

• Continue mine planning procedures with the
Israel Lands Authority and other relevant
planning and statutory institutions

• Progress with

that
demonstrates the commercial feasibility of
the Kishon Mid-Reach Project

a mining

plan

• Prioritise the target areas of the volcanic
bodies (primary source) which are covered by
the exploration and prospecting permits
• Complete the treatment and analysis of the
remaining bulk samples in Zone 2, expected to
be concluded within six months

• Collect and analyse data from Zone 3 and
decide whether to prepare further resource
delineation drilling campaigns during 2020
• Develop the ‘Mine-to-Market’ strategy by
leveraging the success of the ‘Heaven on
Earth’ jewellery collection and by building
commercial relationships with organisations
that can assist in creating unique jewellery
with our rare gemstones from the land of
Israel to be marketed and sold worldwide

24 June 2020

Chief Financial Officer’s Review

Shefa Gems | Annual Report & Financial Statements 2019

Over the last 12 months, the Company recorded a comprehensive loss of
TNIS (in thousands) 7,929 (2018: TNIS 6,009 profit), equating to a loss of NIS
0.049 (2018: 0.0431 profit) per share. The loss was attributed to general and
administrative expenses, and financing expenses due to adjustment of the
value of a financial liability at fair value. In addition, an adjustment in the
value of the Company's assets for exploration and evaluation of precious
stones was made. At the end of the year, the Company’s cash and cash
equivalents stood at TNIS 6 (2018: TNIS 209). General and administrative
expenses in 2019 decreased to TNIS 3,123 (2018: TNIS 3,410).

Shefa Gems is in a similar position to many exploration companies and is not
expected to generate significant revenues at this stage of its development.
Therefore, the Company needs to raise further capital from time to time as
it progresses towards the commencement of commercial mining.

Based on past experience, the Company believes that it continues to have access to loan capital from certain
supportive shareholders who have provided funds previously and who have indicated that they will be in a
position to do so again, should the Company require it. Since the year end all outstanding loan note holders
elected to convert their loans to shares:

• A total of £82,524 was converted into 2,063,089 shares at price of 4p.
• A total of £1,167,655 was converted into 23,384,214 shares at price of 5p.

On April 27, 2020, the Tel Aviv District Court confirmed the provisional sale of the parent company (“Topco”)
and the distribution of its shares in Shefa Gems Ltd among the shareholders of Topco. In accordance with the
court's decision, Topco shareholders will have a 12-month waiting period to receive their shares in the
company (in exchange for giving up some of their shares in Topco). Until the actual shares are received by
the shareholders, the Company's shares will be held by a trustee on behalf of the court. Further details will
be provided once these arrangements have been completed.

Principal Risks and Uncertainties

The Company is currently at an early stage of development and has yet to commence operations at the Kishon
Mid Reach Project. The Company currently has no cash producing properties and therefore no positive cash
flow. The Company will continue to have negative operating cash flow until commercial production is
reached.

The ability of the Company to continue its activities as a going concern depends to a greater extent on its
ability to continue to raise capital and/or debt. Considering the fact that precious stone exploration is unique
to the Company in Israel, there is a risk that the Company only has a limited capacity to raise capital and/or
debt from private investors and/or from the public.

In addition, as there has been no previous attempt to mine for precious stones in Israel, there is a risk that
the budgets planned by the Company in order to pursue its objectives shall not be sufficient and that the
Company would require additional funding to complete the exploration plans.

Shefa Gems | Annual Report & Financial Statements 2019

Directors & Management Biographies

Michael Rosenberg, OBE
Chairman of the Board

Michael Rosenberg, Independent Non-Executive Director, spent his early business years with the merchant bank,
Samuel Montagu and Co. Ltd and joined the board in 1971 as Director of Corporate Finance. In 1974, he left the bank
to co-found a healthcare business which became a global business over the next 10 years. From 1987 to 1999 he was
a shareholder, director and later chairman of Raphael Zorn Helmsley Holdings Ltd (now Numis Corporation). During
that period, he was instrumental in bringing Israeli companies to the AIM market. He has served on a number of
Israeli boards both as an external director and as chairman including: Amiad Filtration Services Ltd, Dori Media Ltd,
Pilat Global Media Plc and more recently Starcom plc, where he is Non-Executive Chairman. He is Non-Executive
Chairman of Catalyst Media Group plc. . Mr Rosenberg chaired a DTI committee on trade with Hong Kong for several
years and also served on the board of the China British Business Council. He was awarded the OBE for services to
exports in 1994. He is a published author of children's books and mentor to the Princes Trust, helping young people
to start new businesses.

Tali Shalem
Chief Executive Officer
Tali Shalem, Chief Executive Officer, has served as second to Avi Taub (the late CEO) and was involved in all aspects
of the business including legal and regulatory procedures, finance and fund raising , PR and IR for 15 years, Includes
oversight and promotion of IPO procedures on the London Stock Exchange in 2017. Ms Shalem holds professional
qualifications in PR, Business and Administration, and has extensive management experience. Prior to joining Shefa
Gems, Mrs Shalem worked for many years at the Taub family jewellery company with experience in all stages of
jewellery production, sales, marketing and finance.

Yosef Taub
Director

The son of Shefa Gems' late CEO Mr. Abraham Taub, a certified gemmologist with experience in polished and raw
gem sorting, long-standing relationships with numerous equity investors in Israel, worked closely in securing funding
for the Company and in the overall management of the business.

James AH Campbell
Independent Non-Executive Director

James AH Campbell, Independent Non-Executive Director, graduated as a geologist from the Royal School of Mines
(Imperial College, London University) in 1985 and completed an MBA at Durham University in 1998. He has over 30
years’ experience in the diamond industry having spent over 20 years’ with De Beers’ Global Mining and Exploration
Group before becoming Managing Director of African Diamonds plc in 2006. Mr Campbell has extensive board and
sector experience and has served on several UK and Canadian boards including African Diamonds plc, West African
Diamonds, Stellar Diamonds plc and Rockwell Diamonds Inc. He is currently Managing Director of Botswana
Diamonds plc. Mr Campbell is a Fellow of the Institute of Mining, Metallurgy & Materials, a Fellow of the South African
Institute of Mining, a Fellow of the South African Institute of Mining, Metallurgy & Materials, a Fellow of the South
African Institute of Mining & Metallurgy, Chartered Engineer (UK), Chartered Scientist (UK), a Professional Natural
Scientist (RSA) and a Fellow of the Institute of Directors South Africa.

David Ben David
Chief Financial Officer

Certified CPA for 17 years (BA in Economics and Accounting, Bar Ilan University). Auditing & analyzing financial reports
for various public companies in Israel. Has an in-depth knowledge of the Capital Market and analyzing financial data.
Experienced in internal auditing and risks assessment and management.

Directors & Management Biographies

Shefa Gems | Annual Report & Financial Statements 2019

Nathalie Schwarz
Independent Non-Executive Director
Nathalie Schwartz, Independent Non-Executive Director, a graduate from the University of Manchester and a
qualified lawyer, started her career at leading global law firm Clifford Chance focusing on cross-border mergers and
acquisitions, corporate restructurings, IPOs and private equity. Ms Schwartz has operated as an Executive Director
on the boards of two of the UK’s leading public companies in the media and digital technology sector, namely as
Group Commercial Director at Channel 4 Television Corporation and as Group Strategy and Development Director at
Capital Radio PLC. She also served as a Non-Executive Director on the Board of Matomy Media PLC (digital advertising
services), which listed on the London Stock Exchange in 2014 and was a Non-Executive Director on the board of
publicly listed companies Amiad Water Systems PLC (water filtration) and Photon Kathaas (Indian film production
and distribution). She is currently a non-executive director of UK publicly listed company Wilmington Group PLC
(digital data, publishing and training). Ms Schwartz specialises in growing businesses, strategy, operational
management, developing new commercial and technological opportunities and mergers and acquisitions.

David Nachshon
Independent Non-Executive Director

Israel David Nachshon, Independent Non-Executive Director, a graduate in Rabbinical Ordination, has extensive ties
within the Jewish community worldwide as well as established government relations in Israel. He has been on the
board of Shefa Yamim (A.T.M.) Ltd and Shefa Yamim Ltd since 1999, when the company was founded. Mr Nachshon
is a Board member of the Jewish community institution in Kiev, Ukraine, Chairman of the Chabad Jewish Mobil Mitzva
Centre, Chabad Youth Movement Tzivos Hashem and Chabad Educational Institutions.

Gershon Fraenkel
Independent Non-Executive Director

Gershon Fraenkel, Independent Non-Executive Director, is a British Citizen and founder of WST Charity Ltd, in North
West London which focuses on alleviating poverty within the Jewish Community in the area. He has successfully
launched many international businesses in the last 25 years, including SEACO Group of Companies and Linkedell Ltd,
as result of which he acts as an intermediary and adviser of international transactions to companies in Israel and the
UK. Mr Fraenkel is fluent in English, Hebrew and Yiddish.

Zvi Nemeth
Independent Non-Executive Director

Mr Nemeth is a practising certified lawyer and CPA, with particular skills in the natural resources sector in Israel. Mr
Nemeth is the owner of a privet law firm that engages in all areas of corporate law, contracts and taxation with
expertise in oil, gas, natural resources and real estate taxation. Prior to that he was an associate attorney with S
Friedman& Co from 2016 to 2018 and with Agmon, Rosenberg, Hacohen & Co from 2011 to 2016, and in the Israeli
Tax Authority from 2001 to 2014.

Mendy Taub
Chief Operating Officer

Mr. Mendy Taub, 31, He is the son of Shefa Gems' late CEO Mr. Abraham 'Avi' Taub. works for Shefa Gems since 2005,
has been certified in managing a geographic information system and over the years has managed the company's
Database. He manages the company's laboratories and operating area and works closely with the entire professional
team.

Shefa Gems | Annual Report & Financial Statements 2019

Directors Report

Principal Activities

Shefa Gems, founded in 1999, is the only coloured precious stone exploration company in northern Israel.
The Company’s exploration and prospecting permits are located across the Kishon River catchment area of
Haifa and Mt Carmel in northern Israel, covering a total area of 614 km2, some 85km north of Tel Aviv. The
Company also maintains an operational centre with a processing facility and laboratory in Akko, a town north
of Haifa.

Financial Statements
The Directors present their report together with the audited financial statements for the year ended 31
December 2019. The results of the year are set out in the statement of profit or loss.

Dividends
The Board is not proposing a dividend this year.

Business and Strategic Review
The review of Shefa Gems’ business operations, including processing and exploration activity, corporate
overview and outlook, are set out in the Strategic Report section on pages [5] to [13] together with this
Directors’ Report.

Directors
The Directors’ who have held office for the year ended 31 December 2019 and are currently serving are as
follows:

Michael Rosenberg, OBE – Non-Executive Chairman
James AH Campbell - Independent Non-Executive Director
Nathalie Schwarz - Independent Non-Executive Director
David Nachshon - Independent Non-Executive Director
Hanoch Ehrlich - Independent Non-Executive Director (resigned 1st June 2020)
Gershon Fraenkel - Independent Non-Executive Director
Zvi Nemeth - Independent Non-Executive Director (appointed 1st June 2020)

Corporate Governance Statement
The information that fulfils the requirement of the corporate governance statement in accordance with Rule
7.2 of the Financial Conduct Authority’s Disclosure and Transparency Rules can be found in this Directors’
Report and in the Corporate Governance information on pages [21] to [25] which is incorporated into the
Directors’ Report by reference.

Directors’ Remuneration and Interests

Shefa Gems | Annual Report & Financial Statements 2019

The Directors remuneration and interests are set out in the Directors Remuneration Report on pages 26 to
29.

about

and
Rules
replacement of Directors; Amendment
of Articles

appointment

Pursuant to the Company’s articles of association
and Israeli Companies Law, Directors are elected
at the Annual General Meeting by the vote of the
holders of a majority of the voting power
represented at such meeting in person or by proxy
and voting on the election of Directors. Each
director (except for the public external appointed
Directors) shall serve until the next Annual
General Meeting following the Annual General
Meeting at which such director was appointed, or
his earlier removal. The holders of a majority of
the voting power represented at a General
Meeting and voting thereon shall be entitled to
remove any director(s) from office, to elect
Directors in place of the Directors so removed or
to fill any vacancy, however created, in the Board
of Directors by way of ordinary resolution. Each
non-executive director will serve until the next
Annual General Meeting following his or her
election and his or her successor is duly elected
and qualified or until his or her earlier death,
resignation or removal by a vote of the majority
voting power of the Company’s shareholders at a
general meeting of the Company’s shareholders or
until his or her office expires by operation of law.

Apart from the authority of the General Meeting
to remove a director from office, subject to giving
such director a reasonable opportunity to present
his position to the General Meeting, under the
Company’s articles, the office of a director shall be
vacated ipso facto, upon his death, or if he be
found to be of unsound mind, or becomes
bankrupt or if he becomes prohibited by law from
being a director in a public company, or if the
director is a company upon its winding up.

Under the Israeli Companies Law a company may
amend its articles by a simple majority of the
shareholders at a General Meeting. Any proposed
regarding
the
amendments
modification of rights attached to shares of the
Company and / or dividing the share capital into
various classes of shares requires the approval of
the holders of 75% of the issued shares in the
Company.

articles

Going Concern

Since the operations of the Company are
prospecting and exploration for gold, precious
stones and diamond deposits and the Company
has not yet commenced commercial mining, as a
result, the Company does not as yet have
revenues, rather only expenses. Financing of its
operations has been performed until now by
infusions of capital and/ or by loans received by
the parent company, top-co, and transferred in
part to the Company in accordance with the
agreement between them (see Note 1d) and its
continued operation
is contingent upon the
further similar infusions of capital. In view of past
experience, the Company's management believes
that it can mobilize the sources for money in order
to complete the explorations, but there remains
uncertainty in this regard since the mobilizations
are dependent on other parties. These factors
create significant doubts in regard to continued
operation of the Company as a "going concern."

These financial statements do not contain any
adjustments for valuation of assets and liabilities
or their classification that would
likely be
necessary in the event that the Company is unable
to continue its operations as a "going concern."

Directors’ Remuneration and Interests

Shefa Gems | Annual Report & Financial Statements 2019

Reporting obligations in respect of
Companies law

The Company is an Israeli company registered
with the Israeli Registrar of Companies in 1999,
and accordingly is subject to the laws of the State
of Israel in general and the "Israeli Companies
Law" in particular.

Since December 2017, the Company's shares are
traded on the London Stock Exchange – yet the
Company is still registered as an Israeli company
based in Israel and paying taxes in Israel, and bears
the reporting obligations of Israeli companies in
accordance with the Israeli Companies Law.

The Company's business activity focuses solely on
the exploration and prospecting of precious
stones in northern Israel; An activity which, by its
nature, does not generate revenue - until the
stage of opening a profitable commercial mine
which is expected to be during 2021.

Over the past 20 years, since the establishment of
the Company, its operations have been financed
by private investors in consideration for allocation
of shares, and in exceptional cases also through
loans of interested parties.

Also, as part of the Company's agreements with
suppliers, the Company
its
financial position and type of activity, and
accordingly the suppliers decide whether and to
what extent of credit will be given to the
Company.

inform them of

The Company is required to report, with respect to
its financial status, to the tax authorities and the
Companies Register - once a year with the
submission of the company's annual financial
statements.

The
Israeli Companies Law states, that the
Company's shareholders, in the annual general
meeting, appoint the Company's Board of
Directors in order to supervise and keep up-to-
date with respect to the Company's active
management function, the company's financial
and cash flow position and its ability to meet its
obligations, and the setting of the credit
framework that the Company may take.

The Company's Board of Directors is required to
report to the shareholders of the Company with
respect to any matter related to the Company's
business activity – once a year at the Annual
General Meeting.

Statement of Directors’
Responsibilities

the

financial

statements

The Directors are responsible for preparing the
Annual Report, the Directors’ Remuneration
Report, and
in
accordance with applicable laws and regulations.
The Directors are required to prepare financial
statements for the Company in accordance with
International Financial Reporting Standards as
issued by the International accounting standard
Board (IFRS). Israeli company law requires the
Directors to prepare such financial statements.
International Accounting Standard 1 requires that
financial statements present fairly for each
financial year the Company’s financial position,
financial performance, and cash flows. This
requires the faithful representation of the effects
of transactions, other events and conditions in
accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards
Board’s ‘Framework for the Preparation and
Presentation of Financial Statements’. In virtually
all circumstances, a true and fair presentation will
be achieved by compliance with all applicable
International Financial Reporting Standards.

Directors’ Remuneration and Interests

Shefa Gems | Annual Report & Financial Statements 2019

Directors are also required to:
• properly select and apply accounting policies;
• present
including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;

information,

additional

• make an assessment of the Company’s ability
to continue as a going concern and disclose
it appropriate; and
where they consider
provide
disclosures when
compliance with the specific requirements in
insufficient to enable users to
IFRS
understand
impact of particular
transactions, other events and conditions on
the entity’s financial position and financial
performance.

the

The Directors are responsible for keeping proper
accounting records which disclose with
reasonable accuracy at any time the financial
position of the Company, for safeguarding the
assets, for taking reasonable steps for the
prevention and detection of fraud and other
irregularities and for the preparation of a
Directors Report and Directors Remuneration
Report which comply with the Listing Rules and
the Disclosure and Transparency rules.

Legislation in Israel governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions. Each
of the Directors confirms to the best of his or her
knowledge:

1. the

statements, prepared

in
financial
accordance with
International Financial
Reporting Standards, give a true and fair view
of the assets, liabilities, financial position and
profit or
loss of the Company and the
undertakings included in the consolidation
taken as a whole;

2. the strategic report includes a fair review of
the development and performance of the
business and the position of the Company and
the undertakings included in the consolidation
taken as a whole, together with a description
of the principal risks and uncertainties they
face; and

3. the annual report and financial statements,
taken as a whole, are fair, balanced, and
understandable, and provide the information
necessary for shareholders to assess the
Company’s position, performance, business
model and strategy.

Accountability and Audit

Barzily & Co has expressed its willingness to
continue in office and a resolution to re-appoint
the firm will be proposed at the annual general
meeting.

The Directors’ Report has been brought for
review to the board and has been approved in its
present form. The Directors’ Report is signed on
behalf of the Board by:

Michael Rosenberg, Chairman
24 June 2020

Shefa Gems | Annual Report & Financial Statements 2019

Corporate Governance Report

The Company will generally observe
the
requirements of the UK Corporate Governance
Code. As at the date of this Document, the
Company is in compliance with the UK Corporate
Governance Code, save as set out below:

The UK Corporate Governance Code also
recommends the submission of all Directors for re-
election at annual intervals. Directors will be
required to submit for re-election every three
years from Admission.

The Board – leadership and
effectiveness

The Board, which currently comprises one
Executive and six non-executive Directors, is
responsible collectively for the long-term success
of the Company. In compliance with Israeli
company legislation the Board meets at least four
times a year in formal session. Prior to each
meeting, the Board is furnished with information
in a form and quality appropriate for it to
discharge its duties concerning the state of the
business and performance.

Meetings

During the period ended 31 December 2019, a
total of 7 Board meetings were held. All Directors
were in attendance at these meetings, either in
person or by conference call.

There
is not a formal schedule of matters
specifically reserved to the Board for its decision,
as set out in A.1.1 of the Governance Code, since
the Israeli Companies Law which applies to the
Company sets out and defines the responsibilities
and duties of and areas of decision for the Board.
These include approval of financial statements,
dividends, Board appointments and removals,
long-term objectives and commercial strategy,
in capital structure, appointment,
changes

and

investments

governance,

engagement

compensation

senior
removal
management, major
including
mergers and acquisitions, risk management,
of
corporate
professional advisors, political donations and
internal control arrangements. The ultimate
responsibility for reviewing and approving the
annual report and financial statements, and for
ensuring that they present a balanced assessment
of the Company’s position, lies with the Board.
These provisions have been fully complied with.

The Board currently comprises seven Directors, six
of whom are non-executive Directors, under the
chairmanship of Michael Rosenberg The Board’s
members have a wide breadth of experience in
areas relating to the Company’s activities and the
non-executive Directors
in particular bring
additional expertise to matters affecting the
Company. All the Directors are of a high calibre
and standing. The biographies of all the members
of the Board are set out on pages 15 to 16. The
interest of the Directors in the Company and their
shareholdings are set out on page 27. All the non-
executive Directors
of
management and not involved in any business or
other relationship that could materially interfere
with the exercise of their independent judgment.
The Board is of the opinion that each of its
members has the skills, knowledge, aptitude and
experience to perform the functions required of a
director of a listed Company and that the Board is
comprised of a good balance of executive and
non-executive Directors.

independent

are

The induction of newly elected Directors into
office is the responsibility of the Chairman of the
Board. The new Directors receive a memorandum
on the responsibilities and liabilities of Directors
from the Company’s general counsel as well as
presentations of all activities of the Company by
senior members of management and a guided
tour of the Company’s premises. All Directors are
invited to visit the Company premises and its
manufacturing facilities.

Corporate Governance Report

Shefa Gems | Annual Report & Financial Statements 2019

The Directors receive periodically a detailed
operating report on the performance of the
Company in the relevant period, including a
statement of financial position. A fuller report on
the trading and half year results of the Company is
provided at every Board meeting. Once per year a
budget is discussed and approved by the Board for
the following year. All Directors are properly
briefed on issues arising at Board meetings and
any further information requested by a Director is
always made available.

The Directors may take independent professional
advice at the Company’s expense in furtherance of
their duties in accordance with section B.5.1. of
the Governance Code.

Relations with Shareholders and
Significant Shareholders

Communication with shareholders is given high
priority. The half-yearly and annual results are
intended to give a detailed review of the business
and developments. A full Annual Report is made
available on the Company’s website to all
website
Company’s
The
shareholders.
(www.shefagems.com) contains up
to date
information on the Company’s activities and
published financial results. The Company solicits
regular dialogue with institutional shareholders
(other than during closed periods) to understand
shareholders views. The Board also uses the
Annual General Meeting to communicate with all
shareholders and welcomes their participation.
Directors are available to meet with shareholders
at appropriate times. The Company is committed
to having a constructive engagement with its
shareholders.

As of 31 December 2019, to the best of the
Company’s knowledge, the following persons or

entities had a significant holding of over 3% in
Shefa Gems ordinary shares:
Parent company Shefa Yamim Limited (TASE:
SEFA) owns 39.44% and has been traded on Tel
Aviv Stock Exchange since 2012. (MCAP: ILS13.9m
ILS, GBP 3.1m).
Eight – O – Eight Global Corp %70.5
One Hundred and One Gold Holdings %73.2
GEM BH LLC 15.28%

Committees

The Company has established remuneration, audit
and nomination committees, as follows:

Remuneration Committee

Committee

Remuneration

The
provides
recommendation on the Company’s policy on
executive remuneration, determines the levels of
remuneration for executive Directors and the
chairman and other senior executives. The
Remuneration Committee will normally meet not
less than twice a year.

The Remuneration Committee is chaired by James
Campbell and its other members are Michael
Rosenberg, Gershon Fraenkel and Nathalie
Schwarz. The Committee did not meet in 2019.
The UK Corporate Governance Code recommends
that all members of the Remuneration Committee
be non-executive Directors,
in
judgment and free from any
character and
relationship or circumstance which may, could or
would be likely to, or appear to, affect their
judgment. The Board considers that the Company
complies with the requirements of the UK
Corporate Governance Code in this respect.

independent

Corporate Governance Report

Shefa Gems | Annual Report & Financial Statements 2019

Under the Israeli Companies Law, the board of
Directors of a public company must appoint a
remuneration committee. The
remuneration
committee must be comprised of at least three
Directors, including all of the external Directors,
who must constitute a majority of the members of
the remuneration committee. Each remuneration
committee member that
is not an external
director must be a director whose compensation
does not exceed an amount that may be paid to
remuneration
an
committee
Israeli
the audit
Companies Law
committee as to who may not be a member of the
committee.

to
restrictions as

is subject

the same

director.

external

The

for approval by

The duties of the remuneration committee include
the recommendation to the Company’s Board of a
policy regarding the terms of engagement of office
holders, referred to as a compensation policy.
That policy must be adopted by the Company’s
Board, after considering the recommendations of
the remuneration committee, and will need to be
the Company’s
brought
shareholders, which approval requires a special
approval for compensation. A special approval for
compensation requires shareholder approval by
a majority vote of the shares present and voting at
a meeting of shareholders called for such purpose,
provided that either: (a) such majority includes at
least a majority of the shares held by all
shareholders who
Controlling
Shareholders and do not have a personal interest
in such compensation arrangement; or (b) the
total number of shares of non-Controlling
Shareholders and shareholders who do not have a
compensation
personal
in
arrangement and who vote against
the
arrangement does not exceed 2% of the
company’s aggregate voting rights. The Company
will be required to adopt a compensation policy
within nine months following Admission.

interest

not

the

are

The compensation policy must serve as the basis
for decisions concerning the financial terms of
employment or engagement of office holders,

including exculpation, insurance, indemnification
or any monetary payment or obligation of
payment
respect of employment or
engagement. The compensation policy must
relate to certain factors, including advancement of
the Company’s objectives,
the Company’s
business plan and its long-term strategy, and
creation of appropriate
incentives for office
holders. It must also consider, among other
things, the Company’s risk management, size and
the nature of its operations.

Audit Committee

The Audit Committee’s role is to assist the Board
with the discharge of its responsibilities in relation
to financial reporting, including reviewing the
Company’s financial statements and accounting
policies, audits and controls (both internal and
external), reviewing and monitoring the scope of
the annual audit, advising on the appointment of
external auditor and reviewing the effectiveness
of audit controls.

The Audit Committee originally comprised
Michael Rosenberg as chairman and includes
James Campbell, Gershon Fraenkel and Nathalie
Schwarz, and will meet as and when necessary,
and not less than twice per year. Since Michael
Rosenberg was appointed as chairman of the
company in May 2019, he is no longer permitted
to be a member of the audit committee In 2019,
the Committee met 2 times to execute
its
responsibilities. The meetings focused on audit
planning, risk management, and approval of the
interim and final results. The Board has voluntarily
adopted a dealing code for Directors’ dealings
based on the Institute of Chartered Accountants
and Administrators specimen. The Board will be
responsible for taking all proper and reasonable
steps to ensure compliance with the dealing code
by the Directors and to ensure that the Company,
the Directors, any PDMRs and their respective
PCAs are in compliance with the provisions of the
Market Abuse Regulation.

Corporate Governance Report

Shefa Gems | Annual Report & Financial Statements 2019

relatives

Shareholders

If at the time at which an external director is
appointed all members of the Board who are not
Controlling
of
Controlling Shareholders of the Company are of
the same gender, the external director to be
appointed must be of the other gender. A director
of one company may not be appointed as an
external director of another company if a director
of the other company is acting as an external
director of the first company at such time.

Under the Israeli Companies Law, the Company is
required to appoint an audit committee. The Audit
Committee must be comprised of at least three
Directors, including all of the external Directors
and one of whom must serve as chairman of the
committee. The Audit Committee may not include
the Chairman, a Controlling Shareholder of the
Company or a
relative of a controlling
shareholder, a director employed by or providing
services on a regular basis to the company, to a
controlling shareholder or to an entity controlled
by a controlling shareholder or a director who
income from a
derives most of his or her
controlling shareholder.

In addition, under the Israeli Companies Law, the
audit committee must consist of a majority of
unaffiliated Directors. In general, an “unaffiliated
director” under the Israeli Companies Law is
defined as either an external director or as a
director who meets the following criteria:

• he or she meets the qualifications for being
appointed as an external director, except for
(i) the requirement that the director be an
Israeli resident (which does not apply to
companies such as ours whose securities have
been offered outside of Israel or are listed
outside of Israel) and (ii) the requirement for

accounting and
professional qualifications; and

financial expertise or

• he or she has not served as a director of the
company
for a period exceeding nine
consecutive years. For this purpose, a break of
less than two years in the service shall not be
deemed to interrupt the continuation of the
service

Nomination Committee

to
for
the Board
additional Directors

The Nomination Committee is responsible for
the
recommendations
appointment
or
of
replacement of current Directors, for reviewing
the composition and makeup of the Board, and for
succession planning, taking into account the skills,
knowledge and experience that will be needed on
the Board in the future. The committee includes
James Campbell and Michael Rosenberg and will
meet as and when necessary.

Each committee of the Board that exercises the
powers of the Board must include at least one
external director, except that the audit committee
and the compensation committee must include all
external Directors then serving on the board of
Directors and an external director must serve as
chair thereof.

Conflicts

Throughout 2019 the Company has complied with
procedures in place for ensuring that the Board’s
powers to authorize conflict situations have been
operated effectively and this has also been
level where
considered at a
appropriate. During 2019 no conflicts arose which
would require the Board to exercise authority or
discretion in relation to such conflicts.

committee

Corporate Governance Report

Shefa Gems | Annual Report & Financial Statements 2019

Risk Management and Internal
Control

Risk management is currently reviewed on an
ongoing basis by the Board as a whole.

The Company has an ongoing process for
the
identifying, evaluating, and managing
significant risks faced by the Company that have
been in place from 2012 and up to the date of
approval of the Annual Report and Financial
Statements. Principal controls are managed by the
executive Directors and key employees, including
regular review by management and the Board of
the operations and the financial statements of the
Company.

The Board has overall responsibility for ensuring
that the Company maintains adequate systems of
internal control and for determining the nature
and extent of principal risks. The Board confirms
that they have carried out during 2019 a robust
assessment of such risks accordingly, including
those that would impact the Company’s business
model, future performance, solvency or liquidity,
and have considered how they are to be
mitigated.

The key features of the financial controls of the
Company include a comprehensive system of
financial reporting, budgeting and forecasting,
and clearly laid down accounting policies and
procedures.

function within

Directors and senior management. Each
business
the Company
maintains controls and procedures, as
directed by senior management, appropriate
its own business environment while
to
conforming to the Company’s standards and
guidelines. These
include procedures and
guidelines to identify, evaluate the likelihood
of and mitigate all types of risks on an ongoing
basis.

•

and Communication:

Information
The
include a
Group’s operating procedures
comprehensive system for reporting financial
and non-financial
the
information
to
including
Directors. Financial projections,
revenue and profit forecasts, are reported
monthly to senior management compared
with corresponding results
for previous
periods. The central process for evaluating
and managing nonfinancial risk is monthly
meetings of business functions, each involving
at least one Director, together with periodic
meetings of executive Directors and senior
management.

• Finance Management:

The
operates within

finance
department
policies
approved by the Directors and the Chief
Financial Officer. Expenditures are tightly
controlled with stringent approvals required
based on amount. Duties such as
legal,
finance, sales and operations are also strictly
segregated to minimise risk.

The main elements of internal control currently
include:

•

• Operating Controls: The identification and
mitigation of major business risks on a daily
basis is the responsibility of the executive

Insurance: Insurance coverage is provided
externally and depends on the scale of the risk
in question and the availability of coverage in
the external market.

Directors’ Remuneration Report

Shefa Gems | Annual Report & Financial Statements 2019

Introduction

designed to promote the long-term success of the
Company.

This report sets out Shefa Gems executive
remuneration policy and details Directors’
remuneration and benefits for the financial year
under review. The recent amendments to the UK
Companies Act 2016 in relation to the preparation
and approval of Directors remuneration policies
and reports for certain listed companies do not
apply to Shefa Yamim as it is not incorporated in
England. The remuneration policy and report
referred to below are not necessarily intended to
comply with the provisions of such laws, although
the Board considers that the Company’s current
remuneration policy would comply with the
Governance Code and have taken into account the
requirement that the Company’s remuneration
policies
(including any performance-related
elements of executive remuneration) must be

In accordance with Israeli Companies Law, the
Board recommends and the General Meeting of
the
the Company
remuneration policy of
for
executives in the Company, after it has been first
the Company’s Remuneration
approved by
Committee and Board of Directors.

to approve
the Company

is asked

The Reporting Regulations (International Auditing
Reporting Standards) also require the auditors to
report to the Company’s members in the financial
statement within this report and to state whether
in their opinion that part of the report has been
properly prepared. The report is therefore divided
into separate sections for audited and unaudited
information. No remuneration consultants were
engaged by the Company in 2018.

Audited information

The table of Directors’ Annual remuneration is set out below

Emoluments of the Ordinary Directors and Non-executive Directors with comparatives

Basic annual
Salary

Face-to-face
meeting

£20, 000

£30,666

£20, 000

£860

Meeting via
conference
call
£576

£576

NIS 26, 000
NIS 26, 000

NIS 615
NIS 615

NIS 370
NIS 370

NIS 26, 000

NIS 615

NIS 370

James AH
Campbell (NED)
Michael
Rosenberg (NED)
Nathalie Schwarz
(NED)
David Nachshon
Gershon
Fraenkel
Hanoch Erlich

Performance
Bonus

Other

2019 Total

-
-

£26,654

£30,070

£27,175

-
-

Directors’ Remuneration Report

Shefa Gems | Annual Report & Financial Statements 2019

Emoluments of the Chairman of the Board & CEO
- in the frame of the agreement with 101 Gold
Holdings Ltd, the management company:

For efficiency and cost savings, the Company is
managed at two sites:

Firstly, in the Company's operational site and
laboratories in the industrial zone of Akko, where
all exploratory activities take place, including the
entire operational and field activities inclusive of;
investigations,
research, explorations,
classification, geologists, gemmologists and
geological reports on the exploration activity.

field

Secondly, during 2019 the Company outsourced
all its administrative functions to the management
company 101 Gold Holdings Ltd (“101”). 101
provides the Company with all its office facilities in
the city Netanya (which is in the centre of Israel)
which included the services of the late Avi Taub up
to his passing.

In addition to that, 101 through and by its
employees also provides the Company with
professional secretarial support and ongoing
maintenance with supervision and control on the
Finance, Administration,
Legal, Regulation,
Marketing, Investor relations, Insurance, Payroll,
Manpower, as well as ongoing support in the

handling of renewal of the various
according to which the Company operates.

licenses

For all services 101 is providing to the Company,
101 receives a monthly payment of NIS 85,000
plus VAT (out of that amount 101 was responsible
for paying Mr. Taub’s salary).

Major Shareholders and Other
Interests

As at 31 December 2019, the following persons
had a notifiable interest (being more than three
per cent. of the voting rights) in the issued Shares
of the Company:

Parent company Shefa Yamim Limited (TASE:
SEFA) owns 39.44% and has been traded on Tel
Aviv Stock Exchange since 2012. (MCAP: ILS 13.9m
ILS, GBP3.1m).
Eight – O – Eight Global Corp
One Hundred and One Gold Holdings %73.2
GEM BH LLC 15.28%

%70.5

Interests of the Directors

The interests of the Directors, both beneficial and
non-beneficial, in the ordinary shares of the
Company at 31 December 2019 were as follows:

Director

No. of Shares

Percentage of Enlarged
Issued Share Capital

Abraham (Avi) Taub
James AH Campbell

Michael Rosenberg
Nathalie Schwarz
David Nachshon
Gershon Fraenkel

Hanoch Erlich

-
327,280

452,280
-
-
60,000

-
0.19%

0.26%
-
-
0.03%

Directors’ Remuneration Report

Shefa Gems | Annual Report & Financial Statements 2019

Share Options

Directors have been granted share options exercisable into shares of the Company as follows:

Director

No. of options

Exercise price

Exercise period

Abraham (Avi) Taub
James AH Campbell
Michael Rosenberg
Nathalie Schwarz
David Nachshon
Gershon Fraenkel
Hanoch Erlich

-
100, 000
225, 000
-
-
-
-

-
£0.08
£0.08
-
-
-
-

-
24 months
24 months
-
-
-
-

Subject to specified exceptions, Israeli law gene-
rally requires severance pay upon the retirement,
death or dismissal of an employee, and requires
its employees to make
the Company and
payments to the National Insurance Institute. Our
employees have defined benefit pension plans
that comply with the applicable Israeli legal
requirements.

The Company’s obligation to make pension
payments is covered by regular deposits with
defined
contribution plans. The amounts
deposited are not reflected in the statements of
financial position
in the Company’s working
capital.

Corporate, Social and Environmental
Responsibility

Preserving Nature and the Environment

it operates. The Company

Shefa Gems protects nature and the environment
in which
fully
cooperates with all environmental authorities,
including the Israel Nature and Parks Authority,
the Kishon River Authority and the Kishon River

Drainage Authority. Landowners are also engaged
prior to any exploration activity in their fields,
promoting binding relationships.

Shefa Gems recognises that its operations, more
particularly sample excavation and drilling, can
have a damaging impact on the environment.
Consequently, the Company is committed to
minimising environmental harm and rehabilitating
disturbed sites to their original form.

In addition, Shefa Gems is mindful of the country’s
scarce water resources and thus utilises advanced
technology to recycle water that is needed for
sample treatment. No chemicals and pollutants
are used throughout the entire treatment process.
All reject materials, such as clay and coarse gravel
from the treatment process, are trucked to the
original site from which they were removed. These
are used to restore disturbed sites.

The Company’s environmental responsibility also
extends to daily work activities where paper
recycling, electricity and water saving, and
transport sharing are practiced.

Directors’ Remuneration Report

Shefa Gems | Annual Report & Financial Statements 2019

Human Capital

The core of Shefa Gems’ human resources is local
personnel that have diverse expertise and
educational backgrounds. In addition to this, Shefa
Gems hires the services of world
leading
professionals that are experts in the fields of
precious
mineral
minerals. Besides providing technical input and
guidance, they ensure that programmes are
designed
to
implemented
international standards dictated by the SAMREC
Code.

exploration

according

and

This also facilitates regular auditing of Shefa Gems’
results.

Training of personnel is an important part of Shefa
Gems’ human
resource development. All
employees undergo internal and external training
provided by professional consultants.

The training extends to all operational areas
fieldwork, sample processing and
including
laboratory work
(microscopy and mineral
identification). Consequently, skills continue to be
improved in concert with the latest technological
and scientific trends.

Shefa Gems | Annual Report & Financial Statements 2019

SHEFA GEMS LTD.
(Formerly Shefa Yamim A.T.M. LTD.)

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2019

SHEFA GEMS LTD.
(Formerly Shefa Yamim A.T.M. LTD.)

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2019

INDEX

Report of Independent Auditors

Financial Statements:

Statements of Financial Position

Statements of Comprehensive Income (Loss)

Statement of Changes in Equity

Statements of Cash Flows

Notes to the Financial Statements

Page

36 - 37

8 - 80

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

Jerusalem, April 30, 2020

REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
SHEFA GEMS LTD.
(Formerly Shefa Yamim A.T.M. LTD.)

We have audited the accompanying statements of financial position of Shefa Gems Ltd. (Formerly Shefa Yamim A.T.M.
LTD.) (hereinafter - "the Company") as of December 31, 2019 and 2018, and the related statements of comprehensive income
(loss) , changes in equity and cash flows for each of the three years in the period ended December 31, 2019. These financial
statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Israel, including those prescribed by the
Israeli Auditors' Regulations (Mode of Performance) - 1973. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018 and the results of its operations, the changes in its equity and cash flows for each
of the three years in the period ended December 31, 2019, in conformity with international financial reporting standards
(IFRS).

Without qualifying our opinion, we draw attention to Note 1c of these financial statements -
Since the operations of the Company are prospecting and exploration for gold, precious stones and diamond deposits and
the Company has not yet commenced commercial mining, as a result, the Company does not as yet have significant
revenues. Financing of its operations has been performed until now by infusions of capital and/ or by loans received by
the parent company, and transferred in part to the Company in accordance with the agreement between them (see Note
1d) and its continued operation is contingent upon the further similar infusions of capital. In view of past experience, the
Company's management believes that it can mobilize the sources for money in order to complete the explorations, but
there remains uncertainty in this regard since the mobilizations are dependent on other parties. These factors create
significant doubts in regard to continued operation of the Company as a "going concern".

These financial statements do not contain any adjustments for valuation of assets and liabilities or their classification that
would likely be necessary in the event that the Company is unable to continue its operations as a "going concern".

Barzily & Co.
Certified Public Accountants
A Member of MSI Worldwide

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
STATEMENTS OF FINANCIAL POSITION
NIS in thousands

ASSETS
Non-Current Assets:
Fixed assets, net
Assets in regard to usage rights
Loans to top-co
Interested party
Assets for exploration and evaluation of precious stones
Total non-current assets

Current Assets:
Cash in foreign currency
Short-term deposit in bank
Clients
Receivables
Total current assets

Total Assets

December 31,

Note

2019

2018

6
15
7

1,494
1,751
1,116
77
60,628
65,066

6
14
51
145
216

1,736
- . -
2,494
77
59,128
63,435

209
- . -
- . -
779
988

65,282

64,423

EQUITY AND LIABILITIES
Equity

56,422

59,544

Non-current Liabilities:
Long-term loans from interested party and others
Financial lease
Liability for severance pay
Options convertible to shares
Total Non-current Liabilities

Current Liabilities:
Short-term credit from bank and others
Trade payables
Interested parties
Other accounts payable
Liabilities at fair value
Loans convertible to shares
Total current liabilities

14
15
3h
16

9
10
11
12
13
13

- . -
1,492
164
1,120
2,776

762
1,071
211
1,114
1,792
1,134
6,084

560
- . -
138
564
1,262

456
1,368
114
907
- . -
772
3,617

Total Equity and Liabilities

65,282

64,423

The accompanying notes are an integral part of the financial statements.

April 30, 2020
Date of Approval of the
Financial Statements

Michael Rosenberg
Chairman of the Board
of Directors

David Ben David
CFO

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NIS in thousands (except for income (loss) per share)

For the Year Ended December 31,
2017
2018
2019

Costs and expenses -

General and administrative expenses

Amortization of assets for exploration

Operating loss

Note

(3,123)

(3,410)

(2,409)

- . -

(5,532)

(3,410)

Other expenses, net

(1,023)

- . -

Loss prior to financing

(6,555)

(3,410)

(541)

- . -

(541)

- . -

(541)

Financial expenses

Financial income

(1,534)

(218)

(15,954)

160

9,637

237

Financial income (expenses), net

(1,374)

9,419

(15,717)

Profit (Loss) for the year and comprehensive profit
(loss) for the year

(7,929)

6,009

(16,258)

Basic and diluted income (loss) per share
(in NIS)

(0.049)

* 0.0431

* (0.170)

* Subsequent to the split, an adjustment of the income (loss) per share was performed. See note 17c.

The accompanying notes are an integral part of the financial statements.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
STATEMENT OF CHANGES IN EQUITY
NIS in thousands

Share
Capital

Additional Paid-
in Capital, net

Receivables in Regard
to Shares

Capital Reserve for
Share- Based
Payments

Capital
Reserve from
Transactions
with
Interested
Party

Accumulated
Deficit

Total Equity
Attributed to
Shareholders

Balance as of January 1, 2017

9,387

78,626

Comprehensive Loss for the year
Issuance of shares
Share based payment
Receipts for issue of shares during 2012 *

Balance as of December 31, 2017

Comprehensive Income for the year
Issuance of shares
Share based payment

Balance as of December 31, 2018

Comprehensive Loss for the year
Issuance of shares
Share based payment

Balance as of December 31, 2019

- . -
**4,518
- . -
- . -

13,905

- . -
319
- . -

14,224

- . -
3,006
- . -

17,230

* See Note 1d, 17f.

- . -
** 14,339
- . -
777

93,742

- . -
595
- . -

94,337

- . -
1,960
- . -

96,297

- . -
- . -
- . -
- . -
- . -
- . -

- . -
- . -
- . -
- . -
- . -

- . -
- . -
- . -
(205)
- . -

(205)

5,291

6,312

(50,796)

48,820

- . -
- . -
292
- . -

5,583

- . -
- . -
133

5,716

- . -
- . -
46

- . -
- . -
- . -
- . -

(16,258)
- . -
- . -
- . -

(16,258)
18,857
292
777

6,312

(67,054)

52,488

- . -
- . -
- . -

6,009
- . -
- . -

6,009
914
133

6,312

(61,045)

59,544

- . -
- . -
- . -

(7,929)
- . -
- . -

(7,929)
4,761
46

5,762

6,312

(68,974)

56,422

** Net of issuance expenses and fees in the amount of approximately NIS 4,470 thousand. See Note 17b.

The accompanying notes are an integral part of the financial statements.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

- . -

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
STATEMENTS OF CASH FLOWS
NIS in thousands

Cash flows from operating activities:
Profit (Loss) for the year
Appendix A - Adjustments required to reconcile profit (loss) for the year

For the Year Ended December 31,
2017
2018

2019

(7,929)

6,009

(16,258)

to net cash provided by (used in) operating activities

Net cash provided by (used in) operating activities

5,209
(2,720)

(9,931)
(3,922)

17,114
856

Cash flows from investing activities:
Purchase of fixed assets
Consideration from sale of fixed assets
Deposits
Investment in exploration and evaluation assets
Loan repaid (rendered) to the top-co
Interest received
Net cash used in investing activities

(395)
- . -
(14)
(2,161)
253
- . -

(2,317)

Cash flows from financing activities:
Consideration received for issuance of share capital and options (including
additional capital), net
Increase in deferred issuance expenses
Receipt (Repayment) of credits from banks and others, net
Receipt (Repayment) of loans from interested parties, net
Repayment of fund in regard to leasing
Liabilities to shareholders
Receipt of loans convertible to shares
Repayment of long-term loans
Interest paid
Net cash provided by financing activities

3,575
- . -
103
(674)
(299)
- . -
2,636
- . -
(334)
5,007

(391)
55
173
(3,541)
(84)
- . -

(3,788)

908
- . -
(2)
(111)
- . -
685
- . -
(25)
(106)
1,349

Linkage differences in regard to cash and cash equivalents

(173)

Increase (Decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

(203)
209

(6,280)
6,489

209

(531)

- . -
- . -

(4,375)
(1,177)
188

(5,895)

137

(4,707)
(205)
446
- . -

- . -
16,611
(40)
(458)
11,784

(257)

6,488
1

6,489

The accompanying notes are an integral part of the financial statements.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
STATEMENTS OF CASH FLOWS
NIS in thousands

APPENDIX A
Adjustments required to show the cash flows from current operations:
Expenses (Income) not involving cash flows:
Depreciation *
Share based payment
Capital mobilization fees
Amortization of assets for exploration and evaluation of precious stones

49
11
414

Amortization of a loan to an interested party
Finance expenses (income), net

Changes in asset and liability items:
Increase in clients
Decrease (Increase) in receivables
Increase (Decrease) in trade payables
Increase (Decrease) in liability to an interested party
Increase (Decrease) in other accounts payable

2,409
1,116
1,374
5,373

(51)
376
(374)
(296)
181
(164)

For the Year Ended December 31,
2017
2018

2019

54
25
- . -

- . -
- . -
(9,419)
(9,340)

60
46
- . -

- . -
- . -
15,717
15,823

- . -
(.169)
121
(242)
(301)
(591)

- . -
(64)
1,403
- . -
(48)
1,291

* Net of depreciation encumbered on the assets for exploration and evaluation of precious stones.

5,209

(9,931)

17,114

APPENDIX B
Significant non-cash flow operations:

For the Year Ended December 31,
2017
2018

2019

Accounts payable in regard to assets for exploration and evaluation of

precious stones

Fixed assets in regard to assets for exploration and evaluation of

precious stones

Usage rights assets in regard to assets for exploration and evaluation of

precious stones

Loan for acquisition of fixed assets

Loans assigned to capital

Loan from interested parties that is assigned to capital

Balance from a supplier assigned to capital

Payables in regard to deferred issuance expenses

Assignment of a receivable balance from the chairman of the board of

directors to the top-co

765

464

364

- . -

1,166

- . -

428

- . -

124

- . -

223

- . -

1,550

- . -

240

20,518

1,659

1,152

742

640

The accompanying notes are an integral part of the financial statements.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 1:- GENERAL

a. The reported entity -

SHEFA GEMS LTD. (Formerly: Shefa Yamim A.T.M. LTD. and hereinafter –
“the Company”) is an Israeli company engaged in exploration for diamonds,
precious stones and gold in Northern Israel.
The Company is a subsidiary of Shefa Yamim Ltd. (hereinafter – "the top-co"). As
of December 31, 2019 share of top-co in the Company’s shares was 39.47%.
Until December 2017 the top-co owned 75% of the Company's share capital. As a
result of the Company's issuance of shares on the London Stock Exchange
(Standard List) on December 18, 2017 (see Note 17b) the top-co's ownership was
reduced to 50.63%. The top-co is a public company whose shares are traded on the
Tel Aviv Stock Exchange.

b. The Company engages in prospecting and exploration for diamonds, precious
stones and gold ("precious stones") in Northern Israel, along the length of the
Nahal Kishon riverbed in the Zevulun Valley, in Emek Yizrael, on designated
slopes of Mount Carmel, Ramot Menashe and Migdal Ha-Emeq areas based on
prospecting and exploration permits received from the Inspector of Mines in the
Office of National Infrastructure, Energy and Water Resources of the Government
of Israel, in accordance with the Mines Ordinance.

Proximate to date of approval of the financial statements, the Company continues
to conduct prospecting and explorations in accordance with current valid permits
granted for an inclusive area of approximately 488 thousand dunam. For detail of
the permits, see Note 8- exploration assets.

In accordance with the Mining Ordinance, subsequent to exposure of the mine and
quarry of precious minerals, the Company will be required to pay royalties to the
Israeli Government, as outlined in the Mining Ordinance, at the rate of at least 5%
of the value of the mined minerals or their value while still unmined.

c. Since the operations of the Company are prospecting and exploration for gold,
precious stones and diamond deposits and the Company has not yet commenced
commercial mining, therefore, the Company does not as yet have any significant
revenues. Financing of its operations has been performed until now by infusions
of capital and/ or by loans and convertible loans received by the Company from
third parties and from the top-co and transferred in parts to the Company in
accordance with the agreement between them (see Note 1d) and its continued
operation is contingent upon further similar infusions of capital. In view of past
experience, the Company's management believes that it can mobilize the sources
for money in order to complete the explorations, but there remains uncertainty in
this regard since the mobilizations are dependent on other parties. These factors
create significant doubts in regard to continued operation of the Company as a
"going concern".
These financial statements do not contain any adjustments for valuation of assets
and liabilities or their classification that would likely be necessary in the event that
the Company is unable to continue its operations as a "going concern."

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 1:- GENERAL (cont.)

On February 22, 2012 the Tel Aviv-Yafo District Court approved the top-co request for
an arrangement with creditors in accordance with Sections 350 and 303 of the
Corporate Ordinance – 1999.

the framework of

In
top-co allocated
the arrangement with creditors,
23,817,790,260 new shares without par value that constitute, subsequent to their
allocation, 99% of the issued and outstanding top-co fully diluted share capital. 9% of
this allocation was allocated to Pareto Mergers and Acquisitions Ltd. (hereinafter:
"Pareto") and 90% (fully diluted) was allocated to shareholders of the Company.

the

As consideration for the allocation of new shares, shareholders of the Company and
Pareto invested an amount of NIS 1,250 thousand in the top-co (NIS 1,125 thousand
from the Company's shareholders and NIS 125 thousand from Pareto).
These amounts were transferred to a fund established by trustees on behalf of the
creditors and shareholders wherein all assets and liabilities of the top-co company have
been assigned in the framework of the creditors arrangement.

The Company is entitled to payment of NIS 280 million for this shares allocation
(hereinafter: "the debt"). Amount of the debt is linked to the Consumer Price Index and
bears interest of 4% per annum. The debt will be paid exclusively from future top-co
mobilizations of capital, with the Company entitled to 85% of any future mobilized
capital (net after expenses) until repayment of the entire debt.

Until December 31, 2018, the Company received NIS 23,912 thousand (including NIS
2,637 thousand in regard to interest) from mobilizations of capital. See Note 17.

In the event that future mobilizations of capital will not complete repayment of the
debt, this does not constitute grounds for nullification of the agreement or a change in
its terms and the Company will have no recourse to collect from top-co in any other
manner.
In view of the uncertainties in regard to future mobilizations of capital by top-co, the
Company recorded the proceeds from the abovementioned issue in accordance with
actual mobilizations of top-co.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 1:- GENERAL (cont.)

On December 18, 2017 the Company completed its IPO on the STANDARD LIST
Stock Market in London. In connection with the IPO the Company issued 45,174,560
new Ordinary shares. As a result of this issuance, top-co holds shares that constitute
50.63% of the outstanding share capital of the Company. See also Note 17.

Interpretations Committee

Definitions -
In these financial statements:
International Financial Reporting Standards (IFRS) – Standards and interpretations
adopted by the International Accounting Standards Board (IASB) that include
international financial reporting standards (IFRS) and international accounting
standards (IAS), and interpretations of these Standards as determined by the
International Financial Reporting
(IFRIC) or
interpretations determined by
the Standards Interpretation Committee (SIC),
respectively.
"The Company" – SHEFA GEMS LTD.
"Top-co Company" – Shefa Yamim Ltd. – the parent company.
"Related Party" – As defined in IAS 24 and by the International Accounting
Standards Board (IASB).
"Interested Party" – as defined in the Securities Act – 1968, and its Amendments.
"101" – One Hundred One – Gold Holdings Ltd. – An interested party (hereinafter:
"101").
"808" – Eight O Eight Global Corp. – An interested party (hereinafter: "808").
"Index" – The Consumer Price Index published by the Central Bureau of Statistics.
"Dollar" or $ - The U.S. dollar.

NOTE 2:- BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS

Declaration in regard to Implementation of International Financial
Reporting Standards (IFRS)

The Company's financial statements were prepared in accordance with International
Financial Reporting Standards (hereinafter – "IFRS") and related clarifications
published by the International Accounting Standards Board ("IASB").

The significant accounting principles detailed below were consistently implemented
for all reporting periods presented in these financial statements except for changes in
the accounting policies that derive from application of standards, amendments to
standards and clarifications that became effective at the date of the financial
statements.

The financial statements were approved by the board of directors on April 30, 2020.

b. Functional Currency and Presentation Currency

The financial statements are presented in New Israel Shekels (NIS) that is the
functional currency of the Company, and are rounded to the nearest thousand. The
Shekel is the representative currency of the main economic environment wherein the
Company operates.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 2:- BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS

Basis for preparation of financial statements

These financial statements are prepared on the basis of historical cost. The statement
of comprehensive income was included according to characteristics of operations.

Value of non-cash assets and detail of share capital measured on the basis of
historical cost, were adjusted to changes in the Consumer Price Index until
December 31, 2003 since until that date the Israeli economy was considered to be
hyper-inflationary.

The operating turnover cycle

The ordinary operating turnover cycle for the Company is one year. The assets and
liabilities attributed to this operation and that are intended to be realized during this
operating period are shown in the framework of current assets and current liabilities.

Foreign currency and linkage basis

Transactions stated in foreign currency are translated into the functional currency of
the Company at dates of transactions, using the representative exchange rate.
Financial assets and liabilities designated in foreign currency at reported date have
been included in the financial statements according to the prevailing representative
exchange rates as published by the Bank of Israel at the balance sheet date. Non-
monetary items designated in foreign currency and measured at fair value are
translated into the functional currency at the exchange rate prevailing when the fair
value was determined. Non-monetary items measured at cost are translated into the
effective exchange rate at transaction date for the non-monetary item.

Detail in regard to the Consumer Price Index and the exchange rate of the U.S. dollar and
the British pound:

CPI in points (applicable) *
CPI in points (known) *
Exchange Rate of U.S. $ in NIS
Exchange Rate of British £ in NIS
* Base Index 2002 = 100.

Change in CPI (applicable)
Change in CPI (known)
Change in rate of exchange- U.S. $
Change in rate of exchange- Brit. £

December 31,

2019
125.06
125.06
3.456
4.56

2018
124.31
124.68
3.748
4.793

2017
123.33
123.21
3.467
4.682

Year Ended December 31,

2019
0.6%
0.3%
(7.8%)
(4.9%)

2018
0.80%
1.20%
8.10%
2.38%

2017
0.40%
0.30%
(9.83%)
(0.91%)

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 2:- BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS (cont.)

f. Critical accounting decisions

Implementation of accounting policies adopted by the Company requires Company
management, in certain instances, to implement broad accounting decisions (as
opposed to accounting decisions that related to determination of estimates and
valuations as detailed in Section g. below). These broad decisions relate mainly to
adoption of the accounting principle most suitable to the circumstances, or rendering of
an acceptable interpretation under circumstances where the accounting regulation does
not render a full or clear response for the specific circumstances. A critical accounting
decision is such that the results may have a significant effect on the financial situation
and results of operations of the Company as reflected in the financial statements and
with other basic assumptions could lead to an accounting result significantly different
than the one presented therein. By its nature, an accounting decision as such is partially
subjective. Concurrently, by implementing a critical accounting decision, Company
management bases its conclusion on understanding of the accounting principles for
implementation of its operations and, where relevant, the Company consults with
external experts in the relevant field.

g. Essential estimates and uncertainties

Upon preparation of the financial statements, Company management is required to utilize
estimates or valuations in regard to transactions or matters that their final effect on the
financial statements cannot be accurately determined at the time. The main basis for
determination of the quantitative value of these estimates is assumptions adopted by
Company management, taking into account the circumstances for the estimate, as well as
the best of knowledge available at the time. It is natural, since these estimates and
valuations are a result of decisions during uncertainty, that during significant moments,
changes in the basic assumptions derived from changes that are not absolutely dependent
on Company management, as well as additional information at a future date that was
unavailable to the Company management at the time when the estimate was formulated,
will result in changes in the quantitative value of the estimate. Thus, this will also
influence the financial position of the Company and the results of its operations.

Therefore, though these estimates and valuations were concluded using the best of
knowledge available to management, based on past experience and taking into account the
singular circumstances, and, where relevant, reliance on external consultants, the final
quantitative effect of transactions or circumstances requiring estimate can only be clarified
when these transactions or circumstances reach their conclusions. Therefore, the actual
results, upon final clarification of the results for an event that requires determination of
estimates and valuations, may differ, sometimes significantly, from estimates and
valuations that were determined initially and are updated over the period of the related
events.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 2:- BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS (cont.)

g. Essential estimates and uncertainties (cont.)

The estimates and valuations that form the basis are examined currently and are
updated as a result of information gained by management or of an event that occurred
subsequent to the last date when the estimate was determined, and were not available at
the previous period when the estimate was determined or examined. Changes in
accounting estimates are charged to the period when the change occurs in the estimate,
or also to subsequent periods following the change, when it is apparent that the
implications of the change will have an effect on the present and future periods.

Following are areas where the valuation for the financial statements requires estimation
and valuation that, in the opinion of management, will have a very significant effect:
1) fair value of prospecting assets;
2) fair value of financial instruments;
3) fair value of Options.

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES

a. Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments that are immediately
realizable. This includes short-term bank deposits for immediate withdrawal and
deposits with maturities of three months or less that are not limited in any way and no
charges are placed thereon.
Deposits that are limited or that their maturity dates are in excess of three months but
not in excess of one year are classified as deposits in the current assets section of the
statements of financial position.

b. Fixed assets

Fixed assets are stated at cost net of accumulated depreciation and any losses in value
that may have occurred.
The cost includes acquisition cost of the fixed assets as well as all costs that can be
attributed directly to bringing the asset to its location and its current situation that are
necessary for operations, using the methodology intended by management.
Vehicles purchased under financial lease agreements are presented at cost computed by
estimated capitalization of the leasing costs in accordance with the leasing agreement.
Depreciation included in the statement of comprehensive income is calculated using
the straight-line method based on the estimated useful lives of the assets, at the
following annual rates:

Office furniture and equipment
Laboratory machinery and equipment
Leasehold improvements – Establishment of a
laboratory
Vehicles
Computers

%
6-15
10-15

10
15
33

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

b. Fixed assets (cont.)

Depreciation expenses for vehicles and laboratory equipment used during explorations
are charged to cost of assets for prospecting and valuation of precious stones. Profit or
loss arising from sale or decrement of a fixed asset item is determined as the difference
between receipts from its sale and its book value at decrement date, and is included in
operations.

c. Assets for prospecting and valuation of precious stones

1. The Company has adopted the "Successful Efforts Method" in regard to the
accounting treatment of expenses incurred in prospecting, mining and extraction
of precious stones. In accordance with this Method:

Expenses for participation in geologic tests and scans that occur prior to the
prospecting and valuation stage and prior to receiving a permit are charged
immediately to the statements of comprehensive income when incurred.

Investments in explorations for precious stones during the exploration and
valuation stages, relating to areas that are as yet unproven whether they will
indeed yield precious stones or are unprofitable, are shown in the statements
of financial position at cost, as exploration and valuation assets that are
stated as tangible or intangible assets in accordance with the essence of the
asset. These investments include, inter alia, costs incurred for performance
of geological research, drilling costs, operations relating to evaluation of
technical ability for commercial existence of resources to be yielded as well
as general and administrative costs of a headquarters (mainly to a related
company) related to direct costs for prospecting and valuation of assets.
Investments in prospecting for precious stones that have an existing
technical plan and the resource has a commercial existence will be restated
and included as "investments in precious stone assets." Prior to their
restatement, these items will be examined for decrease in value. In the event
that a loss has been created, this will be recognized and included in the
statements of comprehensive income. Investments in precious stone assets
are amortized in the statements of comprehensive income on the basis of
amounts extracted in relation to total proven reserves for the precious stone
assets, as valuated by an external assessor with expertise in this area.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

c. Assets for prospecting and evaluation of precious stones (cont.)

(cont.):
d)

Prospecting and evaluation assets will be examined for decrease in value
when events and occurrences would lead one to believe that their book
their attributed realization value. Such events and
value exceeds
occurrences include, inter alia: expiration of prospecting rights in a
specified area or predictions that these rights will expire in the near future
and renewal is not foreseen; prospecting for precious stones in a specific
area have not resulted in proven commercial quantities of reserves of
precious stones. In the event that there are signs of an impairment in value,
as abovementioned, the realization value for the asset is estimated in
accordance with IAS 36 (see Section 3e).

"Investments in Precious Stone Assets" in the statements of financial information
will include, also, accumulated costs for development of infrastructures for the
necessary bases in order to yield resources. These costs are capitalized and can
include headquarters costs that are directly attributable to establishment of the
assets and other direct overhead costs. They are shown in the statements of
financial information at cost and are amortized in the statements of comprehensive
income on the basis of quantity yielded in proportion to total proven reserves as
evaluated by an external expert assessor, as stated in 1c abovementioned.

Investments in precious stone assets that have an existing technical plan are
examined at each reporting period for any signs of impairment. In the event that
such signs exist, the realization value is computed in accordance with IAS 36 (see
Sect. 3e).

The Company will recognize the liability and, correspondingly, the asset in regard
to Company obligation to disassemble, clear and rehabilitate the site where the
asset was established. The liability is initially measured at its present value and the
expenses derived from its increase are depreciated over a period of time in the
statement of comprehensive income. The asset is initially measured at its present
value and is depreciated over a period of time in the statement of comprehensive
income in accordance with the useful life of the removed asset. Changes in timing
and in the amount of the economic resources that are necessary for the removal of
the liability as well as the change in the capitalization rate are added to or
deducted from the asset during the current period corresponding to a change in the
liability.
Changes in the obligation to disassemble and clear items and rehabilitation of the
site where they were established, except for changes deriving from timing, are
added to or deducted from the asset cost during the period when incurred. The
amount deducted from the asset cost will not exceed the book value of the asset
and the balance, if any, is immediately recognized in the statements of
comprehensive income.

The Company examines its projected obligations to rehabilitate and renew
excavation sites and includes a provision, when necessary, in accordance with the
current value of projected costs.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

Issue of a package of securities

d.
When securities are issued as a package, the consideration received is allotted (prior to issue
expenses) to securities issued as a package in conjunction with the following order of
allocation: financial derivatives and other financial items that are presented at fair value
periodically. Subsequently, the fair value of the financial liabilities is determined, with the
allotted consideration for capital instruments determined as the remaining value. Issue costs
are allotted to each component in accordance with the ratio of amounts determined for each
component of the package.

Impairment in value of assets

At the close of every reporting period, the Company examines the book value of its
tangible assets to determine any signs of loss from impairment in value of these assets. In
the event that there are signs of impairment, the Company examines the realization value
of the designated asset in order to determine the loss from impairment, if any.

The realization value is the higher of fair value of the asset net of sale costs as compared
with its useful life that is determined by the present value of projected cash flows to be
realized from this asset using a rate prior to taxes that reflects the present book value of
the time span for the money and the specific risks for the asset that the estimated future
cash flows were not adjusted for in this regard.
In the event that the book value of the asset is greater than its realization value, a
devaluation of the asset has occurred in the amount of the difference between its book
value and its realization value. This amount is recognized immediately in the statements
of comprehensive income.
Prior devaluation of an asset is nullified, partially or completely, only when changes in
the determinants of realization value of the asset have occurred. In the event of such an
occurrence, the book value of the asset is increased to the estimated current fair value, but
not in excess of the asset book value that would have existed had there not been
devaluation and subsequent to deduction of any relevant depreciation. Such nullification
is recognized immediately in the statements of comprehensive income.

Financial instruments

Non-derivative financial instruments
Non-derivative financial instruments comprise various accounts receivable,
deposit, and cash and cash equivalents.
Non-derivative financial instruments are recognized initially on the trade date at
which the Company becomes a party to the contractual provisions allowing the
Company to receive the financial instrument. Investments in these instruments
are initially presented at their fair value with the addition of transaction costs.
The Company classifies its financial assets as loans and receivables. This
classification is determined in accordance with the purpose for holding the
financial asset, when initial recognition of the financial asset occurs.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

Financial instruments (cont.)

Losses from impairment in value and write-off of non-derivative financial
instruments
Financial instruments not classified at fair value through profit and loss are
examined at each reporting period as to whether there are signs of impairment in
value. Impairment occurs when there is objective evidence that as a result of a
specific incident or occurrences, occurring subsequent to initial recognition date
of the financial asset, a negative effect exists on the projected cash flows for the
investment in this asset.

In regard to financial assets that are included at amortized cost (mainly loans and
receivables), the amount of impairment in value is the difference between the
book value of the financial asset and the present value of the estimated future
cash flows projected to derive from the asset, discounted at the original effective
interest rate for the asset. This amount is charged to the statement of
comprehensive income.
In the event that during a parallel period to that when a loss was recorded for
impairment in value for a financial asset included at amortized cost there are
indications that the amount of the loss from impairment in value is less and is
objectively related to an event occurring subsequent to recognition of the
impairment, then the prior impairment loss will be written off, in part or
completely, to profit and loss. The amount written off is limited so that the book
value of the investment in the financial asset at the time of write-off of the loss
from impairment in value does not exceed the amortized cost of the asset at the
cancellation date had there not been a prior recognition of impairment in value.

Non-derivative financial liabilities
The Company initially recognizes debt securities issued on the date that they
originated. All other financial liabilities (including financial liabilities designated
at fair value through profit and loss) are recognized initially on the trade date at
which the Company becomes a party to the contractual provisions of the
instrument.

Financial liabilities are reduced when the obligation of the Company, as
specified in the agreement, expires or when it is discharged or written off.

Financial obligations are initially recognized in accordance with their fair value
with the addition of attributable transaction costs. Subsequent measurement of
financial liabilities is mainly on the basis of amortized cost using the effective
interest method.

The Company has the following non-derivative financial liabilities: loans and
credit from banks and others, and trade and other payables.

Financial assets and liabilities are offset and the net amounts are presented in the
statement of financial position when the Company currently has a legally
enforceable right to offset the recognized amounts and intends either to settle on
a net basis or to realize the asset and settle the liability simultaneously.

For the policy implemented from January 2018 see note 3n.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

Provisions

Provisions are recognized when the Company has a current obligation (legal or derived) as
a result of a past occurrence that can be reliably measured, that will in all probability result
in the Company being required to provide additional benefits in order to settle this
obligation. The amount recognized as a provision reflects the best estimate by
management of the amount that will be required to settle the obligation currently at
financial statements date, while taking into account the risks and uncertainties related to
obligations. When provisions are determined by capitalization of projected cash flows in
order to settle the obligation, the provision is the current value of the projected cash flows.
Changes in projected time periods are charged to comprehensive income or loss. When the
entire sum or a portion thereof necessary for current settlement of the liability will likely
be repaid by a third party, the Company recognizes an asset for the return, up to the
amount of the recognized provision, only when there is virtual certainty that the amount
will be received and it can be reliably estimated.

Liability in regard to employee benefits

The Company has several benefit plans for its employees:
1.

Short-term employee benefits -
Short-term employee benefits include salaries, vacation days, recreation and
employer deposits to the National Insurance Institute that are recognized as
expenses when rendered. A liability for a cash bonus or a plan for participation in
Company earnings is recognized when the Company has a legal or derived
responsibility for payment of the amount for services rendered in the past by the
employee and the amount can be reliably measured.

Benefits upon retirement -
These plans generally are funded by deposits to insurance companies and pension
funds and are classified as restricted deposit plans or as restricted benefit plans.

Some Company employees have restricted deposit plans, in accordance with
Section 14 of the Severance Pay Law, whereby the Company pays fixed amounts
without bearing any legal or derived responsibility to pay additional amounts
thereto even if the fund did not accumulate enough amounts to pay the entire benefit
amount to the employee that relates to the services he rendered during the current
and prior periods. Deposits to the restricted plan are classified for benefits or for
compensation, and are recognized as an expense upon deposit to the plan concurrent
with receiving services from the employee and no additional provision is required in
the financial statements.

Concurrently, the Company operates a restricted benefit plan for severance pay as
required by the Severance Pay Law. In accordance with the Severance Pay Law,
employees are entitled to compensation upon retirement or upon termination of their
employment.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

h. Liability in regard to employee benefits (cont.)

The financial statements include a provision in the amount of the difference that the
Company would be required to pay in the event that the employees would be entitled to
severance pay at statements of financial position date. No actuarial computations of
possible obligation and actual value of deposits with the restricted benefit plan were made
since, in the opinion of Company management, such computation would not have a
material effect on the Company's financial statements.

Financial income and expenses
Financial income includes interest in regard to invested amounts, revenues from exchange
rate differences that are recognized in the statements of comprehensive income and
revenues from adjustments of fair value of liabilities. Interest income is recognized upon
accumulation, using the effective interest method.

Financial expenses include interest on loans received, finance expenses in regard to fair
value of liabilities and changes in the time estimates of provisions.
Gains and losses from exchange rate differences are reported net. Costs of credit are
recognized as an expense during the period of their inception, in accordance with the
effective interest methodology.

j. Deferred Taxes

The Company creates deferred taxes in regard to temporary differences of value for tax
purposes of assets and liabilities and their values in the financial statements. These
deferred tax balances (asset or liability) are computed according to the projected tax rates
occurring upon realization, based on tax rates and regulations in force or legislated fully at
the date of the statements of financial position. Deferred tax liabilities are recognized,
generally, for all temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes.
A deferred tax asset is recognized on the books for carryforward losses, tax benefits and
temporary differences that are deductible to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be offset.
Deferred tax assets are reviewed at every reporting date and, in the event that the related
tax benefits will not be utilized, they are deducted.
In the absence of certainty regarding taxable income in the future, there was no recording
of a tax deferred asset in regard to carryforward losses on the Company books of account.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

Statement of Cash Flows
The statement of cash flows from current operations is presented using the indirect
method, whereby interest amounts paid and received by the Company are included in
the cash flows in the framework of finance operations.

l. Gain (Loss) per Share

The Company computes the basic revenue or loss per share in regard to gain or loss that
is attributed to the Company shareholders by dividing the income or loss, attributable to
ordinary shareholders of the Company, by the weighted average of ordinary shares that
exist in the turnover during the reported period. The Company does not have any
securities that are convertible to shares that would have a potential effect on the diluted
income per share.

Share Based Compensation
In share based compensation, transactions with employees (including officers and
others who provide similar services) that are cleared by top-co. capital instruments, the
costed benefit of capital instruments granted is based on their fair value at grant date.
The costed fair value upon granting of Options is measured on the basis of the Black-
Sholes model. The abovementioned benefit is attributed to expenses in the profit and
loss against a straight-line growth in share capital, over the vesting period of the
capital instrument that was granted, so that every sub-granting is considered as a
separate graded vesting. In transactions involving share based compensation with
renderers of services, the Company measures the expense in accordance with the value
of the services received. In share based compensation transactions cleared by cash
payment, the Company measures the services acquired and the liability that was
created, in accordance with the fair value of the liability. Until the liability is cleared,
the Company remeasures the fair value of the liability at every reported period and
upon clearance, so that any changes in the fair value are recognized in the statement of
comprehensive income for the period.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

n. Financial Instruments

On January 1, 2018 the Company initially implemented International Reporting
Standard No. 9 – “Financial Instruments” (hereinafter – “The Standard”). The Company
chose to retroactively implement the Standard’s regulations without restatement of
comparative figures. The related accounting principles implemented commencing
January 1, 2018 in regard to financial instruments were as follows:
Financial Assets
Financial assets are measured at fair value on their initial recognition date. In addition,
the transaction costs that are directly attributable to acquisition of the financial asset are
included, except where the financial asset is measured at fair value through profit and
loss, so that the transaction costs are charged to profit and loss.

•

The Standard determines that financial assets shall be handled as follows:
Debit instruments will be classified and measured subsequent to initial recognition
under one of the following alternatives: depreciated cost, fair value through profit and
loss or fair value through other comprehensive income. Determination of the
measurement model will take into account the business model of the entity in regard
to management of financial assets and in accordance with the characteristics of the
projected cash flows that derive from those financial assets.
A debit instrument that was measured by depreciated cost or by fair value through
other comprehensive income may be designated for fair value through profit and loss,
but only if the designation will nullify lack of consistency in recognition and
measurement that would be created if the asset was measured by depreciated cost or
by fair value through other comprehensive income.
As a rule, the financial instruments will be measured at fair value through profit and
loss.
Upon initial recognition, one may designate financial instruments at fair value
through other comprehensive income. Those instruments that will be designated in
that manner, will not be subject any longer to the test of impairment, and profit or
loss in their regard will not be transferred to profit or loss, including upon realization.
Embedded derivatives will not be separated from the existing contract found at the
beginning of the Amendment. Alternatively, mixed contracts will be measured
generally at depreciated cost or at fair value, in accordance with the testers of the
business model and the projected cash flows.
Debt instruments will be reclassified only when the entity changes its business model
to management of financial assets.
Investments in capital instruments that do not have a quoted price on a functioning
market, including the derivatives of these instruments, will be measured at fair value.
The alternative measurement according to cost under certain circumstances is hereby
nullified. However, the Standard declares that under certain circumstances the cost
should be a proper measure of the fair value.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

n. Financial Instruments (cont.)

Financial Liabilities
The Standard determines also the following procedures in regard to financial liabilities:

•

The change in fair value of financial liabilities that is intended, upon initial
recognition, to be fair value through profit or loss, which is attributed to changes
in the credit risk of the liability, will be directly charged to other comprehensive
income unless such attribution will create or increase lack of consistency - an
accounting mismatch.
When a financial liability is paid or cleared, the amounts charged to other
comprehensive income will not be classified to profit or loss.
All the derivatives, whether they are assets or liabilities, will be measured at fair
value through profit or loss, including a derived financial instrument that
constitutes a liability related to an unquoted capital instrument that we are unable
to measure its fair value in a reliable manner.

Impairments
The new model for impairment is based on projected credit losses and will be
implemented for the debit instruments that are measured at depreciated cost or at fair
value through other comprehensive income, receivables in regard to leasing, contract
assets that are recognized according to IFRS 15 and written obligations for rendering
loans and financial guarantee contracts.

The provision for impairment will be in regard to reasonable projected losses within the
following twelve months (the coming year), or reasonable failure to repay during the
entire lifetime of the financial instrument. Examination for the entire lifetime of the
instrument is necessary in the event that the credit risk for the asset rose significantly
since the date of initial recognition. An alternative approach will be enforced if the
financial asset was created or acquired when it was already credit impaired.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

Initial Implementation of New Standards
IFRS 16 "Leases"
In January 2016 the IASB published IFRS 16 in regard to leasing (hereinafter: "The
New Standard"). The New Standard replaces IFRS 17 (hereinafter – “The Old
Standard”) and Interpretations 4 and 15 of the Interpretations Committee.
In accordance with the New Standard, a lease is defined as a contract, or part of a
contract, that transfers the right to use the asset for a defined period of time in return for
a consideration.
Following are the accounting principles implemented up to December 31, 2018:
Criteria for classification of leases as finance or operating are based on the essence of
agreements that are examined at time of engagement in accordance with regulations
determined in IAS 17.
Leasing agreements that reflect all the risks and benefits costed in ownership of the
leased asset are classified as financial leasings.
Other leases were classified as operating leases and the lease payments are recognized as
expenses in the comprehensive statement currently in a straight line over the lease
period.
Lease payments in the framework of financial leasings were allocated between financial
expenses and amortization of the remaining liability.

Accounting principles implemented commencing January 1, 2019 in regard to leases are
as follows:

Main effects of the New Standard:

•

The New Standard requires all lessees to recognize an asset against a liability in
the statement of financial position (except for certain circumstances) so that the
treatment will be similar to a financial lease, in accordance with the previous
nullified IAS 17 – "leases." Lessees will recognize interest expense and
depreciation expense separately.
Variable lease payments that are not dependent on the Consumer Price Index
(CPI) or on interest, but are based on performance or usage (e.g., a percentage of
the redemption) will be recognized as an expense by the lessees or as income by
the lessor upon occurrence.
In the event of a change in variable lease payments that are linked to the CPI, the
lessee must recalculate the liability in regard to leasing with the effect of the
change being attributed to the asset – right of usage.
The new Standard includes two exceptions wherein the lessees are permitted to
handle the leases in accordance with the accounting treatment for operating leases;
in the event that the leasing is for assets that have small monetary value or in the
event that the leasing is for a period up to one year.
The accounting treatment for the lessor remains without significant change as
compared with the existing Standard, that is, classification as financial or
operating leasing.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

Initial Implementation of New Standards (cont.)

The New Standard will be implemented initially in these financial statements. The
Company chose retroactive partial implementation. Balance of assets for usage rights is at
the level of the liability in regard to leasing.

In accordance with this approach, retroactive restatement of comparative figures is not
required. Balance of the liability at initial implementation date is computed while utilizing
the incremental interest rate for the Company that existed upon initial implementation.

Effect of the New Standard implementation is in regard to existing leasing contracts
wherein the Company is the lessee. As abovementioned, in accordance with the Standard,
except for unusual circumstances, the Company recognizes for every leasing contract
wherein it is a lessee a liability against the balance of an asset for the usage right. This
differs from the principles implemented in the old Standard, whereby the actual amounts
of all the benefits costed up in the leasing were not shown as ownership of the leased
asset, and lease payments were recognized as an expense in profit and loss in a straight
line throughout the leasing period.

Effect of initial implementation of the Standard consists mainly of recording an asset for
the usage right against a leasing liability in the amount of approximately NIS 2.1 million.
See Note 15, Financial Lease.

NOTE 4:-

SHORT-TERM DEPOSIT IN BANK

As of December 31, 2019 the Company has a short-term deposit in NIS, bearing annual
interest at Prime-1.73%.

NOTE 5:-

RECEIVABLES

Advances to suppliers and others
Prepaid expenses
Interested parties

December 31,

2019

2018

20
125
-
145

277
244
258
779

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 6:-

FIXED ASSETS, NET

Machines and
Laboratory
Equipment

Vehicles

Office
Furniture and
Equipment

Leasehold
Improvements
- Laboratory

Computers

Cost:
As of January 1, 2018
Additions
Decrements
As of December 31, 2018
Additions
As of December 31, 2019

Accumulated
Depreciation:

As of January 1, 2018
Depreciation for the year
Decrements
As of December 31, 2018
Depreciation for the year
As of December 31, 2019

Depreciated Cost:
As of December 31, 2019

As of December 31, 2018

3,531
270
- . -

3,801
299

4,100

1,780
435
- . -

2,215
487

2,702

1,398

1,586

375
- . -
(306)

69
- . -

167
31
(156)

42
8

NOTE 7:-

LOANS TO TOP-CO

338
- . -
- . -

338
- . -

338

310
9
- . -

319
7

326

361
6
- . -

367
6

373

347
8
- . -

355
7

362

436
- . -
- . -

436
- . -

436

307
37
- . -

344
38

382

Total

5,041
276
(306)

5,011
305

5,316

2,911
520
(156)

3,275
547

3,822

1,494

1,736

Terms of repayment for the loans are as yet undetermined. During the reported year, the
Company amortized 50% of the loan since the Company Estimated that the top-co would not
be able to repay the debt in its entirety.
composition:
Opening Balance January 1, 2019
Repayment
Amortization of loan to doubtful accounts
Closing balance December 31, 2019

2,494
(262)
(1,116)

1,116

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 8:-

ASSETS FOR EXPLORATION AND EVALUATION OF PRECIOUS STONES

The Company is the first and only company in Israel that is engaged in exploration
(prospecting and exploration) related to precious stones (diamonds, gemstones and gold)
since 1999, in the northern area of Israel.

The exploration operation performed by the Company is, actually, exploration and
examination of the primary deposit in targeted entities and performance of work plans that
are managed by a professional work team, expert and competent in the technical aspects
necessary for implementation of exploration operations that include, inter alia: mapping,
sampling, geophysical, geochemical and geological surveys, visual and mineral
examination in the laboratory (established in the operating area of the Company in Akko)
of the various findings using the most advanced methods known worldwide in order to
assess the economic potential of the findings at each site that is part of the permit areas in
order to raise expectations and reduce the risk level, and to identify the exact location
where it will be possible to open a "mineralogical resource" and a commercial mine.

The Company's operating area is along the southern Akko industrial zone (Barbour Center)
that stretches over an area of approximately 6,000 sq. m. The Company’s operations are
concentrated parallelly at the Primary Sources for mineral deposits at the Carmel mountain
range and Ramot Menashe stretching over the lower Galilee territory and at the Secondary
sources of alluvial erosion areas.

The module allows a three-dimensional panoramic view of the findings at the sites and of

the transport for the materials from their source to the accumulation areas.
Exploration of the volcanic sources on the Carmel mountain range (that constitute a
Primary Source) shows that some of the sources have a constitution similar to kimberlite (a
rock that is a source of diamonds), based on indicators of kimberlite sources. Moreover, a
positive identification of a micro-diamond by the team of geologists from De Beers in a
sample found and handled by them from one of the volcanic entities of the Carmel
(Rakefet) shows that these sources, at least in part, contain diamonds.

The exploration procedures are in accordance with international specifications, as is
customary in this field and, for this purpose, the Company is assisted with a wealth of
progressive methods engaged in worldwide by other exploratory companies.

The exploratory Company operations are accompanied by International geological team
who are experts in their fields (hereinafter: "Company advisors from abroad") who have
proven expertise in the fields of earth sciences, geology, geochemistry and geophysics,
especially within the field of dynamic special explorations wherein the Company operates –
prospecting for diamonds and precious stones.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 8:-

ASSETS FOR EXPLORATION AND EVALUATION OF PRECIOUS STONES (cont.)

The Company has founded the TMA Suite (Target Mineral Assemblage) based on
two leading mineral suites. These minerals, all or partially, were found initially by
the Company at their primary sources of volcanoes on the Carmel mountain range,
Ramot Menashe and at the secondary sources, the alluvial drainage basin areas of
the Kishon area.
On March 17, 2020 the Company was granted Discovery Certificate D12869 - to
further the mining plans in the Mid-Reach area of the Kishon areas 1 and 2. See
Note 26b.

The Company's collection of jewelry, Heaven on Earth, was created by the
Company in conjunction with the famous jewelry designer, Yossi Harari.

On September 3, 2018 the Company reported to the London Stock Exchange in
regard to an agreement signed between the Company and a famous jewelry
designer Yossi Harari. The agreement was signed in the framework of a Mine to
Market strategy that recommends the precious stones will be set in jewels that
will be sold on worldwide markets. The agreement provides that Shefa will have
31 pieces of jewelry designed for it, made from 24 karat gold, and all types of
jewels found by the Company during its explorations in the Kishon Mid Reach
will be set in these pieces of jewelry. The collection was initially shown in May
2019 in the shop of Stanley Korshak, located in Dallas, Texas, U.S.A. To date, 9
pieces have been sold from the Heaven on Earth collection. The Company
covered all production costs for the collection. The remaining unsold items from
the collection are still in the Dallas store.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 8:-

ASSETS FOR EXPLORATION AND EVALUATION OF PRECIOUS STONES (cont.)

The Company presently holds the following Permits:
1. Exclusive Exploration Permit 869B11 that encompasses a range of
173,636 dunam and is valid until May 6, 2020. In addition, the
Company holds Carmel Prospecting Permit 838A13, extending over
an inclusive area of 314,478 dunam, that is valid until December 20,
2020.

2. In addition, the Company holds, commencing with June 6, 2019 and
valid until June 5, 2020, Prospecting License 869C10 for an area of
252 dunam in an area known as Zone 1 in the Kishon Mid Reach.
This license allows the Company to commence regulatory and
planning procedures and to perform a schedule of mining ideas that
will include application of the following aspects: mapping of
infrastructures on and below the earth’s surface, avenues of approach,
division of the area into mining slots, mining stages, mining pace,
quantities of projected minerals per every area slot, market economic
value, area management and rehabilitation, necessary adjustments and
permits, necessary equipment, work tools and stations, etc.

3. We note that commencing March 17, 2020 the Company possesses a
Certificate of Discovery in regard to zone 1 and 2 in the Kishon Mid
Reach. This Certificate of Discovery was rendered in order to allow
the Company to progress with the official regulation procedures for
planning the mining (hereinafter – “the procedures”).

Gemological Valuation of the gemstones included in the Company’s
TMA Suite:

On March 19, 2019 the Company published a valuation of the gemstones
included in the TMA Suite. This valuation was performed by Dr. Gila
Gavrielov, a gemologist. The valuation is for one carat of polished
gemstone not including the categories of Natural Moissanite and KIM's.

The quantity of gemstones in the Company safes from explorations
performed in the Kishon Mid Reach zone 1 and 2 as of December 31,
2019 is 15,573 carat. Balance of remaining carats subsequent to polishing
is expected to be 6,229 carat, and polishing costs are expected to be
approximately 100 – 200 thousand dollars.
Value of the polished stones is estimated at $ 4,787 thousand.
At this stage The company can't allocate the exploration cost to the
inventory. these costs are included in Assets for exploration and
evaluation of precious stones.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 8:-

ASSETS FOR EXPLORATION AND EVALUATION OF PRECIOUS STONES (cont.)

Valuation of Gemstones (Raw) Stored in Company Safes, for Financing

Type of Gemstone

Spinel

Garnet

Total
Carat
Zone* 1
and 2

Total of
Raw
Gemstones
Stored

Total
Carat ***
balance
After
Polishing

Price List
According
to Carat
Polished
**
CPR

Total Prices of
Polished Gemstones

7,807.28

7,668.47

3,067.39

$ 4.0

$ 12,270

3,516.32

3,365.59

1,346.24

$ 38.0

$ 51,157

Carmel Sapphire

2,729.71

2,391.70

956.68

$ 4,582.0

$ 4,383,508

Ilmenite

Sapphire

Hibonite

Moissanite

Ruby

1,705.52

1,451.93

580.77

$ 290.0

$ 168,424

669.25

647.05

258.82

$ 585.0

$ 151,410

31.83

30.43

12.17

$ 1,368.0

$ 16,651

15.37

10.09

4.04

$ 794.0

$ 3,205

9.18

7.85

3.14

$ 281.0

$ 882

General Total

16,484

15,573

6,229

$ 4,787,506

* Middle Section of Kishon Riverbed Areas 1 and 2.
** Competent Person’s Report published by the Company on
December 9, 2019.
*** Subsequent to amortization of 60% of polishing – cost of polishing all the raw
gemstones is between $ 150,000 - $ 200,000.

Composition:

Purchase of exploration rights, fees and planning
Geologic research and laboratory maintenance **
Drilling for exploratory purposes
Headquarters operations expenses directly attributable
to the asset (mainly to a related company) **

Other expenses

Amortization of exploration assets *

December 31,
2018

2019
5,142
22,059
5,655

24,641

5,540

(2,409)
60,628

4,848
19,945
5,450

23,841

5,044

-
59,128

* During the reported year, the exploration areas were minimized. The
Company amortized the exploration assets in the amount of expenses attributed
in prior years to these areas.
** Includes share based compensation in 2019 in the amount of approximately
NIS 1,111 thousand and approximately NIS 1,076 thousand in 2018.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 9:-

SHORT - TERM CREDITS FROM BANK AND OTHERS

a. Composition:

Short-term bank credit
Overdrafts
Short-term loan from shareholder
Current maturities of long-term loan
Current maturities of leases

December 31,

2019

2018

211
96
131
-
324
762

203
-
129
124
-
456

As of December 31, 2019 and 2018, the Company has a fixed bank credit framework
of approximately NIS 250 thousand and NIS 200 thousand, respectively.

NOTE 10:- TRADE PAYABLES

Checks payable
Open balances

NOTE 11:-

INTERESTED PARTIES

Current maturities of long-term loan
Current debt

Agreements with interested parties see Note 23.

NOTE 12:- OTHER ACCOUNTS PAYABLE

Salaries and related items
Accrued expenses
Liability in regard to severance pay

December 31,

2019

2018

340
731
1,071

287
1,081
1,368

December 31,

2019

2018

-
211
211

114
-
114

December 31,

2019

2018

617
497
-
1,114

277
292
338
907

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 13:-

LOANS CONVERTIBLE TO SHARES

During November 2018 until June 2019, the Company received convertible loans from
investors in the amount of approximately £ 251 thousand. According to the agreements,
the Company, obligated to allocate to the lenders a number of shares at the price of 5
pence until December 31, 2019 and in addition to allocate one Option per share at the
realization price of 10 pence for a 24 month period.

Concurrently, the Company received from an investor a loan convertible to shares in the
amount of approximately £ 78 thousand. According to the agreement, the Company
obligated to allocate to the lender shares at the price of 4 pence until December 31,
2019 and in addition to allocate one Option per share at the realization price of 8 pence
for a 24 month period.
On December 31, 2019 the Company signed an agreement with the lenders .
Accordingly, the shares allocation date will be extended until June 2020.
Upon receiving the loans, the Company recorded an entry in the amount of
approximately NIS 627 thousand (£ 133 thousand) as a loan at fair value and an amount
of NIS 924 thousand (£ 196 thousand) was recorded as a loan at amortized cost.
During October 2019 the Company received additional convertible loans in the amount
of NIS 742 thousand (£ 164 thousand). In accordance with the loan agreement, the
Company obligated to allocate to the lenders, in the event that they choose, until March
31, 2021 an amount of shares at the price of 5 pence per share and to allocate one
Option per share at the realization price of 10 pence for a 24 month period.
In addition, the Company obligated to double the yield on the allocated shares at the
end of the 24 months from allocation date. If the yield will not be doubled then the
Company will grant additional shares until the promised yield is attained.

Upon receiving the loans, the Company recorded an entry in the amount of
approximately NIS 728 thousand (£ 161 thousand) as a loan at fair value and an amount
of NIS 14 thousand (£ 3) as a loan at amortized cost.
All the loans bear 5% interest per annum.
During November 2018 until June 2019, the Company received convertible loans from
investors in the amount of approximately £ 253 thousand. The Company obligated to
allocate to the lenders, until June 30, 2019, shares at 5 pence per share as well as one
Option per share at an exercise price of 10 pence for a 24 month period.
On June 30, 2019 the loans were converted to shares and Options in the amounts of NIS
1,017 thousand and NIS 149 thousand, respectively. See Note 17e.

Activity:

Opening Balance January 1, 2019
Additional convertible loans
Classification from amortized cost to fair
value
Loans convertible to shares and options
Financing in regard to loans
Closing balance at Dec. 31, 2019

Loans at
Amortized
Cost

Loans
at Fair
Value

772
1,550

(232)
(1,166)
210
1,134

-
1,122

232
-
438
1,792

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 14:-

LONG-TERM LOANS FROM INTERESTED PARTY AND OTHERS

Composition:

Loan from interested party (1)
Loan from supplier (2)

Net of current maturities

December 31,

2019

2018

-
-
-

-
-

674
124
798

(238)
560

(1)

Loan from an interested party -
A loan in NIS bearing annual interest of Prime + 3.6%. During 2019 the loan was
repaid in an early repayment.

(2) Loan from a supplier -

A loan for purchase of a tractor (Shovel), that was received during December
2017 and was payable in 24 equal monthly installments. The loan was in NIS and
bore annual interest of 5%. The loan was fully repaid in December 2019.

NOTE 15:- FINANCIAL LEASE

The Company has several leasing agreements that include leasings of a building and
vehicles, that are utilized for current operations. Building lease agreements are for a period
of 3 to 7 years while vehicle lease agreements are for a period not in excess of three years.
The building lease includes extension options.
The Company’s policy is to extend the initial lease period for the building over a period that
is not less than 3 years. The Company examines the probability of exercise or non-exercise
of the option in view of the business requirements and the lease agreement.
In addition, the vehicle lease agreements are for a period up to three years without option
periods for extensions during the leasing. Regarding lease agreements of the building See
note 23.

a.
1. Assets in regard to usage:

Composition:

Opening balance Jan.1, 2019
Effect of initially implement of IFRS
Depreciation
Closing balance Dec. 31. 2019

Building

-
1,829
(261)
1,568

Vehicles

-
286
(103)
183

Total

-
2,115
(364)
1,751

2. Liability:
Liability
Net of current maturities

December 31,

2019
1,816
(324)
1,492

2018

-
-
-

b. Amount of the liability was computed by capitalization of the leasehold payments for the
payments period at an annual interest rate of 8%. The amounts are linked to the
Consumer Price Index.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 16:- OPTIONS CONVERTIBLE TO SHARES

On December 18, 2017, the Company completed its Initial Public Offering (IPO) on the
London Stock Exchange in the framework of which convertible loans (see Note 13) were
converted to 39,734,610 shares and an amount of 65,893,310 non-marketable Options. In
accordance with the valuation of an independent external assessor, the Options have a fair
value of approximately NIS 370 thousand as of December 31, 2019 and they have a value
as of December 31, 2018 of approximately NIS 495 thousand. During July 2019 a six
month extension was granted for every Options series. As of December 17, 2019 an
amount of 24,804,020 Options expired that had been rendered for an exercise period of 18
months (subsequent to the extension rendered as abovementioned).

On October 31, 2018 the Company issued 3,006,250 shares and allotted 3,006,250 non-
marketable Options in their regard. In accordance with the valuation of an independent
external assessor, it was determined that the fair value of the Options for shares that had
been rendered, as of December 31, 2019 was in the amount of approximately NIS 3
thousand and as of October 31, 2018 the fair value was approximately NIS 69 thousand.

On May 13, 2019 the Company issued 25 million shares and Options to various investors
in consideration for £ 1 million. The shares were allocated at a price of 4 pence per share,
and to each share was allocated one Option at the exercise price of 8 pence for 24 months
(see Note 17d). In accordance with the valuation of an external assessor, the Options had a
fair value at allocation date in the amount of approximately NIS 566 thousand. As of
December 31, 2019, the valuation is approximately NIS 655 thousand.

On June 30, 2019 the Company issued 5,061,055 shares and Options to various investors in
consideration for convertible loans in the amount of NIS 1,166 thousand, allocated at a
price of 5 pence per share. To each share was allocated one Option at an exercise price of
10 pence for 24 months. In accordance with the valuation of an independent external
assessor, as of December 31, 2019 the fair value of the Options per shares that were
rendered is in the amount of approximately NIS 92 thousand.

Parameters used in the fair value valuation:

Projected fluctuations (in percentages)
Life of the Option (in years)
Rate of non-risk interest (in percentages)
Market price (in £)

December 31, 2019

67 - 79
0.5 - 1.5
0.58 - 0.69
0.043

December 31, 2018
41 - 53
0.5 - 2
0.72 - 0.825
0.575

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 16:- OPTIONS CONVERTIBLE TO SHARES (cont.)

c. Composition of existing Options

Number of Options
2018
2019

Value of Options
(NIS in Thousands)
2019

2018

Options allocated Dec. 18, 2017 *
Options allocated Oct. 31, 2018
Options allocated May 13, 2019
Options allocated June 30, 2019

41,089,290
3,006,250
25,000,000
5,061,055
74,156,595

65,893,310
3,006,250
-
-
68,899,560

370
3
655
92
1,120

495
69
-
-
564

* On Dec. 17, 2019 an amount of approximately 24,804,020 Options expired.

Fair value hierarchy -
Measurement of fair value of financial instruments is performed using a fair value
hierarchy that reflects the data that was used in performance of a measurement of fair
value. The hierarchy of fair value is based on the following three levels:
Level 1 - Quoted prices (unadjusted) on the active markets for identical assets or

liabilities.

Level 2 - Data that are not price quotes included in Level 1 abovementioned, that may
be seen directly (that is, price quotes) or indirectly (that is, derivatives of price
quotes).

Level 3 - Data in regard to an asset or liability that are not based on market information

that may be seen (unseen data).

As of December 31, 2019 and 2018, the liability in regard to allocation agreements and the
liability in regard to the Options were measured using a valuation technique based on
Level 2 while basing itself on visual market data.

NOTE 17:- SHARE CAPITAL

December 31, 2019
Number of
Ordinary Shares

December 31, 2018
Number of
Ordinary Shares

a. Composition:

Ordinary shares of NIS 0.1 par value

Authorized
1,000,000,000

Issued and
Outstanding
172,306,565

Authorized
1,000,000,000

Issued and
Outstanding
142,245,510

On December 18, 2017 the Company completed its IPO on the London Stock Exchange in
the framework of which 45,174,560 Ordinary Company shares were registered for trade as
follows:
397,346,100 shares were allocated as a result of loan conversions to shares.
32,085,060 shares were allocated to an interested party in the framework of a debt
conversion.
20,223,000 shares were allocated in consideration for payment of debts to issuance advisors.
2,090,900 shares were allocated to subscribers on the issuance date.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 17:-

SHARE CAPITAL (cont.)

429,431,700 shares were allocated at a 15% discount from the basic issuance price - £ 1.10.

The inclusive amount attributed to capital in accordance with the basic price per share is NIS
18,857 thousand (net of issuance expenses and fees in the amount of approximately NIS 4,470
thousand).

During 2018 the Company issued 3,194,950 shares to various investors.

The number of shares were adjusted in accordance with the split. See c below.

On April 9, 2019 the Company performed stock split of 1:10 so that each shareholder

received 9 additional shares for every share that he held beforehand.

On May 13, 2019 the Company issued 25,000,000 additional shares and Options to various
investors for a consideration of £ 1 million. The shares were allocated at the price of 4
pence per share, and each share received an allocation of one Option at the exercise price of
8 pence for 24 months.

On June 30, 2019 the Company issued 5,061,055 shares and Options to various investors as
a consideration for convertible loans in the amount of £ 1,116 thousand. The shares were
allocated at the price of 5 pence per share, with an Option added at the exercise price of 10
pence for 24 months.

On April 4, 2012 the Company allocated to the top-co, Shefa Yamim Ltd., 7,040,700 shares
that constituted, subsequent to issuance, 75% of the Company share capital. In accordance
with the agreement (see Note 1d), the amount received in consideration of the issuance from
the agreement date until the balance sheet date is NIS 21,275 thousand.

The shares render to their owners the right to vote and to participate in meetings of the
shareholders, the right to receive revenues and to participate in surplus assets upon
dissolution of the Company.

In regard to agreements with interested parties – see Note 23a.

i. Allocation of Options for shares of top-co:
On August 26, 2015 the general meeting of the top-co approved the decision of the board of
directors that was rendered on July 16, 2015 in regard to granting 2,160,000 Options convertible to
shares of the top-co to officers, directors and Company employees. During September 2017 the
Options were allocated. As of the balance sheet date, all the Options expired.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 18:- GENERAL AND ADMINISTRATIVE EXPENSES

Year Ended December 31,
2018

2017

2019

Management fees and participation in
expenses to an interested party (see Notes
22a, 23a1) *
Other
Depreciation
Office maintenance and office expenses
Salaries to directors
Advertising and marketing
Travel abroad
Professional consultation
Fees
Office services to an interested party
(see Notes 22a, 23a2)
Participation in expenses of the top-co
(includes credit in regard to prior years)

* Includes share based compensation

670
173
49
58
612
402
130
707
255

- . -
3,123

763
197
54
23
367
669
356
735
246

- . -

- . -
3,410

389
129
60
53
- . -
16
12
- . -
- . -

(150)
541

NOTE 19:- OTHER EXPENSES, NET

Revenues from sale of jewelry
Expenses for jewelry production

Doubtful accounts expense – loan
to top-co

Year Ended December 31,

2019
254
(161)
93

(1,116)

(1,023)

2018

2017

- . -
- . -
- . -

- . -

- . -
- . -
- . -

- . -

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 20:-

FINANCING EXPENSES (INCOME), NET

Finance expenses -
Adjustment of the value of a financial
liability according to fair value
Issuance and fees expenses in regard to
Options
Exchange rate differentials
Interest on convertible loans
Finance expense in regard to leasing
Interest on loans from shareholders
Other expenses
Interest
interested party

to a company

is an

that

Finance income -

Interest income from the top-co
Adjustment of financial
in
regard to Options according to fair value
Exchange rate differentials

liability

Year Ended December 31,

2019

2018

2017

438

419
235
210
159
16
57

- . -
1,534

- . -

(160)
- . -
(160)

1,374

- . -

- . -
- . -
- . -
- . -
3
177

38
218

(69)

(9,487)
(81)
(9,637)

(9,419)

12,867

1,884
702
347
- . -
- . -
111

43
15,954

(237)

- . -
- . -
(237)

15,717

NOTE 21:- TAXES ON INCOME

Data in regard to the tax environment wherein the Company operates:

Tax rates
Corporate tax rate in Israel for 2019 and 2018 was 23%. In 2017 it was 24%.

The Company received final assessments from the Income Tax Authorities through
2014.

The Company has a carryforward loss for tax purposes as of December 31, 2019 in the
amount of approximately NIS 79 million. The tax benefit in this regard will be included
in the financial statements at the time when realization is expected.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 22:- TRANSACTIONS WITH INTERESTED AND RELATED PARTIES

a. Transactions with interested parties:

Year Ended December 31,
2018

2019

2017

Charged to statements of
comprehensive income (loss):
Management fees and participation
expenses paid to "101"

Fees for office services paid to
"808"

Finance expenses paid to "101"

Interest income received from the
top-co

Finance expenses
parties

interested

Finance expenses to shareholders

Charged to the statement of
financial position:
Capitalized management fees and
participation in expenses to "101"

670

- . -

763

- . -

389

237

249

- . -

799

841

630

Balances of interested and related parties:

In the framework of current assets:
Receivables

long-term

In the framework of
assets:
Interested parties

Loan to the top-co

In the framework of short-term
liabilities:
Interested parties

In the framework of non-current
liabilities:
Loan from interested parties

Commitments:
See Note 23a.

December 31,

2019

2018

- . -

258

1,116

211

- . -

2,494

114

560

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 23:- COMMITMENTS, GUARANTEES AND LIENS

Commitments with interested parties:

1. Commitment regarding "101":

Since 1999, when the Company was established, it has been managed by 101 Gold
Holdings (hereinafter – "101"), an interested company, that holds at balance sheet
date 2.73% of the Company shares and 3.90% fully diluted, in the framework of
management agreements.

In view of the issuance of Company shares in London, the Company had to separate
the general administration and the financial management between the Company and
top-co. Therefore, on December 6, 2017 a new management agreement was signed
between "101" and the Company only (without the management of top-co), for a new
period of thirty-six months commencing January 1, 2018 until December 31, 2020.
On December 1, 2020 a new agreement was signed, see note 26c.

In accordance with the new agreement, "101" will provide for the Company
management services that will include a Chairman, a CEO, secretarial services for
management as well as office space that is owned by "101. These services will be
rendered for a consideration of NIS 85 thousand per month with the addition of Value
Added Tax (VAT) in accordance with the prevailing law (not including refund of
expenses for maintaining a vehicle and a telephone for the CEO and refund of
expenses for travel abroad in order to locate potential investors. Concurrently, the
Company obligated to cover insurance for "101" employees who engage in rendering
the abovementioned services to the Company. The amount of management fees will
be linked to the Consumer Price Index once a year.

2. Commitments regarding "808":

On January 1, 2005 the Company signed an agreement with "808", an interested
party in the Company, whereby "808" will assist in finding potential investors. In
addition, "808" will provide collection services regarding the investment money
of investors that were found by "808"for a consideration of 2% of the total gross
investment by each such investor in the Company.

In addition, "808" will provide office services to the Company representatives in
the United States for a fixed monthly retainer in the amount of $ 770. The
Company and "808" agreed that the agreement will be valid until December 31,
2015. Each party has the right to bring the agreement to an early termination upon
written notification six months in advance. The agreement was extended until
December 31, 2020 under the same terms.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 23:- COMMITMENTS, GUARANTEES AND LIENS (cont.)

Commitment regarding Kibbutz Yagur (relate to the Distal area according to
the company Geological model):

On August 13, 2000 the Company signed a Memorandum with Kibbutz Yagur
(hereinafter – "The Kibbutz"). In accordance with the Memorandum, the Company
has the right to dig and drill on land that the Kibbutz is leasing from the Israel
Lands Authority, in accordance with the utilization permission that will be rendered
by the Kibbutz and in the framework of the operations permitted to be performed
by the Company, as per the Permits issued to it. In the event that mineral deposits
will be found, then the Company will be permitted to dig and operate a mine in the
area, in consideration for annual usage fees in the amount of U.S. $ 2,000 + VAT
(hereinafter – "the service fees"). The service fees will be paid to the Kibbutz until
the end of the permitted usage period rendered by the Kibbutz or until the period
contracted by the parties in a leasing or purchase agreement, as detailed below. The
Memorandum does not have a time limit.

In addition, it was determined that in the event that minerals are found for
extraction and the Company will receive a mining right or leasing of a mining right
from the Inspector, then the Kibbutz will render the required land for the
Company's mining purposes. In consideration for rendering the land, the Kibbutz
will be entitled to one of two alternative compensations, as per its choice, and the
Kibbutz will hereby notify the Company of its choice within 60 days of the
Company receiving from the Inspector a leasing of a mining right or a mining right.

In accordance with the first alternative, the Company will sub-lease the land from
the Kibbutz in the framework of a long-term lease for the period of the lease
agreement that exits between the Kibbutz and the Israel Lands Authority, but not
longer than a period of 25 years. In consideration for this arrangement, the
Company will pay the leasing fees that the Kibbutz would pay to the Israel Lands
Authority with the addition of usage fees that are 3% of the sales turnover from the
mines that will be prospected by the Company and the produce therefrom will be
marketed, but will not be less than U.S. $ 500 annually in regard to every dunam
leased by the Company, as abovementioned. In accordance with the second
alternative, subject to issuance of the Company shares on the stock market, the
Company will purchase the land leasing rights of the Kibbutz in consideration for
allocation of shares to the Kibbutz at a price that is 18% below their value on the
stock market at the allocation date.

The number of shares allocated to the Kibbutz, as abovementioned, will be
determined in accordance with the value of the transferred land rights, while in this
framework the minerals found by the Company on this land and/or the mining
rights of the Company on the land being transferred will not be taken into account,
as determined in the agreement and in the negotiations between the parties. In the
event that there is no agreement in regard to value, then in accordance with the
arbitration mechanism determined in the Memorandum.

In addition, the agreement includes obligations of the Company for payment of
compensation and damages in the event of any harm caused by the Company as a
result of its prospecting the land.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 23:-

COMMITMENTS, GUARANTEES AND LIENS (cont.)

3. Commitment regarding Kibbutz Yagur (cont.):

Alternatively, the Company will lease from the Kibbutz the abovementioned
adjacent areas, at a price to be determined by the assessment mechanism as detailed
in the Memorandum, as per the determination of the Kibbutz. Concurrently, the
Company obligated to render insurance in regard to the risks involved with the
work to be performed on the land.

4. Rental agreement – S.L.M. A.H. Ltd.

On November 9, 2011 the Company signed a rental agreement with S.L.M.A.H.
Ltd. (hereinafter – "the Lessor"), whereby the Company rented from the Lessor a
building that is approximately 970 sq, m, in the southern industrial zone of Akko,
The rental agreement is for the period from January 2, 2011 until December 31,
2013. The Company has four sequential options for additional rental periods of 36
months, in accordance with the agreement. Monthly rent is in the amount of NIS
20,500 with the addition of VAT and linked to the Consumer Price Index, in
accordance with the base Index for 2010. Rental fees, commencing with the second
option, will rise by 5% per annum.

On June 16, 2013 the Company signed an addition to the rental agreement, whereby
he Company will rent a lot that is 850 sq. m. and is adjacent to the operating area.
This will serve as a storehouse for earth samples. The monthly rental fees are in the
amount of NIS 2,500 + Vat and are linked to the Consumer Price Index, in
accordance with the base Index for 2010. See also note 15.

5. Chairman of the Board of Directors

On April 28, 2019 the Company signed an agreement with Mr. Michael Rosenberg,
chairman of the Board of Directors, whereby the Company obligates to render over
a two year period an amount of 1 million convertible Options at a price of nine
pence. This agreement has not as yet been approved by the Board of Directors and,
therefore, a liability was not recorded in this regard.

Guarantees and Liens:

1. The Company gave to a third party a guarantee through a bank in the amount of

approximately NIS 7 thousand.

Information in Regard to Exploration and Prospecting Permits:
The Company received exploration and prospecting permits from the mining
Inspector at the Government of Israel National Infrastructures Ministry. These
exploration permits grant exclusive rights to perform geological explorations in
specific areas of northern Israel. Prospecting and discovery of minerals in Israel is
subject to the statutes detailed in the Mining Ordinance and Mining Amendments
added thereto as well as the Mining Regulations subsequently appended.

Since commencement of the Company's operations in January 1999, the Company
has acquired all necessary permits and licenses and maintains its schedule of
operations determined in accordance with these licenses by the Mining Inspector
in the National Infrastructures Ministry.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 23:-

COMMITMENTS, GUARANTEES AND LIENS (cont.)

Information in Regard to Exploration and Prospecting Permits (cont.):

Prospecting permit:
A prospecting permit grants to its holder the right to enter any area included in the
permit, in order to verify the presence or absence of minerals in the area and to dig
up to two meters and tunnel up to a depth of ten meters. A prospecting permit
holder is not allowed to drill or perform any other actions that have the intent or
directly result in removal of minerals, unless other special terms were designated
by the Inspector. The prospecting permit is also limited in regard to the
exploration area and to the minerals that may be prospected. The permit does not
grant exclusive rights to its holder in regard to area and to minerals that are
permitted to be prospected. The prospecting permit is for an initial twelve month
period and may then be renewed for an unlimited amount of months, subject to
terms and conditions to be determined. Concurrently, the prospecting permit is not
transferable.

Exploration permit:
An exploration permit grants exclusive rights to its holder for exploring in the area
designated in the permit. An exploration permit may cover an area up to 500 sq.
km. and is valid for a two-year period. The holder of an exploration permit is
required to employ expert geologists and other trained individuals who are
approved by the Inspector and have been hired to explore in accordance with the
general guidelines published periodically by the Inspector. In addition, these
individuals explore the rocks, minerals, quarries, ground and water supply in the
area in accordance with the Inspector's opinion and they furnish reports, maps or
other information as requested.
The Inspector has the right to nullify an exploration permit, completely or
partially, without any compensation to the holder of the permit, in the event that
the Inspector determines that the holder of the exploration permit is not
conducting a survey of the area with proper expertise, as required by the
Ordinance and instructions of the Inspector.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 23:-

COMMITMENTS, GUARANTEES AND LIENS (cont.)

Information in Regard to Exploration and Prospecting Permits (cont.):

Prospecting License:
Subject to the limitations designated in the Ordinance and in the event that the
prospecting that is conducted in accordance with the prospecting permit is
completed satisfactorily, the holder of a prospecting permit may request a
"prospecting license" for certain areas that he chooses from those areas designated
in the prospecting permit. The Inspector may choose to grant a prospecting license
to an individual, subject, inter alia, to the fact that this person holds an exploration
permit or a prospecting permit for the area that he requested and that this
individual presented sufficient proofs that the minerals for which he wants to
explore do exist in the requested license area.

In the event that the prospecting is for non-precious quarries, the prospecting
license area will not exceed 1% of the prospecting permit area granted to the
holder. In the event that the prospecting is for precious stones, then the
prospecting license area will not exceed 0.5% of the prospecting permit area.
(Precious stones are defined in the Ordinance as including gems, as well as
diamonds, precious metals and metal ores.) In the event that the requestor does not
hold a prospecting permit, then the area requested will not exceed 50 hectares (0.5
sq. km) for exploration of non-precious minerals; and will not exceed 20 hectares
(0.2 sq. km.) if the individual wishes to explore for precious minerals in the
determined area.
A prospecting license is granted for a period of from one up to five years.
However, in the event that the license is granted for a period of less than one year,
then the Inspector may decide to renew the license for a period of up to five years.

A prospecting license grants to its holder the exclusive right to explore the
designated area and for this purpose, he is permitted, inter alia, to dig, drill or
perform other work required to determine whether the area contains "sufficient
quantities" of minerals for which the license was granted (that would enable
continued operations on a commercial level) and to establish and maintain
machinery and equipment and pave roads necessary for performance of the
exploration.

The holder of a prospecting license is required to operate efficiently and with
proper expertise. Failure to conform to these requirements can result in
nullification of the license. Transfer to a third party of the license or any other
right granted therein is subject to obtainment of written consent from the
Inspector.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 24:- EARNINGS (LOSS) PER SHARE

Comprehensive earnings (loss) for
the year (NIS in thousands)

Weighted number of Ordinary
shares

Basic and diluted earnings (loss)
per share (in NIS)

Year Ended December 31,
2018

2019

2017

(7,929)

6,009

(16,258)

160,769,606

*142,245,510

*95,484,957

(0.049)

*0.0431

*(0.170)

* Updated in accordance with the split.

NOTE 25:- FINANCIAL INSTRUMENTS

Financial risk management
1) General

The Company is exposed to the following main risks arising from use of
financial instruments:
• Credit risk
• Liquidity risk
• Market risk
This Note will render information in regard to Company exposure for each of
the risks abovementioned, as well as Company goals, policies and procedures
regarding gauging and management of these risks. Additional quantitative
disclosure is included throughout these financial statements.

2) Framework for risk management

Company policy for risk management was formulated in order to identify and
analyze the risks confronting the Company, to determine sufficient limitations
to the risks, control while supervising the risks and compliance with limitations.
The policies and methods for risk management are surveyed currently in order
to reflect changes in the market conditions and the Company operations. The
Company utilizes training and management procedures in order to develop a
control environment that is efficient, wherein all employees understand their
roles and responsibilities.

3) Credit risk

Credit risks arise from cash and cash equivalents, deposits in banks and
receivable balances that are as yet unpaid. Company balances of cash and cash
equivalents are deposited in a bank. The Company considers credit risks for
unpaid receivable balances to be insignificant.

4) Liquidity risk

Liquidity risk is the danger that the Company will not be able to pay its
obligations related to its financial liabilities that are cleared by cash payments or
payment of another financial asset. The Company's approach to management of
its liquidity risks is to assure, as much as possible, the necessary liquidity to
meet its obligations on time, under ordinary terms and when pressured, without
encountering undesired losses or damage to its reputation.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 25:- FINANCIAL INSTRUMENTS (cont.)

Financial risk management (cont.)

Hitherto, Company financing has been supplied by issuance of share capital,
receiving of loans and use of credit from interested parties (management fees
have been paid in accordance with the Company’s abilities).

5) Market risks
Market risks include the risk that changes in market prices, such as the
exchange rates of foreign currencies, the Consumer Price Index, interest rates,
and prices of capital instruments will have an effect on the value of Company
holdings of financial instruments. The intent of market risk management is to
manage and supervise exposure to market risks in the framework of accepted
parameters, while maximizing yields.

The Company is exposed to the following risks:
Exchange rate risks:
Part of the Company's liabilities and mobilizations of capital is measured in
dollars and pounds sterling. Therefore, the Company is exposed to changes in
the exchange rates of the U.S. dollar and the British pound sterling. The
Company has not utilized any protective measures against this exposure.

Risks of falling market prices for diamonds, gold and precious stones:
The Company is exposed to changes in market prices for diamonds, gold and
precious stones. Despite the fact that the Company is still in the pre-production
stage for the minerals, significant changes in the future market prices can and
may have an effect on the preparation to repay investments in exploration and
mining.

Interest rate risks
Exposures to interest rate risks and average weighted interest rates for financial
assets and liabilities are detailed as follows:

NIS

Foreign Currency

Linked
to the
CPI

Fixed
Interest

Variable
Interest

Non-
Interest

Fixed
Interest

Non-
Interest

Total

NIS in thousands

cash

31.12.2019
Financial Assets:
and
Cash
equivalents
Short-term bank
deposit
Receivables
Interested party
Top-co

Financial
Liabilities:
Short-term credit from banks and
others
Interested parties
Trade and other accounts payable
Liabilities at fair value
Loans convertible to shares
Financial leasing

211

1,816

20
77
1,116

211
535

131

1,134

646
1,792

14
20
77
1,116

437
211
1,181
1,792
1,134
1,816

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 25:- FINANCIAL INSTRUMENTS (cont.)

Interest rate risks (cont.)

Linked
to the
CPI

2,494

cash

31.12.2018
Financial Assets:
Cash
and
equivalents
Receivables
Interested party
Top-co

Financial
Liabilities:
Short-term credit from banks and
others
Shareholders' loans
Trade and other accounts payable
Long-term loans from bank
and others

NIS

Foreign Currency

Fixed
Interest

Variable
Interest

Non-
Interest

Fixed
Interest

Non-
Interest

Total

NIS in thousands

535
77

209

203

129
772

317

1,051

124

674

209
535
77
2,494

332
772
1,368

798

Analysis of sensitivity

1) As of December 31, 2019 and 2018, the Company has net liabilities with
variable interest rates in the amounts of NIS ___ thousand and NIS 877
thousand, respectively.
An increase in the market annual interest rate of 50% for the year ended
December 31, 2019 is likely to increase interest expense in the amount of
approximately NIS 7 thousand; to decrease net profit and shareholders' equity in
the amounts of approximately NIS 7 thousand. A decrease in the market interest
rate of 50% would decrease the interest and increase net profit and shareholders'
equity by identical amounts. This analysis was performed assuming that there
will not be any changes in other factors.

2) A stronger New Israel Shekel (NIS) against the U.S. dollar would increase
(decrease) the shareholders' equity and net income or loss as follows. This
analysis was performed assuming that all other variables, especially interest
rates, will remain fixed.

Date

December 31, 2019

5% Increase in
Exchange Rate
(185)

5% Decrease in
Exchange Rate
185

December 31, 2018

(87)

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 25:-

FINANCIAL INSTRUMENTS (cont.)

Fair value

Book value of financial assets and liabilities, including cash and cash equivalents,
other receivables, deposits, bank short-term credits, loans and overdrafts, trade
payable and other payables is proximate to or equivalent to their fair value.

Liquidity risk

The Company has liabilities bearing interest at variable rates and is, therefore,
exposed to changes in the market interest rate. See Section c.1 above.

Changes in the liabilities resulting from financing operations

Balance 31.12.2017

Bank and
Other
Credits
(314)

Loans from
Interested
Parties

(765)

Options
Converted
to Shares
(9,834)

Shareholders'
Loans

Financial
Leasing

(91)

Loan From
a Supplier
(240)

loans from

Consideration from issue of
shares and Options (including
additional paid-in capital), net
Repayment of
banks and others
Receipt
loans, net
Repayment
loans
Interest paid
Cash from financing

shareholders'

long-term

111

(214)

(772)

(214)

(772)

Increase in receivables
Assignment of a receivable balance
In regard to fin. leasing
Revaluation of fin. liabilities
Financing. expense to
interested party
Financing expense to others
Payment to a supplier for
fixed assets
Balance as of 31.12.2018

(16)

(4)

9,484

(20)

Receipts

on
Account
of
Shares
(21,275)

(694)

Total
Flow
from
Finan
-cing
- . -

(908)

(685)

136
106
(1,349)

Other
- . -

- . -

106
193

(694)

(332)

)

674

(

)

(564

(772)

- . -

116
(124)

(21,969)

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 25:-

FINANCIAL INSTRUMENTS (cont.)

Changes in the liabilities resulting from financing operations (cont.)

Bank and
Other
Credits

Loans from
Interested
Parties

Options
Converted
to Shares

Balance 1.1.2019

(332)

)

674

(

)

(564

Consideration from issue of
shares and Options (including
additional paid-in capital), net

(566)

Loans from banks and others

(103)

Loans at Fair
Value and
Shareholders'
Loans

(772)

Financial
Leasing

Loan From
a Supplier

Receipts

on
Account
of
Shares

Other

- . -

(124)

(21,969)

(3,009)

Total
Flow
from
Finan
-cing

(3,575)

(103)

(2,636)

shareholders'

Receipt
loans, net
Repayment
loans
Interest paid
Cash from financing activities

long-term

674

(1,100)
(1,536)

299

(103)

(566)

(2,636)

299

(3,009)

334
334

973
334
(5,007)

Issue expenses attributable to
P&L
Issue expenses attributable
to convertible shares
Loans converted to Options
and shares
Classification of amortized
cost to fair value
Financial leasing in
accordance with IFRS 16
Finance expense to interested
party
Finance expense for
convertible shares
Debit balance converted to
shares
Supplier in regard to fixed assets

(2)

(149)

(14)
(22)

1,166
232
(232)

(210)

(2,115)

(723)

(1,017)

(60)

124

Balance as of 31.12.2019

(437)

(1,121)

2,926

(1,816)

(26,742)

334

NOTE 26:-

EVENTS SUBSEQUENT TO BALANCE SHEET DATE

a. Report of a new mineral named Carmeltazite

The International Mineralogical Association ("IMA") Commission on New Minerals,
Nomenclature and Classification has chosen Shefa Gems' Carmeltazite as its Mineral of
the Year for 2018 (https://www.shefagems.com/ima-mineral-of-the-year-2018).

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 26:- EVENTS SUBSEQUENT TO BALANCE SHEET DATE (cont.)

a. Report of a new mineral named Carmeltazite (cont.)
Carmeltazite is a complex oxide (ZrAl2Ti4O11) which forms black inclusions in blue
corundum crystals from Cretaceous pyroclastic rocks and associated alluvial deposits at
Kishon Mid-Reach in northern Israel. Its name alludes to its discovery at Mt. Carmel and the
three principal metals in its formula (Titanium, Aluminium and Zirconium). Carmeltazite was
involving distinguished geologists
discovered as part of an academic collaboration
from Macquarie University, the University of Western Australia, the Università degli Studi
in Italy and Shefa Gems.
Carmeltazite is an integral part of our unique and rare gemstone Carmel SapphireTM that
register by the company on January 7, 2019 as new mineral, Carmeltazite.
Since the Carmeltazite description was published in Minerals (Griffin et al., 2018),
Carmeltazite has gained significant publicity online as "the world's newest gemstone"
(EraGem, 2019), and even as an "extraterrestrial mineral harder than diamonds" (Flatley,
2019). Although in fact it is perfectly terrestrial in origin, Carmeltazite contains Ti3+, which is
rare in the geological environment, and has a peculiar crystal structure, which is reminiscent of
the close-packed arrangement of spinel.
The new mineral was discovered as a result of the Company's explorations, was tested and
registered by the IMA Commission on New Minerals, Nomenclature and Classification as
mineral number 2018-103.

b. Receipt of a Discovery Certificate

Commencing with March 17, 2020 the Company holds a Certificate of Discovery in regard to
zone 1 and 2 of the Kishon Mid Reach area. The Certificate of Discovery was rendered in order
to enable the Company to progress with the official procedures for planning a mine (hereinafter
– "the Plan").
In the event that the Company will not succeed in receiving approval for the Plan during the
allotted time of the Certificate of Discovery, then the Certificate will be null and void, without
any further action on the part of the Inspector, and the Company will not benefit from any
accompanying rights derived from that Certificate.
The Company will approach the Israel Lands Authority (ILA) with a request that the ILA grant
it a planning license. We clarify that the planning period does not extend beyond three years If
the Authority, subsequent to consulting with the Inspector, wishes to extend the license, it may
do so for a period not in excess of two additional years. The planning license will include, inter
alia, specific terms relevant to the circumstances and will be null and void in the event that the
Company fails to comply with them.
A request to receive mining rights, as stated in Section 40 (2) of the Mining Ordinance, will be
submitted not later than one year after receiving the Discovery Certificate. In the event that the
request is not submitted within the allotted time span, then the rights accrued from this
Certificate will be null and void. The request for mining rights will be judged by the Inspector
subsequent to approval of the Plan.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA

SHEFA GEMS LTD. (Formerly Shefa Yamim A.T.M. LTD.)
NOTES TO THE FINANCIAL STATEMENTS
NIS in thousands

NOTE 26:- EVENTS SUBSEQUENT TO BALANCE SHEET DATE (cont.)

c. Agreement with 101

On January 1, 2020 a new agreement was signed with 101. This agreement supersedes
any and all prior agreements between the companies. The agreement is for three months
with an option for an additional three months. After the option period, the terms will be
reexamined in accordance with the Company's needs.
In accordance with the new agreement, the Company will receive office services from 101
for a consideration of approximately NIS 60 thousand per month with the addition of
VAT, as required by law. The agreement does not include any refund of expenses for
travel abroad in order to mobilize funds from investors.

d. The Covid-19 Coronavirus Pandemic

During January 2020 the Covid-19 Coronavirus was released in China and has since
spread worldwide, including in Israel, leaving chaos and uncertainty wherever it has
touched civilization. The scope pf economic activity has been sharply reduced, including
in Israel, and there exists a suspicion that there will be a global recession as a result. As
part of the coping mechanism and efforts to restrain the virus from spreading, steps are
being implemented, including in Israel, that are drastically limiting mobility and social
gatherings.
Preparations of the Company for further expansions in the global economic environment
as well as possible implications for these developments on Group operations are not under
Company control, are uncertain and are based on information presently available to the
Company, that is based, inter alia, on information in Israel and worldwide as well as on
guidelines of the relevant Authorities that could possibly change at any moment. As long
as the global crisis continues for a lengthy period of time, this is likely to result in
significant deterioration of the operating results for the Company, including its financial
ability to cope with the situation.

Effect of the Coronavirus on the Company:
On March 17, 2020 the Company received a Discovery Certificate from the Ministry of
Energy in Israel.
The Company’s recent efforts revolve around working with the various Authorities in
order to advance the planning and regulation procedures that will enable it to receive a
Mining Permit. The Company does not know, at this point, what the effects of the
Coronavirus will be on the time schedule for advancing and receiving the necessary
Permits in order to obtain the Mining Permit and assumes that there will be minor delays
in the scheduling, that are not within the Company’s control.

Concurrently, the Company estimates that there will be difficulties with mobilization of
capital in accordance with the current world economic situation.

The ability and timing of the Company to raise additional capital will inevitably be
impacted by these unprecedented external factors.

c:\users\b\desktop\shefa gems 31.12.2019 final (002).docA